UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~


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

For the quarterly period ended September ~~30, 2022~~29, 2023


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

For the transition period from _______ to _______

Commission File Number 001-33278

AVIAT NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-5961564

(State or other jurisdiction of incorporation or organization)

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

200 Parker Drive, Suite C100A,

Austin,

Texas

78728

(Address of principal executive offices)

(Zip Code)

(408) 941-7100

(Registrant’s telephone number, including area code)

~~__________________________~~

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


Title of each class	Trading Symbol(s)	Name of each exchange on which Registered
Common Stock	AVNW	The Nasdaq ~~Global Select~~Stock Market LLC
Preferred Share Purchase Rights		The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares outstanding of the registrant’s Common Stock as of October ~~28, 2022~~30, 2023 was ~~11,320,109.~~11,720,047.

AVIAT NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended September ~~30, 2022~~29, 2023

Table of Contents



			Page
Part I. Financial Information			43
Item 1. Financial Statements			53
Condensed Consolidated Statements of Operations (Unaudited)			3
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)			4
Condensed Consolidated Balance Sheets (Unaudited)			5
Condensed Consolidated Statements of ~~Operations~~Cash Flows (Unaudited)			6
Condensed Consolidated Statements of ~~Comprehensive Income (Loss)~~Equity (Unaudited)			7
~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~			8
~~Condensed Consolidated Statements of Equity (Unaudited)~~			9
Notes to Condensed Consolidated Financial Statements (Unaudited)			108
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2319
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3024
Item 4. Controls and Procedures			3225
Part II. Other Information			3327
Item 1. Legal Proceedings			3327
Item 1A. Risk Factors			3327
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3327
Item 3. Defaults upon Senior Securities			3327
Item 4. Mine Safety Disclosures			3327
Item 5. Other Information			3327
Item 6. Exhibits			3428
Signatures			3529
Exhibit Index			3529

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended
(In thousands, except per share amounts)	September 29, 2023		September 30, 2022
Revenues:
Product sales	$	59,545	$	55,101
Services	28,021		26,150
Total revenues	87,566		81,251
Cost of revenues:
Product sales	36,313		35,253
Services	19,401		16,544
Total cost of revenues	55,714		51,797
Gross margin	31,852		29,454
Operating expenses:
Research and development	6,424		6,087
Selling and administrative	19,237		17,504
Restructuring charges	644		1,950
Total operating expenses	26,305		25,541
Operating income	5,547		3,913
Other expense, net	901		2,782
Income before income taxes	4,646		1,131
Provision for income taxes	641		3,877
Net income (loss)	$	4,005	$	(2,746)

Net income (loss) per share of common stock outstanding:
Basic	$	0.35	$	(0.25)
Diluted	$	0.34	$	(0.25)
Weighted-average shares outstanding:
Basic	11,574		11,200
Diluted	11,943		11,200

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended
(In thousands)	September 29, 2023		September 30, 2022
Net income (loss)	$	4,005	$	(2,746)
Other comprehensive income (loss):
Net change in cumulative translation adjustments	33		(1,113)
Other comprehensive income (loss)	33		(1,113)
Comprehensive income (loss)	$	4,038	$	(3,859)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share and par value amounts)	(In thousands, except share and par value amounts)	September 30, 2022		July 1, 2022		(In thousands, except share and par value amounts)	September 29, 2023		June 30, 2023
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	21,607	$	36,877	Cash and cash equivalents	$	35,465	$	22,242
Marketable securities		1,252		10,893
Accounts receivable, net		72,471		73,168
Accounts receivable, net of allowances of $726 and $719						Accounts receivable, net of allowances of $726 and $719	94,497		101,653
Unbilled receivables	Unbilled receivables	50,389		45,857		Unbilled receivables	60,975		58,588
Inventories	Inventories	32,888		25,394		Inventories	30,659		33,057
Customer service inventories		2,069		1,775
Other current assets	Other current assets	16,279		12,437		Other current assets	22,814		22,164
Total current assets	Total current assets	196,955		206,401		Total current assets	244,410		237,704
Property, plant and equipment, net	Property, plant and equipment, net	11,923		8,887		Property, plant and equipment, net	9,035		9,452
Goodwill	Goodwill	4,950		—		Goodwill	5,112		5,112
Intangible assets, net	Intangible assets, net	7,166		—		Intangible assets, net	8,870		9,046
Deferred income taxes	Deferred income taxes	92,310		95,412		Deferred income taxes	86,452		86,650
Right of use assets	Right of use assets	2,987		2,759		Right of use assets	2,984		2,554
Other assets	Other assets	10,437		10,445		Other assets	13,436		13,978
TOTAL ASSETS		$	326,728	$	323,904
Total assets						Total assets	$	370,299	$	364,496
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	48,236	$	42,394	Accounts payable	$	61,767	$	60,141
Accrued expenses	Accrued expenses	24,806		26,451		Accrued expenses	20,561		24,442
Short-term lease liabilities	Short-term lease liabilities	833		513		Short-term lease liabilities	723		610
Advance payments and unearned revenue	Advance payments and unearned revenue	35,483		33,740		Advance payments and unearned revenue	46,050		44,268
Restructuring liabilities	Restructuring liabilities	1,522		1,381		Restructuring liabilities	112		600
Total current liabilities	Total current liabilities	110,880		104,479		Total current liabilities	129,213		130,061
Unearned revenue	Unearned revenue	7,844		8,920		Unearned revenue	7,627		7,416
Long-term lease liabilities	Long-term lease liabilities	2,407		2,412		Long-term lease liabilities	2,436		2,140
Other long-term liabilities	Other long-term liabilities	246		273		Other long-term liabilities	317		314
Reserve for uncertain tax positions	Reserve for uncertain tax positions	5,366		5,504		Reserve for uncertain tax positions	4,064		3,975
Deferred income taxes	Deferred income taxes	563		563		Deferred income taxes	492		492
Total liabilities	Total liabilities	127,306		122,151		Total liabilities	144,149		144,398
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)					Commitments and contingencies (Note 13)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued		—		—
Common stock, $0.01 par value, 300,000,000 shares authorized, 11,312,974 shares issued and outstanding at September 30, 2022; 11,160,160 shares issued and outstanding at July 1, 2022		113		112
Stockholders’ equity:						Stockholders’ equity:
Preferred stock, $0.01 par value, 50.0 million shares authorized, none issued						Preferred stock, $0.01 par value, 50.0 million shares authorized, none issued	—		—
Common stock, $0.01 par value, 300.0 million shares authorized, 11.7 million shares issued and outstanding at September 29, 2023; 11.5 million shares issued and outstanding at June 30, 2023						Common stock, $0.01 par value, 300.0 million shares authorized, 11.7 million shares issued and outstanding at September 29, 2023; 11.5 million shares issued and outstanding at June 30, 2023	117		115
Treasury stock	Treasury stock	(6,147)		(6,147)		Treasury stock	(6,147)		(6,147)
Additional paid-in-capital	Additional paid-in-capital	824,786		823,259		Additional paid-in-capital	832,060		830,048
Accumulated deficit	Accumulated deficit	(602,188)		(599,442)		Accumulated deficit	(583,909)		(587,914)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(17,142)		(16,029)		Accumulated other comprehensive loss	(15,971)		(16,004)
Total equity		199,422		201,753
TOTAL LIABILITIES AND EQUITY		$	326,728	$	323,904
Total stockholders’ equity						Total stockholders’ equity	226,150		220,098
Total liabilities and stockholders’ equity						Total liabilities and stockholders’ equity	$	370,299	$	364,496

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CASH FLOWS

(Unaudited)

Three Months Ended
(In thousands, except per share amounts) September 30,
2022 October 1,
2021
Revenues:
Revenue from product sales $ 55,101 $ 50,847
Revenue from services 26,150 22,311
Total revenues 81,251 73,158
Cost of revenues:
Cost of product sales 35,253 31,925
Cost of services 16,544 15,152
Total cost of revenues 51,797 47,077
Gross margin 29,454 26,081
Operating expenses:
Research and development expenses 6,087 5,910
Selling and administrative expenses 17,504 12,698
Restructuring charges 1,950 659
Total operating expenses 25,541 19,267
Operating income 3,913 6,814
Other expense (income), net 2,782 (28)
Income before income taxes 1,131 6,842
Provision for income taxes 3,877 2,160
Net (loss) income $ (2,746) $ 4,682
Net (loss) income per share of common stock outstanding:
Basic $ (0.25) $ 0.42
Diluted $ (0.25) $ 0.39
Weighted-average shares outstanding:
Basic 11,200 11,159
Diluted 11,200 11,954


	Three Months Ended
(In thousands)	September 29, 2023		September 30, 2022
Operating Activities
Net income (loss)	$	4,005	$	(2,746)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment	1,168		1,344
Amortization of intangible assets	176		124
Provision for uncollectible receivables	14		182
Share-based compensation	1,834		1,838
Deferred taxes	39		3,338
Charges for inventory write-downs	547		405
Noncash lease expense	177		206
Net loss on marketable securities	—		1,734
Other non-cash operating activities, net	17		—
Changes in operating assets and liabilities:
Accounts receivable	7,043		4,279
Unbilled receivables	(2,395)		(5,570)
Inventories	1,955		(2,727)
Accounts payable	1,787		(346)
Accrued expenses	(3,947)		(2,619)
Advance payments and unearned revenue	1,998		(2,496)
Income taxes	331		91
Other assets and liabilities	(769)		(3,351)
Net cash provided by (used in) operating activities	13,980		(6,314)
Investing Activities
Payments for acquisition of property, plant and equipment	(717)		(474)
Proceeds from sale of marketable securities	—		7,907
Acquisition, net of cash acquired and purchases of intangible assets	—		(15,769)
Net cash used in investing activities	(717)		(8,336)
Financing Activities
Proceeds from borrowings	25,200		15,000
Repayments of borrowings	(25,200)		(15,000)
Payments for taxes related to net settlement of equity awards	(105)		(670)
Proceeds from issuance of common stock under employee stock plans	285		360
Net cash provided by (used in) financing activities	180		(310)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(223)		(347)
Net increase (decrease) in cash, cash equivalents, and restricted cash	13,220		(15,307)
Cash, cash equivalents, and restricted cash, beginning of period	22,521		37,104
Cash, cash equivalents, and restricted cash, end of period	$	35,741	$	21,797

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE (LOSS) INCOME~~EQUITY

(Unaudited)

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
Net (loss) income $ (2,746) $ 4,682
Other comprehensive (loss)
Net change in cumulative translation adjustments (1,113) (164)
Other comprehensive (loss) (1,113) (164)
Comprehensive (loss) income $ (3,859) $ 4,518

~~See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.~~


	Three Months Ended September 29, 2023
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands)	Shares	$ Amount		$ Amount
Balance as of June 30, 2023	11,518	$	115	$	(6,147)	$	830,048	$	(587,914)	$	(16,004)	$	220,098
Net income	—	—		—		—		4,005		—		4,005
Other comprehensive income	—	—		—		—		—		33		33
Issuance of common stock under employee stock plans	204	2		—		283		—		—		285
Shares withheld for taxes related to vesting of equity awards	(3)	—		—		(105)		—		—		(105)

Share-based compensation	—	—		—		1,834		—		—		1,834
Balance as of September 29, 2023	11,719	$	117	$	(6,147)	$	832,060	$	(583,909)	$	(15,971)	$	226,150

~~AVIAT NETWORKS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
Operating Activities
Net (loss) income $ (2,746) $ 4,682
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization of property, plant and equipment 1,344 1,264
Amortization of intangible assets acquired 124 —
Provision for (Recoveries of) uncollectible receivables 182 (2)
Share-based compensation 1,838 863
Deferred tax expense 3,338 1,116
Charges for inventory and customer service inventory write-downs 405 381
Noncash lease expense 206 276
Net loss on marketable securities 1,734 —
Changes in operating assets and liabilities:
Accounts receivable 4,279 (11,382)
Unbilled receivables (5,570) (2,251)
Inventories (2,214) (339)
Customer service inventories (513) (667)
Accounts payable (346) 7,099
Accrued expenses (2,619) (3,852)
Advance payments and unearned revenue (2,496) 3,114
Income taxes payable or receivable 91 753
Other assets and liabilities (3,087) (73)
Change in lease liabilities (264) (300)
Net cash (used in) provided by operating activities (6,314) 682
Investing Activities
Payments for acquisition of property, plant and equipment (474) (349)
Proceeds from sale of marketable securities 7,907 —
Acquisition, net of cash acquired and purchases of intangible assets (15,769) —
Net cash used in investing activities (8,336) (349)
Financing Activities
Proceeds from borrowings 15,000 —
Repayments of borrowings (15,000) —
Payments for repurchase of common stock - treasury shares — (713)
Payments for taxes related to net settlement of equity awards (670) (358)
Proceeds from issuance of common stock under employee stock plans 360 267
Net cash used in financing activities (310) (804)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (347) (187)
Net decrease in cash, cash equivalents, and restricted cash (15,307) (658)
Cash, cash equivalents, and restricted cash, beginning of period 37,104 48,198
Cash, cash equivalents, and restricted cash, end of period $ 21,797 $ 47,540

~~See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.~~

~~AVIAT NETWORKS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY~~

~~(Unaudited)~~

Three Months Ended September 30, 2022
Common Stock Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity
(In thousands, except share amounts) Shares $
Amount $
Amount
Balance as of July 1, 2022 11,160,160 $ 112 $ (6,147) $ 823,259 $ (599,442) $ (16,029) $ 201,753
Net loss — — — — (2,746) — (2,746)
Other comprehensive loss, net of tax — — — — — (1,113) (1,113)
Issuance of common stock under employee stock plans 174,317 2 — 358 — — 360
Shares withheld for taxes related to vesting of equity awards (21,503) (1) — (669) — — (670)
Share-based compensation — — — 1,838 — — 1,838
Balance as of September 30, 2022 11,312,974 $ 113 $ (6,147) $ 824,786 $ (602,188) $ (17,142) $ 199,422

Three Months Ended October 1, 2021
Common Stock Treasury Stock Additional
Paid-in
Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity
(In thousands, except share amounts) Shares $
Amount $
Amount
Balance as of July 2, 2021 11,153,445 $ 112 $ (787) $ 818,939 $ (620,602) $ (14,327) $ 183,335
Net income — — — — 4,682 — 4,682
Other comprehensive loss, net of tax — — — — — (164) (164)
Issuance of common stock under employee stock plans 66,235 — — 267 — — 267
Shares withheld for taxes related to vesting of equity awards (10,134) — — (358) — — (358)
Stock repurchase (22,543) — (713) — — — (713)
Share-based compensation — — — 863 — — 863
Balance as of October 1, 2021 11,187,003 $ 112 $ (1,500) $ 819,711 $ (615,920) $ (14,491) $ 187,912


	Three Months Ended September 30, 2022
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands)	Shares	$ Amount		$ Amount
Balance as of July 1, 2022	11,161	$	112	$	(6,147)	$	823,259	$	(599,442)	$	(16,029)	$	201,753
Net loss	—	—		—		—		(2,746)		—		(2,746)
Other comprehensive loss	—	—		—		—		—		(1,113)		(1,113)
Issuance of common stock under employee stock plans	174	2		—		358		—		—		360
Shares withheld for taxes related to vesting of equity awards	(22)	(1)		—		(669)		—		—		(670)

Share-based compensation	—	—		—		1,838		—		—		1,838
Balance as of September 30, 2022	11,313	$	113	$	(6,147)	$	824,786	$	(602,188)	$	(17,142)	$	199,422

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~~(“Aviat,” the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells ~~a range of~~ wireless networking and access networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies and broadcast system operators across the globe. ~~Our~~Aviat’s 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 statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information, and ~~we have~~Aviat has made estimates, assumptions and judgments affecting the amounts reported in ~~our~~its 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~~the Company’s management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods. The results for the three months ended September ~~30, 2022~~29, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in ~~our~~Aviat’s Annual Report on Form 10-K for the fiscal year ended ~~July 1, 2022.~~June 30, 2023.

The unaudited condensed consolidated financial statements include the accounts of the Company and its ~~wholly owned~~wholly-owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated. Certain amounts in the financial statements have been reclassified for comparative purposes to conform to the current period financial statement presentation.

~~We operate on a 52-week~~Aviat’s fiscal year includes 52 or ~~53-week year ending~~53 weeks and ends on the Friday ~~closest~~nearest to June 30. The three months ended September 29, 2023 and September 30, 2022 ~~and the three months ended October 1, 2021~~ both consisted of 13 weeks. Fiscal year ~~2023~~2024 will be comprised of 52 weeks and will end on June ~~30, 2023.~~28, 2024. Fiscal year ~~2022~~2023 was comprised of 52 weeks and ended on ~~July 1, 2022.~~June 30, 2023.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires usthe Company 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~~the Company’s management. ~~We evaluate our~~The Company evaluates 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, ~~business combinations,~~ provision for uncollectible receivables, inventory valuation, goodwill and identified intangible assets in business combinations, valuation allowances for deferred tax assets, uncertainties in income taxes, contingencies and recoverability of long-lived assets. ~~The actual~~Actual results ~~that we experience~~ may differ materially from ~~our~~ estimates.

Summary of Significant Accounting Policies

There have been no material changes in ~~our~~the Company’s significant accounting policies as of ~~September 30, 2022~~ and for the three months ended September ~~30, 2022,~~29, 2023, as compared to the significant accounting policies described in ~~our~~the Company’s Annual Report on Form 10-K for the fiscal year ended ~~July 1, 2022.~~June 30, 2023.

108

Accounting Standards Not Yet Adopted

~~In June 2016,~~The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). The Company determined at this time that all ASUs issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2022-02 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 became effective for us in our first quarter of fiscal 2023. The adoption had no material impact on our unaudited condensed consolidated financial statements.

~~Accounting Standards Not Yet Adopted~~

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates thatbut not yet adopted are either not applicable or are expected to ~~be discontinued. This guidance is applicable for our borrowing instruments, which use LIBOR as~~have a ~~reference rate,~~minimal impact on its financial position and ~~will be effective through December 31, 2022. We are currently evaluating the potential impact~~results of ~~ASU 2020-04 will have on our consolidated financial statements.~~operations.

Note 2. ~~Balance Sheet Components~~

~~Cash, Cash Equivalents, and Restricted Cash~~Net Income (Loss) Per Share of Common Stock

The following table ~~provides a summary~~presents the computation of ~~our cash, cash equivalents,~~basic and ~~restricted cash reported within our unaudited condensed consolidated balance sheets~~diluted net income per share:


	Three Months Ended
(In thousands, except per share amounts)	September 29, 2023		September 30, 2022
Numerator:
Net income (loss)	$	4,005	$	(2,746)

Denominator:
Weighted-average shares outstanding, basic	11,574		11,200
Effect of potentially dilutive equivalent shares	369		—
Weighted-average shares outstanding, diluted	11,943		11,200

Net income (loss) per share of common stock outstanding:
Basic	$	0.35	$	(0.25)
Diluted	$	0.34	$	(0.25)

The following table summarizes the weighted-average equity awards that ~~reconciles to~~were excluded from the ~~corresponding amount in our unaudited condensed consolidated statement of cash flows:~~diluted net income (loss) per share calculations since they were anti-dilutive:


	Three Months Ended
(In thousands)	September 29, 2023	September 30, 2022
Stock options	259	154
Restricted stock units and performance stock units	58	48
Total shares of common stock excluded	317	202

(In thousands) September 30,
2022 July 1,
2022
Cash and cash equivalents $ 21,607 $ 36,877
Restricted cash included in other assets 190 227
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows $ 21,797 $ 37,104

Note 3. Revenue Recognition

Contract Balances, Performance Obligations, and Backlog

~~Accounts Receivable, net~~


(In thousands)	September 29, 2023		June 30, 2023
Contract assets
Accounts receivable, net	$	94,497	$	101,653
Contract assets	$	60,975	$	58,588
Capitalized commissions	$	3,070	$	3,492
Contract liabilities
Advance payments and unearned revenue	$	46,050	$	44,268
Unearned revenue, long-term	$	7,627	$	7,416

~~Our net accounts receivable are summarized below:~~
(In thousands) September 30,
2022 July 1,
2022
Accounts receivable $ 73,587 $ 74,102
Less: Allowances for collection losses (1,116) (934)
Total accounts receivable, net $ 72,471 $ 73,168

~~Inventories~~

~~Our inventories are summarized below~~
(In thousands) September 30,
2022 July 1,
2022
Finished products $ 18,703 $ 14,916
Raw materials and supplies 14,185 10,478
Total inventories $ 32,888 $ 25,394
Consigned inventories included within raw materials and supplies $ 9,962 $ 9,796

~~We currently rely on~~Significant changes in contract balances may arise as a ~~few vendors~~result of recognition over time for ~~substantially all~~services, transfer of ~~our inventory purchases.~~control for equipment, and periodic payments (both in arrears and in advance).

119

~~We record charges~~From time to ~~adjust our inventory~~time, the Company may experience unforeseen events that could result in a change to the scope or price associated with an arrangement. When such events occur, the transaction price and ~~customer service inventory due~~measurement of progress for the performance obligation are updated and this change is recognized as a cumulative catch-up to ~~excess~~revenue. Because of the nature and ~~obsolete inventory resulting from lower sales forecasts, product transitioning, or discontinuance. The charges~~type of contracts, the timeframe to completion and satisfaction of current and future performance obligations can shift; however, this will have no impact on the Company’s future obligation to bill and collect.

As of September 29, 2023, the Company reported $53.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 40% is expected to be recognized as revenue in the remainder of fiscal 2024 and the remainder thereafter. Approximately $7.4 million of revenue was recognized during the three months ended September ~~30, 2022 and October 1, 2021 were classified~~29, 2023, which was included in ~~cost of product sales as follows:~~

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
Excess and obsolete inventory $ 170 $ 133
Customer service inventory write-downs 235 248
Total inventory charges $ 405 $ 381

~~Assets Held for Sale~~

We consider properties to be Assets held for sale when management approves and commits to a plan to dispose of a property or group of properties. The property held for sale prior to the sale date is separately presented on the balance sheet as Assets held for sale.

During the second quarter of fiscal 2021 management initiated the sale of our facility located in the United Kingdom. We completed the sale during the third quarter of fiscal 2022 with proceeds of $2.3 million, reflecting a gain of $0.1 million. We have no assets held for sale as of September 30, 2022.

~~Property, Plant and Equipment, net~~

~~Our property, plant and equipment, net are summarized below:~~
(In thousands) September 30,
2022 July 1,
2022
Land $ 210 $ 210
Buildings and leasehold improvements 5,888 5,796
Software 16,611 21,368
Machinery and equipment 47,212 49,584
Total property, plant and equipment, gross 69,921 76,958
Less: Accumulated depreciation and amortization (57,998) (68,071)
Total property, plant and equipment, net $ 11,923 $ 8,887

Included in the total plant, property and equipment above there was $1.1 million of assets in progress which have not been placed in service as of September 30, 2022 and $1.2 million as of July 1, 2022. Depreciation and amortization expense related to property, plant and equipment, including amortization of software developed for internal use, was as follows:

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
Depreciation and amortization $ 1,344 $ 1,264

~~Accrued Expenses~~

~~Our accrued expenses are summarized below:~~

(In thousands) September 30,
2022 July 1,
2022
Accrued compensation and benefits $ 8,273 $ 11,625
Accrued agent commissions 1,476 1,864
Accrued warranties 2,755 2,913
Other 12,302 10,049
Total accrued expenses $ 24,806 $ 26,451

~~Accrued Warranties~~

We accrue for the estimated cost to repair or replace products under warranty. Changes in our warranty liability, which are included as a component of accrued expenses in our unaudited condensed consolidated balance sheets were as follows:

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
Balance as of the beginning of the period $ 2,913 $ 3,228
Warranty provision recorded during the period 175 498
Assumed in Redline acquisition 55 —
Consumption during the period (388) (408)
Balance as of the end of the period $ 2,755 $ 3,318

~~Advance Payments and Unearned Revenue~~

~~Our~~ advance payments and unearned revenue ~~are summarized below:~~at June 30, 2023.

(In thousands) September 30,
2022 July 1,
2022
Advance payments $ 2,477 $ 1,870
Unearned revenue 33,006 31,870
Total advance payments and unearned revenue $ 35,483 $ 33,740
Remaining Performance Obligations

~~Excluded from~~The aggregate amount of transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $152.4 million at September 29, 2023. Of this amount, approximately 50% is expected to be recognized as revenue during the ~~balances above are $7.8 million~~next 12 months, with the remaining amount to be recognized thereafter.

Note 4. Leases


	Three Months Ended
	September 29, 2023		September 30, 2022
(In thousands)
Operating lease costs	$	221	$	312
Short-term lease costs	414		551
Variable lease costs	12		35
Total lease costs	$	647	$	898

The weighted average lease term and ~~$8.9 million in long-term unearned revenue~~discount rate for the three months ended September 29, 2023 were as follows:


Weighted average remaining lease term	5.7 years
Weighted average discount rate	5.5	%

As of September ~~30, 2022 and July 1, 2022, respectively.~~29, 2023, future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):


Remainder of fiscal 2024	$	724
2025	757
2026	632
2027	312
2028	319
Thereafter	1,235
Total lease payments	3,979
Less: interest	(820)
Present value of lease liabilities	$	3,159

Note 3.5. Balance Sheet Components

Cash, Cash equivalents, and Restricted cash

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


(In thousands)	September 29, 2023		June 30, 2023
Cash and cash equivalents	$	35,465	$	22,242

Restricted cash included in other assets	276		279
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows	$	35,741	$	22,521

Inventories


(In thousands)	September 29, 2023		June 30, 2023
Finished products	$	17,104	$	18,502
Raw materials and supplies	11,771		12,794
Customer service inventories	$	1,784	$	1,761
Total inventories	$	30,659	$	33,057
Consigned inventories included within raw materials and supplies	$	9,937	$	11,224

The Company records charges to adjust inventories due to excess and obsolete inventory resulting from lower sales forecasts, product transitioning or discontinuance. The charges incurred during the three months ended September 29, 2023 and September 30, 2022 were included in cost of product sales as follows:


	Three Months Ended
(In thousands)	September 29, 2023		September 30, 2022
Excess and obsolete inventory	$	294	$	170
Customer service inventory write-downs	253		235
Total inventory charges	$	547	$	405

Other Current Assets


(In thousands)	September 29, 2023		June 30, 2023
Contract manufacturing assets	$	5,782	$	6,487
Prepaid and other current assets	17,032		15,677
Total other current assets	$	22,814	$	22,164

Property, Plant and Equipment, net


(In thousands)	September 29, 2023		June 30, 2023
Land	$	210	$	210
Buildings and leasehold improvements	5,889		5,889
Software	16,998		16,989
Machinery and equipment	47,088		47,150
Total property, plant and equipment, gross	70,185		70,238
Less: Accumulated depreciation	(61,150)		(60,786)
Total property, plant and equipment, net	$	9,035	$	9,452

Included in the total property, plant and equipment, gross were $0.6 million and $0.4 million of assets in progress which have not been placed in service as of September 29, 2023 and June 30, 2023, respectively. Depreciation expense related to property, plant and equipment, was as follows:


	Three Months Ended
(In thousands)	September 29, 2023		September 30, 2022
Depreciation	$	1,168	$	1,344

Accrued Expenses


(In thousands)	September 29, 2023		June 30, 2023
Compensation and benefits	$	7,256	$	10,368
Taxes	5,109		4,553
Warranties	2,100		2,100
Commissions	1,339		1,453
Professional fees	944		2,104
Other	3,813		3,864
Total accrued expenses	$	20,561	$	24,442

The Company accrues for the estimated cost to repair or replace products under warranty. Changes in the warranty liability were as follows:


	Three Months Ended
(In thousands)	September 29, 2023		September 30, 2022
Balance as of the beginning of the period	$	2,100	$	2,913
Warranty provision recorded during the period	375		175
Assumed in acquisition	—		55
Consumption during the period	(375)		(388)
Balance as of the end of the period	$	2,100	$	2,755

Advance Payments and Unearned Revenue


(In thousands)	September 29, 2023		June 30, 2023
Advance payments	$	2,049	$	1,607
Unearned revenue	44,001		42,661
Total advance payments and unearned revenue	$	46,050	$	44,268

Excluded from the balances above are $7.6 million and $7.4 million in long-term unearned revenue as of September 29, 2023 and June 30, 2023, respectively.

Note 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 Company maximizes the use of observable inputs and ~~minimize~~minimizes the use of unobservable inputs in measuring fair value and ~~establish~~established a three-level fair value hierarchy that prioritizes the observable 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 estimated fair values and valuation input levels of ~~our~~ assets and liabilities that are measured at fair value on a recurring basis as of September 29, 2023 and June 30, ~~2022 and July 1, 2022~~2023 were as follows:

September 30, 2022

July 1, 2022

Valuation Inputs

September 29, 2023

June 30, 2023

Valuation Inputs

(In thousands)

Fair Value

(In thousands)

Fair Value

Assets:

Cash and cash equivalents:

Money market funds

6,637

5,367

Level 1

Money market funds

8,259

571

Level 1

Bank certificates of deposit

3,612

3,682

Level 2

Bank certificates of deposit

3,533

3,793

Level 2

Marketable securities

1,252

10,893

Level 1

~~We classify items~~Items are classified within Level 1 if quoted prices are available in active markets. ~~Our~~The Company’s Level 1 items ~~mainly~~ are primarily money market funds. As of September 29, 2023 and June 30, ~~2022 and July 1, 2022,~~2023, these money market funds were valued at $1.00 net asset value per share.

~~Our marketable securities~~Items are included in current assets on our balance sheet as they are available to be converted into cash to fund current operations. These marketable securities are publicly traded stock measured at fair value and classified within ~~Level 1. During the first quarter ended September 30, 2022, we recognized a loss of $1.2 million associated with the sales of our marketable securities.~~

~~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~~The Company’s bank certificates of deposit are classified within Level 2. The carrying value of bank certificates of deposit approximates their fair value.

As of September 29, 2023 and June 30, ~~2022 and July 1, 2022, we did not have any~~2023, there were no recurring assets or liabilities ~~that were~~ valued using significant unobservable inputs.

~~Our~~The Company’s 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 three months of fiscal 2024 and 2023, ~~and 2022, we had~~there were no transfers of assets or liabilities measured at fair value between levels of the fair value ~~hierarchy of our assets or liabilities measured at fair value.~~hierarchy.

~~Note 4. Leases~~

~~The Company has 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.~~

We determine if an arrangement contains a lease at inception. These operating leases are included in "Right of use assets" on our unaudited condensed consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are included in "Short-term lease liabilities" and "Long-term lease liabilities" on our unaudited condensed consolidated balance sheets. We did not enter into any finance leases during the three months ended September 30, 2022.

~~The following summarizes our lease costs (in thousands):~~

Three Months Ended
September 30,
2022 October 1, 2021
(In thousands)
Operating lease costs $ 312 $ 317
Short-term lease costs 551 687
Variable lease costs 35 27
Total lease costs $ 898 $ 1,031

~~The following summarizes our lease term and discount rate for the three months ended September 30, 2022:~~


~~Weighted average remaining lease term~~	~~6.9 years~~
~~Weighted average discount rate~~	~~5.5~~	%

~~As of September 30, 2022, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):~~

Amount
(In thousands)
Remainder of 2023 $ 824
2024 705
2025 597
2026 476
2027 169
Thereafter 1,386
Total lease payments 4,157
Less: interest (917)
Present value of lease liabilities $ 3,240

~~Note 5. Credit Facility and Debt~~

On May 17, 2021, we entered into Amendment No. 4 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “SVB Credit Facility”) which extended the expiration date to June 28, 2024. The SVB Credit Facility provides for a $25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by our U.S. company, with a $25.0 million sub-limit that can be borrowed by our U.S. and Singapore entities. 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 accounts receivable formula based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit. We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty. As of September 30, 2022, available credit under the SVB Credit Facility was $22.0 million, reflecting the lower available limit of $25.0 million less outstanding letters of credit of $3.0 million. We borrowed and repaid $15.0 million against the SVB Credit Facility during the fiscal quarter and the interest rate was 5.83%. As of September 30, 2022 there was no borrowing outstanding.

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.

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 5.00% above the applicable interest rate. As of September 30, 2022, we were in compliance with the quarterly financial covenants contained in the SVB Credit Facility, as amended.

Note ~~6. Revenue Recognition~~7. Credit Facility and Debt

~~Contract Balances, Performance Obligations,~~In May 2023, the Company entered into a Secured Credit Facility Agreement (the “Credit Facility”) with Wells Fargo Bank, National Association, as administrative agent, swingline lender and ~~Backlog~~issuing lender and Wells Fargo Securities LLC, Citigroup Global Markets Inc., and Regions Capital Markets as lenders. The Credit Facility provides for a $40.0 million revolving credit facility (the “Revolver”) and a $50.0 million Delayed Draw Term Loan Facility (the “Term Loan”) with a maturity date of May 8, 2028. The $40.0 million Revolver can be borrowed with a $10.0 million sublimit for letters of credit, and a $10.0 million swingline loan sublimit. The Term Loan has a funding date on or prior to the closing date of the NEC Transaction (as defined below) with the proceeds intended to be used to settle the cash portion of the consideration and any related expenses. See Note 12. Acquisitions for further information. Deferred financing costs of $0.8 million were paid in association with entering into the Credit Facility.

As of September 29, 2023, the available credit under the Revolver was $38.8 million, reflecting the available limit of $40.0 million less outstanding letters of credit of $1.2 million. The available credit under the Term Loan was $50.0 million. The Company borrowed $25.2 million and repaid $25.2 million against the Revolver during the three months ended September 29, 2023. There was no borrowing outstanding for either the Revolver or Term Loan as of September 29, 2023.

Outstanding borrowings under the Credit Facility bear interest at either: (a) Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the applicable margin; or (b) the Base Rate plus the applicable margin. The pricing levels for interest rate margins are determined based on the Consolidated Total Leverage Ratio as determined and adjusted quarterly. As of September 29, 2023, the applicable margin on Adjusted Term SOFR and Base Rate borrowings was 2.75% and 1.75%, respectively.

1513

The ~~following table provides information about receivables~~Credit Facility requires the Company and ~~liabilities from contracts~~its subsidiaries to maintain a fixed charge coverage ratio to be greater than 1.25 to 1.00 as of the last day of any fiscal quarter of the Company. The Credit Facility also requires that the Company maintain a maximum leverage ratio of 3.00 times EBITDA, with ~~customers (in thousands):~~

September 30, 2022 July 1, 2022
Contract Balances
Accounts receivable, net $ 72,471 $ 73,168
Contract Assets $ 50,389 $ 45,857
Capitalized commissions $ 2,341 $ 2,341
Contract Liabilities
Advance payments and unearned revenue $ 35,483 $ 33,740
Unearned revenue, long-term $ 7,844 $ 8,920

~~Significant changes in contract balances may arise as~~ a ~~result~~step-down to 2.75 times EBITDA after four full quarters, and 2.50 times EBITDA after eight full quarters. The Credit Facility contains customary affirmative and negative covenants, including, among others, covenants limiting the ability of ~~recognition over time for services, transfer~~the Company and its subsidiaries to dispose 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~~assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments, and enter into transactions with affiliates, in each case subject to the scope or price associated with an arrangement. When 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.customary exceptions.

As of September ~~30, 2022, we had $43.3~~29, 2023, the Company was in compliance with all financial covenants contained in the Credit Facility.

Note 8. Restructuring


	Employee Severance and Benefits
(In thousands)	Fiscal 2024 Plans		Prior Years’ Plans		Total
Accrual balance, June 30, 2023	$	—	$	600	$	600
Charges, net	333		348		681
Cash payments	(221)		(948)		(1,169)
Accrual balance, September 29, 2023	112		—		112

As of September 29, 2023, the accrual balance of $0.1 million was classified as current and included in ~~advance payments~~restructuring liabilities on the unaudited condensed consolidated balance sheets.

Fiscal 2024 Plans

During fiscal 2024, the Company’s Board of Directors approved restructuring plans, primarily associated with reductions in workforce to optimize skill sets and ~~unearned revenue and long-term unearned revenue, of which approximately 44% is~~align cost structure. The fiscal 2024 plans are expected to be ~~recognized as revenue~~completed through the first half of fiscal 2024.

Prior Years’ Plans

Activities under the prior years’ plans primarily included reductions in workforce across the Company, associated with the acquisition of Redline (as defined below) and certain of the Company’s operations outside the United States. Payments related to the accrued restructuring balance for these plans are complete.

Note 9. Stockholders’ Equity

Stock Repurchase Program

In November 2021 the Company’s Board of Directors approved a stock repurchase program to purchase up to $10.0 million of the Company’s common stock. As of September 29, 2023, $7.3 million remains available and Aviat may choose to suspend or discontinue the repurchase program at any time. During the first quarter of fiscal 2024, the Company did not repurchase any shares of common stock.

Stock Incentive Programs

As of September 29, 2023, the Company had one stock incentive plan for its employees and non-employee directors, the 2018 Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of share-based awards in the ~~remainder~~form of ~~fiscal 2023~~stock options, stock appreciation rights, restricted stock awards and units, and performance share awards and units.

Under the 2018 Plan, option exercise prices are equal to the fair market value of Aviat common stock on the date the options are granted using the closing stock price. After vesting, options generally may be exercised within seven years after the date of grant.

Restricted stock units are not transferable until vested and the ~~balance thereafter.~~ restrictions lapse upon the achievement of continued employment or service over a specified time period. Restricted stock units issued to employees generally vest three years from the date of grant (three-year cliff or annually over three years). Restricted stock units issued annually to non-executive board members generally vest on the day before the annual stockholders’ meeting.

Vesting of performance share awards and units is subject to the achievement of predetermined financial performance and share price criteria, and continued employment through the end of the applicable period.

During the three months ended September ~~30, 2022 we recognized~~29, 2023, the Company granted 63,889 restricted stock units, 63,889 performance share awards and 145,250 stock options.

Total compensation expense for share-based awards included in the unaudited condensed consolidated statements of operations was as follows:


	Three Months Ended
(In thousands)	September 29, 2023		September 30, 2022
By Expense Category:
Cost of revenues	$	183	$	172
Research and development	146		135
Selling and administrative	1,505		1,531
Total share-based compensation expense	$	1,834	$	1,838
By Type of Award:
Options	$	346	$	510
Restricted and performance stock awards and units	1,488		1,328
Total share-based compensation expense	$	1,834	$	1,838

As of September 29, 2023, there was approximately ~~$5.9~~$3.6 million of ~~revenue~~total unrecognized compensation expense related to non-vested stock options granted which ~~was included in advance payments and unearned revenue at July 1, 2022.~~

~~Remaining Performance Obligations~~

The aggregate amount of transaction price allocated to our unsatisfied (or partially unsatisfied) performance obligations was approximately $120.1 million at September 30, 2022. Of this amount, we expect to recognize approximately 50% as revenue during the next 12 months, with the remaining amountis expected to be recognized ~~as revenue within~~ ~~two~~over a weighted-average period of 2.3 years. As of September 29, 2023, there was $10.7 million of total unrecognized compensation expense related to ~~five~~non-vested stock awards which is expected to be recognized over a weighted-average period of 1.7 years.

Note 7.10. Segment and Geographic Information

~~We operate~~Aviat operates in one reportable business segment: the design, manufacturing, and sale of ~~a range of~~ wireless networking products, solutions, and services. ~~Our~~The Company’s financial performance is regularly reviewed by ~~our~~its chief operating decision maker who is ~~our~~its Chief Executive Officer (“CEO”).

~~We report~~The Company reports revenue by region and country based on the location where ~~our~~its customers accept delivery of ~~our~~ products and services. Revenue by region for the three months ended September ~~30, 2022~~29, 2023 and ~~October 1, 2021 was as follows:~~

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
North America
$ 48,848 $ 50,937
Africa and the Middle East 10,984 10,702
Europe 4,500 2,703
Latin America and Asia Pacific 16,919 8,816
Total revenue $ 81,251 $ 73,158

~~Customers accounting for 10% or more of our total revenue were as follows:~~
Three Months Ended
September 30,
2022 October 1,
2021
Motorola Solutions, Inc. 10.5 % 15.0 %

~~Customer accounting for 10% or more of our accounts receivable were as follows:~~
September 30,
2022 July 1, 2022
Mobile Telephone Networks Group (MTN Group) 12.4 % 17.0 %

~~Note 8. Equity~~

~~Stock Repurchase Program~~

~~In November 2021 our Board of Directors approved a stock repurchase program to purchase up to $10.0 million of our common stock. As of~~ September 30, 2022 ~~$8.0 million remains available and we may choose to suspend or discontinue the repurchase program at any time.~~

~~During the first quarter of fiscal 2023, we did not repurchase any shares of our common stock in the open market.~~

~~Stock Incentive Programs~~

As of September 30, 2022, we had one stock incentive plan for our employees and non-employee directors, the 2018 Amended and Restated Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of share-based awards in the form of stock options, stock appreciation rights, restricted stock awards and units, and performance share awards and units.

Under the 2018 Plan, option exercise prices are equal to the fair market value of our common stock on the date the options are granted using our closing stock price. After vesting, options generally may be exercised within seven years after the date of grant.

Restricted stock units are not transferable until vested and the restrictions lapse upon the achievement of continued employment or service over a specified time period. Restricted stock units issued to employees generally vest three years from the date of grant (three-year cliff or annually over three years). Restricted stock units issued to non-executive board members annually generally vest on the day before the annual stockholders’ meeting.

Vesting of performance share awards and units is subject to the achievement of predetermined financial performance criteria and continued employment through the end of the applicable period. Market-based stock units vest upon meeting certain predetermined share price performance criteria and continued employment through the end of the applicable period.

~~During the three months ended September 30, 2022, we granted 51,772 restricted stock units, 49,321 market-based stock units and 110,945 stock options to purchase shares of our common stock.~~

~~Total compensation expense for share-based awards included in our unaudited condensed consolidated statements of operations~~ was ~~as follows:~~

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
By Expense Category:
Cost of revenues $ 172 $ 68
Research and development 135 76
Selling and administrative 1,531 719
Total share-based compensation expense $ 1,838 $ 863
By Types of Award:
Options $ 510 $ 174
Restricted and performance stock awards and units 1,328 689
Total share-based compensation expense $ 1,838 $ 863

As of September 30, 2022, there was approximately $2.7 million of total unrecognized compensation expense related to non-vested stock options granted which is expected to be recognized over a weighted-average period of 2.1 years. As of September 30, 2022, there was $11.8 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.9 years.

~~Note 9. Restructuring Activities~~

~~The following table summarizes our restructuring-related activities:~~

Severance and Benefits Total
(In thousands) Q1 2023 Plan Q4 2022 Plan Fiscal 2021 Plan
Accrual balance, July 1, 2022 $ — $ 295 $ 1,086 $ 1,381
Charges, net 1,950 — — 1,950
Cash payments (1,437) (272) (100) (1,809)
Accrual balance, September 30, 2022 513 23 986 1,522

As of September 30, 2022, the accrual balance of $1.5 million was in short-term restructuring liabilities on our unaudited condensed consolidated balance sheets. Included in the above plans for which we were carrying a provision were positions identified for termination that have not been executed from a restructuring perspective.

~~Q1 2023 Plan~~

During the first quarter of fiscal 2023, our Board of Directors approved a restructuring plan, (the “Q1 2023 Plan”) from the acquisition of Redline Communications, Inc. (“Redline”). The Q1 2023 Plan which is anticipated to generate cost saving on integration of Redline, entails a reduction in force of approximately 20 employees due to integrating work into existing Aviat teams, to be implemented through the end of Q3 2023.

~~Q4 2022 Plan~~

During the fourth quarter of fiscal 2022, our Board of Directors approved a restructuring plan (the “Q4 2022 Plan”) to restructure specific groups to optimize skill sets and align structure to execute on strategic deliverables. The Q4 2022 Plan was anticipated to entail a reduction in force of approximately 11 employees to be implemented through early fiscal year 2023, with a certain number of positions being consolidated.

~~Fiscal 2021 Plan~~

During the third quarter of fiscal 2021, our Board of Directors approved restructuring plans (the “Fiscal 2021 Plan”) to continue to reduce our operating costs and improve profitability as part of our transformational initiative to optimize our

business model and increase efficiencies. We recorded restructuring charges of $2.4 million related to the Fiscal 2021 Plan in fiscal 2021. The Fiscal 2021 Plan was anticipated to entail a reduction in force of approximately 30 employees and will be completed in the current fiscal year, with a certain number of positions being consolidated and/or relocated.

~~Note 10. Acquisition~~

In the first quarter of fiscal 2023, we completed the acquisition of Redline, a leading provider of mission-critical data infrastructure. Acquiring Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G, Unlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and transport in the Private Networks segment, leveraging Aviat's sales channel to address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.

The consideration paid by Aviat for this all-cash acquisition was $20.4 million. Cash acquired as part of acquisition was $4.6 million for total net consideration of $15.8 million. A summary of the preliminary allocation, pursuant to the completion of purchase price allocation, of the total purchase consideration is as follows:


											Three Months Ended
(In thousands)	(In thousands)	Purchase consideration		Net tangible assets acquired		Purchased intangible assets		Goodwill		(In thousands)	September 29, 2023		September 30, 2022
Redline		$	20,411	$	8,171	$	7,290	$	4,950
North America										North America	$	55,508	$	48,848
Africa and the Middle East										Africa and the Middle East	9,953		10,984
Europe										Europe	5,252		4,500
Latin America and Asia Pacific										Latin America and Asia Pacific	16,853		16,919
Total revenue										Total revenue	$	87,566	$	81,251

~~The following table presents details of our intangible assets:~~

(In thousands except for useful life)
Goodwill $ 4,950
Useful life in Years Gross Accumulate amortization Net
Purchased intangible with finite lives:
Patents 11 $ 630 $ (14) $ 616
Customer relationship 15 5,500 (92) 5,408
Trade names 16 1,160 (18) 1,142
Total purchased intangible assets with finite lives $ 7,290 $ (124) $ 7,166

Amortization of purchased intangible assets for the three months ended September 30, 2022 was $0.1 million included in operating expenses. There were no impairment charges for the three months ended September 30, 2022.

~~Pro forma information for this acquisition is not provided because it did not have a material effect on the Company’s consolidated results of operations.~~

~~The estimated future amortization expense of intangible assets with finite lives as of September 30, 2022 is as follows (in thousands):~~

Amount
(In thousands)
Remainder of 2023 $ 372
2024 496
2025 496
2026 496
2027 496
Thereafter 4,810
Total $ 7,166

Note 11. Income Taxes

~~Our~~The Company’s effective tax rate varies from the U.S. federal statutory rate of 21% primarily due to ~~results of~~global intangible low-taxed income inclusion (GILTI) in the U.S., state taxes, foreign operations that are subject to income taxes at different statutory rates, and certain jurisdictions where ~~we cannot recognize~~the tax benefit on current ~~losses.~~losses cannot be recognized. During interim periods, ~~we accrue~~ tax expenses are accrued for jurisdictions that are anticipated to be profitable for fiscal ~~2023.~~2024.

The determination of ~~our~~ income taxes for the three months ended September 29, 2023 and September 30, 2022 ~~and October 1, 2021~~ was based on ~~our~~the Company’s estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized. ~~Our~~Tax expense for the three months ended September 29, 2023 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries. Tax expense for the three months ended September 30, 2022 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries, including deferred tax expense associated with ~~our~~the acquisition of Redline in July 2022 and the subsequent multi-step ~~restructure~~restructuring plan ~~where the~~in which two Canadian Redline ~~Communication Canadian~~ corporations converted to ~~ULC~~unlimited liability companies and then amalgamated by the end of September 2022. ~~The tax expense for the three months ended October 1, 2021 was primarily due to tax expense related to U.S. and profitable subsidiaries.~~

~~We have~~Aviat has a number of years with open ~~income~~ tax audits ~~covering various tax years,~~ which vary from jurisdiction to jurisdiction. ~~Our~~The major tax jurisdictions that are open and subject to potential audits include the U.S., Singapore, Ghana, Kenya, Nigeria, Saudi Arabia and ~~Saudi Arabia.~~Tanzania. The earliest years for these jurisdictions are as follows: U.S. - 2003; Singapore - 2015; Ghana -– 2016; Kenya -– 2018; Nigeria -– 2006; ~~and~~ Saudi Arabia – 2019 and Tanzania - ~~2019.~~2017.

~~We account for interest~~Interest and penalties related to unrecognized tax benefits are accounted for as part of ~~our~~the provision for federal, foreign, and state income taxes. Such interest expense was not material for the three months ended September 29, 2023 and September 30, ~~2022 and October 1, 2021.~~

2022.

On March 11, 2021, the ~~U.S.~~US enacted the American Rescue Plan Act of 2021 (“ARPA”) which expands Section 162(m) to cover the next five most highly compensated employees for the taxable year, in addition to the “covered employees” effective for taxable years beginning after December 31, 2026. WeThe Company will continue to examine the elements of the ~~CAA and~~ ARPA and the impact ~~they~~it may have on ~~our~~ future business.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which includes a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion, effective for taxable years beginning after December 31, 2022, and a 1% excise tax on stock repurchases by public corporations ~~effective for taxable years beginning~~ after December 31, 2022. WeThe Company will continue to evaluate the applicability and effect of the IRA as more guidance is issued.

Note 12. Acquisitions

NEC’s Wireless Transport Business

On May 9, 2023, the Company entered into a Master Sale of Business Agreement (the “Purchase Agreement”), with NEC Corporation (“NEC”). Pursuant to the Purchase Agreement, the Company will purchase certain assets and liabilities from NEC relating to NEC’s wireless backhaul business (the “NEC Transaction”). Initial consideration due at the closing of the NEC Transaction will be comprised of (i) an amount in cash equal to $45.0 million, subject to certain post-closing adjustments, and (ii) the issuance of $25.0 million in Company common stock. Aggregate consideration will be approximately $70.0 million. The Company has obtained permanent financing to fund the cash portion of the NEC Transaction. See Note 7. Credit Facility and Debt for further information.

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

NEC is a leader in wireless backhaul networks with an extensive installed base of their Pasolink series products. The Company expects to complete the NEC Transaction in the fourth quarter of calendar year 2023.

Redline Communications Group Inc.

In the first quarter of fiscal 2023, the Company acquired all of the issued and outstanding shares of Redline Communications Group Inc. (“Redline”), for a purchase price of $20.4 million. Redline is a leading provider of mission-critical data infrastructure.

See Note 12. Acquisitions to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 for the final purchase price allocation, valuation methodology, and other information related to the completion of the Redline acquisition.

~~Note 12. Net (Loss) Income Per Share of Common Stock~~

~~The following table presents the computation of basic and diluted net income per share:~~
Three Months Ended
(In thousands, except per share amounts) September 30,
2022 October 1,
2021
Numerator:
Net (loss) income $ (2,746) $ 4,682
Denominator:
Weighted-average shares outstanding, basic 11,200 11,159
Effect of potentially dilutive equivalent shares — 795
Weighted-average shares outstanding, diluted 11,200 11,954
Net (loss) income per share of common stock outstanding:
Basic $ (0.25) $ 0.42
Diluted $ (0.25) $ 0.39

~~The following table summarizes the weighted-average equity awards that were excluded from the diluted net (loss) income per share calculations since they were anti-dilutive:~~

Three Months Ended
(In thousands) September 30,
2022 October 1,
2021
Stock options 154 24
Restricted stock units and performance stock units 48 27
Total shares of common stock excluded 202 51

Note 13. Commitments and Contingencies

Purchase Orders and Other Commitments

From time to time in the normal course of business, wethe Company may enter into purchasing agreements with ~~our~~its suppliers that require usthe Company to accept delivery of, and remit full payment for, finished products that ~~we have~~it has ordered, finished products that weit requested be held as safety stock, and work in process started on ~~our~~its behalf, in the event ~~we cancel~~it cancels or ~~terminate~~terminates 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~~the Company has no present intention to cancel or terminate any of these agreements, wethe Company currently dodoes not believe that ~~we have~~it has any future liability under these agreements. As of September ~~30, 2022, we~~29, 2023, the Company had outstanding purchase obligations with ~~our~~its suppliers or contract manufacturers of ~~$62.7~~$34.1 million. In addition, wethe Company had contractual obligations of approximately ~~$3.7~~$5.7 million associated with software licenses.

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 September ~~30, 2022, we~~29, 2023, the Company had no guarantees applicable to ~~our~~its debt arrangements.

~~We have~~The Company has 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 September ~~30, 2022, we~~29, 2023, the Company had commercial commitments outstanding of ~~$64.3~~$60.5 million, that were not recorded on ~~our~~the unaudited condensed consolidated balance sheets. ~~We do~~The Company does 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 these performance guarantees in the future.

The following table presents details of ~~our~~the Company’s commercial commitments:


(In thousands)	September ~~30,~~29, ~~2022~~2023
Letters of credit	$	~~2,999~~2,588
Bonds	~~61,345~~57,921
	$	~~64,344~~60,509

Indemnifications

Under the terms of substantially all of ~~our~~the Company’s license agreements, ~~we have~~it has agreed to defend and pay any final judgment against ~~our~~its customers arising from claims against such customers that ~~our~~the Company’s products infringe the intellectual property rights of a third party. As of September ~~30, 2022, we have~~29, 2023, the Company has not received any notice that any customer is subject to an infringement claim arising from the use of ~~our~~its products; ~~we have~~the Company has not received any request to defend any customers from infringement claims arising from the use of ~~our~~its products; and ~~we have~~the Company has not paid any final judgment on behalf of any customer related to an infringement claim arising from the use of ~~our~~its 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, wethe Company cannot estimate the maximum amount of potential future payments, if any, related to ~~our~~its indemnification provisions. As of September ~~30, 2022, we~~29, 2023, the Company had not recorded any liabilities related to these indemnifications.

Legal Proceedings

~~We are~~The Company is subject from time to time to disputes with customers concerning ~~our~~its products and services. In May 2016, we received notification of a claim for damages from a customer alleging that certain of our products were defective which we settled with an immaterial amount during the third quarter of 2021.

From time to time, wethe Company may be involved in various other legal claims and litigation that arise in the normal course of ~~our~~its operations. ~~We are~~The Company is aggressively defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable, wethe Company currently ~~believe~~believes that none of these claims or proceedings are likely to have a material adverse effect on ~~our~~its 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 usthe Company may cause usit to incur costly litigation and/or

substantial settlement charges. As a result, ~~our~~the Company’s 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~~the Company’s estimates, if any.

~~We record~~The Company records accruals for ~~our~~its 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,~~The Company evaluates, 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~~The Company has not recorded any significant accrual for loss contingencies associated with such legal claims or litigation discussed above.

Contingent Liabilities

~~We record~~The Company records 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; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the ~~Notes~~notes to the ~~unaudited condensed 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~~The Company expenses all legal costs incurred to resolve regulatory, legal and tax matters as incurred.

In March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought against ~~our~~Aviat’s subsidiary Aviat Networks (India) Private Limited (“Aviat India”) relating to the non-realization of intercompany receivables and non-payment of intercompany payables, which originated from 1999 to 2012, within the time frames dictated by the Indian regulations under the Foreign Exchange Management Act. In November 2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action against Telsima Communications Private Limited (“Telsima India”), a subsidiary of the Company, relating to the non-realization of intercompany receivables and non-payment of intercompany payables which originated from the period prior to our acquisition of Telsima India in February 2009. In September 2019, ~~our~~the Company’s 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~~scheduled as of September 29, 2023. The Company has accrued an immaterial amount representing the estimated probable loss for which weit would settle the matter. WeThe Company currently cannot form an estimate of the range of loss in excess of ~~our~~its amounts already accrued. If the outcome of this matter is greater than the current immaterial amount accrued, ~~we intend~~the Company intends to dispute it vigorously.

Periodically, ~~we review~~the Company reviews 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 is reflected in our ~~unaudited condensed consolidated statement~~results of operations. Significant judgment is required to determine the probability that a liability has been incurred or an asset impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in ~~our unaudited condensed~~the consolidated financial statements. As additional information becomes available, wethe Company will reassess the potential liability related to ~~our~~its 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~~the Company’s results of operations and financial position.

~~COVID-19~~

~~In March 2020,~~

Note 14. Goodwill and Intangible Assets

The following presents details of goodwill and intangible assets (in thousands except useful life):


	September 29, 2023		June 30, 2023
Goodwill	$	5,112	$	5,112

The Company performs its annual goodwill impairment test on the ~~World Health Organization characterized a recent pandemic~~first day of ~~respiratory illness caused by novel coronavirus disease, known~~its fourth fiscal quarter. No indicators of impairment were identified during the current period that required the Company to perform an interim assessment or recoverability test.


	Useful life in Years	September 29, 2023		June 30, 2023
Intangible assets:
Patents	10	$	690	$	690
Customer relationships	14	7,730		7,730
Trade names	16	1,330		1,330
Total gross intangible assets		$	9,750	$	9,750
Accumulated amortization		(880)		(704)
Total net intangible assets		$	8,870	$	9,046

Amortization of finite-lived intangibles is included in selling and administrative expenses. There were no impairment charges recorded for the three months ended September 29, 2023 and September 30, 2022.

As of September 29, 2023, the estimated future amortization expense of finite-lived intangible assets is as COVID-19, as a pandemic. The pandemic continues to result 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 in various locations. Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic. The COVID-19 pandemic 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 the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce.follows (in thousands):

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.


Remainder of 2024	$	528
2025	704
2026	704
2027	704
2028	704
Thereafter	5,526
Total	$	8,870

2319

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 without limitation statements of, about, concerning or regarding: our plans, strategies and objectives for future operations, including with respect to growing our business and sustaining profitability; our restructuring efforts; our research and development efforts and new product releases and services; trends in revenue; drivers of our business and the markets in which we operate; future economic conditions, performance or outlook, and changes in our industry and the markets we serve; the outcome of contingencies; the value of our contract awards; beliefs or expectations; the sufficiency of our cash and our capital needs and expenditures; our intellectual property protection; our compliance with regulatory requirements and the associated expenses; expectations regarding litigation; our intention not to pay cash dividends; seasonality of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by the use of forward-looking terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,” “targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the negative of these terms, and similar words or expressions.

These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of ~~the Company.~~Aviat Networks, Inc. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this Quarterly Report on Form 10-Q. ~~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;~~

•our ability to realize the anticipated benefits of any proposed or recent acquisitions within the anticipated timeframe or at all, including the risk that proposed or recent acquisitions will not be integrated successfully;

•~~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, the effects of COVID-19 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;~~

•~~the impact of political turmoil in countries where we have significant business;~~

•the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; and

•~~our ability to implement our stock repurchase program or that it will enhance long-term stockholder value.~~

~~Other factors besides those listed here could also adversely affect us.~~ See “Item 1A. Risk Factors” in ~~our~~the Company’s fiscal ~~2022~~2023 Annual Report on Form 10-K filed with the SEC on ~~September 14, 2022~~August 30, 2023 for more information regarding factors that may cause ~~our~~its 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”), along with provisions of the Private Securities Litigation Reform Act of 1995, and we expressly disclaim any obligation, other than as required 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 ~~2023~~2024 and ~~2022~~2023 Results

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand ~~our~~Aviat’s results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, ~~our~~the Company’s unaudited condensed consolidated financial statements and ~~the~~ accompanying notes. In the discussion herein, ~~our~~the fiscal year ending June 28, 2024 is referred to as “fiscal 2024” or “2024” and the fiscal year ended June 30, 2023 is referred to as “fiscal 2023” or ~~“2023” and our fiscal year ended July 1, 2022 is referred to as “fiscal 2022” or “2022.~~“2023.”

Overview

Aviat is a global supplier of microwave networking and access networking solutions, backed by an extensive suite of professional services and support. Aviat sells radios, routers, software and ~~services. We have~~services integral to the functioning of data transport networks. Aviat has more than 3,000 customers and significant relationships with global service providers and private network operators. ~~Our~~Aviat’s North America manufacturing base ~~in North America~~ consists of a combination of contract manufacturing and assembly and ~~test~~testing operated in Austin, Texas by Aviat. ~~Our~~Additionally, Aviat utilizes a contract manufacturer based in Asia for much of its international equipment demand. Aviat’s technology is underpinned by more than ~~200~~500 patents. ~~We compete~~Aviat competes on the basis of total cost of ownership, microwave radio expertise and solutions for mission critical communications. ~~We have~~Aviat has a global presence.

The COVID-19 pandemic related disruptions to our business, operations, customers and suppliers lessened over the course of fiscal 2022. While supply chain lead-times remain extended and difficult to manage, the impact on our ability to fulfill orders for the year ended July 1, 2022 was minimal. Depending on the progression of pandemic-related factors such as supply constraints, potential for temporary manufacturing restrictions and 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 to mitigate impacts on our business, supply chain and customer demand. We expect the potential for these challenges to continue until business and economic activities return to more normal levels.

Our first priority remains the health and safety of our employees 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.

We continue to be impacted by inflationary pressures incurred to overcome supply chain and logistical bottlenecks. We will monitor, assess and adapt to the situation and prepare for implications to our business, supply chain and customer demand. We expect these challenges to continue until business and economic activities return to more normal levels.

2520

Acquisitions

NEC’s Wireless Transport Business ~~Combination~~

On May 9, 2023, the Company entered into the Purchase Agreement with ~~Redline Communications~~NEC. Pursuant to the Purchase Agreement, the Company will purchase certain assets and liabilities from NEC relating to NEC’s wireless backhaul business. Initial consideration due at the closing of the NEC Transaction will be comprised of (i) an amount in cash equal to $45.0 million, subject to certain post-closing adjustments, and (ii) the issuance of $25.0 million in Company common stock. Aggregate consideration will be approximately $70.0 million. The Company has obtained permanent financing to fund the cash portion of the NEC Transaction. See Note 7. Credit Facility and Debt for further information.

~~On April 13, 2022, Aviat and~~ NEC is a leader in wireless backhaul networks with an extensive installed base of their Pasolink series products. The Company expects to complete the NEC Transaction in the fourth quarter of calendar year 2023.

Redline Communications Group Inc. ~~(“Redline”),~~

In the first quarter of fiscal 2023, the Company acquired all of the issued and outstanding shares of Redline, for a purchase price of $20.4 million. Redline is a leading provider of mission-critical data infrastructure, signed a definitive agreement for Aviat to acquire all outstanding common stock of Redline. The transaction closed on July 5, 2022. Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G, Unlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and transport in the Private Networks segment,~~leveraging Aviat's sales channel to address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.~~infrastructure.

Operations Review

The market for mobile backhaul continued to be ~~our~~the Company’s primary addressable market segment globally in the first three months of fiscal ~~2023.~~2024. In North America, wethe Company supported 5G and long-term evolution (“LTE”) deployments of ~~our~~its mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers. In international markets, ~~our~~the Company’s business continued to rely on a combination of customers increasing their capacity to handle subscriber growth and the ongoing build-out of some large LTE ~~deployments,~~ and 5G deployments. ~~Our~~Aviat’s position continues to be to support ~~our~~its customers for 5G and LTE readiness and ensure that ~~our~~its technology roadmap is well aligned with evolving market requirements. ~~We continue to find that our~~Aviat’s strength in turnkey and after-sale support services is a differentiating factor that wins business for usthe Company and enables usit to expand ~~our~~its business with existing ~~customers in all markets.~~customers. Additionally, Aviat operates an e-commerce platform that provides low-cost services, simple experience, and fast delivery to mobile operators and private network customers. However, as disclosed above and in the “Risk Factors” section in Item 1A of ~~our~~its Annual Report on Form 10-K filed with the SEC on ~~September 14, 2022,~~August 30, 2023, a number of factors could prevent usthe Company from achieving ~~our~~its objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that ~~we serve.~~it serves.

Revenue

~~We manage our~~The Company manages its sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe, and (3) Latin America and Asia Pacific. Revenue by region for the three months ended September 29, 2023 and September 30, 2022 ~~and October 1, 2021~~ and the related changes were as follows:


		Three Months Ended								Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	September 30, 2022		October 1, 2021		$ Change		% Change			(In thousands, except percentages)	September 29, 2023		September 30, 2022		$ Change		% Change
North America	North America	$	48,848	$	50,937	$	(2,089)	(4.1)	%		North America	$	55,508	$	48,848	$	6,660	13.6	%
Africa and the Middle East	Africa and the Middle East	10,984		10,702		282		2.6	%		Africa and the Middle East	9,953		10,984		(1,031)		(9.4)	%
Europe	Europe	4,500		2,703		1,797		66.5	%		Europe	5,252		4,500		752		16.7	%
Latin America and Asia Pacific	Latin America and Asia Pacific	16,919		8,816		8,103		91.9	%		Latin America and Asia Pacific	16,853		16,919		(66)		(0.4)	%
Total revenue	Total revenue	$	81,251	$	73,158	$	8,093	11.1	%		Total revenue	$	87,566	$	81,251	$	6,315	7.8	%

~~Our revenue~~Revenue in North America ~~decreased~~increased by ~~$2.1~~$6.7 million ~~or 4.1%,~~ during the first quarter of fiscal ~~2023~~2024 compared with the same period of fiscal ~~2022. The decrease in North America revenue during the three months of fiscal~~ 2023, ~~was~~ primarily due to ~~timing of~~strong private network ~~projects.~~and tier 1 demand.

~~Our revenue~~

Revenue in Africa and the Middle East ~~increased~~decreased by ~~$0.3~~$(1.0) million ~~or 2.6%~~ during the first quarter of fiscal ~~2023~~2024 compared with the same period of fiscal ~~2022. This increase in revenue during the three months of fiscal~~ 2023, ~~was~~ primarily due to ~~increased sales to~~cyclical softness in the capital expenditure plans of large mobile operators in the region.

Revenue in Europe increased by ~~$1.8~~$0.8 million ~~or 66.5%,~~ for the first quarter of fiscal ~~2023~~2024 compared with the same period of fiscal ~~2022. This increase during the three months of fiscal~~ 2023, ~~was~~ primarily due to increased sales to mobile operators in the region.

Revenue in Latin America and Asia Pacific ~~increased~~decreased by ~~$8.1~~$0.1 million ~~or 91.9%,~~ during the first quarter of fiscal ~~2023~~2024 compared with the same period of fiscal ~~2022. The increase during the three months of fiscal~~ 2023, ~~was~~ primarily due to ~~increased sales to~~timing of projects with mobile ~~operator customers.~~operators.


	Three Months Ended
(In thousands, except percentages)	September 29, 2023		September 30, 2022		$ Change		% Change
Product sales	$	59,545	$	55,101	$	4,444	8.1	%
Services	28,021		26,150		1,871		7.2	%
Total revenue	$	87,566	$	81,251	$	6,315	7.8	%

Three Months Ended
(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change
Product sales $ 55,101 $ 50,847 $ 4,254 8.4 %
Services 26,150 22,311 3,839 17.2 %
Total revenue $ 81,251 $ 73,158 $ 8,093 11.1 %

~~Our revenue~~Revenue from product sales and services increased by ~~$4.3 million, or 8.4%~~8.1% and 7.2%, respectively for the first quarter of fiscal ~~2023~~2024 compared with the same quarter of fiscal ~~2022. This is~~2023. The relatively proportionate increases were driven by strong growth in Asia Pacific and Latin America as well as the contribution from the Redline acquisition. Our services revenue increased by $3.8 million, or 17.2%, during the first quarter of fiscal 2023 compared with the same ~~quarter~~overall factors of ~~fiscal 2022.~~revenue growth discussed previously.

Gross Margin


		Three Months Ended										Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	September 30, 2022			October 1, 2021			$ Change		% Change			(In thousands, except percentages)	September 29, 2023			September 30, 2022			$ Change		% Change
Revenue	Revenue	$	81,251		$	73,158		$	8,093	11.1	%		Revenue	$	87,566		$	81,251		$	6,315	7.8	%
Cost of revenue	Cost of revenue	51,797			47,077			4,720		10.0	%		Cost of revenue	55,714			51,797			3,917		7.6	%
Gross margin	Gross margin	$	29,454		$	26,081		$	3,373	12.9	%		Gross margin	$	31,852		$	29,454		$	2,398	8.1	%
% of revenue	% of revenue	36.3		%	35.7		%						% of revenue	36.4		%	36.3		%
Product margin %	Product margin %	36.0		%	37.2		%						Product margin %	39.0		%	36.0		%
Service margin %	Service margin %	36.7		%	32.1		%						Service margin %	30.8		%	36.7		%

Gross margin for the first quarter of fiscal ~~2023~~2024 increased by ~~$3.4~~$2.4 million ~~or 12.9%~~ compared with the same quarter of fiscal ~~2022. For the first three months of fiscal~~ 2023, ~~gross margin improved over the same period in fiscal 2022~~ primarily due to a higher ~~volume~~proportion of ~~Private Network business~~sales to North American customers where the Company’s margins are historically strongest.

Research and Development


	Three Months Ended
(In thousands, except percentages)	September 29, 2023			September 30, 2022			$ Change		% Change
Research and development	$	6,424		$	6,087		$	337	5.5	%
% of revenue	7.3		%	7.5		%

Research and development expenses increased ~~sales through the Aviat Store which serves primarily the Rural Broadband space. Gross margins continue to be pressured~~ by expedite fees and inflation as we work to overcome supply chain issues. However, our pricing actions to offset higher costs continue to gain momentum, as well as the accretive contribution of the Redline business.

~~Product margin as a percentage of product revenue decreased~~$0.3 million in the first quarter of fiscal ~~2023~~2024 compared with the same period of fiscal ~~2022~~2023, primarily due to ~~increased supply chain costs. Service margin as a percentage of service revenue increased in the first quarter of fiscal 2023 compared to the same period in fiscal 2022.~~

~~Research and Development Expenses~~

Three Months Ended
(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change
Research and development $ 6,087 $ 5,910 $ 177 3.0 %
% of revenue 7.5 % 8.1 %

~~Our research and development expenses increased by $0.2 million, or 3.0%, in the three months of fiscal 2023 compared with the same period of fiscal 2022 primarily due to the~~ increased product development activities.

Selling and Administrative ~~Expenses~~


		Three Months Ended										Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	September 30, 2022			October 1, 2021			$ Change		% Change			(In thousands, except percentages)	September 29, 2023			September 30, 2022			$ Change		% Change
Selling and administrative	Selling and administrative	$	17,504		$	12,698		$	4,806	37.8	%		Selling and administrative	$	19,237		$	17,504		$	1,733	9.9	%
% of revenue	% of revenue	21.5		%	17.4		%						% of revenue	22.0		%	21.5		%

Selling and administrative expenses increased by $1.7 million in the first quarter of fiscal 2024 compared with the same period in fiscal 2023, primarily due to variable compensation and merger and acquisition related expenses.

Restructuring

2722

Our selling and administrative expenses increased by $4.8 million, or 37.8%, in the first quarter of fiscal 2023 compared with the same period in fiscal 2022. The increase for the three months of fiscal 2023 compared to comparable period of fiscal 2022 was primarily due to variable compensation and Redline related integration costs.

~~Restructuring charges~~


		Three Months Ended								Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	September 30, 2022		October 1, 2021		$ Change		% Change			(In thousands, except percentages)	September 29, 2023		September 30, 2022		$ Change		% Change
Restructuring charges	Restructuring charges	$	1,950	$	659	$	1,291	195.9	%		Restructuring charges	$	644	$	1,950	$	(1,306)	(67.0)	%

In the first quarter of fiscal ~~2023, we recorded~~2024, restructuring charges were $0.6 million, a decrease of ~~$2.0~~$(1.3) million ~~primarily related~~compared to the same period in fiscal 2023. The prior year includes non-recurring restructuring ~~plan (the “Fiscal 2023 Plan”).~~

~~As of September 30, 2022,~~charges primarily associated with the ~~accrual balance of $1.5 million was in short-term restructuring liabilities on our unaudited condensed consolidated balance sheets. Included~~Redline acquisition completed in the ~~plans for which we were carrying a provision were positions identified for termination that~~first quarter of fiscal 2023.

The Company’s successfully executed restructuring initiatives have ~~not been executed from a restructuring perspective.~~enabled it to restructure specific groups to optimize skill sets and align its organizational structure to execute on strategic deliverables, in addition to aligning cost structure with the core of the business.

Other ~~Expense/Income,~~Expense, net


		Three Months Ended							Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	September 30, 2022		October 1, 2021		$ Change		% Change		(In thousands, except percentages)	September 29, 2023		September 30, 2022		$ Change		% Change
Other expense (income), net		$	2,782	$	(28)	$	2,810	*

Other expense, net										Other expense, net	$	901	$	2,782	$	(1,881)	(67.6)	%

* percentage not meaningful

~~Our other expenses (income),~~Other expense, net ~~increased~~decreased by ~~$2.8~~$(1.9) million in the ~~three months~~first quarter of fiscal ~~2023,~~2024, compared with the same period of fiscal ~~2022~~2023, primarily due to ~~loss~~non-recurring losses of ~~value related to~~$1.7 million recognized on the sale of marketable securities ~~and~~included in the ~~movement in foreign exchange .~~prior year.

Income Taxes


		Three Months Ended								Three Months Ended
(In thousands, except percentages)	(In thousands, except percentages)	September 30, 2022		October 1, 2021		$ Change		% Change			(In thousands, except percentages)	September 29, 2023		September 30, 2022		$ Change		% Change
Income before income taxes	Income before income taxes	$	1,131	$	6,842	$	(5,711)	(83.5)	%		Income before income taxes	$	4,646	$	1,131	$	3,515	310.8	%
Provision for income taxes	Provision for income taxes	$	3,877	$	2,160	$	1,717	79.5	%		Provision for income taxes	$	641	$	3,877	$	(3,236)	(83.5)	%

~~We estimate our~~The Company estimates its annual effective tax rate at the end of each quarterly period, and ~~we record~~records the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.

~~The~~Tax expense for the first quarter of fiscal 2024 was primarily attributable to tax expense for the U.S. entity and profitable foreign subsidiaries. Tax expense for the first ~~three months~~quarter of fiscal 2023 was primarily ~~due~~attributable to ~~the~~ tax expense ~~related to~~for the U.S. entity and profitable foreign subsidiaries, including deferred tax expense associated with ~~our~~the acquisition of Redline in July 2022 and the subsequent multi-step restructuring, ~~impact. See Note 10: Acquisition. The tax expense for~~in which two Canadian Redline corporations converted to unlimited liability companies and then amalgamated by the ~~first quarter~~end of ~~fiscal 2022~~ ~~was primarily due to tax expense related to U.S. and profitable subsidiaries.~~September 2022.

Liquidity, Capital Resources, and Financial Strategies

Sources of Cash

As of September ~~30, 2022, our~~29, 2023, the Company’s total cash and cash equivalents were ~~$21.6~~$35.5 million. Approximately ~~$8.2~~$19.0 million ~~or 38.0%,~~ was held in the United States. The remaining balance of ~~$13.4~~$16.5 million ~~or 62.0%,~~ was held by entities outside the United States. Of the amount of cash and cash equivalents held by ~~our~~the Company’s foreign subsidiaries on September ~~30, 2022, $12.1~~29, 2023, $15.6 million was held in jurisdictions where ~~our~~its undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Operating Activities

~~Cash provided by or used in operating activities~~Operating cash flows is presented as net income adjusted for certain non-cash items and changes in operating assets and liabilities. Net cash ~~used in~~provided by (used in) operating activities was ~~$6.3~~$14.0 million for the first three months of fiscal ~~2023,~~2024, compared with $(6.3) million in the prior year. The $20.3 million increase is primarily attributable to improvements in working capital and increased net income prior to non-cash adjustments compared to ~~$0.7 million cash provided from operations for~~ the first three months of fiscal 2022; this difference was primarily related to a net change in Accounts receivable and partially offset by the net change in Accounts payable. Net cash provided by noncash items was $9.2 million for the first three months of 2023. The net changes in operating assets and liabilities resulted in a net use of cash of $12.7 million for the first three months of fiscal 2023, compared to net use of cash of $7.9 million for the same period in fiscal 2022.prior year.

Changes in operating assets and liabilities resulted in a net use of cash for the first three months of fiscal 2023 primarily related to Accounts receivable that fluctuate from period to period, depending on the amount, timing of sales and billing activities and cash collections; and an increase in certain levels of inventories primarily to mitigate supply chain constraints. The use of cash from assets and liabilities was partially offset by the timing of payments from Accounts payable and by customer Advance payments and unearned revenue.

Investing Activities

Net cash used in investing activities was ~~$8.3~~$0.7 million for the first three months of fiscal ~~2023, consisting of payment for~~2024, compared to $8.3 million in the prior year. The $7.6 million decrease is primarily due to non-recurring activity included in the prior year associated with the Redline acquisition ~~net of cash and cash equivalent, and investment in property, plant, and equipment, less consideration~~partially offset by proceeds received ~~from~~on the sale of marketable securities.

Financing Activities

Financing cash flows consist primarily of borrowings and repayments under the Company’s Credit Facility and proceeds from the exercise of employee stock options. Net cash ~~used in investing~~provided by (used in) financing activities was ~~$0.5~~$0.2 million for the first three months of fiscal ~~2022, driven by investments~~2024, compared with $(0.3) million in ~~property, plant, and equipment.~~

~~Financing Activities~~

~~Financing cash flows consist~~the prior year. The $0.5 million change is primarily from repayments of short-term debt, repurchase of stock and proceeds from the sale of shares of common stock through employee equity plans. Net cash used in financing activities was $0.3 million for the first three months of fiscal 2023, due to less payments for taxes related to the net settlement of equity awards, ~~of $0.7 million~~ partially offset by lower proceeds on the ~~issuance~~exercise of ~~common stock under~~ employee stock ~~plans of $0.4 million. Net cash used in financing activities was $0.8 million for the first three months of fiscal 2022, primarily due to the purchase of treasury stock of $0.7 million.~~options.

As of September ~~30, 2022, our~~29, 2023, the Company’s principal sources of liquidity consisted of ~~$21.6~~$35.5 million in cash and cash ~~equivalents; $22.0~~equivalents, $38.8 million of available credit under ~~our $25.0 million SVB~~its Credit Facility, ~~which matures on June 28, 2024,~~ and future collections of receivables from customers. WeThe Company regularly ~~require~~requires letters of credit from certain customers, and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce ~~our~~its credit and sovereign risk. Historically, ~~our~~the Company’s primary sources of liquidity have been cash flows from operations and credit facilities. Additionally, ~~we have~~the Company has an effective shelf registration statement on Form S-3 allowing usit to offer and sell, either individually or in combination, in one or more offerings, up to a total dollar amount of ~~$200~~$200.0 million of any combination of the securities described in the shelf registration statement or a related prospectus supplement.

~~We believe~~The Company believes that ~~our~~its existing cash and cash equivalents, the available ~~line of credit~~borrowings under ~~the SVB~~its Credit Facility, the availability under its effective shelf registration statement and future cash collections from customers will be sufficient to provide for ~~our~~its anticipated requirements and plans for ~~working capital and capital expenditures~~cash for at least the next 12 months. ~~On May 17, 2021, we entered into Amendment No. 4~~In addition, the Company believes these sources of liquidity will be sufficient to ~~Third Amended~~provide for its anticipated requirements and ~~Restated Loan and Security Agreement to extend~~plans for cash beyond the ~~maturity date to June 28, 2024.~~ next 12 months.

The SVB Credit Facility provides for a $25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by the U.S. company, with a $25.0 million sub-limit that can be borrowed by our U.S. and Singapore entities. 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 all borrowers under the SVB Credit Facility. The borrowing base is subject to certain eligibility criteria. Availability under the

accounts receivable formula-based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit. As of September 30, 2022, available credit under the SVB Credit Facility was $22.0 million, reflecting the lower available limit of $25.0 million less outstanding letters of credit of $3.0 million. WeCompany borrowed and repaid ~~$15.0~~$25.2 million against the ~~SVB~~ Credit Facility during ~~the fiscal quarter and the interest rate was 5.83%.. As of September 30, 2022 there was no borrowing outstanding.~~

As of September 30, 2022, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility and there was no amount outstanding under the SVB Credit Facility.

~~Restructuring Payments~~

We had liabilities for restructuring activities totaling $1.5 million as of September 30, 2022, which were 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~~

~~The amounts disclosed in our fiscal 2022 Annual Report on Form 10-K filed with the SEC on September 14, 2022 include our commercial commitments and contractual obligations. During~~ the first three months of fiscal 2023, no material changes occurred in our contractual obligations to purchase goods and services or to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal 2022 Annual Report on Form 10-K.

~~Off-Balance Sheet Arrangements~~

~~We consider the following items to qualify as off-balance sheet arrangements:~~

•~~any obligation under certain guarantee contracts;~~

•a retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

•~~any obligation, including a contingent obligation, under certain derivative instruments; and~~

•any obligation, including a contingent obligation, arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

Currently we are not participating in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities, and we do not have any material retained or contingent interest in assets as defined above.2024. As of September ~~30, 2022, we did not have material~~29, 2023, the Company had no borrowings outstanding and was in compliance with all financial guarantees or other contractual commitments that are reasonably likely to adversely affect our current or future financial condition. In addition, we are not currently a party to any related party transactions that materially affect our results of operations, cash flows or financial condition.covenants contained in the Credit Facility.

As of September ~~30, 2022, we~~29, 2023, the Company had commercial commitments outstanding of ~~$64.3 million.~~

~~Please refer to “Note 13 Commitments and Contingencies” of~~$60.5 million, that were not recorded on the ~~Notes to~~ unaudited condensed consolidated ~~financial statements~~balance sheets. The Company does 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 these performance guarantees in ~~this Quarterly Report on Form 10-Q for Contractual Obligations and Off-Balance Sheet Arrangements.~~the future.

Critical Accounting Estimates

For information about ~~our~~the Company’s 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~~its fiscal ~~2022~~2023 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of doing business, ~~we are~~the Company is exposed to ~~the~~ risks associated with foreign currency exchange rates and changes in interest rates. ~~We employ~~The Company employs established policies and procedures governing the use of financial instruments to manage ~~our~~its exposure to such risks. Information about ~~our~~the Company’s market risk is presented in Part II, Item 7A ~~of our~~in its fiscal 2023 Annual Report on Form ~~10-K for the year ended July 1, 2022.~~10-K. There have been no material changes to the Company’s market risk during the first three months of fiscal ~~2023.~~

2024.

Exchange Rate Risk

~~We conduct~~The Company conducts business globally in numerous currencies and are therefore exposed to foreign currency risks. ~~We use~~From time to time, the Company uses derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. ~~We do~~The Company does 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.~~

The ~~foreign exchange hedges do not qualify 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~~Company enters into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the balance sheet. All balance sheet hedges are marked to market through earnings every period. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities.

As The Company did not have any foreign exchange forward contracts outstanding as of September ~~30, 2022, there were no forward contracts in foreign currency.~~29, 2023.

Certain of ~~our~~the Company’s international business isare transacted in non-U.S. dollar ~~currency. As discussed above, we utilize~~(“USD”) currencies. From time to time, the Company utilizes foreign currency hedging instruments to minimize the currency risk of ~~international~~non-USD transactions. The impact of translating the assets and liabilities of foreign operations to ~~U.S. dollars for the first three months of fiscal 2023 and 2022 was $(1.1) million and $(0.2) million, respectively, and was~~USD is included as a component of stockholders’ equity. As of September 29, 2023 and June 30, ~~2022 and July 1, 2022,~~2023, the ~~accumulated other comprehensive income, driven by~~ cumulative translation ~~adjustments~~adjustment decreased ~~our~~stockholders’ equity by ~~$17.1~~$16.0 million and $16.0 million, respectively.

Interest Rate Risk

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

Exposure on Cash Equivalents

WeThe Company had ~~$21.6~~$35.5 million in total cash and cash equivalents as of September ~~30, 2022.~~29, 2023. Cash equivalents totaled ~~$10.2~~$11.8 million as of September ~~30, 2022~~29, 2023 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.~~value. Fair value is measured using inputs that fall into a three-level hierarchy that prioritizes the inputs used to measure fair value based on observability of such inputs. For more information on the fair value measurements of cash equivalents, please refer to ~~“Note 3~~Note 6. Fair Value Measurements of Assets and ~~Liabilities”~~Liabilities of the Notes to unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~Our~~The Company’s cash equivalents earn interest at fixed rates; therefore, changes in interest rates will not generate a gain or loss on these investments unless they are sold prior to maturity. The weighted-average days to maturity for cash equivalents held as of September ~~30, 2022~~29, 2023 was 3335 days, and these investments had an average yield of approximately ~~5.76%~~4.3% per annum. A 10% change in interest rates on ~~our~~the Company’s cash equivalents is not expected to have a material impact on ~~our~~its financial position, results of operations, or cash flows.

Exposure on Borrowings

~~Our~~The Company’s borrowings under the ~~SVB~~current Credit Facility ~~incurred~~bear interest at either: (a) Adjusted Term SOFR plus the ~~prime~~applicable margin; or (b) the Base Rate plus the applicable margin. The pricing levels for interest rate ~~plus a spread of 0.50% to 1.50% with such spread~~margins are determined based on ~~our~~the Consolidated Total Leverage Ratio as determined and adjusted ~~quick ratio. During~~quarterly. As of September 29, 2023, the ~~first three months of fiscal 2023, our weighted-average interest rate was 5.83%,~~applicable margin on Adjusted Term SOFR and ~~the interest expense on these~~Base Rate borrowings was ~~immaterial.~~2.75% and 1.75%, respectively.

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

flows.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation, with the participation of our President and CEO, and Chief Financial Officer (“CFO”), as of September ~~30, 2022,~~29, 2023, our CEO and CFO have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, in a manner that allows for timely decisions regarding required disclosures and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls over Financial Reporting

There were no changes to our internal controls over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) that occurred during the quarter ended September ~~30, 2022~~29, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Management is actively monitoring the impact of the COVID-19 pandemic on our financial condition, liquidity, operations, suppliers, industry, and workforce. Additionally we have undertaken measures to protect our employees, suppliers, and customers, including encouraging, and in many cases requiring employees to work remotely as appropriate. We have also modified some of our controls procedures but those changes have not been material.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

3226

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings as of September ~~30, 2022,~~29, 2023, please refer to “Legal Proceedings” and “Contingent Liabilities” under ~~“Note 13~~Note 13. Commitments and ~~Contingencies”~~Contingencies of the Notes to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, which are incorporated into this item by reference.

Item 1A. Risk Factors

Investors should 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 ~~2022~~2023 Annual Report on Form 10-K filed with the SEC on ~~September 14, 2022.~~August 30, 2023.

There have been no material changes from the risk factors described in our Annual Report, 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

~~During the first quarter of fiscal 2023 we did not repurchase any shares of our common stock in the open market.~~

In November 2021, ~~our~~the Company’s Board of Directors approved a stock repurchase program to purchase up to $10.0 million of ~~our~~the Company’s common stock. As of September ~~30, 2022, $8.0~~29, 2023, $7.3 million remains available under the stock repurchase program, and weAviat may choose to suspend or discontinue the repurchase program at any time.

During the first quarter of fiscal 2024, the Company did not repurchase any shares of common stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Not applicable.~~None.

3327

Item 6. Exhibits

~~Amended and Restated Bylaws of Aviat Networks, Inc. (incorporated~~The following exhibits are filed or furnished herewith or are incorporated by reference ~~to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August 23, 2022, File No. 001-33278)nce~~ to exhibits previously filed with the SEC:


Exhibit Number						Descriptions
3.1						Amended and Restated Certificate of Incorporation of Aviat Networks, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Current Report on Form 10-Q filed with the SEC on February 10, 2017, File No. 001-33278)
3.2						Amended and Restated Bylaws of Aviat Networks, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August ~~23, 2022,~~24, 2023, File No. 001-33278)
31.1*						Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer
31.2*						Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1**						Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
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
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*						Filed herewith.
**						Furnished herewith.

3428

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.



AVIAT NETWORKS, INC. (Registrant)

Date: November ~~2, 2022~~1, 2023



By:			/s/ David M. Gray
			David M. Gray Senior Vice President and Chief Financial Officer (duly authorized officer)

3529


	Three Months Ended October 1, 2021
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount		$ Amount
Balance as of July 2, 2021	11,153,445	$	112	$	(787)	$	818,939	$	(620,602)	$	(14,327)	$	183,335
Net income	—	—		—		—		4,682		—		4,682
Other comprehensive loss, net of tax	—	—		—		—		—		(164)		(164)
Issuance of common stock under employee stock plans	66,235	—		—		267		—		—		267
Shares withheld for taxes related to vesting of equity awards	(10,134)	—		—		(358)		—		—		(358)
Stock repurchase	(22,543)	—		(713)		—		—		—		(713)
Share-based compensation	—	—		—		863		—		—		863
Balance as of October 1, 2021	11,187,003	$	112	$	(1,500)	$	819,711	$	(615,920)	$	(14,491)	$	187,912


	Amount
	(In thousands)
Remainder of 2023	$	824
2024	705
2025	597
2026	476
2027	169
Thereafter	1,386
Total lease payments	4,157
Less: interest	(917)
Present value of lease liabilities	$	3,240


	September 30, 2022		July 1, 2022
Contract Balances
Accounts receivable, net	$	72,471	$	73,168
Contract Assets	$	50,389	$	45,857
Capitalized commissions	$	2,341	$	2,341
Contract Liabilities
Advance payments and unearned revenue	$	35,483	$	33,740
Unearned revenue, long-term	$	7,844	$	8,920


	Three Months Ended
	September 30, 2022		October 1, 2021
Motorola Solutions, Inc.	10.5	%	15.0	%


	September 30, 2022		July 1, 2022
Mobile Telephone Networks Group (MTN Group)	12.4	%	17.0	%


	Severance and Benefits						Total
(In thousands)	Q1 2023 Plan		Q4 2022 Plan		Fiscal 2021 Plan
Accrual balance, July 1, 2022	$	—	$	295	$	1,086		$	1,381
Charges, net	1,950		—		—			1,950
Cash payments	(1,437)		(272)		(100)			(1,809)

Accrual balance, September 30, 2022	513		23		986			1,522


(In thousands except for useful life)
Goodwill						$	4,950

	Useful life in Years	Gross		Accumulate amortization		Net
Purchased intangible with finite lives:
Patents	11	$	630	$	(14)	$	616
Customer relationship	15	5,500		(92)		5,408
Trade names	16	1,160		(18)		1,142
Total purchased intangible assets with finite lives		$	7,290	$	(124)	$	7,166