Aviat Networks(AVNW) - 2020 Q2 - Quarterly Report

Part I. Financial Information Financial Statements Aviat Networks reported a net loss for the six months ended December 27, 2019, with assets increasing due to new lease accounting and positive operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $179.8 million as of December 27, 2019, primarily due to new Right-of-Use assets, while total equity decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 27, 2019 | June 28, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $38,067 | $31,946 | | Accounts receivable, net | $44,387 | $51,937 | | Inventories | $13,300 | $8,573 | | Right of use assets | $5,592 | $— | | Total Assets | $179,819 | $169,193 | | Liabilities & Equity | | | | Short-term debt | $9,000 | $9,000 | | Short-term lease liabilities | $3,310 | $— | | Long-term lease liabilities | $2,590 | $— | | Total Liabilities | $111,352 | $97,677 | | Total Equity | $68,467 | $71,516 | Condensed Consolidated Statements of Operations The company reported a net loss of ($1.6) million for the six months ended December 27, 2019, on revenues of $114.6 million, a decline from the prior year Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 FY2020 | Q2 FY2019 | Six Months FY2020 | Six Months FY2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $55,997 | $65,088 | $114,611 | $125,592 | | Gross Margin | $18,319 | $22,490 | $40,875 | $40,415 | | Operating (Loss) Income | ($1,497) | $2,883 | $22 | $1,369 | | Net (Loss) Income | ($1,671) | $2,310 | ($1,617) | $1,560 | | Diluted EPS | ($0.31) | $0.41 | ($0.30) | $0.28 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $10.8 million for the six months ended December 27, 2019, leading to a $6.1 million increase in cash Six-Month Cash Flow Summary (in thousands) | Activity | Six Months Ended Dec 27, 2019 | Six Months Ended Dec 28, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $10,805 | ($566) | | Net cash used in investing activities | ($2,417) | ($3,236) | | Net cash used in financing activities | ($2,137) | ($1,972) | | Net increase (decrease) in cash | $6,122 | ($5,938) | Notes to Condensed Consolidated Financial Statements Key notes include the adoption of ASC 842, $73.8 million in remaining performance obligations, a $25.0 million credit facility, ongoing restructuring, and legal proceedings - The company adopted the new lease accounting standard ASC 842, recording Right-of-Use (ROU) assets of $7.9 million and corresponding liabilities of $8.3 million upon adoption[66][27] - As of December 27, 2019, the company had approximately $73.8 million in remaining performance obligations, with about 70% expected to be recognized as revenue in the next 12 months[57] - The company has a $25.0 million accounts receivable-based revolving credit facility with Silicon Valley Bank, expiring June 29, 2020 As of December 27, 2019, $9.0 million was outstanding[86][88] - A restructuring plan ('Fiscal 2020 Plan') was approved to consolidate product development and right-size resources, with restructuring charges of $1.6 million recorded in the first six months of fiscal 2020[93][141] - The company is subject to a legal claim for approximately $1.0 million in Austria and an enforcement action by the Indian Department of Revenue regarding intercompany transactions[112][113][114] Management's Discussion and Analysis of Financial Condition and Results of Operations Management anticipates higher North American revenue offset by international declines, with total revenue down 8.7% to $114.6 million for the six months, while gross margin improved and liquidity remains solid - The company anticipates higher revenue in North America for fiscal 2020, offset by lower revenue from international regions due to capital spending declines and increased competitive intensity[125] - Product revenue in Q2 was adversely impacted by a cyberattack at a contract manufacturing vendor, which constrained capacity for approximately three weeks[134] - Liquidity remains solid with $38.1 million in cash and cash equivalents and $14.5 million available under the SVB Credit Facility as of December 27, 2019[154] Results of Operations Total revenue decreased 8.7% to $114.6 million for the first six months of fiscal 2020, driven by international declines despite North American growth, while gross margin improved to 35.7% Revenue by Region - Six Months Ended (in thousands) | Region | Dec 27, 2019 | Dec 28, 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | North America | $76,239 | $65,079 | $11,160 | 17.1% | | Africa and the Middle East | $19,449 | $27,979 | ($8,530) | (30.5)% | | Europe and Russia | $5,825 | $6,945 | ($1,120) | (16.1)% | | Latin America and Asia Pacific | $13,098 | $25,589 | ($12,491) | (48.8)% | | Total Revenue | $114,611 | $125,592 | ($10,981) | (8.7)% | Gross Margin Analysis - Six Months Ended | Metric | Six Months FY2020 | Six Months FY2019 | | :--- | :--- | :--- | | Gross Margin ($ thousands) | $40,875 | $40,415 | | Gross Margin % | 35.7% | 32.2% | | Product Margin % | 38.1% | 34.7% | | Service Margin % | 31.7% | 27.6% | - Selling and administrative expenses increased by $1.1 million (3.9%) in the first six months of fiscal 2020, primarily due to higher variable compensation and legal-related costs[140] Liquidity and Capital Resources The company maintains strong liquidity with $38.1 million in cash and $10.8 million in operating cash flow for the six months, ensuring sufficient resources for future operations - As of December 27, 2019, total cash and cash equivalents were $38.1 million, with $18.7 million (49.1%) held in the U.S. and $19.4 million (50.9%) held by foreign entities[148] - Net cash provided by operating activities was $10.8 million for the first six months of fiscal 2020, compared to cash used of $0.6 million in the prior-year period[149] - The company was in compliance with the quarterly financial covenants of its SVB Credit Facility as of December 27, 2019 The facility expires on June 29, 2020[155][156] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rates, but management believes a 10% interest rate change would not materially impact its financial position - The company is exposed to foreign currency risks from conducting business globally but had no outstanding foreign currency forward contracts as of December 27, 2019[164][167] - Interest rate risk is primarily related to cash equivalents ($22.7 million) and borrowings under the SVB Credit Facility A 10% change in interest rates is not expected to have a material impact[168][169][171] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 27, 2019, with no material changes to internal controls over financial reporting - Management, including the CEO and PFO, concluded that as of December 27, 2019, the company's disclosure controls and procedures were effective[172] - No changes occurred during the quarter ended December 27, 2019, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[173] Part II. Other Information Legal Proceedings The company is involved in ongoing legal proceedings, including a $1.0 million claim in Austria and an enforcement action in India, as detailed in Note 12 - The company is subject to ongoing legal proceedings, as detailed in Note 12 of the financial statements[176][112][113] Risk Factors No material additions or changes to the risk factors previously disclosed in the fiscal 2019 Annual Report on Form 10-K have occurred - There have been no material additions or changes to the risk factors disclosed in the fiscal 2019 Annual Report on Form 10-K[178] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 46,087 shares for $0.7 million during Q2 FY2020, with $3.8 million remaining for future repurchases Stock Repurchases (Q2 FY2020) | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 46,087 | | Aggregate Purchase Price | $0.7 million | | Remaining Authorization | $3.8 million | Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL data files