Aviat Networks(AVNW) - 2020 Q3 - Quarterly Report

Part I. Financial Information This section provides the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and equity, along with detailed accounting notes Condensed Consolidated Balance Sheets Total assets increased to $179.8 million, while total liabilities rose to $112.8 million, leading to a decrease in total equity to $66.9 million Condensed Consolidated Balance Sheets (in thousands) | Balance Sheet Items | April 3, 2020 | June 28, 2019 | | :--- | :--- | :--- | | Total Current Assets | $137,394 | $125,997 | | Total Assets | $179,761 | $169,193 | | Total Current Liabilities | $96,023 | $82,211 | | Total Liabilities | $112,818 | $97,677 | | Total Equity | $66,943 | $71,516 | | Total Liabilities and Equity | $179,761 | $169,193 | Condensed Consolidated Statements of Operations The company reported a Q3 2020 net income of $0.7 million, a turnaround from a prior-year loss, while the nine-month period showed a net loss of $0.9 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 (3 months ended Apr 3) | Q3 2019 (3 months ended Mar 29) | YTD 2020 (9 months ended Apr 3) | YTD 2019 (9 months ended Mar 29) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $61,379 | $54,037 | $175,990 | $179,629 | | Gross Margin | $21,961 | $16,255 | $62,836 | $56,670 | | Operating Income (Loss) | $1,236 | $(2,503) | $1,258 | $(1,134) | | Net Income (Loss) | $731 | $4,339 | $(886) | $5,899 | | Diluted EPS | $0.13 | $0.78 | $(0.16) | $1.05 | Condensed Consolidated Statements of Comprehensive (Loss) Income The company reported a Q3 2020 comprehensive loss of $1.6 million, primarily due to translation adjustments, contrasting with comprehensive income in the prior year Comprehensive (Loss) Income (in thousands) | Metric | Q3 2020 (3 months ended Apr 3) | Q3 2019 (3 months ended Mar 29) | YTD 2020 (9 months ended Apr 3) | YTD 2019 (9 months ended Mar 29) | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $731 | $4,339 | $(886) | $5,899 | | Other Comprehensive Loss | $(2,374) | $(88) | $(2,477) | $(426) | | Comprehensive (Loss) Income | $(1,643) | $4,251 | $(3,363) | $5,473 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $14.6 million for the nine months, with cash used in investing and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended April 3, 2020 | Nine Months Ended March 29, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,625 | $5,340 | | Net cash used in investing activities | $(3,945) | $(4,083) | | Net cash used in financing activities | $(2,525) | $(2,401) | | Net increase (decrease) in cash | $7,260 | $(1,449) | Condensed Consolidated Statements of Equity Total equity decreased to $66.9 million, primarily due to net loss, other comprehensive loss, and stock repurchases - Total equity decreased by $4.6 million over the nine months ended April 3, 2020, from $71.5 million to $66.9 million[17] - Key drivers for the equity decrease were a net loss of $0.9 million, other comprehensive loss of $2.5 million, and stock repurchases totaling $1.8 million[17] Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including lease standard adoption, revenue recognition, debt, restructuring, and the impact of COVID-19 and legal matters - The company adopted the new lease accounting standard ASC 842 on June 29, 2019, resulting in the recognition of $7.9 million in Right-of-Use (ROU) assets and $8.3 million in corresponding lease liabilities on the balance sheet[61][66] - The company initiated a new restructuring plan (Q3 2020 Plan) to reduce operating costs, recording charges of $0.6 million in the third quarter[92][158] - The company disclosed the potential business impact of the COVID-19 pandemic, noting minimal supply chain disruption in Q3 but acknowledging risks of future constraints and delays[123][125] - Subsequent to the quarter's end, the company received and then repaid a $5.9 million Paycheck Protection Program (PPP) loan after new SBA guidance was issued[127][128] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2020 financial results, highlighting revenue growth, improved gross margin, solid liquidity, and the impacts of COVID-19 and restructuring efforts Results of Operations Q3 2020 total revenue increased 13.6% to $61.4 million, driven by North America, with gross margin expanding to 35.8% due to product mix Revenue by Region - Q3 Change (in thousands) | Region | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | North America | $37,250 | $28,581 | $8,669 | 30.3% | | Africa and the Middle East | $9,230 | $11,079 | $(1,849) | (16.7)% | | Europe and Russia | $1,903 | $3,326 | $(1,423) | (42.8)% | | Latin America and Asia Pacific | $12,996 | $11,051 | $1,945 | 17.6% | | Total Revenue | $61,379 | $54,037 | $7,342 | 13.6% | Gross Margin Analysis - Q3 | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Gross Margin | $21,961 | $16,255 | | Gross Margin % | 35.8% | 30.1% | | Product Margin % | 39.7% | 31.5% | | Service Margin % | 27.9% | 27.6% | - Selling and administrative expenses increased by 13.6% in Q3 2020, primarily due to payroll costs from an extra calendar week, higher variable compensation, and legal-related costs[157] Liquidity and Capital Resources The company maintains solid liquidity with $39.2 million in cash and $14.5 million available under its credit facility, with strong operating cash flow - Principal sources of liquidity as of April 3, 2020, were $39.2 million in cash and cash equivalents and $14.5 million available under the SVB Credit Facility[165][171] - Net cash provided by operating activities was $14.6 million for the first nine months of fiscal 2020, compared to $5.3 million in the prior-year period[166] - The company was in compliance with all financial covenants for its SVB Credit Facility as of April 3, 2020[173] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency and interest rates, utilizing forward contracts for hedging, with minimal impact from interest rate fluctuations - The company uses foreign exchange forward contracts to hedge forecasted foreign currency transactions, but these do not qualify for hedge accounting; therefore, changes in fair value are recorded in earnings[181][182] Outstanding Foreign Currency Forward Contracts (as of April 3, 2020) | Currency | Notional Contract Amount (USD in thousands) | | :--- | :--- | | Canadian dollar | $440 | | Euro | $3,358 | | New Zealand dollar | $3,206 | | Singapore dollar | $860 | | Total | $7,864 | - Exposure to interest rate risk from cash equivalents and borrowings under the SVB Credit Facility is not expected to have a material impact on financial results, as interest on borrowings is not material to the overall financial position[186][190] Controls and Procedures The company's disclosure controls and procedures were deemed effective, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[192] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[193] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, and other disclosures, including exhibits Legal Proceedings The company faces legal claims, including a $1.0 million customer claim in Austria and an ongoing enforcement action in India regarding intercompany transactions - The company is facing a claim for approximately $1.0 million in damages from an Austrian customer alleging defective products[115] - An enforcement action by the Indian Department of Revenue is ongoing against the company's Indian subsidiaries concerning intercompany receivables and payables[116] Risk Factors The COVID-19 pandemic poses significant risks to the company's business, liquidity, and financial condition, including supply chain disruptions and cybersecurity threats - The COVID-19 pandemic and its economic repercussions are identified as a significant risk factor with the potential for a material adverse effect on the business[197] - Specific risks exacerbated by the pandemic include supply chain disruptions, liquidity challenges from delayed payments, increased cybersecurity threats, and potential litigation[199] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 26,484 shares for $0.4 million in Q3 2020, suspending its stock repurchase program with $3.4 million remaining Stock Repurchases for Q3 2020 | Period | Total Shares Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | Dec 28, 2019 - Jan 24, 2020 | 17,197 | $14.20 | | Jan 25, 2020 - Feb 28, 2020 | 9,287 | $13.72 | | Feb 29, 2020 - Apr 3, 2020 | — | $— | - The company suspended its stock repurchase program in February 2020. As of April 3, 2020, $3.4 million remained available under the program[203] Defaults upon Senior Securities This section is not applicable to the company's current financial reporting - Not applicable[204] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[204] Other Information This section contains no additional material information - Not applicable[205] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data files - A list of exhibits filed with the report is provided, including certifications from the President/CEO and CFO, and XBRL instance documents[207]