Aviat Networks(US:AVNW)2025-05-06 20:28Part I. Financial Information Financial Statements The company reported total revenues of $112.6 million for Q3 FY2025, but a net loss of $3.9 million for the nine months, driven by higher costs and expenses, with increased assets and liabilities, and negative operating cash flow Condensed Consolidated Statements of Operations (Unaudited) | (In thousands, except per share amounts) | Three Months Ended March 28, 2025 | Three Months Ended March 29, 2024 | Nine Months Ended March 28, 2025 | Nine Months Ended March 29, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $112,640 | $110,822 | $319,266 | $291,423 | | Gross margin | $39,296 | $36,071 | $99,970 | $103,593 | | Operating income | $9,294 | $5,667 | $1,696 | $13,946 | | Net income (loss) | $3,528 | $3,870 | $(3,856) | $9,211 | | Diluted EPS | $0.27 | $0.30 | $(0.30) | $0.75 | Condensed Consolidated Balance Sheets (Unaudited) | (In thousands) | March 28, 2025 | June 28, 2024 | | :--- | :--- | :--- | | Total current assets | $456,604 | $405,223 | | Total assets | $628,337 | $535,223 | | Total current liabilities | $282,094 | $218,857 | | Total liabilities | $372,221 | $279,338 | | Total stockholders' equity | $256,116 | $255,885 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Nine Months Ended March 28, 2025 | Nine Months Ended March 29, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,790) | $22,229 | | Net cash used in investing activities | $(26,264) | $(34,953) | | Net cash provided by financing activities | $17,585 | $49,279 | | Net (decrease) increase in cash | $(13,255) | $35,958 | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies, recent acquisitions, debt structure, and contingencies, including the acquisition of 4RF Limited and NEC's wireless transport business, amendments to the credit facility, and revisions to prior fiscal 2024 financial statements due to immaterial errors - On July 2, 2024, the Company acquired 4RF Limited for $18.2 million in an all-cash transaction, net of cash acquired. This acquisition expands Aviat's product offering in industrial wireless access markets, including Private LTE/5G76120 - The acquisition of NEC's wireless transport business was completed on November 30, 2023, for consideration of $32.2 million in cash and 736,750 shares of common stock valued at $22.3 million. An additional $13.2 million is estimated for post-closing adjustments788081 - The company's credit facility was amended to provide a $75.0 million revolving credit facility and a $75.0 million Term Loan Facility. As of March 28, 2025, available credit under the Revolver was $66.3 million, and $74.1 million was outstanding under the Term Loan5153158 - The company identified and corrected errors in its fiscal 2024 quarterly financial statements related to revenue recognition and contract cost estimates. The impacts were determined not to be material, and prior period statements have been revised for comparability28106124 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 9.6% revenue growth for the first nine months of fiscal 2025 to the NEC acquisition and international volumes, despite a gross margin decline to 31.3% and increased operating expenses, while maintaining solid liquidity of $49.4 million cash and $66.3 million available credit Results of Operations For the nine months ended March 28, 2025, total revenue increased 9.6% to $319.3 million driven by acquisitions and international growth, while gross margin declined to 31.3% and operating expenses rose, leading to a sharp drop in operating income and a net loss Revenue by Region (Nine Months Ended) | (In thousands) | March 28, 2025 | March 29, 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | North America | $149,589 | $149,868 | $(279) | (0.2)% | | Africa and the Middle East | $38,210 | $35,848 | $2,362 | 6.6% | | Europe | $23,376 | $17,378 | $5,998 | 34.5% | | Latin America and Asia Pacific | $108,091 | $88,329 | $19,762 | 22.4% | | Total revenue | $319,266 | $291,423 | $27,843 | 9.6% | Gross Margin Analysis (Nine Months Ended) | (In thousands, except percentages) | March 28, 2025 | March 29, 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $319,266 | $291,423 | $27,843 | 9.6% | | Gross margin | $99,970 | $103,593 | $(3,623) | (3.5)% | | Gross margin % | 31.3% | 35.5% | | | - For the first nine months of fiscal 2025, R&D expenses increased by $2.9 million (11.4%) primarily due to development activity related to the NEC Transaction133 - For the first nine months of fiscal 2025, S&A expenses increased by $6.4 million (10.3%) primarily due to merger and acquisition expenses and additional costs from the NEC and 4RF transactions134 Liquidity, Capital Resources, and Financial Strategies As of March 28, 2025, the company's liquidity included $49.4 million cash and $66.3 million available credit, with 74% of cash held outside the U.S., while operating cash flow turned negative by $4.8 million due to increased working capital and lower earnings, though liquidity is deemed sufficient for the next 12 months - As of March 28, 2025, total cash and cash equivalents were $49.4 million, with $36.8 million (74%) held outside the United States142 - Net cash used in operating activities was $4.8 million for the first nine months of fiscal 2025, a decrease of $27.0 million from the $22.2 million provided by operating activities in the prior year, primarily due to increases in working capital and decreased earnings143 - The company believes existing cash, available borrowings under its Credit Facility, and future cash collections will be sufficient to provide for its anticipated requirements for at least the next 12 months148 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, managing foreign currency risk through derivatives when needed, and estimating a $0.5 million impact on annual interest expense from a hypothetical 10% change in interest rates on its variable-rate borrowings - The company is exposed to foreign currency risks as it conducts business globally in numerous currencies. The cumulative translation adjustment decreased stockholders' equity by $19.5 million as of March 28, 2025152154 - Interest rate risk exposure comes from borrowings under the Credit Facility. As of March 28, 2025, the company had $74.1 million outstanding under its Term Loan with a variable interest rate. A 10% change in interest rates is estimated to impact annual interest expense by $0.5 million155158160 Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 28, 2025, due to un-remediated material weaknesses in internal control over financial reporting, with ongoing remediation efforts including training and control redesign - Management concluded that disclosure controls and procedures were not effective as of March 28, 2025, due to material weaknesses in internal control over financial reporting that are not yet fully remediated161164 - Remediation actions are underway, including providing training, redesigning controls over revenue recognition and journal entries, and implementing a formal monitoring program162 - The material weaknesses will not be considered remediated until the associated controls operate effectively for a sufficient period of time and are confirmed through management testing163 Part II. Other Information Legal Proceedings The company is subject to various legal claims and litigation in the normal course of business, including an enforcement action in India, though management believes none will have a material adverse effect on its financial position - For details on legal proceedings, the report refers to Note 12, which discusses disputes and an enforcement action by the Indian Department of Revenue against the company's Indian subsidiary94168 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for fiscal year 2024, directing investors to that report for a full discussion - No material changes have occurred from the risk factors described in the company's fiscal 2024 Annual Report on Form 10-K169170 Unregistered Sales of Equity Securities and Use of Proceeds The company has a stock repurchase program authorized for up to $10.0 million, under which 5,200 shares were repurchased for approximately $0.1 million during Q3 FY2025, with $6.3 million remaining available Stock Repurchase Activity (Q3 FY2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet be Purchased (in thousands) | | :--- | :--- | :--- | :--- | | Feb 22, 2025 — Mar 28, 2025 | 5,200 | $19.12 | $6,330 | | Total | 5,200 | | $6,330 | - As of March 28, 2025, $6.3 million remains available under the company's $10.0 million stock repurchase program171 Other Information On March 7, 2025, General Counsel Erin Boase adopted a new Rule 10b5-1 trading plan to sell up to 11,770 shares, effective until March 7, 2026, with no other officers or directors adopting, modifying, or terminating such plans during the quarter - On March 7, 2025, General Counsel Erin Boase adopted a Rule 10b5-1 trading plan to sell up to 11,770 shares, effective until March 7, 2026175 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files, and incorporates by reference the company's Amended and Restated Certificate of Incorporation and Bylaws - Key exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906178