Aviat Networks(AVNW) - 2023 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Aviat Networks reported an 11.1% revenue increase to $81.3 million for the quarter ended September 30, 2022, yet recorded a $2.7 million net loss due to higher expenses, with total assets reaching $326.7 million and negative operating cash flow of $6.3 million Condensed Consolidated Balance Sheets Total assets increased slightly to $326.7 million as of September 30, 2022, driven by acquisition-related goodwill and intangible assets, despite a decrease in cash and marketable securities, while liabilities rose and equity slightly declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | July 1, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $21,607 | $36,877 | | Marketable securities | $1,252 | $10,893 | | Accounts receivable, net | $72,471 | $73,168 | | Inventories | $32,888 | $25,394 | | Goodwill | $4,950 | $— | | Intangible assets, net | $7,166 | $— | | Total Assets | $326,728 | $323,904 | | Liabilities & Equity | | | | Accounts payable | $48,236 | $42,394 | | Total current liabilities | $110,880 | $104,479 | | Total Liabilities | $127,306 | $122,151 | | Total Equity | $199,422 | $201,753 | Condensed Consolidated Statements of Operations Total revenues grew 11.1% to $81.3 million for the three months ended September 30, 2022, but increased operating expenses and other non-operating costs resulted in a net loss of $2.7 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Oct 1, 2021 | | :--- | :--- | :--- | | Total Revenues | $81,251 | $73,158 | | Gross Margin | $29,454 | $26,081 | | Total Operating Expenses | $25,541 | $19,267 | | Operating Income | $3,913 | $6,814 | | Net (Loss) Income | $(2,746) | $4,682 | | Diluted EPS | $(0.25) | $0.39 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $6.3 million for the first quarter of fiscal 2023, with investing activities using $8.3 million primarily for an acquisition, leading to a total decrease of $15.3 million in cash and equivalents Cash Flow Summary (in thousands) | Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Oct 1, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(6,314) | $682 | | Net cash used in investing activities | $(8,336) | $(349) | | Net cash used in financing activities | $(310) | $(804) | | Net decrease in cash, cash equivalents, and restricted cash | $(15,307) | $(658) | Notes to Condensed Consolidated Financial Statements Key notes include the $20.4 million Redline Communications acquisition, a new $2.0 million restructuring plan, shifts in regional revenue, and the company's $25.0 million credit facility with $22.0 million available - In Q1 FY2023, the company completed the all-cash acquisition of Redline Communications for $20.4 million ($15.8 million net of cash acquired), resulting in the recognition of $4.95 million in goodwill and $7.29 million in purchased intangible assets[79][80] - A new restructuring plan (Q1 2023 Plan) was approved related to the Redline acquisition, resulting in $1.95 million in charges during the quarter, involving a reduction of approximately 20 employees[74][75] Revenue by Region (in thousands) | Region | Three Months Ended Sep 30, 2022 | Three Months Ended Oct 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 | - As of September 30, 2022, the company had $22.0 million available under its SVB Credit Facility, having borrowed and repaid $15.0 million during the quarter with no outstanding balance at quarter-end[53] Management's Discussion and Analysis (MD&A) Management attributes 11.1% revenue growth to international markets and the Redline acquisition, despite a North American decline, with gross margin improving to 36.3% and increased operating expenses due to integration costs, while liquidity remains sufficient Revenue Change by Region (Q1 FY2023 vs Q1 FY2022) | Region | $ Change (in thousands) | % Change | | :--- | :--- | :--- | | North America | $(2,089) | (4.1)% | | Africa and the Middle East | $282 | 2.6% | | Europe | $1,797 | 66.5% | | Latin America and Asia Pacific | $8,103 | 91.9% | | Total Revenue | $8,093 | 11.1% | - Gross margin improved to 36.3% from 35.7% YoY, primarily due to a higher volume of Private Network business and increased sales through the Aviat Store, which helped offset pressures from expedite fees and inflation[126] - Selling and administrative expenses increased by $4.8 million (37.8%) YoY, primarily due to variable compensation and costs associated with the integration of the newly acquired Redline business[130] - The company's principal sources of liquidity are $21.6 million in cash and cash equivalents and $22.0 million of available credit under its SVB Credit Facility[143] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange rates, resulting in a $1.1 million translation loss on equity, and interest rate changes, which are currently considered immaterial - The company is exposed to foreign currency risk from its global operations, with the impact of translating foreign assets and liabilities to U.S. dollars resulting in a $1.1 million loss recorded in stockholders' equity for the first three months of fiscal 2023[155] - As of September 30, 2022, there were no forward contracts in foreign currency to hedge against exchange rate risk[154] - Interest rate risk on borrowings is not expected to have a material impact, as interest expense on the SVB Credit Facility was immaterial during the quarter[159] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of quarter-end, with no material changes to internal controls over financial reporting - The CEO and CFO have concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[161] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[162] Part II. Other Information Legal Proceedings The company is subject to various legal claims in the normal course of business but currently believes that none of these are likely to have a material adverse effect on its financial position - The company does not believe that any current legal claims or proceedings are likely to have a material adverse effect on its financial position[99][165] 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 the fiscal year 2022 - No material changes have been identified from the risk factors described in the fiscal 2022 Annual Report on Form 10-K[166] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, with $8.0 million remaining available under its existing stock repurchase program - No shares of common stock were repurchased during the quarter[167] - As of September 30, 2022, $8.0 million remains available under the company's $10.0 million stock repurchase program approved in November 2021[67][167] Other Items (Items 3, 4, 5, 6) Items 3, 4, and 5 of Part II were not applicable for this reporting period, while Item 6 lists the exhibits filed with the report - Items 3, 4, and 5 of Part II are noted as 'Not applicable'[167]