Aviat Networks(AVNW) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The unaudited condensed consolidated financial statements for the quarter ended April 2, 2021, are presented, retrospectively adjusted for a two-for-one stock split Condensed Consolidated Balance Sheets Total assets increased to $290.6 million and total equity rose to $179.7 million as of April 2, 2021, driven by deferred income taxes and a tax valuation allowance release Balance Sheet Summary (in thousands) | Balance Sheet Item | April 2, 2021 (in thousands) | July 3, 2020 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $164,284 | $139,950 | | Total Assets | $290,576 | $179,801 | | Total Current Liabilities | $93,666 | $93,970 | | Total Liabilities | $110,855 | $111,120 | | Total Equity | $179,721 | $68,681 | - Deferred income taxes increased significantly from $12.8 million to $102.6 million, contributing to the growth in total assets[10] - The company had no short-term debt as of April 2, 2021, compared to $9.0 million as of July 3, 2020[10] Condensed Consolidated Statements of Operations Total revenues increased to $66.4 million and net income surged to $94.7 million for Q3 FY2021, primarily due to a significant income tax benefit Key Operating Metrics (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended April 2, 2021 | Three Months Ended April 3, 2020 | Nine Months Ended April 2, 2021 | Nine Months Ended April 3, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $66,404 | $61,379 | $203,225 | $175,990 | | Gross Margin | $25,578 | $21,961 | $76,736 | $62,836 | | Operating Income | $4,035 | $1,236 | $18,478 | $1,258 | | Net Income (Loss) | $94,731 | $731 | $107,308 | $(886) | | Diluted EPS | $8.00 | $0.07 | $9.31 | $(0.08) | - A significant tax benefit of $90.6 million was recorded in the third quarter of fiscal 2021, compared to a tax provision of $0.6 million in the prior-year quarter, drastically increasing net income[13] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $14.2 million for the nine months ended April 2, 2021, with $7.7 million used in financing activities primarily for debt repayment Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended April 2, 2021 | Nine Months Ended April 3, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,187 | $14,625 | | Net cash used in investing activities | $(2,399) | $(3,945) | | Net cash used in financing activities | $(7,736) | $(2,525) | - The cash from operations was impacted by a significant non-cash deferred tax benefit of $89.7 million and an increase in unbilled receivables of $15.4 million[19] Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, balance sheet components, and significant events, including a stock split, tax valuation allowance release, restructuring plans, and a subsequent shelf registration filing - On April 7, 2021, the company effected a two-for-one stock split, retrospectively reclassifying all per share and equity award amounts for all periods presented[33] - Inventories increased to $21.9 million from $14.0 million, primarily to mitigate supply chain constraints[46] - During Q3 2021, the company recorded a valuation allowance release of $92.2 million on its U.S. deferred tax assets, based on expectations of continued profitability[100] - The company's Board of Directors approved a new restructuring plan in Q3 2021 (Fiscal 2021 Plan), resulting in a charge of $1.3 million for the quarter[90][91] - As of April 2, 2021, the company had approximately $73 million in remaining performance obligations, with about 60% expected to be recognized as revenue in the next 12 months[75] - Subsequent to the quarter end, on April 13, 2021, the company filed a shelf registration statement on Form S-3 to offer and sell up to $200 million of securities[125] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 8.2% revenue increase and improved gross margin in Q3 2021, the impact of the tax valuation allowance release on net income, and the company's sufficient liquidity position Results of Operations Q3 2021 revenue increased 8.2% to $66.4 million, driven by North America, with gross margin expanding to 38.5% due to favorable business mix and reduced operating expenses Revenue by Region (in thousands) | Revenue by Region (in thousands) | Q3 FY2021 | Q3 FY2020 | % Change | | :--- | :--- | :--- | :--- | | North America | $42,021 | $37,250 | 12.8% | | Africa and the Middle East | $9,904 | $9,230 | 7.3% | | Europe and Russia | $3,280 | $1,903 | 72.4% | | Latin America and Asia Pacific | $11,199 | $12,996 | (13.8)% | | Total Revenue | $66,404 | $61,379 | 8.2% | - Gross margin for Q3 FY2021 improved to 38.5% from 35.8% YoY, primarily due to a higher volume of Private Network business and increased sales through the Aviat Store[146] - Selling and administrative expenses for the nine months of fiscal 2021 decreased by $2.8 million (6.3%) compared to the prior year, mainly due to lower travel expenses and restructuring savings[149] - A tax benefit of $90.6 million was recorded in Q3 2021, primarily from the release of a $92.2 million valuation allowance on U.S. deferred tax assets due to expectations of future profitability[153][154] Liquidity and Capital Resources As of April 2, 2021, the company held $45.8 million in cash and $23.5 million in available credit, with management deeming its liquidity sufficient for the next 12 months - Total cash and cash equivalents were $45.8 million, with 55.3% held in the United States and 44.7% held by foreign entities[157] - The company had $23.5 million of available credit under its $25.0 million SVB Credit Facility, which matures on June 28, 2021[162] - Net cash used in financing activities was $7.7 million for the first nine months of fiscal 2021, primarily due to a $9.0 million repayment of short-term debt[161] - The company filed a $200 million shelf registration on Form S-3, which, once effective, will allow for future offerings of securities[165] Quantitative and Qualitative Disclosures about Market Risk The company manages foreign currency and interest rate risks, noting no material impact from interest rate fluctuations and no outstanding foreign currency forward contracts as of April 2, 2021 - The company uses foreign exchange forward contracts to hedge currency risk but had no such contracts outstanding as of April 2, 2021[173][176] - Exposure to interest rate risk on the $45.8 million in cash and cash equivalents and on borrowings under the SVB Credit Facility is not expected to have a material impact on financial results[178][179][180] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of April 2, 2021, with no material changes to internal controls over financial reporting during the quarter - The President and CEO, and CFO concluded that disclosure controls and procedures were effective as of April 2, 2021[181] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting[182] Part II. Other Information Legal Proceedings The company is subject to various legal claims, with an immaterial settlement in Q3 2021, and management believes no current proceedings will materially affect its financial position - A claim for damages from a customer received in May 2016 was settled for an immaterial amount during the third quarter of 2021[115] - The company has not recorded any accrual for loss contingencies associated with current legal claims, as a material loss is not considered probable or reasonably estimable[117] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's fiscal 2020 Annual Report on Form 10-K - No material changes have occurred from the risk factors disclosed in the fiscal 2020 Annual Report on Form 10-K[186] Unregistered Sales of Equity Securities and Use of Proceeds The company reinstated its stock repurchase program in Q3 2021, repurchasing 8,300 shares for $0.5 million, with $3.0 million remaining available for future repurchases - The Board of Directors reinstated the stock repurchase program in the third quarter of fiscal 2021 after a temporary suspension[187] Stock Repurchases | Period | Shares Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 30 - Feb 26, 2021 | 2,100 | $59.80 | | Feb 27 - Apr 2, 2021 | 6,200 | $53.68 | | Total | 8,300 | N/A | - As of April 2, 2021, $3.0 million remained available for future repurchases under the stock repurchase program[187]