UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

________________________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______           

Commission File Number 001-33278

  AVIAT NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware			20-5961564
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
200 Parker Drive, Suite C100A,	Austin,	Texas	78728
(Address of principal executive offices)			(Zip Code)

(408) 941-7100

(Registrant’s telephone number, including area code)

__________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which Registered
Common Stock	AVNW	The Nasdaq Global Select Market

Indicate by checkmark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares outstanding of the registrant’s Common Stock as of April 28, 2023 was 11,440,689. 

AVIAT NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended March 31, 2023

Table of Contents

	Page
Part I. Financial Information	4
Item 1. Financial Statements	5
Condensed Consolidated Balance Sheets (Unaudited)	5
Condensed Consolidated Statements of Operations (Unaudited)	6
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	7
Condensed Consolidated Statements of Cash Flows (Unaudited)	8
Condensed Consolidated Statements of Equity (Unaudited)	11
Notes to Condensed Consolidated Financial Statements (Unaudited)	13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	34
Part II. Other Information	36
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults upon Senior Securities	36
Item 4. Mine Safety Disclosures	37
Item 5. Other Information	37
Item 6. Exhibits	38
Signatures	39
Exhibit Index	39

3

PART I.     FINANCIAL INFORMATION

4

Item 1.Financial Statements

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value amounts)	March 31, 2023		July 1, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	22,456	$	36,877
Marketable securities	—		10,893
Accounts receivable, net	88,458		73,168
Unbilled receivables	63,344		45,857
Inventories	39,083		25,394
Customer service inventories	1,857		1,775
Other current assets	21,306		12,437
Total current assets	236,504		206,401
Property, plant and equipment, net	10,570		8,887
Goodwill	4,950		—
Intangible assets, net	6,918		—
Deferred income taxes	88,750		95,412
Right of use assets	2,669		2,759
Other assets	14,301		10,445
TOTAL ASSETS	$	364,662	$	323,904
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	6,200	$	—
Accounts payable	61,670		42,394
Accrued expenses	23,397		26,451
Short-term lease liabilities	721		513
Advance payments and unearned revenue	40,348		33,740
Restructuring liabilities	884		1,381
Total current liabilities	133,220		104,479
Unearned revenue	7,628		8,920
Long-term lease liabilities	2,255		2,412
Other long-term liabilities	279		273
Reserve for uncertain tax positions	5,363		5,504
Deferred income taxes	563		563
Total liabilities	149,308		122,151
Commitments and contingencies (Note 13)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued	—		—
Common stock, $0.01 par value, 300,000,000 shares authorized, 11,436,542 shares issued and outstanding at March 31, 2023; 11,160,160 shares issued and outstanding at July 1, 2022	114		112
Treasury stock	(6,147)		(6,147)
Additional paid-in-capital	828,411		823,259
Accumulated deficit	(591,253)		(599,442)
Accumulated other comprehensive loss	(15,771)		(16,029)
Total equity	215,354		201,753
TOTAL LIABILITIES AND EQUITY	$	364,662	$	323,904

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended				Nine Months Ended
(In thousands, except per share amounts)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
Revenues:
Revenue from product sales	$	54,811	$	52,047	$	175,473	$	156,361
Revenue from services	28,669		22,469		79,941		69,177
Total revenues	83,480		74,516		255,414		225,538
Cost of revenues:
Cost of product sales	35,745		31,850		111,567		97,789
Cost of services	17,902		15,130		52,340		45,976
Total cost of revenues	53,647		46,980		163,907		143,765
Gross margin	29,833		27,536		91,507		81,773
Operating expenses:
Research and development expenses	6,518		5,259		18,652		17,338
Selling and administrative expenses	15,842		14,867		49,913		41,304
Restructuring (recovery) charges	(23)		(72)		2,855		(373)
Total operating expenses	22,337		20,054		71,420		58,269
Operating income	7,496		7,482		20,087		23,504
Other (income)/expense, net	428		175		2,750		387
Income before income taxes	7,068		7,307		17,337		23,117
Provision for income taxes	2,179		1,278		9,148		6,490
Net income	$	4,889	$	6,029	$	8,189	$	16,627
Net income per share of common stock outstanding:
Basic	$	0.43	$	0.54	$	0.72	$	1.49
Diluted	$	0.41	$	0.51	$	0.69	$	1.40
Weighted-average shares outstanding:
Basic	11,413		11,173		11,319		11,172
Diluted	11,884		11,761		11,829		11,848

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
Net income	$	4,889	$	6,029	$	8,189	$	16,627
Other comprehensive income (loss):
Net change in cumulative translation adjustments	370		(786)		258		(1,058)
Other comprehensive income (loss)	370		(786)		258		(1,058)
Comprehensive income	$	5,259	$	5,243	$	8,447	$	15,569

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

7

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

8

	Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022
Operating Activities
Net income	$	8,189	$	16,627
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of property, plant and equipment	4,193		3,444
Amortization of intangible assets acquired	372		—
Provision for/(recovery from) uncollectible receivables	476		(56)
Share-based compensation	5,135		2,464
Deferred tax assets, net	5,189		5,437
Charges for inventory and customer service inventory write-downs	1,715		1,140
Loss (gain) on disposition of property, plant and equipment, net	34		(66)
Noncash lease expense	524		620
Net loss (gain) on marketable securities	1,730		(23)
Restructuring charges (recoveries)	—		(373)
Changes in operating assets and liabilities:
Accounts receivable	(12,212)		(28,252)
Unbilled receivables	(17,719)		(8,446)
Inventories	(8,961)		(5,634)
Customer service inventories	(958)		(1,061)
Accounts payable	16,344		7,934
Accrued expenses	(3,594)		(569)
Advance payments and unearned revenue	1,948		4,719
Income taxes payable or receivable	1,932		(1,400)
Other assets and liabilities	(12,814)		(6,652)
Change in lease liabilities	(528)		(641)
Net cash used in operating activities	(9,005)		(10,788)
Investing Activities
Payments for acquisition of property, plant and equipment	(5,055)		(1,028)
Proceeds from sale of marketable securities	9,163		—
Purchase of marketable securities	—		(2,492)
Proceeds from sale of asset held for sale	—		2,284
Acquisition, net of cash acquired and purchases of intangible assets	(15,769)		—
Net cash used in investing activities	(11,661)		(1,236)
Financing Activities
Proceeds from borrowings	50,200		—
Repayments of borrowings	(44,000)		—
Payments for repurchase of common stock - treasury shares	—		(4,611)
Payments for taxes related to net settlement of equity awards	(1,055)		(358)
Proceeds from issuance of common stock under employee stock plans	1,074		931
Net cash provided by (used in) financing activities	6,219		(4,038)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	9		(663)
Net decrease in cash, cash equivalents, and restricted cash	(14,438)		(16,725)
Cash, cash equivalents, and restricted cash, beginning of period	37,104		48,198
Cash, cash equivalents, and restricted cash, end of period	$	22,666	$	31,473

9

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

10

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

	Three Months Ended March 31, 2023
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount
Balance as of December 30, 2022	11,377,066	$	114	$	(6,147)	$	826,812	$	(596,142)	$	(16,141)	$	208,496
Net income	—	—		—		—		4,889		—		4,889
Other comprehensive income, net of tax	—	—		—		—		—		370		370
Issuance of common stock under employee stock plans	71,281	(1)		—		328		—		—		327
Shares withheld for taxes related to vesting of equity awards	(11,805)	1		—		(367)		—		—		(366)
Share-based compensation	—	—		—		1,638		—		—		1,638
Balance as of March 31, 2023	11,436,542	$	114	$	(6,147)	$	828,411	$	(591,253)	$	(15,771)	$	215,354

	Three Months Ended April 1, 2022
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount
Balance as of December 31, 2021	11,195,542	$	112	$	(3,408)	$	820,791	$	(610,004)	$	(14,599)	$	192,892
Net income	—	—		—		—		6,029		—		6,029
Other comprehensive loss, net of tax	—	—		—		—		—		(786)		(786)
Issuance of common stock under employee stock plans	37,327	1		—		345		—		—		346
Shares withheld for taxes related to vesting of equity awards	—	—		—		—		—		—		—
Stock repurchase	(65,951)	(1)		(1,990)		—		—		—		(1,991)
Share-based compensation	—	—		—		840		—		—		840
Balance as of April 1, 2022	11,166,918	$	112	$	(5,398)	$	821,976	$	(603,975)	$	(15,385)	$	197,330

11

	Nine Months Ended March 31, 2023
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount
Balance as of July 1, 2022	11,160,160	$	112	$	(6,147)	$	823,259	$	(599,442)	$	(16,029)	$	201,753
Net income	—	—		—		—		8,189		—		8,189
Other comprehensive income, net of tax	—	—		—		—		—		258		258
Issuance of common stock under employee stock plans	310,355	2		—		1,072		—		—		1,074
Shares withheld for taxes related to vesting of equity awards	(33,973)	—		—		(1,055)		—		—		(1,055)
Stock repurchase	—	—		—		—		—		—		—
Share-based compensation	—	—		—		5,135		—		—		5,135
Balance as of March 31, 2023	11,436,542	$	114	$	(6,147)	$	828,411	$	(591,253)	$	(15,771)	$	215,354

	Nine Months Ended April 1, 2022
	Common Stock			Treasury Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
(In thousands, except share amounts)	Shares	$ Amount
Balance as of July 2, 2021	11,153,445	$	112	$	(787)	$	818,939	$	(620,602)	$	(14,327)	$	183,335
Net income	—	—		—		—		16,627		—		16,627
Other comprehensive loss, net of tax	—	—		—		—		—		(1,058)		(1,058)
Issuance of common stock under employee stock plans	172,996	2		—		931		—		—		933
Shares withheld for taxes related to vesting of equity awards	(10,134)	—		—		(358)		—		—		(358)
Stock repurchase	(149,389)	(2)		(4,611)				—		—		(4,613)
Share-based compensation	—	—		—		2,464		—		—		2,464
Balance as of April 1, 2022	11,166,918	$	112	$	(5,398)	$	821,976	$	(603,975)	$	(15,385)	$	197,330

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

12

AVIAT NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Basis of Presentation

The Company

Aviat Networks, Inc. (“Aviat,” the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies, and broadcast system operators across the globe. Our products include broadband wireless access base stations and customer premises equipment for fixed and mobile, point-to-point digital microwave radio systems for access, backhaul, trunking, license-exempt applications, supporting new network deployments, network expansion, and capacity upgrades.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information, and we have made estimates, assumptions and judgments affecting the amounts reported in our unaudited condensed consolidated financial statements and the accompanying notes, as discussed in greater detail below. Accordingly, the statements do not include all information and footnotes required by U.S. GAAP for annual consolidated financial statements. In the opinion of our management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods. The results for the three and nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 1, 2022.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.

We operate on a 52-week or 53-week year ending on the Friday closest to June 30. The three months ended March 31, 2023 and the three months ended April 1, 2022 both consisted of 13 weeks. Fiscal year 2023 will be comprised of 52 weeks and will end on June 30, 2023. Fiscal year 2022 was comprised of 52 weeks and ended on July 1, 2022.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments affecting the amounts reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information, or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant items, including revenue recognition, business combinations, provision for uncollectible receivables, inventory valuation, valuation allowances for deferred tax assets, uncertainties in income taxes, contingencies and recoverability of long-lived assets. The actual results that we experience may differ materially from our estimates.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies as of March 31, 2023 and for the nine months ended March 31, 2023, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended July 1, 2022.

13

Accounting Standards Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2022-02 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 became effective for us in our first quarter of fiscal 2023. The adoption had no material impact on our unaudited condensed consolidated financial statements.

Note 2. Balance Sheet Components

Cash, Cash Equivalents, and Restricted Cash

The following table provides a summary of the cash, cash equivalents, and restricted cash reported within our unaudited condensed consolidated balance sheets that reconciles to the corresponding amount in our unaudited condensed consolidated statement of cash flows:

(In thousands)	March 31, 2023		July 1, 2022
Cash and cash equivalents	$	22,456	$	36,877
Restricted cash included in other assets	210		227
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows	$	22,666	$	37,104

Accounts Receivable, net

Our net accounts receivable are summarized below:

(In thousands)	March 31, 2023		July 1, 2022
Accounts receivable	$	89,174	$	74,102
Less: Allowances for collection losses	(716)		(934)
Total accounts receivable, net	$	88,458	$	73,168

Inventories

Our inventories are summarized below:

(In thousands)	March 31, 2023		July 1, 2022
Finished products	$	24,916	$	14,916
Raw materials and supplies	14,167		10,478
Total inventories	$	39,083	$	25,394
Consigned inventories included within raw materials and supplies	$	10,408	$	9,796

We record charges to adjust our inventory and customer service inventory due to excess and obsolete inventory resulting from lower sales forecasts, product transitioning, or discontinuance. The charges during the three and nine months ended March 31, 2023 and April 1, 2022, respectively, consisted of the following which were recorded in cost of product sales:

	Three Months Ended				Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
Excess and obsolete inventory	$	275	$	196	$	856	$	436
Customer service inventory write-downs	302		286		859		704
Total inventory charges	$	577	$	482	$	1,715	$	1,140

14

Assets Held for Sale

We consider properties to be assets held for sale when management approves and commits to a plan to dispose of a property or group of properties. The property held for sale prior to the sale date is separately presented on our unaudited condensed consolidated balance sheet as "”Assets Held for Sale”.

During the second quarter of fiscal 2021 management initiated the sale of our facility located in the United Kingdom. We completed the sale during the third quarter of fiscal 2022 with proceeds of $2.3 million, reflecting a gain of $0.1 million We have no assets held for sale as of March 31, 2023 and July 1, 2022.

Property, Plant and Equipment, net

Our property, plant and equipment, net are summarized below:

(In thousands)	March 31, 2023		July 1, 2022
Land	$	210	$	210
Buildings and leasehold improvements	5,889		5,796
Software	17,075		21,368
Machinery and equipment	47,144		49,584
Total property, plant and equipment, gross	70,318		76,958
Less: Accumulated depreciation and amortization	(59,748)		(68,071)
Total property, plant and equipment, net	$	10,570	$	8,887

Included in the total plant, property and equipment above there were $0.8 million of assets in progress which have not been placed in service as of March 31, 2023 and $1.2 million as of July 1, 2022.

Depreciation and amortization expense related to property, plant and equipment, including amortization of software developed for internal use, was as follows:

	Three Months Ended				Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
Depreciation and amortization	$	1,428	$	1,051	$	4,193	$	3,444

Accrued Expenses

Our accrued expenses are summarized below:

(In thousands)	March 31, 2023		July 1, 2022
Accrued compensation and benefits	$	8,119	$	11,625
Accrued agent commissions	1,119		1,864
Accrued warranties	2,311		2,913
Other	11,848		10,049
Total accrued expenses	$	23,397	$	26,451

15

Accrued Warranties

We accrue for the estimated cost to repair or replace products under warranty. Changes in our warranty liability, which are included as a component of accrued expenses in our unaudited condensed consolidated balance sheets were as follows:

	Three Months Ended				Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
Balance as of the beginning of the period	$	2,549	$	3,198	$	2,913	$	3,228
Warranty provision recorded during the period	186		402		560		1,242
Assumed in Redline acquisition	—		—		55		—
Consumption during the period	(424)		(377)		(1,217)		(1,247)
Balance as of the end of the period	$	2,311	$	3,223	$	2,311	$	3,223

Advance Payments and Unearned Revenue

Our advance payments and unearned revenue are summarized below:

(In thousands)	March 31, 2023		July 1, 2022
Advance payments	$	1,425	$	1,870
Unearned revenue	38,923		31,870
Total advance payments and unearned revenue	$	40,348	$	33,740

Excluded from the balances above are $7.6 million and $8.9 million in long-term unearned revenue as of March 31, 2023 and July 1, 2022, respectively.

Note 3. Fair Value Measurements of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market in the absence of a principal market) for the asset or liability in an orderly transaction between market participants as of the measurement date. We maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

•Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;

•Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data; and

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair values, and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and July 1, 2022 were as follows:

	March 31, 2023		July 1, 2022		Valuation Inputs
(In thousands)	Fair Value		Fair Value
Assets:
Cash and cash equivalents:
Money market funds	$	—	$	5,367	Level 1
Bank certificates of deposit	$	3,690	$	3,682	Level 2
Marketable securities	$	—	$	10,893	Level 1

We classify items within Level 1 if quoted prices are available in active markets. Historically our Level 1 items mainly are money market funds. As of July 1, 2022, money market funds were valued at $1.00 net asset value per share.

16

Our marketable securities are included in current assets on our balance sheet as they are available to be converted into cash to fund current operations. These marketable securities are publicly traded stock measured at fair value and classified within Level 1. For the nine months ended March 31, 2023 we recognized a loss of $1.7 million associated with the sales of our marketable securities recorded in Other (income)/expense, net.

We classify items in Level 2 if the observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources are available with reasonable levels of price transparency. Our bank certificates of deposit are classified within Level 2.

As of March 31, 2023 and July 1, 2022, we did not have any recurring assets or liabilities that were valued using significant unobservable inputs.

Our policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the first nine months of fiscal 2023 and 2022, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.

Note 4. Leases

The Company has facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses.

We determine if an arrangement contains a lease at inception. These operating leases are included in "Right of use assets" on our unaudited condensed consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are included in "Short-term lease liabilities" and "Long-term lease liabilities" on our unaudited condensed consolidated balance sheets. We did not enter into any finance leases during the nine months ended March 31, 2023.

The following summarizes our lease costs:

	Three Months Ended				Nine Months Ended
	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
	(In thousands)
Operating lease costs	$	270	$	251	$	817	$	813
Short-term lease costs	490		623		1,507		1,823
Variable lease costs	12		64		92		138
Total lease costs	$	772	$	938	$	2,416	$	2,774

The following summarizes our lease term and discount rate for the nine months ended March 31, 2023:

Weighted average remaining lease term	6.8 years
Weighted average discount rate	5.7	%

17

As of March 31, 2023, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):

	Amount
	(In thousands)
Remainder of 2023	$	331
2024	734
2025	633
2026	490
2027	169
Thereafter	1,385
Total lease payments	3,742
Less: interest	(766)
Present value of lease liabilities	$	2,976

Note 5. Credit Facility and Debt

On May 17, 2021, we entered into Amendment No. 4 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “SVB Credit Facility”) which extended the expiration date to June 28, 2024. Under Federal Deposit Insurance Corporation (“FDIC”) receivership, SVB became SVB Bridge Bank as of March 13, 2023, but the Credit Facility remained in full force and effect. The SVB Credit Facility provides for a $25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by our U.S. company, with a $25.0 million sub-limit that can be borrowed by our U.S. and Singapore entities. Loans may be advanced under the SVB Credit Facility based on a borrowing base equal to a specified percentage of the value of eligible accounts of the borrowers under the SVB Credit Facility. The borrowing base is subject to certain eligibility criteria. Availability under the accounts receivable formula based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit. We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty. As of March 31, 2023, available credit under the SVB Credit Facility was $15.8 million, reflecting the available limit of $25.0 million less outstanding letters of credit of $3.0 million. We borrowed $50.2 million and repaid $44.0 million against the SVB Credit Facility during the nine months ended March 31, 2023 at the weighted average interest rate was 6.96%. As of March 31, 2023 there was $6.2 million of borrowing outstanding.

The SVB Credit Facility carries an interest rate computed, at our option, based on either (i) at the prime rate reported in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio; or (ii) if we satisfy a minimum adjusted quick ratio, a LIBOR rate determined in accordance with the SVB Credit Facility, plus a spread of 2.75%. Any outstanding Singapore subsidiary borrowed loans shall bear interest at an additional 2.00% above the applicable prime or LIBOR rate.

The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with Silicon Valley Bank may be directly applied to reduce outstanding obligations under the SVB Credit Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments, and enter into transactions with affiliates under certain circumstances. Certain of our assets, including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal to 5.00% above the applicable interest rate.

As of March 31, 2023, we were not in compliance with the affirmative covenant in Section 6.8 of the SVB Credit Facility, as amended, which restricts Aviat from having domestic operating or depository accounts with banks other than SVB. We opened a non-SVB deposit account with Wells Fargo Bank, N.A. in the immediate aftermath of the SVB closure by regulatory authorities on March 10, 2023 so that we could continue receiving customer remittances. We subsequently

18

requested and received a waiver from the lender for this noncompliance. We were in compliance with all other aspects of the credit agreement as of March 31, 2023.

At March 31, 2023, the Company held cash and cash equivalents at Silicon Valley Bridge Bank, N.A. (“SVB Bridge Bank”) in excess of government insured limits. On March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, and the FDIC was appointed as receiver and Silicon Valley Bank was subsequently transferred into a new entity, SVB Bridge Bank. On March 12, 2023, the U.S. Treasury Department, the Federal Reserve and the FDIC jointly announced enabling actions that fully protect all Silicon Valley Bank depositors’ insured and uninsured deposits, and that such depositors would have access to all of their funds starting March 13, 2023. On March 14, 2023, the Company was able to access its full deposits with SVB Bridge Bank.

Note 6. Revenue Recognition

Contract Balances, Performance Obligations, and Backlog

The following table provides information about receivables and liabilities from contracts with customers (in thousands):

	March 31, 2023		July 1, 2022
Contract Balances
Accounts receivable, net	$	88,458	$	73,168
Contract Assets	$	63,344	$	45,857
Capitalized commissions	$	2,231	$	2,341
Contract Liabilities
Advance payments and unearned revenue	$	40,348	$	33,740
Unearned revenue, long-term	$	7,628	$	8,920

Capitalized commissions are classified as current and long term and included in Other current assets and Other assets, respectively. Significant changes in contract balances may arise as a result of recognition over time for services, transfer of control for equipment, and periodic payments (both in arrears and in advance).

From time to time, we may experience unforeseen events that could result in a change to the scope or price associated with an arrangement. When such events occur, we update the transaction price and measure of progress for the performance obligation and recognize the change as a cumulative catch-up to revenue. Because of the nature and type of contracts we engage in, the timeframe to completion and satisfaction of current and future performance obligations can shift; however, this will have no impact on our future obligation to bill and collect.

As of March 31, 2023, we had $48.0 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 20% is expected to be recognized as revenue in the remainder of fiscal 2023 and the balance thereafter. During the three and nine months ended March 31, 2023 we recognized $5.0 million and $16.9 million, respectively, of revenue which was included in advance payments and unearned revenue at July 1, 2022.

Remaining Performance Obligations

The aggregate amount of transaction price allocated to our unsatisfied (or partially unsatisfied) performance obligations was approximately $111.8 million at March 31, 2023. Of this amount, we expect to recognize approximately 50% as revenue during the next 12 months, with the remaining amount to be recognized as revenue within two to five years.

Note 7. Segment and Geographic Information

We operate in one reportable business segment: the design, manufacturing, and sale of a range of wireless networking products, solutions, and services. Our financial performance is regularly reviewed by our chief operating decision maker who is our Chief Executive Officer (“CEO”).

19

We report revenue by region and country based on the location where our customers accept delivery of our products and services. Revenue by region for the three and nine months ended March 31, 2023 and April 1, 2022 was as follows:

	Three Months Ended				Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
North America	$	46,064	$	49,042	$	146,961	$	151,025
Africa and the Middle East	19,235		13,123		44,354		37,360
Europe	3,871		2,898		13,705		8,509
Latin America and Asia Pacific	14,310		9,453		50,394		28,644
Total revenue	$	83,480	$	74,516	$	255,414	$	225,538

The loss of a significant portion of business from any significant customers could adversely affect our unaudited condensed consolidated financial statements.

Customers accounting for 10% or more of our total revenue were as follows:

	Three Months Ended				Nine Months Ended
	March 31, 2023		April 1, 2022		March 31, 2023	April 1, 2022
Motorola Solutions, Inc.	*		12.0	%	*	13.0	%
Mobile Telephone Networks Group (MTN Group)	12.0	%	13.0	%	*	10.0	%

*Less than 10.0%

Customer accounting for 10% or more of our accounts receivable were as follows:

	March 31, 2023		July 1, 2022
Mobile Telephone Networks Group (MTN Group)	16.0	%	17.0	%

Note 8. Equity

Stock Repurchase Program

In November 2021 our Board of Directors approved a stock repurchase program to purchase up to $10.0 million of our common stock. As of March 31, 2023, $8.0 million remains available and we may choose to suspend or discontinue the repurchase program at any time.

During the first nine months of fiscal 2023, we did not repurchase any shares of our common stock in the open market.

Stock Incentive Programs

As of March 31, 2023, we have a stock incentive plan for our employees and non-employee directors, the 2018 Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of share-based awards in the form of stock options, stock appreciation rights, restricted stock awards and units, and performance share awards and units.

Under the 2018 Plan, option exercise prices are equal to the fair market value of our common stock on the date the options are granted using our closing stock price. After vesting, options generally may be exercised within seven years after the date of grant.

Restricted stock units are not transferable until vested and the restrictions lapse upon the achievement of continued employment or service over a specified time period. Restricted stock units issued to employees generally vest three years from the date of grant (three-year cliff or annually over three years). Restricted stock units issued to non-executive board members generally vest on the day before the next annual stockholders’ meeting.

Vesting of performance share awards and units is subject to the achievement of predetermined financial performance criteria and continued employment through the end of the applicable period. Market-based stock units vest upon meeting certain predetermined share price performance criteria and continued employment through the end of the applicable period.

20

During the nine months ended March 31, 2023, we granted 74,827 restricted stock units, 49,321 market-based stock units and 110,945 stock options to purchase shares of our common stock.

Total compensation expense for share-based awards included in our unaudited condensed consolidated statements of operations was as follows:

	Three Months Ended				Nine Months Ended
(In thousands)	March 31, 2023		April 1, 2022		March 31, 2023		April 1, 2022
By Expense Category:
Cost of revenues	$	125	$	101	$	463	$	271
Research and development	113		5		385		103
Selling and administrative	1,400		734		4,287		2,090
Total share-based compensation expense	$	1,638	$	840	$	5,135	$	2,464
By Types of Award:
Options	$	46	$	139	$	862	$	434
Restricted and performance stock awards and units	1,592		701		4,273		2,030
Total share-based compensation expense	$	1,638	$	840	$	5,135	$	2,464

As of March 31, 2023, there was approximately $2.0 million of total unrecognized compensation expense related to non-vested stock options granted which is expected to be recognized over a weighted-average period of 1.6 years. As of March 31, 2023, there was $9.2 million of total unrecognized compensation expense related to non-vested stock awards which is expected to be recognized over a weighted-average period of 1.6 years.

Note 9.