Aviat Networks, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Aviat Networks designs, manufactures, and sells wireless networking products, solutions, and services for telecommunications, government, utilities, transportation, public safety, and other customers worldwide. This filing covers the quarter and six months ended December 31, 2021, representing the second quarter and first six months of fiscal 2022. The comparable prior quarter ended January 1, 2021. The company operates in one reportable segment.
Key Financial Metrics
| Metric | Three Months Ended Dec. 31, 2021 | Three Months Ended Jan. 1, 2021 | Six Months Ended Dec. 31, 2021 | Six Months Ended Jan. 1, 2021 |
|---|---|---|---|---|
| Total revenue | $77.9 million | $70.5 million | $151.0 million | $136.8 million |
| Gross margin | $28.2 million; 36.2% | $26.9 million; 38.2% | $54.2 million; 35.9% | $51.2 million; 37.4% |
| Operating income | $9.2 million | $7.9 million | $16.0 million | $14.4 million |
| Net income | $5.9 million | $6.6 million | $10.6 million | $12.6 million |
| Diluted earnings per share | $0.49 | $0.58 | $0.89 | $1.12 |
| Operating cash flow | Not separately provided | Not separately provided | $(2.2) million | $10.2 million |
Product sales increased 14.5% to $53.5 million in the quarter and 14.4% to $104.3 million for the six-month period. Services revenue increased 2.3% in both comparable periods. The effective tax burden increased materially, with tax expense of $3.1 million in the quarter and $5.2 million for six months, compared with $1.3 million and $1.9 million, respectively, in the prior-year periods.
At December 31, 2021, cash and cash equivalents were $42.3 million, total assets were $317.1 million, and total liabilities were $124.2 million. Accounts receivable were $69.1 million and unbilled receivables were $42.9 million. The company had no borrowings outstanding under its credit facility. Available credit was $22.5 million, net of $2.5 million of outstanding letters of credit.
Material Changes Versus the Prior Comparable Period
- Revenue increased 10.4% in both the quarter and six-month period, led by product sales and growth across all geographic regions.
- Quarterly revenue growth included North America of 3.8%, Africa and the Middle East of 26.9%, Europe and Russia of 92.5%, and Latin America and Asia Pacific of 12.8%.
- Gross margin dollars increased, but gross margin percentage declined 200 basis points in the quarter and 150 basis points for six months. Product margins were pressured by expedite fees, inflation, and supply-chain costs.
- Operating income increased 16.9% in the quarter and 10.9% for six months. Results included restructuring recoveries of $1.0 million in the quarter and $0.3 million for six months.
- Net income declined despite higher operating income, primarily because of substantially higher income tax expense and increased other expense related largely to foreign exchange.
- Operating cash flow shifted from $10.2 million provided in the prior-year six-month period to $2.2 million used. The change was driven principally by increased accounts receivable, unbilled receivables, and inventory.
- The company repurchased $2.6 million of common stock during the first six months, including $1.9 million in the second quarter. A new $10.0 million repurchase authorization remained fully available at quarter-end.
Guidance, Outlook, Risks, and Unusual Items
Management anticipated revenue growth for fiscal 2022 and cited backlog, momentum across vertical markets, U.S. rural broadband and wireless internet service provider opportunities, 5G investment, and international growth. The filing does not provide specific numerical revenue or earnings guidance.
Supply-chain constraints, component shortages, logistical bottlenecks, inflation, and expedite fees remained significant risks. Management stated that pricing increases and surcharges were partially offsetting higher costs, but expected these challenges to continue until economic activity normalized. Research and development expense increased as the company worked to design around problematic suppliers.
COVID-19 continued to affect operations, supply chains, distribution, expenses, and customer demand. Other risks include competitive pricing and margin erosion, customer concentration, payment timing, foreign exchange, political and economic conditions, trade restrictions, covenant compliance, key-person retention, intellectual property claims, and execution of restructuring initiatives.
The company held $43.7 million of current and long-term advance payments and unearned revenue at quarter-end, with approximately 34% expected to be recognized during the remainder of fiscal 2022. Remaining performance obligations totaled approximately $75 million, with about 70% expected to be recognized within the next 12 months.
Outstanding purchase obligations were $36.8 million, software-license commitments were approximately $3.7 million, and off-balance-sheet commercial commitments totaled $64.2 million. The company also reported $1.8 million of restructuring liabilities, an immaterial accrued probable loss related to an Indian regulatory matter, and no material legal accruals.
Facts Investors Should Verify
- Whether supply-chain and inflationary pressures continue to reduce product margins despite pricing actions.
- Whether the significant increase in receivables and inventory converts to cash and supports operating cash flow.
- The timing and collectability of customer receivables, including concentration with major customers.
- Progress against backlog and the approximately $75 million of remaining performance obligations.
- Compliance with the SVB credit facility’s financial covenants and continued availability of $22.5 million of credit.
- The potential cash impact of $64.2 million of commercial commitments, $36.8 million of purchase obligations, and pending contingencies.
- Whether the $10.0 million stock repurchase authorization is deployed while liquidity and working-capital needs remain elevated.