Aviat Networks Inc (AVNW) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Aviat Networks call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. And I'd now like to hand the conference over to Cindy Johnson, Director of Corporate Communications. Cindy, you may begin.

Thank you, Operator. Good afternoon, everybody, and welcome to our fourth-quarter and fiscal year 2011 earnings call. This is Cindy Johnson, and I am joined by Chuck Kissner, Chairman; Mike Pangia, President and Chief Executive Officer; and Tom Cronan, Senior Vice President and Chief Financial Officer.

During this conference call, we may make forward-looking statements regarding our business -- including statements regarding to projections of earnings and revenues, business drivers, such as the transition to IP infrastructure, the timing and capabilities of new products, network expansion by mobile and private network operators, and variations of economic recovery in different regions. These and other forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and filings made by the Company with the SEC. These can be found on the Investor Relations section of our website, which is www.aviatnetworks.com.

Now I would like to turn the call over to Chuck Kissner, Chairman of the Board of Aviat Networks. Chuck?

Thanks, Cindy, and thanks to all of you for joining us today. I will provide some comments about our progress during last fiscal year, 2011. Tom is going to provide a detailed financial review, and then Mike will provide an update on the business status, on our market conditions, and our near- and long-term strategy.

So, first, I would like to formally introduce Mike, who was appointed President and CEO of Aviat on July 18. Mike had been Chief Sales Officer during our successful transformation in FY '11. He joined Aviat in March, 2009, and during the last year, he led our efforts to restructure and refocus our sales and service teams. He drove down the costs and improved the sales effectiveness with impressive customer acquisition and the introduction of new products. As this turnaround was gaining momentum, the Board and I decided that it was time to make a transition to longer-term leadership. With what was accomplished in FY '11, we now have better operating leverage, a strong pipeline of new products and a great customer base. And now with Mike, we have a CEO who fully understands the game plan going forward from day 1, and who is well-known and well-respected amongst our employees and customers.

So we accomplished most of the goals we had set for the year; they were 3-fold. To return Aviat to its core competency of microwave transmission, to establish a more competitive cost base, and to re-engineer the Company to move faster and more aggressively. Let me go through how we achieved these goals. It was done under 3 parallel tracks. Restructuring the Company, reengineering our processes and restarting our innovation.

First, in the past year, we consolidated and closed facilities, we implemented major cost reductions, both in the business and in our product lines, we outsourced manufacturing, we announced the discontinuation of our WiMAX business. So at the end of Q4, we emerged as a leaner and more agile business. In Q4 FY '10, which is a little over a year ago, our non-GAAP OpEx spending level was about $43 million per quarter. We targeted OpEx to go down to $35 million to $37 million per quarter by Q4 FY '11. We actually finished up Q4 FY '11 non-GAAP OpEx at about $33 million for the quarter. We now see opportunity for further reductions, which Mike will talk about later.

Second, we did clean up our business processes. This has greatly helped our competitiveness. Over the last 12 months, we dramatically reduced our order-to-ship lead times for our products, we improved our on-time delivery to almost 100%, and we reestablished integrity in the product development release schedules. These improvements were key in the customer retention and acquisition that we had in FY '11. As an example, based on the operational performance and the product positioning, we were just named as the primary source for a major North American LTE rollout. By the end of the year, our market position was stronger in North America, and we have grown our business again in Africa.

And the third, we refocused the business back to wireless transmission. We have great new products again, and there's a strong pipeline of other innovations. This was a factor in adding many new customers in FY '11. So just to paraphrase something I've been hearing recently over the last few months from both customers and employees, finally they are back.

So we've finally completed one of the original Harris Stratex merger goals of transitioning our North American customers to Eclipse. This was a major driver in the strength of the North American business. We sold the NetBoss business earlier in the year and we have made significant progress toward reducing our WiMAX exposure and selling the business. Tom is going to update you on the WiMAX. So, fiscal 2011 was about stabilizing, refocusing and restructuring. Mike is going to discuss our plans now going forward.

Of course, our employees were central to making this decision, and Tom Cronan played a key role. Today we announced that he will be leaving Aviat to pursue what looks to us like an exciting opportunity for him, but we will miss him personally and professionally. Over last year, he created a finance organization that is dramatically stronger than it was a year ago. With heartfelt thanks to Tom, I will turn it over to him now.

Thanks, Chuck.

I'd like to begin by saying that I very much enjoyed working with Chuck during the last year. Second, I wanted to thank the employees of Aviat, especially the members of the executive and finance teams for all their hard work and dedication during the last fiscal year, as we substantially restructured the costs of the Company and reinvested in the technology that will drive long-term growth and profitability. As I leave to become the CFO at Mediswitch, I am proud of the finance team that we have assembled here at Aviat during the last fiscal year, and I wish Mike all the best in his new role as CEO.

Since Chuck provided a wrap up of the accomplishments during the last fiscal year, I will not repeat what has already been said, but will provide an update of the Q4 and fiscal 2011 financial results, and an update of the WiMAX discontinued operation.

We are on schedule for the disposition of the WiMAX business. During Q4, we conducted a process to identify potential buyers. We received many proposals and have decided to proceed with 1 potential buyer on an exclusive basis. We are hopeful that we will close the transaction with this buyer before the end of August. If not, we have other buyers who continue to be interested in purchasing this business. The sale of the WiMAX business is part of our overall restructuring plan, and will make a meaningful and positive impact on the overall business. If we look only at non-GAAP OpEx, the positive impact of the overall restructuring is substantial. In Q4 FY '10, with WiMAX included, the OpEx was $43.2 million, or 37% of revenue. In Q4 FY '11, after cost reductions in the base business, without WiMAX, the OpEx was $33 million or 27% of revenue.

Now I'd like to discuss the financial results for Q4. To begin, I will review the GAAP financial performance, including our discontinued operations for the quarter, which ended July 1, 2011. Fourth quarter revenue was $120.9 million, not including WiMAX revenue. We reported a net loss, including the discontinued operations, of $19.8 million, or $0.34 per share, compared with a net loss of $88.8 million, or $1.49 per share, in the year-ago quarter. Loss from continuing operations was $6.2 million, or $0.11 per share, compared with the loss of $80.7 million, or $1.35 per share, in the year-ago quarter.

Included in the GAAP results are $10 million of pre-tax charges, primarily composed of the following. $2 million of restructuring charges and related costs, $3.3 million of excess and obsolete inventory associated with exiting the North American legacy product market, $1.4 million for share-based compensation expense, and $900,000 for amortization of purchased intangibles, $2.3 million for tax assessments related to historical transactional tax issues. Also in the GAAP numbers is a loss from discontinued operations, net of taxes, of $13.6 million.

Now I'd like to present the details of the quarter based on non-GAAP results. All the comparisons of non-GAAP results will also exclude the WiMAX results from prior periods. We believe the supplemental non-GAAP financial results [like] the basic operating results of the Company, and will facilitate comparisons of our results across reporting periods. Please refer to our website for complete GAAP to non-GAAP reconciliation tables.

We delivered revenue of $120.9 million, not including WiMAX revenue. This is up 12.4% year-over-year and up 4.7% sequentially.

By business segment, North America contributed $42.2 million of revenue in the fourth quarter, up 11% for the year-ago period and down 1% sequentially. International segment by geography contributed $78.7 million, 13% higher than the year-ago period and up 8% sequentially. By geographic segment, Africa contributed $44.9 million in revenue, 19.4% higher than the fourth quarter of FY '10 and up 69% sequentially, due to increased demand from our largest customers in Africa. EMER, which comprises Europe, the Middle East and Russia, contributed $16.8 million in revenue, 4% higher than the year-ago period, but down 29% sequentially, primarily due to a reduction in revenue in Eastern Europe. Revenue for the rest of the international segment was $17 million, 7.6% higher than Q4 of FY '10 and down 25.8% sequentially. In the quarter, MTN, a customer located in Africa, contributed more than 10% to our revenue. Gross margin was 30.1% in the quarter, versus 31.7% in the year-ago period and 30.6% in Q3.

We had 3 items that affected our margins in Q4, which limited our ability to improve gross margins from the Q3 level. Those items were -- an additional charge against a large project in North America, additional price degradation in Africa, expenses associated with foreign-exchange exposures. The overall impact of these 3 items was approximately 250 basis points.

Total operating expenses were $33 million, or 27% of revenue, down from $35.4 million in the prior quarter, or 30.6% of revenue. This reduction in OpEx is due primarily to the completion of our FY 2010 restructuring activities and a reversal of approximately $800,000 in accrued compensation expenses in Q4. Operating income was $3.4 million for the quarter, compared with an operating loss of $5.1 million in the year-ago period and an operating loss of $100,000 in Q3 of FY 2011.

We continue to keep a strong balance sheet and liquidity position. Our cash was $98.2 million as of July 1, 2011, compared to $95.7 million at the end of the third quarter. There was approximately $6 million in short-term debt in the form of a bank credit line in both Q3 and Q4. Cash usage for restructuring and discontinued operations during the quarter was approximately $8.5 million. Therefore, we were able to generate $11 million in cash from operations and working capital to cover the restructuring cash use of $8.5 million and still increase the cash balances overall by $2.5 million.

Depreciation and amortization was $1.8 million. CapEx for the quarter was $2 million. For fiscal year 2011, the Company reported revenue, not including WiMAX, of $452.1 million, compared with revenue, not including WiMAX, of $465.5 million in the prior year. GAAP net loss for fiscal year 2011 was $90.5 million, or a loss per share of $1.54, compared to a net loss of $130.2 million, or a loss per share of $2.19 for the fiscal year 2010.

Fiscal year 2011 was a transition year and as such, we had several changes that were 1-time in nature. Net loss includes $38.6 million of pre-tax charges, primarily comprised of -- $16.4 million(Sic-see press release) for restructuring and rebranding charges, $6.6 million in charges for product transition, $4.6 million for losses on the sale of the NetBoss assets, $3.6 million for entity consolidation, tax reserves and other impairments, $3.5 million amortization of purchased intangibles and $4.7 million stock compensation expense. Also included in GAAP is a loss from discontinued operations, net of taxes, of $31.7 million.

Let me conclude with our revenue, gross margin, and cash guidance for Q1 FY '12. Our current revenue outlook, not including any revenue from WiMAX, is $100 million to $110 million. Although we had strong bookings in Q4, our overall backlog was negatively affected by our bookings performance in Q3. We expect Q1 gross margins to hold steady at 29% to 30%. As we stated on the call last quarter, we plan to aggressively drive sales of our existing products line in Q1 and Q2, leading up to the point of our new cost reduced products becoming generally available and starting to ramp in higher volumes. We expect gross margin improvement beginning in the second half of FY12, and longer-term gross margin targets remain in the mid-30s, but will be dependent on the introduction of the next generation of products that are now in development. As we stated before, we do not expect to achieve these longer-term goals until FY '13.

Given gross margin expectations for the first half of FY '12 and the revenue guidance for Q1, we will be taking additional cost reduction actions regarding our OpEx and lowering our OpEx to approximately $32 million per quarter or less by Q2. OpEx for Q1 should be relatively flat to slightly up. We anticipate reasonable cash collections again in the first quarter, given the Accounts Receivable balance. Much like the fourth quarter, we are not expecting to use cash in the first quarter for operations in our base business. We will, however, use cash for restructuring and discontinued operations payments of approximately $5 million to $7 million. Overall, we expect that cash usage will be in the $0 million to $10 million range in the fiscal first quarter.

Now I'd like to turn the call to Mike, to provide you with the market and business update.

Thanks, Tom.

I am excited to have the opportunity to take Aviat to the next level of its transformation. We now have a Company with better operating leverage, a strong pipeline of new products, high-quality employees, and a broad customer base. Our efforts to refocus the Company on innovation and technology in our core focus area, the backhaul market, are beginning to pay off.

Now I'd like to take an opportunity to provide an update on some of the trends we are seeing in the market. According to an Infinetix research report, the total worldwide mobile backhaul equipment market continues to grow, now at $6.8 billion and is estimated to reach nearly $8 billion in 2015. We believe that this growth is directly related to the growing global subscriber base from mobile wireless communication services. This is a positive trend, but it is difficult to assess what impact the world economy will have on this number over the next few quarters. Although we haven't seen signs of this yet on our demand, experience shows that with the recent economic issues, there could be a lagging effect on our performance if access to money tightens, therefore reducing capital spending. So we remain cautiously optimistic about our future opportunities, and will continue to focus on the execution of our plan and the rollout of our products to address the market needs.

Before I move into a discussion about the regional performance, I'd like to comment on our recent global sales event that took place last week. This year's event was a sharp contrast to last year's, with respect to the level of confidence and enthusiasm of our global sales team. We are happy to say that we are executing on the rollout of new products and features to enhance our market position and are beginning to see the impact of our efforts in the form of new customers. In fiscal year 2011, our percentage of new customers was about 19%. In fiscal year 2012, we will continue to execute on our vision and strategy with the goal of increasing customer acquisition at a faster rate.

Now I'd like to comment on some specific activities by region, just to give you a flavor of what is happening. The fourth quarter represented one of the strongest we have seen in the past 2 years for the Africa region. Increased volumes from a number of existing customers contributed to this performance. More importantly, we secured orders from new customers who have not traditionally been supplied by Aviat Networks.

Nigeria continues to be a key market within the region and represents additional opportunities to leverage our install base as networks evolve from traditional TDM architectures to provide IP services. Over the past few quarters, we have seen opportunities emerge for our managed services offerings to help our customers operate their networks more efficiently and further support the migration from TDM to IP.

In Europe, the fourth quarter performance was aided by higher volume deliveries of our latest packet microwave technology, including our gigabit ethernet DAC GE3 and network convergent module to a tier 1 operator in France. Also, we have progressed to a higher level of execution under our 4-year program with the French Ministry of Defense. Our trunking business has strengthened by securing expansion orders with a large utility company in Russia, and winning new business with a national broadcast company in Austria.

In Asia PAC, tier 1 operators in Australia and Southeast Asia continue to optimize their transmission networks and migrate to IP using the Eclipse platform. Aviat recently won a new account in the Southeast Asia region that has a multi-year rollout plan for its 2.5G and 3G services. And as we recently announced, we also won WTN 6000 IP trunking expansions in the Maldives and Fiji.

In North America, we saw a resurgence and significant recovery in orders, as our value proposition around our Eclipse IRU600 product line and turn-key capabilities led to higher than expected volume with Verizon Wireless and US Cellular. Just as impressive were the orders we received from outside of the mobile operator segment. These included both new and expansion wins in the utility, public safety, local, state, and federal government sectors. We have secured many new orders and new customers and see our competitive positioning improving.

With regard to our product strategy, we are clearly seeing the benefit of a renewed focus on the core business of wireless transmission. The significant enhancements to the Eclipse platform introduced during FY '11 that Chuck referenced earlier are only part of the story. The IRU600, our flagship product for North America derived from our Eclipse technology, was fully rolled out during FY '11 and has already surpassed the unit volume levels we saw with the legacy product it replaces.

For the global market, an all-new Eclipse RF design that increases performance and lowers cost is already in pilot production and will start shipping to customers this quarter, with a significant ramp anticipated in the second half of the fiscal year. This is a pivotal new product that extends our competitive advantage.

We are on track to complete pilot production of initial products for the new all-IP WTM3000 family within this calendar year, and expect to see revenue contribution in this area in the second half of the fiscal year. We have finalized plans and architectures for a whole new generation of our nodal networking products, and will provide updates on this in the coming quarters.

Now I'd like to provide a summary of the fourth quarter and provide a perspective regarding the next fiscal year. I would like to start by saying that I am very pleased with the progress that we have made through FY '11, and the strong finish we exhibited in Q4 in many areas boosting our confidence as we enter the next fiscal year. Some of the highlights include a book to bill above 1, which was less than 1 in Q3, lower expense levels, and an increase in our cash balance. If you look back over the past year, we have been consistent in delivering on our plan in terms of refocusing the Company for future growth and profitability. We have taken cost out of our business and our products, improved operational efficiencies, and reorganized our Company to be better positioned to execute on the next phase of our business strategy. Our customers trust us, and our performance in Q4 was a great demonstration of the progress that we have made in executing the early phase of our longer-term strategy.

However, we still have much do. For instance, we will further reduce our OpEx to $32 million or less per quarter. In addition, we will complete the cost reduction in manufacturing processes that began in fiscal year 2011. In engineering, we will continue to focus on accelerating innovation, while reducing product costs to improve the bottom line. This will be supported by ongoing incentive plans to reward timely development and deployment of new products.

We will also reallocate internal resources to better align the talents of our sales force with global sales opportunities. In some cases, this means implementing more aggressive tactics on direct sales efforts. It also means increasing focus on key tier 1 mobile operators, where the sales cycle is long, but where we can deliver significant value. Lastly, it means extending our global reach through the intelligent use of the channel, where appropriate.

So moving forward into FY '12, we'll be more externally focused and will accelerate our efforts to acquire new customers. Developing new business is a longer process and, therefore, I would not expect the benefits of our efforts to have a significant improvement in our top line until the latter part of fiscal year 2012. As Tom mentioned earlier, and reflected in our fourth quarter results, our gross margins will reflect our efforts to maintain market share and advance in major new product launches. We will continue to drive multiple actions on 2 fronts, cost reduction and improved value add for our customers. Our strategic plan squarely addresses these challenges, and we have now launched incremental product development programs to drive the cost level down even further on the new product platforms.

Now that our outsourcing of our manufacturing processes and supply chain have stabilized, our expense improvement opportunities will be driven by reducing complexity in our business processes and we will move more of our decision-making closer to our customers to support our external focus. Our service capabilities are competitive differentiators for us. We will continue to invest in this area and in particular, strengthen our professional service offerings, which are becoming increasingly important in the evolution to IP and LTE.

I want to be clear that managing the balance sheet has been and continues to be a priority for us. We generated $11 million in cash in Q4, excluding WiMAX and restructuring, and as the use of cash for WiMAX and restructuring moves to zero, we are confident in our ability to generate cash.

Before I wrap up and go to Q&A, I would like to comment on our search for a new CFO. We have launched an external search process and have already received interest from some excellent candidates. Until a successor is in place, I am confident that John Madigan, supported by a strong finance organization, will enable the business to continue to run smoothly. I also want to thank Tom for his contributions to our Company over the past couple of years, and wish him the best as he moves on to his next opportunity.

In closing, I want to thank our shareholders, our customers, and our employees for their support and confidence in our ability to execute in these challenging economic times, while we continue to transform our business. We do look forward to reporting to you on our progress during the fiscal year. Although the business environment will remain challenging, I am confident that we will deliver on the goals that we have outlined for the coming year.

With that, I would like to open up the call for questions.

Thank you, sir.

(Operator Instructions)

Barry McCarver, Stephens Incorporated.

Good afternoon, guys.

Hello, Barry.

First off, I want to start with the book-to-bill and then the revenue guidance for the current quarter. Good strong book to build in 4Q, but it certainly seems like the guidance you are giving for the current quarter is overly conservative. Can you give us a little bit more color on that thinking and maybe any seasonality, particularly given you seem to be taking market share in Africa and North America seems to be picking up. Just wondering about that guidance.

I think part of our thought process is we end up averaging here a little bit between the what was less than stellar performance in Q3 and the strong in Q4, and we have a delay. We have a strong backlog that tends to be a bit delayed, as we roll forward. We are seeing now the softness from Q3 showing up in this Q1 outlook that we're giving.

Also, there is seasonality in the ability to generate end quarter's orders is a lot more difficult in this quarter, because the activity tends to be in September, at the end of the quarter, rather than at the very beginning of the quarter. So it's more difficult to get orders that we can turn into revenue within the same quarter. So that's the other reason for our being -- giving the guidance that we gave.

Okay. And then, just two other follow-ups, if I may.

You talked about, in the previous quarter's call, concentrating hard on any supply chain issues that might come out of Japan. Can you give us an update there?

Then secondly, just given where the stock is at, under book value, any thought to taking some of the cash you have on the balance sheet and buying back stock? Thanks a lot, guys.

Thanks, Barry.

Last quarter, and I think we said this in the pre announcement, we didn't have the interruption in supply that we thought we were going to have in Japan. It looks like we're in good shape this quarter as well, from a Japanese standpoint. We are managing, I think, through those issues. There are issues, but we seem to be managing through them. And I don't think that will be a major factor in the revenue this quarter, unless things change between now and the end of the quarter.

From the standpoint of, second part of the question. I'm trying to remember -- oh, buybacks. We've been asked this question a number of times. And we feel until we are clearly generating cash, and in a position where we're doing that on a very consistent basis, we would not consider that, even at these price levels. And that is more driven by the desire to have the cash available for operational purposes.

Okay, great. Thanks a lot, guys.

Rich Valera, Needham and Company.

Thank you. Good afternoon.

I know you guys don't want to get too much into the outlook beyond the current quarter, but obviously people are interested in having some feel for whether you think that the revenue in the first quarter is perhaps a local bottom here. And should we expect some upward movement beyond the first quarter on the revenue line.

Likewise, on the gross margin front, looks like you are looking for sequentially flattish to down margins here in the first quarter, but off of a pretty significant miss, relative to your guidance. It sounds like you expect them flat, maybe in 2Q. Anything you can say about the back half expectation for gross margin, as your cost reduced products start flowing into the mix? Any help on gross margin outlook would be much appreciated.

Thanks.

Sure. As you know, Rich, we don't give revenue guidance beyond the one quarter that we gave, and it's difficult for us to do that. I won't try and guess at what we think Q2 revenues are going to be at this point.

From a margin standpoint in the second half, we do have an expectation with the shipment of the new Eclipse cost reduced product that we will start to see a pickup in our gross margins. Many of the projects that we have won recently, we will be able to substitute these in almost immediately.

As we see the biggest benefit from the outdoor radio, we do have to get those frequencies released. And so the timing of that and the acceptance rate is always hard to judge, but we would expect to see a pickup that would allow us to start to build that margin back up. I think as we get closer to that and know the rate at which we will be able to substitute, we will be able to give a lot better guidance as we enter the second half of the fiscal year.

Just curious. Historically, one of the issues of gross margin is you plan out some cost reductions and sort of as you are implementing them, the pricing in the market drifts downward, and net-net you don't end up getting the gross margin improvements you expected. Can you say what you are expecting for pricing declines over the next few quarters to a year that you would expect to have to offset to further bump up your gross margins from here?

Without giving you specific numbers, I think we have been seeing, and we are planning on, twice the rate of degradation that we had seen historically. So we tried to put a conservative number in the plan that, with the cost reductions, would still allow us to see some incremental improvement in margins. We have a very, what I would say, aggressive assumption in the plan for price degradation in this fiscal year 2012, and we would still see benefit from the cost reduced products and benefit from margin in the second half.

That's helpful.

And then, on the restructuring cash expenditures in the next quarter, I think you said $5 million to $7 million for restructuring costs. Can you be more specific about what those are, Tom? And do see those extending beyond the first quarter?

The restructuring cost that we've had during the year and will continue to have fall into the general buckets of severance rent that we are paying on buildings that we've impaired, and the purchase of inventory that we already know is reserved. So that tends to be the three largest buckets. The last one now is being limited to the WiMAX business.

We also said, in that $5 million to $7 million, that it would be the cash associated with the WiMAX business, is in that $5 million to $7 million number. We have -- the operating expenses of the business are still in about the $2 million a quarter range, which is primarily the cash. And then the other expense there is inventory expense, which I already covered.

So those are the categories. On the entire year, we expect that number to be about $10 million. There's always a little bit of timing issues there, but that's -- our planning number is about $10 million for the year. And you can see, it's heavily front end loaded.

Right. And just one more if I could.

You talked about a fairly significant receivable you had associated with the WiMAX business, with one order in particular in India. Can you give us any update on the status of that receivable? How much, if any, you've collected and what are the prospects for collecting it?

We have collected that receivable on an ongoing basis. There's still a substantial portion of it outstanding. We're going through the acceptance of some software right now that should lead to collection of a substantial portion in the next two quarters. The thought process is that we'll be able to work through that receivable in the next six months, through the end of, say to be conservative, through the end of our fiscal Q3, we should have that collected.

Dealing with India and dealing with customers and distributors in India is never easy. So I can't say with absolute certainty that it's going to be true, but that's what our current outlook is.

Okay. That's all for me. Thank you.

Thanks.

Matt Thornton, Avian Securities.

Hello. Good afternoon, and thanks for taking my question.

Tom, you talked about twice the rate of pricing degradation. If I remember correctly, industry standard had been about 10% to 15%. Are you doubling that rate in your assumption? Can you talk about the competitive backdrop that drives that thought process?

I think last year, we saw a very large degradation in pricing, because we had been keeping our pricing up pretty high. And we had been losing market share and maintaining our margins to some extent, and losing a little bit on them. We opened up our pricing quite a bit in the last two quarters, I would say, and we are starting to see some of those deals now turn into revenue.

Our view in the plan is that there is a bit of a catch-up against the industry, because we had been keeping our prices up higher than, say, our competitors had. So we are chasing the curve a bit. So that is really the thought process.

That is helpful.

And then just on an apples-to-apples basis, the bomb on the new products portfolio, the new platform, I think we had talked about five points plus improvement versus the existing platform. Remind us where the bombs are in these two, apples-to-apples, and any color you can provide.

That question gets asked by Seragon all the time. It's not one that we usually answer.

Got you. Fair enough.

And one last one. Any sense as to what the average recognition cycle is for you guys? So you book orders in the June quarter, are we talking a six-month or a nine-month type recognition cycle before it hits the P&L?

It actually varies quite a bit by geography. North America, where we have these big projects, they tend to be more -- and we do a lot of percentage of completion accounting. The time to begin a project takes a while, and once we're in the cycle, it tends to be regular, because we're doing percentage of completion. But the life cycle of a particular order can be anywhere from one quarter to four quarters, but evenly across those quarters, generally. Not entirely evenly, but evenly across those quarters.

And then, when we are talking about other regions like Europe, and Africa, some orders can be very quick, where we get it in the quarter, if we are dealing with existing customer. But if we're talking about new project, where we have to acquire it, then we have to get through a testing phase, and then we have to do a deployment, it can take quite a bit. And the larger the operator, whether they are a tier 1, that can be a 12- to 18-month process. And then we tend to have, once we're in the cycle with them, we have add-on orders, then it could be three months process or it could be in quarter.

Our backlog on average is probably four to five months, is what we plan on. Not at all turning in the next quarter, but an average across two quarters as we get the backlog.

Got you.

And for the current quarter, the $105 million midpoint of guidance. Can you talk about what percentage you expect to come from backlog and what percentage has to come from turns?

Because we are in this seasonally soft quarter, we are starting the quarter with about 75% or so coming from backlog.

And what is the norm these days? Is it more like 65% to 70% backlog?

We try to get to about 60%, but we've been sitting at this sort of 75% to 80% the last couple quarters, because we just have wanted to be more conservative. And because we've had all of these supply issues. The supply issues in particular were the ones that prevented us from being able to know whether we could turn things within the quarter. Now this quarter, it's not as much of a supply issue as it is seasonality.

Okay. Terrific. That's it for me. Thanks, guys.

Blaine Carroll.

Thank you. Hello, everybody.

Hello, Blaine.

I wonder if you could give a little more detail. Chuck mentioned about an LTE customer in North America. I wonder if you could talk about timing on the rollout of that, and whether it's a tier 1 or a tier 2 win for you.

Yes. It's Mike here.

We are already in the -- we are deploying that, as we speak, that rollout, supporting our customer. And I would definitely categorize that as a tier 1 mobile operator.

Okay. So that is one that you have been working on before? That's one we've already heard about.

Yes.

The $32 million in operating costs, Tom, I think you broke up a little bit when you said what quarter you expect that. And Mike, you didn't specify. When do you think the OpEx will be down around that $32 million level?

Q2.

In Q2?

Right.

All right. That's good.

And then, as far as on the inventory -- the inventory was down quite a bit, Tom. Was that tied into those impacts on the cards, was this sort of the year-end, where the auditors come in and see come inventory sitting in the corner that you have to write down, or something along that line?

No, it wasn't related to one-time charges. We did have some, E&O, in the quarter, that we talked about, specifically related to legacy products. You would see the gross go down because of the write off for the legacy products. And we talked about, those amounts are in the press release, as well. That would be -- and then the rest would be related to use.

Would be related to what?

To use.

To use. Okay. Thanks.

And then the DSOs came down, was that due to linearity in the quarter? How was linearity? Or was it more on the collection side, which your receivables were down.

The higher revenue and the collections.

Okay. How about the linearity?

Linearity was good, from both an order and revenue in the fourth quarter.

Is it a 20/30/50 type of quarter, or --

It was one of the more linear quarters. I think it was the most linear quarter we had in the fiscal year. It was a very linear quarter for us. It was the closest we get to the third/third/third that we've come in a long, long time.

Last one for me.

Tom, what was the WiMAX contribution in the first quarter of 2011? So that we can get sort of an apples-to-apples compare on a growth rate for the current quarter.

First quarter of 2011?

The one that has WiMAX in it, right?

The numbers we just published this quarter do not have it in it. The ones that we published originally do have WiMAX in it. I don't have that number in front of me. I can get it for you.

For the first quarter 2011, that 109 does include WiMAX, right? In other words, what I'm getting at is the midpoint of your guidance for the first quarter of 2012 would be a minus 4% year-over-year. But actually, if we take the WiMAX out of the first quarter of 2011, you probably do have growth in the current quarter, right?

I think that is right, but I don't have the numbers in front of me. So I would have to go check.

Okay, thanks. That's it for me. And best of luck to you, Tom, and Mike, good luck to you going forward, as well.

Thank you.

Thanks.

Aalok Shah, D.A. Davidson and Company.

Hello, guys. Just a couple quick questions.

In terms of Africa specifically, you saw strength in the quarter. I'm curious, Tom, how many quarters ago was this business really won? And going forward, you guys mentioned before the competitive nature of the business and specifically seeing some competition from China. I'm curious in that end market, especially in the African end market, how do you see competition going forward?

Yes, so first off, the first part of your question, in terms of the business profile. We had already mentioned that we had a significant quarter with respect to our largest customer in Africa, which was one of the drivers. And we did acquire new customers as well that contributed to that revenue. It was a combination of the two which drove the performance for Africa in the quarter.

As far as the competitive landscape is concerned, I would say that it continues to be intense. Chinese as well as both the infrastructure players as well as the independents continue to be aggressive.

As you know, we have a large and significant base in Africa. And where we have a strong base is where we are being attacked, in terms of the defensive side. But as we mentioned earlier, with our new products aren't just going to give us the ability to be more competitive in terms of price, but we also have some significant performance improvement in those products which will allow us to start working more offensively to penetrate new customers to defend some of the attacks from the competition that we have experienced in the past. But the landscape will continue to be intense.

Mike, just real quickly, in terms of the products that you are going to be offering, how far along on the transition of new products have we come? Should we expect several products before the end of the year -- or calendar year? How should we think about 2012? How do you think your competitiveness will be, in terms of price and performance as we go forward?

Some of our key new products are actually already in pilot production. For example, our new outdoor unit is in pilot production. But as you are probably aware, we have to introduce our products into a number of frequency bands. So the first few will be released, and then it does take some time frame, a couple quarters beyond that to get the full rollout.

We are going to be seeing products hit the market before the end of this calendar year. But the real effect and the significant impact on our top line really won't be felt until the second half of this year and into fiscal year13.

Last question, in terms of going back to Africa real quick, are you doing any kind of financing deals or any kind of extended terms with your customers there?

No.

Great. Thank you so much.

Before we go to the next question, I wanted to answer Blaine's question.

I looked up the number, and without WiMAX, it would have been at $100.4 million in Q1 of fiscal year 2010 -- I'm sorry, fiscal year 2011. And so this guidance represents being up -- the midpoint would be up from the $100 million we were in the comparative first quarter of fiscal 2011.

Okay, Operator, you can go on to the next question.

Larry Harris, CL King and Associates.

Yes. Thank you.

Any additional comments you can provide relative to Europe? I saw that was up year-over-year, but down sequentially in Eastern Europe. What are you seeing right now in Europe?

The main reason we are down is that we had a significant bookings in the first half of our last fiscal year out of Russia. And that is the area relative to Eastern Europe that we saw some tail off in the back end of the year, relative to revenue, as that backlog was depleted.

As far as Europe is concerned, we are seeing strength with one of our large tier 1 customers, where they are starting to ramp up significant deployment in their network right now. And we are already seeing significant orders in the first quarter that were much higher than what we experienced last year. We are doing very well there.

We are also looking at, outside the mobile segment in Europe, we're getting some strong business out of the utility segment. In particular in Russia, where we had some opportunities. The government sector also is picking up nicely, in terms of some of the defense agencies of the government. In general, we are seeing a pickup on the mainstream Europe side from what we had seen previously.

All right. Thank you and look forward to seeing you soon.

Thanks, Larry.

Scott Searle, Merriman Capital.

Good afternoon.

First off, Tom, want to wish you the best of luck in your future endeavors, and all the best.

Thanks, Scott.

I know this question got asked earlier, but maybe to just ask it another way. In terms of looking out into December, given where the book-to-bill was in the current quarter and given traditional seasonality, is there any reason, given those numbers, why we would not see revenue being sequentially up into the December time period?

Again, Scott, we don't have a crystal ball, so we haven't commented beyond the quarter at a time here. So we will resist doing that again.

Okay.

And maybe just a quick follow-up on Africa. NTN was big for you guys -- Nigeria. How sustainable is that? Is that embedded in your expectation than for gross margins remaining in the 29%, 30% range?

First off, in terms of the revenue mix, we hope and anticipate that we will continue to get strong business out of our mainstream customers. But we are moving to developing new business both in other parts of Africa as well as outside of the mobile segment. I talked earlier about Europe as an example.

Also in North America, more than half of our business comes from outside the mobile segment. That's another area of focus for us in Africa.

As far as the implications on margins, I guess that would be difficult to predict what the impact of that might be.

Did you provide a regional book-to-bill in the quarter?

No, we did not.

Is there any color you can provide on that front now?

I would say that in general across the board, our book-to-bill was in the zone of one across all sectors.

Okay.

There would have been the exception of one, so we don't break out that level. But it wasn't as if there is one sector that just dominated, let's say, and drove the book-to-bill well above that.

And Mike, on the cost reduced Eclipse, you referenced that you expect the product to be able to be swapped out pretty quickly. Can you take us through the qualification process then, with the customers? Is that going to be lengthy, or should this be pretty quick and seamless for you to be able to do that?

That's a difficult question to answer for just -- it doesn't really apply across all customers. In some cases, our customers have a long process in terms of going through the lab validation process and you have to get everybody to be signing off on the product. That cycle is longer.

In other cases, we do have the ability to substitute. Of course, it is to our benefit actually -- the direct substitution isn't the greatest thing, because our new products do have higher performance. Our intent would be to sell both the value as well.

It depends on where we are in the sales cycle. In some cases, we have the opportunity to sell that value up front and in some other cases, we may substitute and still get the margin benefit.

Got you.

Mike, if I could, on the zero footprint product, how is that positioned right now? And looking at some of the large potential builds that could take place, whether it's a Sprint Network Vision, if that in fact occurs, or if it is more tied to a Clearwire. Are you positioned at all to compete for that business with this product, or have you missed that cycle?

That's another difficult one to answer. I think we have an opportunities.

I can't go back in time per se, where customers have already made their decisions and try to go back and open it up. But we are positioning the product to where it meets the needs of the market. That product is also in its pilot production stage and we expect to start shipping that as well in the back half of the year. We will look for opportunities to position that where it makes sense, and we are already starting to see those opportunities emerge.

Got you.

And Tom, just quickly on the OpEx, getting down to $32 million, is that expected to be a sustainable number at the top line? What sort of revenue can you support with that infrastructure?

I think it is a sustainable number in the near-term. From a revenue standpoint, I think there is certainly quite a lot of leverage we can get out of that. I would expect that we could drive operating income to a reasonable level before we'd have to start expanding the OpEx. So I do think it's leverageable at those levels.

Got you.

And just lastly, on cash, I think you mentioned this, but I missed a couple portions of the call. Looking at September, given what it sounds like your guidance is from an operating income standpoint, but that receivable collection should continue to be strong. Is cash expected to be neutral to positive than again in the September quarter? Even with restructuring?

What we said was from an operating standpoint, we said we would have $5 million to $7 million worth of use for restructuring and WiMAX. And given that we would have to cover that $5 million to $7 million, we're saying that we expect we'd have used between zero and 10, just what we said last quarter and we'll see how goes.

Great. Thanks so much. And Tom, best of luck again.

Just to clarify the comment earlier about missing the cycle, I think probably Clearwire might be the only exception, in terms of where that cycle may have been missed. As far as the applicable the of the product, we believe the timing is good for us right now as we look forward, for those opportunities to emerge. I did not want to assume that the other customers that were mentioned were necessarily where that product would have been a great fit.

Got you. Okay. Thank you.

Kevin Dede, Brigantine Advisors.

Mike, don't mean to beat a dead horse here, but I was hoping you would go over that release schedule again, just so I have it clear. I understand for the new ODU, you are gradually cycling in new frequencies through the September and December quarter and expect to have more of them, obviously, in the March quarter. I'm wondering if that's delayed versus some of your earlier expectations, and what the implications might be for the next iteration of the nodal product.

No. First off, on the outdoor unit, I think we were pretty clear last go around that we would expect to have these products ready for shipment I believe in our second quarter. And we would only be introducing the first of two frequency bands, and those are already going through pilot production. And then another three frequency bands would be following thereafter. I think we have been pretty consistent that we would expect the volume to really be in the second half of the year for those products.

Right, second half of the fiscal year.

Correct.

So, you feel you are pretty much on schedule?

Yes.

Then for the second round product, do you feel comfortable that you're going to have that one -- obviously you said that you will feel free to discuss it further, in future quarters. But as you see it now, do you feel the development there is on schedule?

Our plan around our schedule has been intact for several months now, a few quarters. We haven't seen any degradation around our plan.

Okay.

When do you think that crossover point is where you have mitigated your exposure to Japan sourcing and you feel you'll be able to rely completely on the 6000?

On the 6000? You're talking about the WTN 6000 now?

Yes.

I think for the most part, we are beyond any major issues related to Japan supply as we look forward.

Okay.

And I guess I'm going around -- beating around the bush here. I'm wondering how much longer you think you'll have to rely on your supplier there, in that long-haul radio segment?

I don't think that something we want to talk about on this call.

Clear. Okay. Thanks, Tom.

I think what strikes me as interesting is the pricing environment, and the lab validation that you might need from certain customers on the introduction of the new ODU. Do you think there is a chance that some of those customers might come back to you and ask for a new pricing agreement based on the lower cost of goods that is required in the new product?

These products are significantly better to our current products in terms of performance. That would be a difficult discussion to entertain. Customers are always looking for the best price possible. We have a very strong portfolio in terms of the value we will provide, so I would expect that to be where the conversation would go.

I know America Mobile has been incredibly aggressive in rolling out networks, and I'm just concerned about your ability to participate in that rollout as it goes forward. Is there any color you can shed on that? Do think you would be more competitive, obviously, with the new ODU, or is that something you're going to try to bid on with the old product?

I'm not going to comment specifically on any particular customer opportunity. I don't know specifically what you're referring to, I know who the customers. But I would expect that our ability to compete in all opportunities will go up significantly as a result of our new portfolio coming up.

Okay. Fair enough, Mike. Thanks. Congrats on your new position, and Tom, good luck. Thanks for your help.

Thank you.

Ladies and gentlemen, that concludes the questions-and-answer session. Management, please continue.

Thank you, Operator. Thanks, everyone, for your participation.

Just a quick update on our upcoming investor conferences and meetings. In Q1, the week of September 12, we will be on the Stephens road show in Milwaukee and Chicago. September 13 at CL King's best ideas conference in New York City, September 14 Avian Securities, and September 15 Merriman road show in the mid-Atlantic area. Q2, November 15 through the 16 at the Stephens fall investment conference in New York City, November 29 at Rodman and Renshaw road show, location to be announced. And then November 30 and December 1, Needham road show, New York City and Boston.

That concludes our call. Thank you, everybody. Operator?

Thank you.

Ladies and gentlemen, that concludes our call for today. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 and enter the conference ID number of 4464819.

Thank you very much for your participation. You may now disconnect.