Aviat Networks Inc (AVNW) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Aviat Networks Conference Call. (Operator Instructions)

I would 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 Third Quarter Fiscal Year 2012 Earnings Call. This is Cindy Johnson, and I am joined by Mike Pangia, President and Chief Executive Officer; and Ned Hayes, Senior Vice President and Chief Financial Officer.

During this Conference Call, we may make forward-looking statements regarding our business, including statements relating to projections of earnings and revenues, business drivers, 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'd like to turn the call over to Mike Pangia, President and CEO of Aviat Networks. Mike?

Thanks, Cindy. And thank you all for joining us today. I'm very pleased to report another strong quarter and better-than-expected financial performance.

We continue to focus on the execution of our stated business objectives, which are built on a number of key fundamentals -- delighting customers, rolling out new products on time and on budget, extending and leveraging our services capabilities, focusing sharply on working capital management, and working more effectively as a team across all functions and geographies.

The improving trend of our financial performance is evidenced by our Q3 results. Revenue for the quarter was slightly above our guidance range, coming in at $111.6 million, with a book-to-bill ratio of just above one. Gross margins were above expectations, at 31.1%, mainly owing to a favorable business mix. And we increased our cash balance significantly quarter-over-quarter. In addition, we secured a steady flow of new customer wins and continue to ramp up shipments of our new outdoor RF unit which we call the ODU 600. Our pipeline of new products is progressing well and will enable us to further advance our competitive position in both the mobile and non-mobile markets. In big-picture terms, we're executing on our plan.

Finally, the business development investment, which we introduced early into our fiscal year, has begun to show results. In Q3, we signed a three-year frame agreement with a new Tier 1 mobile operator with operations in Europe and Asia, and we expect to receive initial orders from one of the regional entities before the end of this fiscal year.

With that, I would like to provide an update on the microwave transmission market. Overall, the market for microwave backhaul continues to represent a great opportunity for us. We anticipate ongoing investments in mobile backhaul deployments worldwide based on both footprint expansion in developing markets and deployments of 4G and LTE elsewhere to support the rapidly increasing subscriber demand for high-performance smart devices.

At Mobile World Congress, held recently in Barcelona, GSMA projected that the number of devices connected to mobile networks will grow from more than $6.5 billion today to over $12 billion in 2020. With so much connectivity, the appetite for increasing network capacity looks set to continue, with emerging cloud-based applications like Mobile Healthcare, Mobile Education, Mobile Agriculture, and other machine-to-machine applications.

Also during Mobile World Congress, we spoke with many of our existing mobile operator customers, as well as potential new customers from around the world, about their needs, investment opportunities and challenges. Our customers continue to tell us that the main reasons they buy from Aviat Networks is because our products provide leading-edge performance, are among the most reliable on the market, and are backed by our strong service and support.

The common product performance elements we heard from these customers are in two key areas -- radio performance -- that is, our high transmitter power and system gain that enables higher link capacities with smaller antennas, and also our unique implementation of carrier-grade Ethernet wireless [sub-transport] with advanced built-in features to support traffic optimization, quality of service controls, and Ethernet operations and management.

We were also excited to demonstrate a set of new products that will continue to support our customers in all phases of their LTE rollouts, while helping us to reduce their overall total cost of ownership, commonly referred to as TCO. In fact, TCO is becoming increasingly important to our customers as they transition to all-IP networks. Our pipeline of new products, with added emphasis on superior networking capabilities, coupled with our service offerings, addresses all of the key TCO attributes. This translates into providing more capacity at a lower cost per unit of capacity.

In the non-mobile market, we continue to experience steady growth in the public safety and utilities segments, especially North America. In addition, requests for our low-latency solution have grown, with new opportunities being identified not only in North America but also globally.

Now I'd like to comment on some specific activities by geographic sector. Overall, we continue to hold a very strong position with our existing customers and are fending off some stiff competition. We are seeing solid, ongoing demand for our products and services across our portfolio of key accounts.

In Africa, as we have described in past calls, demand for high-capacity long-distance backhaul solutions remains high, as the operators continue to invest in our networks in order to meet coverage and increase traffic requirements. In some areas of the Middle East, customer spending has declined due to ongoing geopolitical uncertainty in the region. As this region stabilizes -- the Middle East -- we feel optimistic about our future opportunities there.

In Asia Pacific, we continue to see solid demand as we migrate our existing Tier 1 customers' networks to IP capability with our Eclipse Packet Node, as well as transitioning them to the ODU 600 for higher performance and capacity.

In North America, our market position continues to improve. Orders for the first three quarters of this fiscal year are substantially higher on a year-over-year basis. A major state-funded government project was a particular highlight for the third quarter, as these and other vertical markets continued to associate the Aviat Networks name with mission-critical performance. Our reputation for performance and reliability has also translated into higher levels of business in the mobile segment.

In Europe, a good amount of activity is centered around our mobile operator customers as they increase their focus on capacity upgrades in preparation for their LTE rollouts. We have a number of ongoing new product validations with key customers, which we anticipate will enable us to secure new phases of network expansions. We are also engaged in a number of projects in non-mobile verticals with European-based system integration companies, mainly in public safety and national security applications.

Now, I'd like to provide an update on our products and services. I'm very pleased to report that we continued to introduce our new universal ODU 600 outdoor unit. For those new to the call, the ODU 600 delivers market-leading RF performance through our unique flexible power mode feature. In Q3, we successfully completed the introduction of a further two frequency bands. So we are now shipping all six of the highest-volume frequencies.

Also in Q3, the ODU 600 represented approximately 27% of all radios shipped in the quarter. These six frequency bands represent approximately 70% to 80% of our typical demand, so we are confident on ramping volume of our ODU 600 on schedule.

The Eclipse IRU 600, an all-indoor version of our microwave products, continues to impress customers and is key to our success in North America. The Eclipse IRU 600 provides a compelling feature set for mission-critical microwave applications, including market-leading RF performance, reliability and security. We plan to extend our leadership position through the release of additional enhancements to the IRU 600 early in the next fiscal year.

At Mobile World Congress in Barcelona this year, our product showcase featured an expanded WTM 3000 series of zero-footprint all-IP radio products. The WTM 3200, which covers frequency bands from 6 to 42 gigahertz, with adaptive modulation up to 1024 quam, is now the subject of successful trials with several of our key customers. The WTM 3000 series will also include another product designed for operation in the 70- to 90-gigahertz band, packaged in a very small footprint, which makes this solution ideal for the early deployment of small-cell base stations. We will continue to expand the WTM 3000 family of all-outdoor all-IP products in the future to support optimized capacity and performance profiles for macro-cell backhaul applications at the edge of the network.

Now, I'd like to provide an update on how we are progressing on our fiscal year 2012 key objectives. We continue to move forward with our plans and have made solid progress in each of the key objective areas, which are -- acquiring new customers, focusing on improving costs and operational efficiencies, continuing to accelerate innovation and wireless transmission, and investing in our service capabilities to strengthen our competitive position.

Year-to-date, we have acquired 87 new customers, with contracts above $100,000. These are unique customers that were not spending at that level with us previously. These new customers represent approximately 19% of the total company bookings year-to-date.

In engineering, we remain focused on accelerating innovation while reducing product costs to improve the bottom line. Our overall product roadmap is tracking as expected, and we are executing the key milestones against this plan on a quarter-to-quarter basis. In our services business, we have seen significant growth year-over-year in orders, revenue and earnings contribution. Customers are finding the breadth of our service portfolio to be a strong value add from Aviat Networks.

We continue to see new opportunities for turnkey implementation services on a global basis. In addition, we are seeing increased demand for managed services from current product-only customers, as well as enhanced interest from new customers.

Looking ahead, we remain cautiously optimistic about our near-term business opportunities, while remaining focused on executing a successful close to our fiscal year 2012 plan and creating momentum for fiscal year 2013. Longer term, we continue to be confident that the rollout of our new products and the upcoming platform refresh will restore our competitive advantage and provide the industry's leading TCO -- total cost of ownership -- proposition on a global basis.

Now, I'd like to turn the call over to Ned for an overview of our financial results. Ned?

Thanks, Mike.

Our GAAP financial statements, along with a reconciliation of non-GAAP financial measures, are included in our press release. I would like to take a few minutes to summarize our non-GAAP financial performance at a high level.

As Mike previously mentioned, we had another strong quarter, with results above expectations. The key highlights were -- book-to-bill was slightly above one in the quarter. Revenue for fiscal Q3 came in at $111.6 million, which was above our guidance range. Sales were particularly strong in North America, across all verticals, at $42.6 million; as well as the Middle East and Africa, at $33.9 million.

In terms of product and services revenue mix -- that mix returned to a more normal level versus last quarter's performance, with quarterly revenues breaking out as 77% product-related and 23% services-related. Our large Tier 1 mobile operator in Africa, MTN, was once again a 10% customer in the third quarter.

Non-GAAP gross margins for the quarter were 31.1%, well above our guidance range. Again in the quarter, we had a very favorable mix of products and strong performance delivered by a North American sector. Worldwide product margins came in at 33.8%, while our services margins came in at 22.2% for the quarter. As we noted earlier, services revenue mix was lower than last sequential quarter, and this had a somewhat negative impact on service margins, especially in terms of lower fixed-cost absorption.

Non-GAAP operating expenses for the quarter totaled $32.3 million and were at the high end of our range, largely driven by variable expenses that increased with our top-line performance, like agent commissions and selling expenses. Having said that, our focus on optimizing operating spend delivered our fourth consecutive quarter wherein non-GAAP OpEx decreased. And going forward, we will have a deliberate focus on G&A as an opportunity for the Company to improve in the coming quarters.

Non-GAAP income earned in the quarter was $2.2 million, or $0.04 per fully diluted share. Our continuing sharp focus on working capital management, as Mike mentioned earlier, delivered outstanding results in the quarter that were well above expectations. Our cash balance increased $6.2 million, to $90.5 million.

GAAP cash flow from operations was a positive $6.6 million. With CapEx in the quarter of about $1 million, our free cash flow stood at a positive $5.6 million.

Our collections performance in the quarter was very strong, with receivables being reduced by $7 million and DSOs improving from 99 days to 87 days. While inventory turns eroded slightly to 4.5 in the quarter; days payable, on the other hand, moved strongly in the right direction, increasing from 54 days last quarter to 65 days this quarter.

Our fiscal third quarter balance sheet -- you'll notice that short-term and long-term debt now reflect the two-year term loan facility of $8.3 million we drew during the quarter, to retire a like amount of preferred shares. As we discussed on our last call, those preferred shares bore a 12% coupon rate, while our term loan will be costing us 5% annually. Quarterly repayments of principal will be around $1 million a quarter going forward over the two-year term.

Now, let me conclude the financial section of the call with our guidance for our fourth fiscal quarter. Based upon current trends, our revenue outlook range is $107 million to $115 million. We expect Q4 non-GAAP gross margins to be in the 29.5% to 30.5% range. As we stated on the call last quarter, we drove sales of our existing product line in the last couple of quarters and will phase in our new cost-reduced products as they become generally available.

And while we do expect modest gross margin improvements, one should note that as we've experienced in the last two sequential quarters, mix can have an impact in one direction or another. Given variability in product mix, geographic mix, service volumes, carrier choppiness, pricing, this gradual improvement in margin may very well not be linear. But our general trend longer term will see our gross margin targets move to the mid-30% range, to be attained primarily through the continuing introduction of our next generation of products that are currently in development.

We expect that our non-GAAP operating expense spend will be in the range of $31.5 million to $32.5 million for the fourth fiscal quarter. On a go-forward basis, opportunities remain to further optimize and better align our spending, especially G&A; and ensure that we are investing in those key areas supporting our long-term objectives.

We are anticipating solid cash collections again in the fourth quarter, given the accounts receivable balance and our backlog. Our expectation is that we'll increase cash balances again in the coming quarter and deliver on our prior commitment to generate cash in the second half of this fiscal year.

So with that, I'll turn the call back over to Mike for his executive summary. Mike?

Thanks, Ned.

As mentioned earlier, I am very pleased with our financial performance in Q3 and the consistency we are demonstrating in meeting our previously stated commitments and objectives.

I would now like to conclude the management overview with several investment considerations. Over the last four trailing quarters, we have a solid $440 million-plus top line, with an improving business model. Non-GAAP gross margins remain steady at an average exceeding 30%. We intend to manage our OpEx tightly, looking for further opportunities to optimize our investments. This means as revenue grows, investors will see earnings leverage.

We have a solid balance sheet and generally, with normal fluctuations, expect to be generating positive cash flow from operations going forward. And we continue to introduce new products to improve our competitive position. In conclusion, these are some tangible proof points that we are creating shareholder value.

Now, I'd like to turn the call over for questions. Operator, you may now proceed with the Q&A.

(Operator Instructions) Matt Thornton, Avian Securities.

Yes, good afternoon, and nice quarter, guys.

Thanks, Matt, appreciate it.

Maybe we can start with your comment around the Tier 1 mobile operator in Europe and Asia. If I heard that correct, that was a three-year frame agreement.

Yes.

But I missed some of that. Can you kind of walk us through that, or give us a little more color on that opportunity?

Yes. So this is a fairly large operator. I believe that they're in the top 10 globally, as far as size. We had some, I would say, immaterial business with some of the entities this operator had across certain parts of Asia. And how we came across it was -- like most operators, we needed to establish a presence at the HQ level. Decisions are becoming more centralized. And it was upon us to -- and we were motivated to have a frame agreement that allowed us to operate across all those entities.

So this has been something that's been ongoing for about five or six months. And we actually entered upon -- the opportunity was triggered by, I would say, a displeasure of that particular customer with one of the existing incumbent providers. They had RFP RFI process. And really, we were in a position where we were able to leverage our new products, focused on the total cost of ownership equation, which has as much to do about the OpEx as it does about the CapEx. We had a customer who was very interested in working through that TCO value proposition. And we were awarded the three-year frame agreement, and now we're working on the initial orders from one of the entities from that customer. And the entity that we're working on the orders from is one that we'd never done business with before. So it's not like it was one of the minor relationships that we already had with them.

Got you.

And did I hear you say that you expected orders to commence -- was it this fiscal year, or the calendar year --

Yes, we should expect to get our initial orders from this customer from one of those entities before the end of the fiscal year. That's our current expectation.

Great. And if we wanted to try and put a little bit of size around this -- I mean, is this a customer that could join MTN as a 10% type customer on a normalized basis --

That's probably a stretch for anybody new coming in right off the bat. I think that this -- as we've been saying all along, Tier 1 mobile customers are great from the standpoint of -- once you're in with them, then there's a recurring amount of business which is fairly substantial. I think that this particular customer presents us with a very strong opportunity. But it'd be a stretch to say that any new customer at this point would be able to contend with MTN, which has been our number-one customer for several quarters now.

Terrific.

And then, just a couple quick ones, if I could -- the status on the receivable out of India -- is that still something you expect to collect in the current quarter? Any update there?

I'll have Ned answer that.

Matt, we still [seem] to have a line of sight that that will be collectable, substantially [all]. We still characterize it as single-digit millions. And I think we'll be seeing that collection stream over this quarter and perhaps the first quarter of the next fiscal year.

Perfect.

And then, just one last one, if I could -- probably for Mike, maybe for Ned -- can you just kind of give us maybe a sense of linearity in the quarter, and kind of how visibility into this quarter compares to last quarter?

I would say that I think our backlog continues to be very steady. As I think you've seen, we had another book-to-bill at [One Irbov]. So we've got a pretty strong backlog going into any given quarter -- very healthy. There's still a fair amount of business, notwithstanding that, that we have to book and ship in the quarter. And the linearity, from a bookings perspective, is fairly good, which allows us to be in a position to turn that booking into revenue.

The other thing, too -- and it's all about -- really, there, it's all about meeting the customer's expectations, from the time they place that order to the time they receive those goods. We're back to normal, from the perspective of delivery -- the Thailand situation is behind us now, so we're back to order relative to meeting those customer requirements. And we see further opportunities to improve our cycle times going forward.

Terrific. I'll cede the floor. And congrats again, guys.

Thank you.

Thanks, Matt.

[Mack Tottman], Stephens, Incorporated.

Good quarter. Thanks for taking the questions.

As far as visibility goes -- I guess I'm kind of piggybacking off the last question that was asked -- but you had a nice pickup in Africa this quarter. And I was wondering if we should expect that or see some improvements out of Africa going forward. I know it's been lumpy over the past, but didn't know if you guys had any better visibility.

Yes. We do give a perspective, a quarter at a time. And I would say that our business over a number of quarters -- in Africa, we've maintained a very strong position, and we expect to continue to maintain that strong position. It is a difficult customer to predict, from the standpoint of choppiness. And that's just something that I think we've always got to manage on a quarter-to-quarter basis.

Got you. Would you say, going into the next quarter, that -- well, never mind. I got it.

And then, last quarter, you discussed seven LTE network rollouts in the US that you guys were working on. First, how far along are you in that deployment process? And have you gotten any other contracts during the quarter that are similar to that in nature?

Yes. First off, I believe that our remarks around LTE apply globally --

Okay.

-- not necessarily just in the US. And we continue to be deploying those networks. And just to use US as an example -- as we predicted, our business as it relates to our US mobile base did improve in the third quarter, as we are seeing more LTE rollouts to the secondary markets and into the rural areas of the US.

That's helpful.

And then, as far as microwave trends -- I know you discussed it a little bit earlier in the call. But are you seeing anything different, better or worse, over last quarter? And then, what impact will the Verizon spectrum sale have, if any, on the near term for your business?

On the second part, I'm not sure right now what specific impact that Verizon spectrum would have on us. I mean, we could follow up on that and, perhaps in the coming weeks, have further dialogue there.

Your first question again -- sorry, Mack -- was --?

Just about demand.

Yes. We continue to see solid demand. Capacity continues to be required. Increased capacity continues to be required on the mobile operator space. And we continue to see the demand outside of that space in the non-mobile segments, as networks continue to modernize. So I wouldn't say that we've seen any change in demand.

I guess we are seeing a pickup in a couple verticals, the finance vertical being one where we are seeing some new demand and some new business coming out of the low-latency vertical. So that would be one additional area or difference than, let's say, a few quarters ago. But other than that, we continue to see solid demand. And our business development efforts continue to focus in on penetrating new business.

Great.

Thanks so much, guys. I'll jump back in the queue.

(Operator Instructions) Aalok Shah, D.A. Davidson.

This is [Michael England], sitting in for Aalok. Thanks for taking my question.

I just had a couple for you guys. First one -- is there a timetable for the ramp of the new products?

Well, I can give you -- when you say a timetable for it, just to give you a better perspective on that -- our ODU 600, which is our RF unit, has been rolled out for the last few quarters. And now we're at the six highest frequency bands that represent most of the demand. So you'll see that ramp continue. The remaining frequency bands are going to be all about prioritization in terms of which ones are necessary based on completing, let's say, that remaining (technical difficulty).

We are in trial right now with the first version of our WTM 3000 all-outdoor products. So we would expect that that would be -- the first product in that family would be coming out. And I think we said that we would expect to see some initial orders from that before the end of this fiscal year, so revenue into the next year.

As I mentioned earlier, there are going to be a couple new variants to that product line which I would expect to be introduced some time in our next fiscal year. We haven't given any specific timing on that.

We have a next version of our IRU 600 which will be coming out, which has much stronger performance transmit power attributes associated with it -- at the same time, a smaller footprint, or smaller in size. We expect that to come out early in the next fiscal year. And I would say that those would be the key products.

I think as I mentioned, perhaps, in the last call, we have some product modifications going on, specifically tailored to the low-latency market. And we're introducing those over the next several months as we're continuing to ramp our business up in that area.

Sounds good. And with those products, what do you guys expect for that gross margin there?

Gross margins vary, depending on the market we're dealing in. The particular product varies. I mean, I think the message is that as far as our overall margin, we do expect modest improvements in our overall margins [as] difficult. It's not going to be in the near straight line. But over time, our margins will improve, fueled by the base of new products I just went through, and then continuing on with the balance of the new products which will be coming out, with one of the key triggers on that margin improvement, as I mentioned earlier, to be our next-generation packet node, which will be out most likely in the front end of calendar year '13.

Okay.

And then, just one more for you -- relating to your OpEx guidance -- with you having all the cost-cutting measures, why are we really not seeing that going forward?

Well, I think you will see improvement in OpEx going forward.

Okay. Just more later part of the year?

Certainly, if you take a look at our fiscal fourth quarter, I think you're going to see improvement. And then, yes. Especially with some of the initiatives that we have very deliberately focused on G&A, I think you'll see some very good improvement on that line item in fiscal year '13.

Okay.

Well, that's all I got for you guys. Thanks.

Thanks, Mike.

Thank you.

Russ Silvestri, Skiritai Capital.

Hello, good afternoon.

Hi, Russ.

Two questions -- one, I don't know if you said it, but did break out the amount of revenue that was service-related? And then also, what drove the 22% gross margin in service? That was question one. And my second question is unrelated. But can you talk a little bit about perhaps the macro driver in terms of spending, and maybe increasing or decreasing [TAM] as it relates to microwave backhaul versus the alternatives, [and, I guess,] fiber -- the markets you guys are addressing?

I'll take the first one.

In our prepared comments, we talked about our product and services mix.

Yes.

We talked about that as being -- 77% product-related and 23% services-related.

Got it.

And then, the 22.2% in terms of margins is what we normally see. As we spoke long and hard about on our last call in Q2, Q2 was very much an anomaly in terms of the margin rates that we enjoyed at that particular point in time, specifically because we had a much higher services mix in that particular quarter. And that served to help us on the margin side, especially with fixed-cost absorptions.

So it's basically a utilization issue that you're running in the service organization?

That, and the number of projects and the kinds of projects that we went through this quarter versus last quarter.

Okay.

So just on this -- on the drivers -- first off, the drivers relative to need for backhaul are capacity, as we talked about, as I mentioned earlier. And it's really driving a total cost-of-ownership mentality. How do I drive -- how do I deliver more capacity at a lower cost per unit of capacity?

Yes.

Obviously, it could be delivered in two ways -- microwave or fiber.

What we're seeing here is that in North America, it's traditionally been about 90% fiber, 10% microwave. And what we're seeing now -- as services are now being introduced in the secondary market [or global] markets, it's really the time to market, time to revenue. It's a much easier-to-deploy microwave. And microwave's capabilities relative to capacity is much stronger than it had been. So the value proposition associated with microwave, where fiber doesn't exist -- there's a bias towards microwave under those scenarios. And we're seeing that now in the US.

On the international front, it's always been in the 50-50, microwave versus fiber. There's many of these markets where fiber really isn't conducive based on the landscapes of those regions. And microwave we expect to continue to be one of the key deliverers of capacity from a backhaul perspective.

Can you guys talk about a couple of the metrics that are being used in your TCO that --

Sure.

-- allow you to win the day, so to speak?

Yes. So our TCO -- I see four major components to our TCO, one of them being reliability, which is all about -- if you're going to buy a product, then it's going to work, and it's going to last. And we've had just phenomenal statistics in the past that's -- an area that we'll continue to be very focused on is the whole area of quality, and the services that we provide that strengthen the overall solution.

Another area we call migration flexibility, which is -- when a customer makes a purchase, then are they able to utilize those assets as they grow either in capacity, or they go from TDM to IP? And we have a very strong story -- we always have had one -- in terms of being able to transition our customers as their networks change. And everything we introduce -- we have a very strong focus on making sure that that's backward-compatible.

Performance is another very important area. Performance is all about providing high transmit power and system gain, which means you can either go a farther distance or you need smaller antenna. And that has a significant impact on the overall CapEx equation as you include the antennas in that, as well as the cost of space on a tower -- has a [usually] high-OpEx component.

And then, the last area is on the area of superior networking, which is really about scalability, density, the networking attributes of the product, having a product that can do more than what's provided today. So if you've got a number of devices at a cell site today to deliver networking capabilities, as we're introducing new products, our focus is on being able to do more, leveraging our footprint, and therefore allowing the customer to reduce their CapEx by not needing all these other equipment that are at the network. And of course, that saves OpEx in terms of training, as an example, and maintenance. And that's where our focus areas are.

That's clear. Thank you.

Richard Greulich, REG Capital Advisors.

Wanted to follow up on the question on the G&A expenses going forward. So other things being equal, if you don't have the $500,000 net loss bad debt expense write-off, then you'd be at [24.6]. Are you saying you should be lower than that in the fourth quarter?

Well, number one, the net loss was below the line. That wasn't in our non-GAAP results.

Okay.

Number two, I think we're going to be focusing hard on G&A. And so, when you take a look at our operating expense spend, it's currently somewhere that is going to be trending lower.

Okay. And is that due to specific programs that you've already been implementing, or perspective programs?

They are programs that [with that deal] -- my being on the job for five or six months now, identified very early on a number of initiatives to de-complicate the business. We have a very complicated business, from a business process, business structure, legal entity standpoint --

Yes.

-- for a $450 million enterprise. A lot of them have been inherited over the course of past mergers. And we're getting after those in particular to be able to reduce non-value added effort, and ultimately expense. And those will begin bearing, I think, significant fruit in the next fiscal year.

And to do that, will there be expenses associated with that that will then be identified out?

There could be investments that we make, particularly on our system side, to the extent that we can roll out more automation, better automation, better systems, better management information systems. That investment will be there, both from an OpEx perspective and a CapEx perspective. But again, we're looking very hard at the ROIs on those investments with regard to cost reductions that will result from those investments.

Yes.

And the level of R&D you have now -- $9 million a quarter -- is that likely to continue at that rate over the next, let's say, one to two years?

As we've talked about earlier, there's a number of new products that we have that have come out. There's a pipeline of further new products. We are moving towards a next-generation platform. So I would say yes, I would expect that the investment in R&D would continue at this rate for a period of time.

Thank you.

Thank you.

At this time, there are no further questions in the queue. I'd like to pass the call back to Cindy for closing remarks.

Thanks, everyone, for your participation.

Just a quick update on our upcoming investor conferences and meetings -- on May 7th, we'll be at the Jefferies 2012 Technology, Media, and Telecom Conference in New York City. On May 17th will be D.A. Davidson Non-Deal Roadshow in San Francisco; May 18th, D.A. Davidson Non-Deal Roadshow San Diego; May 30th, D.A. Davidson Conference in New York City; and May 31st, Avian Securities Non-Deal Roadshow, New York City.

With that, I'd like to turn it back over to the operator to close.

Thank you.

Ladies and gentlemen, this does conclude the Aviat Networks Conference Call. We'd like to thank you for your participation. You may now disconnect.