Aviat Networks Inc (AVNW) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Aviat Networks fiscal third-quarter 2013 earnings call. For today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator instructions)

This conference is being recorded today, May 1, 2013. I would now like to turn the conference over to Peter Salkowski, Investor Relations for Aviat Networks. Please go ahead.

Thank you, Ian. Good afternoon, everyone, and welcome to Aviat Network's fiscal third-quarter 2013 earnings call. I'm joined today by Mike Pangia, President and Chief Executive Officer; and Ned Hayes, Senior Vice President and Chief Financial Officer.

During this conference call, we will 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. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

For more information, please see the press release and the 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.

In addition, during today's call we will be references both GAAP and non-GAAP financial measures and wish to note that a copy of the press release and financial tables, which include a GAAP-to-non-GAAP reconciliation and other supplemental financial information, is available on the Investor Relations page of our website.

I'd now like to turn the call over to Mike.

Thanks, Peter. I'm pleased to report that Aviat Networks performed as expected during the third fiscal quarter, with both revenue and non-GAAP EPS results coming in within our guidance ranges.

Revenue for the quarter was $118.3 million, while non-GAAP EPS came in at $0.02 per share. We ended the quarter in a strong cash position, with cash on the balance sheet of $92.9 million.

The fiscal third-quarter book-to-bill ratio was below 1. Lower fiscal third-quarter orders were as anticipated, due to the seasonally strong year-end order activity experienced in our fiscal second quarter. Non-GAAP gross margin for the quarter was 29.1% and was impacted by a one-time $1.1-million inventory write-down. We estimate the impact of this write-down in gross margin to be approximately 100 basis points and $0.02 on a non-GAAP EPS basis.

Before turning the call over to Ned, I would like to provide an update on what we are seeing for the total microwave backhaul market in both the near and longer term. I'll follow those comments with some geographic views specific to our third-quarter fiscal year 2013.

Entering calendar year 2012, industry analysts had predicted global microwave market growth ranging from 3% to 5%. According to recent industry reports, the 2012 global microwave market was, in fact, down more than 7%.

Performance varied greatly by geography, with Africa and North America remaining the most robust. Our strong position in these two large regions is the primary reason Aviat was able to outperform the market in calendar 2012, with our revenue increasing 4.2% over the prior calendar year.

Under current conditions, our revenue visibility is more limited in the near term. Some mobile operators are limiting their microwave backhaul spending, which is resulting in fewer opportunities for Aviat Networks to break into new accounts. In addition, these market conditions are resulting in increased competition amongst vendors.

In the medium to long term, we continue to expect increasing market demand for microwave backhaul solutions. This thesis is supported by the growing demand for wireless connectivity, global users, insatiable appetite for data, the immediate need for dependable public-safety networks, and a mobile telecom network modernization cycle that has only just started in several emerging markets.

While some telecom industry analysts are predicting a second half of calendar 2013 recovery, we view that this may be too soon. Consistent with our view, several reports we've read indicate an improving industry trend beginning in calendar 2014.

As a result, we are cautiously optimistic in the medium term but continue to be bullish regarding the demand for microwave backhaul solutions over the longer term.

I would now like to take a closer look at the company's performance by region. Starting with North America, the 4G LTE build-out has been a tremendous bright spot for our business this fiscal year. Steady progress was made in acquiring new customers, and we secured first-time orders in the tier-2 and 3 [teleco] space and the alternate access carrier space.

In addition, our post-sale support services, including end-to-end network services such as proactive network surveillance, fault identification and escalation, and emergency on-site repair responses continue to show significant growth with wins in low-latency and private networks.

Our reputation as the most trusted supplier for first-responder microwave systems for the mission-critical public-safety networks was reinforced with an important win at the state law-enforcement level in the southeast United States.

In light of the several, high-profile public-safety events that have recently occurred, we see US public safety to be very important for local, state, and federal governments.

In Africa, our major customers reduced orders in our fiscal third quarter, from the very high level we experienced in our seasonally strong fiscal second quarter. While we expect this region's mobile operator CapEx to be lower in the near term, we remain bullish on their growth strategies and CapEx investments in the latter part of the calendar year and into calendar 2014.

Confidence in Aviat and the demand for Aviat's products from our key customers within Africa remain solid. The environment in Africa is well suited to the deployment and use of microwave networks, due to the high demand for fast, reliable communications.

Moving to Europe, we are holding steady. European orders were slightly up compared to the previous quarter. Overall, we are observing a prolonged slow period in the market, confirming what market analysts and others in our industry are reporting. We are continuing to selectively invest additional resources in Europe.

In Asia-Pacific, we continue to see our key customers rolling out LTE services, leveraging the significant carrier Ethernet capabilities of our Eclipse platform. We shipped our first order of STR 600, our split-mount trunking solution, to a new customer in the region, to help them upgrade their backbone capacities with multi-channel wireless links.

We also secured another public-safety project in Malaysia, to migrate their TDM network to IP. We are pursuing a number of larger operators in Southeast Asia as they develop plans to launch advanced, IP-based networks.

Now I would like to make a few comments about the competitive landscape. As I stated earlier, we are experiencing more intense competition for market share. Operator consolidation and declining CapEx in certain geographies are contributing to heightened pricing pressure in our markets.

We are focused on increasing our share of wallet from existing customers by delivering the best total-cost-of-ownership solutions. In addition to pricing competitively, we are focused on value-added services and improving the functionality and performance of our products. In the medium term, we will be leveraging our next-generation platform, which will enhance our total-cost-of-ownership proposition.

Before turning the call over to Ned, I would like to update everyone on our new product programs. I'll start with our outdoor radio platform. We have almost completed the roll-out of frequency band of the ODU 600 and plan to finish the program on schedule.

The majority of our customer base is now using these outdoor units, and the increased performance and lower cost is helping us to improve our competitiveness in this market.

We continue to evolve and improve our existing Eclipse indoor-networking platform. For almost a decade, the Eclipse platform has evolved to maintain its year-on-year market-leading position. We continue to introduce a number of enhancements to the Eclipse platform that are important in leveraging the install base and providing a stronger, total-cost-value proposition, as our customers transition to a carrier-grade, all-IP technology with higher capacity requirements.

As I mentioned earlier, in Q3 we made our first shipment of the STR 600 outdoor trunking version of Eclipse to a customer in the Asia-Pacific region. We expect good uptake of this product in both our Asia and Africa customer base in the next fiscal year.

We also started to ship an enhanced version of the IRU 600 platform for our North American market opportunities in order to maintain our competitive lead in this class of products.

Regarding new product launches, we have been working with many of our customers on initial evaluation of our new CTR, converged transport router, platform, and we will be conducting demos of this product within the current quarter with a view to scheduling extended customer-site and network trials at the next stage. Customer feedback on the CTR platform has been excellent, and their collective input has enabled us to tailor our roadmap to best meet their needs, particularly as they pertain to the roll-out and timing of software features for advanced IP networking.

We expect to start shipping the CTR platform in our third fiscal quarter of 2014, with the revenue ramp to follow. As the Eclipse platform did before, the CTR release will set the tone for Aviat for the next several years.

I would now like to turn the call over to Ned for an overview of our financial results. Ned?

Thanks, Mike. Our GAAP financial statements, along with the reconciliation of non-GAAP financial measures, are included in our press release issued today, following the market's close.

I'd like to take a few minutes to summarize our non-GAAP financial performance at a high level. As Mike previously mentioned, we had a good quarter. The key highlights were -- revenue for the fiscal third quarter came in at $118.3 million, in the midrange of the guidance provided in our fiscal second-quarter earnings call.

Contributing to the predicted sequential decline in revenues for our fiscal third quarter, we experienced an expected seasonal decline in Africa that was offset in part by strong revenue performance in the North America and Asia-Pac segments. 72% of our revenue was derived from product sales, and 28% from services, demonstrating continued strong performance in our services offering.

Two significant tier-1 mobile operators, MTN in Africa and Verizon Wireless in the United States, were 10% plus customers in the third fiscal quarter.

Non-GAAP gross margin for the quarter was 29.1% of sales, below our previous expectations that gross margins would be 30% or above during the second half of our fiscal year. Our fiscal third-quarter gross margin underperformance was due to a one-time item involving a $1.1-million write-down of installed inventory and services, relating to a non-mobile operator that declared bankruptcy in late March. This write-down was unforeseen at the time we set our gross margin expectations, much earlier in the fiscal year.

I would like to reiterate that the write-down was a single, unique event, and without this non-recurring item, non-GAAP gross margins would have been approximately 30% in the quarter.

For fiscal third quarter, non-GAAP operating expenses totaled $32.6 million, or 27.5% of revenue. As expected, these expenses increased sequentially, reflecting increased investments in our go-to-market activities and development. Much of the additional spending in development was related to costs to complete and introduce new products.

Third-fiscal-quarter adjusted EBITDA was $3.3 million, down from our very strong fiscal second-quarter result of $8.7 million and slightly above our year-ago quarter's adjusted EBITDA of $3.2 million.

Non-GAAP income from continuing operations earned in our third quarter was $1.2 million, or $0.02 per fully diluted share, within our guidance range. As Mike pointed out, the one-time, $1.1-million write-down impacted non-GAAP EPS by $0.02. Without this unexpected event, non-GAAP earnings per share would have been in the middle of our guidance range of $0.02 to $0.06 per fully diluted share, provided on our last earnings call.

Also on our last call, we anticipated using several million dollars of cash for working capital and other needs in the third fiscal quarter. The company used less cash than anticipated, ending the quarter with a cash-and-equivalents balance of $92.9 million. With our debt levels reduced to $9.8 million, our net cash -- that is cash, less debt -- continued to be a very healthy $83.1 million, or $1.33 per share.

On the working capital front, we saw benefits from several actions taken recently to reduce our inventories, and we improved our inventory turns rate to 5.9 turns. In addition, we drove DSOs down to 62 days, while holding days payable about the same as the previous quarter, at 44 days.

While it will be difficult to hold these very favorable rates on a continuing basis, these results illustrate that we are driving continual process improvements across our working-capital accounts that will provide the business -- that will benefit the business over the longer term.

Cash generated by operating activities was $3.2 million. CapEx in the quarter was $3.5 million, reflecting capitalized expenditures on our ERP implementation and test equipment for our new product ramp.

We expect CapEx to pull back from the levels experienced in our fiscal third quarter, as these projects are completed. Free cash flow stood at a slightly negative $300,000 in the quarter.

Now let me conclude the financial section of the call with our guidance for our fourth quarter of fiscal 2013. In line with Mike's earlier commentary regarding global-market spending and orders-timing trends, we see revenue for our fourth fiscal quarter to be in the range of $105 million to $115 million.

As a result, the revenue range for the 2013 fiscal year is $467 million to $477 million. This represents a 5% to 7% year-over-year increase in revenue from the $444 million reported in fiscal year 2012, despite the overall market reportedly being down.

Consistent with the practice we began last quarter, we will issue guidance on non-GAAP earnings per share again this quarter. We expect our fourth-fiscal-quarter non-GAAP EPS to fall within the range of break-even to $0.03 per fully diluted share.

We will maintain our focus on modulating operating expense to deliver on the bottom line. We expect fiscal-fourth-quarter non-GAAP expenses to experience a sequential decrease from last quarter. And on a go-forward basis, we will continue to further optimize and better align our spending and deliberately focus on the sequential reduction in operating expense over the next few quarters.

With this guidance, the company expects to earn non-GAAP income from continuing operations in the range of $0.17 to $0.20 per diluted share for fiscal 2013, up from $0.06 per share in the previous fiscal year. And one should note that fiscal year 2013 EPS results include approximately $2.6 million, or roughly $0.04 per share, of non-GAAP cash taxes that were not included in the prior year's results.

We expect a slight use of cash in operations in the fiscal fourth quarter. With a continued focus on delivering profitable quarters, we expect to be able to maintain our strong cash balance.

As we mentioned on our last call, we are including estimated cash tax expenses in our non-GAAP results this fiscal year. During fiscal Q3, we estimated $650,000 in cash tax expenses, and business models should include a similar amount for fiscal Q4.

During the fiscal year, we have increased our reserve for uncertain tax positions by $11.8 million, increasing the total balance to $16 million. The majority of these tax provisions are related to audits of past years in several foreign jurisdictions where we have not received final assessments.

While the company continues to defend its position vigorously and will continue with the appeals processes, we may receive final assessments from one or more of these foreign jurisdictions, requiring payments, perhaps during the fiscal fourth quarter. We are confident that if required, we will be able to absorb these payments without any disruption to the business.

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

Thanks, Ned.

So in summary, although we expect some near-term challenges, I want to reiterate that we are cautiously optimistic in the medium term and remain very bullish on the long-term prospects for the microwave backhaul industry.

The market drivers are strong, and we are confident that Aviat is well positioned to benefit. In support of our view, I'd like to share a few market statistics. The number of smartphones in use worldwide surpassed 1.2 billion in the calendar fourth quarter of 2012, up 15% sequentially from the third quarter of 2012. This figure is expected to double to 2.4 billion smartphones worldwide by 2015.

There is an increasing use of apps that are heavily driven by cloud services. And lastly, total worldwide shipments of tablets are expected to exceed 210 million in 2013, up from just 10 million in 2010.

More devices, more apps, and the desire for speed is driving the need for increased throughput and higher-capacity networks from mobile operators, resulting in a greater demand for backhaul solutions.

The private network market also represents great opportunities. Public safety continues to be a major priority for governments around the world. Opportunities within the utilities segment continue to emerge, with the explosion of machine-to-machine and smart-metering programs, and the low-latency market is still in its infancy stage.

All in all, the key drivers for our products and solutions remain very strong and support our confidence in the long-term view of the overall market. We will continue to focus on new-product development and innovation, improving our own efficiency and productivity, while still investing in new growth opportunities.

Aviat is in a much better place than it was a few years ago. Our business results have improved substantially from a bottom-line perspective. Our balance sheet remains strong, supported by steady improvements in working capital management.

We have introduced many new products and are looking forward to the launch of our next-generation packet node, which will allow us to extend our reach further. We have a tremendous global base of customers in both the mobile and non-mobile markets, and we have great people, experienced in the industry and motivated to win.

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

(Operator instructions)

Our first question comes from the line of Rich Valera with Needham and Company. Please go ahead.

Thanks. Good afternoon, gentleman.

Hey, Rich.

Hey, Rich.

So it looks like you guys are performing well in a challenging environment. But you had strong bookings more or less for kind of the last 12 quarters by my account that you had a book-to-bill of 1 or above. And yet now, we seem to have revenue going kind of in the wrong direction for a couple of quarters now. I'm trying to get a sense of -- are we going to see more from all those strong quarters of bookings, or has the environment gotten that much more challenging that even with that presumably agreeable accumulation of backlog, we're still looking at maybe this reduced level in the 110 -- you know, 105 to 115 range for a while, here?

So, first off -- as we discussed with our seasonally strong second quarter with the significant bookings that we received, heavily driven by Africa -- and Africa in the third quarter was down. And actually, if you take a look at everybody who's in the telecom space and does business in Africa, Rich, you can see that the Africa sector was actually low for many people in the third quarter.

So we do expect that to improve, as I said. Beyond the quarter that we're giving guidance on, it is difficult to predict exactly what the number might be. We are cautiously optimistic that we will continue to see improvement, but it's too early to call that out.

Ned, do you have anything else you want to add?

No. The only other thing I would add, Rich, was just to remind everybody on the call that we had $129 million worth of revenue in fiscal Q2, a very, very strong seasonal quarter. We had good bookings. I think we're just, again, being cautiously optimistic, given the macroeconomic backdrop that we see right now. And the fact that we did have a book-to-bill below 1, that is going to give rise to less visibility in the coming quarter, a bit lower backlog, and a bit more book and ship that we're going to have to make sure that we manage carefully. But we want to be pragmatic in terms of what we're telegraphing to the street.

Of course. And is there any other color you can give -- and I understand there's probably some competitive considerations here, but -- that leads to your confidence that you will see a rebound in Africa, it sounds like in -- not so much in the quarter we're in, but perhaps in another quarter or two? Any other color you could provide there?

All the drivers in Africa are very, very strong. They're still into network modernization, TDM to IP. The number of smart devices there are nowhere near as a percentage where they are in the rest of world.

So it is definitely a market that continues to represent great opportunities for us. And the relationships we have with our key customers continue to strengthen.

Okay. And a question on gross margin, if I could. It looks like you would have been at about 30% [EPS] at one time in 3Q, and it looks like your guidance implies something -- I would guess, actually, north of 30% to get to kind of the midpoint of your EPS range in Q4. So can you kind of feel reasonably comfortable that you're north of 30% a year? I understand you could see some volatility, but what's your comfort level that you're sort of north of 30% -- you know, 30% or better on the gross-margin line as we look out over the next few quarters?

So, Rich, again -- we're kind of focusing our guidance now on the bottom line. We think we have a number of different levers available to us that include gross margin and modulating operating expenses.

I do want to call out that the one-time item was, in fact, as we believe, a one-time item. As we continue to roll out our ODU units and as we continue to roll out our new products that have better performance for lower cost, we will see gross margins improving above -- moving above 30%.

I think if you take a look at the math as you described, between top line and bottom line, you probably have appropriate expectations of where we'd see gross margins for fiscal Q4.

Okay. And it sounds like the impact from the CTR products, that's really, at best case, second half of fiscal '14. Is that a fair assumption?

Yes. I think that's the fair assumption to make, in terms of having impact in some way, at least on the margin side. But again, I do want to highlight that -- as I mentioned earlier, when you've got [marked] certain geographies where (technical difficulty) are tough, macroenvironment is tough, you've got other geographies where things are stronger, places like Africa -- you're going to have a lot more focus on competitive pressures and pricing. And pricing has been intense, and it has elevated based on what we've seen in the last couple quarters.

I do want to mention one thing, though, Rich, in terms of your comments. We do have intermediary new-product introductions that are coming out before CTR that will allow us to have additional product-cost reductions, and hopefully improvement in gross margins in the interim. So I wouldn't want anybody to infer or extrapolate that gross-margin improvement is all the way out into the end of fiscal year '14. We have several opportunities and new-product introductions between now and then that will help us significantly in product-cost reductions.

(Technical difficulty) Sure, and I get, obviously, those have to be balanced against the increasing price pressure that you referenced, Mike. I guess we won't get carried away with the (inaudible) expansion from those new products. And I just wanted a clarification -- what was your CapEx number for the quarter, Ned? I wasn't sure if I caught that.

Rich, that was $3.5 million, and that was up significantly from previous quarters --

Right.

-- driven largely by our Oracle R12 ERP implementation and test equipment for our new-product ramp-up and roll-outs.

Right.

As I said, I think we'll see that getting back to a more reasonable norm in the $1-million to $1.5-million range, here, once those projects are completed in the first half of fiscal year '14.

Okay. Very good. Thanks, gentleman.

Thanks, Rich.

Thanks, Rich.

Thank you. Our next question is from the line of Barry McCarver with Stephens Incorporated. Please go ahead.

This is [Brad Henry], in for Barry. Your North American market was strong in this quarter, and you mentioned specifically Verizon being a large part of that. Going forward, do you continue to see that to be a significant driver for the North American market in the short term?

I would say that, yes -- I mean, I think we will expect to See Verizon continue to be a strong customer. They have been rolling LTE out. At some point, we would expect that to somewhat stabilize or normalize, but we expect, at least in the near term, the trend to continue with Verizon.

Great. And -- you mentioned the OpEx is going to decrease sequentially. Can you provide a little more color on that?

We -- I guess we've always run the business in what I would call a cautiously optimistic manner, which is, we're cautious on what we spend and we're optimistic on where we're going.

We have opportunities, as we mentioned before, to continue to optimize, and we also have opportunities to invest. The combination of those two, we see in the short term the opportunity to do more optimization in investment, based on what we've already done; and therefore you would expect us to continue to focus in on improving our OpEx in absolute dollars on a sequential basis. And we will continue to focus on that. We have a number of opportunities in front of us to do that.

And we also mentioned that that would continue into the next fiscal year, as well, in terms of sequential declines.

Okay. Thanks.

Thank you. (Operator instructions) And our next question is from the line of Aalok Shah with D.A. Davidson. Please go ahead.

Hi, Ned and Mike. A couple quick questions. In terms of the one-time charge, Ned, can you walk me through that? How does the accounting work? Was it just -- was there never any revenue recognized on this product?

Correct. We had this customer, given the profile of the customer, on a cash basis, as it was. So what we had done was we had a number of different commercial arrangements to make sure that we had access to that mobile -- non-mobile operators and customers, kind of taking him out of the equation.

Unfortunately, we ran into some operating problems where he was not able to get his network up and running; and so his end customers were no longer going to be involved. And therefore, that customer, upon going into bankruptcy -- we had installed inventory, and we had stranded services on our books that we wrote off. And of course, that went to [COGS], as well.

Okay. So there's no inventory that you could have reused, I guess, down the road? Or potentially, I guess you can down --?

Depending on what comes out of bankruptcy proceedings, there could be some upside there, yes.

Okay. And then in terms of, Mike, your comments on the medium-term outlook -- I know Rich talked about it as well, but -- I'm kind of curious. I mean, is there -- have the activity levels dropped? Have you noticed a specific level of activity drop, maybe across geographies, or are you seeing just overall right now just a reluctance by service providers to spend?

Well, I think what we're seeing is -- I mean, we continue to be very -- we continue to be very strong. North American and Africa are very strong markets for us.

We had -- again, part of the plan to grow the business was to be able to bring in new accounts. What we've seen is, the ability to penetrate some new large accounts in some of those areas where CapEx is down and the market and the macroeconomic environment is somewhat soft, is difficult to do.

And also, with that going on in the backdrop, we're also seeing -- usually when things are tight in certain geographies and people are more careful as a result of the macroeconomic environment, they're not keen to be adding new suppliers or changing out incumbents, because that usually drives a significant amount of OpEx up front to be able to do that.

And therefore, because some of our opportunities are limited in those markets, it's given us a reason to be more cautiously optimistic in the near to medium term.

And then, in your commentary about more of a competitive landscape on price, is that -- so does that mean that you are potentially walking away from some deals right now?

No, no. What that means is that -- again, when you've got certain geographies that are actually stronger and those geographies are in the areas where you, yourself, are strong, then for those competitors that are trying to establish a position in those geographies because their strong markets are actually weak -- you know, they're going to go out of their way to be even more aggressive on pricing. So it's more of a position to defend than it is around us going after business and reducing our pricings in order to get into those areas.

Okay. And I'm assuming the competition is the gamut of both large OEMs as well as even some of the smaller OEMs. But is it focused around maybe one group or another at this point?

I think -- you know, the [heightened] competition are from those that have less than an ideal level of business in the geography that we're strong. I mean, that's the best way to paint it. And that can include the end-to-end players as well as the independents, depending on the footprint that they have.

Okay. And then last question -- we did see MTN, I guess, get their funding, and that is one of your bigger customers. So I'm curious as -- you know, the activity levels in Africa seem to be, at least in the short term, kind of dropping a little bit. Are you -- I'm assuming that this should be a positive, though, longer-term for you guys. Are you seeing any kind of uptick in their activity levels at this point?

We're very comfortable with our position at MTN. We have a relationship with them that puts us in the same class as the biggest players in the world, as it relates to our position in Africa, with them. And they're -- continue to have plans to invest, and we feel very good about that position going forward.

Okay. And then, last question -- Ned, maybe for you -- cash has been building. It's been nice growth. Are you -- any plans to maybe return some of that to shareholders? Is there a level that you'd be more comfortable with at this point?

Not at this point in time, Aalok. I think it's important for us -- again, as we're up against very large, global competitors with very large balance sheets -- to the extent that we want to leverage our balance sheet for commercial terms, either with existing customers or prospective strategic customers, I'd like to keep that gun powder dry, to be perfectly honest with you.

Okay, great.

If it was $300 million or $400 million, we might talk about something different. But right now, I think we're at a good equilibrium.

Okay, great. Thank you very much.

You're welcome.

Thank you. Our next question is a followup from Barry McCarver with Stephens Incorporated. Please go ahead.

Thanks. This is Brad again, in for Barry. I think during your opening comments, you mentioned closing on a couple tier-2 and 3 customers that were new customers. Did I hear that right?

Yes -- in the US.

Yes, in the US, right. And so, do you see that as -- as those customers growing over time, in terms of additional spend by them over the next -- you know, short-term, medium-, and long-term?

Well, yes. The answer would be yes, and I think we have other opportunities with customers that are in that second tier, as well. We have a very strong position in North America, and we expect our position will continue to improve because of our continued strength with our IRU 600 product line and the enhancements that we're introducing on that product, as well -- this quarter, as well as moving forward.

Thanks.

And we have no further questions at this time. I'll turn it back to Management for any closing remarks.

Thanks, Ian. Before closing, I'd like to let everyone know that Mike and Ned will be in New York City on May 29 and 30, later this month, for one-on-one meetings at the D.A. Davidson fifth-annual one-on-one tech forum, as well as individual investor meetings at that time.

With that, I'd like to thank everyone for participating in today's earnings call, and thank you for your interest in Aviat Networks. This concludes Aviat Network's third-quarter fiscal 2013 earnings call. Have a good day.