Aviat Networks Inc (AVNW) 2017 Q1 法說會逐字稿

Good day, and welcome to today's Aviat Network's first-quarter 2017 financial results conference call. Today's conference is being recorded. At this time, it's my pleasure to turn the conference over to your host for today's call, Glenn Wiener, Investor Relations. Please go ahead.

Thank you, Operator. Welcome to Aviat Networks' FY17 first-quarter results conference call. We issued our press release and filed our Form 10-Q after the market closed yesterday, and we will be posting an updated investor presentation shortly. All documents can be found on the IR section of our website.

I'm joined today by Mike Pangia, President and Chief Executive Officer; and Ralph Marimon, Chief Financial Officer. During today's call, Management may make forward-looking statements regarding Aviat's business, including statements relating to projections of earnings and revenue, business drivers, the timing and capabilities of new products, network expansion by mobile and private network operators, and economic activity 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, these forward-looking statements reflect the Company's opinions only as of the date of this call, and the Company undertakes no obligation to revise or publicly release the results of any revision of these forward-looking statements in light of new information or future events.

During today's call, Management will be referencing both GAAP and non-GAAP financial measures. A copy of the press release and financial tables, which include a GAAP to non-GAAP reconciliation and other supplemental financial information, is also available on the Company's website in the Investor Relations section.

Our call today is being broadcasted live over the internet, and the webcast will be archived on the Investor Relations page of our website for those who are unable to join us. I'd like to thank you all for your interest and support of Aviat. With that, I will now turn the call over to Mike.

Thank you, Glenn. I'd also like to thank everyone joining us on today's call.

Let me start by saying that, across the board, we are very pleased with our first-quarter results. Our bookings, revenues, expenses, and cash are tracking to expectations, while our gross margins through the first fiscal quarter have exceeded our internal goals. Our focus on addressing the highest quality customer opportunities, combined with the aggressive actions we have taken to efficiently streamline our operations, are paying off and have given us a heightened sense of confidence in our business outlook. As such, since our last public remarks in September, we have a better view towards generating positive adjusted EBITDA for the full fiscal year, starting with the current quarter.

Our fiscal first quarter results reflect excellent execution by our team in the face of ongoing macroeconomic headwinds. We posted revenue of $58.2 million, essentially flat compared to the prior quarter, as we expected. Our non-GAAP gross margin rate of 29.9% was up 420 basis points sequentially, and 340 basis points year over year. This represents the highest gross margin rate we've had in over three years. To put this in perspective, though, relative to our plan, first-quarter gross margins reflect the favorable mix of higher-margin projects, which tends to vary quarter to quarter. Putting mix aside, though, we still had a number of positive elements to our margin performance, including greater efficiencies in our services business, and within our supply chain operations, which we believe are sustainable.

Similar to last quarter, our book-to-bill was well above one. Given the nature of our private networks business, it's not unusual to see fluctuations in our quarterly bookings. However, as we have been winning large multi-year awards in North America, our backlog has strengthened considerably. As such, we are far better positioned for more consistent and predictable revenue generation moving forward.

In the quarter, we reported non-GAAP operating expenses of $19.7 million, a reduction of $1.4 million, or 7% sequentially. On a year-over-year basis, operating expenses are down 11%. We've been diligent in managing our expenses, and the lean Six Sigma and process initiatives are leading to better operational performance, which again has been illustrated in our gross margin and operating expense performance. We reported a non-GAAP operating loss reduction of $3.8 million sequentially, and we posted an EBITDA loss of only $600,000, also a significant improvement compared to the fourth quarter. While we are pleased with the progress made, we will not be satisfied until we are EBITDA-positive. As stated earlier, we are in an excellent position to achieve positive EBITDA this quarter.

As for our business momentum and some key takeaways, those who follow our industry know that the international market has been and continues to be challenging. As a result, we are maintaining a conservative approach. Having said that, there are some bright spots emerging. During the quarter, we added a new mobile operator customer in the Asia-Pacific region. Also, our focus on our CTR microwave router platform and its differentiated capabilities is beginning to bear fruit. We are seeing increasing momentum in our mobile operator customer base for the IP MPLS software license packages, and now have live network deployments, with growing interest from a number of customers internationally, both new and existing, particularly in Asia and Africa. We also have further leveraged the networking features of the CTR platform in winning new private network projects in the Middle East and Latin America.

As for North America, this continues to be a driver for our business, and we exceeded our internal Q1 bookings forecast. I talked at length on our year-end call about some significant wins, and we've issued a few major customer announcements since. We have a robust pipeline of private network deals, and similar to our win with the state of Colorado, we have a few on their own that represent the size of a typical tier 1 mobile operator contract. The key take-away is that our track record of winning against the competition remains high. With prior awarded business and some of the high-probability opportunities we are pursuing, we expect to see both bookings and revenue growth in our North American business year over year. Additionally, we continue to have a solid position with our North American mobile operator customers, and are getting steady business as a result. We believe we are well-positioned, and remain relentless in our pursuit of new mobile operator customers across the board.

I'm going to turn the call over to Ralph, and we'll follow up with a few closing comments after his remarks. Ralph?

Good morning, everyone, and thanks for joining us today. Mike provided an overview of our FY17 first-quarter results, but I will make a few additional comments and then discuss our balance sheet. During our remarks, I will be referencing non-GAAP financial results. As Glenn noted, you can view the reconciliation of GAAP and non-GAAP financial measures in our press release.

Our revenues for the quarter were essentially flat sequentially, with increases in all reportable markets except for North America. However, in North America we have significant momentum moving into Q2 as a result of prior contract wins. We expect North America revenues to be up year over year in each quarter throughout the balance of FY17. Our non-GAAP gross margins of 29.9% were up significantly, both on a sequential and year-over-year basis. As Mike noted, other than some favorable mix, this is a direct reflection of our efforts to improve supply chain management, as well as better resource utilization, which drove higher services margin performance in Q1.

We reported total non-GAAP operating expenses for the first quarter of $19.7 million, which is a reduction of 7% on a sequential basis, and 11% on a year-over-year basis. This reduction reflects all the initiatives that were enacted over the last couple years. Process improvement is a continued focus for the Company, and we expect further gains as we move forward. Our non-GAAP operating loss for Q1 narrowed to $2.3 million, which represents a sequential improvement of $3.8 million. Although our year-over-year non-GAAP operating loss increased by $1.2 million due to the decline in revenue, our business model is showing a positive trend as measured by the improved operating margins. The same story holds true when comparing adjusted EBITDA. We reported an adjusted EBITDA loss of $600,000, compared to an adjusted EBITDA loss of $4.5 million in Q4 of FY16, and adjusted EBITDA of $700,000 at Q1 of FY16.

Moving on to our balance sheet, our Q1 cash balance of approximately $31.8 million increased $1.3 million sequentially. As I mentioned on last quarter's call, in July we received a cash tax refund from the Singapore government totaling $3.7 million. This stems from a 2014 tax assessment, and the refund is a result of our remediation efforts. We continue to pursue remedies with the Singapore government, and will provide any material updates as required.

I'm pleased to report that the FY17 Q1 cash provided by operating activities excluding the tax recovery was positive, as compared to $7.2 million used in operating activities for FY16 Q4, and $1.8 million in cash provided by operating activities for last year's first quarter. Regarding collections, while we still face some timing challenges as a result of ongoing issues some of our customers are facing in converting their local currencies to US dollars, we believe our cash position will increase this fiscal year.

DSOs were 78 days, compared to 99 days in Q4 FY16. Although this is a significant reduction, I do want to provide some color around this. DSOs are positively impacted by a higher concentration of North America business, where collections are less challenging. International DSOs also improved, although collections continue to be impacted by the factors noted earlier. While the general trend for DSOs is favorable, we do expect to see fluctuations based on the geographic mix of revenues.

Our focus on process enhancements related to inventory management is yielding positive results. Our inventory position of $26.9 million was $3.5 million lower compared to Q4 of FY16.

I'll now discuss our outlook for the second quarter. We believe Q2 revenues will be in the range of $65 million to $70 million, a 12% to 20% sequential increase. As we mentioned previously, we anticipate positive adjusted EBITDA this quarter. We also expect our cash position to remain flat or decline modestly based on our working capital needs.

I'd like to now turn the call back over to Mike for his closing comments. Mike?

Thanks, Ralph.

In summary, we had an excellent quarter relative to our plan, and the second quarter should be even better. We are making substantial progress in our process improvement and spending efficiency initiatives, and are continuing to build a strong pipeline for the future.

Our ability to compete has strengthened. We have highly differentiated solutions. Our radios, routers, software, and services continue to drive new business for us. Our recently launched Aviat Cloud automation platform is a testament to past investments in innovation. With a strong road map of products and services planned for FY17, I believe our competitiveness will be even stronger. One brief comment regarding our strategic process. We continue to explore all avenues that can advance our competitive position, offering, and valuation. With that said, there is nothing specific to disclose at this time.

In closing, with the actions taken and currently in process, we believe sustainable profitability is well within our reach. We're excited about our market position, prospects, and the anticipated business ahead. Our team has done a remarkable job, and I'm really looking forward to reporting on our progress.

Operator, we are now ready to open up the call for questions.

Thank you.

(Operator Instructions)

At this time it appears we have no questions from the phones.

Okay. Thank you, operator. I'd like to thank everyone for their continued support. While the past years have been challenging, we believe the steps we have taken, particularly over the last several quarters and our anticipated results in 2017, will result in increased value to both our Company and our shareholders. Thank you.

This does conclude today's conference. Thank you for your participation.