Q1 2020 Earnings Call
This time, all participants are in the listen only mode.
The speakers presentation, there will be a question and answer session last question. During this actually you will need to press star one on your telephone.
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Please be advised that today's call is being recorded.
And now would like to have the conference over to your host Glenn Wiener Investor Relations. Sir. Please go ahead.
As you'll see the company had a very strong start to the fiscal year and remains on track with its prior Cogs.
Today's call will be led by Dan Gallagher interim Chief Executive Officer, Chief Operating officer. Following his remarks, Sean recall senior Vice President Corporate development, Eric Chang Senior Vice President and principal accounting officer will discuss market trends on financial results respectively.
After their prepared remarks, we'll then open up the call for questions and answers.
During today's call may or May make forward looking statements regarding hobby Alps business, including but not limited to statements relating to projections of earnings revenue business drivers.
The timing and capabilities of new products network expansion by mobile in private network operators and economic activity in different regions.
These another fact 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 data this call and the company undertakes no obligation to revise or publicly released the results of any revision of these forward looking statement.
In light of new information or future about.
Additionally, during today's call.
Management will reference both GAAP and non-GAAP financial measures. Please refer to our press release and financial tables therein, which include a GAAP to non-GAAP reconciliations and other supplemental financial information.
Thanks for your continued interest and I'll be up and at this time I will turn the call over to staff.
Alright, thanks, Glenn So our call today will be a little different than those of the past my remarks will of course provide highlights around the corner and expectations, but Sean and I also intend to provide more color around what we're doing to ensure aviats is positioned to capitalize on the positive trends we're seeing.
With respect to Fiveg and increased demand for mission critical network transport solutions.
First I am honored in the confidence and trust. The board has placed in me.
Take on his new role as interim CEO with a great deal of excitement and with an eye on amazing transformative change.
We have a great team and significant opportunities to lead the market through innovation capture share improved profitability further and of course drive shareholder value.
My professional philosophy has always been driven by the arts the possible.
Powering our people to not only think this way, but to go out and achieve it.
And one of the best ways to consistently evolving succeed is to make sure. We have the right tools that simplified processes and capture and utilize data more efficiently, enabling us to enhance our customers business.
By better understanding customer needs, we will strengthen our position is their solutions partner not just their product supplier.
We entered fiscal 2020 with significant backlog and momentum, particularly in North America.
This is what drove the confidence in our guidance for the first half of the fiscal year and based on our strong Q1 results in anticipated Q2 performance I'm pleased to announce that we are reaffirming our prior guidance.
Due to ongoing uncertainty in Africa, we're not providing guidance for the full fiscal year at this time.
However, what I can say with respect to fiscal 2020 is that we substantially de risking our plan, especially related to MTN.
We are making solid progress and globally. Our team has been successful and uncovering other opportunities, resulting in new revenue streams, this year and positioning Abby out well for the future.
For the full fiscal year, we expect stronger year over year gross margins were the first half being exceptionally strong and the second half stronger on a year over year basis.
We're also expecting a slight uptick in operating expenses as we continue to invest in new productivity tools and in our talent.
Which will lead to greater efficiencies and future savings.
With respect to the bottom line, we are anticipating significant year over year improvements in non-GAAP operating income and adjusted EBITDA.
And lastly, our cash balance increased in Q1 and is expected to increase throughout the year.
I'd like to make just a few comments with respect to our business before moving onto the positive industry trends driving our optimism, let's start with international.
Last fiscal year orders from Africa began declining in the third fiscal quarter and really tailed off in Q4.
The good news is they picked up again in Q1, and we are forecasting similar rates throughout the year. The revenue is expected to decline.
The APAC region with the big highlight of our international business in fiscal 2019, and we had an exceptionally strong year with global telecom, a leading carrier in the Philippines.
We are optimistic about a long term opportunities with globe and other curious in Asia with more investment anticipated in both fixed and mobile broadband data services and in preparation for Fiveg.
I want to refer you all to our October 8th press release as global will be one of the first adopters of our newly introduced Wtn 4800 E band in multi band radio platform, which will support their fiveg rollout.
This is the industry's first and only single box Multiband solution, which replaces the need for many boxes lowers customer costs and improves overall tcl.
For Globe multi band is an important wireless transport technology, which will help them optimize the use of spectrum.
This solution was a big focus for us in last year's R&D spend and should open up new avenues of growth across various international markets preparing for Fiveg.
Meanwhile, many of our international customers and prospects are still in the midst of upgrading their networks to support Fourg services, while beginning to lay the groundwork for future Fiveg adoption.
Illustrates the point, we hope to shortly announced a new multiyear multimillion dollar contract with a leading and very well known carrier in the APAC region. So stay tuned for more details on that.
To guide appropriately international revenue will be down in fiscal 2020, given the situation in Africa lower volume in the APAC region, and he relatively consistent but smaller slow on a dollar basis in the other markets we address.
The future however should be a different story and as I mentioned, our investments are about the future.
Shifting to North America Fiveg is beginning now and we'll build over the next several years.
Keep in mind that today the service provider market in North America is a small piece of our overall business.
But in years past as we saw with the migration to Fourg. For example, it was much larger him in a source of growth.
With our WGN 4800 solution, new services and new automation tools, we believe the opportunity to capture more business and more customers on this side is certainly within our grasp.
We continue our tremendous success in private networks mission critical networks for governments States cities first responders utilities and other adjacent markets that need highly dependable and trusted solutions.
More than half of our business worldwide today comes from the private networks vertical.
And while our customer base continues to expand the opportunities to grow further our substantial.
We have the specialization and the technology solutions. Unlike any other in our sector today and that is why we have continued to allocate savings through process efficiency programs to R&D.
Innovation can never stop.
Data usage is exploding and the increase in usage cannot be met by fiber alone.
Highly differentiated radios and routers, coupled with turnkey services are what separate add yet from the competition and this is part of the reason we've been successful in winning new business.
There's a lot more I can add with respect to wins opportunities market trends and technology innovation, but I'm going to stop here and let Sean provide a little more color around the positive market dynamics, we are witnessing and why we believe and the out so uniquely positioned to win over than to win over the next few years.
Yes, it over to you Sean.
Thank you Stan models, you already highlighted the fundamental driver in our business is the ever increasing volume of data to be carried across networks of all types together with the simple fact that not every location can or ever will be connected by optical fiber.
Clearly example of this is that the solutions, we are delivering today in anticipation of fiveg of more than 100 times the capacity of the solutions. We delivered for typical Ltd for de by call just a few years ago.
We're not only seeing capacity needs and service provider networks.
Increase in automation remote monitoring and data analytics is driving capacity needs and utility networks.
While increased use of mobile data applications video and other new imaging technologies and first responder networks is driving capacity needs. There also.
The need for higher speed Internet services, especially in ruled on underserved areas is also driving demand for higher capacity wireless solutions.
But it's not just the amount of data this important to our customers. It's also the types of data under specific services being provided some of which are considered to be much more mission critical than others.
In order to provide the necessary reliability resilience and performance, but every service type integration of intelligent routing into our solution has been a significant differentiator and our ongoing investment in this area has allowed us to develop a strong suite of software that we continue to enhance license under.
In the future migrate on to generic hardware platforms.
This is a direction, where the industry is gradually trending and software defined networking moves closer to the endpoints in the network.
We're well positioned to offer solutions whenever needed over the next few years.
Our other opportunities in a bit of materialized and new products, such as our recently announced Multiband, ATM 4800, which simultaneously leverages the wideband with potential millimeter wave frequency bands with the robustness of lower frequency microwave to maintain a high availability under all operating conditions.
Initial orders for the Doe LTM 4800 have not been received and we expect this product to be a key solution and making our customers networks ready for Fiveg.
In the coming quarters, we will release, our next step in the Revolution of wireless long distance high capacity transport solutions with the introduction of a new generation of brought US based on our Wtn 4000 platform.
The solution dramatically reduces the cost per megabit over long distances when compared to current solutions.
We see a strong interest for this type of product driven by the increasing need for network capacity for the expansion of mobile services to remote areas.
Well share more information on this product in the coming months.
Our investments in our core solutions for network capacity a mission critical network intelligence are only up far off where we see a renovation opportunities going forward. We're actively engaged in streamlining every set will be end to end process of planning designing procuring deploying an operating wireless trends.
Networks.
Developing software solutions to automate or simplify any and all these beds is the way to leverage the us unique expertise and lower the operational costs for our customers at the same time as generating new potential recurring revenue streams for us.
With that somebody to Eric who will provide more details on our Q1 financials.
Thank you Sean good afternoon, everyone.
My first quarter addressing our financials the type of foreign.
So happy with RBC.
In working stands for many years.
Intend to place the logical no investor relations efforts I look forward to meeting with our investors prospective investors and analyst community.
All comparisons well these are first quarter financial results for fiscal 2020 in fiscal 2000 biting off what a period ended September 27 to help the making September 28, two dominating respectively, unless otherwise noted.
We reported total revenue of 58.6 million, that's compared to 60.5 million a decline of 1.9 billion was 3.1%.
Product revenue declined by 6.5%.
Services revenue increased 3%.
Our book to Bill Rachel for the quarter will significantly reduce is greater than one building on our momentum from last year.
On a trailing 12 month basis, our book to Bill racial is also bought one and we expect it to be greater than one in fiscal 2020 as well.
Got these margin came in at 38.5% and non-GAAP gross margin at 38.6% for the first quarter.
Sending an improvement.
9900 basis points, respectively.
The mix of business, what's more heavily weighted towards North America, and we'll start some higher margin international projects both of which are also anticipated in the second thing.
During the second quarter.
For the full fiscal year, a standalone earlier gross margins both on a GAAP and non-GAAP pieces are anticipated to be up year over year.
On the expense side reported GAAP operating expenses of 21 billion, an increase of 1.6 million and this includes an increase of talking 400000 sort of restructuring charges.
On a non-GAAP pieces put up expenses were 19.5 million, that's compared to 18 point Threemillion, an increase of 1.2 million or 6.8%.
non-GAAP R&D expenses increased by approximately $200000 and nunca selling instead expenses increased by one going.
The increase in R&D spend what's in support of customer projects and to ensure a position to win new business.
Hi, you're selling certain expenses was primarily related to increase in sales with expenses employee related costs corporate governance related expenses and investments in process improvement, which we believe will lead to efficiencies and saving in future years.
Well, we're not providing.
So your guidance as Dan Delta earlier.
We are anticipating a modest increase non total non-GAAP operating expenses for the year with an eye on supporting growth related initiatives internal productivity enhancement, though we're always looking to drive cost lower.
I also like to point out we have realized the previously identified savings, which are helping to support. These I think investment in fiscal 2020 and support anticipated growth in the future.
We reported GAAP operating income of 1.5 million compared to GAAP operating loss of 1.5 million.
3 million improvement year over year.
non-GAAP operating income was 3.1 million as compared to a non-GAAP operating loss of talking 400000.
3.5 million year over year improved.
GAAP net income was approximately $100000.
Income of one cents per share.
Compared to GAAP net loss of 800004 lots of 14 cents per share.
And non-GAAP net income was 2.9 million or income of 52 cents per share compared to a non-GAAP net loss of 600000.
Well a loss of 12 cents per share.
Lastly reported adjusted EBITDA of 4.1 million at 3.2 million year over year over year increase.
All these comparison once again, our for the first quarters, but fiscal 2020 in fiscal 2019.
Moving onto the balance sheet.
Cash and cash equivalence stood at 34.5 million at the end of first quarter as compared to 31.9 million as have you had an increase of 2.5 million.
We expect cash position to improve throughout the remainder of the fiscal year no. That's we have seen in the past this could change in any given quarter from time to time customer payments are received within a few days after quarter end.
We are confident thing that for the full fiscal year, our cash position will improve even with investment we're making to support our major projects in North America process improvement and continued execution of our share repurchase program.
During the first quarter, we spent 700 $740000 and share repurchases.
Under $7.5 million repurchase program $4.4 million remain available at the end of the first quarter.
Capital expenditure was 1.3 million for the first quarter and we expect to spend approximately 5 million for the remainder of the fiscal year.
Cash is king and our focus remains on improving free cash flow will continue to work look for ways to improving our balance sheet metrics.
No we have already made significant progress it can operate at or near historical Beth.
Cash flow from operations was 5.6 million for the first quarter fiscal 2020 compared to cash used in operation of 6.8 billion for the first quarter fiscal 2019, an improvement of $12.5 million.
Oh supply chain confuse opry very efficiently. However, during the first quarter or inventory level increased in our inventory turn decline.
This was primarily due to our new any see partnership you, which we are carrying inventory at any Ses channel partner in North America.
We expect inventory turns three prove throughout the remainder of the fiscal year and we're very comfortable with our working capital performance.
Finally in the first quarter, we adopted a new accounting standard.
At least two leases, which requires us to recognize most leases as assets and liabilities on the balance sheet.
The right to use assets was $6.7 million and associated liability for included the Korean and other long term liabilities.
These balances primarily represents our often the obligation well facilities.
The adoption of this accounting standard has no material impact to our income thing.
This concludes my prepared remarks that offered us at this time, you're ready to open up the call for questions.
As a reminder, last question you will need to press star one on your telephone.
Let me draw your question that's the town Keith.
Thanks.
Your first question comes from the line of Theodore O'neill. Your line is now open.
Hi, congratulations on good quarter.
Hey, Thanks, how are you good so I have a couple of questions about the W. T M. A 4800 and.
We also see that you've got nice shout out on the product in ovum.
Which is that yes was very necessary.
So the question is when.
Customers are looking at this product they can see obviously, you've got to single chassis multiband solution for Fiveg backhaul, but you've also got the cloud based.
Design software or are those both sort of equally valued by customers or is there one it's more important than the other.
So I mean, let Sean answer that.
Sean I feel Sean.
I would I would say that for some customers they are actually.
Significant importance both of them because of the capabilities. They may have now for some other customers. It may be that we do that work for them or they have other ways of doing the planning. What for example, so they may or may not quite as much value on the planning tool themselves product itself I think the value proposition and our product I think is pretty clear to most of the customers.
I've seen a so far and that the footprint alone is one of the most attractive elements of it.
Because it takes up less space on the tower.
Let's face it less power.
And it's a much smaller proposition and lower in weight, yes ill just pluses from non spent.
And the other question I had about their product is it is that useful for the for your private networks as well.
It's not what we predominantly focused on there most of those networks use.
Lower frequency band microwave.
Long distance more rugged terrain type of applications is most of what we do there, but there's no reason why we couldn't use or there is just typically the distances, we're trying to achieve or well a longer than we would achieve without product.
Okay. Thanks very much.
Thank you Sam.
Your next question comes from the line of Steve Bush. Your line is open.
Hi, guys. Thanks for taking my call.
Hi, Steve.
Could you discuss what percent of irrational drop was Africa versus a pack.
Thanks, and we got that in the press release.
No that we have the.
It's very back.
So if you look at the supplemental schedule of revenue by geographical area.
Take a look on a comparative basis, you do have for the quarter ending now the African Middle East is 10.6, or 10.93, and then Latin American Asia Pacific 4.47.
And know that Latin America is a smaller portion of that is the way the way we group that by Geo.
Okay, all right I'll take I'll take a closer look at that.
Yes.
What drove north American growth that was pretty high growth rate, what like what any sector.
So, let's talk about North America, and how we actually exited the year last year, we had an amazing order flow at the backend last year, a lot of that translated quickly into revenue and.
The first half and we're anticipating to continue.
But if you look at back last year.
Our our revenue increase in North America, approximately 40% or more and that was just makes that was based on order flow, but it's also based on a number of big projects that were actually winning.
And a number of those in the private network space public tenders et cetera, and its building a strong foundation on our portfolio and it's built into our forecast.
Okay.
All right I answer you answer might start by eight any 10% customers.
Not this quarter.
Okay.
See here.
Well you kind of holding back your forward guidance is there any particular reason or you're going to re upped that after this current quarter.
Yes, so for the back half in year, one of the one of the two areas that we talked about especially in the international space was Africa and.
We don't have the phone visibility that we would like we have already de risked.
Then from our forecast.
But we have activity strong activities right now as we speak going on in Africa to try and stabilize that.
Our forecasting process, we'll refresh 16 times, a year and as we get more comfortable and closer to the second half I think you're going to see some guidance on that.
But right now we're going to make sure that we do a great job executing the first half.
Creating the profitable growth and then making sure that we have a great line of sight into some of the.
Lack of visibility that we have with after right now.
Right, Okay, and I guess I kind of final question what was the restructuring recovery you got for the quarter.
This quarter, we actually have a charge about $1.3 million, So we announced a restructuring plan about.
Back in late June .
So that was the charge leaves about plant.
Sorry, Steve that was here again.
Oh I see it was a charge on a recovery I see okay, perfect Alright, alright, alright.
All right Thats, all I guess.
All right. Thanks, a lot yep.
Your next question comes from the line, it's those small Sir your line is now open.
Hi.
The company I know sure report today.
Reading something.
Okay.
Yes.
Penny.
Comparable to the 33 cents estimate.
Yes.
Salespeople.
So.
Can you.
How do you would determine.
Heavy.
Earnings versus the 30 threes.
Estimate.
Yes.
This may not make.
That's cap in non-GAAP rent.
Yes, So hi Lewis.
What I would expect series that the.
The number that you're referring to is the GAAP income per share versus the non gap.
Earnings per share.
And it's it's too yes, probably it's not it's probably not a apples to apples comparison.
So I expect I expect the analyst coverage at 33 cents per share is probably on a non-GAAP basis.
And so we would want to make sure that the comparisons are correct.
I mean.
Adjusted.
Yes.
50 cents.
Correct.
60 to 62 cents, yes.
Is that true.
Yes, it is true.
So.
Oh.
Sales.
Earnings considerably.
Well I would say on the earnings side, we are very profitable given that particular data point that you shared with us.
And I think.
On a year over year basis, we're very pleased with our performance.
And the back order.
Yes.
I haven't read the press release.
In terms of the.
Year over year comparisons.
Yeah.
At this time.
Yes, I mean last year the.
Adjusted EBITDA was it 918000 versus 4.1 million this year.
You want to use that as a data point.
Okay, that's fine.
Okay.
You're welcome.
Thanks.
Your next question comes from the line of Smart Spiegel Your line open.
Hi.
Couple of questions first.
Dan are you gonna have to permanent job. There is that research going on it's just a trial period for you know, what's what's happening with that.
Yes, I'll be brief on that when there is a search going on the board would not have appointed me if they didnt heavy.
The strong convictions and the ability to continue leading the company and I can tell you we have a great team here, we had a seamless transition and we have our I said on the future and everything's moving forward very well.
Well what does that mean.
There's a search going on but youre youre one of the candidates would that be fair.
Yeah, that'd be a fair statement.
Okay.
So this is a much bigger picture question I've I've been holding there for a few years not as long as there's a lot of other people.
You guys are selling on an enterprise value basis of.
Around 0.2 times revenue using this quarter as a run rate and that's without even putting any valuation.
Well, obviously, you're making some IR efforts now I think which which is great.
The real question is why why has some strategic buyer come along and.
Picked you guys you know even at zero point.
This revenue which would be.
In the stock I mean.
I realize you're not dare to answer stock market questions, but I am asking.
I mean, why somebody asked why somebody buying this company, it's it's like.
Persuade the AD revenue growth starved universe right.
Absolutely Mark I'll tell you what I'm not going be slipping on this you're gonna have to ask the big strategic guys. Why I can tell you you know we do have some conversations with folks on a.
Frequent basis, but we know exactly what you're saying, especially from a valuation perspective and absolutely. We are trying to get our performance data and vision out there, but I can tell you the the best way for us to continue to be a.
An amazingly attractive candidates is to continue to perform and I would say if you look back in quarters, we do have or ups and downs from the first quarter and third quarters kind of Sawtooth thing between second and fourth and this quarter I think we've broken that trend. Although one data point that does not a trend me. So we're we're going to be focused on continued profitability.
Growth continued reinvestment for the technology and.
When those opportunities come we will absolutely be looking at them.
You're at that point in a position of strength Alright fair enough I appreciate it. Thank you very much.
Thanks Mark.
Yes.
Again to ask questions simply press star one on your telephone.
Yes.
There are.
Well, we have follow up question coming from the line of fluid small Sir your line is now open.
Hi.
Before yes.
Prices the stock aftermarket it's been $627.
This report is good.
Supposes nothing going on that.
Interest.
Yes, obviously I can't.
Talk to the different investors, who follow our stock what I would say is.
Due to our share count and some illiquidity.
There's not usually.
However, much action on the aftermarket for Aviats.
And I don't I don't expect that.
I expected that I expect that continue I think you know the news digest a over the overnight period, and we'll see whatever activity tomorrow morning.
Okay I know.
My follow up specifically stocks.
How much activity.
People Miss the earnings reports.
Right.
Couple of days.
Stocks.
Anyway, we'll see with Evercore.
Alright, alright, Louis Thank you.
There are no questions over the phone I will turn the conference back to stand now.
Perfect. Thanks, Lance so thank you everyone in closing we are making great strides in driving bottom line performance. This year with our eyes, clearly said on the future and I say this due to our Reinvestments in technology tools and talent of course, we are focused on delivering results every year, but our true goal is developed transformative solutions for our country.
Mers and significant returns for shareholders I think that sums it up for the day and I Hope you enjoy the rest of your day. Thank you very much.
Thank you for joining everyone. This concludes today's conference call you may now disconnect.
[noise].
Yes.