Q4 2020 Aviat Networks Inc Earnings Call

as for today

Pete Smith that's president's he will begin with opening remarks on the company's fourth quarter and fiscal year twenty-twenty followed by Eric Chang. Our CFO will review the financial results people then provide closing remarks on a V. Strategy and Outlook followed by a Q&A.

Ask for Safe Harbor during today's call and webcast management may make forward-looking statements regarding the business including but not limited to statements relating to financial projections business drivers new products and expansions the impact of covid-19 and economic activity and different regions these and other forward-looking statements reflect the company's opinion only as of the date of this call and involve assumptions risks and uncertainties that could cause actual results to differ materially from those statements the company undertakes no obligation revise or make public any revision of these forward-looking statements in light of new information or future events.

Additionally during today's call and webcast management will reference both gaap and non-gaap financial measures. Please refer to our press release available in the IR section of our website at home networks and financial tables there in which include a gaap to non-gaap reconciliation and other supplemental financial information at this time. I'd like to turn the call over to Pete.

Good afternoon, everyone aviata Network continues to navigate the global pandemic wish our employees customers Partners shareholders and their fax calls and see before we get into the result. I would like to remind our investor. We are focused and focus on execution our key areas life increasing revenue from our press releases since the last earnings call. We have announced partnership expansion and new customer wins. We have an excellent plan that will materialize as we navigate through the covid-19 challenge to capturing differentiation.

We have announced multi-band win demonstrated the viability of our frequency Assurance software and received our first purchase order three months driving out costs. We are on track with the previously-announced restructuring plan with annualized Savings of 3.5 million of which approximately two million will benefit package. Oh, you're Twenty-One. Now, let's focus on our results adjusted ebitda was up 1.6 million versus Q4 of fiscal years. Nineteen our balance sheet remains strong or cats position is up over nine point seven million since the year began and 2.4 million sequential compared to last quarter fiscal year 20 adjusted ebitda was 13.5 million which improved 4.8 million for fiscal year nineteen and exceeded dead.

the top end of a

Our prior guidance of eleven to twelve million. This is quite impressive considering what we faced issues with a contract manufacturer in Q2 volatility in Africa month and now covid-19. Revenue was slightly down this year as expected but profitability was up and we are better position going into next fiscal year long drive both the top line and the bottom line we will be seeing growth as there are several accidents that we are now taking that are different from the path initiative that she needs a new customer and better performance. There are four areas. I would like to highlight before returning to call to earn

First my observations on growth in North America are North American Business continues to perform. Well, we expanded into new States cities and dedication. The North American team has worked diligently on expanding sales. In addition. The North American team has seized Upon Our differentiation. We have one initial business office with our frequency Assurance software or in public safety utility and service provider account. FAS is the industry's only soft rock. That's where system for the detection and reporting of interference on microwave links and is patent-pending not only can prevent outages by identifying interference events before they become real problem, but it also arms customers with data analysis to deal with Regulators on interference issues. FAS is critical for the rebirth

Ability of mission-critical microwave links, especially with the emergence of Wi-Fi sixty which allows unlicensed devices to operate an icky microwave in the USA. In addition. The North American team continues to drive are for products into 5G applications in Q4. We received new 5G related orders in USA mobile operator accounts where we delivered 5G ready capacity capabilities to our customer Lounge. Also the North America's team leveraged our eCommerce platform caveats store to provide differentiation and value to our rural internet customers bought a second International markets are international team started the information then our commercial strategy defend tier-one Telecom business in New Jersey.

To account expand reached through partnership and capture value where we are differentiated expanding our reach through partnership. We signed a new partner with that Tronics to go our presence in the Middle East and we have another significant agreement in place that we have not named which addresses other regions where we lack sales coverage. We have seen successes with our multiband solution, which is a highly differentiated offer significantly reducing Spectrum cost for our customers. We have secured an important 5G win in Africa with safaricom due to our multiband value proposition and have expanded our presence an existing account as well. We are excited about the possibilities with this offering third cost.

We are executing on our announced.

We observed additional cost Savings in Q4 due to an aggressive response to the covid-19 environment for generating shareholder value improved hold their value. We need to drive sales and lower costs. I am focused on growth commercialization and new customer Acquisitions while concurrently reducing Thursday. We are in the early stages of building our sales funnel for cheer to customers internationally our sales funnel for multi-tenant and our funnel for FAS frequency issue software as we execute on these initiatives over the coming quarters. We expect this to translate into top-line growth. As I said in the last call, we will focus on opportunities market and geography where competitors cannot match execution will lead to higher Revenue continued margin expansion and ultimately higher profitability job.

To drive shareholder value. I'm going to turn the call over to earth now to review our financials, but I do have a few additional comments after his remarks. All right.

Thank you, Pete. Good afternoon. Everyone during my remarks today. I will review some of our Q4 then for your financial highlights rather than reading through all of that. I think can be found in both or form 10-K and press release all comparisons are between the fourth quarter of fiscal 2020 and the fourth quarter of fiscal 2019 and off between full year fiscal 2020 and full year fiscal 2019, unless noted otherwise

Although r q 4 and 4 year fiscal 2020 Revenue both declined from the prior year, but we have seen significant growth in North America revenue for the full year, Erica. Revenue has increased to $151 billion dollars for fiscal 2020 from 132.9 million dollars for fiscal 2019 and Improvement of eighteen twenty eight million dollars, which is driven primarily by our private Network business.

International Revenue declined as expected but the decline the second half of the fiscal year was smaller than what we have experienced in the first half of the fiscal year.

Or a book-to-bill ratio was well above 1 for both the fourth quarter and full fiscal 2020 and we exited fiscal twenty with a strong backlog off a few other point in Q4 fiscal twenty North America comprised almost 61% of total revenue and continues to represent a higher percentage of Q4 gross margins remain strong both 34.9% on a gaap and non-gaap basis compared to 35.2% and 35.1% off for Q4 a fiscal 2019.

Kiefer gaap operating expenses were nineteen point seven million dollars compared to $21 and non-gaap operating expenses, excluding the impact of restructuring charges off his compensation worth 17.5 million dollars compared to nineteen point eight million dollars.

Both our gaap and non-gaap operating expenses improved due to cost-cutting initiatives. We implemented during the second half of fiscal twenty such as restructuring plans are slow down in hiring in reduced travel as we know that in our Q3 earnings call. We have announced restructuring plans in March and April and we recorded a restructuring charge of 1.95 or fourth quarter.

We have realized some result is savings drink you for and the remaining savings will be realized in fiscal 21 and Beyond.

Q phone down cap net income was 4.1 million compared the two point six million dollars for the same period last year for a non-gaap EPS was seventy-five cents per share wage compared to $0.47 per share for the same period last year just a five point five million dollars was up approximately 1.6 million dollars from 3.9 million dollars for the same.

For the full-year comparisons are non-gaap net income improved to 8.2 dollars from 3.2 million dollars fiscal 2012-13 was $1.51 per share compared to $0.58 per share for fiscal 2019.

Just a bit improved thirteen point five million dollars from 8.8 million dollars for fiscal 2019 or a fully adjustable as Pete mentioned earlier exceeded a table in the ballpark guidance of eleven to twelve million dollars. We can address any questions relating to our results during Q&A.

Moving on to the balance sheet cash and cash equivalents stood at forty one point six million dollars at the end of the fourth quarter which up 2.4 L A sequential E from Q3 and 9.7 since the end of fiscal 2019.

Oh cash flow from operations was 17.5 million for the full year 2020 compared to two point nine dollars for fiscal 2019 and the Improvement of almost five fifteen million dollars.

Or net cash was thirty two point six million at the end of fiscal year 2020 and it's the highest level exiting the fiscal year since fiscal 2014. We have a credit facility with Silicon Valley Bank, which is based on are eligible a r borrowing base at the end of the fourth quarter are alone balance was $9, which will be paid in full on July 2020 subsequent to our year-end.

No Strong net cash position. And as we expected our cash to continue to increase in fiscal year 2021, we may choose not to draw against a credit facility starting the first quarter of fiscal 2021.

Although we did not repurchase our common stock in the fourth quarter, but for the full year we have spent about 1.8 million dollars in stock repurchases and three point four million dollars to remain available under the program.

This concludes my remarks and with turning back to Pete Pete.

Just a few additional comments before Q&A North America has been strong this year and barring any unforeseen events should be strong in Pennsylvania or Twenty-One. The principal concern is the impact of covid-19 on our customers budget and timelines and the ability to execute field services are international business has been a contraction we aim to stop the contraction and return to growth about execution of our sales and marketing process fees defending our tier one account winning new tier two accounts home expanding our reach with partners and caption our differentiation and products such as multiband both our North American Business and our international business have strong demand drive home 5G rollout mission-critical Network rural Broadband. We are well-positioned for all of these opportunities expect announcements as we make progress and captures.

The results from these highly favorable market trends further the covid-19 challenged amplifies the command drivers in the medium-to-long-term in the short-term. We will navigate the covid-19 situation. I would like to sum up fiscal year 20 or over all directions and provide some perspective for fiscal year 21-20. We improved our cost structure and executed through uncertainty encountered with covid-19. We delivered the highest annual profitability 5.7 data just needed in the last ten years of our history. We have maintained our Revenue. We need to get into a growth mode. We have outlined a plan to achieve this Thursday. We had he wins including our first microwave upgrade agreement mu a subscription offering with a large County government Network rollout for the Virginia.

State Police multi bad winds that Safari, Globe were 5G deployment and a channel partner agreement with that product.

For a product standpoint, we launched our new multi band radio platform and frequency Assurance software upgraded our North American Mission critical thousand and three and hannstar all outdoor solution for 5 G's we have repositioned the leadership team to accomplish our fiscal year 21 and Beyond goal one example we have in to restore investor relations team will be our investor relations point of contact. We thank Glen weiner for all of his support and know that we could still call on him his expertise through these changes challenges and successes cash increased nine point seven million during fiscal your twenties. I'm very proud of the team's accomplishments off an increasingly excited about our future opportunities are key takeaway a message is for investment focused and execution.

Remain the same gross margin expansion expense reduction and meaningful bottom-line results.

Like everyone we are still navigating the covid-19 environment based on our sales Focus capturing value and execution on the cost front. We expect our fiscal year off 21 would just Adidas and revenue to grow compared to his full 20 20, we expect to see benefits from our strategic Focus including new products such as home and are focused on improving and adding new customers. We will provide a more specific guidance when we have more certainty around covid-19 operator. We are now open for questions.

Thank you, and ladies and gentlemen, if you have a question just restarting one on your telephone keypad to withdraw your question, press the pound or hash key off to ask question. Just press start one. Please stand by while we compiled the Q&A roster.

And our first question is from Brazil with Northland Capital, please go ahead.

Hi, good afternoon. Pardon me and congrats on the on the results and Peter guess I want to pick up on on where you left off there with regard to the home 21 Outlook, which is you know, pretty pretty Broad in terms of growth expectation, but maybe I want to try Mary that up. I see you filed York you as well and honestly at a very young age and forget increase in backlog for the year to be order of on the order of 30% now to be fair backlog also increase last year in revenues were down. But God you're giving your commentary on bookings and Q4 which are I think much stronger than your Q3 commentary. It's just sort of slightly above one. I wonder if you could maybe relate what you saw in terms of backlog growth understanding some of that might be farther out with regard to

What we should expect from it seems like we should expect double-digit Revenue this year based on that backlog, but feel free to provide more perspective on that page. I I don't think we're going to sign up to double-digit revenue growth, but we're pretty confident in the revenue growth when we when we think about the fact we are really excited that the the book-to-bill is at one point three and then on a dollar value or correct me if I'm wrong were coming into the year with 15 million dollars more backlog. So we think that that'll translate into growth and a lot of that's driven by by 5G wins in the mission critical space. And as well as our our our life story Commerce platform to solve to solve roll roll Broadband opportunity. So we we feel good in terms. I don't want a guide to so we're not going to be dead.

Pacific because we want to see how cold it is plays out and the timing of certain

Deals, but we feel we feel really good that we're going to be able to grow the international and the North America business. I wouldn't go so far as to 10% on the on the top line and then on the bottom line, we are on track with our restructuring plan. What we've learned in covet is that we can squeeze our costs a little more. So overall I feel I feel really good about the year, but I want to get a little bit more, you know little more mileage under our belts before we put specific time and I think you know, if we were to put out guidance right now, we you know, maybe we wouldn't take full credit for everything we have in the pipeline. Give me a little more time and we'll be more specific. So yeah, and if I if I if I can address so we exit it physical twenty with it. Very strong backlog right as you've seen a tank a it's about two hundred ten million.

Dollars if you compare that to the end of last fiscal year, it was hundred sixty million. This is actually a $15 increase in backlog exiting the both fiscal years, right the increase wage. Then at the two in ten million a majority a book of this coming from North America private Network business.

Okay. Guess I'll write that down later. You know, that's that's interesting. And that was kind of following into my next question which is so it sounds like while you expect them to return to a girl's profile given that comment there about the nature of the backlog and US private Network strength. It sounds like you might continue to expect North America to grow faster. Right? And and I guess that's where I'm headed with that is with regard to gross margin profile. And obviously there's a, you know, kind of a mix factories, so it sounds like you could still see given that mix the strength in North America some upward pressure on Gross margins.

So so what we were prepared to talk to and I think you should give this is what you know, I think in the past we've been asked what our long-term model should be and you don't know. Why don't you comment on our long-term model?

When it comes to long-term model, so this year we our gross margin is about thirty 35% for the year and overall. I think we we do want to see continuous wage increase not percentage, but from a bottom-line standpoint, we do see we exited on it from the just a bitter basis. I think this year was 5.5% And we do see that to continue growth maybe on long-term model between 7 to 10% on the bottom line basis.

Well, well maybe covering the the last piece of that. I mean we've seen, you know topics kind of lower-than-expected pretty much across-the-board this quarter on reductions and off and travel and some promotional type expenses, but it sounds like the decline that you saw, you know goes beyond that and is it sort of more sustainable? And so I want to put off? Yeah, I guess the previous comment about 2 million of restructuring benefit accruing into fiscal 21. You know, how do we look at that, you know relative to talk to the full year for 4:20 or you know, I imagine, you know, the topics is kind of a a low Point expect it to come back up a bit as as you know, at least something starts off as from a expense standpoint.

So quite simply we you know, I think what we said in the in the script was that, you know, we were on track for for adding two million dollars of profit profit even adjusted ebitda in fiscal year 21 due to our restructuring and you know, we we did have some covet related cost benefits and to 4 and we see them all repeating in q1 and you know, if we go back to travel that'll go up but then by the time that comes through Thursday, we think will be further along in our restructuring which I think I think our restructuring we've announced that in fiscal year twenty-two we'd be at our run rate Savings of 3.3 and 1/2 million of unadjusted. Even. So, you know, we're modeling purposes you can count on we are on track for the two in fiscal year 21 and if we're dead

21 to 3 and 1/2 that we've declared that we would save in twenty-two. We were confident that that's going to materialize.

Got it and last name?

So I was going to ask you if it was helpful. Go to the next question. Sorry. Okay, just one more for me. Sorry and and that is really about kind of go forward demand drivers and you mentioned several kind of new product platforms. And it sounds like well, I guess my question is to what extent it sounds like given the private Network strength of North America. You expect those, you know to be more meaningful or material contributors going forward than you know, I guess what to what extent did some of those says new products drive, you know, something is wrong order results that you talked about a Q4 in particular and then if you look look forward in terms of your growth driver for $21 as 5G mission-critical networks were all brought back.

Maybe you could.

Kind of weigh those in terms of our rank order in terms of what growth drivers you're most excited about.

Well, it's like trying to say which one of my children I love most look they're really they're really fantastic for all of us off. So I think you know the we're performing well historically and growing with the private Network the mission-critical private Network. I think um, we can have some some top-line growth. But margin expansion. We see the frequency Assurance software playing in there. We're dead. So where we see if we can get margin expansion with that software the 5G rollout we talked about we do have a good position and we did have good demanding few Q4 off with the US Network providers. But we also see that starting to ramp up internationally and we saw that the globe and Safari, what I would also add dog

See internationally that the multi-band where there's High High Spectrum costs that the multi-band significantly lowers the total cost of ownership for the the international operators. And that that we see the multi-band is we do have some North America demand for that but the demand drivers are High Spectrum costs outside of of the the and the small small part of our business is rural Broadband, but we deliver that through the only e-commerce platform in the the microwave space so we can deliver, you know, it's kind of our standard products and 14 days. So it like in Cove it off where I work from home to you know, took off kind of overnight the risks needed more capacity and we're able to deliver that and we're we're starting to suck.

You know that's going well in North America. We're starting to see that kind of demand profile internationally and we getting set up to to push the store out internationally. So I would say, you know, I'm confident in the mission critical space we're doing well there, you know growth drivers should be the e-commerce platform for the rural internet and you know as 5G goes we think we have the right products to grow with them. So I would say, you know at our core the, you know, our biggest part of the business office in critical we're confident that and we're really excited about the growth that the the store and probably going to bring

Got it. Thanks very much.

Q our next question is from Theodore O'Neill with Litchfield Hills research. Thank you graduations on exceeding your ebitda. I haven't put the order I mean for the year off the growth that you're seeing in 5G. Can you attribute that to just overall 5G growth the pie getting larger. Are you taking a larger piece of it?

So, you know share share in a growing Market can sometimes be difficult to estimate estimate. We there's some recent research over the last two quarters that indicated the microwave Market was down and we were up compared to the market. So I think we are gaining a little bit of incremental share with you know, but yeah, I would I would say that we are incrementally growing share but that's really hard to estimate. It's a qualitative statement where we think that is perhaps occurring is in the rural broadband and with some of our recent 5G wins, and then you know the part that's really hard to estimate is that oh good the Large mobile network operators how they're doing with respect to 5G. That's that would be hard for us to be so qualitatively I would agree with that suggestion, but it would be dead.

To pin pin us down to a to a number. Okay. I asked this question on the last call and I'll ask it again. How is your supply chain doing? How is it holding up, you know with covid-19. So, you know our supply chain and our team executed nearly perfectly in in Q4. So it's it's it's holding up. Well, it's performing we would think that it's outperforming some of our some of our peers. So we're we're really pleased and then you know, look I'll say we did have issues that were short-term issues that we overcame within the quarter but the good thing about that is we're learning from it and becoming more resilient. So, you know, you know a year from now, we'll expect near Perfection week after week from our supply chain. So we're we are really really pleased with our supply chain and we we also think are dependable.

The gives us a platform to win new share and that will play out over the next six to twelve months. That makes sense. My last question is are you seeing any uptick in activity looking at m&a opportunities? So we we look for you know, we have a pipeline of bolt ons that we look dead. We're looking at, you know to 4 with covid-19. A lot of that got put on hold we're going to continue to look for opportunistic deals that will you know be be in line with our core competency and be a creative to grow so so we are looking but we're not going to pull the trigger on something unless it's it fits and we're going to be able to drive growth and wage as the synergies.

Okay. Thanks very much. Thank you.

Thank you are next question is from Mark Spiegel with Stanfield and capsules, please go ahead I love your enthusiasm two quick questions. How was the this potential 6 gigahertz interference affecting you guys obviously, I've seen the thing about your software, but that only tells you that you're being interfered with is it are people avoiding, you know that spectrum and if so, can you offer them an alternative?

So, you know that's so we have not seen any change in the demand pattern for the 6th gigahertz Spectrum. So, so I would suggest we haven't seen seen that play out if if someone was really concerned and wanted to go away from the sixty Hertz Spectrum. We do have a full range of products that we could put them. In fact that that helpful. Yeah, very helpful, and I forgot my second question. So I thank you for that one. If I think of it I'll get back in the line. Thank you. Great. Thank you Mark. Thank you. Our next question is from Steve bush with every place resources, please go ahead.

Good afternoon, guys create a great job recorder. Thank you. So most of my questions have been answered. But how does your dog calm customer compared to mtm's Prior Revenue growth, you know Revenue side but much smaller.

Yeah, so they are smaller Operator Let me give you the the color that I think maybe you're looking for that safaricom win money is important because it proves out our Multi Band in the economics that we you know, we advertise when we when we got that design win and you know, a lot of what operates in is the microwave High High Spectrum cost microwave and you know, I I wouldn't say this specifically about MTN but all the all of our customers where they have High Spectrum costs are taking notice of what's going on with safaricom and you know asking for presentations or asking for the evening, Canales as well as we have a variety of proof-of-concept tests that are ongoing. So we we we do what the safaricom did do for us.

Was it created a big funnel that as we convert the the funnel and the opportunities? We think that's going to translate into to revenue growth and in particularly in the African. That's that's really good color. Thank you for that. So

was empty they kind of Switched there.

Supplier to Huawei or somewhere? Is that was that what happened and maybe we can get some of that back what you're saying? I think that's a reasonable hypothesis. I don't want to comment on one specific a customer. But while way was the you know did take that share and we think that we have a highly differentiated offering that would make us competitive vs Huawei and and others right? So great. No, that's perfect. Thank you. So you mentioned that you have a patent pending. I don't know if you could add any more color to them versus I mean, you also had that request release with MTI Wireless and there's a bunch of patents mentioned in that is it the same line or who owns the pants with the empty I wear off the other one you're talking about the schedule. So the wireless that's that's the antenna supplier that goes along that provides an antenna solution for

multiband

So so separate that plan out. So on our frequency Assurance software. We we do have a patent pending and that patent is around off the the algorithm, right? So the algorithm for detecting interference which ultimately leads to the the resolution. So, you know, we have some really smart guys that were able to sort out how we could you know, basically solve a difficult signal-to-noise problem and we've we filed with the patent office and said, you know, we're hopeful that we get granted the the patent, you know in the time that the the the patent office needs to review it and you know, I would say that the you know, we think it's Unique and not really doesn't matter what we think about our customers. What we did say in the script was that we have received our first orders for that and that's that's the ultimate package.

To the customers going to buy food. So I hope that's enough color on the patents that have been out in the Press around. That's fine. I appreciate that code and I just leave it with kind of comment. I like the fact that you said you're focused on execution and that you need to get into growth mode cuz I think that's what's the next driver for. The stock is getting our top-line a timeline moving together, and I wish you well in that endeavor. Thank you.

Thank you. And our next question is from March bill. Which Stanfill on Capitol please go ahead. Yeah. Hi P just one quick follow-up. I remember what I wanted to say. I do. Hope that you guys will be super super cautious on Acquisitions. And and the reason I say that is you're selling it around on an Enterprise Value basis. You're selling it only around zero point three times revenue and you know, I think in this market, it would be really hard to find a decent business selling anywhere near that chiefly. So, although it may be somewhat growth or burnings are creative. It won't be, you know won't be a creative as on that multiple, which is maybe the most attractive thing about the company. So obviously, you know what you're doing. I just wanted to throw my two cents in there on that. Thank you. Thank you for that input mark

Thank you answer. You can go ahead with your final remarks. There is no more in the queue to close the call. I'd like to thank everybody else. Wish everyone help. We're really really excited about the business are are restructurings on track. We have a great great funnel, and we're excited to to talk to you about the progress in a couple of months as we wrap up q1. Thank you, everyone.

And thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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