Q3 2021 Aviat Networks Inc Earnings Call
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Okay.
Good afternoon, welcome to our view of networks third quarter fiscal of 2021 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. Please note. This conference is being recorded I will now it's hard to conference over to your host Mr. Keith <unk>, Vice President of Global Finance and Investor Relations. Thank you you may begin.
Thank you and welcome to Abbvie on networks third quarter of fiscal 2021 results conference call and webcast the.
You can find our form 10-Q press release and updated investor presentation, and the IR section of the.
The web site at Www Dot AVR networks Dot com, along with a replay of today's call and approximately two hours.
With me today are Pete Smith, and he is president and CEO, who will begin with opening remarks on the company's fiscal third quarter, followed by Eric Chang, Our CFO, who will review the financial results for the third quarter.
The quarter and first nine months of fiscal 2021 people will then provide closing remarks on how the on strategy outlook followed by Q&A.
As a reminder, during today's call and webcast management may make forward looking statements regarding out of the ads business, including but not limited to statements related to financial Inc.
Project and the.
The business drivers, new products and expansion and the impact of COVID-19, 19, and economic activity and different regions. The.
These and other forward looking statements reflect the company's opinions only as of the date of this call and webcast and involve assumptions risks and uncertainties that could cause actual results to differ material from these statements and.
Digital information.
On factors that could cause actual results to differ materially from the statements made on this call can be found in our annual report on form 10-K filed with the SEC on August 27 to 2020.
The company undertakes no obligation to revise or make public any revision of these forward looking statements in light of new information or future events and additionally.
Additionally, during today's call and webcast management will reference both GAAP and non-GAAP financial measures. Please refer to our press release, which is available on the IR section of our website at www dot and the up networks Dotcom and financial tables therein, which include of GAAP to non-GAAP reconciliation and other supplemental financial information.
<unk>.
At this time I'd like to turn the call over to Javier the President and CEO Pete Smith Pete.
Thanks, Keith and good afternoon, everyone.
Thanks for joining us to review of another successful for them.
For across the business the.
Companies continue to execute on our key long term focus areas of growth margin expansion expense reduction and meaningful bottom line improvements.
Focused credit.
And I all members of the Avia team resulted in.
Third quarter and year to date revenue growth of eight 2% and $15 five per cent compared to the same periods last year.
Third quarter and year to date adjusted EBITDA margins of 11, four zero per said and 12, 7% of <unk>.
Solid balance sheet and liquidity.
And of physician and a significant customer wins for our new software as a service SaaS offering of five year agreement for the U S. State government provides the rvs.
The failures and other software be a hassle free subscription service North America third quarter revenue increased 12, 8% year over year and for the first nine months of increased 24% compared to the same period last year, the international third quarter revenue increased one.
And 1% year over year and for the first nine months of increased $6 five per cent compared to the same period last year.
Adjusted EBITDA was $7 3 million for the third quarter, representing an improvement of $3 8 million versus the same period last year adjusted EBITDA margins improved to 11.0 per cent for the third quarter compared to five 7% for the same period last year the improved.
And and revenue and adjusted EBITDA for the third quarter and year to day basis was primarily due to gross margin expansion from higher volume of private network business increased sales through our avia store, which serves primarily the rural broadband space.
Improved the international business, driven by multi bandwidth and an increase and software sales. We also benefited from previously announced restructuring for the first nine months non-GAAP operating expenses decreased five 2% compared to the prior year.
We continued to demonstrate avia the differentiation in our products software and services and E. Commerce, we've demonstrated the viability of these offerings were the reason.
Key wins and five G.
Private networks and rural broadband and as I've mentioned on prior calls.
Of our high capacity single box multi band radio platform provides the industry's simplest multi band solution, which lowers the customers' total cost of ownership.
And the third quarter as previously announced Avia was awarded a contract with dish.
We're avia was selected as the wireless backhaul supplier for their nationwide <unk> network dish is also placed their first orders with avianca and the quarter along with dish during the quarter Avia and also announced the new win with L. T D broadband for high speed wireless back.
All of this for rural Rural broadband connectivity LGD broadband a leading U S. Internet service provider provides high speed connectivity to commercial and residential subscribers, and Iowa, Minnesota, Nebraska, South Dakota, and Wisconsin and addition, too.
For the next wing Internet when we now have three out of the top 10 and nine of the top 30 rural digital opportunity fund winters and our customer base.
The dish and L. T D broadband wins are the result of obvious lowest.
Total cost of ownership of offering driven by the.
And the industry's always single box multi band solution for optimum capacity the.
The highest system gain radios for small antennas and better reliability Avia design software that simplifies network planning the <unk>.
And our yards store for simplified purchasing and reduce logistics costs.
And next day shipping and obvious local North American service and support.
We remain excited about the five G and rural broadband opportunities ahead, we believe <unk> builds will drive new backhaul upgrades and then a rural broadband and business will benefit for meaningful government funding Inc.
Including the 9 billion five G funds for Rural America, and the $20 billion Rural digital opportunity fund.
With respect of private networks, our business remains strong and is growing avianca has a highly differentiated offerings and our leading RF performance along with our software and services capabilities are keys to Avianca success. We also recently announced groundbreaking new software available on the Avianca.
W. T M 4000 radio platform. This new software called the eight to see plus lowers customer of caused by.
Doubling the capacity wood.
Our additional equipment by combining two or four separate channels onto a single antenna delivering the highest system game, enabling smaller and centers, thus, reducing the tower labor and leasing costs and simplifying spares and lowering power consumption.
Increasing capacity for multi band, enabling three plus zero and a single box and doubling the available microwave capacity competitive offerings require three or even for separate boxes with the increased complexity and costs before turning the call over to Eric Let me provide a couple of additional observations.
Since and insights first this was a very good quarter and first nine months of our fiscal year, we remain focused and continue to execute and those collective efforts are reflected in our financial and operational results.
We've continued to demonstrate our ability to grow and to take share of demand.
And looking forward, we see three significant drivers by G private networks and rural broadband and we believe we are well positioned to capture significant opportunities with our differentiated products software and services offerings with that let me turn the call over to Eric to review our financials.
Before coming back for some final comments.
And <unk>.
Thank you Pete and good afternoon, everyone.
During my remarks today I will review some of the key third quarter and first nine months of 2021 financial highlights moving our detailed financials can be found the on content.
In Q and press release, both of which were filed this afternoon.
As a reminder, all comparisons discussed today are between the third quarter of fiscal 2021, and the third quarter of fiscal 2020 and between the first nine months of fiscal 2021, and the first nine months of fiscal 2020 unless.
So the otherwise.
For the third quarter, we reported total revenues of $66 4 million as compared to $61 4 million for the same period last year and increase of $5 million for eight 2%.
During the quarter North America team continues to focus on expanding sales and seizing upon obvious unique product and service differentiation.
North America, which comprised 63% of total revenue for the third quarter was 42 million and increase of $4 8 million with 12, 48% from $37 2 million for the same period last year.
Driven primarily by our private networks business.
Group, Robyn and software licenses.
For the nine months of fiscal 2021 for North America revenue was $136 7 million and increase of $23 2 million with 24% from $113 5 million for the same period last year.
International revenue for the third quarter came in at $24 4 million compared to 24 per 1 million for the same period last year for the nine months of fiscal 2021 of our international revenue was $66 5 million and increase of 4 million for six 5% from $62 5 million for the.
Same period last year.
On international team continues to implement on new commercial sales strategy, which as a reminder of inclusive defending tier one telecom business, winning new tier two accounts.
Spending on reach through partnerships and capturing value, where we are differentiated.
It's too early and it is execution, we continue to see the benefit of our international strategy paying off.
Revenue for the first nine months of fiscal 'twenty, and 'twenty, one with $203 2 million compared to 176 million routine year ago period, and increase of $15 five per cent.
On our book and Bill ratio for the third quarter and the last 12 months is well above one and we are again pleased that our backlog exiting the quarter continues to remain above $200 million.
Third quarter gross margins remained strong at 38, 5% and 38, 7% on the GAAP basis and non-GAAP basis.
Respectively, as compared to 35, 8% and certified for 9% for the third quarter of last year.
Key drivers of the strong gross margin is driven by higher volume of private networks business.
Increased sales through of RBS store, which serves primarily the rural broadband space.
Improving the natural business driven by multi pentland and the increase in software sales.
And.
Third quarter GAAP operating expenses were $21 5 million compared to $20 7 million for the same period last year, primarily due to restructuring charges and share based compensation.
Third quarter, non-GAAP operating expenses, which exclude the impact of restructuring charges and share based compensation was flat at $19 $7 million year over year.
R&D expenses increased <unk> 3 million due to investment and software development sales expenses increased <unk> 5 million to the commission of highest bookings, while G&A expenses decreased by Europe, one 8 million.
Primarily as a result of our previously announced restructuring.
On the year to date basis for GAAP and non-GAAP operating expenses were favorably impacted due to restructuring plans announced and the second half of fiscal 2020 as well as in February 2021, and the slowdown in hiring and reduced travel.
Moving on third quarter non-GAAP net income was $5 8 million compared to $2 2 million for the same period last year with third quarter, non-GAAP EPS coming in and 49 cents per share compared to <unk> 20 per share for the same period last year.
For nine months of 2021, non-GAAP net income for 'twenty one.
And $1 million compared to $4 2 million for the same period last year. The non-GAAP EPS come in at the dollar interest <unk> per share compared to 38 cents per share for the same period last year.
Please note that on current period EPS of the retroactively adjusted to reflect our two for one.
Stock split in the form of stock dividend that was effective in early April 2021.
From an income tax standpoint during the third quarter, we released our U S valuation allowance of approximately $92 million associated with our U S. Nols of about 400 million because we have the.
And profitable and the U S for the past few years and it is more likely than not that our U S operations will have sufficient future profit.
Utilize the deferred tax assets in the foreseeable future.
Since we have Nols after income tax payments in the U S for non-GAAP reporting purpose for income tax expense.
Continued to be cash tax that we pay and our foreign jurisdiction under the respective transfer pricing agreements.
Adjusted EBITDA for the third quarter was $7 3 million of $3 8 million improvement from $3 5 million. We reported for the same period last year with adjusted EBITDA margin coming at 11% for the quarter.
For the first nine months of fiscal 2021, or just the EBITDA was $25 8 million compared to $8 million for the same period last year adjusted EBITDA margin for the first nine months was 12, 7% compared to four 5% for the same period last year.
Moving on to the balance sheet on cash and cash equivalents at the end of the third quarter was $45 8 million with no loans outstanding.
During the third quarter, our inventory increased by approximately $4 million to mitigate supply chain constraints.
Despite the increase of inventory, our net cash increased $2 8 million.
And sequentially for the second quarter, and $13 2 million year to date. So our balance sheet remains very solid linear is well positioned to execute our long term plans.
With that I'll turn it back to Pete for some final comments Pete.
Thanks, Eric just a few additional comments before opening.
And up for Q&A I am extremely proud of the entire AVR team for their significant contributions to our results. We recognize that there continues to be a lot of work in front of US. We're on the right path to achieve our long term objectives with that operator, let's open it up for questions.
Thank you.
Ladies and gentlemen, if you like to ask the question. Please press Star then one on and you touched on California again, if you'd like to ask the question. Please press Star then one.
Our first question comes from Theodore O'neill of Batesville Research. Your line is open.
Thank you very much congratulations on a great quarter.
Thanks, Bill for Pete.
The east.
Our current earnings period, we've been hearing a lot about supply chain issues part shortages.
Semiconductors semiconductors and other.
And we heard the company that actually having trouble getting labor in China, because the migration back to the city of this happening as robustly as it has and the past and and all and long lead times for parts and all of this is driving up costs.
Can you talk about how you managed and this kind of environment.
Yeah. So.
So you know the the good news is our our book to Bill ratio is above one and our demand is strong. So we are faced.
With the supplier shortages.
And you know free problems like many other companies, but I would I.
And I would say that these incremental costs.
And then move to have a material impact on our Q3.
So the real credit goes to our supply chain the overcome a myriad of.
The issues, we have challenges today for what.
We really did from the beginning of.
Of COVID-19, we were the start of COVID-19 and we were nervous so we've been leveraging our balance sheet since we're on a base of the zero interest.
The rate environment to buy components.
The ahead of demand and we built up our inventory position and that's allowed us to.
So mostly meet our customers are.
On demand delivery. So we're going to continue to do that I I don't want to be misleading. There. There are risks, but I think you know when we look at.
Industry reports, they say that we are distinguishing ourselves with respect to.
Supply chain and we want to continue to do that and.
Fortunately, we have the balance sheet debt allows us to navigate and malware.
That's great.
The other.
Yes.
The other thing I wanted to ask about with the margins for so good on the quarter and I know you're obvious store is.
And sort of a better margin way for customers to buy product.
That is it still more headroom to go.
And it is.
Margins higher and the average.
The store continues to grow.
So I think.
What drives our.
Whats draw the true if you go.
I'd like us to Luca on.
Nine months, right now and get caught up and Ah Ah.
Quarter to quarter, because we of project business, what's really driving the margin expansion as the store our software sales and we mentioned the the what we think of the bellwether weighted for us the.
Software and the service frequency of short service, where we can start to build the recurring revenue model and the.
And.
One of the things that I thought when I came to the company as the market back.
And our approach and we have a multi band radio which.
Saves our customers tens of thousands of dollars a year and we do for all of the innovation that we put in there.
The other margin that's accretive so sort of kind of put a.
The bow on this the store and it's driving an increase and.
Margins are software.
And our aspiration.
We have aspirations to make that software the service and then our hardware, where we are differentiated with the with products like our multi band and what I mentioned on a two to see which really.
Doubles capacity using sort of software and algorithms. So those would be kind of three highlights for.
With respect to the drivers of our GAAP.
Gross margin expansion.
Okay. Thanks very much.
Thank you.
Thank you. Our next question comes from Charles Babbage at.
Of Northland Capital Your line is open.
Hi, good afternoon and thanks.
Congrats on the results I Wonder if you guys have and update.
Okay.
Marched into it a bit quick do you guys have and update on guidance for the year and I think you provided a range of gross revenue and EBITDA last quarter.
Yes, the surgical team there's no there's no update from the guidance, we provided last quarter of revenue wise and to compete on annual basis, putting $2 $55 million to $265 million. So there's no change likewise for adjusted EBITDA of between $28 million and $31 million for the full year.
So Tim just to add to that last week.
We have of project based business last quarter.
We said that of is conservative we still think it's conservative.
<unk>.
We want to stick to annual guidance and not get caught into quarterly guidance. Because you know last quarter, we had a big.
On a project.
If we start getting into the quarter to quarter guidance, we'll we won't manage the business as efficiently as we can so.
Since we're at the last quarter, we don't want to.
The guidance of what Eric just said is where.
We're confident of meeting the guidance and last quarter, we acknowledged that it was conservative so we would stand by that without giving you and Tony.
Specific specific numbers.
Fair enough.
And maybe looking out a bit further and I think you mentioned you received initial.
Orders from dish and correct.
Correct me, if I'm wrong, there I wonder if that's true of L. T D as well, but if you look at these.
New wins, and maybe we talk about dish separately from the call of rural broadband backhaul.
Can you give us any metrics to try and size that opportunity as you look out to next year.
Maybe and these kind of two buckets.
From an annualized perspective and then.
Beyond that are you seeing more of those types of opportunities as carriers ramp up five G builds and <unk> and we get going with art off for the rural broadband.
Okay.
So our and cure you.
You asked you.
As for you asked a lot of questions. There. So the two low two buckets.
Cash and larger tier one and rural broadband and business sense of the size of the what you brought in to date and what might be out there.
And so third.
My talk about rural digital opportunity fund, so we think that.
And for sense about let's say two to four cents of every dollar of the.
For all digital opportunity fund.
Sure.
It turns into a microwave order. So that's what we think the size of it is and we have three.
Three of the top 10 and nine of the top 30.
Art of winters. So that's kind of how we're starting we're starting to think about that opportunity. So we think it's pretty.
Pretty big.
And you know dish tissues of the great customer.
We.
We want that business because of our our network planning, our differentiated radios and our E Commerce, we think the.
That's.
Our Greenfield five G application the.
The international customers of stepped up and taken notice we think the dish will be.
You know small revenue lift.
Next year, and but it's a bellwether win and.
And we're seeing.
Interest from our international customer <unk> customer base based on that win.
That's helpful Tim.
Okay.
Thank you Tim.
Okay.
And I was on mute there again.
Again, ladies and gentlemen, and I'd ask a question. Please press Star then one on you touched on telephone.
Tim on your back Okay, and just let.
Let me coming back for a moment.
Your line is open for that.
Yeah, sorry, I was on the it there can.
Can you hear me now.
Okay.
I did want to follow up on.
And just expanding on the <unk> topic, a little more we've obviously seen.
A lot of momentum.
Toward increased five <unk> builds and particular C band.
From more.
More incumbent versus Greenfield five G operators included among those and historical customers of yours, and I Wonder if youre seeing any.
Opportunity coming out of the more traditional tier ones, and then and the U S or maybe.
And maybe just on the U S.
We would say that.
As the networks build we see the opportunities right and you know.
There is a mix between.
And the fiber deployment and the microwave deployment and it seems like.
Some quarters, they're focused on fiber and some quarters. They are focused on microwave and when they are focused on microwave we certainly.
Enjoy the lift and we're seeing net I would say, we're seeing that and the U S and we're also seeing net.
And in certain international regions Tim.
Great. Thanks very much.
Thank you.
Thank you again, ladies and gentlemen, and I can ask the question. Please press star and why.
And next question comes from George <unk>.
And Herman your line is open.
Alright, Thank you for taking my question.
And maybe digging into the international opportunity a little bit more.
Can you give us a sense of.
And where you're displacing people how much of the differentiation of the Audi at store is when you go into.
And these markets and really how how long of the conversation are you having with the end of the carriers and the operators as far as getting in and are you displacing vendors are you'd normally getting <unk>.
And you build the opportunities.
So okay. So let's talk about the store internationally.
We have that going in Europe, we will roll it out.
Yes.
Later on.
This year, this calendar year, and and Asia Pac and what we're finding particularly per share two operators day like the the inventory management that they don't have excess and.
And obsolete and what it off the news is.
On a different.
It's the whole package between our network planning or our high capacity.
Radios.
Sometimes our software and then our delivery platform the store. So so that's helping us win.
New accounts and.
And in Asia, Pac and and Africa, and and in Europe. So that's kind of stuff that's in the pipeline and that hasn't.
Doesn't hit the.
Is that helpful. So, we're where we're of the store plays internationally, particularly in tier two.
Operators.
Alright, and then when you do look at.
The gains that you are saying you know are you displacing vendors are you seeing.
Expansion and kind of new networks, and that's where you're getting the the bigger opportunity too to drive your debt.
So dish was new.
New network, we would sit both the bulk of our our growth is due to share gains.
<unk>.
Alright, and then maybe just one last question do.
Do you feel the.
The vertical strength and we're seeing here on the U S is that something you can replicate and other parts of the oil and how does that opportunity just as robust.
So.
So we're in the beginning of that I think in EMEA, our leader in EMEA.
His deep telecom experienced from Cisco and he sees that there were going to be able to move into the private networks and the <unk>.
EMEA region step by step so.
We're pretty hopeful over the next couple of years that we can.
And some.
The design wins.
To you about it.
So we think it is.
Hello.
The capability that we can replicate and.
And.
And our international sales leadership the.
Starting to see that opportunity and.
The the number of private networks.
Sales funnel of opportunities is increasing and internationally.
Alright, and I said that was my last one and one last one just the on the pricing environment do you and get them on how tightened supply chain.
Is pricing pretty firm and you have the you know the ability to.
Actually the out of your cost of ice and say hey.
And you were able to hold the pricing either way it is and that kind of all of the normal price per gallon.
Yeah, so here's the here's how I'd like to answer that but we are actively managing the.
This and we believe we can maintain our margins.
Got it.
Is that helpful on us.
Yes, thank you very much.
Okay.
Okay.
Thank you.
Our next question comes from Tom definitely of D. A Davidson your line is open.
Yeah, Good afternoon, and I appreciate you taking the question.
And then the question on the rural development opportunity fund what is the timing of that and some of the other programs that you're seeing and your time for you to expand beyond the three of the top 10 or debt at the top 30 that Youre currently involved with it.
Well, we sure hope that we can get more.
More of the top 10 and more of the top 30, and we would say it's early early days in terms of the deployment of the the Arda funding.
Funding and.
It's really hard to track the the <unk>.
Precise timing of the disbursement.
And we're not sure that any of the art of funds.
Well has has flowed from the.
The the government for our customers to us. So so we're really happy with our position.
And in rural broadband and we.
We just think that theres going to be growth.
The growth ahead from that.
Okay. That's helpful.
And then just a quick follow up on the gross margin you said there is some lumpiness on a quarterly basis. So if I look at the nearly 300 basis point of improvement on a year over year basis is that fairly true progression.
For what you've done.
Yes, so as <unk> mentioned earlier Ray whats driving the driving the gross.
Margin expansion coming from sell through on our E Commerce platform right and if so is the more software sales year over year as for us private networks still at it.
The two thirds of our business and we're still expanding from.
From the margin standpoint, the wind the high 30, 30, so and when it comes to gross margin and I think it's something that we kept and we can maintain it.
And and Tom just yes, so I think we can maintain it and previous calls we've been asked if we can for another 40 gross margin and Thats, our aspirations, but we have and havent guided to that but the.
The way to think about it is as we as we get more multi band wins as we get more.
Software and we leverage the e-commerce platform our margins will.
Go up and the one caveat I'd like to put in the areas.
<unk>.
What I state of the team as we don't get paid and the percentage we get paid in dollars. So if we have a chance to do of share gain of a big customer.
Lower margin with the plans of mix up over time.
We will do that but I think for for modeling purposes, what Eric said.
Keeping it keeping it flat when we come out next year of oil well, we'll think more about our margin and our mix, but we think you will taking the nine month view as well.
Is a safe assumption.
And that makes sense for the margin dollars of pays the bills.
And I appreciate your time today.
Yes.
Thank you again, ladies and gentlemen, if you like to ask the question. Please press Star then one on your question on Telecom.
And on that please.
I'm showing no further questions at this time I would like to turn the call back over to Pete Smith for any closing remarks.
Alright, thanks, everyone for joining RBI continues on its continuous improvement journey. We look forward to speaking next quarter next quarter, we'll illustrate our full year progress and take some more time.
To discuss our products and differentiation, thanks, again and take care.
Ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may all disconnect and have a great day.
Okay.
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