Q1 2023 Aviat Networks Inc Earnings Call
Good afternoon, welcome to live by it.
It works first quarter fiscal 2023 earnings call at.
At this time, all participants on a listen only mode.
A question and a question and answer session will follow the formal presentation.
Please note this conference is being recorded.
I would now like to turn the conference over to your host Mr. Andrew Frederickson director of Investor Relations.
Thank you you may begin.
Thank you and welcome to the Aten networks first quarter fiscal 2023 results conference call and webcast.
You can find our Form 10-Q press release and <unk>.
The investor presentation in the IR section of our website at www.
Networks Dot com, along with a replay of today's call in approximately two hours.
With me today are Pete Smith, President and CEO , who will begin with opening remarks on the company's fiscal first quarter, followed by David Gray, Our CFO , who will review the financial results for the quarter.
We will then provide closing remarks.
<unk> outlook, followed by Q&A.
As a reminder, during today's call and webcast management may make forward looking statements regarding the ambiance business, including but not limited to statements relating to financial projections.
Drivers new products and expansion.
Impact of COVID-19.
Activity in different regions.
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 materially from those statements.
Additional 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 September 14th 2022.
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.
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 Avi networks Dot com and financial tables therein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information at.
This time I would like to turn the call over to <unk>, President and CEO Pete Pete.
Thanks, Andrew and good afternoon, everyone.
Thank you for joining us to review <unk>.
Networks results for the first quarter of fiscal year 2023.
This quarter was significant for the company in two meaningful ways one.
We closed our first acquisition in over a decade and Red line Communications.
We are encouraged by the integration and cost synergy realization.
It's taken place so far.
Forward to demonstrating the value of the <unk> operating system.
Secondly, we announced our <unk> win with Bharti Airtel in India.
Brand new customer for Avia.
This represents another demonstration of <unk> differentiation of products and services for <unk>, our supply chain.
Our operating system.
<unk> shows that avia delivers meaningful value to customers around the world through our leading products and services.
Now turning to our results for the quarter.
In the first quarter of fiscal year 2023.
We have delivered revenue of $81 3 million, which represents growth of 11, 1% versus Q1 of last year.
<unk> margin expansion of 80 basis points versus Q1 of last year.
Adjusted EBITDA of $10 9 million or 13.
13% increase versus the same period prior year, non-GAAP EPS increase of 12%.
Strong debt free balance sheet.
As part of our assets we maintain.
Later than $90 million of deferred tax assets that will minimize cash tax payments for years to come.
These results reflect the continued execution.
Our team has realized despite ongoing inflationary and supply chain challenges.
We continue to see benefits from the three trends.
<unk> rural broadband and private networks.
In terms of <unk>, our business with tier one mobile network operators, both internationally and in the U S continues to grow.
As we head into calendar year 2023, we believe we are still in the early days of growth related to <unk> microwave networks and expect this business to pick up over the next 12 months.
On rural broadband.
<unk> added more than 10 customers in the quarter.
Wireless ISP segment continues to put capital to use with a tailwind of government funding.
While we believe that our funding will not meaningfully impact the company until calendar year 2023, there are indications of fund recipients beginning to spend against the anticipation.
Fund distributions lastly, and private networks, we remain a market leader and secured a large multimillion dollar win in the quarter with a very large county government. In addition to our microwave offering. This deal includes routers and hosted software which were.
Flex our strategy to grow share of wallet and the private network space.
The quarter, we announced two new products first and most recently our vendor agnostic multi band solution, which enables operators to usually upgrade capacity of an existing installed license microwave link up to 10 Gigabits per second this allows operators.
With legacy microwave equipment, primarily vendor to cost effectively deploy additional network capacity.
When coupled with the industry's only single box multi band had extended distance multi band solutions provides avia with the most complete and compelling multi band portfolio, which will be particularly beneficial in <unk> network build outs secondly.
The company announced the availability of new software then enables integrated IP Mpls and segment router to be deployed to the network edge using rvs, all outdoor platforms Javier as the only vendor with a full routing stack.
<unk> running on our radio portfolio.
Eliminating the need for external routers, thus lowering total cost of ownership. This is another step in our goal to expand our software solutions to customers at the beginning of the quarter. We closed the Red line Communications acquisition.
Integration has gone according to plan. In fact, we are ahead of schedule from a cost takeout perspective, and we have the business close to breakeven profitability in just one quarter.
<unk> confident in hitting our previously provided guidance on revenue and adjusted EBITDA contribution from Red line this fiscal year.
On the supply chain.
We continue to face challenges, but there are specific areas of improvement.
Allocations of key components are now.
Half of the peak crisis level.
<unk> have continued to decline and are now rare events lead times are shortening.
We still see opportunities for improvement and programmable logic analog batteries antennas and cables.
In the quarter logistics and supply constraints impacted our revenue.
By approximately $3 million.
<unk> portion of the supply issue stemmed from Red lines.
<unk> products as we implement the avia operating system, we will improve there.
As a result of the Red line supply issues, we are accelerating our plan to move Red line products over.
Or to the <unk> manufacturing base and expect that this will begin to show results in the back half of this year.
In summary, this quarter was solid from an operational perspective.
Even in the face of ongoing challenges our backlog continues to grow in our three growth drivers.
Private networks and rural broadband.
<unk> avia well position to capture significant opportunities with our differentiated products software and services offering.
With that let me turn the call over to David to review, our financials before coming back for some final comments David.
Thank you Pete and good afternoon, everyone.
During my remarks today I will review some of the key fiscal 2023 first quarter financial highlights.
Our detailed financials can be found in our press release and 10-Q filed this afternoon.
As a reminder, all comparisons discussed today are between the first quarter of fiscal 2023, and the first quarter of fiscal 2022 unless noted otherwise.
For the first quarter, we reported total revenues of $81 3 million as compared to $73 2 million for the same period last year, an increase of $8 1 million or 11, 1%.
Driven by strong growth in Asia Pacific and Latin America, as well as the contribution from Red line acquisition.
North American revenue, which comprised 60% of total revenue for the first quarter was $48 8 million and international revenue was $32 4 million.
We continued our trend of trailing four quarter book to Bill ratio above one which started in fiscal 2018.
Gross margins for the quarter were 36, 3% and 36, 5% on a GAAP and non-GAAP basis.
As compared to 35, 7% for both GAAP and non-GAAP in the prior year.
The improvement in gross margin resulted from inflation being fully offset by pricing actions as well as the accretive contribution at the Red line business.
First quarter GAAP operating expenses were $23 7 million, an increase of $6 2 million from the prior year driven by the acquisition of Red line operating expenses, including a onetime restructuring charge of $2 million as well as M&A related costs.
M&A and restructuring related expenses of $3 5 million.
$2 million deferred tax liability and FX loss of <unk> nine.
$9 million and a $1 $7 million decline in the value of marketable securities as opposed to the $2 6 million gain.
On those securities recorded last quarter.
First quarter, non-GAAP , net income, which excludes restructuring charges share based compensation M&A related costs and noncash tax provision was $8 8 million compared to $8 1 million for the same period last year.
First quarter non-GAAP EPS came in at <unk> 75 per share on a fully diluted basis compared to 67 per share for the same period last year, an increase of 12%.
The Red line acquisition was mildly dilutive to EPS in Q1 by approximately one 5%.
Adjusted EBITDA for the quarter.
Was $10 7 million, an increase of $1 1 million or 11% from the prior year.
Red line acquisition was slightly accretive to Q1 EBITDA ahead of our plan adjusted.
Adjusted EBITDA margins were 13, 2% for the quarter.
Moving onto the balance sheet our.
Our cash and marketable securities at the end of the first quarter were $22 9 million from $47 8 million in the prior quarter, primarily due to the Red line acquisition related restructuring spending and continued strategic investment in inventory to derisk the supply chain.
Additionally, customer cash collections were impacted by Forex availability in certain emerging markets, which has since started to reverse.
We continue to have no debt and our balance sheet remains very solid, leaving us well positioned to execute on our long term plans.
With that I'll turn it back to beat for some final comments.
Thanks, David just a few additional comments before opening it up for Q&A.
We anticipate that our <unk> tier one business will grow.
As a portion of mix throughout the fiscal year 2020 through.
This is a result of both North American and International Mobile network operators investing in their <unk> network build outs.
<unk> is a good example of this where we expect to start seeing revenue in fiscal Q2.
At the outset these opportunities will be lower than our average gross margins.
Assured as we assess these key growth wins, we have wrapped up the <unk> operating system to secure margin improvements.
Volume that these opportunities present advanced <unk> long term EBITDA margin goal.
I also want to emphasize how our strong balance sheet has given us the strategic flexibility to strengthen <unk> position as a market leader.
Helped us to navigate the supply chain challenges over the last two years.
In turn has allowed us to meet customer commitments and take share.
It has enabled us to acquire Red line and rapidly execute our restructuring plans.
We have made investments in next generation technology, such as our Max linear system on chip partnership and then.
$2 $5 million investment to purchase and take control over our routing stack software from our partner meta switch that will benefit avianca for years to come.
We plan to continue to leverage our healthy balance sheet to make further investments in both organic and nonorganic growth opportunities that will benefit shareholders.
We are encouraged by our results so hard work and dedication of the <unk> team.
The outlook for Avia and its markets based on the strong demand environment, including an uptick in tier one and five demand we are raising the top end of our revenue and profit guidance, we now see.
Revenue for fiscal year 2023 to be in the range of $3 $30 million to $345 million.
Adjusted EBITDA for fiscal year 2023 to be in the range of $43 million to $46 million with that operator, let's open the call for questions.
Thank you one moment.
While we compile our Q&A roster.
The first question I had was coming from Scott Searle with Ross.
Capital markets.
I'm, sorry, Roth capital Partners. Your line is open.
Hey, good afternoon, thanks for taking the questions.
And maybe just to dive in real quick on gross margins.
I think I heard $3 million impact related to incremental costs and logistics in the quarter want to confirm that that 350 basis point impact in the quarter and kind of how youre seeing that trend as we go into the December quarter and as part of that.
India is starting to come into the mix of lower gross margins, how should we be thinking about what blended gross margins overall are going to look like.
Alright, so the road.
Mark.
That we made around the $3. One that was missed revenue so that was a margin, but David can comment.
Comment more deeply.
Most margin progression.
Yes, so in the quarter I mean.
We were able to offset all of the inflationary costs.
Bye.
Our pricing actions on a on a dollar basis.
Still the increase in the sales number that is slightly dilutive, but then.
That was made up.
More than made up by the contribution of having Red line in our results and looking forward.
I think.
We have kind of one more quarter of that'll.
That'll be a little bit pressured.
Given the.
The Airtel announcement before we have some chance to.
Take some cost out of that and get the margins. So they are not dilutive, but we expect them to kind of be in line with what you saw this quarter and then show some improvement in the balance of the year.
Got you helpful and Pete maybe just Directionally youre raising the top end of your fiscal year guidance, where are we heading into the second fiscal quarter, but how are you seeing things sequentially progress, particularly.
With Red line I'm wondering if you could calibrate us what bread line of where <unk> was in the first quarter kind of how that looks sequentially. It sounds like airtel starts to contribute in the December quarter, and then there were some other items going on there dish has been in the news a lot lately in terms of meeting their build out requirements for the <unk> network, they're playing a little bit of catch up.
You guys had been participating there I imagine that starts to play in as well. So how should we be thinking about with all of those factors kind of the progression of revenue as we go into December and March.
Yeah. So I think the overall progression is we're going to ramp through the year.
The principal reason.
And I might be wrong about that and if it is if I am wrong about it it means that the supply chain is up and we were able to.
Makes shipments earlier, so I think we're going to progress.
You know we're on the July to June cycle. So Q1, Q2, Q3 Q4 are built.
That is not.
The profile that we have it'll be because supply chain.
Improves or the what I call the allocation environment. If that eases, then we will have more ability to ship and will ship sooner. So the way to model. This is.
Progression.
Over the four quarters and then.
Go on.
I think the peak quarter for Red lines revenue is going to be our Q3 to January to March quarter and.
Dish.
<unk> is really focused on fiber.
<unk> fiber right now if you go back to the beginning of our announcement, we said that this was a bellwether announcement.
And we said to model it over the life of.
The program, 20% to $25 million and.
We would stick by that and we would say.
Dish will probably will not.
Contribute.
In the.
October to December quarter got.
Got you. That's helpful is that color helpful. Scott very helpful and lastly, if I could and then I'll get back in the queue, but.
Could you frame for us the magnitude and size of Airtel.
Historically, if we if we look at for example, what's the Oregon was doing theyre doing roughly $20 million a quarter, but that spread across two operators as opposed to just the hotel.
But theres a big build out cycle come in here. So I wonder if you could give us a framework of what we could expect as it starts to ramp up on an annual basis, and then maybe as well just kind of the currency impact that's going on in kind of the impact that you're seeing on that front. Thanks.
So.
Not allowed if we could have we would've put it in the press release the.
The specific numbers, but you can model this over the life of it is.
Eight eight figures.
So that would be that would be reasonable.
Okay.
And then.
Scott You also asked a question regarding currency anything in specific to that.
Here I would like now.
Yes, if you could just kind of give us an idea about how most of your contracts are denominated do you do you have exposure outside the U S. Dollar and then kind of kind of how we should be thinking about that going forward with with the strength of the dollar is that problematic to your expense structure or top line or putting additional pressure on your gross margins. Thanks.
Okay got you so.
So over 90% of our revenue is invoiced in USD.
And for the most part the revenue that's invoiced in local currency is for services.
Where in countries where we're.
So incurring a cost of services our talks in local currency as well. So there is a matching there so we don't.
It lays out our margin however.
Obviously with that amount we are having.
On receivables get devalued as the U S dollar has gotten stronger.
And that's where you see that the charge down and you know that the non-GAAP reconciliation, but.
Yes for the most part I think we are well protected on our margins.
And yes, we did.
Yeah.
U S dollar strength has been exceptional on a.
Constant currency basis. If you used if we were to have used Q1 of FY 'twenty twos.
Rates this quarter, our revenue would have been about $1 2 million higher.
And about 500000 higher quarter over quarter. So there has been an impact but margin wise, we're protected and from a.
Our balance sheet exposure wise.
Yes.
Taken certain steps to create the natural hedges to protect ourselves to the extent possible.
Okay.
Thanks.
Thank you.
One moment, while we get ready for I'm sorry.
And sorry, one other comment on currency.
As opposed to all the bad we do have a say.
A portion of our R&D spend is denominated in euro. So we do get some benefit on the expense side from a from a stronger U S dollar as well so it does cut both ways.
Thank you. Our next question will be coming from Eric <unk>.
Sure.
J M P Securities one moment.
For taking the question.
First off any any comments around that.
Economic impact any slowing.
Presumably <unk>, probably holding effort, we're not changing too much but what have you seen in the rural broadband and then private network markets in terms of any economic changes.
You know we.
Yeah.
Our backlog in North America has never been higher which as you know.
Dominated by.
Private networks.
On the <unk> side.
So I'm sure a lot of investors are reading.
Capex spends from.
The tier one players.
<unk>.
Microwave is just a little bit decoupled from that so we feel we feel like we said in the script that the <unk> is in front of us.
Broadband.
Yeah.
It's steady right. So we.
We haven't seen the positive catalyst for that would come from the <unk> funding, but we see that demand environment to.
B study so when <unk> kicks in we expect.
To be bolstered their private networks city and state government spending.
Still looks robust.
Due to a deeper dive on that and then you know five G. We see both in the U S and.
The U S and international.
Growing growing demand. So we see things are good if you if you want a concern.
Sure.
<unk>.
<unk> demand is reliant on foreign exchange as U S interest rates go up that could be or so.
And that's a pretty dynamic problem that we're trying to figure out.
Very good thank you.
Yeah.
Thank you one moment our next question.
Okay.
Our next question is coming from Tien savvy Joe.
Northland capital markets.
Yeah.
Hey, good afternoon.
<unk>.
Take another swing at this BARDA situation here and also maybe in the context of the broader kind of tier one five G.
Themes, you've been hitting here.
Pete so.
I guess.
The specific question.
There are a lot of a fair bit of wiggle room, and eight figures I mean is that sort of an annual call.
Comments or a deal in total and is there any.
Utility.
In taking the same sort of metrics.
That you provided to us in the past about trying to size the potential art off contributions.
You know, it's sort of a low single digit percentage of the total build cost.
Some pretty decent estimates out there about what he is going to spend on their five G network.
That would get you to some pretty big numbers, although I assume theres, a fair bit of fiber in there as well so may be two ways to go.
To think about that.
A little clarification on your specific comment and then tops down.
I'm thinking about.
The total opportunity in and then adjusting for.
Fiber versus microwave or market share versus other suppliers or what have you.
Just wanted to follow up on that.
And a second.
So overall I think we view.
With some rounding.
Michael its microwave is 60%.
Versus 40% fiber.
The chart is in our investor deck and.
And the bottom of that is the.
The satellites and the remnant copper so on an airtel.
I would say that our number is.
Basically.
The visibility that we have right, meaning let's say over the next.
12 to 15 months.
And what really is critical.
Sure.
They are in a domestic competition, what's really critical is how much our supply chain, how well our supply chain performance versus the competition I think we've distinguished ourselves but.
The problem is we still have a variety of components on allocation.
We're growing past the forecast we gave them. So so you know if we can work with our suppliers.
Deliver on time, then the number can be bigger so.
So we're happy with the win.
And there's a lot of.
Work inside of Avia focused on how can we win more.
Is that helpful or.
It is well and then since you just mentioned that I was in.
My original question was going to be can you you talked also about some ramp in North America, maybe with your kind of traditional customer there.
On the <unk> side as well.
Yes. My question was going to be how would you size that opportunity relative to what you're seeing in India.
And then I will extend it to say.
No.
If you if you had to take a guess or look at your pipeline you know how many more are tells or are out there that you might be pursuing.
So India is bigger.
And.
There are.
You know what.
Airtel is a top five.
It's a top five.
Global Telecom player. So there's not many of those out there.
But in kind of in the next year I would say we have.
Two that were in active pursuit.
<unk>.
Yeah.
Okay, great and.
If I could follow up on a red line.
Sounds like that was.
And at least the primary source of the supply issues can you specifically call out the revenue contribution there I know you already expected turnover.
Flat 20 million annual run rate implies about 5 million Bucks I mean, if we were supply impacted should we think the revenue contribution is about half of what you might have expected.
A little more than that right I mean the.
Under five.
5% of our total revenue.
It could have been about 900000.
In the quarter.
Supply issue not a not happened.
But that's not a lost sale, it's just going to push to Q2, yeah right. So.
Sure.
Feeling perfectly comfortable with the 20 million, we previously guided and we think there's potentially upside to that but we'll certainly provide more detail as the integration continues.
Great. Thanks very much.
Yeah.
Yeah.
Thank you one moment, while we prepare for the next question.
Okay.
Next question is coming from Ethan Waddell.
B Riley Securities Your line is open.
Hi, this is deep and wide all calling in for Dave Kang. Thanks for taking my question I was wondering if you could provide any additional color on where you think we are in the cycle.
You mentioned that you're using to spend days in front of us, but I was wondering.
When do you anticipate the capex spend peaking for besides your deployment.
Oh.
P J.
Yeah.
So we see.
An acceleration through.
Calendar year 'twenty three we.
We see that in.
North America, we see that in Africa, and we see you know like.
We see that in Asia Pac.
So you know the operators are notorious for not.
Rolling out according to everyone else's plans, so I expect some of that too.
Hangover into 24, so if you want me to call peak.
I would speculate that it would be calendar year 'twenty five.
But.
You guys are better.
Two.
Answering questions like that than I am but that's my that's my on the Fi answer.
Alright, Thanks, that's really helpful.
Do you anticipate being kind of a longer tail on the private network side or do you think the timing is somewhat similar.
No.
<unk> networks has a.
A long tail.
It drives.
Bulk of our backlog because those projects typically go from six months too.
Two plus years, so that's a pretty steady long.
Long cycle business, and we're particularly excited.
Because our demand for private networks in North America has never been better.
That's great to hear thank you.
Okay.
Thank you.
While we prepare for our next question.
And our next question is coming from Paul.
Excellent.
William will Joseph Please go ahead.
Thank you for taking my call.
First of all I wanted to talk a little bit about the router business.
Are you with the field trials with the utilities.
With Reconfiguring it for Europe .
And how would meta switch play into this.
So I am not aware Paul that we've disclosed any field trials for utilities in Europe , but here's what I can say.
Our Ctr 80 740.
A while back we had a significant win with that platform and our funnel for the Ctr 80 740 is building.
And.
That's good.
The.
The routing software from from US, which will help us bring IPO IP mpls to the edge and that's principally in emerging economy.
Mobile network operators and we are engaged with a variety of customers on that so that's that's what I can say I think.
The the IPA IP Mpls software it gives us.
And ability to tailor our stock for a specific specific customers need and their their network infrastructure.
Okay and the re configuring these about it for Europe .
One model would that'd be ready.
Oh well yeah.
Steve.
We as you know.
Over the next 12 months, we will release, our IP mpls on our router platform and that would be appropriate for Europe .
Okay, Okay, and then on Europe , I know you've made some changes in leadership there maybe you can address the sales funnel there you've got the airwave and you've identified $60 million.
Huawei replacement business businesses kind of picking up but it's still very small can you talk about what that.
That pipeline looks like and what we might expect over the next 12 months in Europe .
Well I think you remember it is precisely what we've disclosed that we.
We have.
A anchor customer and.
Airwave and.
We've Ah.
We.
<unk> nearly.
Nearly double the size of that over over the last year on a year over year basis from $8 8 million to.
No that's all right.
I'm, sorry, $2 7 million to $4 five we.
We do have a.
The significant Huawei share gain.
And you know.
It's hard to predict.
You know how the network operators are going to convert that boat. It's certainly part of our overall growth plans and what we don't do is give guidance on a region by region basis.
And that's largely because of the project nature of all of our business.
Yeah.
Okay.
Last question your service margins were up fairly significantly.
The quarter is that.
Abnormal or is that something we can count on going forward and then continuing to.
To expand those margins.
Yeah I think.
They were certainly healthy this quarter there even healthier in Q4.
The stars aligned but.
Obviously, he was just talking about the project based nature of it makes it a little bit choppy, but I think with the improvements.
And focus on field service cost.
We've had that.
We should typically be around the mid thirties.
And I would hope that mid to upper Thirty's.
In Florida in the future.
Yeah.
Okay.
Thanks very much.
It should be fairly consistent.
Okay.
Okay.
It's all I had.
Thank you.
Next question, one moment I'm sorry, our next question.
And our next question will be coming from Theodore O'neill.
Mid scale Hills your line is open.
Yes.
Thank you very much.
So Pete just a clarification the airtel contract is that just for Airtel in India or is that airtel.
Opportunity in all 17 countries therein.
So Eric just India.
Okay, and the chip collaboration with Max linear is the goal to combine multiple functions in a single chip or is there. Some other performance that youre trying to get out of it and how is it how is the is it being funded.
It's being funded.
Via our balance sheet over time, so that's pretty easy.
So the innovations that we're bringing our on the frequency bands the channel sizes.
The capacity.
And the number of course, so to kind of lay out there.
Deep semiconductor categories that we're driving innovation, we think that will have you know we'll be set up on the 14 16 nanometer node and that's going to give us a significant.
Power consumption advantages.
You know when we first started looking at this.
<unk>.
Maybe we didn't realize this but as you start to put microwave towers up in increasingly remote areas.
Consumption is a compelling differentiator.
Yeah.
Okay and my last question is only because we're finding we're using starlink here now and it's creating better performance than Comcast I was wondering.
If you've had if you have any backhaul opportunity with Sterling.
Not to my knowledge.
Okay. Thanks very much.
Thanks.
Okay.
Thank you.
And our final question will be coming from.
Irwin Hirschmann.
Hey, Hi, G H partners.
Alright, hirschmann congratulations on the progress.
And just in terms of your overall private radio network business, you know in terms of people wanting to move upstream on the private networks used.
The capacity the higher higher end capacity that they've bought on the private Airways with video in particular.
Any comments on that trend, whether it's beginning to accelerate more.
Line fit into that.
People noticing the difference in terms of what you're capable of doing on the video side.
Yeah.
Oh.
So I think.
You know the way video translates to us is capacity right.
So so that's.
When we get an upgrade project.
Largely video driven.
We performed well in those up.
Those use cases and that works out you also asked about Red line and I think.
We need another quarter or two to look at.
What the technical synergy might be in an offering but we certainly have that as a hypothesis.
So and if you can be patient for another quarter or two.
We'll be more forthcoming as we understand it well enough to to describe to investors.
Okay.
If the state government contract I guess, you mentioned on the software side is that sort of SaaS recurring.
Type of deal.
I believe that Doug.
That's both hardware and software and the software.
A portion.
<unk> some SaaS, yes.
Okay.
In terms of.
The rural Buildout.
Self serve customers et cetera, if I look just at the world.
Build out portion of your revenues.
How did that look let's say in the last two or three quarters in terms of progression.
Hit some kind of plateau area or its still growing and we're just waiting for the meal.
The next inflection so to speak from the yard that funding.
So you know at the end of.
We break these things out because we are project based business.
At the end of the year at the end of the year. We said at the end of last fiscal year, we said that it was.
Broadband was about 9% of revenue and I would say it remains about 9% of revenue and we are waiting for.
On the positive catalysts of R&R funding.
Okay and in terms of you know.
So if we're getting to the point, where you're going to break it out we still have a long way to go or is an insight and sorry yeah.
So okay.
The software question.
No. We look we sell a lot of embedded software.
We looked for.
No peer companies that talked about embedded software and no one breaks out the embedded software on the Standalone software, we have a long way to go so.
As much as we'd like to breakout the embedded software.
We don't have any peers that would suggest that that's the right way to report because you can't sell that software without hardware.
Okay. Thanks very much.
Thank you.
That concludes our Q&A session for today I would like to turn the call back over to Pete.
Thanks to everyone for joining the call and enter your interest in Avia, we look forward to updating you on our progress in approximately 90 days. Thanks, everyone.
Thank you that concludes today's conference call you may all disconnect and everyone have a great evening.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
[music].
Okay.