Q2 2024 Aviat Networks Inc Earnings Call

Operator: Good afternoon, and welcome to Aviat Networks' second quarter fiscal 2024 earnings call. At this time, all participants are in a listen-only mode.

Good afternoon, and welcome to all.

<unk> second quarter fiscal 'twenty 'twenty four earnings call at this time, all participants are in a listen only mode.

Operator: Question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn this conference over to your host, Mr. Andrew Frederickson, Director of Investor Relations. You may begin.

A question and answer session will follow the formal presentation.

Please note this conference is being recorded.

Now I'll turn this conference over to your host Mr. Andrew Frederickson Director of Investor Relations you may begin.

Andrew Frederickson: Thank you and welcome to Aviat Networks' second quarter fiscal 2024 results conference call and webcast. You can find our press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com, along with a replay of today's call. With me today are Pete Smith, Aviat's president and CEO, who will begin with opening remarks on the company's fiscal second quarter, followed by David Gray, our CFO, who will review the financial results for the quarter.

Thank you and welcome to the Avianca networks second quarter fiscal 2024 results conference call and webcast you can find our press release and updated investor presentation in the IR section of our website at Www Dot Avi networks Dot com along with a replay.

Today's call.

With me today are Pete Smith, <unk>, President and CEO, who will begin with opening remarks on the company's fiscal second quarter.

By David Gray, our CFO, who will review the financial results for the quarter.

Andrew Frederickson: Pete will then provide closing remarks on Aviat's strategy and outlook, followed by Q&A. As a reminder, during today's call and webcast, management may make forward-looking statements regarding Aviat's business, including but not limited to statements relating to financial projections, business drivers, new products and expansions, and economic 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 most recent annual report on Form 10-K filed with the SEC.

Pete will then provide closing remarks, and I'll be out strategy and outlook followed by Q&A.

As a reminder, during today's call and webcast management may make forward looking statements regarding <unk> business, including but not limited to statements relating to financial projections business drivers, new products and expansions and economic 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.

They 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 these statements made on this call can be found in our most recent annual report on Form 10-K filed with the SEC.

Andrew Frederickson: 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 gap and non-gap financial measures. Please refer to our press release, which is available in the IR section of our website at www.aviatnetworks.com. The financial tables therein, which include a gap to non-gap reconciliation and other supplemental financial information. At this time, I would like to turn the call over to Aviat's president and CEO, Pete Smith. Okay, Pete?

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 in the IR section of our website at Www Dot Avi our networks Dot com and financial tables therein, which include a GAAP to non-GAAP reconciliation.

<unk> and other supplemental financial information.

At this time I would like to turn the call over to <unk>, President and CEO Pete Smith Pete.

Jaeson Allen Min Schmidt: Thanks, Andrew, and good afternoon, everyone. Thank you for joining us to review Aviat Networks' results for the second quarter of fiscal year 2024. We are pleased to report that Aviat continued its solid execution and achieved revenue and margin growth in the quarter. Highlights from the second quarter include revenue of $95.0 million, which represents growth of 4.8% versus Q2 of last year. Gross margin of 38.8% versus 35.7% in the same quarter a year ago.

Thanks, Andrew and good afternoon, everyone. Thank you for joining us to review Avi networks results for the second quarter of fiscal year 2024. We are pleased to report that <unk> continued its solid execution and achieved revenue and margin growth.

Quarter highlights from the second quarter include revenue of 95.0 million, which represents growth of four 8% versus Q2 of last year.

Margin of 38, 8% versus 35, 7% in the same quarter a year ago.

Jaeson Allen Min Schmidt: Adjusted EBITDA of $13.7 million, a record high 14.5% of revenue. Record non-GAAP EPS of $0.97. Strong balance sheet with $45.9 million of cash and marketable securities and a net debt balance of $3.6 million.

Adjusted EBITDA of $13 7 million a record high of 14, 5% of revenue record non-GAAP EPS of <unk> 97.

Strong balance sheet with 45 $49 million of cash and marketable securities.

Good balance of $3 6 million. Please note this quarter's revenue and profit growth as against the year ago period benefited from a large initial order from our Bharti airtel win.

Jaeson Allen Min Schmidt: Please note this quarter's revenue and profit growth is against the year-ago period that benefited from the large initial order from our Barti Airtel win. These financial and operational results are driven by the continued implementation of Aviat's operating model and made possible thanks to the effort and execution of the Aviat team and our partners throughout the quarter. We will review key highlights of the second quarter, but first, let's discuss our completed acquisition of the NEC wireless transport business. Aviat closed the acquisition of the NEC wireless business on November 30th.

Financial and operational results are driven by the continued implementation of our operating model and made possible. Thanks to the effort and execution of the RV our team and our partners throughout the quarter. We will review key highlights of the second quarter, but first let's discuss our completed acquisition of Yeti.

You see wireless transport business.

Close.

The acquisition of the NBC wireless business on November 30th.

Jaeson Allen Min Schmidt: We now refer to this as the Pasolink business. At this point, we can provide an update that will emphasize the components of the Aviat operating model framework. See slide 17 in the investor presentation for an overview of the framework. First, the transaction consisted of taking over 18 plus entities which were arranged to serve customers across the globe. We have maintained and integrated these entities and their team members in alignment with our Asia Pac, Latin America, and EMEA leadership teams. This approach has been agreeable with the customer base and aligned with the Aviat customer focus element of the Aviat operating model. Note that this work stream was a major factor in the time between signing and closing of the transaction. Second, we conducted over 70 customer meetings and presented our combined product roadmap to the majority of customers, including all of the large customers. The feedback has been positive and encouraging.

I'll refer to this as the <unk> business at this point, we can provide an update.

Besides the components of the Avianca operating model framework to slide 17, and the <unk>.

That's the presentation for an overview of the framework.

The transaction consisted of taking over 18 parks entities, which were arranged to serve customers across the globe.

We've maintained an integrated these entities and their team members and alignment with our Asia Pac Latin America, and EMEA leadership teams.

This approach has been agreeable with the customer base and align with the <unk> customer focus element.

Javier operating model note that this work stream was a major factor in the time between signing and closing of the transaction.

Second we've conducted over 70 customer meetings and presented our combined product roadmap to the majority of customers, including all of the large customers. The feedback has been positive and encouraging the combined product roadmap has reassured customers that obviously, we will continue to offer innovation and value.

Jaeson Allen Min Schmidt: The combined product roadmap has reassured customers that Aviat will continue to offer innovation and value across our entire suite of products and services. During the period between sign and close, Aviat synthesised the combined product roadmap and innovation plan. We believe this combined roadmap and innovation plan will bring leading solutions to the market. This is a demonstration of the importance of innovation in our operating model. Third, our core value of tenant. We reviewed the organization of both Aviat and Pasolink. On day one, we had a clearly defined working organization with roles, responsibilities, and reporting relationships.

Across our entire suite of products and services during the period between signing close Avianca synthesize the combined product roadmap and innovation plan. We believe this combined roadmap and innovation plan will bring leading solutions to the market. This is a demonstration of the importance of innovation and our operate.

Model third our core value of China, we reviewed the organization of both RV and passionately on day, one we had a clearly defined working organization with roles responsibilities and reporting relationships during the period between sign and close when you want to take the best time.

Jaeson Allen Min Schmidt: During the period between sign and close, we worked to take the best talent from both companies and organize for success. As a result, we were able to eliminate over 200 roles in the combined company. Our fourth operating model element is the supply chain. This work will take several quarters. Progress that we have made thus far includes improved demand planning and forecasting, initiated rationalization of the supply chain, and developed an inventory optimization plan. Together, these actions should result in reduced lead times, lower working capital, and improved costs. Again, these actions will take several quarters for their results to materialize, and we believe they will create meaningful value for customers and shareholders. Additionally, our continued support of the PathFilling portfolio is appreciated by customers who have invested significantly in the product lineup, thanks to its high-level performance and dependability. The customer base is excited to continue doing business with Aviat. Our plans to integrate our network management software, ProVision Plus, with PathFilling products will deliver improved functionality and ease of use to PathFilling customers. This is a request we have heard from many customers, and we are excited to deliver it for them.

One from both companies and organized for success as a result, we were able to eliminate over 200 roles in the combined company.

Our fourth operating model element.

Supply chain. This work will take several quarters progress that we've made thus far includes improved demand planning and forecasting initiated rationalization of the supply chain and developed an inventory optimization plan. Together. These actions should result in reduced lead times lower working capital and improve.

Food costs again, these actions will take several quarters for the results to materialize, we believe they will create meaningful value for customers and shareholders.

Additionally, our continued support of the California portfolio is appreciated by customers, who have invested significantly into the product lineup. Thanks to its high level of performance and dependability. The customer base is excited to continue doing business with avia, our plans to integrate our network management software Pro vision.

Plus with <unk> products will deliver improved functionality and ease of use to gasoline customers. This is a request we have heard from many customers.

Jaeson Allen Min Schmidt: This software will serve as a platform for product portfolio convergence in the years ahead. We look forward to continuing to meet with customers, understanding their challenges and needs, and delivering to meet their expectations. There will be opportunities for cross-selling products to Aviat and PathFilling customers. We are all already filling a sales funnel with such opportunities and anticipate that this will translate into revenue synergies in the future. We remain confident in hitting the goals we have established for the pass holding business. One, $140 million in annual run rate revenue contribution. And two, achieving stand-alone gross margins of 33% and stand-alone adjusted EBITDA of 11 to 13% by the end of our second year of ownership. Aviat's confidence in delivering the targets is based on the Aviat operating model and our execution of it. Some history for context.

Excited to deliver for them.

Software will serve as a platform for product portfolio of convergence in the years ahead.

Look forward to continuing to meet with customers understanding their challenges and needs and delivering to meet their expectations there'll be opportunities for cross selling products to avianca and pass away customers.

All are already filling our sales funnel of such opportunities and anticipate that this will translate into revenue synergies in the futures we remain confident in hitting the goals. We have established for the passenger business won $140 million in annual run rate revenue contribution and two.

Achieving standalone gross margins of 33% and Standalone adjusted EBITDA of 11% to 13% by the end of our second year of ownership Rbis confidence in delivering the targets are based on the obvious operating model and our execution of it some history for <unk>.

Jaeson Allen Min Schmidt: Sixteen quarters ago, Aviat had quarterly revenue of $56 million with an adjusted EBITDA margin of 0.6%. At this juncture, we did not have an operating system. Today, we reported quarterly revenue of $95 million with a 14.5% adjusted EBITDA margin. We have built this operating system over the last 16 quarters. We demonstrated the operating system with Aviat and the Red Line acquisition, and we are now eager to show results with more scale

Context.

16 quarters ago, Avianca had quarterly revenue of $56 million with <unk>.

Just at the EBITA margin of 0.6% at this juncture, we do not have an operating system today, we reported quarterly.

Quarterly revenue of $95 million with a 14, 5% adjusted EBITDA margin. We have built this operating system over the last 16 quarters, we demonstrated the operating system with Avianca and the Red line acquisition and we are now eager to show results with more scale.

Jaeson Allen Min Schmidt: Moving on to the Aviat core business, we continue to benefit from the long-term trends in private network investments, 5G rollout in mobile networks, and the expansion of rural broadband coverage. Additionally, our exposure across different geographies and customers makes Aviat resilient to fluctuations in business and capex cycles.

Moving on to the core business, we continue to benefit from the long term trends in private network investments.

<unk> rollout and mobile networks and the expansion of rural broadband coverage. Additionally, our exposure across different geographies and customers makes avia resilient to fluctuations in business and capex cycles in private networks <unk> is well positioned to grow and we see demand remaining strong note that.

Jaeson Allen Min Schmidt: In private networks, Aviat is well-positioned to grow, and we see demand remaining strong. Note that our private network business is now approximately 50% of our revenue. We continue to work on the two large statewide networks announced earlier this fiscal year, in addition to numerous smaller network projects.

Our private network business is now approximately 50% of our revenue we continue to work through the two large statewide networks announced earlier this fiscal year. In addition to numerous smaller network projects. We believe that the America rescue plan <unk> or ARPA still.

Jaeson Allen Min Schmidt: We believe that the America Rescue Plan Act, or ARPA, still has a meaningful contribution to make to our business over the next three years by aiding state and local spending on private network upgrades and expansion. While some of the projects have had ARPA funding as a portion of their sources, we believe that most of their budgetary allocations have come from traditional funding sources, signaling a healthy appetite for private network spend and upgrades at the state and local government level. As ARPA funds get layered in, we see a strong private network spending environment. As a reminder, ARPA funds must be fully spent by the end of calendar year 2026. One of our focuses at Aviat has been to grow the international private network business. Our recently announced partnership with SmartFriend Telecom in Indonesia is a good win for Aviat. Aviat will work closely with SmartFriend to deliver high-speed, ultra-reliable wireless connectivity, private wireless indoor and outdoor networks, and industry digitalization and automation services to private network customers across Indonesia.

As meaningful contribution to our business over the next three years by adding state and local spending on private network upgrades and expansions while some of the projects have had ARPA funding as a portion of their source. We believe that most of their budgetary allocations have come from traditional funding sources signaling a healthy appetite for.

Private network spend and upgrades at the state and local government level as ARPA funds get layered in we see a strong private network spending environment. As a reminder, ARPA funds must be fully spent by the end of calendar year 2026.

One of our focuses at Aviano has been to grow international private network business, Our recently announced partnership with smartphone Telecom in Indonesia is a good way to for Avia Avia will work closely with smartphone to deliver a high speed ultra reliable wireless connectivity private wireless enduring.

Outdoor networks and industry digitalization and automation services to private network customers across Indonesia.

Jaeson Allen Min Schmidt: Completion of the Paso Link transaction and the associated geography and scale accelerated the discussions and made the private network partnership more compelling for SmartFriend. In mobile networks, we are encouraged by the dialogue with customers and expect this market will continue to provide growth prospects for Aviat as microwave transport spending for 4G and 5G networks remains healthy. Aviat was recently highlighted by three Tier 1 customers. Glow, MTN, and Barty Airtel recognized Aviat as a key partner in their annual supplier evaluation award cycle.

<unk> of the <unk> transaction and the associated geography, and scale accelerated through discussions and made the private network partnership more compelling for smartphone.

The mobile networks, we are encouraged by the dialogue with customers expect this market will continue to provide growth prospects for avia as microwave transport spend per <unk> and <unk> networks remains healthy RBR was recently highlighted by three tier one customers.

So MTN and Bharti Airtel recognized <unk> as a key partner in their annual supplier evaluation Award cycle.

Jaeson Allen Min Schmidt: We view these nominations as proof of the value and superior performance that Aviat offers and look forward to working closely with these three operators as they continue to invest in their networks. We expect the demand for microwave backhaul and mobile networks to remain strong in the years ahead. Much has been made of the forecasted decline in operator spending. However, according to Del Oro, worldwide RAN revenues are projected to remain approximately flat.

We view these nominations as proof of the value and superior performance that <unk> offers and look forward to working closely with these three operators as they continue to invest in their networks.

We expect the demand for microwave backhaul and mobile networks to remains strong in the years ahead. Much has been made of the forecasted decline in operator spending according to del Oro worldwide brand revenues are projected to remain approximately flat. We are undeterred, we believe we can.

Jaeson Allen Min Schmidt: We are undeterred. We believe we can grow in this environment for three reasons. First, is the expected favorable mix of wireless transport. We spoke on the last Ernie's call that in developed countries, as Telecom CapEx spend shifts to suburban and rural areas, the percentage of microwave increases. In developing countries where wireless is more ubiquitous, 5G spend is still in front of us, and we will benefit from all 5G phases. Second, our global presence. Operator spending is heavily region-dependent. Given our presence in 20 Tier 1 operators spread fairly evenly across Africa, Asia-Pacific, India, Latin America, and the U.S., we are protected from a slowdown in any one country or region. Investor sentiment is largely driven by the U.S.

ROE in this environment for three reasons first is the expected.

Favorable mix in wireless transport, we spoke on the last earnings call that in developed countries as telecom capex spend shifts to suburban and rural areas. The percentage of microwave increases in developing countries, where wireless is more of a ubiquitous <unk> spend is still in front of us and we will.

Benefit at all.

<unk> phases.

As our global presence operator spending is heavily region dependent given our presence in 'twenty tier one operators.

<unk> fairly evenly across Africa, Asia Pac, India, Latin America, and the U S. We are protected from a slowdown in any one country or region investor sentiment is largely driven by the U S tier ones of which we have exposure to only one third is our confidence in our ability.

Jaeson Allen Min Schmidt: Tier 1s, of which we have exposure to only one. Third is our confidence in our ability to take share. As we mentioned, we believe Aviat has the industry's leading portfolio of e-band and multiband products with single and dual-channel bands, single-box multiband, extended distance, and vendor-agnostic multiband.

To take share as we mentioned, we believe <unk> has the industry's leading portfolio of V band and multi band products with single and dual channel ban single box multi pad extended distance and vendor agnostic multi band <unk>.

Jaeson Allen Min Schmidt: 5G will drive a shift towards these technologies, where we are well positioned. We have a large installed base of Paso Link, and with the Aviat portfolio, we have a strong value proposition for network migration. On top of our product offerings, we remain optimistic about the Huawei share gain opportunities in many regions, which will ultimately drive share expansion for Aviat. Moving to the rural broadband business, Aviat had a record amount of sales in the first half of fiscal year 2024 at the Aviat Store.

We will drive a shift towards these technologies, where we are well positioned.

We have a large installed base of <unk> and with the Avi our portfolio, we have a strong value proposition for network migration on top of our product offerings. We remain optimistic on the Huawei share gain opportunities in many regions. This will ultimately drive share expansion for avia.

Going to the rural broadband business, obviously, a record amount of sales in the first half of fiscal year 2020 for EMEA Avianca store. This is a good indication of the healthy demand and we expect this to remain strong in the quarters ahead as operators spend rural digital opportunity fund.

Jaeson Allen Min Schmidt: This is a good indication of the healthy demand, and we expect this to remain strong in the quarters ahead as operators spend their Rural Digital Opportunity Fund, or RDOF, awards. Recently, there have been questions about rural broadband CapEx in 2024. We believe that demand for microwave backhaul in this market will remain steady throughout the year. Microwave offers network operators cost-effective backhaul while still enabling high-speed connections and ample bandwidth capacity.

<unk>.

Recently, there have been questions about rural broadband Capex in 2024, we believe that demand for microwave backhaul in this market will remain steady throughout the year microwave offers network operators cost effective backhaul, while still enabling high speed connections and Apple.

Bandwidth capacity.

The broadband equity access and deployment program or B will begin to impact <unk> in calendar year 2025. This timing remains unchanged from our original expectations from when bead allocations were announced.

Jaeson Allen Min Schmidt: The Broadband Equity Access and Deployment Program, or BEAD, will begin to impact Aviat in calendar year 2025. This timing remains unchanged from our original expectations from when BEAD allocations were announced last year. However, progress continues to be made with all states having submitted their proposals to the National Telecommunications and Information Administration, or NTIA, for review and approval.

Last year progress continues to be made with all states having submitted their proposals to the national Telecommunications and information administration, where NTIA for review and approval. We have received some questions from investors regarding the potential conflict of the <unk> program.

Hansen alternative connect America cost model program, where enhanced the ATM with the concern that avianca customers may be excluded from receiving bead funding. We do not believe that this will be an issue among <unk> customers and we look forward to supporting them in their bead related.

Dave King: We have received some questions from investors regarding the potential conflict of the BEAT program and the Enhanced Alternative Connect America Cost Model program, or Enhanced ACAMP, with the concern that Aviat customers may be excluded from receiving BEAT funding. However, we do not believe that this will be an issue among Aviat customers, and we look forward to supporting them in their BEAT-related activities. With that, I will turn it over to David to review our financials before coming back for some final comments. David?

Activities with that I will turn it 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'll review some of the key fiscal 2024 second quarter financial highlights meeting and 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 second quarter of fiscal 2024 in the second quarter of fiscal 2023 unless noted otherwise.

Dave King: Thank you, Pete, and good afternoon, everyone. During my remarks today, I'll review some of the key fiscal 2024 second quarter financial highlights, noting 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 second quarter of fiscal 2024 and the second quarter of fiscal 2023, with the exception of those noted otherwise. For the second quarter, we reported total revenues of $95.0 million as compared to $90.7 million for the same period last year, an increase of 4.4 million, or 4.8 percent. On a constant currency basis, our revenue would have been $95.5 million. North America, which comprised 54% of our total revenue for the quarter, was $51.3 million, a decrease of 1.4% from the same period last year due to the timing of public safety projects.

For the second quarter, we reported total revenues of $95.0 million as compared to $90 7 million for the same period last year, an increase of $4 4 million or four 8%.

On a constant currency basis, our revenue would have been 95 5 million.

North America, which comprised 54% of our total revenue for the quarter was $51 3 million.

Decrease of one 4% from the same period last year due to timing of public safety projects for the first six months of fiscal 'twenty for North America is up 6% versus the prior year and bookings remained strong.

<unk> revenue was $43 7 million for the quarter, an increase of $5 1 million or 13, 1% from the same period last year.

Both in Latin America, and Asia Pacific regions more than offset currency headwinds for local services in Africa, and the large initial bharti airtel shipments in the second quarter of last year.

Our trailing 12 month book to Bill ratio remained above one as it has since fiscal 2018.

Gross margins for the quarter were 38, 8% on both the GAAP and non-GAAP basis.

Dave King: For the first six months of fiscal 24, North America is up 6% versus the prior year, and bookings remain strong. International revenue was $43.7 million for the quarter, an increase of $5.1 million or 13.1% in the same period last year. Both in Latin America and the Asia Pacific regions, more than offset currency headwinds for local services in Africa and the large initial Barty Airtel shipment in the second quarter of last year.

Compared to 35, 5% GAAP and 35, 7% non-GAAP in the prior year.

The improvement was driven by higher software revenue favorable project mix and moderating material costs.

Second quarter GAAP operating expenses were $31 8 million, an increase of $8 3 million from the prior year, driven by M&A related deal and restructuring costs and higher R&D investment.

Second quarter, non-GAAP operating expenses, which exclude the impact of restructuring charges share based compensation and deal costs were $24 3 million, an increase of $3 3 million driven by the higher R&D investment.

Dave King: Our trailing 12-month book-to-bill ratio remained above 1, as it has since fiscal 2018. Gross margins for the quarter were 38.8% on both a gap and non-gap basis, as compared to 35.5% gap and 35.7% non-gap in the prior year. The improvement was driven by higher software revenue, favorable product project mix, and moderating material. Second quarter GAAP operating expenses were $31.8 million. An increase of $8.3 million from the prior year, driven by M&A-related deal and restructuring costs and higher R&D investment. Second quarter non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation, and deal costs, were $24.3 million, an increase of $3.3 million driven by higher R&D investment. Second quarter operating income was $5.0 million on a gap basis and $12.6 million on a non-gap basis, compared to a prior year gap of $8.7 million and a non-gap of $11.4 million, or a decrease of 42% and an increase of 10.9%, respectively. Second quarter tax provision was $2.3 million compared to $3.1 million last year.

Second quarter operating income was $5 1 million on a GAAP basis, $12 6 million on a non-GAAP basis compared to prior year GAAP of $8 7 million non-GAAP.

$4 million or a decrease of 42% an increase of 10, 9% respectively.

Second quarter tax provision was $2 3 million compared to $3 1 million last year.

As a reminder, the company has nearly $500 million.

So we will continue to generate shareholder value via a minimal cash tax payments for the foreseeable future.

As a result of the past acquisitions, we will be revising our non-GAAP cash tax estimate starting in our third quarter fiscal 2024.

From <unk> 3 million to zero point $5 million per quarter.

Second quarter GAAP net income was $2 9 million down from $6 1 million last year due to the previously mentioned M&A related expenses.

Second quarter, non-GAAP, net income, which excludes restructuring charges share based compensation M&A related costs and non cash tax provision was 11 9 million compared to $11 1 million for the same period last year and.

An increase of <unk> 8 million or seven 3% driven by revenue growth and margin expansion, partially offset by the additional R&D investment.

Second quarter non-GAAP EPS came in at 97 per share on a fully diluted basis compared to <unk> 94 per share for the same period last year, an increase of three 2%.

This modest increase in EPS was accomplished even with the addition of 251000 shares to the weighted average diluted shares outstanding coming from the past the link acquisition.

Dave King: As a reminder, the company has nearly $500 million of NOLs that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future. As a result of the past acquisition, we will be revising our non-GAAP cash tax estimate starting in our third quarter of fiscal 2024 from $0.3 million to $0.5 million per quarter. Second quarter gap net income was $2.9 million, down from $6.0 million last year due to the previously mentioned M&A related expenses.

Adjusted EBITDA for the second quarter was $13 7 million, an increase of <unk> 8 million or six 5% from the prior year.

Adjusted EBITDA margins were at a record 14, 5% for the quarter.

Moving on to the balance sheet.

The addition of <unk> wireless business had a significant impact on our balance sheet during the quarter.

First we drew down on the $50 million term loan to fund the deal.

Then we added over $51 million of accounts receivable and $35 million of inventory.

We also assumes $12 million of accounts payable $6 million in other liabilities.

Our cash and marketable securities at the end of the second quarter increased to $45 9 million from $35 5 million in the prior quarter.

Dave King: Second quarter non-GAAP net income, which excludes restructuring charges, share-based compensation, M&A-related costs, and non-GAAP cash tax provision, was $11.9 million, compared to $11.1 million for the same period last year. An increase of 0.8 million, or 7.3%, driven by revenue growth and margin expansion, partially offset by the additional R&D investment. Second quarter non-GAAP EPS came in at $0.97 per share on a fully diluted basis, compared to $0.94 per share for the same period last year, an increase of 3.2%. This modest increase in EPS was accomplished even with the addition of 251,000 shares to the weighted average diluted shares outstanding coming from the PASA Link acquisition. Adjusted EBITDA for the second quarter was $13.7 million, an increase of $0.8 million, or 6.5% from the prior year. Adjusted EBITDA margins were at a record 14.5% for the quarter.

Leaving us with a modest $3 6 million debt net of cash.

We fully expect to be.

Net cash positive by the end of the third quarter.

Our strong balance sheet allowed us to capitalize on the <unk> acquisition opportunity with continued flexibility to evaluate capital deployment options going forward.

In the quarter.

Used $330000 to repurchase just over 11000 shares of <unk> stock at an average price of $29 59 per share.

With that I'll turn it back to Pete for some final comments.

Thanks, David before opening for Q&A I'll provide updates on our guidance inclusive of the <unk> business. We are raising our fiscal year 2024 guidance as follows revenue to be in the range of $425 million to $432 million.

And adjusted EBITDA to be in the range of $51 million to $56 million. This updated guidance reflects contribution from the acquired <unk> business. The remainder of the fiscal year, we anticipate that the revenue from the <unk> business will continue to ramp up over the next four quarters to reach annual contribution.

Levels of $140 million.

Leaving our adjusted EBITDA guidance unchanged, even though we anticipate slight dilution from the gasoline business and the remainder of the fiscal year 2024. This is a result of the confidence we have in the core RV, our business profitability and the benefits of the <unk> operating model you can reference slide 19.

Dave King: Moving on to the balance sheet, the addition of the NEC wireless business had a significant impact on our balance sheet during the quarter. First, we drew down on the $50 million term loan to fund the deal.

In our investor presentation for an outline of how we see the passenger business impacting the pro forma cost structure through the end of fiscal year 2024.

Dave King: Then we added over $51 million of accounts receivable and $35 million in inventory. We also assumed $12 million of accounts payable and $6 million in other liabilities. Our cash and marketable securities at the end of the second quarter increased to $45.9 million from $35.5 million in the prior quarter, leaving us with a modest $3.6 million in debt net of cash.

We would also like to improve our accretion guidance. We've previously said, we expect <unk> to be accretive by the fourth quarter of ownership.

Now rates.

Our outlook for the deal to be accretive by the third quarter after close specifically.

Through July to September 2024 quarter business side of our confidence in the work that we've done thus far and our line of sight to improve profitability in the <unk> business. We also want to state that we are committed to the combined businesses, reaching our long term EBITDA goal of 15%.

Dave King: We fully expect to be net cash positive by the end of the third quarter. Our strong balance sheet allowed us to capitalize on the NEC acquisition opportunity with continued flexibility to evaluate capital deployment options going forward. In the quarter, Aviat used $330,000 to repurchase just over 11,000 shares of Aviat stock at an average price of $29.59 per share. With that, I'll turn it back to Pete for some final comments.

With that operator, let's open up for questions.

Thank you.

As a reminder to ask a question you will need to press star one on your telephone.

Please standby, while we compile the Q&A roster.

And our first question comes from the line of Theodore O'neill with Litchfield Hills Research.

Thank you very much and congratulations on the good quarter.

Jaeson Allen Min Schmidt: Thanks, David. Before opening for Q&A, I will provide updates on our guidance, including the Paso Link business. We are raising our fiscal year 2024 guidance as follows: revenue to be in the range of $425 to $432 million and adjusted EBITDA to be in the range of $51 to $56 million. This updated guidance reflects contribution from the acquired Paso Link business for the remainder of the fiscal year. We anticipate that revenue from the Paso Link business will continue to ramp up over the next four quarters to reach annual contribution levels of $140 million. We are leaving our adjusted EBITDA guidance unchanged, even though we anticipate slight dilution from the Paso Link business in the remainder of fiscal year 2024.

Thanks Dale.

So Peter I was wondering if you could give us.

Your viewpoint on the first 30 days of ownership with the NSE business and how that's going.

I think David I'll take that.

Question, Brazil gave a little bit of.

Financial color So David go Okay. Thanks, Neil.

Yes, so we're really encouraged by the progress we've made so far on the integration.

Our planning.

In the interim phase allowed us to quickly take cost out of the combined business on day, one as well as introduce the <unk> operating model to our new team members.

We also met with a significant number of customers and the feedback has been positive.

From a revenue perspective, we only had real operational ownership of the business for about a week during the quarter.

And the reason for that obviously when we first closed we had to do physical accounts of inventory and transfers as well.

Jaeson Allen Min Schmidt: This is a result of the confidence we have in the core Aviat business profitability and the benefits of the Aviat operating model. You can reference slide 19 in our investor presentation for an outline of how we see the Paso Link business impacting the pro forma cost structure through the end of fiscal year 2024. We would also like to improve our accretion guidance.

It systems and data migration.

And then once we got things up and running at the holiday season at the end of the month so.

Fairly limited amount of time that we actually ran that business for the quarter.

Thats very limited sample of activity in the quarter.

We think we would likely lead to extrapolation errors and consistent with our true expectations of this business. If we were to break it out separately.

Operator: We previously said we expect Pasolink to be accreted by the fourth quarter of ownership. We would now like to update our outlook for the deal to be created by the third quarter after close, specifically, the July to September 2024 quarter. This is a sign of our confidence in the work that we have done thus far and our line of sight to improve profitability in the past selling business. We also want to state that we are committed to the combined businesses reaching our long-term EBITDA goal of 15 percent. With that, operator, let's open up for questions. Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and stand by while we compile the Q&A browser.

We'll start to do so in the in the third quarter. Once we have a full quarter of operations.

One other item of note, we typically only breakout.

Our backlog once a year at year end and we will do so again this year.

But because our next report will include the past link backlog will go ahead and disclose our.

Backlog performance without pass link one last time.

So at the end of Q2, our core backlog was up 24%.

Versus the same time last year and for further context, we reported at the end of fiscal 2023 that our backlog was up 18% versus the prior year.

So in that six month interim period, we've increased the <unk>.

Increased from 18% to 24% I think that's all very indicative of a very healthy core business.

Okay.

Operator: And our first question comes from the line of Theodore O'Neill with Litchfield Hills Research. Thank you very much and congratulations on a good quarter. Thanks Dale.

I'm just I'm, just a little interested here and the adjusted EBITDA guidance since slide six shows that passed a link has a zero contribution for EBITDA, if I'm reading this right.

Jaeson Allen Min Schmidt: So Pete, I was wondering if you could give us all your viewpoint on the first 30 days of ownership of the NEC business and how that's going. I think David will take that question because he'll give a little bit of financial color. So let David go.

Keeping it to the guidance the same implies that there's some really good stuff going on with the core business can you comment on that.

Yes, we would agree if we.

Dave King: Okay. Thanks, Theo. Yeah, so we're really encouraged by the progress we've made so far on the integration. Our planning in the interim phase allowed us to quickly take costs out of the combined business on day one, as well as introduce the Aviat operating model to our new team members. We also met with a significant number of customers, and the feedback has been positive.

In the absence of the <unk> transaction, we would be raising the.

We would be raising the core.

Our profitability guidance range so what.

What I would say is stay tuned on that as we execute.

Perhaps there'll be an update on that later in the year.

Okay.

And one more question here on slide five.

You talked about expecting a $140 million contribution from past link and I'm, assuming that since you have our salespeople on both sides that have to learn new products that that's going to ramp more or less linearly throughout the next four quarters. If I got that is that about right.

Dave King: From a revenue perspective, we only had real operational ownership of the business for about a week during the quarter. And the reason for that, obviously, when we first closed, we had to do physical counts of inventory and transfers, as well as IT systems and data migration. And then once we got things up and running, you know, we had the holiday season at the end of the month.

I would say progressively so we expect our low revenue quarter to be the quarter, where Ed.

We move progressively over the next four quarters.

We see.

Dave King: So a fairly limited amount of time that we actually ran the business for the quarter. So that very limited sample of activity in the quarter, you know, we think would likely lead to extrapolation errors inconsistent with our true expectations of this business if we were to break it out separately. We'll start to do so in the third quarter once we have a full quarter of operation. One other item of note, you know; we typically only break out our backlog once a year at year end, and we'll do so again this year. But because our next report will include the Pass-a-Link backlog, we'll go ahead and disclose our Aviat backlog performance without Pass-a-Link one last time.

We see $140 million of revenue and we want to be conservative in saying that we want a stepwise go up on a $1 40 as we can.

But we are actively working to.

Shorten lead times and our end to end cycle time with the Paso linked business. So so wed.

What we'd like to do is we're committed to $140 million, we'd like to say that we will progressively incrementally.

As we go through the four quarters, but as we can.

Bring me pass away business into.

<unk> operating system.

Modify the way that $140 million.

Play output floor for occurred the way we haven't modeled in the way we would ask the investor base to model. It is model it is.

Dave King: So at the end of Q2, our core backlog was up 24% versus the same time last year. And for further context, we reported at the end of fiscal 2023 that our backlog was up 18% versus the prior year. So in that six-month interim period, we increased the increase from 18% to 24%. I think that's all very indicative of a very healthy core.

Progressive step out for now.

Okay. Thanks very much.

Okay.

Thank you one moment please for our next question.

Okay.

And our next question comes from the line of Scott Searle with Roth MKS.

Hey, good afternoon, thanks for taking the questions and congratulations on the record numbers.

Dave King: Okay, and I'm just a little interested here in the adjusted EBITDA guidance since slide 6 shows that Paso Link has a zero contribution to EBITDA, if I'm reading this right. Keeping the guidance the same implies that there's some really good stuff going on with the core Aviat business. David Wiener, Orin Hirschman, Dave Kang, Jaeson Schmidt, Tom Diffely, Dave Kang, Jaeson Schmidt, we would be raising the core profitability guidance range. So what I would say is stay tuned on that as we execute. Perhaps there'll be an update on that later in the year. Okay. And there is one more question here.

Thanks Scott.

Maybe just to quickly follow up on the prior question related to pass a link I just want to clarify here, we're going to ramp up to $140 million for the year. So we're exiting four quarters from now.

At a number that's above that $35 million, but youre also that's reflecting actively managing down lead times within the channels. So.

It seems like we're off to a better start overall in terms of what you guys are seeing from customers initial engagements on the ADC front.

And then just a follow up on the cash flow front on that front. It sounds like I think you said $35 million of incremental inventory that came aboard with any C. It sounds like youre going to be actively working that down as well then so I'm kind of wondering how you're thinking about incremental cash flow coming out of the deal.

Jaeson Allen Min Schmidt: On slide five, you talk about expecting a $140 million contribution from Pass-a-Link. And I'm assuming that since you have salespeople on both sides that have to learn new products, that that's going to ramp more or less linearly throughout the next four quarters. Have I got that?

So David I'll take the cash flow.

Dave King: Is that about right? I would say gradually. So we expect our low revenue quarter to be the quarter we're in, and we'll, and others. I'm going to turn it over to Dave. Thanks for joining us today.

Yes.

Hey, Scott so yeah from a cash flow perspective, we expect any <unk>.

Positively impact cash in the near term by the near term I mean in the next couple of quarters right. So we acquired.

Dave King: Thank you, Dave. I'm going to start by just saying that we're going to move progressively up over the next four quarters, and we see 140 million in revenue. And we want to be conservative in saying that we will stepwise go up on the 140 million as we progress, but we are actively working to shorten lead times and our end-to-end cycle time with the Paso Link business. So what we'd like to do is we're committed to 140 million. We would like to say that we will progressively move up as we go through the four quarters, but as we bring the Paso Link business into the Aviat operating system, we may modify the way that 140 million will play out, but for now, the way we have it modeled and the way we would ask the investor base to model it is to model it as a progressive step up for Okay, thanks very much.

Over $50 million in NAR.

Only $12 million and accounts payable.

So is that.

Is.

Collected and paid out that should generate cash now we do expect a large.

Working capital adjustment, which is disclosed in the 10-Q.

But that'll be a fourth quarter item so.

Net net we will still be positive there and then in the medium term, which I take to mean.

The first 18 months of ownership.

We will be able to generate.

Our business in the past linked business will generate modest cash generative modestly positive cash flow, but then we have the inventory.

Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Scott Searle with Roth MKN: Hey, good afternoon.

Reduction that that provides substantial upside to it as we work to reduce those inventory levels too.

Operator: Thanks for taking the questions and congratulations on the record number. Thanks, guys. Maybe just to quickly follow up on the prior question related to Pass-a-Link, I just want to clarify here.

Our targeted about a third of what we currently got.

Gotcha Okay.

Go ahead Scott.

And just and just to add $140 million run rate I just wanted to clarify that that is what you expect.

Contribution from any see over the next four quarters of $140 million ramping from a smaller number to a larger number as we exit that fourth quarter is that correct.

That's correct.

Jaeson Allen Min Schmidt: We're going to ramp up to $140 million for the year, so we're exiting four quarters from now at a number that's above that $35 million. But you're also – that's reflective of actively managing down lead times within the channel. So it seems like we're off to a better start overall in terms of what you guys are seeing from customers, initial engagements on the NEC front. And then just to follow up on the cash flow front, it sounds like – I think you said $35 million of incremental inventory that came aboard with NEC. It sounds like you're going to be actively working that down as well then, so I'm kind of wondering how you're thinking about incremental cash flow coming out of the channel. So, David will take the cash flow.

Okay.

And.

If I could follow up Dave on the gross margins was a great quarter. It sounds like there was some some software benefits in there I think there's also some new product mix that you called out as well 11 gigahertz I know you've been working you've got some routers and switches that have been factored into the mix.

How should we think about gross margins going into the current March quarter, I know it tends to be volatile from quarter to quarter, but I assume the trajectory still continues to be.

On an upward basis.

Even though I guess, we're going to have the first quarter of a full earnings contribution of March how should we be thinking about gross margins.

Yes. So this quarter it was a record quarter for gross margins for the core <unk> business and again that was largely attributable to software.

Dave King: So, yeah, from a cash flow perspective, you know, we expect NEC to positively impact cash in the near term. And by the near term, I mean the next couple quarters, right? So we acquired over $50 million in AR with, you know, only $12 million in accounts payable. So is that, you know..., collected and paid out? That should generate cash.

And.

Verbal project mix.

Wouldn't expect that level of margins to persist in the near term on the core.

Those tend to be a little bit lumpy.

But we remain confident in our previous guidance of 100 basis points improvement for.

For the full fiscal year versus fiscal 'twenty three on our core business. So now with that with patent link.

Dave King: Now, we do expect a large working capital adjustment, which is disclosed in the 10-Q, but that'll be a fourth quarter item. Net income will still be positive there. And then, in the medium term, which I take to mean the first 18 months of ownership, we'll be able to generate... The core business of the Pass-a-Link is to generate modestly positive cash flow, but then we have the inventory reduction that provides substantial upside to it as we work to reduce those inventory levels to... Our target is about a third of what we currently... Yeah. Dodgers

That we do expect that to be somewhat dilutive to our margins in the near term and.

If you model gross margins.

In total to be in the 34% to 37% range for the remainder of fiscal 'twenty for that would be good and then we expect to.

Drive.

Synergies thereafter, which will which will drive that.

Vaseline gross margins.

North and mitigate any dilution aerie effect that they have.

Dave King: Go ahead, Scott. Oh, no, and just that $140 million run rate. I just want to clarify that. That is what you would expect, contribution from NEC over the next four quarters, 140 million ramping from a smaller number to a larger number as we exit that fourth quarter. Is that correct? That's correct. And if I could follow up, Dave, on the gross margins, it was a great quarter. It sounds like there were some software benefits in there.

Got you, Okay very helpful and lastly, if I could Pete just to follow up on your comments on North America, just want to clarify not to read into the softness year over year.

You need to have a big backlog it sounds like on public safety and other fronts related to ARPA and if I could follow up on the beef commentary as well we've seen some commentary from calix and others talking about a little bit of a pause not just related to AKM, but just kind of digestion and application for those be funds I know.

Dave King: I think there's also some new product mix that you called out as well, 11 gigahertz. I know you've been working; you've got some routers and switches that have been factored into the mix. You know, how should we think about gross margins going into the current March quarter? I know it tends to be volatile from quarter to quarter, but I assume the trajectory still continues to be on an upward basis, even though I guess we're going to have the first quarter of a full NEC contribution in March. How should we be thinking about gross margins?

That traditionally has not been a big customer base of yours in terms of wireless <unk> bees, but im wondering if youre seeing any impact or any slowdown whatsoever ahead of those be towards starting to happen mid to late 2024.

Yeah. So first we never talk bead was going to impact calendar year 'twenty four.

<unk>.

In our script, we basically said we.

I think beef is still on track.

We really believed it was going to have an impact say a year from now.

So that's part one and part two.

Dave King: Okay, yeah, so this quarter, you know, was a record quarter for gross margins for the core Aviat business, and again, that was largely attributable to software and favorable project mix. I wouldn't expect that level of margins to persist in the near term on the core. It does tend to be a little bit lumpy, but we remain confident in our previous guidance of 100 basis points improvement for the full fiscal year versus the previous fiscal 23 on the core business. So now with PasaLink, we do expect that to be somewhat dilutive to our margins in the near term, and I think if you modeled gross margins in total to be in the 34 to 37 percent range for the remainder of fiscal 24, that would be good. And then we expect to drive synergies thereafter, which will drive the PasaLink gross margins for the North and mitigate any dilutionary effect that they have. Gotcha, okay, very helpful.

Inc. Rational economics, sorry, it is starting to prevail.

The whole idea of beta is too.

Unconnected or under connected Americans.

For certain deployments in less dense areas suburbs.

<unk>.

We're all developments are wireless makes more sense.

So we think that the.

The over subscription to fiber is starting soon.

Rationalize that and we think that the opportunity for wireless will be.

We will be improved and what I would also.

Also talk a little bit more about that.

The six gigahertz frequency.

It was that's been delayed from the summer of 2023 now.

Now the FCC, saying that that should have around March eight and we think that that.

Ed.

When that comes that unlicensed.

Jaeson Allen Min Schmidt: Lastly, if I could, Pete, just to follow up on your comments on North America, just want to clarify that you should not read into the softness year over year. You continue to have a big backlog, it sounds like, on public safety and other fronts related to ARPA. And if I could follow up on the bead commentary as well, we've seen some commentary from Calix and others talking about a little bit of a pause, not just related to ACAM, but just kind of digestion and application for those bead funds. I know that traditionally, not a big customer base of yours in terms of wireless sized beads, but I'm wondering if you're seeing any impact or any slowdown whatsoever Thanks. Yeah, so first of all, we never thought Bede was going to impact calendar year 24.

Broadband service comes in.

Paved the way for more microwave backhaul.

We think that's going to have a positive effect on both the art off and be feed appropriations.

That was maybe more than.

<unk> four and your question Scott.

That was perfect. Thanks, Pete I'll get back in the queue. Okay.

Thank you one moment please for our next question.

And our next question comes from the line of Erik <unk> with JMP Securities.

Yes, thanks for taking the question.

Congrats.

First off.

Can you explain why the.

Why the pass parcel link revenue ramps up what are the dynamics that.

That are at play that start off small and then pick up.

Can you give us some context in terms of how we should.

Jaeson Allen Min Schmidt: So, you know, in our script, we basically said, we think Bede is still on track. We really believed it was going to have an impact, say, a year from now. So that's part one. And then, part two, I think rational economics are starting to prevail, right? The whole idea of BEAT is to connect unconnected or under-connected Americans.

Anticipate that contribution.

March quarter.

Okay.

So.

The reason we.

Our.

Focused on.

Ramp up is because we wanted to.

Where the business is there to us and we want to make sure we set expectations built.

Built into it so it's not.

<unk>.

Jaeson Allen Min Schmidt: And for certain deployments in less dense areas, suburbs, and rural developments, wireless makes more sense. And so we think that the over-subscription to fiber is starting to rationalize. And we think that the opportunity for wireless will be improved. And what I would also, also talk a little bit more about is the 6 gigahertz frequency. You know, it was, that's been delayed from the summer of 2023.

Seasonality already customer dynamics, it's just the way we.

We think it's going to take us a little time.

<unk> ramp up.

<unk>.

The factory, our order management system, our delivery. So that's the way we want to.

And David do you want to answer the.

A range of.

Four two.

For the next quarters revenue.

Yes, I think the range for next quarter's revenue should.

It should be thought of in the mid 20 is kind of a range like pizza hut there'll be a ramp up here.

Jaeson Allen Min Schmidt: Now the FCC is saying that that should happen on March 8th, and we think that when that comes in, that unlicensed broadband service comes in, it'll pave the way for more microwave backhaul, and we think that's going to have a positive effect on both RDoF and beat appropriation. That was maybe more than you bargained for in your questions, Scott. It was perfect.

And.

We are.

Pretty good with that number.

We are going to do what we can get some upside, but I think thats, where it should be.

Just while we're on this.

Scott asked about the ramp you asked so let us get out the FY 'twenty five.

Our revenue range for modeling purposes ought to be.

Jaeson Allen Min Schmidt: Thanks, Pete. I'll get back to you. Thank you. One moment, please, for our next question. And our next question comes from the line of Eric Suppiger with JMP Security. Yeah, thanks for taking the question. Congratulations. First off, Can you explain why the Pass-a-Link revenue ramps up? What are the dynamics that are at play that start off small and then pick up? And can you give us some context in terms of how we should anticipate the contribution in the March quarter? So, so...

$5 15 to $5 20 for FY 'twenty five.

For everybody Who's on the call were on July one through June 30.

<unk>.

Okay, that's great.

Last question you did talk about combining the products.

What's your longer term road map.

What is the timeframe in terms of getting getting the products combined.

Hi.

Say that thats.

After a year or two in the third year of ownership.

We can start to see the convergence of hardware.

Jaeson Allen Min Schmidt: There is a reason we are focused on a ramp-up is because we want to, We're, the business is new to us, and we want to make sure we set expectations and build into it. So it's not any seasonality or any customer dynamics, it's just the way we think it's going to take us a little time to ramp up the, you know, the factory, our order management system, our delivery. So that's the way we want to deal with that. And David, do you want to answer the range for the next quarter's revenue? Yeah, I think the range for next quarter's revenue should be thought of in the mid 20s kind of range. Like Pete said, there'll be a ramp up here.

In the prepared remarks, we talked a lot about the software.

The the pencil and customers are eager to migrate.

Migrate to the Dr. Avi Network management software so that's our first priority.

We would hope.

Juan.

Year, one year, one and a half we will start to be able to deliver that software to the historical AUC customer base and then in your post your 24 months, we can start to see the convergence of hardware.

Okay.

Great. Okay. Thank you.

Thank you one moment please for our next question.

Our next question comes from the line of Jason Smith with Lake Street.

Hey, guys. Thanks for taking my questions I, just wanted to circle back to the gross margin I know you've laid out 34% to 37%, which seems like a little bit better than that kind of 33% initial number just curious why are the dynamics driving that is it just feeling better about the mix.

Jaeson Allen Min Schmidt: And, you know, we're pretty good with that number to do what we can to get some upsides. And Eric, just while we're on this, Scott asked about the ramp, you asked about the ramp, so let's get out the FY25 revenue range for modeling purposes should be 515 to 520 for FY25. And just for everybody who's on the call, we're on a July 1 through June 30 cycle. Okay, that's great. Then last question, you did talk about combining the products as your longer-term roadmap. What is the timeframe in terms of getting the products combined?

Whether it's product or geography in the core business or in the past link business getting margin slipped a quicker than expected any color there would be helpful. Yes.

Yes, 34% to 37% was a combined number right so it's going to be.

Jaeson Allen Min Schmidt: I would say that that's a, you know, After year two, in the third year of ownership, we can start to see the convergence of hardware. And we, you know, in the prepared remarks, we talked a lot about the software. And the Paso Link customers are eager to migrate to Aviat's network management software.

We're assuming that.

The Paso link business is going to be around 30% for this fiscal year.

And then just doing the math that would that would indicate that the core obviously margins are going to be.

And the 30.

37% range or so.

So we feel pretty good about that and then we've got.

Jaeson Allen Min Schmidt: So that's our first priority, and we would hope that in one, you know, year one, year one and a half, we will start to be able to deliver that software to the historical NEC customer base. And then in a year, a year, post-year, 24 months, we can start to see the convergence of hardware. Great, okay, thank you. Thank you. One moment, please, for our next question. Our next question comes from the line of Jaeson Schmidt with Lake Street.

Pretty solid synergy roadmap too.

Improve our cost structure, there and get the.

The patent link margins moving moving north here.

Not too distant future.

Gotcha, and then Pete I know in your prepared remarks, you talked about some potential revenue synergies cross selling opportunities those arent baked into your targets, but can you just discuss some of the areas or geographies, you're most excited about.

Operator: Hey, guys, thanks for taking my questions. I just want to circle back to the gross margin. I know you laid out 34 to 37%, which seems like a little bit better than that kind of 33% initial number. Just curious where the dynamics driving that are, is it just feeling better about the mix, whether it's product or geography in the core Aviat business or the Pathlink business getting margins lifted quicker than expected? Any color there would be helpful. Yeah, so the 34 to 37% was a combined number, right?

So.

We're most excited about software and that would be a REIT.

Place other than the U S and it's particularly with the tier one customers that came over.

From a see through.

And so that would be part one and then part two is we are very excited about Indonesia and the reason we're excited about Indonesia that was really.

Smart friend was a representative so we we think that Indonesia is ripe for private networks.

Dave King: So it's it's going to be, you know, we're assuming that the Paso Link business is going to be around 30% for this fiscal year. And just doing the math that would indicate that you know, the core Aviat market, you know, and the.

Industrialized nature.

Nation that has lots of.

Microwave but there's.

The Indonesia telecom operators typically deliver their private network services and this is what the smart trend.

Dave King: So we feel pretty good about that. And then we've got a pretty solid Synergy Roadmap to... www.orinhirschman.com to pass the link, Mark, living north here in the. Gotcha. And then, Pete, I know in your prepared remarks, you talked about some potential revenue synergies and cross-selling opportunities. Those aren't baked into your targets, but can you just discuss some of the areas or geographies you're most excited about?

Press releases about where we can go into tier ones in emerging economies and bring the avia.

Private network.

Offering and deliver to say mining oil and gas public safety customers, where they have principally been.

Riding on the.

Very carriers backbone.

The number one geography for that kind of application is Indonesia, so to sum up put it simply we are most excited.

Jaeson Allen Min Schmidt: So, we're most excited about software, and that would be everywhere other than in the U.S. It's particularly with the Tier 1 customers that came over from NEC to Aviat and need it, so that would be Part 1. And then Part 2 is we are very excited about Indonesia, and the reason we're excited about Indonesia, and that was really... SmartFriend was a representative. So we think that Indonesia is ripe for private networks. It's an industrialized nation that has lots of microwave, but there are Indonesian telecom operators that typically deliver private network services.

Excited about software synergies sales in the region or the country, where we're most excited about is Indonesia.

Indonesia.

Okay. That's really helpful. And then just the last one from me and ill jump back into queue. The India rollout do you still expect that to happen here in the March quarter, and then ramp again in June.

So.

Aye.

Jaeson Allen Min Schmidt: And this is what the SmartFriend press release is about, where we can go into tier ones and emerging economies and bring the Aviat private network offering and deliver it to, say, mining, oil, and gas, and public safety customers, where they have principally been riding on the carrier's backbone. And the number one geography for that kind of application is Indonesia. So to sum up, put it simply, we're most excited about software synergy sales, and the country we're most excited about is Indonesia. Okay, that's really helpful. And then just the last one for me, and I'll jump back into Q, the India rollout: do you still expect that to happen here in the March quarter and then ramp up again in June? So, I, We're pretty confident that it will happen. Sometime... between March 1 and June 30, so there's the quarterly timing on that.

We were pretty confident that will happen.

Some time between March one and June 30, so there is the.

Quarterly.

Timing on that.

So that's what I would say Jason.

No.

Dr. Tim drive a little bit of Lumpiness between the March and the June quarter. The good news is we're confident we're engaged.

And the India customer base.

We're conservative with respect to our.

Timing so for modeling purposes put it put it in.

In the June quarter, but it could happen in the March quarter.

Okay that makes sense. Thanks, a lot guys.

Thank you one moment please for our next question.

And our next question comes from the line of Dave Kang with B Riley.

Jaeson Allen Min Schmidt: So that's what I would say, Jaeson, and I don't – that can drive a little bit of lumpiness between the March and the June quarters. The good news is we're confident, we're engaged with the India customer base, and we're, you know, we're conservative with respect to our timing. So for modeling purposes, let's put it in the June quarter, but it could happen in the March quarter. Okay, that makes sense.

All right. Thank you good afternoon going back to Indonesia, So once they get going.

Big Kenneth can you become like maybe 10% maybe.

Maybe high single digit.

So high single digits definitely 10%.

We'll see but we don't we don't we're not anticipating that at this point high single digits is the right answer I think for now.

Operator: Thanks a lot, guys. Thank you. One moment, please, for our next question. And our next question comes from the line of Dave King with B. Reilly. Thank you. Good afternoon. Going back to Indonesia, so once it gets going, I mean, how big can it get?

Got it and then equally on.

India.

How big can they get.

We would say.

A little bit in Indonesia.

It'll be lower than Indonesia.

Oh, okay.

Got it and then what about margins from from Indonesia, and India as well that May I think it would be below so they can be below corporate average.

Jaeson Allen Min Schmidt: Can it become like maybe 10%, maybe high single digit? High single digits, definitely, 10%. We'll see, but we're not anticipating that at this point.

Yes.

So we'll give you we have said before is below corporate average, but as we go.

Jaeson Allen Min Schmidt: High single digits is the right answer, I think, for now. Got it. And then, equally on India, how big can they get?

We think that we can do.

We can take cost out.

Jaeson Allen Min Schmidt: Uh, we would say... A little bit lower than Indonesia. Oh, OK. Got it. And then what about margins from Indonesia and India as well? I mean, are they going to be below, I assume they're going to be below the corporate average?

On the.

Look the Indonesia business is being driven by the <unk> product, which is below corporate average.

And so I would tell you for now that's the way to think about it but.

Jaeson Allen Min Schmidt: So, look, India, as we've said before, is below the corporate average, but as we get volume, we think that we can do it; we can take cost out. On the, you know, look, the Indonesian business is being driven by the pass-only product, which is below the corporate average, and so I would say for now that's the way to think about it. But, you know, we've said that we would get the pass-only gross margins from 30 to 33%, and we've also said that when we get to that 33% level, we'll have another vantage point, and then we'll start talking about how far we can go beyond the 33% gross margin level. And that, you know, The Indonesian business is principally Pasoink, and I think that's the best color we can give from our vantage point today. Ask the same question in a couple quarters, and hopefully, I'll be able to give you a more favorable answer.

We've said that we would get the Powerpoint margin gross margins from 30% to 33% and we've also said that when we get to that 33% level, we will have another vantage point and.

Then we'll start talking about how far we can go beyond the 33% gross margin level and that is.

Got it.

The Indonesia businesses, principally Paso, Inc.

I think thats the best color, we can give for our from our vantage point today.

Asked the same question in a couple of quarters, and hopefully I'll be able to give you.

A more favorable answer Dave.

Got it and my last question is can you just talk about <unk>.

Rising environment any changes.

Our down.

Stable stable stable stable got it alright. Thank you.

Jaeson Allen Min Schmidt: Got it. And my last question is, can you just talk about the pricing environment, any changes up or down? Stable. Stable. Stable.

Thank you one moment please for our next question.

And our next question comes from the line of Tim <unk> with Northland capital markets.

Jaeson Allen Min Schmidt: Got it. All right. Thank you. Thank you. One moment, please, for our next question. Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Good afternoon.

Good afternoon.

Congrats on congrats on closing the deal.

Okay.

Operator: My congratulations on closing the deal. Let's see where to begin here. The backlog commentary.

Let's see where to begin here.

The backlog commentary.

Operator: And while I appreciate the growth metric, I have a few more questions on that, which I think you gave us at last fiscal year end. Associated with that 18% gross was a backlog of $289 million; given your book-to-bill commentary in the interim, I assume that's higher. So I would love to get as much specifics as I can. I assume we're, you know, reasonably over 300 million, but do you have any? Color or commentary on that.

Okay.

Appreciate the growth metrics.

Got a few more questions on that which is I think you gave us at last fiscal year ends.

Associated with that.

18% growth for the backlog of $289 million given your.

Book to Bill commentary in the interim I assume that higher.

But would love to get as much specifics as I can I assume we're.

Reasonably over $300 million, but do you have any.

Operator: Take care. Wiener, Tom Diffely, Dave Kang, Jaeson Schmidt, Aviat Networks Inc., Transcribed by https://otter.ai, Jim, we don't have the math broken out in front of us, but it's pretty simple math.

All of our commentary on that.

Take care.

Is there a back of the envelope.

As reasonable as far as the north of 300.

Yes.

Okay, Jim we don't have the math broken out in front of us but.

<unk>.

Pretty simple math.

Operator: Yeah. Yo, and My Simple Math points to a pretty darn good book coming out of all that as well. I'd say comfortably over one.

Yeah.

And my simple math points to a pretty darn good book to bill coming out of all of that as well.

Operator: But in that context, You know, you seem to be and you typically see seasonal declines, in revenues in Q1, given your kind of implicit, Paso Link Guide, you seem to be guiding to that again, such as sort of typical carrier spending behavior in certain quarters or You know, What are you seeing in terms of typical seasonality, you know, March down, June up, sounds like India could help that, but, Yeah, just to clarify, you're talking about calendar Q1, hour Q2. That is correct. Sorry.

I would say comfortably over one.

But in that context.

You seem to be and you typically see.

Seasonal declines.

And revenues in Q1, given your kind of implicit.

Peso linked guide you seem to be guiding to that again.

So just sort of typical carrier spending behavior in certain quarters or.

Uh huh.

What are you seeing in terms of typical seasonality March down June up sounds like India could help that.

Yes, just to clarify you are talking about calendar Q1, our Q3 rate.

That is correct sorry.

Yes.

I think.

Jaeson Allen Min Schmidt: Yeah, I think, you know, we would agree with your statement, Tim, with that, though we hope to do better, but we need to own the Paso Link business a little bit longer to understand the seasonality. And, you know, we're hopeful that shortening the cycle time, working the inventory down, will lead to faster delivery of product, and faster revenue ramps. So I think where we are right now. We would agree with your statement, and we hope to improve the business so that we could say, well, that pattern will no longer hold, and I think that that would be an advantage point for fiscal year 25 to make that statement for, make a different statement, but your statement about where we are now is most likely correct.

We do.

Bill.

We would agree with your statement Tim with that so.

We hope to do better, but we need to we need to own the Paso ink business, a little bit longer to understand the seasonality.

We're hopeful that shortening the.

Cycle time working inventory down.

Bill will lead to faster.

Delivery of product faster revenue ramp so I think.

Where we're at right now.

We want we would agree with your statement.

We hope to improve the business, where we could say well that pattern.

We will no longer hold that I think that that would be.

We'd have a vantage point for the fiscal year of $25 to make that statement for a.

A different statement.

Your statement for where we are now is most likely correct.

Jaeson Allen Min Schmidt: Yeah. I'll take that, given today. Okay, well, I think we might be mixing up Aviat's panel and seasonality in March and Fastenal link in June, but Assuming maybe some degree of an uptick in past link revenues as you move into June, I mean, you look to be, you know, guiding the standalone business into pretty solid growth this year, right? Seven, 8%, something like that, and you look to be guarding it flat next year, which is Now, that assumes that PASA Link gets to a full 140, and maybe that's not a good assumption.

Yes.

I'll take that.

Given today.

Okay, well I think we are at.

It might be mixing up RBI standalone seasonality in March.

So like in June but.

Assuming maybe some degree of uptick and possibly revenues as you move into June I mean, you'll look to be.

Guiding the stand alone business.

It's a pretty solid growth this year, 78% something like that.

And you look to be guiding it flat next year.

Which is a little wider.

Wait a minute please.

Which is a little bit just in it.

With some of the bookings and backlog.

Commentary that we've seen now.

That assumes that parcel and gets to a full $1 40, and maybe that's not a good assumption.

Jaeson Allen Min Schmidt: But there still seems to be a lot of it, and not flat, you know, up one to two percent, I guess. I'm not I'm not reading that kind of change in your business. So maybe we can delve into that a little bit deeper. Yeah, so look, we typically guide the next fiscal year in August, and for where we're at now, we want to be conservative, and I wouldn't read it. You know, you're right, we came out with the backlog statements, we think the core is healthy, and, you know, what the analysts have said to me, if we don't give a number, they'll put the number together on our behalf. So you' Yeah, don't know if that was a hard time, just doing a little math here.

But there still seems to be a lot of it and not flat up 1% to 2% I guess.

I'm not I'm not reading that kind of change in your business. So maybe we can delve into that a little bit deeper.

Yes.

We typically guide for next fiscal year.

In August and for where we're at now we want to be conservative and I wouldn't read you.

We came out with the.

The backlog statements, we think the core it is healthy.

No.

What the what the analysts have said to me if we don't give a number youll.

Youll put the number together on our behalf so.

You are right too.

Give us a bit of a hard time on the fly.

<unk> 25 number this is where we're comfortable but as time goes on I would expect us to.

Do better, but that's the number we're comfortable with right now.

Yeah, I don't know if that was a hard time, just do a little math here.

Dave King: A couple more quick ones. So, obviously, the gross margins were surprisingly strong, especially given the international mix. You cited a couple of factors, and you're also very strong. You appear to be an APAC, but might have been a LATAM as well. Can you talk a little bit more about, kind of, what happened there in that region and how you're able to have, you know, high end of the range gross margins with that degree of international mix? Yeah, like I said, I think, you know, if you look at the regions where the software was most beneficial, it was APAC. And then, you know, also in the Americas, Pete mentioned record store revenues in the first half. That also is margin accretive, as well as, you know, we had favorable or... material input costs, so that provides a bit of a tailwind to us as well. So all those factors combined really kind of a confluence of events, but again, you know.

Sure.

Couple of more quick.

So obviously the gross margins were surprisingly strong, especially given the international mix and you cited a couple of factors and you're also very strong you appear to be in APAC might've been Latam as well can you talk a little bit more about.

Kind of what happened there in that region and how you are able to have high.

High end of the range gross margins with that degree of international mix.

Yes.

As I said I think if you look at the regions, where the region, where the software was most beneficial it was in APAC.

And then.

So in the Americas, Pete mentioned the record store revenues in the first half that also is margin accretive.

As well as you know we had some.

Favorable R E.

Using material input costs so that.

Providing a bit of a tailwind to us.

To us as well so all those factors combined really kind of a confluence of events.

Dave King: It'll be a little bit lumpy, but so... I think our full-year guidance is solid. Okay. And last one for me, United R&D, up pretty sharply here in the quarter. I mean, I assume that's still standalone, or does it include anything from NEC given when you closed it, on the one hand, and on the other, when you talk about incremental spend in R&D? Is it from that elevated baseline or some other baseline?

But again.

It can be a little bit lumpy, but.

Yeah.

I think our full year guidance as a solid.

Okay.

And last one for me.

He noted R&D.

Up pretty sharply here in the quarter.

Assume thats still stand alone or does it include.

Anything from any C. Given when you closed on the one hand.

And on the other when you talk about incremental spend in R&D.

Is it from that elevated baseline or some other baseline.

Okay.

Dave King: So, the R&D does include, you know, a month's worth of additional costs spelled out with them. And then we're up on just an organic basis as well, working to develop the product roadmap, a little bit lower than we had anticipated in Q1, if you will, but I think... We're on track for, you know, kind of our full year guys. Thank you. It's not overspending in any way; it's rationally thought out, www. OrinHirschman.com, Okay, fair enough, but it sounds like... Maybe something a little over the Q1-24, expense baseline would be relevant for your incremental guide than Q2, per se, since it's a stub. Can you follow me on that one?

So the R&D does include.

<unk> worth.

Any.

Additional costs that are.

Contractually.

Spelled out with them.

And then we are.

Up on just an organic basis as well.

<unk> planned to increase as we.

Work to develop a product roadmap so seamless.

Lower than we had anticipated in Q1, if you will but I think.

We're on track for kind of our full year guidance there.

If not over spending in any way, it's rationally thought out and this is what we had planned.

Okay fair enough, but it sounds like.

Maybe something a little over the Q1 'twenty four.

Expense baseline.

Yes, with the relevant per your incremental guide Q2 per se since its a stub.

As Ed.

Operator: Okay. All right. Great.

Okay.

Alright, great.

Jaeson Allen Min Schmidt: Thanks very much. Thank you. Thank you. I would now like to hand the call back over to CEO Pete Smith for any closing remarks. Thank you everyone for joining us. We look forward to updating you on our continued progress in about 90 days. Be safe. Talk soon. Thank you for participating. This does conclude today's program, and you may now disconnect.

Great.

Thanks very much.

Thank you I would now like to hand, the call back over to CEO, Pete Smith for any closing remarks.

Yeah.

Thanks, everyone for joining we look forward to updating you on our continued progress in about 90 days PHA talk soon.

Thank you for participating this does conclude today's program and you may now disconnect.

Yeah.

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Okay.

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