Q3 2024 Aviat Networks Inc Earnings Call
Operator: Good afternoon. Welcome to Aviat Network's third quarter fiscal 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Director of Investor Relations. You may begin.
Good afternoon, welcome to Avi networks third quarter fiscal 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note. This conference is being recorded.
I will now turn the conference over to your host Mr. Andrew Frederickson Director of Investor Relations you may begin.
Andrew Fredrickson: Thank you and welcome to Aviat Networks' third 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 third quarter, followed by David Gray, our CFO, who will review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook, followed by Q&A.
Andrew Fredrickson: Thank you and welcome to the Avianca Networks' third 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 network's dot com along with a replay of today's call.
With me today are Pete Smith.
Peter A. Smith: And CEO, who will begin with opening remarks on the company's fiscal third quarter.
Peter A. Smith: Led by David Green, Our CFO, who will review the financial results for the quarter.
David M. Gray: Pete will then provide closing remarks on our strategy and outlook followed by Q&A.
Andrew Fredrickson: 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 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.
David M. Gray: As a reminder, during today's call and webcast management may make forward looking statements regarding <unk> business.
Andrew Fredrickson: 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.aviatnetworks.com, and financial tables therein, which include the GAAP to non-GAAP 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.
David M. Gray: Including but not limited to statements relating to financial projections business drivers.
David M. Gray: Products and expansions and economic activity in different regions.
Peter A. Smith: These and other forward looking statements reflect the company's opinions only as of the date of this call and webcast.
Peter A. Smith: The assumptions risks and uncertainties that could cause actual results to differ materially from those statements.
Peter A. Smith: 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.
Peter A. Smith: 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.
Peter A. Smith: Additionally, during today's call and webcast management will reference both GAAP and non-GAAP financial measures.
Peter A. Smith: Refer to our press release, which is available on the IR section of our website at Www Dot Aveo 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.
Peter A. Smith: Thanks, Andrew, and good afternoon, everyone. Let's review Aviat Networks' results for the third quarter of fiscal year 2024. We are pleased to report that Aviat continued execution of its organic growth strategy and made further progress on its Paso Link acquisitions. Highlights from the third quarter include total revenue of $111.6 million, which represents growth of 34% versus Q3 of last year.
Pete: Thanks, Andrew and good afternoon, everyone, Let's review Avi networks results for the third quarter of fiscal year 2024.
Pete: Pleased to report that Avianca continued execution of its organic growth strategy and made further progress on its path to link acquisition.
Pete: Highlights from the third quarter include total revenue of $111 6 million, which represents growth of 34% versus Q3 of last year.
Peter A. Smith: Core Aviat revenue growth of 7% versus the same period last year. Non-gap gross margin of 35%, with core Aviat margins above 38%. Adjusted EBITDA of $12 million, 11% higher than the year-ago period; non-GAAP EPS of $0.73. Strong cash generation in the quarter with $59.2 million of cash and marketable securities on the balance sheet and a net cash balance of $10 million. 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. Let's review key highlights of the third quarter.
Peter A. Smith: <unk> revenue growth of 7% versus the same period last year.
Peter A. Smith: non-GAAP gross margin of 35% with core RV at margins above 38%.
Peter A. Smith: Adjusted EBITA of 12 billion, 11% higher than the year ago period, non-GAAP EPS of <unk> 73 cents.
Peter A. Smith: Strong cash generation in the quarter with $59 2 million of cash and marketable securities on our balance sheet and a net cash balance of $10 million.
Peter A. Smith: <unk> financial and operational results are driven by the continued implementation of avia its operating model made possible. Thanks to the effort and execution, our team and our partners throughout the quarter.
Peter A. Smith: To review key highlights of the third quarter.
Peter A. Smith: We continue to progress the integration of the Pass-A-Link business. In our first full quarter of ownership, we accelerated the execution of cost structure optimization and approached our near-term profitability goals. These efforts will continue to accelerate over the next two quarters as Aviat moves away from transition services provided by NEC. The Pass-A-Link business was nearly break-even on an EBITDA basis in the quarter and was accretive to our pre-cash flow generation. As we have onboarded Assolink customers, we have undertaken a customer profitability review to ensure margins are at sustainable levels. While work is still ongoing, we expect that this will result in a slower ramp to the target $140 million annual run rate contribution.
Peter A. Smith: We continue to progress the integration of the <unk> joint business in our first full quarter of ownership.
Peter A. Smith: Accelerating the execution of cost structure optimization and approached our near term profitability goals. These efforts will continue to accelerate over the next two quarters as avia moves away from transition services provided by an EC <unk>.
Peter A. Smith: But that's all it business was nearly breakeven on an EBITDA basis every quarter. It was accretive to our free cash flow generation.
Peter A. Smith: As we are onboarding customers, we have undertaken a customer profitability review to ensure margins are at sustainable levels. While work is still ongoing and we expect that this will result in a slower ramp to the targeted $140 million in annual run rate contribution. However, this should translate to more track.
Peter A. Smith: However, this should translate to more attractive business for Aviat shareholders. Beyond the existing Paso Link base, the sales teams continue to build cross-selling opportunities where we are introducing Paso Link products to historical Aviat customers and vice versa. We have already converted some of these into bookings and expect this to continue to grow in the quarters ahead. From a cost perspective, we are tracking to our internal plan to reduce the cost of goods sold and excess inventory from the Paso Link business.
Peter A. Smith: That business for us.
Peter A. Smith: Shareholders beyond the existing gasoline based the sales teams continue to build cross selling opportunities, where we are introducing pass alloy products historical Avi, our customers and vice versa.
Peter A. Smith: Already converted some of these in our bookings and expect this will continue to grow in the quarters ahead from a cost perspective, we are tracking to our internal plan to reduce cost of goods sold.
Peter A. Smith: Inventory for the passenger business.
Peter A. Smith: We had some wins in the quarter and anticipate beginning to realize some more significant savings in the current fiscal fourth quarter, primarily from inventory rationalization. Further, inventory optimization and COGS savings will materialize in fiscal year 2025.
Peter A. Smith: Had some wins in the quarter and anticipate beginning to realize some more significant savings.
Peter A. Smith: Fiscal fourth quarter, primarily from inventory rationalization.
Peter A. Smith: Further inventory optimization and Cogs savings will materialize in fiscal year 2025 overall the transaction is tracking to an IRR in excess of 245 times <unk> weighted average cost of capital.
Peter A. Smith: Overall, the transaction is tracking to an IRR in excess of 2.5 times Aviat's weighted average cost of capital. Moving on to the core Aviat business, in private networks, investments and upgrades to networks both in the U.S. and internationally continued to support growth in this segment. The recent U.S. nationwide tier one outage underscores the importance of private public safety and critical infrastructure networks.
Peter A. Smith: Moving on to the core <unk> business and private networks investments and upgrades to networks, both in the U S and internationally continued.
Peter A. Smith: To support growth in this segment.
Peter A. Smith: The recent U S nationwide tier one outage underscores the importance.
Peter A. Smith: Public safety and critical infrastructure networks, our customers turn to Avianca for design and operation of networks that are engineered with a high degree of redundancy and reliability, obviously equipment enables first responders utilities and governments to continue communicating even went public.
Peter A. Smith: Our customers turn to Aviat for design and operation of networks that are engineered with a high degree of redundancy and reliability. Aviat's equipment enables first responders, utilities, and governments to continue communicating even when public networks are compromised. Driving further investment in private networks is the recent authorization by the FCC at the end of February for companies to begin offering Automated Frequency Coordination Systems, or AFC, for spectrum in the six gigahertz
Peter A. Smith: Networks are compromised.
Peter A. Smith: Driving further investment in private networks is the <unk> recent authorization by the FCC at the end of February for companies to begin offering automated frequency coordination systems or AFC for spectrum and the 600 yards bad. This is an exciting development that will likely lead to more fixed wire.
Peter A. Smith: This is an exciting development that will likely lead to more fixed wireless access usage. However, concern persists among many of our private network customers as their microwave backhaul largely utilizes the six gigahertz band, creating the possibility of interference. We've been preparing and have developed a comprehensive suite of solutions to protect these networks by detecting and correcting interference issues. Our Frequency Assurance Software, or FAS, is patented software that analyzes customers' networks to detect interference and suggest remediation action.
Peter A. Smith: List access usage, however, concerned persists among many of our private network customers as their microwave backhaul largely utilized the six gigahertz band, creating the possibility for interference we've been preparing and have developed a comprehensive suite of solutions to protect these networks.
Peter A. Smith: And correcting the interference issues.
Peter A. Smith: While our frequency assurance software or Fas as packet software that analyzes customers' networks to detect interference and suggest remediation actions.
Peter A. Smith: Working on Aviat radios and the radios of a leading competitor, FAS allows a network operator to have confidence in their network's reliability and performance even in the face of potential interference without having to move communication to a new band. Once interference is detected, or for proactive customers who wish to avoid the possibility entirely, Aviat offers two solutions.
Peter A. Smith: Working on Avianca radios, and the radios are a leading competitor.
Peter A. Smith: So allows a network operator to have confidence in their networks reliability and performance even in the face of potential interference without having to move communications to our new bet, one for interference as detected or for proactive customers, who wish to avoid the possibility entirely <unk>.
Peter A. Smith: Offers two solutions.
Peter A. Smith: The first is an ultra-high power radio at 11 gigahertz to enable customers to move to a new band. We estimate upwards of 80% or more of the 90,000 6 gigahertz microwave links in the US can move to 11 gigahertz with this product. Second, is a new innovative multiband solution operating at 6 and 11 gigahertz and utilizing the 11 gigahertz UHP radio specifically designed to protect longer link distances. These new offerings represent a great opportunity for Aviat to solve a growing problem for our customers.
Peter A. Smith: <unk> is an ultra high power radio at 11 gigahertz to enable customers to move to a new bat, we estimate upwards of 80% or more of the 90006 gigahertz microwave links in the U S can move through 11 gigahertz with this product second is our new innovative multi band solution operating.
Peter A. Smith: At six and 11 gigahertz and utilizing the 11 gigahertz UHD radio specifically designed to protect longer list link distances. These.
Peter A. Smith: These new offerings represent a large opportunity for avianca solvent growing problem for our customers and we believe we are several quarters ahead of our closest competitor with these products.
Peter A. Smith: And we believe we are several quarters ahead of our closest competitor with these products. In the third quarter, we made several updates to our products to better address our private network customers. We released One Plus One hardware protection on our WTM radio platform. This is important to open the all-outdoor radio market in mission-critical segments, such as with public safety, federal, and utility customers. We also released a new hardware variant of our CTR router to improve the interface and address the growing capacity needs of our router customers.
Peter A. Smith: Third quarter, we made several updates to our products to better address our private network customers. We released one plus one hardware protection on our WTS radio platform. This is important to open.
Peter A. Smith: All outdoor radio market mission critical segments, such as public safety Federal and utility customers. We also released a new hardware variant of our ctr router to improve the interface and address the growing capacity needs of our router customers.
Peter A. Smith: These upgrades will help to sustain our leadership in the private network segment. Additionally, we want our first major LTE radio access network deal in an international military application, which is an exciting adjacency market based on our Red Line acquisition. In mobile networks, we continue to execute the server on global Tier 1 and Tier 2 operators, who, in many cases, are still in the middle of or just beginning to build out their microwave 5G networks.
Peter A. Smith: These upgrades will help to sustain our leadership in the private network segment. Additionally, we won our first major LTE radio access network deal.
Peter A. Smith: In international military application, which is an exciting adjacency market based on our Red line acquisition and mobile networks, we continue to execute to serve our global tier one and tier two operators who in many cases are still in the middle up are just beginning to build out their microwave <unk> network.
Peter A. Smith: To enable pass-only customers to better manage their networks and to further expand the addressable market for our software, we will roll out support for our pass-only portfolio in our ProVision management platform in Q4 fiscal year 2024. In India, we received our first orders for microwave backhaul radios. Previously, we had been selling only our eBand and multiband solutions. The microwave backhaul order is exciting, as it represents Aviat's first sale into a $200 million Indian microwave segment that had previously been unaddressed by Aviat. With that, I will turn it over to David to review our financials before coming back for some final comments. David?
Peter A. Smith: To enable constantly and customers to better manage their networks and to further expand the addressable market for our software we will rollout support for our <unk> portfolio and our provision management platform in Q4 fiscal year 2024.
Peter A. Smith: In India, we received our first orders for microwave backhaul radios previously we have been selling <unk> brand and multi band solutions, the microwave backhaul order as exciting as it represents.
Peter A. Smith: Its first sale into a $200 million Indian microwave segment that had previously been unaddressed by Avia with that I will turn it over to David to review our financials before coming back for some final comments David.
David M. Gray: Thank you, Pete, and good afternoon, everyone. During my remarks today, I'll review some of the key fiscal 2024 third quarter financial highlights. Please note that our detailed financials can be found in our press release and 10-Q file this afternoon. As a reminder, all comparisons discussed today are between the third quarter of fiscal 2024 and the third quarter of fiscal 2023, unless noted otherwise.
Peter A. Smith: Thank you David and good afternoon, everyone.
David M. Gray: During my remarks today.
David M. Gray: I'll review some of the key fiscal 2024 third quarter financial highlights.
David M. Gray: Our detailed financials can be found in our press release and 10-Q filed this afternoon.
David M. Gray: For the third quarter, we reported total revenues of $111.6 million as compared to $83.5 million for the same period last year, an increase of $28.1 million, or 33.7%. On a constant currency basis, our revenues would have been $114.5 million. North America, which comprised 40% of our total revenue for the quarter, was $44.4 million, a decrease of $3.6 million from the same period last year due to the near completion of a large Tier 1 project. For the first nine months of fiscal 24, North America is up 3% versus the prior year, and bookings and backlog remain strong.
David M. Gray: As a reminder, all comparisons discussed today are between the third quarter of fiscal 2024 in the third quarter of fiscal 2023 unless noted otherwise.
David M. Gray: International revenue was $67.2 million for the quarter, an increase of $29.8 million, or 79.7% from the same period last year. The addition of the Pass-a-Link business contributed $22.5 million of that growth, while the core Aviat business grew by 7.3 million, or 19.6%. Strong organic growth was driven by Latin America and the Asian Pacific regions, offsetting weakness on the African continent.
David M. Gray: For the third quarter, we reported total revenues of $111 6 million as compared to $83 5 million for the same period last year.
David M. Gray: An increase of $28 1 million or 33, 7%.
David M. Gray: On a constant currency basis, our revenue would have been $114 5 million.
David M. Gray: North America, which comprised 40% of our total revenue for the quarter was $44 4 million a decrease of $3 6 million from the same period last year due to the near completion of a large tier one project for.
David M. Gray: For the first nine months of fiscal 'twenty for North America is up 3% versus the prior year and bookings and backlog remains strong.
David M. Gray: International revenue was $67 2 million for the quarter, an increase of $29 8 million or 79, 7% from the same period last year.
David M. Gray: The addition of the Paso link business contributed $22 5 million of that growth, while the core <unk> business grew by $7 3 million or 19, 6%.
David M. Gray: The strong organic growth was driven by Latin America, and Asia Pacific regions.
David M. Gray: Offsetting weakness on the African continent.
David M. Gray: Our trailing 12-month book-to-bill ratio remained above 1, as it has since fiscal 2018. Gross margins for the quarter were 32.7% on a GAAP basis and 35.2% on a non-GAAP basis, as compared to 35.7% on a GAAP basis and 35.9% on a non-GAAP basis in the prior year. Gap margins were impacted by $2 million write-down of Aviat inventory that will be replaced in the market by PassaLink products, as well as $0.6 million in amortization of the Inventory Step-Up Purchase Accounting Adjustment. Non-gap margins were diluted as expected by the impact of the Paso Link Desert.
David M. Gray: Our trailing 12 month book to Bill ratio remained above one as it has since fiscal 2018 gross margins for the quarter were 32, 7% on a GAAP basis, and 35, 2% on a non-GAAP basis as compared to 35, 7% GAAP and 35, 9% non-GAAP in the prior year.
David M. Gray: GAAP margins were impacted by $2 million write down of <unk> inventory that will be replaced in the market by past link products as.
David M. Gray: As well as <unk> 6 million in amortization of inventory step up purchase accounting adjustment.
David M. Gray: non-GAAP margins were delivered as expected by the impact of the past linked venues.
David M. Gray: Core Aviat time gap margins for the quarter were very strong at 38.4%, driven by product mix and operational productivity. Third-quarter GAAP operating expenses were $31.5 million, an increase of $9.2 million from the prior year, driven by the addition of approximately $5.5 million in Pastelink-related OPEX. Non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation, and deal costs, were $28.5 million, an increase of $7.9 million, driven by Pass-a-Link and increased R&D.
David M. Gray: Core non-GAAP margins for the quarter were very strong at 38, 4% driven by product mix and operational productivity.
David M. Gray: Third quarter GAAP operating expenses were $31 5 million, an increase of $9 2 million from the prior year.
David M. Gray: Driven by the addition of approximately $5 5 million in past link related Opex.
David M. Gray: M&A expenses and increased core R&D expenses.
David M. Gray: non-GAAP operating expenses, which exclude the impact of restructuring charges share based compensation and deal costs were $28 5 million, an increase of $7 9 million driven by pass link and increased R&D.
David M. Gray: Third quarter operating income was $5.0 million on a gap basis and $10.8 million on a non-gap basis, compared to prior year gap of $7.5 million and non-gap of $9.3 million, a decrease of 32.9% and an increase of 16.2%, respectively. Third quarter tax provision was $0.6 million compared to $2.2 million last year. Starting in Q3, we have increased our non-GAAP cash tax estimate from $0.3 million to $0.5 million per quarter as a result of the Paso Link acquisition.
David M. Gray: Third quarter operating income was $5 1 million on a GAAP basis, and $10 8 million on a non-GAAP basis compared to prior year gap of $7 5 million and non-GAAP of $9 3 million or a decrease of 32, 9% and an increase of $16 two respect 2% respectively.
David M. Gray: Third quarter tax provision was <unk> 6 million compared to $2 2 million last year.
David M. Gray: Starting in Q3, we have increased our non-GAAP cash tax estimate from <unk> 3 million to <unk> 5 million per quarter as a result of the pass link acquisition.
David M. Gray: 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. Third quarter GAAP net income was $3.4 million, down from $4.9 million last year due to the previously mentioned M&A-related expenses. Third quarter non-GAAP net income, which excludes restructuring charges, share-based compensation, M&A-related costs, and non-cash tax provision, was $9.4 million, compared to $8.9 million for the same period last year.
David M. Gray: As a reminder, the company has nearly $500 million.
David M. Gray: The Nols that we will continue to generate shareholder value via minimal cash tax payments for the foreseeable future.
David M. Gray: Third quarter GAAP net income was $3 4 million down from $4 9 million last year due to the previously mentioned M&A related expenses.
David M. Gray: Third quarter, non-GAAP, net income, which excludes restructuring charges share based compensation M&A related costs and noncash tax provision was $9 4 million compared to $8 9 million for the same period last year, an increase of <unk> 5 million were five 6% driven by core revenue growth and margin expansion.
David M. Gray: An increase of $0.5 million, or 5.6%, driven by core revenue growth and margin expansion, partially offset by the additional R&D investment and modest dilution from the past linked business. Third quarter non-GAAP EPS came in at $0.73 per share on a fully diluted basis compared to $0.75 per share for the same period last year, a decrease of 2.7% as a result of the shares issued in connection with the Paso Link acquisition.
David M. Gray: Partially offset by the addition.
David M. Gray: Additional R&D investment and modest dilution from the past linked business.
David M. Gray: Third quarter non-GAAP EPS came in at <unk> 73 per share on a fully diluted basis compared to <unk> 75 per share for the same period last year, a decrease of two 7% as a result of the shares issued in connection with this past link acquisition.
David M. Gray: Adjusted EBITDA for the quarter was $12.0 million, or 10.8% of revenue, an increase of $1.2 million, or 11.1% from the prior year. Moving on to the balance sheet. Our cash and marketable securities increased by $13.3 million to $59.2 million, driven by strong cash-from-operating activities of $15.3 million in the quarter. As a result, we moved from a net debt position of $3.6 million last quarter to a net cash position of $10.2 million at the end of the third quarter. This strong cast generation was driven by core operating results and a positive contribution from the past link business.
David M. Gray: Adjusted EBITDA for the quarter was $12 <unk> million or 10, 8% of revenue an increase of $1 $2 million or 11, 1% from the prior year.
David M. Gray: Moving on to the balance sheet.
David M. Gray: Our cash and marketable securities increased by $13 3 million to $59 2 million driven by strong cash from operating activities of $15 $3 million in the quarter.
David M. Gray: As a result, we moved from a net debt position of $3 6 million last quarter to a net cash position of $10 2 million at the end of the third quarter.
David M. Gray: This strong cash generation was driven by core operating results and a positive contribution from the past link business.
David M. Gray: From a working capital standpoint, our Dsos and inventory turns continue to be impacted by the addition of the past link assets.
David M. Gray: Which added roughly 20 days to DSO for Q3 and reduced inventory turns from seven eight excluding patent link to four 9% as reported.
David M. Gray: We expect these impacts to moderate over the coming quarters in the past that link business ramps and working capital levels normalize.
David M. Gray: From a working capital standpoint, our DSOs and inventory returns continue to be impacted by the addition of the Pass-the-Link asset, which added roughly 20 days to DSO for Q3 and reduced inventory turns from 7.8, excluding past length, to 4.9 as reported. We expect these impacts to moderate over the coming quarters as the Pass-the-Link business ramps up and working capital levels normalize. Moving on to our fiscal 2020 floor guidance, we are updating our full year 2024 revenue guidance to be in the range of $408 to $418 million and our EBITDA guidance to remain within the previously announced range.
David M. Gray: Moving on to our fiscal 2024 guidance, we are updating our full year 2020 for revenue guidance to be in the range of $408 million to $418 million and our EBITDA guidance to remain within the previously announced range.
David M. Gray: This softened guidance is primarily attributable to the slower ramp-up in Pathlink revenue, cautious CapEx spend by Tier 1 customers, and the African Mobile Network business. We expect our EBITDA for the fiscal year 2024 to approximate the current consensus estimate. With that, I'll turn it back to Pete for some final comments.
David M. Gray: The soft guidance is primarily attributable to the slower ramp in passenger revenue cautious capex spend by tier one customers and African mobile network business.
David M. Gray: We expect our EBITDA for the fiscal year 2024 to approximate the current consensus estimates.
David M. Gray: I'll turn it back to Pete for some final comments.
Peter A. Smith: Thanks, David. Before the Q&A, I would like to briefly discuss our outlook. The PASA Link acquisition is ahead of plan from an EBITDA and pre-cash flow perspective, and we continue to expect it to be EPS secretive by the September 2024 quarter. Additionally, the acquisition is tracking well ahead of plan from an IRR perspective. We still believe the business will get to the $140 million run rate level previously discussed, and our EBITDA margin goals for Paso Inc. are in sight. The core Aviat business executed in line with our expectations, and we're achieving sustained growth ahead of the overall market growth rate. With that, Operator, let's open up for questions. Thank you. As a reminder...
Pete: Thanks, David before Q&A I would like to briefly discuss our outlook for <unk> acquisition is ahead of plan from an EBITDA and free cash flow perspective, and we continue to expect it to be EPS accretive by September 2024 quarter. Additionally, the acquisition is tracking well ahead of plan from an IRR.
David M. Gray: Our perspective, we still believe the business will get to $140 million run rate level.
David M. Gray: Previously discussed.
David M. Gray: EBITDA margin goal is for <unk>.
David M. Gray: Our insight to core RV business executed in line with our expectations and we're achieving sustained growth ahead of the overall market growth rate.
Speaker Change: With that operator, let's open up for questions.
Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Jaeson Schmidt of Lake Street. Your line is open.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Jason Smith of Lake Street. Your line is open.
Jaeson Allen Min Schmidt: Hey guys, thanks for taking my questions. I just want to start on the updated fiscal 24 guidance. Dave, I know you kind of laid out kind of three drivers for that. But if we think about, let's call it, the $15 million delta at the midpoint between the two ranges, can you sort of rank those three issues in terms of impact?
Jason Smith: Hey, guys. Thanks for taking my questions I just wanted to start on the updated fiscal 'twenty guidance.
Jason Smith: Dave I know you've kind of laid out tenant three drivers from that but if we think about let's call. It the $15 million Delta at the midpoint between the two or eight and James can you sort of rank order those three issues in terms of impact.
David M. Gray: So, let me rank order them, Jaeson. One is the Paso Link Ramp. And then I would say two would be Africa, and three would be the Tier 1 environment.
Speaker Change: So third lever you rank order them, Jason one is capacity and crap.
Speaker Change: And then.
James: I would say two would be Africa, and three would be the tier one environment.
Peter A. Smith: Okay, that's really helpful. And I know you guys are looking over sort of the Paso Link business from a margin perspective. Curious if this changes your thoughts, Pete, on how you're looking at fiscal 25. I think last quarter you thought sort of 515 to 520. Is that still achievable?
Speaker Change: Okay. That's really helpful and I know you mentioned you guys are looking over sort of the peso linked business from a margin perspective curious if this changes your thoughts on how you're looking at fiscal 'twenty five I think last quarter, you thought sort of 515 to $5 <unk>.
James: Is that still achievable.
Peter A. Smith: Uh, look, I think, uh, we'll, you know, we got a little bit, um, overly enthusiastic with respect to, uh, our, our number for FY, uh, 25. We typically put that, um, in the, uh, the August session, and I think we will, we will update that guidance in, in August, and I would say that 515 number will be probably the, the high end of the range, but we're not ready to, uh, do that, and, look, we, we, you know, we discovered some, quote, unquote, empty revenue in Passaic, so we're, uh, we're not gonna take that, and what we're really, really excited about is, uh, we're ahead of our plan on cash generation, and, you know, we expect by September to be EPS accretive, if not sooner.
Speaker Change: Look I think.
Speaker Change: Sure.
Speaker Change: We got a little bit.
Speaker Change: Overly enthusiastic with respect to.
Speaker Change: Our our number for FY <unk>.
Speaker Change: <unk> 45, we typically put that.
Speaker Change: And the.
Speaker Change: The August session that I think we will we will update that guidance.
Speaker Change: And in August and I would say that.
Speaker Change: 515 number will be probably the high end of the range, but we're not ready to do.
Speaker Change: We.
Speaker Change: We discovered some quote unquote empty revenue and pass away. So we're we're not going to take over.
Speaker Change: But we're really really excited about is.
Speaker Change: We're ahead of our plan on cash generation.
Speaker Change: We expect by September to be EPS accretive if not sooner.
Peter A. Smith: Okay, that makes sense. And then just the last one from me, and I'll jump back into queue. I know you previously said that you never expected BEAD to have a big impact on calendar 24, but I'm curious if you could just update your thoughts on how you're thinking about some of these government funding initiatives and what our timetable is for an impact on the P&L.
Speaker Change: Okay that makes sense and then just the last one from me and I'll jump back into queue. I know you previously said that you never expected E tab big impact on calendar 'twenty four but curious if you could just update your thoughts on how you're thinking about some of these government funding initiatives and what's our timetable to in <unk>.
Speaker Change: Pack to the P&L.
Peter A. Smith: Yeah, so we've been consistent that DEED is a calendar year 25. We are seeing some incremental orders from the Rural Digital Opportunity Fund and the America Rescue Act. We know that that needs to be spent by the end of December 2026, and we are not forecasting anything, but we are well positioned to have a positive surprise, and when we get that, then we'll update you all.
Speaker Change: Yes, so we've been consistent deed as a.
Speaker Change: Calendar year 'twenty five.
Speaker Change: We're seeing some incremental orders from the rural digital opportunity fund.
Speaker Change: ARPA.
Speaker Change: The America Rescue Act.
Speaker Change: We were.
Speaker Change: We know that that needs to be spent by the end of <unk>.
Speaker Change: December 2026, and we are not forecasting anything, but we we are well positioned to have a.
Speaker Change: Positive.
Speaker Change: Surprise and when we get that then we'll we'll update you all.
Operator: Got it. Thanks a lot, guys. Thank you. One moment for
Speaker Change: Got it thanks, a lot guys.
Operator: Thank you. One moment for our next question, and our next question comes from Scott Searle of Roth Capital Partners. Your line is open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And our next question comes from Scott Searle of Roth Capital Partners. Your line is open.
Scott Wallace Searle: Hey, good afternoon. Thanks for taking my questions. Hey, Pete, maybe to dive in on Paso Link, I think, you know, back of the napkin math, it's about $22 million or so in the quarter, and gross margins in the 28% range. I'm wondering if you could address where you think Paso Link can get to. I think that the target number was getting $30-35 million on the top line and being able to bring gross margins more in line with core Aviat. You know, what are the current thoughts there? How big is the magnitude of what you call empty or hollow revenue that you were finding with Paso Link?
Scott Wallace Searle: Hey, good afternoon, thanks for taking my questions maybe.
Scott Wallace Searle: Maybe to dive in on gasoline I think back.
Scott Wallace Searle: Back of the napkin math.
Scott Wallace Searle: About $22 million or so in the quarter.
Scott Wallace Searle: Margins in the 28% range I'm wondering if you could address.
Scott Wallace Searle: Where you think you passively can get to I think the target number was getting $30 $35 million on the top line and being able to bring up gross margins more in line with.
Scott Wallace Searle: Or what are the current thoughts there how big is the magnitude of MTR hollow revenue that you were finding with <unk>.
Peter A. Smith: Yeah, so, so Scott, you know, it's a matter of time on getting to the 140, and our view on getting to 33% gross margins remains intact, and, you know, one of the drags on the gross margin right now is the impact of the transition services, and that each quarter we progress, that will get less, less and less, and that, so that will have a positive impact, and then we are working on, you know, reducing field service costs, as well as cost of goods sold, so we feel, we feel good about that.
Scott Wallace Searle: So Scott.
Scott Wallace Searle: It's a matter of time on getting to the 140 and our view on getting to a 33%.
Scott Wallace Searle: Gross margins.
Speaker Change: It remains intact.
Speaker Change: One of the drags on the gross margin right now is the impact of the transition services.
Speaker Change: Each quarter, we progressed that will get less and less and less than that.
Speaker Change: So that'll have a positive impact and then we are working on.
Speaker Change: Reducing field service cost as well as <unk>.
Scott Wallace Searle: Cost of goods sold so well.
Scott Wallace Searle: We feel we feel good about that.
Speaker Change: Got you and.
Peter A. Smith: You know, maybe to follow up, from an OPEC standpoint, it seems like you guys have done a lot of rationalization at this point in time. Is there more to go on that front?
Speaker Change: Maybe a follow up from an Opex standpoint. It seems like you guys have done a lot of rationalization at this point in time is there more to go on that front.
Peter A. Smith: Yeah So, look, we're disappointed with our enthusiasm on the top line. We are very, very enthusiastic about our ability to, um..., remove costs and squeeze both the operating expense and the gross margin line. And, you know, that's really why we gave the hint about our IRR being two and a half times our WAC.
Scott Wallace Searle: Yes.
Scott Wallace Searle: So where we're at.
Scott Wallace Searle: Disappointed with our <unk>.
Scott Wallace Searle: <unk> on the top line.
Scott Wallace Searle: We are very very enthusiastic about our ability to.
Scott Wallace Searle: Remove cost and squeeze both operating expense and the gross margin line.
Scott Wallace Searle: That's really why we gave the.
Scott Wallace Searle: The hint about our IRR being two five times on a lag.
Peter A. Smith: And, you know, I think we'll give some more color on that in six months because we're really, we're really, really pleased with the returns we're projecting. We, you know, look, we, the returns would be even better if we, the faster we can get some of the ramp issues out of the way. But, net, net, we would still do this deal, and we're, we're happy about the customer engagements. We're happy about the return, and we just need to be a little more circumspect with respect to the PASO and grant.
Scott Wallace Searle: I think we'll give some more color on that in six months because we are.
Scott Wallace Searle: So we're really we're really really pleased with.
Scott Wallace Searle: The returns were projecting we look we'd.
Scott Wallace Searle: The returns would be even better if we the faster we can get.
Scott Wallace Searle: Some of the ramp issues out of the way, but net net we would still do this deal.
Scott Wallace Searle: Sure.
Scott Wallace Searle: We're happy about the customer engagements, we are happy about.
Scott Wallace Searle: The return and we just need to be.
Scott Wallace Searle: Sure.
Scott Wallace Searle: A little more circumspect with respect to capacity Graham.
David M. Gray: Gotcha. The last two items, I think core Aviat gross margin said 38%. Historically, that's tended to be a bit of an anomaly, so is that the sustained range going forward, or does that come in a little bit in the June quarter? And lastly, new products and opportunities, India, and then specifically some of the areas of routers and 11 gigahertz. I was wondering if you could just give the timeline of when you expect that to contribute. Thanks.
Graham: Got you last two items I think core.
Scott Wallace Searle: Gross margins at 38% historically.
Scott Wallace Searle: Historically, that's tended to be a bit of an anomaly. So is that the sustained range going forward or does that come in a little bit in the June quarter, and lastly, new products and opportunities in India, and then specifically some of the areas of router and 11 gigahertz I was wonder if you could just give us a timeline of when you expect that to contribute.
Peter A. Smith: Hey Scott, I'll take the margin question first. So, yeah, our organic gross margins were very strong in the quarter at 38.4%. And year-to-date, we are right around 38%, which is, you know, a couple hundred basis points better than our initial guidance for the full year of FY24. We do expect a, you know, probably a modest pullback in Q4, but we'll still be well ahead of what we were projecting on a full-year basis. So I think, you know, things are looking good from that standpoint. I think it kind of resets what the expectations should be going forward.
Speaker Change: Yes, Hey, Scott I'll take that at the margin.
Speaker Change: And for ourselves.
Speaker Change: Yes, our.
Speaker Change: Organic gross margins were very strong in the quarter at 38, 4%.
Speaker Change: And year to date, we are right around 38%, which is a couple of hundred basis points better than our initial guidance for the full year.
Speaker Change: Slide 24.
Speaker Change: We do expect a probably a modest pullback in Q4, but we will still be well ahead of what we were projecting on a full year basis.
Scott Wallace Searle: I think.
Speaker Change: Yes things are things are looking good from that standpoint, I think it kind of resets.
Speaker Change: What the expectation should be going forward.
Peter A. Smith: Okay, so let me jump in with the product question. So the 1 plus 1 hardware protection on the WTM, right, that gives us a high reliability, high capacity outdoor radio. We think that that increases the addressable market by about 50 million. We think the opportunity size there is 120 and then the long-distance link protection with the multiband 6 plus 11, that's a smaller market, say 30 million, and it's in our toolbox right now, and the reason we bring all that stuff up is because of the 6 gigahertz unlicensed band opportunity, which we think will drive more backhaul and is good for the fixed wireless program.
Speaker Change: Okay. So Scott let me.
Scott Wallace Searle: Sure sure let me jump in with.
Scott Wallace Searle: The product question so.
Scott Wallace Searle: The one plus one hardware protection on the wtf throughput rate that gives us.
Speaker Change: Our high reliability high capacity outdoor radio, we think that that increases the addressable market.
Scott Wallace Searle: By about.
Scott Wallace Searle: $50 million, we also mentioned.
Scott Wallace Searle: Our frequency assurance on capital are leading private network competitor, Doug trade that's available now and we have received initial orders.
Scott Wallace Searle: High margin, we see the Delevering gigahertz radio we have we have.
Scott Wallace Searle: Previously announced <unk> energy that is in the market. We think the opportunity size. There is there is.
Scott Wallace Searle: 120, and then the long distance link protection with the multi band $6 11.
Scott Wallace Searle: That's a smaller market say $30 million and it's in our it's in our toolbox right now and the reason we bring all of the <unk>.
Scott Wallace Searle: Stubhub is because of the.
Scott Wallace Searle: Bob.
Scott Wallace Searle: There are six gigahertz.
Scott Wallace Searle: Unlicensed band.
Scott Wallace Searle: Opportunity, which we think will drive more.
Scott Wallace Searle: The backhaul.
Scott Wallace Searle: Good for the fixed wireless folks.
Operator: Well, thank you.
Speaker Change: Great. Thank you.
Operator: Thank you. One moment for our next question, and our next question comes from Theodore O'Neill of Litchfield Hills Research. Your line is open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from Theodore O'neill of <unk>.
Theodore O'Neill: Bill Hills Research your line is open.
Theodore O'Neill: Thank you very much. Pete, you mentioned in your prepared remarks that you are seeing cross-selling, and I was wondering, between the PestleLink and your products, are you seeing any surprises there that you weren't expecting?
Theodore O'Neill: You very much.
Theodore O'Neill: You mentioned in your prepared remarks that you are seeing cross selling and I was wondering between the peso linked in your products are you seeing any are there any surprises there that you weren't expecting.
Peter A. Smith: So, you know, that's actually making it difficult to kind of keep the business separated, and we see opportunity in services to take, to provide services where Aviat didn't have footprint and vice versa, so that's a pleasant surprise, you know, that's masked by our slower than expected ramp, but we're really excited about that, and I would say we're six months out from being able to bring some of the Aviat software and put it on top of the Paso Link radio, and what I would, you know, this doesn't show up in the financials, but we're enthused about the customer engagement and the desire for us to, you know, make things like FAS and ASS and our network management software work on the Paso Link radio.
Speaker Change: So.
Speaker Change: That's actually making it difficult to kind of keep the business separated and we see.
Speaker Change: Opportunity.
Speaker Change: Services too to take.
Speaker Change: To provide services, where obviously didn't have footprint and vice versa. So that's a.
Speaker Change: A pleasant surprise.
Speaker Change: That's masked by our slower than expected ramp, but we're really excited about that and I would say, we're six months out from being able to.
Speaker Change: Bringing some of the <unk> software and put it on top of the passenger Inc.
Speaker Change: Radio and what I would this doesn't show up in the financials, but we're we're enthused about the customer engagement and the desire for us to.
Speaker Change: Things like fast and has and our network management software work on the passenger.
Speaker Change: Passenger like radios.
Speaker Change: Okay and on the.
Peter A. Smith: Okay, and on the first India microwave backhaul order, did something unique happen in India that opened up this opportunity for you?
Speaker Change: The first India microwave backhaul order did something something unique happened in India that they've opened up this opportunity for you.
Peter A. Smith: I think we proved ourselves with the e-band and multi-band and our vendor-agnostic software, as well as our delivery. And that was an opportunity to go after some of the incumbents. And the feedback that we've received, right, we did well when we got the small opportunity. The feedback we're getting now on the microwave piece is that they like the technical performance of our product, the simplicity of the design, and some of our key features. So we're, you know, we executed on, you know, the toehold, and it seems like it's going to pave the way for future growth.
Speaker Change: I think we proved ourselves.
Speaker Change: With <unk> and multi band at our vendor agnostic.
Speaker Change: Software as well as our delivery.
Speaker Change: What that was an opportunity to do was.
Speaker Change: So after some some of the incumbents.
Speaker Change: The feedback.
Speaker Change: We have received right. We we did well when we got the small opportunity.
Speaker Change: The feedback we're getting now on the microwave pieces.
Speaker Change: They like the technical performance of our product the simplicity of the design and some of our key.
Speaker Change: Key features so we're.
Speaker Change: We executed on.
Speaker Change: Toehold, there and it seems like it's going to pave the way for future growth.
David M. Gray: Okay, and for David, on the selling and admin expense, I'm wondering how it should trend from here. There was 1.7 million in M&A in the current quarter, and I'm wondering if that continues.
Speaker Change: And for David on.
Speaker Change: Selling and admin expense I am wondering how it should trend from here, there's $1 7 million of M&A in the current quarter and wondering if that continues.
David M. Gray: Now that that should go down significantly from here on out. I wouldn't expect there'd be some straggling costs as we tackle certain things, but no, like Pete mentioned, that would help the margins, and that would also help our OPEX is the reduction in some of the transition services costs quarter over quarter as we go forward. So we expect to be getting more of those costs out, you know, going forward, so that should be working in our favor.
David M. Gray: That should.
David M. Gray: Go down significantly from here on out.
Speaker Change: Wouldn't expect.
Speaker Change: That would be yes.
Speaker Change: We have some some straggling cost.
Speaker Change: As we tackle certain things, but now they're like Keith mentioned.
Speaker Change: And that.
Speaker Change: That would have helped the margins. It also helps our opex is the reduction in some of the transition services costs.
Speaker Change: Quarter over quarter as we go forward so.
Speaker Change: We expect to get be getting more of those costs out.
Speaker Change: Going forward, so that should be.
Peter A. Smith: Okay, and my last question, Pete, I think every company should be filing S3, shelf filings for whatever amount of money they can get, but I was wondering if you could share your thoughts on putting that in place for Aviat.
Speaker Change: Working in our favor.
Speaker Change: Okay and my last question Pete I think every company should be filing.
Speaker Change: <unk> III shelf filings of however, much money they can get but I was wondering if you could.
Pete: Share your thoughts on putting that in place for avia.
Peter A. Smith: Yeah, so we we have an existing shelf from three years ago that expires on May 4th and you know I know that some investors get concerned about that. I think we're we've been a prudent deployer of capital and so us just putting the shelf in place is good corporate housekeeping if some opportunity were to present itself we're in position to capitalize on it but I want to be clear we currently have no active deal in our M&A pipeline that would necessitate pulling down the shelf but we just wanted the flexibility and then a couple investors put in some questions since that filing came out you know about our firepower and we were comfortable using debt up to three times our 12 months trailing EBITDA or three times the pro forma combined EBITDA so we think we have some significant firepower and then an additional question was If you use that debt, what would the rate be? And we think it would be in the SOFR plus 250 to SOFR plus 300 basis points.
Pete: So we.
Pete: We have an existing shelf from three years ago.
Operator: Okay, thanks very much. Thank you. One moment for our next question.
Pete: Expires on May 4th.
Pete: I know that.
Pete: Some investors.
Pete: Character concerned about.
Pete: I think we're we've been prudent.
Pete: Deployment of capital.
Pete: So I was just putting the shelf in place as good corporate housekeeping, if some opportunity were to present itself. We're in position to capitalize on it but I want to be clear. We currently have no active deal and our M&A pipeline that would necessitate pulling down the shelf.
Pete: But we just wanted the flexibility and then.
Pete: A couple of investors.
Pete: I'll put it in some questions since that filing came out.
Pete: About our firepower and we were comfortable using that up to three times, our 12 months trailing EBITDA of three times the pro forma combined.
Pete: EBITDA. So we think we have some significant firepower and then.
Pete: An additional question was.
Pete: If you use that.
Pete: The rate be and we think it would be in the sulfur plus 250 to Salford plus 300 basis points.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thank you one moment for our next question.
Operator: And our next question comes from Tim Savageau of Northland Capital Markets. Your line is open.
Speaker Change: And our next question comes from Tim Savage, Joe of Northland Capital markets. Your line is open.
Timothy Paul Savageaux: Hey, good afternoon. You mentioned 7% organic growth for Aviat in fiscal Q3. I wonder if you can give us...
Timothy Paul Savageaux: Hey, good afternoon.
Timothy Paul Savageaux: You mentioned, 7% organic growth.
Timothy Paul Savageaux: For RBI in fiscal Q3.
Timothy Paul Savageaux: I Wonder if you can give us.
Peter A. Smith: Similar estimate, not a similar number, but the same type of estimate for organic growth that you're implying here for Q4. And I think that brings you in right or likely brings in somewhere around 5% for the year. Is that sort of rate maybe a little bit below your historic growth rate, but would you expect, at least as you look at it now, would you expect that to persist into fiscal 25 or maybe something more typical, kind of mid to high single digits in terms of organic growth rate for Aviat? Thanks.
Timothy Paul Savageaux: A similar estimate not a similar numbers, but at the same type of estimate for organic growth that you are implying here for Q4.
Timothy Paul Savageaux: And I think that brings in right are likely bring in somewhere around 5% for the year.
Timothy Paul Savageaux: Is that sort of rate.
Timothy Paul Savageaux: Maybe a little bit below your historic growth rate, but would you expect at least as you look at it now would you expect that to persist.
Timothy Paul Savageaux: Into fiscal 'twenty, five or maybe something more typical kind of mid to high single digits in terms of organic growth rate for avianca. Thanks.
Peter A. Smith: I think that the mid-single digits, where we would end this year, would carry forward into 2025. We're not going to estimate in the high single digits at this point. That's about it for the lawyers.
Speaker Change: Yes, I think I think in that.
Timothy Paul Savageaux: Mid single digits, where we where we would end this year with carryforward into.
Timothy Paul Savageaux: Into 25, we're not.
Timothy Paul Savageaux: We're not going to estimate in the high single digits at this point.
Peter A. Smith: But, look, for modeling purposes, put it at mid-single digits, and, you know, we, uh... Of course, we're going to try and do better than that. And, you know, we talked about two other headwinds: Tier 1 and Africa. We think that Africa is really at a bottom, and, you know, that's largely interest rates. And another data point that I'd like to add is on our cost and currency basis, our revenue was down 4%; it would have been 4% higher if we didn't have the emerging market currency issue.
Speaker Change: So look for modeling purposes.
Timothy Paul Savageaux: At mid single digits.
Timothy Paul Savageaux: We.
Speaker Change: Of course, we're going to try and do better than that.
Timothy Paul Savageaux: Look we talked about two other.
Timothy Paul Savageaux: Headwinds.
Timothy Paul Savageaux: Tier one and Africa, we think that the.
Timothy Paul Savageaux: Africa is.
Timothy Paul Savageaux: Is really.
Timothy Paul Savageaux: Kind of at a bottle and.
Timothy Paul Savageaux: That's largely.
Timothy Paul Savageaux: Interest rates and.
Timothy Paul Savageaux: Another data point that I would like to add is on a constant currency basis, our revenue was down.
Timothy Paul Savageaux: 4% it would have been 4% higher if we didn't have the emerging market.
Timothy Paul Savageaux: <unk>.
Peter A. Smith: And we would have had about $1.9 million more EBITDA. So, you know. We beat the consensus on the bottom. We, you know, I would say the Africa currency issue is, you know, that's beyond the control of Aviat, but we're well positioned when that dam breaks.
Timothy Paul Savageaux: Currency issue and we would've had.
Timothy Paul Savageaux: At $1 9 million more EBITDA so.
Timothy Paul Savageaux: Okay.
Timothy Paul Savageaux: We believe.
Timothy Paul Savageaux: We beat the consensus.
Timothy Paul Savageaux: The bottom.
Timothy Paul Savageaux: The bottom line despite that so our number one focus is to drive the Paso link.
Timothy Paul Savageaux: Revenue up quicker and.
Timothy Paul Savageaux: No.
Timothy Paul Savageaux: I would say the <unk>.
Timothy Paul Savageaux: Africa currency issue.
Timothy Paul Savageaux: <unk>, that's beyond the control of <unk>, but we're well positioned when that.
Timothy Paul Savageaux: That damn Tam.
Timothy Paul Savageaux: <unk>.
Peter A. Smith: Okay, thanks, and maybe I was going to follow up with that, hopefully a discussion on some of the puts and takes around that organic growth rate. You mentioned Africa, although that sounds like it's impacting this year, and if it's bottoming, maybe that could be a tailwind. You know, I imagine the rural broadband growth drivers could get stronger next year. Then again, you mentioned finishing up a Tier 1 project, and maybe that's a tough comparison. So, Pete, I wonder if you might just, you know, go through some of those puts and takes around that mid-single-digit growth rate and, you know, what could drive it either way.
Speaker Change: Okay. Thanks, and maybe it was going to follow up with that with <unk>.
Timothy Paul Savageaux: Hopefully a discussion on some of the <unk>.
Timothy Paul Savageaux: And takes around that organic growth rate you mentioned.
Timothy Paul Savageaux: Africa, although that sounds like it's impacting this year and if it's bottoming maybe that could be.
Timothy Paul Savageaux: <unk>.
Timothy Paul Savageaux: I imagine the rural broadband growth drivers.
Timothy Paul Savageaux: To get stronger next year.
Timothy Paul Savageaux: And then again, you mentioned, finishing up a tier one projected maybe that's a tough compare so Peter I Wonder if you might just go through some of those puts and takes around that mid single digit growth rate.
Peter: What could drive it either way.
Peter A. Smith: Yeah, so the, um... The Tier 1 project is a tough comparer, you know. We think we have about a 35 percent, 35 percent share of world broadband, and if the RDoF kicks in a meaningful way, that's going to be very, very positive for us. A reversal in the currency with respect to Africa is going to be good and then, you know, so let me come back to the U.S. Tier 1 question: about some... some multi-dwelling unit trials that we can't disclose to the customer, but we'd acknowledge those, and if that were to get across the goal line, that would be a significant uplift to offset the completion of the project.
Peter: So the.
Timothy Paul Savageaux: The tier one.
Timothy Paul Savageaux: Project is a tough compare.
Timothy Paul Savageaux: Sure.
Timothy Paul Savageaux: We think we have about 35%, 35% share of rural broadband and if <unk> kicks in a meaningful way that's going to be.
Timothy Paul Savageaux: Already very positive for us a reversal and the currency with respect to Africa is going to be good and then.
Timothy Paul Savageaux: So let me come back to the U S tier one.
Timothy Paul Savageaux: This is a question that we've gotten.
Timothy Paul Savageaux: We acquired period is about.
Timothy Paul Savageaux: Some.
Timothy Paul Savageaux: Some multi dwelling unit trials that we can do.
Timothy Paul Savageaux: Disclose the customer but we.
Timothy Paul Savageaux: We would acknowledge those and if that if that were to.
Timothy Paul Savageaux: Get across the goal line that would be.
Timothy Paul Savageaux: A significant uplift to offset the completion of the project. So we were pretty.
Peter A. Smith: So we're pretty happy with our funnel, and we think that the future is rather bullish for us. So the puts and takes, the put is the completion of the U.S. Tier 1. We are seeing new projects with our major U.S. Tier 1 customer that could be a lift for us. We see African currency at the bottom, and we need, as interest rates moderate, that to reverse, and we need to get the PASO link ramped up to where it should be.
Timothy Paul Savageaux: Happy with our funnel.
Timothy Paul Savageaux: <unk>.
Timothy Paul Savageaux: We.
Timothy Paul Savageaux: We think the future is.
Timothy Paul Savageaux: As rather bullish for us.
Timothy Paul Savageaux: So the puts and takes to the put is the completion of the.
Timothy Paul Savageaux: The us tier one we see new new projects with our major U S tier one customer that it could be a lift for us we see Africa currency.
Timothy Paul Savageaux: At the bottom we need.
Timothy Paul Savageaux: As interest rates moderate thats going to.
Timothy Paul Savageaux: A reverse and we need to get the Paso, Inc.
Timothy Paul Savageaux: Ramped up to where where it should be.
Peter A. Smith: And that's a good place to end for my last question, which is, would you hope to have that up to the target run rate by the end of fiscal 25? And that's it for me. Thanks.
Speaker Change: And that's a good place to end for my last question, which is what would you hope to have that up to the targeted run rate by the end of fiscal 'twenty five.
Speaker Change: Thats It for me Thanks, Yes, yes.
Peter A. Smith: Yeah, that's funny. Tim, you usually give me a hard time for not being direct in my answers, and rightfully so from your perspective. But my answer on that is a clear, crystal clear yes.
Speaker Change: Yes.
Timothy Paul Savageaux: Right.
Timothy Paul Savageaux: You usually give you a hard time for that.
Timothy Paul Savageaux: Being a director and my answers and rightfully. So from your perspective my answer on that is a clear crystal clear yes.
Timothy Paul Savageaux: when received in a crystal clear fashion. Thanks, Pete.
Speaker Change: When received and Crystal clear fashion. Thanks Pete.
Operator: Thank you. And as a reminder, to ask a question, please press star one one. One moment for our next question. I'm actually showing no further questions at this time. I'd like to turn the conference back to Pete Smith for closing remarks.
Speaker Change: Thank you and as a reminder to ask a question. Please press star 111.
Speaker Change: One moment for our next question.
Speaker Change: I'm actually showing no further questions at this time I would like to turn the conference back to <unk> Smith for closing remarks.
Peter A. Smith: Thanks, everyone, for joining us. We're looking forward to updating you in about 90 days. We remain enthusiastic about the business. We think our products, customers, and our cost reduction program are on track, and we're certainly bullish about the future.
Smith: Alright, thanks, everyone for joining us we're looking forward to updating you at about.
Timothy Paul Savageaux: 90 days, we remain enthusiastic about.
Timothy Paul Savageaux: About the business, we think are.
Timothy Paul Savageaux: Our products customers at our cost reduction program are.
Smith: On track.
Timothy Paul Savageaux: We're certainly bullish about the future thanks, everyone.
Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.
Timothy Paul Savageaux: Yeah.
Timothy Paul Savageaux: Okay.
Timothy Paul Savageaux: [music].
Timothy Paul Savageaux: Okay.
Timothy Paul Savageaux: Pete.
Timothy Paul Savageaux: Yes.
Timothy Paul Savageaux: [music].
Timothy Paul Savageaux: Okay.
Timothy Paul Savageaux: [music].
Timothy Paul Savageaux: Yes.
Timothy Paul Savageaux: [music].