Aviat Networks CEO Discusses F1Q2011 Results – Earnings Call Transcript
Aviat Networks, Inc. (
)
F1Q2011 (Qtr End 10/01/10) Earnings Conference Call
November 4, 2010 4:30 PM ET
Executives
Cynthia Johnson – Director, Corporate Communications
Chuck Kissner – Chairman and CEO
Tom Cronan – SVP and CFO
Analysts
Blaine Carroll – Hudson Securities Inc.
Barry McCarver – Stephens Inc.
Rich Valera – Needham & Company
Joanna Makris – Mizuho Securities
Ilya Grozovsky – Morgan Joseph
Matt Thornton – Avian Securities
Presentation
Operator
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Ladies and gentlemen, thank you for standing by, and welcome to the Aviat Networks conference call. (Operator Instructions) I would now like to hand the conference call over to Cynthia Johnson. Cynthia, you may begin.
Cynthia Johnson
Thank you, operator. Good afternoon, everybody, and welcome to our Fiscal 2011 Earnings Call. This is Cynthia Johnson, and I am joined by Chuck Kissner, Chairman and Chief Executive Officer; and Tom Cronan, Senior Vice President and Chief Financial Officer.
During this conference call, we may make forward-looking statements regarding our business, including statements relating to projections of earnings and revenues, business drivers such as the transition to IP infrastructure, the timing and capabilities of new products, network expansion by mobile and private network operators and variations of economic recovery in different region.
These and other forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and the filings made by the company with the SEC. These can be found on the Investor Relations section of our company website, which is www.aviatnetworks.com.
Now, I’d like to turn the call over to Chuck Kissner, Chairman and Chief Executive Officer of Aviat Networks. Chuck?
Chuck Kissner
Thanks, Cindy, and thanks to all of you for joining us today. During the conference today, I’m going to provide a general overview, and then Tom will provide a detailed financial review of our first quarter 2011 as well as the status of the restructuring that announced last quarter. Then I’ll provide an update on our business status, the market conditions and more information about the going forward strategy.
So, first the overview. Our revenue at $109 million came in about the middle of our guidance of $100 or $120 million. The man did begin to improve during the quarter, but we were constrained by operational disruption that we previously had indicated should be expected and I’ll speak to those later.
Order input was quite strong during the quarter; it contributed to a positive book to bill, which actually wouldn’t have been recorded revenue at the top of the range. Cash usages was significantly above our original projection and that was due to a level of operational disruption at affected inventory and to a greater extent our receivables.
As our shipping performance improves that increase non-cash working capital should convert back to cash again. But clearly that wasn’t our plan for the quarter. The refocusing of our product development as began to year results already with a release of some new eclipse features for the market and momentum on some additional enhancements that are underway.
In addition to that our efforts to reduce cost in the product line are on track. While our wireless transmission business which includes the mobile backhoe business is encouraging, we do face challenges with our WiMax product line as we work hard to satisfy both existing and new commitments. And just as an example WiMax negatively impacted gross margins by about 250 basis points during this quarter.
In general, we’re on track with our restructuring plan with a number of operational issues that are really connected to the speed at which we’re moving have been pretty high. That being said, we are making progress and we’re convinced that moving at this fast rate is the right thing to do for the business.
So, with that, I’ll turn it over to Tom.
Tom Cronan
Thank you, Chuck. We have now completed the first full quarter of our fiscal 2011 restructuring plan. In Q1, we made good progress towards our goal of reducing our year-over-year total spending by $30 to 35 million. Operating expense was down $4.1 million sequentially. Spending and our manufacturing and operations group was down $400,000 sequentially.
In part, our spending reductions were accomplished by reducing headcount by 130 people or 9% of the worldwide headcount to the level we had planned for Q1. Part of this reduction was moving in house manufacturing to a contact manufacture in Texas. In the long term, this transition will reduce our cost and improve our margins. However, in the short term, this transition has proved very disruptive.
Although revenue for the quarter was in line with our guidance, we experienced significant manufacturing and delivery delays as a result of accelerating the completion of both the manufacturing transition and the systems conversion. We have finally completed the transition of our legacy enterprise resource planning or ERP system in North America for an Oracle based system.
As happens in this kind of changes, there are significant order processing issues which impacted order fulfillment in North America. This North American disruption as well continuing worldwide component shortages significantly affected the timing, geographic distribution and the mix of overall revenue. Most importantly, our inability to make complete shipments significantly affected our collections in the quarter.
We are making incremental improvements in our North American manufacturing process and ERP systems in Q2. But we expect that will take us to at least Q3 and so our manufacturing ability is sufficient to match customer demand.
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