Aviat Networks' CEO Discusses F4Q12 Results - Earnings Call Transcript

Aviat Networks, Inc. (AVNW)

F4Q12 Earnings Conference Call

August 16, 2012 4:30 PM ET


Cindy Johnson - Director of Corporate Communications

Mike Pangia - President and CEO

Ned Hayes - SVP and CFO


Blaine Carroll - Avian Securities

Barry McCarver – Stephens Inc.

Rich Valera – Needham & Company

Aalok Shah – D.A. Davidson



Ladies and gentlemen, thank you for standing by, and welcome to the Aviat Networks conference call. During today’s presentation, all participants will be in a listen-only-mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to hand the conference over to Ms. Cindy Johnson, Director of Corporate Communications. Cindy, you may begin.

Cindy Johnson

Thank you, operator. Good afternoon, everybody, and welcome to our Fourth Quarter and Fiscal year 2012 Earnings Call. This is Cindy Johnson, and I am joined by Mike Pangia, President and Chief Executive Officer; and Ned Hayes, 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, 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 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 Mike Pangia, President and CEO of Aviat Networks. Mike?

Mike Pangia

Thanks, Cindy. And thank you all for joining us today. I’m very pleased to report another solid quarter with several bright spots. We had good top line momentum, we held our spending in check, we had outstanding cash performance, we continued to add new customers and we are executing our technology roadmap.

Revenue exceeded our prior guidance at $116 million and for the fifth consecutive quarter our book-to-bill was up one or above. And most importantly, we generated positive cash flow from our core business excluding restructuring. The final mix of products, customers and timing of shipments led to gross margins below our prior expectations, but as discussed in previous calls, gross margin progression towards our long term goal will not be linear. We are confident that our gross margin rate will improve steadily in fiscal year 2013 with a more pronounced pickup in the second half of fiscal year as driven by the increase contribution from our new products. And I will provide more color on this later in the call.

We added 33 new customers in our fourth quarter for the total of 119 in fiscal year 2012. Including the first order from a new Tier 1 mobile operator that we announced in last quarter’s call. We also successfully completed the first route with our leading customer for low-latency market application and we received our first WTM 3000 orders.

With that, I would like to provide an update on the microwave transmission market. Mobile backhaul continues to be our primary addressable market segment and the demand for increasing backhaul capacity in our customers’ networks is ongoing. In North America, the demand is mainly driven by expansion of LTE deployments in our key customer’s networks, while internationally it is a combination of increasing capacity to handle subscriber growth, ongoing build out of some large 3G deployments, and the emergence of early stage LTE. The more we support our customers for LTE readiness, the more we see demand for significant increases in microwave backhaul capacity as well as leveraging IP networking for efficiency and future flexibility. We are confident that our technology roadmap is well aligned with these evolving market requirements. The discussion around smaller cell architectures is also gaining momentum, with a lot of interest in millimeter wave products as one of the possible backhaul solutions. We see the potential for deployments of millimeter wave solutions beginning to grow by mid-2013 calendar year.

We continue to see good opportunities in several other market segments, especially utility networks and public safety and security applications. As we stated last quarter, a new emerging segment is an application for low-latency connections. The low-latency characteristics of microwave versus fiber optics are leading to strong interest in creating alternative, long distance microwave routes between a number of large metropolitan centers. In addition to the initial system that we have already deployed at just under 700 route miles, we have uncovered interest in a number of other routes totaling more than 8000 miles. The combination of long distance and the design modifications we have made in our products, gives us a very compelling solution for these low-latency applications.

Now, I would like to comment on some specific activities by geographic sector. In Africa, we continue to see substantial demand as our key customers invest in network expansions and migration from IP to support their current mobile service offerings. Additionally, we are seeing increasing demand for high capacity long haul solutions within countries, as operators prepare to address the capacity demand of the exploding data market. We see this trend expanding as more undersea optical system to both East and West Africa will provide improved bandwidth between the African continent and the rest of the world over the next few years. Our focus on partnership with our Tier 1 mobile customers and our value add offerings of turnkey solutions and long term support positions us well in this region.

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