Aviat Networks, Inc. (AVNW) on Q1 2024 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to Aviat Networks' First Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow with formal presentation. Please note, this conference is being recorded. I'd now turn the conference over to your host, Mr. Andrew Fredrickson, Director of Investor Relations. You may begin. Andrew Fredrickson: Thank you, and welcome to Aviat Networks' first 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 first 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. 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 the 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 statements made on this call, can be found in our most recent annual report on Form 10-K, filed with the SEC. The company undertakes no obligations to revise or make public any revisions 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 a 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. Pete? Peter Smith: Thanks, Andrew, and good afternoon, everyone. Thank you for joining us to review Aviat Network's results for the fiscal first quarter of 2024. I'm pleased to report that Aviat continued its strong execution and achieved revenue and profitability expansion in the quarter. Highlights from the first quarter includes revenue of $87.6 million, which represents growth of 7.8% versus Q1 of last year. Adjusted EBITDA of $12.1 million, a 13.1% increase versus Q1 of last year. Non-GAAP EPS increase of 16.0%. Strong cash generation in the quarter. Aviat generated operating cash flows of $14 million and ended the quarter with $35.5 million of cash and marketable securities and a debt free balance sheet. These financial and operational results are driven by the continued implementation of Aviat's operating system and made possible thanks to the effort and execution of the Aviat team and our partners throughout the quarter. Let's discuss key highlights of the first quarter. Aviat's exposure across different verticals, geographies, and customers has made our business strong and diverse. We continue to see healthy demand in private networks, mobile networks, and rural broadband networks. In private networks, we continue to innovate in North America. Aviat sales in this region grew 14% in the quarter versus the same period prior year. Thanks in part to the strong private network demand environment. We have executed well and have grown a robust project backlog. We had a record Q1 private network bookings that remain excited about the outlook of this segment. Increasingly, states are turning directly to Aviat for our expertise. Recently, we announced wins of two large state public safety networks, which are examples of this trend. These projects are made possible by the full breadth of products and services that Aviat offers. High power microwave radios, high availability routers, and management software, along with turnkey services for design, installation, support, and ongoing managed services. This full suite of solutions is why Aviat is the leader in private networks. We believe that demand environment in private networks will remain robust in the quarters and years ahead. State and city budgets remain strong and growing in the current fiscal year. State public safety spending is expected to grow ahead of overall budget rates, and city, police, and fire spending is growing faster this year versus the prior two years. Additionally, American Rescue Plan Act funds, or ARPA, which are now fully distributed to the states, are still in the early stages of utilization. These funds must be spent by the end of calendar year 2026. We expect this will provide a meaningful tailwind to private network expenditures. We continued our momentum and had a very strong quarter in federal government projects. Our revenue from federal business over the last 12 months has nearly doubled compared to the prior 12-month period. Based on our bookings and the long lead time nature of these projects, we expect the recent strength in this segment to continue in the quarters ahead. We anticipate a short to medium term federal shutdown would have a minimal impact on our Federal Project business. Mobile network operators continue their investment in building the microwave portion of their 5G networks both in the U.S. and internationally. Aviat's unique product portfolio continues to attract operators by lowering their total cost of ownership and improving network performance. We are still early in the adoption of mobile 5G and we expect continued investment in microwave networks to support growing needs from both customers and business enterprises. In the U.S., the mix shift to microwave as the mode of backhaul is favorable. In this regard, a U.S. Tier 1 customer was significant for Aviat in the quarter. We believe that as the 5G buildout extends beyond urban areas, we will continue to see demand for our microwave products and services. Internationally, operators are planning and growing their 5G deployments and we are focused on winning new business and projects. That our role broadband business, Aviat continues with our distinctive e-commerce platform and it had a strong quarter of Aviat's store performance. Wireless internet service providers and others continue to invest and plan for funding from the Rural Digital Opportunity Fund or RDOF and Broadband Equity Access and Deployment Program or BEAD. There has been recent commentary from several states for considering or plan to employ technological neutrality in BEAD-related projects. This is a positive development for the use of wireless backhaul as microwave is typically a more cost-effective technology than fiber for rural communities, while still providing low latency, high reliability, and a high bandwidth. This would be a win-win for citizens in states as microwaves can be deployed faster than fiber, while providing the bandwidth and speed needed. This also allows states to stretch their BEAD funding dollars further. We are well-positioned to capture this business as we are already working with states and service providers alike to ensure Aviat is ready to supply these critical infrastructure projects. At the beginning of October, Aviat attended WISPAPALOOZA, an annual wireless ISP and rural broadband convention where we were encouraged by the upbeat tone of network operators. Deployments remain healthy and fixed wireless access continues to grow. We believe that the expansion of the 6 gigahertz frequency for unlicensed broadband services, which should be authorized by the FCC by the end of the year, will drive further uptick in wireless access. This is important for Aviat as fixed wireless access networks tend to use microwave as their backhaul at a higher rate than fiber-to-the-home networks. Given the recent turbulence in the network equipment space, let me emphasize why Aviat's demand environment remains strong and we continue to execute on our growth plans. First, as I opened with, Aviat's business is diversified between the segments we serve. Private networks, mobile network operators, and rural broadband operators do not follow the same CapEx cycles. Additionally, Aviat benefits from our direct to the customer channel rather than relying on distributors. Roughly 90% of our business is direct. This allows us to have intelligence from customers about their needs and business forecasts. This also eliminates the risk of inventory buildup at distributors, which many companies are currently experiencing. This visibility allows us to better serve the customer and keep a pulse on market demand, which feeds into our new product and service development process. Many network equipment providers, particularly fiber players, have struggled with their supply chains over the last couple of years that have recently experienced softening demand as a result of the overordering that occurred. I spoke at length about this on our last earnings call and these factors remain true today. Aviat has been able to avoid this problem and continues to execute favorably because of our supply chain resiliency over the last three years and our direct relationships with our customers. Our supply chain environment is normalized and we remain committed to constantly improving our performance. We are confident in our ability to meet customer demand and support our growing markets. Not only has near-term demand remained strong, but we also see our total addressable market growing over the long-term. Historically, Aviat has been viewed as a microwave business serving a $3.2 billion market. To better serve our customers, we have added routers, managed services, and software to our portfolio. Our recent tuck-in acquisition of Access Products expanded the markets we can serve. As a result of the acquisition and our organic investments, our business today serves a TAM of greater than $11 billion. We believe that our current TAM will grow at 7% through 2027 to become a $15 billion market. This growth is driven by increasing data consumption on global networks and significant investments in private LTE and 5G networks. We expect our TAM to continue to expand as we find new ways to serve our customers. To continue our share gain plans, maintain our TAM and respond to recent investor inquiries, we will provide an update on our roadmap and semiconductor modem plans. Our roadmap is focused on the following factors. Capacity, distance, total cost of ownership. Today Aviat delivers industry leading capacity at distance and our customers enjoy cost of ownership benefits. For example, today we provide five gigabits per second radios at 40 plus miles, 10 gigabits per second radios at 20 miles, and 20 gigabits per second radios at distances shorter than three miles, one of two such radios available in the market. While capacity is on the mindset of many technologists and investors, the 20 gigabit per second radio represents very little of our total demand. Extending beyond this capacity in any meaningful way requires new bands like D-Band, which I will touch on in a moment. The principal access of innovation is to deliver customer-required capacity at increased distances at the lowest total cost of ownership. The path to achieve this key innovation requirement is the integration of switch technology, modem technology and the microprocessor. In our view, the best way to achieve integration is with an economical advanced semiconductor technology node, or said in another way, geometries. The better semiconductor technology node permits increased functionality, integration, and lower power consumption. We believe our roadmap has advantages here. Beyond capacity, distances, and cost of ownership, roadmap discussions often mention spectrum, frequency ranges or bands. Our roadmap will support products where spectrum is currently available and where spectrum is anticipated to be available in the coming years. Recently, one of our competitors highlighted D-Band spectrum as a 6G product targeting 2030. We tend to agree and we will be ready. With that, let me turn the call over to David to review our financials before coming back for some final comments. David? David Gray: Thank you, Pete, and good afternoon, everyone. During my remarks today, I'll review some of the key fiscal 2024 first 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 first quarter of fiscal 2024 and the first quarter of fiscal 2023 unless noted otherwise. For the first quarter, we reported total revenues of $87.6 million as compared to $81.3 million for the same period last year, an increase of $6.3 million or 7.8% driven by strong growth in the Americas and Europe. North America, which comprised 63% of our total revenue for the quarter, was $55.5 million, an increase of $6.7 million or 13.6% from the same period last year, driven by our private networks and Tier 1 business. International revenue was $32.1 million for the quarter, a decrease of $0.3 million or 1.1% from the same period last year. Strong growth in Latin America, the Middle East and Europe was offset by cyclical weakness in African mobile operators CapEx spending. Our trailing 12-months book-to-bill ratio remained above one as it has since fiscal 2018. Gross margins for the quarter were 36.4% and 36.6% on a GAAP and non-GAAP basis as compared to 36.3% and 36.5% in the prior year. The improvement was driven by strong growth in higher margin North American business. First quarter GAAP operating expenses were $26.3 million, an increase of $0.8 million from the prior year. First quarter non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation and deal costs were $21.3 million, an increase of $0.9 million. The increase in both GAAP and non-GAAP operating expenses were driven by higher investment in R&D. Our disciplined cost management continues to deliver operating leverage on revenue growth. First quarter GAAP and non-GAAP operating income were $5.5 million and $10.7 million compared to prior year GAAP of $3.9 million and non-GAAP of $9.2 million, or increases of 41.8% and 17.7% respectively. First quarter tax provision was $0.6 million compared to $3.9 million last year. Last year's figure included a one-time discrete charge of $2.6 million related to our legal entity restructuring. As a reminder, the company has nearly $500 million of NOLs that will continue to generate shareholder value via minimal cash tax statements for the foreseeable future. First quarter GAAP net income was $4.0 million as compared to a loss of $2.7 million last year. Last year's results included a one-time loss of $1.7 million on marketable securities and the previously mentioned discrete tax provision charge. First quarter non-GAAP net income, which excludes restructuring charges, share-based compensation, M&A related costs, and non-cash tax provision was $10.3 million compared to $8.8 million for the same period last year, an increase of $1.5 million or 17.6% driven by revenue growth and margin expansion. First quarter non-GAAP EPS came in at $0.87 per share on a fully diluted basis compared to $0.75 per share for the same period last year, an increase of 16%. Adjusted EBITDA for the first quarter was $12.1 million, an increase of $1.4 million or 13.1% from the prior year. Adjusted EBITDA margins were 13.8% for the quarter. Moving on to the balance sheet, our cash and marketable securities at the end of the first quarter increased to $35.5 million from $22.1 million in the prior quarter with no debt. The $13.3 million increase in cash for the quarter was driven by solid profitability coupled with improvements in accounts receivable and inventory balances. Our balance sheet remains very solid, providing us with flexibility to continue executing our long-term plans. With that, I'll turn it back to Pete for some final comments. Pete? Peter Smith: Thanks, David. Before opening up for Q&A, I'll provide a few updates and closing commentary. First, I would like to thank Jim Stoffel for his years of service as an Aviat Board Member. Jim served on our Board of Directors for over 16 years. During that time, he helped navigate Aviat from the merger that created the company, through to the exciting position we were in today as the leading wireless transport company. His leadership and knowledge have been a tremendous asset, and we thank him for all those contributions to the company. Second, we currently expect the NEC transaction to close in December 2023. We continue to progress on regulatory approvals, and the exact date remains subject to customary closing conditions. We can add some qualitative updates. The integration planning is progressing smoothly. Based on our learnings today, we now believe that the transaction will be accretive in the fourth quarter after close as compared to the fifth quarter previously stated. Based on the company's outlook, we are affirming our fiscal year 2024 guidance exclusive of the NEC business. We will update our guidance to include the NEC business after the closure of the transaction. Note that our guidance is on a full-year basis and reflects the project basis of our deployment. In Q1, we had a few projects that were accelerated and positively impacted the quarter. Based on the current project pipeline, we expect Q2 to be sequentially up from Q1. To reiterate, our fiscal year 2024 guidance is as follows. Revenue to be in the range of $367 million to $374 million, and adjusted EBITDA to be in the range of $51 million to $56 million. With that, Operator, let's open up for questions. Operator: Thank you. [Operator Instructions]. One moment for our first question. Our first question comes from the line of Scott Searle with Roth. Your line is now open. Scott Searle: Hey, good afternoon. Thanks for taking my questions. Pete, Dave, great job on the quarter. Maybe just to start, Pete, it sounds like you've got a high degree of confidence in terms of the near term and intermediate term outlook, which is really divergent from what's going on in the rest of the world. I didn't hear India as part of your commentary. I was wondering if you'd give an update there. And then looking at the private networks business, it seems like there continues to be a lot of strength there. How far out do you have visibility on that front? And looking at your fiscal '24 guidance, I was wondering what are the swing factors to the upside? You've been pretty conservative, I think, in terms of how you look to the outer quarters and guide for the year. I'm wondering what the factors are that would help you out to the upside of the range that you've provided? Peter Smith: I think just thinking about India, we see probably 30% year-over-year growth. What quarter that it didn't hit in this quarter, and it's probably more likely to be in the January to June time frame. So we see India as being solid. With respect to visibility in the private network space, we came in with tremendous growth in backlog, our July 1 to June fiscal year. Again, this quarter, we were pleasantly surprised that our bookings of North America private networks were the highest they've ever been in a first quarter for Aviat. And that gives us confidence in the business, in the medium to long-term, because those projects typically, if we get a booking like now, we go into a design phase and revenue can start one quarter to three quarters later. So we think that that is going to play out and our backlog mostly would cover the next 12 months, the next 24 months, and very little goes past the 24 months period. So I think you might ask three questions and I hit on two of them so. Scott Searle: Yes, Pete -- just swing factors to the upside, Pete. Where do you see it? Because it seems like we're early days in terms of ARPA contribution in RDOF. I don't know if there's a number of percentage of the mix that you could quantify now, but it seems like it's early stages on that front. But looking to fiscal '24, where do you see the swing factors to the upside? Peter Smith: Yes, so we've seen some small design orders with respect to the RDOF and we would say that the RDOF funding looks like we'll get some more of it in the January to June time frame. The -- in the quarter we announced two large public safety wins. We think some of that came from ARPA. We see a lot of the ARPA money as being unspent and stretching out, needing to be spent by the end of 2026. So we think that that's going to be good and more immediate data. We really didn't expect to have record private network bookings in North America in our first quarter, and we did. So we think we're starting to see ARPA impact the demand environment and we think it will grow going forward. Scott Searle: Great. And lastly, if I could just to follow-up on NEC. It's nice to see that you're comfortable enough to move up the timeline of expected accretion. But it sounds like the integration ahead of the deal closing is progressing in line to better. But I'm wondering what the responses that you're getting from customers. How are you feeling about revenue attrition, how the customers like the deal, and kind of the expectations on that front going forward? Thanks. Peter Smith: So, we gave that in the past, we said that we expect there to be $150 million in revenue the first year after close. We're still comfortable with that. So we did model in some attrition and perhaps some global Tier 1 operator softness. So we factored that into the price we paid for the transaction, the deal. Then with respect to the customer engagement, I think the customers see a broad end portfolio from the combined entities. NEC has an incredible split-mount architecture. And Aviat brings routers, some standalone software and access products. So we have been factored that into the model. What we learned from the red line transaction to get revenue synergies is probably 12 months after close. And the initial conversations with customers would indicate that that's a real possibility. Scott Searle: Great. Thanks so much. Nice job on the quarter, and I'll get back in the queue. Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Jaeson Schmidt with Lake Street. Your line is now open. Jaeson Schmidt: Hey guys, thanks for taking my questions. Pete, just curious if you could provide an update on what you're seeing from that Huawei funnel. I think last quarter you mentioned the current funnel was over $80 million. Has there been any change? Peter Smith: I would say the route change we'd like to report is we increased our bookings from the Huawei share gain funnel by a little bit under 10%. So our bookings went up $3.3 million, so that continues to be a fruitful area for us. Jaeson Schmidt: Okay. That's helpful. And then just with your commentary on India being more of a kind of January, June impact. Would it be fair to expect gross margin to remain a relatively flat here in the December quarter just given your mix expectations? Peter Smith: Yes, so our gross margin was made progress versus the prior quarter and prior year as we said, the highest in six quarters. We expect the continued improvement. And like we said, alluded to last quarter, we expect a 100 basis point roughly improvement for the full-year. Project-based nature, it's not going to be a straight line, but we expect for the full-year to be about a 100 basis points above. David Gray: Yes, so Jaeson, that'll depend on kind of the Indian project timing. As the quarter it comes in, it'll be a little bit lower. The quarter doesn't come in, it'll be grow as far as it'll be a little higher. Jaeson Schmidt: Okay. Perfect. And then just the last one from me, and I know you guys have sort of outlined it in the past, but just want to get another confirmation that I mean you're not seeing any sort of pockets of excess inventory pop-up in any of the segments that you play in? Peter Smith: Absolutely not. And my comment in the script was that we covered that [indiscernible] in the last session, everything that we said about the ability to get for the likelihood of having double orders. It's not in the microwave place. And that's why we emphasize this quarter that we're 90% direct. We do installs on our biggest customers. So we would know if there was an inventory problem. So I want to say unequivocally, we do not have that problem. Jaeson Schmidt: I appreciate the caller. I'll jump back into queue. Thanks a lot, guys. Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Erik Suppiger with JMP Securities. Your line is now open. Erik Suppiger: Yes, thanks for taking the questions. First off, you said that you had record bookings in Q1 for North America. I think you also had record revenues. Can we assume that you had a healthy backlog on top of the revenues that you had a healthy addition to the backlog on top of having record revenues? And then secondly, you talked about some of the technology development. Can you give us an update on the modem chip that you've been developing with MaxLinear? Peter Smith: Yes, so we have record North America private network bookings. Our book-to-bill is over one and we coming into the year we had a record backlog. So we think our backlog is in great shape. Our chip development continues in a timely way. We will be ready to meet our customers' needs in terms of capacity, frequency spectrum, and total cost of ownership. One thing that I would add MaxLinear is the partnership remains solid and productive. And from a risk perspective, what is transpired as chips have "de-globalized." We've become aware of additional modem developments in Europe and in Asia that as investors have expressed some concern about any one semiconductor chip company dependency, we see the modem environment as what being less risky, but with that MaxLinear remains a great partner to Aviat and we're jointly executing on the technology development. Erik Suppiger: Okay, and then you had mentioned BEAD. Is there any change in terms of your timing? I believe funding for projects is probably a 2025 timeframe. Is that still the expected timeframe or is there any update in terms of your expectations for timing? Peter Smith: There's a little bit in the press that will say some of it might happen in calendar year 2024. We think the BEAD impact is going to be in the January to March quarter in the year 2025. So we're unchanged on that and I just thought I would talk about what you're reading in the press. We think it's an early 2025 impact. So I would add one more item, 45 of the 50 states have submitted initial draft to the NCIA, which is the first step in unlocking the BEAD funds. So, I talked about the overall timing. There's a bunch of precursor steps that need to happen for BEAD and this 45 of the 50 states submitting the initial draft is progressing and that's encouraging to meet the early 2025 impact. Operator: Thank you. One moment for our next question. The next question comes from the line of Tim Savageaux with Northland Capital Markets. Your line is now open. Tim Savageaux: Hey, good afternoon, and congrats on the results. First, just a real quick question. Any 10% customers in the quarter seems like, given your commentary around U.S. Tier 1 strength, that's at least a possibility? Peter Smith: Yes, hey Tim, there was one around 10%, but we don't expect that to continue. Tim Savageaux: Okay, great. Can you say whether that was U.S. or international, or North America or international? Peter Smith: It was U.S. Tim Savageaux: Okay, great. And Pete, I think your 30% growth comment for the fiscal year, the type of growth you're looking for. And I wonder if you might have a similar metric for a U.S. rural broadband. You referenced the WISP show. I thought there was some kind of accelerating momentum and evidence around fixed wireless after a so-so period, the last really couple of years. But I think you've told us from time-to-time how fast your rural broadband business is growing in the U.S. I'm not sure you did this quarter, but any chance of getting a comparable type metric for U.S. broadband growth to the one you gave, I assume it might be greater, much greater potential? Peter Smith: So, the reason I answered the India question is because I had that prepared. But so I don't have the specificity that you're perhaps looking for, but let me give a little bit of flavor. Our rural broadband business continues to be about 9%. We would say it's probably growing on the higher end or exceeding our fiscal '24 growth rate. But to be more specific, I don't have those answers in front of us. What would accelerate it would be the RDOF funding kicking in. And we're also encouraged by the expansion of the 6 gigahertz frequency broad license band which because we think, that fixed wireless opportunity drives more for backhaul. So, we would qualitatively agree with you. We're not ready to put a number to it, Tim. Tim Savageaux: Okay, thanks. And last question for me. I mean, I think you noted a pretty strong backlog, which your port once a year coming out of last quarter. And I think, sort of U.S. private networks was the key driver there. And mentioned you hadn't expected this order strength to continue, but am I right in thinking you've had, I guess two quarters in a row here of, I don't know if you would consider above trend type growth. And can you talk about market growth versus share gain? I guess probably versus Nokia, principally, as a growth driver in private networks? Peter Smith: We would say, it's hard to say who we're taking the share from, but we are growing above market trend in our private network business. And we would say that it's principally due to share gain. But I wouldn't break out who we're beating, but we know that we are taking share. Tim Savageaux: Okay, thanks very much. Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Theodore O'Neill with Litchfield Hills Research. Your line is now open. Theodore O'Neill: Thank you very much and congratulations on a good quarter. My first question is if you could talk about your international revenue on a constant currency basis? Peter Smith: Yes, sure. Thanks, Theo. Yes, so given the strength of the U.S. dollar and some devaluations, on a constant currency basis our total revenue for Q1 would have been up by 8.9% versus 7.8%. That's not something we've typically discussed or disclosed or framed in that way previously. It hasn't had that material of an impact, but with the advent of NEC, we'll probably start talking about that in a little bit more detail going forward because it will become a slightly bigger factor in this business. Theodore O'Neill: Why will it become a slightly bigger factor? Peter Smith: Well, because more, right now, yes, only 10% of our revenue currently is denominated in non-USD currencies, right? And most of that is for services where the cost of goods sold is incurred in non-USD currency. So it's well-matched there. With NEC, they historically have had more revenue in local currency, whether it be for products or services. We'll work to migrate that to more of our SOP, but for the near-term that might become a bit more of a factor for us. Theodore O'Neill: And on the same subject, do you pick up more, do you add sales force from the NEC acquisition? David Gray: Yes, absolutely. So we will pick up about 200 employees with a lot of, I would say the lion's share of those employees being sales or sales support or network engineers to support sales. Theodore O'Neill: Okay, great. And you made some great progress on bringing down accounts receivable, and I was wondering, do you have a target for that, like a DSO target you're trying to hit? David Gray: Yes, I think what we said previously that our long-term net DSO target, this is net of unearned and advanced payments, we want it to be around 80 days. And I think we can get there in the fairly near-term. I won't put a specific quarter on it, but it shouldn't take us that long to get to that range. Theodore O'Neill: Okay, thanks very much. Operator: Thank you. [Operator Instructions]. Our final question comes from the line of Dave Kang with B. Riley. Your line is not open. Dave Kang: Thank you, good afternoon. My first question is on NEC. I was wondering if any of their financial metrics changed since the date of the transaction that was announced several months ago? Peter Smith: No, I mean, we did say in our remarks that we think it'll be accretive one quarter earlier, and that's based on the integration, collaboration we've done to date. So that's an improvement, but the top-line and the margins remain unchanged. Dave Kang: That's kind of surprising, since there's sort of like a flip-flop of you guys, so they have more exposure to public 5G operators now? Peter Smith: Yes, I will say they have exposure to Tier 1s. We modeled it conservatively, so with the slowdown in Tier 1 CapEx spending, we still are committed to the numbers we've set previously. So we modeled it accordingly. That's I guess the best way to say that. Dave Kang: Okay, and my follow-up is on your long-term, you provided gross margin, EBITDA targets of 40% and 15% just wondering what the timeframe for that and what kind of revenue are you assuming and does it include NEC? Peter Smith: Yes, so the gross margin targets did not include NEC. That will, as we disclosed previously be somewhat dilutive in the near-term, but we expect to be able to prove on those going forward. Just looking at the core Aviat business ex-NEC, I think if we achieve the 100 basis point improvement year-over-year, that's a good step forward in reaching that target. And then on the EBITDA side, I think we'll be pretty close to that on a regular basis here as we exit the year just based on the revenue gains and leveraging the business. Dave Kang: Got it. Thank you. Operator: Thank you. I would now like to turn the conference back over to Mr. Pete Smith for closing remarks. Peter Smith: Well, thanks to all of the investors for your continued interest in Aviat. This is being our first quarter. We think we have a foundation for a great fiscal year. We're looking forward to closing the NEC transaction and updating you in 90 days. Thanks everyone for joining the call. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.AVNW Ratings Summary
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Aviat Networks, Inc. (NASDAQ:AVNW) Quarterly Earnings Preview
- Aviat Networks is set to announce its quarterly earnings with an expected EPS of $0.66 and projected revenue of $112.92 million.
- The company has faced a significant stock price drop due to delays in filing its financial statements, prompting legal actions and investor concerns.
- Despite challenges, Aviat Networks displays a solid financial structure with a low debt-to-equity ratio and strong liquidity indicators.
Aviat Networks, Inc. (NASDAQ:AVNW) is gearing up to unveil its quarterly earnings on Wednesday, October 2, 2024, before the market opens. Analysts on Wall Street are anticipating an earnings per share (EPS) of $0.66, with projected revenue for the quarter rounding up to approximately $112.92 million. This announcement comes at a critical time for Aviat Networks, a key player in the telecommunications equipment sector, as it navigates through recent challenges that have significantly impacted its stock price and investor confidence.
Recently, AVNW experienced a sharp decline in its stock price, dropping by $6.36 or 26% during intraday trading on September 12, 2024. This drop was a direct consequence of the company's announcement regarding its inability to file its financial statements for the fiscal year ending June 28, 2024, on time. This news has raised concerns among investors and prompted legal action from Hagens Berman, a law firm urging investors who have suffered substantial losses to step forward. The firm is also seeking individuals with insider knowledge to assist in their investigation of Aviat Networks, focusing on the accuracy of the company's financial statements and the adequacy of its internal controls over financial reporting.
Despite these challenges, Aviat Networks' financial metrics provide a mixed picture of its valuation and financial health. The company's price-to-earnings (P/E) ratio stands at approximately 20.76, indicating the price investors are willing to pay for a dollar of earnings, which is a critical metric for assessing a company's market valuation. Additionally, the price-to-sales (P/S) ratio of about 0.74 and an enterprise value-to-sales (EV/Sales) ratio close to 0.72 suggest a moderate valuation of the company's sales and overall value. These ratios, along with an enterprise value-to-operating cash flow (EV/OCF) ratio of around 9.38, offer insights into the company's valuation from different financial perspectives.
Moreover, Aviat Networks boasts an earnings yield of approximately 4.82%, reflecting the earnings generated per dollar of investment, which is a positive indicator of its profitability. The company's debt-to-equity (D/E) ratio of around 0.19 signals a low level of debt relative to equity, showcasing a solid financial structure. Furthermore, with a current ratio of over 2.12, Aviat Networks demonstrates a strong ability to cover its short-term liabilities with its short-term assets, highlighting its financial health and liquidity. These financial health indicators are crucial for investors, especially in light of the recent challenges, as they provide a glimpse into the company's ability to navigate through its current issues and maintain its operational stability.
