AVNW - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Aviat Networks Fiscal 2020 Second Quarter Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's call is being recorded. Instructions]. [Operator

like Glenn conference you, Wiener, go now speaker to Sir. hand ahead. Mr. today Investor to would over the your Please I Relations. Thank

Glenn Wiener

results Networks and XXXX to you Aviat Thank second welcome quarter conference call. fiscal

Form presentation all investor Relations of been our Investor can our the press website. and on Our XX-Q, section updated release found

can replay of after ends. call a today's hour As the call, approximately one

and followed Aviat's Eric Smith, Officer; will call begin be Stan Today's who and Officer. and Pete available Executive portion Q&A Officer, the Senior Accounting and the President during call Vice opening Operating call. remarks questions. by of with Chief Chief After President remarks Financial will Principal us we'll Officer Chang, Vice by open is Gallagher, up will Principal their President prepared Development the and Senior of then the McFall, Shaun Corporate for with also

management Aviat’s to not forward and regions. and call make and different looking products, may capabilities today's earnings of of and projections to, regarding statements drivers, limited by operators activity revenue, new economic and webcast, the During private mobile expansion business in timing but including, statements the network business, network relating

results revision and call forward company any new statements. differ These involve no or and undertakes the events. or of opinions this results release as obligation in future forward-looking company's only note, the uncertainties of and revise looking that date these of information forward-looking light the publicly of statements actual assumptions, these statements materially to other cause risks Please could those statements to from reflect the

non-GAAP tables management our refer reconciliation include webcast, GAAP therein press other to information. today's and release call Additionally, will Please reference financial financial and to supplemental both and a non-GAAP which and measures. during financial GAAP

following support. Aviat and continued analysts your And ongoing greatly call. out can you reach investors as to and Lastly, your interest questions. ask in always the to me We encourage we appreciate

turn call now the will to And I Pete.

Pete Smith

of Its traveling of Thank our I our drive people, getting weeks create reviewing to the sites, Glenn. my of all strategy our time about been five our since took stakeholders. improve for and majority value to profitability some know and customers role you, spend I've CEO. growth, to

lot taking learned this role. very a much research of initial with far. I've of Aviat did assessment I my before aligned And what thus is

base We both relationships customer our technology, diverse and partners. global and our have with industry-leading a customers strong

position as several in others. private future, to Our in utilities, America catalyst such the be with North for vertical and continue specifically markets oil gas, should and safety public solid us is among and a networks,

Additionally, demand of for networks solutions in only and North upcoming of the support need intensify, given mission-critical networks increased XG. build-out America should the for in

building we've I these solutions years we of there significantly done segments, well expanding more developing increase share foundation, is demand. While customer past our our and for drive over new do footprint can to customer our and the believe growth

Internationally, we weaknesses. strengths and have

side, On customer the technology positive our footprint. and

and I regions, do differentiate grown However, competition. from while job of we more customers for that products a services and accounts added commercializing better in while Aviat believe it's we regions, been And inconsistent. can specific some providing value-added have the

while make With the potentially one-stop that and companies cycle aligned into with at each will in, the others lower can to solution to we market shop said, we we're look cost-of-entry other customers expand buying providing easier. with

and what have things; operational matter commercial position to worked in fortunate and industry, no on strong been I've career, teams excellence excellence. every always two focused I've with leaders and my Throughout

years, and and opportunity launch within could to and that organic head-to-head sell few do we good that with how customer significant me, has prospect and future customer assess market have in drivers we feedback, with any incorporate that products believe nothing needs Again, growth can industry, how I market be the competitor go we the the to specific next innovation. and

excellence a to global and about. has what on driving customer about -- scale. job better do to and better commercial and a the what's great service the collaboration It's team do of Operational we done excellence efficiencies all is leveraging have is underway

place are on We with to investments fixed a looking getting efficiency technology. in improving continuing yield, lower by better the plans in and return cost our

the with have our I next vision. Over share to and couple to of more quarters, respect strategy

continue strategy is see both Aviat. grow by results our for operations. in to support have leverage views can commercial and has installed closely The Better opportunities how and understand the to critical North our with we to and more our base. technology end I And them, expand their and we working should execution to America in beyond customers better on drive organically

year We year. the with took Globe this new XXXX. however, even down the be timing strong this should will XXXX. Africa into that anticipated knew and very fiscal fiscal downturn With coming the agreement in current our we had in region. stronger and in year spending a and International And yield is environment respect Asia, an APAC to only, account

are I There now, will -- Asia the the and also and in are regions now we team that looking at. be in to opportunities is beyond are expand also something

Our continue. top and line this be will international year expect markets, but America growing bit to I we're down in the to a North that

our fiscal confident being noted costs over are and the year Margins as will are upwards, increase reinvested, that removed I'm in guidance. XXXX and profitability trending

year, and and to I'm for take are achieving. Next excited to I goal my we of this in returns bottom drive on believe line deliver deliver a more role, the excited results capable way is you. meaningful top and growth to both

to the turn now I'll Stan. And call over you. Thank

Stan Gallagher

you, turnaround than revenue our little first $XX $XXX on XXXX, stood OpEx its million strategy everyone. annual Thank and initiated million Aviat at year afternoon, fiscal margins gross of approximately XX%. When were And in non-GAAP Pete. good less

by on end XX%. improved XX% Over OpEx approximately XXXX, the fiscal approximately reduced XXX the course to three over points and revenue that margins year lower we even is years, compared of of by have by

our there is enhancement yet Over line while we still a three-year demonstrated strengthening more lot sheet, be done a will have can and substantial period, profitability, that balance improve. to to bottom

and to our market past be and ability favor, in our financial working demonstrate to In much more offering we year dynamics in compelling will with year results stronger fiscal deliver the stronger, a years. XXXX, service product than believe following continue should and our

Our differentiate objective leading our market the grow is to to accomplish America, position offering North in will continuing to in competition. versus by this we R&D and invest our

with in networks ownership. and cost our we believe developing MPLS domestically of and safety grow lower ISPs share with We networks, operators their internationally share focused increase new on public them for help can

we which puts position the year, us support that is XG and products fast a both great have in over As accounts. approaching, been installed new to base have our commercialized past capture

in starting and For example, three years, and now. this are potentially XXXX perfect our operators EBAND be for solution WTM platform is should growth example XG building. is us over two driver and sooner is interest to a a the to Multi-band next invest

also could R&D believe further. development our We under the enhance value-added gross combined and more and margins several initiatives have even introduced services underway, with new products those

revenue as We have expect this SG&N of see programs increased result, percentage and the a years. intensity as to our in a future decline of excellence fiscal should investors operational year,

through move XXXX. identified have as programs will second we that We of half the specifically G&A lower fiscal

and to expenses bookings, strong more outlook. sales bookings, this however, continue given expect and our to due related have incurred performance We our

services, on is Lowering priority with in our to focus initiatives growth. related a and products, enable investments driving sales a fixed costs

thinking or the we the We growth, modest are not capture about want market. status quo to

be, mindset growth even it's every In a a we million a the as cost time, anticipated. every restructuring interim, business, core with we Rather, there should not few challenging This is removed department that expenses program. change that be our our and are dollars region, to of are in what and can structure believe transaction. cost over probably challenge

back ties tools automation to increases has comments in in of expense past which FY to my This some AI, our in also investing contributed on XXXX.

we a of savings deployment will XXXX. of generate rapid part number early expect which achieved already have fiscal AI the of in tools, We

a of attack As at our bad were contract previously to affected our adversely communicated, launching cyber actors one manufacturers. results due

through short to business, was there got impact Although we term it. our

we in Going solutions invested have this risk to state-of-the-art protect forward limit assets. our to area, in

For and exposed security large enterprise that withstand example, attempts latest day. the and every investments cyber each are small to cyber tools intrusion the to every continuous in both

like has to investments manufacturer protect itself made moving forward. contract Our

we in that. confident a and team drive place to skills, the level. So next in experience to knowledge I'm with the have take summarize, Aviat to

and Our much culture again, mature, cost is while operational has to excellence foundation we growth. are year, to expenses drive will continuing and to be our this improve modestly with making now do at

we in in Commercial years is excellence were deck. repeat in the fiscal FY And Pete's experience to meaningful that and XXXX year. expect next come. to anticipated expenses the also not with are on payback quarters guidance, There

modest growth. of after revenue half in anticipated drivers, of the expected to down Africa is increase be orders a and one period the are of While is year. to Remember, second the

down, solely to new a is expect but timing follow The expected and on to the APAC agreement that due region related and increase support which year we have that to to XG next our years in launch, Globe's release is shortly. is

to look new into APAC also expand may We regions.

products. winning is domestically We accounts abroad, both new of pipeline our because are building new and our and

private have As safety increase in this industry America North share. is to public the just in across we offering believe the growing. Pete best and vertical beyond are we networks, segments earlier, where opportunities And mentioned the multiple our

Eric? over call to will Eric who I will the the financials, now cover turn

Eric Chang

noted. afternoon, good and All December everyone. six-month XXXX, to the And are XXXX ended and December fiscal periods comparisons Stan. related unless XX, otherwise for financial fiscal second you, XXXX XXXX results Thank and quarter our respectively, XX,

America and declined Fiscal this region million the down XXXX Middle America North $XXX,XXX. and second $X by Asia and million by revenue and International quarter million, approximately revenue was East $X.X Pacific with Latin Africa down down by declined revenue million. within $X.X $X.X

cyber XXnd in at lower manufacturing our to today's our January led the anticipated announcement, for release, quarter. one than noted vendors the attack security in and of As revenue

XXXX $XX North was million, $XX down For fiscal approximately with million, international six-month approximately America was million. revenue up while revenue period, down $XX revenue total the

the half strong fiscal year, America, to our second contributed North performance. first strong last in to respect With of fiscal half bookings XXXX

of America the which half first North bodes well exceptionally Additionally, our in our was for bookings strong, XXXX fiscal future. performance

is While also our down fiscal of half year, book-to-bill for the was one is first that and was year. expected expected first note in down in is half, international the above be half, be and fiscal to second one in the ratio international important the for above to revenue it the to full

and the in margin XXX fiscal a XXXX mix quarter, GAAP for non-GAAP gross gross at product The gross margin and points, increased chain in lower cost. primarily XXX was second respectively. due to decline of margin revenue and of decline supply XX.X% came as XX.X% basis

and gross non-GAAP XX.X% For basis. on of six-month XXX GAAP a margin the basis and improvement period, and points was GAAP non-GAAP both

margin gross the representing of the anticipate Looking business over fiscal second for roughly first fiscal ahead, for the mix on line the based we full be for increase XXXX. the of anticipated, in year to half year half, an

we net for On for of an of report operating period. side, a R&D increase $XXX,XXX fiscal increase the XXXX expenses the GAAP million expenses in second the to $XXX,XXX by decrease charges primarily part $XX.X of $XX.X million $XXX,XXX. quarter and in expenses ago SG&A year compared comparable consisted expense The of offset restructuring of

the ago basis, non-GAAP comparable charges period. for impact of compared and year to relatively flat million excluding share $XX.X total based expenses a $XX.X operating On compensation, million as were restructuring the

consisted of For increase the primarily the restructuring comparable fiscal XXXX to million operating expenses of an GAAP a SG&A year increasing report $XXX,XXX. we compared for in expenses million million of charges ago six-month The period. $XX and of period, $X.X net $XX.X

the million SG&A periods. the comparable in comparable were six-month related were due for increase restructuring expenses, other $XX.X On year period. a total expenses of the the to charges XXXX employee fiscal operating the excluding ago period and to expenses as $XX.X compared impact R&D primarily non-GAAP flat share essentially compensation, based The million basis, was for while expenses for

a loss the $X.X million million GAAP GAAP $X.X reported income We've compared comparable operating operating for of year of to period. ago

For income XXXX million year in ago of the reported GAAP periods, fiscal and operating $X.X we for six-month breakeven were period. essentially the comparable

operating an million $X.X a of fiscal loss quarter, operating a $XXX,XXX income XXXX for non-GAAP the compared to On year ago of reported we basis, second period. comparable in

second as six was year the compared of million the fiscal the fiscal million $X.X XXXX XXXX, $X we XXXX $XXX,XXX comparable For fiscal reported six-month EBITDA for for period a for was operating and months non-GAAP period. $X.X to Adjusted ago quarter approximately million. income of

the capacity for for adjusted $X.X had to on based and vendors, quarter $X.X sales among commissions, compares at biggest period one second the the anticipated along others, This EBITDA of bookings, EBITDA. income our with million six-month contract and of non-GAAP cyber operating in constraints stronger XXXX. the attack direct higher than on fiscal manufacturing fiscal adjusted impact To XXXX for million reiterate,

improve full fiscal year. to year-over-year, earlier, Stan though over down noted spending and but we to be slightly, Gross overall, business is to optimize for are look to anticipating As increase also the may year reduce increase to anticipated year continuing costs we further. fixed but our profitability revenues are Margin

on to sheet. Moving the balance

cash and improvement end to of quarter, quarter. of million at the stood compared second of end, $XX.X at $X.X cash compared end million an of $X.X This million Our $XX.X sequential million. also a represents first increase the equivalents at to the year the

second to million free fiscal cash the Our million year at $XX.X quarter compared XXXX the was end end. of $XX.X at

six-month of in operations which million million. XXXX in the from in six-month $XX.X an $XX.X fiscal was was of improvement operations Our use compared XXXX fiscal period, the cash period, cash the $XXX,XXX flow

noted a fiscal we during to the repurchases, XXXX. are with in higher spent we first million Please for our to $XXX,XXX balance call, in earnings a the the year-over-year. finish six-month last total expecting fiscal $X.X second of share year cash As we note, quarter, bringing

second $X.X as result repurchase discussed capacity partnership But and of our remain announced quarter. directly related at end NEC which your from end increase as the the $X.X program, a and $X.X the million to available Inventory million sequentially. was production earlier, well quarter. of Under million million $X.X this impacted shipments, last as channel we constraints again, the

issue expected decline. constraint now is With to us, the inventory the capacity behind

second the totaled million to-date in respectively. million year Lastly, $X.X and capital $X.X quarter and expenditures

second to spend in year the fiscal expect the million a what We full with line of $X we communicated year half approximately quarter. with in last

we this the to open This ready for concludes questions. my time, up operator, at remarks. And are call

Operator

Instructions] with line from comes [Operator Litchfield O'Neill of Your first Theodore Hills. the question

Theodore O'Neill

Hi.

before weeks about they give online? get you color the Did you? have on manufacturer told more us question before did them weeks I they the is three it things with take back they Or issue. First contract wait three that? Could

Stan Gallagher

Hey, more happy than Theodore, it's I'll Stan. be too.

the for the experience. when We the identified weekend for of So primarily they the our get to that production I remediation over them actually period recovery IT was resume our took do team called weeks process. It and actually the entire offered assistance because was their back and But three all us. to actually attack. shipments of online

Theodore O'Neill

people for on supply on it right Now, if what's going get and goes like seen. what to from China through March? any don't that they're work going doesn't in chain If now. back I've Monday February or on interrupt to another into look Does your of this

Pete Smith

on we've So right? reflects guidance in Operations today. China -- and region people six working chain our we in Head of best is our of that, our the our supply knowledge So, have

now. much. some reflects look companies at they'll of other hurt you right be If we out and won't things, a knowledge go our very hurt guidance, be badly, variety some guidance is our And they things have what

guidance workers as more we getting they're it's to folks there's cases anticipate And won't and do well. than that a as of do back less it's we if worse, if work does can available or better. Some as not in bad we modeled, delay

down best So operations with is suppliers of is the we and giving employee uncertainty, fast everything on of our the China base come but the and what problem many come to back. to us going ability, can else big to we coronavirus right? uncertainty and does guidance control that the So our how is it are everybody doing the how our the

Theodore O'Neill

coming you do and a contract from have direct Or parts there? there? manufacturing And manufacturing other

Stan Gallagher

have manufacturing. China. present we components So, in coming nor don't for manufacturer our contract China are from We are

the manufacturer component that the around risks are of suppliers our or the buy coronavirus based from our on is we So, from uncertainty contract buys us.

Theodore O'Neill

Okay. that Thanks. up That me. very much. clears for Thanks you. Thank

Operator

comes from with Savageaux question Markets. of next Your Northland Tim line the Capital

Tim Savageaux

bias of to maybe that A weaker then recover shortfall of and second half? made, Hi, seasonally any logistically Thanks. North at for they you were or we be that there that. can headed kind on shipments breakout expect a expect you that all you, QX. which unable perhaps regional And whether is the is around questions. period good And to American discern to the afternoon. I internationally or impacted to couple know, more all? expect QX, Do the offset Or through that that in historically, fiscal were

Stan Gallagher

Yes. Sure Tim. on you It's Stan. hear call. Glad to the

stranded ended So, process they for we finish quarter, what actually got had the goods up second that identified we recovery in get the could the proof-of-delivery. for before having

planned margin days had quarter. to bias we which is from. associated a timing. towards So, and second America, came just remaining don't have or That were the that, we shortfall miss what after lot the carried was to that, North that half. over few impact items QX for that recovered believe we A was And second that other the that where I with of any

Tim Savageaux

think, you'd provide be if that, mean, you international also out strength color Got called North wonder discussed you more I in one. the booking it? And -- on And America. nature I any some that on more being obviously, mentioned, book-to-bills right? could of extraordinary above I

provide might extraordinary anecdotal I booking But one? So that source strength if might way of any assume maybe above the identify able and color North means what you on be America to be? there's

Stan Gallagher

to Tim, expenses compensation I yes, think use as So, some that the me is way proxy. answer a the best for of variable to

past. the been quarters. too into is over that, it from And order I'd orders What say lot we was than three a some we OpEx it past higher substantially see flow in primarily that the have had. of seen without that we did generally to the that can specifics, but perspective You is pressure on an upward associated getting that performance consistent have many an what is has

press to we the Pac. our some out significant in North approved on those, in that's have that's release specifics Asia American regions that get it. when occurring With Otherwise, there's International we you'll additional strength see and to and also comes specific strength regards

Tim Savageaux

Or it. But to know shop interesting. I is international thought gather initial be wonder Got I question And view commentary might the one-stop talking to color equipment might markets, would other around what your your you players thought Pete. able to or of what or states those strategic I partnership? welcome? I approaching a partnerships of commentary, and here. we for terms looking I on of be any new Are kind provide more develop of was be? still you would evolving others more sort with about distributors if here that be commentary kind what in might And be any suppliers partnerships on that with end-to-end

Pete Smith

right. All

for difficult so of is to So but volume business, the like, drive much "the partnerships if about big give and the as our in And and a So, rest you can we channels. it's I'll think cover. the as some world us active color indirect rest more place the not maybe extend a right? color, for international discussions little and you we're would of through world" reach

would finalize drive distribution we -- close one. We're partnerships, internationally. -- close land some growth you those that use evaluating but and really deals type that so be it, of on but matter are to can we always we're until So, hopefully, close on and it we're announce that any doesn't wouldn't close technology, I say we're

helpful? Is that

Tim Savageaux

as no, I-- not quite kidding. right, just You're

Pete Smith

I made enough. fair first forecast. my That's

Tim Savageaux

Am extending of of to and me. XXXX about Well, XXXX what that's decline, But forecast, and at make probably Or jumping sounds XXXX? at did into that fiscal which the fiscal that number speaking of hearing right I'm a gun to expectation now And one. or reasonably here. are for seemed -- comments question fiscal an expensive through good. both point the for time -- of that that least Last kind able I here you able about of you revenue we're to halfway we're say one way? growth least

Pete Smith

we bottom bookings, have that the that Stan North to a engine want improving. we America, mentioned plan we book-to-bill look, But in And up So, ratio on do going. we the XXXX. see, see

costs. our also see We opportunity an to lower

So, think more work and specific. we directionally you've and for we right XXXX, more got I to do it can be before need

Tim Savageaux

Great. Thanks very much.

Pete Smith

Sure.

Operator

next Capital. of Mark the Your with Stanphyl question comes Spiegel line from

Mark Spiegel

Yes. questions. Hi. Two

somewhere the just is infrastructure? anything one I guys read I mean ban Huawei there? in First rural that they're think banned you being for

Pete Smith

in last out came That the days. two

Mark Spiegel

of couple no, No, months this was ago. a

Pete Smith

can article Well, there Journal right. only there Wall actually I for lawsuit, good last right? in Look, days, was guess, the couple and was yes. think I All Street the in that a us, be again, that

Mark Spiegel

a part Well, for it a Pentagon but was Yes. saying, is Telecom. there rural directive separate I of thought

anything is No, if you've had So effect you're I wondering from what any was saying? that's yet?

Pete Smith

say a we Not zero. that at far in huge significant. is of And part didn't them. really category base, at so to installed least -- I so have is our go wouldn't

I do some we think see there. opportunity

will we extent. to think it's think be big don't some a opportunity. a I I But beneficiary

Mark Spiegel

enough. few Fair the that be a which makes get his Union second And a can Okay. stood that of that really was Is going State question. that you applauded, actually one think broadband the it get that? of that me $XX spend up in guys piece he to But are -- and passed. to of able Trump the democrats wanted softball one, to And then billion infrastructure. rural it's address on and did say things

Pete Smith

expand Internet broadband reach are little had That's achieving area over customers We've or in. been our new there some the Yes. success with active activities a as some And we've another where actively other been an it's with rural some bit looking so. well. there, last we've to where year and products we and area

trickle whatever area, see is the down fact that positive. we a into generally as that from generally, that So our

Mark Spiegel

Okay, great. answered. questions My other were

So thank much. you very

Pete Smith

Thank you.

Operator

Resources. the next [Operator Busch of question Steve Everglades from Instructions] Your comes line with

Steve Busch

call. taking for Thanks my guys. Hi,

Pete Smith

Hi, Steve.

Steve Busch

to to any America just towards? growth progressing to here? that some make sense Does North control. we go fronts on not that African is businesses our Or focus just jettison want the given on can rates you and something these Good we're see of really

Pete Smith

it's over been bit talked cost the demand. about to the Well, the our better. volatile to do Africa, has the in do term we Africa have contribution month and we I infrastructure how it business really, margin, And of long when and we last that's match businesses, what amount structure world. is manage modulate And, least positive we've a need the perhaps think, has

having way simultaneously demand is managing period think go. we the with presence in to a our So cost current and Africa structure the

that work more have do to have that in regard, that's currently. perspective but We the we

Steve Busch

Okay. to That's fair enough. is Nigerian I affects or I some mean, don't selling still looking customer MTN or how I off a they you. sell know Are XX% know now? assets, that where they stand

Stan Gallagher

have not far this a operating customer than our anymore. as the had as performing actually And now. activities the And a and they're Pete customer No, modulating the structure, into matching we outcome. Stan, I is we XX% But them mentioned grow we're year, de-risk don't Africa we that business our in no, plan and we that in have cost place for the little said, de-risk anticipate a annual XX% that most budget bit before, better not are, favorable right as this plan It's and near foreseeable the to that so as large future. they're

Steve Busch

customers do quarter? have many And Okay. this how we XX%

Stan Gallagher

of any we for year, in fiscal the still have first So time. was second customer a Motorola didn't the XX% quarter our

Steve Busch

right. All

Okay.

how's And in rollout Motorola Florida? the so going

Stan Gallagher

did year a Well, sign. know, bit little the not end as back stepped you and the Motorola towards of

strong. we're But to of go the state out. to We the believe have how going play for and waiting now very that one our are and that. still is going address state to are prospects we Florida let intact So,

Steve Busch

right. All

you buy was did many back many how by this And you How I shares quarter $X number. the gave shares that? Okay. know way?

Stan Gallagher

X.X Its the million almost [ph] for dollars an [ph]. XXXK And year-to-date.

Steve Busch

Right.

Thank you. Good Okay. luck.

Stan Gallagher

Alright, thanks.

Operator

to at time. remarks. like closing for over it And there any this questions I'd are no back further turn

Pete Smith

the in call. you days. Very good. for XX see Well, thanks, joining everybody We'll

Operator

gentlemen, and conference your today's this Ladies Thank participation. you for concludes call.

disconnect. You now may

Aviat Networks (AVNW) 6 Feb 202020 Q2 Earnings call transcript