Aviat Networks, Inc.

Good afternoon, and welcome to the Aviat Network's third quarter fiscal 2023 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'll now turn the conference over to your host, Mr. Andrew Fredrickson, Director of Investor Relations. Thank you. You may begin.

thank you and welcome to aviat network's third quarter fiscal 2023 results conference call and webcast you can find our forum 10q press release and updated investor presentation in the investor relations section of our website at www.aviatnetworks.com along with a replay of today's call in approximately two hours with me today are pete smith aviat's 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. 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, the impact of COVID-19, 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 statements. Additional information on factors that could cause actual results to differ materially from the statements made on this call can be found in our annual report on Form 10-K, filed with the SEC on September 14, 2022. 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 investor relations section of our website, at www.aviadnetworks.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 Aviad's CEO, Pete Smith. Pete?

Thanks, Andrew, and good afternoon, everyone. Thank you for joining us to review Aviad Network's results for the third quarter of fiscal year 2023. Aviad executed against its plan this quarter And we continue to position ourselves to grow from our business drivers of 5G, rural broadband, and private networks, as well as improving bottom line results. In the third quarter fiscal year 2023, AVIAD delivered revenue of 83.5 million, which represents growth of 12.0% versus Q3 of last year. Non-GAAP operating income of 11.0%. Adjusted EBITDA of 10.8 million. a 14% increase versus the same period prior year. Let's discuss some key highlights from the third quarter. 5G. Our business sees healthy demand related to 5G opportunities. In the U.S., wireless backhaul spend for network build-outs continues to be strong, and we believe that this is poised to continue. Internationally, we are still in the early innings of the 5G upgrade cycle. We see increased planning at Tier 1s, and Tier 2s that lead us to believe there will be healthy demand for years to come. To be specific, we are optimistic about several projects on the horizon with MTN Group, in addition to our Bharti Airtel business. We're also working requests for proposals for several other international Tier 1 and Tier 2 operators. Some of these opportunities are a result of the decisions made by operators to replace our largest global competitor. Our share gain funnel against this competitor remains strong with over $36 million in year-to-date bookings and over $14 million in year-to-date revenue. We will continue to execute on these opportunities to take share of demand. We remain confident in Aviat's ability to compete and win an attractive set of international Tier 1 and Tier 2 business with our leading solutions and our commitment to providing customers compelling products. Customers continue to increase their attention to energy consumption in their network. Aviat's product roadmap is well positioned to meet this customer need and reduce power consumption compared to competitive offers. Rural broadband. Moving on to rural broadband, this quarter was steady from a demand perspective. We remain confident that rural broadband segment will continue to be a growth driver for Aviat and our e-commerce platform as government funding begins to flow in the back half of this calendar year and as customers accelerate to build out of their networks. This quarter, we saw progress on several RDOF projects that are moving through the planning and beginning implementation. We've had engagement and initial project-related orders from four RDOF recipients. In private networks, we continue to be the market leader in North America and are encouraged by the business potential from international opportunities. There are several new developments in our private network business. First, routers. Since the beginning of Q3, we've won five major router deals in North America with utilities and public safety agencies. We win because we have a high availability router product for mission critical networks that allows network operators to scale their networks easily and cost effectively while maintaining the reliability needed for these networks. Second, private LTE. At the time of the Red Line acquisition, we justified the investment based on cost synergies. We also highlighted the possibility of revenue synergy in private LTE by leveraging Red Line access products and AVIAD channels. In Q3, we've achieved our first private LTE win in North America We are excited about this market opportunity and believe it will be a growth driver for Aviat moving forward. Thirdly, outside of our core private network public safety and utility applications, we are seeing increased potential in enterprise private networks. As businesses' systems such as ERP and others move to the cloud, enterprise connectivity becomes more critical. Connectivity downtime means business downtime. The reliability delivered from traditional service providers with fiber connectivity is no longer sufficient. Enterprises are starting to understand that microwave transport offers diversified connectivity with higher reliability when compared to fiber, improving business uptime and reducing costs. Aviat's product portfolio and service offerings are ideally suited to address this issue and capture the growth opportunity. We have several new products to discuss. In the third quarter, we announced an update to our frequency assurance software, or FAS, to support third-party radios. This allows operators to use the FAS application with not only ambient microwave links, but also the microwave links from other vendors. FAS is designed to help customers monitor, detect, and track interference from new Wi-Fi 6E deployments and any other sources of interference. We're currently in trials with customers, including a North American Tier 1 mobile operator, and expect FAS for third-party products to be broadly available in June 2023. We also anticipate expanding this third-party capability to our health assurance software. A few days ago, we announced the integration of our access products into ProVision Plus and health assurance software, or HAS software tools. This marks a further integration of the acquired redline communications product base in the AVIAT and gives customers using ACCESS products the most advanced management software for a single end-to-end solution for wireless transport and access, and passes proactive and predictive network monitoring to minimize disruption. This improves the customer experience and provides new features not previously available on the legacy management platform. We have an installed base of over 200,000 access radios that can benefit from this software, which will be shipping for revenue in Q4. Additionally, we've successfully implemented our vendor-agnostic multiband MB-VA software in a large customer in APAC, where we've overlaid our eBand on top of microwave radios from two separate incumbent microwave vendors. This is a great proof point of the opportunity that MBVA product creates for Avia, which helps us to overcome high switching costs in networks. The product is compelling for the customer because it allows them to add capacity in their network with lower incremental investments. We expect continued success in the market with this product. Moving on to supply chain, we continue to see improvements. For approximately 98.5% of our supply, we've returned to pre-crisis performance. Currently, we have 27 components that remain in allocation. Also, we are seeing component lead times trend down towards 12 months. Note that it takes approximately 2,000 components to deliver a microwave system. We've come a long way, but we are not done de-risking the supply chain. Fortunately, Aviat has been able to avoid significant supply chain interruptions throughout the crisis period. This quarter, we saw no missed revenue opportunity due to supply chain shortages. We would also say that inflationary costs and expedite fees are moderating. Demand environment. Given the economic headlines and spending projections in Tier 1 telecom, we would like to comment on the demand environment for Aviat's wireless backhaul. Approximately two-thirds of our demand is in private networks, driven by public safety and utilities. Backlog has grown steadily over this fiscal year, and our book-to-bill remains above one. With respect to mobile network operators, typically, the fiber buildout precedes the wireless buildout of networks. Also, much of the financial press is focused on US Tier 1 CapEx spending. Given our limited exposure to US Tier 1 and the buildout sequence, specifically, microwave deployments typically follow fiber deployments, we do not see a problem. Lastly, rural broadband has received some press due to buildup of fiber inventory in the channel. On the wireless side, we do not have data to support this. In the U.S. this quarter, we were challenged in field services at several large projects because of the record snow and rainfall in the West. This affected both our mobile service providers and private network projects and impacted an estimated 1.5 million in revenue. Going forward, we will update the seasonality profile of the business to better account for this contingency. overall we see a favorable demand environment bookings are ahead of plan in the current quarter further evidence of a continued strong environment i will now turn the call over to david to review our financials before coming back for some final comments david thank you pete and good afternoon everyone during my remarks today i'll review some of the key third quarter fiscal 2023 financial highlights