Aviat Networks, Inc.

Good afternoon, and welcome to Aviat Network's second quarter fiscal 2024 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 will now turn this conference over to your host, Mr. Andrew Fredrickson, Director of Investor Relations. You may begin.

Thank you and welcome to Aviat Network's second 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 second 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 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 most recent annual report on Form 10-K filed with the SEC. 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 IR section of our website at www.avianetworks.com, the 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?

Thanks, Andrew, and good afternoon, everyone. Thank you for joining us to review Aviat Network's results for the second quarter of fiscal year 2024. We are pleased to report that Aviat continued its solid execution and achieved revenue and margin growth in the quarter. Highlights from the second quarter include revenue of $95.0 million, which represents growth of 4.8% versus Q2 of last year. Gross margin of 38.8% versus 35.7% in the same quarter a year ago. Adjusted EBITDA of $13.7 million, a record high 14.5% of revenue. Record non-GAAP EPS of $0.97. strong balance sheet with $45.9 million of cash and marketable securities, and a net debt balance of $3.6 million. Please note this quarter's revenue and profit growth is against the year-ago period that benefited from the large initial order from our Bharti Airtel win. These financial and operational results are driven by the continued implementation of Aviat's operating model and made possible thanks to the effort and execution of the Aviat team and our partners throughout the quarter. We will review key highlights of the second quarter, but first, let's discuss our completed acquisition of the NEC wireless transport business. Aviat closed the acquisition of the NEC wireless business on November 30th. We now refer to this as the Pasolink business. At this point, we can provide an update that will emphasize the components of the AVIAD operating model framework, see slide 17 in the investor presentation for an overview of the framework. First, the transaction consisted of taking over 18 plus entities which were arranged to serve customers across the globe. We have maintained and integrated these entities and their team members in alignment with our Asia PAC. Latin America and EMEA leadership teams. This approach has been agreeable with the customer base and aligned with the AVIAD customer focus element of the AVIAD operating model. Note that this work stream was a major factor in the time between signing and closing of the transaction. Second, we have conducted over 70 customer meetings and presented our combined product roadmap to the majority of customers, including all of the large customers. The feedback has been positive and encouraging. The combined product roadmap has reassured customers that Aviat will continue to offer innovation and value across our entire suite of products and services. During the period between sign and close, Aviat synthesized the combined product roadmap and innovation plan. We believe this Combined roadmap and innovation plan will bring leading solutions to the market. This is a demonstration of the importance of innovation in our operating model. Third, our core value of tenant. We reviewed the organization of both Aviat and Pasolink. On day one, we had a clearly defined working organization with roles, responsibilities, and reporting relationships. During the period between sign and close, We worked to take the best talent from both companies and organize for success. As a result, we were able to eliminate over 200 roles in the combined company. Our fourth operating model element is supply chain. This work will take several quarters. Progress that we have made thus far includes improved demand planning and forecasting, initiated rationalization of the supply chain, and developed an inventory optimization plan. Together, these actions should result in reduced lead times, lower working capital, and improved costs. Again, these actions will take several quarters for their results to materialize, and we believe they will create meaningful value for customers and shareholders. Additionally, our continued support of the Pathfilling portfolio is appreciated by customers who have invested significantly into the product lineup, thanks to its high-level performance and dependability. The customer base is excited to continue doing business with Aviat. Our plans to integrate our network management software, ProVision Plus, with PasoLink products will deliver improved functionality and ease of use to PasoLink customers. This is a request we have heard from many customers, and we are excited to deliver for them. This software will serve as a platform for product portfolio convergence in the years ahead. We look forward to continuing to meet with customers understanding their challenges and needs and delivering to meet their expectations. There will be opportunities for cross-selling products to Avia and Pasolink customers. We are already filling a sales funnel of such opportunities and anticipate that this will translate into revenue synergies in the future. We remain confident in hitting the goals we have established for the Pasolink business. One, $140 million in annual revenue run rate revenue contribution and two, achieving standalone gross margins of 33% and standalone adjusted EBITDA of 11 to 13% by the end of our second year of ownership. Aviat's confidence in delivering the targets are based on the Aviat operating model and our execution of it. Some history for context. 16 quarters ago, Aviat had quarterly revenue of $56 million with an adjusted EBITDA margin of 0.6%. At this juncture, we did not have an operating system. Today, we reported quarterly revenue of $95 million with a 14.5% adjusted EBITDA margin. We have built this operating system over the last 16 quarters. We demonstrated the operating system with AVIAD. and the Red Line acquisition, and we are now eager to show results with more scale. Moving on to the Aviat core business. We continue to benefit from the long-term trends in private network investments, 5G rollout in mobile networks, and the expansion of rural broadband coverage. Additionally, our exposure across different geographies and customers makes Aviat resilient to fluctuations in business and CapEx cycles. In private networks, Aviat is well positioned to grow, and we see demand remaining strong. Note that our private network business is now approximately 50% of our revenue. We continue to work through the two large statewide networks announced earlier this fiscal year, in addition to numerous smaller network projects. We believe that the America Rescue Plan Act, or ARPA, still has meaningful contribution to our business over the next three years by aiding state and local spending on private network upgrades and expansions. While some of the projects have had ARPA funding as a portion of their source, we believe that most of their budgetary allocations have come from traditional funding sources signaling a healthy appetite for private network spend and upgrades at the state and local government level. As ARPA funds get layered in, we see a strong private network spending environment. As a reminder, ARPA funds must be fully spent by the end of calendar year 2026. One of our focuses at Aviat has been to grow international private network business. Our recently announced partnership with SmartFriend Telecom in Indonesia is a good win for Aviat. Aviat will work closely with SmartFriend to deliver high-speed, ultra-reliable wireless connectivity, private wireless indoor and outdoor networks, and industry digitalization and automation services to private network customers across Indonesia. Completion of the Pasolink transaction and the associated geography and scale accelerated the discussions and made the private network partnership more compelling for Smartfront. In mobile networks, we are encouraged by the dialogue with customers expect this market will continue to provide growth prospects for Aviat as microwave transport spend for 4G and 5G networks remains healthy. Aviat was recently highlighted by three Tier 1 customers. Globe, MTN, and Barkey Airtel recognized Aviat as a key partner in their annual supplier evaluation award cycle. We view these nominations as proof of the value and superior performance that Aviat offers. I look forward to working closely with these three operators as they continue to invest in their networks. We expect the demand for microwave backhaul in mobile networks to remain strong in the years ahead. Much has been made of the forecasted decline in operator spending. According to Del Oro, worldwide RAN revenues are projected to remain approximately flat. We are undeterred. We believe we can grow in this environment for three reasons. First is the expected favorable mix of wireless transport. We spoke on the last earnings call that in developed countries, as telecom capex spend shifts to suburban and rural areas, the percentage of microwave increases. In developing countries, where wireless is more ubiquitous, 5G spend is still in front of us, and we will benefit in all areas. 5G phases. Second is our global presence. Operator spending is heavily region-dependent. Given our presence in 20 Tier 1 operators spread fairly evenly across Africa, Asia-Pac, India, Latin America, and the US, we are protected from a slowdown in any one country or region. Investor sentiment is largely driven by the US Tier 1s, of which we have exposure to only one. Third is our confidence in our ability to take share. As we mentioned, we believe Aviat has the industry's leading portfolio of e-band and multi-band products with single and dual channel band, single box multi-band, extended distance, and vendor agnostic multi-band. 5G will drive a shift towards these technologies where we are well positioned. We have a large installed base of Pasolink. And with the Aviat portfolio, we have a strong value proposition for network migration. On top of our product offerings, we remain optimistic on the Huawei share gain opportunities in many regions. This will ultimately drive a share expansion for Aviat. Moving to the rural broadband business, Aviat had a record amount of sales in the first half of fiscal year 2024 in the Aviat store. This is a good indication of the healthy demand and we expect this to remain strong in the quarters ahead as operators spend Rural Digital Opportunity Fund, or RDOF, awards. Recently, there have been questions about rural broadband capex in 2024. We believe that demand for microwave backhaul in this market will remain steady throughout the year. Microwave offers network operators cost-effective backhaul while still enabling high-speed connections and ample bandwidth capacity. The broadband equity access and deployment program, or BEAD, will begin to impact AVIAT in calendar year 2025. This timing remains unchanged from our original expectations from when BEAD allocations were announced last year. Progress continues to be made with all states having submitted their proposals to the National Telecommunications and Information Administration or NTIA, for review and approval. We have received some questions from investors regarding the potential conflict of the BEAT program and the enhanced Alternative Connect America cost model program, or enhanced ACAM, with the concern that AVIAD customers may be excluded from receiving BEAT funding. We do not believe that this will be an issue among AVIAD customers, and we look forward to supporting them and their BEAD-related activities. With that, I will turn it over to David to review our financials before coming back for some final comments. David?