Ladies and gentlemen thank you for standing by and welcome to the Aviat Networks’ Fiscal Second Quarter 2013 Earnings Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation the conference will be opened for your questions (Operator Instructions). Today's conference is being recorded January 30, 2013. I would now like to turn the conference over to our host, Peter Salkowski, Investor Relations, Aviat Networks. Please go ahead.

Thank you. Good afternoon everyone, and welcome to our second quarter fiscal 2013 earnings call. I am joined by Mike Pangia, President and Chief Executive Officer and Ned Hayes, Senior Vice President and Chief Financial Officer. During this conference call, we will make forward-looking statements regarding our business, including statements relating to projections of earnings and revenues, business drivers, the timing and capabilities of new products, network expansion by mobile and private network operators and variations of economic recovery in different regions. These and other forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and filings made by the company with the SEC. These can be found on our Investor Relations section of our website, which is www.aviatnetworks.com. Now, I would like to turn the call over to Mike.

Thanks, Peter and thank you all for joining us today. I am pleased to report one of the strongest quarters for Aviat Networks in some time. We had excellent topline momentum and another quarter where orders were greater than revenues. As stated in the press release we published this afternoon, we outperformed compared to both our original revenue guidance and the revised guidance we issued on January 14th completing our fiscal second quarter with revenue at $129 million. In fact, on an absolute basis, this was our highest revenue quarter since the fourth quarter of fiscal year 2009. The fiscal second quarter revenue performance was driven by both strength in Africa and seasonality. We also had another solid quarter in North America. Non-GAAP gross margin was within guidance at 30.2% of sales; relative to our results in the past two quarters, I am pleased with the Q2 margin improvement as we begin to see the initial positive impact of the transition to new products. With new product volumes growing, our gross margin will improve further in the coming quarters. Our non-GAAP OpEx in Q2 was within our guidance range at $31.8 million. As mentioned in the past, we are striving to be more efficient in our back office processes, while we evaluate and make selective investments in product and go to market activities. The combination of improving margins and careful management of expenses will continue to have a favorable impact on our EPS. As projected in our last report, we were able to build the cash during the quarter. The ending cash and cash equivalents balance was $94.8 million which was $9.7 million above our Q1 fiscal year ’13 balance. It was primarily strong collection throughout the quarter that contributed to the overall favorable result. With such a great quarter…

Thanks Mike. Our GAAP financial statements along with a reconciliation of non-GAAP financial measures are included in our press release issued today following the markets’ close. I would like to take a few minutes to summarize our non-GAAP financial performance at a high level. As Mike previously mentioned, we had a very strong quarter. The key highlights were revenue for FQ2 came in at $129 million which was above the top end of our preannounced revised guidance range. Sales were particularly strong in our reported Middle East and Africa sector at $63.9 million. And we saw a solid performance on our North America sector at $41.4 million. In terms of product and services revenue mix, we again saw strength in our services business with the split coming to 73% product and 27% service in the quarter. Our service capabilities are clearly a key differentiator in winning and supporting deals worldwide. Our significant Tier One mobile operator in Africa MTN was once again a 10% customer in the second fiscal quarter. As mentioned earlier, this customer is investing heavily in network equipment and capacity additions and we intend to earn as much of that business as possible going forward. Non-GAAP gross margin for the quarter was 30.2% of sales which was within our guidance range. As mentioned earlier, some of the cost benefits of moving the outdoor radio business over to the ODU 600 are beginning to be realized in gross margin improvement. Further, non-GAAP gross margins for both product and services were solid with product margins amounting to 30.5% and services margins amounting to 29.6%. This allowed us to deliver a second consecutive quarter where non-GAAP gross margin rates made a substantial sequential improvement, 60 basis points above our first fiscal quarters and non-GAAP gross margin rate. Non-GAAP operating expenses…

Thanks Ned. We've come a long way with respect to our financial performance. To illustrate I would like to share some calendar year financial data which said in another way is represented by our trailing 12 month performance ending on December 28, 2012. Despite a challenging calendar 2012 macro environment, we were able to grow calendar year 2012 revenues 4.2% year-over-year to $471.6 million. This above industry revenue growth was achieved while reducing non-GAAP operating expenses by 5.1% and still maintaining the same level of R&D investment on a year-over-year basis. This performance resulted from 2012 calendar year non-GAAP EPS of $0.22 in 2012 versus only $0.04 in 2011. I'm very pleased with our ability to reestablish Aviat Networks as a leading independent microwave backhaul provider, while remaining of consolidated on returning value to our shareholders. We remain committed to investing in the top and bottom line growth of the company and my confidence in our business and the approach we are taking continues to grow. In closing, our order backlog is strong and our visibility is improving. We are deploying new products and solutions to the market and we have more new products in the pipeline. Our competitive position as measured by total cost of ownership is as strong as it’s ever been and we are focused on continuing to improve it. We are making the right moves in trimming expenses, while investing in areas that will enhance the top and bottom line. We are well positioned to continue year-over-year growth by regaining share lost in mobile backup and entering into new vertical markets. We believe our business is at an inflexion point for enhanced profitable growth which should result in increased shareholder value. Before turning the call over to the operator to take questions I would like to take this opportunity to congratulate all our employees on a worldwide basis for achieving outstanding results across all of our key operating metrics during the company's fiscal second quarter and I would like to thank everyone for their diligent efforts. Now, I would like to turn the call over for questions. Operator, you may now proceed with the Q&A.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Rich Valera with Needham & Company. Please go ahead. Rich Valera - Needham & Company: Just a quick question on the gross margin, just wanted to understand maybe the trajectory here and some of the leverage you have to play with. I missed the number, but it sounds like something like 80% of your product shift now use the ODU 600 which is a pretty high percentage. So wondering how much you have left there to kind of help the gross margin with just the conversion to the ODU 600. And following that up, what are the levers do you have to pull on the product side to maybe help the gross margin, and I guess obviously you treating that off against, you said in your prepared remarks, Mike, trying to crack in some of these Tier-1s, having to offer some, fairly aggressive upfront pricing. So, just wanted to get your thoughts on how those different dynamics play out in gross margin and how much more juice you have on that ODU 600 transition?

(Inaudible) that’s a great question, and let me start off by saying that, as we said in our release today, and what we’ve just spoken about is that we're starting to see the initial impact of the ODU 600 on our margins. We talked before about anytime you move in to a new product transition, the initial cost of those new products albeit they start out lower than the product they are replacing. You are not really getting to that optimal cost point until you have reached certain volume. So we are now starting to approach those volumes as we enter into our second fiscal year, so there is still more room on the cost side of the equation relative to where we are today as well as that mix will continue to grow ultimately towards a 100% over the course of the next few quarters. We also have in addition to the ODU 600, we still have other product introductions which will enhance our margins in the near to medium term. We have a next rev of our IRU600 product which is a flagship product in North America that will happen over the course of the next couple of quarters. We also have some other additions I talked about the ODU 600 too is an example where that will start growing in volume. So there’s a number of things on this cost side of the equation over the next few quarters that give us increased confidence by margins improvement. With respect to actually having an effect on the product side. Ned you might want to give Rich some data on this split between product and service margins.

So we were quite delighted Rich especially quarter over sequential quarter to see the improvement in product margins. You remember last quarter they were in the mid 27% range, and now we are calling them out at 30.5% range and again the line of sight that we have in terms of shipments and our continued progress in cost reduction especially on the ODU 600 and the very strong pricing strength we have with the IRU600 in North America, we see plenty of room to grow. Rich Valera - Needham & Company: That’s helpful. And just similar question on the OpEx line, you have talked about a little incremental investment for sort of targeted sales opportunities in the fourth quarter. Should we look at that as perhaps being sustained as we look out into the next fiscal year, look at March, June is that something where you would hope to kind of, maybe offset that in subsequent quarters with expense reductions in other areas?

So I think if you take a look at how we have been performing on the OpEx side, we have been kind of hovering between that 31 to 32 zone and coming off of 31.8, at least to say that we are hovering around 32. The components within that have moved, where we are increasing our investment in the sales and marketing expense at the same time, we are reducing it in areas like G&A. Just to clarify something, the investment that we are making on the sale side and we will continue to make those. The impact of those investments will probably be more felt in the coming fiscal year and your reference to the fourth quarter, it does take sometime we are making the investments in terms of the sale cycle to get the benefit on those. So look at it $32 million range plus or minus on the given the quarter relative to where the top line might be is probably an area that we see ourselves in the zone, and we will continue to optimize the spending kind of the net bucket.

The only thing I would add way to be the following: we as a management team take a long how to look at expense to revenue ratios, if you take a look at the year ago quarter our expense to revenue ratios were closed to 31%. We are closing out the quarter here under 25%. Secondarily, I think some of the investments that you are seeing right now away from R&D and away from marketing and sales and G&A and the introduction of a new ERP system is going to be able to help us drive significant further efficiencies in G&A well into the next fiscal year. So I think again, we will have plenty of room here to continue to optimize and make the go to market investments that we need to attack the addressable markets and geographic markets that we don't do today.

Our next question comes from the line of Barry Mccarver with Stephens & Company. Barry Mccarver - Stephens & Company: Just thinking about revenue guidance for the coming quarter, obviously you’re expecting a pullback from this quarter, can you break it down and let know whether there's some seasonality in that or was there a particular market in 2Q that they may have called in more revenue to 2Q have been originally expected; I just want to make sure that we understand sort of the outlook for base of revenue in the next couple of quarters?

Yeah, so this is, as I talked earlier our I guess our challenge as well as our opportunity is to start generating more quarters like the one that we just came off of more consistently in the near to medium term. And if we take a look at our second quarter first thing is very much a natural quarter with respect to meeting customers needs. So sometimes where pooling is used in a negative manner, in this particular case the customer needs is what drove the $129 million and what we talked about when we provided our revised guidance, we did go $3 million above that top end and we had a number of projects related to North America that took us a while longer through the closed process to assess, we had those originally scheduled for the third quarter, but we met the acceptance, by the customer was met before that. So that's what caused the upside and I look at it and to still be in that $115 million to $121 million zone we gave, if you take a look at the midpoint of that quarter on its own and you compare that to the third quarter of the prior year, we are still showing a nice uptick year-over-year. So I think it’s very positive to come off a quarter that we came off and still maintain the level that we are at for the third quarter. Also if we all step back a year ago and you take a look at, I don't think anyone would have thought that we would have been able to achieve a level of like that this early on based on where we are headed and even ourselves and if you take a look at where we've come from we started out talking in a $100 million to $110 million zone, then we moved it up. We looked at $115 million at a point in time as being at a level that we would like to get at as a run rate and here we are in the third quarter quite nicely as that being the fourth. So we feel very good about where we are and we still see prospects moving forward to get us into an even higher level of consistent run rate. Barry Mccarver - Stephens & Company: That's good information. And then just secondly in your prepared remarks you mentioned that I guess a large municipal contract that you are setting up and I was wondering is that in the number, or is there something that you would be building in the future? And additionally is that in anyway related to some of the natural disasters or weather we've seen in the Northeast or are you seeing those types of events kind of strengthen the demand for the mark away solutions?

So the latter part of it, no, it’s not related to any of that weather in the Northeast. And then as far as the impact, I believe that we took a portion of that order of revenue in the second quarter, about half and so therefore the balance to come or spread over next couple of quarters.

Thank you. Our next question comes from the line of Aalok Shah with D.A. Davidson. Please go ahead.

Couple of things just if I could. Mike, in terms of how we should think about kind of the year itself, you are coming off a great quarter, I know you talked about it couple times already, but the lumpiness of the quarter is something that I think I just want to understand a little bit better. I know it sounds like you had a much better Q4 because of the seasonality and some trends in Africa but the overall pattern and in terms of how we should view each quarter in terms of the lumpiness Q2, Q4 is better. Do you expect that to be in the kind of path again this year and also in terms of the new products, how should we be think about, how far long you are in terms of new product cycles and is there another 12 months to 24 months cycle just to try and get to a point where you think you will see the full benefits of those margins. Maybe you can outline couple of those and I have a couple of follow-ups?

So, the first thing, so the color we provided is that we are using the past year as an example as the baseline around seasonality was difficulty because we had the Thailand situation in our last fiscal year which limited our ability to be able to address some of that calendar year end budget flush is another way of saying it with respect to the North American market and then just the way the cycle works in Africa is that they are on a calendar year and usually what we see in the month of January, we go through with one of our larger customers. We go through a regular process where we're discussing pricing and other terms for the following year. So from a linearity perspective, we usually start out our third quarter lighter and then we build it up through the rest of the quarter. Having said that, as Ned mentioned, we do see the fourth quarter and the second being the better quarters of the year. So I guess that would suggest to be building a model off of that would say that the fourth quarter should represent an improvement from the third based on seasonality although we are only providing guidance at this time for the third quarter.

Okay and then in terms of cash book. Sorry, go ahead.

On the second part, so now on the product rollout side. So the refresh of our outdoor radio unit portfolio completed by the end of the year, we will have an improved [ODU600] product before the end of the year and the combination of those two will be what will drive the bulk of cost improvement on our business model for this particular fiscal year. As we will continue to reduce new products, we talked about our (inaudible) transport [radar] the impact that that will have on our business will probably take some time given the fact that we have got an existing product out there with the packet note which does a phenomenal job with respect to our existing base. So as we start positioning our new platform initially, it will be very applicable to new business and that will allow us the ability to have a better chance of penetrating those new accounts, utilizing more aggressive pricing because the one substantial difference as we move to our next generation technology was the architecture of the product line allows us to be able to go in and meet the needs of an [RFP] and be able to preserve that value as we continue to upgrade in a much better way then our current portfolio allows us to do that. So I think you probably see some benefits entering new accounts, but it will take I think more of a gradual timeline relative to the indoor new product with the affect on margins, hopefully that helps.

Yeah.

The only other thing I would add would be that you should not ignore the very strong performance that we are seeing in the services business. When I showed up that the company a little more in the year ago services margins were actually highly dilutive to gross margins. You are seeing them being very supportive right now in terms of the high value add at the kind of services of network that we are providing in terms of network design and commissioning, and [knocking] managed services, MLA service agreements, installation services and logistics project management, all of those are being treated as very high value contributions from our customers, and we are seeing a relatively strong service margins as a result.

And if I could follow-up on that real quick. In terms of how you view the services revenue in general is it a recurring revenue stream for the most part?

I wouldn’t call annuity stream per say, I wouldn’t go that for. Certainly our MLA contracts to the extent that we have got very good tax rates would be along those lines. To the extent that we are providing NOC services and managed services for private enterprise networks those are probably annuity streams as those customers likely will not be building microwave technology expertise in this task. But the other stuff in terms of the network design on the project-by-project basis that’s probably not as annuity like revenue stream as the others that I have described.

And last question if I could, you mentioned that couple of times about the low latency financial services market being a pretty good market for you guys. I am trying to get a sense and how big an opportunity that really is and how much using (inaudible) luck to penetrate in that market?

Yeah, its still early stages in that market in terms of we are actually a part of defining the market, working with customers in this particular space. And to the impact thus far from a revenue perspective has been less than from an order perspective. Some of these projects have a longer tail associated with the revenue, conversion to revenues result of building them out, but much more of an impact on orders and revenue and its starting to be a decent amount but still not in the same zone as what we would see from a typical mobile operator as an example North America.

Thank you. (Operator Instructions) And at this time, I would like to turn the conference back to management for any final remarks.

I want to thank everyone for participating in today's earnings call and thank you for your interest in Aviat Networks. I would like to turn the call back over to the operator to provide the conference call replay information and close the call. Thank you and have a good day.

Ladies and gentlemen if you would like to listen to the replay of today's conference, you may do so by dialing 1800-406-7325 or 303-590-3030 and entering the access code of 4590206 followed be the pound sign. We would like to thank you for your participation. You may now disconnect.