Glenn Wiener - Investor Relations, GW Communications Michael Pangia - President and Chief Executive Officer Ralph Marimon - Senior Vice President and Chief Financial Officer

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aviat Networks’ Fiscal Year 2018 Third Quarter Results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Glenn Wiener, Investor Relations, you may begin your conference.

Thanks, Rob, and welcome to Aviat Networks’ fiscal 2018 third quarter results conference call. We just filed our Form 10-Q, issued our press release and posted an updated investor presentation on our website. All documents can be found in the Investor Relations section. Today, we will have prepared remarks from Michael Pangia, President and Chief Executive Officer; and Ralph Marimon, our Chief Financial Officer. Shaun McFall, Senior Vice President and Chief Marketing and Strategy Officer is also with us and will be available during the Q&A portion of this call. During today’s call, management may make forward-looking statements regarding Aviat’s business, including but not limited to, statements relating to projections of earnings and revenue, business drivers, the timing and capabilities of new products, network expansion by mobile and private network operators, and economic activity 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. Please note, these forward-looking statements reflect the company’s opinions only as of the date of this call, and the company undertakes no obligation to revise or publicly release the results of any revision of these forward-looking statements in light of new information or future events. Additionally, during today’s call, management will reference both GAAP and non-GAAP financial measures. Please refer to our press release and the financial tables therein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information. Now before I turn the call over to Mike, few updates on the Investor Relations front. First, Aviat will be presenting at the 19th Annual B. Riley FBR Institutional Investor Conference on May 24. The conference will be held at the Loews Santa Monica Beach Hotel. Second, Aviat will be presenting at the Ladenburg Thalmann Technology Expo 2018 in New York City on Thursday, May 31, and will be scheduling investor meetings throughout the day and most likely the day prior to. If anyone is interested in attending and/or meeting with management, please feel free to reach out to the conference teams at each of the respective firms, and as always, you can contact my office accordingly. We also intend to get out on the road and market our story over the coming quarters, and you can reach out to either myself, Glenn Wiener, or my colleague, [indiscernible], and we will coordinate everything accordingly. I’d like to thank you all for your interest and support, and we look forward to updating you on our progress. At this time, I will now turn the call over to Mike. Mike, please begin.

Thank you, Glenn, and welcome all to our third quarter conference call. We continue to make significant progress on several fronts, which we expect will have a very positive effect in the coming quarters. We’ve added new customers, expanded successfully into new verticals and the initial demand we are experiencing with our new products is extremely encouraging. I’ll provide further color on that later. As you saw from our press release, our Q3 results were somewhat mixed, while revenue was in line with our prior guidance, we hit a few speed bumps along the way. Gross margins came in about 100 basis points lower due to an unfavorable mix within our private networks projects and lower services volume relative to our fixed cost capacity. Further, operating expenses were negatively impacted by foreign currency exchange rates and we also saw a spike in benefit-related expenses. These effects skewed comparisons versus our prior outlook. We do expect that our mix and margins will improve this quarter and we don’t anticipate these other issues to have the same recurring effect. Ralph will provide more details on the numbers shortly. Over the last few quarters, we’ve made significant strides towards strengthening the overall competitive position of our business. The introduction of the WTM 4000 platform has opened opportunities for us that previously were not part of our addressable market. 5G is on the horizon and is driving operators to look at new generations of technology for near-term decision making, so the introduction of this platform is proving to be very timely. Beyond the reported numbers, here are just a few examples of the progress that we have made since our last earnings call. We were selected as a pre-approved provider of trunking solutions for a large international Tier 1 service provider. This is a…

Thanks, Mike. Third quarter revenue of $62.1 million was within the range we provided and up modestly on a sequential basis. Year-over-year, revenue in Q3 increased almost 6%. Our book-to-bill for the quarter was just under one, but through the nine months period, we remained comfortably above one-to-one and significantly better on a year-over-year basis, and we were up both in North America and internationally. Our Q3 non-GAAP gross margin of 29.1% was approximately 100 basis points lower due to the reason Mike covered earlier. Through the first nine months, our non-GAAP gross margins were 31.8%, up 130 basis points compared to fiscal 2017, based on a favorable mix shift in North America and improved services margin. Non-GAAP operating expenses of $19 million came in above our prior guidance of $18.3 million to $18.7 million. The main contributors to higher operating expenses were unfavorable foreign exchange rates and a temporary spike in benefits-related costs in North America. Notwithstanding these two events, non-GAAP operating expenses were right in line with our expectations. As for the bottom line, we reported a Q3 non-GAAP operating loss of $900,000, and for the nine months period, non-GAAP operating income of $2.3 million, up $600,000 over the prior fiscal year nine-month period. Non-GAAP loss from continuing operations in Q3 was $1.4 million. For the nine-month period, we reported non-GAAP income from continuing operations of over $900,000, also an improvement by comparison with the prior year. Lastly, adjusted EBITDA in Q3 was $200,000, down $1.8 million compared to Q3 last year and the decline was due to the expense variances mentioned earlier. For the nine-month period, adjusted EBITDA was approximately $5.7 million, compared to $6.2 million in the fiscal 2017 comparable period. Note that our company has delivered positive adjusted EBITDA results for the past six consecutive…

Thanks, Ralph. I’d like to jump right into our guidance first, as that will help set the stage and give you a clear indication that we remain on the right trajectory to continue to improve our business performance. With respect to our outlook, we expect Q4 revenue to be between $63 million to $70 million, which would result in fiscal 2018 revenue of $243 million to $250 million. The wide range is dependent on the timing of converting existing backlog to revenue and we’re still in the range of our prior outlook. For fiscal 2019 based on anticipated year-end backlog and what we see visible today within our existing funnel and growth prospects, we believe we can achieve revenue north of $260 million. As stated earlier, we’re very encouraged by the growth prospects we are seeing in the international service provider segment. As we rebuild more of this into our mix, the recurring nature of this business should also improve our forecast visibility and sequential linearity. Q4 non-GAAP gross margins should be between 30% and 32%. As stated earlier, we expect to see some recovery from Q3 levels. For fiscal 2018, non-GAAP gross margins should be approximately 31.5%, representing another year of improvement, and fiscal 2019 should deliver further margin increases based on the impact of new product introductions and continued enhancements in our service and product delivery activity. On the expense side, non-GAAP operating expenses in Q4 should be at approximately $19 million, assuming foreign exchange is tracking at roughly the same rates and, of course, there’s some variability based on where the top line falls out. This puts us right in the middle of the range of our previous guidance of $72 million to $75 million for the fiscal year. Based on the current run rate, we expect…

[Operator Instructions] There are no questions at this time. Did you want me to delay for a couple minutes, so we can get some calls in the queue.

Maybe another minute to see if anything pops up.

Certainly. [Operator Instructions] And there are no questions at this time. I’d like to thank you for joining today. This concludes today’s conference call. You may now disconnect.

Thank you.

Thank you.