Good day. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fiscal 2018 Fourth Quarter Conference Call. 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] It is now my pleasure to turn today’s program over to Gus Okwu, GW Comms. The floor is yours.

Thank you, Jay, and welcome to Aviat Networks’ fiscal 2018 fourth quarter and year end results conference call. We just filed our Form 10-K, issued our press release and posted an updated investor presentation on our Web site. 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 Stan Gallagher, our recently appointed Chief Operating 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. Additionally, I wanted to let you know that management will be participating at three Investor Conferences in the coming months and potentially more as we are in discussions. As of now, they will be at the LD Microcap Conference on September 4, the Microcap Conference on October 1st and 2nd, and the LD Micro Conference from December 4 through 6. I’d like to thank you all for your interest and support, and we look forward to updating you on our progress. I will now turn the call over to Mike. Mike?

Thanks, Gus, and good afternoon. Overall, I’m very pleased with our results. As you saw from our release, we had a strong fourth quarter and finish to the fiscal year. Our revenue grew by over 10%, our margins were exceptionally strong, and we generated $3 million in non-GAAP operating income and $4.4 million in adjusted EBITDA, all significant year-over-year improvements. The investments we’ve made in new products and all the work we’ve done to improve our foundation has me excited about our future. We are gaining share in the markets we’re addressing and are well positioned to pursue new customers and new segments. We are poised to drive both growth and improved profitability in fiscal 2019, and the opportunities over the next several years should be even greater. I'll first start with a recap of fiscal 2018, highlighting our year-over-year progress and what drove performance. I will then turn the call over to Stan Gallagher, our new Chief Operating Officer, and will come back with some final remarks on our outlook and what we see in the market with respect to our growth prospects. Our book-to-bill in fiscal 2018 was above 1 and momentum continues to build. Revenues of $242.5 million were up modestly and mark the first year of growth since fiscal 2013. North America revenue was relatively flat, while our international business returned to growth. Throughout the year, I talked about stabilization and some bright spots that we were seeing. Well, international is now on a growth trajectory, and we expect some meaningful gains in fiscal 2019 and in the coming years, driven by opportunities in Africa, the APAC region, and Europe. North America growth was minimized by a major state contract award that was delayed. However, we expect this to be resolved by calendar year-end. Non-GAAP gross…

Thank you. I am very excited to be part of the Aviat team and like Mike, I believe we have tremendous opportunities ahead of us. Having worked closely with the company for the past several years, I've seen firsthand the massive transformation we have gone through. While a lot has been accomplished and we have a much stronger foundation, there are still many areas where we can improve with an eye on enhancing profitability. I also believe that through better data analysis and reporting, the use of automation and artificial intelligence and a more streamlined support structure, we can support and drive growth across the globe. I am truly looking forward to this next phase and meeting with the shareholders in the coming quarters. Over the past 60 days, we’ve done a deep dive assessment into our business, looking at all functions, processes, our systems and resources, customer footprint and sales pipelines, everything that will enable us to operate our business efficiently and smarter, and of course more profitably. But it's not just about the bottom line, we are putting in place the right end-to-end organizational frameworks and instituting processes that support the growth side of the equation as well. While we had a pretty aggressive plan entering this fiscal year, we have identified several additional projects that should generate significant improvements over the coming quarters and years. I am confident in that. So let me talk about what we're executing on now and what will be covered throughout the course of the year. We will be connecting all back office touch points setting up an integrated team to gain greater span of control oversight and speed. Previously back-office functions have been fragmented, which caused some inefficiencies and certainly higher operating related costs. With this new centralized model, which includes…

Thanks, Stan. With respect to our fiscal 2019 guidance, we're anticipating growth of approximately 5% to 9% with revenues in the range of $255 million to $265 million, both North America and the international markets are expected to grow. Non-GAAP gross margins are expected to be in the range of 32% to 33% and there is potential upside. It really will depend on revenue mix, FX, and where we finish out the year with respect to our top line guidance. With the process enhancements stand and as teams are focused on, we believe there is room for improvement perhaps by as much as a few hundred basis points in the coming years. Operating expenses are anticipated to be approximately $77 million to $78 million with a run rate of between $19 million to $20 million per quarter with some variability associated to revenue and FX. We have a strong platform in place and there are certainly areas to cut back fixed overhead further which our teams are addressing. Using the midpoint of guidance, this would result in non-GAAP operating income of approximately $7 million, a 30% increase year-over-year and adjusted EBITDA of $13 million, a 29% increase year-over-year. For the most part, we expect the first half of the year to be similar to the second half in terms of revenue and expenses. Gross margins, however, are anticipated to be higher in the second half based on a more favorable revenue mix, which would result in higher operating income and adjusted EBITDA accordingly. For modeling purposes, we assume adjusted EBITDA will be approximately $5 million to $6 million in the first half and $7 million to $8 million in the second half. And as we normally do, we will provide updates as the year progresses. So, in summary, our turnaround is history. We are profitable and growing. And fiscal 2019 is going to be another good year for Aviat. I’m equally excited about the years that follow as we intend to continue to take share from the competition as our offering will get even stronger. The team we're putting in place and the ongoing enhancements to our business gives me a higher level of confidence in our ability to execute on plan and drive more value for our customers and shareholders. To that end, we are going to be more active this year in getting our story out to improve liquidity and valuation. We're going on the offensive and are actively exploring all avenues to strengthen our business through increased geographic focus, continued investments in R&D, strategic partnerships and potentially M&A. We're now ready to open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Pete Prakash [ph]. Your line is open.

Hey, good afternoon. Congratulations on the bottom line improvement. Can you just bridge the capital a little bit in terms of the top line and the miss there in terms of the North American business that you said flipped?

Yes, so -- the mix wasn’t necessarily on the top line in the North American market as we talked about our fourth quarter. I would say that our expectations on higher revenue in the fourth quarter were more driven from some of the international business that we're doing in a couple key geographies, and it's the same business that’s actually transitioning through our balance sheet rather than through the P&L moving forward, so we’re talking about the same revenue that we’re losing in the 606/605 transition. That's where we actually depend on customer acceptance based on delivery of services which is difficult to predict and that’s what held this back in terms of our revenue goal for the fourth quarter and obviously for the fiscal year. As we are moving to 606 accounting, it's a lot easier to predict that revenue as we no longer have to wait for the same level of acceptance.

Perfect. And maybe as a follow-up, if you could, it's really good to hear that you guys are trying to increase liquidity, potential volume in the stock and also following, can you talk about some specific things that you guys have in mind to address that or is that just kind of keep your eyes, ears peeled for future press releases?

No, I think -- absolutely, we have a number of initiatives going on in that area, everything from getting our story out and attending more conferences. We've also been very active in the last few weeks with -- and working with the sell side analysts and the banks, and we’ve had a number of discussions and we expect to continue that through the course of the next week. And then there's a few other areas that we’re looking at which is a bit early for us to raise right now, but that’s clearly one of our key objectives and we look forward to improving that moving forward.

Thank you very much.

You’re welcome.

Your next question comes from the line of Michael Steiger [ph]. You line is open.

Hey, good afternoon and sorry for the background noise. Thanks for taking some of my questions. One, just a quick – a real quick one to start off is the share count -- do we have a share count number? Did that change?

Shaun? Yes, it's about 5.3 million shares

Right.

5.3 million to 5.4 million, in that range.

Okay. So, if I’m looking at it correctly -- I’m looking at your guidance correctly and the outlook for the forward year, it sounds like you’re being slightly conservative with respect to order uptake in 2019? Is that how I should look at it?

Order uptake, I think there's a …

Well, orders -- new orders.

Yes, I think we’ve a number of opportunities that could position us above and beyond what we are seeing right now. But it's obviously too early for us to anticipate that or build that into our outlook as we speak.

And if things go well with respect to 5G or there's a sudden increase in 5G, how you -- how are you -- are you guys able to fulfill those orders without -- with the current infrastructure that you have right now, or do you think you would need to raise capital to handle that?

I'm going to ask Shaun to just explain how operators are looking at 5G in terms of deployment right now.

Yes. So, we don’t expect to see any significant step function because of 5G, and our portfolio that we’ve been enhancing for quite a while now is really 5G capable in terms of where we fit in the network. What more likely will happen with us is as operators begin to implement network improvements towards 5G, we will see gradual uptick in opportunity for us. But we expect it to last really long time, so we think 5G rollouts are going to be way longer than any prior generation we’ve seen before.

Got it. And then one, one final one, I guess, on the state front private networking front, what sort of things you think you will be able to do in fiscal 2019 to accelerate or to stimulate some of the states that -- to upgrade their systems?

Yes, so we got a lot of activity going on as we speak. This is a longer sales cycle process. So, we know well in advance in terms of the activity in front of us. And as I mentioned on my call, we have a number of new prospects on the statewide side that we feel good about. And one in particular, I mean there's a major award that was delayed. Hopefully that's resolved in the next couple quarters, and we anticipate a favorable position on that.

And then the AI, ML, the improvements on that front that you’re going to undertake, is that already embedded in the guidance that you just issued?

I think the best way for us to look at that is, if you take a look at our P&L and you benchmark that against other companies similar size to us within the industry, you’re going to realize that our G&A really stands out as being too high relative to R&D, so we anticipate probably spending a similar amount, but we will put more into the investment area and we are already investing more in our go-to-market feet on the street, so that should only enhance our business in terms of our ability to hit our top line and improve margins obviously over time.

Great. Thanks a lot.

You’re welcome.

Our next question comes from the line of Pete Prakash [ph]. Your line is open.

Hey, I appreciate the chance for a follow-up. Real quick on the stock repurchase program that you guys announced last quarter. Did you guys provide an update in terms of what you guys dipped into that or any update there that you could provide?

Yes. So this is Stan. So we did -- give an update in the 10-K. We launched the share repurchase program in Q4 and open market purchases to date were not material as the trading volume was limited by several liquidity related parameters. And as we discuss, we’re looking at ways to improve that liquidity going forward. So we will continue to monitor the program closely and make changes as appropriate when permitted to do so.

Got you. And one more, if I may, just on the gross margin front. It sounds like you guys have a abnormally high GM quarter, which was definitely a pleasant surprise. It looks like you guys are reverting back to kind of like the normal course of business. Any commentary that you could provide in terms of modeling analyst to long-term GM trajectory without the kind of trough and spikes? Any chance that that could smooth out? I know it's a lumpy business, but any commentary you could provide on that?

Yes. So I think our fourth quarter and if you look at our third combined, I think that's indicative of the type of swings that we might be able to see. We have a number of moving parts, whether its FX, product mix, project mix, customer mix, geographic mix, product versus services. So on any given quarter, there could be a fair significant swing. And I think our fourth quarter, a lot of things went right for us. And when all those things go right, it shows that we could be as high as 37%, almost 37% in the quarter. I do expect to see more of a normalized view as we enter this year. And the best way to look at it is we’re probably normalized right now in that 32% to 33% level. I think we’ve been able to do a good -- a great job of improving the floor, from getting it -- that floor to be closer to 30% than less, and we saw the opportunity on a given quarter to have that type of upside. But 32% to 33% for now and as we move forward, we should be thinking more into the mid 30s as a sustainable level. And looking at improving that floor by a couple hundred basis points from the 30% level.

Got it. Thank you for that. And so when you say mid 30s as the kind of longer mid-term view, is that second half of fiscal '19 or is that beyond that, or it's too early to say?

I would say that we’re likely looking at the rates normalizing that level throughout this fiscal year. Again, as I said earlier, the second half is probably going to be more favorable than the first half. We need to recognize as an example, FX in any given quarter could have a significant effect. So one of the pressure points we have and it's already factored into our outlook is that in Africa we do have some of our customer networks in local currency. The U.S dollar has appreciated significantly over the last few months and we have received some pretty significant orders that will go to revenue. So there's -- you got situations like that where in any given quarter, there could be a negative effect, it could work the other way. We have mechanisms in place with our customers that over time that normalizes.

Got it. And speaking of Africa, could you just speak to a lot of competitors talk about the issue of hard currency, collections, so on and so forth. With the ramping up of Africa, do you see any issues with collections? And just the risk of that business coming back in terms of all the financials that go along with the cash flow, receivables, quality of those receivables, that type of thing? Anything you could provide on that?

Yes, I mean, our track record when it comes to payments in that area is stellar. I mean, I probably would give it a 99.9% type of track record. The challenges that we're seeing more recently is the ability to convert local currency to U.S dollars, and that’s extending out. But when it comes to risk of getting paid, our team does a magnificent job of upfront that making sure that every dollar that we go after is quality revenue.

Excellent. That’s good to hear. Well, hey, best of luck to you guys. Looking forward for the update as we progress. Thanks.

Thank you.

[Operator Instructions] Our next question comes from the line of Mark Spiegel. Your line is open. Again, Mark Spiegel, your line is open.

I’m sorry, I had my phone muted. Thank you. How is the political situation in South Africa affecting you guys, your biggest customers are over there. I mean, there's some -- probably some craziness going on.

No direct impact on us. If anything -- again, anything to do with currency movements could have an indirect impact. But there's nothing relative to the political arena that’s having an effect on our business.

So, I remember reading in previous filings that your currency exposure there was hedged, I don’t know how much. How hedged are you now like sort of what percentage of the exposure is hedged?

Stan?

Yes. I don't have all the details, but we use hedging instruments both in terms of the contracts that we actually set out with the customers. And at other times we will hedge those purchase orders. Obviously, there's more around what we can do from a hedging perspective. I wouldn't give you a number right now off the top of my head. I would have to get back to you on that.

Yes, so the other thing too, I will just have to add, where we do have our pricing in local currencies. It's not a bigger deal to us on the bottom line because we do have OpEx in spending in those areas that in some ways, form a natural hedge. So that’s not a big concern to us on the bottom line as it necessarily may be in the gross margin level.

Okay. If you could let me know how exposed you’re to South African currency, I would appreciate it. I can reach out to your IR guy, I’m sure he's on the call. He has my info, so thank you.

Sure.

You’re welcome. Thank you.

There are no further question at this time. Presenters, you may continue.

Okay. Very good. So I thank all of you for joining our call today and I look forward to your ongoing support. Thank you very much.