Ladies and gentlemen, thank you for standing by and welcome to the Aviat Networks First Quarter Fiscal Year Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's call is being recorded. And now I would like to hand the conference over to your host, Glenn Wiener, Inventor Relations. Sir, please go ahead.

Thank you Lance and welcome to Aviat Networks fiscal 2020 first quarter results conference call. We filed our Form 10-Q, issued our press release and our updated investor presentation has been posted to the IR section of our website. As you will see, the company had a very strong start to the fiscal year and remains on track with its prior guidance. Today's call will be led by Stan Gallagher, Interim Chief Executive Officer and Chief Operating Officer; and following his remarks, Shaun McFall, Senior Vice President of Corporate Development; and Eric Chang, Senior Vice President and Principal Accounting Officer will discuss market trends and financial results respectively. After their prepared remarks, we will then open up the call for questions-and-answers. 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 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 financial tables therein which include a GAAP to non-GAAP reconciliation and other supplemental financial information. Thanks for your continued interest in Aviat. And at this time, I will turn the call over to Stan.

Alright, thanks, Glenn. So our call today will be a little different than those of the past. My remarks will of course provide highlights around the quarter and expectations which Shaun and I also intend to provide more color around what we are doing to ensure Aviat is positioned to capitalize on the positive trends we are seeing with respect to 5G and increased demand for mission-critical network transport solutions. First, I am honored in the confidence and trust the Board has placed in me. I take on this new role as Interim CEO with a great deal of excitement and with an eye on amazing transformative change. We have a great team and significant opportunities to lead the market through innovation, capture share, improve profitability further, and of course, drive shareholder value. My professional philosophy has always been driven by the art of the possible, empowering our people to not only think this way but to go out and achieve it. And one of the best ways to consistently evolve and succeed is to make sure we have the right tools that simplify processes, and capture and utilize data more efficiently, enabling us to enhance our customers’ business. By better understanding customer needs we will strengthen our position as their solutions partner, not just their product supplier. We entered fiscal 2020 with significant backlog and momentum, particularly in North America. This is what drove the confidence in our guidance for the first half of the fiscal year. And based on our strong Q1 results and anticipated Q2 performance, I'm pleased to announce that we are reaffirming our prior guidance. Due to ongoing uncertainty in Africa, we are not providing guidance for the full fiscal year at this time. However, what I can say with respect to fiscal 2020 is…

Thank you, Stan. Well, as you already highlighted, the fundamental driver in our business is the ever increasing volume of data to be carried across networks of all types. Together with the simple fact that not every location can or ever will be connected by optical fiber. A good example of this is that the solutions we are delivering today in anticipation of 5G have more than 100 times the capacity of the services we delivered for typical LTE 4G backhaul just a few years ago. And we're not only seeing capacity needs in service provider networks, the increase in automation, remote monitoring and data analytics is driving capacity needs in utility networks, while increased use of mobile data applications, video and other new emerging technologies and first-responder networks is driving capacity needs there also. The need for high speed Internet services, especially in rural and underserved areas is also driving demand for higher capacity wireless solutions. But it's not just the amount of data that's important to our customers, it’s also the types of data and the specific services being provided, some of which are considered to be much more mission-critical than others. In order to provide the necessary reliability, resilience and performance for every service type, the integration of intelligent routing into our solution has been a significant differentiator. And our ongoing investment in this area has allowed us to develop a strong suite of software that we continue to enhance, license and in the future migrate onto generic hardware platforms. This is a direction where the industry is gradually trending as software defined networking moves closer to the endpoints in the network. And we are well positioned to offer solutions whenever needed over the next few years. Our other opportunities to innovate have materialized the new products…

Thank you, Shaun. Good afternoon, everyone. This is my first quarter addressing our financials in this type of forum, though I’ve been with Aviat and working with Stan for many years. I'm intend to play the larger role in our Investor Relations efforts and look forward to meeting with our investors, prospective investors and analyst community. All comparisons relate to our first quarter financial results for fiscal 2020 and fiscal 2019, after the periods ended September 27, 2019 and September 28, 2018, respectively, unless otherwise noted. We reported total revenues of $58.6 million as compared to $60.5 million, a decline of $1.9 million or 3.1%. Product revenue declined by 6.5%, while our service revenue increased 3%. Our book-to-bill ratio for the quarter was significantly greater than 1 building on our momentum from last year. On a trailing 12 month basis, our book-to-bill ratio is also above 1 one and we expect it to be greater than 1 in fiscal 2020 as well. GAAP gross margin came in at 38.5% and non-GAAP gross margin at 38.6% for the first quarter representing an improvement of 890 basis points and 900 basis points, respectively. The mix of business was more heavily weighted towards North America and also had some higher margin international projects, both of which are also anticipated in the second half -- in the second quarter. For the full fiscal year as Stan noted earlier, gross margins both on a GAAP and non-GAAP basis are anticipated to be up year-over-year. On the expense side, reported GAAP operating expenses of $21 million, an increase of $1.6 million and this includes an increase of approximately $400,000 for restructuring charges. On a non-GAAP basis total operating expenses were $19.5 million as compared to $18.3 million, an increase of $1.2 million or 6.8%. Non-GAAP R&D…

[Operator Instructions]. Your first question comes from the line of Theodore O'Neill. Your line is now open.

So I have a couple of questions about the WTM 4800. And I also see that you've got a nice shout out on the product in Ovum, which was very nice to see. So the question is, when customers are looking at this product, they can see, obviously, you've got a single chassis multi-band solution for 5G backhaul, but you've also got the cloud-based design software. Are those both sort of equally valued by customers or is there one that's more important than the other?

So I'm going to let Shaun answer that. Go ahead Shaun.

Hi, Theodore, it’s Shaun. I would say that for some customers they’re actually of significant importance, both of them because of the capabilities they may have and for some other customers it may be that we do not work for them, or they have other ways of doing the planning work, for example that they may or may not put quite as much value on the planning tool themselves. The product itself, I think the value proposition and our product, I think it’s pretty clear to most of the customers I've seen so far and the footprint alone is one of the most attractive elements of it.

Because it takes up less space on the tower?

Less space, less power. And it's a much smaller proposition and lower in weight. All are just pluses from that aspect.

And the other question I had about the product is, is that useful for the -- for your private networks as well?

It's not what we’re predominantly focused on there. But most of those networks use lower frequency band microwave, long distance, more rugged terrain type of applications. It's most of what we do there, but there's no reason why we couldn't use it there. It’s just that typically the distances we're trying achieve are quite a lot longer than we would achieve with that product.

Your next question comes from the line of Steve Busch. Your line is now open

Could you discuss what percent of international drop was Africa versus APAC?

We’ve got that in the press release, no that we have -- it's very back. So if you look at the supplemental schedule of revenue by geographical area, you have to take a look on a comparative basis. You do have for the quarter ending now the African, Middle East is 10.6 or 10.593 and then Latin American and Asia Pacific 4.47. And note that Latin America is a smaller portion of that is the way we group that by geo.

I'll take a closer look at that. What drove North American growth, that was pretty high growth rate, like what sector or?

So, yes, let's talk about North America and how we actually exited the year last year. We had an amazing order flow at the back end of last year. A lot of that translated quickly into revenue in the first half, and we're anticipating it to continue. But if you look at back last year, our revenue increased in North America approximately 40% or more, and that was just based -- that was based on order flow but it's also based on a number of big projects that we’re actually winning, and a number of those in the private network space, public tenders, et cetera. And it's building a strong foundation in our portfolio and it’s built into our forecast.

You answered my start, but any 10% customers?

Not this quarter.

You’re kind of holding back your forward guidance. Is there any particular reason or are you going to re-up that after this current quarter?

Yes, so for the back half of the year, one of the two areas that we talked about, especially in the international space was Africa. And we don't have the full visibility that we would like. We have already derisked them from our forecast. But we have activities -- strong activities right now as we speak going on in Africa to try and stabilize that. Our forecasting process will refresh 16 times a year. And as we get more comfortable and closer to the second half, I think you're going to see some guidance on that. But right now, we're going to make sure that we do a great job executing the first half, creating a profitable growth and making sure that we have a great line of sight into some of the lack of visibility that we have with Africa right now.

And I guess my kind of final question is, what was the restructuring recovery you got for the quarter?

This quarter we actually have a charge of about $1.3 million. So we announced the restructuring plan about back in late June. So that was the charge related to that plan.

Sorry, Steve that was Eric in.

I see it was a charge, not a recovery. I see, okay.

Your next question comes from the line of [Lewis Moser]. Your line is now open.

Hi, I am new to the company. I noticed your report today and I’m reading some things, the journal it says network earned a penny and it may not be comparable to the $0.33 estimate of the analysts, then there is sales beat. So how do you determine the penny earnings versus the $0.33 estimate? And as this may not be comparable so …

That’s GAAP and non-GAAP, right? Yes, so, hi, Lewis. What I would expect here is that the number that you're referring to is the GAAP income per share versus the non-GAAP earnings per share. And it's probably not a apples-to-apples comparison. So I expect the analyst coverage for $0.33 per share is probably on a non-GAAP basis and so we would want to make sure that the comparisons are correct.

Assuming that, then the adjusted EPS GAAP would $0.50, am I correct?

It’s $0.52, yes.

Is that true?

Yes, it is true.

So then you beat both sales and earnings considerably?

Well, I would say on the earnings site, we are very profitable given that particular data point that you shared with us. And I think on a year-over-year basis we're very pleased with our performance.

And the back quarter comparison is what I haven't read the whole press release?

In terms of the year-over-year comparisons?

Yes, year versus last year at this time?

Yes, I mean last year the adjusted EBITDA was at $918,000 versus $4.1 million this year, if you want to use that as a data point.

Your next question comes from the line of Mark Spiegel. Your line is now open.

A couple of questions. First, Stan, are you going to have the permanent job there, is a search going on. Is this a trial period for you, what's happening with that?

Yes, I'll be brief on that one. There is a search going on. The Board would not have appointed me if they didn't have a strong conviction in the ability to continue leading the company. And I can tell you, we have a great team here. We had a seamless transition and we have our eyes set on the future and everything is moving forward very well.

What does that mean? So there is a search going on, but you are one of the candidates. Is that -- would that be fair?

Yes, that would be a fair statement.

Okay. This is a much bigger picture question. I've been a holder there for a few years, not as long as a lot of other people. You guys are selling on an enterprise value basis of only around 0.2 times revenue using this quarter as a run rate and that's without even putting any valuation on the NOLs. Obviously, you're making some IR efforts now I think which is great. But the real question is why hasn't some strategic buyer come along and pick you guys up even at 0.5 times revenue which would be a huge pop in the stock. I mean I realize you're not there to answer stock market questions, but I am asking -- I mean why isn't somebody buying this company. It's like, it's the cheapest way to add revenue in a growth starved universe, right?

Absolutely, Mark. I'll tell you what, I'm not going to be flipping on this, you're going to have to ask the big strategic guys why. I can tell you, we do have some conversations with folks on a frequent basis. But we know exactly what you're saying especially from a valuation perspective and absolutely we are trying to get our performance data and vision out there. But I can tell you the best way for us to continue to be an amazingly attractive candidate is to continue to perform. And I would say if you look back in quarters, we do have our ups and downs for the first quarter and third quarters kind of saw toothing between second and fourth. And this quarter I think we've broken that trend, although one data point is not a trend maker. So we're going to be focused on continued profitability growth and continued reinvestment for the technology and when those opportunities come, we will absolutely be looking at them.

[Operator Instructions]. We have follow-up question coming from the line [Lewis Moser]. Your line is now open.

I spoke to you before. The price of the stock aftermarket and it's been [$627]. This report is good. Why do you suppose as nothing going on there with the stock, it just doesn't seem right?

Obviously, I can't talk to the different investors who follow our stock. What I would say is due to our share count and some illiquidity, there's not usually ever much action on the aftermarket for Aviat. And I don't expect that -- I expect that to continue. I think the news will digest over the overnight period and we'll see whatever activity tomorrow morning.

Yes, I know, I follow specifically stocks of this nature, which don't have much activity and a lot of people miss the earnings reports, there’s like 500 of them coming out in the last couple of days. But the stock should be much higher. Anyway we'll see what happens tomorrow, Tuesday.

There are no questions over the phone. I will turn the conference back to Stan now.

Perfect. Thanks, Lance. So thank you everyone. In closing, we are making great strides in driving bottom-line performance this year with our eyes clearly set on the future. And I say this due to our reinvestments in technology, tools and talent. Of course, we are focused on delivering results every year. But our true goal is to develop transformative solutions for our customers and significant returns for our shareholders. I think that sums it up for the day, and I hope you enjoy the rest of your day. Thank you very much.

Thank you for joining everyone. This concludes today's conference call. You may now disconnect.