Ladies and gentlemen, thank you for standing by and welcome to the Aviat Networks Fiscal 2020 Third Quarter Results Conference 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] I would now like to hand the conference over to your speaker today Glenn Wiener. Please go ahead.

Thank you and welcome to Aviat Networks fiscal 2020 Third Quarter Results Conference Call and Webcast. You can find our Form 10-Q, press release and our updated investor presentations in the IR section of our website along with a replay of today's call, roughly one hour. Before I introduce today's moderators, I want to extend my best wishes to all of our investors, analysts, bankers and their family. It's a very challenging time for everyone. And I hope you are all safe and taking every precaution to remain healthy. As for today, Pete Smith, Aviat's President and CEO, will begin with opening remarks from the company's third quarter and year-to-date progress. Followed by Eric Chang, our newly appointed CFO who will review the finance. Pete would then provide closing remarks on Aviat's strategy and outlook followed by Q&A. As per Safe Harbor, during today's call and webcast the 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. 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 and webcast, 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. At this time I would like to turn the call over to Pete.

Good afternoon, everyone. I want to echo Glenn's comment. This global pandemic has been unlike anything we've ever experienced. And the health and well-being of everyone is our number one concern. I truly mean that. And my heart goes out to our employees, customers, partners, shareholders and their families. Please be safe. Given the nature of our business and the customers we serve, Aviat is part of the critical workforce infrastructure. Thus, we've remained open following US federal and state mandate, the CDC recommendation as well as various regulations across the globe where we have customers and employees. We're doing all that we can to keep our employees safe and to ensure our customers get the products and services they need. The key to this has been our supply chain and logistics team. As we have many partners and vendors around the world, I'd also like to call out our global IT team as they successfully led the transition to a remote workforce over just one weekend. And our team in the Philippines should be commended as well as they successfully navigated hurdles in the field and met customer commitments. Overall, I have been very proud with how we adapted quickly and delivered. Now let's focus on our strong results. Third quarter revenue was up approximately 14% and adjusted EBITDA was up $4 million versus Q3 of fiscal year ‘19. Our balance sheet remains in good shape, our cash position is up over $7 million since the year began. And we remain on track to meet our prior guidance and deliver $11 million to $12 million of adjusted EBITDA for fiscal year ‘20. This is quite impressive considering what we face, issues with the contract manufacturing in Q2, the volatility in Africa and now Covid-19. Revenue will be down this…

Thank you, Pete. And good afternoon everyone. During my remarks today, I will review some of our Q3 and year-to-date financial highlights. Rather than read through all line items, I think can be found in both our Form 10-Q and press release. All comparisons are between the third quarter of fiscal 2020 and the third quarter of fiscal 2019. And between this nine-month ended April 3rd, 2020. And a nine-month ended March 29th, 2019 unless noted otherwise. Q3 revenue was up $7.3 million were approximately 14%, driving this growth was an over 30% increase in North America revenue offset by approximately 5% revenue decline internationally. Please note the international decline was smaller than what we have experienced in the first half of the fiscal year and between Q3 Latin America and APAC returned to growth with revenue up almost 18%. A few other points, in Q3 of fiscal ‘20 North America comprised almost 61% of total revenue and continue to represent a higher percentage of mix. Also, product sales increased over 18% and services revenue increased over 5% when comparing against a third quarter of fiscal 2019. Q3 gross margins remain strong 35.8% on the GAAP basis and 35.9% on the non-GAAP basis both representing a 570 basis point improvement over Q3 of fiscal 2019. Q3 GAAP operating expenses were $20.7 million versus $18.8 million. And non-GAAP operating expenses excluding the impact of restructuring charges and share based compensation were $19.7 million compared to $17.9 million. On the surface, our expenses may seem a bit higher than anticipated but increases were driven primarily by payroll costs because we had an extra calendar week in the third quarter of fiscal 2020, as well as certain variable compensation expenses and certain legal costs. These increases were offset in part by lower R&D…

Thanks Eric, just a few additional comments before Q&A. North America has been strong this year and barring any unforeseen events should be stronger in Q4 and next fiscal year. My only immediate concern is the impact of Covid-19 not on our end but more about the impact that could be felt with our customers budgets and timelines and the ability to execute field service. Africa is volatile, we all know that, but we are committed to the region and will be looking to expand into new accounts beyond just the large operators where it makes good business sense. We are continuing to support our current base. And as I alluded to earlier, there are different types of customers and different sized accounts that we should and will be going after. The APAC region was down significantly through the first half as expected due to the strong volume we saw last fiscal year. As you saw in Q3, it picked up again and should be a source of growth for Aviat in the years to come. The APAC region is an area that is ripe for expansion as we have products, services and solutions that apply to several geographies and markets that frankly we just haven't capitalized on, especially considering our competitive advantage. And this ties to my number one takeaway for investors. Focus and execution, if you're going to expand our sales focus next fiscal year, we are lowering our expenses to drive greater profitability and stockholder value. We're building a business model that looks at Aviat's differentiation. And we're going to capitalize on the opportunities where we deliver value. We are not going to change business opportunities but we do not have a value proposition. As Eric noted, our cash position in Q4 might be down sequentially, but we will be up year-over-year. My goal is growth, margin expansion, expense reduction and meaningful bottom line improvement. Operator, we are now ready for questions.

[Operator Instructions] And your first question comes from Theodore O'Neill please go ahead. Your line is open.

Thanks, congratulations on a good quarter. Yes. So I just have two questions. Could you give us a little more color on the North American backlog split maybe between private networks or broadband or wireless? And my other question is on component supplies, did you have any components of constraints in the quarter? And did any of that require expedited shipping or changing suppliers?

So, I'll answer the supply chain and Eric you could think about how to answer the backlog. So, really, during the quarter it was, to put it in an unsophisticated way with a giant game of Whac-A-Mole. And at times, we had component shortages. We were able to overcome most of them in a short amount of time. We deployed our head of operations and supply chain to Asia where a lot of our component suppliers and where the bottlenecks were. And we were able to solve those within a week or two, right? So, our on-time delivery was not perfect, but we were able to satisfy a lot of the demand within the quarter. And so obviously our supply chain performed pretty well but this has made us step back and think about, going forward how we should put more resilience into our supply chain. And we're actively doing that. So Theo, is that responsive to your supply chain question?

It is and it makes – maybe follow-on is whether or not there was any of that business that got pushed into next quarter as a result of this?

Maybe a little bit what I would say that we had - and not really highly material on the revenue line did we get a lot of push outs. Where we did see some small amount of push outs would be on the service side where due to Covid-19 either our person or our customers' person couldn't meet in the field to do and install. So there was a little bit of revenue that ticked over but not substantial but we did see that problem. Eric?

So this is Eric here. So, from a booking standpoint, so we normally don't break out our bookings by region but high-level from a book-to-bill standpoint for Q3, we're slightly above one. And on the year-to-date basis, we're well above one. And I think some of the bookings that we missed in Q3 will be caught up in the fourth quarter.

And one last thing to say about the world broadband Theo is, over the last couple weeks of the quarter we did see demand start to build which kind of would be logical given the impacts of Covid-19.

Your next question comes from Tim Savageaux. Please go ahead your line is open.

Hi, good afternoon. And congrats on the results. In a difficult environment you did see a pretty good as you mentioned uptick in kind of the APAC and Latin America region. I wondered if you can give us maybe a little more color there. And whether you expect that to continue into fiscal Q4?

So I'll start and then Eric you can chime in, right? So some of the improvements in APAC were really kind of a year-over-year comp perspective. But we've also been able to win, have new wins with Globe and [digiCHECK] on our 5G rollouts. So we see our business relationship expanding there. And that we see a good runway particularly in Asia Pac going forward. So, and we also have learned that some of our value proposition in Asia Pac is that we can extend it within other countries in the region where there's high spectrum costs and our multi-band radio. So we see us being able to deliver a value proposition in Asia Pac. And on Latin America, I would say, I wouldn't say that there was anything extraordinary, it was just a couple of project wins Eric do you have anything to add?

Yes. So I think the only thing I want to add is that, in fiscal '19 we had a great year with Globe in the Philippines, right? So obviously that went away part of this year in fiscal '20 but we started seeing that picking up again. Being in Q3 and obviously being in Q4 as well.

Great. Well, okay. So assuming that, that kind of strength maintains, this is more about your comment on the release about an eye toward top and bottom line growth in fiscal '21. And so you're looking at a year I guess assuming things kind of stay similar to what we saw in Q3 where you've got solid double-digit growth in North America. And seemingly some pretty positive trends. And 20% plus declines internationally, some of which appear to be turning around. I guess in the context of that performance for fiscal '20. Pete, maybe I'd ask you to try and get a little more specific with regard to the growth potential for the company, given – in light of that performance, right? Double-digit in North America and maybe international moving back to a growth profile.

Yes. So we were thinking a lot about FY21, right? So we don't really want to give guidance until we're through next quarter, but we do believe that there's going to be growth in revenue in our cost. And our efficiency program even with flat revenue should drive an improvement in earnings. But with our growth programs we see the way you characterize it North America is growing. We see that there are still growth opportunities in North America. And now for your model you might say we're going to be flattish with international but I want to grow in international as well. And I think over the last four months, we've learned about our differentiation of value proposition which before we weren't as confident in it. And we think that's going to be able to drive growth. And then of course the caveat is, what does Covid do to consumer and our customers' budget? But if we do return to a normal environment, I'd be really disappointed if with all the good things we have going inside of our portfolio. In our sales funnel, if we don't achieve growth. So give us a little more time so we kind of get pegged down on a top-line number for next year, Tim.

Fair enough. And just last question for me. And you mentioned an uptick Globe, I gather it's 5G related. I wondered if you look across your customer base internationally and maybe especially given events of the past few months, what have you seen in terms of operator plans for 5G deployments? Have they accelerated, been pushed out or are there any discernible trends as you look into next year?

Yes. So I would say it's a heterogeneous, right? Some are accelerating and some are pushed out, it really depends on the operator's budget. So we internationally, we see kind of a mixed bag. But I think also like in Africa, the Covid-19 was late to get there. So they're still digesting it and that's been part why I want to hold that on guidance as we get through to whatever this new normal is or steady-state post Covid-19. Then we'll be able to see if we kind of push out for just reaction or if they're real. And we're hopeful that the acceleration that we've seen are - will stick. And we think they will. And then lastly, we also see that for private network business, it's been on a steady path. But as the Covid-19 going to catalyze more investments as telecom and our communication, particularly with the WISPs become more critical. So that's what we're trying to sort out to.

Your next question comes from Steve Busch. Please go ahead your line is open.

Hey guys thank you for taking the call and excellent quarter. So I guess a few questions that just drill down a little further where did most of our fiscal year Q3 North American revenue come from.

Eric, do you want to take that?

Yes, it's mostly coming from private network.

Private network. Okay, perfect. And I know we kind of covered Covid-19 and some of their effects on installing. I would think it would be, I guess, easier with less people around to do some of our work or at just a matter of getting the customers there. And also you mentioned it was affecting some payments. How's that affecting us and on what kind of scale on the payment side?

Okay. So, Eric, you can do the payments, I'll do the install, right. So it is easy to do an install it takes two or three people to meet out in the field, if you will, at a minimum. It's usually somebody from Aviat side, somebody from the customer side. So you're right that a cell tower is sort of socially distance but company policy where it emphasizes protection those got pushed out just from partly us being conservative and partly our customers being conservative. So the good thing about that is that demand doesn't go away; it just moves out a little bit in time. And if you think back to late March, we didn't know nearly as much as we do know now. And a lot of folks behaved with an abundance of caution. So I think that would describe the field service push out. Eric, you want to talk about cash?

Yes. Let me talk about cash, all right. So, first of all, our cash was up about $1 million sequentially and $7 million year-to-date. And we did see because of lock down a lot of the countries, we do see the customers are slowing down in making payments. Some of our customers when working from home they don't have access to all the support augmentation to make the payment therefore they won't be able to pay us until lockdown is lifted. But we do believe that we're managing a situation and we do believe that even though the Q4 cash might be down because of that delay but for the full year was to expect more cash to be up.

Yes. Right. So most of that - most of those people who are late on payments are overseas I take it.

Yes. They are, yes.

Okay. All right. Okay. Where are we on the NEC product lines? Are we seeing any kind of meaningful contribution to revenue on that at this point or is that gearing up for 2021? So then I just have one more question.

So, we've announced the multiband that we're having good traction on that. And the better we think that that'll be a margin accretive product and then the second that we've highlighted is our frequency assured service that we hope to launch by the end of this fiscal year. And that would be something that is a software service that would help identify and ultimately lead to interference in the 6 gigahertz band. So we feel that those two products could be a driver of growth in fiscal year 2021.

Okay. I mean are we looking at any other product lines from NEC? Or is it - or separate?

We have a couple others in the pipeline and when we know - when they get closer to launch, we'll talk more about them.

Sure. That's fair enough. So the Sprint/ T-Mobile merger, now that we have some clarity is that affecting you in a good way, bad way, uncertain yet?

Yes. So we think that that's going to be a net positive for us, but they're from what we could tell they're still doing their integration and as they get through the integration and they release money per spend, we'll go after it right.

Right. Okay. Fair enough. And so I guess my final question, where are you seeing 5G going so far in North America? Is it slowed down? Or are you see it gaining speed? Or Is it really another year push out and is it mostly an overseas story at the moment? And that's all I got.

Yes. Well, I would say that we see our best 5G installment overseas. We also - we see that it's accelerating in multiple regions principally overseas. We see that most of them are being built on top of existing site and what that does is that drive some additional capacity requirements, which we sell radios in the capacity upgrade right, domestically it's hard; it's harder to tell. And then the other thing that I would say is with LTE and LTE advanced some of our same radios are also a lot aligned with those and sometimes it's hard for us to distinguish if it - if it is network upgrade that - if it's 4G or 5G and what I think 5G does from a high level is it drives - it's basically a proxy for needing more capacity and that's good for us. And it's - we deliver on that. We see that it'll help the operators compete against each other and drive a reinforcement and demand. And one thing that I'd like to come back to is our multiband radio and our product roadmap is aligned with 5G. So the more 5G rolls out the better off - the better we're going to do.

Your next question comes from [Pete Prakash]. Please go ahead. Your line is open.

Hey, thanks for taking the question. And again congratulations on the quarter. Definitely operationally, I think that shows great results. Two quick comments and questions. One is if you could just talk about kind of the shareholder value comment in terms of increasing or what levers do you guys see in terms of formulating them? Just keep that in the context of the shareholders who's been with the company and followed them for about three to five years. We've heard hopefully revenue growth and obviously margin expansion and cutting OpEx, but if you can kind of look ahead and see where you think that shareholder value will come from? And then if you can just talk about some of the things that you mentioned regarding things that were not done previously that you guys see opportunities for. I think that tone really struck well with me in terms of not accepting status quo. If you can kind of elaborate on that that would be appreciated? Thank you.

So Eric would you like me to go or you want to go on the stock price shareholder value?

Well, I think from my perspective is how we go about improving the bottom line all right, so earlier we mentioned that on the call that we have gone through a couple of restructuring efforts. One in Q3 we announced about headcount reduction about 20 employees and then net of 45 employees in Q4 through the second quarter fiscal of 2021. So we're looking at revenue growth and what we're looking at how we can continue to cut cost to drive shareholder value.

Okay. So that's kind of Eric's perspective on part of it. The other part of your question is what we are doing different right. So since I've been in the role, my focus has been to challenge every cost right. And as we've challenged costs, we've been able to identify areas to get operationally more efficient and that where some of the places where we benchmarked ourselves against a basket of a company where our costs are too high. And we're going to fix that. That's the cost side but let's talk about the biggest problem that if you go back in the four years of financials right. The top line is then 240 plus or minus $5 million and there has been cost-cutting before I gotten here. So and that I give the folks that did that a lot of credit, but the top line hasn't been improved. And I would also say the top line hasn't been improved and we haven't gotten paid for our innovation. So we are in the midst of an extensive voice of the customer program. So that we understand where Aviat has a compelling value proposition and a little tidbit would be where there's high spectrum costs are high performance, high-capacity radios deliver more value than our competition or the next best alternative. The multiband radio, when I started, we were kind of going to go out and look at that. We were just going to try and sell that everywhere and that drives higher cost to serve. So we're going to work to specifically target that, get leverage out of our as SG&A and then on the FAS, which is a new product in the pipeline. We didn't really have a go-to-market perspective. We will find out. We understand what the economics…

Excellent. No, thank you for all that clarity and love the tone. If I could ask a quick follow-up, if you were to think like over the next three years in terms of kind of where you see the company growing, whether it be operational improvement from the cost side or revenue side. Is it fair to say this year is more on the operational cost side with stagnant growth or limited growth? And then years beyond the focus are going to be growth and you would be disappointed if you didn't see that?

Yes. So and I would just add one more aspect, right. This year we're working to improve our SIOP process and make sure that on the demand that we see in front of us that we deliver on right. So we're taking - we're addressing costs and I think if you look at our 8-K, the cost roadmap takes us over the next two and a half quarters. So that should buy us some earnings improvement between now and then and we need to drive top line growth with the program I just described. But I think that's a reasonable way to think about it. Yes, the way you put it. There are currently no further questions at this time. I'll turn the call back to Pete for any closing remarks.

All right. Well, everyone who joined us thanks for your attention and your interest in Aviat. We think that the guys who've been on the phone and talked to us and gave us thanks for a good quarter. It was a good quarter given the circumstances. So we're looking forward to continuing deliver and getting through this Covid-19 and driving our costs down, getting on a growth path and then ultimately delivering shareholder value. So thank you for your attention and we'll talk to you next quarter.

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