Aviat Networks Announces Second Quarter of Fiscal 2018 Financial Results
MILPITAS, Calif., Feb. 8, 2018 /PRNewswire/ -- Aviat Networks, Inc. (NASDAQ: AVNW), ("Aviat Networks" or "the Company"), the leading expert in microwave networking solutions, today reported financial results for its fiscal 2018 second quarter ended December 29, 2017.
Commenting on the Company's fiscal 2018 second quarter results, Michael Pangia, President and Chief Executive Officer of Aviat Networks stated, "I'm very pleased with our results this quarter, as we exceeded our gross margin, adjusted EBITDA and cash generation targets. Our success was primarily driven by continued strength in our private networks business and in North America, which also led to a significant sequential improvement in bookings. Our balance sheet continues to strengthen, as evidenced by strong performance in cash from operations and increases in our cash position. With our year-to-date results and our expectations in the second half of the year, we remain on track to meet both our top- and bottom-line guidance."
Fiscal 2018 Second Quarter Results Comparisons
The Company reported total revenues of $61.7 million for its fiscal 2018 second quarter as compared to $68.5 million in the comparable fiscal 2017 period, a decline of $6.8 million or 9.9%. The year-over-year decline in revenue is primarily related to a decline in international revenue offset in part by an increase in North America revenue. On a sequential basis, total revenues increased $5.5 million or 9.9%, as compared to the prior fiscal 2018 first quarter.
GAAP gross margins for the fiscal 2018 second quarter were 35.5% as compared to 30.8% in the fiscal 2017 second quarter, an improvement of approximately 470 basis points. Non-GAAP gross margins for the fiscal 2018 second quarter were 35.3% as compared to 31.3% in the fiscal 2017 second quarter, an increase of 400 basis points. Both GAAP and Non-GAAP gross margin percentage improvements were primarily driven by improved product and service margins and increased share of business in North America.
GAAP total operating expenses for the fiscal 2018 second quarter were $19.0 million as compared to $18.6 million reported in the fiscal 2017 second quarter, an increase of $0.4 million or 2.1%. Non-GAAP total operating expenses for the fiscal 2018 second quarter, excluding the impact of share-based compensation and strategic alternative costs, were $18.2 million as compared to $18.1 million reported in the fiscal 2017 second quarter, an increase of $0.1 million or 0.8%. The increases in both GAAP and Non-GAAP operating expenses are related to a one-time bad debt recovery in fiscal 2017 that did not repeat in the fiscal 2018 second quarter.
GAAP operating income was $2.9 million for the fiscal 2018 second quarter as compared to $2.5 million for the comparable fiscal 2017 period. Non-GAAP operating income was $3.5 million for the fiscal 2018 second quarter as compared to $3.4 million for the comparable fiscal 2017 period. The Company reported a GAAP net income from continuing operations of $5.1 million, or an income of $0.90 per diluted share and Non-GAAP income from continuing operations of $3.0 million, or income of $0.53 per diluted share. This compares to a GAAP income from continuing operations of $1.7 million, or an income of $0.31 per diluted share for the comparable year-ago period, and a Non-GAAP income from continuing operations attributable to Aviat Networks of $3.1 million or an income of $0.57 per diluted share for the comparable fiscal 2017 period.
Adjusted EBITDA for the fiscal 2018 second quarter was $4.6 million, compared to an Adjusted EBITDA of $4.8 million in the comparable fiscal 2017 period.
Cash, cash equivalents and restricted cash were $42.1 million as of December 29, 2017 as compared to $36.2 million as of June 30, 2017, an improvement of $5.9 million.
A reconciliation of GAAP to Non-GAAP financial measures for the second quarter of fiscal 2018 along with the accompanying notes is provided in Table 3 below.
Fiscal 2018 Third Quarter Outlook
The Company anticipates revenue to be in the range of $62.0 to $65.0 million. Non-GAAP gross margins are anticipated to be in the range of 30.0% and 32.0% based on geographic mix and the anticipated split between products and services. Non-GAAP operating expenses are expected to be between $18.3 and $18.7 million, in line with the Company's prior outlook, with the range dependent upon the top-line. This would result in positive operating income and positive Adjusted EBITDA for the third quarter of fiscal 2018.
Fiscal 2018 Full Year Outlook
The Company today reaffirmed its previously announced fiscal 2018 full year outlook. The Company still anticipates fiscal 2018 revenue to be in the range of $245.0 to $255.0 million, with Non-GAAP gross margins between 31.5% to 32.5% and Non-GAAP operating expenses to be in the range of $72.0 million to $75.0 million. The Company anticipates it will meet its bottom-line objectives and generate Non-GAAP operating income of approximately $5.0 million to $7.0 million and Adjusted EBITDA of approximately $11.0 million to $13.0 million in fiscal 2018.
Conference Call Details
Aviat Networks will host a conference call at 4:30 p.m. Eastern Time (ET) on February 8, 2018 to discuss its financial results for the fiscal 2018 second quarter. To listen to the live conference call, please dial toll free (US/CAN) (866) 562-9910, (INTL) (661) 378-9805, conference ID: 1898977. Investors are invited to listen via webcast, which will be broadcasted live and via replay approximately two hours after the call at http://investors.aviatnetworks.com/events.cfm.
Non-GAAP Measures and Comparative Financial Information
Aviat Networks, Inc. reports information in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). Management of Aviat Networks monitors gross margin, research and development expenses, selling and administrative expenses, operating income (loss), income tax provision (benefit), income from continuing operations attributable to Aviat Networks, diluted net income per share from continuing operations attributable to Aviat Networks, adjusted income before interest, tax, depreciation and amortization ("Adjusted EBITDA") attributable to Aviat Networks adjusted to exclude certain costs, charges, gains and losses, on a non-GAAP basis for planning and forecasting results in future periods, and may use these measures for some management compensation purposes. These measures exclude certain costs, expenses, gains and losses as shown on the attached Reconciliation of Non-GAAP Financial Measures table (Table 3). As a result, management is presenting these non-GAAP measures in addition to results reported in accordance with GAAP to better communicate underlying operational and financial performance in each period. Management believes these non-GAAP measures provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionate positive or negative impact on results in any given period. Management also believes that these non-GAAP measures enhance the ability of an investor to analyze trends in Aviat Networks' business and to better understand its performance. Aviat Networks' management does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Aviat Networks presents these non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate its financial performance. Reconciliations of these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP are included in the tables below.
About Aviat Networks
Aviat Networks, Inc. works to provide dependable products, services and support to our customers. With more than one million systems sold into 170 countries worldwide, communications service providers and private network operators including state/local government, utility, federal government and defense organizations trust Aviat Networks with their critical applications. Coupled with a long history of microwave innovations, Aviat Networks provides a comprehensive suite of localized professional and support services enabling customers to drastically simplify both their networks and their lives. For more than 50 years, the experts at Aviat Networks have delivered high performance products, simplified operations and the best overall customer experience. Aviat Networks is headquartered in Milpitas, California. For more information, visit www.aviatnetworks.com or connect with Aviat Networks on Twitter, Facebook and LinkedIn.
Forward-Looking Statements
The information contained in this document includes forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933 including Aviat Networks' beliefs and expectations regarding business conditions, new product solutions, customer positioning, revenue, future orders, bookings, new contracts, cost structure, operating income, profitability in fiscal 2018, process improvements, realignment plans and review of strategic alternatives. All statements, trend analyses and other information contained herein regarding the foregoing beliefs and expectations, as well as about the markets for the services and products of Aviat Networks and trends in revenue, and other statements identified by the use of forward-looking terminology, including "anticipate," "believe," "plan," "estimate," "expect," "goal," "will," "see," "continue," "delivering," "view," and "intend," or the negative of these terms or other similar expressions, constitute forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, forward-looking statements are based on estimates reflecting the current beliefs, expectations and assumptions of the senior management of Aviat Networks regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Such forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this document. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include the following:
-- continued price and margin erosion as a result of increased competition
in the microwave transmission industry;
-- the impact of the volume, timing and customer, product and geographic
mix of our product orders;
-- our ability to meet financial covenant requirements which could impact,
among other things, our liquidity;
-- the timing of our receipt of payment for products or services from our
customers;
-- our ability to meet projected new product development dates or
anticipated cost reductions of new products;
-- our suppliers' inability to perform and deliver on time as a result of
their financial condition, component shortages, or other supply chain
constraints;
-- customer acceptance of new products;
-- the ability of our subcontractors to timely perform;
-- continued weakness in the global economy affecting customer spending;
-- retention of our key personnel;
-- our ability to manage and maintain key customer relationships;
-- uncertain economic conditions in the telecommunications sector combined
with operator and supplier consolidation;
-- our failure to protect our intellectual property rights or defend
against intellectual property infringement claims by others;
-- the results of restructuring efforts;
-- the ability to preserve and use our net operating loss carryforwards;
-- the effects of currency and interest rate risks;
-- the conduct of unethical business practices in developing countries; and
-- the impact of political turmoil in countries where we have significant
business.
For more information regarding the risks and uncertainties for our business, see "Risk Factors" in our Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on September 6, 2017 as well as other reports filed by Aviat Networks, Inc. with the SEC from time to time. Aviat Networks undertakes no obligation to update publicly any forward-looking statement, whether written or oral, for any reason, except as required by law, even as new information becomes available or other events occur in the future.
Investor Relations:
Glenn Wiener, GW Communications for Aviat Networks, Inc.
Tel: 212-786-6011 / Investorinfo@aviatnet.com or GWiener@GWCco.com
Financial Tables to Follow:
Table 1
AVIAT NETWORKS, INC.
Fiscal Year 2018 Second Quarter Summary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
(In thousands, except per share amounts) December 29, December 30, December 29, December 30,
2017 2016 2017 2016
---- ---- ---- ----
Revenues:
Revenue from product sales $37,719 $45,958 $72,786 $80,682
Revenue from services 24,004 22,578 45,119 46,061
------ ------ ------ ------
Total revenues 61,723 68,536 117,905 126,743
------ ------ ------- -------
Cost of revenues:
Cost of product sales 23,784 31,003 47,447 55,863
Cost of services 16,049 16,417 31,272 32,399
------ ------ ------ ------
Total cost of revenues 39,833 47,420 78,719 88,262
------ ------ ------ ------
Gross margin 21,890 21,116 39,186 38,481
------ ------ ------ ------
Operating expenses:
Research and development expenses 5,144 4,475 9,942 9,418
Selling and administrative expenses 14,104 14,056 27,826 29,243
Restructuring (recovery) charges (252) 72 (250) 232
---- --- ---- ---
Total operating expenses 18,996 18,603 37,518 38,893
------ ------ ------ ------
Operating income (loss) 2,894 2,513 1,668 (412)
Interest income 42 72 100 126
Interest expense (13) (3) (19) (21)
Other (expense) income (136) 5 (166) (177)
---- --- ---- ----
Income (loss) before income taxes 2,787 2,587 1,583 (484)
(Benefit from) provision for income taxes (2,564) 865 (3,203) (1,605)
------ --- ------ ------
Net income 5,351 1,722 4,786 1,121
Less: Net income attributable to noncontrolling interests, net of tax 280 44 372 72
Net income attributable to Aviat Networks' common stockholders $5,071 $1,678 $4,414 $1,049
====== ====== ====== ======
Net income per share of common stock outstanding:
Basic $0.95 $0.32 $0.83 $0.20
Diluted $0.90 $0.31 $0.79 $0.20
Weighted average shares outstanding:
Basic 5,329 5,284 5,323 5,273
Diluted 5,624 5,400 5,616 5,328
Table 2
AVIAT NETWORKS, INC.
Fiscal Year 2018 Second Quarter Summary
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) December 29, June 30,
2017 2017
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $40,352 $35,658
Restricted cash 1,772 541
Short-term investments 276 264
Accounts receivable, net 43,098 45,945
Unbilled receivables 9,487 12,110
Inventories 24,556 21,794
Customer service inventories 1,637 1,871
Other current assets 7,065 6,402
----- -----
Total current assets 128,243 124,585
------- -------
Property, plant and equipment, net 16,931 16,406
Deferred income taxes 5,705 6,178
Other assets 9,331 5,407
Total long-term assets 31,967 27,991
------ ------
TOTAL ASSETS $160,210 $152,576
======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt $9,000 $9,000
Accounts payable 33,098 33,606
Accrued expenses 19,842 21,933
Advanced payments and unearned
income 25,273 20,004
Restructuring liabilities 308 1,475
--- -----
Total current liabilities 87,521 86,018
Unearned income 6,509 7,062
Other long-term liabilities 1,052 1,022
Reserve for uncertain tax positions 2,473 2,453
Deferred income taxes 1,743 1,681
----- -----
Total liabilities 99,298 98,236
------ ------
Equity:
Preferred stock - -
Common stock 53 53
Additional paid-in-capital 814,898 813,733
Accumulated deficit (743,790) (748,204)
Accumulated other comprehensive
loss (11,164) (11,785)
------- -------
Total Aviat Networks stockholders'
equity 59,997 53,797
Noncontrolling interests 915 543
--- ---
Total equity 60,912 54,340
TOTAL LIABILITIES AND EQUITY $160,210 $152,576
======== ========
AVIAT NETWORKS, INC.
Fiscal Year 2018 Second Quarter Summary
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND REGULATION G DISCLOSURE
To supplement the consolidated financial statements presented in accordance with accounting principles generally accepted in the United States ("GAAP"), we provide additional measures of gross margin, research and development expenses, selling and administrative expenses, operating income (loss), provision for or benefit from income taxes, income from continuing operations attributable to Aviat Networks, diluted net income per share from continuing operations attributable to Aviat Networks, and adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") attributable to Aviat Networks, adjusted to exclude certain costs, charges, gains and losses, as set forth below. We believe that these non-GAAP financial measures, when considered together with the GAAP financial measures provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionate positive or negative impact on results in any particular period. We also believe these non-GAAP measures enhance the ability of investors to analyze trends in our business and to understand our performance. In addition, we may utilize non-GAAP financial measures as a guide in our forecasting, budgeting and long-term planning process and to measure operating performance for some management compensation purposes. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP follow.
Table 3
AVIAT NETWORKS, INC.
Fiscal Year 2018 Second Quarter Summary
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (1)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December % of December % of December % of December % of
29, 2017 Revenue 30, 2016 Revenue 29, 2017 Revenue 30, 2016 Revenue
-------- ------- -------- ------- -------- ------- -------- -------
(In thousands, except percentages and per share amounts)
GAAP gross margin $21,890 35.5% $21,116 30.8% $39,186 33.2% $38,481 30.4%
WTM inventory write-down recovery (181) (83) (190) (83)
Performance bond expense - 365 - 365
Share-based compensation 55 62 99 102
Non-GAAP gross margin 21,764 35.3% 21,460 31.3% 39,095 33.2% 38,865 30.7%
GAAP research and development expenses $5,144 8.3% $4,475 6.5% $9,942 8.4% $9,418 7.4%
Share-based compensation (39) (38) (78) (62)
--- --- --- ---
Non-GAAP research and development expenses 5,105 8.3% 4,437 6.5% 9,864 8.4% 9,356 7.4%
GAAP selling and administrative expenses $14,104 22.9% $14,056 20.5% $27,826 23.6% $29,243 23.1%
Share-based compensation (486) (388) (977) (782)
Strategic alternative costs (483) - (877) -
Non-GAAP selling and administrative expenses 13,135 21.3% 13,668 19.9% 25,972 22.0% 28,461 22.5%
GAAP operating income (loss) $2,894 4.7% $2,513 3.7% $1,668 1.4% $(412) (0.3)%
WTM inventory write-down recovery (181) (83) (190) (83)
Performance bond expense - 365 - 365
Share-based compensation 580 488 1,154 946
Strategic alternative costs 483 - 877 -
Restructuring (recovery) charges (252) 72 (250) 232
---- --- ---- ---
Non-GAAP operating income 3,524 5.7% 3,355 4.9% 3,259 2.8% 1,048 0.8%
GAAP income tax (benefit) provision $(2,564) (4.2)% $865 1.3% $(3,203) (2.7)% $(1,605) (1.3)%
Tax refund from Inland Revenue Authority of - - 1,322 3,741
Singapore
AMT credit related to valuation allowance release 3,303 - 3,303 -
----- --- ----- ---
Adjustment to reflect pro forma tax rate (439) (565) (822) (1,536)
---- ---- ---- ------
Non-GAAP income tax provision 300 0.5% 300 0.4% 600 0.5% 600 0.5%
GAAP income from continuing operations $5,071 8.2% $1,678 2.4% $4,414 3.7% $1,049 0.8%
attributable to Aviat Networks
Share-based compensation 580 488 1,154 946
Strategic alternative costs 483 - 877 -
Restructuring (recovery) charges (252) 72 (250) 232
Nigeria FX loss (income) on dividend receivable 136 (2) 137 208
WTM inventory write-down recovery (181) (83) (190) (83)
Performance bond expense - 365 - 365
Tax refund from Inland Revenue Authority of - - (1,322) (3,741)
Singapore
AMT credit related to valuation allowance release (3,303) - (3,303) -
------ --- ------ ---
Adjustment to reflect pro forma tax rate 439 565 822 1,536
--- --- --- -----
Non-GAAP income from continuing operations $2,973 4.8% $3,083 4.5% $2,339 2.0% $512 0.4%
attributable to Aviat Networks
Diluted income per share of common stock
GAAP $0.90 $0.31 $0.79 $0.20
Non-GAAP $0.53 $0.57 $0.42 $0.10
Shares used in computing diluted income per share of common stock
GAAP 5,624 5,400 5,616 5,328
Non-GAAP 5,624 5,400 5,616 5,328
ADJUSTED EBITDA:
----------------
GAAP income from continuing operations $5,071 8.2% $1,678 2.4% $4,414 3.7% $1,049 0.8%
attributable to Aviat Networks
Depreciation and amortization of property, plant and 1,308 1,466 2,590 3,136
equipment
Interest (29) (69) (81) (105)
Share-based compensation 580 488 1,154 946
Strategic alternative costs 483 - 877 -
Restructuring (recovery) charges (252) 72 (250) 232
Nigeria FX loss (income) on dividend receivable 136 (2) 137 208
WTM inventory write-down recovery (181) (83) (190) (83)
Performance bond expense - 365 - 365
(Benefit) provision for income taxes (2,564) 865 (3,203) (1,605)
------ --- ------ ------
Adjusted EBITDA attributable to Aviat Networks $4,552 7.4% $4,780 7.0% $5,448 4.6% $4,143 3.3%
====== ====== ====== ======
(1) The adjustments above reconcile our
GAAP financial results to the non-
GAAP financial measures used by us.
Our non-GAAP income from continuing
operations attributable to Aviat
Networks excluded share-based
compensation, and other non-
recurring charges (recovery).
Adjusted EBITDA was determined by
excluding depreciation and
amortization on property, plant and
equipment, interest, provision for
or benefit from income taxes, and
non-GAAP pre-tax adjustments, as
set forth above, from the GAAP
income from continuing operations
attributable to Aviat Networks. We
believe that the presentation of
these non-GAAP items provides
meaningful supplemental information
to investors, when viewed in
conjunction with, and not in lieu
of, our GAAP results. However, the
non-GAAP financial measures have
not been prepared under a
comprehensive set of accounting
rules or principles. Non-GAAP
information should not be considered
in isolation from, or as a
substitute for, information prepared
in accordance with GAAP. Moreover,
there are material limitations
associated with the use of non-GAAP
financial measures.
Table 4
AVIAT NETWORKS, INC.
Fiscal Year 2018 Second Quarter Summary
SUPPLEMENTAL SCHEDULE OF REVENUE BY GEOGRAPHICAL AREA
(Unaudited)
Three Months Ended Six Months Ended
December 29, December 30, December 29, December 30,
2017 2016 2017 2016
---- ---- ---- ----
(In thousands)
North America $36,985 $39,353 $67,987 $67,937
International:
Africa and Middle East 12,682 16,770 26,144 31,119
Europe and Russia 3,814 2,810 8,260 7,317
Latin America and Asia Pacific 8,242 9,603 15,514 20,370
24,738 29,183 $49,918 $58,806
------ ------ ------- -------
Total Revenue $61,723 $68,536 $117,905 $126,743
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