Aviat Networks Announces Fiscal 2019 First Quarter Financial Results
MILPITAS, Calif., Nov. 12, 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 2019 first quarter ended September 28, 2018.
Commenting on the Company's fiscal 2019 first quarter results and business activity, Michael Pangia, President and Chief Executive Officer of Aviat Networks stated, "While our first quarter results came in below our expectations, our business grew and remained profitable on an Adjusted EBITDA basis. We expect a strong second quarter and remain on track for growth and improved profitability. Our competitive position continues to strengthen globally and we see new opportunities for growth in all of our key verticals and geographies."
Fiscal 2019 First Quarter Results Comparisons
The Company reported total revenues of $60.5 million for its fiscal 2019 first quarter, as compared to $56.2 million in the comparable fiscal 2018 period, an increase of $4.3 million or 7.7%. International revenue increased by $7.6 million or 30.0%, offset by a decline in North American revenue of $3.2 million or 10.4%.
GAAP gross margin for the fiscal 2019 first quarter was 29.6%, as compared to 30.8% in the comparable fiscal 2018 period, a decrease of 120 basis points. Non-GAAP gross margin for the fiscal 2019 first quarter was 29.6%, as compared to 30.8% in the comparable fiscal 2018 period, a decrease of 120 basis points. Product and service margins declined year-over-year due to lower concentration of North America revenue as a percentage of the total mix. The Company anticipates significant sequential improvement in gross margin and reaffirms its prior guidance for fiscal 2019.
GAAP total operating expenses, excluding restructuring charges, for the fiscal 2019 first quarter were $18.6 million as compared to $18.5 million in the comparable fiscal 2018 period, an increase of $0.1 million or 0.7%. Non-GAAP total operating expenses for the fiscal 2019 first quarter, excluding the impact of share-based compensation and restructuring charges, were $18.3 million as compared to $17.6 million reported in the fiscal 2018 first quarter, an increase of $0.7 million or 3.7%. The increase in non-GAAP operating expenses were primarily related to growth-related activities in sales, marketing and R&D.
GAAP operating loss was $1.5 million for the fiscal 2019 first quarter, as compared to an operating loss of $1.2 million for the comparable fiscal 2018 period, a year-over-year increase of $0.3 million. Non-GAAP operating loss was $0.4 million for the fiscal 2019 first quarter compared to $0.3 million for the comparable fiscal 2018 period.
The Company reported GAAP net loss from continuing operations of $0.8 million or net loss of $0.14 per diluted share, and non-GAAP loss from continuing operations of $0.6 million or non-GAAP loss of $0.12 per diluted share. This compares to a GAAP and non-GAAP loss from continuing operations of $0.7 million and $0.6 million or a net loss of $0.12 and $0.12 per diluted share for the comparable fiscal 2018 period.
Adjusted EBITDA for the fiscal 2019 first quarter was $0.9 million flat compared to the comparable fiscal 2018 period.
Cash, cash equivalents and restricted cash were $28.4 million as of September 28, 2018, as compared to $37.4 million as of June 29, 2018, a decrease of $9.0 million. The decrease in cash during the period was attributable to an increase in working capital requirements, stemming from an increasing number of projects, mainly in North America, that require higher working capital and timing related to cash collection with a few of our larger customers in the Middle East and Africa. We expect to see improvements in these areas in the second quarter of fiscal 2019.
A reconciliation of GAAP to non-GAAP financial measures for the first quarter of fiscal 2019 along with the accompanying notes is provided in Table 3 below.
Fiscal 2019 First Half Outlook
-- For first half of fiscal 2019, the Company anticipates revenue to be in
the range of $121.0 to $125.0 million.
-- Non-GAAP gross margins are anticipated to be approximately 32.0% to
33.0%.
-- Non-GAAP operating expenses are anticipated to be approximately $37.0 to
$38.0 million.
-- Non-GAAP operating income is expected to be in the range of
approximately $2.5 to $3.5 million and Adjusted EBITDA of approximately
$3.5 to $4.5 million, largely in line with prior expectations.
-- The Company anticipates an improvement in its cash position from the
2019 first quarter of $3.0 to $5.0 million.
Fiscal 2019 Full Year Outlook
-- The Company anticipates fiscal 2019 revenue to be in the range of $250.0
to $260.0 million, representing year-over-year growth of between
approximately 4% and 7%. The modest adjustment to prior guidance takes
into account the delay of a major state contract, which the Company
believes will materialize, just at a later date, as well as more
conservative expectations in Africa.
-- Non-GAAP gross margins are anticipated to be approximately 32.0% to
33.0%, with potential upside based on geographic and product/service
mix, as well as the positive impact expected from further process
enhancements.
-- Non-GAAP operating expenses are anticipated to be approximately $75.0 to
$77.0 million, which include the anticipated savings from the recently
announced organizational changes. The modest year-over-year increase is
based primarily on the Company's focus on allocating investment dollars
towards growth and product development initiatives in the current fiscal
year.
-- At the mid-point of the ranges provided, this would result in non-GAAP
operating income of approximately $7.0 million and Adjusted EBITDA of
approximately $12.5 million.
-- Additionally, the Company anticipates improvements in working capital
and balance sheet metrics and expects to finish the year with an
improvement in its cash position, consistent with prior expectations.
Conference Call Details
Aviat Networks will host a conference call at 4:30 p.m. Eastern Time (ET) on November 12, 2018 to discuss its financial results for the fiscal 2019 first quarter. To listen to the live conference call, please dial toll free (US/CAN) (866) 562-9910, (INTL) (661) 378-9805, conference ID: 9479405. 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-and-presentations/events.
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 (loss) from continuing operations attributable to Aviat Networks, basic and diluted net income (loss) 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 2019, 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 August 28, 2018 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 / GWiener@GWCco.com
Financial Tables to Follow:
Table 1
AVIAT NETWORKS, INC.
Fiscal Year 2019 First Quarter Summary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
(In thousands, except per share amounts) September 28, June 29, September 29,
2018 2018 2017
---
Revenues:
Revenue from product sales $
39,125 $
38,213 $
35,067
Revenue from services 21,379 24,295 21,115
Total revenues 60,504 62,508 56,182
Cost of revenues:
Cost of product sales 26,799 23,961 23,663
Cost of services 15,780 15,362 15,223
Total cost of revenues 42,579 39,323 38,886
Gross margin 17,925 23,185 17,296
Operating expenses:
Research and development expenses 4,937 5,054 4,798
Selling and administrative expenses 13,706 15,586 13,722
Restructuring charges 796 1,531 2
Total operating expenses 19,439 22,171 18,522
Operating (loss) income (1,514) 1,014 (1,226)
Interest income 51 49 58
Interest expense (5) (5) (6)
Other expense - (30)
(Loss) income before income taxes (1,468) 1,058 (1,204)
(Benefit from) provision for income taxes (718) 1,152 (639)
Net loss (750) (94) (565)
Less: Net (loss) income attributable to noncontrolling interests, net of tax - (148) 92
Net (loss) income attributable to Aviat Networks $
(750) $
54 $
(657)
Net (loss) income per share of common stock outstanding:
Basic $
(0.14) $
0.01 $
(0.12)
Diluted $
(0.14) $
0.01 $
(0.12)
Weighted average shares outstanding:
Basic 5,366 5,350 5,316
Diluted 5,366 5,695 5,316
Table 2
AVIAT NETWORKS, INC.
Fiscal Year 2019 First Quarter Summary
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) September 28, June 29,
2018 2018
---
ASSETS
Current Assets:
Cash and cash equivalents $
28,397 $
37,425
Restricted cash 3 3
Accounts receivable, net 50,874 43,068
Unbilled receivables 28,675 14,167
Inventories 8,682 21,290
Customer service inventories 1,324 1,507
Other current assets 7,351 6,006
Total current assets 125,306 123,466
Property, plant and equipment, net 16,889 17,179
Deferred income taxes 5,073 5,600
Other assets 11,923 9,816
Total long-term assets 33,885 32,595
TOTAL ASSETS $
159,191 $
156,061
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt $
9,000 $
9,000
Accounts payable 33,336 30,878
Accrued expenses 25,242 25,864
Advance payments and unearned income 13,670 19,300
Restructuring liabilities 1,923 1,426
Total current liabilities 83,171 86,468
Unearned income 7,562 6,593
Other long-term liabilities 1,253 1,250
Reserve for uncertain tax positions 3,343 2,941
Deferred income taxes 1,538 1,293
Total liabilities 96,867 98,545
Equity:
Preferred stock -
Common stock 53 54
Additional paid-in-capital 816,483 816,426
Accumulated deficit (741,487) (746,359)
Accumulated other comprehensive loss (12,725) (12,605)
Total stockholders' equity 62,324 57,516
TOTAL LIABILITIES AND EQUITY $
159,191 $
156,061
AVIAT NETWORKS, INC.
Fiscal Year 2019 First 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 (loss) income, provision for or benefit from income taxes, net (loss) income attributable to Aviat Networks, diluted net (loss) income per share attributable to Aviat Networks, and adjusted (loss) income 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 2019 First Quarter Summary
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (1)
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 28, % of June 29, % of September 29, % of
2018 Revenue 2017
Revenue 2018 Revenue
---
(In thousands, except percentages and per share amounts)
29.6
% %
GAAP gross margin $
17,925 % $
23,185 37.1 $
17,296 30.8
WTM inventory write-down recovery (88) (195) (9)
Share-based compensation 48 49 44
29.6
% %
Non-GAAP gross margin 17,885 % 23,039 36.9 17,331 30.8
GAAP research and development $
4,937 8.2
expenses
% %
% $
5,054 8.1 $
4,798 8.5
Share-based compensation (36) (33) (39)
Non-GAAP research and development 4,901 8.1
expenses
% %
% 5,021 8.0 4,759 8.5
GAAP selling and administrative 22.7
expenses
% %
$
13,706 % $
15,586 24.9 $
13,722 24.4
Share-based compensation (352) (586) (491)
Strategic alternative costs - (394)
Non-GAAP selling and administrative 22.1
expenses
% %
13,354 % 15,000 24.0 12,837 22.8
GAAP operating (loss) income $
(1,514) (2.5)
% %
% $
1,014 1.6 $
(1,226) (2.2)
WTM inventory write-down recovery (88) (195) (9)
Share-based compensation 436 668 574
Strategic alternative costs - 394
Restructuring charges 796 1,531 2
Non-GAAP operating (loss) income (370) (0.6)
% %
% 3,018 4.8 (265) (0.5)
GAAP income tax (benefit) provision $
(718) (1.2)
% %
% $
1,152 1.8 $
(639) (1.1)
Tax refund from Inland Revenue
Authority of Singapore - 1,322
Tax receivable from Department of
Federal Revenue of Brazil 1,646
Adjustment to reflect pro forma tax
rate (628) (852) (383)
Non-GAAP income tax provision 300 0.5
% %
% 300 0.5 300 0.5
GAAP (loss) income attributable to $
(750) (1.2)
Aviat Networks
% %
% $
54 0.1 $
(657) (1.2)
Share-based compensation 436 668 574
Strategic alternative costs - 394
Restructuring charges 796 1,531 2
Nigeria FX loss on dividend
receivable - 1
WTM inventory write-down recovery (88) (195) (9)
Tax refund from Inland Revenue
Authority of Singapore - (1,322)
Tax receivable from Department of
Federal Revenue of Brazil (1,646)
Adjustment to reflect pro forma tax
rate 628 852 383
Non-GAAP (loss) income attributable $
(624) (1.0)
to Aviat Networks
% %
% $
2,910 4.7 $
(634) (1.1)
Diluted (loss) income per share attributable to Aviat Networks' stockholders:
GAAP $
(0.14) $
0.01 $
(0.12)
Non-GAAP $
(0.12) $
0.51 $
(0.12)
Shares used in computing diluted (loss) income per share
GAAP 5,366 5,695 5,316
Non-GAAP 5,366 5,695 5,316
ADJUSTED EBITDA:
---
GAAP (loss) income attributable to $
(750) (1.2)
Aviat Networks
% %
% $
54 0.1 $
(657) (1.2)
Depreciation and amortization of
property, plant and equipment 1,288 1,218 1,282
Interest (46) (44) (52)
Share-based compensation 436 668 574
Strategic alternative costs - 394
Restructuring charges 796 1,531 2
Nigeria FX loss on dividend
receivable - 1
WTM inventory write-down recovery (88) (195) (9)
(Benefit from) provision for income
taxes (718) 1,152 (639)
Adjusted EBITDA attributable to $
918 1.5
Aviat Networks
% %
% $
4,384 7.0 $
896 1.6
(1) The adjustments above reconcile our GAAP
financial results to the non-GAAP financial
measures used by us. Our non-GAAP (loss)
income 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 (loss) income 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 2019 First Quarter Summary
SUPPLEMENTAL SCHEDULE OF REVENUE BY GEOGRAPHICAL AREA
(Unaudited)
Three Months Ended
September 28, June 29, September 29,
2018 2018 2017
---
(In thousands)
North America $
27,763 $
31,335 $
31,002
International:
Africa and Middle East 14,147 14,692 13,462
Europe and Russia 3,712 6,307 4,446
Latin America and Asia Pacific 14,882 10,174 7,272
32,741 31,173 25,180
Total Revenue $
60,504 $
62,508 $
56,182
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SOURCE Aviat Networks, Inc.
