Aviat Networks Announces Fiscal 2018 Third Quarter and Nine-Month Financial Results

MILPITAS, Calif., May 14, 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 third quarter and nine-months ended March 30, 2018.

Commenting on the Company's fiscal 2018 third quarter results and business activity, Michael Pangia, President and Chief Executive Officer of Aviat Networks stated, "While third quarter results were somewhat mixed, our outlook for the fourth quarter and 2019 fiscal year ("Fiscal 2019") remains very strong. We've added new customers, expanded successfully into new verticals and demand for our recently launched products is building. Our private networks business is strong, with new state contracts and new utility accounts on the horizon. Our international business is expected to return to growth, we have added new Tier-1 accounts, we are expanding our addressable market, and we're well-positioned as 5G adoption begins to build steam over the next 12-18 months."

Mr. Pangia continued, "I'm pleased to announce that our Board of Directors has authorized a stock repurchase program, enabling us to purchase up to $7.5 million of our common stock. Based on our improving outlook and the momentum we have built, we believe our stock represents a compelling investment and we intend to be more active on the investor relations front, while taking steps such as the stock repurchase program, to enhance valuation over the long-term."

Fiscal 2018 Third Quarter Results Comparisons

The Company reported total revenues of $62.1 million for its fiscal 2018 third quarter, as compared to $58.7 million in the comparable fiscal 2017 period, an increase of $3.4 million or 5.8%. Revenue in North America increased by $2.6 million or 8.8% and international revenue increased by $0.8 million or 2.8%. On a sequential basis, total revenue increased by $0.4 million or 0.6%.

GAAP gross margin for the fiscal 2018 third quarter was 29.2%, as compared to 30.2% in the fiscal 2017 third quarter, a decrease of 100 basis points. Non-GAAP gross margin for the fiscal 2018 third quarter was 29.1%, as compared to 30.2% in the fiscal 2017 third quarter, a decrease of 110 basis points. Both GAAP and non-GAAP gross margin were primarily impacted by a change in project mix in North America when comparing the fiscal 2018 and fiscal 2017 third quarter periods.

GAAP total operating expenses for the fiscal 2018 third quarter were $19.5 million, as compared to $17.7 million reported in the fiscal 2017 third quarter, an increase of $1.8 million or 10.4%. Non-GAAP total operating expenses for the fiscal 2018 third quarter, excluding the impact of share-based compensation and strategic alternative costs, were $19.0 million as compared to $17.0 million reported in the fiscal 2017 third quarter, an increase of $1.9 million or 11.4%. The increase in both GAAP and non-GAAP operating expenses were primarily related to the impact of foreign currency conversion, additional expenses associated with research and development and sales to support product development and growth initiatives, as well as a temporary increase in benefit-related costs. The remaining year-over-year variance was primarily related to a bad debt recovery in the fiscal 2017 third quarter which did not repeat in the fiscal 2018 third quarter.  Excluding the impact of foreign currency conversion and higher medical expenses, total operating expenses were in line with the Company's prior guidance.

GAAP operating loss was $1.4 million for the fiscal 2018 third quarter, as compared to operating income of $0.1 million for the comparable fiscal 2017 period. Non-GAAP operating loss was $0.9 million for the fiscal 2018 third quarter as compared to non-GAAP operating income of $0.7 million for the comparable fiscal 2017 period. The Company reported a GAAP net loss from continuing operations of $2.6 million, or a loss of $0.49 per diluted share, and a non-GAAP loss from continuing operations of $1.4 million, or a loss of $0.26 per diluted share. This compares to a GAAP loss from continuing operations of $0.4 million, or a loss of $0.08 per diluted share for the comparable fiscal 2017 period, and non-GAAP income from continuing operations attributable to Aviat Networks of $0.4 million, or an income of $0.07 per diluted share for the comparable fiscal 2017 period.

Adjusted EBITDA for the fiscal 2018 third quarter was $0.2 million, compared to Adjusted EBITDA of $2.0 million in the comparable fiscal 2017 period.

Cash, cash equivalents and restricted cash were $38.5 million as of March 30, 2018, as compared to $36.2 million as of June 30, 2017, an improvement of $2.3 million.

A reconciliation of GAAP to non-GAAP financial measures for the third quarter of fiscal 2018 along with the accompanying notes, is provided in Table 3 below.

Fiscal 2018 Nine-Month Results Comparisons

The Company reported total revenues of $180.0 million for the fiscal 2018 nine-month period, as compared to $185.4 million in the comparable fiscal 2017 period, a decrease of $5.4 million or 2.9%. As expected, North America revenue increased year-over-year, up $2.6 million or 2.7%, offset by a decline in international revenue of $8.1 million or 9.1%.

GAAP gross margin for the fiscal 2018 nine-month period was 31.8%, as compared to 30.3% in the fiscal 2017 nine-month period, an increase of 150 basis points. Non-GAAP gross margin for the fiscal 2018 nine-month period was 31.8%, as compared to 30.5% in the fiscal 2017 period, an increase of 130 basis points. The improvement in gross margin was primarily driven by a favorable mix shift in North America and improved services margins as a result of process improvement initiatives throughout the Company.

GAAP total operating expenses for the fiscal 2018 nine-month period were $57.0 million, as compared to $56.6 million reported in the fiscal 2017 nine-month period, an increase of $0.5 million or 0.8%. Non-GAAP total operating expenses for both the fiscal 2018 and fiscal 2017 nine-month periods, excluding the impact of share-based compensation and strategic alternative costs, were $54.8 million. Foreign currency conversion, when comparing the fiscal 2018 and 2017 nine-month periods, adversely impacted GAAP and non-GAAP operating expenses. Additionally, consistent with the Company's strategy, both sales and research and development expenses were up for the comparable fiscal 2018 and 2017 nine-month periods, offset by continued reductions in general and administrative expenses through ongoing cost controls.

GAAP operating income for the fiscal 2018 nine-month period was $0.3 million, as compared to a GAAP operating loss of $0.3 million in the fiscal 2017 period, an improvement of $0.6 million. Non-GAAP operating income for the fiscal 2018 nine-month period was $2.3 million, as compared to non-GAAP operating income of $1.7 million, an increase of $0.6 million year-over-year. The Company reported GAAP income from continuing operations of $1.8 million, or income of $0.32 per diluted share in the fiscal 2018 nine-month period, as compared to GAAP income from continuing operations of $0.7 million, or income per diluted share of $0.12, in the fiscal 2017 nine-month period. Non-GAAP income from continuing operations for both the fiscal 2018 and fiscal 2017 nine-month periods was $0.9 million, and on a diluted per share basis was $0.17 and $0.16, respectively.

Adjusted EBITDA for the fiscal 2018 nine-month period was $5.7 million, compared to Adjusted EBITDA of $6.2 million in the comparable fiscal 2017 period.

A reconciliation of GAAP to non-GAAP financial measures for the fiscal 2018 nine-month period along with the accompanying notes is provided in Table 3 below.

Fiscal 2018 Fourth Quarter and Full Year Outlook

The Company anticipates revenue in the fiscal 2018 fourth quarter to be in the range of $63.0 million to $70.0 million, non-GAAP gross margin to be between 30% to 32% and non-GAAP operating expenses to be approximately $19.0 million. At the mid-point of the ranges provided, this would result in non-GAAP operating income of approximately $1.6 million and Adjusted EBITDA of approximately $2.8 million. For fiscal 2018, the Company anticipates revenue to be in the range of $243.0 million to $250.0 million, non-GAAP gross margin to be approximately 31.5% and non-GAAP operating expense to be approximately $74.0 million. This would result in fiscal 2018 non-GAAP operating income, using the mid-point of the fiscal 2018 fourth quarter ranges, of approximately $3.9 million and Adjusted EBITDA of approximately $8.5 million. This compares to non-GAAP operating income of $1.9 million and Adjusted EBITDA of $7.6 million in fiscal 2017, significant year-over-year improvements.

Conference Call Details

Aviat Networks will host a conference call at 4:30 p.m. Eastern Time (ET) on May 14, 2018 to discuss its financial results for the fiscal 2018 third quarter and nine-month period. To listen to the live conference call, please dial toll free (US/CAN) (866) 562-9910, (INTL) (661) 378-9805, conference ID: 1585858. 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 (loss) income, income tax provision (benefit), net (loss) income attributable to Aviat Networks, diluted net (loss) income per share attributable to Aviat Networks, adjusted (loss) 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:

AVIAT NETWORKS, INC.

Fiscal Year 2018 Third 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.

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SOURCE Aviat Networks, Inc.