Aviat Networks Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 8 speakers on the call.

Operator

Good afternoon, and welcome to the Aviat Networks Third Quarter Fiscal 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I'll now turn the conference over to your host, Mr.

Operator

Andrew Fredrickson, Director of Investor Relations. Thank you. You may begin.

Speaker 1

Thank you, and welcome to Aviat Networks' in the Q3 fiscal 2023 results conference call and webcast. You can find our Form 10 Q, press release and updated investor presentation in the Investor Relations section of our website at www.aviatnetworks.com, along with a replay of today's call in approximately 2 hours. With me today are Pete Smith, Aviat's CEO, will begin with opening remarks on the company's fiscal Q3 followed by David Gray, our CFO, who will review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook followed by Q and A. As a reminder, during today's call and webcast, and management may make forward looking statements regarding Aviat's business, including, but not limited to, statements relating to financial projections, and business drivers, new products and expansions, the impact of COVID-nineteen and economic activity in different regions.

Speaker 1

These and other forward looking statements reflect the company's opinions only as of the date of this call and webcast can involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. And other factors that could cause actual results to differ materially from the statements made on this call can be found in our annual report on Form 10 ks filed with the SEC on September 14, 2022. The company undertakes no obligation to revise or make public Any revision of these forward looking statements in light of new information or future events. Additionally, during today's call and webcast, and management will reference both GAAP and non GAAP financial measures. Please refer to our press release, which is available in the Investor Relations section of our website atwww.aviatnetworks.com and financial tables therein, which include a GAAP to non GAAP reconciliation and other supplemental financial information.

Speaker 1

At this time, I would like to turn the call over to Aviat's CEO, Pete Smith. Pete? Thanks, Andrew,

Speaker 2

and good afternoon, everyone. Thank you for joining us to review Aviat Networks' results for the Q3 of fiscal year 2023. Aviade executed against its plan this quarter and we continue to position ourselves to grow from our business drivers of 5 gs, Rural Broadband and Private Networks as well as improving bottom line results. In the Q3 of fiscal year 2023, Aviat delivered Revenue of $83,500,000 which represents growth of 12.0% versus Q3 of last year Non GAAP operating income of 11.0 percent, adjusted EBITDA of $10,800,000 a 14% increase versus the same period Let's discuss some key highlights from the Q3. 5 gs, our business sees healthy demand related to 5 gs opportunities.

Speaker 2

In the U. S, wireless backhaul spend for network build outs continues to be strong and we believe that this is poised to continue. Internationally, we are still in the early innings of the 5 gs upgrade cycle. We see increased planning at Tier 1s and Tier 2s That lead us to believe there will be healthy demand for years to come. To be specific, we are optimistic about several projects on the horizon with are MCN Group in addition to our Baji Airtel business.

Speaker 2

We're also working request for proposals for several other international Tier 1 and Tier 2 operators. Some of these opportunities are a result of the decisions made by operators to replace our largest global competitor. Our share gains funnel against this competitor remains strong with over $36,000,000 in year to date bookings and over $14,000,000 in year to date revenue. We will continue to execute on these opportunities to take share of demand. We remain confident in Aviat's ability are ready to compete and win an attractive set of international Tier 1 and Tier 2 business with our leading solutions and our commitment to providing customers compelling products.

Speaker 2

Customers continue to increase their attention to energy consumption in their network. Aviat's product roadmap is well positioned to meet this customer need and reduce power consumption compared to competitive offers. Rural Broadband. Moving on to rural broadband, this quarter was steady from a demand perspective. We remain confident that rural broadband segment will continue to be a growth driver for Aviat and our e commerce platform As government funding begins to flow in the back half of this calendar year and as customers accelerate to build out of their networks.

Speaker 2

This quarter, we saw progress on several RDOF projects that are moving through the planning and beginning implementation. We've had engagement and initial project related orders from 4 RDOF recipients. In Private Networks, We continue to be the market leader in North America and are encouraged by the business potential from international opportunities. There are several new developments in our private network business. 1st, routers.

Speaker 2

Since the beginning of Q3, we've won 5 major router deals are in North America with utilities and public safety agencies. We win because we have a high availability router product are mission critical networks that allow the network operators to scale their network easily and cost effectively, while maintaining the reliability needed for these networks. 2nd, Private LTE. At the time of the Redline acquisition, we justified the investment based on cost synergies. We also highlighted the possibility of revenue synergy in Private LTE by leveraging Redline Access Products In Q3, we've achieved our first private LTE win in North America.

Speaker 2

We are excited about this market opportunity believe it will be a growth driver for Aviat moving forward. Thirdly, outside of our core private network public safety and utility applications, We are seeing increased potential in enterprise private networks. As businesses systems such as ERP and others move to the cloud, Enterprise connectivity becomes more critical. Connectivity downtime means business downtime. The reliability delivered from traditional service providers with fiber connectivity is no longer sufficient.

Speaker 2

Enterprises are starting to understand that microwave transport offers diversified connectivity with Higher reliability when compared to fiber, improving business uptime and reducing costs. Aviat's product portfolio and service offering are ideally suited to address this issue and capture the growth opportunity. We have several new products to discuss. In the Q3, we announced an update to our frequency assurance software or FAS to support 3rd party radios. This allows operators to use the FAS application with not only Aviat micro wavelengths, but also the micro wavelengths from other vendors.

Speaker 2

FAS is designed to help customers monitor, detect and track interference from new Wi Fi 6E deployments and any other sources of interference. Are currently in trials with customers, including a North American Tier 1 mobile operator and expect FAS for third party products are available in June 2023. We also anticipate expanding this 3rd party capability to our Health Assurance software. A few days ago, we announced the integration of our access products in the ProVision Plus and Health Assurance Software or HAS This marks a further integration of the acquired Redline Communications product base in the Aviat and gives customers are using Access Products, the most advanced management software for a single end to end solution for wireless transport and Access and has proactive and predictive network monitoring to minimize disruption. This improves the customer experience and provide new features not previously available on the legacy management platform.

Speaker 2

We have an installed base of over 200,000 access radios that can benefit from this software, which will be shipping for revenue in Q4. Additionally, We've successfully implemented our vendor agnostic multi band, MB VA software in a large customer in APAC, where we've overlaid our e band on top of microwave radios from 2 separate incumbent microwave vendors. This is a great proof point of the opportunity that MBVA product creates for Avia, which helps us to overcome are Switching costs in networks. The product is compelling for the customer because it allows them to add capacity in their network with lower incremental investments. We expect continued success in the market with this product.

Speaker 2

Moving on to supply chain. We continue to see improvements. For approximately 98.5 percent of our supply, we've returned to pre crisis performance. Currently, we have 27 components remain in allocation. Also, we are seeing component lead times trend down towards 12 months.

Speaker 2

Note that it takes approximately 2,000 components to deliver our microwave system. We've come a long way, but we are not done derisking the supply chain. Fortunately, Aviat has been able to avoid significant supply chain interruptions throughout the crisis period. This quarter, we saw no missed revenue opportunity Due to supply chain shortages, we will also say that inflationary costs and expedite fees are moderating demand environment. Given the economic headlines and spending projections in Tier 1 Telecom, we would like to comment on the demand environment for Aviat's wireless backlog.

Speaker 2

Approximately 2 thirds of our demand is in private networks, driven by public safety and utilities. Backlog has grown steadily over this fiscal year and our book to bill remains above 1. With respect to mobile network operators, typically The fiber build out precedes the wireless build out of networks. Also, much of the financial press is focused on U. S.

Speaker 2

Tier 1 CapEx spending. Given our limited exposure to U. S. Tier 1 and the build out sequence, specifically microwave deployments typically follow fiber deployments, We do not see a problem. Lastly, rural broadband has received some press due to buildup of fiber inventory in the channel.

Speaker 2

On the wireless side, we do not have data to support this. In the U. S. This quarter, we were challenged in field services at several large projects Because of the record snow and rainfall in the West. This affected both our mobile service providers and private network projects impacted an estimated $1,500,000 in revenue.

Speaker 2

Going forward, we will update the seasonality profile of the business to better account for this contingency. Overall, we see a favorable demand environment. Bookings are ahead of plan in the current quarter, further evidence are in the range of a continued strong environment. I will now turn the call over to David to review our financials before coming back for some final comments. David?

Speaker 3

Thank you, Pete, and good afternoon, everyone. During my remarks today, I'll review some of the key Q3 fiscal 2023 financial highlights. Noting our detailed financials can be found in our press release and 10 Q filed this afternoon. As a reminder, all comparisons discussed today are between Q3 fiscal 2023 and Q3 fiscal 2022, unless noted otherwise. For the Q3, we reported total revenues of $83,500,000 as compared to $74,500,000 for the same period last year, An increase of $9,000,000 or 12%, driven by strong growth in APAC, Europe, Latin America as well as the contribution from the Redline acquisition.

Speaker 3

North America revenue, which comprised 55% of total revenue for the 3rd quarter, was $46,100,000 International revenue was $37,400,000 We continue our trend of trailing 4 quarter book to bill ratio above 1 started in fiscal 2018. Gross margins for the quarter were 35.7 percent and 35.9 percent on a GAAP and non GAAP basis as compared to prior year margins of 37.0 percent and 37.1 percent for GAAP and non GAAP. Current quarter margins were impacted by regional mix from lower sales in the highest margin region of North America. 3rd quarter GAAP operating expenses were $22,300,000 an increase of $2,300,000 from the prior year, are driven by the inclusion of Redline operating expenses. 3rd quarter non GAAP operating expenses, which exclude the impact of restructuring charges, share based compensation and deal costs were $20,700,000 This is an increase of $1,400,000 from the prior year wholly due to the Redline acquisition.

Speaker 3

On a like for like basis, we continue to manage costs aggressively. 3rd quarter tax provision was $2,200,000 an increase of $900,000 to last year. We continue to report our non GAAP tax expense as $300,000 per quarter based on a reasonable estimate of cash taxes we expect to incur. The company has over $500,000,000 of NOLs manifested as the almost $90,000,000 deferred tax asset are on our balance sheet and will continue to generate shareholder value via minimal cash tax payments for the foreseeable future. We recorded 3rd quarter GAAP net income of $4,900,000 compared to $6,000,000 last year.

Speaker 3

3rd quarter non GAAP net income, which excludes restructuring charges, FX impacts, share based compensation, M and A related costs and non cash tax provision was $8,900,000 compared to $8,100,000 for the same period last year. 3rd quarter non GAAP EPS came in at $0.75 per share on a fully diluted basis, compared to $0.69 per share for the same period last year, an increase of 8.7%. Adjusted EBITDA for the Q3 was $10,800,000 An increase of $1,400,000 or 14.7 percent from the prior year. Adjusted EBITDA margins were 13% for the quarter. Moving on to the balance sheet.

Speaker 3

Our net cash at the end of the 3rd quarter was $16,300,000 from $21,600,000 the prior quarter. The sudden collapse of Silicon Valley Bank forced us to temporarily suspend and reroute incoming customer deposits, reducing collections for the quarter. Despite the disruption, we made progress reducing our accounts receivable. Unbilled receivables continued to increase as a result of the cash flow dynamics are inherent in a growing project based business. We continue to leverage our balance sheet to mitigate supply chain risk via buffer stock and supplier deposits.

Speaker 3

As Pete mentioned, the improving supply chain environment will allow us to begin unwinding these investments in the future quarters. Other assets grew during the quarter as we made investments in our Next Gen Tech. Our strong balance sheet enabled us to navigate the banking disruption, are continuing to invest in the business. We expect to generate positive cash in the coming quarters as the working capital investment moderates, are leaving us well positioned to execute our long term plans. With that, I'll turn it

Speaker 2

back to Pete for some final comments. Are ready. Thanks, David. Before opening up for Q and A, I'd like to add a few comments and summarize our performance. Thus far in fiscal year 2023, we've been focused on capitalizing on our long term growth drivers of 5 gs, rural broadband and private networks.

Speaker 2

We are encouraged by the progress the team has made in taking market share and capturing additional share of wallet around the world, which demonstrates The value of Aviat's differentiated products, software and services. This will help to increase profitability and shareholder value over the long term. Based on the strong demand environment and our execution to date, we are raising the bottom end of our revenue guidance are confirming our profit guidance for fiscal year 2023, which is now as follows. Revenue for fiscal year 2023 to be in the range of $341,000,000 to $347,000,000 and adjusted EBITDA for fiscal year 2023 will be in the range of $45,000,000 to $47,500,000 With that operator, let's open the call for questions.

Operator

In order to ask a question, you'll need to press star 1, 1,000,000 and wait for your name to be announced.

Speaker 4

Are ready to take questions.

Operator

Our first question comes from the line of Scott Searle with ROTH MKM. Your line is now open, Scott.

Speaker 3

Hey, good afternoon. Nice job on the quarter guys and thanks for taking my questions.

Speaker 2

Thanks, Scott.

Speaker 3

Hey, maybe just to quickly dive in. On the services front, revenues were high this quarter and so were the gross margins. I was wondering If you could address that a little bit in terms of mix issues or otherwise and how sustainable that level is both from a sales perspective and a gross margin Yes. So we had a nice bounce back in the quarter for our service margins. They were a little depressed as we spoke about last quarter due to some The vagaries of the ASC 606 revenue recognition standards, but that didn't hit us this quarter.

Speaker 3

I think We would like to say that this is sustainable, but I think a more realistic level over the long term horizon It's really kind of closer to the 35% range. And then as far as the size of the revenue, it was just a function of The mix of projects that we had in the quarter that was driving that. Got you. And If I could, on the RDA front, it's nice to see that it sounds like some of that activity is finally percolating. It sounds like it's in the design and planning phases now.

Speaker 3

So I guess it skews towards the second half of this calendar year when we start to see some revenues. Could you clarify a little bit about and maybe the magnitude as well? You said there were 4 Ardagh and customers that you're working with, maybe there's some idea to think about the magnitude of that opportunity. And maybe throw on top of that as well, the defend our networks act, which is basically Recent legislation that's been introduced in Congress to try and fund the gap or plug the gap on the rip and I know that wasn't a big opportunity necessarily for you guys, but I'm wondering if you're seeing any derivative opportunities coming out of that for you guys.

Speaker 2

Okay. So on the RDAAP funding, right, we've said once it gets started, it will peak 3 to 4 years are out and

Speaker 4

it will

Speaker 2

run tail off over the next 6 or 7. So we would That's we still believe that to be true. We do think we will have some revenue impact in the back half of the year, But how we space out the design activity that we've had through the peak is a little bit difficult. I think we need to see how those Projects shake out. At least 2 of the customers were in the top 10 of the RDOF Recipients, so we're pretty happy with the prospects of the customers That we've engaged and we think we have 35% to 40% share of rural broadband.

Speaker 2

So we're in good shape. And I think give us another couple of quarters as we go from the design phase into the ramp phase, and then we could be are more specific with respect to the impact on our overall program. But we're super excited about this because If you roll back the clock the last couple of years, it's been when is RDOF. We respond. We think it's coming.

Speaker 2

We think it's coming. We don't have it in our guidance. We got a little bit of revenue this quarter. We want to give it another quarter or 2 and then we could be more certain with respect to What the investment community should expect. Then pivoting to the legislation you So there is little impact.

Speaker 2

I believe this is the Huawei rip and replace legislation. There is less than 50 we stopped tracking this about 2 years ago when there 50 remaining microwave Huawei radios. So it's not material for the U. S. Market, but what we can say about that competitive dynamic, we've booked $35,000,000 of either share gain and networks that we're competing with them or rip and replace.

Speaker 2

So we feel that legislation that you highlighted is not so material to the North American market, but the overall trend is favoring us.

Speaker 3

Great. And lastly, if I could, Pete, maybe some updated thoughts on India. You got the big order from Airtel going back into late 2022. I'm wondering if there are some Phase 2, Phase 3 opportunities that you're are seeing percolating and any thoughts in terms of inorganic opportunities for you going forward? Thanks.

Speaker 2

So with respect to India, We're still in a very good position with that customer as they build out Their network and it's a project. So sometimes there's a surge, sometimes there's a lull and they've been digesting are shipments and we think that that will pick up again in the back half of this calendar year. And the feedback we've gotten on our performance there It's favorable, so we think we'll have a chance for share gain. And what I would also say, in the script, we highlighted The multi band vendor agnostic multi band and what's really critical, we have are the only single box multi band and now we've made that set up to be vendor agnostic. So when we're In a network where we're not sole sourced, it facilitates share gains.

Speaker 2

So we're hopeful there. And then on The M and A front, we would say, we closed the Redline transaction on July 5 last year. The integration has gone are better than we anticipated and that's helped would be sellers engage us and we continue to be active in evaluating and I hope in the next 6 to 12 months we're announcing Getting another deal across the goal line.

Speaker 3

Hey, Pete, one last one if I could. On the private networks front, specifically with Redline, How is that tracked in terms of from a revenue perspective? Is that in line with plans, ahead of plans? How's the pipeline on that front? Thanks.

Speaker 2

So we did not justify that transaction with any revenue synergies. And We had our first win this quarter. So we think that there is upside and the funnel for The let's call it the revenue synergy funnel is now over $10,000,000 So we need to see how we're converting that. And Until the quarter, I wouldn't have talked about that because we didn't get anything across the goal line now we have. And I think going forward, we'd like to see a few more get across the goal line and then factor that into our guidance.

Speaker 1

Great. Thank

Operator

you. Thank you. Our next question comes from the line of Erik Suppiger with JMP. Your line is now open, Erik.

Speaker 5

Yes. Thanks for taking the question. On the Huawei front, I think you said $36,000,000 is It's backlog and $14,000,000 in revenue. I want to just be clear, those are separate amounts. Those are incremental to each other.

Speaker 5

And then do you have any update on I think you had talked last quarter about there being a funnel of about 60,000,000 Have you and I think that was deals that you had identified. Is there any update on deals that you've identified in the market That could be replacements of Huawei?

Speaker 2

Yes. I would say our deal funnel rate is about $65,000,000 So it's grown a little bit. And the yes, I did say that it's about $36,000,000 that has now entered backlog. And you cited another number, Eric, that I didn't pick up. So if you could ask it again.

Speaker 2

So funnel 65, Backlog $36,000,000 is about right. And did you want

Speaker 5

to take color on that? Did you say you had $14,000,000 in revenue from those?

Speaker 6

Did I

Speaker 5

hear that wrong?

Speaker 2

Yes. I just Okay.

Speaker 5

Is the $14,000,000 incremental or separate from the 36

Speaker 2

It's not in the backlog because we've already shipped it.

Speaker 5

Okay. Yes, I just want to be clear. In terms of Redline, are you seeing competitors, players like Ubiquiti or Cambium or who are you competing with In some of that business.

Speaker 4

So, Redline

Speaker 2

is Significantly engineered mission critical access point. So, we don't compete at all With Ubiquiti or not at all to my knowledge. So let's say that we maybe 1% of the opportunities compete with Ubiquiti. I think that they're in a different segment. And on occasion, we do compete with Cambium.

Speaker 2

But Yes, that's what I was saying.

Speaker 5

Who are you seeing? Is it the likes of Ericsson that you would see more frequently?

Speaker 2

Yes. A little bit of Ericsson, a little bit of Nokia.

Speaker 5

Okay. And did you say you had mentioned a deal earlier. You had talked about a deal with Redline. Was that selling Redline into an existing customer? Was that new deal a completely new customer to Aviat?

Speaker 2

Redline into A historical Aviat customer.

Speaker 5

Okay, very good. Okay, thank you.

Operator

Thank you. Our next question will come from the line of one moment please. Our next question comes from the line of Tim Savageaux of Northland Capital Markets. Your line is now open, Tim.

Speaker 4

Hey, good afternoon. I knew it was me when I heard that pause, but nice job with them there. So that was great. I just want to

Operator

were unable to hear you. It's muffled.

Speaker 4

What about?

Speaker 3

That's great.

Speaker 4

Can you hear me now? Yes. Yes. All right. Sorry about that.

Speaker 4

New headphone. Well, I'll dispense with my cheek introduction and go straight to the question. So It sounds like for the Huawei replacement, that's $50,000,000 in bookings, dollars 14,000,000 shipped $36,000,000 in backlog. Is that right?

Speaker 2

So we said we have about a $65,000,000 funnel, $36,000,000 in backlog and about $14,000,000 shipped.

Speaker 3

So, yes, adding the revenue Plus the backlog. Okay. Get you $50,000,000 Yes. Okay.

Speaker 2

David is better at that.

Speaker 4

I only Go through that, just to say that that's a pretty good book to bill,

Speaker 7

generally speaking.

Speaker 4

And so you mentioned your I think in your discussion on the private networks business that that backlog continues to build and the book to bill remains above 1. On the carrier side, I think you seem to kind of address some of these high level CapEx concerns and note that they really didn't apply to you on the one hand. But on the other, with that type of booking dynamic and Huawei replacement, is it safe to assume that the bookings on the carrier side, which you described as 1 third or that book to bill is much higher than what you're seeing on the private network side. And Any color or order of magnitude there would be appreciated.

Speaker 3

Yes. I think with what you said that that is Probably reasonably accurate, although we don't typically disaggregate our book to bill between carriers and private networks.

Speaker 2

Yes. So I think if we did the work, your estimate is directionally correct,

Speaker 4

Great. And Well, let's dig into some of the Tier 1 commentary that you made. Obviously, MTN was a 10% customer in the quarter. Does that reflect some of the wins that you talked about or are those still in front of us or can you discuss kind of the overall Kind of profile with AT and MTN there given there's current customer, but there seems like there's some new business opportunities there.

Speaker 2

I think I would say it's both. We have wins and we have more wins in front of us. We had a great meeting with them at Mobile World Congress, and I think part of it is The Huawei issue and as part of it's our multi band offering Has got their attention and so to some of the share gains that we have are have been in Africa and we think that there's more to come.

Speaker 4

Great. And last question for me. I guess you mentioned kind of a push on the weather related issue, which I've certainly seen a lot of are here in Southern California. But in addition and probably some plain old fashioned positive seasonality into June, But I want to kind of circle back to India. And obviously, you saw APAC come down pretty substantially sequentially in the quarter and that has the can be very lumpy, but it And sort of resumes high level of activity in India.

Speaker 4

Is that part of your kind of implicit Fiscal Q4 guided for a pretty significant bounce up in revenue or are there any other drivers to note there?

Speaker 2

I actually think our next lump in APAC is probably in the back half of the calendar year, so not our Q4, we think North America are poised to have a great end of the year and then continued growth across The international regions, I don't anticipate at the end of the year that it will be driven by India, just given the cycle or the sequence of that Network

Speaker 4

filled up. Okay. And let me just follow-up on something just said there, real last question here. But given that Expectation for strength in North America, should we assume gross margins pick up sequentially from a mix perspective on that?

Speaker 2

Yes. You squeezed a little more good news out of me, Tim.

Speaker 4

Thanks very much.

Operator

Thank you.

Speaker 4

Have a question and answer session.

Operator

Comes from the line of Dave Kang with B. Riley. Dave, your line is now open.

Speaker 7

Thank you. Good afternoon. First question is, Pete, backlog, I think I missed it. What was the number? I think you said last quarter was over 245, what was it this quarter?

Speaker 2

It remains over 245, Great. So we only have the backlog number once a year at year end. But Here, just to give qualitative perspective on this, we started at $245,000,000 every quarter through the year. We have our book to bill has been greater than 1. So we think when we at the end at next quarter, we'll report Our backlog and expected to be over 245.

Speaker 7

Got it. And then, just wondering about your lead times. I mean, your products lead times, Has it gone up or down or any color on that?

Speaker 2

Our lead times are are stable. So our and we had our operating review last week and our on time deliveries have never been better. I actually don't have our lead times handy, but I think so I can't rattle them off, but we In our operating review, we look at our on time delivery. They haven't been as good as they are in are over 3 years. And when we do our competitive benchmarking on lead times, We think we have an advantage over our competition.

Speaker 7

So some of your peers have reported that their lead times are shrinking. So that's one of the reasons why backlogs are starting to go down. I mean, Will that be kind of similar with your situation, if your lead time start to shrink, your backlog starts to go down?

Speaker 2

So our lead times, right, so we did some let me go back to the beginning of the Supply chain crisis. So we bought a lot of inventory that we need to work down, but we bought it Starting in February, March of 2020. And the reason we did that was because We were worried about our suppliers getting sick and missing shipments. Well, that actually didn't happen, but then shortly thereafter ensued the supply chain crisis. So through the last 3 years, we've carried more inventory.

Speaker 2

We've largely kept our pre supply chain crisis lead times the same. So we're not we didn't have extended lead times. So we If you look at our lead times and I can get back to you on what our lead times were pre crisis and now, but they're the same. So we're not going to have a demand gap, which is what a lot of the supply chain questions are. We're not going to have a demand gap Because we can shrink our lead times.

Speaker 2

We our comments in the script about the demand environment, we think the demand environment is Good. First, good. And we do not see any change in the demand profile Due to lead times, our ability to supply or any of that. And let me go one step further. If you roll back the last 12 quarters of earnings announcements, the most revenue we missed in any one quarter was $2,000,000 And typically, It's gone between $2,000,000 So we do not have very much historically, over the crisis, we didn't have are very much pent up demand due to missing supply.

Speaker 2

And this quarter, we didn't have any. So we don't have any catch up demand. Our ability over the last 3 years to serve Demand has been steady and it's largely been because we were worried about COVID and the COVID didn't make Our suppliers get sick and miss shipments, but then it positioned us well to go into the supply chain crisis.

Speaker 4

Got it. And I'd

Speaker 3

add one other point. Our backlog is largely premised on the timing of projects and our ability to execute and install out in the field more so than any kind of supply constraint. Yes. So,

Speaker 7

Got it. And my last question is on Redline revenues still on track for 20,000,000 This fiscal year and then how should we think about where does that $20,000,000 go to full for next fiscal year?

Speaker 2

Yes. We're on track for $20,000,000 We're on track to deliver a little bit more on the EBITDA line. I'd like to just get a little bit more traction in the synergy sales before we put that number out, but it's trending in the right direction, Dave. So wait 1 quarter and we'll give you an update.

Speaker 7

Got it. Thank you.

Speaker 4

Are ready to take questions.

Operator

Our next question comes from the line of Theodore O'Neill of Litchfield Post Research. Your line is open, Theodore.

Speaker 4

Thank you very much. Two questions. First is, so North American revenue was down year over year with strength in Service partially offsetting product sales and service strength was strong overall for the quarter. Is there a dynamic there between the service And products or does that just reflect your project nature of building out systems?

Speaker 2

It's definitely the project Nature of building out systems. And if we link back to Tim's question about our last quarter of the year, right, The project nature, it puts some lumpiness in the business and we see a lot of the projects in North America hitting and that's why When I was asked if we expect margins to go up in our Q4, the answer is yes. So it's really the lumpy nature Of a project based business feel.

Speaker 4

Okay. And so unbilled receivables are up $10,000,000 in the quarter. Does that have any implication For the upcoming quarter sales?

Speaker 3

No. I mean, what is in unbilled has been recognized as sales, but it's Based on the dynamics of the contract, it is sales recognized, but do not have the ability to invoice the customer before yet because of the contract structure of milestone payments or one invoice at the end of the project For things of that nature.

Speaker 4

Okay. Thanks very much.

Operator

Thank you. Are in the line of Paul Eze with William K. Woodruff. Your line is now open, Paul.

Speaker 6

Thank you for taking my questions. First question, if you could maybe share a little bit of information on this new agnostic Frequency Assurance product, what do you think the total addressable market is right now? And Where would you see that, best guess, maybe a year or 2 out? And how much can you guys reasonably capture Of that market and along the same lines, what's the timing of that agnostic HAS product, if you can share that?

Speaker 2

That was a lot of questions. So we are in trials with a North America Tier 1, we're hopeful that that translates. We're we will On the FAS, we will release that on the FAS, we have a Private network trial underway. And I think what this does is I'd rather not comment on The software TAM, but what it does, similar to the multi band vendor agnostic, It helps us compete in multi vendor networks and we think the microwave market is $3,000,000,000 in size and we're less than 10% share of the microwave piece. What we think is it's going to help us win more radio business at higher margins because our software will work on competitive And then the other part of your question, in June, we will release The HIS piece and so we think the back half of the calendar year that we should start to have Revenue there.

Speaker 6

Okay, great. One last question. Labor Are you seeing you or your customers, are you seeing any labor constraints trying to get these technicians to deploy the product? And also along those lines, Do you expect maybe in the next 6 to 12 months as these some of the stimulus starts to roll out that the market tightens and there'll be some shortages in labor?

Speaker 2

We have great relationships. We have some of our own install folks and we have great relationships With 3rd parties, we have not run into any labor install issues. This quarter, we had labor that couldn't We have not seen any labor issues and we are not factoring in any Labor issues going forward. I think a lot of our installers were their preferred vendor and There's no capacity issues on that front.

Speaker 6

Okay, great. Thank you. That's all I had.

Operator

Our next question comes from Erik Suppiger with JMP. Your line is now open.

Speaker 5

Yes. Just a quick follow-up. What is the timing of the backlog of orders for the Huawei replacement? Are those orders where they extend out when where Huawei contracts are expiring? Or is that something That's going to get replaced relatively near term.

Speaker 2

I would to me, The backlog will play out over the next 6 to 12 months. With respect to The contract situation with Huawei, that's difficult to answer and Because it's not been typically that's not disclosed to us, right? So what we think is we think there's 2 things that are driving it is the Network Security and the interruption in Huawei's supply chain. But look, I don't think Our customer or anyone who's dependent on Huawei is going to share their contractual situation, probably give us A little bit too much leverage in the negotiation.

Speaker 5

Very good. Okay. Thank you.

Operator

Our next question comes from the line of Aaron Martin with AIGH Capital Management. Your line is open, Aaron.

Speaker 6

Hi. Thank you very much, Pete and David. Great quarter. On the RDOF wins that you've got, And you said that you haven't really incorporated into the guide because you have to get a sense of the schedule. Should I imply from that that these were multi year booking wins that you're not sure where you're going On the schedule of the rollout.

Speaker 2

They're basically network design and planning at this stage. And we think the funding is multiyear, But the initial POs are to get going and they're not a multiyear PO, but We think that there's multiyear demand behind

Speaker 4

it. Okay.

Speaker 6

And on the software side, I think you That you expect to see Restart recognizing revenue into the existing, you mentioned 200,000 radios That could benefit from this. I think you said expected revenue in Q4. Was that counter Q4 or fiscal Q4 next year?

Speaker 2

So let me be clear. The FAS is in Trials. So, the vendor agnostic FAS is on trial in trials. So I don't think we'll see it. I'd say the back half of this year, we'll see revenue for that as those trials mature into orders.

Speaker 2

And then on the Yes, the HAS that we have on the Red Lion products, that will be released For sale in June, maybe we get an order on that, but we would certainly say in the back half Of the calendar year, we will expect pass on Redline's products sales.

Speaker 6

Okay, great. Thank you. Congratulations on the progress.

Operator

I would now like to turn it back to Pete Smith for closing remarks.

Speaker 2

Great. Thanks everyone for joining and your continued interest in Aviat. We look forward to our next update and are keeping you informed of progress. Thanks for the support. Have a good evening.

Operator

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

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Earnings Conference Call
Aviat Networks Q3 2023
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