Aviat Networks Announces Preliminary Fiscal Fourth Quarter and Fiscal Year 2014 Financial Results

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Sep 02, 2014, 04:05 ET

SANTA CLARA, Calif., Sept. 2, 2014 /PRNewswire/ -- Aviat Networks, Inc. (NASDAQ: AVNW), the leading expert in microwave networking solutions, today reported preliminary financial results for the fourth quarter and fiscal year 2014, which ended June 27, 2014.

Financial Highlights for Q4FY14

Revenue at $85.9 million
Book to bill was above 1
GAAP Gross Margin at 23.6%; Non-GAAP Gross Margin at 25.0%
GAAP Operating Expense at $31.3 million; Non-GAAP Operating Expense at $28.8 million
GAAP Net Loss including discontinued operations at $(12.1) million, or $(0.20) per share
Non-GAAP Loss from Continuing Operations at $(7.8) million, or $(0.13) per share

Financial Highlights for FY14

Revenue at $346.5 million
GAAP Gross Margin at 24.7%; non-GAAP Gross Margin at 25.1%
Non-GAAP Operating Expense at $120.4 million
GAAP Net Loss including Discontinued Operations of $(50.4) million, or $(0.82) per share
Non-GAAP Loss from Continuing Operations of $(35.2) million, or $(0.57) per share

A reconciliation of GAAP to non-GAAP financial measures for the fiscal fourth quarter and full year along with the accompanying notes is provided on Table 4 below.

"The strong fourth quarter bookings were an encouraging indicator of the improving pace of our business as we head into a new fiscal year" said Michael Pangia, president and CEO, Aviat Networks. "Having laid the foundation of our business improvement plan, we made progress in the fourth quarter reducing operating expenses and taking steps to rebuild our balance sheet. Leveraging this momentum, we are confident in our ability to make additional improvements and to generate cash in fiscal year 2015."

GAAP Financial Results

For the fourth quarter of fiscal year 2014, revenue was $85.9 million, compared with $109.0 million in the year-ago quarter. Aviat reported net loss, including discontinued operations, of $(12.1) million, or $(0.20) per share, compared with a net loss of $(5.8) million, or $(0.10) per share, in the year-ago quarter. Loss from continuing operations for the quarter was $(12.3) million, or $(0.20) per share, compared with a loss from continuing operations of $(3.5) million, or $(0.06) per share, in the year-ago quarter. Income from discontinued operations, net of taxes, was $0.2 million for the fiscal fourth quarter. Revenue and results of operations from our WiMAX business are classified as discontinued operations for all periods presented.

Cash and cash equivalents were $48.8 million as of June 27, 2014 compared with $46.4 million as of the end of the fiscal third quarter. The sequential increase in cash and cash equivalents is primarily due to cash generated from operations, partially offset by capital expenditures.

Non-GAAP Financial Results

Non-GAAP loss from continuing operations for the quarter was $(7.8) million, or $(0.13) per diluted share, compared with a non-GAAP income from continuing operations of $0.5 million, or $0.01 per diluted share, in the year-ago quarter.

The fourth quarter of fiscal year 2014 non-GAAP income from continuing operations excluded $3.7 million of pre-tax charges composed primarily of the following:

$0.6 million of share-based compensation expense;
$1.8 million of restructuring charges;
$1.2 million of excess and obsolete inventory write-down; and
$0.1 million of amortization of purchased intangibles.

Fiscal fourth quarter 2014 Adjusted EBITDA was $(5.4) million, compared with $2.6 million in the year ago quarter. In addition to the $3.7 million of pre-tax charges excluded from non-GAAP income from continuing operations noted above, fiscal fourth quarter 2014 Adjusted EBITDA also excludes $1.9 million of pre-tax charges comprised of the following:

$1.8 million of depreciation and amortization on property, plant and equipment; and
$0.1 million of interest expense.

A reconciliation of GAAP to non-GAAP financial measures for the fiscal fourth quarter and full year along with accompanying notes is provided on Table 4 below.

Fourth Quarter Revenue by Region

Revenue in the North America region was $37.7 million in the fourth quarter of fiscal 2014, compared with $47.5 million in the year-ago quarter. International revenue was $48.2 million, compared with $61.5 million in the year-ago quarter.

The fiscal year 2014 and fourth quarter financial results are preliminary and remain subject to adjustment as the company finalizes its fiscal year and quarterly close procedures and audit of its financial statements, along with the review and attestation of its internal controls over financial reporting. At this point, Aviat Networks does not believe that it will complete the procedures necessary to make a timely filing of its Annual Report on Form 10-K, and, accordingly, expects to file a Form 12b-25 on or before September 10, 2014.

Outlook

Aviat Networks expects the following:

Revenue for the fiscal first quarter of 2015 in the range of $84 million to $89 million;
Non-GAAP operating expense for the fiscal first quarter of 2015 to be in the range of $26 million to $27 million; and
Cash generation in fiscal 2015.

Conference Call Details

Aviat Networks will host a conference call at 4:30 p.m. ET today to discuss its preliminary financial results. To listen to the live conference call, please dial (719) 457-2689 or toll free at (888) 510-1785, access code 6502723, by 4:20 p.m. ET. A live and archived webcast of the conference call will also be available via the Aviat's Web site 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 or loss, income tax provision or benefit, income or loss from continuing operations, basic and diluted income or loss per share from continuing operations, adjusted earnings (losses) before interest, tax, depreciation and amortization ("Adjusted EBITDA") 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 4). 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 our 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. (NASDAQ: AVNW) is a leading global provider of microwave networking solutions transforming communications networks to handle the exploding growth of IP-centric, multi-Gigabit data services. With more than 750,000 systems installed around the world, Aviat Networks provides LTE-proven microwave networking solutions to mobile operators, including some of the largest and most advanced 4G/LTE networks in the world. Public safety, utility, government and defense organizations also trust Aviat Networks' solutions for their mission-critical applications where reliability is paramount. In conjunction with its networking solutions, Aviat Networks provides a comprehensive suite of localized professional and support services enabling customers to effectively and seamlessly migrate to next generation Carrier Ethernet/IP networks. For more than 50 years, customers have relied on Aviat Networks' high performance and scalable solutions to help them maximize their investments and solve their most challenging network problems. Headquartered in Santa Clara, California, Aviat Networks operates in more than 100 countries around the world. 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 Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act and Section 27A of the Securities Act, including the status of the Company's preliminary financial results, expectations surrounding the filing of the Company's Annual Report on Form 10-K, the status of bookings, progress made on the Company business improvement plan, expectations and outlook regarding fiscal year 2015. All statements, trend analyses and other information contained herein about the markets for the services and products of Aviat Networks, Inc. and trends in revenue, as well as 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. These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of Aviat Networks. These 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. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include the following:

completion of our fiscal year end closing procedures and the audit of our financial statements and attestation of our internal controls over financial reporting by our independent registered accountants;
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 our liquidity;
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;
the timing of our receipt of payment for products or services from our customers;
our failure to protect our intellectual property rights or defend against intellectual property infringement claims by others;
the results of restructuring efforts;
the effects of currency and interest rate risks; 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 23, 2013 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 for any reason, except as required by law, even as new information becomes available or other events occur in the future.

Financial Tables to Follow:

Table 1
AVIAT NETWORKS, INC.
Fiscal Year 2014 Fourth Quarter Summary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Preliminary and Unaudited)

	Quarter Ended							Fiscal Year Ended
	June 27, 2014				June 28, 2013			June 27, 2014				June 28, 2013

(In millions, except per share amounts)
Revenue from product sales and services		$	85.9			$	109.0	$		346.5	$		471.3
Cost of product sales and services	65.6						75.4			260.9	331.2
Gross margin	20.3						33.6			85.6	140.1
Research and development expenses	8.0						10.4			35.5	39.4
Selling and administrative expenses	21.4						23.8			88.8	95.5
Amortization of intangible assets	0.1						0.1			0.4	0.4
Restructuring charges	1.8						2.2			10.8	3.1
Operating income (loss)	(11.0)						(2.9)			(49.9)	1.7
Other income, net	—						0.7			—	0.7
Interest income	0.1						0.1			0.5	0.8
Interest expense	(0.1)						(0.1)			(0.4)	(0.8)
Income (loss) from continuing operations before income taxes	(11.0)						(2.2)			(49.8)	2.4
Provision for income taxes	1.3						1.3			1.5	13.3
Loss from continuing operations	(12.3)						(3.5)			(51.3)	(10.9)
Income (loss) from discontinued operations, net of tax	0.2						(2.3)			0.9	(4.1)
Net loss	$		(12.1)	$			(5.8)		$	(50.4)	$	(15.0)

Income (loss) per common share, basic and diluted:
Continuing operations	$		(0.20)	$			(0.06)		$	(0.83)	$	(0.18)
Discontinued operations	$		0.00	$			(0.04)		$	0.01	$	(0.07)
Net loss	$		(0.20)	$			(0.10)		$	(0.82)	$	(0.25)
Weighted average shares outstanding, basic and diluted	61.9						60.4			61.6			60.0

Table 2

AVIAT NETWORKS, INC.

Fiscal Year 2014 Fourth Quarter Summary

CONDENSED CONSOLIDATED BALANCE SHEETS

(Preliminary and Unaudited)

June 27, 2014

June 28, 2013 ⁽¹⁾

(In millions)

Assets

Cash and cash equivalents

48.8

89.0

Receivables, net

77.2

86.3

Unbilled costs

24.3

28.9

Inventories

38.1

35.0

Customer service inventories

11.4

16.2

Other current assets

18.9

17.9

Property, plant and equipment, net

29.3

28.8

Identifiable intangible assets, net

0.4

0.8

Other assets

5.3

2.9

253.7

305.8

Liabilities and Stockholders' Equity

Short-term debt

$6.0

$8.8

Accounts payable

46.1

50.6

Accrued expenses and other current liabilities

45.7

52.1

Advanced payments and unearned income

33.6

18.6

Long-term liabilities

18.9

25.8

Stockholders' equity

103.4

149.9

253.7

305.8

(1) Certain prior year period amounts are reclassified to conform to current period presentation.

Table 3
AVIAT NETWORKS, INC.
Fiscal Year 2014 Fourth Quarter Summary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Preliminary and Unaudited)

	Fiscal Year Ended
	June 27, 2014		June 28, 2013 ⁽¹⁾
(In millions)

Operating Activities
Net loss	$	(50.4)	$	(15.0)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of identifiable intangible assets	0.4		1.0
Depreciation and amortization of property, plant and equipment	7.1		5.6
Bad debt expense	0.8		2.5
Share-based compensation expense	3.4		6.4
Charges for inventory and customer service inventory write-downs	5.2		7.7
Gain on disposition of the WiMAX business	—		(0.4)
Other non-cash items	—		(0.1)
Changes in operating assets and liabilities:
Receivables	8.2		1.9
Unbilled costs	4.6		(3.1)
Inventories	(6.0)		14.9
Customer service inventories	2.4		1.6
Accounts payable	(2.7		(7.1)
Accrued expenses	(5.3)		(3.2)
Advance payments and unearned income	14.6		(14.1)
Income taxes payable or receivable	2.7		(1.6)
Reserve for uncertain tax positions and deferred taxes	(14.9)		11.5
Other assets and liabilities	1.6		(0.3)
Net cash provided by (used in) operating activities	(28.3)		8.2
Investing Activities
Cash disbursed related to sale of WiMAX business, net	—		(0.1
Additions of property, plant and equipment	(9.4)		(10.4)
Net cash used in investing activities	(9.4)		(10.5)
Financing Activities
Payments on short-term debt arrangement	—		—
Payments on long-term debt	(2.8)		(4.1)
Proceeds from share-based compensation awards	0.1		0.3
Payments on capital lease obligations	(0.1		(0.1)
Net cash used in financing activities	(2.8)		(3.9)
Effect of exchange rate changes on cash and cash equivalents	0.3		—
Net Decrease in Cash and Cash Equivalents	(40.2)		(6.2)
Cash and Cash Equivalents, Beginning of Period	89.0		95.2
Cash and Cash Equivalents, End of Period	$	48.8	$	89.0

(1) Certain prior year period amounts are reclassified to conform to current period presentation.

AVIAT NETWORKS, INC.

Quarter Ended June 27, 2014 Summaries

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 or loss, income tax provision or benefit, income or loss from continuing operations, basic and diluted income or loss per share from continuing operations, and adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA"), 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 4
	AVIAT NETWORKS, INC.
	Fiscal Year 2014 Fourth Quarter Summary
	RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES ⁽¹⁾
	Condensed Consolidated Statements of Operations
	(Preliminary and Unaudited)

		Quarter Ended								Fiscal Year Ended
		June 27, 2014		% of Revenue		June 28, 2013		% of Revenue		June 27, 2014		% of Revenue		June 28, 2013			% of Revenue
(In millions, except percentages and per share amounts)
GAAP gross margin		$	20.3	23.6	%	$	33.6	30.8	%	$	85.6	24.7	%	$	140.1		29.7	%
Share-based compensation		—				0.1				0.1				0.5
E&O inventory write down		1.2				—				1.2				—
Warehouse consolidation costs		—				—				0.2				—
Amortization of purchased technology		—				0.1				—				0.6
Non-GAAP gross margin		21.5		25.0	%	33.8		31.0	%	87.1		25.1	%	141.2			30.0	%
GAAP research and development expenses		$	8.0	9.3	%	$	10.4	9.5	%	$	35.5	10.2	%	$	39.4		8.4	%
Share-based compensation		(0.1)				(0.2)				(0.3)				(1.0)
Non-GAAP research and development expenses		7.9		9.2	%	10.2		9.4	%	35.2		10.2	%	38.4			8.1	%
GAAP selling and administrative expenses		$	21.4	24.9	%	$	23.8	21.8	%	$	88.8	25.6	%	$	95.5		20.3	%
Share-based compensation		(0.5				(1.3)				(3.0)				(4.9)
Transactional taxes assessments		—				—				(0.6)				(1.4)
Non-GAAP selling and administrative expenses		20.9		24.3	%	22.5		20.6	%	85.2		24.6	%	89.2			18.9	%
GAAP operating income (loss)		$	(11.0)	(12.8)	%	$	(2.9)	(2.7)	%	$	(49.9)	(14.4)	%	$	1.7		0.4	%
Share-based compensation		0.6				1.6				3.4				6.4
E&O inventory write down		1.2				—				1.2				—
Warehouse consolidation costs		—				—				0.2				—
Amortization of purchased technology		—				0.1				—				0.6
Transactional taxes assessments		—				—				0.6				1.4
Amortization of intangible assets		0.1				0.1				0.4				0.4
Restructuring charges		1.8				2.2				10.8				3.1
Non-GAAP operating income (loss)		(7.3)		(8.5)	%	1.1		1.0	%	(33.3)		(9.6)	%	13.6			2.9	%
GAAP interest and other income (expense), net		$	—	—	%	$	0.7	0.6	%	$	0.1	—	%	$	0.7		0.1	%
Other nonrecurring income		—				(0.7)				—				(0.7)
Non-GAAP interest and other income (expense), net		—		—	%	—		—	%	0.1		—	%	—			—	%
GAAP income tax provision		$	1.3	1.5	%	$	1.3	1.2	%	$	1.5	0.4	%	$	13.3		2.8	%
Adjustment to reflect pro forma tax rate		(0.8)				(0.7)				0.5				(10.7)
Non-GAAP income tax provision		0.5		0.6	%	0.6		0.6	%	2.0		0.6	%	2.6			0.6	%
GAAP loss from continuing operations		$	(12.3)	(14.3)	%	$	(3.5)	(3.2)	%	$	(51.3)	(14.8)	%	$	(10.9)		(2.3)	%
Share-based compensation		0.6				1.6				3.4				6.4
E&O inventory write down		1.2				—				1.2				—
Warehouse consolidation costs		—				—				0.2				—
Amortization of purchased technology		—				0.1				—				0.6
Transactional taxes assessments		—				—				0.6				1.4
Amortization of intangible assets		0.1				0.1				0.4				0.4
Restructuring charges		1.8				2.2				10.8				3.1
Other nonrecurring income		—				(0.7)				—				(0.7)
Adjustment to reflect pro forma tax rate		0.8				0.7				(0.5)				10.7
Non-GAAP income (loss) from continuing operations		$	(7.8)	(9.1)	%	$	0.5	0.5	%	$	(35.2)	(10.2)	%	$	11.0		2.3	%

	Income (loss) per share from continuing operations
Basic:
GAAP		$	(0.20)			$	(0.06)			$	(0.83)			$	(0.18)
Non-GAAP		$	(0.13)			$	0.01			$	(0.57)			$	0.18
Diluted:
GAAP		$	(0.20)			$	(0.06)			$	(0.83)			$	(0.18)
Non-GAAP		$	(0.13)			$	0.01			$	(0.57)			$	0.18
	Shares used in computing income (loss) per share from continuing operations
Basic:
GAAP		61.9				60.4				61.6				60.0
Non-GAAP		61.9				60.4				61.6				60.0
Diluted:
GAAP		61.9				60.4				61.6				60.0
Non-GAAP		61.9				62.4				61.6				61.9

ADJUSTED EBITDA:

GAAP loss from continuing operations		$	(12.3)	(14.3)	%	$	(3.5)	(3.2)	%	$	(51.3)	(14.8)	%	$	(10.9)		(2.3)	%
Depreciation and amortization of property, plant and equipment		1.8				1.4				7.1				5.6
Interest expense		0.1				0.1				0.4				0.8
Share-based compensation		0.6				1.6				3.4				6.4
E&O inventory write down		1.2				—				1.2				—
Warehouse consolidation costs		—				—				0.2				—
Amortization of purchased technology		—				0.1				—				0.6
Transactional taxes assessments		—				—				0.6				1.4
Amortization of intangible assets		0.1				0.1				0.4				0.4
Restructuring charges		1.8				2.2				10.8				3.1
Other nonrecurring income		—				(0.7)				—				(0.7
Provision for income taxes		1.3				1.3				1.5				13.3
Adjusted EBITDA		$	(5.4)	(6.3)	%	$	2.6	2.4	%	$	(25.7)	(7.4)	%	$		20.0	4.2	%


(1) The adjustments above reconcile our GAAP financial results to the non-GAAP financial measures used by us. Our non-GAAP income or loss from continuing operations excluded share-based compensation, E&O inventory write down, warehouse consolidation costs, amortization of purchased technology, transactional taxes assessments, amortization of intangible assets, restructuring charges, other nonrecurring income, and adjustment to reflect pro forma tax rate. Adjusted EBITDA was determined by excluding depreciation and amortization on property, plant and equipment, interest expense, provision for income taxes, and non-GAAP pre-tax adjustments, as set forth above, from the GAAP income from continuing operations. 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 5
AVIAT NETWORKS, INC.
Fiscal Year 2014 Fourth Quarter Summary
SUPPLEMENTAL SCHEDULE OF REVENUE BY GEOGRAPHICAL AREA
(Preliminary and Unaudited)

			Quarter Ended			Fiscal Year Ended
			June 27, 2014	June 28, 2013		June 27, 2014		June 28, 2013
				(In millions)
North America	$	37.7		$	47.5	$	142.6	$	180.5
International:
Africa and Middle East		24.2		31.6		108.9		182.2
Europe and Russia		7.9		17.0		36.0		48.0
Latin America and Asia Pacific		16.1		12.9		59.0		60.6
		48.2		61.5		203.9		290.8
Total Revenue	$	85.9		$	109.0	$	346.5	$	471.3