Good afternoon. Welcome to Aviat Networks Third Quarter Fiscal 2021 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 would now turn the conference over to your host, Mr. Keith Fanneron, Vice President of Global Finance and Investor Relations. Thank you. You may begin.

Thank you, and welcome to Aviat Networks third quarter fiscal 2021 results conference call and webcast. You can find our Form 10-Q, press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com, along with a replay of today's call in approximately two hours. With me today are Pete Smith, Aviat's President and CEO, who will begin with opening remarks on the company's fiscal third quarter, followed by Eric Chang, our CFO, who will review the financial results for the third quarter and first nine months of fiscal 2021. Pete will then provide closing remarks on Aviat's strategy and outlook followed by Q&A. As a reminder, during today's call and webcast management may make forward-looking statements regarding Aviat's business, including but not limited to statements relating to financial projections, business drivers, new products and expansions, the impact of COVID-19 and economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast and involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. Additional information on the factors that could cause actual results to differ materially from statements made on this call can be found in our annual report on Form 10-K filed with the SEC on August 27, 2020. 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, management will reference both GAAP and non-GAAP financial measures. Please refer to our press release which is available in the IR section of our website at www.aviatnetworks.com and the financial tables therein, which include GAAP to non-GAAP reconciliation and other supplemental financial information. At this time, I'd like to turn the call over to Aviat's President and CEO, Pete Smith. Pete?

Thanks, Keith, and good afternoon, everyone. Thanks for joining us to review another successful quarter across the business. The company continued to execute on our key long-term focus areas of growth, margin expansion, expense reductions, and meaningful bottom-line improvements. Focused commitment by all members of the Aviat team resulted in third quarter and year-to-date revenue growth of 8.2% and 15.5% compared to the same period last year. Third quarter and year-to-date adjusted EBITDA margins of 11.0% and 12.7%, a solid balance sheet and liquidity position, a significant customer win for our new software-as-a-service offering. A five-year agreement with a U.S. state government provides Aviat FAS and other software via a hassle-free subscription service. North American third quarter revenue increased 12.8% year-on-year and for the first nine months increased 20.4% compared to the same period last year. International third quarter revenue increased 1.1% year-on-year, and for the first nine months increased 6.5% compared to the same period last year. Adjusted EBITDA was $7.3 million for the third quarter, representing an improvement of $3.8 million versus the same period last year. Adjusted EBITDA margins improved to 11.0% for the third quarter compared to 5.7% for the same period last year. The improvement in revenue and adjusted EBITDA on a third quarter and year-to-date basis was primarily due to gross margin expansion from higher volume of private network business, increased sales through our Aviat store, which serves primarily the rural broadband space, improved international business driven by multiband wins and an increase in software sales. We also benefited from previously announced restructuring. For the first nine months, non-GAAP operating expenses decreased by 5.2% compared to the prior year. We continue to demonstrate Aviat differentiation in our products, software and services, and e-commerce. We've demonstrated the viability of these offerings with recent key wins in 5G, private networks and rural broadband. As I've mentioned on prior calls, our high-capacity single box multiband radio platform provides the industry's simplest multiband solution which lowers the customer's total cost of ownership. During the third quarter, as previously announced Aviat was awarded a contract with Dish where Aviat was selected as the wireless backhaul supplier for their nationwide 5G network. This also placed their first orders with Aviat in the quarter. Along with this during the quarter Aviat also announced a new win with LTD Broadband for high-speed wireless backhaul rural broadband connectivity. LTD Broadband, a leading U.S. Internet Service Provider, provides high-speed connectivity to commercial and residential subscribers in Iowa, Minnesota, Nebraska, South Dakota, and Wisconsin. In addition to the Nextlink Internet win, we now have three out of the top 10 and nine of the top 30 Rural Digital Opportunity Fund winners in our customer base. The Dish and LTD Broadband wins are the result of Aviat's lowest total cost of ownership offering driven by the industry's only single-box multiband solution for optimum capacity, the highest system-gain radios for smaller antennas and better reliability, Aviat-designed software that simplifies network planning, the Aviat store for simplified purchasing and reduced logistics costs and next-day shipping, and Aviat local North American service and support. We remain excited about the 5G and rural broadband opportunities ahead. We believe 5G builds will drive new backhaul upgrades and that our rural broadband business will benefit from meaningful government funding including the $9 billion 5G Fund for Rural America and the $20 billion Rural Digital Opportunity Fund. With respect to private networks, our business remains strong and is growing. Aviat has a highly differentiated offering; our leading RF performance along with our software and services capabilities are keys to Aviat's success. We also recently announced groundbreaking new software available on the Aviat WTM 4000 radio platform. This new software, called A2C Plus, lowers customer cost by doubling the capacity without additional equipment by combining two or four separate channels onto a single antenna, delivering the highest system gain enabling smaller antennas, thus reducing tower labor and leasing costs, simplifying spares and lowering power consumption. Increasing capacity for multiband, enabling 3+0 in a single box and doubling the available microwave capacity. Competitive offerings require three or even four separate boxes with increased complexity and costs. Before turning the call over to Eric, let me provide a couple of additional observations and insights. First, this was a very good quarter and first nine months of our fiscal year. We remain focused and continue to execute. Those collective efforts are reflected in our financial and operational results. We've continued to demonstrate our ability to grow and to take share of demand and looking forward we see three significant drivers: 5G, private networks and rural broadband. And we believe we are well positioned to capture significant opportunities with our differentiated products, software and services offerings. With that, let me turn the call over to Eric to review our financials. Eric?

Thank you, Pete, and good afternoon, everyone. During my remarks today, I will review some of the key third quarter and first nine-month 2021 financial highlights, noting our detailed financials can be found in our Form 10-Q and press release, both of which were filed this afternoon. As a reminder, all comparisons discussed today are between the third quarter of fiscal 2021 and the third quarter of fiscal 2020, and between the first nine months of fiscal 2021 and first nine months of fiscal 2020, unless noted otherwise. For the third quarter, we reported total revenues of $66.4 million as compared to $61.4 million for the same period last year, an increase of $5.0 million or 8.2%. During the quarter, the North American team continued to focus on expanding sales, and seizing upon Aviat's unique product and service differentiation. North America, which comprised 63% of total revenue for the third quarter, was $42.0 million, an increase of $4.8 million or 12.8% from $37.3 million for the same period last year, driven primarily by our private network business, rural broadband and software licenses. For the nine months of fiscal 2021 our North America revenue was $136.7 million, an increase of $23.2 million or 20.4% from $113.5 million for the same period last year. International revenue for the third quarter came in at $24.4 million compared to $24.1 million for the same period last year. For the nine months of fiscal 2021 our international revenue was $66.5 million, an increase of $4.0 million or 6.5% from $62.5 million for the same period last year. Our international team continues to implement our new commercial sales strategy, which as a reminder includes defending tier-one telecom business, winning new tier-two accounts, expanding our reach through partnerships and capturing value where we are differentiated. While still early in execution we continue to see the benefits of the international strategy paying off. Revenue for the first nine months of fiscal 2021 was $203.2 million compared to $176.0 million for the same year-ago period, an increase of 15.5%. Our book-to-bill ratio for the third quarter and the last 12 months is well above one. And we are again pleased that our backlog exit in the quarter continues to remain above $200 million. Third quarter gross margins remain strong at 38.5% and 38.7% on a GAAP and non-GAAP basis respectively, as compared to 35.8% and 35.9% for the third quarter of last year. Key drivers in the strong gross margin are higher volume of private network business, increased sales through the Aviat store, which serves primarily the rural broadband space, improved international business driven by multiband wins and an increase in software sales. Third quarter GAAP operating expenses were $21.5 million compared to $20.7 million for the same period last year, primarily due to restructuring charges and stock-based compensation. Third quarter non-GAAP operating expenses, which exclude the impact of restructuring charges and stock-based compensation, were flat at $19.7 million year-on-year. R&D expense increased $0.3 million due to investment in software development. Sales expenses increased $0.5 million due to commission-related higher bookings while G&A expenses decreased by $0.8 million, primarily as a result of our previously announced restructuring. On a year-to-date basis both GAAP and non-GAAP operating expenses were favorably impacted due to restructuring plans announced in the second half of fiscal 2020 as well as in February 2021, and a slowdown in hiring and reduced travel. Moving on, third quarter non-GAAP net income was $5.8 million, compared to $2.2 million for the same period last year, with third quarter non-GAAP EPS coming in at $0.49 per share, compared to $0.20 per share for the same period last year. First nine months fiscal 2021 non-GAAP net income was $21.1 million compared to $4.2 million for the same period last year. The non-GAAP EPS came in at $1.83 per share compared to $0.38 per share for the same period last year. Please note that our prior period EPS have been retroactively adjusted to reflect our two-for-one stock split in the form of a stock dividend that was effected in early April 2021. From an income tax standpoint, during the third quarter, we released our U.S. valuation allowance of approximately $92 million associated with our U.S. deferred tax assets of about $400 million because we have been profitable in the U.S. for the past few years, and it is more likely than not that our U.S. operations will have sufficient future profits to utilize the deferred tax assets in the foreseeable future. Since we have no cash tax payments in the U.S., for non-GAAP reporting purposes our income tax expense will continue to be the cash tax that we pay in our foreign jurisdictions under the respective transfer pricing agreements. Adjusted EBITDA for the third quarter was $7.3 million, a $3.8 million improvement from $3.5 million we reported for the same period last year, with adjusted EBITDA margin coming in at 11% for the quarter. For the first nine months of fiscal 2021 our adjusted EBITDA was $25.8 million, compared to $8.0 million for the same period last year. Adjusted EBITDA margins for the first nine months were 12.7% compared to 4.5% for the same period last year. Moving on to the balance sheet, our cash and cash equivalents at the end of the third quarter was $45.8 million with no loan outstanding. During the third quarter, our inventory increased by approximately $4.0 million to mitigate supply chain constraints. Despite the increase in inventory, our net cash increased $2.8 million sequentially from the second quarter and $13.2 million year-to-date. Our balance sheet remains very solid bringing us well positioned to execute our long-term plans. With that I will turn it back to Pete for some final comments. Pete?

Thanks, Eric. Just a few additional comments before opening it up for Q&A. I am extremely proud of the entire Aviat team for their significant contributions to our results. We recognize that there continues to be a lot of work in front of us; we are on the right path to achieve our long-term objectives. With that, operator, let's open it up for questions.

Our first question comes from Theodore O'Neill of Litchfield Research. Your line is open.

Thank you very much. Congratulations on a great quarter. So Pete, during this current earnings period, we've been hearing a lot about supply chain issues: part shortages, semiconductors and other items. We heard companies actually having trouble getting labor in China, because migration back to the cities isn't happening as robustly as it had in the past, and all-in long lead times for parts are driving up costs. Can you talk about how you've managed in this kind of environment?

Yes. The good news is our book-to-bill ratio is above one and our demand is strong. We are faced with the supply shortages and freight problems like many other companies, but these incremental costs did not have a material impact on our Q3. Real credit goes to our supply chain team; they've overcome a myriad of issues. We have challenges today, but from the beginning of COVID, when we were just starting COVID, we were cautious. We've been leveraging our balance sheet, since we're in a basically zero interest rate environment, to buy components ahead of demand and build up our inventory position. That's allowed us to mostly meet our customers' delivery requirements. We're going to continue to do that. I don't want to be misleading—there are risks—but when we look at industry reports, they say that we're distinguishing ourselves with respect to supply chain, and we want to continue to do that. Fortunately, we have the balance sheet that allows us to navigate that way.

That's great. The other thing I wanted to ask about was margins, which were very good in the quarter. I know your Aviat store is a better-margin way for customers to buy product. Is there still headroom to raise those margins higher if the store continues to grow?

I think what drives our margins—I'd like us to look at a nine-month view rather than get caught up in quarter-to-quarter because we have project business. What's really driving the margin expansion is the Aviat store, our software sales, and, as I mentioned, the bellwether wins. For us, the software-as-a-service opportunity allows us to start to build a recurring revenue model. One of the things I brought when I came to the company was a market-back approach. We have our multiband radio which saves our customers tens of thousands of dollars a year. For all the innovation that we put in there, we can earn a margin that reflects that value. So to put a bow on it: the store is driving an increase in margins, our software has upside and we have aspirations to make more of it SaaS, and our hardware where we're differentiated with products like multiband and A2C Plus, which really doubles capacity using some software algorithms. Those are three highlights driving our gross margin expansion.

Our next question comes from Tim of Northland Capital. Your line is open.

Hi, good afternoon, and congrats on the results. Do you have an update on guidance for the year? I think you provided a range of U.S. revenue and EBITDA last quarter.

Yes, Tim, there's no update to the guidance we provided last quarter. Revenue-wise on an annual basis is still expected to be between $255 million to $265 million, so there's no change. Likewise, adjusted EBITDA is still expected to be between $28 million and $31 million for the full year.

Tim, just to add to that: we have a project-based business and last quarter we said that the guidance was conservative. We still think it's conservative, but we want to stick to annual guidance and not get caught in quarterly guidance. Last quarter we had a big project, and if we start getting into quarter-to-quarter guidance, we won't manage the business as efficiently as we can. Since we're late in the year, we don't want to update guidance. We are confident in meeting the guidance. Last quarter we acknowledged it was conservative, and we would stand by it without getting into specific numbers.

Fair enough. Maybe looking a bit further, I think you mentioned you received initial orders from Dish. Correct me if I'm wrong there. I wonder if that's true of LTD as well. But if you look at these new wins, maybe we can talk about Dish separately from the rural broadband backhaul wins. Can you give us any metrics to try and size that opportunity? As you look out to next year, maybe in these two buckets—Dish tier one and rural broadband—can you give a sense of the annualized perspective and beyond that, are you seeing more of those types of opportunities as carriers ramp up 5G builds and rural broadband?

Okay. You asked a lot of great questions. Let me talk about the Rural Digital Opportunity Fund. We think that roughly $0.02 to $0.04 of every dollar that turns into work from the Rural Digital Opportunity Fund could translate into a microwave order. That's how we're thinking about that opportunity. We have three of the top 10 and nine of the top 30 RDOF winners in our customer base, so that's how we're starting to think about the addressable opportunity. We think it's pretty large. Dish is a great customer. We won that business because of our network planning, our differentiated radios and our e-commerce. We think Dish is a greenfield 5G application. International customers have taken notice. We think Dish will be a small revenue contributor next year, but it's a bellwether win, and we're seeing interest from our international customer base based on that win. Is that helpful, Tim?

Thank you. I did want to follow up on 5G a little more. We've seen momentum toward increased 5G builds, in particular C-band, from both incumbent and greenfield 5G operators, some of whom are historical customers of yours. I wonder if you're seeing any opportunity coming out of the more traditional tier-one operators in the U.S. or elsewhere?

As networks build, we see opportunities. There's a mix between fiber deployment and microwave deployment. Some quarters they're focused on fiber and some quarters on microwave. When they're focused on microwave, we certainly enjoy the lift. We're seeing that in the U.S. and in certain international regions as well.

Our next question comes from George of Oppenheimer. Your line is open.

All right. Thank you for taking my question. Pete, maybe digging into the international opportunity a little more: can you give us a sense of where you're displacing incumbents, how much of a differentiation the Aviat store is when you go into these markets, and how long of a conversation are you having with carriers and operators as far as getting in? Are you displacing vendors or are you normally getting new build opportunities?

Let's talk about the Aviat store internationally. We have that going in Europe and will roll it out later this calendar year in Asia Pacific. What we're finding, particularly for tier-two operators, is they like the inventory management that they don't have access to today and the ability to avoid obsolescence. Often it's the whole package: our network planning, our high-capacity radios, sometimes our software, and then our delivery platform, the store. That's helping us win new accounts in Asia Pacific, Africa, and Europe. That's the pipeline that hasn't all hit yet. Wherever the store plays internationally it is particularly effective with tier-two operators.

When you do take share, are you displacing vendors, or are you seeing expansion and new networks where you're getting the bigger opportunity to drive growth?

Dish was a new network. The bulk of our growth recently has been due to share gains in existing markets.

Do you feel the vertical strength that you're seeing here in the U.S. is something you can replicate in other parts of the world? Is that opportunity as robust internationally?

We're at the beginning of that effort. In EMEA our leader has deep telecom experience from Cisco and sees that we can move into private networks in the EMEA region step by step. We're hopeful over the next couple of years that we can land some design wins. We think it is a capability we can replicate and the international sales leadership is starting to see that opportunity. The number of private network sales funnel opportunities is increasing internationally.

Just on the pricing environment, given how tight the supply chain is, is pricing pretty firm? Do you have the ability to hold pricing and not follow the normal price decline?

We're actively managing pricing and costs and we believe we can maintain our margins.

Our next question comes from Tom Diffely of DA Davidson. Your line is open.

Yes. Good afternoon. I appreciate you taking the question. Regarding the Rural Digital Opportunity Fund, what is the timing of that and the programs that you're seeing? Is there time for you to expand beyond the three of the top 10 or nine of the top 30 that you're currently involved with?

We certainly hope to get more of the top 10 and top 30. It's early days in terms of the deployment of the RDOF funding and it's hard to track the precise timing of the disbursements. We're not sure that funds have flowed from the government to our customers and then to us yet. We're very happy with our position in rural broadband and we think there's growth ahead from that fund.

Okay, that's helpful. And then just a quick follow-up on gross margin: you said there is some lumpiness on a quarterly basis. If I look at the nearly 300 basis point improvement year-over-year, is that a fairly true progression of what you've done?

Yes. What's driving this is sales through our e-commerce platform, more software sales year-over-year, and our private network business which remains about two thirds of our business and is expanding from a margin standpoint. We see margin improvement as sustainable and important.

Tom, to add briefly: we have an aspiration to approach 40% gross margin over time, but we haven't guided to that. As we get more multiband wins, more software and leverage the e-commerce platform, margins should increase. One caveat: we focus on dollar profitability as well as percentage. If we have a chance to take share with a large customer at a lower margin with a plan to improve mix over time, we will consider that. For modeling purposes, taking the nine-month view is a safe assumption for now.

Okay, that makes sense. I appreciate your time today.

One moment please. I'm showing no further questions. At this time, I'd like to turn the call back over to Pete Smith for any closing remarks.

All right, thanks everyone for joining. Aviat continues on its continuous improvement journey. We look forward to speaking next quarter. Next quarter we will illustrate our full-year progress and take some more time to discuss our products and differentiation. Thanks again. Take care.

Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may disconnect. Have a great day.