Earnings Call Transcript - AVNW Q1 2023

Operator, Operator

Good afternoon. Welcome to the Aviat Networks' First Quarter Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Andrew Fredrickson, Director of Investor Relations. Thank you. You may begin.

Andrew Fredrickson, Director of Investor Relations

Thank you, and welcome to Aviat Networks' first quarter fiscal 2023 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 first quarter, followed by David Gray, our CFO, who will review the financial results of our quarter. 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 the 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 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-K 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, 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 financial tables therein, which included GAAP to non-GAAP reconciliation and other supplemental financial information. At this time, I would like to turn the call over to Aviat's President and CEO, Pete Smith. Pete?

Pete Smith, President and CEO

Thanks, Andrew and good afternoon, everyone. Thank you for joining us to review Aviat Networks' results for the first quarter of fiscal year 2023. This quarter was significant for the company in two meaningful ways. One, we closed our first acquisition in over a decade in Redline Communications. We are encouraged by the integration and cost synergy realization that has taken place so far and look forward to demonstrating the value of the Aviat operating system. Secondly, we announced our 5G win with Bharti Airtel in India, a brand new customer for Aviat. This represents another demonstration of Aviat's differentiation of products and services for 5G, our supply chain and our operating system. This agreement shows that Aviat delivers meaningful value to customers around the world through our leading products and services. Now, turning to our results for the quarter. In the first quarter fiscal year 2023, Aviat delivered revenue of $81.3 million, which represents growth of 11.1% versus Q1 of last year. Gross margin expansion of 80 basis points versus Q1 of last year; adjusted EBITDA of $10.9 million, a 13% increase versus the same period prior year; non-GAAP EPS increase of 12%; strong debt-free balance sheet. As part of our assets, we maintain greater than $90 million of deferred tax assets that will minimize cash tax payments for years to come. These results reflect the continued execution the Aviat team has realized despite ongoing inflationary and supply chain challenges. We continue to see benefits from the three trends of 5G, rural broadband, and private networks. In terms of 5G, our business with Tier 1 mobile network operators both internationally and in the U.S., continues to grow as we head into calendar year 2023. We believe we are still in the early days of growth related to 5G microwave networks and expect this business to pick up over the next 12 months. On rural broadband, Aviat added more than 10 customers in the quarter. The wireless ISP segment continues to put capital to use with a tailwind of government funding. While we believe that RDOF funding will not meaningfully impact the company until calendar year 2023, there are indications of fund recipients beginning to spend against the anticipation of fund distributions. Lastly, in private networks, we remain a market leader and secured a large multimillion dollar win in the quarter with a very large county government. In addition to our microwave offering, this deal includes routers and hosted software, which reflects our strategy to grow share of wallet in the private network space. In the quarter, we announced two new products. First and most recently, our vendor-agnostic multi-band solution, which enables operators to easily upgrade the capacity of an existing installed licensed microwave link up to 10 gigabits per second. This allows operators with legacy microwave equipment from any vendor to cost effectively deploy additional network capacity. This, when coupled with the industry’s only single box, multi-band and extended distance multi-band solutions provides Aviat with the most complete and compelling multi-band portfolio, which will be particularly beneficial in 5G network buildouts. Secondly, the company announced the availability of new software that enables integrated IP/MPLS, and segment routing to be deployed to the network edge using Aviat's all outdoor platforms. Aviat is the only vendor with a full routing stack running on our radio portfolio, eliminating the need for external routers, thus lowering total cost of ownership. This is another step in our goal to expand our software solutions to customers. At the beginning of the quarter, we closed the Redline Communications acquisition. The integration has gone according to plan. In fact, we are ahead of schedule from a cost takeout perspective, and we have the business close to breakeven profitability in just one quarter. We remain confident in hitting our previously provided guidance on revenue and adjusted EBITDA contribution from Redline this fiscal year. On the supply chain front, we continue to face challenges, but there are specific areas of improvement. Allocations of key components are now half of the peak crisis level. Decommit has continued to decline and are now rare events. Lead times are shortening. We still see opportunities for improvement in programmable logic, analog, batteries, antennas, and cables. In the quarter, logistics and supply constraints impacted our revenue by approximately $3 million. A significant portion of the supply issue came from Redline's access products. As we implement the Aviat operating system, we will improve there. As a result of the Redline supply issues, we are accelerating our plan to move Redline products over to the Aviat manufacturing base and expect that this will begin to show results in the back half of this year. In summary, this quarter was solid from an operational perspective, even in the face of ongoing challenges. Our backlog continues to grow and our three growth drivers, 5G, private networks, and rural broadband leave Aviat well-positioned to capture significant opportunities with our differentiated products, software, and services offering. With that, let me turn the call over to David to review our financials before coming back for some final comments.

David Gray, CFO

Thank you, Pete and good afternoon, everyone. During my remarks today, I will review some of the key fiscal 2023 first quarter 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 the first quarter of fiscal 2023 and the first quarter of fiscal 2022 unless noted otherwise. For the first quarter, we reported total revenues of $81.3 million as compared to $73.2 million for the same period last year, an increase of $8.1 million or 11.1%, driven by strong growth in Asia-Pacific and Latin America, as well as the contribution from the Redline acquisition. North American revenue, which comprised 60% of total revenue for the first quarter, was $48.8 million, and international revenue was $32.4 million. We continued our trend of trailing four quarter book-to-bill ratio above one, which started in fiscal 2018. Gross margins for the quarter were 36.3% and 36.5% on a GAAP and non-GAAP basis as compared to 35.7% for both GAAP and non-GAAP in the prior year. The improvement in gross margin resulted from inflation being fully offset by pricing actions as well as the accretive contribution of the Redline business. First quarter GAAP operating expenses were $23.7 million, an increase of $6.2 million from the prior year, driven by the acquisition of Redline operating expenses, including a one-time restructuring charge of $2 million as well as M&A related costs. First quarter non-GAAP operating expenses, which exclude the impact from restructuring charges, share-based compensation and deal costs, were $20.5 million. This is an increase of $2.7 million from the prior year due primarily to the Redline acquisition. On a like-for-like basis, we continue to manage costs aggressively. First quarter tax provision was $3.9 million compared to $2.2 million last year. The increase is due to recording a $2 million deferred tax liability related to Canadian entities' legal restructuring. As a reminder, the increase in tax provision year-over-year will not increase our cash taxes paid. The company has over $500 million of NOLs that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future. We recorded first quarter GAAP net loss of $2.7 million compared to GAAP net income of $4.7 million last year. The decline resulted from M&A and restructuring related expenses of $3.5 million, a $2 million deferred tax liability, an FX loss of $0.9 million, and a $1.7 million decline in the value of marketable securities as opposed to the $2.6 million gain on those securities recorded last quarter. First quarter non-GAAP net income, which excludes restructuring charges, share-based compensation, M&A related costs and non-cash tax provision, was $8.8 million compared to $8.1 million for the same period last year. First quarter non-GAAP EPS came in at $0.75 per share on a fully diluted basis compared to $0.67 per share for the same period last year, an increase of 12%. The Redline acquisition was mildly dilutive to EPS in Q1 by approximately one half cent. Adjusted EBITDA for the quarter was $10.7 million, an increase of $1.1 million or 11% from the prior year. The Redline acquisition was slightly accretive to Q1 EBITDA ahead of our plan. Adjusted margins were 13.2% for the quarter. Moving onto the balance sheet. Our cash and marketable securities at the end of the first quarter were $22.9 million from $47.8 million the prior quarter, primarily due to the Redline acquisition, related restructuring spending and continued strategic investment in inventory to de-risk the supply chain. Additionally, customer cash collections were impacted by Forex availability in certain emerging markets, which has since started to reverse. We continue to have no debt and our balance sheet remains very solid leaving us well-positioned to execute on our long-term plans. With that, I will turn it back to Pete for some final comments.

Pete Smith, President and CEO

Thanks, David. Just a few additional comments before opening it up for Q&A. We anticipate that our 5G Tier 1 business will grow as a portion of mix throughout fiscal year 2023. This is a result of both North American and international mobile network operators investing in their 5G network buildouts. The Airtel win is a good example of this, where we expect to start seeing revenue in fiscal Q2. At the outset, these opportunities will be lower than our average gross margins. Rest assured, as we assess these key growth wins, we have revved up the Aviat operating system to secure margin improvements. The volume that these opportunities present advances Aviat's long-term EBITDA margin goal. I also want to emphasize how our strong balance sheet has given us the strategic flexibility to strengthen Aviat's position as a market leader. This helped us navigate the supply chain challenges over the last two years, which in turn has allowed us to meet customer commitments and take share. It has enabled us to acquire Redline and rapidly execute our restructuring plans. We have made investments in next-generation technology such as our MaxLinear system on chip partnership, and then a $2.5 million investment to purchase and take control over our routing stack software from our partner Metaswitch that will benefit Aviat for years to come. We plan to continue to leverage our healthy balance sheet to make further investments in both organic and inorganic growth opportunities that will benefit shareholders. We are encouraged by our results, the hard work and dedication of the Aviat team and the outlook for Aviat in its markets. Based on the strong demand environment, including an uptake in Tier 1 and 5G demand, we are raising the top end of our revenue and profit guidance. We now see revenue for fiscal year 2023 to be in the range of $330 million to $345 million, and adjusted EBITDA for fiscal year 2023 to be in the range of $43 million to $46 million. With that operator, let's open the call for questions.

Operator, Operator

Thank you. The first question that I have is coming from Scott Searle with ROTH Capital Partners. Your line is open.

Scott Searle, Analyst

Hey, good afternoon. Thanks for taking the questions. Hey, maybe Pete, just to dive in real quick on gross margins, I think I heard $3 million impact related to incremental costs and logistics in the quarter. Want to confirm that that was a 350 basis point impact in the quarter and kind of how you're seeing that trend as we go into the December quarter. And as part of that, India starting to come into the mix, lower gross margins, how should we be thinking about what blended gross margins overall are going to look like?

Pete Smith, President and CEO

The remark we made regarding the 3.1 was about mixed revenue, which affected the margin, but David can provide more insight on the progression of the gross margin.

David Gray, CFO

In the quarter, we successfully offset all inflationary costs through our pricing strategies on a dollar basis. Although the increase in sales slightly diluted that impact, it was more than compensated for by the contribution from Redline in our results. Looking ahead, we anticipate one more quarter that may feel a bit pressured due to the Airtel announcement before we can implement some cost reductions and improve our margins to prevent further dilution. We expect margins to align with what we reported this quarter and then show some improvement throughout the year.

Scott Searle, Analyst

Gotcha. Helpful. And Pete, maybe just directionally, you're raising the top end of your fiscal year guidance. We're only heading into the second fiscal quarter, but how are you seeing things sequentially progress, particularly with Redline? I'm wondering if you could calibrate us on what Redline or where Redline was in the first quarter, and kind of how that looks sequentially. It sounds like Airtel starts to contribute in the December quarter. And then there are some other items going on there. Dish has been in the news a lot lately in terms of meeting their buildout requirements for their 5G network. They're playing a little bit of catch up. You guys have been participating there. I imagine that starts to play as well. So how should we be thinking about with all those factors, kind of the progression of revenue as we go into December and March?

Pete Smith, President and CEO

I believe we're going to see an increase throughout the year. If I'm mistaken about this, it would indicate that the supply chain has improved, allowing us to make earlier shipments. We operate on a July to June cycle, so we expect growth in Q1, Q2, Q3, and Q4. If our projections don't align, it will be due to an improvement in the supply chain or the allocation environment. If that happens, we will have more capacity to ship and will do so sooner. The best way to approach this is to view it as a progression over the four quarters. I think Q3 will be the peak quarter for Redline's revenue, which spans from January to March. As for Dish, they are currently concentrating on fiber. From the start of our announcement, we indicated that Dish would serve as a key indicator, projecting $20 million to $25 million over the program's duration. We maintain that projection and expect Dish will likely not contribute in the October to December quarter. Is that information useful, Scott?

Scott Searle, Analyst

Very helpful. And lastly, if I could, and then I'll get back in the queue, but could you frame for us the magnitude and size of Airtel? I think historically if we look at, for example, what Ceragon was doing, they're doing roughly $20 million a quarter, but that's spread across two operators as opposed to just Airtel. But there's a big buildout cycle coming here. So, I'm wondering if you could give a framework of what we could expect as it starts to ramp up on an annual basis. And then maybe as well, just kind of the currency impact that's going on and kind of the impact that you're seeing on that front. Thanks.

Pete Smith, President and CEO

We are unable to provide specific numbers in the press release, but you can estimate this over its duration as eight figures.

David Gray, CFO

Yeah.

Scott Searle, Analyst

And then, David, you also asked a question regarding currency. Anything in specific that you're you'd like to know?

David Gray, CFO

Over 90% of our revenue is invoiced in USD. Most of the revenue invoiced in local currency relates to services in countries where our costs are also incurred in local currency. This creates a balance, allowing us to maintain our margins. However, some receivables are devalued due to the strengthening of the U.S. dollar, which is reflected in the non-GAAP reconciliation. Overall, we are well protected regarding our margins. The strength of the U.S. dollar has been remarkable; if we had used the Q1 of FY 2022 exchange rates this quarter, our revenue would have been approximately $1.2 million higher and about $500,000 higher compared to the previous quarter. Although there has been an impact, our margins are secure, and we are taking measures to establish natural hedges to minimize our balance sheet exposure.

Scott Searle, Analyst

Thanks.

David Gray, CFO

Sorry, I have one other comment to add on currency. As opposed to all the bad, we do have a fair portion of our R&D spend is denominated in euro, so we do get some benefit on the expense side from a weaker U.S. dollar as well. So, it does kind of work both ways.

Operator, Operator

Thank you. Our next question will be coming from Eric Suppiger of JMP Securities. One moment.

Eric Suppiger, Analyst

Thanks for taking the question. First off, any comments around economic impact, any slowing? Presumably 5G probably holding up or not changing too much, but what have you seen in the rural broadband and in the private network markets in terms of any economic changes?

Pete Smith, President and CEO

Our background in North America has never been stronger, primarily driven by private networks. Regarding 5G, many investors are likely paying attention to the capital expenditures from the Tier 1 providers. Microwave technology is somewhat separate from this trend. As we stated previously, 5G opportunities are ahead of us. In terms of rural broadband, the situation remains stable. We haven't yet seen the positive impact that would come from RDOF funding, but we anticipate steady demand in that area. When RDOF is activated, we expect to see improvements. Demand for private networks, and spending by city and state governments, continues to look strong based on our analysis. Furthermore, we observe growing demand for 5G both in the U.S. and internationally. Overall, conditions appear favorable. However, we do have concerns regarding demand that depends on foreign exchange rates, especially as U.S. interest rates rise, which may have negative implications. We are actively working to address this complex issue.

Eric Suppiger, Analyst

Very good. Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question is coming from Tim Savageaux from Northland Capital Markets.

Tim Savageaux, Analyst

Hey, good afternoon. Take another swing at this, Bharti situation here and also maybe in the context of the broader kind of Tier 1 5G themes you've been hitting here, Pete. So, I guess, just specific question, is there a lot of fair bit of wiggle room in eight figures? I mean, is that sort of an annual comment or a deal in total? And is there any utility in taking the same sort of metrics that you've provided to us in the past about trying to size this potential RDOF contributions at that sort of a low single-digit percentage of the total build cost? There's some pretty decent estimates out there about what Bharti is going to spend on their 5G network that would get you to some pretty big numbers, although always assume there's a fair bit of fiber in there as well. So, maybe two ways to go to think about that kind of your little clarification on your specific comment and then tops down, thinking about the total opportunity and then adjusting for fiber versus microwave or market share versus other suppliers or what have you. And I just want to follow up on that in a second.

Pete Smith, President and CEO

Overall, we believe that microwave makes up about 60% and fiber about 40%. This information is available in our investor deck, which also includes details about satellites and remnant copper. Regarding Airtel, our estimate reflects the visibility we have for the next 12 to 15 months. A key factor is our performance in the domestic competition, particularly how our supply chain holds up against others. We have set ourselves apart, but we still face challenges with various components being allocated, and we are exceeding the forecast we provided to them. If we can coordinate with our suppliers for timely deliveries, we could see even larger numbers. We are pleased with our current success and are actively focused on how we can achieve even more wins. Is that helpful?

Tim Savageaux, Analyst

It is. Since you just mentioned that, my original question was going to be about the ramp in North America with your traditional customer on the 5G side. My question was how would you size that opportunity compared to what you're seeing in India? Additionally, if you could estimate based on your pipeline, how many more Airtels are out there that you might pursue?

Pete Smith, President and CEO

So, India is larger, and Airtel is among the top five telecom players globally, which is a limited group. Looking ahead to the next year, I would say we are actively pursuing two opportunities.

Tim Savageaux, Analyst

Okay. Great. And if I could follow up on Redline, it sounds like that was, at least the primary source of the supply issues. Can you specifically call out the revenue contribution there? I know that you expected kind of a flat $20 million annual run rate applies about $5 million bucks. I mean, if we were supply impacted, should we think the revenue contribution is about half of what you might have expected?

David Gray, CFO

It was just under 5% of our total revenue. It could have been about $900,000 higher in the quarter if the supply issue hadn't occurred. However, that's not a lost sale; it's just been pushed to Q2. We are completely comfortable with the $20 million guidance we provided earlier, and we believe there may be potential upside, but we will give more details as the integration progresses.

Tim Savageaux, Analyst

Great. Thanks very much.

Operator, Operator

Thank you. One moment while we prepare for the next question. Next question is coming from Ethan Widell of B. Riley Securities. Your line is open.

Unidentified Analyst, Analyst

Hi, this is Ethan Widell calling in for Dave Kang. Thanks for taking my question. I was wondering if you could provide me additional color on where you think we are in the 5G cycle. You mentioned that you think the spend is in front of us. I was wondering when you anticipate the CapEx spend peaking for 5G deployment? Thanks.

David Gray, CFO

We are seeing an acceleration throughout 2023 in North America, Africa, and Asia-Pacific. The operators are unpredictable, and we are not following the typical rollout schedules. I expect some of that to carry over into 2024. If I had to speculate on when we might reach the peak, I would say it could be in 2025. However, you all are likely better at addressing these questions than I am. That's my immediate take.

Unidentified Analyst, Analyst

Thanks. That's really helpful. Do you expect to see a longer duration on the private network side, or do you think the timing is somewhat similar?

Pete Smith, President and CEO

No. The private networks have a long timeline. They constitute the majority of our backlog because these projects usually last from six months to over two years. This results in a consistently steady long cycle business. We are especially excited because the demand for private networks in North America has never been greater.

Unidentified Analyst, Analyst

That's great to hear. Thank you.

Operator, Operator

Thank you. One moment while we prepare for our next question. And our next question is coming from Paul Essay of William Woodrow. Please go ahead.

Unidentified Analyst, Analyst

Thank you for taking my call. First of all, I want to talk a little bit about the router business. Where are you with the field trials, with the utilities, with reconfiguring it for Europe? And how would Metaswitch play into this?

Pete Smith, President and CEO

I'm not aware that we've disclosed any field trials for utilities in Europe. However, I can say that we have made significant progress with our CTR 8740 platform, and our pipeline for it is growing. This is a positive development. The routing software from Metaswitch will enable us to implement IP/MPLS at the edge, primarily targeting mobile network operators in emerging economies. We are currently collaborating with various customers in this area. IP/MPLS software allows us to customize a solution that meets the specific needs of each customer and aligns with their network infrastructure.

Unidentified Analyst, Analyst

Okay. And the reconfiguring, the router for Europe, when will that be ready?

Pete Smith, President and CEO

Over the next 12 months, we will release our IP/MPLS on our router platform, which will be suitable for Europe.

Unidentified Analyst, Analyst

Okay. Okay. And then on Europe, I know you made some changes in leadership there. Maybe you can address the sales funnel there. I know you've got the AirWave and you've identified $60 million in Huawei replacement business. Business is kind of picking up, but it's still very small. Can you talk about what that pipeline looks like and what we might expect over the next 12 months in Europe?

Pete Smith, President and CEO

I believe you recall what we've shared regarding our anchor customer in AirWave. Over the past year, we've nearly doubled its size from $2.7 million to $4.5 million. We have a significant opportunity for share gain with Huawei. However, it's difficult to forecast how the network operators will convert that potential. This is certainly part of our overall growth strategy. We do not provide guidance on a regional basis, mainly due to the project-oriented nature of our business.

Unidentified Analyst, Analyst

Okay. And the service margins were up fairly significant in the quarter. Is that an abnormal, or is that something we can count on going forward and continuing to expand those margins?

David Gray, CFO

I believe the results were quite strong this quarter and even stronger in Q4 when conditions were favorable. However, as Pete mentioned, the project-based aspect introduces some variability. With our focus on improving field service costs, I expect us to typically achieve margins in the mid-thirties, with hopes for reaching the mid to upper thirties in the future.

Unidentified Analyst, Analyst

Okay. That's great to hear. Thank you very much.

Operator, Operator

Thank you. One moment while we prepare for the next question. And our next question will be coming from Theodore O'Neill of Litchfield Hills. Your line is open.

Theodore O'Neill, Analyst

Thank you very much. So, Pete, just clarification. The Airtel contract, is that just for Airtel in India, or is that Airtel opportunity in all 17 countries they're in?

Pete Smith, President and CEO

No. Just India.

Theodore O'Neill, Analyst

Okay. Regarding the chip collaboration with MaxLinear, is the objective to integrate multiple functions into a single chip, or are there other performance enhancements you are aiming for? Additionally, how is this initiative being funded?

Pete Smith, President and CEO

It's being funded through our balance sheet over time. The innovations we're introducing involve frequency bands, channel sizes, capacity, and quantity. To outline the deep semiconductor categories where we are driving innovation, we expect to operate on the 14, 16 nanometer node, which will provide us with significant power consumption advantages. Initially, we may not have recognized this, but as we begin to install microwave towers in more remote locations, power consumption becomes a crucial differentiator.

Theodore O'Neill, Analyst

My last question is regarding our experience with Starlink, which is performing better than Comcast. I was curious whether there are any backhaul opportunities with Starlink.

Pete Smith, President and CEO

None to my knowledge.

Operator, Operator

Thank you. And our final question will be coming from Orin Hirschman of AIGH Partners.

Orin Hirschman, Analyst

Hey, Orin Hirschman. Congratulations on the progress. Just in terms of your overall private radio network business, in terms of people wanting to move off stream on the private networks, use the capacity that's higher-end capacity that they've bought on the private airways with video in particular, any comments on that trend? Whether it's beginning to accelerate more as Redline fits into that, or people noticing the difference in terms of what you're capable of doing on the video side?

Pete Smith, President and CEO

I believe the way we approach video relates to capacity. When we receive an upgrade project, it is primarily driven by video, and we excel in those applications and use cases. Regarding Redline, I think we will need another quarter or two to assess the potential technical synergy in our offering. However, we consider that a possibility. If you could be patient for another quarter or two, we will provide more information as we gain a clearer understanding to share with investors.

Orin Hirschman, Analyst

Okay. Is the state government contract that you mentioned on the software side, is that for a SaaS recurring type of deal?

Pete Smith, President and CEO

I believe that that drives both hardware and software. And the software portion contains some SaaS. Yes.

Orin Hirschman, Analyst

Okay. Regarding the rural buildout and self-serve customers, how has the rural buildout portion of your revenues progressed in the last two or three quarters? Has it reached a plateau, or is it still growing as we await the next significant development from the RDOF funding?

Pete Smith, President and CEO

We're a project-based business, so we break these things out. At the end of last fiscal year, we indicated that rural broadband accounted for about 9% of our revenue, and I would affirm that it continues to represent approximately 9% of our revenue. We are currently anticipating a catalyst from the RDOF funding.

Orin Hirschman, Analyst

Okay. In terms of when you will be able to break it out, do we still have a long way to go, or is there insight?

Pete Smith, President and CEO

We sell a significant amount of embedded software but don't have peers that share metrics specifically for it, as they usually combine it with hardware. For standalone software, we still have a lot of progress to make. While we would like to provide a breakdown of the embedded software, there isn't a standard practice from comparable companies that would support that reporting. Thank you.

Operator, Operator

That concludes our Q&A session for today. I would like to turn the call back over to Pete.

Pete Smith, President and CEO

Thanks everyone for joining the call and your interest in Aviat. We look forward to updating you on our progress in approximately 90 days. Thanks everyone.

Operator, Operator

Thank you. That concludes today's conference call. You may all disconnect and everyone have a great evening.