Good day ladies and gentlemen. And thank you for standing by. Welcome to the Aviat Networks’ Second Quarter of Fiscal 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will be conducting a question-and-answer session and instructions will be given at that time. (Operator Instructions). I would now like to turn the conference over to our host, Ms. Leslie Phillips. Please go ahead, sir.

Thank you, Taggart. Good afternoon everyone and welcome to Aviat Networks fiscal second quarter 2014 earnings call. I am joined today by Mike Pangia, President and Chief Executive Officer and Ned Hayes, Senior Vice President and Chief Financial Officer. During today’s call management may make forward-looking statements regarding Aviat’s business, including statements relating to projections of earnings and revenues, business drivers, the timing and capabilities of new products, network expansions by mobile and private network operators and variations of economic recovery in different regions. These and other forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. Please note that these forward-looking statements reflect the company’s opinions only as of the date of this call and the company undertakes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. For more information, please see the press release and filings made by the company with the SEC. These can be found on the Investor Relations section of Aviat Networks’ website at www.aviatnetworks.com. In addition, during today’s call, management will be referencing to both GAAP and non-GAAP financial measures. A copy of the press release and financial tables which include the GAAP to non-GAAP reconciliations and other supplemental financial information is available on the Investor Relations section of the company’s website. Now I will turn the call over to Mike

Thanks. Bresley. Today we announced the second quarter of fiscal year 2014 results. Total revenue for the quarter was $85.8 million, resulting in a non-GAAP EPS of $0.15. Revenue for the quarter was in line with our revised guidance issued on January the 14th. Non-GAAP gross margins came in at 25% and book to bill for the quarter was above one. Our second quarter reported revenue excludes approximately $4.7 million related to the managed services arrangement we entered into with a key customer. While we caution that the fiscal second quarter guidance range of a $100 million to $107 million did not include any impact from the managed services agreement, even when adding back the $4.7 million, the reported revenue results would have fallen short of our original expectations. Let me talk more about the financial impact of the managed services agreement and provide a detailed financial review in a few minutes. While disappointed by our second quarter performance, a slower than expected investment cycle in Africa where one of our key customers is based was the main contributor to the second quarter shortfall. Given the current state of our business last week we announced the immediate and significant actions we are taking to address this. The resulting business model better aligns the company’s cost structure with the near term outlook, lowers the company’s revenue breakeven level, moving forward and strengthens the company’s position in the industry. Given these changes we expect Aviat to return to non-GAAP profitability in the first half of fiscal 2015. We expect to realize a major step towards this goal, exiting the fourth quarter of fiscal 2014 with non-GAAP operating expenses of approximately $27 million. Cost and expense savings associated with this plan are expected to be in the range of $18 million to $20…

Thanks, Mike. Aviat’s GAAP financial statements, along with the reconciliation of non-GAAP financial measures are included in the company’s press release issued today following the markets close. I would like to take a few minutes to summarize our non-GAAP financial performance at a high level. The key figures were; the company’s book-to-bill ratio in the fiscal second quarter was above one; revenue for FQ2 came in at $85.8 million, in line with revised guidance range provided on January 14. During our fiscal second quarter we saw a significant quarter-over-quarter revenue decline in our Africa region. Our reported revenue was impacted by a change in revenue recognition timing that occurred in the quarter. As Mike previously mentioned Aviat is entering into a managed-services agreement with a key customer in Africa. While this agreement solidifies a more robust commercial relationship in which Aviat can provide network planning and design services, inventory management and warehousing services, elements of the agreement led to approximately $4.7 million of product revenue not being recognized in the quarter. As part of the agreement’s warehousing services component during the time equipment temporarily resides in our Aviat control facility the revenue associated with that equipment is not recognized until the equipment is shipped out of the facility upon the operator’s direction. We expect equipment to be released across a period of one to three quarters after entering the facility. We expect the value of inventory entering the Aviat control facility to essentially match the value inventory exiting the facility and roughly equate to a [wash] over the next three to four quarters. It should be noted that the commercial terms with this customers remain exactly the same as in the past, with the customer invoicing and cash collection occurring when the equipment is shipped from our factory to our…

Thanks, Ned. As evidenced by our fiscal 2014 first half results the current business environment is challenging. We are experiencing a reduced part of the demand cycle characterized by fluctuating CapEx spending and extended sales decision processes. As a result we are acting quickly to align the company’s cost and expense structure with the expected near-term revenue opportunities while also focusing on the successful launch of new products that will better position the company for growth. Beyond this the Board is reviewing strategic initiatives to further improve Aviat’s competitive position. With the proliferation of smartphone and need for increased capacity as the back drop we believe the reduced demand the industry is experiencing is short term. We are confident in the recovery for the demand for mobile backhaul most notably in Africa and in the new markets such as more latency. Ultimately we believe our long term prospects remain positive and the actions that management and the Board are taking should better position the company for profitability and strengthen Aviat’s competitive position in the industry. Now I would like to turn the call over for questions. Operator you may now proceed with the Q&A.

(Operator Instructions). Our first question comes from Rich Valera with Needham & Company. Please go ahead.

Thank you. First a clarification on the book-to-bill can you say if the book-to-bill would have been above one, to one if you included the $5 million of deferred revenue, in other words if you hadn’t started that agreement?

That’s great question Rich we still would have been above one.

Great so just trying to think of how to think about the baseline revenue level. I understand you are not giving guidance but is $90 million kind of the right baseline to think about here, one to sort of grow from or is there any color at all you can give on kind of a near term revenue base that we can think about?

So I guess the complexity around the revenue side Rich, I think again notwithstanding the visibility part of the equation is this whole concept of the new managed service arrangement which you have to estimate, how much is going in versus how much is coming out. That puts a bit of a challenge around the conversion side of the equation. So that’s just one element to be cognizant of. So I would say that we’ve got a growing pipeline that on the bookings front we would definitely expect to see improvement over the first half and then it’s just a matter of what the conversion looks like to revenue. So second half rather than first half on the top line, difficult to predict the timing of between Q3 and Q4 relative to that. Hopefully that gives you a better sense of what we are doing here.

Just want to make sure I understand where things stand, second half of the year, better from a revenue perspective than the first half of the year is that what you’re saying?

We would expect that, in particular we would expect the bookings to be better. Again it’s a bit hard to translate that to the revenue side again because of this managed services arrangement. Ned do you want to give a little bit more color to that or…?

I think Rich mechanically we’re going to see higher revenues in the second fiscal half of the year only because we’re going to start seeing some of those inventories that are currently in the warehouse being deployed out for the field. Yes, we will enjoy that. And to the extent that these are spread over two to three quarters I am hoping that they normalize almost to a wash in terms of ins and outs in two to three quarters here. So that should help us get a better line of business on the reported revenue.

That’s helpful. And then I know this is tough projecting this but assuming you get – you have 25% gross margin this quarter. Assuming you are at, let’s just say $90 million or $95 million do we think we’re – kind of where do we think our current gross margins are, I would assume somewhere between 25% and 30% maybe closer to the mid-20s, I am just trying to get a sense of how anomalous that 25% is or is that kind of level we should think if we’re in the $85 million to $90 million in revenue range?

I think we’re seeing some significant impact based upon volume. We talked about under absorption of period cost on a product margin side, under absorption of services cost on the services margin side. Some of the activities that we’re taking are aimed at reducing those fixed cost levels and that’s going to bear some fruit but it really does come down to continued product cost reductions, the introduction of new lower cost products, reducing fixed overheads and really getting our volumes back above $90 million, $95 million is really going to help us improve by a material amount, a number of 100 basis points margin improvement.

Okay. That’s helpful. And then this may be cutting a little bit fine but you said $27 million OpEx run rate exiting the year, does that mean that’s the level for the fiscal fourth quarter or that’s really the level we would expect to see in the fiscal first quarter of next year?

We would be exiting the fiscal year at $27 million broadly OpEx.

Right so the fiscal fourth quarter we should expect $27 million.

Right.

Okay. That’s helpful.

And that shows the sense of urgency, I mean that requires us to be taking actions now so we can deliver that number, in an absolute dollar perspective in this third quarter.

Right.

Again reiterating we see further opportunities to reduce OpEx in fiscal 2015.

And then with respect to cash, understanding you will be working very hard to improve your working capital, anything that you could say about expected – you’ve given the number for the specific cash cost associated with the restructuring. Anything else you would be willing to say about expected cash usage over the next couple of quarters?

Again I think the vast majority of the $5 million to $6 million that we talked about being incurred in fiscal 2014 will be in FQ3. We see some positive developments in our supply chain management that are going to be seeing probably $5 million to $6 million with the inventory reductions that will be a source of cash. That will probably start in fiscal quarter four and then continue into 2015, and then again following that we see operating earnings being able to contribute to the cash balances going forward.

In fiscal ‘15, basically.

Yeah.

Right. Okay, that’s helpful color. I will leave the floor, thanks guys.

Thanks, Rich, appreciate it.

Thanks, Rich.

(Operator Instructions). Our next question comes from the line of Tim Duchell with – a private investor. Please go ahead. And I am showing no further questions at this time. Please continue.

I want to thank everyone for your participation in today’s earnings call and for your interest in your Aviat Networks. This concludes Aviat Networks fiscal second quarter 2014 earnings call. Have a great day.

Ladies and gentlemen that does conclude our conference for today. You may now disconnect.