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Aviat Networks, Inc. (NASDAQ:AVNW)

F4Q 2013 Results - Earnings Call Transcript

August 14, 2013 16:30 PM ET

Executives

Peter Salkowski - IR

Mike Pangia - President and Chief Executive Officer

Ned Hayes - SVP and Chief Financial Officer

Analysts

Rich Valera - Needham & Company

Jim Kennedy - Marathon Capital Management

Russ Silvestri - SKIRITAI Capital

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to the Aviat Networks’ fourth quarter 2013 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Wednesday, August 14, 2013.

I would now like to turn the conference over to Peter Salkowski, Investor Relations, Aviat Networks. Please go ahead, sir.

Peter Salkowski

Thank you, Damian. Good afternoon everyone and welcome to Aviat Networks fiscal fourth quarter and fiscal year 2013 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 this conference call, management may make forward-looking statements regarding Aviat’s business, including statements related to projections of earnings and revenues, business drivers, and 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 revision 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 our Investor Relations section of Aviat Networks’ website at www.aviatnetworks.com.

In addition, during today's call, management will be referencing both GAAP and non-GAAP financial measures, a copy of the press release and financial tables which included GAAP to non-GAAP reconciliation and other supplemental financial information is available on the Investor Relations section on the company’s website.

I would now like to turn the call over to Mike.

Mike Pangia

Thanks Peter. I am pleased to report that Aviat Networks delivered another solid quarter leading to a very strong fiscal 2013 with fiscal year revenue increasing 6% year-over-year to $471 million.

Aviat substantially outperformed the microwave backhaul industry and the company’s topline improvement combined with our cost control efforts resulted in a tripling of our non-GAAP EPS to $0.18 per share from the $0.06 per share reported in fiscal 2012. Management is very proud of the accomplishments, the Aviat employees achieved over the entire year and believe their efforts position the well for fiscal 2014, on that note everyone at Aviat is very excited about the rollout of our new microwave networking platform the CTR family of products in this fiscal year.

Financial highlights for the fourth quarter include a book-to-bill ratio of approximately one, non-GAAP gross margins of 31% resulting from a favorable mix of deliveries and projects completed during the fiscal quarter.

We had another profitable quarter on a non-GAAP basis and ended the fiscal year with $90 million of gross cash and $81 million of net cash on the balance. Before turning the call over to Ned for additional details of the company’s fiscal fourth quarter financials, I would like to discuss the market segments in which Aviat operates first by providing an outlook on these markets and then discussing how our operations fit in.

I will follow these comments with an update on our new product introduction plan. First, looking at the mobile operator segment, Aviat continue to deploy technology to key mobile operator customers in the fourth quarter such as Verizon and MTN. In addition, over the past couple of quarters we have seen business return from a key customer in Eastern Europe.

Overall, the global revenue potential for microwave backhaul has been relatively flat for the past 18 months. Mobile operators have found ways to leverage their existing assets and have introduced more aggressive centralized procurement practices to [play out] vendors. We believe this has led to lower average selling prices offsetting the impact of higher unit volumes over the same period. With this tight control on CapEx is putting pressure on our near-term results. We believe that it bodes well for our next generation of solutions which provide significant savings to operators beyond the traditional method of relying solely on lower hardware prices. We also believe that there is a limit as to how far operators can leverage existing network assets against the ever increasing demand for data to the device and with it the need for increased backhaul capacity.

The Aviat customers vary by geography and mobile telecom industry maturity, the bottom line is at throughout the world demand is accelerating for smartphone and tablet devices, data and connectivity with 4G LTE networks five times more efficient than 3G, we believe that it’s not a question of whether mobile operators will update their mobile backhaul but when.

As an example take Verizon the leading operator moving to 4G under recent second quarter earnings call, Verizon reported that they had essentially completed their LTE build out. Verizon is now focused on adding capacity to their existing 4G coverage with the third of their customers generating nearly two-thirds of their 4G data traffic.

Important comments made by Verizon CFO on the earnings call “As customers realized the viabilities of speeds and consistency of this 4G network is going to drive higher usage”. Accordingly, Verizon will need to accelerate capacity beyond previous expectations, Verizon experience suggests that once you build it, they will come and once you acquired the customers, they will want even more data.

We believe this hunger for data is driving the ongoing need for microwave backhaul in the United States and is yet to be experienced in most of the rest the world. For example, in the Middle East and Africa, where one of our key customers MTN Group is based, mobile data traffic is expected to grow 17 fold from 2012 to 2017, a compound annual growth rate of 77%.

In addition, the forecast for microwave share of this LTE market is also promising. According to a June 2013 heavy [rain] forecast, microwave share of LTE backhaul is expected to grow from 6% at the end of 2012 to nearly 30% at the end of 2017, suffice to say our long-term outlook from global mobile operators is quite strong.

We are also closely tracking the activities towards small cell deployments which we see as an inevitable to address the massive demand for data in the future and for which wireless backhaul will become an important enabler. Large cell deployments requiring wireless backhaul do not seem likely within the next 18 months. But for near-term requirements, we believe it's important to provide a tool kit of products for the variant deployment cases.

Aviat has been involved in several small cell trials, successfully completing trials in North America and Europe with leading operators for technology spanning 5.8 to 90 gigahertz including both the non-line-of-sight and line-of-sight scenarios for small cell and fronthaul applications.

As part of our R&D efforts, we continue to invest in technology enabling smaller, lower cost products targeted for small cell backhaul, the WTM 3300 with its integrated antenna from small outdoor form factor is a recent example of such innovation and is Aviat’s for small cell targeted product. For other products, we are busy formulating partnerships with leading vendors. Small cell represent growth for microwave in the mobile segment. We're engaged very closely with our customers to ensure the timely delivery of targeted, small cell products and services.

Now moving to public safety, this is also a prominent business segment for Aviat. In an area where a highly reliable, secure and mission critical microwave products and services are a great match.

Throughout the domestic and international realm of public safety, the use of real-time data and video for emergency services is driving demand for improved backhaul solutions such as LTE upgrades. In the U.S., the National Public Safety Broadband Network, known as FirstNet is aggressively being planned. Lower cost and more reliable than fiber, microwave will be a key technology for the FirstNet public safety LTE network. With 18,000 links installed in mission-critical applications in the United States, Aviat Networks is a leading provider of mission critical microwave backhaul equipment for first responder agencies today.

The company’s knowledge of public safety and LTE proven experience combined with our vast installed base and strength in the North American market means that Aviat is well positioned to capture a share of the FirstNet microwave business. In our fourth quarter, we announced a $13 million contract for the State of Oregon’s first responder radio networks. The installation of our LTE proven Eclipse IRU600 radios will provide the foundation for integrating the current radio systems in to a network in which police, transportation workers and other public safety officials can intercommunicate.

We also anticipate a significant LTE adoption in public safety agencies internationally. Management is pleased to report that in Europe one of our partners Cassidian won an approximately $13 million contract to modernize the French Ministry of Interior share transmission infrastructure. We are providing the radio equipment as part of this project.

Now turning to low latency, Aviat has seen tremendous opportunities in the low latency communication segment for which the company has quickly become a leading solutions provider. Faster than fiber, microwave has now the default transport for low latency applications and the technology is in high demand by non-telecom customers.

One of the main reasons for our success in the low latency segment is that these organizations look to us as a trusted both turnkey partner to design, supply, deploy and fully maintain their low latency networks. Overall Aviat’s total cost of ownership value proposition continues to drive demand for our products and services in the telecommunications, public safety government, and utilities markets.

In fact it is our detailed proposition and service offering which distinguishes Aviat from other microwave backhaul providers. A strong example, Aviat Networks was recently recognized as a number one microwave specialist by service providers according to the microwave strategy and vendor leadership survey recently conducted by Infonetics Research. We are also ranked number one among all microwave specialists in 10 out of the 11 criteria that service providers use for choosing of microwave vendor.

Now turning to product launch; looking towards the future I am pleased to report that the rollout of our new microwave networking unit platform, the CTR 8000 family of products is on schedule. We are on track to start shipping the CTR platform in the fiscal third quarter of 2014 with volume expected to ramp into the subsequent quarter. Our router purpose build for microwave, CTR is a transformational product which the company believes will be the future of microwave networking, enabling our customers to truly create an evolved IP transport network. We have been very busy conducting initial product demos with key customers.

We expect to commence customer lab trials in the second fiscal quarter of 2014 and there is a strong pipeline of operators interested including a number of major tier one operators. Build from the ground up as an IP platform, CTR’s new microwave networking capabilities will enable Aviat to improve our cost structure and stay well ahead of our competition in existing mobile operators accounts. In addition, CTR will be instrumental for reestablishing relationships with mobile customers in emerging markets such as Eastern Europe and Latin America and will allow Aviat to grow its overall mobile operator addressable market.

Opportunities for CTR also apply to non-mobile verticals; CTR is proving to be very attractive to customer in both public safety and low latency verticals. A very large public safety integrator has been highly engaged during various phases of development to ensure CTR’s successful applicability in the public safety portfolio. On the low latency side, CTR’s flexible open hardware and IP based software architecture will enable highly customize solutions including latencies approaching theoretical minimum levels and as such will be very important in solidifying our leadership in this increasingly important segment. Aviat Networks is excited about the delivery of our CTR this fiscal year.

I would now like to turn the call over to Ned for an overview of our financial results, Ned.

Ned Hayes

Thanks Mike. Aviat’s GAAP financial statements along with a reconciliation of non-GAAP financial measures are included in the company’s press release issued today, following the market’s close. I would like to take a few minutes to summarize our non-GAAP financial performance at high level. As Mike previously mentioned, we had a solid quarter. The key highlights were the company’s book-to-build ratio in the fourth fiscal quarter was approximately one, revenue for the fourth fiscal quarter came in at a $109 million within the range of the guidance provided on the company’s fiscal third quarter earnings call.

68% of revenue was derived from product sales and 32% from services, demonstrating continued strong performance in Aviat services offering. Two significant tier one mobile operators MTN in Africa and Verizon Wireless in United States were 10% plus customers in the fiscal fourth quarter. Revenue in the North America region was $47.5 million in the fourth quarter of fiscal 2013, compared with $40.7 million in the year ago quarter. International revenues were $61.5 million compared with $75.3 million in the year ago quarter.

Non-GAAP gross margin for the quarter was 31% of sales, a result of a favorable product and geographic mix of revenue in the quarter and a reduction of our above-the-line operation expenses as compared to fiscal Q3. For fiscal fourth quarter, non-GAAP operating expenses totaled $32.7 million, 0.30% of revenue. Now you’ll recall in our last earnings call, management expected a sequential decline in OpEx for fiscal Q4, but during the quarter we purposely decided to increase R&D spending reflecting our intensified efforts to complete development of new products consistent with road map time lines. So despite a $400,000 year-over-year drop in non-GAAP SG&A spending, the $22.5 million non-GAAP OpEx for the quarter increased $100,000 for net Q3.

Fiscal fourth quarter adjusted EBITDA was $2.6 million compared to $2.9 million for the same period in fiscal 2012. Non-GAAP income from continuing operations earned in our fourth quarter was $0.5 million or $0.01 per fully diluted share within the company's guidance range. Also in our last call, management anticipated using several million of cash for working capital and other needs in the fiscal fourth quarter. The company ended the quarter with cash and cash equivalents balance of $90 million. With debt levels reduced $8.8 million, net cash that is cash less debt continued to be a very healthy $81.2 million or approximately a $1.35 per share.

On the working capital front, including benefits from several actions taken recently to reduce inventories, our inventory turns rate improved to 5.9 turns. Receivables were 72 days of sales and days payables stood at 61 days. Our goal has been to narrow the days arbitrage between DSOs and DPOs and we have been successful on this front. Cash generated by operating activities was $2.9 million in the fourth fiscal quarter. CapEx was $4.5 million, reflecting capitalize expenditures related to our Oracle R12 ERP implementation and equipment supporting our development efforts.

By the way, Aviat expects CapEx to continue roughly at these levels for another quarter or two and then settle back down to historical norms. Free cash flow in the quarter came in at a negative $1.6 million.

Now reflecting back on the fiscal year, management is gratified in observing the following themes. Book-to-build performance continued to be strong coming out of the last fiscal quarter. The topline grew with year’s revenue totaling $471.3 million, up 6% from $444 million the previous fiscal year, a noteworthy outcome when one looks at the global market backdrop.

Non-GAAP gross margins remains steady with fiscal year 13 non-GAAP gross margins of $141.2 million were 30% of revenue compared to $134.1 million last fiscal year or 30.2% of revenue. This was despite continued pricing compressions driven by our customers and intense competition around the globe.

Non-GAAP operating expenses for fiscal 2013 were reduced year-over-year to $127.6 million from a $129.6 million. What should be noted however is that excellent progress was made on optimizing OpEx with substantial year-over-year reductions in G&A, subsidizing continued incremental investments in R&D and our go-to market selling activities.

Fiscal 2013 adjusted EBITDA was $20 million compared to $10 million for fiscal year 2012. Non-GAAP income from continuing operations for fiscal 2013 stood at $0.18 per fully diluted share versus a non-GAAP income from continuing operations of $0.06 per share last fiscal year.

For fiscal 2013, Aviat generated $8.4 million of cash from operations, want to emphasize that revenue and margin of these projects has not been lost, they have mere shifted out the first fiscal quarter. And we firmly believe this margin performance to be isolated to fiscal Q1.

Our preliminary view of our fiscal second quarter indicates a return to margin rates more in line with those observed in fiscal year ‘13 and in addition, we believe the second half of fiscal 2014 will began exhibiting gross margin rates that will further directionally benefit for the market introductions of our new products.

Now in the fiscal second quarter of 2013, the company increased its reserve for uncertain tax positions, will also related to audits of past years and several foreign jurisdictions, we receive partial assessments from two of these foreign jurisdictions, requiring upfront payments despite our ongoing appeals process.

We expect to pay a little over $4 million in the fiscal first quarter and related payments could be higher in the quarter of additional assessments are received by the company. The company continues to vigorously defend its position and expect to take part in the appeals process with these jurisdictions and Aviat is confident that the company will be able to absorb these upfront payments without any disruption to the business.

With these expenditures and other one-time cash out flows impacting the first fiscal quarter. The company expects to use several million dollars of cash in fiscal Q1. And as we did in the last fiscal year, we are including estimated cash tax expenses in our non-GAAP results this coming fiscal year.

For fiscal Q1 we estimate $650,000 in cash tax expenses and business models should include a similar amount and approximately $2.6 million for fiscal year 2014 excluding any final settlements arising from the aforementioned foreign tax audits.

So with that update, I'll turn the call back over to Mike for his executive summary. Mike?

Mike Pangia

Thanks, Ned. For the high level, Aviat has improved over the last year. Let me provide a few highlights revenue growth of over 6% was strong; especially considering the challenging industry backdrop while our service offering remained a key differentiator even with increased spending on sales and R&D, aimed at the future growth of the company management’s diligence proved successful in reducing year-over-year non-GAAP operating expenses.

Non-GAAP earnings per share tripled for fiscal 2013 and entering the new fiscal year we have a strong balance sheet with over $90 million in cash. The company’s strong cash position provides us the means to invest in future growth.

Looking at fiscal 2014, we remain excited about our future we believe some key factors to Aviat success this fiscal year are the successful launch of our CTR family of products, increasing market share by acquiring new mobile operator customers, developing new streams of professional service revenues such as software maintenance and continuing to optimize cost and simplify the business.

All of our management remains diligently focused on steadily increasing the company’s gross margins. Aviat’s accomplishments during the past fiscal year position us to capitalize on the increasing consumer demand, the mobile connectivity and data worldwide.

Overall management is incredibly excited for the future of the company, and we look forward to updating you on our progress.

Now I’d like to turn the call over for questions. Operator you may proceed with the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Rich Valera with Needham & Company. Please go ahead.

Rich Valera - Needham & Company

So Mike, with respect to the CTR rollout its same point from your comments that the first quarter was really expect material revenue is the fourth quarter of this fiscal year is that fair?

Mike Pangia

Yes.

Rich Valera - Needham & Company

And so when you talk about the second half gross margin improving versus the first half, I guess that also would really apply to the fourth quarter presuming there's some shipment of CTRs or anything else out there that would help the gross margin in the second half?

Mike Pangia

Yeah, I say that CTR would represent the flagship of new product introducing but we have some other new products that will be introducing as well. We have evolving the current version of our [RU600] product in North America which will have an improvement for us.

We'll be introducing also variants of our WTM3000 portfolio the 3300, the 3200 and also we will be also providing an upgraded portfolio around our split putdown trunking as well. So there's other initiatives beyond the CTR, of course CTR is a flagship in terms of new product introduction.

So all this will be contributing to the improvement in margins as well. And the other thing to it I would expect we as we talked earlier about North America on improving to North America and within that we also expect some improvements on our revenue streams related to the low latency segment, which is a higher margin segment for us

Rich Valera - Needham & Company

Got you. Just kind of looking bigger picture at the gross margin, going back two years or so. I think the roll out of the low cost LU was expected to drive some gross margin improvement. And we sit here two years later in basically I'd say for the most part no change in gross margins, we're kind of at 30% with unfortunately a dip below that level, looks like for the first quarter.

So just sort of looking at the big picture, what gives you confidence that the market doesn't continue to kind of ship away at your improvements and kind of keep you in this same range we've been in now for a good two years around kind of the 30% level.

Mike Pangia

Yeah, I mean excellent. I think an excellent observation, I think clearly if you take a look in the rear view mirror, a lot more aggressive pricing than we had anticipated, vis-à-vis what we were doing there but we've learned a lot actually from that experience.

Hence the focus on our next generation microwave networking product, where we will be able to establish a lot more value to the customers beyond the traditional, there is a lower price for that product and this can do similar things, it will be a lot more software enabled with features to be provided over time that are all applicable to what the mobile operator they are looking for in the other segments. And in addition to that, the ability to provide running functionality from a microwave perspective also allows the customer to spend less on CapEx of other products. So I think the opportunity we have moving forward are much more powerful and impactful to the end customer which puts us in a much better position to improve our margins.

Rich Valera - Needham & Company

Appreciate that color.

Ned Hayes

The only thing I would like add Rich is that it's not just about product, I mean we're enjoying quite strong margins on our services business. So we delivered a split out of 32% of our overall revenues in the quarter, where services related and indeed our non-GAAP service margin were above 30% as well. So we continue to see that tailwind behind us as we continue to roll out in to this fiscal year.

Rich Valera - Needham & Company

Got it. And I was hoping if you could give some color on Africa. It looks like your revenue from that region, the Middle East and Africa as you bucket it in your report was down again in absolute dollars. I am I know MTN was still a 10% customer but down significantly from two quarters ago. Just wanted to get color on sort of what's going on in Africa. I think listening to competitors, it sounds like the competition maybe heating up in that region. Do you feel like you are maintaining share, and if so, at what cost the potential cost to margins to maintain share in what looks like a pretty competitive market down there?

Mike Pangia

Yeah, your anchor account there which we all know is MTN and given they have been a 10% customer for several quarters; it is a choppy and volatile profile on a quarter-to-quarter basis. It's quite very difficult to look at our profile in Africa in a single quarter. As you recall we had a very strong first half of the fiscal year in Africa and I think we have to look at Africa in its totality year-over-year, and we did see an improvement year-over-year. I think that the last couple of quarters have been smaller relative to the prior year and we would expect and anticipate an improvement in that profile as we move towards the backend of about the calendar year and into the next fiscal year. Our position with our key accounts in Africa remains very solid, in particular with respect to MTN where we continue to get opportunities actually to expand our footprint within near markets.

Rich Valera - Needham & Company

And do you think you will be able to maintain kind of the same type of pricing given the kind of aggressiveness of competition in that region?

Mike Pangia

I think the opportunity to provide more value to our customers there and at the same time improve our margins is absolutely there, led by the introduction of the new platform. We got a quite bit of input working with customers like MTN and other customers in Africa relative to what we are introducing and they are very excited about the opportunities that we present as well.

Rich Valera - Needham & Company

Got it. And Ned just clarification, I didn’t get the CapEx number for the quarter, what was that?

Ned Hayes

The CapEx for the quarter, let me just check my notes here, CapEx for the quarter was 4.5 I believe.

Rich Valera - Needham & Company

4.5, okay. And just wanted to get some clarification on the inventory write-down, what was the magnitude of the inventory write-down and what was that specifically about in the quarter?

Ned Hayes

We didn’t have an inventory write-down this particular quarter, but we had one last year to bankrupt North American non-mobile operator. We didn’t have that same effect this quarter.

Rich Valera - Needham & Company

Okay, all right. Thanks.

Operator

Our next question is from the line of Jim Kennedy with Marathon Capital Management.

Jim Kennedy - Marathon Capital Management

Ned quick question, am I doing my math correctly that the net working capital is approximately $2.20 a share?

Ned Hayes

I would have to pull out my calculator, but Jim I would respect your math in public.

Jim Kennedy - Marathon Capital Management

Okay. Well, let’s make it $4.20. Mike, quick question for you, it sounds to me as though we are not afraid at all about cannibalizing short-term revenue in anticipation of newer technology being available as you are out there testing it and running trials based on your forward-looking numbers next quarter. Is that pretty much the case and is that because this is a higher level technology that would not affect many of the sales occurring in the next couple of quarters?

Mike Pangia

Yes, that’s correct. I think primarily on the mobile operator side, I think the impact if any hasn’t been with our existing customers where we have the ability to manage that transition quite seamlessly based on different approaches, pricing, value, the fact that our products are compatible with us there. However, I would say that our ability to penetrate new accounts obviously has been limited because it’s difficult to go out with those new accounts with the portfolio that is moving to the new ones.

So within existing accounts where they already have the product, the opportunity revolves, upgrade all of those are still very valuable and the products that are there provide everything require for customers, but it’s really the opportunity. I look at it’s more than opportunity for us to increase our addressable market once we have the new technology in place.

Jim Kennedy - Marathon Capital Management

And the folks that are in we will call it beta with the new technology. Are they primarily current customers or are there new customers in that mix?

Mike Pangia

So there is absolutely new customers in that mix another reason we are very excited about the introduction of the product.

Jim Kennedy - Marathon Capital Management

Got you, okay. And then typically what is the – let’s call it length of time and process by which someone test that technology and decides it’s a go, is that -- do they take it out there and stick it in the small remote part of the network, is it done in the lab, how is that typically done?

Mike Pangia

Yeah, it’s typically done in the lab. There are depending on the customer, I would say that there is different length of times, some do the tire kicking a lot more than others, they can vary anywhere from three months to six months. And depending on some customers we’ve seen they go longer, but I would say more in that three to six months cycle. And again a key milestone for us is just to start the lab trials before the end of fiscal year to give us head start on time to revenue.

Jim Kennedy - Marathon Capital Management

Got you, okay.

Mike Pangia

I'm sorry before the end of the calendar year, correct.

Jim Kennedy - Marathon Capital Management

Calendar year, yeah, okay. Very good, guys. Thanks a lot.

Operator

Our next question is a follow-up question from the line of Rich Valera with Needham & Company.

Rich Valera - Needham & Company

Ned, would you be willing to refine your commentary with respect to OpEx in the first quarter, I think you said you expect it to see lower sequentially, but any sense of magnitude there at all?

Ned Hayes

Rich, the additional color I would have it would be again focusing on reducing G&A, making sure that we've got appropriate investment in R&D, making sure that we are being as efficient as possible with our selling expenses. But the additional color I would say would be for your model that we would expect OpEx for the entire fiscal year to be lower than what we spent in fiscal year ‘13

Rich Valera - Needham & Company

Okay. And should there be any escalation throughout the year, presuming there is any revenue ramp -- if there is a revenue ramp in the back half, is that what we would expect to see maybe the OpEx go up a bit so to start low and move up as you move into back half?

Ned Hayes

You might have some impact towards the end of the calendar year, with regard to sales incentive compensation, but otherwise I think it'd be help even managing the rest of it very tightly and very efficiently.

Rich Valera - Needham & Company

Okay, that's helpful color. Thanks.

Operator

Our next question is from the line of Russ Silvestri with SKIRITAI Capital.

Russ Silvestri - SKIRITAI Capital

Last year you guys or this year just in the 2013 the $471 million in revenue. If you look at the CTR platform, what does that do to the total available market for, I mean I understand you’ve got new platform coming in, that's great. But if it's -- can you talk a little bit about perhaps if it actually expands the overall addressable market for you guys?

Mike Pangia

Yes. So I think our market expands in a few ways. We got some tier 1, large tier 1 mobile operators which we haven't done a lot of business with. There are two categories there. There is one category which is customers that used to be customers of ours that for one reason or other, haven't been buying from us from the last few years. And then you've got another set that we've never really sold much to, that we have an opportunity to sell to.

So I would say, any tier 1 mobile operator that we're not selling to today and there's a number of those will represent an opportunity for an expansion of our addressable market.

Some of those will be more difficult to achieve than others but they all represents candidates to improve. That is really looking at the flagship product other than new platform which is a 8540. We will have other variants of that as an example.

We'll also have a lower end variant of that product that will follow the introduction of the mainstream product. That particular product will allow us to be able to address the lower price sensitive markets, some of the emerging markets that we haven't been present on. I don’t want to go and be specific on that but there is a number of markets where they are price sensitive, we haven't participated and opens the door up to do that.

And then we also have, we will also be introducing, I guess, a standalone, call it a standalone router or higher capacity product as well and that opens up also some adjacent markets that we have not participated in. So I can’t give you more than that right now. It will be difficult for me to kind of come up with dollar amount but that gives you a sense of its fairly significant.

Operator

(Operator Instructions) At this time I would like to turn the conference back to Mr. Salkowski for closing remarks.

Peter Salkowski

Thank you, Damian, I would like to thank everyone for participating in today’s earnings call and thank you very much for your interest in Aviat Networks. This concludes the Aviat Networks fiscal fourth quarter 2013 earnings call. Have a great day.

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