AVNW - NASDAQ

Good afternoon. Welcome to the Aviat Networks' Fourth Quarter Fiscal 2023 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 the conference is being recorded. I will now turn the conference over to your host Mr. Andrew Fredrickson, Director of Investor Relations. You may begin.

Thank you, and welcome to Aviat Networks' fourth quarter fiscal 2023 results conference call and webcast. You can find our press release, an 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 Peter Smith, Aviat's President and CEO, who will begin with opening remarks on the company's fiscal fourth quarter, followed by David Gray, our CFO, who will review the financial results for the quarter and fiscal 2023. 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 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 factors that could cause the 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. The company undertakes no obligations to revise or make public any revisions 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 include a 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, Peter Smith. Pete?

Thanks, Andrew, and good afternoon, everyone. Thank you for joining us to review Aviat Networks' results for the fiscal fourth quarter of 2023 and full year fiscal 2023. The company continued to focus and execute on our key long-term goals of top line growth, margin expansion and bottom line improvement. Highlights from the fourth quarter include revenue of $91.2 million, which represents growth of 17.8% versus Q4 of last year. Adjusted EBITDA of $12.6 million, a 38% increase versus the same period prior year. Non-GAAP EPS increase of 30%. Strong debt-free balance sheet with $22.2 million of cash and marketable securities. For the full year fiscal 2023 Aviat achieved revenue growth of 14.4% to $346.6 million. This represents our third consecutive fiscal year of double-digit top line growth. Adjusted EBITDA of $47.0 million, a 23% increase over last year. Non-GAAP EPS growth of 20%. Year-end backlog of $289 million, up 18% year-over-year, 336 new customers in fiscal year 2023. These financial and operational results reflect the continued demand we see for our products and services in the market as well as the dedicated effort from Aviat team members around the globe. Let's discuss key highlights of the fourth quarter and fiscal year. Starting with the global 5G opportunity, our business continues to see healthy demand from service providers, thanks to our differentiated offerings. In the US, we see rising demand for our microwave backhaul products despite flat to down 5G CapEx spend from Tier 1 telecoms. Operators build their 5G networks by initial investment in fiber. And as the coverage progresses, microwave receives a larger portion of the funding to expand backhaul in suburban and rural environments. This makes Aviat's demand curve somewhat different from the overall 5G CapEx cycle. We believe there will be growth from continued domestic investment in 5G as network build-outs continue into less densely populated regions. Internationally, we are still in the early stages of the 5G rollout and see strong interest for Aviat's products. At the beginning of the fiscal year, we announced our Bharti Airtel win, which marked a new Tier 1 customer and geographic market for Aviat. Additionally, we see building momentum in Africa, Latin America and Asia Pac. As a reminder, 5G currently makes up less than 15% of global mobile data traffic. We have many years ahead of operators investing in their 5G infrastructure. We see more opportunities to win selective Tier 1 and Tier 2 business. We will continue to target new accounts and win business away from our competitors when we see a distinct economic advantage that Aviat can offer to the customer. This will bring additional global scale and capabilities to our business to drive long-term shareholder value. Our funnel of opportunities against our largest global competitor continues to strengthen, and we are focused on executing to gain market share and customers. Our current identified opportunity funnel for Aviat to replace this competitor is over $80 million. Our fiscal 2023 revenue taken from this competitor was $24 million, and our backlog is $34 million. We believe that the pressure on this competitor will remain for the foreseeable future and operators will continue to seek replacements in their networks. Shifting to our rural broadband business the demand environment for this market remains strong. Government funding programs such as the Rural Digital Opportunity Fund, RDOF and the Broadband Equity Access Deployment, BEAD, continue to develop and we remain well positioned with the Aviat store. RDOF related orders continued in the quarter, albeit relatively small. We anticipate increasing revenue from RDOF projects in calendar year 2024. Although the dollar impact of RDOF to Aviat continues to be difficult to quantify at this early stage we have booked blanket purchase orders from West for the coming year in excess of $10 million. We view this as an encouraging sign of demand in this space. The recent announcement of the Broadband Equity Access and Deployment or BEAD program allocations to state government represents a positive step to unlocking the $42.5 billion program. As a reminder, this program was part of the bipartisan infrastructure law passed in 2021. The program is aimed at increasing the availability and affordability of high-speed Internet service across the United States, especially in rural and underserved areas. The announced allocations permit the states to begin planning their grant programs. From a timing perspective, we anticipate that approximately 20% of the announced allocations will begin flowing in late calendar year 2024. If other government broadband programs are an indication, the peak will be in three to five years following the initial release of funds with a long tail of spending. While the initial BEAD notice of funding strongly encouraged fiber deployment, we believe that the most economical and effective deployments will include wireless networks in the appropriate areas. Further, in recent meetings of the subcommittee of Energy and Commerce and the NTIA, no less than seven congressional representatives advocated for technology neutrality and cost-effective deployments. We believe this testimony strongly favors microwave. There are still many details with BEAD, but we believe that Aviat has the right set of products and state-level relationships to benefit. We will continue to update the investor community as appropriate. Moving on to private networks. In the fourth quarter, our North America revenue of $55 million was driven by strong private network demand and a record private network backlog. We believe we have the strongest portfolio for private networks, including highly reliable, high-power microwave radios for lowest overall total cost of ownership, affordable high availability IP/MPLS routers, LTE base stations and evolved packet core solutions, point-to-point and point-to-multipoint access products, end-to-end management software with expert systems and automation innovations for lowest OpEx and a full portfolio of turnkey services. We remain the leading microwave vendor in private networks in North America and growing share of demand around the world. We believe that the private network opportunity in North America will remain strong as networks upgrade to LTE to support video and other data-driven applications. The funding environment remains strong for state and local governments positively impacted by ARPA funds. The private networks business will also continue to grow through new international opportunities. Our private network business drove the significant increase in year-over-year backlog, which we will get to shortly. In the fourth quarter, Aviat announced our new ultra-high power indoor radio, the IRU 600 UHP. UHP is a new 11 gigahertz radio with the highest transmit power ever supported in the industry in this band, which will allow greater reliability, more capacity and longer lengths. Most importantly, UHP's ultra-high RF performance enables the replacement of 80% of the 90,000 six gigahertz links in the USA creating a significant upgrade opportunity with customers concerned about interference in the six gigahertz band. This is another example of Aviat innovating to meet customer needs and deliver value-add solutions. We have already secured our first order and expect shipments to begin in the first half of fiscal year 2024. In addition to the UHP radio, Aviat released a number of innovative products and offerings in fiscal year 2023 including IP/MPLS support for our WTM all-outdoor microwave platform to lower total cost of ownership and simplify customer networks. Vendor-agnostic multiband solutions, which make it easier and cheaper for operators to upgrade their networks by adding Aviat's eband or multiband alongside legacy microwave systems. This also lowers the barrier for entry for Aviat into a new network. This helps secure our win with Bharti Airtel. Frequency Assurance Software, FAS on third-party radios, which allows network operators to leverage our powerful software platforms to help them better manage their networks. Support for RDL-3000, Aviat's access products acquired via the Redline Communications acquisition to ProVision Plus which allows network operators to improve the simplicity and reliability of managing their networks end-to-end. We are proud of these innovations we have brought to the market and are excited to continue offering new solutions and products to our customers in the year ahead. Since artificial intelligence is prominently featured in the news, we will share our perspective. Aviat believes that AI applications will use bandwidth and create more demand for capacity, in line with the telecom peer group, the amount of additional demand and timing is difficult to estimate at this point. More specifically, the generative AI branch of artificial intelligence requires low latency and consumes a lot of data, which bodes well for telecom equipment and backhaul needs. On the product and services front, Aviat has invested in fast frequency assurance software and has health assurance software products. These are both examples of expert systems that replicate a specialized knowledge set to provide powerful solutions to help customers manage their networks and monitor for interference and help network health. This branch of artificial intelligence offers customers an impactful solution today. Going forward, Aviat intends to invest in additional software that eases the customer's burden of network operations. Moving onto the supply chain environment. We continue to see improvements. Nearly all of our supplies returned to pre-crisis performance. We have 13 components that remain in allocation. This is an improvement from 27 component allocations last quarter and over 100 a year ago. Additionally, component lead times continue to improve and are now normalized. We remain diligent in de-risking the supply chain and building redundancies where possible. Our results for our customers and shareholders would not be possible without the dedication of all of the Aviat employees. This was a great quarter and an excellent fiscal year. We remain focused and we'll continue to execute to grow and take share of demand. This has and will continue to be reflected in our financial and operational results. Aviat's core values include customer focus. As part of our focus on the customer, we advanced our voice of the customer process. The effort by our sales and marketing teams resulted in fiscal year backlog of $289 million. This represents an increase of 18% versus prior year. Note that we report on this metric annually to avoid the quarterly fluctuations with a project-based business, Additionally, I'll highlight again that we added 336 new customers. This was driven by state and local governments, service providers, Redline customers and the expansion of the store platform internationally. Given the high cost to switch, we believe that these new customers along with our backlog sets us up well for growth in fiscal year 2024 and beyond. With that, let me turn the call over to David to review our financials before coming back for some final comments. David?

Thank you, Pete, and good afternoon, everyone. During my remarks today, I'll review some of the key fiscal 2023 fourth quarter and full year financial highlights. Noting our detailed financials can be found in our press release filed this afternoon. As a reminder, all comparisons discussed today are between fourth quarter of fiscal 2023 and the fourth quarter of fiscal 2022, unless noted otherwise. For the fourth quarter, we reported total revenues of $91.2 million as compared to $77.4 million for the same period last year, an increase of $13.8 million or 17.8% and driven by strong growth in all regions. North America, which comprised 60% of our total revenue for the quarter was $55.1 million, an increase of $6.4 million or 13% from the same period last year, driven by our private networks and Tier 1 business. International revenue was $36.0 million for the quarter, an increase of $7.4 million or 25.8% from the same period last year, with particular strength in the Middle East and Latin America. As Pete mentioned, our backlog grew 18% to $289 million continuing our trend of trailing four-quarter book-to-bill ratio above one, started back in fiscal 2018. Gross margins for the quarter were 35.8% and 36.2% on a GAAP and non-GAAP basis as compared to 35.5% and 35.7% in the prior year. The improvement in gross margin was driven by better price cost dynamics, partially offset by regional mix. Fourth quarter GAAP operating expenses were $26.3 million, an increase of $4.1 million from the prior year. Fourth quarter non-GAAP operating expense, which excludes the impact of restructuring charges, share-based compensation and deal costs were $22.0 million an increase of $2.5 million. The increases in both GAAP and non-GAAP operating expenses were primarily due to the addition of Redline, while GAAP was further impacted by M&A expenses related to our acquisition of NEC's microwave transport business. Fourth quarter GAAP and non-GAAP operating income were $6.3 million and $11.0 million compared to prior year GAAP of $5.2 million and non-GAAP of $8.1 million or increases of 20.6% and 34.9%, respectively. Fourth quarter tax provision was $2.4 million compared to $2.8 million last year. As a reminder, the company has $500 million of NOLs that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future. Fourth quarter GAAP net income was $3.3 million as compared to $4.5 million last year, which included a onetime gain of $2.6 million on marketable securities that did not repeat. Fourth quarter non-GAAP net income, which excludes restructuring charges, share-based compensation, M&A-related costs and noncash tax provision was $10.3 million compared to $7.8 million for the same period last year, an increase of $2.5 million or 32.1% driven by growth and margin expansion. Fourth quarter non-GAAP EPS came in at $0.87 per share on a fully diluted basis compared to $0.67 per share for the same period last year, an increase of 29.9%. Adjusted EBITDA for the quarter was $12.6 million, an increase of $3.4 million or 37.5% from the prior year. Adjusted EBITDA margins were 13.8% for the quarter. Moving on to the balance sheet. Our cash and marketable securities at the end of the fourth quarter totaled $22.2 million with no debt, up from a net cash position of $16.2 million in the prior quarter. Fourth quarter cash flows from operations were $7.4 million, driven by a significant improvement in our inventory levels from $40.9 million in Q3 to $33.1 million in Q4 as we consume some of our buffer stock that helped us navigate the supply chain issues of the past two years. We made good progress in terms of DSO. Our net DSO declined by five days versus Q3. Note that net DSO includes trade AR and unbilled balances net of advanced payments and unearned revenue and is a key indicator of our working capital efficiency. Our balance sheet remains very solid, leaving us well positioned to execute our long-term plans. With that, I'll turn it back to Pete for some final comments. Pete?

Thanks, David. Before opening up for Q&A, I'd like to put some context around the demand environment, summarize our fiscal year and provide a few updates. Over the past several months, we have received many calls focused on the channel dynamics of microwave compared to fiber. We see vast differences in the channels, and we'll detail three distinguishing characteristics. First, throughout the supply chain crisis. The largest constrained impact in the quarter was less than $2 million in Aviat revenue. With this ability to meet demand, we never experienced the order pattern witnessed in the fiber space. The fiber space experienced many instances of double order. Our lead times prior to the supply chain crisis and today are similar. Note that prior to the supply chain crisis during the crisis, and today, we can book and ship certain orders within a given quarter. As a result, our customers did not place duplicative orders in an attempt to see which order was filled first. Second, Aviat's business is approximately 60% private networks. The majority of these customers are government entities and utilities. Due to the critical nature of these customer networks, the customers expect to be prioritized. At the outset of COVID before the supply chain crisis, we ramped our inventory purchases to support mission-critical networks. As a result, we did not disappoint our customers and double ordering did not ensue. Third, many of Aviat's customers operate small and medium-sized networks. These networks are often sourced to a single supplier. As a result, the probability of substitution is low. This strongly discourages double ordering that prevailed in the fiber space. Further, we have excellent insight into our largest mobile network operator since we performed the installations. Lastly, the Aviat store holds inventory for ISPs. As a result, our customers do not have an incentive for double ordering, and we have reasonable knowledge of the inventory held at our customers. We will close this discussion with a comment related to the fiber versus microwave comparison as it relates to CapEx spending. As noted previously in the call, we observed the headlines that US Tier 1 CapEx spending is declining year-over-year. Aviat is undeterred since network builds typically proceed with fiber first, followed by microwave. Therefore, this mixture of CapEx spend is shifting to favor Aviat's microwave. Fiscal year 2023 represented a significant year for Aviat Networks. The company continues to grow. We successfully integrated our first acquisition in greater than 10 years with Redline Communications and achieve results ahead of our financial model for this acquisition. We announced the NEC microwave transport acquisition, which builds on the 2019 North America channel partnership. Our strategy has expanded. Historically, we have focused on growth in private networks, Tier 2 and ISPs. As we have developed a portfolio and our value proposition, we have the wherewithal to pursue and win select Tier 1s. We now include select Tier 1s in our overall strategy. As an update on the NEC transaction, we currently expect the transaction to close in the October to December quarter, subject to regulatory approval and customary closing conditions. Aviat remains focused on our growth drivers of 5G, rural broadband and private networks. The 5G upgrade cycle is still early. In rural broadband, there is significant government funding in the US and other select countries that aim to expand the availability of high-speed Internet access. Aviat is well positioned to address this market and we see these government efforts as a positive catalyst for our business. Lastly, we see increasing demand for private network builds for critical communications and data needs. Based on the company's outlook, we are establishing our fiscal year 2024 guidance exclusive of the NEC business. We will update our guidance upon closure of the NEC transaction. Revenue for fiscal year 2024 to be in the range of $367 million to $374 million and adjusted EBITDA to be in the range of $51 million to $56 million. Based on the current weather pattern, order pattern and record backlog, we expect revenue to build through the fiscal year. Our business comps on an annual project basis rather than a sequential quarterly basis. We expect our first quarter to show modest growth compared to fiscal year 2023. Second quarter was strong growth. Third quarter, again, modest and the fourth quarter will be our strongest. We will revisit guidance as the year develops, and we work with our customers on the timing of our backlog. With that, operator, let's open it up for questions.

All right. [Operator Instructions] Our first question will come from the line of Scott Searle from ROTH. You may begin.

Hey, good afternoon. Thanks for taking the questions. Nice job on the quarter and appreciate the color. Pete, maybe to start on the gross margin front, it looks like product had a good quarter. Services, a little bit of a softer quarter. I know that really tends to depend on mix. I was wondering if you could elaborate a little bit more on that if there's anything to read into the quarterly changes? And how should we be thinking about gross margins looking out at the September quarter?

Hey, Scott, it's David. I'll take this one. So, yes, I think I wouldn't read too much into the mix between service and product, right? We disclosed it separately because those are the rules. But in reality, as a project-based business, we tend to evaluate it at the project level, irrespective of whether services margins for one project or higher loan or vice versa for equipment. From a kind of an overall outlook standpoint and sequential outlook, we did have some fairly large projects that were somewhat dilutive to our overall margins. But we think the inflation cost and price dynamics are kind of moving in our favor now. We did experience a bit of margin improvement quarter-over-quarter sequentially, and we would expect that trend to continue. As we look out into FY'24, I think we'd be looking at kind of a somewhat similar trend of growth overall that we saw from Q3 to Q4, I think, is a reasonable guideline. We expect hope it's stronger, but I think that's good.

Great. Helpful. And Pete, maybe if I could, you spent some time talking about RDOF and BEAD, but ARPA funding has really been starting to filter into the results. I think there have been a number of wins, whether it's coming from various public safety, utility or, in some cases, tribal lands. I'm wondering how that pipeline is looking and how important that is as we look out to the fiscal '24 timeline?

Yes. So I think we had a -- thanks to everyone for listening to our prepared remarks, went a little long. We cut the tribal lands part of the script. So we see strength there. With respect to the ARPA funds they need to be used by December 31st, some other researches out there that has said that only less than 10% of that is -- has been spent. So we think that, that is going to bode well for our growth going forward. And we -- when we win projects, we -- our backlog is up significantly. Sometimes we know that it's ARPA funds and sometimes we don't. But our private network backlog is at a record demand, and we would think that part of that is -- could be tied to the ARB allocations

Great. Helpful. And lastly, if I could, just to follow up on the NEC transaction, it sounds like that's still tracking expectations for the October, December time frame. I wonder if you could just elaborate and reiterate what the expectations were. You had some goals in terms of cost cutting, some gross margin, et cetera. I'm wondering if you could just give us a quick update in terms of your latest thoughts on that front and how you're feeling about customer retention? Thanks.

Yes. So we -- when we put the -- when we announced the transaction, we thought -- we thought about customer retention, and we said that we were going to do in the first 12 months after close, $150 million in revenue. We said that we wanted to get to by the fifth quarter to make it accretive and exiting the second year, we wanted to get it into the 11% to 13% EBITDA range. So I would say that we feel good about all of those commitments. And what we will definitely do is as we close the transaction, we will update our overall model. And what I have to say is NEC has been extraordinarily cooperative in the interim period. And that collaboration bodes well for certainly exceeding our profitability targets.

Great. Thanks so much. I'll get back in queue.

Thank you. One moment for our next question. And our next question comes from the line of Erik Suppiger from JMP Securities. Your line is open.

Yeah, thanks for taking the question and congrats on a good quarter. First off, that backlog number, is that going to continue to grow from these levels? Or is that a seasonally move to then it comes back to get into the Q1? And then I have a follow-up question.

Yeah, so on the backlog, right, we have a project-based business. So we only disclosed the backlog once every 12 months. So I think we see our funnel with just 12 months from now, the backlog should be greater than $2.89 million, but we basically provide that insight, once a year in case that's what we do. David, do you have something to add?

Yes. No, I think just to add to that, our goal is to maintain a book-to-revenue ratio above one on a trailing 12-month basis, which says that our -- essentially our orders are growing faster than our revenue overall.

Okay. And then secondly, just on the funding environment. Do you have a sense -- and I'm speaking more on the rural broadband side. How much of your how much of the projects that you're working on at this point do you think they are getting funding from RDOF and BEAD or some of the available funding out there. How much of the market is that influencing at this point?

That's hard to say. What I can point to is last quarter, we said that we had orders from four of the largest RDOF recipients. They were small in nature and those projects are continuing. I would also say in the script, we mentioned $10 million or so of blanket purchase orders. We see the rural broadband demand environment improving and what I would say, we don't know is how long some of those RDOF recipients, how long it's going to take to convert what we see as design activity into the volume purchases.

Very good. Okay. Thank you.

Thank you

One moment for our next question. And our next question will come from line of Jaeson Schmidt from Lake Street. Your line is open.

Hey, guys. Thanks for taking my questions. Just curious if you could provide an update on the Redline business. It sounds like you continue to see a really good traction there. It outperformed your expectations. But what's the funnel look like for fiscal '24?

Here's what I could say. We don't have the funnel broken down right in front of us. But what I can say is the first year, what we did was we stabilized the business. We took out the Canadian public listing cost, so -- and that went better than expected. And year two of their ownership we're starting to recognize cross-selling opportunities, right? So selling Aviat product to Redline customers and vice versa. And then thirdly, in the last 90 days, we announced -- or approximately 90 days, we announced putting our network management software on the Redline products, which we think over the next six months, we'll start to land some of those and we'll drive some additional margin expansion.

Okay. That's helpful. And then just as a follow-up, how big of a contributor was the Aviat store in fiscal '23 or just Q4?

In the fiscal year, it was about 8% to 9%, pretty similar to contributor as last year.

Okay, perfect. Thanks a lot guys.

One moment for our next question. And our next question will come from the line of Theodore O'Neill from Litchfield Hills Research.

Thank you very much and congratulations on the good quarter, Peter.

Thanks, Theodore.

First question on guidance. If I take the midpoint of the range of guidance for sales and EBITDA, it implies EBITDA grows twice as fast as revenue. What's the driver for that?

Yes. So look, we've had an emphasis on profitable growth since I arrived here, and that's what we're continuing to do. We think a favorable mix driven by North America private networks adding more software into the mix and we get leverage out of our increase in volume. And that -- all of that doubling on the midpoint of profitability versus top line growth is also while we plan to invest in R&D. So I think that our plan is to execute that and I really think that's an insightful question. Theo, thanks.

Okay. On the BEAD state allocations, I've read that New Mexico and Minnesota are saying that if they do an all allocation to fiber, they're not going to reach the goals of getting everyone on to broadband. Does that create an opportunity for microwave? And also if it does, is there some selling effort that needs to go on to make that happen?

Okay. So let me talk about the selling effort first. The reason Aviat's excited, but it's early days for -- it's a little bit premature for BEAD is Aviat's best relationships out of all of our customers are with state governments. And that's due to our 911 first responder private network business. So that -- so we are really excited about what Minnesota and New Mexico and the seven congressional representatives that we cited at. So we think that this is a -- BEAD is a great opportunity for us albeit a little bit out in time. And then the comments on fiber being too expensive, it is. There was a -- there was a congressional rep from Kentucky basically said, are we going to really run fiber to seven homes. So -- and what Minnesota and New Mexico said is that fiber is too expensive. And certainly, to connect low-density end points, it doesn't make sense. So we see that this as an opportunity. We see states starting to say they'll get more mileage for their money using wireless and we're starting to see it in Congress. So we think that this is a fantastic development, and we just need to continue to use our sales channel that carries the 911 private network business. It's for the same state, the same procurement organization. We think we're well positioned.

Okay. My last question is that last week, the FCC granted special authority to AT&T to use microwave backhaul in Maui because the cable network infrastructure was destroyed. Are you seeing any increase in like weather disaster awareness among your clients as a possible sales benefit for use in microwave? Or is this just something that always happens whenever there's a disaster?

So this happens typically in disaster, right? So we -- so we have network in -- on Maui. What we did for the customer when this happened was -- so it's not the AT&T deployment, but it's the utilities we help monitor their network. We recommended the damage that they had, how they should respond from a networking perspective. We do this when Hurricane's hit, we did this with the Nashville bombing issue. So here's one of the thing that I'd like to emphasize. The reason microwave has traction in situations like this is because it's faster deployed and it's actually more reliable than fiber.

Okay. Thank you very much.

One moment for your next question. And our next question will come from the line of Tim Savageaux from Northland Capital Markets. Your line is ready.

Great. Thanks and congratulations on your third year of double-digit revenue growth. And on the order growth in particular, which looks to be when you start with the two, given the strength in backlog that you reported. And so I'll kind of ask my annual fiscal year-end question about, well, a couple of things really about that order growth and backlog growth relative to what you're guiding to from a revenue growth perspective, you're trying to relate those two items. And then as you look at the fiscal '23, you're kind of flattish in the U.S. and big international growth based on the order book or any other visibility you might have, how do you expect that to change into '24, I guess, given what you're seeing from a backlog perspective? I'll follow up on that.

So with the backlog -- the growth in backlog was the principal driver of that was growth in North American private networks, right? So '23 was flattish in North America, and we see North America, the demand environment picking up. So we'll get a bigger contribution from North America than we did in '23. We also think that, that favors margin growth. And then in terms of how to think about the backlog and trying to roll out a couple of sentences around the guidance. We did -- in the recently completed quarter, we did see some big projects come in, the statement about wanting to look at how the customers' projects develop is really related to how fast we get to the design fees and how fast we get that to revenue. And if that -- if the customers want to move quickly, then we will, as the year progresses, update our guidance. And if they kind of go at a slower pace then we'll leave the guidance as is. But we're hopeful, Tim.

Great. Can you - is it -- at this point, can you say that you expect on a percentage basis faster growth in North America than international?

I wouldn't go that far because you've got kind of a rule of big numbers working against North America a little bit. But I think it should be closer.

Got it. And Pete, you mentioned that as you look forward with a greater North America contribution. You would expect that to be accretive especially in private networks, you expect that to be accretive in gross margins. That's sort of what we saw Q3 to Q4, both a pretty big volume increase and positive mix shift to North America. And yet we didn't see much in the way of gross margins. You may have touched on it already, but if we can just kind of dig down on that is why we didn't see more gross margin expansion given those 2 positive kind of mixed dry, well, one volume, one mix, I guess, two positive drivers.

Yes. Well, the mix actually went against us in Q4 a little bit, right? I mean there was a regional mix component certainly with North America returning to root that did help us, but there was kind of a broader headwind within our overall product mix. And it could be for this business, it could be a little volatile, right, because we do have a large software component. If that fluctuates quarter-to-quarter, that can swing at 20, 30 basis points. So I think there wasn't anything. The dynamics behind Q4 were positive. We expect that kind of level of improvement to continue. And yes, we'll take it from there.

Okay. So just lower software revenue, I guess, is that my takeaway there?

Yes.

Okay. Sounds good. And maybe last question for me. I don't know if your terminology has changed, Pete. I think last quarter, you -- with regard to the Huawei replacement pipeline, you talked about bookings, revenues and backlog and eventually, we got that all the foot. Here now you're talking about funnel of $80 million, I think, versus our commentary on bookings of $50 million last quarter. I don't know if those are two different things. Your backlog would suggest bookings of $58 million or whether the funnel has expanded and you're just giving us a broader sense of the opportunity?

The funnel has expanded. So we're giving you a broader sense of the opportunity. Yes. So to be specific in last quarter, what we wanted to communicate was at the end of Q3 year-to-date revenue of 14.5%, and we have bookings of 36.1% and a funnel of 50.5%. And now we would say that bookings are about the same revenue went to 24% and the overall funnel is 82%. So we see the opportunity building there.

Sorry, I was on mute. That's good for me. Well, I guess one other factor I might have expected to -- from a mix standpoint, where you'd see higher North America and yet not much impact in gross margins. I might have assumed that was maybe a lot of Verizon coming in at year-end at lower margins. But it sounds like that's not the case.

That's actually a fair statement, Tim.

It was a contributing factor, yes.

Yes. And so I would say that your suspicion is true. And I'd also like to say that with the Wall Street research Tier 1 CapEx. Our biggest domestic Tier 1 customer was strong and continues to be strong.

Got it. And I guess real last question for me. Strong enough to make it on the 10% list for the year or did you have anyone else getting to 10%?

No. We have not -- no 10% and for the quarter or for the year.

Great. Thanks very much.

One moment for our next question. And our next question will come from the line of Dave Kang from B. Riley. Your line is open.

Thank you. Good afternoon. First question is on the NEC acquisition. Just wondering if their trailing 12-month revenue change materially since they have a greater exposure to service providers compared to you?

So no. So they're not -- they're -- their TTM data has not materially changed from the time that we put together our investment thesis.

And also going forward, you don't expect any material changes?

No, we don't. And recently, I visited their largest customer. Yes, I visited their largest customer, and they're within 1% to 2% of what we modeled. So here, I'll go further. The second biggest region, our leader was there today, and they're within percentage points of the way we modeled it. So I would say the data we used in our investment thesis remains intact.

Got it. And then on Bard, I guess, just try to find out what inning are we in? Some are saying just getting started. Some are actually saying things have plateaued out. So what do you see from your side?

We expect significant growth from Bharti Airtel in fiscal year '24, both top line contribution and when we took that business, we said that it was low margin, and we've been able to execute on our value engineering projects. So we expect that we'll get some margin lift as that demand materializes. So we feel good about that.

Got it. And then my last question is for David. What was CapEx for the quarter? And what do you think -- what's your projection for the year?

Okay. So for the quarter, it was, I think, about $400,000. Just verify that cash flow. But -- and then for FY'24, it's going to be a little bit higher this year. We finished FY '23 with CapEx of $5.3 million. We've got in our plan around 6% to 6.5% for this year as we do have some refreshment investments coming up, but nothing out of the ordinary.

Got it. Thank you.

Thank you. And one moment for our next question. And our next question will actually be a follow-up from Scott Searle from ROTH Capital Markets. Your line is open.

Hey, Pete, just to quickly follow up on a couple of geographic questions. You talked about the cadence of network builds being led by fiber and then the evolution to wireless transmission of backhaul. Looking at DISH, they've gotten to the 70% POP coverage mark now it gets a little bit more difficult in terms of covering those incremental POPs. I assume that's basically a commentary around that and the expansion going forward will have more microwave links in it. So I'm wondering if you're seeing more on that front, kind of what your broad-based expectations are for the upcoming fiscal year? And then two, looking at Europe, it continues used to be a very small portion of the mix. They're behind from a 5G build standpoint and wireless transmission has always been a big component of those network builds. It always seems like you guys are kind of on the cusp of some business expanding there. I'm just wondering what your high-level thoughts are in terms of growing that as an opportunity? Or should we not be planning on some future growth and contribution coming from European arena? Thanks.

Yes. Okay. So first DISH, right, to restate DISH, we met the federal deadline to cover 70% of the US population by June 30. DISH looks to be taking a breather on CapEx for the first six months of our fiscal year, and we expect the microwave rollout to really start in the January to March quarter and we feel like we're well position. So that's what I would say about DISH. I would say, in the Europe region, we have a couple of big projects. We see some weakness from the -- one of the specialists that's headquartered in Europe. And we think that, that will help drive double-digit growth in Europe in fiscal year '24. So there's a little color.

Great. Thanks so much.

Thanks.

Thank you. And that will conclude Q&A for today. I will now turn the call back over to Peter Smith for any closing remarks.

Yes. Well, thanks to our shareholders and the investment analysts for joining the call, listening to our extended remarks on our fiscal year '23. We think it was a great year. We look forward to providing an update on the next quarter in the next 90 days and hopefully getting to close in a short amount of time and giving an update on the NEC wireless transport transaction. Thanks. Thanks, everyone. Talk to you soon.