Q1 2024 Aviat Networks Inc Earnings Call
Participants
Andrew Fredrickson; Director of Corporate Development & IR; Aviat Networks, Inc.
David M. Gray; Senior VP & CFO; Aviat Networks, Inc.
Peter A. Smith; President, CEO & Director; Aviat Networks, Inc.
Erik Loren Suppiger; MD & Equity Research Analyst; JMP Securities LLC, Research Division
Jaeson Allen Min Schmidt; Senior Research Analyst & Director of Research; Lake Street Capital Markets, LLC, Research Division
Ku Kang; Senior Research Analyst of Optical Components; B. Riley Securities, Inc., Research Division
Scott Wallace Searle; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division
Theodore Rudd O'Neill; CEO & Research Analyst; Litchfield Hills Research, LLC
Timothy Paul Savageaux; MD & Senior Research Analyst; Northland Capital Markets, Research Division
Presentation
Operator
Good afternoon. Welcome to Aviat Networks First Quarter Fiscal 2024 Earnings Conference Call. (Operator Instructions) Please note this conference is being recorded.
I will now turn the conference over to your host, Mr. Andrew Fredrickson, Director of Investor Relations. You may begin.
Andrew Fredrickson
Thank you and welcome to Aviat Networks first quarter fiscal 2024 results conference call and webcast. You can find our 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. 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 for the 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 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 actual results to differ materially from the statements made on this call can be found in our most recent Annual Report on Form 10-K filed with the SEC. 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 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, Pete Smith. Pete?
Peter A. Smith
Thanks, Andrew, and good afternoon, everyone. Thank you for joining us to review Aviat Networks' results for the fiscal first quarter of 2024. I'm pleased to report that Aviat continued its strong execution and achieved revenue and profitability expansion in the quarter.
Highlights from the first quarter include revenue of $87.6 million, which represents growth of 7.8% versus Q1 of last year. Adjusted EBITDA of $12.1 million, a 13.1% increase versus Q1 of last year. Non-GAAP EPS increase of 16.0%. Strong cash generation in the quarter. Aviat generated operating cash flows of $14 million and ended the quarter with $35.5 million of cash and marketable securities and a debt-free balance sheet. These financial and operational results are driven by the continued implementation of Aviat's operating system and made possible, thanks to the effort and execution of the Aviat team and our partners throughout the quarter.
Let's discuss the key highlights of the first quarter. Aviat's exposure across different verticals, geographies, and customers has made our business strong and diverse. We continue to see healthy demand in private networks, mobile networks, and rural broadband networks. In private networks, we continue to innovate in North America. Aviat's sales in this region grew 14% in the quarter versus the same period prior year, thanks in part to the strong private network demand environment. We have executed well and have grown a robust project backlog. We had a record Q1 private network bookings, and remain excited about the outlook of this segment.
Increasingly, states are turning directly to Aviat for our expertise. Recently, we announced wins of 2 large state -- public safety networks, which are examples of this trend. These projects are made possible by the full breadth of products and services that Aviat offers. High-power microwave radios, high-availability routers, and management software, along with turnkey services for design, installation, support, and ongoing managed services. This full suite of solutions is why Aviat is the leader in private networks. We believe that demand environment in private networks will remain robust in the quarters and years ahead.
State and City budgets remain strong and growing in the current fiscal year. State public safety spending is expected to grow ahead of overall budget rates, and city, police, and fire spending is growing faster this year versus the prior 2 years. Additionally, American Rescue Plan Act funds, or ARPA, which are now fully distributed to the states, are still in their early stages of utilization. These funds must be spent by the end of calendar year 2026. We expect this will provide a meaningful tailwind to private network expenditures.
We continued our momentum and had a very strong quarter in federal government projects. Our revenue from federal business over the last 12 months has nearly doubled compared to the prior 12-month period. Based on our bookings and the long lead time nature of these projects, we expect the recent strength in this segment to continue in the quarters ahead. We anticipate a short- to medium-term federal shutdown would have a minimal impact on our federal project business.
Mobile network operators continue their investment in building the microwave portion of their 5G networks, both in the U.S. and Internationally. Aviat's unique product portfolio continues to attract operators by lowering their total cost of ownership and improving network performance. We are still early in the adoption of global 5G, and we expect continued investment in microwave networks to support growing needs from both customers and business enterprises.
In the U.S., the mix shift to microwave as the mode of backhaul is favorable. In this regard, a U.S. Tier 1 customer was significant for Aviat in the quarter. We believe that as the 5G build-out extends beyond urban areas, we will continue to see demand for our microwave products and services.
Internationally, operators are planning and growing their 5G deployments, and we are focused on winning new business and projects.
In our rural broadband business, Aviat continues with our distinctive e-commerce platform and had a strong quarter of Aviat's store performance. Wireless Internet service providers and others continue to invest and plan for funding from the Rural Digital Opportunity Fund or RDOF and Broadband Equity Access and Deployment Program or BEAD.
There has been recent commentary from several states who are considering or plan to employ technological neutrality in BEAD-related projects. This is a positive development for the use of wireless backhaul as microwave is typically a more cost-effective technology than fiber for rural communities while still providing low latency, high reliability and a high bandwidth. This would be a win-win for citizens and states as microwave can be deployed faster than fiber while providing the bandwidth and speed needed. This also allows states to stretch their BEAD funding dollars further.
We are well-positioned to capture this business as we are already working with states and service providers alike to ensure Aviat is ready to supply these critical infrastructure projects. At the beginning of October, Aviat attended WISPAPALOOZA, an annual wireless ISP and rural broadband convention where we were encouraged by the upbeat tone of network operators.
Deployments remain healthy and fixed wireless access continues to grow. We believe that the expansion of the 6 gigahertz frequency for unlicensed broadband services, which should be authorized by the FCC by the end of the year, will drive further uptake in wireless access. This is important for Aviat as fixed wireless access networks tend to use microwave as their backhaul at a higher rate than fiber-to-the-home networks.
Given the recent turbulence and the network equipment space, let me emphasize why Aviat's demand environment remains strong and we continue to execute on our growth plans. First, as I opened with, Aviat's business is diversified between the segments we serve; private networks, mobile network operators, and rural broadband operators do not follow the same CapEx cycles. Additionally, Aviat benefits from our direct-to-the-customer channel rather than relying on distributors. Roughly 90% of our business is direct. This allows us to have intelligence from customers about their needs and business forecast. This also eliminates the risk of inventory buildup at distributors, which many companies are currently experiencing. This visibility allows us to better serve the customer and keep a pulse on market demand, which feeds into our new product and service development process.
Many network equipment providers, particularly fiber players, have struggled with their supply chains over the last couple of years and have recently experienced softening demand as a result of the overordering that occurred. I spoke at length about this on our last earnings call, and these factors remain true today. Aviat has been able to avoid this problem and continues to execute favorably because of our supply chain resiliency over the last 3 years and our direct relationships with our customers.
Our supply chain environment is normalized and we remain committed to constantly improving our performance. We are confident in our ability to meet customer demand and support our growing markets. Not only has near-term demand remained strong, but we also see our total addressable market growing over the long-term.
Historically, Aviat has been viewed as a microwave business, serving a $3.2 billion market. To better serve our customers, we have added routers, managed services, and software to our portfolio. Our recent tuck-in acquisition of Access products expanded the markets we can serve. As a result of the acquisition and our organic investments, our business today serves a TAM of greater than $11 billion. We believe that our current TAM will grow at 7% through 2027 to become a $15 billion market. This growth is driven by increasing data consumption on global networks, and significant investments in private LTE and 5G networks. We expect our TAM to continue to expand as we find new ways to serve our customers.
To continue our share gain plans, maintain our TAM, and respond to recent investor inquiries, we will provide an update on our roadmap and semiconductor modem plans. Our roadmap is focused on the following factors, capacity, distance, total cost of ownership. Today, Aviat delivers industry leading capacity of distance and our customers enjoy cost of ownership benefits. For example, today we provide 5 gigabits per second radios at 40 plus miles, 10 gigabits per second radios at 20 miles, and 20 gigabits per second radios at distances shorter than 3 miles, 1 of 2 such radios available in the market.
While capacity is on the mindset of many technologists and investors, the 20 gigabits per second radio represents very little of our total demand. Extending beyond this capacity in any meaningful way requires new bands like D-band, which I will touch on in a moment. The principle access of innovation is to deliver customer-acquiring capacity at increased distances at the lowest total cost of ownership.
The path to achieve this key innovation requirement is the integration of switch technology, modem technology, and the microprocessor. In our view, the best way to achieve integration is with an economical advanced semiconductor technology node or said another way, geometries. The better semiconductor technology node permits increased functionality, integration, and lower power consumption. We believe our roadmap has advantages here.
Beyond capacity, distances, and cost of ownership, roadmap discussions often mention spectrum frequency ranges or bands. Our roadmap will support products where spectrum is currently available and where spectrum is anticipated to be available in the coming years. Recently, one of our competitors highlighted D-band spectrum as a 6G product targeting 2030. We tend to agree, and we will be ready.
With that, let me turn the call over to David to review our financials before coming back for some final comments. David?
David M. Gray
Thank you, Pete, and good afternoon, everyone. During my remarks today, I'll review some of the key fiscal 2024 first quarter financial highlights, noting that 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 2024 and the first quarter of fiscal 2023, unless noted otherwise.
For the first quarter, we reported total revenues of $87.6 million as compared to $81.3 million for the same period last year, an increase of $6.3 million or 7.8%, driven by strong growth in the Americas and Europe. North America, which comprised 63% of our total revenue for the quarter was $55.5 million, an increase of $6.7 million or 13.6% from the same period last year, driven by our private networks and Tier 1 business.
International revenue was $32.1 million for the quarter, a decrease of $0.3 million or 1.1% from the same period last year. Strong growth in Latin America, the Middle East and Europe was offset by cyclical weakness in African mobile operators' CapEx spending. Our trailing 12-month book-to-bill ratio remained above 1, as it has since fiscal 2018. Gross margins for the quarter were 36.4% and 36.6% on a GAAP and non-GAAP basis, as compared to 36.3% and 36.5% in the prior year. The improvement was driven by strong growth in higher-margin North America business.
First quarter GAAP operating expenses were $26.3 million, an increase of $0.8 million from the prior year. First quarter non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation and deal costs were $21.3 million, an increase of $0.9 million. The increase in both GAAP and non-GAAP operating expenses were driven by higher investment in R&D. Our disciplined cost management continues to deliver operating leverage on revenue growth. First quarter GAAP and non-GAAP operating income were $5.5 million and $10.7 million compared to prior year GAAP of $3.9 million and non-GAAP of $9.2 million or increases of 41.8% to 17.7%, respectively.
First quarter tax provision was $0.6 million compared to $3.9 million last year. Last year's figure included a onetime discrete charge of $2.6 million related to a legal entity restructuring. As a reminder, the company has nearly $500 million of NOLs that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future.
First quarter GAAP net income was $4.0 million as compared to a loss of $2.7 million last year. Last year's results included a onetime loss of $1.7 million on marketable securities and the previously mentioned discrete tax provision charge. First 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 $8.8 million for the same period last year, an increase of $1.5 million or 17.6%, driven by revenue growth and margin expansion.
First quarter non-GAAP EPS came in at $0.87 per share on a fully diluted basis, compared to $0.75 per share for the same period last year, an increase of 16%. Adjusted EBITDA for the first quarter was $12.1 million, an increase of $1.4 million or 13.1% 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 first quarter increased to $35.5 million from $22.1 million in the prior quarter with no debt. The $13.3 million increase in cash for the quarter was driven by a solid profitability, coupled with improvements in accounts receivable and inventory balances. Our balance sheet remains very solid, providing us with flexibility to continue executing our long-term plans.
With that, I'll turn it back to Pete for some final comments. Pete?
Peter A. Smith
Thanks, David. Before opening up for a Q&A, I'll provide a few updates and closing commentary.
First, I would like to thank Jim Stoffel for his years of service as an Aviat Board member. Jim served on our Board of Directors for over 16 years. During that time, he helped navigate Aviat from the merger that created the company through to the exciting position we are in today as the leading wireless transport company. His leadership and knowledge have been a tremendous asset, and we thank him for all his contributions to the company.
Second, we currently expect the NEC transaction to close in December 2023. We continue to progress on regulatory approvals, and the exact date remains subject to customary closing conditions. We can add some qualitative updates.
The integration planning is progressing smoothly. Based on our learnings to-date, we now believe that the transaction will be accretive in the fourth quarter after close, as compared to the fifth quarter previously stated. Based on the company's outlook, we are affirming our fiscal year 2024 guidance, exclusive of the NEC business. We will update our guidance to include the NEC business after the closure of the transaction.
Note that our guidance is on a full-year basis and reflects the project basis of our deployment. In Q1, we had a few projects that were accelerated and positively impacted the quarter. Based on the current project pipeline, we expect Q2 to be sequentially up from Q1. To reiterate, our fiscal year 2024 guidance is as follows: revenue 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.
With that, operator, let's open up for questions.
Question and Answer Session
Operator
Thank you. (Operator Instructions). One moment for our first question. Our first question comes from the line of Scott Searle with Roth.
Scott Wallace Searle
Pete, Dave great job on the quarter. Maybe just to start, Pete, it sounds like you've got a high degree of confidence in terms of the near-term and intermediate-term outlook, which is really divergent from what's going on in the rest of the world. I didn't hear India as part of your commentary. I was wondering if you could give an update there.
And then looking at the private networks business, it seems like there continues to be a lot of strength there. How far out do you have visibility on that front? And, you know, looking at your fiscal '24 guidance, I was wondering what are the swing factors to the upside? You've been pretty conservative, I think, in terms of how you look to the outer quarters and guide for the year. I'm wondering what the factors are that would help you out to the upside of the range that you've provided.
Peter A. Smith
Yes. I think just thinking about India, We see probably 30% year-over-year growth. What quarter that didn't hit in this quarter, and it's probably more likely to be in the January to June timeframe. So we see India as being solid.
With respect to visibility in the private network space, we came in with a tremendous growth in backlog, our July 1 to June fiscal year. Again, this quarter, we were pleasantly surprised that our bookings of North America private networks were the highest they've ever been in a first quarter for Aviat. And that gives us a confidence boost in the business in the medium to long term, because those projects typically -- if we get a booking right now, we go into a design phase, and revenue can start 1 quarter to 3 quarters later. So we think that, that is going to play out, and our backlog mostly would cover the next 12 months, the next 24 months, and very little goes past the 24 month period. So I think you might ask 3 questions, and I hit on 2 of them, so.
Scott Wallace Searle
Yes. Just swing factors to the upside, Pete. What are you seeing? Because like, it seems like we're early days in terms of ARPA contribution and RDOF. I don't know if there's a number or percentage of the mix that you could quantify now, but it seems like it's early stages on that front. But looking to fiscal '24, where do you see the swing factors to the upside?
Peter A. Smith
Yes, so we've seen some small design orders with respect to the RDOF. And we would say that the RDOF funding looks like we'll get some more of it in the January to June timeframe. The, you know, in the quarter, we announced 2 large public safety wins. We think some of that came from ARPA. We see a lot of the ARPA money as being unspent and stretching out, needing to be spent by the end of 2026. So we think that that's going to be good. And more immediate data, we really didn't expect to have record private network bookings in North America in our first quarter, and we did. So, we think we're starting to see ARPA impact the demand environment, and we think it'll grow going forward.
Scott Wallace Searle
Great. And lastly, if I could, just to follow up on NEC, it's nice to see that you're comfortable enough to move up the timeline of expected accretion. But it sounds like the integration ahead of the deal closing is progressing in line to better, but I'm wondering what the response is that you're getting from customers. How are you feeling about revenue attrition? How the customers like the deal, and kind of the expectations on that front going forward?
Peter A. Smith
So, we gave that. In the past, we said that we expect there to be $150 million in revenue, the first year after close. We're still comfortable with that. So we did model in some attrition and perhaps some global Tier 1 operator softness. So we factored that into the price we paid for the transaction, the deal.
Then with respect to the customer engagement, I think the customers see a broadened portfolio from the combined entities. NEC has an incredible split down architecture and Aviat brings routers, some standalone software and access products. So, you know, we haven't factored that into the model. What we learned from the Redline transaction to get revenue synergies is probably 12 months after close. And the initial conversations with customers would indicate that that's a real possibility.
Scott Wallace Searle
Great. Nice job on the quarter and I'll get back in the queue.
Operator
One moment for our next question, please. Our next question comes from the line of Jaeson Schmidt with Lake Street.
Jaeson Allen Min Schmidt
Pete, just curious if you could provide an update on what you're seeing from that Huawei funnel. I think, last quarter you mentioned the current funnel was over $80 million. Has there been any change?
Peter A. Smith
I would say the [real] change we'd like to report is we increased our bookings from the Huawei share gain funnel by a little bit under 10%. So our bookings went up $3.3 million. So that continues to be a fruitful area for us.
Jaeson Allen Min Schmidt
Okay. That's helpful. And then, just with your commentary on India being more of a kind of January-June impact, would it be fair to expect gross margin to remain relatively flat here in the December quarter just given your mix expectations?
David M. Gray
Yes. So, our gross margin was made progress versus the prior quarter and prior year, as we said, it's the highest in 6 quarters. We expect the continued improvement and like we said -- alluded to last quarter, we expect a 100 basis point roughly improvement for the full year. Project based nature, it's not going to be a straight line, but we expect for the full year to be about 100 basis points above.
Peter A. Smith
Yes. So Jaeson, that'll depend on, kind of the India project timing as the quarter it comes in, it'll be a little bit lower. The quarter it doesn't come in, it'll be -- gross margins will be a little higher.
Jaeson Allen Min Schmidt
Okay. Perfect. And then just the last one for me, and I know you guys have sort of outlined it in the past, but just want to get another confirmation that, I mean, you're not seeing any sort of pockets of excess inventory pop up in any of the segments that you play in.
Peter A. Smith
Absolutely not. And my comment in the script was that, we covered that ad nauseam in the last session. Everything that we said about the ability to get, or the likelihood of having double orders, it's not in the microwave place. And that's why we emphasized this quarter that we're 90% direct. We do installs on our biggest customers. So, we would know if there was an inventory problem. So, I want to say unequivocally, we do not have that problem.
Jaeson Allen Min Schmidt
No, I appreciate the color. I'll jump back into queue.
Operator
One moment for our next question, please. Our next question comes from the line of Erik Suppiger with JMP Securities.
Erik Loren Suppiger
Yes. First off, you said that you had record bookings in Q1 for North America. I think you also had record revenues. Can we assume that you had a healthy backlog on top of the revenues that you had? You had an healthy addition to the backlog on top of having record revenues.
And then, secondly, you talked about some of the technology development. Can you give us an update on the modem chip that you've been developing with MaxLinear?
Peter A. Smith
Yes, so we have record North America private network bookings. Our book-to-bill is over 1, and we -- coming into the year, we had a record backlog. So we think our backlog is in great shape. Our chip development continues in a timely way. We're ready -- we will be ready to meet our customers' needs in terms of capacity, frequency, spectrum, and total cost of ownership.
One thing that I would add MaxLinear is the partnership remains solid and productive, and from a risk perspective, what has transpired as chips have "de-globalized". We've become aware of additional modem developments in Europe and in Asia that as investors have expressed some concern about any one semiconductor chip company dependency. We see the modem environment as being less risky, but with that, MaxLinear remains a great partner to Aviat, and we're jointly executing on the technology development.
Erik Loren Suppiger
Okay. And then you had mentioned BEAD. Is there any change in terms of your timing? I believe, funding for projects is probably a 2025 time frame. Is that still the expected time frame? Or is there any update in terms of your expectations for timing?
Peter A. Smith
There's a little bit in the press that will say some of it might happen in calendar year 2024. We think the BEAD impact is going to be in the January to March quarter in the year 2025. So we're unchanged on that, and I just thought I would talk about what you're reading in the press. We think it's an early 2025 impact.
So I would add one more item. 45 of the 50 states have submitted initial drafts to the [MCIA], which is the first step in unlocking the BEAD fund. So you know, I talked about the overall timing. There's a bunch of precursor steps that need to happen for BEAD, and there [is -- there are] 45 of the 50 states submitting the initial draft is progressing, and that's encouraging to meet the early 2025 impact.
Operator
One moment for our next question. Our next question comes from the line of Tim Savageaux with Northland Capital Markets.
Timothy Paul Savageaux
Congrats on the results. First, just a real quick question. Any 10% customers in the quarter? It seems like given your commentary around U.S. Tier 1 strength, that's at least a possibility.
David M. Gray
Yes. Hey, Tim, there was one around 10%, but we don't expect that to continue.
Timothy Paul Savageaux
Okay, great. Can you say whether that was U.S. or International? Or North America or International?
Peter A. Smith
It was U.S.
Timothy Paul Savageaux
Okay, great. And, Pete, I think, your 30% growth comment for India, I gather that for the fiscal year, the type of growth you're looking for, and I wonder if you might have a similar metric for U.S. rural broadband. You referenced the WISP show, and I thought there was some kind of accelerating momentum and evidence around fixed wireless after a so-so period, the last really couple of years. But and I think you've told us from time to time how fast your rural broadband business is growing in the U.S. I'm not sure you did this quarter, but any chance of getting a comparable type metric for U.S. broadband growth to the one you gave to India? I assume it might be greater, much greater potential.
Peter A. Smith
Yes. So the reason I answered the India question is because I had that prepared, but you're -- but -- so I don't have the specificity that you're perhaps looking for, but let me give a little bit of flavor. Our rural broadband business continues to be about 9%. We would say it's probably growing on the higher end or exceeding our fiscal '24 growth rate. But to be more specific, I don't have those answers in front of us.
What would accelerate it would be the RDOF funding kicking in, and we're also encouraged by the expansion of the 6 gigahertz frequency [run] license band, which, because we think that fixed wireless opportunity drives more for backhaul. So we would qualitatively agree with you. We're not ready to put a number to it, Tim.
Timothy Paul Savageaux
Okay. Thanks. And last question for me. I mean, I think you noted a pretty strong backlog, which you report once a year coming out of last quarter, and I think sort of U.S. private networks was the key driver there. And mentioned, you hadn't expected this order strength to continue, but am I right in thinking you've had I guess 2 quarters in a row here of, I don't know if you would consider above-trend type growth. And can you talk about market growth versus share gain, I guess probably versus Nokia principally as a growth driver in private networks?
Peter A. Smith
We would say it's hard to say who we're taking the share from, but we are growing above market trend in our private network business, and it's -- we would say that it's principally due to share gain. So, but I wouldn't break out who we're beating, but we know that we are taking share.
Operator
One moment for our next question, please. Our next question comes from the line of Theodore O'Neill with Litchfield Hills Research.
Theodore Rudd O'Neill
Congratulations on a good quarter. My first question is, if you could talk about your international revenue on a constant currency basis?
David M. Gray
Yes, sure. Yes, so given the strength of the U.S. dollar and some devaluations, on a constant currency basis, our total revenue for Q1 would have been up by 8.9% versus 7.8%. That's not something we've typically discussed or disclosed or framed in that way previously. It hasn't had that material of an impact, but with the advent of NEC, we'll probably start talking about that in a little bit more detail going forward because it will become a bigger, a slightly bigger factor in this business.
Theodore Rudd O'Neill
Why will it become a slightly a bigger factor?
David M. Gray
Well, because more right now, only 10%.
Theodore Rudd O'Neill
More International [deal]. Yes.
David M. Gray
Yes. Only 10% of our revenue currently is denominated in non-USD currencies, right? And most of that is for services where the cost of goods sold is incurred in non-USD currency, so it's well matched there. With NEC, they historically have had more revenue in local currency, whether it would be for product or services, we'll work to migrate that to more of our SOP. But for the near term, that might become a bit more of a factor for us.
Theodore Rudd O'Neill
And on the same subject, do you pick up more -- do you add Salesforce from the NEC acquisition?
Peter A. Smith
Yes, absolutely. So we will pick up about 200 employees with a lot of, I would say, the lion's share of those employees being sales or sales support or network engineers to support sales.
Theodore Rudd O'Neill
Okay, great. And you've made some great progress on bringing down accounts receivable. And I was wondering, do you have a target for that? For, like a DSO target that you're trying to hit?
David M. Gray
Yes. I think, like we said previously that our long-term net DSO target, this is net of unearned and advanced payments, we want it to be around 80 days, right? And I think we can get there in the fairly near term. I won't put a specific quarter on it, but it shouldn't take us that long to get to that range.
Operator
(Operator Instructions) Our final question comes from the line of Dave Kang with B Riley.
Ku Kang
My first question is on NEC. Just wondering if any of their financial metrics changed since the date of the transaction that was announced several months ago?
Peter A. Smith
No. I mean, we did say in our remarks that we think it'll be accretive 1 quarter earlier, and that's based on the integration and collaboration we've done to-date. So that's an improvement, but the top line and the margins remain unchanged.
Ku Kang
That's kind of surprising, since there's sort of like a flip-flop of you guys. So, they have more exposure to public 5G operators, [no?]
Peter A. Smith
Yes. They have exposure to Tier 1s. We modeled it conservatively. So with the slowdown in Tier 1 CapEx spending, we still are committed to the numbers we've set previously. So we modeled it accordingly, that's, I guess, the best way to say that.
Ku Kang
Okay. And my follow-up is on your long-term. You provided gross margin EBITDA targets of 40% and 15%. Just wondering what the timeframe for that? And what kind of revenue are you assuming? And does it include NEC?
David M. Gray
Yes. So that -- the gross margin targets did not include NEC. That will, as we've disclosed previously, be somewhat diluted in the near term, but we expect to be able to improve on those going forward. Just looking at the core Aviat business ex-NEC, I think, if we achieve the 100 basis point improvement year-over-year, that's a good step forward in reaching that target.
And then on the EBITDA side, I think, we'll be pretty close to that on a regular basis here as we exit the year, just based on the revenue gains and leveraging the business.
Operator
Thank you. I would now like to turn the conference back over to Mr. Pete Smith for closing remarks.
Peter A. Smith
Well, thanks to all of the investors for your continued interest in Aviat. This is being our first quarter, we think we have a foundation for a great fiscal year. We're looking forward to closing the NEC transaction and updating you in 90 days. Thanks, everyone, for joining the call.
Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect, and have a wonderful day.
