Full Transcript: Aviat Networks Q3 2026 Earnings Call

On Monday, Aviat Networks ( AVNW ) discussed third-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation. The full earnings call is available at https://edge.media-server.com/mmc/p/9inczpqi/ Summary Aviat Networks ( AVNW ) reported Q3 fiscal 2026 revenues of $100 million, a decrease from $112.6 million in the same period last year, impacted by project pushouts in the Middle East. The company is optimistic about future growth due to increased visibility in U.S. markets, particularly in multi-dwelling units (MDU) and utility sectors driven by AI and broadband programs. Gross margins were 29.3% GAAP and 29.4% non-GAAP, down from the previous year, mainly due to volume and product mix; however, margins are expected to recover in Q4. Aviat Networks ( AVNW ) has lowered inventories by $4 million and improved its balance sheet by reducing unbilled receivables and accounts payable, signaling better cash management. Fiscal 2026 guidance has been adjusted to revenues between $428 million and $440 million and adjusted EBITDA between $35 million and $40 million, factoring in geopolitical uncertainties. Full Transcript OPERATOR Good Afternoon. Welcome to Aviat Networks' ( AVNW ) third quarter fiscal 2026 earnings call. Currently, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President, Corporate Finance. Thank you, You may begin. Andrew Fredrickson (Vice President, Corporate Finance) Thank you and welcome to Aviat Networks' ( AVNW ) third quarter fiscal 2026 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 quarter, followed by Andy Schmidt, CFO, to review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook followed by a question and answer session. Jonana Mikulenka, Aviat's Chief Accounting Officer, is also with us on the call. 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 fiscal guidance, 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 expressed or implied on this call can be found in our most recent filings 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 Smith (President and CEO) Thanks, Andrew and good afternoon. Let's review the Highlights from the third quarter Total revenues of $100.0 million Adjusted EBITDA of $4.4 million Non GAAP EPS of $0.06 Lowered inventories by $4.0 million versus the December quarter Maintained a trailing twelve month book to bill ratio greater than 1.0 Quarterly results were impacted by the conflict in the Middle east where we saw certain project pushouts and unfavorable end of quarter demand shifts and several tier one customers totaling approximately $9 million in revenue. Now let me talk more about our end markets and key developments in the U.S., we see reason for optimism in the quarters ahead as we gain increased visibility on timing of our multi dwelling unit or MDU opportunity, growing demand from utilities as they invest to meet increased power demand from artificial intelligence build outs and the nearing arrival of the Broadband Equity Access and Deployment or BEAD program on the MDU. We have increased confidence in the level of commitment to this project from our Tier one customer and we believe that we have secured a favored position as the supplier of choice. This is translating to increased visibility on timing for the markets we have won and opening the door to additional market areas for deployment for the projects in progress. We have installations occurring now and through the rest of Q4. These are still relatively small and we expect a larger step up during fiscal 2027. As the aviation installations progress and we compete for additional markets related to the MDU opportunity, we are seeing more prospects to provide services and other value added solutions to our Tier one customer. Overall, we are feeling better about this opportunity today than at any other previous point and believe we will have meaningful revenue contribution from this project in fiscal year 2027. Further, we have validated our next generation offering in this area should subscriber growth materialize. We anticipate demand for this next gen product in fiscal year 2028. Private networks remain Aviat's largest segment today and within private networks, utilities are Aviat's second largest customer group in this segment. Aviat has been strategically focused on growing our presence and offerings with utilities over the last several years with product innovations like our Ultra High powered 11 GHz radio and the 2024 acquisition of 4RF Networks. Even prior to the demand brought on by artificial intelligence and data center buildouts, there was a growing need for increased investment in America's grid from a modernization and reliability standpoint. Today, the outlook for Aviat's utilities is quite robust. Recent industry reports suggest that utilities will deploy 1.4 trillion on capital spending plans over the next five years. This forecast is up over 20% versus a year ago. Approximately half of this spend will go towards transmission and distribution where Aviat's network hardware is critical for smart grid connectivity and management, substation monitoring and security, crew communications and wildfire detection. Power generation has become the primary constraint and a fundamental determinant of growth for artificial intelligence or AI. This build out of the grid lifts the importance of Michelin critical communication and Aviat is well positioned to capture increasing share of demand in this market. The utility segment is approaching 10% of our overall business. Our funnel of opportunity is strong and the discussions we are having with many of the largest utilities in the US signals that this growth opportunity will remain for several years ahead. Lastly, on the BEAD program, our customers continue to signal that purchase orders related to the program should begin in mid to late calendar 2026. This is consistent with the message we have told investors for approximately a year now. However, as final approvals are made, the set of opportunities is beginning to take shape. 46 of the 56 states and territories have signed have signed their final award agreement. The total funding for the approved deployment spend to date is approximately $20 billion. The size of Aviat's opportunity depends on the allocation of BEAD funds towards fixed wireless access, which in our estimation stands between 10 and 15% of the award dollars. The allocation of funds to wireless has been increasing over time. Feedback from four of our wireless Internet service provider customers who have all won bead deployment projects signal that calendar 2027 will likely see the largest ramp purchase orders for Aviat, but we still remain very early in the fund deployment life cycle and will provide updates as available. Aviant stands at the ready to assist all of its customers with bid opportunities that, thanks to its Build America Buy America certifications, our E Commerce Aviat Store presence and our leading position in serving rural broadband needs. Apart from these growth drivers, we've invested in our roadmap. We've taken our North American all indoor radio to international markets. We are also bringing PasserLink radios to North America in early fiscal 2027. Both these represent installed base opportunities for an addressable market of over $250 million. I will now turn the call over Andy Schmidt (Chief Financial Officer) to Andy to go through the financial results. Thanks Pete and good afternoon everyone. Before going through the financial results, I would like to briefly introduce Joanna Mikolenka, who joined Aviat in January as our Chief Accounting Officer. She brings with our over 30 years of of accounting experience, including previously serving as Chief Accounting Officer and and Corporate Controller at other public companies. She's already making a great impact to the overall Aviat team and will help us to achieve our goals. Welcome Janana. Now I'll review some of our key fiscal 2026 third quarter results. Please note that the detailed financials can be found in our press release and all comparisons discussed are between the third quarter of the fiscal year 2026 and the third quarter of fiscal year 2025, unless otherwise noted. For the third quarter, we reported total revenues of 100 million as compared to $112.6 million for the same period last year. Revenues for the nine month period were $318.8 million versus $319.3 million for the year ago nine month period. North America, which comprised 46.2% of our total revenues for the quarter was $46.2 million. International revenues, which made up 53.8% of total revenues were $53.8 million for the quarter On a year to date basis, North American revenues were $151.7 million, up by $2.1 million or 1.4% versus the same period last year. International revenues were $167.1 million in the first nine months of fiscal 2026 as compared to $169.7 million in the first nine months of Fiscal 2025. Gross margins in the third quarter were 29.3% on a GAAP basis and 29.4% on a non GAAP basis. This compares to 34.9% GAAP and 35.8% non GAAP in prior year periods. The change in gross margins is primarily due to volume, regional and product mix in the quarter as compared to the year ago period. For the first nine months of fiscal 2026, gross margins were consistent with their prior year. Gross margins have been 31.7% on a GAAP basis, 32.1% on a non GAAP basis. This compares to 31.3% GAAP and 32.1% non GAAP versus the period last year. In regard to operating expense, we continue to work on opportunities to increase process efficiencies to drive down our expense. Third quarter GAAP operating expense were $28.3 million down versus $30 million in a year ago period. Non-GAAP operating expenses, which exclude the impact of restructuring charges. Share based compensation and deal costs were $26.4 million or $0.8 million lower than the year ago period. Third quarter operating income was $0.9 million on a GAAP basis and $3 million on a non GAAP basis. This compares to $9.3 million GAAP and $13 million non GAAP in the year ago period. For the nine month period, GAAP operating income was $13.4 million up $11.7 million versus the first nine months of last fiscal year. Year to date, non GAAP operating income was $20.5 million, up 4.4 million or 27.6% versus the year ago period, the third quarter tax provision was $0.2 million. As a reminder, as of fiscal 2020 five year end, the company has over $450 million of net operating losses or NOLs that will continue to generate shareholder value through minimal cash tax payments for the foreseeable future. As it relates to the valuation allowance against some of our foreign deferred tax assets, we believe that there is a reasonable possibility that within the next few quarters we will be able to release a significant portion of the valuation allowance. This is good news for Aviat shareholders. The potential release of its valuation allowance is due to increase in sustained profitability in our international entities due to revenue growth and cost management. Similar to when Aviat released its valuation Andy Schmidt (Chief Financial Officer) allowance in the US approximately five years ago. This will create a one time GAAP Andy Schmidt (Chief Financial Officer) income benefit to the Company in the quarter the release occurs. While exact timing of this release is uncertain, it is reasonable that it could occur at some point in the next four quarters. The continuing third quarter GAAP net loss was $2.1 million and non GAAP net income was a positive $0.7 million which excludes restructuring charges, share based compensation, MA related and other non recurring expenses and also the non cash tax provision. Third quarter GAAP loss per share was $0.16 on a fully diluted basis and non GAAP earnings per share came out at positive $0.06 on a fully diluted basis. Adjusted EBITDA for the third quarter was $4.4 million or 4.4% of revenues for the nine month year to date period. Adjusted EBITDA was $24.8 million, an improvement of 2.8 million or 12.5% versus the comparable period last year. The lower adjusted EBITDA margin this period This period was driven primarily by the unfavorable timing of Q3 revenues previously discussed, which was partially offset by improving operating expense performance. We expect a seasonally strong Q4 revenue which will drive EBITDA margins back to expected levels. Moving on to the balance sheet, our cash and marketable securities at the end of the third quarter were $78.1 million. Our outstanding debt was $104.3 million, bringing the net debt position to $26.1 million. Aviat made continued improvements in its balance sheet this quarter by lowering unbilled receivables for the second consecutive quarter. Unbilled receivables were lowered for the second consecutive quarter. The third quarter balance was $5.4 million lower compared to the fiscal 2026 second quarter ending balance. This brings our total unbilled receivables balance to $85.3 million when compared against our short and long term advance payments and unearned revenue balance of $77.6 million. The net of the two balances is $7.7 million. We would consider this to be in the normal range of where these two balances would net out. Inventories were also lower sequentially in the quarter by $4 million. Cash in the quarter was partially used to pay down accounts payable, which was lowered by $33.3 million sequentially. This progress in normalizing working capital strengthens Aveat's ability to use its balance sheet to further its growth opportunities. Lastly, Aviat repurchased approximately 20,000 shares in the quarter for $0.5 million. With that, I'll turn it back to Pete for some final comments. Pete Smith (President and CEO) Pete thanks Andy. I will now provide an update on our fiscal 2026 guidance based on our year to date results and our current outlook for the fourth quarter inclusive of the war induced pushouts. We will continue to address our expense base and we continue to pursue cost saving initiatives. We're updating our fiscal 2026 guidance to be full year revenues to be in the range of $428 to $440 million full year adjusted EBITDA to be in the range of 35 to 40 million dollars. Our Q3 challenge started at the beginning of March and the challenge is timing related. Despite this temporary setback, we see normalization of demand in Q4 and are highly encouraged by the progress of our growth initiatives and the potential impact on FY27. With that operator, let's open up for questions. Thank you. OPERATOR As a reminder to ask a question, you will need to press star, then 1, 1 on your telephone to remove yourself from the queue. Please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Jason Schmidt of Lake Street. Please go ahead Jason. Jason Schmidt Hey guys, thanks for taking my questions Pete. Just want to start with that 9 million in pushouts. Do you expect to recognize those orders here in Q4? Pete Smith (President and CEO) So I think some of them and look, we want to be conservative with respect to looks like though there was more conflict today. I would say some of that has already shipped and we're just, you know, at the, you know in the March time frame some of the tier ones got conservative and we just want to be careful about potential repeats. So that's why we guided the way we did, I can definitively say some of that has already, shipped in the first two weeks of the current quarter. Jason Schmidt Okay, that's helpful. And then looking at the MDU opportunity, it definitely sounds like you guys are making great traction there. Can you remind us how we should think about the size of this opportunity? Pete Smith (President and CEO) Yeah, let me just give a little more flavor. So we have live deployments in more than five markets. All of those markets are open for sale. The size of the opportunity is going to be tied to the all important number of subscribers that sign up. Early indications are favorable. We see with those deployments an opportunity for additional services and insight and work. We would, we would be comfortable saying it's an eight figure opportunity in fiscal year 27. Now the problem with that is eight figures goes from 10 million to 99. I think that's where you know, we're comfortable saying eight. And you know, over the next two or three months we think we can be more exacting in how big of that opportunity. It's the, it's the most exciting growth program in Aviat and we're totally focused. We'll say eight figures for now. And I would say that you know, when we get to through our year end and we incorporate this into FY27 guidance, we can be more, more specific and give you a more narrow range to. Jason Schmidt Okay, that's fair. And then just the last one from me and I'll jump back into queue. Last quarter you highlighted some nice traction with your LTE router. Just curious where that pipeline is today and what you've seen over this past quarter. Pete Smith (President and CEO) Yeah, so you know our upgrade on the Apprisa LTE router, we feel really good about it. We're on track for the overall Apprisa bU.S.iness to exceed the 50% bookings growth this fiscal year. We're also starting to attach incremental software and accessories to our product sales. We're seeing expansion across all segments including utilities, oil, gas, public safety and all geographies with strength in North America and Europe. The police applications are small but growing. And we've received initial orders in public safety in the U.S., European, Latin America. That was a, you know, the platform for this is a small, was a small acquisition. So it's a small base but it's growing. And to put this in context, you know, microwave backhaul is, you know, let's call it a slow growth market. When something like the Middle east conflict happens, it's tough. And we really feel our growth program and fixed wireless access around MDU The Apprisa platform for public safety and utilities. These are the things that are going to permit U.S. in FY27 to outgrow the microwave market. Jason Schmidt Okay, sounds good. Thanks a lot. OPERATOR Thank you. Our next question comes from the line of Scott Searle of Roth Capital Partners. Your line is open. Scott. Scott Searle Hey, good afternoon. Thanks for taking the questions. Hey Pete, maybe just to dive in, in terms of the guidance, it sounds like we had 9 million in pushouts, some of which has shipped already into the fourth quarter. But it's still a pretty wide variance out there of 109 to around 121 million. I wonder if you gave us some of the puts and takes. It sounds like the Mideast continues to be a little bit of a headwind there. But I'm kind of wondering what you see at the higher end of the range and lower end of the range. And as part of that, the gross margin sounds like that starts to recovery with some utilization. But I wonder if you could clarify a little bit more. It sounds like you're talking about it returning more to normal levels. I just want to Clarify is that 32%, 33% that we should be thinking about And I had a couple follow ups. Pete Smith (President and CEO) All right, go ahead. Andy Schmidt (Chief Financial Officer) Hey Scott, this is Andy. Good to hear from you. I'll just start with the gross margin part. You're exactly right. Our year to date gross margin, 32% plus once we get back to normal volumes. Q4 is our best quarter seasonally. So we expect to have a good Q4. Once we're back at normal volumes, you're going to see again expected performance in gross margin. And just to reiterate, we didn't see gross margins drop due to price compression. Not at all. Again, pricing is in good shape. We just have to get back to expected volumes. Pete Smith (President and CEO) Okay then with the range. So we want to, you know, and let's say we have the same end of quarter dynamics where tier ones push out and we're not able to get stuff into the Middle East. And you know, today in India they said they had a jet fuel so we're hedging on that, you know, so that's why there's the range. And just, you know, for a company at our scale it's, it's harder to deal with these risks and we want to, you know, not have the difficulty in achieving the expectations we set at the end of the June quarter. So that's why there's the range. We, you know, obviously we want to do as well as we can to be to Deliver on the higher end. But we want to be conservative and acknowledge the environment as it is. Scott Searle Hey, maybe a couple quick follow ups for Andy just in terms of the gross margins in terms of how you're managing memory and incremental freight costs now. So are you still comfortable with maintaining that gross margin outlook given the current pricing environment that we're seeing there? And maybe a quick follow up on the balance sheet as well. Small improvements again this quarter. I'm wondering if there's a longer term target that you could give us in terms of expected free cash flow that you'd be able to generate in terms of working down DSOs and improving inventory turns. Andy Schmidt (Chief Financial Officer) I'll start with the gross margin and to your point, you bring up the usual suspects in terms of, let's call it inflationary items. Again, this company works very diligently in terms of offsets to inflationary items. So again that comes down to negotiating power in terms of commodities, all the way down to utilization, let's say in terms of our efficiencies internally. So again we work diligently in terms of looking for offsets to normal inflation items. You might hear from your other coverage universe in terms of balance sheet. Yes, we still see a lot of greenfield opportunities in terms of addressing both our accounts receivable. Accounts receivable in terms aged accounts are really next on our barometer. We expect unbilled to continue to come down. We have good traction 2/4 in a row, which means we've cracked a nut in terms of the equation of how to attack that. That's good. Where you expect inventories to continue to improve. It all drives basically cash flow that should exceed adjusted ebitda. So that's what we're shooting for. And we see clear daylight in terms of next number of quarters continuing this trend. We don't expect it to end. OPERATOR And if I could just. Scott Searle Oh, sorry, go ahead. Andy Schmidt (Chief Financial Officer) Well, Scott, did you want the memory and freight stuff or, or. Yeah, so look, memory in a microwave radio is a small part of the bomb. We, we were in a good inventory position. We could see, you know, probably two quarters out there being a little bit of inflation. We will work to offset that with respect to price. I would say in the recently concluded quarter there was some freight inflation. And going forward we'll adjust our, our freight prices as, as well. So that's to answer the inflation part of your question, memory small. And then if you want to think about what we see in supply and demand and components, I can imagine a couple quarters out that trailing edge CPUs may enter the dialogue that is occurring with memory but that does not impact us yet and we will probably buy ahead on CPUs where the trailing Edge CPUs were where it makes sense. Go ahead. Scott Searle And Pete, if I could two just larger, more macro kind of follow ups if you will. Nokia, you know there's been hearing out there that in terms of their online and expected divestiture of the wireless transmission business that's creating some opportunities for other vendors in Europe and elsewhere. I'm wondering what you're seeing on that front. And also I've gotten some questions as it relates to Nokia's FWA business being sold to inseego, how that impacts you and secondly, just in terms of the MDU opportunity, are there any other technical milestones that you need to hit at this point? Where are we good? And we're just kind of waiting for the MDU customer to start to ramp. Thank you. Pete Smith (President and CEO) so there's no more Aviat tactical milestones. Right. However, let's say in the next six to nine months we need to deliver the next generation project or product configuration and we're on track for that. And really right now it's working out our fixed wireless with the customer's back office and everything else that's in the overall stack and delivering fixed wireless to apartment buildings. So we feel really good and we think that you know, our microwave system engineering is really winning the day versus the competition there. The, you know, with respect to, you know, what Nokia announced on capital Markets Day back In November of 2025, I think the playing field is level between everyone who's listening on the call that that that announcement has happened and we know very little beyond that. The inseego purchase of fixed wireless access would suggest that Nokia is executing on the announcement that they made in the back of November. But I don't have anything further to add with respect to their intent to execute on the microwave portion. And you know the other part of your question is what what is it doing in the competitive landscape? I think, you know, I don't know if and when it'll come for sale. I would say Aviat and Aviat's competitors are very engaged in developing a alternatives should that property be trade or should that property become, let's say neglected within the portfolio of Nokia. So I don't know what's going to happen with respect to the sale. I do know that we and our competitors are active in terms of trying to make sure that the customer base has microwave solutions. Great, thanks. I'll get back in the queue. OPERATOR Thank you once again. To ask a question, please press star 11 on your telephone. Our next question comes from the line of Theodore o' Neill of Litchfield Hills Research. Your line is open, Theodore. Theodore o' Neill Thanks very much, Pete. Just to follow up on our previous answer, you mentioned that an issue in India was related to jet fuel. And I was wondering, are these issues related to simply you or your customers getting around, or is it trying to avoid a conflict zone? Pete Smith (President and CEO) It's not. It's trying to move stuff, you need to have jet fuel to move. And that's, you know, the comment about freight inflation is tied to the constriction and supply of jet fuel. And that was a headline I wrote from India. But where does it really show up? Is it shows up in our freight costs. Okay. Theodore o' Neill And my other question is there was an executive order about the Defense Production act amended for the grid infrastructure. And I was wondering if that is going to drive some private network business at the utilities and by extension, if that would also drive some private network business to the AI data centers. Pete Smith (President and CEO) Okay, I think, yeah. So the Defense Product act, it was, you know, recently a presidential executive order to push the modernization of the grid. I don't believe that that was for data center or AI. It was just because the country has not focused enough on the core grid and reducing bottlenecks and the grid expansion and resilience. And what we see from that is it didn't call out microwave or critical communications. But as the modernization push happens, we see an increased ramping grid builds are our pipeline of utility opportunities is increasing. And, you know, as the utility yard gets bigger, the need to extend the microwave coverage goes up. Then also in that executive order, there was a focus on national defense and foreign supply risks. You know, we are Build America Buy America compliant. We're the only microwave company headquartered in North America. Our utility business is approaching, you know, it's slightly under 10%. So we think that this national focus is going to pay dividends for us going forward. Thank you for this. Thank you for the questions. Yep. Theodore o' Neill Thanks very much. OPERATOR Thank you. Pete Smith (President and CEO) I would now like to turn the conference back to Pete Smith for closing remarks. I'd like to thank everybody for joining. You know, the Middle east conflict was certainly a drag on demand and margins. We are very excited about our growth programs. We feel like they're on the brink of making meaningful impacts, and we look forward to seeing that, particularly in FY27. And then finally we see we're coming up to our fiscal year end. And we look forward to giving you an update on the full year and the path forward for FY27 with MDU, with BEID, with the utility and freezer platforms that. Thank you everyone. Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.