Aviat Networks Inc (AVNW) 2026 Q2 法說會逐字稿

Good afternoon. Welcome to Aviat Networks second quarter fiscal 2026 earnings call. (Operator Instructions) 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.

Thank you, and welcome to Aviat Networks second-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 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 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 annual report on Form 10-K filed with the SEC. The company undertakes no obligation 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 on 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?

Thanks, Andrew, and good afternoon. Let's review the highlights from the quarter. Highest second quarter bookings in the last 10 years. Total revenues of $111.5 million, adjusted EBITDA of $11.3 million, non-GAAP EPS of $0.54, positive cash generation from operations of $23.9 million.

For the first half of fiscal 2026, Aviat has increased total revenues by 5.9%, reduced our non-GAAP operating expenses by $3.7 million, increased both our GAAP and non-GAAP earnings per share by over $1, and increased adjusted EBITDA by $13.2 million. This significant improvement is in line with our expectations for the fiscal year and sets the company up well to execute the back half of fiscal 2026. I would like to thank the entire Aviat team for the focus and execution to date.

Let's discuss our end markets and key developments. In private networks, Aviat remains a leader in the US and globally in providing mission-critical wireless networks. The need for reliable networks to serve public safety agencies, utilities, and other critical infrastructure providers continues to grow.

Last quarter, we discussed the launch of our Aprisa LTE 5G router for police, fire, and emergency vehicles. This offering opens an entirely new segment for Aviat worth approximately $1.6 billion today. Here, we pursue customers with whom Aviat already has an extremely strong relationship due to our private network backhaul expertise and leadership. I'm pleased to announce that we have received our first initial order, and we remain engaged in several critical trials to further validate our offering. We're excited to see what opportunities this solution opens for the company.

In mobile networks, Aviat remains engaged globally to expand its share of demand through new and existing customers. The 5G upgrade cycle remains ongoing in global markets and changes in the competitive landscape are creating openings for Aviat that we hope to have future updates on in the coming quarters.

In the second quarter, we also announced our initial purchase order for Aviat's multi-dwelling unit solution, providing fixed wireless access Internet for paying subscribers via a US Tier 1 provider. This is a significant step in capturing and monetizing a new market segment that Aviat has been pursuing for several years. This order covers multiple market deployments, and we are hopeful that this will be the first of many orders related to the MDU offering.

We're still working with the Tier 1 provider to determine the exact timing of the ramp related to this order as well as what the impact and timing of any future orders will look like. But Aviat is glad to be in a position to provide leading performance, service, and support to our customers. We think this is just the beginning of an exciting growth opportunity in the coming years and look forward to keeping the investor community updated once we know more about the benefit to Aviat.

Let's discuss Aviat's broadband business and the Broadband Equity Access and Deployment Fund, or BEAD. Our policy is to keep any impact from the program out of the company's fiscal guidance until we have clarity on the timing of the program. We do still believe that this will be a calendar 2026 event, likely in the back half. The NTIA has approved over 40 state plans, which enables the states to begin funding the award winners.

On this basis, fixed wireless access Internet, which tends to use wireless backhaul at a higher rate than fiber-to-the-home offerings is capturing on average between 10% and 15% of locations served by BEAD. These numbers will continue to change as all the final approvals come in, but this is a reasonable range to expect for the program as a whole. We will not yet quantify the opportunity size for Aviat, but we are encouraged that this program will have a positive impact in our fiscal 2027 based on the current plans and our estimation of timing.

Before turning the call over to Andy Schmidt, Aviat's new Chief Financial Officer, I would like to provide an introduction. Andy brings to the company over 20 years of public company CFO experience. Notably, he improved the finance function in several companies and has experience in the public safety space. His background and accomplishments align directly with Aviat's strategic goal of driving growth in public safety and increasing its mix of software sales. We're excited to have Andy on board.

With that, I will turn it over to Andy to go through the financial results.

Thanks, Pete. I'm very excited to be at Aviat and work with you and the entire Aviat team to help drive our strategic goals, as well as continue driving cost and cash optimization opportunities.

Now I'll review some of our key fiscal 2026 second quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between the second quarter of fiscal year 2026 and second quarter of fiscal 2025, unless otherwise noted.

For the second quarter, we reported total revenues of $111.5 million as compared with $118.2 million for the same period last year. Importantly, revenues for the six-month period were $218.8 million, up $12.2 million or 5.9% versus the prior six-month period.

North America, which comprised 47.5% of our total revenues for the quarter was $52.9 million. International revenues, which made up 52.5% of total revenues, were $58.6 million for the quarter. Gross margins in the second quarter were 32.4% on a GAAP basis and 32.9% on a non-GAAP basis. This compares to 34.6% GAAP and 35.3% non-GAAP in the prior year. The change in gross margin is primarily due to regional and product mix in the quarter as compared to a year ago.

For the first six months of fiscal '26, gross margins were 32.8% on a GAAP basis and 33.4% on a non-GAAP basis. This compares to 29.4% GAAP and 30.1% non-GAAP versus the same period last year.

Second quarter GAAP operating expenses were $28.8 million, down versus $32.9 million in the same year-ago period. Non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation and deal costs were $27.1 million.

Second quarter operating income was $7.3 million on a GAAP basis and $9.6 million on a non-GAAP basis. This compares to $8 million GAAP and $12.6 million non-GAAP in the year-ago period.

The second quarter tax provision was $2.4 million. As a reminder, as of fiscal 2025 year-end, the company has over $450 million of net operating losses or NOLs, that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future.

Second quarter GAAP net income was $5.7 million and non-GAAP net income was $7 million, which excludes restructuring charges, share-based compensation, M&A-related and other nonrecurring expenses and a noncash tax provision.

Second quarter non-GAAP earnings per share came in at $0.54 on a fully diluted basis, and GAAP earnings per share was $0.44 on a fully diluted basis.

Adjusted EBITDA for the second quarter was $11.3 million or 10.1% of revenues. For the six-month year-to-date period, adjusted EBITDA was $20.4 million, a significant improvement of $13.2 million versus the same period last year. Moving on to the balance sheet.

Our cash and marketable securities at the end of the second quarter were $86.5 million. Our outstanding debt was $105.4 million, bringing our net debt position to $18.9 million, as compared to $41.7 million in the first quarter of fiscal '26, an improvement of $23 million.

As Pete mentioned in his highlights, cash generated from operating activities was $23.9 million in the quarter. This brings our year-to-date cash from operating activities to $12.2 million. This positive cash outcome was created through both disciplined inventory management, resulting in a $7.4 million inventory reduction and strong cash collections via accounts receivable.

Note that our sequential quarter decrease of unbilled receivables of $20.1 million contributed partly to the increase in our accounts receivable balance. This dynamic creates actionable cash collection opportunities for the second half of the year. We expect the overall balance sheet improvements posted this quarter to continue, which will help to create positive momentum and cash generation for Aviat in the quarters ahead.

With that, I'll turn the call back to Pete for some final comments. Pete?

Thanks, Andy. The first half of fiscal 2026 has gotten off to a good start. Our market leadership and strong bookings have put the company in a position to continue pursuing share of demand capture. Aviat also has a number of exciting organic growth opportunities developing, which will serve the company well in the years ahead. We're keeping our fiscal 2026 guidance unchanged at full year revenues to be in the range of $440 million to $460 million, full year adjusted EBITDA to be in the range of $45 million to $55 million.

With that, operator, let's open up for questions.

(Operator Instructions) Scott Searle, ROTH.

Hey, good afternoon. Thanks for taking the questions. Nice job on the quarter. And Andy, congrats and welcome aboard.

Thanks, Scott. I appreciate the introductions.

So Pete, maybe just diving in, in terms of the outlook for the second half of this year, it still implies a range of about $110 million to $120 million a quarter. I'm wondering if you could talk us through some of the puts and takes? You mentioned some organic opportunities that are brewing.

Also, I think in your opening remarks, you talked about not putting things into your guidance until you got some better visibility on that front. I think there was more reference probably towards BEAD than anything else. But you've had some traction now on the MDU front.

I'm wondering if you could provide a little bit more color in terms of what you're expecting in the second half of this year? And what are some of the milestones that are going to dictate how this ramps up over the course of calendar '26?

Okay. There's three components to this, the organic opportunities that we outlined in the prepared remarks.

One, BEAD, right? And a lot of the fiber guys are saying positive things about BEAD. We would say we have the largest exposure to microwave wireless backhaul for US rural broadband. We're hearing from our customers that they're planning it.

I think most, if not all of this 54 of the 56 states and territories have submitted their final proposals for BEAD. So we think that this is all positive. But we haven't put it in our guidance, thank goodness, since it's going back to the middle of the last administration. And we've been right to doing that.

But we are getting more and more bullish on this, and we think it's going to materialize sometime between July and December of '26. That's one.

Secondly, we think that this is a really good news with respect to the cellular router that we have our first PO. We're building a pipeline. We're going up against some significant competitors. We think that we have a unique value proposition. And we'd like to get a few more wins under our belt before we start to highlight that -- or highlight what that could be with respect to an uplift in revenue.

And then thirdly, the MDU project. And the reason we talk about the MDU project is through no fault of our own or our customer. It was discovered that we were in field trials. And it got to the shareholder base, and we received a lot of questions. And right now, we are delivering gear that paying subscribers will use.

And we do have a competitor and what -- before we start factoring this into a financial forecast, we want to make sure that the value proposition that we've proved out in trials over the past year and our initial volume production continues to satisfy the customer, watch what the competitor does and all of those things break our way, then we would revisit our forecast. I hope that's responsive to your question, Scott.

That was very helpful and comprehensive. Maybe, Pete, just to quickly follow up on the MDU opportunity then. Is there any other color in terms of the number of markets where you're running trials or deploying in currently?

And then just to clarify, in terms of the guidance then, it sounds like there's probably 5G router embedded in there, but it doesn't sound like BEAD is in there and maybe a small portion of MDU. Is that correct? Or is it something different?

I would say de minimis on the 5G router, zero on BEAD, and a little bit on the MDU project, right, because it's not material yet. And one other aspect that I didn't bring up on the BEAD is that we're seeing that fixed wireless access of the overall BEAD program is ranging between 10% and 15%. And that 10% to 15% usage of fixed wireless access correlates typically to wireless backhaul rather than fiber. So that's another element of our increasing confidence in the back half of this calendar year that BEAD will materialize.

Great. Very helpful. And if I could, and then I'll get back in the queue. But on the gross margin front, it sounded like there was more mix than anything, but specifically, I think in the breakdown, services margins were under a little bit of pressure. I know that's highly project-based.

So I'm wondering if there's anything else to read into that. And then given the strong free cash flow in the quarter, which I think was well above expectations, and it sounds like we're going to continue to see healthy free cash flow growth going forward, how are you thinking about a buyback or other opportunities in terms of the overall capital structure of the company?

All right, Scott. So I'll take part one, part two, and turn part three to Pete here. So gross margins, I don't look at it as services under pressure. Again, it's just ebb and flow, and we had higher equipment sales in our lower-cost regions this period, which, again, that's a good thing. The hardware is an enabler to actually bring future sales in services and software.

So that part work fine. In terms of the cash dynamic, this is a really great opportunity for this company. Initiatives have been put in place by Pete and Andrew Fredrickson in his acting role as CFO that you're seeing the results of this period. We look at the second half of the year, we're going to continue to see some very good cash performance, which I think is going to be really principal besides in terms of the highlights that Pete brings forward in terms of unlocking the value of the stock.

Yeah. So with respect to the buyback -- and Scott, I think you're taking everybody's questions. With respect to the buyback, we have a little under $6.5 million remaining on our authorization. We met with the Board earlier this week, and we anticipate turning the buyback back on.

Now, one thing that I've learned over the years is that we, as a company, we file, we put in a ladder, and we will be a buyer at certain price levels. So that's what we can disclose at this point.

Great. Thanks so much. Congrats on the quarter again. And Andy, great to have you on board. Thank you.

Tim Savageaux, Northland Capital Markets.

Hey, good afternoon. I wanted to go to the -- I guess, the first thing you mentioned on the call and in the release, which is the -- I think it's best Q2 in 10 years, maybe not best quarter. But it brought me back to a couple of years ago. I think there's historical precedent for this where you updated us on the backlog actually post Q2 of '24, given some, I think, strong booking trends then. It looks like you were up about 10% in backlog for the June fiscal year of '25.

And I guess -- and so I'd love to get an update on that backlog metric, if it's something you might provide and/or try to get a little more quantification on the book-to-bill in the quarter, right, because you called out what seems to be a pretty extraordinary number. How should we be thinking about that?

Yeah. So look, because of the project nature of a business, we are reluctant to be as specific as you would like. So I appreciate your memory, or maybe, Tim, sometimes I wish you didn't remember so much. The last time we gave midyear backlog was after the NEC transaction, so that we could be clear.

So just to reiterate, this is -- our highest bookings quarters are Q2 December and June Q4. This is the highest bookings level we've had in 10 years. And the reason we didn't go back further is because we couldn't find the data. And I think it sets us back up for a strong Q4 following our traditional seasonality.

And our book-to-bill, we will say that it was over one last quarter, it's over one this quarter. So things are trending well for the out quarters. I think that's what we can say. And what drove the bookings was both our service providers, as well as our private network business.

Okay. Great. And you mentioned service providers in private. I mean, would it be fair to look at the MDU order as sort of the key driver of that, sort of a very chunky piece of that that you expect to deliver over time? Or is there some other dynamics at play there?

So the MDU order, we're very excited about because of what possibilities it could drive over several years. It's a small part of the uptick in service provider. But if you strip that out, we're still in a pretty exciting space. And I think actually for the MDU order -- this MDU order is not -- it's progress. It's not necessarily a needle mover.

The time to get excited about the MDU project would be if, hopefully, we win the next order. That would make a -- we would anticipate that would make a difference in our backlog. And we'd probably be forced to raise our guidance, Tim. I say that a little tongue in cheek.

Okay. All in good time. Well, just to finish off on this whole bookings and backlog thing, I mean, historically, you've also seen some pretty big kind of state network projects come down the pipeline and also affect that number. Anything to call out there? Or is this a little more broad-based, which sort of sounds like it is?

Actually, this is a good question to get some insight. It's broad-based. In the past, we've had one-off or two-off large state network wins. And I would say over the last six months, we haven't had any of those. So it's a broader-based state network or private network wins.

And I want to say this that we haven't lost any big state competitions. It's just the nature of the business. And we're actually pretty happy that we have broad-based diverse customer wins in both the state public safety as well as utility.

Great. Thanks very much. I'll pass along.

(Operator Instructions) Theodore O'Neill, Litchfield Research.

Okay, thanks very much. Congratulations on a good quarter. And welcome aboard, Andrew. So I want to follow up on the cellular router, the ruggedized cellular router business. Last quarter, Pete, you said that you had an in with customers on this because of the connection with the microwave business you were doing with them and there's some dissatisfaction with the incumbent. And I'm wondering if that's still going and that's still helping business for you?

And also, just looking over the transcript or the presentation, it looked like you mentioned they had 10 chosen customers in the area. And I was wondering if that's changed?

So yes. So the value -- or the competitive advantage that we have in the cellular router for first responders and public safety is we have a significant portion of US 911 networks. And then with the -- 1.5 years ago, we -- the 4RF business became part of Aviat. And with that came the cellular router. Over the last 1.5 years, we've reconfigured some of the software to make it amenable to riding in the first responder vehicle.

And what -- so having the platform, putting the software in place, and having the channels, where it's principally not the same purchasing agent, but the purchasing agent that we call on is one or two doors down from the network infrastructure. So that, we have a good reputation.

So that -- in terms of getting customer traction, that is definitively true. We announced that we had our first small PO. And let me just -- I would say that we're engaged right now with about 15 customers.

And how that shows up in revenue is we have to continue to do our proof of concept and capitalize on the next time the budget cycle comes around for that particular first responder procurement. What I can say is we haven't had any customers who said, no, this doesn't make sense.

So we're excited. We want to be patient and continue to demonstrate and let the natural uptake give us a lift. I would say that, where do I think that becomes material is sometime in fiscal year '27.

Okay. And my other question is about the strength in Europe. And I was wondering if you could give us some color on where that's coming from?

Yeah. About five quarters ago, we had a new EMEA leader. And he is driving tremendous discipline and key focus on private networks and the success is starting to show.

Okay, thanks very much.

And now, I'd like to turn the call back over to Pete for any closing remarks.

Well, I'd like to thank everyone for joining. We look forward to updating you in about 90 days. It's exciting times for Aviat, and we look forward to the future. Thanks, everyone.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.