Release Date: February 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Aviat Networks Inc (NASDAQ:AVNW) reported a strong quarter with total revenue of $118 million, up 26% year-over-year.
• The company achieved a record quarterly adjusted EBITDA of $14.8 million, marking a 22% increase from the previous year.
• Aviat Networks Inc (NASDAQ:AVNW) generated positive cash from operations, marking the best cash flow from operating activities in at least seven years.
• The company successfully shipped its first PassLink radio from a contract manufacturer in Thailand, which is expected to improve product lead times and margins.
• Aviat Networks Inc (NASDAQ:AVNW) has a strong order book with a book-to-bill ratio greater than one for three consecutive quarters, indicating robust demand.

Negative Points

• Gross margins were impacted by the addition of PassLink product mix and were lower compared to the previous year.
• The US Tier 1 market remains muted, with demand expected to remain low in the near term.
• There is ongoing weakness in the African market due to currency issues and elevated interest rates.
• The company faces potential supply chain risks due to evolving tariffs, which could impact operations.
• Aviat Networks Inc (NASDAQ:AVNW) has a broad guidance range for the fiscal year, indicating uncertainty in revenue projections.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with AVNW.

Q: Can you elaborate on the key drivers behind the strong performance in the December quarter? A: The strong performance was driven by the Passlink business, which almost hit the revenue ramp rate committed for the year, with bookings exceeding $40 million. Additionally, the recently acquired 4RF business also performed well, contributing to the year-over-year growth in North America. Overall, the book-to-bill ratio was greater than one, indicating strong commercial dynamics. (Respondent: CFO)

Q: Have your expectations for the US Tier 1 market changed for fiscal '25? A: The US Tier 1 market is factored into our guidance, and a faster recovery would be beneficial. We believe the current headwinds are timing-related rather than due to large CapEx shifts. (Respondent: CEO)

Q: Could you provide more details on the gross margins for the Passlink business and how they might scale this fiscal year? A: Gross margins for the company rebounded nicely in the second quarter, partly due to better performance in Passlink. We expect further improvement in gross margins, particularly in the fourth quarter, as we complete the manufacturing transfer to our contract manufacturer. (Respondent: CFO)

Q: What are the current supply chain risks, and how are you managing working capital improvements? A: We are using our COVID playbook to manage potential supply chain interruptions due to tariffs. We expect peak inventory this quarter as we transition Passlink to a contract manufacturer, with improvements expected in Q4. Working capital improvements were achieved through material reductions, despite higher revenues, and we expect further improvements in fiscal 2026. (Respondent: CEO and CFO)

Q: Can you discuss the performance and outlook for key end markets, particularly private networks and geographic regions? A: The public safety market continues to perform well, and we are bullish on utilities due to underinvestment over the years. In terms of geographic regions, Southeast Asia, Latin America, and Eastern Europe are areas of strength, while the US Tier 1 market remains stable but at a lower level than desired. (Respondent: CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.