AVNW

• Financial Milestones: The company achieved its sixth consecutive year of revenue growth, with full-year FY26 revenue reaching $440 million (up 1.2%). It marked the first time in over a decade that all four quarters exceeded $100 million in revenue.
• Strategic Diversification: Sales of non-microwave 'mission-critical access' products grew significantly, validating the strategic shift to diversify beyond core microwave business into larger, faster-growing segments.
• US Market Growth Vectors: Strong alignment in three areas: MDU opportunities (with a $25-$30 million order expected in FY27), private/public safety networks (driven by bandwidth demands from drones/body cams), and utility private networks (supporting grid connectivity for AI infrastructure).
• LEO Satellite Strategy: Management views Low Earth Orbit (LEO) technology as complementary rather than competitive. Aviat aims to provide terrestrial backhaul and redundant communication paths for remote sites and cellular failover, enhancing network resilience.
• International Traction: Significant growth in the EMEA region, particularly in defense (BlackNet) and energy sectors, positioning international business for continued expansion.
• Supply Chain & Margins: Facing component shortages (memory, PCBs, capacitors, FPGAs) and cost inflation. Management is using COVID-era playbook for allocation and plans to pass costs to customers. Gross margins were pressured by these factors but are expected to improve in H2 FY27.

• FY2027 Revenue Guidance: Full-year revenue is projected to be between $455 million and $470 million, representing an upward revision from FY26's $440 million.
• FY2027 EBITDA Guidance: Full-year adjusted EBITDA is expected to range from $50 million to $55 million, up from $36.7 million in FY26.
• Seasonality Outlook: Management indicates a more pronounced back-half weight for FY27. Q1 is expected to be the lowest quarter (foundation), with Q2 and Q4 peaking and Q3 higher than Q1. Historical seasonality (typically 48-52% in H2) may shift closer to 45-55% favoring the second half.
• Margin Expectations: Gross margins are expected to face headwinds in Q1 due to lower volumes and immediate component inflation impacts, with improvements anticipated in Q2 through Q4 as price adjustments take effect.

Aviat Networks operates primarily in two geographic segments: North America and International. For the fourth quarter of fiscal 2026, North America generated $68.3 million in revenue, representing 56.5% of total quarterly revenue, an increase of 17.8% year-over-year. This growth was driven by limited deployments for a Multi-Dwelling Unit (MDU) project and strong private network activity. International revenues totaled $52.6 million, accounting for 43.5% of total quarterly revenue. While International revenues declined slightly compared to the prior year period, the EMEA region showed significant traction with a 53% quarterly revenue increase and a 33% full-year increase, driven by private network wins in defense and energy sectors.

• Component Supply Chain: Continued shortages in memory, PCBs, capacitors, and FPGAs pose risks to production schedules and gross margins.
• Cost Inflation: Abrupt increases in component costs have negatively impacted gross margins; while management plans to pass these on, there is execution risk in maintaining competitiveness.
• Regulatory/Political Delays: Potential delays or changes in government funding programs like BEAD could impact revenue realization timelines.
• Competitive Dynamics: While Aviat is well-positioned against exiting competitors, the market remains competitive, and sole-source status is unlikely even in large opportunities like MDU.

Q: Scott Sealy asked about the breakdown of US revenue between carriers and private networks, and the timing of the MDU ramp.

A: Pete Smith stated that the US mix is approximately 55% service providers and 45% private networks. He emphasized that Q1 FY27 will be the lowest revenue quarter due to supply chain ramp-up and seasonality. The MDU revenue is expected to ramp significantly in Q2, with some potential recognition in Q1, contingent on site readiness and component availability.

Q: Dave Kang asked if gross margins could reach mid-30s in the second half of FY27 given scale and product mix.

A: Andy Schmidt described this target as "aspirational." He noted that while upward pressure on margins is expected as inflation offsets occur, the current entry point is around 32%. He cautioned against expecting mid-30s immediately, citing that new growth areas like MDU have a "middle" margin profile and component inflation remains a factor.

Q: Theodore O'Neill asked what factors would drive the revenue guidance to the high end of the $455-$470 million range.

A: Pete Smith identified four key levers: 1) Accelerated subscriber growth driving larger MDU orders; 2) Faster-than-expected activation of BEAD funding; 3) Increased share in private networks, potentially aided by competitor exits or APRISA router adoption; and 4) New Tier 1 carrier interest globally. He noted that any of these could push results toward the upper bound.

Q: Christian Swapwood asked about the update on the European competitor exiting the microwave business and the status of BEAD funding impact.

A: Smith confirmed that the competitor's exit created immediate pipeline opportunities, though conversion takes 6-18 months, with benefits likely visible in March and June quarters. Regarding BEAD, he stated it is viewed as a multi-year impact, with the first real revenue contribution expected in the December quarter of FY27, based on quotes already issued to customers.

Q: Rassam Kanga asked about the number of markets involved in the MDU opportunity and the seasonality shift.

A: Smith revealed that Aviat is now active in approximately 25 markets for the MDU opportunity, up from fewer than 15 previously. Andrew Fredrickson added that while historical seasonality was 48-52% in the second half, FY27 may see a more pronounced shift, closer to 45-55%, favoring the back half of the year.