Q3 2026 Aviat Networks Inc Earnings Call

May 4, 2026

Operator: Good afternoon. Welcome to Aviat Networks Q3 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.

Speaker #1: 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.

Speaker #1: You may begin. Thank you, and welcome to Aviat Networks' 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.

Andrew Fredrickson: Thank you. Welcome to Aviat Networks Q3 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 the opening remarks on the company's fiscal quarter, followed by Andy Schmitt, CFO, to review the financial results for the quarter. Pete will provide closing remarks on Aviat's strategy and outlook, followed by a question-and-answer session. Yauheniya (Jane) Mikulskaya, 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.

Speaker #1: 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.

Speaker #1: Pete will then provide closing remarks on AVIAT's strategy and outlook, followed by a question-and-answer session. Janana Mikulenka, AVIAT's Chief Accounting Officer, is also with us on the call.

Speaker #1: 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.

Andrew Fredrickson: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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 third quarter.

Andrew Fredrickson: At this time, I would like to turn the call over to Aviat's President and CEO, Peter Smith. Peter?

Peter Smith: Thanks, Andrew. Good afternoon. Let's review the highlights from Q3. 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 12-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 in several Tier 1 customers, totaling approximately $9 million in revenue. Now let me talk more about our end markets and key developments.

Pete Smith: Thanks, Andrew. Good afternoon. Let's review the highlights from Q3. 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 12-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 in several Tier 1 customers, totaling approximately $9 million in revenue. Now let me talk more about our end markets and key developments.

Speaker #1: Total revenues of $100.0 million, adjusted EBITDA of $4.4 million, non-GAAP EPS of 6 cents, lowered inventories by 4.0 million dollars versus the December quarter, maintained a trailing 12-month book-to-bill ratio greater than 1.0, quarterly results were impacted by the conflict in the Middle East, where we saw a certain project push-outs and unfavorable end-of-quarter demand shifts in several Tier 1 customers totaling approximately $9 million in revenue.

Speaker #1: Now, let me talk more about our end markets and key developments. In the US, we see reason for optimism in the quarters ahead, as we gain increased visibility on the timing of our multi-dwelling unit, or MDU, opportunity.

Peter Smith: In the US, 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 1 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.

Pete Smith: In the US, 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 1 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.

Speaker #1: 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.

Speaker #1: On the MDU, we have increased confidence in the level of commitment to this project from our Tier 1 customer. And we believe that we have secured a favored position as the supplier of choice.

Speaker #1: 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.

Speaker #1: These are still relatively small, and we expect a larger step-up during fiscal 2027. As the AVIAT 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 1 customer.

Peter Smith: As the Aviat 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 1 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.

Pete Smith: As the Aviat 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 1 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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-gigahertz radio and the 2024 acquisition of 4RF.

Speaker #1: Even prior to the demand brought by brought on by artificial intelligence and data center build-outs, there was a growing need for increased investment in America's grid from a modernization and reliability standpoint.

Peter Smith: Even prior to the demand brought on by artificial intelligence and data center build-outs, there was a growing need for increased investment in America's grid from a modernization and reliability standpoint. Today, the outlook for Aviat in 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.

Pete Smith: Even prior to the demand brought on by artificial intelligence and data center build-outs, there was a growing need for increased investment in America's grid from a modernization and reliability standpoint. Today, the outlook for Aviat in 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.

Speaker #1: Today, the outlook for AVIAT and utilities is quite robust. Recent industry reports suggest that utilities will deploy 1.4 trillion on capital spending plans over the next five years.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: This build-out of the grid lifts the importance of mission-critical communication and AVIAT's well-positioned to capture increasing share of demand in this market. The utility segment is approaching 10% of our overall business.

Peter Smith: This build-out of the grid lifts the importance of mission and 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 their final award agreement.

Pete Smith: This build-out of the grid lifts the importance of mission and 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 their final award agreement.

Speaker #1: Our funnel of opportunity is strong, and the discussions we are having with many of the largest utilities in the US signal that this growth opportunity will remain for several years ahead.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Forty-six of the fifty-six states and territories have signed their final award agreement. The total funding for the approved deployment spend to date is approximately $20 billion.

Peter Smith: 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. We still remain very early in the fund deployment life cycle and will provide updates as available. Aviat stands at the ready to assist all of its customers with BEAD opportunities, thanks to its Build America, Buy America certifications, our e-commerce Aviat Store presence, and our leading position in serving rural broadband needs.

Pete Smith: 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. We still remain very early in the fund deployment life cycle and will provide updates as available. Aviat stands at the ready to assist all of its customers with BEAD opportunities, thanks to its Build America, Buy America certifications, our e-commerce Aviat Store presence, and our leading position in serving rural broadband needs.

Speaker #1: 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 percent of the award dollars.

Speaker #1: 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, signals that calendar 2027 will likely see the largest ramp purchase orders for Aviat.

Speaker #1: But we still remain very early in the fund deployment lifecycle and will provide updates as available. AVIAT stands at the ready to assist all of its customers with BEAD opportunities thanks to its Build America Buy America certifications, our e-commerce AVIAT store presence, and our leading position in serving rural broadband needs.

Speaker #1: Apart from these growth drivers, we have invested in our roadmap. We've taken our North American all-indoor radio to international markets, where we are also bringing pastoral link radios to North America in early fiscal 2027.

Peter Smith: 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 Pasolink 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 to Andy to go through the financial results.

Pete Smith: 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 Pasolink 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 to Andy to go through the financial results.

Speaker #1: Both these represent installed-based opportunities for an addressable market of over 250 million. I will now turn the call over to Andy to go through the financial results.

Speaker #1: Thanks, Pete. And good afternoon, everyone. Before going through the financial results, I'd like to briefly introduce Janana Mikulenka, who joined AVIAT in January as our Chief Accounting Officer.

Andrew C. Schmidt: Thanks, Pete. Good afternoon, everyone. Before going through the financial results, I'd like to briefly introduce Yauheniya Mikulskaya, who joined Aviat in January as our Chief Accounting Officer. She brings with her over 30 years of accounting experience, including previously serving as Chief Accounting Officer 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, Yauheniya. I'll review some of our key fiscal 2026 Q3 results. Please note that our detailed financials can be found in our press release. All comparisons discussed are between the Q3 of fiscal year 2026 and the Q3 of fiscal year 2025, unless otherwise noted.

Andy Schmidt: Thanks, Pete. Good afternoon, everyone. Before going through the financial results, I'd like to briefly introduce Yauheniya Mikulskaya, who joined Aviat in January as our Chief Accounting Officer. She brings with her over 30 years of accounting experience, including previously serving as Chief Accounting Officer 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, Yauheniya. I'll review some of our key fiscal 2026 Q3 results. Please note that our detailed financials can be found in our press release. All comparisons discussed are between the Q3 of fiscal year 2026 and the Q3 of fiscal year 2025, unless otherwise noted.

Speaker #1: She brings with her over 30 years of accounting experience including previously serving as Chief Accounting Officer and Corporate Controller at other public companies. She has already been making a great impact to the overall AVIAT team and will help us to achieve our goals.

Speaker #1: Welcome, Janana. Now, I'll review some of our key fiscal 2026 third-quarter results. Please note that our detailed financials can be found in our press release, and all comparisons discussed are between the third quarter of fiscal year 2026 and the third quarter of fiscal year 2025, unless otherwise noted.

Speaker #1: 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.

Andrew C. Schmidt: 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.

Andy Schmidt: 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.

Speaker #1: 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.

Speaker #1: 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.

Andrew C. Schmidt: International revenues were $167.1 million in the first 9 months of fiscal 2026, as compared to $169.7 million in the first 9 months of fiscal 2025. Gross margins in Q3 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 9 months of fiscal 2026, gross margins were consistent with our prior year. Gross margins were 31.7% on a GAAP basis, 32.1% on a non-GAAP basis.

Andy Schmidt: International revenues were $167.1 million in the first 9 months of fiscal 2026, as compared to $169.7 million in the first 9 months of fiscal 2025. Gross margins in Q3 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 9 months of fiscal 2026, gross margins were consistent with our prior year. Gross margins were 31.7% on a GAAP basis, 32.1% on a non-GAAP basis.

Speaker #1: Gross margins in the third quarter were 29.3% on a gap basis in 29.4% on a non-gap basis. This compares to 34.9% gap in 35.8% non-gap in prior year periods.

Speaker #1: 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 our prior year.

Speaker #1: Gross margins were 31.7% on a gap basis; 32.1% on a non-gap basis. This compares to 31.3% gap in 32.1% non-gap versus the period last year.

Andrew C. Schmidt: 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. Q3 GAAP operating expense were $28.3 million, down versus $30 million in a year ago period. Non-GAAP operating expense, which exclude impact of restructuring charges, share-based compensation, and deal costs, were $26.4 million or $0.8 million lower than the year ago period. Q3 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.

Andy Schmidt: 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. Q3 GAAP operating expense were $28.3 million, down versus $30 million in a year ago period. Non-GAAP operating expense, which exclude impact of restructuring charges, share-based compensation, and deal costs, were $26.4 million or $0.8 million lower than the year ago period. Q3 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.

Speaker #1: In regard to operating expense, we continue to work on opportunities to increase process efficiencies to drive down our expense. Third quarter gap operating expense were $28.3 million, down versus $30 million in a year-ago period.

Speaker #1: Non-gap operating expense which exclude impact of restructuring charges share-based compensation and deal costs were $26.4 million or 0.8 million lower than the year-ago period.

Speaker #1: 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.

Speaker #1: For the nine-month period, gap operating income was $13.4 million up 11.7 million versus the first nine months of last fiscal year. Year-to-date non-gap operating income was $20.5 million up 4.4 million or 27.6% versus the year-ago period.

Andrew C. Schmidt: 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 Q3 tax provision was $0.2 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. 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.

Andy Schmidt: 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 Q3 tax provision was $0.2 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. 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.

Speaker #1: The third quarter tax provision was $0.2 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.

Speaker #1: 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.

Speaker #1: This is good news for AVIAT shareholders. The potential release of the valuation allowance is due to increase in sustained profitability and our international entities thanks to revenue growth and cost management.

Andrew C. Schmidt: The potential release of the valuation allowance is due to increase in sustained profitability in our international entities, thanks to revenue growth and cost management. Similar to when Aviat released its valuation allowance in the US approximately 5 years ago, this will create a one-time GAAP 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 4 quarters. Continuing, Q3 GAAP net loss was -$2.1 million, and non-GAAP net income was +$0.7 million, which excludes restructuring charges, share-based compensation, M&A related, and other non-reoccurring expenses, and non-cash and also the non-cash tax provision.

Andy Schmidt: The potential release of the valuation allowance is due to increase in sustained profitability in our international entities, thanks to revenue growth and cost management. Similar to when Aviat released its valuation allowance in the US approximately 5 years ago, this will create a one-time GAAP 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 4 quarters. Continuing, Q3 GAAP net loss was -$2.1 million, and non-GAAP net income was +$0.7 million, which excludes restructuring charges, share-based compensation, M&A related, and other non-reoccurring expenses, and non-cash and also the non-cash tax provision.

Speaker #1: Similar to when AVIAT released its valuation allowance in the US approximately five years ago, this will create a one-time GAAP income benefit to the company in the quarter the release occurs.

Speaker #1: While exact timing of this release is uncertain, it is reasonable that it could occur at some point in the next four quarters. Continuing, third quarter GAAP net loss was $2.1 million, and non-GAAP net income was a positive $0.7 million.

Speaker #1: Which excludes restructuring charges, share-based compensation, M&A-related, and other non-recurring expenses. And non-cash and also the non-cash tax provision. Third quarter gap loss per share was $0.16 on a fully diluted basis and non-gap earnings per share came out at a positive $0.06 on a fully diluted basis.

Andrew C. Schmidt: Q3 GAAP loss per share was $0.16 on a fully diluted basis, and non-GAAP earnings per share came out at +$0.06 on a fully diluted basis. Adjusted EBITDA for Q3 was $4.4 million or 4.4% of revenues. For the 9-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 was driven primarily by the unfavorable timing of Q3 re-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 Q3 were $78.1 million.

Andy Schmidt: Q3 GAAP loss per share was $0.16 on a fully diluted basis, and non-GAAP earnings per share came out at +$0.06 on a fully diluted basis. Adjusted EBITDA for Q3 was $4.4 million or 4.4% of revenues. For the 9-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 was driven primarily by the unfavorable timing of Q3 re-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 Q3 were $78.1 million.

Speaker #1: 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 and improvement of 2.8 million or 12.5% versus the comparable period last year.

Speaker #1: The lower adjusted EBITDA margin this period was driven primarily by the unfavorable timing of Q3 revenues previously discussed which was partially offset by improving operating expense performance.

Speaker #1: 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; outstanding debt was $104.3 million, bringing the net debt position to $26.1 million.

Andrew C. Schmidt: 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. Unbilled receivables were lowered for the second consecutive quarter. The Q3 balance was $5.4 million lower compared to the fiscal 2026 Q2 ending balance. This brings our total unbilled receivables balance to $85.3 million. When compared against our short and long-term advanced 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.

Andy Schmidt: 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. Unbilled receivables were lowered for the second consecutive quarter. The Q3 balance was $5.4 million lower compared to the fiscal 2026 Q2 ending balance. This brings our total unbilled receivables balance to $85.3 million. When compared against our short and long-term advanced 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.

Speaker #1: AVIAT made continued improvements in its balance sheet this quarter. On billed 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.

Speaker #1: This brings our total unbilled receivables balance to $85.3 million. When compared against our short- and long-term advance payments and under-revenue balance of $77.6 million, the net of the two balances is $7.7 million.

Speaker #1: 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.

Speaker #1: 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 Aviat's ability to use its balance sheet to further its growth opportunities.

Andrew C. Schmidt: 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 Aviat'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?

Andy Schmidt: 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 Aviat'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?

Speaker #1: 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?

Speaker #2: Thanks, Andy. I'll 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 push-outs, we'll continue to address our expense base and we continue to pursue cost-saving initiatives.

Peter Smith: 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 Q4, inclusive of the war-induced pushouts, we will continue to address our expense base, 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. Our Q3 challenge started at the beginning of March, the challenge is timing related. Despite this temporary setback, we see normalization of demand in Q4, are highly encouraged by the progress of our growth initiatives and the potential impact on FY 2027. With that, operator, let's open up for questions.

Pete Smith: 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 Q4, inclusive of the war-induced pushouts, we will continue to address our expense base, 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. Our Q3 challenge started at the beginning of March, the challenge is timing related. Despite this temporary setback, we see normalization of demand in Q4, are highly encouraged by the progress of our growth initiatives and the potential impact on FY 2027. With that, operator, let's open up for questions.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: With that, Operator, let's open up for questions.

Speaker #3: Thank you. As a reminder to ask a question and you will need to press star 11 on your telephone. To remove yourself from the queue, please press star 11 again.

Operator: Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jaeson Schmidt of Lake Street. Please go ahead, Jaeson.

Speaker #3: Please stand by while we compile the Q&A roster. Our first question comes from the line. Jason Schmidt, of Lake Street. Please go ahead, Jason.

Speaker #4: Hey, guys. Thanks for taking my questions. Pete, just want to start with that $9 million in push-outs. Do you expect to recognize those orders here in Q4?

Jaeson Schmidt: Hey, guys. Thanks for taking my questions. Pete, just wanna start with that $9 million in pushouts. Do you expect to recognize those orders here in Q4?

Speaker #2: So I think some of them, and look, we want to be conservative with respect to—looks like there was more conflict today. I would say some of that has already shipped, and we're just at the—in the March timeframe, some of the tier ones got conservative, and we just want to be careful about potential repeats.

Peter Smith: I think some of them. Look, we wanna be conservative with respect to, looks like, 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 timeframe, some of the tier 1s got conservative, and we just wanna be careful about potential repeats. That's why we guided the way we did. I can definitively say, some of that has already, you know, shipped in the first 2 weeks of the current quarter.

Pete Smith: I think some of them. Look, we wanna be conservative with respect to, looks like, 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 timeframe, some of the tier 1s got conservative, and we just wanna be careful about potential repeats. That's why we guided the way we did. I can definitively say, some of that has already, you know, shipped in the first 2 weeks of the current quarter.

Speaker #2: So that's why we guided it the way we did. I can definitively say some of that has already shipped in the first two weeks of the current quarter.

Speaker #4: 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?

Jaeson Schmidt: Okay, that's helpful. 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?

Speaker #2: Yeah. Let me just give a little more flavor. So we've live deployments in more than five markets. All of those markets are open for sale.

Peter Smith: Yeah, let me just give a little more flavor. We have live deployments in more than 5 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 be comfortable saying it's an 8-figure opportunity in fiscal year 2027. Now, the problem with that is 8 figures goes from $10 million to $99. I think that's where, you know, we're comfortable saying 8. You know, over the next 2 or 3 months, we think we can be more exacting in how big of that opportunity.

Pete Smith: Yeah, let me just give a little more flavor. We have live deployments in more than 5 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 be comfortable saying it's an 8-figure opportunity in fiscal year 2027. Now, the problem with that is 8 figures goes from $10 million to $99. I think that's where, you know, we're comfortable saying 8. You know, over the next 2 or 3 months, we think we can be more exacting in how big of that opportunity.

Speaker #2: The size of the opportunity is going to be tied to the all-important number of subscribers that sign up really indications are favorable. We see with those deployments and opportunity for additional services and insight and work, we would be comfortable saying it's an eight-figure opportunity in fiscal year 27.

Speaker #2: Now, the problem with that is eight figures goes from $10 million to $99 million. I think that's where we're comfortable saying eight, and over the next two or three months, we think we can be more exacting in how big that opportunity is.

Peter Smith: It's the most exciting growth program in Aviat, and we're totally focused. We'll say 8 figures for now. I would say that, you know, when we get through our year-end and we incorporate this into FY 2027 guidance, we can be more specific and give you a more narrow range, Jaeson.

Speaker #2: 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 when we get through our year-end and we incorporate this into FY27 guidance, we can be more specific and give you a more narrow range, Jason.

Pete Smith: It's the most exciting growth program in Aviat, and we're totally focused. We'll say 8 figures for now. I would say that, you know, when we get through our year-end and we incorporate this into FY 2027 guidance, we can be more specific and give you a more narrow range, Jaeson.

Speaker #4: 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.

Jaeson Schmidt: Okay, that's fair. 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, what you've seen over this past quarter.

Speaker #4: Just curious where that pipeline is today and what you've seen over this past quarter.

Speaker #2: Yeah, so our upgrade on the Aprisa LTE router—we feel really good about it. We're on track for the overall Aprisa business to exceed 50% bookings growth this fiscal year.

Peter Smith: You know, our upgrade on the Aprisa LTE router, we feel really good about it. We're on track for the overall Aprisa business to exceed 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 and 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 US, Europe, and Latin America. You know, the platform for this was a small acquisition, so it's a small base, but it's growing. To put this in context, you know, microwave backhaul is, you know, let's call it a slow growth market.

Pete Smith: You know, our upgrade on the Aprisa LTE router, we feel really good about it. We're on track for the overall Aprisa business to exceed 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 and 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 US, Europe, and Latin America. You know, the platform for this was a small acquisition, so it's a small base, but it's growing. To put this in context, you know, microwave backhaul is, you know, let's call it a slow growth market.

Speaker #2: 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.

Speaker #2: The police applications are small but growing, and we've received initial orders in public safety in the US, Europe, and Latin America. The platform for this is a small— it was a small acquisition.

Speaker #2: So it's a small base, but it's growing. And to put this in context, the microwave backhaul is 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 APRISA platform for public safety and utilities, these are the things that are going to permit us in FY27 to outgrow the microwave market.

Peter Smith: When something like the Middle East conflict happens, it's tough. We really feel our growth program and fixed wireless access around MDU, the Aprisa platform, for public safety and utilities, these are the things that are gonna permit us in FY 2027 to outgrow the microwave market.

Pete Smith: When something like the Middle East conflict happens, it's tough. We really feel our growth program and fixed wireless access around MDU, the Aprisa platform, for public safety and utilities, these are the things that are gonna permit us in FY 2027 to outgrow the microwave market.

Speaker #4: Okay. Sounds good. Thanks a lot.

Jaeson 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.

Speaker #3: Thank you. Our next question comes from the line of Scott Searle, 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 pushout, some of which has shipped already into Q4, but it's still a pretty wide variance out there, of $109 to around $121 million. I wonder if you give us some of the puts and takes. It sounds like the Middle East continues to be a little bit of a headwind there. But I'm kinda wondering, you know, what you see at the higher end of the range and lower end of the range. As part of that, the gross margin sounds like that starts to recover with some US utilization. But I wonder if you could clarify a little bit more.

Speaker #5: 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 push-outs, some of which has shipped already into the fourth quarter, but it's still a pretty wide variance out there.

Speaker #5: Of 109 to around 121 million. I'm wondering if you could give us some of the puts and takes. It sounds like the MIDIs 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 recover with some utilization, but I'm wondering if you could clarify a little bit more.

Speaker #5: It sounds like you're talking about it returning more to normal levels. I just want to clarify, is that 32, 33 percent that we should be thinking about?

Scott Searle: It sounds like you're talking about it returning more to normal levels. I just wanna clarify, is that 32%, 33% that we should be thinking about? I had a couple follow-ups.

Speaker #5: And I had a couple of follow-ups.

Speaker #2: All right. Go ahead. Yeah, hey, Scott. This is Andy. Good to hear from you. I'll just start with the gross margin part. You're exactly right.

Peter Smith: All right, go ahead.

Pete Smith: All right, go ahead.

Andrew C. Schmidt: Yeah, hey, Scott, this is Andy. Good to hear from you. I'll just start with the gross margin part. You're exactly right. You know, our year-to-date gross margin, 32%, you know, 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. Just to reiterate, we didn't see gross margins drop due to price compression. Not at all. Again, pricing's in good shape. We just have to get back to expected volumes.

Andy Schmidt: Yeah, hey, Scott, this is Andy. Good to hear from you. I'll just start with the gross margin part. You're exactly right. You know, our year-to-date gross margin, 32%, you know, 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. Just to reiterate, we didn't see gross margins drop due to price compression. Not at all. Again, pricing's in good shape. We just have to get back to expected volumes.

Speaker #2: 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.

Speaker #2: 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 a gross margins drop due to price compression, not at all.

Speaker #2: Again, pricing's in good shape. We just have to get back to expected volumes. Okay. And then with the range, so we want to—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 today in India they said they had a jet fuel.

Peter Smith: Okay. Then with the range, we wanna, you know, and let's say we have the same end of quarter dynamics where Tier 1s push out and we're not able to get stuff into the Middle East. You know, today in India, they said they had a jet fuel, so we're hedging on that. You know, that's why there's the range. Just, you know, for a company at our scale, it's harder to deal with these risks and we wanna, you know, not have the difficulty in achieving the expectations we set at the end of the June quarter. That's why there's the range.

Pete Smith: Okay. Then with the range, we wanna, you know, and let's say we have the same end of quarter dynamics where Tier 1s push out and we're not able to get stuff into the Middle East. You know, today in India, they said they had a jet fuel, so we're hedging on that. You know, that's why there's the range. Just, you know, for a company at our scale, it's harder to deal with these risks and we wanna, you know, not have the difficulty in achieving the expectations we set at the end of the June quarter. That's why there's the range.

Speaker #2: So we're hedging on that. So that's why there's the range and just for a company at our scale, it's harder to deal with these risks and we want to not have the difficulty in achieving the expectations we set at the end of the June quarter.

Speaker #2: So that's why there's the range. We obviously, we want to do the as well as we can to be to deliver on the higher end, but we want to be conservative and acknowledge the environment that as it is.

Peter Smith: We, you know, obviously we wanna do as well as we can to be, to deliver on the higher end, but we wanna be conservative and acknowledge the environment as it is.

Pete Smith: We, you know, obviously we wanna do as well as we can to be, to deliver on the higher end, but we wanna 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, you know, in terms of how you're managing memory, incremental freight costs now. Are you still comfortable with maintaining that gross margin outlook given the current pricing environment that we're seeing there? Maybe a quick follow-up on the balance sheet as well. You know, 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, improving inventory terms.

Speaker #4: Maybe a couple of 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.

Speaker #4: 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.

Speaker #4: 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 by working down DSOs and improving inventory turns.

Speaker #5: Sure. So 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.

Andrew C. Schmidt: Sure. I'll start with the gross margin and, you know, 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. 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. Again, we work, you know, diligently in terms of looking for offsets to normal inflation items you might hear from your other, 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.

Andy Schmidt: Sure. I'll start with the gross margin and, you know, 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. 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. Again, we work, you know, diligently in terms of looking for offsets to normal inflation items you might hear from your other, 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.

Speaker #5: 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.

Speaker #5: 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 of aged accounts are really next on our barometer.

Speaker #5: We expect unbilled to continue to come down. We have good traction two quarters in a row, which means we've cracked the nut in terms of the equation of how to attack that.

Andrew C. Schmidt: We have good traction 2 quarters in a row, which means we've cracked the nut in terms of the equation on how to attack that. That's good. We expect inventories to continue to improve. It all drives basically cash flow that should exceed adjusted EBITDA. That's what we're shooting for. We see clear daylight in terms of next number of quarters continuing this trend. We don't expect it to end.

Andy Schmidt: We have good traction 2 quarters in a row, which means we've cracked the nut in terms of the equation on how to attack that. That's good. We expect inventories to continue to improve. It all drives basically cash flow that should exceed adjusted EBITDA. That's what we're shooting for. We see clear daylight in terms of next number of quarters continuing this trend. We don't expect it to end.

Speaker #5: That's good. We 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.

Speaker #5: And we see clear daylight in terms of next number of quarters. Continuing this trend. We don't expect it to end. Great. And if I could just oh, sorry.

Scott Searle: Great. Oh, sorry. Go ahead.

Speaker #5: Go ahead.

Peter Smith: Well, Scott, did you want the memory and freight stuff or?

Pete Smith: Well, Scott, did you want the memory and freight stuff or?

Speaker #2: Well, Scott, did you want the memory and freight stuff, or?

Scott Searle: Yes, please.

Speaker #4: Yes, please. You got it.

Peter Smith: You're satisfied?

Pete Smith: You're satisfied?

Scott Searle: Yeah.

Peter Smith: Yeah.

Pete Smith: Yeah.

Scott Searle: Yeah.

Speaker #2: Yeah, so look, memory in a microwave radio is a small part of the BOM. We were in a good inventory position. We could see probably two quarters out there being a little bit of inflation.

Peter Smith: Look, memory in a microwave radios is a small part of the BOM. We were in a good inventory position. We could see, you know, probably 2 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. Going forward, we'll adjust our freight prices as well. That's to answer the inflation part of your question. Memory is small. If you want to think about what we see in supply and demand in components, I could imagine a couple quarters out that trailing edge CPUs enter the dialogue that is occurring with memory, but that does not impact us yet.

Pete Smith: Look, memory in a microwave radios is a small part of the BOM. We were in a good inventory position. We could see, you know, probably 2 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. Going forward, we'll adjust our freight prices as well. That's to answer the inflation part of your question. Memory is small. If you want to think about what we see in supply and demand in components, I could imagine a couple quarters out that trailing edge CPUs enter the dialogue that is occurring with memory, but that does not impact us yet.

Speaker #2: 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 freight prices as well.

Speaker #2: 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 of quarters out that trailing-edge CPUs enter the dialogue that is occurring with memory, but that hasn't impacted us yet.

Peter Smith: We will probably buy ahead on CPUs where the trailing edge CPUs where it makes sense. Go ahead. Back to you, Scott.

Speaker #2: And we will probably buy ahead on CPUs where the trailing edge CPUs were making sense. Go ahead.

Pete Smith: We will probably buy ahead on CPUs where the trailing edge CPUs where it makes sense. Go ahead. Back to you, Scott.

Scott Searle: Great. Great. 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 timeline 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. Also, I've gotten some questions as it relates to Nokia's FWA business being sold to Inseego, how that impacts you. Secondly, just in terms of the MDU opportunity, are there any other technical milestones that you need to hit at this point? Are we good, and we're just kinda waiting for the MDU customer to start to ramp? Thank you.

Speaker #4: Great help. And Pete, if I could, two just larger more macro kind of follow-ups, if you will. Nokia, there's been hearing out there that in terms of their timeline and expected divestiture of the wireless transmission business that's creating some opportunities for other vendors in Europe and elsewhere.

Speaker #4: 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 Insigo, how that impacts you.

Speaker #4: And secondly, just in terms of the MDU opportunity, are there any other technical milestones that you need to hit at this point, or are we good and we're just kind of waiting for the MDU customer to start to ramp?

Speaker #4: Thank you.

Speaker #2: Yeah. So there's no more obvious technical milestones, right? Let's say in the next six to nine months, we need to deliver the next-generation project.

Peter Smith: Yeah. There's no more Aviat tactical milestones, right? However, let's say in the next 6 to 9 months, we need to deliver the next generation project or product configuration, and we're on track for that. 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 in delivering fixed wireless to apartment buildings.

Pete Smith: Yeah. There's no more Aviat tactical milestones, right? However, let's say in the next 6 to 9 months, we need to deliver the next generation project or product configuration, and we're on track for that. 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 in delivering fixed wireless to apartment buildings.

Speaker #2: Our 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.

Speaker #2: So we feel really good. And we think that our microwave system engineering is really winning the day versus the competition there. The with respect to 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 announcement has happened and we know very little beyond that.

Peter Smith: We feel really good, and we think that, you know, our microwave system engineering is really winning the day versus the competition there. 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 announcement has happened, and we know very little beyond that. Inseego purchase of fixed wireless access would suggest that Nokia is executing on the announcement that they made in the back of November. I don't have anything further to add with respect to their intent to execute on the microwave portion. You know, the other part of your question is what is it doing in the competitive landscape.

Pete Smith: We feel really good, and we think that, you know, our microwave system engineering is really winning the day versus the competition there. 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 announcement has happened, and we know very little beyond that. Inseego purchase of fixed wireless access would suggest that Nokia is executing on the announcement that they made in the back of November. I don't have anything further to add with respect to their intent to execute on the microwave portion. You know, the other part of your question is what is it doing in the competitive landscape.

Speaker #2: The Insigo 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.

Speaker #2: And the other part of your question is, what is it doing? In the competitive landscape, I think—I don't know if and when it'll come for sale.

Peter Smith: 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 de-developing alternatives, should that property be trade or should that property become, let's say, neglected within the portfolio of Nokia. I don't know what's gonna 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.

Pete Smith: 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 de-developing alternatives, should that property be trade or should that property become, let's say, neglected within the portfolio of Nokia. I don't know what's gonna 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.

Speaker #2: I would say obviate and obviate's competitors are very engaged in developing a alternative should that property be traded or should that property become let's say neglected within the portfolio of Nokia.

Speaker #2: 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.

Speaker #4: Great. Thanks so much. I'll get back in the queue.

Scott Searle: Great. Thanks so much. I'll get back in the queue.

Speaker #3: Thank you. Once again, to ask a question, please press star one one on your telephone. Our next question comes from the line of Theodore O'Neill of Litchfield Hills Research.

Operator: Thank you. Once again, to ask a question, please press star one one on your telephone. Our next question comes from the line of Theodore O'Neill of Litchfield Hills Research. Your line is open now, Theodore.

Speaker #3: Your line is open, Theodore.

Theodore O'Neill: Thanks very much. Pete, just to follow up on a previous answer, you mentioned that an issue in India was related to jet fuel. I was wondering, are these issues related to simply you or your customers getting around, or is it trying to avoid a conflict zone?

Speaker #4: Oh, thanks very much. Pete, just to follow up on a previous answer—you mentioned that 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?

Peter Smith: 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. That was a headline I wrote around from India. Where does it really show up? It shows up in our freight costs.

Speaker #2: It's not. It's trying to move stuff. You need to have jet fuel to move. And that's the comment about freight inflation is tied to the constriction in supply of jet fuel.

Pete Smith: 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. That was a headline I wrote around from India. Where does it really show up? It shows up in our freight costs.

Speaker #2: And that was a headline I wrote around from India. But where does it really show up? Does it show up in our freight costs?

Speaker #4: Okay. 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.

Theodore O'Neill: Okay.

Peter Smith: So.

Pete Smith: So.

Theodore O'Neill: 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 gonna 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.

Speaker #4: And by extension, if that would also drive some private network business to the AI data centers.

Speaker #2: Okay. I think, yeah, so the Defense Production Act—it was a recent presidential executive order to push the modernization of the grid. I don't believe that that was for data centers or AI.

Peter Smith: I think, the Defense Production 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. What we see from that is, it didn't call out microwave or critical communications. As the modernization push happens, we see an increased ramping, grid builds. Our pipeline of utility opportunities is increasing. You know, as the utility yard gets bigger, the need to extend the microwave coverage goes up. Also in that executive order, there was a focus on national defense and foreign supply risks.

Pete Smith: I think, the Defense Production 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. What we see from that is, it didn't call out microwave or critical communications. As the modernization push happens, we see an increased ramping, grid builds. Our pipeline of utility opportunities is increasing. You know, as the utility yard gets bigger, the need to extend the microwave coverage goes up. Also in that executive order, there was a focus on national defense and foreign supply risks.

Speaker #2: 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 ramp in grid builds. Our pipeline of utility opportunities is increasing.

Speaker #2: And 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.

Peter Smith: 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 gonna pay dividends for us going forward. Thank you for this. Thank you for the question.

Pete Smith: 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 gonna pay dividends for us going forward. Thank you for this. Thank you for the question.

Speaker #2: We are Build America Buy America compliant. We're the only microwave company headquartered in North America. Our utility business is approaching just under 10%.

Speaker #2: So we think that this national focus is going to pay dividends for us going forward. Thank you for this. Thank you for the question, Theodore.

Speaker #4: Yep. Okay. Thanks very much.

Theodore O'Neill: Yep. Okay. Thanks very much.

Operator: Thank you. I would now like to turn the conference back to Peter Smith for closing remarks. Sir?

Speaker #3: Thank you. I would now like to turn the conference back to Peter Smith for closing remarks. Sir?

Peter Smith: Okay. 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 FY 2027. 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 FY 2027 with MDU, with BEAD, with the utility and the increase of platforms. Thank you, everyone.

Pete Smith: Okay. 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 FY 2027. 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 FY 2027 with MDU, with BEAD, with the utility and the increase of platforms. Thank you, everyone.

Speaker #2: Okay. I'd like to thank everybody for joining. The Middle East conflict was certainly a drag on demand and margins. We are very excited about our growth programs.

Speaker #2: 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 BEAD, with the utility and freezer platforms.

Speaker #2: Thank you, everyone.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.