Aviat Networks Q2 2025 Earnings Call Transcript

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February 4, 2025
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Operator

Hello, and welcome to Aviont Networks Fiscal Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press 11 on your telephone. You would then hear automated message advising your hand is raised.

Operator

I would now like to turn the conference over to Andrew Fredrickson. Sir, you may begin.

Andrew Fredrickson
Andrew Fredrickson
Director of Corporate Development & Investor Relations at Aviat Networks

Thank you, and welcome to Aviat Networks' Second Quarter Fiscal twenty twenty five 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 Michael Conaway, our CFO, who will review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook followed by Q and 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.

Andrew Fredrickson
Andrew Fredrickson
Director of Corporate Development & Investor Relations at Aviat Networks

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 ks filed 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.avianetworks.com and financial tables therein, which include a GAAP to non GAAP reconciliation and other supplemental financial information.

Andrew Fredrickson
Andrew Fredrickson
Director of Corporate Development & Investor Relations at Aviat Networks

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

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Thanks, Andrew, and good afternoon. We are pleased to report a strong quarter of financial and operational performance for Aviat Networks. Let's discuss the highlights of our second quarter of fiscal year twenty twenty five. Total revenue of $118,000,000 up 26% versus the same period a year ago. Non GAAP gross margin of 35.3.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Adjusted EBITDA of $14,800,000 up 22% versus the year ago period non GAAP EPS of $0.82 Let's recognize that the whole Aviat team delivered for our customers, suppliers, partners and shareholders. The dedication to continuous improvement and customer focus resulted in the highest quarterly revenue the company has had in over a decade and record quarterly adjusted EBITDA. We benefited from operating leverage this quarter. Gross margin returned to levels comparable to recent quarters. Profitability at the adjusted EBITDA and non GAAP net income level were strong, thanks to higher level of revenue and margin, as well as disciplined spending on operating expenses.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

These factors in addition to an intense focus on working capital aided the company in generating positive cash from operations in the quarter. While we still have much work to do, I see this quarter as a strong indicator of what can be accomplished following our strategy. Let's talk a little more about each of our end markets. With mobile service providers, our results were strong, thanks to a robust quarter from the Passlink products and services, improved margins in the India business versus the first quarter and improving business in the EMEA and Latin America regions. Revenues in the quarter related to Passolink were just shy of the $35,000,000 level.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

This is the annual contribution rate that we expect the Passolink acquisition to have by the end of fiscal year twenty twenty five. At this scale, we are generating meaningful earnings contribution from the acquisition. We are pleased with the progress we have made. Encouragingly, our PASIL Inc orders for the last three quarters have averaged $35,000,000 setting us up for continued growth from Passolink and giving us confidence we will meet our $140,000,000 run rate target by the end of the fiscal year. We have shipped our first PacoLink radio from our contract manufacturer in Thailand during the second quarter.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

This is a major achievement by the team. Although we still have more to do in the quarters ahead, we believe that once completed, this move will improve product lead times for customers and lead to better margins for our shareholders. Regarding the Tier one environment in The U. S, while we still expect near term demand to remain muted compared to last year, Q2 saw a sequential increase versus Q1. This reinforces our belief that the headwinds we are currently facing are timing related rather than the result of large CapEx shifts.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Moving to private networks, we had a strong quarter from our private networks business. In public safety, we continue to serve our large statewide networks that we have won over the last several quarters in addition to numerous other public safety networks. The spending environment in this segment remains healthy and we continue to look for areas of share gain opportunity. In the rural broadband space, Aviat continues to hold its place as the share of demand leader for microwave backhaul with wireless Internet service providers. Although we do not expect to have revenue in fiscal twenty twenty five related to the $42,000,000,000 broadband equity access and deployment program or BEAT, I would like to answer some questions that have been on top of many investors' minds since November.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

First, there continues to be growing recognition of the importance of wireless broadband alternatives in the FEED program to make funding go as far as possible. Some states such as Utah and Arizona have defined the upper cost threshold for fiber connection before turning to an alternative technology. We expect this sentiment to continue to grow, which bodes well for wireless applications. Secondly, we are asked about low earth orbit or LEO satellite Internet companies indeed. While LEO satellite Internet has a value proposition for very remote or difficult to reach locations, wireless Internet service providers can provide better performance and reliability at a lower monthly cost to their customers than what is currently available from the LEO Internet services.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

We will see what if any changes occur to the BEED program with a new administration. Aviat stands at the ready to assist state broadband offices and Internet service providers with their backhaul needs, thanks to our U. S. Footprint and our Build America, Buy America compliant products. Regarding our products, we have made a few recent announcements.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

We strengthened our software cybersecurity offering by enhancing our secure software development lifecycle process and software vulnerability alert service. Our software and firmware development continues pace with the latest cybersecurity requirements. Given the nature of the critical communication networks we are part of, we believe it is extremely important to remain up to date on cybersecurity measures to help keep our customers safe from such threats. Additionally, we are introducing a new product solution, multi band max or MB Max. This is an exciting offering that enables up to 25 gigabits per second on a single antenna via combined microwave and millimeter wave.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

MB Max enables more capacity over longer distances with better reliability using fewer and smaller antennas than competing solutions, resulting in a lower total cost of ownership for our customer. We expect to begin shipping MB Max in the coming months and we'll have more details to share with customers soon. I would like to now turn the call over to Michael to review the financial results of the quarter before coming back for some closing remarks.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Thank you very much, Pete, and good afternoon, everyone. I'll review some of the key fiscal twenty twenty five 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 twenty twenty five and the second quarter of fiscal year twenty twenty four unless otherwise noted. For the second quarter, we reported total revenues of $118,200,000 as compared with $93,700,000 for the same period last year, an increase of $24,500,000 or 26.2% year over year. North America, which comprised 49% of our total revenues for the quarter, was $58,000,000 an increase of $7,300,000 or 15% from the same period last year due to good execution in private networks.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

International revenue was $60,200,000 for the quarter, an increase of $17,200,000 or 40 percent from the same period last year. This growth was driven primarily by the addition of revenues from the Passlink acquisition. Our trailing twelve month book to bill was over one in the quarter. Gross margins in 2Q were 34.6% on a GAAP basis and 35.3 on a non GAAP basis. This compares to 38.8% GAAP and 38.8% non GAAP in the prior year.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Gross margins were impacted by the addition of Paso Link, product mix in the quarter and comping against a record level of gross margin profitability in 2Q twenty twenty four. Second quarter GAAP operating expenses were $32,900,000 flat versus the prior year. Non GAAP operating expenses, which exclude the impact of restructuring charges, share based compensation and deal costs were $29,100,000 an increase of $3,700,000 versus the prior year. This increase is due to the additions of the Passalink and 4RF acquisitions. Second quarter operating income was $8,000,000 on a GAAP basis and $12,600,000 on a non GAAP basis.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

This compares to $3,400,000 GAAP and $11,000,000 non GAAP in the year ago period. The second quarter tax provision was $1,600,000 As a reminder, the company has approximately $450,000,000 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 $4,500,000 and non GAAP net income, which excludes restructuring charges, share based compensation, M and A related and other non recurring expenses and the non cash tax provision was $10,500,000 Second quarter non GAAP earnings per share came in at $0.82 on a fully diluted basis. Adjusted EBITDA for the second quarter was $14,800,000 or 12.6% of revenues, an increase of 2,700,000 or 22% versus last year. As Pete mentioned, this marks a record quarterly adjusted EBITDA for Aviat.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Moving on to the balance sheet. Our cash and marketable securities at the end of the second quarter were $52,600,000 Our outstanding debt was $74,900,000 bringing our net debt position to $22,300,000 an improvement of $10,000,000 versus the first quarter of fiscal twenty twenty five. We generated cash from operating activities of $20,800,000 in the quarter. Thanks to profitable results and improvements in our working capital position. This is Aviat's best cash from operating activities result in at least seven years.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Additionally, during the second quarter, we deployed capital to repurchase 34,600 Aviat shares. With that, I'll turn it back to Pete for some final comments. Pete?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Thanks, Michael. We are pleased with the results posted in the second quarter. In reflection on the company's performance over the last several quarters, we've made some changes to the team to drive scale and growth in the years ahead. We have brought in a new EMEA commercial leader and a new leader for our global operations and supply chain. We are encouraged by their impact thus far.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

In addition, we have strengthened the Board and audit function. Please refer to the recent announcement of Scott Halladay. We are leaving our guidance as previously stated. Please see the seasonality chart in the investor deck for modeling purposes. Slide 21.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

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

Operator

Thank Our first question comes from

Operator

the line of Jason Schmidt with Lake Street. Your line is open.

Jaeson Schmidt
Director of Research at Lake Street Capital

Hey guys, thanks for taking my questions and congrats on the strong results. I mean just want to start with the results. I'm curious if you could just lay out what the one or two businesses or customers that really drove that strong outperformance in the December?

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Yes. Maybe I'll just start with how we did on bookings and then start with good performance from the PathsLink business as Pete alluded to. We almost hit the ramp rate on revenues that we committed to on the year. And then bookings was in excess of the revenues that we recorded in the quarter. So PathLink bookings was upwards of $40,000,000 And then we had a really nice quarter from the recently acquired 4F business as well and that was helpful from a year over year standpoint in North America.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

So it's really good to see those two recent purchases performing above the plan. And then just from a booking standpoint, we talked about it a little bit in my remarks, but the third quarter in a row where the book to bill was greater than one and just from a mathematical or numerical standpoint in the quarter, book to bill was 1.08. So those commercial dynamics are just kind of a smattering of what went well in the quarter.

Jaeson Schmidt
Director of Research at Lake Street Capital

Okay. No, that's really helpful. And just want to make sure I fully understand your comments surrounding U. S. Tier one.

Jaeson Schmidt
Director of Research at Lake Street Capital

I know you noted it was up sequentially in Q2, but have your expectations changed at all for fiscal twenty twenty five in that market?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

I think The U. S. Tier one, we have factored into our guidance and a faster recovery would be a benefit to Jason. So that's the best way to think about it.

Jaeson Schmidt
Director of Research at Lake Street Capital

Got you. And then just the last one for me and I'll jump back in the queue. You noted kind of the first radio from your Centimeters in Thailand on the PASOLINK business. Just curious if you could help us understand where PASOLINK gross margins are and how we should think about those scaling the rest of this fiscal year?

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Yes. Gross margins for the company overall rebounded really nicely in the second quarter versus where we were in the first quarter. And part of that was better performance in PASO Link. We think that over the second half of the year as we complete the manufacturing transfer into our Centimeters more fully. But there's probably a little bit more runway on the gross margins more likely in the fourth quarter versus kind of the mid-30s position that we were in the second quarter.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

But, Patholink, both revenues and gross margins, really good story.

Jaeson Schmidt
Director of Research at Lake Street Capital

All right. Perfect. Thanks a lot, guys.

Operator

Thank you. Please stand by for our next question.

Operator

Our next question comes from the

Operator

line of Scott Searle with Roth Capital Partners. Your line is open.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Hey, good afternoon. Thanks for taking my questions. Great job on the quarter guys, really impressive to see the quick snapback. Maybe to dive in just from a global supply chain standpoint, could Mike, Pete, could you take us through your current exposures, what risks you've got, if any, in the current rapidly evolving tariff environment? And could you also address a little bit more in detail some of the working capital improvements?

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

It sounds like you had a great quarter this quarter, but if I look at the inventory turns and DSOs, it looks like there's more room for improvement. So how should we be thinking about that over the next couple of quarters?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Right. So I'll do the supply chain and inventory and then Michael can do the working capital. So in COVID, Aviat distinguished itself via its supply chain management. I think the environment with respect to tariffs coming tariffs going is challenging. It's likely to produce some ripples in the supply chain.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

So we've dusted off the COVID playbook and we're going to use that learning to deal with any potential supply chain interruptions, right? I would say in the last week, we've had discussions with three Fortune 500 U. S. Based companies about supply chain. Those three companies are really very happy that we have a U.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

S. Basis and are pretty well positioned to deal with what the supply chain interruptions that the tariffs may deal may confront us with. And then on inventory, I would say, we are gearing up for our Paso Link transition to the contract manufacturer. So we will probably have peak inventory this quarter as we complete our bridge build. And so I would say Q4 and beyond will start to turn some of that inventory into cash.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

And then let me turn it over to Michael on the working

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

capital. Yes, I know. So, weaving the working capital into cash overall, the CFOA that we printed was $21,000,000 which was as we said a record for the company. If you look back at both Q2 of twenty twenty three and Q2 of twenty twenty four, the two most recent comparable periods CFOA for Aviat was negative in both of those other quarters. So the improved results in 2025 were driven because we achieved our first quarter of material working capital reductions since we've owned PasaLink sequentially.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

And that looks even more impressive when you consider that we did it on roughly $30,000,000 more revenues versus Q1. So all in all, really pleased with how cash finished in Q2, but you alluded to it, Scott, and you're right, there's more to do on it. And Pete kind of underlined it Q3. Inventory probably doesn't get much better. Pete said peak inventories.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

He and I are, of course, on the same page. But that unlock will materialize itself likely more in Q4 and provide that tailwind, Scott, that you alluded to a little bit for our fiscal twenty twenty six.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Great. Very, very helpful. And maybe quickly, kind of shifting gears to some of the key end markets. It sounds like private networks, and I looked at the North American sales number recovered pretty nicely. I wonder if you could provide a little bit more color on that front.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

And then geographically from a service provider standpoint, I think at a high level, we're hearing stabilization, right, from other telco vendors out there across the broader macro landscape, whether it's Europe, North America, Latin America. I wonder if you could talk a little about what you're seeing from a geographic standpoint, engagement with those carriers and kind of how that's giving you comfort when you look at fiscal twenty twenty five and beyond?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Okay. So let's just take private networks briefly. The public safety market is continuing to perform. If you want a proxy for that, look at the leader in that, the public safety space, Motorola. If on our second biggest application set is utilities.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Utilities have been under invested for forty years. And if you look at the industrial companies that sell into the utility space, all the analysts in that industrial utility space are bullish and we would say that we're bullish as well. On the I think on The U. S. Tier one, it is stable.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

It's at a lower level than we would like, but we've already factored that in. And then outside of The U. S, there are some folks that are growing their networks, we would say Southeast Asia, Latin America, Eastern Europe are all areas of strength.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Great. Very helpful. And lastly, if I could, 4RF, you mentioned that in your opening remarks. It sounds like that's off to a good start. I'm wondering if you could just provide a little bit of color in terms of applications and geographies where you're seeing that adoption?

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Thanks.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

So the number one application is utilities. One of the remarkable things in our due diligence was that there was only 11% overlap in the utility customers. So there's going to be as we train cross train the sales forces, there's going to be cross training there's going to be cross selling opportunities. So we're really excited about that. And 4Rf was a relatively small company with a sales footprint in The U.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

S, but outside The U. S, it was very limited and we're starting to see some traction outside The U. S, particularly Europe, The Middle East and a little bit in Asia Pac. So it's good.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Hey, Pete. Maybe one last one quickly and then I'll get back in the queue. But it's still a pretty broad range for the guidance for this year of $430,000,000 to $470,000,000 I'm wondering real quickly just what are the swing factors from the lower end of that range to the higher end of that range? Thanks and congrats on the quarter again.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

I think some things that would swing it up would be better performance in rural broadband. You would see faster conversion of private network projects. Those would be two and global spending on network upgrades in the mobile network operators, that would be the swing factor. Thanks, Scott.

Scott Searle
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Thank you. Great quarter.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Theodore O'Neil with Richfield Hills Research. Your line is open. Yes.

Theodore O'Neill
CEO at Litchfield Hills Research

And congratulations on the quarter. I was wondering on the margin improvement, is it a mix issue? Is it utilization issue? Is it something to do with PASILINK? I was wondering if you could give us a little more detail on that.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Yes. Great question. I'd say that our gross profits obviously rebounded really nicely in the quarter versus Q1 levels. And you hit it, it was really improved revenue mix, mostly in two critical nodes of performance. One, our geographic dispersion of our revenues as North America improved significantly versus 1Q.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

And then our product mix in software sales as well was better in Q2 than in Q1. And just say one other thing, just because Scott had the question on for our rep, which we call internally our Apprezza business. But that business in particular had a really nice quarter for us on revenues. And that's an incremental boost to our mix too since it trades at more favorable gross margins than Aviat's historical averages. So all of those things were additive from a mix standpoint in Q2 versus Q1.

Theodore O'Neill
CEO at Litchfield Hills Research

Thank you. And I was wondering if you had any 10% or more customers in the quarter, if you could talk about that?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Yes. So over the last two quarters, our largest customer has been different, Q1 versus Q2, and neither of them tripped the 6% level. So the way we have very little we have high customer diversification and very little customer concentration risk.

Theodore O'Neill
CEO at Litchfield Hills Research

Okay. And I just want to compliment you on the seasonality slide, Slide 21. That's very helpful.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Yes. Thanks. Thanks very much.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Dave Kang with B. Riley. Your line is open.

Dave Kang
Senior Analyst at B Riley Financial

Thank you. Good afternoon and nice quarter guys. First question is regarding North America Tier one SP service providers. I guess, still muted despite very strong revenue. So a couple of questions there.

Dave Kang
Senior Analyst at B Riley Financial

Is it because of excess inventories they still have? And if so, what's the timeline as far as working down those inventories?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

It's not inventory related. It's there we're basically between projects.

Dave Kang
Senior Analyst at B Riley Financial

Oh, so it's more of a timing issue there?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Yes, yes.

Dave Kang
Senior Analyst at B Riley Financial

And so March, is that going to be still that still going to be muted or how should we think about the trajectory?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Look,

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

I think their run rate is factored into our overall guidance. And if they decide to turn the projects on, then we'll have upside. And if not, I think it will materialize in Q1 FY twenty twenty six.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Got it. And then, last quarter, you also talked about Africa, a couple of Africa customers being weak, just update there with those customers?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Yes, I would say we still see some weakness in Africa and that's largely driven by currencies and their ability to pay. And with the interest rates on the dollar and the euro being elevated, I would say that Africa will remain at that level for the foreseeable future.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Got it. So probably not this calendar year then or?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Yes. I Yes, well, look, I'm not in the business of predicting interest rates, but I so let's say that for this calendar year, I think Africa demand will be relatively modest.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

And just how should we expect Europe to do this year given, I guess, like Germany and other countries dealing with recession and geopolitical situation? So any color or your expectation on Europe?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

We're seeing good funnel and good conversion of the funnel in Europe. So there's been some legislation around the Chinese vendors, which could be some encouragement for us. So we see Europe as being potentially a growth driver, Dave. And I think some of the Chinese competitor dynamics are factored in there. And I think there is some recognition of the Aviat value proposition, which could or could turn into growth for us.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Tim with Northland Capital Markets.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Yes. Tim here. Let me go back to the seasonality slide and maybe in combination with some of the commentary on the guidance range. But I guess I'll boil it down into this one question. Would you expect Q2 to be the peak revenue quarter for the year, I guess, given what you're saying about seasonality?

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

And I understand you got some downward seasonality in the March typically, but given your bookings and backlog commentary, that would seem to be fairly conservative, although that's what's implied at the low end of your range, that Q2 is likely the peak. So I'd love to get you to respond to that and then follow-up.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

Yes. Look, I mean, we put that chart in there for a reason. So I'm glad that some folks had kind of alluded to it. And the setup on the year is fairly well choreographed as it relates to how the seasonality pattern typically plays out. So the persistence of a little bit less revenues in Q3 versus Q2, that is what we think will occur as it relates to 2025.

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

It's a relatively persistent trend. It gets even more pronounced if you were to adjust 2024 and normalize out the effect of pass the length. But then in Q4, which is our June, revenues typically increase. And if the bookings that we've seen in Q4, Q1, Q2, all three quarters of which have been greater than a book to bill greater than one, if those bookings persist in Q3, then there's no reason that Q4 shouldn't be potentially even a bigger revenue outcome than Q2. So that's kind of the setup in our minds as we're thinking about the second half of the year.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

I have a little bit to add on this, Tim. So some of the March is affected by weather, the installs of private networks. And if the weather is challenging, those installs will be done the first two weeks of April. So we want to be conservative with respect to the March. And I think Michael answered his gave his perspective on the June.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Okay, great. And I'll follow-up on the range question. Pete, you mentioned some factors that could drive things to the upside. I wonder if I could get you to talk more about what would have to happen to get the lower end of the range. First, we'll start that on revenue and I think becomes even a more difficult question on EBITDA given how strong your margins were in Q2, but that's good.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

We'll get to that in a moment. And start on the top line.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Well, look, we talked earlier about supply chain ripples and if there is a supply chain ripple that's tariff induced, I could see that having a negative consequence, right? The globally Tier one demand is that if there's push outs or project delays that could be another negative. Thirdly, conversion, we have good backlog. How fast do we take that backlog design, configure the network and get it shipped. If our customers are slower on that part of the conversion cycle, those could all be have an impact where we'd wind up at the lower end of the range.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Okay. But you're kind of seeing the opposite of that right now. So something material would need to change to the downside to get us to the low end. Is that fair to say?

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Look, we've just been through a very difficult time. And I am not going to take I don't want to give anyone the idea that things are better than there are. I think we rather than tweak the model, we'd like to just have the opportunity to prove ourselves again and again.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Right. Fair enough. Thought I had one more here. Oh, on the EBITDA side. So maybe a similar discussion, but even kind of more pronounced.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Are there any factors or were there in Q2 that are on the gross margin side or elsewhere that are maybe non recurring where you could see either some deterioration in gross margin or increases in OpEx that would kind of take you off your current EBITDA margin run rate?

Michael Connaway
Michael Connaway
CFO & Senior VP at Aviat Networks

No, I wouldn't say anything non recurring in nature like that, Tim, in the quarter.

Tim Savageaux
MD & Senior Research Analyst at Northland Capital Markets

Okay. Thanks very much.

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Pete for closing remarks.

Peter Smith
Peter Smith
President & Chief Executive Officer at Aviat Networks

Thanks everyone for joining us. We look forward to updating you on Aviat's progress next quarter. Thanks again. Talk to you soon.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Executives
    • Andrew Fredrickson
      Andrew Fredrickson
      Director of Corporate Development & Investor Relations
    • Peter Smith
      Peter Smith
      President & Chief Executive Officer
    • Michael Connaway
      Michael Connaway
      CFO & Senior VP
Analysts
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Earnings Conference Call
Aviat Networks Q2 2025
00:00 / 00:00

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