Aviat Networks, Inc. Stock

Welcome to Aviat Networks' Fourth Quarter Fiscal 2026 Earnings Conference Call.[Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President, Corporate Finance. You may begin.

Thank you, and welcome to Aviat Networks' Fourth Quarter Fiscal 2026 Results Conference Call and Webcast. You can find our press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com, along with a replay of today's call. With me today are Pete Smith, Aviat's President and CEO, who will begin with opening remarks on the company's fiscal quarter, followed by Andy Schmidt, CFO, to review financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook.

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, the economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast and involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. Additional information on factors that could cause actual results to differ materially from the statements expressed or implied on this call can be found in our most recent 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. At this time, I would like to turn the call over to Aviat's President and CEO, Pete Smith. Pete?

Thanks, Andrew. Let's review the highlights from the fourth quarter. Quarterly revenues of $121 million, up 4.8% versus the year ago period. Adjusted EBITDA of $11.9 million, non-GAAP EPS of $0.64, year-end backlog of $367 million, up 14% versus the end of fiscal year 2025. This marks a strong end to Aviat's fiscal 2026. Full year revenue was $440 million, up 1.2% versus the prior fiscal year. This represents our sixth consecutive year of revenue growth. Aviat is the only microwave company to achieve this growth during the last 6 years.

I would also like to note that this was the first time in over a decade that Aviat has had all 4 quarters in the fiscal year with at least $100 million in revenue. This is a tremendous achievement, and I would like to thank all of our customers, supplier partners and employees in making this possible. Since FY '23, we have been expanding outside of our core microwave business with a focus on mission-critical access. In FY '26, sales of non-microwave, i.e., mission-critical access products grew significantly versus FY '25 and is the result of Aviat's strategic decisions and execution in years prior, allowing us to diversify our business and gain access to larger, faster-growing segments. We are glad to see this strategy coming to fruition.

Now I'd like to talk more about recent developments in our end markets. In the U.S., strong quarterly sales and bookings set the stage for an exciting year ahead. We see several growth vectors aligning for Aviat. First, we believe our multi-dwelling unit MDU opportunity will deliver meaningful revenues to Aviat this year. We announced an order received from an existing customer in the range of $25 million to $30 million. We expect all of this revenue in fiscal 2027. The Aviat team continues to work to win additional markets and adjacent opportunities to increase our capture rate in fiscal 2027 and beyond.

Secondly, we see private networks continuing to be a core foundation for Aviat's growth. In state and local public safety networks, Aviat remains the leader and continues to pursue opportunities for more share of demand. According to industry research, city and state government budgets are expected to grow 6.4% and 4.2%, respectively. Video-intensive applications like drones and body cameras as well as other data-intensive tools drive increased bandwidth demand within private networks, which necessitates more or upgraded microwave links.

As highlighted in our last earnings call, utility private networks are poised for growth. Power infrastructure and grid connectivity are emerging as key bottlenecks to AI infrastructure deployment. This build-out requires secure, highly reliable communication networks to connect and manage grid assets. Aviat participates here, thanks to our portfolio of industry-leading solutions geared towards utilities. Our microwave radio portfolio of Aprisa SCADA radios and LTE 5G routers, combined with our network management software and our health assurance and frequency assurance offerings provides utilities a one-stop shop for its network connectivity build-out and management needs.

With the SpaceX IPO and the announcement of a potential fourth cellular network in the U.S., there is a significant amount of investor interest in low earth orbit or LEO networks. We believe that there is a valuable niche to fill in the communication space specifically around nomadic or very remote locations. Therefore, we see the technology as being complementary and not necessarily competitive with Aviat. We see the following for LEO and Aviat. One, Aviat's core business is largely unthreatened. Two, there is an idea of SpaceX building out a terrestrial network. While the architecture of that conceptual network is not fully formed, should this materialize, Aviat is well positioned if and when the architecture requires terrestrial backhaul. Three, most exciting is the new functionality that LEO brings. LEO offers redundant communications. This is most valued by private network customers, and we are seeing opportunities for Aviat through integration with microwave and cellular router solutions.

For microwave networks, satellite provides a low-cost, easy-to-deploy backup path for critical remote sites. For cellular routers and public safety and fleet applications, satellite fills LTE and 5G coverage gaps with automatic failover. In both cases, Aviat's opportunity is to deliver an integrated solution that improves resilience while simplifying deployment, management and operations for our customers. Aviat's customers are engaged in trials to demonstrate the value proposition of this redundancy. Please see Slide 11 in our investor presentation to get a picture of the ongoing trials and connectivity solution we bring.

Moving on to international. Aviat's business has seen particular traction in the EMEA region, where revenues were up 53% in the fourth quarter and up 33% for all of fiscal 2026. This growth has been driven in part by recent international private network wins, including with defense customers, including blackned as well as energy firms. As we pursue more such private network business, we see this segment as growing -- a growing portion of our international business in the future.

Moving on to supply chain. Like others in the technology hardware space, Aviat has not been immune from component shortages and cost inflation. Specifically, we are most focused on securing supply for memory, printed circuit boards or PCBs, capacitors and FPGAs. We will be opening the playbook we used during COVID supply chain crisis to secure favorable placement and allocations among our suppliers. Although Aviat has been able to manage through these current allocations and shortages with our inventory and safety stock, we have also had some headwinds to our gross margins from component cost inflation. We plan to pass along these price increases to our customers to help offset these rising costs. With that, I will now turn the call over to Andy to go through the financial results.

Thanks, Pete. I'll review some of the key fiscal year 2026 and fourth quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between fourth quarter of fiscal year '26 and fourth quarter of fiscal year '25, unless otherwise noted. For the fourth quarter, we reported total revenue of $120.9 million as compared to $115.3 million for the same period last year, an increase of 4.8%. Revenues for the 12-month period were $439.7 million versus $434.6 million the year ago 12-month period.

North America, which comprised 56.5% of our total revenues for the quarter were $68.3 million. This was up $10.3 million or 17.8% versus the year ago period. These results were complemented by a limited set of deployments for our North American-based MDU project in the quarter. International revenues, which made up 43.5% of total revenues were $52.6 million for the quarter. For fiscal 2026, North American revenues were $220 million, up 6% versus fiscal year '25. International revenues were $219.6 million in fiscal '26 compared to $227 million in fiscal '25. EMEA showed solid results for fiscal '26, while APAC stabilized. We feel our international business overall is poised for growth in fiscal '27.

Gross margins in the fourth quarter were 30.8% on a GAAP basis and 30.9% on a non-GAAP basis. This compares to 34.2% GAAP and 34.7% non-GAAP in the prior year. The year-over-year change in gross margin is typically due to volumes, regional and product mix. That said, as Pete noted earlier, our current period gross margin was negatively affected by component shortages and associated price inflation. For fiscal 2026, gross margins were 31.5% on a GAAP basis and 31.8% on a non-GAAP basis. This compares to 32.1% GAAP and 32.8% non-GAAP in fiscal '25. Fourth quarter GAAP operating expenses were $31.4 million. Non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation and other costs were $27.3 million.

For fiscal '26, GAAP operating expenses were $119.1 million and non-GAAP operating expenses were $109.2 million. This is versus $128.9 million GAAP and $113.5 million non-GAAP in fiscal '25, a decrease of $9.8 million and $4.3 million, respectively. This is the result of the entire management team diligently managing costs, continuously reviewing corporate needs and driving process efficiency efforts. Fourth quarter operating income was $5.8 million on a GAAP basis and $10 million on a non-GAAP basis. This compares to $8.9 million GAAP and $12.9 million non-GAAP in the year ago period. For fiscal '26, GAAP operating income was $19.2 million, up $8.7 million versus the last fiscal year. Fiscal 2026 non-GAAP operating income was $30.6 million, up $1.5 million or 5.2% versus the last fiscal year. The fourth quarter non-GAAP tax benefit was $0.5 million. As a reminder, as of fiscal 2026 year-end, the company has over $420 million of net operating losses or NOLs that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future.

Fourth quarter GAAP net loss was $1.3 million and non-GAAP net income was a positive $8.3 million, which excludes restructuring charges, depreciation and amortization, share-based compensation, interest and other income, other nonrecurring expenses and the noncash tax provision. Fourth quarter GAAP loss per share was $0.10 on a fully diluted basis and non-GAAP earnings per share came in at a positive $0.64 on a fully diluted basis. Adjusted EBITDA for the fourth quarter was $11.9 million or 9.8% of revenues. For the fiscal year, adjusted EBITDA was $36.7 million.

Moving on to the balance sheet. Our cash and marketable securities at the end of the fourth quarter were $72.8 million. Our outstanding debt was $97 million, bringing the net debt position to $24.2 million. Aviat made continued improvements in its balance sheet. Unbilled receivables were lower for the third consecutive quarter. The fourth quarter balance was $3.1 million lower compared to the fiscal 2026 third quarter ending balance. This brings our total unbilled receivables balance to $82.1 million. Inventories were also lower sequentially by $3.6 million, bringing our inventory balance to $69 million.

For the full fiscal year, Aviat generated cash from operations of $13.6 million. Combined with the other balance sheet improvements, this is good progress for shareholders. Other points to make. Aviat used $2.2 million to repurchase approximately 131,000 shares in the quarter at an average price of $16.55 per share. Finally, we are pleased to share that in the context of our control environment, we have fully remediated our past 5 material weaknesses. Rest assured, Aviat's core value of continuous improvement is still in play, and we will continue to work to further strengthen our foundation. With that, I'll turn it back to Pete for some final comments.

Thanks, Andy. Regarding our fiscal 2027 guidance, we are establishing our outlook as follows: full year revenues to be in the range of $455 million to $470 million; full year adjusted EBITDA to be in the range of $50 million to $55 million. Note that our guidance is full fiscal year. Some additional color on seasonality. Based on our backlog and current outlook, the first quarter will be the foundation on which Aviat's revenue builds throughout fiscal 2027. Additionally, we expect the second half of the fiscal 2027 to have higher overall revenues versus the first half of fiscal 2027. See Slide 23 in the investor presentation for a view of the seasonality Aviat has typically experienced and for use in your models. With that, operator, let's open up for questions.

[Operator Instructions] Our first question coming from the line of Scott Searle with ROTH Capital.

Nice job on the quarter. Also nice to see the balance sheet improvements and the cleanup of the material weaknesses. Maybe just to dive in, I wonder if you could give us an idea of the breakdown in North America between carrier contribution and private networks? And then specifically, looking into the September quarter and how we ramp up from an MDU contribution standpoint. Pete, how is that shaping up just in terms of the context of how we should think about the flow of that into the course of fiscal '27?

So we ended the year with record backlog, up 14%. A lot of that was worked throughout the year that landed in the May, June time frame. There's this pervasive component availability. So when we said in the script that the Q1 is going to be a foundation, we think given the timing of our wins and given the supply chain ramp-up, we think if you put a revenue profile together, Q1 will be the lowest. Q2 and Q4 will be peaks and Q3 should be higher than Q1. And then with respect to the overall, I have -- I don't have the U.S. breakdown in front of me, but we're about 45% private networks, 55% service providers or mobile network operators. And I think that -- I'll give a qualitative statement. I would say the U.S. has more private networks than the overall Aviat. So I think that gives you a vector on that, Scott.

Okay. Pete, just to clarify, though, on the MDU front, do you expect contribution in the September quarter? Or is there a lot of predeployment activity ongoing, more engineering and otherwise, and we should expect to ramp up into the second half of the year or second quarter?

Yes. So we think the ramp-up is going to occur in the second quarter. There is a chance that we get some in the September quarter. And let me just give a little more color on this. We completed more proof of concepts in a variety of markets. And we believe that the customer has moved us ahead in the supplier pecking order where we think we're established as the preferred vendor. So what we really need to do is get that site readiness over the hump in the September quarter, get all of our components on order and enjoy the win in the December quarter.

Great. And 2 other quick ones, if I could. Just on the satellite LEO opportunity. I'm wondering if you're actually starting to see interesting contribution today. It seems like there's a lot of activity, but I'm wondering what you're factoring into that fiscal '27 guidance at this point in time. And then second, gross margins, some component headwinds on that front. I'm wondering how you're thinking about that in terms of fiscal '27, broadly speaking. Is there some expansion in gross margin opportunities given some incremental scale and product mix? Or are you still seeing some headwinds on the component front?

Sure, Scott. This is Andy. Great to hear from you. In terms of gross margins, as Pete commented on revenue, Q1 is going to be our building block and we go up from there. So we -- it is, let's call it, the foundation or lowest part of the year, it's going to be affected by lower volume, of course. Pete did talk to in his prepared remarks, strategies that we're deploying to offset the component inflation, if you will. Those are going to be more realized in Q2 and going forward, not in Q1. But again, we do have plans and we expect Q2, 3 and 4 to have more upward pressure on gross margin.

And there's no LEO in the guide.

Our next question in queue coming from the line of Christian Schwab with Craig-Hallum.

Congrats on the solid quarter. I'm wondering if you could give us an update on your large European competitor who is exiting their microwave business, we believe, by the end of this calendar year. Are you seeing any business benefit from that currently? And would you anticipate or see an increased dialogue that you think will benefit you in your next fiscal year?

A competitor of our European competitor has communicated that their pipeline of opportunities is improving. And I would suggest that the same thing is transpiring with us. To convert a microwave network, it's a 6- to 18-month proposition. And the good news for us was the announcement was made November of 2025. And immediately after that, I think Aviat and all of our non-for-sale competitors created a pipeline and are pursuing that. And I would say we've had kind of normal course of business wins. And I would say that our competitors have probably had that as well where networks get exchanged at a low level. I think the possibility for this to improve is probably in the March and June quarters for Aviat as well as the the competitors that have been working over the -- what will be a period of 1 year, 1.5 years to convert the uncertainty to wins.

And then as it relates to BEAD, is there -- there's been a lot of fluctuations of people tied to that. And just wondering what's your current thoughts. I think before, we thought maybe some things would start in fiscal year '27, but really had more of a multiyear outlook. I'm just wondering if there's any update on your current thoughts there.

Yes. In front of me, we've got quotes out to our customers. We're working to turn those quotes into business. So it's becoming tactical rather than theoretical. And I would also say that we still believe it to be a 3-year impact. And we -- our estimate is in the December quarter, it should have the first real impact to our revenue.

Okay. Fantastic. And then lastly, regarding your belief that you're the preferred vendor and showing proof of concepts of different applications on the MDU ramp. I appreciate the $25 million to $30 million significant order in hand. Should we anticipate that there could be more significant orders as we go through fiscal year '27? Or is that yet too early?

I don't want you to anticipate, but there could be. How about that? Trying to split the middle there. But it's a fair question, and we're hopeful. Let's not put it in the model, but that's what we're working towards.

Our next question in queue coming from the line of Jaeson Schmidt with Lake Street.

Just following up on Christian's last question on the MDU opportunity and potential for more orders. Can you help us size the potential follow-on orders? Or how are you looking at this opportunity sort of in the intermediate term here?

Yes. So I think what's really critical to driving the size of the opportunity is subscriber growth, and we're in the early innings of the subscriber growth. And the more subscribers that come online for this Tier 1, the bigger the opportunity. I mean for the last time we talked, we sized this as an 8-figure opportunity, and we put that in our 8-K during our quiet period, we would say that, just that we think it's going to get bigger.

So then the next question is, does it cross the barrier for 9 figures? I don't know -- I think the total annual opportunity is in the $100 million neighborhood, how the -- and that's predicated on, one, the customer achieving their subscriber growth metrics. And two, our share versus the competitive share. So if you want to look at this as what could it be, what could it all be? I would say we hit the $100 million figure. The precursors to that are -- the market opportunity hits the $100 million level. How that parses out between Aviat and the competition, it's looking more favorable, but I don't see any situation where we'd be sole sourced. And then what's probably more important is how many subscribers come on to those MDU units.

Okay. That's really helpful. And then just as a follow-up, can you update us on the Aprisa router funnel and what you're seeing and expectations for fiscal '27?

So we're not going to break out guidance specifically for Aprisa. The Aprisa business on the utility front, which is why we bought in, continue to enjoy it, is performing well. We've talked in the past about the LTE router and basically putting this router into public safety or police cars. What I can say is that we have initial orders in the U.S., Europe and Latin America. It's still relatively small, and there's a long lead site -- a long kind of runway to get government agencies into the purchasing funnel. But I would also say that our performance in the mobile cellular router sector is we're going up against Cradlepoint. And the reason we have those initial orders and significant engagements is because we have a compelling value proposition that customers like, and it's just going to take time, but we believe that it will happen.

[Operator Instructions] Our next question is coming from the line of Dave Kang with B. Riley.

First question is, just wondering how much -- regarding that Middle East projects that were delayed last quarter, how much of that was captured in the fourth quarter?

I think most of it, Dave, most of it was recaptured.

Got it. And did that mix also played into that gross margin? I know you talked about supply chain headwind, but also the mix.

Primarily the component inflation has affected this quarter. Mix is pretty much representative. As I said in the prepared remarks, Americas were about 56.5%, which is fairly typical.

Just to add to that, Dave, right? So the nature of the inflation in the component environment is sometimes there's spot market, sometimes it's prices go up even after you make the order. And in the next few weeks, we're going to go out to our customers for more price. So unfortunately, the nature of the inflation is it's a little more abrupt than typical. So we got impacted by that abruptness, and we're going to work to offset those -- that inflation. I think we should get some improvement in the December quarter and then the back half, it should be better still.

So by second half, can we expect like mid-30s in terms of gross margin expectations?

That would be aspirational. A lot of the growth, again, is coming out of MDU as we've talked through in these other markets, and that has pretty much what we call more of a middle of our product strategy profile. So again, we ended the year at about 32%. That's a safe harbor in terms of how we operate, just looking at historical. Again, as we -- as Pete talked to these different strategies, we expect some upward pressure. So that's good. But I wouldn't necessarily go as high as what you're suggesting as we speak today.

Got it. And my last question is regarding your fiscal '27 revenue outlook. Just wondering if any BEAD factored into that outlook?

A small amount, relatively conservative. So BEAD kicks in, we will revisit the guidance.

Our next question coming from the line of Theodore O'Neill with Litchfield Hills Research.

Congratulations on the good quarter. I want to also follow up on the MDU opportunity. Can you tell us -- I'm sure you can't mention them by name, but can you tell us about the type of customers that are driving the MDU opportunity?

Well, we've disclosed in a lot of industry folks -- we've disclosed that it's a U.S. Tier 1 that has access to 39 gigahertz spectrum. So that narrows it down and the field installers have leaked this, but it's not for us to disclose. So -- and their customers' customers are apartment dwellers that typically, the profile is they skew younger, lots of remote work from home that require bandwidth beyond what's economically delivered today.

Okay. And Pete, last quarter, you talked about war-induced pushouts of about $9 million. And you already said that part of that had come into Q4. Did that all make in? Or are you still experiencing some kind of war-induced issues out there?

Actually, so the customer was not overdue. So -- but that was in the Middle East, war-induced issue. And we would say that there's steady state that, that problem has reversed. And I would say our demand in that customer base and our supply is at steady state.

Okay. And finally, on the range of revenue guidance, there's a range of $15 million. Can you talk about what -- sort of what would make it at the high end or the low end of that sort of the give and take in that?

Yes. I'd like to talk about how to make it -- to get to the higher end, more MDU and how does that, one, is more subscriber growth; two, share gain versus the competition. Two is our de minimis modeling of BEAD. So if BEAD kicks in the way we've wished it would have kicked in over the last 5 years, then we will revisit guidance. And then three would be private networks.

And Christian asked a question about the competitive dynamics in private networks. We think we're well positioned if some of those convert or if private networks, the Aprisa LTE router opportunity is in there. If either of those 2 things happen, that will pop up our private network. And then lastly, we see some -- given the competitive dynamics globally, we have more Tier 1 interest than normal new Tier 1. So that would be the fourth potential lever to move us from, let's say, the midpoint to the high end. So we have 4 possibilities.

Our next question coming from the line of Rustam Kanga with Citizens Bank.

Andy and Pete, nice close to the year. Regarding the historical revenue pattern at 48% to 52% for the back half of the year for your guidance for next year. Are you looking at something like more towards the range of 40%, 60%? Or could it be more pronounced than that?

Russ, this is Andrew Fredrickson. Yes. So we mentioned that the second half of the year would be a little bit more back half weighted. I would think you could think about it incrementally more than maybe where it's been historically. So maybe it's something closer to 45%, 55% but we'll certainly continue to keep you updated as we advance through the year. But if you look at the investor Slide #23 in our investor presentation, we have historical numbers over the last couple of fiscal years. I would say at a minimum, that's a good kind of guidance level from a seasonality perspective. But again, maybe you have a couple more percentage points in the back half.

Yes. Slide 23 is the model that we're signing up to.

Sounds good. And then regarding the MDU opportunity, I understand that it's hinging on the subscriber growth there. Just curious if the number of markets that you're operating there has grown or sustained from what you've talked about in the previous quarter.

Yes. I think we're slated or are in 25 markets. And if we roll back the clock, we were 1, 7, 11 to 13. So now I think we're approaching the 25 market level.

And I'm showing no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Pete Smith with any closing remarks.

It's an exciting time for Aviat. Thanks, everyone, for joining. We look forward to again updating you in November. Thanks.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Good afternoon. Welcome to Aviat Networks Third Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President, Corporate Finance.

Thank you. You may begin. Thank you, and welcome to Aviat Networks 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. With me today are Pete Smith, Aviat's President and CEO, who will begin with opening remarks on the company's fiscal quarter, followed by Andy Schmidt, CFO, to review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook, followed by a question-and-answer session.

Jonanna Mikulenka, 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. 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.

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. 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. In the U.S., 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.

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 gigahertz radio and the 2024 acquisition of 4RF.

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 and utilities is quite robust. Recent industry reports suggest that utilities will deploy $1.4 trillion on capital spending plans over the next 5 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. This build-out of the grid lifts the importance of mission-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 U.S. 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.

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. But we still remain very early in the fund deployment life cycle, and we'll 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. Apart from these growth drivers, we have invested in our road map. 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.

Thanks, Pete, and good afternoon, everyone. Before going through the financial results, I'd like to briefly introduce Jonanna Mikulenka, 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 is already making a great impact to the overall Aviat team and will help us to achieve our goals. Welcome, Jonanna. 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.

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 9-month period were $318.8 million versus $319.3 million for the year ago 9-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. 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 the third quarter 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 the prior year. Gross margins were 31.7% on a GAAP basis, 32.1% on a non-GAAP basis. 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.

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

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. For the 9-month period, GAAP operating income was $13.4 million, up $11.7 million versus the first 9 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 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.

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. The potential release of the valuation allowance is due to increased and sustained profitability in our international entities, thanks to revenue growth and cost management. Similar to when Aviat released its valuation allowance in the U.S. approximately 5 years ago, this will create a onetime 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 four quarters. Continuing, third quarter GAAP net loss was $2.1 million and non-GAAP net income was a positive $0.7 million, which excludes restructuring charges, share-based compensation, M&A-related and other nonrecurring expenses and noncash -- and also the noncash tax provision. Third quarter GAAP loss per share was $0.16 on a fully diluted basis and non-GAAP earnings per share came out at a positive $0.06 on a fully diluted basis.

Adjusted EBITDA for the third quarter 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 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 the third quarter were $78.1 million. 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 third quarter balance was $5.4 million lower compared to the fiscal 2026 second quarter 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.

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?

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 the fourth quarter, inclusive of the war-induced pushouts, we will continue to address our expense base, and we'll continue to pursue cost savings initiatives. We're updating our fiscal 2026 guidance to be full year revenues to be in the range of $428 million to $440 million, full year adjusted EBITDA to be in the range of $35 million to $40 million.

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 FY '27. With that, operator, let's open it up for questions.

[Operator Instructions] Our first question comes from the line of Jaeson Schmidt of Lake Street.

Pete, I just want to start with that $9 million in pushouts. Do you expect to recognize those orders here in Q4?

So I think some of them -- and look, we want to be conservative with respect to -- it looks like though there is more conflict today. I would say some of that has already shipped. And we're just at the in the March time frame, some of the Tier 1s got conservative, and we just want to be careful about potential repeat. So that's why we guided the way we did. I can definitively say some of that has already shipped in the first 2 weeks of the current quarter.

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?

Yes. Let me just give a little more flavor. So we have live deployments in more than five 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 '27. Now the problem with that is 8 figures goes from $10 million to $99 million. I think that's where we're comfortable saying $8 million.

And over the next 2 months or 3 months, we think we can be more exacting in how big of that opportunity. It's the most exciting growth program in Aviat, and we're totally focused. We'll say 8 figures for now. And I would say that when we get through our year-end and we incorporate this into FY '27 guidance, we can be more specific and give you a more narrow range, Jaeson.

Okay. That's fair. And then just last one for me, and I'll jump back in the queue. Last quarter, you highlighted some nice traction with your LTE router. Just curious where that pipeline is today and what you've seen over this past quarter?

Yes. 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. 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 U.S., Europe and Latin America. That was a -- the platform for this is a small -- it was a small acquisition. So it's a small base, but it's growing.

And to put this in context, 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 in fixed wireless access around MDU, the Aprisa platform for public safety and utilities. These are the things that are going to permit us in FY '27 to outgrow the microwave market.

Our next question comes from the line of Scott Searle of ROTH Capital Partners.

Pete, maybe just to dive in, in terms of the guidance, it sounds like we had $9 million of pushout, some of which has shipped already into the fourth quarter, but it's still a pretty wide variance out there of $109 million to around $121 million. I'm wondering if you could give us some of the puts and takes. It sounds like the Mid East 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 the lower end of the range. And as part of that, the gross margin, it sounds like that starts to recover with some utilization. But I wonder if you could clarify a little bit more. It sounds like you're talking about it returning more to normal levels. I just want to clarify, is that 32%, 33% that we should be thinking about? And I had a couple of follow-ups.

All right. Go ahead.

Scott, this is Andy. Good to hear from you. I'll just start with the gross margin part. You're exactly right. 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. Once we're back at normal volumes, you're going to see, again, expected performance in gross margin. And just to reiterate, we -- we didn't see gross margins drop due to price compression, not at all. Again, pricing is 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 1s 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. 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. So that's why there's the range. We -- obviously, we want to do as well as we can to be -- to deliver on the higher end, but we want to be conservative and acknowledge the environment as it is.

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. 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. 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 and improving inventory turns?

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. 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. 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 and terms of aged accounts are really next on our barometer. 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 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. So that's what we're shooting for. And we see clear daylight in terms of next number of quarters continuing this trend. We don't expect it to end.

And if I could just -- sorry...

Well, Scott, did you want the memory and freight stuff or…

Yes, please.

So memory in microwave radios is a small part of the BOM. We were in a good inventory position. We could see 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. And going forward, we'll adjust our freight prices as well. So that's to answer the inflation part of your question.

Memory is small. And then if you want to think about what we see in supply and demand in 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 -- does not impact us yet. And we will probably buy ahead on CPUs where the trailing of CPUs where it makes sense.

And Pete, if I could, two just larger, more macro kind of follow-ups, if you will. Nokia, there have been hearing out there that in terms of their time line 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. And also, I've gotten some questions as it relates to Nokia's FWA business being sold to Inseego, how that impacts you?

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?

Yes. There's no more Aviat technical milestones, right? However, let's say, in the next 6 months to 9 months, we need to deliver the next-generation project or product configuration, and we're on track for that. And really, right now, it's working out our fixed wireless with the customers' back office and everything else that's in the overall stack in delivering fixed wireless to apartment buildings. 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 is listening on the call that, that announcement has happened, and we know very little beyond that. The Inseego 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.

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 will come for sale. I would say Aviat and Aviat's competitors are very engaged in developing alternatives should that property be trade or should that property become, let's say, neglected within the portfolio of Nokia. 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.

[Operator Instructions] Our next question comes from the line of Theodore O'Neill of Litchfield Hills Research.

Pete, just a 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?

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 construction and supply of jet fuel, and that was a headline I wrote from India. But where does it really show up is it shows up in our freight costs.

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. And by extension, if that would also drive some private network business to the AI data centers?

Okay. I think -- yes, so the Defense Product Act, it was 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. 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. 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. We are Build America, Buy America compliant. We're the only microwave company headquartered in North America. Our utility business is approaching slightly under 10%. So we think that this national focus is going to pay dividends for us going forward.

I would now like to turn the conference back to Pete Smith for closing remarks. Sir?

Okay, yes. 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. We feel like they're on the brink of making meaningful impacts, and we look forward to seeing that particularly in FY '27. 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 FY '27 with MDU, with BEAD, with the utility and other Aprisa platforms. Thank you, everyone.

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

Good afternoon. Welcome to Aviat Networks Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President, Corporate Finance. Thank you. You may begin.

Thank you, and welcome to Aviat Networks Second Quarter Fiscal 2026 Results Conference Call and Webcast. You can find our press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com, along with a replay of today's call. With me today are Pete Smith, Aviat's President and CEO, who will begin with opening remarks on the company's fiscal quarter, followed by Andy Schmidt, CFO, to review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook, followed by Q&A.

As a reminder, during today's call and webcast, management may make forward-looking statements regarding Aviat's business, including, but not limited to, statements relating to fiscal guidance, financial projections, business drivers, new products and expansions and economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast and involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. Additional information on factors that could cause actual results to differ materially from the statements expressed or implied on this call can be found in our most recent annual report on Form 10-K filed with the SEC. The company undertakes no obligation to revise or make public any revisions of these forward-looking statements in light of new information or future events.

Additionally, during today's call and webcast, management will reference both GAAP and non-GAAP financial measures. Please refer to our press release, which is available on the IR section of our website at www.aviatnetworks.com and financial tables therein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information. At this time, I would like to turn the call over to Aviat's President and CEO, Pete Smith. Pete?

Thanks, Andrew, and good afternoon. Let's review the highlights from the quarter. Highest second quarter bookings in the last 10 years. Total revenues of $111.5 million, adjusted EBITDA of $11.3 million, non-GAAP EPS of $0.54, positive cash generation from operations of $23.9 million. For the first half of fiscal 2026, Aviat has increased total revenues by 5.9%, reduced our non-GAAP operating expenses by $3.7 million, increased both our GAAP and non-GAAP earnings per share by over $1 and increased adjusted EBITDA by $13.2 million. This significant improvement is in line with our expectations for the fiscal year and sets the company up well to execute the back half of fiscal 2026. I would like to thank the entire Aviat team for the focus and execution to date.

Let's discuss our end markets and key developments. In private networks, Aviat remains a leader in the U.S. and globally in providing mission-critical wireless networks. The need for reliable networks to serve public safety agencies, utilities and other critical infrastructure providers continues to grow. Last quarter, we discussed the launch of our Aprisa LTE 5G router for police, fire and emergency vehicles. This offering opens an entirely new segment for Aviat worth approximately $1.6 billion today. Here, we pursue customers with whom Aviat already has an extremely strong relationship due to our private network backhaul expertise and leadership. I'm pleased to announce that we have received our first initial order, and we remain engaged in several critical trials to further validate our offering. We're excited to see what opportunities this solution opens for the company.

In mobile networks, Aviat remains engaged globally to expand its share of demand through new and existing customers. The 5G upgrade cycle remains ongoing in global markets and changes in the competitive landscape are creating openings for Aviat that we hope to have future updates on in the coming quarters. In the second quarter, we also announced our initial purchase order for Aviat's multi-dwelling unit solution, providing fixed wireless access Internet for paying subscribers via a U.S. Tier 1 provider. This is a significant step in capturing and monetizing a new market segment that Aviat has been pursuing for several years. This order covers multiple market deployments, and we are hopeful that this will be the first of many orders related to the MDU offering. We're still working with the Tier 1 provider to determine the exact timing of the ramp related to this order as well as what the impact and timing of any future orders will look like. But Aviat is glad to be in a position to provide leading performance, service and support to our customers. We think this is just the beginning of an exciting growth opportunity in the coming years and look forward to keeping the investor community updated once we know more about the benefit to Aviat.

Let's discuss Aviat's broadband business and the Broadband Equity Access and Deployment Fund, or BEAD. Our policy is to keep any impact from the program out of the company's fiscal guidance until we have clarity on the timing of the program. We do still believe that this will be a calendar 2026 event, likely in the back half. The NTIA has approved over 40 state plans, which enables the states to begin funding the award winners. On this basis, fixed wireless access Internet, which tends to use wireless backhaul at a higher rate than fiber-to-the-home offerings is capturing on average between 10% and 15% of locations served by BEAD. These numbers will continue to change as all the final approvals come in, but this is a reasonable range to expect for the program as a whole. We will not yet quantify the opportunity size for Aviat, but we are encouraged that this program will have a positive impact in our fiscal 2027 based on the current plans and our estimation of timing.

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

Thanks, Pete. I'm very excited to be at Aviat and work with you and the entire Aviat team to help drive our strategic goals as well as continue driving cost and cash optimization opportunities. Now I'll review some of our key fiscal 2026 second quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between the second quarter of fiscal year 2026 and second quarter of fiscal 2025, unless otherwise noted.

For the second quarter, we reported total revenues of $111.5 million as compared with $118.2 million for the same period last year. Importantly, revenues for the 6-month period were $218.8 million, up $12.2 million or 5.9% versus the prior 6-month period. North America, which comprised 47.5% of our total revenues for the quarter was $52.9 million. International revenues, which made up 52.5% of total revenues, were $58.6 million for the quarter. Gross margins in the second quarter were 32.4% on a GAAP basis and 32.9% on a non-GAAP basis. This compares to 34.6% GAAP and 35.3% non-GAAP in the prior year. The change in gross margin is primarily due to regional and product mix in the quarter as compared to a year ago. For the first 6 months of fiscal '26, gross margins were 32.8% on a GAAP basis and 33.4% on a non-GAAP basis. This compares to 29.4% GAAP and 30.1% non-GAAP versus the same period last year.

Second quarter GAAP operating expenses were $28.8 million, down versus $32.9 million in the same year-ago period. Non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation and deal costs were $27.1 million. Second quarter operating income was $7.3 million on a GAAP basis and $9.6 million on a non-GAAP basis. This compares to $8 million GAAP and $12.6 million non-GAAP in the year-ago period. The second quarter tax provision was $2.4 million. As a reminder, as of fiscal 2025 year-end, the company has over $450 million of net operating losses or NOLs, that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future.

Second quarter GAAP net income was $5.7 million and non-GAAP net income was $7 million, which excludes restructuring charges, share-based compensation, M&A-related and other nonrecurring expenses and a noncash tax provision. Second quarter non-GAAP earnings per share came in at $0.54 on a fully diluted basis, and GAAP earnings per share was $0.44 on a fully diluted basis. Adjusted EBITDA for the second quarter was $11.3 million or 10.1% of revenues. For the 6-month year-to-date period, adjusted EBITDA was $20.4 million, a significant improvement of $13.2 million versus the same period last year.

Moving on to the balance sheet. Our cash and marketable securities at the end of the second quarter were $86.5 million. Our outstanding debt was $105.4 million, bringing our net debt position to $18.9 million as compared to $41.7 million in the first quarter of fiscal '26, an improvement of $23 million. As Pete mentioned in his highlights, cash generated from operating activities was $23.9 million in the quarter. This brings our year-to-date cash from operating activities to $12.2 million. This positive cash outcome was created through both disciplined inventory management, resulting in a $7.4 million inventory reduction and strong cash collections via accounts receivable. Note that our sequential quarter decrease of unbilled receivables of $20.1 million contributed partly to the increase in our accounts receivable balance. This dynamic creates actionable cash collection opportunities for the second half of the year. We expect the overall balance sheet improvements posted this quarter to continue, which will help to create positive momentum and cash generation for Aviat in the quarters ahead. With that, I'll turn the call back to Pete for some final comments. Pete?

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

[Operator Instructions] Our first question will come from the line of Scott Searle from ROTH.

Nice job on the quarter. And Andy, congrats and welcome aboard.

Thanks, Scott. I appreciate the introduction.

So Pete, maybe just diving in, in terms of the outlook for the second half of this year, it still implies a range of about $110 million to $120 million a quarter. I'm wondering if you could talk us through some of the puts and takes. You mentioned some organic opportunities that are brewing. Also, I think in your opening remarks, you talked about not putting things into your guidance until you got some better visibility on that front. I think there was more reference probably towards BEAD than anything else. But you've had some traction now on the MDU front. I'm wondering if you could provide a little bit more color in terms of what you're expecting in the second half of this year? And what are some of the milestones that are going to dictate how this ramps up over the course of calendar '26?

Okay. There's three components to this, the organic opportunities that we outlined in the prepared remarks. One, BEAD, right? And a lot of the fiber guys are saying positive things about BEAD. We would say we have the largest exposure to microwave wireless backhaul for U.S. rural broadband. We're hearing from our customers that they're planning it. I think most, if not all of this -- 54 of the 56 states and territories have submitted their final proposals for BEAD. So we think that this is all positive. But we haven't put it in our guidance, thank goodness since it's going back to the middle of the last administration, and we've been right to doing that. But we are getting more and more bullish on this, and we think it's going to be -- it's going to materialize sometime between July and December of '26. That's one.

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

And then thirdly, the MDU project. And the reason we talk about the MDU project is through no fault of our own or our customer. It was discovered that we were in field trials, and it got to the shareholder base, and we received a lot of questions. And right now, we have -- we are delivering gear that paying subscribers will use. And we do have a competitor and what -- before we start factoring this into a financial forecast, we want to make sure that the value proposition that we've proved out in trials over the past year and our initial volume production continues to satisfy the customer, watch what the competitor does and all of those things break our way, then we would revisit our forecast. I hope that's responsive to your question, Scott.

That was very helpful and comprehensive. Maybe, Pete, just to quickly follow up on the MDU opportunity then. Is there any other color in terms of the number of markets where you're running trials or deploying in currently? And then just to clarify, in terms of the guidance then, it sounds like there's probably 5G router embedded in there, but it doesn't sound like BEAD is in there and maybe a small portion of MDU. Is that correct? Or is it something different?

I would say de minimis on the 5G router, 0 on BEAD and a little bit on the MDU project, right? Because it's not material yet. And one other aspect that I didn't bring up on the BEAD is that we're seeing that fixed wireless access of the overall BEAD program is ranging between 10% and 15%. And that 10% to 15% usage of fixed wireless access correlates to -- typically to wireless backhaul rather than fiber. So that's another element of our increasing confidence in the back half of this calendar year that BEAD will materialize.

Great. Very helpful. And if I could, and then I'll get back in the queue. But on the gross margin front, it sounded like there was more mix than anything, but specifically, I think in the breakdown, services margins were under a little bit of pressure. I know that's highly project-based. So I'm wondering if there's anything else to read into that. And then given the strong free cash flow in the quarter, which I think was well above expectations, and it sounds like we're going to continue to see healthy free cash flow growth going forward. How are you thinking about a buyback or other opportunities in terms of the overall capital structure of the company?

All right, Scott. So I'll take part 1, part 2 and turn part 3 to Pete here. So gross margins, I don't look at it as services under pressure. Again, it's just ebb and flow, and we had higher equipment sales in our lower-cost regions this period, which, again, that's a good thing. The hardware is an enabler to actually bring future sales in services and software. So that part work fine. In terms of the cash dynamic, this is a really great opportunity for this company. Initiatives have been put in place by Pete and Andrew Fredrickson in his acting role as CFO that you're seeing the results of this period. We look at the second half of the year, we're going to continue to see some very good cash performance, which I think is going to be really principal besides in terms of the highlights that Pete brings forward in terms of unlocking the value of the stock.

Yes. So with respect to the buyback -- and Scott, I think you're taking everybody's questions. With respect to the buyback, we have a little under $6.5 million remaining on our authorization. We met with the Board earlier this week, and we anticipate turning the buyback back on. Now one thing that I've learned over the years is that we -- as a company, we file, we put in a ladder, and we will be a buyer at certain price levels. So that's what we can disclose at this point.

Congrats on the quarter again. Andy, great to have you on board.

Our next question comes from the line of Tim Savageaux from Northland Capital Markets.

I wanted to go to the -- I guess, the first thing you mentioned on the call and in the release, which is the -- I think it's best Q2 in 10 years, maybe not best quarter. But it brought me back to a couple of years ago. I think there's historical precedent for this where you updated us on the backlog actually post Q2 of '24, given some, I think, strong booking trends then. It looks like you were up about 10% in backlog for the June fiscal year of '25. And I guess -- and so I'd love to get an update on that backlog metric, if it's something you might provide and/or try to get a little more quantification on the book-to-bill in the quarter, right? Because you called out what seems to be a pretty extraordinary number. How should we be thinking about that?

Yes. So look, this is -- because of the project nature of a business, we are reluctant to be as specific as you would like. So I appreciate your memory or maybe Tim, sometimes I wish you didn't remember so much. The last time we gave midyear backlog was after the NEC transaction so that we could be clear. So just to reiterate, this is -- our highest bookings quarters are Q2, December and June Q4. This is the highest bookings level we've had in 10 years. And the reason we didn't go back further is because we couldn't find the data. And I think it sets us back up for a strong Q4 following our traditional seasonality. And our book-to-bill, we will say that it was over 1 last quarter. It's over 1 this quarter. So things are trending well for the out quarters. I think that's what we can say. And it was -- what drove the bookings was both our service providers as well as our private network business.

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

So the MDU order, we're very excited about because of what possibilities it could drive over several years. It's a small part of the uptick in service provider. But if you strip that out, we're still in a pretty exciting space. And I think actually for the MDU order -- this MDU order is not -- it's progress. It's not necessarily a needle mover. The time to get excited about the MDU project would be if hopefully, we win the next order, that would make a -- we would anticipate that would make a difference in our backlog. And we'd probably be forced to raise our guidance, Tim. I say that a little tongue in cheek.

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

Actually, this is a good question to get some insight. It's broad-based. In the past, we've had one-off or two-off large state network wins. And I would say over the last 6 months, we haven't had any of those. So it's a broader-based state network or private network wins. And I want to say this that we haven't lost any big state competitions. It's just the nature of the business. And we're actually pretty happy that we have broad-based diverse customer wins in both the state public safety as well as utility.

[Operator Instructions] Our next question will come from the line of Theodore O'Neill from Litchfield Research.

Congratulations on a good quarter, and welcome, Andrew. So I want to follow up on the cellular router, the ruggedized cellular router business. Last quarter, Pete, you said that you had an in with customers on this because of the connection with the microwave business you were doing with them and there's some dissatisfaction with the incumbent. And I'm wondering if that's still going and that's still helping business for you? And also, just looking over the transcript or the presentation, it looked like you mentioned they had 10 chosen customers in the area, and I was wondering if that's changed.

So yes. So the value -- or the competitive advantage that we have in the cellular router for first responders and public safety is we have a significant portion of U.S. 911 networks. And then with the -- 1.5 years ago, we -- the 4RF business became part of Aviat. And with that came the cellular router. Over the last 1.5 years, we've reconfigured some of the software to make it amenable to riding in the first responder vehicle. And what -- so having the platform, putting the software in place and having the channels where it's principally not the same purchasing agent, but the purchasing agent that we call on is 1 or 2 doors down from the network infrastructure. So that we have a good reputation. So that -- in terms of getting customer traction, that is definitively true. We announced that we had our first small PO. And let me just -- I would say that we're engaged right now with about 15 customers and how that shows up in revenue is we have to continue to do our proof of concept and capitalize on the next time the budget cycle comes around for that particular first responder procurement. What I can say is we haven't had any customers who said, no, this doesn't make sense. So we're excited. We want to be patient and continue to demonstrate and let the natural uptake give us a lift. I would say that where do I think that becomes material is sometime in fiscal year '27.

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

Yes. About 5 quarters ago, we had a new EMEA leader, and he is driving tremendous discipline and key focus on private networks and the success is starting to show.

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

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

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

Hello, and welcome to the Aviat Networks Investor Call. [Operator Instructions] I will now turn the call over to your host, Andrew Fredrickson, Interim Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, everyone. Thank you for joining this Aviat Networks investor call. On the call today for Aviat is Pete Smith, President and Chief Executive Officer; as well as myself. An archived webcast of today's call will be available on the company's Investor Relations website.

During the call, management may make forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. Additional information on factors that could cause actual results to differ materially can be found in the company's annual report on Form 10-K filed with the SEC on September 10, 2025. 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.

I will now turn the call over to Scott Searle, Senior Research Analyst at ROTH for an additional disclosure.

Okay. Thank you so much. So just real quickly, ROTH makes marketing shares of Aviat Networks, and as such, buys and sells from customers on a principal basis.

With that, Andrew and Pete, thank you so much for having me and allowing me to conduct this fireside chat.

Great to be here, Scott. Thanks.

So we're going to cover a couple of things on the call. There is an 8-K out and a new presentation, and there are some details that we'll talk about in that presentation. But first, Pete, why don't we start from a high level in terms of where do you see the growth opportunities in the Aviat microwave business right now? Kind of give us a quick update on what we're seeing?

Yes. Look, Aviat is principally a microwave business. And one of the complaints about microwave business is that it's GDP plus growth. We are well positioned for the segments that are growing greater than the [ GDP plus one ] public safety. And if you want to get a proxy for that, look at the Motorola and Axon research or their performance. When we look at the public safety budgets, we see mid-single-digit growth. So great underpinnings of demand utilities.

There's been 30 years of underinvestment in U.S. infrastructure, and I understand that there's a lot of hype around AI and data centers. Those all need power. And combined, public safety, utilities, represent 35% to 40% of our business. And so we win there. We think we have a strong value proposition of security, reliability and radio performance.

And then the overall business, we see growth in private networks. We see the Aprisa or 4RF business growing due to automation, machine-to-machine IoT and more SCADA and for where we play, we think we have the leading SCADA product on the market. And so we feel good about the growth drivers underpinning our business.

Maybe before going on to some other areas, I want to hit the utility side of the equation again. Good growth there, as you pointed out, there's been a lot of talk from a data center perspective, but underinvesting in the grid. So are you really seeing that translate into orders? And what's the competitive landscape on that front?

Yes. So we think in the U.S., this market for us is principally U.S. We're either 1 or 2 in terms of the competitors that serve utilities. It's project-oriented, and we're actually coming into the year-end. There could be use it or lose it money, which will factor into the December quarter. I don't think it's particularly competitive. I think we have a good position, and it's largely because of our security. There's -- knock on wood, there's never been a problem with security breaches.

What's [ drive ] the utility are -- is grid security, productivity in the utility and then particularly [ out ] wildfire detection. So the wildfire detection and the security are driven by video, and the more video that's consumed, the more there's a need for backhaul. And I would say I think your question was getting at, have you seen new demand due to AI or data centers? Not yet. So we think that, that would be in front of us.

Got you. Very helpful. Now I want to get to some comments on rural broadband and dive in a little bit more 4RF. But before we go there, what are you seeing just in terms of the demand characteristics for Tier 1s and Tier 2s today? How is that pipeline and opportunity both domestically and internationally looking?

Yes. We think that the domestic demand is the CapEx cycle has bottomed. We see incremental improvements in the U.S. Tier 1 space. We see episodic growth across the globe. We see a significant replacement cycle coming in India. And if you read about Europe the past couple of months, like there's been this Danish network security issue. And I think incrementally, Europe is getting more serious about the Huawei replacement cycle. And our funnel of opportunity in -- for Huawei replacement has never been bigger. And then lastly, the Pasolink acquisition, what we're seeing is that there is a replacement cycle or upgrade opportunity that will be both in the hardware and software.

Got you. Very helpful. Now rural broadband, right, starting to capture more of the mainstream headlines again, particularly with BEAD funding and getting through the next round of allocations. I think this week or in the last 24 hours, I think the NTIA actually approved the [ 18 ] plans. So we're starting to see some of that BEAD money coming through. How are you seeing the rural broadband opportunity open up for you? And how does BEAD trickle down to that?

Yes. So we believe we have the best channel and radio combination in the industry. The reason is about 7 years ago, we didn't understand how to serve cost effectively the small increments of demand in rural broadband. So we put together an e-commerce platform. And the e-commerce platform in combination with our radio technology has established ourselves as a leader for rural broadband. We have most of the large U.S. customers in rural broadband. Our e-commerce solution drives a margin-accretive business set for us. So if this grows, we're in good shape.

Now with respect to BEAD, we've been pessimistic to neutral for a long time, and we've been right in that conservatism. But now we believe spending will start in the June or September quarter. It's difficult to discern which one of those 2. But what we're really encouraged about is we're engaged in project discussions with a variety of our customers, including our top couple. So whether it hits in June or in September and starts to ramp up, we are definitively encouraged.

So you're actually having those engagements and those discussions today. Time line to be determined, but actually active and productive.

Correct.

Okay. Very good. So moving forward on the BEAD front after many, many years for the industry. Now 4RF, you [ held ] that before, really exciting opportunity there. It's completely new, opening up new markets. You've brought 4RF into North America where it really didn't exist before. I'm wondering if you could talk a little bit about what's really driving the demand there? What kind of growth we should be think about? I know it's a small component of your business, but it's an actually exciting area for growth.

So the 4RF, which we call our Aprisa product line, it's principally focused on utilities or what we would call the fixed segments, mostly utilities. What we've done in the first year, 1.5 years of ownership is cross-sell microwave to the 4RF utilities, the 4RF product to Aviat utilities. But what we -- at the outset, we talked about public safety. And we would believe -- we believe that we're either #1 or #2 in U.S. public safety. And with 4RF, in combination with some of our product development and our network management software, we've been able to start to do proof of concept and trials in emergency vehicles, right? And that channel, we have either 1 or 2 in public safety. So the guy -- the person that's responsible for infrastructure procurement public safety is not the one who buys cellular router. But usually, they're 1 or 2 doors down. We have a stupendous reputation with respect to public safety, and now we're leveraging it with a new product.

So just to follow up on that. This is -- traditionally, when I think of a Motorola stronghold, when I think of public safety, I think of cellular gateways and routers, right? So are you starting to kind of creep into that market opportunity and really gain some mind share in addition to some revenue opportunities?

Yes. Motorola is a very important customer for us. We are not in any way competing with them. But we are competing against -- in what we would say is an $850 million TAM market. We're competing against the likes of Cradlepoint/Ericsson and Sierra, right? And we think it's -- we think we have a distinct value proposition with respect to unique security features, which come from our public safety and our utility business. And we're starting from 0. We think there's 300,000 police cars in the U.S. Each of them has a router. And what we've chosen to do is do POCs with 10 different state or large municipal governments and see where it goes. And I think in the February earnings call, we'll update you with respect to progress. And hopefully, we have a win to announce.

Okay. Now moving on to the fun aspect of the call today. In terms of the 8-K filing and the presentation, you had some updated slide in effect talking about MDUs. Can you kind of take us through what's changed, what's different, what you're seeing in terms of the opportunity there?

Yes. So on Slide 9 of the investor deck, we described kind of the architecture of the MDU, right? We've -- if you go back to April, we were in some POC, proof-of-concept, trials. And those, not through our own effort, but they were by [indiscernible] in the industry found out that we were competing there. And at the proof-of-concept stage, you have no guarantees. And since April and beyond over the last 7 months, we've worked to prove the technology at 28 gigahertz and 39 gigahertz. And then very, very recently, since the earnings call, we have received our first order that will be used to support subscriber traffic, right? And that's -- I draw that distinction because that makes it real. Up to this point, it was demonstrations or POC, and there was -- our customers were not making their money off of this. And this is -- this order when we deploy will generate positive economics for our customers.

So bottom line here, you've moved past the POC phase to an actual order for commercial traffic starting in the December quarter? Or how is the time line going to ramp up? How should we think about in terms of markets?

Yes. So this is really breaking news. And if there is revenue in the December quarter, it won't be really material. And what we're feverishly working on is what is the ramp-up, what are the access to the markets going to be. And we want to make sure that we have clarity going into the one-on-ones for the ROTH conference tomorrow where we're at. And so the impact to our financials and the growth of the business is a little bit premature to answer now, but I think we can give better perspective as we figure out the ramp-up and the ability to digest the markets, and we'll provide that in February.

Got you. But basically, again, live traffic, first orders, the actual slope of the adoption is a little uncertain at this point in time, but you're expected to be commercial in multiple markets at some point over the next couple of quarters is the way...

That's very fair.

Okay. And so I want to talk a little bit about the market for MDUs, but before going to kind of sizing the opportunity, in terms of where you're being deployed. 2 frequencies? Multiple frequencies? Is it just new deployments? Is it going to be retrofits? How should we think about that?

So I don't -- my suspicion that it's going to be retrofits because that's the economics of the MDU, but we don't definitively know what the mix is going to be. The commercial grade or the subscriber traffic will go over the 39 gigahertz band.

Okay. And then to put some numbers around the market, right? So the MDU market is very, very big. I think I saw some data recently. I think there were 21 million MDUs. They're in Starry markets where obviously, a large Tier 1 operator was doubling down in terms of an MDU opportunity, buying a company that was operating and using fixed wireless access for broadband deployments. I think covers 4 million, 5 million MDUs in those core markets.

How do you think about, in sizing the opportunity, if I was, think, like the next 2 years, 5 years, 10 years, in terms of where broadband wireless fits in versus maybe where fiber fits in. That's a tough question because that's a big market. I think we're trying to understand just the size of the scope over the next several years.

So when I think about -- there is no argument that it's a big market, right? And the reason I somewhat speculate and think that it's going to be not new apartments, but old or existing apartment buildings is because if you build a new -- if you do a new build, then maybe it makes sense to just run fiber. And what we don't know is what is the short, medium and long-term mix of fiber to wireless. This is an early-stage wireless deployment. You can't go out and buy a market analysis or a market report on what's going to happen with MDUs fixed versus fiber, but we're excited that we're starting the journey. And we think the better we execute, the more share we can take from fiber in existing apartment buildings.

There's been one large Tier 1 that's largely been associated with some of this dialogue and discussion over the last couple of quarters. Are all the Tier 1s looking at broadband wireless for MDU connectivity? Or is it still earlier embryonic with some of the other tiers?

I would put it as early embryonic.

Got you. But bottom line here is, again, we're moving from POCs to commercial traffic, commercial orders, slow to be determined, but it sounds like it's going to be a big opportunity as we get into the back half of really '26 ramping into '27, right?

That's correct.

Got you. Okay. So a couple of other things while we've got you on the call, I wanted to go through some other balance sheet issues just real quickly. So NOLs...

Have we talked about Starry?

We did briefly, but -- okay, let's go back to Starry in terms of like thoughts that you've got on that front. What does it mean for the opportunity? Certainly, it seems like a large Tier 1 is doubling down in terms of their commitment for broadband wireless into MDUs. How do you interpret that? And also, how do you see the existing infrastructure for Starry? Because Starry was using older WiFi-centric technology that was based on a chipset, I think it's now since been end of life. Is that a big retrofit opportunity? I got about 5 questions in there, but I'll throw it out to you.

Yes. So I think you understand pretty well the technology set associated with Starry and the generation that it participates, and you kind of would say kindly, it's dated. I think the Starry transaction validates the market, right? I believe that it validates the market. It brings a channel; it brings a sales force. And I think that bodes well for us to invest in the space. I think the fact that we're -- we've said that we have a purchase order that will drive -- that will be used to satisfy subscriber needs means that we have a valid technology. You combine that with the way you characterize Starry tech, we think we're in a good position. And we're -- we were excited when we digested the Starry transaction and what it means for the growth prospects of the market that we're just entering.

And just to clarify as well, some of the initial deployments, it sounds like are 20, 39 gigahertz where you already have existing solutions that are operating in those bands.

Yes.

Okay. Anything else on the Starry [indiscernible]?

No, not exactly.

So let's move on to a quick comment on NOLs, right, in terms of the size of them, how you're thinking about them and the deployment.

Yes. So we've got a little over $450 million of NOLs still, which allows us to minimize our cash taxes that we'll pay for the foreseeable future. So in the U.S. with our federal NOLs, they don't expire for -- or start to expire for a few years still. So we've really got a nice long runway to be able to utilize the NOLs, which will help us convert our earnings to cash at a higher rate than we would be able to otherwise.

Okay. Let's stay on that cash theme then, if you will. Then some questions more recently about basically the size of unbilled receivables. Take us through what's on the balance sheet right now? How do you start working that down? And how we should be thinking about what cash flow and free cash flow is going to look like over the next couple of quarters?

Sure. Yes. So we've got just about $110 million of unbilled receivables on our balance sheet as of our quarter end. And the unbilled receivables is a natural part of our project-based business and kind of the flip side of that is the unearned revenue line. So we're focusing pretty aggressively internally on the unbilled receivable balance and working to unlock that line item to convert to future cash in future quarters. And really, I think what you should start to see is that, that balance of unbilled receivables and the balance of unearned revenue starts to become closer to offsetting each other. So that's what we're working on. That's going to help us to generate more cash that we can turn around and use for some of the growth opportunities that we've talked about today.

Maybe just quickly, since we're talking about cash, you do have a buyback in place. It's pretty accretive down at these levels. What's left on the buyback? How are you thinking about that?

Sure. So we've got a little over $6 million remaining on our authorization. I won't comment on any specific buyback activity, but it remains a potential use of capital for us. Pete, I don't know if there's anything else you want to add.

That was well said, Andrew.

And I guess the last item not related to sales growth and otherwise, material weakness in terms of financial controls. What's the updated -- an update on that front?

Yes. So look, we -- year-over-year, we've improved our material weakness this quarter. I talked to the lead audit partner with our auditor late last week. She indicated that we are continuing to improve, and we should be successful in driving some remediation. And when we get into the year-end test, we need to prove that we've gotten full control. So what I can -- the problem with material weakness is you need to prove it over a period of time. I think we're taking the right steps. We've increased our spend on internal audit. We've brought in some outside help. So we're taking it seriously. And if the problem set doesn't move, it hasn't moved in the quarter, we will make a big dent in the control environment, and we feel good. But we need to prove it over time, and we need to get our auditor to agree with us.

So just to follow up on that from showing it over time, does that kind of imply that we're thinking about this being a fully addressed situation by the end of the current fiscal year?

That's the goal, right? And if we do everything and then the audit that we are planning on doing and the auditor agrees that we've successfully accomplished that, then we will get -- we will be deemed remediated. And if we -- if, unfortunately, we don't achieve that, I think the severity of our -- the severity of the material weakness will be reduced no matter what.

Okay. Well, we've walked through a lot of aspects of the business very quickly in terms of the growth initiatives. What's going on from an MDU perspective? This is meant to be a quick update call. Is there anything else that we're missing while we got you that we should pick your brain about?

Look, we're excited. We think our 2 biggest growth initiatives in cellular router and the MDU are showing positive signs. The public safety and utilities are great growth drivers. We did have the material weakness, and we think we're bouncing back from that. So we feel better than we have about the business over the last 18 months. Now is the time where we feel the best. And it's really a great opportunity to spend this time with you, Scott, ahead of your -- of the conference tomorrow.

Well, thank you so much for doing this. Thanks for making the time. Thanks for letting me pick your brain here in a little fireside chat. And with that, thank you very much for joining us. And Andrew, I pass it over to you for any final comments.

No, that's it, Scott. Thank you very much. Thanks, everyone.

Thank you all for joining today's conference call. You may now disconnect.

Good afternoon. Welcome to Aviat Networks First Quarter Fiscal 2026 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Interim Chief Financial Officer. Thank you. You may begin.

Thank you, and welcome to Aviat Networks First Quarter Fiscal 2026 Results Conference Call and Webcast. You can find our press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com, along with a replay of today's call. With me today are Pete Smith, Aviat's President and CEO, who will begin with opening remarks on the company's fiscal quarter, followed by myself to review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook, followed by Q&A.

As a reminder, during today's call and webcast, management may make forward-looking statements regarding Aviat's business, including, but not limited to, statements relating to fiscal guidance, financial projections, business drivers, new products and expansions and economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast and involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements.

Additional information on factors that could cause actual results to differ materially from the statements expressed or implied on this call can be found in our most annual report on Form 10-K 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.aviatnetworks.com and financial tables therein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information. At this time, I would now 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 first quarter. Total revenues of $107.3 million, up 21.4% versus the year ago period. Non-GAAP gross margin of 33.8%, adjusted EBITDA of $9.1 million, non-GAAP EPS of $0.43. These quarterly results represent a good start for Aviat in achieving our goals for fiscal 2026 and are a good return to performance versus our year ago Q1. I'd like to thank all of Aviat's employees, partners and customers for playing a part in this quarter. Let's discuss our end markets and key developments. Private networks remain a core area of focus for Aviat Networks. In the first quarter, we secured a number of meaningful project bookings across public safety and utility networks.

The strong state and local government budgets continue to set the stage for a good fiscal 2026 environment for our private network opportunities. In the utility vertical, we continue to grow our funnel by pursuing the cross-selling opportunities from the 4RF Aprisa acquisition. These efforts and our end-to-end portfolio and turnkey solutions have resulted in a number of meaningful bookings with utilities, including one large multistate and multiphase network modernization project worth approximately $8 million. We expect to have more large wins in this segment, thanks to our unique product offering, which includes our access and router solutions, our backhaul radios such as our IRU 600 ultra-high power microwave radio and our ProVision Plus and frequency and health assurance software, all combined to offer utilities and other private network operators leading performance and lowest total cost of ownership.

I am also pleased to announce the launch of our Aprisa LTE 5G router solution for police, fire and emergency vehicles.

Public safety has long been our leading segment within private networks, and this is a major step in expanding our solutions offering for these customers. This solution addresses a critical segment of this market that is entirely new to Aviat. The global cellular router and gateway market is expected to grow at a 12% annual rate and reach $2.8 billion in annual revenues by 2028. This growth is driven by the increasing demand in applications like real-time data sharing and video streaming and GPS tracking across a wide range of connected devices, including mobile data terminals, body-worn cameras, sensors and surveillance systems and vehicles of all kinds.

This solution is made in the U.S.A., is available now and supports all major frequency bands, including FirstNet and is certified by all the major carriers in the U.S. and many international carriers. Please reference Slide 9 in our investor deck for more information on this opportunity for Aviat. As part of this product rollout, we have also enabled our ProVision Plus software to help simplify the complexity inherent with 5G networking for public safety mobility applications that also provide carrier coverage visibility and vehicle tracking to increase productivity, reduce downtime and minimize security risks, all while lowering operating costs. The introduction of this offering is also significant as it builds on the technology acquired in the 4RF acquisition and validates our ability to not only identify and acquire the right technology, but to successfully integrate it, build upon it and leverage it to create new high-value solutions for our target markets. We're excited to see where this offering goes.

Before moving on to our mobile service provider business, let's briefly address the U.S. federal government shutdown and its impact on Aviat. Roughly 5% of our business is with the federal government. So from that perspective, we do not anticipate a large impact. We saw some small opportunities where the timing was accelerated to beat the shutdown in Q1, and we also anticipate that some opportunities will be pushed out until after the shutdown is over. Most likely, this will mean some revenues are pushed out of our fiscal second quarter, but that they will come back in the third quarter. If the shutdown extends a significant amount of time, its impact to our business will become harder to predict.

At this time, though, we do not believe that the shutdown will have a significant impact on Aviat's FY '26 business. In regards to our mobile service provider market, we continue to gain traction both in North America and globally. The operating environment continues to strengthen for Aviat versus a year ago, and we remain positive on the setup for fiscal 2026. In North America, we continue to make good strides with our Tier 1s. In regards to BEAD, we continue to see fixed wireless access and other wireless solutions as growing beneficiaries of the program.

We believe wireless makes the most sense for the performance per dollar and the speed to deploy. We still anticipate that Aviat will not see any benefit from BEAD until calendar 2026, likely in the back half of the year. I would now like to turn the call over to Andrew to review the financial results of the quarter before coming back for closing remarks.

Thanks, Pete. I'll review some of the key fiscal 2026 first quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between the first quarter of fiscal year 2026 and the first quarter of fiscal year 2025, unless otherwise noted. For the first quarter, we reported total revenues of $107.3 million as compared with $88.4 million for the same period last year, an increase of $18.9 million or 21.4% year-over-year. North America, which comprised 49.1% of our total revenues for the quarter was $52.6 million, an increase of $10.4 million or 24.7% from the same period last year due to growth both in private networks and mobile network operators.

International revenues were $54.7 million for the quarter, an increase of $8.5 million or 18.3% from the same period last year. This was driven by increased mobile network operator business versus a year ago and growing private network demand. Gross margins in the first quarter were 33.2% on a GAAP basis and 33.8% on a non-GAAP basis. This compares to 22.4% GAAP and 23.2% non-GAAP in the prior year. The change in gross margin is primarily due to regional and product mix in the quarter in addition to higher volumes in this quarter as compared to a year ago. First quarter GAAP operating expenses were $30.5 million, down versus $35.4 million in the year ago period.

Non-GAAP operating expenses, which exclude the impact of restructuring charges, share-based compensation and deal costs were $28.4 million, a decrease of $1.7 million versus the prior year. This decrease is due to disciplined cost management and increased efficiencies at Aviat. First quarter operating income was $5.2 million on a GAAP basis and $7.9 million on a non-GAAP basis. This compares to a $15.6 million GAAP loss and a $9.5 million non-GAAP loss in the year ago period. The first quarter tax provision was $2.3 million. As a reminder, 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.

First quarter GAAP net income was $0.2 million and non-GAAP net income, which excludes restructuring charges, share-based compensation, M&A-related and other nonrecurring expenses and the noncash tax provision was $5.5 million. First quarter non-GAAP EPS came in at $0.43 on a fully diluted basis, up by $1.30 versus the year ago period. Adjusted EBITDA for the first quarter was $9.1 million or 8.5% of revenues, an increase of $16.8 million versus last year. Moving on to the balance sheet. Our cash and marketable securities at the end of the first quarter were $64.8 million. Our outstanding debt was $106.5 million, bringing our net debt position to $41.7 million. With that, I'll turn it back to Pete for some final comments. Pete?

Thanks, Andrew. We are pleased with the start of fiscal 2026 and look forward to continuing to execute our strategy to capture additional share of wallet in private networks and win more share of demand within mobile networks. We are maintaining our annual fiscal 2026 guidance unchanged at full year revenues to be in the range of $440 million to $460 million, full year adjusted EBITDA to be in the range of $45 million to $55 million. With that, operator, let's open up for questions.

[Operator Instructions]. Our first question comes from the line of Scott Searle from ROTH Capital Partners.

Nice job on the quarter, Pete, Andrew. Just real quickly, I know you're not updating or expanding guidance in terms of the fiscal year given the current macro environment, and we're only in the first fiscal quarter. But I'm wondering if you can comment on the sequential outlook as we're going into December. I would assume there's some seasonal uptick there. And along those lines, where are you expecting the strength to come from? Is it from Tier 1 North American providers? Is it private networks? Or are you seeing something going on from an international standpoint?

Yes. I think U.S. public safety is perhaps the strongest, and that's going to give us a quarter-over-quarter lift. So we feel -- Scott, we feel good about that. We also want to be cautious that it is early in the year and the government shutdown, while it's a small part of our business, we just want to be conservative, and that's why in our remarks, we feel increasingly confident about FY '26. We just don't want to get over our skis on the December quarter. That's -- I mean, so we could start the dialogue about Pete and Andrew are conservative. We will take that criticism. But we see significant strength right now in U.S. private networks, principally driven by public safety.

Okay. Fair enough. And then just in terms of some of the specific growth categories, 4RF is something you guys have started to talk about more recently have seen some strength there. You've identified public safety. I'm wondering how big this opportunity could be as you start to think about where we could be if you look out several quarters from a 4RF standpoint. And I'm not sure if I heard any update on MDUs in your opening remarks. I'm wondering if you could give us some updated thoughts in terms of what you're seeing there and if that opportunity is expanding beyond the Tier 1 that you were dealing with.

You're asking all the questions, Scott. So with respect to the MDU, we've demonstrated all that you could ask with respect to our 28 gigahertz and 39 gigahertz performance. We've demonstrated carrier-grade serviceability. We've demonstrated the MU MIMO. We've had customer links going for almost 2 years, right? We are focused on Tier 1s with this. We're not prepared to give an update on news. But with respect to -- we're not ready to kind of go the next step on the news, but we are making great progress with our customer base, and we feel very confident about our prospects for the future.

So that's what I would say about the MDU. I would -- this wasn't a question, but I would also say that in learning about the MDU market, it's aligned with fixed wireless access, which is the fastest-growing segment in all of wireless. And we've started to unlock additional technology sets that will serve us for a couple of years as we explore opportunities outside of our core microwave business into adjacencies. So there's learning that has occurred that will benefit us say it's not in a model, but a couple of years from now, we think that this is a good development for the medium- to long-term future.

And then you started to ask about 4RF. And we see good traction in -- I'll go back a couple -- I mean, maybe a year ago. When we looked at their small customer base versus our customer base, -- we're both strong in utilities. And then there was only 11% overlap between their customer base and our customer base. So in terms of an acquisition, the customer or channel synergy is tremendous, and we've owned it for a year and 5 months, and we're starting to see the traction in selling microwave to the historical 4RF customers and vice versa, the 4RF solution into the Aviat utility base, which I would say, if you think about Aviat, our best customers are public safety, our second best customers and channel strength is in utilities. So we're excited about that.

Our next question comes from the line of Jaeson Schmidt from Lake Street.

Just curious if you could discuss what you're seeing in India and sort of what you're baking in from that region into this kind of fiscal '26 outlook?

Sure, Jaeson. So I'll take a first answer on that one. So this quarter, we did have a good mix of revenue from India in the quarter, and the margins were relatively favorable there as well. So from that standpoint, this quarter, it was a good mix and result for us. I'd say in terms of the overall fiscal year, last year, India was, call it, a mid-single-digit contributor as a country overall on a percentage basis to our revenues. I would expect them to be relatively the same this year. That being said, we have good customer diversification, both from a geographic and individual customer standpoint. And so we're not thinking about India as being kind of a single driver within our overall business.

And Jaeson, I would add that I think that there is an upgrade cycle to come in India. I don't think it will be this in our -- the Aviat fiscal year, but I think it could be a growth driver for -- from July through June and our fiscal year '27. So I agree 100% with what Andrew said. And if you want to look out further, I could see India being -- the India upgrade or replacement cycle having an impact, say, a year from now and beyond.

Okay. That's really helpful. And then just as a follow-up, when we look at gross margin for fiscal '26, is it fair to expect you guys to be able to kind of grow gross margin sequentially throughout the year?

Yes. So this quarter, gross margins were up, especially versus the year ago period, mainly due to overall volumes globally. In terms of looking out for all of fiscal '26, I would say there's some opportunity to grow margins by a percentage point or 2, I'd say, is the most likely outcome. I don't know that it would be kind of sequential. But by the end of the year, I think you could expect us to be kind of at that mid-30s percent.

Our next question comes from the line of Rustam Kanga from Citizens.

Nice print here. Just one question on the Aprisa Router. Could you just kind of speak to the opportunity there from a competitive displacement standpoint versus your #1 competitor and some of the smaller players there and kind of how you're thinking about that opportunity?

Yes. So just to go back to the -- what we call the mobile cellular router opportunity, it's a $2.8 billion market growing at 12%. And we would say the incumbent is principally what Ericsson owns via their Cradlepoint acquisition. Telefonica can be there. You can also think about Semtech. Out of that $2.8 billion, we think we're ready to engage $800 million of that opportunity. We have $0 today. And why -- so why are we talking about this when we haven't done $1 of revenue? It's because this offering is the combination of 4RF, our Aviat's kind of hardware and software platform and our #1 market channel in public safety.

And we basically engaged approximately 10 state police or large municipal government police departments. There's no friction. There's a lot of interest in our solution. It will take probably another 6 months, but we think that this is going to be a big growth driver towards the end of this fiscal year going into next fiscal year. And we think we're super excited about it.

Awesome. Great to hear. And then just wanted to touch on federal. I appreciate the 5% of the business metric there. Just curious if you could just help us quantify or maybe ring-fence the magnitude of sort of the accelerated pull-ins and then how much is sort of baked into the guide for Q2 that you said might push into Q3, just how to sort of think of that as a relative mix perspective?

I mean worst case for this quarter, maybe 1% pull in. It's really hard to judge. Worst-case push out, and I don't think it will be this bad would be 4% to 5%. And look, I don't want to get trapped in this guidance because if the government opens tomorrow, then we'll have a mad dash to get stuff out because the customer base is going to really want this done. So to be conservative, let's say, the government shutdown doesn't get restored until January, then we have to be a little more conservative. If it opens up tomorrow, then it's not as bad. I know that, that doesn't -- this is one of the reasons we guide on an annual basis. And I know when you put your forecast out, this doesn't help, but I want to be -- say where we're at. Sorry, I couldn't be more definitive.

Our next question comes from the line of Theodore O'Neill from Litchfield Hills Research.

Congratulations on the good quarter. Pete, on the Slide 9 here about the cellular routing solution for public safety. I'm just wondering what's the driver here? Do they -- do these vehicles not have routers? Or do they need some -- an updated router? I'm wondering if you could just fill me in on that.

All right. So a lot of the vehicles, actually, I think most, if not all, the vehicles have routers in them. And what has transpired is there's some dissatisfaction with the incumbents on their price point and their OpEx business model. And then further, we have deep customer intimacy from our public safety microwave networks. We're a trusted provider. We hypothesized that this was going to be interesting for Aviat's growth. And based on the -- our 10 chosen customers' engagement, we see dissatisfaction with some of the functionality, some of the business model with the incumbent, and we have the hardware, the software and perhaps most importantly, the channel and the customer relationships. So that's what I would say.

That makes sense. So you're already the incumbent provider for other parts of the network. So it just -- it makes it an easy sell.

Yes. And to be kind of maybe overly specific, the procurement person for the microwave public safety network typically is a couple of doors down from the person that's responsible for the technology that goes into the emergency vehicle or the...

Yes. Okay. And my other question is about the multi-dwelling unit fixed wireless broadband. So Verizon acquired Starry Group Holdings, so they could go after that market. And I was wondering what that acquisition means for Aviat, if anything?

Two, I think, first, it validates our effort in the multi-dwelling unit space. If a company like Verizon is going to spend on what we believe to be channel access, we think that, that bodes well for the growth of hardware and software in the MDU space. Also, we did look at the Starry assets. We didn't look at it from a channel perspective, but we looked at it from a hardware perspective. And what I could say is we're a couple of generations ahead of where Starry left off.

Our next question comes from the line of Egor Tolmachev from Freedom Bank Broker.

Could you please share a quick update on BEAD program progress you see among your clients and maybe how it will impact your business?

BEAD. Okay. So on BEAD, we've been super conservative all along with respect to BEAD. And last earnings call, I was a bit more bullish. And the reason we are bullish is now our customers are talking to us specifically about BEAD funding and BEAD deployments. So we are getting significantly more encouraged about BEAD. We see some specifics that there's growing non-fiber support. So Utah and Arizona have quantified the maximum they're willing to pay for a fiber connection, which means that -- so their number in Utah and Arizona, they limited to, I think, less than 15,000. That could swing 40% of the connections to be non-fiber-based.

New Mexico is proposing 40% for fixed wireless, which will drive microwave backhaul. Washington is at 39%. And Kansas proposed 50% of locations to be served by hybrid and fixed wireless access. So we think all of these developments and our customer engagement bode well for us capturing some of the BEAD and BEAD funding. And the question we have is, will that be in the March, June or the September quarter? We don't know. But as we get nearer to landing some of those -- or our customers get nearer to deploying some of the BEAD money, we will circle back and update you on our progress and what it might mean for revenue growth going forward.

And maybe a quick follow-up on your Intercom telecom partnership. Can you maybe provide some quantitative estimates or timing of -- for this partnership?

The partnership is ongoing. So it's established and it's working. And yes, I think that's about all I could say about the partnership. So thank you.

This concludes the question-and-answer session. I would now like to turn it back to Pete for closing remarks.

Thanks, everyone, for joining. I have a few things to point out. We basically lapped the year ago poor performance. Now our adjusted EBITDA is at a level of $54 million. Independent of the cellular router opportunity, we see the public safety market remaining attractive. In the Q&A session, we poked at the MDU, which we see as an emerging market and gets Aviat firmly into fixed wireless access, which would be good. The mobile cellular router is an attractive segment. We see BEAD incrementally moving forward. So with all that, thanks for calling in, and we look forward to updating you on progress in 90 days.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Hello, everyone, and welcome to Aviat Networks' Fourth Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President of Corporate Finance and Interim CFO. Thank you, and you may begin.

Thank you, and welcome to Aviat Networks' Fourth Quarter Fiscal 2025 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.

As a reminder, during today's call and webcast, management may make forward-looking statements regarding Aviat's business, including, but not limited to, statements relating to fiscal guidance, financial projections, business drivers, new products and expansions and economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast, and involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements.

Additional information on factors that could cause actual results to differ materially from the statements expressed or implied on this call, can be found in our most recent Annual Report on Form 10-K filed with the SEC.

The company undertakes no obligation to revise or make public any 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 on the IR section of our website at www.aviatnetworks.com in the financial tables therein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information.

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

Thanks, Andrew, and good afternoon. Let's review the highlights from the fourth quarter. Total revenues of $115.3 million, non-GAAP gross margin of 35% (sic) [ 34.7% ], and record adjusted EBITDA of $15.1 million, up 27% (sic) [ 26.7% ] versus the year-ago period. This marks our third consecutive quarter of setting a new record adjusted EBITDA figure, non-GAAP EPS of $0.83, up 15% year-over-year.

These quarterly results are a testament to our entire team and reflect the hard work, dedication and commitment we have to our customers and our shareholders.

Let's discuss our end markets and key developments. In private networks, Aviat continues to deliver for our public safety and critical infrastructure companies including utilities and oil and gas companies with our reliable secure backhaul, complemented by our access and routing portfolio.

In public safety, we remain a leader with sustained share of demand and expect a good environment in the year ahead. Industry research shows that overall city and state budgets for fiscal year 2026 are growing by 4% and 6%, respectively, even more relevant for Aviat allocations to city police and fire budgets are growing by 5%, and states are growing public safety budgets by 8%.

This backdrop of funding growth aligns with land mobile radio or LMR network upgrades to better support video and data communications which creates growing demand for Aviat's suite of backhaul radios, routers and services. Our backlog in North America remains high, thanks to multiple large statewide public safety networks. Although our federal business is relatively small compared to our state and local government business. There are expanding opportunities as a result of the One Big Beautiful Bill Act, which has allocated $17 billion for the support of state and local law enforcement of border security and $6 billion for border technology.

This will create opportunities for Aviat, given our leadership in public safety networks. Moving on to our mobile service provider market. The fourth quarter represented a rebound in spending from U.S. Tier 1 versus earlier in the fiscal year and strong revenues from certain APAC countries, our revenues from Pasolink are in line with our goal of $140 million in annualized revenues. We made a commitment to our shareholders that Pasolink revenues would be at this level exiting fiscal 2025, and we are happy to have delivered.

Looking ahead, we believe that fiscal 2026 will have a broader set of opportunities for Aviat to grow versus fiscal 2025 based on mobile service providers' CapEx plans globally. Many emerging market operators are still early in building out their 5G networks, and we believe there will be opportunities for Aviat to participate in these network build-outs.

The North American Tier 1 market should also be stronger than in previous years, thanks to efforts to build out fixed wireless access. Regarding our rural broadband business and the Broadband Equity Access and Deployment program, we see increasing utilization of wireless solutions for this segment compared to initial estimates which we think is wise given the speeds and capacity delivered and the cost and speed to deploy wireless versus fiber.

For example, New Mexico's final BEAD proposal awards 40% of serviceable locations to fixed wireless access providers and Washington State awarded of 39%. Kansas awarded 50% of locations to hybrid and fixed wireless access solutions. This technologically neutral approach will create more opportunities for wireless backhaul, and we look forward to working closely with the states and rural broadband providers to service this program. We continue to believe that we will not see revenue impact from BEAD until calendar year 2026 and will not include it in any financial guidance until we have better visibility.

Last quarter, we said that we anticipated an impact to Aviat from tariffs, but we had the goal of offsetting most, if not all, of the impact on our bottom line. Thanks to the tireless work by our operations, finance and sales teams, we have indeed seen minimal impact to Aviat's profitability as a result of tariffs thus far. We have moved nearly 1.5 million worth of supply purchases from China.

We continue to execute on our plans to mitigate the impact of tariffs and are pleased with the progress Aviat has made. On the product development side, Aviat Networks recently introduced our new European Telecom Standards Institute Compliant or ETSI radio. This opens up a new market opportunity for us, thanks to industry-leading power which allows customers to build networks over longer distances with fewer towers and smaller end tenants which substantially reduces total cost of ownership.

The radio is all-indoor design also simplifies maintenance, enhances safety, providing a reliable and cost-effective solution for mission-critical applications. This radio has been a leading solution in North America, and we are excited to bring it to our international markets. I would now like to turn the call over to Michael and Andrew to review the financial results of the quarter before coming back for closing remarks and our fiscal 2026 guidance. Michael?

Thank you very much, Pete. I would like to say a few words before turning it over to Andrew. When I decided to join Aviat, it was because the company was successfully executing its strategy to scale in the wireless communication industry, had a strong technical offering for its customers, and was made up of great team members.

All of these things remain true today. Aviat is in very good hands with Pete and Andrew at the helm. Andrew, over to you.

Thanks, Michael. I'll review some of the key fiscal 2025 fourth quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between the fourth quarter of fiscal year 2025 in the fourth quarter of fiscal year 2024, unless otherwise noted. For the fourth quarter, we reported total revenues of $115.3 million as compared to $116.7 million for the same period last year, a decrease of $1.3 million or 1.1% year-over-year.

North America, which comprised 50% of our total revenues for the quarter was $58.0 million, an increase of $1.8 million or 3.2% from the same period last year due to growth in private networks. International revenues were $57.3 million for the quarter, a decrease of $3.1 million or 5.2% from the same period last year.

This was driven by timing of certain international mobile network projects. Our trailing 12-month book-to-bill was over 1x, in the quarter. Backlog as of the end of fiscal 2025 was $323 million versus $292 million a year ago, up 11%. This growth signals continued demand for Aviat's products and services and sets the company up to execute on our growth plans in fiscal 2026 and beyond.

Gross margins in Q4 were 34.2% on a GAAP basis and 34.7% on a non-GAAP basis. This compares to 35.3% GAAP and 35.9% non-GAAP in the prior year. The change in gross margin is primarily due to regional and customer mix in the quarter.

Fourth quarter GAAP operating expenses were $30.6 million versus $35.7 million in the year ago period. Non-GAAP operating expenses which exclude the impact of restructuring charges, share-based compensation and deal costs were $27.1 million, a decrease of $4.1 million versus the prior year. This decrease is due to disciplined cost management and increased efficiencies at Aviat.

Fourth quarter operating income was $8.9 million on a GAAP basis and $12.9 million on a non-GAAP basis. This compares to $5.5 million GAAP and $10.6 million non-GAAP in the year ago period. GAAP income before taxes in the fourth quarter was $10.2 million versus $4.6 million in the year-ago period. This is an increase of $5.6 million or 121% and represents a quarterly record for Aviat.

The fourth quarter tax provision was $5.0 million. As a reminder, 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. Fourth quarter GAAP net income was $5.2 million and non-GAAP net income which excludes restructuring charges, share-based compensation, M&A related and other nonrecurring expenses and the noncash tax provision was $10.7 million.

Fourth quarter non-GAAP earnings per share came in at $0.83 on a fully diluted basis, up by $0.11 or 15.3% versus the year ago period. Adjusted EBITDA for the fourth quarter was $15.1 million or 13.0% of revenues, an increase of $3.2 million or 26.7% versus last year. This is our third consecutive quarter of setting a new record on quarterly adjusted EBITDA for Aviat. This achievement is thanks to the execution of the entire Aviat team.

Moving on to the balance sheet. Our cash and marketable securities at the end of the fourth quarter were $59.7 million. Our outstanding debt was $87.6 million, bringing our net debt position to $27.9 million.

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

Thanks, Andrew. We are happy that we were able to deliver another set of strong results for shareholders and close out fiscal 2025 with momentum heading into fiscal 2026. As part of our year-end audit, we did identify material weaknesses in our controlled environment. While we made progress in improving our control environment over the last year and remediating 2 material weaknesses identified last year, we still have more work to do in the year ahead. We will continue to invest further to improve our resources processes and testing to remediate our material weaknesses.

Moving on to our fiscal 2026 guidance. Based on our current outlook, we see full year revenues to be in the range of $440 million to $460 million, full year adjusted EBITDA to be in the range of $45 million to $55 million. We expect that our business will build throughout the year with the first quarter being the lowest revenue quarter and the fourth quarter being the strongest revenue quarter. With that, operator, let's open up for questions.

[Operator Instructions] One moment for our first question that comes from the line of Theodore O'Neill with Litchfield Hills Research.

Great. I wanted to go back and ask about fixed wireless access for business and multi-dwelling unit opportunities. It seems like every telco is promoting this right now. And I'm wondering, is that -- do you have any sense if that's because they're discontinuing DSL over copper or it's BEAD funding or there's no fiber access? What's driving that? And what's making that work right now?

Well, I think one, the buildings in the U.S. our single-family housing is not being emphasized, but multi-dwelling units or when I was a kid was known as apartment buildings are being preferred and they achieve price points. So with that, that's what's driving the kind of the residential units.

And then beyond that, with respect to access, it's -- in dense cities, fiber makes sense. But as you get away from the urban center, wireless applications become more interesting or more prevalent, is that helpful, Theo?

Yes. And on the BEAD program, are you seeing any delays in there that are [ coming ] out by the government trying to delay certain funding of different programs? Or is that just moving along as you expect?

It's hard to say that the BEAD program is moving along as anyone would expect. But in our script, we noted several states that are taking advantage of the technological neutrality and changing the mix from fiber to wireless. So we're extraordinarily encouraged by that. With that said, we would also say the BEAD would be -- the BEAD funding will be impactful in calendar year 2026.

So 1 of the problems with BEAD is it's always been a tomorrow story, a tomorrow story. We've never put it in to our guidance, it's still not in. But we're seeing the most positive signs around BEAD funding flowing that we've seen since the program was announced.

One moment for our next question that comes from the line of Tim Savageaux with Northland Capital Markets.

Congrats on another strong quarter. My question was relative to your outlook for fiscal '26. And in the middle of that range, I think you're at sort of 4%-ish type growth. And I want to try and relate that to some of the commentary earlier in the call. I think I can't remember the exact metrics, but you talked about funding increases, 5% to 8% in state and local, 11% backlog growth where it looks like you got basically 3 quarters in backlog.

So I guess, is there anything out there that's going the other way that might meet that growth outlook, especially given the weakness you had in September a year ago that you would point us to relative to what appears to be a stronger environment.

Tim, it's a fair question. A year ago, Q1, we underperformed. And until we put that year-over-year quarter in the rearview mirror. We want to be conservative. I think you properly noted the environmental drivers, and we want to acknowledge that. And we also want to prove ourselves 1 more quarter, another quarter before we would get ahead of ourselves.

Okay. Understood. And then with regard to the, well, Tier 1 carrier environment, and you could take this both North America and globally, do you see any kind of differing trends if you look at North American Tier 1s versus your global 5G customers from Pasolink. And then maybe any comments about the carrier versus private network market, do you see any meaningful difference in growth rates there in '26?

Okay. Let me start with the last one first. We would think -- we would anticipate better growth from the private network space compared to the carrier market. Unfortunately, I think we finished up the year a little bit over 55% private networks, 45% and -- that's about 55%, 45%. So fortunately, our portfolio is aligned with the higher growth segment.

The North American wireless decline going back in 2024. And we see the back half of this year into next year, a slight growth. And it's harder to answer the international segment but we are weighted towards emerging markets which don't have the connectivity that say, more mature economies have. So that looks to be favorable and that will be -- we're project-based. So I think some quarters will be good and some quarters will be -- the demand will be digested.

But we think they're set up -- we made a remark in the script about the setup for this year being better than last. And I would say it comes from public safety and utilities in our private network segment and the emerging economies and their connectivity and that would be on the network operator side.

[Operator Instructions] Our next question is from Scott Searle with ROTH Capital.

Congrats on record EBITDA quarter. And Mike, I just want to say it's been a pleasure working with you, and congrats and best of luck in your future endeavors.

Guys, maybe to just dive in on the quarter, the revenue mix was heavily skewed towards services, and higher gross margins on that front. I'm wondering if you could talk us through some of the dynamics in the June quarter that got us to that point. And then as we look out immediately into the September quarter, how are you seeing the product revenue correct and gross margins on that front? And then I had a follow-up.

Okay. Yes, Scott, so this is Andrew. On the services versus product for the quarter, services was strong. And really, the margins were good across all regions and had improved sequentially across all regions. And so part of it is just a mix of the products that we had -- or sorry, the projects we had in the quarter for being higher as a portion of overall revenue. But I'd note there, particularly that margins improved on our services really across all regions.

Got you. And then, Andrew, looking forward into the September quarter, how does that correct? And maybe to follow up on Tim's question earlier, it sounds like there's a lot of good in what you're seeing. It sounds like the demand environment seems pretty healthy. Private networks seem like they're starting to build both from a government federal standpoint, local standpoint as well as private as well. And it seems like the carrier environment is even recovering at least from a Tier 1 North American standpoint.

So is it conservatism that you're just looking at the fiscal '26 outlook? Or is there something specifically going on from the services and more project-based revenues that just is for -- translate to some more immediate caution in the September and December quarters.

So Scott. Our business is "lumpy" or episodic or project based. And we see the build quarter-over-quarter. We see Q1 to be at the low point in the quarter. Q2 and Q3 are likely to be even with each other in Q4 should be the highest. So I mean it could be Q1 low, Q2 high, Q3 a little bit back and Q4, the highest again, which is our emerging pattern as we have -- as our portfolio we lap year-over-year, we're getting more used to operating core -- well let's go back in time, core Aviat, the Pasolink portfolio and the 4RF Aprisa.

So that's why understanding the revenue cycles for each of those customer bases has been a bit of a challenge with respect to the seasonality or calendarization. And this is what we're feeling comfortable with given our history with the whole portfolio.

Congrats on the quarter.

[Operator Instructions] As I see no further questions in the queue, I will conclude the Q&A session and pass it back to Mr. Smith for concluding comments.

Okay. Thanks, everyone for jumping on the call on short notice. We look forward to updating you after our September quarter gets done, and we get ready to publish our next set of results again. Thanks, everyone.

And with that, we thank you for participating in today's conference, and you may now disconnect.