Press release·03/02/2025 12:23:42

Financial Performance Overview

Aviat, a leading provider of wireless transport solutions, has reported its financial results for the second quarter and first six months of fiscal year 2025. The company has seen a mix of performance, with some positive trends as well as areas of concern.

Revenue Growth Aviat’s total revenue increased by 26.2% in the second quarter and 14.4% in the first six months of fiscal 2025 compared to the same periods in the prior year. This growth was driven by strong performance in several geographic regions:

• North America revenue increased 14.5% in Q2 due to higher private network project volumes, though it declined 5.0% in the first half.
• Europe revenue grew 49.7% in Q2 and 28.8% in the first half, boosted by increased sales to mobile operators.
• Latin America and Asia Pacific saw the largest increases, up 70.4% in Q2 and 74.0% in the first half, aided by contributions from the NEC transaction.

However, revenue in Africa and the Middle East declined 12.6% in Q2 and 5.4% in the first half due to lower capital spending by large mobile operators in the region.

The company saw growth in both product sales (up 26.6% in Q2, 15.1% in H1) and services revenue (up 25.2% in Q2, 12.8% in H1), reflecting the positive impact of the NEC acquisition.

Profitability Gross margin was 34.6% in Q2, down from 38.8% in the prior year period, primarily due to changes in the geographic and customer mix. For the first half, gross margin declined to 29.4% from 37.4% in the prior year, which the company attributed to the near-term dilution from the NEC transaction.

Research and development expenses increased 21.8% in Q2 and 39.2% in the first half, as the company invested in development activities related to the NEC acquisition. Selling and administrative expenses decreased 5.6% in Q2 but increased 10.6% in the first half, with the increase driven by merger and acquisition costs.

The company incurred $1.4 million in restructuring charges in Q2 and the first half, primarily related to workforce reductions to optimize skill sets and align costs.

Interest expense increased significantly, up 301.0% in Q2 and 446.7% in the first half, due to higher borrowings compared to the prior year. Other expenses also rose, reflecting losses on debt extinguishment and foreign exchange impacts.

Overall, the company reported income before taxes of $6.1 million in Q2, up 68.5% year-over-year. However, it recorded a loss before taxes of $11.3 million in the first half, compared to income of $7.6 million in the prior year period. The tax benefit in the first half was $3.9 million.

Liquidity and Capital Resources Aviat ended the quarter with $52.6 million in cash and cash equivalents, of which $31.0 million was held outside the United States. The company generated negative operating cash flow of $6.4 million in the first half, a $13.3 million decrease from the prior year, due to higher working capital needs and lower earnings.

Investing activities used $23.5 million in cash, down from $33.5 million in the prior year period, as the prior year included higher acquisition-related payments for the NEC transaction. Financing activities provided $18.6 million in cash, down from $50.3 million in the prior year, as the company reduced its Term Loan borrowings compared to the prior period.

The company amended its Credit Facility in the first quarter, increasing the borrowing capacity to $75 million each for the Term Loan and Revolver. As of the end of Q2, the company had $75 million outstanding on the Term Loan and no borrowings on the Revolver.

Management believes the company’s existing cash, available credit, and future cash collections will be sufficient to meet its anticipated cash requirements for at least the next 12 months and beyond.

Acquisitions and Integration Aviat completed two significant acquisitions during the past year:

1. In July 2024, the company acquired 4RF Limited, a New Zealand-based provider of industrial wireless access solutions, for $18.2 million. This expanded Aviat’s product offerings for the global industrial wireless access market.

2. In November 2023, Aviat acquired NEC Corporation’s wireless transport business for $54.5 million, comprised of cash and stock. This increased Aviat’s scale, enhanced its product portfolio, and diversified its business.

The integration of these acquisitions appears to be progressing, though the NEC transaction has had a near-term dilutive impact on Aviat’s gross margins. Management expects the acquisitions to strengthen the company’s competitive position and innovation capabilities over the long term.

Outlook and Risks Aviat’s performance continues to be influenced by several key factors:

• Ongoing 5G and LTE network deployments by mobile operators, which drive demand for Aviat’s wireless transport solutions
• Private network implementations, particularly in North America, which have been a source of growth
• Capital spending levels of large mobile operators, especially in Africa and the Middle East, which have been soft
• Competitive pricing pressures in the markets Aviat serves

The company’s technology roadmap and focus on turnkey services are intended to position it well for evolving market requirements. However, Aviat has noted that a number of factors, including competition and macroeconomic conditions, could prevent it from achieving its objectives.

Additionally, the company continues to work on remediating material weaknesses in its internal controls over financial reporting, which were identified in the prior fiscal year. While progress has been made, these weaknesses have not been fully resolved as of the end of Q2 fiscal 2025.

Conclusion Aviat has delivered mixed financial results in the first half of fiscal 2025, with strong revenue growth offset by profitability challenges. The company’s acquisitions of 4RF and NEC’s wireless transport business have expanded its product portfolio and geographic reach, though the NEC transaction has had a near-term dilutive impact.

Looking ahead, Aviat faces both opportunities and risks. Its focus on 5G/LTE deployments, private networks, and turnkey services positions it well for evolving market demands. However, the company continues to navigate competitive pressures, macroeconomic headwinds in certain regions, and the need to fully remediate its internal control weaknesses.

Aviat’s ability to successfully integrate its acquisitions, maintain its technological edge, and manage its cost structure will be critical factors in determining its future financial performance and shareholder value.