Aviat Networks: Growth Outlook Disappoints But Too Cheap To Ignore, Buy

Core Viewpoint - Aviat Networks reported mixed Q3/FY2024 results with revenues slightly below expectations but profitability exceeding consensus forecasts [2][10] Financial Performance - Q3/FY2024 revenue was $111.6 million, with a gross margin of 35.2% [3] - Operating expenses increased to $28.5 million, while adjusted EBITDA was $12.0 million, resulting in an adjusted EBITDA margin of 10.8% [3] - Cash flow from operations improved to $15.3 million, with cash and cash equivalents rising to $59.2 million [3] Acquisition Impact - The recent Pasolink acquisition impacted margins but contributed positively to cash flow generation [5] - Pasolink's business is expected to grow slower than initially anticipated, with a targeted annual run rate contribution of $140 million [5] Guidance Adjustments - Management revised FY2024 revenue guidance to a range of $408 million to $418 million, while maintaining adjusted EBITDA guidance of $51 million to $56 million [6] - Preliminary FY2025 revenue guidance was also backtracked, with expectations now set lower than the previously stated $515 million to $520 million [7] Market Reaction - The lowered growth outlook led to a 16% selloff in shares, although the stock price has since stabilized [8][10] - The current valuation remains attractive, with a potential upside of over 60% based on a price target of $50 [8] Long-Term Goals - The company aims for Pasolink to achieve a gross margin of 33% and adjusted EBITDA margins of 11-13% by the end of year two [7] - Long-term adjusted EBITDA margin goal is set at 15% [7]