Q3 2019 Earnings Call
Good afternoon, My name is merger and I'll be your conference operator today.
This time I would like to welcome everyone to the Cambium networks third quarter 2019 financial results Conference call.
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Thank you Mr., Peter Human Senior director of Investor Relations You May begin your conference. Thank you Bridget welcome and thank you for joining us today for Cambium networks third quarter 2019 financial results conference call and welcome to all those joining by webcast.
Tool Bhatnagar, our president and CEO and eating coming our CFO are here for today's call. The earnings release referenced on this call is accessible on the Investor page for web site has been submitted on a current report on form 8-K with the FCC.
Copy of today's prepared remarks, we'll also be available on our Investor Relations page at the conclusion of this call.
As a reminder, today's remarks, including those made during Q and I will contain forward looking statements about the companys outlook than expected performance.
These statements are based on current expectations forecasts and assumptions risks and uncertainties could cause actual results to differ materially.
Except as required by law Cambium networks does not undertake any obligation to update or revise any forward looking statements for any reason after the date of this presentation, whether as a result of new information future development to conform these statements to actual results or make changes in cambium expectations or otherwise it can't be UBS networks policy not to reiterate.
Our financial outlook.
Encourage listeners to review the full list a risk factors included in the Safe Harbor statements in today's financial results press release.
We will also reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year over year comparisons reference GAAP numbers, except where otherwise noted a reconciliation of non-GAAP measures to GAAP measures is included in the appendix in todays financial press release, which can be found on the investor page of our website in todays press release announcing our reserve.
Now onto the agenda cambium networks, President and CEO , a tool Bhatnagar will provide the key investment highlights for the quarter, It's Steven coming.
Cambium network CFO will provide a recap of financial results for the third quarter 2009.
My team, which we will reference as Q3 19 and reference past quarters as Q2 19 for the second quarter of 2019 in Q3 18 for the third quarter 2018.
We will also provide I financial outlook for the fourth quarter of 2019, which we will reference as Q4 19.
Full year 2019 in fiscal year, 20, which we will reference as F. why 19 in F. Like 20, our prepared remarks will be followed by a Q and a session.
I'd now like to turn the call over to a tool.
Thank you Peter looking at the results of our third quarter 2019, we achieved revenues of $65.7 million, which increased 11% year over year and decreased 5% from Q2 19.
This was our couldn't be second good 'cause it could have quarter off you know what are your growth.
This growth was driven by our point to Multipoint BMP products with revenues, increasing 18% and our life products, which do an outstanding hundred 32 person you know what do you.
As mentioned in our earnings release.
We had lower than anticipated government spending for point to point products. During Q3, 19, BPP down 22% year over year.
On a sequential basis, we continued to deliver record revenues in our enterprise life I solutions, which grew by solid wouldn't be person from Q2, 19 and now the prison for 15% of total company revenue.
VTB revenues decreased 10% sequentially in Q3 19, primarily the result of has slowed down in the U.S Federal business you due diligence specific government programs.
And BMP revenues were lower by 7% sequentially after two stronger quarters in North America.
Taking a look at some notable customer wins and new product development.
During Q3 19, I'm pleased to report Cambium Netbooks continue to have several high profile customer win.
In North America, we couldn't do you need to believe the connect America fund or Caf funds phase two will be a key driver for our growth in 2020 .
$1.5 billion in funds will be disburse or the next 10 years. We wanted caf two funded deals were point to Multipoint axis and license backlog solutions from a mid Western wireless Communications company, serving both residential and business customers.
In North America in service provider space.
You have on service provider exhibited a supply agreement with small cell point to point transport using our PDP 670.
Cambium notebooks PDP 670 provides a carrier grade reliability upgrade to near and non line of sight deployments and support both I Tripoli 50, New do you envision do and synchronous Ethernet required by mobile service providers to support netbook timing.
We see this one of the proof point that fixed wireless broadband is 11 or major service providers.
In Europe , Middle East and Africa region, EMEA, we had a significant number of wins, including service providers hotel chain educational institutions is sizable agriculture, and many oil and gas customers and government agencies.
It may just service providers in EMEA with operating companies in multiple middle East. Some African countries has executed a master supply agreement with cambium that from the provide fixed wireless broadband solutions to serve their enterprise broadband access market.
Three of the service providers operating companies I've already placed initial orders on cambium notebooks to support the deployment of fixed access networks.
Our enterprise business in them in cambium that Brooks has active engagement with over 800 municipalities across Europe . Following our successful Vifor you engagement activities.
Many of those municipalities have already put cheese or committed for purges cambium solutions through the life play for you initiatives.
The Black fight for you initiative combined with cambium robust products for outdoor wireless networks and the move to like five six.
Also known as into 2011, its standard along with other cloud forward C and Maestro Netbooks amendments solution and our new wireless so we're seeing metrics family of switches on a few reasons why we remain enthusiastic on higher growth rates for our enterprise wide five business for the foreseeable future.
In Carla we have ships the in pilot lifelike mental health.
Eight undercover redeemed in Bahama Upto. He can dorian getting them also partner with oral Colm and emerging telecommunications service, Florida in federal to provide cambium that Brooks BMP for could be fixed wireless broadband solution and see invited enterprise life I solutions to the Peruvian government for Robin by access to more.
More than 1000 down and rural communities in four different states and fair.
Regarding our acquisition of does this product line.
Integration activities are moving along smoothly, we onboarded approximately 35, new employees the history of innovation and beep multi where do you experienced in high performance like fight, which will substantially contribute to the development of advanced life by six solutions for mid tier enterprises.
Educational institutions hospitality high density public venue, where Nichols and managed service providers.
We're making excellent progress aligning our future product roadmap with the existing unexpected convergence around our life by six products in the first half of 2020 .
We also very pleased to be included for the first time in both Btwenty 19, Gartner Magic quadrant for wired and wireless Lan Nexus infrastructure and four restaurants 2090, new able to board for wireless solutions. These inclusions are an important step as cambium that puts continues to increase our exposure.
Sure to the world wide enterprise wide five market, which now represents over 15% of hard revenue up from 7% of companies revenue a year ago.
Looking at new products launched since our previous quarterly update.
In August Cambium, Netbooks announced the I've Liberty of BMP for 50 platform and citizens band Radio service CBR It spectrum.
We are one of the first companies to implement and now ready to deploy CBR to solutions in America.
CBR it unlocks a large block of spectrum for broad commercial use by service providers.
Before 50 fixed wireless platform is currently the only purpose built fixed point to Multipoint broadband technology.
For use in the CBR as Ben and another initiative.
Another alternative to deploying LT eat technology on a far Fourfifty PMP platform products are able to upgrade from there to take advantage of the new three gigahertz CBR to spectrum.
I'll be honest capability expense cambium networks wireless fabric portfolio connectivity solutions for service providers.
As well as industrial utility and local government private network operators and provides affordable spectrum to really is and will further enable the internet of things.
In early October we announced the launch of Threed and you see in bothered by fight access points products to the C imported product line of connectivity solutions for you to 111 easy we do.
These products include the Cnpad E fiber five is small form factor outdoor life access point designed for citywide and high density deployments.
The inside of he'd like 10 for high performance rugged outdoor industrial applications with extended them Pritchard operation.
Real 30 fight for shock and vibration LT equal existence, and I P 67 reading.
And to see in funded for 25 H. Woltz lead at this point designed for high density installations, such as hospitals apartments dormitories educational institutions and hospitality with one at this point for room.
We continue to experienced strong growth in unique company accounts utilizing cien maestro cloud with a total devices into management in Q3 19 totaling over 332000, an increase of approximately 11% from Q2 19.
As we have previously mentioned cambium that Brooks is one of the fuel networking companies that often an end to end cloud <unk> connectivity solution managed untarnished for integrating a broad portfolio of complex wireless technologies.
Turning to channel.
In Q3, 19, we expanded our channel presence by adding over 500, New channel partner sequentially. I know were 1450, New channel partners you know what are you.
Which represents an increase of approximately 9% sequentially and 29% year over year.
In other channels developments cambium networks had a very successful we spoke palooza gone fronts in mid October WISPA Deep Trade Association for North American fixed wireless Internet service providers held its annual conference.
Customers could see cambium that Brooks is very well position from both a product and technology standpoint, what our next phase of growth.
Especially with the growth enabled by $1.5 billion something Caf two funding.
Cambium to see the 2019 manufacturer of the you'd award from beside the conference and award watered by members of his fun.
We also proud that can be them that books was named the winner Indeed telecommunications category for the Chicago Innovation Awards put our BMP for 50, M.C.N. would do some messy them you Mimo technology. The judges selected cambium that broke out of 450 nominees.
Well Q3, 19, certain pockets was softer than anticipated we have created a strong foundation for our 2020 and 2021 growth.
The key drivers for our business growth are.
The introduction of 60 gigahertz, and 28 gigahertz millimeter wave solutions.
Global tier two and to your three service providers deploying fixed wireless broadband enabled by the adoption of fixed fiveg.
And why five six acceleration from the zealots acquisition.
These drivers give us give us confidence into our future growth.
I'll now turn the call over to see often what are the view of our Q3 19 financial results.
Thanks, It too.
Revenues for Q3, 19 increased by 11% year over year to $65.7 million compared to $59 million in Q3 18.
As a tool mentioned Q3, 19 revenues reflected lower than anticipated U.S. federal government spending primarily to point to point products. We believe this is a temporary slowdown in the PTP market, mostly related to delays in specific government programs.
Looking at revenues by geography, North America, our largest region represented 44% of company revenues during Q3, 19th.
North America was flat year over year and decreased 3% sequentially.
We had another strong quarter in EMEA, our second largest region, which had revenues of $21.7 million. During Q3 19, an increase of 27% year over year, driven by strong enterprise business and down 5% sequentially from a very strong Q2 19.
EMEA represented 33% of total company revenues a pack revenues grew 12% year over year. During Q3, 19, although decreasing 10% sequentially. The government digital brought down initiatives in Asia, which reached every sector. Their economies are expected to remain slow until calendar 2028.
Represented 11% of revenues during the third quarter 2019, Callout grew 21% year over year as we won some large enterprise deals in Brazil, and Mexico and decreased 5% sequentially Callout represented 12% of Cambia networks revenues during Q3 19.
Looking at our gross margin GAAP gross margin was 48.4% while non-GAAP gross margin was 48.7% improved 190 basis points compared to Q3 18.
A year over year improvement in gross margin expansion are result of key initiatives, which we put in place focused on cost reductions price management and supply chain efficiency.
non-GAAP gross margin was 140 basis points lower than Q2, 19, which included approximately 70 basis points benefit as a result to the annual license agreement with a customer and lower inventory reserves.
GAAP gross profit dollars were $31.8 million compared to during Q3 19 in Q3 19 on non-GAAP gross profit dollars increased by $4.4 million to $32 million compared to the prior year and decreased $2.7 million sequentially.
GAAP operating expenses were $27.7 million in Q3, 19 compared to $28.6 million in Q3, 18, I'm $43.7 million in Q2, 19, which included $16.1 billion of share based compensation.
non-GAAP operating expenses in Q3, 19 decreased by $1.2 million when compared to Q3, 18 and stood at $26.2 million well, 39.8% of revenues when compared to Q2 19, non-GAAP operating expenses decreased by approximately $1.4 million.
The sequential decrease in non-GAAP operating expenses was primarily driven by lower R&D and sales and marketing expenses as a result of control distressing spending and lower variable compensation.
GAAP R&D expense in Q3, 19 was $9.9 million non-GAAP R&D expense for Q3, 19 was $9.6 million or 14.5% revenues as compared to 16.6% of revenues in Q3, 18, and 14.9% of revenues in Q2 19.
During Q3 19, we added approximately 23, new R&D employees from Zerust acquisition, while maintaining strong discipline around discretionary spending.
GAAP sales and marketing was $10.4 million non-GAAP sales and marketing expenses to Q3, 19 with $10 million or 15.2% revenues compared to 18.3% of revenues in Q3, 18, and 15.4% of revenues in Q2 90.
We are benefiting from the investments we made in or outside sales organizations inside sales organizations during the past year, allowing us to acquire new customers much more efficiently.
For Q3, 19, GAAP DNA expense was $6 million.
non-GAAP , Gina expenses were $5.6 million or 8.5% of revenues compared to 9.4% of revenues in Q3, 18, and 8.2% in Q2 19.
non-GAAP Gina expenses was flat sequentially was up slightly year over year.
GAAP depreciation and amortization was $1.4 million non-GAAP depreciation and amortization was approximately a million dollars for Q3 $91.2 million in Q3 18, a $900000 in Q2 19.
<unk> operating margin for Q3 19 was 6.3%.
non-GAAP operating margin was 8.8% up from 0.4% for Q3, 18 and down from 10.3 cents of revenue in Q2 19.
Adjusted EBITDA for Q3 stood at $6.8 million or 10.3% of revenues compared to one point $500 or 2.5% revenues for Q3, 18, and 8.1 million or 11.8% of revenues in Q2 19.
As mentioned during our Q2 earnings cool adjusted EBITDA margins for the third and fourth quarters of 2019 will be impacted by approximately $1 million to $2 million per quarter as a result of the Xerox acquisition.
Cash used in operating activities was $11.8 million for Q3, 19, due primarily to the timing of the initial public offering.
Related payments, if we exclude the onetime IPO expenses of $8.6 million, which include the 5.6 million payable to vector capital and 3 million to do you know insurance operating cash flow would've been down $3.2 million in Q3 19.
We expect improved cash generation during Q4 19, as we reduce intent on inventories and don't have outsize payments relating to the IPO.
Got provision for income taxes was $3000 on non-GAAP provision for income taxes was $428000 or a non-GAAP effective tax rate.
10.3% in Q3 19, this lower effective tax rate was impacted by changes in our projected income across all key tax jurisdictions.
GAAP net income for Q3, 19 was $2 million or eight cents per diluted share non-GAAP net income for Q3, 19 was $3.7 million or 15 cents per diluted share compared to non-GAAP net loss of $1.5 million or a loss of 11 cents per diluted share for Q3 18.
non-GAAP net income of $3.9 million or 15 cents per diluted share Q2 19.
The non-GAAP net income compared to the prior year period was due to higher revenues improved gross margin and lower operating expenses due to the good discipline controlling discretionary spending.
The decrease in non-GAAP net income compared to Q2 19 was primarily attributable to lower revenues on a low gross margin.
Turning to the balance sheet, our Q3 19 cash position was $19 million compared to $71.2 million in Q2, 19, primarily as a result, or the pay down of $33.2 million of long term and revolving debt without.
Turn loan commitment now standing at $65.9 million.
Also contributing to the sequential change where a 5.6 Canadian dollar cost management fee paid to vector capital IPO off rate buffering expenses, and Dino insurance of approximately $6 million.
And a median payment to a quietly zerust wife I.
Business.
Capital expenditures in Q3 were approximately $1 million.
Q3, net receivables a $59.8 million increased by $3.5 million from Q3 18 as result of higher sales.
And decreased by $2.8 million sequentially.
Day sales outstanding for Q3, 19 was 74 days a best performance in two years down by six days from Q3 18 down by two days compared to Q2 19.
Days payable outstanding stood at 40 days.
A decrease of 22 days from Q3, 18, and down 19 days from Q2 19, the sequential decrease reflects payments related to the IPO activities.
Net inventories a $41.9 million in Q3, 19 increased by $11.4 million year over year and went up by $500 from Q2 19, as we stuck certain products to support federal government sponsored opportunities that being delayed during Q3 19.
Days inventory outstanding increased in Q3, 19 to 110 days compared to 83 days in Q3, 18, and 92 days in Q2 19.
Our intent is to reduce inventories back to our target range of between 80 and 90 days within the next few quarters.
In conjunction with today's earnings announcement Cambium networks initiated a companywide restructuring program to better align our cost structure with general economic conditions and uncertainty created by delayed government spending.
Hi, Rightsizing our business. The objective is to achieve our long term target operating model by improving our cost structure and operational efficiency.
Cambium networks continues to focus on revenue growth, but any interim undernourished restructuring initiatives will allow us to remain financially strong and resilient.
Cambium networks expects to incur between 800000 to $1.1 million in restructuring charges. During Q4, 19, mainly consisting of cash severance costs, we expect to realize cost savings between 500 to $600000 in Q4, 19 and beginning in F. Why 20.
We anticipate savings of approximately one an accord to $1.5 million per quarter or approximately $5 million to $6 million in savings for fytwenty.
Moving to the fourth quarter 2019 outlook.
Please note the Cambia networks financial outlook does not include the potential impact if any possible future financial transactions pending legal matters or other transactions. Accordingly, cambium that was only includes such items in the Companys financial outlook to the extent they are reasonably certain however, actual results may differ materially from the outlook.
Taking into account the company's current visibility Q4, 19 is expect to be as follows.
Revenues between $663 million to $66 million GAAP gross margin between 48% to 49.4% and.
non-GAAP gross margin between 48.2% to 49.5%.
GAAP operating income between one.
Just a $2.4 million a non-GAAP operating income between $2.4 million to $3.6 million.
GAAP net loss between a million dollars to breakeven or between a loss of four cents and breakeven per diluted share a non-GAAP net income between 800000 to $1.7 million or between three cents and seven cents per diluted share.
Adjusted EBITDA between $3.4 million to $4.5 million or adjusted EBITDA margin of between 5.3% to 6.9%.
GAAP taxes between 19% to 21% and non-GAAP effective tax rate of approximately 17% to 19%.
And you can assume approximately 25.6 million weighted average shares outstanding.
Turning to our cash requirements paydown of debt of $2.4 million interest expense, approximately $1.4 million and capital expenditures of a million to $1.1 million.
In conclusion growth and profitability remain our number one Kulu valley.
Cambium networks is well positioned for growth and the wireless space offers a tremendous opportunity for cambium to innovate and deliver this cool value.
We have the right team and technologies to do this and we remain committed to delivering double digit adjusted EBITDA target.
That concludes our prepared remarks, so with that I'd like to turn the call. After Bridget began the human a session.
Thank you as a reminder into asked a question you need to press star wanting your telephone.
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Please standby all the compound acuity roster.
Our first question comes from the line of Rod Hall with Goldman Sachs. Your line is open.
Hi, This is okay on behalf of fraud. Thanks for taking my question I wanted to ask about your Q4 revenue guidance, you mentioned weakness and use that southern Michigan are these same factors driving the weakness in Q4 and could you also talk about how much visibility you have into each segment looking ahead.
[noise], yes.
So I think the Q4.
No seasonality for US is generally a flat to a 2% sequentially I'm. So at the midpoint of our guidance, we would be down about 2% sequentially, which obviously below a of other we'll see who you adding in terms of that business, but most of this is U.S. pad so no.
North America, its certainly impacted in Q3.
We do expect that to pick up actually a little bit in Q3, we expect a to come back.
So we do expect North America able to grow a little bit I think what's really impacting us for for Q4, specifically AMEA tremendously strong growth for US. Both Q1 Q2 in particular and now you've heard from our results in Q3 really driven by strong growth in enterprise some omni channel model.
And also a geo expansions, we've added into new countries like Middle East Africa, but we expect that to be I would say a little softer and that's seasonally softer for me a lot of a pessimism distributors like to dial back there or inventory and manage their assets and balance sheet at the end of the yeah. So that impacted.
A little bit I think additionally on some of that you know from an eighth <unk> perspective.
We do expect that to grow a little there, but ah, but we're seeing a still a little bit of slowness I'm coming out from the government sponsored programs that we do expect to materialize in the the top 2020, but that's a that's causing a little bit headwind for yeah, maybe I can just add one more point.
These are programs many of them actually cambium has one we have done up you'll see we're delivered the solution and the customer loved the solution with the funding of the program, especially when the government sponsored by the southeast Asia or whether its north American federal programs, sometimes the funding gets little delayed.
So I anticipate that these are programs, where we are very or we will position because in many of them. The 1.2 point products in many of them to one cambium specific technologies, combining the fixed wireless broadband different technologies.
And yet we know we need to deal with the timeliness of these things, sometimes we anticipate something coming in one quarter in slide into next but these are people seem to be of one them and we're really confident that these deals will be there timing wise, we may have to be little flexible.
Thanks for all the color and apologies for the noise, if my and I wanted to ask about Caf two spending but you are talking about growth next year, but both are hearing from wireline axis fighters that the peak happened last year. So could you give us more color on that.
I think the Caf two funding there is about 1.5 billion dollar funding, which is being released which would be disburse as I said or next many years and they are requirements that are Esa lays.
Which have been tied to some of this funding.
These are service level agreements, which requires quality, which requires very specific upload and download speeds and as we work with the customers. What they tell US is the reason that selecting cambium networks worked through the lower quality solution and they're not choices is because with cambium solution. They can showcase.
The ESL is very good fleet before they get the money as part of gap.
So overall I think and then we have closed a couple of very good deals and where the housing so subscribers being at it and when I asked the customers why did you buy cambium.
They always say well now the mix sort of requirements in that so they are pretty stringent and anyone who doesn't have good management. Good quality, good affordability will not be able to satisfy the meat.
Okay. Thanks.
All right. Our next question comes on line of George I wanted Cwis Oppenheimer your line or something.
Thank you for taking my question, so digging into kind of the headwinds that you're seeing near term are you seeing any price pressure or any competitive pressures across the various regions.
So George no, we our espy's actually are pretty stable.
And the reason for that is we do not go after the low end of the market. We are very focused on mid mid mid sized enterprises mid sized service the midsize service providers and.
And or every year, we add features and differentiation like massive him you Mimo technologies, we added so ASP pricewise no we do not get pressure and on the enterprise wife's side, we have a very strong combination of affordable would be yes quality.
And that's why we're gaining the share the swipe of growing in a triple digit year over year and I anticipate that go through continue.
Good and remember George we we don't go after the tier one service provider so that should give us a lot more pricing how when it comes to what comes to our product.
Okay, and I have really briefly on them.
Third quarter weakness was it primarily the U.S. fed that surprised you or did you start to see a little bit of weakness and other regions already during the quarter No third quarter, I think primarily with southeast Asia Germond broadband initiatives at that time and here in Q3, I mean in Q3.
I think it'd be federal.
Weakness definitely be saw and as I explain these up programs.
Their funding is the one you have to secure and in parts of the program, we have actually supplied to solutions.
In you know last year as it was this year. So we anticipate the program will continue probably for good year or two years, but it's the funding for the program, which will be saw some dillon.
And just as my second question the restructuring that you're planning this kind of balanced across.
The various parts of the company are you targeting specific areas or for the the savings no pretty balanced across the company and by and large yeah. I would say there's any specific good territory. We are targeting no I would say, it's a it's opex in general it's it's it makes up.
About 6% of a about workforce, yeah, I think we should emphasize that these cuts down effects or a product road map for rent involve growth trajectory is and obviously, we we've made improvements along the way anyway in terms of overall operational efficiencies. This is another staffed with getting to our EBITDA target.
Thank you.
Yes.
Thank you next question comes online Simon Leopold wasn't Raymond James Your line is open.
Great. Thank you very much I wanted to just maybe step back big picture. It sounds like many of the issues you've referred to in terms of the Threeq to Fourq. You can be described is timing issues, but some of them sound like maybe little bit shifts in the macroeconomic environment.
And so I just want to.
Get a sense of how this might affect your thinking on 2020, so while I know you're not not providing forecast for 2020 <unk>.
Consensus I think before this call was roughly $320 million should we think of some of this business slipping in as a as a tailwind and and dropping into 2020, leading to upside or do we think of everything sliding out in time. Thank you.
Thanks, Simon you know when I look at 2020 and 2021.
There are.
Three or four where do you keep things, which are happening in the industry, which I'll share, which gives me confidence.
Number one.
It is starting probably mid 2020 , you will see land when convergence wireless Lee what I mean, but that is for the first time in communications history.
The speeds up the line in mind using wireless technologies will be at a point, where wires can be the place, especially on the edge, especially with the last and kilometres after that you're going to fiber or whatever you want so the edge will go wireless more and more and the reason for that is you have life by six coming with two broad gigabit speeds in the last.
You know how kilometer I know your 60 gigahertz mesh technology coming which should provide the last two kilometer three kilometers and then you have to be gigahertz coming behind that but the last six seven kilometers. So I think this entire lanvin emergence opens up a very good opportunity for cambium.
It's difficult to predict you know how much of that will happen then 2020 how much of that will happen in couldn't be too and be one but it will start I think mid 2020 because ex products will be out and the 60 gigahertz would be up that's one second the peer to peer three service providers on it you know where do across the world.
They are the ones, who don't have the money to buy very expensive <unk> expenses spectrum, but they're very much looking at fixed wireless broadband fixed fiveg the technologies I'm describing to really start to off for the next generation speeds and feeds so we're seeing that as wall and 220.
221, you see that acceleration and then Caf two funding. We also believe along with Crs in North America to propel fixed wireless broadband and cambium that Brooks is actually focused on fixed wireless broadband as a mainstay solution. Mr product line. So we are emerging as a strong.
Player Premier player now in that segment. So as these tier two tier two service providers globally adopt more and more fixed wireless broadband I think you'll see us gain unfair share.
Indirect solution.
And the last one I want to make is our enterprise push started as a concentric circles from fixed wireless broadband, but the value cambium created with the affordable get high quality Bye bye.
Now going deeper into education, and hospitality and that's why you're seeing in 132% deal or your growth or 20% sequential growth that will continue you know when viewed on the road. We said lifecycle growth 40 to 70 person at this point I think we will said this year, we'll probably more like seven.
The person, but the upper end about right upwardly operationally. So overall I think these are the 314 when I look at mix. It two years that dose me. We're building the right product so like solutions, there might be quarter, there might be softness in pockets in there, but be seculert drivers remain strong so I would not see there's anything.
Macro I am seeing which worries us there are some no fun government programs, which might delay here in there, but we don't see build anything big macro.
Appreciate that and then follow up hopefully an easy one just want to get the federal government in context, what is sort of the typical percentof revenue you would expect from federal either in the third quarter, which I assume is seasonally strong and just.
If you look at kind of rolling four quarters, what's normal federal contributions. Thank you, yes, I had just a quick onto that I would say, it's probably around or.
And it's why probably high single digit.
To a very to low double digits roughly for that for us.
And in the third quarter.
Ah, Yes, I was quite quite a bit down from that it was Ah Ah.
Mid single digits at least or possibly let.
Great. Thank you for that.
Thank you.
Our next question is from the line of Paul Coster with Jpmorgan. Your line is open.
Yes. Thanks for taking my question I guess, it seems like more than just the ladies who you Scott.
Three quarters now or decelerating growth. If you include the fourth quarter Gardens and you also see this school to kind of my sense of <unk>. This is a little thing gets the backdrop as opposed to merits. It from there and you are asking channel.
Which would normally make the you know the gross disease, even easier to come back because you're kind of.
Channel its up to building so I can so I'm sort of blue confused and maybe you guys. So talks about the trend here and why we shouldn't worry about the trend lets you can also talk about you know these new channel partners. So we just for small and therefore no consequence.
Yes, so Paul Oh, my commentary on them, but even wants to add so I think the channel partners. We are adding a many of the channel partners are for the mid to your enterprises. So that basically beginning to Jim rated run rate on the enterprise side of things and it it doesn't mean.
<unk> massive shift in one quarter, but all quarters, we start to see a good run rate in education or hospitality or a large public venues. So the channel partner increase is the result off the Zerust acquisition.
As well as some of the mid channels recruiting we got we have what we've been focused on and in terms of the softness we see.
Very specifically I think we see that in that federal and the government spending side of things otherwise rest of the stuff you know I don't see anything big macro or anything which we need to.
We need to call out to steepen anything you want.
No I mean, I think a few comments on the mid channel obviously that.
Very clear in our results with regardless of the a very strong growth in enterprise.
You saw a life by business sequentially grew another 20% it was up year over year, 732%. So and that's that's really are coming out in terms of ER.
In region in North America. So I do think this is more isolated pockets of both federal and what we mentioned last quarter with regard to the government sponsored programs in a in southeast Asia. You know. These are these are deals at a very active.
That bigger deals and they just a tougher at this point in time to support costs, so with that and specifically in our guidance. We've we've said that anymore, they're more likely than not to be a early part of the first half of 2020.
And we feel that into into our guidance.
Okay. One quick follow up on the federal a delay this is a civilian application or do you taught habitation, but sort of July falls defense.
Okay sure Okay.
Said earlier as I said earlier.
We have delivered we have we have to solutions and it's the funding element and the solutions, we have delivered will actually.
Go on for probably another two years.
As my guys.
Okay. Thank you.
Thank you Bob.
Our next question is from the line of Eric So pitcher with JMP. Your line is open.
Yeah. Thanks for taking the question.
First off a on the on the Wi Fi front.
Can you break out what was organic versus inorganic and then secondly.
Do you have any sense for a market share do you think that any of your peers like ubiquity.
It would be impacted by some of the dynamics that are that you had in the quarter or do you think that or do you think that you lost any market share in the in the quarter.
Eric Let me address it and I'll pass it to people in if he wants to add.
On the.
Why front.
Most of the growth is organic what you'll see some of the I think strong zealots contributions coming in as we go into X conversion.
The next year in 2020.
Absolutely anticipated that.
Secondly, with respect to the competition.
I would say no really split so difficult to comment on specific company, we are taking share.
As a company both in fixed wireless broadband as one of them Bye bye.
And that's important what I'm, saying when you you know as you've talked to the fixed wireless broadband customers. We have continued to stay loyal to that segment, because we believe the fixed fiveg will only accelerate back so our innovations in especially massive them you Mimo and 60 gigahertz all the things are working on we believe in that.
So that has paid dividends I think in 20 2022 1 as wireless Lan when convergence, which I described happens and as wireless fabric picks or less than kilometres.
Number one secondly, with respect to the wife I.
I'm not sure I'm not sure how much of this has seen the level of growth. We are seeing because we have created a strong solution, which combines fixed wireless broadband for backhaul, which is very superior than outdoor and which has a phenomenal cloud.
Single pane of glass those are the Threep thing customers are loving about our life I solutions. So overall, what I would say that market share wise, we are gaining market share in by five we are on as we mentioned Gartner Magic quadrant Forrester.
Report as well those are good things and.
We see good things coming both in fixed wireless broadband wife's like combination and this is why we say cambium offers wireless fabric.
For the last you know that those 10 kilometers and we did complete wireless backhaul that that entire solution I'm, describing I think boards well for both 2020 and 2021 as edge goes wireless.
Very good thank you.
Thanks.
Thank you and your next question comes on line of Brian Young with Deutsche Bank. Your line is open.
Hey, guys I had a question on margins.
Can you maybe go over the levers in the model during volatile revenue periods. It looks like your gross margins and EBITDA you know stayed relatively intact this quarter, but the guide for Q4's under the streets. So how should we think about your ability to sort of maintain margins during.
These times of volatility.
Yeah, I mean, you can say that you know we've made.
Continued progression in our gross margin expansion as a company. We spent a lot a time on our gross margin improvement plan.
And clean them materializing our results how Oh go really is to achieve gross margins.
Great and then 50% at the low end of that 50% and we're really doing that we set a lot of time on.
Writing or some pretty aggressive cost reduction programs around our products and the company hadn't really done too much of that in the Pos we set a loss on over the last nine months are driving the and I think that's all that's giving us quite a bit of ER.
Coverage and improvement in our overall.
Gross margin. Additionally, supply chain efficiencies are going to help us and we have moved pricing.
And on top that Ah.
Pass it onto our customers partly in light of some of the terrorists, but but also just a you know just much more price management and so I think really what's going to the I think a swing factor for us as we get orders and we see really substantial changes in mix, but you should expect.
On a reasonably consistent basis the of gross margins continue to improve we might have the occasional quarter, where it drops a little but you should see steady.
Gross margin improvement driven by those three initiatives cost reduction from a product side pricing management and supply chain efficiencies.
Let me just had one more point Brian .
One of the things, we do with our new product design.
We use merchant silicon and as we use merchant silicon we are constantly making sure that the software content to softer RF algorithms are the key driver so far performance and we drive the hardware cost on as much as weekend. So you'll also see cambium, new products like 60 gigahertz and some of the ex products we are working.
On to drive good strong gross margins. So it's not just cost reductions those are important but I think the design aspect also is something we pay attention and the last one I want to make is that in the first half of 2020 , you'll also start to see softer monetization from cambium.
And that would be are seeing maestro you know the which is now in about three on 30000 or so or devices under management you see that journey will start and also Zerust acquisition brought us good subscription technology. So as we are going to start work.
King with their customers, you'll see the subscription part of Cambium story will also start in first half of them differently.
Great. Thank you.
And once again, ladies and gentlemen, if you have a question at this time, Please press star and the number one.
And I'm not showing any further questions I'm not trying to call back over to Mr., Peter Shimon Senior director Investor Relations for closing remarks, yeah. Thank you before before we end the call I wanted to say kind a few things and then I'll pass it to Peter.
We are totally committed as management team.
To deliver double digit EBITDA and strong growth and as I described as I look at 2020 2021, we feel good about the drivers to solutions, we have and expenses wise, we run the company where did you did you judiciously, making sure our expenses that in mind, so you'll always see us.
Making sure that our cost structure is adjusted properly always for delivered good good profitability. So when I look at the long term model, which we described we still have lost confidence in a long term model, which was 14% to 17% growth double digit EBITDA and increasing 200 basis points every year.
So some of the actions we are taking right now is to make sure even if there's some softness we have a strong profitability as a company so with that Peter up capacity. During Q4, 19, cambium networks will be presenting and meeting with investors in New York on November 12 that need in the networking and security conference in the meantime, you're always welcome to contact our Investor relations to pay.
Hartman at four seven to six four to one eight with any questions that arise. Thank you for joining us and this concludes today's call.
Ladies and gentlemen that concludes today's quarterly earnings call. Thank you for your participation you may now log off.