Q3 2020 Cambium Networks Corp Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good afternoon, My name is safe and that will be a conference operator today at this time I would like to welcome everyone to Cambium Networks' third quarter 2020 financial results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be question and answers.
Question to ask a question. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key and please limit yourself to one question and one follow up question. Thank you Mr. Shannon senior director of Investor and industry analysts relations you may begin.
Your conference. Thank you face welcome and thank you for joining us today for Cambium networks third quarter 2020 financial results conference call and welcome to all those joining by webcast, a tool bhatnagar or president and CEO and Steven coming our CFO are here for todays call. The financial results press release, and CFO commentary referenced on this call.
Accessible on the Investor page of our website and the press release has been submitted on form 8-K with the FCC.
Copy of today's prepared remarks will also be available under investor page at the conclusion of this call.
As a reminder, today's remarks, including those made during Q1 day will contain forward looking statements about the company's outlook and expected performance.
These statements are based on current expectations forecasts and assumptions risks and uncertainties could cause actual results could 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 developments to conform. These statements to actual results or make changes in cambium expectations were otherwise, it's cambia networks policy not to.
Reader reiterate our financial outlook, we encourage listeners to review the full list of risk factors included in the Safe Harbor statement in todays financial results press release.
You also read reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year over year comparisons reference non-GAAP numbers, except where otherwise noted a reconciliation of non-GAAP.
Measures to GAAP is included in the appendix to todays financial results press release, which can be found on the investor page of our web site and in today's press release announcing our results.
Turning to the agenda cambium, Networks', president and CEO to a button augur well provide the key investment highlights for the quarter and Stephen coming Cambium network CFO will provide a recap of the financial results for the third quarter 2020, and he will provide our financial outlook for the fourth quarter 2020, our prepared remarks will be followed by Q when they session.
I'd now like to turn the call over to a tool.
Thank you Peter.
Demand for broadband communications and infrastructure projects remain a priority throughout the world driven by work learn and play from home.
Fixed wireless broadband is a critically important networking fabric to connect our local communities and for people around the world.
Williams.
Above the high end of our August 11th outlook of between $64 million to $67 million and right at the October 12th preliminary revenues of approximately $73 million.
Non-GAAP diluted EPS of 29.
Also exceeded the high end of our August 11th outlook of 14 cents per diluted share.
We delivered another strong quarter with good execution by our entire cambium team as we continue to work remotely during the Covid pandemics.
We have strong loan product momentum across are different product lines.
Within our point to Multipoint BMP business, we grew 7% sequentially and 12% year over year as we continue to see strong momentum with our Cvr's solutions.
The Cvs priority access license or Pal auction is not complete and a sizeable number of our customers have one licenses.
Which should have a positive impact on our BMP 450 business.
We are experiencing continued expansion of existing customers, who are building out there networks as a result of winning the file auctions and increase customer demand new installations from government funding, including the Chaos Act and gas to funding as well as a weapon replace of Chinese and other competitors products.
Our PTB business improved 43% quarter over quarter, and 12% year over year during the third quarter of 2020 with rising demand for backhaul and a resurgence in our U S federal business.
The enterprise cloud base Wifi business recovered strongly during Q3 2020 growing 30% sequentially due to the initial success of our new <unk> solutions at the start of a new upgrade cycle and recovering EMEA due to the improved ability to deploy solutions as the region Rick.
Covered from Covid shutdowns.
Looking at some notable customer wins and new product development.
During Q3 20, I am pleased to report Cambium net profit continue to have several high profile customer engagements.
In North America, a major freight rail transportation provider has standardized on Pnp 450.
PDP 824.
450, and has played their first order for 60 gigahertz <unk> solutions can be of displays a competitors backhaul and the customer will use our CMV multi gigabit wireless connectivity and the rails switch yard to replace the existing five gigahertz backhaul that supports video and Vice Hibaaq Hall.
They will use cambium see and reach narrowband solutions managed with C and my straw to provide efficient communications remote control of locomotives and collision prevention and they're operating yards.
Mr. Bean, a rapidly growing service provider in Nebraska, Wyoming, and Colorado selected Cambium, BMP 450 M and <unk> 3000, as connect America fun to are gap two winner with gears Act funding.
Re displays multiple competitors because it can be a massive multi user micro technology.
Our uptime on performance reliability, it right price point with our <unk> technology and upgraded performance of BNP 450 M for more dense areas beat out the competition.
We had a high profile wind and the enterprise Wifi space with Burke County schools in North Carolina.
The School District has 27 schools in our 12000 students.
This selected cambium Wi Fi six technology for a reliability and performance to connect a wide variety of tablets and notebooks across all K through 12 grades for streaming video across classrooms.
On past calls we have spoken about the federal communications commissions newly released three dot five gigahertz Cbr's spectrum.
Cambium as a first mover with this technology with full end to end solutions, including high performance radios.
All the air Cbr's upgrades and cloud based software solutions.
As of today's call. We now have approximately 58750 devices managed by our CBR assess service an increase of approximately 148% sequentially Cvr's is driving new sales and allowing us to acquire new customers with our BMP $4 50 products and.
North America.
For example, info vest a large service provider in central and Southern Utah and recent FCC auction winner of Cvr's fell spectrum is accurately deploying cbr's enable BMP for <unk> access points with C. N Medusa technology on more than a dozen in Utah.
The newly acquired frequency licenses will help in forest expanded reach an increase internet speed and ever Liberty under existing network there.
Selected cambium for reliability.
Liberty spectral efficiency and of course, our cvr's capabilities.
A large service provider with deployments across 10 states selected cambium for Cpr's to replace in noncompliance three gigahertz solution.
This customer has been a cambium customer and five gigahertz and license backhaul. What this represents a new line of business previously held by a manufacturer of mobile LT.
Desio simplicity and superior performance, where the key reasons can be more selective.
In Europe, Middle East and Africa region, EMEA, we had a recovery in the enterprise Wifi business as Europe begin to recuperate from the impact of Covid in the region. Although BMP were slightly software sequentially upgrades strong second quarter of 2020.
A few strategic mints an area from Q3 include in northern Italy, and download Balzano cambium headed when adding new private hospitals for our enterprise Wifi using <unk> pilot.
Every person or object that is needed to be tracked can be easily identify with a personal idly using Bluetooth tags within the hospital can be on selected over a well established competitor because of far versatility and ability to customize are from there.
In Africa, we got a win with one other africa's largest multinational mobile operators in Ghana.
Cambium displays a competitor and is positioned to provide our full portfolio of solutions, including PTP BMP and Wifi. This is our first one with this operator in sub Sahara Africa.
Also in Africa, a large service provider doing business in 18 countries selected cambium networks for projects and for different African countries with solutions, including backhaul using our $50 60, 70, and various point to Multipoint solutions, featuring both are BMP 450, an <unk> product families.
With their fixed wireless access solutions over the past 18 years with this platform in our network, we can serve more customers with dependable gigabit speeds and more areas.
Looking at new products launched since our previous quarterly update.
In November Cambium networks will begin volume shipments of our highly anticipated 60 gigahertz, the invasive gigabit fixed wireless solutions.
This is our most important product release in many years delivering gigabit wireless solutions for residential and enterprise access and backhaul for Wi Fi or small cell markets.
Our 60 gigahertz, the and we have solutions feature qualcomm's, eight or 2011, alewife silicon coupled with Facebook Stereographic advanced machine technology and of course can becomes proprietary RF and cloud algorithms.
The total cost of ownership for the CMBS solution is approximately 40% less expensive than fiber to the home.
We have already seen significant interest and many orders for this new technology, which will be increasingly relevant for urban use cases for many years to come.
Next link a service provider in Texas, Oklahoma, Kansas, and Nebraska begin trials of our new 60 gigahertz technology, Netflix Chief Technology Officer commented.
In our field test in weather for Texas, we achieved close to 1.8 gigabit uplink and downlink speed using cambium 60 gigahertz season, we have solution in a single channel configuration. This speed far exceed the performance we were able to achieve with previous variations of 60 gigahertz equipment.
We are looking forward to the channel bonding capability delivering even higher speeds.
White deal Communications emulation Telecom, operator has been working to help militia close its digital divide using our 60 gigahertz scene, we have solution for high speed fixed broadband connectivity and public Wi Fi in the Georgetown heritage area of Bernanke.
White deal communications is conducting a large scale trial using cambium technology to connect businesses and offices that had only copper or DSL connections formerly.
Cambium networks is very excited about finally being able to provide fiber like broadband performance and reliability at a fraction of the cost of fiber and expanding our Sam to urban markets.
Within our PTP product line cambium, we'll be adding the industry's first 811 X or Y five six based products.
The MP force for 25. This is the first in a cost effective line of solutions targeted at the high capacity enterprise point to point market for low cost backhaul. This.
This will be increasingly relevant for the vifor and the video surveillance backhaul market the product will have availability in Q1 Twentytwenty one.
Our next significant major product introduction will be the release of our 28 gigahertz fiveg products for fixed wireless which will be available. During first half 221, cambium stranded gigahertz Fiveg solutions will provide increased reach beyond the distances provided by 60 gigahertz expanding the distance to profit.
Currently five kilometers and radius.
Our 28 gigahertz solutions have very high throughput featuring aided by a massive mimo driven by our smart antennas and native millimeter wave support.
Cambium 28, gigahertz radios will be simple to deploy and operate on our CN Maestro cloud platform.
As can be expected from cambium networks, our products will be high quality yet affordable.
Fiveg will be an increasingly important driver for the industrial internet of things and high speed access.
Also in licensed spectrum before our next quarterly earnings calls Cambium networks, we'll release, our next generation fixed wireless broadband LT platform CN Ranger for three gigahertz spectrum. Following the release of two gigahertz earlier. This year CN Ranger is an ideal solution for Internet service providers and industrial.
Customers.
Level, two engineers up to two years of data retention and.
And webhooks for integrating with customers back end systems are third party applications.
C N Maestro X will be subscription based.
Turning to the channel and Q3 20, we expanded our channel presence by adding over 540, new channel partner sequentially and over 2100, New channel partners year over year.
Which represents an increase of approximately 7% sequentially and 33% year over year.
In the APEC region, we added a new distribution partner RPT Tech, India, RPT Tech, India will offer can be on multi gigabit wireless fabric of solutions to system integrators and solution providers focused on the SMB an enterprise verticals.
RPT Tech has an extensive network of 50 branches 50 service centers and direct reach in over 750 cities and towns.
Finally.
Our online marketing efforts have been exceptional despite covered for example, we recently held a partner even for the channel in the email that even drew 1255 registrants in 88 countries.
We have adapted to effectively reach our channel partners and a very cost efficient manner.
I will now turn the call over to stiffen for a review of our queue 320 financial results and outlook.
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Ah record third quarter results reflect the increased demands the cambium high quality fixed wireless in enterprise Wi Fi products.
The resilience of our partner community and strong demand for new Wifi six products ahead of volume shipments during the fourth quarter calendar 2020, and 60 gigahertz products re.
Record revenues of $73 million for Q3, 20 hanging about the high end of our initial outlook of $64 million to $67 million and a revised outlook of approximately $73 million released on October the 12th.
Revenues increased by 17% quarter over quarter, and while higher by 11% year over year from 65 $7 million.
We had the first quarter in the company's history to break the $17 million threshold and and now driving both sequential and year over year growth.
On a sequential basis for Q3, 20 revenues will hire by 10 $7 million or an increase of approximately 17%.
The higher revenues were driven by our Pnp products, which grew 7% quarter over quarter due to service providers scaling networks, driven by request to increase capacity and increased need for Cbr's compatible solutions and.
And our point to point product lines revenues improved 43% sequentially due to high demand for backhaul in federal products.
As predicted we had a strong recovery and enterprise why fight solutions, which group by 30% quarter over quarter with increased shipments of a Wi Fi six products and improved field deployments of Wi Fi product, particularly in EMEA.
Looking at revenues by geography, North America represented 53% of company revenues compared to 52%. During Q2 20, North America had a record quarter revenues growing 19% on a sequential basis, driven by higher Pnp stronger PTP and increased Wi Fi.
Demand.
EMEA second largest region decreased 1% quarter over quarter and represented 28% of revenues during Q3, 20, and 33% of revenues during Q2 20.
The slight decrease quarter over quarter EMEA primary of effects softer pnp revenues offset by a recovering enterprise Wi Fi revenues.
Color had record revenues and represented 12% of sales during Q3 20 growing by 96% quarter over quarter due to a broad based revitalization in the region eight.
<unk> revenues grew 4% sequentially and represented 7% of revenues during Q3 20 declining from 8% of revenue during Q2 20 impacted by Covid related Lockdowns in the region.
Looking at other gross margin non-GAAP gross margin of 49, 7% increased by 100 basis points compared to Q3 19, the year over year improvement in non-GAAP gross margin was a result of higher volumes increase mix of higher margin federal products are rich mix Pnp products and the <unk>.
Santa is put in place focused on cost reductions and supply chain efficiencies, partially offset by higher shipping costs.
As lower discretionary spending in sales and marketing expenses due to less travel and Tradeshow expenses as a result of coated.
The quarter over quarter increase reflects the elimination of temporary companywide salary reductions during Q3 20.
Non-GAAP operating margin was 14.6% up from 8.8% during Q3 19 and increased from 10.4% of revenues in Q2 20.
Adjusted EBITDA for Q3, 20 stood at a record $11.4 million or 15.6% of revenues compared to $6.8 million or 10.3% of revenues for Q3, 19 and up from $7.7 million or 12.3% of revenue for Q2 2000.
We had an excellent quarter of profitability and remain committed to driving our adjusted EBITDA expansion to our target model of 18% to 19% of revenues over the next few years.
Moving to cash revenue cash flow provided by operating activities was $16.4 million for the third quarter 2020, primarily the result of increased profitability improved collections as a result of better linearity of revenues an increase in accounts payable of $5.2 million and continued reduction in inverter.
Yes.
This compares to $11.8 million cash used in operating activities for the third quarter of 2019, and a record $26.2 million for the second quarter Twentytwenty.
Non-GAAP net income for Q3 was a record $7.8 million or 29 cents per diluted share compared to $3.7 million or 15 cents per diluted share for Q3, 19, a non-GAAP net income of $4.3 million or 16 cents per diluted share for Q2 20.
The higher non-GAAP net income compared to the prior year period was due to higher revenues and gross margin and lower Opex as a result of the benefits of our past restructuring lower sales and marketing expenses and lower interest expense due to reduction in long term debt.
The increase in non-GAAP net income compared to Q2, 20 was primarily attributable to higher revenues and gross margins as we efficiently scale our business.
Turning to the balance sheet cash totaled $50.1 million as of Q3 20, an increase of $12.7 million from Q2 20, the sequential increase in cash balance. During Q3 20 was primarily the result of improved earnings strong cash collections, resulting from improved linearity of revenues and an increase in account.
Payable and a decrease in our inventories.
Q3, 20, net receivables totaled $53.9 million, a decrease of $6 million from Q3, 19, and an increase of $2.6 million sequentially days.
Day sales outstanding for the third quarter stood at 58 days a decrease of 15 days from the prior year and a decrease of eight days from the second quarter 2020, as a result, a strong collections and improved shifting linearity.
In Q3, 20 days payable outstanding stood at 58 days, an increase of 18 days from the third quarter of the prior year, which was at normally low due to payments related to the timing of our initial public offering and up one day from the second quarter 2020.
We made excellent progress, reducing our inventory dollars and days net inventories of $29.1 million in Q3, 20 decreased by $12.9 million year over year and were lower by $1 million from Q2 20.
The team is 19% and.
And approximately 27.6 million weighted average diluted shares outstanding.
Turning to our cash requirements paydown of debt $2.5 million.
Cash flow interest expense approximately $2.9 million.
Wireless is the new fiber.
Cambium networks remains excited to support the next round of the connect America funding the rural digital opportunity Fund, which is currently being evaluated by the FCC for committing $20.4 billion in funding over the next 10 years to bring high speed broadband service to millions of uncertain Americans hi.
For sustained levels and the current time and also kind of wondering within 60 gigahertz, you know how big that pipeline and portfolio is in terms of dollars and opportunities and I would assume that it it brings not only bundled opportunities, but also larger dollars in general to the table as you start to get down into it with various customers. Thanks.
Yeah, Scott. Thank you. Thank you for your comments, let me address some of the things, yes, Yep P T people.
Means a little lumpy because defense business does in fact, we can be positively. So I think that does it mean, a little lumpy, but it is showing its trend in general because secular drivers.
Ah really going for more backhaul resurgence because that is the network.
Going for high speed access you have to also upgrade the backhaul. So I think people will benefit from that trend.
Into more more rural areas and looking for more and more reliable connectivity.
The work from home and educate from home people really want.
Consistent connectivity and they'd have gone any spotty performance that I think cambium is is performing well there in the area and TTP as a tool mentioned will see that decrease.
And the team's probably the highest teen and remember that's coming off a very strong Q3, especially with the federal business.
Chris takes noise characteristics and why I went to correct mistakes. So Mike census, queue for we will there will be some contribution by 60 gig hard, but we are in that phase.
Start to open up a little bit over that.
Great and if I could follow up.
You mentioned the art off process kind of later in your commentary.
Uhm I Wonder if you could you know as the auctions kinda get going here, if you're getting any more visibility as to the the magnitude of the opportunity for for can be and also.
Loosens, which are not manageable.
But on a global scale I'd still put them as to your to your service providers.
Dynamic is just raising the profile.
Really accelerating that.
For earnings call I think you said a very high level.
We feel good about the business as we go into 2021, we think there are multiple drivers Moto secular drivers both in terms of the need for more bandwidth. The success, we're having in Crs the.
The technology transition into new products like Wi Fi six and 60 gigahertz and then the expansion of our enterprise Wi Fi business and then as we go into 2021 first half the release of.
<unk>.
So do you guys think that.
What should we as investors be monitoring as we look toward next year, because obviously the <unk>.
I think it is a very difficult environment, you guys have executed well in your stock reflects that.
But what are the things that we should be watching for one way or the other in terms of.
Leading indicators that had growth is really coming through for this company, it's going to be better than we thought or well theres. Some environmental challenges maybe maybe the company find the products are fine, but there are environmental challenges that.
They're going to make it tougher to grow in 21, I mean what are.
Likely enough demand in the first half of the year to offset normal seasonality or should we still look for a bit of a seasonal decline in the first quarter.
I think the new products will you work.
Little incremental wind.
There is always some seasonality because rather in Q1 plays a role in a colder climates means people don't climb the towers much but we also have enterprise if enterprise keeps coming back to where it is it kinda nullify that little bit. So I would say that wouldn't be seasonality, but I think the new products will make a good dent.
That's kind of where where our thinking is.
Steven wants to add some yes, I mean I just it's just the unknown in terms of the other offsets right. So I mean, I know you're trying to get to insist that we start the year.
I think the unknown is what really happens with continuation of Covidien and sort of these other macro issues that we'll face so tough to sort of give you any sort of color as to how do we think is good at our Q1 number.
Historically has sort of been a.
Zero to flattish to up 5% in Q1 is it tough to call, whether we'd be any better or worse than that at this point in time.
Okay, and Steve and just kind of following up on.
The environment from an Opex standpoint, do you feel you are at a level that you can drive the sales and marketing that you need and.
Invest in growth or do you feel that you need to step up a bit as you move into 2021.
You'll be Frank.
Rover was a stochastic shock to all of us in terms of doing things in a very different manner and without covid, we probably wouldn't have done this as aggressively and will actually we will take those lessons and applied them in the future. So you will not sales go back to the old ways of doing things you will see us being pretty judicious with expenses we will.
Invest very carefully where we have two for the future and I think you're seeing that what we have done we worked on C. B R. S. We started work on CBS three years back.
While we are seeing great success now what people forget is how early cambium bet on those things we started investing in 60 gig arts two years back.
And some of this quarter's worth of quarters for us, but we stayed with that.
And now we are going to benefit because we are fantastic differentiation.
And these are very sophisticated products you can't build in one or two quarters. It takes you know 18 months to two years to pull that quality.
So we feel good where we are.
Thank you.
Thank you.
Your next question is from John Lopez from vertical Caroline is that good.
Hi, Thanks, very much can you hear me, okay, yes, yeah great.
Great.
So my first question I apologize I've been kind of off and on and off but I think I heard you guys say a point to multipoint calendar queue for kind of up mid teens quarter to quarter did I have that right. That's right. That's right. Okay, great. Thanks, and I guess one of the questions.
I wanted to ask you is just given second wave concerns.
Excuse me and inventory issues I'm, just wondering how you're seeing activity in the channel.
Like in other words did you feel like the channel is trying to put some extra inventory and place ahead of 2021 or does it feel more consistent with an period demand.
Yeah, I I would actually say John Alaska.
And then maybe some slight nuances depending on the region.
I would say generally that sort of keeping.
Keeping the whole Sally and that we're moving into the distributors with the sell through on their end customers. So it. It's it's somewhat in unison I think the navy in euro in EMEA.
Let me now that the spectrum auctions are set and people are starting to execute against that.
As investments.
Yes.
So CBR as force, maybe a month or two was more again you will see is making just sat services working making sure that or they had a grades are working well and good performance is good all that is behind US we have customers. As you said you north of 50000 subscribers now upgraded so yes for 53 Giga.
Business.
Are you seeing uptick and I think one of the good thing is the large countries in the world watching what's going on with Crs in U.S. So we also are getting interest from some countries to see you know what can they do because its spectrum control from the cloud is a big deal.
It's pretty pretty sophisticated so while we also anticipate I think over next two years or so these type of algorithms will influence wildfire sixg six gigahertz, Wi Fi, which is coming down the pike. So I think the expertise we are picking up here bodes very well for the future where frequency managed.
So, yes, fourfifty will benefit, but so we'll probably some of the other parts of our business as well as by 60.
Got you, Okay. If I could just sneak one last one and I apologize.
I think one of the things that kind of impressed me this year is.
Do you guys feel like I have these numbers right I think you had at the most channel partners. This quarter that you have all year.
And that's kinda despite all the friction coated related friction.
That everybody had to deal with so I suppose my question is.
What what kind of allowing you to continue to get new partners. On board are you are you bumping into that friction.
And are you starting to see perhaps some pull.
You know just given the breadth of the portfolio some products, perhaps competitors don't have maybe even one or two competitors that maybe you're perhaps.
Distracted a little dysfunctional could you maybe just talk about that and any opportunity continued activity in 2021.
Yes, overall I think we have a much different stature in the industry because we delivered on so many good things and as part of that can be in wireless fabric. It's not just the MB. It's not just PDP. We have delivered you know L. T. We have delivered reified, we are delivering switching and all.
All managed from a single pane of glass see Vrs three gigahertz again part of the fabric managements I think.
The the customers and the channel partners are finding that fabric is reliable affordable.
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