Q3 2020 Airgain Inc Earnings Call

Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on hold thank you for your patience.

Okay.

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Hi.

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Good afternoon, welcome to air gains third quarter of 2020 earnings Conference call. My name is Ian and I will be your coordinator for today's call joining us for today's color eight Hurricanes C O Jacobsen CFO, David Lyles, and senior Vice President of Engineering, Kevin until as a reminder, this call will be recorded recorded and.

<unk> available for replay via a link available to the Investor Relations section of air gains website at H T. T. P. Colon forward slash forward Slash Www Dot air gained dot com following management prepared remarks, the call will be opened up for questions from here gains publishing self side animals.

I would now like to turn the call over to Mister Lyle.

Thank you and good afternoon to everyone.

I caution listeners during this call are the management will be making forward looking statements about future events and air games business strategy in future financial and operating performance.

Actual results could differ materially from those stated or implied but he's for looking statement.

To risks and uncertainties associated with the company's business.

Forward looking statements are qualified by the cautionary statements contained in today's earnings release and are getting SEC filings.

Conference call contains time sensitive information is accurate only as of the date for this live broadcast November 5th 2020.

I can take no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this conference call.

Im changer again automotive markets.

And our next generation Y. five in Fiveg offerings.

We also discuss progress with our first IND connect product, which targets public safety in fleet vehicles in the US and is designed to provide exceptional emergency communications from 18. This network as well as on a canteen first net gain 14.

We have made great progress to launching that product. So were excited to provide an update.

We are now operating in a case that recall HPV controlled introduction.

A period, just before 18 key launches service for HPV product on the first net network nationwide.

In this HPV control introductions base.

We have been conducting field trials with prospective customers and are taking orders. We have now successfully completed several field trials of our first income product and were not seeing outstanding results with EGEN connect outperforming conventional rather modems.

On the revenue front for agent connect we have already received purchase orders from one of our value added distributor partners and have received indications from three others for more purchase orders to be shipped this quarter.

Therefore, we expect to generate about 500000 in revenue in the current quarter from this product.

Looking forward into the first quarter of next year, when we anticipate that the HPV feature warehouse than launch we believe we will be able to sell our ageing commit product on a much broader scale.

Now, let's move on to our strategy.

With the year coming to a close I thought it would be a believable to revisit our strategy and provide some more clarity around the direction we're heading.

As you are aware aired in excel throughout evolutions of the actually able to that 11 total cost vendors and is now view as key Wipeout Internet explorer hopefully.

Over the years, we've diversified into cellular communications, starting with Threeg technology and more recently I know team.

As the number of wireless standards increase with a tough to develop solutions for many of them.

Our initial revenue growth was driven primarily through the tier one north American video service providers.

And to this day this end customers contributing meaningfully to our current topline revenue.

Those revenue streams, which we include in our consumer market revenue should continue to contribute significantly to our overall revenue over the next few years, despite being a slower growth market versus our new addressable markets in the past and automotive.

If we look back at our history back in the days of Threeg in wildfire wanting to increase.

And tenants, who end up to adopt.

In Spain devices slowly begun to have more intent as per device more frequency bands per device shrinking form factors foster product refresh cycles and more stringent performance requirements.

Yes, our main encana the differentiating factor in the performance of these devices.

As we move into wide by six which addresses more dense areas and sexy, which adds new spectrum to deal with and.

And then step sub six gigahertz and millimeter wave with inspiring.

Very complex the market is moving straight into our core competency in opening up opportunities in the enterprise and automotive markets, where we have been focusing on product innovations in recent years.

On the enterprise market front, we are targeting new fiveg device programs, primarily sub six gigahertz in wide by sex and sexy opportunities for integrated systems.

This allows us to leverage our core competencies in our band antenna design in a market that offers significantly higher selling prices in the tens of thousands to hundreds of dollars range in particular, we see opportunities in several enterprise submarket.

First our current primary focus is on traditional enterprise wide side, where again in leverage its long standing relationships with service providers and experienced in gateways to win opportunities in next generation routers for high performance area.

Right by games like stadiums and arenas said.

Second we're seeing opportunities in industrial idle team, including end to end, where we already have a small established set of customers from which to build upon.

We think this is a large market opportunity in the longer term, where we can leverage our experience in developing complex wireless systems.

Third we see some smaller opportunities in indoor small cell markets, where we can leverage expertise in home wireless systems exploiting our existing relationships with service providers.

Paul when evaluating opportunities in Fiveg fixed wireless.

Wireless access markets, leveraging our service provider network experience, who ran the key indoor Fiveg wireless.

One is access Oems.

Having said the automotive market continues to be our largest growth opportunity for.

Primarily in the aftermarket rig market with our recent introduction of EGEN connect where we have a very large near term opportunities that can be leveraged into a game changer platform for Amy.

Also important so our historical topline revenue with our existing automotive aftermarket fleet product portfolio.

Our strategy is to continue to leverage our goal Spender in Panama Club brand in the North American fleet in public safety, our aftermarket segments to generate revenue as we refresh our product portfolio to address fiveg.

For the outer OEM markets, we believe the landscape for intent EPS is changing significantly as antennas are now being integrated into different parts of the car and making low profile small form factor multi encana complexity, a probably saw where currently.

Exploring opportunities in this market that can generate revenues beginning three to five years now I will.

Categorize this market has been in an exploratory phase.

The market matures and optimize future designs are better understood.

All in all our firmly believe.

We are addressing the right markets at the right time and look forward to updating you on our progress with our strategy in future calls.

Now I would like to provide an update on some key programs, we mentioned in previous earnings calls.

In Q3, we engaged in a significant enterprise fly Fi platform with one of the leading enterprise lane networking equipment providers.

This program was temporarily pushed out to the COVID-19 and is now pattern development and expected to move into production by the end by the second half of next year.

Our design process on this project has led to engagement into other significant programs with the same customer.

One is an enterprise wide access point with high gain panel antennas that is expected to move into production in Q3 2021.

The second is saying SD Lan access point with Fiveg wireless backhaul and we expect this program through rent in the second half of 2021.

It is important to note that.

These are more complex antenna system design wins solar command selling prices in the hundreds of dollars.

Well above our historical corporate averages.

Additionally, we're in the final stages of development of Fiveg sub six gigahertz industrial multi indexed wireless access programs for a north American enterprise Aiotv and mobile provider and we expect this program to read May next year.

Were also in the final stages of design or not for our fleet programs for a tier one in car video system provider, which is.

This significant programs to go into production next year.

Now I would like to highlight some notable design wins and key program initiatives darker specifically in the third quarter across our markets.

On the consumer front, we continue to see momentum for our wideband fixed Embeda International solutions. We received production orders placed significant white rice EQT Gateway program for a north American tier one operator, which we mentioned in our August earnings call, we expect broad.

Im shipments present by year end, we continue into 2021.

Initial orders will also praised played for a while I expect CE way why vein hybrid fiber wireless Internet service provider in North America, we expect to see this program risk in early 2021.

Prospects a quote in 2021.

Now like to turn the call over to our Chief Financial Officer, Dave Lyall, who will walk us through the financials fate.

Thank you Jacob.

I'll begin by providing financial highlights for the third quarter as well as our outlook for the fourth quarter qualitative commentary around how 2021 may play out and.

And then the COVID-19 update.

Third quarter of 2020 revenue of $13 million was above the midpoint of our previous guidance range of $12 $75 million.

$5 million or $12.75 million at the midpoint of guidance.

We expect consumer market revenues to decline sequentially, primarily due to initial inventory build that occurred in Q3.

From two of our large north American service provider and customers as mentioned earlier in the call we.

We expect enterprise market revenue strength in Q4, as a result of new product ramps at several customers and we expect our automotive market revenue to grow in Q4, primarily as we begin to see initial orders from our first air gain connect product.

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We expect our enterprise market revenue to grow year over year as we begin to penetrate with Fiveg sub six gigahertz and Wi Fi six products.

Into new sub markets.

We expect the most significant growth year over year to come from our automotive market revenue.

Primarily from our newly launched air gain connect platforms first product, but also to a lesser extent growth from our existing aftermarket fleet market.

Timing and magnitude of the growth from our air gain connect product is highly dependent on the exact timing of when 18 Tiet HP Helion network is launched throughout the country, which is a decision made solely by 80 intake.

In terms of inorganic growth in technology expansion potential we continue to evaluate opportunities that either expedite our time to market for new innovative products for that.

To help us gain the benefits of scale in our markets, especially in our growth markets enterprise and automotive.

Selling up where we are today, we believe we are in a solid position to sustain through a challenging environment and are very excited about the prospects for growth in 2021, especially as it pertains to Oregon connect.

Our sustainability and durability continue as we have a very solid balance sheet with a strong cash position and no debt.

Before I turn it back over to Jacob.

I wanted to give a quick update on the impact of COVID-19 on our business.

We have aligned our policies and procedures using a conservative viewpoint to the standards set by federal and state recommendations.

We have had little to no supply chain disruptions.

And only a few customer delays.

Now I'll turn it back over to Jacob Jacob Thanks.

Thanks, Dave we.

We are very pleased with our performance during a difficult global environment in 2014, and I'm really excited about the growth prospects for 2021 and beyond.

It bears repeating from prior earnings calls, but we believe we are delivering the right product at the right time us large co disruptions with Fiveg next generation automotive and technological shifts on the enterprise connectivity front.

We'll provide a favorable backdrop for companies such us and again.

A couple of different things are happening here I think there is one large north Americans tier one service provider that is actually.

Had an inventory building Q3, and therefore slowing down in queue for.

And then as we also mentioned there is a quite another large north American service provider, who is actually launching a new box Wifi six box.

That is.

Slower to launch then we thought we think it's going to be pretty decent size as of 2021 in terms of growth year over year.

For that particular and customer.

So we're kind of in this.

Physician, where one has come down and the other hasn't started yet to make up for the ground and that's why I think if you look at half versus expected second have all of that is really in queue for.

Especially if HB gets turned on.

When we believe it will.

If that happens we're going to see some decent size growth that has the hurricane connect side.

That product is in the automotive market revenue that we have.

But if you take that out we also believe that are historical aftermarket fleet revenue we'll.

We will start to kind of return in Q1 versus Q4. So we do think we'll get gross out of there also.

And then lastly.

About how we think about it.

If you look at the historical automotive added to the air can connect product and the automotive side, we're going to see some decent sized growth out of automotive.

Service provider inventory build appears to offset this a little bit in the fourth quarter, but yeah.

This inventory overhang abating exiting the December quarter.

That's my first question then secondarily you because you have pretty good exposure to the Wifi such upgrade cycle.

Both of them the residential side of the enterprise side could you dress, both the size and magnitude of the opportunity you see in front of you at least for the residential side of the next year or two.

Yeah I'll address the first question you're talking about the the inventory build up in Q3, when when will that go away. It certainly could by the end of the year Q.

Q1, typically start for us with the service providers so.

That's kind of a to be seen depending on how soft that quarter is.

But but certainly you are right.

Start to come back in Q1.

Enterprise and F&B Margaret's have been soft today, but you mentioned, some new wins and you're prepared comments.

The question is are you seeing any number will pick up in this market.

And perhaps cause you to discuss the suddenly that design activity that you've had as you think about that layering throughout counter 2021. Thank you.

Great questions call.

Thank you for joining today's air gains third quarter 2020 earnings call you may now disconnect.