Q3 2020 PCTEL Inc Earnings Call

[music].

Welcome to the PCTEL third quarter 2020, <unk> earnings release Conference call. At this time, all participants are in listen only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. As a reminder, this conference is being recorded I will now turn the call over to Ken.

Evan Mcgowan the company's CFO.

Thank you for joining us on today's conference call to discuss Pctels third quarter 2020 financial results with.

With me today is David Neumann the company's CEO.

Before we begin let me remind you that this call may contain forward looking statements and projections based upon current circumstances.

While these forward looking statements and projections reflect pctels best current judgment, they are subject to risks and uncertainties, particularly related to the COVID-19 pandemic that could cause actual results to differ materially from these forward looking statements and projections.

The management team has been able to keep all of our production facilities open and virus free piece.

PC tell supply chains continue to operate reasonably well and we've been able to meet customer delivery schedules.

Our employees have adjusted welfare modified operating procedures and work from home model I believe we can continue to operate profitably through the worldwide economic recovery is gradual as it may be.

For the quarter, a revenue and earnings were within our guidance are earnings are driven by improved margins in both product lines and strong demand for five G scanning receiver solutions are.

Scanning receive a product line produced the highest quarterly revenue since Q4, 2019, which is one of our best quarters for scanning receivers.

More importantly for the future, we experienced a quarter over quarter increase in overall incoming orders, we remained profitable from generating cash and a balance sheet as strong.

As you may have seen in a press release issued after the market closed we achieved 18.9 million in revenue $2.4 million and adjusted EBITDA and non-GAAP earnings per share of eight cents.

She'd gross margins of 51% for the quarter of 2.6% over the second quarter.

The recession has resulted in challenges related to our customers reduced demand for antennas and slower ordering processes.

As I mentioned in our last call. We believe we're near the bottom of the recession do decline in demand and I'm encouraged to see that our incoming orders increase in the corner.

We expect market conditions to stabilize and gradually recover over time through 2021.

We will continue to invest some products and technologies to improve our resolved in the short term and accelerated growth as markets recover.

I would like to highlight three areas that will contribute to our growth.

First you may have noticed P. C tells new website with enhanced user functionality are increased presence on social media and are popular technology focus Webinars. These efforts advance our global marketing strategy to increase quality leaves reinforce our message that P. T tell is an industrial iot's solutions provider with unique skill sets to solve.

Complex RF challenges.

Second the majority of our antenna and scanning receive a revenue is generated through Oems and so like the distribution partners as we mentioned last quarter, we're working to expand our channel partners and we added a new master distributor in Europe in the coming weeks, you will hear of new strategic distributor agreements to sell our antennas and scanning receivers, which will further.

Broaden our reach our ability to add in libraries distribution channels as a key growth strategy.

Along these lines, we believe that as we released new products targeted to government and military applications will significantly grow this revenue stream.

Our third growth strategies to focus on new product initiatives on market, driven antenna and kind of component and scanning receive a product needs.

Although demand for some of our antenna products remains low due to temporary slowdown as a customer demand.

Product development pipeline as robust and producing design wins, we have several new programs and new customer engagements underway and all three of our vertical market segment.

Our new product introduction, funneled is particularly strong and intelligent transportation and industrial Iot's segments, where we're leveraging our multi band in G. N S. S antenna design capability.

P. C tell received one of our largest blanket purchase orders of the year for I O T integrate antenna solution for utility application.

Which has a positive impact on this quarter and for next year.

Our industrial Iot access points interface cards, and wireless sensors began shipping last quarter to some of our leading customers and the industrial high or T space for their testing and integration.

Several large international companies plan to use these industrial healthy components and the programs.

At the beginning of the year, we were optimistic that these programs would contribute to our revenue growth in the second half of this year. We're still confident that these products will consume route to our growth, but we've shifted our expectations for receipt of purchase orders for the first half of next year as our customers recover from this general slowdown.

So this is band radio systems or C. B R. S and five G are important for both our antenna is scanning was cheaper product line.

C. B R S. As a shared frequency band in the U S that provides another option for private networks and industrial I O T applications in August we announced the launch of our low profile five G antenna for industrial Iot's smart cities with.

With cable and utility companies, having emerged among the top winters of the recent seen various auctions. We have already started to receive interest in our in tennis and scanning the cheaper products.

Our <unk> scanning receiver business continues to perform well and we expect a private plane revenue to be near the level reached in 2019.

He recently, one one of the largest five G scanning receiver orders and a company's history with delivery plan through two four.

Sales so network operators through our valued OEM channels continue to be strong in North America in northeast Asia, including China, Japan, South Korea and Taiwan.

We discuss a longterm drivers for five G deployment, starting our last call, including the plan rollout of additional releases as defined by the three G. P. P standards body P. C tells in a strong position to address those new releases and expand our five G markets, giving our global installed base of Gore G scan receivers, which can be easily upgraded to five.

G.

You should also be noted that new spectrum auctions like C. B R S and the U S and millimeter wave allocations globally, along with unique high G applications deployed and private networks will increase demand for test and measurement equipment and are in tennis solutions.

Alright, and 10 expertise compliments are five G scanning receive a capabilities. In addition to designing five G. Omni directional millimeter wave antennas for five G. Scanners are antenna engineering team collaborated with our scanning received routine to develop the only customized dual polarized antenna solution available in the mall.

Market to collect five G measurements. This led directly to a sale of our five G scanners and customize at 10, a solution to a top European network operator.

Although testing of public safety systems within buildings have slowed due to the inability to access buildings wearing track to match or 2019 public safety revenue and we're confident this business will grow as building an excess improves the number of certified companies who are the primary buyers a P. C tells public safety equipment increase.

In the third quarter.

In addition to organic growth strategies, we continue to evaluate and pursue inorganic growth initiatives and take advantage of our solid balance sheet, specifically with respect to complementary product lines for enterprise wireless intelligent transportation and industrial Iot applications.

With that I will now turn the call over to Kevin for a closer look after a quarter and a discussion of our financials.

Kevin.

Thank you David.

I will address the financial results for the third quarter ended September 30th 2020, and it will provide fourth quarter of 2020 guidance.

As David mentioned, we continued to feel the effects of the COVID-19, pandemic and global recession in the third quarter, primarily impacting the timing of receipt of customer purchase orders and revenues and a quarter for antenna product line. However.

However, strong gross margins and lower operating expenses offset some of the impact of lower revenues.

Revenues or 18.9 million in the third quarter of 2020, a decrease of point 9 million sequentially and 20 per cent lower compared to the third quarter 2019.

Looking at the revenue by product line revenues for test and measurement products were six 8 million an increase of point 7 million sequentially.

6% lower compared with a third quarter to last year.

The third quarter of 2020 was a very strong quarter for products with five G technologies, but the decline in revenues compared to last year is primarily attributable to lower revenues for products with technologies other than five G.

And 10, a product revenues decreased sequentially by $1.6 million to 12.3 million and declined twenty-five percent compared to the third quarter last year.

Antenna revenues for intelligent transportation, and public safety or lower compared to the third quarter of 2019.

As compared to the third quarter last year, the third quarter of 2020 gross profit margin on a GAAP basis improve by 5.5% to 56%.

Due to a higher mix of higher margin test and measurement products as well as higher gross profit margin percentages or both antenna products and test and measurement products.

Fair to 14 cents in the third quarter 2019.

Pctels balance sheet remains very strong with a significant cash and investments and no debt.

Cash and investments, including long term investments increased during the third quarter by 1.7 million to $41.3 million.

Free cash flow was $2.6 million as we generated cash from operations of $3.5 million in the quarter.

We generated cash flow from working capital because of reductions in accounts receivable and inventories.

On October 22nd 2020, we declared a regular quarterly dividend of 5.5 cents per share on our common stock.

This dividend will be paid on November 16, 2020 to shareholders of record at the close of business on November nine 2022.

Due to uncertainties as a result of the pandemic and the potential financial impact related to disruptions in our operations supply chain and customer demand. It continues to be difficult to forecast financial results. We.

We would however, like to provide our investors with insight about our expectations for the fourth quarter.

We are forecasting revenues between 19 and $20 million for the fourth quarter.

We project, our GAAP gross profit margin percentage to be in the range of 48% to 49%.

And the non-GAAP earnings per share to be in the range of six to nine cents.

We are making these projections based on current information and circumstances, which could change possibly significantly.

We will continue to manage our costs and our working capital to protect and strengthen our solid financial position.

Before we take questions I would like to turn the call over to David to make a few closing remarks.

Thank you all for joining us before we take questions I would like to share a few closing thoughts.

The recession this year has impacted many businesses, including those in the technology sectors as I mentioned earlier I am pleased with how our team responded to the challenges of pandemic and our ability to maintain a high level of service to our customers, while managing to keep our employee safety.

We have remained profitable and I'm confident that we will see improvements in our operating results as we finished 2020 and begin the new year.

PCTEL remains in a strong financial position and we serve attractive markets that will grow over the long term.

Testing wireless infrastructure deploying industrial high with T. custom hardware and enabling wireless connectivity will continue to be important as a world increasingly relies on industrial remote access and the ability to work from anywhere.

I would also like to note that for those who would like to learn more about PCTEL, Kevin and I will be attending the southwest ideas virtual Investor Conference on November 19.

With that Kevin and I are available to take questions.

Operator.

Thank you ladies and gentlemen, the floor is now open for questions. If they do have a question. Please press star one on your telephone keypad at this time.

Using a speaker phone, we ask that while posing your question can you just pick up your handset to provide favorable sound quality once again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time, please hold as we poll for questions.

And our first question comes from Mark Weisenberger from B. Riley. Please go ahead.

Hey, guys. Thanks for taking my question is actually a bond that jumping into market.

So yeah I guess my first question can you talk about your pipeline with regards to antenna products and how many projects are the orders are in the trial or pilot phase and how many are ready for commercialization.

Implementation.

Ed you whats the timeline for moving from the former to the latter.

Yes, thanks, Amanda Thanks for joining thanks for the question.

Not necessarily.

We're not going to go into details on product by product, but what I can tell you is that at any given time, we have about.

40 to 50 Npis projects in the pipeline some.

Some of those are customer driven npis at different levels of complexity.

You too.

Yeah, I think I think you're right China did go right to stand alone relatively quickly from our perspective, though and it doesn't matter a lot because in the big difference between a non standalone and stand alone is with non standalone, you're using the four G. L. T E <unk>.

<unk> network to set up the the initial connection and then you switch it over to five G connection Standalone is doing everything and independently.

So for the testing applications you still have the same issues with Iran are scanning receivers on measuring the signal coming from the tower too to the U E. So you want to optimize coverage you want to look for interference.

A software upgrade that enables that band in the customers a unit. So I think it's a huge benefit for our customers because they don't have to buy a new gear and then it's also a benefit for PCTEL, because it's a software upgrade and it's a relatively higher or pure margin.

From a market perspective, the Crs definitely opens up a new applications for.

On a shared spectrum.

Needs and I think.

Big benefactor of that again will be private prime.

<unk>.

Okay.

Thank you all for joining us this afternoon I definitely would like to thank our employees for their contributions and take care of our customers.

Challenges in 2020 as made our organization stronger and made us more determined to succeed. So we look forward to market conditions, improving and updating you on the next call. Thank you.

Thank you for joining us today for PCTEL third quarter 2020 earnings call. This concludes our conference you may disconnect. Your lines at this time and have a great day.

[noise].