Q1 2021 Airgain Inc Earnings Call
[music].
And the life.
I would now like to turn the call over to Mr. Lyle.
Thank you and good afternoon to everyone I caution listeners that during this call <unk> management will be making forward looking statements about future events and the air gains business strategy and future financial and operating performance.
Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business.
These forward looking statements are qualified by the cautionary statements contained in today's earnings release, and our gains and SEC filings. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast may six 2021.
<unk> undertakes no obligation to.
And to revise or update any forward looking statements to reflect events or circumstances. After the date of this conference call and.
In addition, this conference call May include a discussion of non-GAAP financial measures. Please see today's earnings release for further details, including a reconciliation of the GAAP to non-GAAP results.
Now I'd like turn the call over to our CEO Jacob Suen Jacob.
Thank you David welcome everyone and thank you for joining us on the call today.
I'll start with an update on the progress we've made on many fronts since the beginning of the year and review of how we see our strategy playing out.
But then flow by Q1 financial details as well of our Q2 2021 outlook and color of how we expect the year to play out.
But before I begin.
I'd like to point you to some exciting news, we just released.
Earlier this week, we announced the Doctor Ali surgery has joined the management team of senior Vice President of Engineering.
Dr. <unk> is a session engineering and executive and will help drive the next phase of growth for air game by bringing over 25 years of experience developing cutting edge technology, most suddenly and millimeter wave technology for <unk> and Wi Fi.
Prior to joining air gain factor subsidiary held several executive positions and leading technology companies and most permanently and E tail, where he spent over 18 years and served US Hell of the millimeter wave of advanced Technology development group.
Most recently he served us Vice President of Engineering and solid Inc.
And with companies and millimeter wave product strategy and development.
In addition to his professional career, Dr subsidiary serves us and industry Internet adviser at Tokyo Institute of Technology and earlier serve I'll say visiting assistant Professor at Duke University.
The other Intel sector, such retail executive positions at Y gig Alliance as founder and chairman of the board and as director of Communications standards and IBM.
Dr. <unk> received his Phd and electrical engineering with a minor and business from North Carolina State University and is the name inventor of over 150 domestic and international patents.
We are very excited and fortunate to be able to attract such amazing talent us. It is a testament for the innovation and talent we have here at air game.
All of these presence will be a pause the approaches are gain into future generations of integrated wireless solutions, and particularly for <unk> millimeter wave technologies.
Now, let's move on to quarter and commentary.
Let's begin with an update on the progress with our game changing Aegean connect platforms first product.
<unk> represents a $500 million market opportunity for <unk>.
AT&T and turn on and formally launch the HPV portions of the first net network on January the 26th of this year.
<unk> rebranded the age of the.
And the network, Nick and range. So we will use those terms interchangeably.
And in turn Agg and released our first Aegean connect product into general availability of.
Our product is specifically designed to look on the HPE network and is the only and Cana modem product that currently looks on that network.
Since the January of 'twenty six launch, we have been providing products for prospective customers for demo purposes, and hub generated and extensive and growing opportunity funnel.
We are seeing particular interest from large private ambulance companies fire and rescue organizations for.
Because on preparing for the upcoming firefighting season.
Sarah departments.
Israel and state governmental related agencies as well as energy companies.
We are starting to see a real uptick in these demos and sell through in the past few weeks and believe it will translate to solid growth in the second half of the.
And in Q2, we expect to generate approximately $1 $5 million and revenue from <unk> and connect.
On April 28, we announced egg income ex availability on St <unk> populations GSA schedule contract.
The next is a fortune 200 of cooperations with retailers and so the and government customers at the federal state and local levels.
And the availability of AG and products to the U S government's GSA, while general services administration schedule of program different against nationwide reach within the public sector and strengthened our channel program by enabling more customers to procure egg and connect it with retailers.
Yeah.
Let's now move on for the progress we are making with our recent acquisitions of nimble, Inc, which closed on January seven of this year.
And if you're new to our story.
And at a critical inflection point in our transition towards becoming and more system level company by providing even higher levels of innovative solutions.
The acquisitions of the strength plays an important role in our overall growth strategy to broaden and market diversification, especially within the industrial Iot space name.
The enabling has significantly advanced our strategic mission to deliver higher levels of integrated wireless system solutions globally.
We have made excellent progress with nimbleness, the integration and the leap we will see continued positive results throughout the year.
From a product perspective.
On March 31, we announced the commercial availability of <unk> 86 assets trucking device.
A fully featured cellular based assets trucker, enabling monitoring of assets in remote locations low intrinsic and outside of normal infrastructure.
The 86, it's also a battery power and the Bluetooth BLE E gateway facilitating hub and spoke implementations with the tax making.
And making the 86 well suited for supply chain logistics and reusable packaging applications, where both individual packages.
Well as aggregate pallet for container trucking this desire.
As we announced last month, our 86 assets trucking device, we see a 2020, one industrial Iot product of the year Award by Iot evolution World, The leading magazine and website covering Iot technologies.
We believe multiple industry awards like these demonstrate the strength and capability of the nimbleness team and each product.
From a revenue perspective, nibbling outperformed our expectations in Q1, and we're seeing solid growth and momentum so far in Q2.
We believe we will continue to see revenue growth for nimble linked product through this year and beyond.
Despite pressure from the global chip shortage issue.
Regarding leveraging our international sales force, we have already secure and new design wins and expect more to come in.
In terms of the integration effort.
And right on schedule and our employees are excited about the prospects of the combined companies.
We are also making good progress.
Bundling air gain antennas with nimble and Skyway and modems and ask the truckers and expect to have offerings across multiple products in the coming months.
And our last moving onto our strategy over the past few years, we've been transitioning the company from primarily a consumer market focused company towards the enterprise and automotive markets.
In parallel we have also been broadening our capabilities beyond antennas and into integrated wireless systems.
Selected from competing solutions due to its optimized throughput and coverage performance, enabling in the price great in building connectivity.
We expect the ramp.
Orders in the second half of the year and start generating meaningful revenue beginning in 2022.
Moving onto our auto market.
Following a refresh of our automotive fleet aftermarket products portfolios of <unk> and with a renewed focus on selling our products into the market. We believe we will see growth all of our coal automotive fleet revenue this year as well.
In summary, with the additions of nimble, Inc, and the production launch of egg and connect together with growth opportunities across our addressable markets. We believe are again, it's well positioned for accelerated growth in 2021 and the years ahead.
Now I would like to turn the call back over today, who will walk us through financial highlights day.
Thank you Jacob.
First quarter 2021 revenue of $17 $4 million was above the midpoint of our previous guidance of $17 million and up 35% sequentially from the fourth quarter more importantly, $17 $4 million is the highest quarterly revenue ever recorded and air again.
Consumer revenue was $10 $3 million up about $700000 from $9 6 million and Q4, primarily due to our gateway design win and a large north American service provider and customer as well as the resurgence of ordering by our international service provider and customer.
Following the soft year due to the impact of COVID-19 last year.
Enterprise revenue was up materially from $1 3 million and Q4 to $4 4 million and Q1 early due to the addition of nimble link revenue.
The nimble ink revenue contribution was $3 2 million for the quarter exceeding our previous guidance of $2 7 million.
Although we did see growth from our large traditional enterprise bi customers the global chip shortage delayed some of our growth and that market.
Audio revenue was $2 7 million and Q1 up from $1 9 million and Q4, due mainly to incremental revenue from <unk> and connect product shipments totaling about $1 million versus about $500000 and Q4 and as well growth out of our aftermarket fleet.
The market revenue, which grew sequentially in Q1.
Q1, non-GAAP gross margin of 42, 2% was just below the low end of our previous guidance range, primarily due to a higher revenue contribution and expected from our lower gross margin and nimble linked products as well as higher costs associated with the ramp of products and the man.
Manufacturing facility.
It is important to note that we saw better than expected gross margins out of the nimble ink products and Q1, demonstrating that our gross margin improvement plan is yielding results already.
Going into Q2, we expect to see continued improvement and gross margin from our nimble linked product revenue.
Excluded for non-GAAP gross margin was $83000 for amortization of purchased intangibles and $352000 and of onetime noncash inventory step up charge associated with the purchase price accounting from the Nimble Inc acquisition.
Non-GAAP operating expense in Q1 of $7 million was right at the midpoint of our previous guidance range. The.
The excluded from non-GAAP operating expense was $928000 and stock based compensation expense $634000 and amortization of intangible assets, mostly related to the nimble Inc acquisition.
And $189000 and nimble and transaction related expenses.
Adjusted EBITDA was $428000 and Q1.
Before moving to net income I wanted to address taxes and Q1, we recorded a total tax benefit of $2 $1 million driven primarily from the acquisition of Nimble Inc.
In connection with the acquisition, we recorded deferred tax liabilities associated with intangibles, which in turn resulted in a release of $2 3 million evaluation allowance and therefore, a tax benefit.
Note that we will exclude this benefit from our non-GAAP net income.
And non-GAAP earnings per share calculations as it is a onetime accounting benefit.
Moving on to net income non-GAAP net income in Q1 was $297000 Q1, GAAP net income was $237000 well ahead of previous guidance due mainly to the tax benefit just described.
Moving to earnings per share our Q1 non-GAAP earnings per share was <unk> <unk> consistent with our previous guidance range midpoint.
GAAP earnings per share was <unk> <unk>.
Finally, our Q1 cash cash equivalents and restricted cash totaled approximately $21 $6 million.
$1 4 million lower than our previous cash balance of $23 million disclosed on January 7th with the acquisition of Nimble Inc.
The decline and cash was mostly related to the payout of year end bonuses and commissions as well as other working capital changes.
We did not repurchase any shares during the quarter.
Now I would like to provide a preliminary outlook for the second quarter of 2021.
And Q2, we expect revenue to grow and be in the range of 17, 5%.
And $19 5 million.
Or $18 $25 million at the midpoint of the range.
We expect both our enterprise and automotive markets to grow sequentially in Q2, primarily for nimble linked product revenue growth and traditional enterprise Wi Fi revenue growth, both and our enterprise market.
As well as growth from <unk> and connect and our automotive market.
We expect product revenue from our consumer market customers to see pressure in Q2 as a result of the global chip shortage.
Already contemplated and our revenue guidance range is about $1 million and revenue that we don't expect the ship this quarter due to the impact of the global chip shortage, mostly related to our consumer market and customers.
We expect non-GAAP gross margin and the second quarter to be and the range of 41% to 43% and.
And excluded from non-GAAP gross margin was $87000 and acquisition related amortization of purchased intangibles.
We expect Q2, non-GAAP operating expense will be about $7 $2 million plus or minus $150000. We expect hiring of new talent to support our revenue growth to be the primary contributor to higher corporate operating expense.
Excluded from our non-GAAP operating expense estimate was about $1 million and stock based compensation expense and $682000 and acquisition related amortization of purchased intangibles.
At the midpoint of guidance adjusted EBITDA, and Q2 would be about $620000 at the midpoint of guidance. We expect Q2 non-GAAP earnings per share to be about for <unk>.
And on a GAAP basis, we expect the loss per share of <unk> 13.
Summing up where we are today, we expect 2021 to be and exciting year for air gain as we have multiple catalysts for growth across all three of our primary target markets.
Our strong balance sheet with more than $21 million and cash and no debt provided durable and sustainable foundation to execute our growth plan and capitalize on the abundant opportunities in front of us.
Now I'll turn it back over to Jacob Jacobs. Thanks.
We continue to be excited and confident about the prospects for us total in 2021.
Even in this challenging environment with the formal release into general availability of our first AG and connect product the expected revenue contribution and growth from our nimble linked products the.
<unk> of products into our traditional global Wi Fi and enterprise customers and the refresh of our although after market products to <unk>. We believe we have tradition of air gain for the eight year of strong growth in 2021, especially after the record quarter that we just had in Q1.
With new and innovative products being developed for our targeted enterprise Submarkets.
For new products all of our egg and connect platform. We believe we are positioned for the long term profitable growth.
Additionally, we are very appreciative of all of the hard work our employees of putting into our company doing and unprecedented and difficult environment. We are also very appreciative of our support of customers suppliers and shareholders.
And with that we are.
We're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Okay.
Thank you and we will now take question from Eric Games publishing sales side analyst.
And maybe you'd like to ask a question you will need to catch the star one on your telephone keypad to withdraw your question press the pound of hash key please.
Please standby, while we compile the Q&A roster.
And our first question comes from the line of Karl Ackerman of cash.
Allen. Please go ahead your line is open.
Hi, This is Sam on for Karl Thanks for the question, we're glad to see the nimble link is off to such a hot start as part of your portfolio and given the other comprised about 20% of your revenue this quarter and your store broke 42% gross margins and.
Every day and connect continues to gain steam through the year.
Why shouldnt, we expect gross margins to stay at least above 42% for the remainder of the year.
I mean does your guidance imply very strong sequential growth for nibbling thats dragging our margins.
Yes. This is Dave I'll take the beginning of that maybe Jacob can can chime in but.
Yes, gross margins are lower than our corporate gross margins for the nimble Inc. Margins are lower than our corporate gross margins. So youre looking at this the right way they are growing pretty nicely going into Q2, and we expect that growth to continue throughout the year that being said, we talked previously about the fact that nimble and can already start.
<unk> on our cost reduction program net implemented does that reduction to actually begin starting this quarter, but it happened a little early in Q1, So we got a little bit of benefit of higher than expected and on the gross margin side. We think that will continue through the year I don't think it will.
Come quite up to this year quite up to our corporate gross margins, but the.
Certainly.
And prove them I think next year, we'll start to see that change Theres also.
One more note on net and.
It depends on the mix within the nimble link revenue.
Nimble Inc. Has some products that are lower gross margin and some that are higher gross margins for that mix also matters.
Depending on which grows faster.
And then in terms of the overall corporate gross margin past Q2, we haven't talked the.
The disclosed our guided past Q2, but I think we're until we start seeing improvement on the range of with nimble link and.
We're going to be somewhere and the ZIP code that we're in.
And today for the throughout the rest of the year, we'll lap the set that is highly dependent on mix. So we'll have to see which direction and that goes.
Yeah.
Great. Thank you and then.
And one of them and are getting conduct the primary.
It is great to see the growth this quarter executing on doubling of quarter over quarter like you mentioned last call.
But if you're willing to talk about it this far out what kind of run rate could we expect the Aragon and conduct related revenues to achieve exiting this calendar year growing from about the $6 million run rate you're estimating for this current quarter.
So on air gains Youre talking about energy and connect.
<unk> and connect and our guidance that we just shared was forecasted to be $1 5 million and Q2.
And.
The way I kind of look at this is that we are at the very beginning of this this.
Really launched At&t's.
At&t's <unk> portion of the network called Mega range launched January 26 of this year.
And most of the demonstration units were sent out after that point, because we werent necessarily allowed to do more than a small set before that so.
And we have to get through this.
The at least the first sales cycle to see how big this could be.
And which makes it hard to put a number on it through this year, except for the fact that this is a massive market opportunity for air gain.
We have currently the only and tenant modem product.
The can service the Mega range.
A portion of the spectrum for first net.
And really it's going to be about.
Getting those demos into <unk>.
Sell through and once that happens we think this will really open up for us.
Understood. Thank you and then one last housekeeping one if on the is the.
The current southern and $75 million of Opex level debt.
And you executed on this quarter and the <unk>.
Current quarter representative of the steady state cost youre going to have of the business for the near term.
Or should it trend up from here as you continue to invest and nimble linked and the <unk>.
For new talent.
Yes, that's a good question.
We did $7 million and Q1.
Non-GAAP, we did we guided to 72, so it's incrementally up a little bit and Q2.
I think youll see a little bigger uptick in Q3 and Q4.
It doesn't take a lot of Opex too.
Get the leverage out of revenue for something like Aragon and connect but.
And we're going to invest there so we'll see an uptick and starting probably more and the second half.
Understood. Thank you very much.
The problem.
And again, if you'd like to ask a question that of star one on your telephone keypad.
And our next question comes from the line of Scott Searle of Roth Capital Partners. Please go ahead. Your line is open and good afternoon, and thanks for taking my questions, Hey, Dave Hey, Jacob.
My apologies I camped on a little bit late so.
So I apologize if this is redundant but of course to dig in a little bit on every day and connect you are starting to get up to a nicer run rate it sounds like and the second quarter did you give a range for the year of provide other metrics in terms of how that pipeline is forming and I know you've been announcing various different relationships from a distribution standpoint, whether it's index or other partners with the short just.
Wondering how big the pipeline of that reach looks right now and where you expect to be exiting 2021.
Hey, Scott the Jacob here, so off of off the pipeline of the funnel we are seeing a strong interest.
We have north of 300 plus leads.
The last week and when.
And I say lease.
And our customers needs and that means multiple units per customers and we have.
And I'll almost close to almost close to Hangzhou, the downloads ongoing and all that.
<unk>.
<unk>.
Sell through as well, so we do see a strong momentum and.
And as I mentioned in the call earlier.
With the wildfire season upon us with the ex.
And even.
And stronger interest in the coming weeks.
The.
The firefighters they wanted to be debt will prepare us saw the.
And the Linzess E&S.
For the upcoming season, so we.
Billy it's more of a timing issue than anything else.
And in all the way.
Without domestic parcel off the flow injection.
This point is too early for us the giving you a more concrete number except that we feel pretty strongly about at least getting the one five mill this quarter.
Great. Thank you and and in terms of nimble and it sounds like that's off to a good start and the first quarter here.
It sounds like Youre, not seeing any component availability issues necessarily the nimbler more of the consumer front I'm wondering if you could flush that out a little bit in terms of the demand youre seeing for nimble and some of the end markets and the.
Applications, where there is interest whether it's for the tracker or other solutions there because it's universally it sounds like demand has been good for these types of products, but some of the other competitors have been experienced some more component headwinds on that front and I Wonder if you could talk about that a little bit.
Yes, we are.
We are definitely seeing component and headwinds on the chip side for nimble Inc. Revenue per specifically I think we got a little we got it.
Net of that problem I think I talked about that earlier back in that and the December January timeframe.
During the closing of the acquisition.
Had the NIM of linked guys are and we look closely at this and they did.
Really incredible job, making sure they got in mind for for chips, and therefore able to fulfill the demand that's out there in fact I would say the demand is actually exceeds even this quarter.
What revenue, we're expecting out of them and I think thats still going to be the issue going on throughout the year, but I think I think that business quarter to quarter and going to continue to grow despite that the that pressure.
Hey, Dave did you quantify.
Not necessarily lost revenue, but revenue that got pushed out related to component availability and the first quarter and and the current expectations for the second quarter.
Yes, I talked about the second quarter being.
We're estimating and this is based on our end customers data that's coming through the.
Impact on us of about $1 million that we've already.
<unk> it into our guidance range.
Great and lastly, if I could Jacob I think in the past you've talked about some.
And some development in terms of fixed wireless access and what youre doing on that front and combine that with I think you've brought on and the new VP of engineering, who have some expertise and the millimeter wave area. I was wondering if you could update us in terms of any thoughts and new product development areas of interest going forward. Thanks.
Yes, great questions, Scott and <unk>.
I'll start and then maybe of mall right.
Karla.
For me.
And three out of the other half.
And with the caliber of our Doctor surgery and.
And you saw these backlog with the credentials of the heap wins on the Midland Me away from and also just Wi Fi and ice and general and we think that he is going to it related and working on several projects for the different market based on <unk> and with this backlog.
He is the perfect fit for what we're going to go.
With our next phase of the company product and technology.
We are actively developing products for.
<unk> for consumer for.
The <unk> and for Aldo and.
And and more of that can get in to more specific.
But definitely with the.
<unk> Street, and joining us we feel strongly about how we're going to be able to get these products out to the market.
Timely manner and with some innovations as well.
So yes. So Scott this is more of just to kind of give a little bit more details about the developments that are taking place and the fixed wireless access in particular.
Before of Dr surgery, and came onboard and we had already started the development to address debt market specifically.
What what's.
Whats going to happen is with Ali joining the team.
And that development is going to get accelerated now in terms of what products come out the market first and which ones would come out later, we're going to have to decide what the flavor of that is going to look like because right now dependent on what which operated and talking to.
<unk>, whether it's millimeter wave of sub six gigahertz and.
It's going to depend on how it is going to play out over the next six to 12 months, but suffice to say that you will see and products that are going to come out from air again that are going to position us and allow us to be.
Layer and also give us the access to become active and in this the FRG space.
Great. Thanks, so much.
Thanks Scott.
And again, if you would like to ask a question that is star one on your telephone keypad.
And our next question comes from the line of.
So the gel.
And I turn the capital. Please go ahead your line is open.
Hi, good afternoon.
The question on the consumer side actually.
And you mentioned.
Winds from the from chip shortages.
That's a pretty current.
Across the ecosystem.
No.
And so seems to be some very strong demand there.
The results from some of them.
Some of the players across the broadband gateway space.
Even the video.
And Dave I think you referenced some sort of.
Resurgence and the ordering by some of your customers.
Well as and the new design wins.
The situation here.
And we see some kind of significant recovery and consumer revenue as we went through the second half of the year.
Yeah, why don't I start and Jacob.
Background on that too.
The.
And the service providers, specifically are as you know they are moving.
Into a lot of a lot of these Wi Fi $6 50, gateways and they're kind of mission critical for next generation and home.
Service.
And those of the devices Theres one in particular is very large service provider and customer who is doing that now and and this is pretty important for them to do it and do it quickly so that demand is there.
It's.
A lot of the service providers are frustrated and trying to get what they can get to be able to deliver.
And on their mission critical delivery. So the demand you're right. There is a lot of demand out there, especially with the service providers.
Right.
They are struggling to get parts of the two to meet the demand they'd really like to see.
So at some point, yeah that could break out.
It's going to depend on the true when the chip shortage of starts to two.
Released its grip a little bit yeah and.
Tim and I'll add some color to the us well.
Agreed and conquer with day assessment that we're seeing the demand just like you mentioned, which is great.
Are you seeing the NFL and particular Kimball, adding.
Hundreds of such new subs, so the demand in all of its increasing I think that even with the chipset shortage issue. What's fortunate about again is that yes, we're going to get impact impacted to a sort of expense, but were looking mostly on the consumer side with the major tier one service.
<unk> and guess, what Linda said chipset shortage issue those guys have enough comps out there.
Don't forget the priority so thats whats working for us. Unlike some of the other guys out there that we're actually working with the top guys and therefore, they always get the priorities of the impact its a lesson versus the others.
Okay got it and and.
And just going back to the disc.
Cash and you'll just having more of a factor.
Factors.
Have you given any indications of.
When you think you might be bringing products to market and theirs.
The 22 or beyond.
And Q earliest stage.
To be able to talk about.
Yes, so what you're going to see probably towards the latter part of the of the year. We will have our first flavor of the for.
What we would consider a product that's going to put us into trials.
It's not something that I would expect thats going to generate any significant revenue for air gain and it's probably not of play until probably the second half of 2022, but that being said based on that product that we will have at the end of the year Youll see other flavors that are targeting various operators not only.
And North America, but also worldwide.
Great. Thanks very much.
Thank you and at this time. This concludes our question and answer session.
And the question was not taken you may contact air gains Investor Relations at energy at Gateway IR Dot com.
I would now like to turn the call back over to Mr. Steven for.
Closing remark.
Thank you for joining us on today's call. We look forward to updating you on our next call operator.
Thank you for joining us today for air gains for first quarter 2021 earnings call you may now disconnect.
Okay.
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