Q1 2021 PCTEL Inc Earnings Call
[music].
Welcome to PC titles first quarter 2021 earnings release conference call.
At this time all participants are in a listen only mode at the.
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 Kevin Mcgowan and the Companys CFO.
Thank you for joining us on today's conference call to discuss pace of Intel's first quarter 2021 financial results 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 that reflect the PC tells the best current judgment.
They are subject to risks and uncertainties, particularly related to the COVID-19 pandemic and the impact of our acquisition of Spartech wireless AP that could cause actual results to differ materially.
From these forward looking statements and projections.
Risk factors that could cause <unk> actual results to materially differ from its projections are discussed and the earnings press release, which was issued today and the company's annual report on form 10-K and subsequent filings.
The company assumes no obligation to update.
And we're looking statements or information, which speak as of the respective dates. Additionally.
Additionally, our commentary will include reference to the following non-GAAP measures non.
Non-GAAP earnings per share and adjusted EBITDA.
We believe these non-GAAP measures facilitate comparability of results over different periods of.
A full reconciliation of these GAAP measures to our non-GAAP measures is included in our quarterly earnings press release that was issued earlier today.
I'm now pleased to turn the call over to David Neumann.
Yeah.
Thank you, Kevin and welcome and thank you for joining us this afternoon.
In addition to providing commentary on the first quarter financial results. We're excited to share that we acquired smart tech wireless for approximately $6 $8 million, which is less than one times projected 2021 revenue.
We will make further investments and the company and.
Expect the modest positive impact on the bottom line this year.
<unk> is based near Stockholm, Sweden, specializing and industrial Iot and vehicular antennas with particular focus on smart metering electric vehicle charging stations and heavy construction and forestry vehicles.
We expect that the U S infrastructure, Bill and EU incentives to use of electric vehicles will drive demand for charging stations with wireless connectivity.
<unk> antenna products complement PC sales offerings and two of our primary vertical markets industrial Iot and intelligent transportation.
While the majority of the Smart Tech sales are and the European Union we.
We believe we can create demand for their products and the U S where a majority of <unk> current and customers are located the.
The acquisition expands our capabilities to sell our <unk> antenna products and Iot devices and Europe through Smart Tech sales team, the French subsidiary and our now combined established distribution channels.
To summarize we believe this acquisition will contribute to revenue and earnings growth expand PC sales presence in Europe and product lines, and our key vertical markets and increase our global R&D capabilities and provide support to launch our Iot devices and Europe.
We're excited to have the smart tech team join us and we will work with them to provide excellent support to our expanded customer base.
In addition to our M&A activity, we've made progress and our existing product line to support global <unk> deployment and industrial Iot applications. I'll review. The Q1 results and then we'll discuss our organic growth initiatives and more detail.
As you may have seen in our press release issued after the market close the first quarter results were in line with our expectations. Despite ongoing COVID-19 challenges such as supply chain lead times and transportation delays.
We will continue to work closely with our suppliers and customers to limit the impact of these delays and Q1, we achieved $17 $7 million and revenue approximately $700000 and adjusted EBITDA and breakeven non-GAAP earnings per share.
Revenue was nominally higher year over year, and EBITDA was approximately the same and the first quarter 2021 compared to the prior year.
We achieved gross margins of 47, 1% for the quarter slightly higher than the first quarter last year.
Our incoming order rate for the first quarter met our expectations. We believe the quarterly revenue and earnings will increase through the remainder of the year driven by the improving U S economy, the global rollout of <unk> and anticipated increase and European revenue as a result of the smart Tech acquisition and the demand for industrial.
The Iot devices as the world becomes more reliant on wireless connectivity.
In addition to organic growth, we are expanding our industrial product lines and developing solutions to dominate <unk> radio access network testing.
With respect to industrial Iot devices, or industrial Wi Fi access point is and the final stages of FCC certification for U S markets. The European approval is complete.
Several of our industrial process automation customers are integrated the access point and production will begin upon completion of the FCC certification as mentioned on previous calls we believe deliveries will begin in the second half of this year and be of long term revenue generator for the company.
With respect to antennas, we're actively engaged with several of our large industrial enterprise OEM customers to provide antenna solutions for their planned rollout of <unk> devices recently are seven and one multi band antenna was selected by a major modem router OEM for their new <unk> modem for industrial Iot and enterprise.
Rise applications, our intelligent transportation segment remains strong and demand within precision agriculture increase and Q1.
We continue to see momentum and utilities with several new projects being driven by a move to cellular from private networks and this space. We had of key design win for a multi band antenna and have received the first significant order.
And rail we are working with tier one railroads and a sizable new opportunities for multi band and base station antennas for improved connectivity using cellular for fringe area of coverage and for the migration of <unk> and eventually to <unk>.
The besides benefiting our antenna product lines, we believe this migration to cellular networks and other verticals such as utilities and rail will also benefit our scanner business.
I also note that we recently added two strategic distribution partners to increase our reach into Iot and intelligent transportation and enterprise wireless markets.
These distributors, who will complement our expansion in Europe through Smart Tech, we are confident that targeting specific markets through distribution channels of stock products will contribute meaningful long term revenue growth.
In addition to the demand for antennas, we believe <unk> deployments through 2020, one will resolve and another strong year for our scanning receiver products.
Following our historic record setting quarter for test and measurement revenue ending December 2020.
We achieved our highest test and measure of revenue for first quarter and the past 15 years. We were pleased to see strong <unk> scanner revenue in the quarter for sales in Europe, and Asia as operators secure spectrum and begin deploying networks globally.
Globally <unk> deployment is still in and early stage given that less than 20% of the global operators that currently use LTE have deployed five G.
The U S and northeast Asia markets continued to deploy <unk> aggressively from both public and private networks COVID-19.
COVID-19 of slow deployments and regions most impacted by the pandemic.
But once COVID-19 is arent control, we believe there will be of pent up demand for those countries to upgrade to <unk>.
<unk> and <unk> cellular deployments drive most of our scanner revenue, but we're extremely pleased with our success in selling of our public safety scanner solution, which is used the test in building wireless communications for first responder networks more than 100 engineering companies rely on PC tells innovative public safety tools.
The tests the reliability of wireless communication systems used by first responders, we saw incremental revenue growth for scanning receivers for public safety markets and the U S. As COVID-19 occupancy restrictions begin to ease and access to building for testing and improves.
We're making the testing of public safety networks easier by launching our cloud based seahawk central workflow automation and reporting tool for public safety projects and.
This analysis tool has generated positive feedback because it helps engineers manage data collected over time across many buildings on one platform and efficiently generate reports.
We also recently joined the critical Communication Association or TCA, a global organization for the communications sector.
<unk> will assist and supporting tests and requirements for first responder networks, whether they are first net LTE and <unk> P 25, DMR or tetra the.
Public safety market for both antennas and scanning receivers and the U S is recovering and we believe this market will contribute meaningful revenue in 2021.
With that I will now turn the call over to Kevin for a closer look at our first quarter and a discussion of our financials Kevin.
Thank you David.
And we will review the financial results for the first quarter ended March 31, 2021, and I will provide second quarter 2021 guidance.
As David mentioned, our first quarter results were within our guidance despite challenges with transportation delays and our supply chain that impacted revenues of our antennas and industrial Iot devices.
Revenues of $17 7 million, which were at the lower end of our guidance and the first quarter of 2021, or one 1% or approximately 200000 higher compared to the first quarter of 2020.
By by product line. It was our best first quarter for test and measurement and product revenues with revenues of $6 2 million and increase of $1 1 million compared to the first quarter 2020.
The first quarter of 2021 revenues for test and measurement products were 2% better than last year as revenues per U S. Public safety applications offset lower U S revenues for <unk> technologies compared to the first quarter of 2020.
Revenues for antennas and industrial Iot devices were $11 7 million and increase of <unk> 3 million compared to the first quarter of 2020 the.
The increase in revenue for antennas and industrial Iot devices was from fleet and transit applications.
The first quarter of 2021 gross profit margin on a GAAP basis was 47, 1%.
Slightly higher than the first quarter 2020 gross profit margin of 46, 9%.
And increase and the gross profit margin percentage per test and measurement products offset a lower gross profit margin percentage for antennas and industrial Iot devices.
The gross profit margin percentage per test and measurement products was three 3% higher and the first quarter of 2021 compared to the prior year because of lower intangible asset amortization and lower employee costs.
And the gross profit margin percentage per antennas and industrial Iot devices was two 2% lower and the first quarter of 2021 compared to the prior year due to less favorable product mix, the unfavorable impact of foreign currencies related to manufacturing costs and higher logistics costs.
Operating expenses on a non-GAAP basis were $8 5 million and the first quarter of 2021.
Approximately the same as the first quarter of 2020.
By functional area area, higher R&D, and G&A expenses and the first quarter of 2021.
Offset lower sales and marketing expenses compared to the prior year.
Sales and marketing expenses declined compared to the prior year due to lower travel expenses and.
The business travel is still very limited during this recovery of period from COVID-19.
R&D expenses increased due to expenses for new product development and.
And G&A expenses increase with professional fees associated with the acquisition of Smart Tech.
Net other income was 39000 and the first quarter of 2021 compared to 198000 and the first quarter 2020, the lower net income was primarily due to lower interest income because of lower interest rates.
Adjusted EBITDA of approximately 700000, and adjusted EBITDA as a percentage of revenue of 4% or approximately the same as the first quarter of 2020.
Non-GAAP diluted earnings per share was approximately zero and the first quarter of 2021 compared to <unk> and the first quarter of 2020.
Cash and investments, including long term investments were $40 6 million at March 31, 2021.
Cash and investments declined by approximately 400000 compared to year end 2020 as.
We generated free cash flow of $1 3 million, but used $1 7 million and financing activities.
Weighted to our quarterly dividend and payment of payroll taxes related to stock compensation programs.
While we only purchased a small number of shares during the first quarter under our share repurchase program, we still may repurchase up to $3 $2 million of our common stock through the end of 2020, one under the existing share repurchase program.
And April we used $6 8 million of available cash to purchase spartech as David mentioned earlier.
We will continue to be subject to uncertainties with the global recovery from the pandemic.
But as David discussed, we expect improvement and our financial results compared to the first quarter.
For the second quarter of 2021, we expect revenues between $21 million and $22 million.
Of which we expect spartech to contribute revenues and an approximate range of $1 million to $1 4 million for the balance of the quarter.
We project, our GAAP gross profit margin percentage to be and the range of 46% to 47%.
And the non-GAAP earnings per share to begin the range of four to seven.
We are making these projections based upon current information and circumstances, which could change.
Continue.
And believe that the second half of the year will be stronger as the global economy recovers we.
We will continue to manage our costs and our working capital through the year.
But we will make investments necessary to grow the business.
David.
Thank you all for joining us before we take questions I would like to share a few closing comments.
Or on track and we see continual improvement and revenue and earnings through the year based on the rate of five day deployments Iot design wins from both incentives and devices contributions from smart tech and the increasing rate of incoming orders for the antenna products.
The pandemic and regional hotspots will still create risks to the industries, which we operate.
But we remain confident that our business will grow this year.
We're extremely pleased with adding smart tech to our team and with our strong balance sheet. We will continue to look for additional inorganic opportunities that meet our capital allocation goals.
Kevin and I will be attending the Sidoti Virtual conference on May 19th and 20th we will also be attending the east coast ideas Investor Conference virtually on June 16th we look forward to meeting with investors at these conferences.
With that Kevin and I are available to take questions of.
Operator.
Thank you, ladies and gentlemen, the stores now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
Asking your question. Please pickup your handset of listing on speaker phone to provide optimum sand quality.
Once again, please press star one of their any questions from the lines.
And we do have a question coming in from Jason Schmidt, Jason Your line of slides. Please announce your affiliation and pose your question.
Hey, guys. Thanks for taking my questions just curious if youre seeing any impact from the supply chain constraints or if you anticipate seeing that tightening within the supply chain impact taking you guys going forward.
Yes, So I think we had mentioned in the prepared remarks that we see really two impacts one is with supply chain longer lead time on some of the components.
And then the other impact.
Logistics and <unk>.
Given that we manufacture of good portion of the antenna products out of China. The transportation to the U S has been come a bit of a challenge.
Now that being said.
Of our supply chain team and customer service team has been working on this since the beginning of the <unk>.
Pandemic and.
And we've been able to manage.
Supply chain, even with the increase of lead time and.
And in fact and work.
And very closely with customers. They realize that this is a global challenge.
And some of our larger customers of actually improve their forecasting and given us a longer.
Lead time for on the forecast so we can manage.
And manage the supply chain.
So yes. This is I think this book.
Global Challenge.
And we will continue managing it as we need to don't know when it's going to and but I do think it is.
We have pretty good handle on it.
Okay and did that takeaway some revenue in Q1.
And I guess Relatedly is that impacting what guidance could have been for Q2 as well.
Jason It did impact revenues for Q1.
And it did we did take into account for Q2, but as David mentioned, we had more and more time to prepare and work with our customers and work with our suppliers.
So we don't think it's as big of impact in Q2.
And historically Q1 is typically light anyways.
Specially on line.
Even though we did really well with the scanning receivers of those.
Of those forecasts of budgets don't usually get approved until later in the quarter.
And then you have Chinese new year with manufacturing.
So the.
Q1 is usually a bit lighter and Q2 is much stronger and we do see improvements, but we're we're being conservative because of some of the potential challenges.
Okay. That's helpful. And then last one from me and I'll jump back into queue looking at the Smart Tech acquisition, how should we think about the potential growth rate there or what was sort of the historical growth rate of that business.
Yes, the smart tech.
I think it is going to be consistent with the growth rate and the markets that we focus on as well. So if you breakdown of the products they fit very nicely and our intelligent transportation.
Vertical market that we focus on and then also industrial Iot.
They are and I would say, some new and interesting areas such as the charging stations for electrical electric vehicles, which were not in but still and the Iot space.
I would estimate that their growth rate in those spaces would be similar to what we estimate for our antennas. So it's probably high single digits to low double digits growth for the antenna business I think the biggest difference between smart and PC tell us.
The majority of our revenues and the U S and.
Majority of if not all revenue for Smart Tech is.
Coming from Europe.
Okay.
Thanks, a lot guys.
Thanks, Jason.
Thank you ladies and gentlemen, there are any further questions. Please press star one on your phone at this time.
And we did have another question coming from John Bair, John Your line of line. Please announce your affiliation and pose your question.
And you.
And John Bair with ascend wealth advisors, just wondering if.
And you could speak to what Youre seeing in.
The area of being able to get back into buildings and and lining up.
Sure.
Testing systems and so forth.
And that and.
And that regard.
Yes, I think there is.
Two components there one.
Many of the buildings are starting to allow visitors back and the buildings. So it helps our engineering services companies, which we purchased the scanning receiver and the public safety solution from from <unk>.
But I also believe that over time.
The building owners realize it's much easier to test buildings when they are empty.
So and the last I would say, yes quarter, maybe a little bit longer and we've been over the our engineering services company partners have been able to get and buildings because of the empty and they can do their testing thereafter necessarily worry about keeping distance with the people and the building.
So between those two that businesses sort of pick up.
It's a very strong area for PC tell because based on our scanning receiver history with the cellular market.
The relatively and I don't want to.
Oversimplify for the engineering team, but relatively straightforward to add the <unk> 25, and other protocols to our scanning receiver.
And we were able to get to the market first as I mentioned previously we've got over 100 Engineering services company using the tools.
And now that they can get into the building, what we're seeing and uptake in.
Purchases of that system.
Do you see any potential issue.
Hearing a lot of.
Different.
The companies and different industries, saying theyre going to bring your workforce back and so forth and.
Do you think theres any potential issue with.
Being able to meet.
And increased interest and in the building management.
Companies.
To allow for more <unk>.
Servicing and testing and so forth and the words any any kind of personnel issues.
Staffing issues.
I don't know if I understand your question John.
Yes.
Yes.
Companies and and building management are starting to open up in the low.
Right.
The come in.
Are the are the folks that are actually doing the testing and so forth is there is there a potential issue that they won't be able to meet.
The.
And you'll have the personnel to do that going to be a nice problem I guess.
Yes.
The I would say of rate of purchases of our tools is.
And as.
It's pretty strong I mean, it's.
Not that I don't think theres a shortage of <unk>.
Engineers and do the testing.
I don't think Thats really an issue and then keep in mind too that the.
Our tools are sold to engineering service companies that are basically spread out across the United States.
So yes.
Quite a quite of bit of competition and.
Each city.
I would believe or think that if there was a the shortage from one engineering company and an area that some of the other companies could step up and.
And fill that need.
I don't think that's an issue.
Okay very good.
That's all I have thank you.
Thank you John.
Thank you and there were no other questions in the queue. At this time I would now like to hand, the call back to David Neumann to make any closing remarks.
Thank you and thank you all for joining us this afternoon.
And we'd like to thank all of our employees for.
Grinding through some of these are challenging times I do think we're at the tail end of.
Some of the challenges and the rest of the year looks it looks pretty good and we're excited.
And to execute and grow through 2021 of.
Also like to welcome our Smart Tech team again, we're really and the first week of.
Integration and transition, but it's exciting to have them as part of the team and of course I want to thank our customers suppliers and and distribution partners for their loyalty to <unk> and working closely with us.
So with that stay safe be well and I'll turn it back over to the operator.
Yes.
Thank you for joining us today and for PC <unk> first quarter 2021 earnings call.
You may now disconnect your lines.