Q1 2021 Wireless Telecom Group Inc Earnings Call
Yeah.
Good day, ladies and gentlemen, and welcome to the Q1 that 2021 that quarterly earnings call.
At this time, all participants have been placed on listen only mode on the flow will be open for questions and comments after the presentation.
Now my pleasure to turn the floor over to your host Mike Campbell, Sir the floor is yours.
Thank you Paul Good morning, everyone and thank you for joining us on today's conference call to discuss the wireless Telecom group's first quarter 2021 financial results.
With me today is Tim Whelan the company's CEO.
Before we begin I would like to remind everyone on the call that our remarks today could include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
In some cases such forward looking statements maybe identified by terms such as believe expect seeks may will intend project anticipate plan estimate or similar words as well as statements that do not relate strictly to historical or current facts.
The company's forward looking statements are based on management's current expectations and assumptions regarding the company's business and performance the economy and other future conditions and forecasts of future events circumstances and results forward looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially.
Affect actual results.
Important factors that could cause the company's actual results to differ materially from those in its forward. Looking statements include those risk factors set forth in the company's 2020 annual report on form 10-K.
The company does not undertake any obligation to update or revise any forward looking information to reflect changes in assumptions the occurrence of unanticipated events or otherwise.
So we want to point out that in addition to GAAP information, we will provide information relating to certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional meaningful information to investors, which reflect how management views the business detailed.
Conciliations of GAAP measures to non-GAAP measures are set forth in a reconciliation table in our press release issued earlier today and furnished with the form 8-K filed today with the SEC.
With that it's now my pleasure to turn the call over to Tim Whelan. Thank you Mike Good morning, everyone.
2021 is expected to be a very exciting year for wireless Telecom group. After exiting 2020 with strong Q4 bookings and a higher backlog in Q1 did not disappoint coming in stronger than we initially expected.
Our first quarter results showed strong performance across a number of metrics continuing our momentum of successful new customer wins, improving bookings an increase in gross margins.
On a consolidated basis during the quarter, our revenues increased 20% compared to last year, we realized higher gross margins at 52 five per cent.
We improved our EBITDA results at almost 6% of revenue and we generated a second consecutive quarter of strong consolidated bookings at nearly $13 million, which led to another quarter of higher backlog.
We are continuing to execute on our strategy of driving double digit topline gross and operating leverage to drive increased profitability and cash flow.
Turning to the highlights on our three product groups.
In RF components, our revenues in Q1 were consistent with Q4 and as expected decreased when compared to Q1 of last year.
This reflects the continuing negative impact of the pandemic on Q1 of this year with slowed investments in building out network infrastructure and empty office buildings empty stadiums and other large venues targeted by carriers tower companies and neutral host providers to densify their networks.
Recall that the negative effect of the pandemic had more of an impact on the second half of 2020 than on the first half of 2020 for comparison purposes.
We believe bookings in RF components have now started to rebound.
In Q1, 2021, we realized a positive book to Bill ratio in Q1 bookings were sequentially higher than Q4 2020 bookings.
Further the bookings for the month of April were also the best month of bookings and over 10 months.
The relative improving strength of new business within RF components is a good early sign and supports our belief that we will see a steady recovery of demand for the critical components supplied by Michael App throughout the year as carrier investment ramps.
The drivers to our assumptions for increasing demand includes pent up demand from projects put on hold last year due to vacant building stadiums and other large venues, which are now expected to see returning occupancy in coming months.
In addition, the carriers invested heavily in the mid band spectrum auctions, which were completed in February of this year.
And they have subsequently announced higher capex spend to deploy the spectrum.
It is important to note that the designed to build timeline can be lengthy and we have not yet seen many large projects returned to the to the funnel. So some of these large projects could extend into 2022 and beyond.
In our test and measurement product portfolio, our Q1 results reflect a full quarter of ownership up the whole toy business, which has continued to perform well.
We are realizing top line synergies from an expanded product portfolio and our sales channels and we are working to continue to leverage deep customer relationships and our existing brands.
Our legacy Smart noise sources and design and initiatives also benefited from increased sales in the first quarter.
Overall, we believe the alignment of our product say away from just the legacy bench top instruments to our expanded focus on new products and solutions, which are designed to larger more complex devices is showing dividends.
We remain focused on bringing new products to market, which compete with larger suppliers by offering a superior price performance ratio.
And last within our radio baseband and software business, we had another strong quarter of bookings and continued our momentum of signing new customers for our <unk> software solutions.
Specifically within this product group.
We signed over $4 million of business in the quarter, our second consecutive quarter of RBS bookings in excess of $4 million.
We signed two new customers in Q1 for our software solutions, both of which are <unk> solutions and one of the two new contracts signed in Q1 includes participation in the U S Department of Defense <unk> trials, while the second is for a specialized <unk> small cell solution.
The first purchase orders received for these two new software customers and included in Q1 bookings totaled approximately 800000.
However, the potential total contract value of the contract signed could exceed $4 million of potential value over several fiscal years.
We expect our performance and delivery of the projects milestones laid out in the contracts are expected to yield continued purchase orders for additional milestones.
And as noted in our last earnings call. We also received additional purchase orders in the first quarter for our hardware cards used in LTE test systems from our longstanding customer who is realizing increased demand for base station test systems.
Looking ahead into RBS, we expect to see continued interest in our <unk> software solutions and R&D roadmap.
We also expect to continue our pace of signing new customers in the quarters ahead and I'm pleased to report that in the month of May we have already signed one new customer to our <unk> software solution with a contract value just under $1 million.
To summarize the first quarter 2021 results or a significant improvement over the first quarter last year.
While certain parts of our business such as RF components are still showing the negative effects of the COVID-19 pandemic. We are optimistic the worst is over.
We are seeing early signs of recovery and expect steady improvement throughout the year.
At the same time teen EM continues to realize the benefits of our successful Holzworth acquisition as well as traction with our smart noise sources and our RBS business continues to demonstrate significant quarterly sequential improvement in growth of new customers for our LTE and <unk> software and <unk>.
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With that going to turn the call back over to Mike to walk us through the financials.
Tim Good morning, again, everyone I'm going to walk through the results for the fourth quarter of 2021, and then comment on our balance sheet as of March 31, 2021, all P&L comparisons on our on a year over year basis, unless otherwise noted and balance sheet comments on March 31, 2021 compared to year end December 31 2020.
Consolidated revenues for the first quarter 2021 increased $1 9 million or 20% from the prior year period.
On a product group level RBS revenue increased $1 4 million or a 103% on higher software and services revenues as well as higher sales of digital signal processing hardware cards.
<unk> revenue increased $1 6 million or 42% as we realize a full quarter of Holzworth sales and had a net overall increase in revenue in our legacy TNF brands.
These increases were partially offset by a decrease in RF component revenues of $1 1 million as we continue to see the negative impact of the COVID-19, pandemic and reduced carrier spending in this product group, although below our below prior year results Q1, 2021 revenue for RF components was in line with our expectations.
Consolidated gross profit increased $1 5 million on higher revenues Consol.
Consolidated gross profit margin increased from 47% to 52, 5% due to the contribution of higher margin software and services revenue at our RBS product group and higher margin TM product sales.
This was only partially offset by a lower gross profit margin at the RF components product group due to lower volumes and lower absorption of fixed manufacturing costs.
Turning to operating expenses consolidated R&D expenses decreased approximately 200000 or 12% from the prior year as a result of lower third party material and consulting expenses due to the timing of projects consolidated sales and marketing expenses were flat as increased commission expense was offset by lower salaries and benefits due to low.
Our head count.
Consolidated general and administrative expenses increased 375000 or approximately 15% from the prior year due primarily to legal expenses associated with the debt amendments and the Holzworth stock purchase amendment executed in February.
<unk> expense decreased 215000 from the prior year due to lower foreign exchange gains and interest expense increased 72000, primarily related to our term debt.
Our net loss for the quarter improved by approximately 900000, due primarily to higher gross profit on higher revenues offset only partially by higher operating expenses on lower foreign exchange gains non.
Non-GAAP adjusted EBITDA was 671000 for the first quarter, which was approximately $1 million higher than the prior year period, due primarily to our higher revenues and gross profit.
Turning to the balance sheet consolidated cash as of March 31, 2021 was $3 9 million or approximately $1 million lower than December 31, 2020, due to an increase in working capital the March paydown of our term debt of 428000.
And the payment of 200000 to the Holzworth founders in accordance with the stock purchase agreement.
Availability under our asset based revolver was $6 3 million and gross debt was $9 9 million, which includes $2 million related to our PPP loan.
As reported at year end the PPP loan funds were spent in fiscal 2020 on qualified expenses, primarily payroll and our forgiveness application has been submitted to the small business Association, although there's no guarantee that the low it will be forgiven.
Also noted at year end, we've restructured the payment terms of the Holzworth deferred purchase price and earn out which are 750003 4 million respectively.
Included in accruals and other current liabilities at March 31, 2021, or 750000 related to the Holzworth deferred purchase price and $1 4 million related to the short term portion of the holzworth earn out.
<unk> and other long term liabilities at March 31, 2021 is $2 million related to the long term portion of the holzworth earn out.
I'll now turn the call back over to Tim for some closing remarks, Thank you Mike.
I am pleased and encouraged with our execution over the last two quarters and the positive signs of future growth. We are seeing in the business, including strong bookings new customers for our software solutions, improving RF component bookings and continued holdsworth performance at.
At the same time, we are closely monitoring the progress of our customer funnel for our for our software solutions, which require much longer and more complex negotiations with our customers and have longer delivery timelines and complexity of revenue recognition.
Also while we are seeing increased funnel and order flow related to stadiums amusement parks and other public venues. The size of these opportunities are not yet inclusive of the very large projects, which will help drive revenue growth back to levels before the pandemic hit.
Before I conclude my remarks in addition to a strong quarter of operational execution. We also continue to add talent and expertise to our board of directors to help drive our next stage of growth.
Since December 2020, we have added two new incredibly skilled and experienced board members, Jennifer <unk> and Scott Gibson.
Jennifer brings over 25 years of experience in an award winning telecom and equity market analyst and Scott brings over 35 years of experience as a seasoned semiconductor technology executive as well as deep technology Board experience.
Their extensive understanding of our markets technology trends and market participants is expected to add immediate value.
We would also like to thank departing board members, Joe guarantee in Jamaica for their invaluable service and invaluable contributions to the company the executive team and the rest of the board of directors.
Theyre thoughtful counsel insightful advice inquisitive questions and their support and contributions to our strategy and vision has been deeply appreciated and valued.
We wish every bit of success and best of luck on their next endeavors and look forward to their continued engagement as shareholders.
Thank you on Paul if you could please open the lines for questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have on.
Any questions or comments. Please press star one on your phone at this time.
So while posing your question. Please pickup your handset listening on speaker phone to provide optimal sound quality.
Once again, please press star one if you have a question. Please hold while we poll for questions.
On the first question is coming from Josh Nichols, Josh. Your line is live please announce your affiliation and pose your question.
Thanks, guys and good to see the execution on the quarter here.
Think you hit it on in a little bit on.
On the call, but if you could elaborate a little bit more about the RF group nice to see some initial rebound there.
One what areas of strength that you've seen particularly and then how long do you think it may take until that group is able to get back to kind of like pre pandemic levels is that late this year or more like 2022 do you think.
Sure. Thank you Josh good morning, Thank you for joining us. So you know as I noted the April bookings were the best we've had in 10 months, that's an encouraging sign and that the Q1.
Was sequentially better than Q4, so I think the way we think about this is going to take a few quarters for these projects to get through the system the larger size projects to get through the system.
Certainly seeing the run rate business pick up and that's how we think about the order flow. There was the smaller run rate business. It comes in quickly smaller in size. It has an immediate timing too at the larger size projects take design, where it can take time to go through Rfps and quoting so the run rate has picked up we're seeing some.
Stadiums.
And other watch venue show up and actually come through in order flow, but theyre not large sized so that's just some color on the on the order flow.
The way, we think about the year is there'll be a sequential improvement each quarter should be better than the last and the way. We think about the full year is that the first half of 2021 should look similar to the second half of 2020.
And the second half of 2021 should look like the first half of 2020, and so we expect that it'll take a few quarters to get back up to to where we thought the full run rate of of RF component potential could be.
Yeah, Thanks for adding the detail on that that's helpful and then.
Just if you could kind of elaborate a little bit I know most of the business is obviously coming from North America, but.
Any differences or things you're seeing in order flow in the U S versus like Europe, which may be a little bit further behind.
In some regards on like APAC and what are the.
The thoughts there.
Yeah, Josh it's Mike Yeah, So as Tim mentioned, we're starting to see some demand for our signal processing hardware cards again at RBS and that that comes from EMEA.
EMEA.
So we're starting to see that pick up again, and then in terms of APAC. When you relative to last year, that's where we started to feel the.
The impact of the pandemic first with some of our international orders specifically.
And our TM product group, so we're expecting to see some of that pickup in APAC as well this year.
And then last question for me then let someone else take on it.
Chance here.
If you could kind of talk a little bit more about the software sales like what do you think is kind of the big driver that youre seeing for the strength. There then the expectations for.
What type of improvement you could see as we kind of move through 2021 'twenty two.
Yes, I think the improvement there, it's really been a sequencing of a series.
Of milestones that we had to accomplish to get to where we're at today keep in mind that released 15 was a critical relief for <unk> software that happened in the fourth quarter of 2019.
Following that was the NXP partnership in the first quarter of 2020, and then following those two critical milestones in each of the three.
The remaining quarters of 2020, we began to sign new customers and that momentum has continued through.
Both Q1 of 2021 as well as the signing I announced in May. So we're encouraged and excited to see that traction on I believe that is really just the.
The advancement of the adoption of <unk> technology in the marketplace.
And the applications in terms of what can come of that.
And I think it's an exciting and it's going to be an exciting long term cycle of investment that we're at the front end of so.
Terms of expectations going forward.
Again.
Keep stating how complex. These these are negotiations around the emerging technology.
Customers are requiring more proof points more milestones more acceptance is.
So it takes time to work through that both from the contract to get the signature as well as for the delivery.
So we're working hard to ensure that we can continue ramping our success.
We're on a streak of signing two new customers for each of the four sequential quarters ending Q1.
Hum.
It's difficult to predict based upon the opportunities in the funnel the ability to sustain or increase that but we're working to do that.
And we're encouraged with the opportunities that are in the funnel.
As we think longer term a number of these opportunities also have royalty components to them.
So the success of our customers should.
Provide us with a royalty license opportunities as well, but those those are beyond 2021 and are likely late 'twenty, two or even 2023.
Thanks, guys I'll hop back in queue.
Great. Thank you Josh.
Thank you once again, ladies and gentlemen, if you wish to enter the Q&A queue. Please press star one on your phone at this time.
On the next question is coming from Michael Potter Michael Your line is <unk>. Please announce your affiliation and pose your question.
Hey, Tim Congratulations on a very strong quarter and continuing our progress on moving the company forward.
Just a quick question on on the contract you mentioned with I guess the D O D and.
And the opportunity for this contract to grow if you hit certain milestones can you give us a little bit more color on what the trials entail and perhaps what this can be used for and you know what.
What exactly is the D O day looking to do.
Sure. So thank you Michael good morning, Thank you for joining us be the.
The Dod has announced 12 trials five day trials at various military bases each with different applications. Some.
Some include just a five <unk> private network type of application for naval bases. Other include.
Air to ground spectrum shifting applications for Air Force bases. So so we're involved in a project that involves some of that spectrum share shifting in their air to ground application.
On the contract value.
On on that is about half of the $4 million I called out each of the two contracts. We signed have approximate total contract value of approximately 2 million each.
But there are partitioned into committed spend and milestones and so from a bookings perspective, we take the position of our bookings are what the committed purchase orders or that we received but we would expect when those milestones I received the next milestones will will free up.
And those would be the bookings in future periods.
So I hope that helps give a little bit on that.
Yeah, absolutely so yeah.
For the second contract that you signed that is is on similar the contract is actually much larger.
In the initial booking.
Correct Yeah.
And again based upon the <unk> technology, they're looking to ensure that as we and NXP worked together deliver milestones with functionality that they very carefully evaluate and accept that before they free up the next milestone.
Okay, all right terrific and then this is Matt on I guess, the that topic in regards to the.
Very large legacy customer on the <unk> hardware side. They continue to be active once again, which is certainly a good sign do we have any more visibility into their plans for 2021.
I believe given the supply chain constraints on delays and challenges with transportation they have been.
Hum thoughtful about their they're placing of orders for the future. So it's.
It's difficult to predict given the volatility of their demand and how it was steady state throughout 19, and then fell off precipitously for 'twenty. So I think now they've received some additional orders that are getting ahead of them. They are ordered for.
Future quarters.
They have not indicated future demand to us we believe we will get a little bit more but they are not committed or promised that to us, but I don't believe that in each of the next three quarters will replicate.
Those large pose but I do believe we'll get some pose that fill in.
Okay terrific.
Back in the queue. Thanks, guys. Thank.
Thank you Mike.
Thank you and the next question is coming from Robert Marson. Robert Your line is I think Lance your affiliation and pose your question.
On a Robert Marson, Penn Capital, Hey, guys. Congratulations on another good quarter.
Good morning, Robert Thank you.
Very welcome.
Can you just expand them Paul on the <unk>.
Funnel for the software business is there.
A growing number of.
Prospects in the funnel as we proceed quarter on quarter.
Were definitely up.
And a range of of a couple new customers every quarter, but at some point the funnel needs to get larger in order for that to double or triple as we proceed over the next year or so are.
Are you perceiving that happening or are we sort of.
Plateaued in the level of customers in the funnel as we convert or or they reject the.
The process.
Thank you Robert I'm very encouraged with the health of the funnel.
The funnel was a very very dynamic.
Metric changing week to week, we have multiple measurements in our funnel customers that are early leads prospects advanced stage and near final right. So you have different confidence level as well as different stages.
Negotiations overall, we're very pleased with the development of the funnel.
As we think about both this year and next and as we think about both.
Large complex contracts as well as those that are less complex and more near term.
To call out any kind of funnel.
Quantitative funnel it just changes every week, but overall, Robert I'm very encouraged with the health and direction of our funnel.
Are you happy with the.
The relationship between the partnership between you and NXP or has there been any feedback preliminarily from the field as to how the products are working together.
They are we are very very pleased with our our relationship and the partnership with NXP.
It's it's close it remains productive and constructive for both sides. They continue to develop their layer skateboard.
Which is where our software resides.
You know they have milestones to market to continue advancing net as do we.
I think the only caution that we all think about is the impact of COVID-19 on on the world and the impact of COVID-19 in India, and how that impacts support and resources for certain software that's being developed.
And it's just on the watch list, but otherwise we're very very encouraged with what we are.
What we've been able to do together and where we're heading.
Right.
Test and measurement business or are you going to give the breakdown by the individual brands.
Now, it's getting more difficult to do that because we see customers ordering through one brand for other products, we're collaborating and bringing products to market that combined technologies on brands. So that's not something that I think is going to be a helpful metric I think we're trying to be.
Informative as the impact of Holzworth as we have comparative periods, especially given Q1 of last year was not a full period of ownership I think that's why we're calling that out to make sure that.
We provide some color there, but going forward, we think of it more as a consolidated test and measurement business, especially as teams of people come together and working on different product sets and we're breaking down silos. So the brands are important for how customers think about a particular function of an instrument.
But less so it's how we think about the the wandering in numbers.
I understand all that Tim, but you still need to differentiate for the earn out purposes for this year or is that not correct.
That is a little hole southworth.
Southworth needs to deliver a standalone revenue and EBITDA number I assume right.
That's correct we haven't.
Could you give us one more year on holzworth as it were or not it's you're choosing not to do that.
No I'm not saying, we're not choosing to do that I think we've tried to be.
Constructive in Howard.
How we have disclosed the numbers this quarter.
And then.
We will continue to tell you, how we're doing and the impact and how holzworth is doing and impact if any on any future earn outs.
Okay, while I understand that.
At some point the merger makes.
Delivering holzworth day in a low number is impossible obviously.
But I just didn't realize it was in 2021 alright. Thank you very much okay, great Robert Thank you.
Thank you, ladies and gentlemen, once more if you have any final questions or comments. Please press star one on your phone at this time.
There were no other questions on late lines at this time.
Great Paul.
Thank you very much everyone. Thank you for joining US today, we look forward to speaking with all of you again soon have a great day.
Yes.
Thank you ladies and gentlemen, this does conclude today's conference call.
Disconnect your phone lines at this time have a wonderful day. Thank you for your participation.
Okay.