Q2 2021 PCTEL Inc Earnings Call
Welcome to the PC sales second quarter, 'twenty, and 'twenty, 1 and earnings release conference call.
At this time all participants are in a 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 Kevin Mcgowan the company's CFO.
Thank you for joining us on today's conference call to discuss <unk> second 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 reflect PC sales 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 AB.
And 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 in the earnings press release, which was issued today.
And the company's annual report on form 10-K.
The company assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
Additionally, our commentary will include reference to the following non-GAAP measures non-GAAP earnings per share and adjusted EBITDA we.
We believe these non-GAAP measures facilitate comparability of results over different periods.
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 and.
Now pleased to turn the call over to David Neumann.
Thank you, Kevin and welcome and thank you for joining US this afternoon and on.
Our earnings call today, I will review, our Q2 results provide an update on the integration and smart Tech discussed design wins, and our target markets and share our thoughts on the remainder of the year.
As you may have seen in our press release issued after the market close the second quarter results were at the high end of our revenue and earnings estimates.
Despite ongoing supply chain challenges and transportation delays our team has done an excellent job working closely with our suppliers.
And customers to limit the impact of these issues in.
In Q2, we achieved $21.7 million and revenue $2.2 million, and adjusted EBITDA and <unk> and earnings per share.
Earnings grew sequentially and revenue grew both sequentially and year over year.
With Smart Tech included revenues were 9.3% higher quarter over quarter, and EBITDA was higher by $1.4 million compared to the first quarter.
We achieved non-GAAP gross margins of 47, 5% for the quarter slight.
Slightly lower than the second quarter last year, driven by internal revenue growth and shift and mix.
And I'm pleased to report that the integration and smart Tech is progressing smoothly and the teams are working well together, we acquired smart tech to 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.
<unk> has met these goals and exceeded our initial revenue and earnings expectations.
We're especially pleased with our combined ability to generate backlog and the long term opportunities to cross sell and <unk> and smart Tech branded products in Europe, and the U S respectively.
Going forward, we will include smart tech design wins, and product launches and opportunities and our Iot device and antenna updates.
Our Iot device and antenna business is normally driven by larger orders that are delivered over months or quarters versus our test and measurement business, which tends to be more transactional within a quarter for this reason, we monitor and tenant incoming orders as a leading indicator of expected revenue in future quarters. We're pleased to report there and.
Coming order rate for the second quarter exceeded our expectations and was at its highest level since second quarter of 2019. This is another factor supporting our belief that antenna quarterly revenue and earnings will be stronger and the second half of the year and continue to increase over the remaining quarters.
And our enterprise wireless market segment, our sales to Oems have increased driven by wireless infrastructure deployments and manufacturing retail and other enterprise markets as they recover from the pandemic induced recession.
And our intelligent transportation market segment, we see continued strength and agriculture markets and believe there will be further improvement and the second half of the year and into 2022.
We expect a bipartisan infrastructure investment bill will create additional longer term opportunities for our products to support industrial and Iot and wireless applications and public transit rail broadband environmental power infrastructure and electric vehicle or EV infrastructure.
<unk> is a leading antenna manufacture for EV charging stations and the Nordic countries, and we expect charging station manufacturers and the U S will want a proven product like smart text puck and tennis.
And it is also notable that we won the antenna business for significant mass transit project and APAC, resulting from our efforts to capture more business outside of China and the region.
You may have seen in the press release and June announcing FCC certification for our Ruggedized Wi Fi access point.
European approval was granted and the first quarter of 2021.
FCC certification is a major step and will allow commercial deliveries to our OEM customers, who have integrated the access point and so their systems.
Access points provide reliable Wi Fi connectivity and harsh environment for industrial equipment heavy machinery, and construction equipment and accordingly have significant higher average selling prices and attendance. We were awarded 2 design wins and accept their first production order.
We continue to add strategic distributors that are interested and PC sales broad product portfolio, including our industrial Iot solutions enhanced channel distribution and supports our strategy to leverage sales and distribution reach across many market segments, reducing the need to feel experts and each Iot application.
We believe the growth and U S economy. The previously mentioned infrastructure funding and the rollout of industrial Iot applications will drive <unk> industrial Iot intelligent transportation and enterprise wireless business and contribute meaningfully to our long term revenue growth.
Our test and measurement business produced another solid quarter after setting records and our fourth quarter of 2020, and the first quarter of 2021, driven by <unk> deployments, and our strength and public safety markets.
Though we expect scanning receiver revenue for commercial networks to be consistent through the remainder of the year. There has been a temporary slowdown and <unk> spectrum auctions and deployments, particularly in Europe and parts of Asia, primarily related to the pandemic.
It is important to note that <unk> deployments are still and the early years.
As referenced GSM, a wireless industry organization that represents the interests of wireless operators estimates 5 youll have about 20% global penetration by 2025, and 5 <unk> will account for 80% of total capital expenditures over the next 5 years.
As a pandemic situation improves and broadband applications grow there will be pent up demand for <unk> service, thus driving deployments and the need for test and measurement products.
Public safety is an important market for PC tell we are the leader and both public safety testing solutions and antennas for first responders.
<unk> first data collection and analysis products for public safety is now used by more than 100 engineering services companies and the U S.
We recently announced our cloud based Seahawks central application that will improve testing efficiency further by centrally collecting that data from the field automating the processing and providing secure access to reports across entities responsible for ensuring reliable communications for first responders.
Seahawk Central provides a platform for workflow automation and data analysis storage and secure distribution of reports and is sold on a subscription basis.
Sales of our public safety and tenants remains strong with recent wins from new customers and increased incoming orders from some of our largest existing customers.
Our antenna and devices businesses are building momentum and our test and measurement business is well positioned to support growth and public safety testing and to grow to test <unk> deployments as global economic conditions improve.
With that I'll now turn the call over to Kevin for a closer look on our second quarter and a discussion of our financials.
Kevin.
Thank you David and will review the financial results for the second quarter ended June 32021, and I will provide third quarter 2021 guidance.
We are pleased to report sequential financial improvement and as David mentioned, our second quarter results were within our guidance for revenues and earnings despite the supply chain challenges.
Revenue of $21.7 million or 9.3% higher and the second quarter of 2021 compared to the second quarter 2020.
Revenues for antennas and industrial Iot devices were $15.6 million and increase of $1.7 million compared to the second quarter of 2020.
This increase for the second quarter of 2021 is primarily due to revenue recognized from Spartech, which was acquired on April 32021.
Test and measurement revenues were $6.4 million for the second quarter of 2021 and increase of <unk> 3 million compared to the second quarter 2020.
The second quarter of 2021 revenues for test and measurement products were approximately 5% higher than last year as revenues for U S. Public safety applications offset lower U S revenues for <unk> technologies compared to the second quarter 2020.
The second quarter of 2021 gross profit margin on a non-GAAP basis was 47, 5%, which was 9% lower than the second quarter 2020.
The decrease and the gross margin percentage was primarily due to a higher mix of antennas and industrial Iot devices, but also due to a lower gross profit percentage.
For antennas and industrial Iot devices due to higher freight costs.
For non-GAAP gross profit margin percentage for test and measurement products was approximately the same and the second quarter of 2021 compared to the prior year.
Operating expenses on a non-GAAP basis were $8.9 million and the second quarter of 2021 and increase of $1.4 million compared to the second quarter of 2020 day.
The increase results from the inclusion of 2 months of smart <unk> operating expenses and employee related costs, including salaries and incentive compensation expenses.
Operating expenses for the second quarter of 2020 were lower due in part to measures. The company took at the beginning of the pandemic to control costs, including temporary reductions in salaries travel and other discretionary spending.
Due to foreign exchange losses, and low interest income net other income and expense was expense of 45000, and the second quarter 2021, compared to income of 102000, and our second quarter 2020.
Adjusted EBITDA was $2.2 million and our second quarter 2021, compared to $2.9 million and our second quarter 2020.
But improved sequentially by $1.4 million.
EBITDA as a percentage of revenue was approximately 10% and the second quarter 2021, compared to 14% and the second quarter 2020 and.
And non-GAAP diluted earnings per share was <unk> <unk> and the second quarter of 2021 compared to 11 and the second quarter of 2020.
Cash and investments were $33.4 million at June 32021.
Cash and investments declined by approximately $7.1 million during the second quarter, primarily due to cash used for the acquisition of Smart Tech.
We generated free cash flow of a half a million dollars paid.
Paid our quarterly dividend and spent approximately 700000 and for the purchase of about 108000 shares during the second quarter 2021 under our share repurchase program.
And as of June 32021, we had up to $2.5 million of our common stock that could be purchased through the end of 2020.1 under.
Under the existing share repurchase program and we also purchased shares valued at more than $1.5 million during the third quarter to date under the repurchase program.
We continue to be subject to uncertainties with the global recovery, but the momentum that David discussed related to our antenna and industrial Iot device business will drive sequential revenue growth and the third quarter.
For driven by the sequential growth and antennas and industrial Iot devices, we expect revenues between 23 and $24 million and the third quarter we.
We project, our non-GAAP gross profit margin percentage to be in the range of $45 to 46% and the non-GAAP earnings per share to be and the range of 6 to 9.
With that guidance and will now turn the call back to David.
Thank you all for joining us before we take questions I would like to share a few closing remarks.
Pleased with smart <unk> contributions to revenue market access and challenge our.
Our strong balance sheet will allow us to pursue additional inorganic opportunities to drive growth and to meet our capital allocation goals.
And we're excited to see early success with our access point, new distributors and public safety initiatives, we believe product diversification and a distribution channels will create meaningful sales leverage and long term growth.
Kevin and I will be attending the Midwest ideas Investor Conference virtually on August 25th we look forward to meeting with investors and at the event and eventually and in person as conditions improve.
With that Kevin and I are available to take questions on.
Operator.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star 1 on your phone now.
We ask that while posing your question. Please pickup your handset Atlas me on speakerphone and to provide optimal sound quality.
Please hold a moment, while we poll for questions.
Your first question is coming from Jason Smith with Lake Street.
Your line is live.
Hey, guys. Thanks for taking my questions sorry, if I missed it but just curious what the supply chain challenges.
Created any headwinds in Q2, and what you're baking in for some of the impact from these constraints and Q3.
Yes, Jason.
The supply chain and increase the time for our shipments out of China on the ocean. So it did delay some some shipments from the second quarter that will be shipped and the third quarter.
And we did bake that into the into the third quarter forecast.
It's something we're continuing to work with with our suppliers work with our customers.
Try to get forecast and so we've mitigated any significant impact, but there is some impact to that that we're still working through and there is still long lead times with the shipping companies and getting getting getting product and from China and particularly.
Okay that makes sense, and I guess relatedly ever and understand the constraints out there or are you at all concerned that customers are double ordering here, what's your thoughts on overall inventory and the channel.
Hey, Jason Sorry, My call dropped right. When you asked about supply chain, so I'm not sure what Kevin to answer, but I can jump in as well.
Yes, Jason and I ask the second question.
Yeah I was just curious if youre at all.
And about double ordering by customers just given the well known challenges out there or if you do you think the inventory channel inventory remains fairly lean.
I don't I'm, not too concerned about double orders because our.
Our customers are facing and the same challenges as we are in terms of supply chain and so on the logistics challenges with shipping.
So if anything this has helped.
PC tell because we're getting a little bit more visibility and the long term.
Because we know it for some of these components.
Lead times quite a bit longer of course, we are working very closely with our customers talking almost on a daily basis to make sure that the airlines don't go down.
And we're getting a little bit more advance notice on on what the needs are and what's a forecast and so it is helping us to plan better.
But I don't sense and all of that.
Customers are ordering more than they need because everything's everything is pretty tight.
Okay, and just last 1 for me and I'll jump back into queue. Just curious if you could update us on what youre seeing and the enterprise Wi Fi market.
Enterprise Wifi has a similar.
Technology upgrade path.
Cellular so for <unk>.
Wi Fi and go into the Wi Fi 6 so we're getting a.
A fair number of bid requests for for new antennas.
So it's may.
You may not get as much.
Exposure and the news is 5 and some of the applications around Iot.
Wi Fi is still going to be very important for the industrial Iot and especially for firm licensed bands and.
We still see a solid.
Business funnel and.
And our bid funnel and.
And for wildfire.
Alright, Thanks, a lot guys.
Sure Jason Thanks.
Once again, ladies and gentlemen, if you have any questions or comments. Please press star 1 on your phone now.
Okay.
We have no further questions from the lines at this time. This concludes our question and answer session I would now like to turn the floor back to David Newman for closing remarks.
Thank you and thank you all for joining us this afternoon.
Of course, I'd like to thank our employees customers distribution partners for their contributions, especially on these challenging times.
And as I've said before and we're still in the middle of the pandemic, we will still see since we challenges for I would say for the remainder of the year and going into 2022.
I believe the company will continue to recover and the second half as we said before we're seeing incremental improvement now and.
And that will help build momentum for the following years.
So we have a lot of confidence a T cell.
And I'm like to wish everyone a good afternoon.
Day safe and again, thank you for joining operator.
Thank you for joining today's PC sales second quarter 2021 earnings call. You may now disconnect your lines.