Q3 2021 Airgain Inc Earnings Call
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Good afternoon.
Welcome to air gains third quarter 2021 earnings conference call. My name is Bethany and I will be the coordinator for today's call joining us for today's call are are games CEO, Jacob Suen, CFO, David Lowe and senior Vice President of product and marketing right. So by them as a reminder, this.
This call will be recorded and made available for replay via a link available in the Investor Relations section of Air Games Web site at Www Dot are gained dotcom following management's prepared remarks, the call will be opened up for questions from air Games publishing So Friday analyst I would now like to turn the call over.
Mr. Lyle.
Thank you and good afternoon to everyone I caution listeners that during this call are game management will be making forward looking statements about future events and are games 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 air gains at SEC filings.
This conference call contains time sensitive information that is accurate only as of the date of this live broadcast November 9th 2021 Air.
<unk> undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this conference call. 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 to turn the call over to our CEO Jacob Suen Jacob.
Thank you Jay welcome everyone and thank you for joining us on the call today.
I'll start with some commentary about Q3 financial results and then an update on the progress we've made towards executing our strategy.
I will then provide Q3 financial details as well as our Q4 2021 outlook and color around how we expect 'twenty to 'twenty two to play out.
Despite current global supply shortage pressure on our overall revenue, we're still quite excited and confident about the prospects for growth. Both in 2022 and in subsequent years, we believe and demand for our products is very strong and mostly in our largest and grow.
<unk> markets in the price and automotive this follows our strategy to grow our integrated wireless system in Germany, with our industrial Iot traditional enterprise Wifi systems in our AG and connect platform products.
We are seeing growth across all of those markets in the first nine months of 2021 and expect that growth to continue into 2020 two.
Starting with our enterprise market. We are very pleased with the contributions generated by the nimble Inc. Acquisition. The growth. It has delivered to us and how that is serving as a launching pad for our industrial Iot market opportunity.
Existing nibbling products are selling very well and be with your products are being developed that we believe will serve us large growth engines for again over the long term.
For perspective in the first nine months of this year nibbling product revenue has already exceeded its revenue for the entire year of 2020.
Looking forward, we have a large opportunity pipeline.
In the past quarter, we won major designs within North American manufacturer of motorcycles, snowmobiles, ATV and neighborhood electric vehicles.
Public safety operating system company that helps communities and law enforcement to eliminate crime.
And they manage wireless solutions company.
Each of which I expect it to generate multimillion dollar lifetime revenues.
The combinations of against historical competency, coupled with the nimble Inc. Business is surpassing all of our previous expectations and we have high confidence that this success will continue in 2022.
In addition on the enterprise market front, we are beginning to see material orders for our new integrated wireless system product at our top tier global traditional enterprise Wi Fi customer.
This new product targeted at large venues like stadiums and arenas was previously anticipated to launch last summer, but was delayed by COVID-19 with large venues opening back up we are now seeing demand for that product. We expect this to.
Rent now and throughout 2022.
Moving to the automotive market, we continue to be excited about the prospects for growth all of the egg and connect platform.
Q3 promotion from AT&T, coupled with our own promotion with our distributors and retailers has generated an uptick in opportunities and the promotion was extended into Q4.
Our team is actively developing follow on products based on the Airgun connect platform that will further increase and already very large tam.
Moving to our aftermarket fleet products.
Paolo against automotive target market, we have seen revenue pressure from the global supply shortage. However, we are beginning to see an uptick in demand starting in Q1 2022.
Particularly as we ramp into a new product for a large long term customer that develops technology in the weapon products for military law enforcement and civilians.
On the consumer market front, we're still seeing really strong end customer demand and are games stands ready to ship product into our Oems when they are able to procure parts to assemble product, we're getting indications from our OEM customers as well as from our search.
This provider and customers about 2022 year plans remain the same as before the supply shortage and that demand is strong.
Based on their feedback we should see orders resume in Q1 2022.
All in all we are very pleased with the performance of our underlying business in light of the difficult global supply shortages.
And we will stay focused on executing on what we can control.
We're especially encouraged by the momentum in our integrated wireless systems growth as we transition from a component in tenor supplier to a system solution provider.
Our embedded passive antenna components revenue.
Still contributing materially to our overall revenue despite our customers being impacted by the stringent tolerate global supply chain shortages now I would like to turn the call back over today, who will walk us through the financial highlights.
Thank you Jacob.
Third quarter 2021 revenue of $15 $5 million declined from $17 3 million in Q2 and was within our previous guidance range of $15 million to $17 million.
Note that we estimate lost revenue opportunities due to the global supply shortage during the quarter totaled over $3 million and that and demand continues to be strong.
Beginning with our consumer revenue Q3 finished at $4 $6 million down from $8 9 million in Q2, mostly due to weakness from the global supply shortage.
Enterprise revenue was up materially from $6 2 million in Q2 to $8 7 million in Q3 due to revenue growth from both industrial Iot products as well as traditional enterprise Wi Fi products.
Automotive revenue was $2 $2 million in Q3 relatively flat with Q2 as the revenue growth from air gain connect was offset by a sequential decline out of our aftermarket fleet revenue due mainly to the global supply shortage.
Q3, non-GAAP gross margin of 36, 5% was below previous guidance ranges, primarily due to product mix changes as well as incremental costs associated with the global supply shortage.
In terms of product mix, we saw more significant revenue declines than previously expected from our higher gross margin consumer market revenues.
This issue is primarily due to some of our larger direct OEM customers, who serve our north American service provider and customers, having difficulties in procuring parts to manufacture products, such as gateways and set top boxes.
For perspective in Q3, we generated the lowest quarterly revenue and at least five years from products sold into our North American service provider and customers. Despite feedback that end demand remains strong.
In terms of incremental costs associated with the global supply shortage, we saw higher costs associated with shipping production inefficiencies due to supply chain disruptions and rapidly rising part costs to build certain industrial Iot products.
Although we expect that pressure to continue in Q4, we see this as a transitory issue that we will recover from in the first half of 2022.
Excluded from non gas growth gross margin was $93000 for amortization of purchased intangibles.
Non-GAAP operating expense in Q3 of $6 $8 million was better than the midpoint of our previous guidance range.
Excluded from non-GAAP operating expense was about $1 1 million in stock based compensation expense about $672000 in amortization of intangible assets, mostly related to the nimble Inc acquisition.
And about $103000 for fair value of contingent consideration related to the nimble Inc acquisition.
Adjusted EBITDA was negative $978000 in Q3.
Moving on to net income non-GAAP net loss in Q3 was $1 1 million in Q3, GAAP net loss was $3 1 million.
Moving to earnings per share our Q3 non-GAAP loss per share was <unk> 11.
And GAAP loss per share was <unk> 30.
Finally, our Q3 cash cash equivalents and restricted cash totaled approximately $19 $1 million about $1 3 million lower than in Q2, mostly related to the loss from operations.
Cash used for share repurchases during the quarter totaled about $97000.
Now I would like to provide a preliminary outlook for the fourth quarter of 2021 and.
In Q4, we expect revenue to decline sequentially and be in the range of $13, five and $14 5 million or $14 million at the midpoint of the range.
Our current backlog and billings for the quarter already exceed $12 million, giving us confidence in this guidance range.
We expect to see growth in automotive from both air again connect and aftermarket fleet as well as growth in enterprise mainly from industrial Iot.
We expect that this growth will be more than offset by lower consumer revenue, mostly due to the global supply shortage and its impact on revenue derived from devices shipped into our end customer service providers in North America.
We believe the impact of the global supply shortage on our consumer revenue alone will be at least $5 million in Q4.
Which is already reflected in our guidance range.
So, although we believe the global supply shortages as transitory issue. It is having a significant impact on our topline revenue.
We expect non-GAAP gross margin in the fourth quarter to be 34% plus or minus 100 basis points as we see product mix shifts continue away from our consumer market revenue and towards products, yielding lower gross margins, but with higher volume opportunities.
As well as continued higher product costs associated with the global supply shortage.
Again, we believe these transitory issues should resolve themselves as the impact of the global supply shortage begins to lessen over the coming quarters.
Excluded from non-GAAP gross margin was $89000 in acquisition related amortization of purchased intangibles.
We expect Q4, non-GAAP operating expense will be about $7 million plus or minus $100000. As we continue to aggressively focus on minimizing operating expenses until the global supply shortage pressure on our revenue begins to ease.
Excluded from our non-GAAP operating expense estimate was about $1 1 million in stock based compensation expense and about $670000 and acquisition related amortization of purchased intangibles.
And about $355000 of additional fair value adjustment related to the nimble Inc. Revenue earn out.
At the midpoint of guidance adjusted EBITDA in Q4 would be negative $2 1 million at the midpoint of guidance, we expect Q4 non-GAAP loss per share to be about 22.
And on a GAAP basis, we expect a loss per share of 44.
In addition to providing Q4 guidance. We also thought it would be valuable to share some color commentary about 2022.
We believe that we will see material revenue growth in 2022 across all three of our markets. We believe that our consumer market revenue will grow sequentially in Q1 as it will be coming off of a historically low revenue in the fourth quarter.
And our enterprise and automotive revenue will continue to grow sequentially, particularly with integrated systems products revenue through our industrial Iot revenue and traditional enterprise Wi Fi as well as through contributions from Aragon connect.
Speaking specifically to Q1 of 2022 revenue expectations, we already have backlog of about $11 million. This large backlog number. This early on is giving us confidence that a recovery in the business as near term and that this is an indication that we can grow in Q1 2022.
Q4 2021.
In terms of gross margin as we expect a gradual recovery in global supply in the first half of next year. We also expect to see our gross margins recover back into a range between just below or just above 40%.
Now I'd like to turn the call back over to Jacob.
Thanks, Dave.
Wanted to reiterate our confidence in our long term strategy and our ability to manage through our near term transitory supply chain issues. We are seeing our integrated wireless system products begin to ramp and are very excited about the next leg of growth, particularly from our newer.
Products with industrial Iot traditional enterprise Wi Fi and Aegean connect leading the way.
We have confidence that our foundational consumer revenue will continue to provide cash flow for air game, while we continue to transition the business and will return closer to historical revenue levels when the supply shortage issues resolved with new in.
Innovative products being developed for our targeted enterprise submarkets, particularly with industrial Iot and multiple new products all of our Aegean connect platform. We believe we are positioned for long term profitable growth.
And with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you we will now take question from Eric Games publishing sell side analyst.
If you would like to ask a question. Please press star followed by one on your Touchtone keypad.
Any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking a question we will pause briefly to allow questions to generate in Q.
Yeah.
The first question is from the line of Craig Ellis with B Riley Securities You May proceed.
Yes, thanks for taking the questions and appreciate all the color guys.
<unk> operating environment.
Dave I wanted to ask kind of a high level question just to make sure im putting all the pieces together in terms of the magnitude of supply chain impacts.
I think you mentioned there were about $3 million in the third quarter and just given the consumer.
Math, it seems like consumer would be about $2 million in the fourth quarter. So it's.
At least.
$3 million to $4 million below a natural level. So so it seems like the business has a demand cadence even with relatively low aragon connect levels, but that would be somewhere in the $16 million to $18 million range, but but supply chain impacts are really holding the business back from that is that a fair way to think about.
And is that the right kind of baseline to have as we look at 2022.
Yes, just for clarity purposes.
Said that there's about in Q3, we had about $3 million lost opportunities in Q4, we had about $5 million in lost opportunities. So that run rate that you were talking about in the <unk>.
You said 5 million I can't remember in that range is actually a little higher on the consumer side, yes.
Specific to the major service providers.
But I think otherwise have the math pretty accurate.
That being said that means that the numbers would naturally be a little higher than the range. You are talking about from a total revenue perspective.
Got it thanks for that and then secondly, I know that on the last conference call.
<unk>.
Was one that took place right around the time.
TNT announced.
Our co marketing program per exam connector, you did but there was there was incremental promotional activity that was taking place and I know you and supply chain partnership. Thanks can you just.
You were Jacob provide more color on what Youre hearing back from the channel and what the response has been that those programs and.
And how we should think about the way Eric gain interest can convert to sales as we go through next year.
Yeah, Craig Jacob here.
Ill give you some of my commentary and then moderate who's a lot closer again provide his color around the us well.
The promo, we're really seeing a major uptick on the demand.
To give you some numbers prior to the promo and as of now we are already seeing a 200 plus percent increase on the opportunity funnel and then the sell through has been increased.
Stable. So I think that we are very positive about the results of the promo and the <unk> has been extended into Q4.
We indicated in industrial built a strong momentum heading into 2022.
The other thing I would add Craig is the interesting thing that the promo did for US is the nature of customers that we're starting to see before the promo.
We were looking at opportunities that were smaller in size, mostly in rural after the promo we started to attract customers that really we wanted to attract in terms of size and these are the customers that are in.
Urban areas and so that's really been.
Exciting like Jacobs said, a significant uptick in terms of the size of the opportunity, but also in the number of opportunities that we've seen with <unk> connect so far.
And can you provide any further color on that with regard to say, maybe the range of agencies that would be engaging with their getting connect them and.
To what extent do you think you need to sustain promotional activity.
To continue to drive interest or do you think that word of mouth and buzz in the first responder community. Once you got devices out there in the field and working really can can create its own marketing and viral buzz for the product. So that you don't need the promotional programs either with tier or your supply chain partners.
Yes, so the flavor of customers, it's essentially first responders and we're talking ambulance were talking fire, we're talking police, which is great. So we're hearing all of the <unk>.
<unk> targets that we want to hit and as far as first responders is concerned.
In terms of the stickiness with customers. We expect we've got the promotion going on right now and they're starting in Q3 going into Q4, and we do expect that these promotions would be in some form of another one or another and into 'twenty two to continue to sustain the level of activity that we've seen dislike.
With any new product or a disruptive product going into.
Our market an exciting market, that's still forming youre going to need to have those.
Triggers and allow you to to create momentum, but we expect that to continue into 'twenty two and at some point the product would be able to sell on its own.
As you know.
The network.
With AT&T.
Is it becomes fully complete and then like you said the word of mouth is out there and people have had a chance to play with <unk> connect and then we start to see traction based on that on those wins those initial wins.
Got it and then lastly, before I hop back in the queue, Dave helpful to get the color.
On some of the calendar 'twenty two parameters. The question was on gross margin so.
So with the consumer business snapping back in with that having a solid not your best gross margin, but a solid gross margin.
Is it possible that gross margins can get back to 40% in the first quarter are or are there things that you see whether it be shipping cost or cogs input costs et cetera that would preclude that sort of that 40% would be something that you got back to later in the year. Thank you.
Yes, it's a good question I think it's going to be completely reliant on how big consumer comes back if it comes back into full run rate like it was before.
Then we got a shot at getting closer to 40%.
But I think we still got a little tail on the end of this shortage issues. So I am expecting is probably going to come in somewhere below guidance, specifically, because we just don't have clear enough visibility quite yet to certainly on the <unk>.
And that I think following Q1 going into Q2, and our Q3, we start should start getting into that back into that range.
Got it thank you.
Thank you Mr. Ellis.
The next question comes from the line of Karl Ackerman with Cowen and company you May proceed.
Okay.
I wanted to first go back to some of the <unk>.
Heard comments about.
We're integrated offerings for enterprise and automotive and how that might help margins next year could you just expand a little bit more on.
Some initiatives you have around integrating nimble link with your core business and how that might drive.
Both cross selling capabilities as well as margin enhancement next year.
Okay.
Jacob here, So look I'll talk about some of the capabilities and then I'll leave the Mazda impulsion for Dave to address as we indicated.
In the in the earnings script.
We are seeing.
The acquisitions of named nimble there is really.
Doing well better than what we expected right I mean, we talk about the competency that we already have coupled with the product of nimble then it's really driving a much bigger demand than we anticipated when we did the acquisition. So we do anticipate.
<unk> capability to allude in Haynes for next year, we actually work with them on some newer product.
And we talk about several.
Key design wins already.
As a result of the.
Of the of the.
Acquisition.
Expect to generate multi millions of dollars for each one of them lifetime. So we do see that momentum continue to carry on.
2022, and beyond as part of our Iot initiatives.
Yes, and then and then on the gross margin front, there are a bunch of different.
Kind of profile. So some of the products, we have even within the industrial Iot.
Market revenue that with products that we have through the nimble Inc brand.
I think I talked about this previously but the sky wire.
All of them for instance has higher gross margins than the kind of newest newer product category called asset trackers.
<unk> you are actually doing really well and the prospects are pretty large that has lower gross margins, though so if that grows faster than expected, we will see more pressure on gross margin but.
Of course.
So we'll have more on the bottom to add to the bottom line in that case. So that's a high class problem to have.
Its the same its theres some similar issues in other parts of the business on the.
Auto aftermarket.
We've actually got a.
And manufacturing efficiency program underway that were.
Implementing to try to improve those margins get those more.
<unk> towards the <unk>.
Corporate gross margin target.
And then the same thing on a couple of the other newer products one of the one of the unusual situations. We have right. Now is you have the consumer products, which are higher gross margin down right now at the same time, where we're launching and ramping a lot of kind of lower volume and therefore lower gross margin products.
But that has huge opportunity in the future and are more related to the integrated wireless systems category that we talked about.
Very clear, yes, no I appreciate that Dave.
As a follow up.
Uh huh.
Thank you for providing the order backlog for the next two quarters I'm curious.
How does that compare versus historical quarters and could you just maybe describe whether those orders are noncancelable and if not why.
What level of conviction you have in terms of or preventing those orders from being cancelled any commentary on that would be very helpful. Thank you.
Yeah.
I would say this is a <unk>.
Very high dollar number its probably the highest we've had at this point this early on.
But but to be fair that includes the industrial Iot products, which has really taken off and continue to grow sequentially quarter to quarter. So we've got some decent sized backlog.
For that market.
And we're pretty confident based on the overall bookings that were already seeing which is a much higher number for the entire year of 2022.
And then in terms of the other side of the equation.
We also have some confidence in some of the orders because they are usually most of them are related to really high demand and high end demand types of products.
And so that's giving us a lot of confidence in and the number and if you just compare it to.
The current quarter, we had about 12 million in backlog for this current quarter, we had $11 million for next quarter Thats pretty good number.
Yes.
Thank you very much.
Thank you Mr Ackerman.
The next question comes from the line of Scott Searle with Roth Capital Partners. You May proceed.
Good afternoon. Thanks for taking my questions, Hey, maybe maybe just to follow up on a couple of points made earlier.
Dig in on the consumer and the Wi Fi business, So certainly down and I think at unprecedented low levels.
But I'm wondering what the visibility is when youre looking into that backlog figure in the first quarter of that $11 million how much of that is consumer related because it doesn't sound like it's necessarily out of the realm of possibilities that gross margins are back at 40% level. So I'm kind of wondering whats your visibility on that front.
And also with.
Your customers on that front there are things that are certainly beyond your control are just beyond your ability to ship to them.
Their ability to get all the components, they need and get the top or whatever the product is out there. So what is what is the confidence level in terms of how that is starting to work out as well and then I had a couple of follow ups.
Great questions Scott.
Ill talk about the confidence level, because actually personally went and met with several key executives.
The North American service provider side.
And the feedback I got heartburn overall very positive.
I'll sure me about the overall <unk> 2020 two numbers, which also indicated they are saying they are <unk>.
<unk> got to go back to <unk>.
The global shortage issue so that's a.
Thats Brittany.
Pleased to hear they also are very optimistic about some of the supply shortage issues are going to start improving.
As early as next quarter so.
So the other way to me that they feel really good about the prospects.
The returns of the recovery in 2022, and I can talk more about the <unk>.
Prospects of gross margin.
Yes, Jacob not to put words in your mouth.
Sorry, but does does $10 million for consumer is that something that is doable as you look to the second half of next year.
I think I read it.
They've instead of guiding you I think I'll, let Dave talk to you more about as we get closer, but I think that.
But the feedback I got is.
All the executives at the top tier.
Msos service providers.
Very optimistic about 2022.
Yeah, I don't want to be prudent about what we say going into 'twenty talks.
Talking about 2022, because we just don't have enough visibility yet on what that'll be like we like Jacobs says from an overall perspective next year service providers and these are the primary service providers that we service as our end customers.
Oems and Oems.
Are saying pretty.
Pretty much back to normal so we're pretty excited about that so the prospects of getting up to numbers.
There are a lot higher or obviously.
There.
Could that happening in Q1, we just don't know yet we just don't have that visibility yet if we had a full quarter of consumer the possibilities certainly there we could be in the 40 range.
Got you very helpful and if I could follow up on the nimble in front it sounds like.
Demand there was very strong that's also a component constrained environment. So I am wondering of that maybe to calibrate or the $3 million or so that you could not ship in the quarter I'm wondering how much of that was related to nimble, Inc, and as Youre looking at the growth profile into 2022.
How should we be thinking about the growth rate for a nimble and going forward.
Yes first of all the $3 million in Q3, there was zero nimble Inc. In that number that was specific to consumer.
There were there were supply shortage issues that we had in meeting demand for the quarter. So the demand is actually was actually higher.
For for the industrial Iot.
Iot products.
But most of the issues related to consumer.
Gotcha and is there is there a number in terms of how youre seeing the pipeline build now for nimble link that we should be thinking about growth for next year. It certainly sounds like it's double digit growth, but it's just something that's north of 25% growth or what or what have you how should we be thinking about how that pipeline is shaping up.
Yes. This one again.
We're being a little on the prudent side right now and not giving guidance for 2020 to probably address more of that in the next earnings call.
That being said based on the overall bookings were already seeing for 2022, which is the highest in.
The history, even pre acquisition for that company.
Pre acquisition.
It's looking like it's going to be some pretty good growth.
And that assumes a supply shortage goes away and doesn't prevent them kind of unconstrained kind of view.
So without quantifying it we're pretty excited about that growth.
And lastly, if I could just go into the ordering connect product it sounds like the 1200 dollar.
Discount program has started to really bring the right customers into the mix.
I mean, it's a huge opportunity I think I think the installed base is something like a half million units as it relates to first responders and with 10% of the turning over a year.
Or are there are there any numbers that you would put around I know you talked about the opportunity pipeline growing but how should we be thinking about that in terms of framing it as well for 2022, it's still early days sticking a little bit longer to get going but now it seems like it's moving in the right direction and I was wondering if you could as well. So we're addressing these sorts of the <unk>.
Supply chain issues, and Mike along with irrigated connect thanks.
Okay I'll try to take a couple of questions and then have moderate or stay to chime in so as well as Edgar in connect as we indicated earlier I think.
The promotional is definitely creating the demand within the REIT group as a mall that mentioned earlier, but we were focusing more on the on the rural area. Now. We you know the urban customers are now getting heavily engaged and that's gonna make up the bulk of the domain.
And.
I don't think that we can share the specific number other than what I share with you that we are seeing 200%, 300% increase as far as the opportunity Parnell is concern I think that even.
Once.
Typically these kind of product it takes about a year to a year not have to do to get people to really do the trial and get to really know and understanding the benefits of the product and the product was launched at January it felt like long time ago actually only is still less than a year since the inception of the Prada.
And I think that is.
As such a differentiable product now both AT&T and us putting a lot of high hopes and Thats why I want to also thank AT&T in a management team to really look with us and being so aggressive with the promo I think that as more and more people get to use the product they really like the benefits right. So I think that's going to generate.
And a greater demand for the upcoming year and beyond.
And Mora and Dave I think.
The only the only thing I think you've covered the Jacobs the only thing I would add is that and I've talked about this during the last call Scott.
In that the product that we have in the market today.
The HBO with AT&T. That's just the first product that we released in this era gain connect product initiatives. So when can we could expect that there will be future products that will be released to address other operators. Both here in North America as well as at the worldwide stage.
But also products that address different price points. So now you can see that as these products come out to the market we will.
<unk> will be will be much more significant and much much bigger for us so.
That part is really exciting to me with the <unk> edits today, we've talked about the traction that we've seen the growth. So we think that we're moving in the right direction and we're looking forward to continuing that momentum into 'twenty two and beyond.
And then you asked about the subject.
The supply chain potential impact on us from a supply chain on <unk> connect.
Really the bigger issue that we face are the just the long lead times, mostly on the modem side, because remember, it's a modem and antenna and a single and casing.
And then anything else, but we've gotten ahead of that problem pretty well over the past year since we launched the product.
So it's more about kind of.
Ordering well ahead of time to make sure we have enough on our parts.
Great. Thank you.
Thanks Scott.
Thank you Mr Chairman.
The next question comes from the line of 10, seven Stavanger with Northland Capital markets. You May proceed.
Hi, good afternoon.
I wanted to come back on the.
The consumer fronts, a bit a lot of this has been touched on but.
With regard to I guess, what I'm trying to get to is where demand is you've talked about 'twenty two but currently as well.
First half of the year kind of do a $9 million to $10 million a quarter.
You've talked about some supply impacts in the second half of it that does imply that.
Yeah kind of overall demand levels have come down a bit but seems inconsistent with kind of where were.
What you are saying and what we're hearing in terms of <unk>.
Demand levels, so should I guess should.
Should we be thinking about normalized demand being in that $9 million to $10 million a quarter level or is that.
Stepped down a little.
On the one hand and on the other you've clearly got some.
Qualitative.
Data points to suggest sort of a Q4 trough and you can sort of consumer issues.
To what extent is backlog or orders or anything else give you any quantitative feeling on that.
Yes, just kind of reiterating what Jacobs was saying there are two or three really major north American service providers, who.
We provide.
Technology essentially into the boxes for them.
He talked to two of the.
Two different service providers.
Who both gave very similar.
Feedback that point us to.
Volume as expected next year.
Both are going through transitions on the.
Products themselves.
The move to Wi Fi Wifi Wifi, six Wifi <unk> for instance.
Gateway AEP router type devices.
And same for the other service provider. So when those things shift you get a different type of mix of our product and therefore revenues so using the historical <unk>.
Number is on a perfect type of.
Comparison.
But.
Avoid for now for kind of giving guidance around what that quarterly number could look like as like I said before we're trying to be prudent right now the supply shortage going on once we get a little closer on the more visibility we will give that to you.
Okay. Thanks very much.
Thank you Mr <unk>.
Again, if you would like to ask a question. Please press star followed by one on your Touchtone keypad.
Our next question is a follow up from the line of Craig Ellis with B Riley Securities You May proceed.
Yes, thanks for taking the follow ups. The first question is just on the fourth quarter guidance. So since we already have backlog at 86% of guidance. The question is guys. If you've got the turns orders that would come in.
To take revenues potentially above $14 million.
Do you have the supply to do that and if so where might you have supply because it seems like consumers one place where youre not expecting any upside potential I'm, just trying to get a better sense for where the supply chain Gibson takes our inside the current quarter.
Yes, I think youre looking at this the right way Craig.
The consumer side I don't expect to get any surprises from they've been pretty clear.
So we have a pretty good hold on that in other areas, yes, you're right there could be.
Upside surprises.
We're not banking on those at this point, given where we are in the quarter and given what our current visibility is as well as the <unk>.
Contact that we have with our customers to get kind of those indications.
But typically I, probably I would say are higher.
Turns.
Products are more on the auto aftermarket fleet side.
So.
That could happen those kinds of things and we do have supply there we don't have the supply constraints.
Yes.
On the build side on the manufacturing side, there if you remember.
We manufacture our products in our own facility for that business.
Yes.
That's helpful. Thank you.
Second follow up is it.
It's just related to the.
The supply chain dynamics overall, so if I take a step back and look at all the comments around the magnitude of impact in <unk> the magnitude of <unk>.
But with some of the views on the first quarter.
As the company really conveying that it's believing that it gets the worst of the supply chain issues behind it in the fourth quarter.
Not yet have that kind of visibility either into your customers.
Our ability to fill their final kits or attributes of your own supply chain.
Well I think.
Sure.
One thing I can say is that the if you look at our three major service provider and customers' contribution to revenue has historically been pretty big.
And the number of your combined.
The estimates that were seeing right now internally on what that revenue would be de minimis.
They really don't Mount to much so starting off of Q4, it starting from very small number relative to what it should be.
So of even comes back a little bit in Q1, youre going to see an uptick right.
Yes.
So it's a question on shortly on the supply chain on your supply and other things do you feel like the constraints that you see or are you, saying, Dave but that really the issue isn't it your constraints so much as it is.
A huge part of this $5 million is really just what's going on downstream with customers.
I guess thats the point.
I think that.
The supply chain issue I think that.
Within the industrial Iot, we have better control, we feel pretty comfortable that we can managing through the supply chain shortage issue.
In the aftermarket.
Really building this thing on our own.
Also looking into some other avenue to really mitigate the impact so we feel comfortable with that along with the egg and connect product the only thing that the.
The less that we really still have to manage through is the consumer side as well as our own product we have no issue.
Asaf gave that getting the components to build our antenna systems on the consumer side.
The thing that we don't have control over all relating to the the whether you call. It a J D aims to the Oems who are building these products given that the gateways the setup box for the service providers and what they are experiencing right. Now is are there shortages such as substrates such as <unk>.
<unk>.
We do expect that they should be able to manage through those issues.
To me the Silicones day, they're able to now the secure so it's the other stuff that we.
They start to express some optimism on managing that so we do expect soon.
Assume this will be behind us and Thats why we talk about this being.
<unk> and we'd expect that will turn around.
Sure.
Got it and then lastly for me given how well nimble link has worked out and given the.
The growth that we've seen in Europe.
The performance versus initial expectations can you just talk about the appetite for M&A here.
Yes, it's something given all the balls juggling with the supply chain that you're entertaining and if so can you provide any color on on where M&A might be most attractive inside of the portfolio. Thanks guys.
Yeah.
I can take the answer and Jacob you can chime in.
We still track opportunities on the M&A side, we're still interested.
We're not letting the you know the.
Transitory issues that we're facing today get in the way of that.
Things.
Back up for Us, which we fully expect then.
That's always an opportunity, but like you said from a tactical perspective, we're focused on the day to day management of the business most try to get as much out of this as we can.
Okay.
Thanks, Dave Thanks Jacob.
Thank you Craig.
Okay.
And this concludes our question and answer session. If your question was not taken you may contact <unk> Investor relations at <unk>.
Our AI R&D at Gateway IR Dot Com I would now like to turn the call back over to Mr. Simeon.
Any closing remarks.
Thank you for joining us on today's call. We look forward to updating you on our next call operator.
Thank you for joining today's era gains third quarter 2021 earnings call you may now disconnect.
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Yes.
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Yes.
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