Q1 2022 Cambium Networks Corp Earnings Call
Yeah.
Good afternoon, My name is Delphine and I'll be your conference operator today at this time I would like to welcome everyone to the Cambium Networks' first quarter 2022 financial results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answers.
To ask a question you will need to press star one on your telephone keypad and please limit yourself to one question and one follow up question. Thank you Mr. Peter Schuman Senior director Investor and industry Analyst Relations you May begin your conference. Thank you Delfin welcome and thank you.
For joining us today for Cambium Networks' first quarter 2022 financial results conference call and welcome to all those joining by webcast.
<unk>, our president and CEO and Andrew <unk>, our CFO are here for today's call. The financial results press release, and CFO commentary referenced on this call are accessible on the Investor page of our website and the press release has been submitted on a form 8-K with the SEC a copy of today's prepared remarks will also be available.
Our investor page at the conclusion of this call.
As a reminder, today's remarks, including those made during Q&A will contain forward looking statements about the company's outlook and expected performance. These statements are based on current expectations forecasts and assumptions risks and uncertainties could cause actual results to differ materially.
Except as required by law Cambium networks does not undertake any obligation to update or revise any forward looking statements for any reason after the date of this presentation, whether as a result of new information future developments to conform these statements to actual results or make changes in <unk> expectations or otherwise it is cambium networks' policy.
Not to reiterate our financial outlook, we encourage listeners to review the full list of risk factors included in the Safe Harbor statement in today's financial results press release.
We will also reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year over year comparisons reference non-GAAP numbers, except where otherwise noted a reconciliation of non-GAAP measures to GAAP is included in the appendix to today's financial results press release, which can be found on the investor page of our website and in today's press release announce.
Our results turning to the agenda cambium Networks' President and CEO of <unk> will provide the key investment highlights for the first quarter 2022, and Andrew Bronstein Cambium Networks' CFO will provide a recap of the financial results for the first quarter 2022.
And present, our financial outlook for the second quarter and full year 2022, our prepared remarks will be followed by a Q&A session I would now like to turn the call over to a tool.
Thank you Peter we faced supply chain challenges within our industry, which impacted our first quarter results because the two unexpected events first the Chinese government Covid lockdown in Shenzen impacted manufacturing during the middle of March and second during the last two weeks of the quarter.
The lockdown in Shanghai closed our distribution and warehousing facility.
Although our contract manufacturers have a global footprint certain products and components are manufactured in China and cannot rapidly be relocated two facilities in different geos.
Despite the setback we are confident that once the supply chain and of course, we expect improved financial performance, we anticipate some recovery in revenues during the second quarter 2022, given our strong backlog and increased pricing actions.
Now fully in place.
We exited the first quarter 2022, with backlog up 7% quarter over quarter and higher by 10% year over year.
Cambium cost effective multi gigabit Wi Fi and <unk> product lines are most affected by the Lockdowns in China.
Despite the lockdown, we saw strong demand for our enterprise solutions and exited Q1, 'twenty two with record backlog for Wi Fi.
During late Q1, 'twenty two we began taking orders for our new quality of experience Q E subscription service, which provides visibility and Netflix traffic optimization and real time to mitigate congestion and control network traffic.
One customer in Italian service provider noticed immediate improvements, including a clear reduction in support center calls and actual reports of improved broadband performance.
We are at the forefront of the next wave of high performance wireless broadband technology, including our millimeter wave solutions.
Our new 28 gigahertz <unk> multi gigabit fixed wireless products shipped for revenue in limited quantities during the first quarter.
We presently have eight POC for our 28 gigahertz <unk> going on in four continents with three additional customers planning for Youll see bending the seat of equipment shipped in March.
As we previously mentioned.
During our last earnings call, we expect larger deal sizes with 28 gigahertz <unk>.
Cambium attractive cost of ownership and cloud managed wireless fabric solutions make our fixed wireless solutions, a compelling choice or wireless infrastructure projects around the world.
Turning to the results of our first quarter 2022.
Revenues of $61 9 million came in below the outlook of $77 5 million.
$81 $5 million and knowledge during Q4, 'twenty one earnings call.
The supply constrained environment affected shipments of both fixed wireless and Wi Fi products during Q1 'twenty two.
The Wi Fi market and <unk> product lines were most affected by Chinese government Lockdowns in Shenzhen and Shanghai, Although demand remains very strong for our Wi Fi wireless <unk> switching and <unk> products.
Looking at revenues across our different product lines.
Point to Multipoint BNP business, 70 has decreased 16% sequentially and decreased 46% year over year due to global supply and distribution constraints negatively impacting shipments of <unk> products and slower demand from North American service providers.
We are seeing the component shortages continued to improve although gradually and expect the lockdowns in China to loosen during Q2 'twenty two.
The point to point PTP business decreased 4% sequentially during Q1 'twenty two.
With component shortages limiting shipments of certain products, while year over year revenue decreased 16% due to lower shipments for backhaul products compared to a very strong prior year period.
Our enterprise lifestyle business had revenues up $15 $5 million with revenues decreasing 40% sequentially due to supply and distribution disruptions, although higher by 28% year over year during Q1 'twenty two.
Demand remains very healthy for our enterprise Wifi and wireless savvy switching solutions and we continue to win larger and more diverse customers in this end market across the world as customers adopt our next generation, leading edge Wi Fi six and six E solutions.
Looking at some notable customer wins and new product development.
In North America, and Scottsdale, Arizona, a leading broadband service provider desert <unk> is extending fiber networks with cambium 60, gigahertz <unk> fixed wireless broadband solutions to deliver multi gigabit to exit two residential subscribers with faster time to service then trenching fiber at a very attractive.
<unk> cost of ownership.
<unk> wireless fabric makes it easy to plan.
Floyd and manage affordable gigabit speeds to the home and enterprise.
And assisted living facility in New Jersey selected Cambium Wi Fi six access point <unk>.
<unk> metrics wireless savvy switches and <unk> X cloud management to enable further efficiencies from digital transformation initiatives, while minimizing total cost of ownership for the assisted living facility.
Residents wanted the ability to connect with friends and family and assisted living care operations managers needed reliable Wi Fi at reasonable costs.
In our defense business, we landed the first portion of a five year contract from the U S. Federal government for Cambium, <unk> 700 technology to upgrade global military based security with high capacity fixed wireless broadband communications infrastructure.
First phase of this program is mid single digit millions for cambium with the potential to be tens of millions of dollars.
In the Europe , Middle East and Africa region, EMEA, we continue to have healthy demand.
For our enterprise business and continue to win more and larger projects, although revenues were down due to COVID-19 supply constraints from China.
Recent strategic wins since our last call include in Northern Italy, we displaced a tier one enterprise networking supplier to deploy over 1000, Wi Fi six access points wireless heavy switching and <unk> X.
Cloud management across 20 schools in the region.
Because of our wireless fabric end to end solution and cambium superior customer support.
In South Africa, we had a fixed wireless win with <unk>, a wireless for our <unk> for residential broadband access across the country.
We won as a result of strong performance versus the incumbent supplier.
In the APAC region, we received orders from two different service providers on both sides of the Australian continent for our first generation 28 gigahertz <unk>.
In Korea, we had a Wi Fi six key win with our newly released high density for review at this point.
The <unk> III dash four four Sangji University.
And in Caribbean, and Latin America color region, we had a win with a government service provider in Brazil for data and the state of barrier.
They selected our BNP for 50 to provide internet access and communications to government buildings and schools.
<unk> was selected for our superior performance and lower total cost of ownership for the customer.
Turning to the new product introductions since our previous quarterly update.
Before our next earnings call, we expect to announce the expansion of our Wi Fi six portfolio, including models, specifically designed for the hospitality market and value conscious buyers with availability during the second half of calendar 2022.
At the higher end of the market <unk>, new five year deal of high density Wi Fi six <unk> at this point announced in January we will begin shipping this quarter.
This solution targets high density indoor applications, such as auditoriums meeting rooms classrooms libraries and public venues.
Cambium has the industry's first five year deal Wi Fi <unk> solution, which is much more efficient and cost effective for high density use cases.
Our expertise in history with high density Wi Fi enabled us to deliver a highly differentiated Wi Fi solution.
Lower total cost of ownership than the competition.
Cambium continues to build a strong foundation for our software and subscription services business, which delivers customer stickiness.
Recurring revenue.
And accretive margin.
<unk> has begin.
Drilling in North America, and New network as a service solution. We are offering a package of CN Maestro X and cambium care combined with our Wi Fi hardware made available as a subscription service.
The subscription packages are billed monthly and available in three and five year terms.
Our initial youll see that performing well and we are seeing strong interest in our commercial offering in Q2 'twenty two.
Looking at our <unk> cloud software our end to end cloud powered connectivity solution to manage the network from a single pane of glass.
The CN Maestro cloud software continued to experience strong user growth total devices under cloud management in Q1 'twenty to what it was 791000, an increase of 6% from Q4, 'twenty, one and up 37% year over year.
Turning to the channel.
In Q1, 'twenty, two we expanded our channel presence by adding 70 net new channel partners sequentially and approximately 1670 net new channel partners year over year, which represents an increase of approximately 1% sequentially and 17% year over year.
During the first quarter cambium showcased our wireless fabric add the Wisp America trade show in New Orleans.
Received excellent customer feedback on our 60 gigahertz <unk>.
<unk> enterprise Wi Fi six portfolio and wireless savvy switching.
Our upcoming six gigahertz <unk> solution is also generating lots of excitement for gigabit connectivity, particularly with North American service providers.
Our technological platforms, including the new software capabilities like <unk> and Cm heat were also well received by customers.
I will now turn the call over to Andrew for a review of our Q1 'twenty two financial results and Q2 'twenty two outlook.
Thanks, Atul and Hello, everyone Cambium had revenues of $61 9 million for Q1 'twenty two.
Revenues decreased by 21% quarter over quarter and by 30% year over year.
The global supply constraints combined with the Chinese lockdowns impacted shipments of our products, which continue to have significant pent up demand.
Our backlog and demand remains strong with backlog, increasing by 7% quarter over quarter and 10% year over year.
On a sequential basis for Q1, 'twenty two revenues were lower by $16 8 million.
The weaker revenues were primarily the result of the lower enterprise Wi Fi solutions and point to Multipoint revenues due to global supply constraints negatively impacting the manufacture and shipments of our products.
Moving to our gross margin non.
non-GAAP gross margin of 47, 8% decreased by 230 basis points compared to Q1 'twenty one.
The year over year decline in our non-GAAP gross margin was the result of lower revenues and increased component costs as well as higher freight and distribution costs caused by expedited shipping.
On a positive note on a sequential basis, our non-GAAP gross margin improved by 360 basis points compared to Q4 'twenty one.
Higher quarter over quarter non-GAAP gross margin was the result of previously announced price increases and mix as we shift to a higher proportion of Wi Fi and switching relative to fixed wireless products.
We believe we will continue to see sequential improvements to gross margin during 2022 from both the benefits of the actions we've already taken and increased scale in our business as we progress through the full year.
The full impact of the price increases will be realized during the second half of 2022.
In Q1, 'twenty two our non-GAAP gross profit dollars of $29 $6 million decreased by $14 $7 million compared to the prior year and were lower by $5 $3 million sequentially, both due to lower volumes.
Our longer term goal remains an annual non-GAAP gross margin target of 51% to 52%.
non-GAAP operating expenses comprised of research and development sales and marketing general and administrative and depreciation and amortization in Q1 'twenty to decrease by approximately $200000 when compared to Q1 'twenty one and.
And stood at $28 $6 million were 46, 2% of revenues.
Given the lower revenues non-GAAP operating expenses were relatively flat compared to the prior year period.
When compared to Q4 'twenty, one our non-GAAP operating expenses decreased by approximately $500000 during Q1 'twenty two.
Quarter over quarter sales and marketing decreased primarily because of lower variable compensation for salespeople due to the lower revenues, while R&D and G&A had modest increases due to higher wages and professional services.
non-GAAP operating margin for Q1, 'twenty two was one 6% down from 17, 5% during Q1, 'twenty, one and seven 3% of revenues in Q4 'twenty one.
non-GAAP net income for Q1, 'twenty, two was $300000 or <unk> <unk> per diluted share compared to $11 7 million were <unk> 41 per diluted share for Q1, 'twenty, one and non-GAAP net income of $4 4 million or <unk> 16 per diluted share for Q4 dollars 21.
The lower non-GAAP net income compared to both the prior year period and prior quarters results was primarily due to the lower revenues impacting our gross profit dollars.
Adjusted EBITDA for Q1, 'twenty, two was $1 9 million or three 1% of revenues compared to $16 5 million or 18, 6% of revenues for Q1, 'twenty, one and compared to $6 7 million or eight 6% of revenues for Q4 'twenty one.
With the current supply constraints combined with the China Lockdowns impacting shipments we temporarily lost some of our operating leverage in our business, although we remain committed.
To driving our adjusted EBITDA to our target model of 18% to 19% of revenues.
Now moving to cash flow cash used in operating activities was $19 2 million for Q1 'twenty to the cash used in operating activities included a $12 $1 million decrease in accounts payable.
Principally due to the timing of inventory payments and annual variable compensation of about $10 $2 million related to incentive compensation earned during calendar 2021 and distributed in the first quarter of 'twenty two.
Q1, 'twenty to cash used in operations compares to $7 6 million of net cash used in operating activities for the first quarter of 2021, and $5 6 million of net cash provided by operating activities for Q4 of 'twenty one.
Now turning to our balance sheet, our cash totaled $38 $4 million as of the end of Q1 dollars 22, a decrease of $20 9 million from Q4 'twenty one.
As previously mentioned the sequential decrease in cash primarily reflects a $12 $1 million decrease in accounts payable principally due to the timing of inventory payments and the payment for annual variable compensation of $10 $2 million that was just recently mentioned.
Net inventories of $42 million in Q1, 'twenty to increase by approximately $8 8 million year over year, while increasing by $6 4 million from Q4 dollars 21.
Inventories were higher sequentially because of an increase in finished goods due to the inability to ship products from the Shanghai warehouse and distribution center during the last two weeks of Q1 'twenty two.
While the supply chain remains an ongoing challenge we are working to some to selectively increase our inventory positions during 2022.
As of right now the manufacturing facilities in Shenzhen are open and operating factories are now open for 95% of our products.
Components are in decent supply and we expect improvements during the balance of the year we.
We are moving some products from our manufacturing and distribution centers in China to our other distribution centers in North America, and Europe until Shanghai is fully operational.
In terms of logistics, we are shipping by air freight as much as we have two competency for the Shanghai Covid Lockdown.
One Shanghai is fully operational we expect it could take an additional one to two weeks to completely normalize our distribution activities.
In summary, the quarter did not play out as expected given the Covid lockdowns in China on top of an already challenging supply chain environment.
We strive to become more predictable.
Our price increases are now layering in with the benefit that we expect to happen in full by the second half of 2022.
Our backlog remains strong and we were at the start of.
New product cycles.
Once the supply issues are resolved, we expect to regain scale improve operational efficiency and make significant progress towards achieving our long term target operating model.
Now moving to the second quarter and full year 2022 financial outlook.
Considering our current visibility as of today, our Q2 'twenty two financial outlook is expected to be as follows we expect revenues to be between 65% and $73 million.
non-GAAP gross margin between 47, 5% and 48, 5%.
non-GAAP operating expenses of between $29 7 million to $30 7 million and non-GAAP operating income between $1 2 million and $4 7 million.
Interest expense net of approximately $700000.
And non-GAAP net income to be between $400000 and $3 $2 million, yielding net income per share of <unk> 11.
Per fully diluted share.
Adjusted EBITDA, we expect to be between $2 2 million and $5 8 million and adjusted EBITDA margin between three 4% and seven 9%.
And we expect a non-GAAP effective income tax rate of approximately 18% to 20%.
And $28 7 million weighted average diluted shares outstanding.
Our cash requirements are expected to be as follows we expect to pay down debt of $1 $3 million.
Cash flow interest expense of approximately $300000, we expect capex to be between one four and $1 6 million.
Next turning to the full year 2022 financial outlook.
We expect revenues to be between $280 to $300 million.
Decreasing approximately 10, 7% to 16, 6%.
We expect non-GAAP net income to be $8 1 million to $20 1 million or 28 to <unk> 70 per diluted share.
Adjusted EBITDA margin of 6% to 10, 8%.
I will now turn the call back to a tool for some closing remarks.
Cambium growth drivers remain intact.
As we said on the last quarter's earnings call, we reiterate increasing chip supply during the second half of this year.
And our growth strategy remains solid.
We expect to see above market returns from our investments in multi gigabit wireless products, such as enterprise Wi Fi six and six E wireless savvy switching products 60 gigahertz <unk>.
Our new 28 gigahertz millimeter wave solutions for fixed <unk>.
The new six gigahertz fixed wireless solutions, arriving later in 2022.
A reinvigorated federal business as well as our software as a service solutions.
The integrated wireless fabric from cambium brings together ease of deployment.
Kayla beauty of networks and lower total cost of ownership as the word deploy next generation high performance wireless broadband.
We remain focused on judiciously managing our costs.
Continuing to invest in innovative products to maintain our technology edge and.
And expect increased scale should benefit our future operating results.
I would like to show my appreciation for our employees.
<unk> and customers during these unprecedented times.
This concludes our prepared remarks, so with that I would like to turn the call over to Delfin.
Beginning to DNA session.
Thank you once again thats, our CEO and president Mr. Etzel about Mcgarr, we will now open the call for your questions and I would like to remind everyone.
Please limit yourself to one question and one follow up question.
Our first question is Simon Leopold.
James.
Thanks for taking the question I guess I was a little bit surprised that the gross margin was actually better than I expected.
100 basis points.
<unk> and sequential improvement and so I'm just trying to make sure I get a grounding in terms of how to think about modeling.
And so I'm looking for maybe a little bit color in terms of if you could rank order.
Your your segments in terms of kind of the gross margin contributions in the supply chain impact just to help us understand what the trends are in gross margin and then I've got a follow up.
Yeah, Hi, this is Andrew so so when you look at the gross margin.
<unk> last quarter as you mentioned it was it was up which was which was great news and Theres really two major factors that are causing that increase.
One is the product mix, so as as a tool mentioned.
Our Wi Fi, our Wi Fi products. Despite the issues that we had with the China Lockdowns.
We're still up year over year end.
And also very healthy just given that situation on a quarter to quarter basis and in terms of the percentage mix versus the other products. The Wi Fi was a higher portion of that mix and then the second reason is the price increases that we had that we've mentioned before where we had price increases last year, that's working its way.
Through through the system.
And we expect that to be fully.
<unk> fully see the full benefit of that in the second half of the year, but it started to impact.
Our numbers in the first quarter favorably.
Thank you for that and I wanted to follow up on the particularly the 28 gigahertz product.
I'd mentioned, a large award in Italy.
Okay.
Im guessing and presuming that this product is playing into that award, but ultimately what I'm trying to get a sense of.
How to think about the size of that product contribution as it ramps over time and the materiality or opportunity.
28 gigahertz platforms. Thank you.
Thanks, Simon this is.
I'll take that one.
So let me give you a little more color around 'twenty it because I'm very excited about the potential of 28 four probably next four to five years with what we're releasing right now.
The way 28 gigahertz solutions are different.
They are addressing larger service providers in Europe .
South America, North America, and Asia in that sequence index priority order.
If a license frequency.
So the service providers are going after many square miles of area.
Fortifying the territory.
License.
Rock band solution.
So what we see is if you have X amount of total dollars spend by a service provider move floor is sub five gigahertz solution traditional solution for this for a medium sized service provider.
<unk> solution is probably two to three times.
The deal size.
And I think in next 12 months, you're going to see us announce.
Many larger tier two and tier one service provider with substantial business and it is changing our own dynamics and in return cambium is scaling the support structure.
When you when you engage these type of service providers, you really have to have 24 by seven across the globe.
Support teams and that's what we'll be offering so pretty excited.
And just to give you an idea I think we did mentioned in the earnings call script about 10, Poc's eight of them I think going on a two or three coming through these are all pretty sizable customers.
So very positive very exciting and this opens the runway to cambium networks towards five <unk> fixed.
These are this is when we said next generation architecture.
<unk> is a very key plank of the next submission of architecture.
And maybe just to put some.
Some quantification around that opportunity if we think about 2023, when we're past supply chain constraints hopefully.
Could you see these products being on the order of.
20% say.
Pnp or is that just too ambitious goal.
I think you are not too far off.
Again the deal sizes. We are looking that is to be very Frank for me. The pleasant surprises as I gave you indication if we did X amount of revenue for traditional products I think we might be looking at two to three X because the service providers are going after larger area and they have long.
Largest subscriber base to cater to.
Thanks for answering that I appreciate it thanks Aman.
Thank you. Our next question is with Rod Hall from Goldman Sachs.
Hi, Thanks for taking my question. This is Bala entourage.
Looking at full year guidance.
I'm just wondering what is being baked in into our full year guidance with respect to.
Operations in Shenzhen and also.
And Shanghai, it looks like <unk> is more or less fully operational now, but but maybe just double click on what youre expecting.
You see the ramp as we go through the year and then I've got a follow up.
Yes. Thanks for the question this is Andrew so.
So in terms of looking at the $2 $80 million to $300 million that we mentioned for the outlook for the year, we are being prudent in terms of looking at what's happened in China and what the current status and the current situation is so we do believe that revenues will.
Continued to increase as we go throughout the year and we think that the debt.
The second quarter revenues will be higher than the first quarter as well.
But we don't we still just given given the manufacturing distribution.
Facilities that we have in China, we want it we want to be very careful in terms of looking at the outlook going forward and the impact of Covid, which obviously is very hard to predict.
So we're trying to really have a very balanced view and to be prudent in terms of what we believe the full year to be.
As you saw in the numbers.
And we discussed our strong backlog as well.
The total backlog that we have today is as is as high as it's been in the recent past.
A bit higher than it has been in the recent past and especially as we look at the Wi Fi product line that continues to to to be very very favorable.
And that's what gives us that confidence that that will we'll get into that range. Despite the situation over in China and the supply chain constraints.
Alright, and if you look at the second half of the year.
The new guidance compared to previous guidance indicate maybe about 15% to 20% cutting so given your guidance for the second half of the year and I assume this.
Andrew prudently assumes that.
Mark.
Logged onto.
Appalachia is actually seeing.
Would extend well beyond Q2, and then possibly into.
Is that the right thinking there.
Well I think the first half of the year is really what's taking the largest hit.
So when you think about Q1 and Q2 there is those.
Those two quarters are our quite a bit below what we had originally anticipated for the year. We do believe that Q3, and Q4 will continue to ramp up or getting better visibility now in terms of supply chain and chips, which is very good news and thats consistent with what we had predicted back when we when I wasn't here.
When the company when the company spoke back in February so that in fact is coming true.
But the setback that we had given the China lockdowns.
Is what's really hurt in the first the first half of first quarter and we expect the second quarter of the year.
We certainly do hope that that that Shanghai.
Does reopen soon theres some glimmer of hope that we received as recently as today that that could happen in the next couple of weeks if not sooner.
But as I said, we want to be prudent in terms of how we're thinking about it and have a balanced approach. So I do think by the by the second half of the year, especially in the fourth quarter. We will we will see things beginning to return to somewhat of a normal situation.
And we will continue to have acceleration.
In certain areas of the business such as Wi Fi as we mentioned, yes. If I can just add one comment I think we have taken very proactive steps for the second half.
Of this 220 tool working very closely with our chip partners supply chain partners and I think as we said in last quarter's earnings call. We expect second half to be increasingly Victor whether it's.
Our liberty, whether its supply chain partners, that's kind of what we see right now and we are baking that in and I think my sense is that.
Cautiously very optimistic as we go into second half.
And one other thing I would I would add to that is that even as we sit here today, we're not waiting for Shanghai to reopen we have a plan that we've started to enact as I mentioned.
During my opening comments.
<unk> of shipping products out of that.
The Shanghai region, where directly out of the manufacturing areas in Shenzhen and elsewhere to other distribution facilities in Europe and in North America.
And that may cause some additional shipping costs that we will incur as a result of that but even despite that we think that with the.
Favorable mix with Wi Fi.
Becoming a bigger part of the business that that will help offset those incremental costs and hitting the margin.
Great. Thank you sure.
Thank you. Our next question is with SME Chatterji of JP Morgan.
Hi, Thanks for taking my questions I have a couple.
For the first one I actually wanted to follow up on <unk> question there.
Ask you and films.
What do you think the exit.
Revenue run rate for <unk> looks like because I'm trying to compare to June 'twenty, one quarter, where you did about $93 million of revenue from everything sort of you've talked about today it doesn't look like.
The demand is a problem, it's more EBIT logistics or supply so I'm wondering with sort of the supply situation.
Ill recovering with the combined like what's holding back the <unk> exit.
Can you run rate to be higher than the sort of number that you had particularly your guy.
Guidance for the full year to me it implies you're sort of thinking more mitigate these forces the 90 plus million run rate that ebix exhibited in the Boston I have a follow up as well. Thank you.
Yes, and I think that's about right, we do expect to around the mid <unk> in terms of the in terms of the fourth quarter as you mentioned and again were.
Being prudent in terms of how we're looking at.
Where we think we're going to be for the balance of the year and that that even at the mid <unk> is an acceleration from where certainly where we are today and where we expect to be in Q3.
Which is and the like.
Likely mid Seventy's range or so.
So so there is still a sizable increase in Q4, but we didn't really want to get overly aggressive in terms of that outlook of Q4, given the situation with China and how they are treating COVID-19 and the lockdowns for.
Any any sorts of cases of COVID-19 that come up in the country and what's happening in China with their vaccine et cetera. So so we want to be prudent and.
And estimate when we look out over the next few quarters. The best that we can so that's where we ended up.
And also submit until here.
Things are improving.
Mostly I think only come in 'twenty three.
The needs of the cambium emerging product lines high growth product lines, I think it will be improving but what we really need to go like a rocket I think thats 23.
So that's what you see built in here based on our experience realistically vertical and we as I said, we've taken a lot of proactive steps. We have given 21 month forecast flip chip suppliers, we have redesigned certain products as necessary, we are making sure that capacity and our manufacturing lines already for higher volumes. So these are also the times when company.
You need to do proper planning for expansion and Thats, what we are focusing on right now.
Alright.
All of us.
I mean, I don't have the exact absolute number in terms of backlog that you guys are reporting.
Looking at the quarter over quarter growth number as you would you say the 7% quarter on quarter increase in backlog, it's very similar.
What you had in <unk> as well and given that you had the issues that are shipping in <unk> I would've expected to be good increase in the backlog unless I am thinking about it wrong. So maybe just did actually sent me right. There in terms of why it doesn't backlog have a bigger sort of number on it despite being able to ship the largest one.
<unk>.
Yes, so so as the backlog actually has continued to increase throughout throughout this quarter that we're in.
And as I mentioned, we have we have the highest backlog today than we've had in the in the near recent past here.
So when you look at when you look at where where our strength is in the business right now in the Wi Fi product, especially.
And the margins associated with that.
We think that that that is going to continue to grow and.
And we've seen good acceleration of that this quarter.
But what in terms of in terms of looking at.
The outlook both for Q2 as well as Q3 and Q4 that all takes into consideration, where we ended up at the end of the first quarter.
And what the what the mix was and what the what the total total backlog was.
At that time.
As a tool mentioned.
We have products that debt that we're introducing into the marketplace that we believe will we will.
We will be.
Very beneficial to our revenue outlook, especially towards the last half of this year and going into next year.
And Thats, where I think.
Given as long as long as we see normal normalcy returning to the supply chain. We will see continued acceleration of both backlog as well as revenues that youll see showing up in the financials. So summit.
Two or three points I want to make number one I think as we go into the second half.
The supply chain situation is getting better and we said that last quarter as well and I'm reiterating that.
Secondly, the enterprise segment of Cambium is fully transitioning to life by six.
Remember these are S curves of growth.
On the new growth curve with our enterprise full portfolio fully mature full roadmap very well received.
Next point is like fixed wireless broadband is also going through a technology transition and this is an important point and.
And we anticipated that with 60 gigahertz and 28 gigahertz both of those product lines are in early gestation.
So as we come through Q3 Q4, and then Q1 next year you will see US talk a lot more about the wins the deal sizes, because we see that new S curve or gigabit networks, and wireless coming and really augmenting fiber and and the transition of fixed wireless broadband is probably about six.
Behind lifecycle.
Wi Fi transition happen faster, but it's also simpler and right comes behind the fixed wireless broadband transition and I'm very excited.
Cambium will beta test six gigahertz band.
For multi gigabit connectivity RFP MP line and ship volume in Q4. This is new very advanced technology and this will assure the new S curve of fixed wireless broadband.
Thank you.
Thanks, Amit.
Thank you. Our next question is Mr. George of Jefferies. Please go ahead.
Hi, guys. Thanks, very much I guess in the past you guys have given us some commentary on channel inventory levels. I guess I was just curious if you have some comments about where channel inventories stood at the end of Q1.
George Good to hear from you now let me let me take that question. So in fixed wireless broadband, there's definitely assimilation going on of accelerated buying in.
Can ask would be and then 'twenty one and.
And we see that but the point of sale is pretty we monitor that pretty closely so I think in some products there might be inventories because customers are kind of digesting assimilating and also customers are beginning to think about what is the next generation fixed wireless broadband architecture.
Or net net at this point we are still.
Product lines, we are still building our inventory like for example, <unk> product lines were very constrained in inventory right. Now if we had more chips right now will be cranking more products. So a little bit of balancing act Goodman, but net net customers are able to handle that over a quarter or two period.
Gotcha, and then I also want to ask about.
Pricing.
So.
Sounds like you took pricing increases in queue for just curious can you remind us how how much those pricing increases were and then.
How much of that might have been assimilated into the model in Q1.
So perhaps Andrew can please add based on anything I missed approx.
Approximately I would say 10% to 15%.
Price increase.
Cumulatively across product lines.
Based on into some of the increases the prices we face from our suppliers.
All we did have inventory.
An existing inventory existing contracts I wish the cute too is probably the first quarterly you'll see pretty wholesome impact and then in the second half.
Clean because we would have eaten into those inventories and contracts and all that will be all new pricing.
Okay, great. Thank you very much. Thank you are thank you.
Ladies and gentlemen, once again ask a question you will need to press star one on your telephone keypad again simply press Star one and please limit yourself to one question and one follow up question. Our next question is with Scott <unk> from Rod capital.
Hey, good afternoon, thanks for taking my questions.
I apologize for going back to the supply chain again, but.
It looks like you've been doing things in terms of the best jobs, which can shorten wherever one else has from a supply chain perspective redesigning products. So I was wondering if you could talk a little bit about more manufacturing diversity of their manufacturing from a geographic standpoint.
You can be more resilient.
To not have any single points of failure going forward. It to the last three quarters. We've had some problems on that front caused by China. What can you do to design around that so you are a little more flexible.
If there's a third with Scott.
Scott.
Hear from you on an excellent question.
There are two two areas. We are working very proactively one is linearity in fact I'm going to be you didn't ask that but I'm going to address that.
We are working very proactively on linearity because.
And we also realized that I think when you are more back end loaded you also get hit harder with these type of events and Andrew one of the reasons, we brought Andrew into the company is Andrew brings excellent background with some of the manufacturing company. They work for and linearity in those that's one project we have started.
Secondly.
With respect to China and dependency in China.
About I would say maybe half of our manufacturing or saw happens in Guadalajara with flecks.
So we are already we have a very strong relationship with them and many of our fixed wireless broadband products are done there.
In addition, we are very proactively diversifying from our audience in Taiwan into Southeast Asia.
Proactively areas like Penang.
So you will see cambium continued to diversify opportunistically and strategically.
Having said that there are a lot of components bar supplies mechanicals, they come out of China, and so it's not just manufacturing we have to look at it pretty wholesome Lee.
And the 360 degree way and we are going through all that a lot of attention being paid because we totally realized that the more diversified but in a meaningful manner. We are the better it is.
So both projects and getting a lot of good attention inside and your next few quarters as we make those decisions as we diversify just to give an idea or new products. We are designing we are increasingly moving them towards southeast Asia.
Okay very helpful and if I could then follow up on the gross margin front.
Sounds like the price increases you see more of an impact in the second quarter you benefited from the Wifi mix in the first quarter, but if I kind of worked through some of the numbers in the annual guidance either implies that opex is ramping up a lot more.
Or gross margins are kind of plateauing, if not sort of rolling over so I'm wondering is there something else going on in the second half of the year as you think about the gross margin profile does it stagnate does not continue to increase or is it just a level of conservatism in terms of how your guiding.
So we're we're again being being prudent on taking a look at where we are with opex as well as gross margin as we go throughout the year, but but with the way that we're looking at it.
Is that is that that opex will increase a bit as we move ahead throughout the year because of inflationary pressures and and.
Increase increase salaries for example, and and and costs relating to.
Some of the R&D materials that we that we need in terms of of the next gen products that we are focused very much focused on it.
In terms of the gross margin, we still believe very strongly in our overall.
Roll operating model goal to work up towards that 51% to 52% goal.
Time, but we don't we don't necessarily see that happening in the very short term.
Because of all of the issues around the tightening of of the of the supply chain as well as pricing.
Of components and chips, so I think once things begin to stabilize further.
And there's more supply of chips in the marketplace.
It happened.
Towards the end of this year and certainly next year I think that you'll see the gross margin increased further so gradually that answers. Your question no very helpful. By the way congratulations welcome aboard if I <unk>, if I could follow up on that front is that 50, 152% a realistic goal for 2003.
I think I think we could hit that goal, especially in the last half of 23.
Driven by driven by our new products.
Along with along with a normalization of the supply chain.
Scott one more point I would add is we have a very strong federal defense funnel right now mhm.
Never has been this strong in the geopolitical events accident driving that even stronger. So I think you can expect that in the second half of this year and in front of.
The Federal Defense will also play you pardon generally that gives us a good uplift for the gross margin, okay, but what I will say that as we look to diversify as well out of China that there will be a cost of doing that and that's why we're being really prudent and how we're we're looking at gross margins going forward, so it'd be looking at that towards.
Towards the end of next year, Okay, and lastly, if I could.
Three quick questions on the product front until you were talking about the excitement related to five five G. A 2008 gig to 60 gigahertz products, you've got multiple plc's for the 20 gig could you help us understand you talk about them being larger opportunities could you put a number of framework around it either what you would expect revenue to be exiting the sheer or maybe.
What the revenue opportunity for them as in 2023 also on the EP M. P front I know that there are some new products coming that offer some higher possibly multi gigabit speeds I think around more of the five G. Architecture. I was wondering if you could talk about that and lastly, I just want to confirm the availability Wi Fi 60 outdoor solutions when we will see.
Them getting certification in enrolling to market. Thanks.
Thanks Scott.
One of the power or strength of cambium.
Is that we have a wireless fabric and I'm going to go a little deeper into that just do a position that each region has a different frequency plan. Each region has a different dynamic. So for example in Europe and Carla South America. They have can be a gigahertz license frequency with so many different so.
So many different service providers. So we are seeing exploration and 28, they're very well received and as I said new sizes are larger.
And these deal sizes are multi million dollars each type of a deal. So I won't go deeper than that but it could start to give you a flavor.
When it comes to North America. The six gigahertz band is the excitement I. This is clean frequency. This is 1213 gigahertz band, which is being released for the first time in two decades, so you're going to see a significant.
Solutions for multi gigabyte based on that frequency band and can be able to be one of the first in the world who are for beta in Q3 and volume shipment. This is what I call new S curve and fixed wireless broadband right. Our strategy is based on two key word affordability and quality. That's how we about this company always men.
And the affordability, but yet have fantastic quality, you'll see us off of that and the fixed wireless broadband in North America. So all the fabric integrated different frequencies in different architectures manages from single pane of glass and then tell the customers that Mr customer Bill.
Lost.
Edge half kilometer or so you have indoor outdoor Wi Fi, which is why five six and described many of these calls I would say the combination of technologies like 60, Giga byte five six if the hand on the globe and we are seeing that and municipalities. We are seeing that an educational institutions, we're seeing that it's so many different so.
Tuition, where they used fixed wireless broadband now they're using viper in some different with Wi Fi and other thing can you do metrics with guards. So interplay of this multi gigabyte technological very powerful and you will see that I think definitely in second half as well as in 23.
Great. Thanks, so much.
Thanks Scott.
Thank you there are no more questions on the queue and with that I would like to turn the call over to Mister Peter human for the closing statements. Thank.
Thank you Delfont during Q2 22 can't be M networks will be presenting a meeting with investors on may 19th at the parent and research virtual Spring conference in on Wednesday may 25th at the J P. Morgan Global TMT Conference in Boston Mass in the meantime, you're always welcome to contact our Investor Relations Department at 8472642188 with any.
Questions that arise. Thank you for joining us in this concludes today's call.
Ladies and gentlemen that concludes quarterly earnings call. Thank you for your participation you may not have a golf.
[music].
[music].
[music].
[music].