Q1 2022 PCTEL Inc Earnings Call
Welcome to the P. C tell first quarter 2022 earnings release conference call at.
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'll 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> first quarter 2022 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 pellets best current judgment.
They are subject to risks and uncertainties, particularly.
Related to the COVID-19 pandemic.
The global supply chain and logistics challenges.
The expansion of our distribution channels and the impact of our smart Tech wireless ABB.
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.
In 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 gross margin percentage non-GAAP operating expense.
non-GAAP earnings per share.
Adjusted EBITDA we.
We believe these non-GAAP measures facilitate comparability of results over different periods.
A full reconciliation of these non-GAAP measures to GAAP.
Loaded in our quarterly earnings press release that was issued earlier today.
I'm now pleased to turn the call over to David Neumann.
Thank you, Kevin and good afternoon, and thank you for joining us.
We're pleased to report year over year revenue growth for the first quarter of 2022 as you may recall we.
We had record setting backlog at the end of 2021.
About half of that converted to revenue in the first quarter, while we maintain a healthy backlog with additional incoming orders.
First quarter demand increased from our larger OEM customers, we secured new design wins orders from stocking distributors grew.
And we added new general market products to our product pipeline for release later this year.
Our team continues to do an excellent job in managing supply chain disruptions and increased transportation costs.
We've started to see nominal improvements both in transit times and shipping fees, although they both are considerably higher than before the pandemic.
In today's call, we will share a summary of the first quarter discuss our product launches and design wins.
Sure our view of trends in our market segments, all of which give us optimism for annual and long term growth.
As you may have seen in our press release issued after market close we achieved 27% growth year over year and revenue from $17 7 million in the first quarter 2021 to $22 5 million in 2022, which includes $2 6 million in contributions from Smart Tech wireless.
An acquisition that closed in April 2021.
We remained profitable with non-GAAP earnings per share of <unk> <unk> in the quarter better by <unk>.
Compared to the same period in 2021, despite the product mix being more heavily weighted towards antenna sales and the increased cost of freight logistics and raw materials.
Our lower non-GAAP margin percentage of 41, 8% primarily reflects the higher revenue mix of antennas and industrial Iot devices relative to the higher margin scanning receivers.
Overall, we believe general market conditions are improving based on the increased demand from our Oems and major distributors from our antenna products.
We were able to resume limited travel in the first quarter to visit our offices meet with customers and attend several important tradeshows.
Although there are so global challenges that require attention, including supply chain disruptions recently expanded COVID-19 shutdowns in China and the war in Europe I'm pleased with how the team has managed our business to maintain a high level of service for our customers.
Given the information we have today regarding product opportunities in the market conditions, we expect to see quarterly sequential revenue increases for the remainder of the year.
We launched three new antenna programs in the first quarter of 2022 to expand penetration of our most popular antenna solutions into existing and new markets. We.
We signed new resources to work exclusively on these three initiatives are expecting to see results starting in the second half of 2022 that will drive long term growth in the shorter term. We were awarded an important design win with a European luxury automobile manufacturer for smart Tech embedded antenna we delivered prototypes.
Multimode complex antenna for rail applications that we anticipate shipping in larger quantities this year.
We launched two new <unk> antennas for rail enterprise and utility applications in the quarter.
EV or electric vehicle charging stations continued to be an important market for the company with demand and orders increasing in Europe for a smart tech tenants.
We believe these EV antenna solutions will be popular in the U S market as well and they will contribute to revenue this year.
The smart antenna portfolio combined with PC tells new platforms create one of the largest that center portfolio as an industry for vehicular industrial Iot and broader <unk> and Wi Fi applications.
Rod product portfolio enables us to support a larger number of distributors and efficiently introduce <unk> products to new clients.
With the addition of more than five new strategic distributors over the past two years, we have increased our reach and sales leveraged to provide an important long term growth driver for our business.
Additional growth drivers for our test and measurement business include <unk> deployments and signal intelligence for government applications. Our <unk> scanning receiver. The G. Flex is designed to test multi technology cellular networks and more advanced signal intelligence applications for government entities.
New <unk> networks launches continue, albeit at a slower pace over the past two years due to the pandemic.
As of February of this year, approximately 40% of the operators deploy the <unk> mobile system.
Spectrum auction awards have resumed and will continue through the year for many of the remaining global markets planning to deploy <unk> newly available spectrum. Once awarded deployments will require five <unk> test and measurement tools like our G flex with an enhanced scanning performance to test both public cellular and private <unk> wireless networks.
<unk>.
Private <unk> networks are ideal for businesses that have applications, requiring ultra low latency high reliability and security such as automated mobile robotics self driving machines and managing collective intelligence across many sometimes thousands of devices.
We believe our expertise in test and measurement tools, along with our antenna systems positioned the company well to support private fiber deployments and the ongoing maintenance for this expanding market.
In addition to providing testing solutions for the cellular markets. Our scanning receivers have become an integral part of testing public safety networks for both in building and outdoor networks.
In March we announced the availability of our automated uplink testing capabilities as part of a wider initiative to test and monitor both downlink and uplink spectrum for public safety and critical communication infrastructure.
This testing capability is important because the uplink signal transmitted power is a small fraction of the downlink power and thus is more susceptible to interference and blocking from building materials.
<unk> uplink testing solution as an upgrade to our market, leading public safety and building tools based on our IV flex that test the downlink.
Testing solution is used by approximately 140 certified public safety testers in the United States. This is an increase in the number of testing companies of about 40% over the past year.
The uplink and downlink tests are fully supported by our seahawk Central platform currently used by testing organizations building owners and jurisdictions responsible for ensuring the safety of first responders PCT.
<unk> has the most comprehensive public safety solution for this important testing application that is critical to keep first responders safe.
Majority of our businesses in the U S and we are leaders in providing test and measurement tools and antennas for cellular <unk> <unk> and.
<unk> Wi Fi technologies across attractive markets, including industrial Iot fleet, Agriculture rail timing in public safety and <unk>.
<unk> organic growth initiatives, we continue to evaluate strategic acquisitions that complement our product lines and expand our global reach with a focus on Europe .
With that I'll now turn the call over to Kevin for a closer look at our first quarter and a discussion on the financials Kevin.
Thank you David.
I will review the financial results in more detail for the first quarter ended March 31, 2022, and it will provide second quarter 2022 guidance.
Our revenues and earnings in the first quarter were higher year over year and exceeded our guidance.
Total revenues of $22 5 million were approximately 27% higher in the first quarter of 2022.
Compared to the first quarter of 2021.
Because of higher revenue for antennas and industrial Iot devices.
Revenues for antennas and industrial Iot devices were $17 1 million, an increase of $5 4 million compared to the first quarter 2021.
This increase was the first quarter of 2022. This is both the revenue recognized from Smart Tech, which was acquired in the second quarter 2021.
And an increase in organic revenues related to antennas for fleet and public safety applications.
Test and measurement revenues were $5 6 million for the first quarter 2022.
<unk> measurement revenues were lower by <unk> 6 million compared to the first quarter of 2021 with lower revenues in the U S.
The first quarter of 2022 gross profit margin on a non-GAAP basis was 41, 8%, which was five 7% lower than the first quarter 2021.
The decrease in the gross profit margin percentage in 2022.
Prior to the prior year was primarily due to a higher mix of antennas.
The non-GAAP gross profit margin percentage for antennas and Iot devices was lower by one 3% in the first quarter of 2022 compared to the first quarter 2021.
As less favorable product mix and higher cost for logistics and other components offset favorable operating leverage.
We increased prices during the fourth quarter 2021, but a majority of the revenues for the incentives in the first quarter of 2022 were from backlog that did not reflect the higher prices.
The non-GAAP gross profit margin percentage for test and measurement products was higher by 7% in the first quarter of 2022.
The first quarter of 2021.
Operating expenses on a non-GAAP basis, or $9 1 million in the first quarter 2022 and.
An increase of <unk> 8 million compared to the first quarter 2021.
The increase primarily results from inclusion of <unk> operating expenses. In addition to higher sales and marketing costs related to travel and trade shows.
Adjusted EBITDA was $1 1 million in the first quarter 2022, compared to <unk> 8 million in the first quarter of 2021.
EBITDA as a percentage of revenue was approximately 5% in the first quarter of 2022 the.
The same as the first quarter 2021.
And non-GAAP diluted earnings per share was <unk> <unk>.
In the first quarter 2022, higher by <unk> <unk> compared to the first quarter 2021.
Cash and investments were $27 7 million at the end of the first quarter 2022.
Our cash and investments declined by approximately $3 1 million due to negative free cash flow of $1 7 million in cash used in financing activities of $1 4 million.
Free cash flow was negative because our EBITDA was offset by cash paid for restructuring expenses related to our transition to <unk>.
Truck manufacturers in China.
And because we use working capital of $3 7 million to pay down year end accounts payable and accrued liabilities.
We completed the China manufacturing transition during the first quarter.
Savings from a reduction in fixed costs and Tien tsin.
US offset some of the increases.
$1 7 million in the second quarter 2021.
We project, our non-GAAP gross profit margin percentage.
And the range of 44% to 45% with that I will now turn the call back to David.
Yes.
Thank you all for joining us before we take questions I'd like to share a few closing thoughts.
We're pleased with our performance in the first quarter and the outlook for the year. Our team is doing an excellent job managing the current challenges and planning for risks that may occur given the pandemic global financial situation and more in Ukraine, which has had a nominal impact on both of our product lines.
We're staying in close contact with our customers to plant production to meet their ongoing delivery requirements.
Continue to make investments across the company, including R&D product line management operations and sales are.
Our new product pipeline supports our mission to broadly distribute wireless connectivity products for critical applications.
As our world becomes more dependent on wireless connectivity.
The demand for high performance antennas and test tools and will grow.
With that Kevin and I are available to take questions.
Operator.
Ladies and gentlemen, the floor is now open for questions.
Do you have any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question you. Please pickup your handset with listening on speaker phone to provide optimum sound quality. Please.
Please hold while we poll for questions.
Your first question for today is coming from Jason Schmidt. Please announce your affiliation then pose your question.
Hey, Jason with Lake Street, Thanks for taking my questions guys and congrats on a really impressive results and outlook.
Wanted to kind of start with the Q1 performance just given the supply constraints was there any demand that you actually could end up shipping.
That's a good question, Jason I don't think there was any demand that we couldnt ship.
One.
I would say indirect benefits of the pandemic as we've had even tighter communications with our customers.
So we have a bit more visibility going out in the future of what they need and when they need it and also keep in mind that once we get to the start of a quarter a good portion of the antenna business is already built in our baked in so the products are already on the boats.
Or rail or what have you are.
Coming to PC tell so we're in a pretty good position.
Scanner business of course is a bit more transactional orders come in and we typically ship those within a couple of weeks.
But I don't know of any situation, where we were not able to ship product for specific demand.
Okay.
Helpful color.
Just a couple of questions around gross margin and some of the dynamics there I mean based on your commentary it sounds like you do expect some at least incremental improvement in the supply chain backdrop as we progress.
The remainder of this year and then I guess related Lee will.
Will you guys know see that full benefit of the manufacturing move in.
In China here in Q2.
Well, we saw a little bit of it in Q1, Jason but we'll see additional in Q2.
It's kind of varied with some of the other factors that play into gross margin, including the shipping costs and some of the component costs, but.
The net result of the actions that were taken in Q1, probably help us to the tune of 100 150 basis points on the margin.
Okay Perfect and then just the last one from me and I'll jump back into queue from a geographical perspective, any particular areas that sort of jumped out either positive or negative in the quarter.
Well historically I don't think this quarter was any different.
40 of our business comes from the U S markets.
So thats the strong strong markets for for antenna business for sure.
<unk> scanners.
I would say the U S isn't necessarily saturated, but we have quite a bit of <unk> gear deployed in the U S.
We're seeing some increased demand in Europe are starting to see some increased demand in southeast Asia. So I think for the scanner business going forward, we're going to rely more on international.
Countries or businesses or international business.
And then I would say.
The other bright spot for the antenna business is really Europe with the smart tech team on how to Stockholm.
They had additional wins with some <unk>.
Luxury auto manufacturer.
The EV charging station business is doing well the antennas for some of the metering applications are doing well. So there is definitely some some positive surprises coming out of Europe for the antennas.
Okay, great to hear.
Thanks, a lot guys.
Thanks, Jason.
Once again, if there are any questions or comments. Please press star one on your phone at this time.
There are no further questions in queue I would like to turn the call back over to David for any closing remarks.
Thank you Holly. Thank you all for joining us this afternoon.
Can't say enough about how important it is to have a talented and dedicated team to support our customers. So definitely want to thank our employees. Thank our suppliers and of course, thank our customers.
I hope everyone has a good afternoon. Thank you for joining the call.
Thank you for joining us today for PC tells first quarter 2022 earnings call.
You may disconnect your lines.