Q2 2022 Airgain Inc Earnings Call
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Ladies and gentlemen, thank you for your patience. You are holding for today's Air Gain second quarter 2022 earnings conference call. At this time, we are gathering additional participants and will begin momentarily. We appreciate your patience and ask that you please continue to hold.
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Good afternoon. Welcome to AirGain second quarter 2022 earnings conference call. My name is Taryn and I will be your coordinator for today's call. Joining us for today's call are AirGain CEO Jacob Suen, Senior Vice President of Product and Marketing Morad Spahi and Vice President of Operations Victor Blair.
As a reminder, this call will be recorded and made available for replay via a link found in the investor relations section of AirGain's website at www.airgain.com.
Following management?s prepared remarks, the call will be opened up for questions from AirGain?s publishing self-side analysts. I caution listeners that during this call, AirGain management will be making forward-looking statements about future events and AirGain?s 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 a company?s business.
These forward-looking statements are qualified by the cautionary statements contained in today's earnings release and AirGain's SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 11, 2022. AirGain 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-
Then, our Senior Vice President of Product and Marketing, Morad Sabahi, will provide an update on our strategic product and marketing initiatives.
Afterwards, our VP of Operations, Bec Blair, will discuss our key operational initiatives that are enhancing efficiencies and driving scale.
As we indicated during our guidance, we had a liquor second quarter that built upon the strong momentum we established in Q1 and delivered liquor quarterly sales of $19.3 million.
which was up 10% sequentially and 11% year over year.
This strong growth pattern was driven by our focused efforts to expand our enterprise and automotive segments.
In addition to strong top-line growth, we deliver our first quarter of adjusted EBITDA profitability in over a year.
Taking a step back, especially for those of you who may be new to AirGain in our industry.
I would like to provide a brief overview of who we are and what we do.
AGAN is a leading provider of wireless connectivity solutions.
creating and delivering products that include embedded components, external antennas, and integrated systems across the globe. We operate in three growth markets, enterprise, automotive, and consumer, which collectively offer again a more than $15 billion total addressable market.
Our enterprise market is characterized by solutions for the Industrial Internet of Things, or IoT.
smart city and smart utility connectivity, and reliable wireless connectivity in dense environments such as buildings, stadiums, and transportation terminals.
Our automotive market includes products that are deployed in a wide range of vehicles to solve critical connectivity needs in the fleet, public safety, and automotive aftermarket segments.
in our consumer market, which is the original pillar of our model, encompasses a large growing set of consumers using wireless enabled devices, including wireless gateways, smart home devices, and more, while utilizing technologies such as Wi-Fi, LTE, 5G, and LPWAN.
Today, we see the largest and fastest growing opportunities in our automotive and enterprise markets.
particularly on the IoT front with number link products now fully integrated into our portfolio.
Over the last year, we have made significant progress integrating our products and organizing our portfolio.
Through this process, we discover that a significant differentiator for air gain is the diversity of products we offer across the value chain.
whether you are building a connected product and need embedded components that can help you get to market quickly, only to solve a critical connectivity issue in your operating environment.
Because of this value proposition, we have organized our products into three distinct subbranes.
AirGain Embedded, AirGain Integrated, and AirGain Antenna Plus.
Later in the call
Morel will dive deeper into these suck brands and provide color on their makeup.
With an extensive array of products invest in markets, partnerships have never been more important to our go-to-market strategy.
We continue to see demand for our external fleet antenna business, especially in public safety.
where we have secure, stable wings for our products to be deployed with first responders.
Alongside those efforts, we have built partnerships with software and hardware providers to amplify our sales efforts on the B2B Manufacturing front.
specifically targeting fleet management, asset tracking, public safety in transportation markets.
Our core business with service providers remains strong. As an example, we are incumbent in a next generation Wi-Fi 6E opportunity that we started working on in the second quarter with a North American TO1 service provider that is expected to launch in Q2 2023.
In addition, our new solution-saling approach has helped us secure wins that include more than one of our product lines.
significantly increasing the size of our customers' engagements.
During Q2, we secured a WAN with a medical device manufacturer that includes one of our number link embedded modems and three of our embedded antennas in each unit.
In addition, an energy company selected AirGain to connect their mobile fueling units, each one with a neighbor link, embedded modem, and an external M2Mux antenna.
These design wins showcase our ability to leverage our comprehensive portfolio to meet the complete connectivity needs of these customers and help brand their products to market quickly with minimal design resources.
In addition to our embedded component wins, we also continue to grow our integrated product lines.
During Q2, we expanded our fleet connectivity opportunity into the financial services market with a significant order to a key service provider in the industry.
We are also seeing significant wins through our asset tracking partners in the construction, rental, packaging and micro-mobility markets.
The growing partnerships and customer wins not only reflect the increasing demand for A-Gain's innovative technology, but also our world-class global team, who is committed to realizing our company's vision in scaling our business.
In terms of our CFO search, we have narrowed the search down to a short list of financial leaders that have the credentials to build on our solid foundation and take AIGAM to the next level of growth and profitability.
We expect to have our new CFO in place by the fourth quarter.
I would like to thank our finance and accounting team who have stepped up and done a tremendous job in the interim.
With that in mind, I'll discuss our financial results for the second quarter and June 30th, 2022.
Sales increased 10% sequentially to a record $19.3 million, up from $17.5 million in Q1 of 2022.
Beginning with our consumer sales, Q2 finished at $6 million.
$100,000 below Q1 2022, primarily due to supply chain constraints for our customers.
Enterprise sales increased from $8.6 million in Q1 to $9.1 million in Q2. The growth in enterprise sales was mainly due to growth in industrial IoT and enterprise Wi-Fi products.
Automotive sales increased from $2.8 million in Q1 to $4.2 million in Q2, primarily due to higher revenue from our AirGain Connect and Antenna Plus products.
Our non-gap gross margin sits solidly at 39.4%. Margins were 110 bits below midpoint guidance, mainly due to unfavorable product mix and higher than expected material costs.
non-GAAP Upgrading Expense of $7.2 million in improvement over our guidance range.
non-GAAP net income in Q2 was $358,000 and our non-GAAP earnings per diluted share was 3 cents. To a resistance someone interested in log O and and I
Both represent substantial improvements from the prior quarter.
adjusted EBITDA was $0.5 million in Q2, an improvement from our guidance range.
and a great improvement from negative $0.3 million in Q1 2022.
Finally, our balance sheet remains strong with cash and cash equivalents a quarter-end of $9.4 million after paying the enabling earn-out in April .
Now, I would like to provide a preliminary outlook for the third quarter ending September 30th, 2022.
Due to the ongoing supply chain issues affecting companies globally, both AirGain and our customers are experiencing longer lead times for contract fulfillment of certain products.
We are taking proactive steps to mitigate some of these issues.
such as procuring long lead time items in advance of normal orders to reduce the overall deployment time for our systems and components.
In Q3, we expect sales to be in the range of $18 million and $19.5 million.
or $18.75 million at the midpoint of the range.
We are seeing orders shipped quarter to date, in addition to our current backlog that already exceeds the midpoint of our guidance.
We expect non-yap gross margin for the third quarter to be in a range of 36.5% to 39.5%.
We expect Q3 non-GIP operating expense will be about $7.1 million plus or minus $200,000.
Non-gap net income per share for Q3 is expected to break even at the midpoint.
I'll just say EBITDA is expected to be $226,000 at the midpoint.
Now, I would like to turn the call over to Mollre, who will walk us through our sales and marketing initiatives. Mollre?
Thanks Jacob.
In our previous call, we introduced a marketing framework that helps communicate the progress we are making in penetrating our core growth markets.
We internally call this marketing framework the three E's.
which are evolution, ecosystem, and expansion.
Addressing our continued evolution,
I am encouraged to report that our efforts with the major utility company I mentioned during the last call, Deploying AirGain Connect and adjacent products at a large scale continues the progress.
AirGain is also evolving its depth of capabilities to better enable enterprises to deploy powerful, reliable, and secure private wireless networks
that require higher throughput and wider coverage.
along that line. This quarter we introduced the next generation of CBRS and CBAN antennas for private wireless network applications.
featuring technology that provides high performance connectivity for point-to-point, as well as point-to-multipoint applications.
We also continue to build our ecosystem or our partnerships.
We separate our partnerships into two categories.
namely partners that we sell to and partners that we sell with.
The sell-to partners are those we sell our products and solutions directly to.
Our sell with partnerships represent joint selling opportunities where AirGain goes to market alongside the partner.
We frequently receive requests for these arrangements for our asset trackers.
Aftermarket antennas.
and with our AirGain Connect product.
In addition, there is a growing opportunity for these types of partnerships with our embedded products.
Expansion represents our development of future technology.
last call we talked about the work we are doing with Mobix Labs that will help grow our leadership in 5G.
We will also shortly be announcing another partnership that was entered into in Q2 that will continue to help us future-proof 5G networks.
Our advanced development team is hard at work producing new products to target entirely and tap segments for us.
All with the express goal of establishing AirGain as a leader in 5G.
Our company was founded 20 years ago upon the introduction of the first commercially available smart antennas for wireless LAN.
We hope to introduce more firsts in the future.
in the future. Stay tuned.
Jacob also mentioned earlier our three new sub-brands, AirGain Embedded, AirGain Integrated,
and Air Gain Antenna Plus.
These brands help to organize our product portfolio by audience, focusing our marketing and sales efforts on a core value proposition for each.
The AirGain Embedded brand includes our internal antenna systems.
NimbleLink embedded modems and development kits.
It is focused on design teams consisting of engineers, product managers, and system architects that are trying to bring connected products to market.
This brand is meant to provide this segment with a comprehensive portfolio for wireless development that speeds time to market, requires minimal in-house RS engineering, and provides a future-proof pathway to potential product versions.
Again, integrated combines our expertise in cellular and signal enhancement to bring fully integrated products to markets that improve connectivity in the operating environment for our end user markets.
These markets include public safety, fleets, logistics and transportation, agriculture, public operators and more.
AirGain Integrated is comprised of our AirGain Connect platform, asset trackers, device management software, and more.
Finally, AirGain Intenna Plus represents our external signal enhancement product.
It is divided into our fleet antennas, which appeal to our end-user markets, and IoT antennas, which appeal to design teams.
In the case of our IoT antennas, a design engineer often must decide whether to design an internal or external antenna, and AirGain is able to offer multiple options.
By segmenting our product offering by audience, we have also been able to successfully launch targeted demand generation activities that have begun to generate significant results, filling the pipeline for current and future sales.
Looking ahead, we have aligned our product suite with the expanding demand from our markets and customers.
We continue to evolve our products to meet changing market needs and are improving our market delivery mechanisms.
We also see continued interest in our products from software, hardware, and carrier partners because of their ease of integration and look to continue to build our leadership, taking advantage of the new wave of 5G product deployments.
Now I'd like to turn the call over to Victor to give operational updates.
Fixed.
Thanks, Morehead.
Last quarter, we announced a successful migration to a 100% fabless model, which involved closing our Arizona manufacturing facility.
That decision saw success in short order as we were able to maintain a flexible production process and continue the migration of finished goods assembly to North America, thereby mitigating the risk that other companies are experiencing in China on supply chain related matters.
Despite these moves, there are significant headwinds looming that will likely prolong through the end of the year. The continued impact of the pandemic is felt in the periodic shutdown of factories, especially in the Asia-Pacific region.
This has created additional supply chain shortages and purchase price variants that are affecting some of our customers' programs.
In addition, rising interest rates, inflation, and associated effects have combined to challenge AirGain's opportunities to grow margins and remove risk for customer supply chains.
Despite these external headwinds, AirGain delivered record sales in solid gross margins. We also feel that we can mitigate some of these effects in the future through operational efficiencies, including redundancy in our contract manufacturers, dual designs, and our ability to carry strategic inventory.
The CM transition and other steps we took in the previous quarters have successfully given AirGain greater scalability and have already shown their value in mitigating risks surrounding global manufacturing and shipping halts.
We will remain resilient and flexible in order to provide end customers with innovative and reliable products.
Now I'll hand it back over to Jacob to close out our remarks. Jacob? Thanks, Vic. As you can see from our growth and profitability metrics.
We are executing on our strategy to penetrate our growth markets and capture a meaningful share in the wireless connectivity market.
Our record quarterly top-line revenue and positive adjusted EBITDA reflect our execution of strategy and commitment to delivering profitable growth.
Looking ahead, we are focused on going within our core markets as well as expanding our leadership within IoT and 5G. We plan to expand our existing product lines to better serve the needs of our markets and hopefully introducing a few firsts.
here in the near future.
Our success on these key initiatives will position us for accelerated profitable growth in consistent test generation.
In parallel, AirGain will continue to look at strategic inorganic growth opportunities that align with our overall market capture plan to enhance our product portfolio or customer base within our targeted market.
While being mindful of risks associated with various macroeconomic factors, we expect growth will accelerate in Q4 of 2022. Our outlook for growth is supported by the strong tailwinds in our end markets, our growing backlog and our confidence in our team's ability to capitalize on the demand for air against advanced wireless technologies.
And with that, we're ready to open the call for your questions.
Operator, please provide the appropriate instructions.
Thank you. The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time.
If you are using a speakerphone, we ask that while posing your question, you pick up your handset to provide the best sound quality. Again, if you do have a question or comment, please press star 1 on your telephone keypad at this time. Please hold a moment while we poll for questions.
We'll take our first question from Michael Nanny with B. Riley Securities. Please go ahead, sir.
Hi, this is Michael Mani for Craig Ellis. Thanks for letting us ask a couple of questions. My first question is on gross margins. So I know we're looking back to get into the low 40% range again. You guys in this call in the past have talked about some of the initiatives you have to get back to that range. Could you just talk about how you see your timing to get back to the low 40% levels and how you see your timing to get back to the low 40%?
Also, if you could just maybe quantify what the headwinds are in terms of size and just how do we improve on those initiatives, just everything from COGS headwinds to structurally improving margins and maybe the auto and enterprise segments of your business as well. Thank you.
This is Victor Blair. Thank you for your question. First of all, let me address the effort that we have in directing our gross margins towards an improvement. We experienced some unfavorable product mix in Q2 and we incurred some one-time charges and we...
we're repositioning our inventory in Q3 which will help eliminate and give us a much more positive trajectory in Q4 for a gross margin improvement.
The headwinds that we see are certainly everything that everyone is experiencing in macroeconomic climate right now. We've had increases in cost of service, certainly longer than normal durations for deliveries. We've seen the impacts very present in the supply chain channels, specifically in the...
in the Asia region and we're taking proactive measures to position inventory on our longer lead time items to mitigate against those global supply chain issues right now.
I guess my next question is on consumer. I know we are also in that regard also targeting to get back to maybe 9 million sales per quarter levels. Could you characterize the size of the supply headwinds to the consumer segment in terms of lost demand if you can and also how much...
you think we of that demand that we recover going into 3q and 4q this year. Thank you.
Good talking to you Michael. It's Jacob here. So I'll go ahead and pick up questions and having Vic or more to chime in as needed. So on the consumer side as I indicated, you know, previously that we're really seeing a recovering company although it's been steady instead of improved dramatically like we were hoping for and the main reason it's really due to the supply show this constraint that Vic alluded to.
The good news is that the demand is definitely there. In fact, many service providers are already upgrading their network to support Wi-Fi 6E. And that really positioned the game pretty well for the near future. I indicated that in Q2, there's another major service provider in North America, T1, and that's the
that's already starting the design and expect that there will be shipping in Q2 of next year. So all in all, the demand is really promising. So the issue really we're dealing with here is regarding the supply shortage. And as Vic mentioned, we're still seeing the impact of the pandemic. I think that shutdown is still happening, but we do expect that to really improve in the latter part of this year and definitely getting a lot better next year.
Thank you, Jacob. If I could squeeze a follow-up about the auto segment. It is nice to see the upside this quarter. I know a significant contribution to that was AirGain Connect. If you can, would you be able to break out how much the contribution from AirGain Connect was this quarter? In addition to maybe characterizing where that upside comes from, I am guessing some of it was from that.
utility, big utility win back in April , but any other notable wins or trends there?
Yes, great question, Michael. So we don't really break down the details regarding a particular market segment, but we did mention in the earnings call earlier regarding the contribution to the uptick in automotive are mainly contributing to Airgame Connect as well as some of our antenna plus improved sales. We do see that trend continue hopefully next quarter and beyond.
Thank you very much.
Thank you, Michael.
As a reminder, if you would like to ask a question, you may press star 1 on your telephone keypad at this time. And that's star 1 if you'd like to queue up for a question.
We'll take our next question from Alex Vecci with William Blair. Please go ahead.
Hi, thank you for taking my question. This is Sabrina on for Alex. You guys have done a really good job managing your objects close to the levels of first quarter last year. My question is kind of how to think about affects going forward and the growth of that throughout 2023.
Yes, I can speak to it a little bit, Sabrina, and then I'll have big chime in as necessary. So from an optics perspective, we really make a concerted effort across the whole entire organization. And I think that as you can tell, we actually done a really good job in Q2. And we're also expecting that trend to continue in Q3 and beyond. So the goal is to keep our optics flat or slightly higher while we try to go our top line.
And certainly, we are becoming much more efficient as an example when we transition our own factory into a CM model that really helps reducing our overall operating expense. But we are still making, you know, a lot of changes in the system.
events development efforts as needed. We're still investing for the future, but we're being really disciplined about what we're going to spend and how we're going to spend.
Hope that answers your questions, Sabrina.
Yes, thank you.
As a reminder, if you would like to ask a question, you may press star 1 on your telephone keypad at this time. And that's star 1 if you'd like to queue up for a question.
At this time, this concludes our question and answer session. If your question was not taken, you may contact Air Games Investor Relations at AIRG at GatewayIR.com.
I'd now like to turn the call back over to Mr. Suen for his closing remarks.
Thank you for joining us on today's call. We look forward to updating you on our next call. Until then, look forward to talking with your coordinator.
Thank you for joining us for today's Air Games first quarter 2022 earnings call. You may now disconnect and have a great day.