Q2 2022 PCTEL Inc Earnings Call
22 earnings release conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. As a reminder, this conference is being recorded.
I will now turn the call over to Kevin McGowan, the company's CFO .
Thank you for joining us on today's conference call to discuss PCTel's second quarter 2022 financial results. With me today is David Newman, the company's CEO . Please note that a webcast replay will be available on our website.
Before we begin, let me remind you that this call may contain forward-looking statements and projections based upon current circumstances.
While these four looking statements and projections reflect PCTel's best current judgment, PCTel claims to be the best standard measurement.
They are subject to risks and uncertainties particularly related to the COVID-19 pandemic, supply chain and logistics challenges, global economic circumstances including recession.
geopolitical circumstances, and opportunities to expand our distribution channels that could cause actual results to differ materially from these forward-looking statements and projections.
Risk factors that could cause PCTEL's actual results to differ materially from its projections are discussed in the earnings press release which was issued today in the company's annual report and 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, and adjusted EBITDA. We believe these non-GAAP measures facilitate comparability of results over different periods. A full reconciliation of these non-GAAP measures to GAAP is included in our Correlate Earnings Press Release that was issued earlier today. I'm now pleased to turn the call over to David Newman.
Thank you, Kevin. Good afternoon and thank you for joining us.
In today's call, we will discuss the second quarter performance and outlook for the third quarter, followed by our long-term vision, our growth strategies, and the progress we are making in each of our product lines.
To start, I'll summarize our performance in the quarter and Kevin will provide more details later in the call.
We are pleased to report $25 million in revenue for Q2, a 15% increase year over year and 11% sequentially.
The company has grown revenue steadily over each of the past six consecutive quarters driven by improved marketing conditions and new product releases.
Gap net income was $400,000 or 2 cents per share compared to gap net loss of $200,000 or minus 1 cent per share in the second quarter of 2021.
Non-gap earnings per share was 10 cents compared to 7 cents in the second quarter of 2021.
Non-gap gross margin was 46% due to the strong scanning receiver sales in the quarter.
The team has done a great job through the first half of the year, executing on our vision and successfully managing inflationary pressures and supply chain challenges. We continue to see improvements both in transit times and shipping fees, although they both are still considerably higher than before the pandemic.
We also continue to optimize our contract manufacturing approach and are investigating potential manufacturers in Eastern Europe and Mexico to strengthen our cost efficiency and ability to mitigate risks.
Wireless connectivity is expanding rapidly as more systems rely on wireless networks and automation to drive productivity, particularly in growing wireless connectivity verticals such as 5G carriers, public safety, rail, logistics, agriculture, vehicles, and utilities.
We are a global leader in designing and distributing RF scanning receiver products for wireless carriers and public safety applications. Our long-term vision is to expand our leadership position to include antenna and industrial IoT wireless products that enable connectivity for the most critical applications.
Our long-term vision is supported by three core growth strategies.
launch innovative wireless products
expand and leverage distribution channels, and increase market share by providing more components of the overall systems, all of which we will discuss in greater detail later in the call.
With that, I'll turn the call over to Kevin for a closer look at our second quarter and the discussion of our financials. Kevin?
over to Kevin for a closer look at our second quarter and the discussion of our financials. Kevin? Thank you, David.
We'll begin today with a detailed review of our second quarter's financial results, followed by our third quarter 2022 outlook.
Our revenues in the second quarter were at the high end of our expectations and our earnings exceeded our expectations.
Total revenue is $25 million, or approximately 15% higher in the second quarter 2022 compared to the second quarter 2021 due to higher revenues in both our antenna and industrial IoT devices product line and in our test and measurement product line.
Revenues for antennas and industrial IoT devices were 17.6 million in the period, an increase of 2 million compared to the second quarter 2021.
This increase for the second quarter of 2022 is due to both an increase in revenues related to antennas for fleet applications and a full quarter of revenue recognized from SmartTech, which was acquired at the end of April 2021.
Test the measurement revenues for $7.4 million for the second quarter 2022.
Our test and measurement revenues were 1 million higher compared to the second quarter 2021, primarily due to stronger sales for 5G products through OEM customers.
The second quarter 2022 gross profit margin on a non-get basis was 46%, which was 1.5% lower than the second quarter 2021.
The decrease in the gross profit margin was primarily due to lower gross margin for antennas and industrial IoT devices.
The non-gap gross profit margin percentage for antennas and industrial IoT devices improved sequentially but was lowered by 3% in the second quarter of 2022 compared to the second quarter 2021.
primarily because less favorable product mix offset favorable operating leverage.
The non-GAAP gross profit margin percentage for test and measurement products was higher by 1.4% in the second quarter of 2022 compared to the second quarter of 2021.
Operating expenses on a non-get basis were $9.7 million in the second quarter of 2022, an increase of $0.8 million compared to the second quarter 2021, and $0.1 million higher sequentially.
The year-over-year increase primarily resulted from higher incentive compensation expenses.
Jail at the marketing costs related to travel and trade shows.
and a full quarter of SmartTech's operating expenses.
Adjusted EBITDA increased by 18% to $2.6 million in the second quarter of 2022, compared to $2.2 million in the second quarter of 2021.
And just to be a bit as a percentage of revenue was 10% in the second quarter 2022.
Approximately the same as the second quarter of 2021.
A nine-gap delivered earnings per share was 10 cents in the second quarter of 2022.
Higher by 3 cents compared to the second quarter of 2021.
Our cash and investments were $28.3 million at the end of the second quarter of 2022. And compared to the end of the first quarter, our cash and investments increased by approximately $0.6 million as free cash flow of $1.6 million offset cash used on financing and other cash flow activities of $0.6 million.
Financing activities in the second quarter included payment of our quarterly dividends.
Our cash and investments on hand and cash flow supports our capital allocation strategies of paying quarterly dividends and having available funds for M&A activities.
Turning to guidance, our backlog going into the third quarter and continued demand for our products, we expect to achieve revenues in the third quarter in the range of $25.5 million to $26.5 million.
Based on product mix, we expect our non-GAAP gross profit margin percentage to be in the range of 44 to 45 percent.
And we expect our nine gap earnings per share to be in the range of nine to 11 cents.
The third quarter 2022 revenue guidance represents a year over year increase compared to 22.4 billion.
in the third quarter 2021, and at the midpoint of the range, it's approximately 16% higher.
and third quarter 2021.
With that, I will now turn the call back to David.
Thank you, Kevin. I would now like to dive deeper into our progress against our three key growth strategies that I spoke to earlier in the call. Launching innovative wireless products, and more.
expanding and leveraging distribution channels, and increasing market share by providing more components over the overall systems.
In terms of our first core growth strategy of launching innovative products,
Our product suite presently includes wireless IoT devices, antennas, and RF tests and measurement equipment used across a variety of wireless technologies including 5G, Wi-Fi, P25, LoRa, and others.
Our wireless IoT devices include ruggedized access points,
IoT wireless interfaces for remote devices and wireless sensors.
As we look to expand our portfolio, you may have seen that we recently received European regulatory approval for our IoT radio module that supports any product that accepts standard mini PCI cards.
This was purpose-built to support industrial applications targeting a range of markets including utilities, fleets, manufacturing, automation, mining, and oil and gas.
These modules' small form factor makes it ideal for integration into wireless IT platforms, and its high transmit power provides continuous connectivity.
The IoT radio modules are currently in several trials and we expect FCC approval soon for sales in the US.
With respect to antennas, we successfully launched several products in the quarter including the new 5G 10-in-1 combination antenna portfolio for rail, fleet, and mass transit.
These antennas are designed to withstand the extreme conditions and hazardous environments of critical infrastructure, specifically in rail, where rugged and reliable solutions are essential.
These antennas enable a connectivity necessary for railroad networks to identify where vehicles are on the tracks.
ensuring that high rail vehicles always stay on their designated track.
The first orders for these antennas shipped in the second quarter, and we believe this will be an expanding growth market for the company.
We also see continued strength in the agriculture, utilities, logistics, and vehicular markets, including antennas for EV charging stations in Europe and in the US.
Our test and measurement products focused on 5G wireless operators, government agencies, and public safety markets.
In the second quarter, our test and measurement team produced multimillion dollar orders from two of our largest OEMs for our G-Flex and H-B-Flex scanning receivers and ancillary products that will be delivered this year. The G-Flex scanning receiver was designed specifically to meet the complex demands of multicarrier 5G network testing across multiple sub-8 gigahertz and millimeter-wide bands in a single lightweight portable unit. It is the first purpose-built walk and drive test scanner to support every 5G band as a currently defined.
of this year, the Seahawk Monitor, that will continuously monitor public safety RF performance. Trials are in progress and we expect initial sales this year.
Our second core growth strategy is to expand and leverage our sales channels globally. North America represents approximately 70% of our revenue and continues to be our largest region currently and for future growth.
Our two main sales channels are large OEMs and strategic distributors.
Business with our OEMs has remained strong, particularly due to continued strength in the agriculture space in the second quarter, supported by a significant number of strategic distributor additions over the past 18 months to expand into additional markets and applications.
We expect to see this strategy drive long-term growth as we leverage our distributors reach.
We increased our presence in Europe last year with the acquisition of SmartTech, and we continue to be very pleased with their performance.
We continue to make investments in both the team and the region including adding a new distributor and evaluating others to grow our presence internationally.
We have also launched the Smart Tech products into our U.S. distributors and OEMs to expand our portfolio and strengthen our product mix offered in the Americas.
We've historically had strong scanning receiver sales in Asia, primarily through our major OEMs, and we're encouraged to see 5G deployments picking up again in the region. Although there is more local competition in Asia for our antennas, there are opportunities that require our high performance multi-mode antennas for critical applications.
As such, we expect to capture additional market share in Europe and Asia in the future.
In addition to regional expansion, our third core strategy is to increase market share with existing customers by providing integrated solutions.
Our IoT radio devices and antenna portfolios address specific markets that can be integrated into custom solutions to capture a larger portion of the customer's spend on wireless projects.
As an example, our integrated wireless sensor platform includes a battery-powered wireless sensor, communication board, and built-in antenna with a development kit for customization.
We believe integration of electronics, radios and sensors with antennas in a ruggedized enclosure simplifies deployments for customers and provides a competitive advantage for PCTEL in the market.
These three core growth strategies of launching innovative wireless products, expanding and leveraging distribution channels, and increasing market share by providing more components of the solution.
have proven to be our foundation for driving growth within the company. We strive to continue our growth through these strategies in the coming quarters.
Before we take questions, I would like to share a few closing thoughts.
We have successfully executed on our 2022 financial and strategic plan through the first half of the year and have confidence for the remainder of the year. The team is doing an excellent job evaluating risks and preparing for challenges that may result from concerns such as the ongoing pandemic, global financial situation, and the ongoing geopolitical conflict. We will continue to stay in close contact with our customers to meet or exceed their expectations. Thank you.
As our world becomes increasingly dependent on wireless connectivity, the demand and necessity for high performance wireless systems grows.
We are confident that our core strategies of developing innovative and high quality products, expanding our distribution channels, and increasing market share by providing more components of the overall systems will drive long-term growth and benefits for all stakeholders.
Regarding company governance, I'm excited to announce that Jay Sinder is our new Chairman of the Board for PCTel, effective July 1, 2022.
Jay has been on our board for eight years and most recently has served as the chair of the Audit Committee.
Jay is a telecommunications industry veteran with executive and financial experience at both private and public companies.
He currently serves as a CFO of Jellyvision Labs, Inc., an employee benefits guidance SAS company.
and has served as CEO or CFO for a variety of private companies.
I'm looking forward to working with him in his new role.
Cindy Keith will take on additional responsibility as the chair of the audit committee.
She enjoyed a 25-year career with Price Waterhouse Coopers, the world's largest multinational professional services firm, where she became a partner in 2000.
Throughout her career, she specialized in audits of and consulting with technology and communications clients, including global public companies focused on mergers and acquisitions, as well as companies in various stages of growth.
I would like to thank Steve Levy for serving as a chairman since January 2017. I appreciate his guidance and support over the past five years and he will remain on our board of directors.
We are also pleased to announce that we have chosen Alpha IR as our new investor relations firm.
The Alpha IR Group is an end-to-end investor relations firm that protects, enhances, and builds the investment brands of America's leading companies.
We look forward to working closely with them.
Alpha's contact information is available under the Contact Us Investor Relations on our website and you can contact them directly at pcti at alpha-ir.com.
Finally, Kevin and I will be attending Lake Street's 6th Annual Best Ideas Growth Conference in New York on Wednesday, September 14.
We look forward to meeting with investors at the conference.
With that, Kevin and I are available to take questions.
Operator.
Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your telephone keypad at this time. We ask that while posing your question you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold whilst we poll for questions.
Thank you. Your first question is coming from Jason Schmidt of Lake Street Capital. Jason, please ask your question.
Hey guys, thanks for taking my questions and congrats on some really nice results here. Just want to start with Q2. I'm curious if there was any demand you couldn't ship because of the supply chain. And I guess relatedly, the outperformance in the corridor, was that driven more by just better demand than expected or did better supply chain conditions really start to show themselves in Q2 compared to what you guys had initially.
working very closely with customers to make sure that they don't go into any kind of lying down situation and to really meet their specific needs for deliveries for products.
So, I don't think it was necessarily products shifting into Q2 because of supply chain issues, but if you recall coming into the year in Q4 and then in Q1, we had a very strong backlog.
So that definitely helps us with the quarter, more so for the antenna products because a good portion – Ok so 20 minutes left till close
products that are shipped within a quarter come from a backlog where the scanning receivers are more, I would say, transactional and our orders taken are usually shipped in the same quarter. That being said, the two orders from our OEMs for G-Flex and H-B-Flex.
from a backlog where the scanning receivers are more, I would say, transactional and our orders taken are usually shipped in the same quarter. Now, that being said, the two orders from our OEMs for G-Flex and HV-Flex –
within a quarter were considerably higher than we would expect. And it puts us in a pretty good position coming into Q3 with some backlog on the scanner front too.
I think Jason on your second question.
You know the demand from those OEM orders is a key reason why we're able to hit the high end of the revenues for the quarter.
Okay, that's helpful. And then you mentioned the introduction of the SmartTech portfolio into the North American market. What that feedback has been so far.
Of course, we prioritize the products that we thought would be most applicable for the U.S.
And one of those products is the EV charging station smart disk antennas.
SmartTech has been very successful in the Nordic countries with the EV charging stations. We see the demand picking up in the US, a lot of vendors for charging stations.
And to some extent, this bill that's about to be passed.
giving credits for some EV cars.
We'll help drive some of that as well. So we've brought those products into the US. They're in trials. Some customers are using those whether they're OEM or white labeled. And then beyond that, the other vehicular antennas.
So, were their antennas would have the quickest need in the US or the ones that we brought over first.
And likewise, we're going the other way, too. We're introducing some of the PC-TEL antennas that perhaps didn't have as much traction in Europe , and now we're going to promote those through Smart Tech. We've brought on one new distributor in the region, and we've just recently hired a head of distribution for that area. So we think there will be an opportunity to move PC-TEL products to a greater extent in Europe , too.
Okay, and just the last one from me and I'll jump back into Q. Some continued nice traction in the test and measurement business. I know you highlighted some big orders there. How should we think about that business here in the second half? Can you build upon this first half momentum?
So, these two orders were through OEMs, so they're predominantly for the wireless operators. So, this is a 5G wireless operator need.
Two orders were through OEMs, so they're predominantly for the wireless operators. So, this is a 5G wireless operator need.
That doesn't include the continued traction that we're getting in public safety. It's not growing necessarily at the same rate as cellular through the first half of the year, but there are a lot of opportunities.
done very well in building a testing space with the IVFlex.
We introduce Seahawk Central, which collects the data, presents the reports, allows the users to manage their systems.
Then we just announced the upcoming launch of a Seahawk Monitor. Seahawk Monitor is going to be important because that does two things. It measures the uplink signals.
So, those are typically weaker in an emergency situation just because the phone or the device is a smaller device. And two, they're on all the time. So the monitor is constantly scanning the RF, and if they're intermittent interference sources, it'll pick those up and help the operators fix those.
So, although the orders were focused on 5G and the operators think public safety has
It still has quite a bit of room to grow. And then the third part of that, which really won't have much of an impact, won't have any impact the second half of this year, and that's in the government space. But there are, we're working with some potential customers.
There is a need, and I think that will drive more longer-term growth.
In terms of your question on what does the second half look like, we have some visibility because we have some backlog now for the scanners.
But historically Q4 is a pretty good quarter for scanning receivers because it's test and measurement equipment.
As often is the case, customer budgets are on the calendar year and going into Q4, if they have budget to spend, what better way to spend it than on test and measurement.
So historically Q4 is always a pretty strong quarter and given that we have some backlog I would expect it's going to be a pretty good quarter this year too.
Okay, perfect. I appreciate the color. Thanks a lot guys.
Thanks, Jason.
Thank you. Your next question is coming from John Bear of Ascend Wealth Advisors. John , please ask your question.
Thank you.
Thank you. Good afternoon, everyone.
Hi John . A couple of questions. Is there any particular area that you're seeing real strength in in orders?
I think we mentioned it earlier in the call. The temperature is definitely a strong area for the antennas.
We mentioned the big orders for the 5G test measurement equipment for the operators.