Q3 2022 Airgain Inc Earnings Call
[music].
Good afternoon.
Welcome to air gains third quarter 2022 earnings conference call.
My name is Diego and I will be your coordinator for today's call.
Joining us for today's call are air gains President and CEO , Jacob Sweat CFO , Michael our bats, and Chief revenue Officer Murat spy.
As a reminder, this call will be recorded and made available for replay via a link found in the Investor Relations section of air gains website at Www Dot are getting dotcom.
Following management's prepared remarks.
The call will be open for questions from air games sell side analysts.
I caution listeners that during this call are gained management will be making forward looking statements about future events and are gains business strategy and future financial and operating performance.
Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business.
These forward looking statements are qualified by the cautionary statements contained in today's earnings release and air gains SEC filings.
This conference call contains time sensitive information that is accurate only as of the date of this live broadcast November 10th 2022.
<unk> undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this conference call.
In addition, this conference call May include a discussion of non-GAAP financial measures.
Please see today's earnings release results for further details, including a reconciliation of the GAAP to non-GAAP results.
Now I'd like to turn the call over to our CEO Jacobs win.
Jacob.
Thank you operator.
Everyone and thank you for joining us on the call today.
Before we get into the results I wanted to take the opportunity to welcome to the <unk> family, Our Neal Chief Financial Officer, Michael <unk>.
Michael.
<unk> experience as well as the desk a plane plus just knowledge needed to support our global clients.
I also wanted to allow the promotions of mallrats the Baja.
From his congestion itself senior vice president of global product and marketing to.
To the newly formed projections of Chief revenue Officer.
Which will come by the global sales and marketing functions into one position in charge of delivering the company's revenue points.
These changes to Aegean executive team looked at Genk the maturity in organization needed to support our growth plans for the coming years.
Now for results.
Similar to last quarter I'll start with high level commentary about our Q3 results and operational highlights.
I'll hand, it over to Michael to walk you through our financial performance for the quarter.
Thanks, Margaret will provide an update on our strategic product and marketing initiatives.
Afterwards, I will share our.
Our outlook before opening the call for questions.
As you saw from our earnings release, the third quarter of 2020 to Mark another solid period for AG.
Highlighted by 24% year over year sales growth and our second consecutive quarter of positive.
EBITDA.
These results demonstrate the leadership team's focus on driving profitable growth and our ability to consistently deliver on our plan.
The momentum we have established over the last two quarters, particularly in our consumer and automotive markets continue.
Continue into the fourth quarter and is setting us up for a strong 2023.
We have seen some key customer wins in the previous and current quarter.
And we are focused on developing new products and solutions that will enable us to gain a foothold in new markets and expand our wallet share with these new customers.
We have also seen a significant spike in new business leads and interest.
Our end markets.
Factors, we attribute to both our R&D and focused sales and marketing efforts.
And our emphasis on fast growing markets.
Such as industrial Iot is paying dividends.
Something Mallrat will touch on later in today's call.
Our enterprise business remains solid.
Normalized growth from key customers.
So uneven shipment patterns from Q2 to Q3 due to concern over supply chain issues.
However, customer demand on our overall enterprise business remains strong.
Also our backlog in Q4 continues to call.
The video surveillance.
The service market as well as in the connected EV charging market continued to show great promise for.
For the latter this is especially the case with increasing government investments in these technologies.
On the automotive front.
Our product and sales strategies continue to generate sequential growth.
In addition, we have developed new product strategies with our fleet antenna that will add ordering and manufacturing flexibility as well as <unk>.
Speed up our lead times.
We continue to work on the next generation of vehicle networking platform with our current and future offerings by providing superior connectivity to a broadening set of customers.
We were pleased to see the containing the Calgary in our consumer market due to the successful initiatives, we implemented to mitigate supply chain chain constraints and headwinds.
Consumer contributed greatly to the year over year improvement, we saw on overall sales and gross margin expansion in Q3.
Much of the positive momentum has been in the Wi Fi six and <unk> space.
We continue to gain market share and reinforce <unk> leadership in fast growing and higher margin technologies.
Just in this past quarter, we have successfully won two new Wi Fi 660 design contracts with global service providers.
Both of which will ship in 2023.
We also engaged with key ecosystem partners on the next generation Wi Fi seven system designs.
And again, we specialize in simplifying the growing complexity of wireless.
And Wi Fi seven.
Increased complexity in the IC design.
Is placed directly into our core strengths and will help deal against sales in the future.
In terms of the supply chain as I mentioned, we continue to navigate the changing tides of the macroeconomic environment by mitigating risk in our supply chain. This includes simplifying our supplier network and adding supply redundancy.
To ensure stability.
As you know against brand is synonymous with innovation our vision, we're connecting the world is intertwined with a solution selling approach.
Identified three key differentiators in relation to the market as a whole and our competition.
First we.
We simplify wireless for end customers across all our product lines.
Second our large breadth of products spanning across the entire value chain.
Whether you are trying to solve a connectivity issue in your product design or youre upgrading environment.
Third each egg in technological capabilities, particularly in Las Vegas to our expertise.
Together, these differentiators and capabilities, all boil down to warranty message.
<unk> simplify wireless.
In engineering circles IC design is no black magic as it is often complex and difficult to optimize.
Aegean Foundation was built on complex antenna design.
We would solve for signal issues not only within the device, but within the environment as well.
As we integrate our acquisitions and adding new product lines.
Specialty in simplifying wireless became a connected.
<unk> team.
Moving for our focus is to leverage this core competency to move into a leadership position in the new wave of technologies and platforms as they become increasingly integrated and complex.
Again is poised to make a significant impact in the wireless connectivity space with that I will turn the call over to Michael Michael.
Thank you Jacob.
I'm excited to be part of the <unk> family.
To quickly introduce myself to the audience I brings over 25 years of experience in public corporate finance, primarily with semiconductor companies.
The market served by these companies ranged from wired to wireless broadband solutions.
They are again has the building blocks for making a significant impact in the wireless space and.
And I look forward to making a meaningful contribution to achieving its strategic and financial goals.
My objective over the next six months is to improve our operational efficiencies.
In our communication with the investment community.
Before diving into the numbers. Please note that my review of our financial results and guidance.
We refer to non-GAAP .
<unk>.
Information about the non-GAAP financial measures, including GAAP to non-GAAP reconciliations are found in our earnings release.
Now, let's turn to this quarter's results.
Here again delivered another quarter of strong sales and profitability.
Q3 sales were $19 2 million.
$4 million higher than the midpoint of our guidance range of 18 to $19 $5 million.
Our sales were relatively flat sequentially as higher consumer and automotive sales were offset by lower enterprise sales.
Consumer sales totaled $7 $3 million.
Reflecting a sequential increase of $1 $4 million on easing supply chain shortages impacting our customers' product shipments.
The $7 $3 million in consumer sales was the highest point since the second quarter of 2021.
Automotive sales were $5 1 million, reflecting a sequential increase of $9 million on the continued strength of our aftermarket product line.
Enterprise sales were $6 8 million, which declined sequentially by $2 $4 million.
On lower shipments of our industrial Iot product line.
Q3 gross margin was 39, 4% at the high point of our guidance range of $36 five to 39, 5%.
Gross margin was flat sequentially, but it was up 290 basis points on a year over year basis, because of improving consumer sales mix and automotive margins.
Q3 operating expenses totaled $7 million.
An improvement of $3 million sequentially.
As a result, our Q3 adjusted EBITDA was $8 million.
$6 million higher than the midpoint of our guidance and <unk> <unk> higher sequentially.
Adjusted EBITDA margin for the quarter was four 1%.
non-GAAP net income was <unk>.
$6 million, resulting in non-GAAP diluted EPS of <unk> <unk>.
<unk> higher sequentially.
Our cash balance as of September 30 was $9 2 million.
Yes relatively flat sequentially.
Now moving to our outlook for the fourth quarter ending December 31 2022.
We expect sales to be in the range of $19, seven and $21 $1 million.
Or $24 million at the midpoint of the range.
We expect gross margin for the fourth quarter to be in the range of 37, 5% to 45%.
We project, our operating expenses to be approximately seven 4 million.
Adjusted EBITDA is expected to be $7 million at the midpoint of our guidance.
non-GAAP EPS is expected to be five.
At the midpoint of our guidance.
Now I would like to turn the call over to Rod, who will walk us through our strategic product and marketing initiatives.
Alright. Thanks.
Thanks, Michael and welcome to the team.
With our transition into selling Iot products and bundled solutions, we've seen many opportunities arise from existing and new customers, including more comprehensive and stickier contract.
From a sales perspective, this boosts retention and renewal rates further demonstrating the long term value of our products.
In addition, the broadening of our markets from consumer only to automotive and enterprise greatly expands our serviceable market from $330 million to well over $7 billion.
As Jacob touched on we saw significant wins this quarter that reflect the strength of our horizontal reach and multiple Iot end markets.
The notable demand increase for connected EV charging both in terms of consumer trends as well as governmental infrastructure investment resulted any contract win that we're expecting to contribute to our results in 2023.
Additionally, we secured purchase orders for our nimble link integrated modems, coupled with antennas offerings from large customers in the medical device and oil and gas industries further validating the effectiveness of the synergy of our product and our go to market plan.
We also secured wins for our next generation Iot products with new and existing customers in the video surveillance and public safety end markets.
Cross selling and Upselling existing customers is an important initiative for air gain and a key driver of sustainable sales growth going forward.
This is an exciting time for <unk>, particularly in R&D.
We began the transition to the next generation of vehicle networking platforms and initiatives in line with our goal to capture a much broader market share by producing international service provider agnostic products and solutions.
We're building off the experience over the past three years of our <unk> connect platform and the focus in the future will be not only on HBO.
But other product subcategories in order to broaden the offering and capture new branches of the market simultaneously did.
To this date, we've seen success not only in first responder markets, but also in fleet and utilities.
We look forward to continuing that momentum and updating the market on these initiatives in the coming quarters.
<unk> represents a central focus for the company as we work with ecosystem partners to develop both the hardware and software that will improve user experience we.
We are leveraging our expertise with in home wireless and cellular technologies to develop the critical building blocks off next generation CPE wireless systems in order to increase customer satisfaction and help operators reduce churn.
We look to continue to build on our leadership in RF taken advantage of the new wave of <unk> product deployment, including C band and beyond.
We announced in September our work in fixed wireless access, which is the central application for many <unk> deployments. This is a significant market expected to grow fivefold by 2026, according to industry estimates.
Today, most fixed wireless access in tenants, particularly those used in home gateways are designed to prioritize simplicity over performance with fixed wireless access and the addition of <unk>. The complexity of embedded internal system increases, which is the area where air again offers a differentiated advantage given our.
Knowledge base and ability to solve complex radio frequency problems.
Our offerings will continue to cater to more intensive demands in order to simplify the process of bringing higher quality solutions to the market.
We're able to save customer cost and accelerate time to market by leveraging our methods of embedded antenna system designed specifically for fixed wireless access.
Over the next few months, we will be announcing several new products that we believe will highlight our market leadership in these key technologies I just described.
This is a concerted effort by our company in line with our shift to becoming a wireless system solution provider with differentiated value for many focused markets that include fixed wireless access vehicle networking industrial Iot and carrier network segments stay tuned as we look forward to <unk> our <unk>.
Work in due time.
Now I'd like to turn the call back over to Jacob.
Jacob.
Thanks Mara.
As exhibited in this quarter's numbers, we are seeing the results of our efforts to mitigate the headwinds from the supply chain.
We will continue to leverage our expertise in providing our customers with high performance wireless solutions across our targeted markets.
Areas of key focus remains <unk> Iot.
Wireless access and Wi Fi development.
In the near term, we expect to deliver sequential organic growth.
And another quarter of adjusted EBITDA profitability in the fourth quarter.
We expect strong growth with our enterprise market as we continue to expand our product portfolio and international footprint with our Iot solutions.
We also anticipate meaningful growth with our aftermarket automotive business.
As for our consumer business, we expect continued recovery.
Long term consumer growth will be driven by our integrated product launches with a major global service provider customers that we have built great partnerships.
Throughout the years.
Looking ahead to 2023.
I'm optimistic about the growth across our targeted markets.
The innovative products, we are launching point the company in a direction of robust sales growth coupled with consistent gross margin expansion.
With these developments on the horizon.
We're focusing on execution and operational efficiency.
We continue to remain resilient and flexible in order to provide <unk> customers with market, leading and reliable solutions.
Driving lasting value for our shareholders in the process and with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you.
And at this time, we will conduct a question and answer session. If you would.
I'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate that your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Once again to ask a question press star one on your telephone keypad one moment, please while we poll for questions.
Our first question comes from Scott <unk> with Roth Capital. Please state your question.
Hey, good afternoon, thanks for taking the questions nice job on the quarter.
Hey, Jacob maybe just to dive in on the consumer side with Wi Fi I'm not sure if I missed this nicole but did you.
Talk about component availability from a Wi Fi standpoint, if that was impacting your ability to ship more to the service providers and if there was anything left on the table during the quarter and then while were.
The increase getting to levels, we haven't seen in a year or so it's still below the peak levels of $10 million a quarter I'm wondering if you see what timeline you see getting back to those types of levels and I think you indicated that there was a large service provider win that should start to contribute in 2023.
Okay, Hey, Scott, Yes, Jacob here.
As far as the component shortage issue, we are seeing improvement on the consumer side.
One of the main chipset that we learn previously.
It's still an issue as far as we know although many other components have been.
Improved markedly in the loss.
A quarter or so so we anticipate the consumer recovery to continue.
And as far as when is it going to get back to.
Normality.
I'd say, we hope that sometimes next year that would happen.
Gotcha, maybe Jacob just to follow up quickly I think you referenced another big service provider win.
I'm not sure what the timeline is on that or the color that you could provide around that but I'd love to get a little bit more details if they're available.
Yes. So a couple of these design wins surrounding Wi Fi <unk> and we anticipate.
Both design.
Net income for whether it's social for those design. So it's not a matter of I was going to.
When the designer is metal when the service providers actually going to be launching it and right now they are projecting sometime machine.
In late first half early second half of next year.
Okay, great and if I could I think on the enterprise side was a little bit softer I am not sure. If you differentiated what kind of end markets or otherwise what was going on there I know nimble Inc. Is in that group and there've been some component availability issues on that front I was wondering if you could provide a little bit more color.
On that side of the business and also what the demand profile there was looking like for nimble like.
Yes, I'll start and then maybe if I can chime in so overall the demand is very strong there was some movement as we indicated in the last earnings call about some of the shipment.
Because.
Some of the customers who are concerned about supply shortage. So some of the shipment let's move into Q2 versus Q3, but we have very strong demand in fact, I indicated that we have very strong backlog already for Q4.
And in next year, so we feel.
A little bit about the overall in our Iot business, yes.
Yes, So hey, Scott how are you so just to kind of.
Just to kind of supplement with Jacob talked about.
The health of business looks really strong for industrial Iot and Thats not only from a cellular connectivity, but also in terms of what we're trying to do in the asset tracking and so like I mentioned on.
In the script, we've seen wins in <unk>.
Multiple verticals and EV charging and what's happening in there with the.
The market is really growing not only through the demand from the consumer but also the initiatives that the government is putting in place and we're seeing that really starting to accelerate for US video surveillance as a service also is showing a lot of traction for us.
We've also secured.
A nice win that combines not only the cellular automotives, but also with our antennas. So that takes the net synergy of the combined two companies, which is something that we're really excited about and then also in parallel we're starting to see a lot of traction in the logistics space, particularly in rail and so I would say with the nimble Inc brand in those products going forward.
It's looking pretty strong.
Good very helpful and lastly, if I could.
On the fixed wireless access front and moving towards solutions in general Im not sure. If there are any timelines.
Youre talking about a lot of development there, but are we going to see some of the impact of that in 2023 or was that a little bit premature and while on the subject of 'twenty. Three I was wondering if you have any early thoughts in terms of how the year is shaping up and what we should be thinking about from a growth perspective. Thanks.
So I'll talk about <unk>.
WNS I'll, let Jacob chime in on what the growth and maybe Michael if he wants to chime in on what that's going to look like through the year. So fixed wireless access for US is a really important initiative.
It really supplements or reignite, our consumer business and I'll tell you what's happening there.
If you look at the traditional gateways that we had deployed.
Designed to help to help Oems design for deployments with wireline operators I would say if you compare that to what's happening in fixed wireless access and I would contend as many industry analysts are saying fixed wireless access is really the killer app for <unk>, what's happening is with the addition of cellular.
The complexity increases in the box right not only that provides room for <unk>, but also that allows us to double and sometimes triple the content per box on <unk> NDA.
NDA has been so in terms of when there was a couple of wins that we that we've managed to do.
To secure for fixed wireless access.
I think one of those could contribute in the latter part of next year to our results, but I think that's looking really really good for us in terms of reigniting. The consumer space. We are also supplementing that and you can see what's happening with some of the operators are starting to deploy the fixed wireless access in some of the churn. There is a lot of traction that we are seeing.
In their request to help them to increase the signal from the tower down. So that you can increase that <unk> seen and Thats exactly what were your organic sales and so I think that plays nicely for us in terms of our capabilities and what we won't be able to do with that business. Jacob I don't know if you could put some color on.
One.
The second part of yes, yes, as far as 2023 as I indicated I am really optimistic I expect growth across all three of our targeted markets.
In particular.
And when.
Really excited about what we're going to be able to do on the Iot front.
Which is part of our enterprise market and what we're going to be able to do with the consumer side.
Alluding drew I expect.
The recovery to basically complete hopefully by sometimes next year on the consumer side, we have several new design wins I think that many of the service providers are really going to complete the ramp up on the Wi Fi six and mainly Olivia.
Getting in a luxury on the Wifi <unk> and also already working on some design on Wi Fi seven so so I really feel good about what we're going to be able to do.
In these two particular markets.
Also automotive we also.
Steady growth as well so all in all I feel really good about how 2023, it's shaping and last but not least.
The supply shortage issue the pandemic it is going to be the in the rearview mirror.
<unk>.
Sometimes next year.
Great. Thanks, so much.
Great questions. Thank you Scott.
Thank you and a reminder to the audience to queue up for a question press Star one on your phone or press star two to remove your question.
Next we have Alex Vecchi with William Blair. Please state your question.
Hi, This is sabrina on for Alex Thanks for taking my question.
Earlier. This year there were targets are bringing gross margin back to that 40% range and has been guided up sequentially could you provide some color on the contribution for end market for the next quarter and then possibly in 2023.
Sure Hi, Sabrina this is Michael <unk>.
So from a gross margin standpoint, and you're right. Our gross margin in Q3 averaged 39, 4%.
Based upon the guidance that we just provided for Q4, our overall FY 2022 gross margin will average about 39, 8%, which is really a slight improvement year over year of only about 40 basis points.
This is not really the target and the focus that we have internally as we are looking to really bump up that gross margin into the low forties.
Our next year with a long term growth.
Margin target of about 45%.
Beyond 2023, there is a number of reasons as to why the gross margin has been stable around the 40% is putting a percent level and the key driver has been the pandemic, primarily because of the supply shortages, which comes into a high cost to level from the operational support but also because of higher cost of.
<unk> are in addition to that we also had the transition to a <unk> model that we started a couple of quarters ago.
My past experience such as transition takes at least about a year to complete and to fully realize the benefits and so.
<unk>.
So those supply chain issues are resolved and once this transition to a fabless model completely is finalized then the team will be completely focused on leveraging the fabless model to improve our efficiencies.
Need to reduce our operational costs.
What I do see right now is more of a gradual increase.
Most likely starting in the first half of next year as we go through our internal goal of about 45% in the long term.
Thank you that was really helpful. And then kind of a follow up to that.
Since you have been bringing the opex down that.
Throughout the quarter. So I was wondering how to think about that going forward and if it could reach 2020 levels.
So that on that piece of it I think the really the.
The goal here is really to continue funding our R&D development. This is a key to our.
Innovation is key to our long term success, our SG&A expenses on the other hand.
As our revenue continues to grow we expect to see the percentage of SG&A expenses to be reduced so all in all the really the key focus is really on the adjusted EBITDA margin itself and building that up and that will also result into free cash flow generation.
Okay that was helpful. Thank you I'll get back in queue. Thank you.
<unk>.
Our next question comes from Tim <unk> with Northland Capital markets. Please state your question.
Are there sorry, good afternoon.
A couple of questions I'm going to go.
Go back to consumer and you kind of touched on this but.
Sounds like with the design wins and maybe some of the fixed wireless access activity that you feel like you might be able to get.
Beyond previous peaks in consumer.
Maybe in the second half of the year or just one of them.
Kind of bounce that offer you a separate question.
Haven't talked too much about Ericsson connect here on the call.
Theater further quarter or more of the outlook in 'twenty three I wonder if we can get an update there.
Kind of what you're seeing and it seems like your focus is shifting more to aftermarket.
Thanks.
So hey, Tim how are you this is murat.
So in consumer you.
We really hope that you are right and we expect it to be to be so because what's happening is that not only we continue to see the refreshes.
And our traditional wireline business, but here comes this wave of fixed wireless access with the <unk>.
<unk> is trying to compete for that piece of business and that provide us with a way that we can ride and then help to to re grow that business. The design wins are there. It's just a matter of how the rollout is going to look like on the operator side. We are seeing that the supply is getting better.
Theres 10, Fabs that are coming online right now TSMC, saying that they don't have any problems with our roadmap.
And then you read some other.
Literature, and it says that maybe there could be still some issues, but other than the macros and what the operators wind up doing and the timing of how they deploy that product we feel pretty good about what's going to happen in that business.
And just to address your point about <unk> connect I think you asked about what what's going on there.
Just.
When we built that product.
The initiative was to really simplify how those studies.
Products are built and deployed simplify the installation by taking everything up to the top of the car and also to increase performance.
That product that first AGC HBV was designed specifically for <unk>.
For At&t's first net and so by by the sheer number the market potential with limited by what we can do with AT&T. What we plan to do going forward is to build products that are a derivative of that SKU that allows us to win in markets that address the needs of other operators.
<unk> not only here in North America, but also in the world stage, what I can tell you the positive that we've seen from the deployments that we've seen on air getting connected is that not only we saw success with first responders police fire and cheap.
An ambulance, but also with the utilities and that's really exciting and so as we look at what we do with the roadmap going forward and we're going to pay attention to what we do with the feature set with the price to make sure that what we released winds up being.
Something that gives a higher value proposition and expands the market for us.
Thank you.
And just a reminder to ask a question press star one on your telephone keypad.
To remove yourself from Q Press Star two once again to ask a question press star one on your telephone keypad.
Our next question comes from Michael <unk> with B Riley. Please state your question.
Hi, This is Michael money on for Craig Ellis, Thanks for letting us ask a few questions.
So to start on the consumer segment and nice to see.
The progress on the supply chain side.
But my question is more on how you would characterize demand in the first half of next year. I was just wondering as you talk to your service provider customers are there any changes in tone and how they talk about demand or how they place or in the in their order patterns as well.
And I guess, how would you gauge the risk.
<unk>.
Product launch.
Being delayed.
Further we expect thank you.
Okay, Hey, Michael Yes Jacob.
Our ticket in EDA Michel Malek can chime in so.
Do we see that the main thing there.
Alluded to earlier.
We still haven't fully deploy Wi Fi six which is really should've been fully deployed back in 2021.
Cost of the pandemic.
Most of the supply shortage issue I really believe that they really start of ramp up 2022, we expect 2023, it will be the year they are fully ramped up.
<unk> already daily as I indicated earlier.
Pulling some of that was <unk> <unk>. So I think that the supply shortage issue is still going to be in play for the first half of the year.
And expect that a gradually subside.
Still there for certain.
As I indicated earlier, we know one chipset will make nine chipset for Wi Fi chips is steel.
In in shortage issue.
So we expect our second half to be in our include substantially.
Got it okay. Thank you and turning to gross margin. So I think you mentioned part of the improvement. This past quarter was that you were able to raise auto margins above what you expected could.
Could you talk about I guess your initiatives to raise margins in that segment and perhaps also on the enterprise segment as well.
Could that unlock and then how much of that is the kind of tailwind to get us back into the low 40% range next year.
Hi, Michael This is Michael.
So from a gross margin standpoint.
The upside to the guidance that we provided 39, 4% was primarily driven by the consumer revenue mix that we had.
Consumer being a bit of a positive surprise to our revenue and gross margin, but at the same time. It's also the impact of lower operational cost.
Compared to sequential or year over year, when I mentioned about the year.
Aftermarket margin improvement. This is a direct result of the.
What are the benefit of the closure of our original side and moving into a fabless model and so we started to see some of the aftermarket products margins really improving on that.
One other item on the enterprise.
Segment or market itself, it's more driven out of the Russell.
Diverse mix of different product and product line. So this is definitely a key focus area for us, especially with the growth in demand that we're seeing.
To be able to really improve our overall gross margin.
Okay.
Okay. Thank you very much.
Thank you.
Thank you and at this time. This concludes our question and answer session. If your question was not taken you may contact <unk> Investor Relations App.
Team at H I R. G. Once again arg at Gateway.
<unk> Dot com.
I'd now like to turn the call back over to Mr. <unk> for his closing remarks.
Thank you for joining us on today's call we look for to updating you on our next call operator.
Thank you thank.
Thank you for joining us today for or against third quarter 2022 earnings call. You may now disconnect.