PCTEL Inc. Q1 2023 Earnings Call
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Welcome to the P. C tell first quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
The conclusion of our prepared remarks, we will conduct a question and answer session. As a reminder, this conference is being recorded.
Ill now turn the call over to your host Kevin Mcgowan The company C F.
Your conference will be recorded after the tone.
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Huge apology, Sir ladies and gentlemen, we're experiencing a technical difficulty.
Welcome to the P. C tell first quarter 2023 earnings 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.
Kevin over to you.
Good afternoon, and thank you for joining us on today's conference call to discuss <unk> first quarter 2023 financial results with me today is David Neumann the company's CEO .
Please note that a webcast replay of the call 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 forward looking statements and projections reflect <unk> best current judgment, they are subject to risks and uncertainties, particularly related to global supply chain and logistics challenges global.
Political and economic circumstances, including inflation and a potential recession ability to generate sales of our innovative new products success of our expansion efforts in Europe .
And ability to leverage our distribution channels.
Could cause actual results to differ materially from these forward looking statements and projections risk factors that could cause <unk> actual results.
To differ materially from its projections are discussed in the earnings press release, which was issued today and the company's annual report on Form 10-K.
The company assumes no obligation to update any forward looking statements or information, which speak adds over 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 quarterly earnings press release that was issued earlier today.
With that I'm now pleased to turn the call over to David Neumann.
Thank you, Kevin and apologies again for the delayed start.
Good afternoon, and thank you for joining us today on today's call, we'll discuss our first quarter performance.
Your outlook for the second quarter of 2023.
We'll also speak to our views on the remainder of the year and highlight key progress we've made towards our three pronged growth strategy.
I'll begin with a few highlights and then Kevin will discuss our financials in greater detail.
We're pleased to have gotten off to a strong start in 2023 as we delivered first quarter revenue of 23 million a slight increase year over year and strong gross margins of 52% up 880 basis points from the prior year period.
Our success in the quarter was driven by the continued execution of our three pronged growth strategy, which includes launching innovative antenna device and test and measurement products, expanding our distribution channels and increasing our market share by providing more components of the overall systems.
This strategy strengthened our global customer relationships and increase PC sales value for all stakeholders.
I'd like to begin by thanking our <unk> team for their continued contributions that are integral to our success. It as there is with their dedication and commitment that we have continued to mitigate issues in today's challenging operating environment, including ongoing inflationary pressures and supply chain disruptions.
We continue to see moderation in these macro trends, particularly in logistics and we will remain diligent in our commitment to meeting customer demand and providing the utmost quality and customer service.
As we expand our global reach we remain in close contact with our shippers and suppliers around the world.
Our operations team is doing an excellent job and we exceeded our on time delivery goal for the quarter, achieving our highest on time delivery rate to customers since prior to the pandemic.
Our three core growth strategies continue to be the backbone of our operating model and success. We continue to make important progress in our innovative product launches and market acquisition and penetration and global customer and distribution expansion, which I will discuss in greater detail later on today's call.
I would now like to turn the call over to Kevin for a review of our first quarter 2023 results Kevin.
Thank you David.
As David mentioned total revenues were $23 million at the high end of our guidance range and approximately 2% higher compared to the first quarter of 2022 due to the strong revenues for test and measurement products test and measurement revenues were seven 4 million for the first quarter of 2023, $1 8 million higher compared to the first quarter.
For 2022.
Primarily due to U S sales of <unk> scanning receivers and sales to global <unk> rental market customers.
Revenues for antennas and industrial Iot devices were $15 6 million in the period.
A decrease of roughly $1 5 million compared to the first quarter of 2022 with lower antenna revenues for enterprise and public safety applications.
First quarter 2023, gross profit margin percentage on a non-GAAP basis was 54% above our expectations and an 860 basis point increase from the year ago period.
The increase in gross profit margin percentage was primarily due to higher test and measurement sales and stronger gross margins within antennas and Iot devices.
non-GAAP gross profit margin percentage for antennas and industrial Iot devices in the first quarter of 2023 improved by 840 basis points compared to the first quarter 2022.
Due to a positive product and customer mix shift coupled with continued improvement and logistical costs due to the proactive efforts David mentioned earlier in today's call.
The non-GAAP gross profit margin percentage for test and measurement products was lower by 250 basis points in the first quarter of 2023 compared to the first quarter of 2022 due to higher component costs.
Operating expenses on a non-GAAP basis were $9 3 million in the first quarter 2023, an increase of <unk> 2 million compared to the first quarter 2022.
The year over year increase was primarily driven by higher sales and marketing expenses related to commissions travel and marketing programs.
Within general administers administrative expenses reported on a GAAP basis, we also incurred <unk> $6 million during the first quarter 2023.
To transaction expenses related to exploring strategic alternatives.
Other income was <unk> 2 million in the first quarter of 2023 compared to 11000 in the prior year period the.
The year over year increase was due to higher average interest rates.
Adjusted EBITDA increased by 153% to $2 8 million first quarter 2023.
Compared to $1 1 million in the year ago period.
Adjusted EBITDA.
As a percentage of revenue was 12, 1% in the first quarter 2023.
Compared to four 9% in the first quarter of 2022.
And non-GAAP diluted earnings per share was <unk> 12 for the first quarter 2023, how.
Higher by <unk> <unk> compared to the first quarter 2022.
This increase in adjusted EBITDA can be attributed to improved margins for antennas and a strong test and measurement revenues in the quarter.
Cash and investments were $33 million at the end of the first quarter 2023.
Compared to the end of the fourth quarter 2022, our cash and investments increased by approximately $3 million because we generated cash from operations and there were no net changes from our balance sheet.
We reduced inventories by approximately $1 3 million during the first quarter, primarily due to lower antenna inventories and we will continue to focus on managing the inventory to lower levels for both product lines.
Financing activities for the first quarter included payment of a quarterly cash dividend of $1 million.
And our healthy cash and investments on hand, and cash flow supports our capital allocation strategy.
<unk> quarterly dividends and having available funds for M&A activity.
Turning to our second quarter outlook, we expect revenues to be in the range of $20 million to $21 million.
The expected decline both on a sequential and year over year basis is due to lower year over year revenues in both product lines.
We expect the non-GAAP gross profit margin percentage to be in the range of 47% to 48%.
And we expect our non-GAAP earnings per share to be in the range of two to four.
While there is uncertainty around the globe global operating environment. In 2023, we are confident in our ability to grow our product offerings and ensure we use the cash generated by the business and accretive and value enhancing ways for our shareholders.
With that I will now turn the call back to David.
Thank you Kevin.
I would now like to review our progress on executing our growth strategies, which continue to serve as the foundation of our success as I mentioned earlier. These strategies include launching innovative wireless products, expanding and leveraging distribution channels and increasing market share by expanding our reach and providing more components over the over.
Hall systems.
Starting with our first strategy of launching innovative products we have.
Announced two exciting product launches in the quarter, including our new their stack antenna as well as our automated uplink driver walk testing system for public safety radio networks, which is a first of its kind.
The demand for multi band Ruggedized five antennas increases as rail utilities and other industries adopt <unk> wireless communications, our <unk> antenna is the market's most advanced <unk> antenna platform to date for rail and industrial Iot applications.
<unk> Leverages, our broadband element technology to provide top of the line RF performance for critical applications.
These antenna elements are enclosed in a rugged UV resistant fiberglass housing, making them ideal for harsh environmental conditions.
Our automated uplink drive or walk testing system for public safety radio networks as an industry disruptor.
The majority of public safety radio coverage issues occur on the uplink, which is a signal from the handset to the radio site.
Our solution is the first to incorporate synchronized uplink measurements into a drive or walk testing system.
The uplink testing feature was released last month and is available as a software update for existing customers using our touch and seahawk monitor systems.
Trials remains strong driven by customers' desire to ensure adequate uplink and downlink signal levels that ultimately help keep first responders safe.
We are particularly excited to introduce these new product launches, which we expect to contribute to our success in 2023 and beyond.
Our business segments, each delivered strength in the quarter as Kevin previously mentioned, our test and measurement revenue grew 33% versus a year ago period on notably strong backlog <unk>.
Additionally, we have enjoyed a significant increase in users on our <unk> central platform and strength from our G. Flex scanning receiver in a quarter. We completed our first system sale of our seahawk monitor with a customer, noting the anticipated additional needs in the near future.
Also are seeing growth in <unk> central as a platform appeals to the market.
<unk> interest in cost effective and easy to use cloud based system to manage testing of public safety networks.
G Flex has gained great momentum in the period.
As it is now proved with all major U S cellular operators.
Additionally, it is poised for both international growth in key markets as well as for U S government applications.
Lastly, we have executed several large sales from service and rental customers for our scanning receiver products to conduct <unk> optimization and benchmarking services as mobile operators continue to expand their <unk> rollouts.
Turning to antennas.
Although we are making progress in expanding our customer reach further penetrating the EV charging agriculture construction and public safety end markets revenues declined by eight 7% compared to the year ago period.
As Kevin discussed the decline in antenna revenue was primarily attributable to our customer supply chain headwinds, which they anticipate will persist through 2023 delaying previously planned projects that said, we have seen a significant upside in our smart tech product lines.
European EV automotive customers selected multiple smart tech tenants for two of its new vehicle models. We are now manufacturing these antennas and expect to ramp through the remainder of the year. Additionally, our global forklift manufacturer has moved forward with smart Tech antennas for their European markets. We also secured a new end market for our antenna products in the quarter.
As we outfitted a major cruise ship with Wi Fi antennas, and now have an opportunity to supply in tenants for one or two additional ships.
Moving to our second growth strategy, we continue to gain momentum in our global sales channels across each of our businesses on the test and measurement side. We enjoyed strong revenue from U S sales of <unk> scanning receivers and sales to our global <unk> route to market customers, particularly in Asia as the Asian operators prepare to ROE.
[noise] out their <unk> networks.
On the antenna side as I mentioned earlier, we continue to see growth from European automotive manufacturers and anticipate delivering our smart tech antennas in European markets for our global forklift manufacturer later this year.
We are pleased with the progress we have made and look to build upon this through furthering relationships and streamlining our European sales efforts.
Lastly, we are refocusing on growing <unk> brand awareness through leveraging a prominent online distributor the.
The initial results of our efforts are promising with strength in our customer count and increasing point of sale revenue every quarter since their relationship with us through distributor began we.
We see significant growth opportunities with our incentives segment and look forward to continuing to update you on the progress as we move through the year.
Concluding with our third core growth strategy of increasing market share with existing customers by providing integrated solutions. We have made significant progress with a leading OEM customer in the construction and agriculture equipment market interested in using our ruggedized access points to improve wireless communications in remote and harsh environments.
We remain committed to offering turnkey solutions to our customers that may include industrial Iot sensors radios and antennas designed for critical communication applications across a variety of end markets.
Our strategic priority for 2023 remains growth as we continued to address supply chain issues increased inflation and potential recession headwinds.
We remain fiscally disciplined.
Disciplined.
Our talent is unmatched and our solutions for antennas and test and measurement are recognized as best in class in the market.
With this strategic priority of growth in mind, we will continue to invest in our products people and global reach as we work through the remainder of the year.
As Kevin mentioned, our balance sheet remains strong and provides us with flexibility to invest in the business and also explore inorganic opportunities as appropriate.
With that I'd like to turn it over to the operator for questions operator.
Thank you very much at this time, we are going to open the floor for questions. If you would like to ask a question. Please press star one on your phone keypad.
Thanks for your time will indicate your line is and the key you May Press Star two if you would like to remove your question from Nicky if anyone using speaker equipment may be necessary to pick up your handset before pressing keys.
One moment please poll for questions.
Thank you. Your first question is coming from Jason Schmidt of Lake Street, Jason Your line is live.
Hey, guys. Thanks for taking my questions and congrats on a really strong start to the year.
Just wanted to start with the antenna business. You noted some planned projects that were delayed due to the supply chain do you have dates for those projects resuming or have they just been pushed indefinitely at this point.
Yes, thanks for the question, Jason and thanks for joining yes, we do have dates it's not just one project.
There is really I think two issues on the antenna front one.
Some of our customers are still carrying a bit of inventory coming into the year. So it's slower, especially in the public safety.
And with the supply chain challenge, it's not necessarily <unk>.
<unk> been able to deliver every product that we need to and our supply chain group has done a great job of getting all of our raw materials.
As we're providing an antenna smaller piece of a much larger systems. So we've had.
Two or three of our larger deals get pushed.
Both of them one is starting towards.
Towards the end of the year and actually one was pushed into 2024. So we have dates we haven't lost those deals, but they need to get radios and other components before they are ready for the antennas.
Okay that makes sense.
Along those lines I mean, you've noted some inventory levels that need to be worked down here do you think this digestion is over here in Q2 or do you think it bleeds into Q3 as well.
Now, we'd like to have more visibility with some of these customers.
One of the customer this is Doug.
This isn't the first time, so that they go through cycles of carrying a bit of inventory.
And then youre not making some purchases for a while if anything I think coming out of the pandemic may have.
Increase the challenge a bit because I think everyone's carry more more inventories as well as PC tell yes, I would think they worked through it really cant make a commitment for probably through through the second half of the year.
If it's earlier it'll be a benefit for us.
Okay.
And then.
Can you see some really nice momentum in the test and measurement business. Just curious if you think that's largely due to just the continued market growth there in some of the new products, where do you think youre actually are also gaining share as well in that space.
I think most of that is coming from new markets.
And actually.
New markets on <unk> for rollout.
The U S operators, we have really good really good coverage now.
Europe , and Asia have been a bit behind in securing spectrum in rolling out their networks.
It came across article not too long ago.
The <unk> adoption is about 20% globally, so there's still plenty of.
A room for for for new networks.
So I think up until now it's still a majority of the business is being driven by <unk>.
The public safety solutions, which we talked about during the call are definitely gaining momentum we're definitely in a market leading position.
The downlink solution, which we've had for a couple of years now continues to do pretty well I wouldn't say, it's growing rapidly, but we're getting a lot of very constructive feedback from customers and as uplink testing requirement came because we had equipment in.
Field.
This need was was was shared with us and when we develop to develop the solutions I think the public safety going forward.
Will create another growth channel.
Said this before I don't know if it will be as large as the cellular market.
But it's a.
It's an emerging developing markets and I think we're in really strong position.
And then on the government front, our scanning receivers are very applicable for the government emergency situations like a FEMA or military applications.
Just launched the <unk> flex within the last year or so and it has got the capabilities to serve some of those collection needs.
So a little bit longer term, probably starting in 'twenty four.
I think we'll start to see some scanner business from government and military space and then on top of all of that with <unk>.
Private private <unk> I think as.
As an opportunity that's still very early I think it's encouraging to see private enterprises, including some of our current customers are bidding and winning spectrum.
So they intend to use a private <unk> for latency needs and throughput and coordinating our manufacturing in warehouses. So.
Lots of opportunities.
Just have to just have to execute.
Okay, No that's really great to hear and the last one from me and I'll jump back into queue. Obviously, one of the growth initiatives is expanding the distribution channel just curious how much business is done through distribution today, and I guess longer term not this year not next year, but do you have a target in mind.
As far as the percentage of the business you'd like to be done through DSD.
Okay.
Hey, Jason currently, we'd probably do around 20% to 25% through distribution.
It is a growth initiative and.
We're in the process of moving some of our smaller customers to distribution, we don't have a target per se, but.
It's definitely a strategy to move.
Some of our smaller customers distribution until leverage leverage those.
Those companies and to try to add distribution companies to our to our customer portfolio.
Got it alright, guys I appreciate the color. Thank you.
Thanks, Jason.
Thank you very much just a reminder, if you do have any questions. Please press star one on your keypad now.
Okay.
Any further questions I will now hand back over to management for any closing remarks.
Thank you again.
Again.
Sorry for the delayed start thanks for sticking with us and thanks for joining us on the call. This afternoon.
Again, I'd like to thank the <unk> team for their dedication of our customers our business and our growth.
I look forward to continuing to update you on the progress through 2023.
I'd like to thank everyone for their support of PCL and your time here today.
<unk>.
Thank you for joining us today be detailed first quarter 2023 earnings call. You may now disconnect your lines.
Yeah.