Cambium Networks Corporation Q1 2023 Earnings Call
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Mr. Peter Schuman, Vice President Investor and industry analysts relations you may begin your conference.
Thank you Joe welcome and thank you for joining us today for Cambium Networks' first quarter 2023 financial results conference call and welcome to all those joining by webcast tool button AGA.
Andrew Brown.
F O are here for today's call the financial results press release, and CFO commentary referenced on this call are accessible on the Investor page of our website and the press release has been submitted on form 8-K with the SEC.
Certain revisions were made within operating expenses in prior periods to conform to the classifications in the current period.
Revisions had no impact to operating income.
Copy of today's prepared remarks will also be available on our investor page at the conclusion of this call.
A reminder, today's remarks, including those made during Q&A will contain forward looking statements about the company's outlook and expected performance. These statements are based on current expectations forecasts and assumptions risks and uncertainties could cause actual results to differ materially.
As required by law Cambium networks does not undertake any obligation to update or revise any forward looking statements for any reason after the date of this presentation, whether as a result of new information future developments to conform these statements to actual results or make changes in expectations or otherwise it is cambium networks' Paula.
And not to reiterate our financial outlook, we encourage listeners to review the full list of risk factors included in the Safe Harbor statement in today's financial results press release and are more.
Recent SEC filings, including our most recent Form 10-K.
We will also reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year over year comparisons reference non-GAAP numbers, except where otherwise noted a reconciliation of non-GAAP measures to GAAP is included in the appendix to today's financial results press release, which can be found on the investor page of our website and in today's press release announcing.
Our results.
Turning to the agenda cambium, Networks' President and CEO Bob <unk>.
We will provide the key operational highlights for the first quarter 2023, and Andrea Braun Cambium Networks' CFO will provide a recap of <unk> financial results for the first quarter 2023 and present, our financial outlook for the second quarter and full year 2023.
Paired remarks will be followed by a Q&A session.
I'd now like to turn the call over to a tool.
Peter.
In the first quarter of 2023 revenues grew 25% year over year fueled primarily by our enterprise business.
Largest product line, which grew 130%.
Our gross margin EBITA and profitability remained very strong and exceeded the top end of our guidance.
Which is a testament both to the competitive differentiation of our products and our team's laser focus on controlling costs.
We have built a broad portfolio of differentiated products as well as.
And I appreciate the operating cost structure.
Providing us with the profitability to take advantage of the market trends and invest in new products.
First quarter 'twenty to 'twenty, three revenues of 77 $4 million.
Likely above the midpoint of our outlook of between $74 million to $80 million announced during the Q4 'twenty two financial results call.
Margins and profitability remained strong.
With a gross margin of 52, 1%.
Above the high end of the outlook and EPS up 24 cents also above the high end of the outlook.
Our point to point PTP results were affected by the timing of large defense deal discussed during last earnings call, which we now expect to ship in the second quarter.
Within our point to Multipoint BMP solutions, which include upcoming releases of new innovative products, including advancements in our 28 gigahertz.
<unk> fixed products.
60 gigahertz products.
And with a final approval of our six gigahertz E&P 4600 product.
I anticipate the MP revenues accelerating in the second half of 2023.
Further late in Q2.
We expect to release, our exciting new fiber product cambium fiber.
Which is powered by our CN Maestro network software.
Enabling network convergence from a single pane of glass.
I will discuss can be on fiber in more detail later in this call.
Turning to the results of the first quarter 2023.
Looking at revenues across our product lines.
Our enterprise revenues grew 11% sequentially and increased 130% year over year as growth was driven by increased supply and strong demand for our Wifi six and <unk> solutions.
Our PTP revenues decreased by 15% sequentially, while improving 22% year over year.
We continue to expect strong defense shipments during 2023 as we are engaged in an increasing number of global defense programs of record P. O R.
As expected, our PMT business revenues decreased sequentially, lower by 25% quarter over quarter, and 28% year over year as service providers are moving from our current generation of BNP for coffee products to the new gigabit technologies, including six gigahertz upon the FCC approval.
It is expected to drive BMP revenue growth during the second half of the year.
We expect an increase in revenues from 28, gigahertz, and 60 gigahertz millimeter wave solutions and new five and six gigahertz products for both the E. P. M P and the new Pnp for PV product lines during the second half of calendar 'twenty two 'twenty three.
Looking at some notable customer wins and new product development.
In North America, we had an additional win with next link for six gigahertz V. P. M P to meet our requirements.
Of the former FCC approval.
Service provider in the Midwest selected PTP 850 for the next generation broadband deployment.
We were selected for our superior capacity ease of deployment and product reliability.
We continue to do well in the enterprise education vertical with a win at a mid Atlantic Medical School, which include a Wi Fi and switching.
This will be an end to end cambium solution and we were selected for a simple management ease of deployment and superior economic value proposition.
In the Europe , Middle East and Africa region, EMEA, and Italy, we displaced a competitor with a cambium one network win at EOG is a renewable energy company that provides the wind and solar plants across Europe for connectivity with a range of cambium products, including our PTP E. P. M P.
Lifeway and switching solutions.
We won this deal due to our strong portfolio of outdoor solutions with compatibility across the entire network and the ability to manage the network with a single pane of glass.
In England, we wanted 60 gigahertz T N V. A deal with one years broadband one of the largest rural broadband providers in the country Rolling out high bandwidth internet to enhance the lives of rural communities.
In the Asia Pacific APAC region, we landed a sizeable network as a service Nast deal for urban connectivity import Australia with bentonite. This net orders for our 28 gigahertz C. N V. A five year fixed to connect homes in the region and includes our CN Maestro X cloud software.
The five <unk> service will increase <unk> service offering and capacity increasing its ability to service and add more users at a higher data rate.
Multiyear deal amongst in total to approximately $4 million.
Cambium will also provide wireless connectivity for the 2023 Southeast Asian games in May This win is significant as cambium displays to Chinese competitors.
And in the Caribbean, and Latin America, Cala region, Pemex, Mexico's large state on oil and gas company selected cambium PTP products to upgrade their field operations communications and Watson data to feed regional offices, using our newest generation of unlicensed technology to increase bandwidth capacity.
Turning to upcoming product introductions and developments since our previous quarterly update.
In the enterprise market.
Announce our high performance outdoor Wifi, six and 60 Tri band solution.
<unk> Trade agreement Act compliance T. A eight and is now available for both national governments, including Civil law enforcement National security agencies and defense market.
This will be the first time cambium can sell Wi Fi solutions to our sizeable U S government and defense market.
Our enterprise business continues to expand with both new products and the ability to reach new customers and markets.
Within our fixed wireless portfolio cambium.
Cambium announced that broadband service providers currently operating our BNP for fixed wireless infrastructure can boost throughput speeds to their customers without replacing equipment.
The latest innovative software improvements make it easy for service providers to offer over 100 megabit per second services, plus subscriber using existing equipment to increase capacity and reduce network latency.
Also new antenna options can increase range by 30% or more who offer 100 megabit per second services to customers who were previously out of reach.
With these recent improvement service providers can maximize their investment in existing access point and.
Subscriber modules by boosting performance with a software upgrade.
During the past, earning calls we have spoken at length about cambium, new six gigahertz solution that <unk> 4600, enabling the delivery of gigabit data rates to be.
Edge of the network there.
The FCC has not engaged with desktop basis on the automotive frequency coordination AFC process would be expected FCC approval later this summer.
The next transformational product to be released late this summer will be our next generation of the BNP for 50 platform.
Mbm's workhorse solution used by thousands of Netflix globally.
With a new <unk> cambium BNP for PV operates between five dot one five to 700 125 gigahertz and a single platform and features four by four M. Your Mimo and one five gigawatts of capacity.
As backward and forward compatible and as a software defined radio future proof with the next generation of BNP for 50 line of products offering a step function and performance.
This summer we will have a significant new product launch with our first ever fiber product named cambium fiber offering network convergence from a single pane of glass management.
Cambium fiber offers the most advanced passive optical network PON technology, but a complete end to end solution the.
Our solutions for service provider offer at Campbell <unk> eight part of loyalty and 16 portal will be with <unk> for both indoor and outdoor use.
The solutions are managed with CN maestro ex our converged single pane of glass addressing both wireless and fiber management.
The solutions also enable service providers and enterprises to go from fiber to wireless Wi Fi routers, all within a single pane of glass.
Interest in the product is extremely high with our initial target market of our current installed fixed wireless broadband customer base, enabling network convergence and ease of procurement from our channels.
Looking at our CMI stroke cloud software.
Devices and the cloud management in Q1, 'twenty three whereas there were 928000, an increase of four 3% from Q4, 'twenty, two and up 17% year over year.
Turning to our channel.
In Q1, 'twenty three we expanded our channel presence by adding approximately 500 net new channel partners sequentially and over 1700, net new channel partners year over year, which represents an increase of approximately 4% sequentially and over 15% year over year in March we held a volatile.
<unk> exited a managed service provider MSP event at our San Jose, California office to facilitate future revenue growth during 2023.
We continue to expand our reach into new customers around the world.
Particularly for our enterprise business.
I will now turn the call over to Andrew but a review of our Q1 'twenty three financial results and outlook for Q2, 'twenty three and full year 2023.
Thanks Atul.
Cambium reported revenues of $77 4 million for Q1 'twenty three.
Revenues decreased by 8% quarter over quarter and increased by 25% year over year. As a reminder, Q1 'twenty two revenue was impacted by severe supply shortages in a lockdown in China due to Covid.
On a sequential basis for Q1, 'twenty three revenues were lower by $7 $1 million. The lower revenues were primarily the result of lower Pnp and PTP revenues, partially offset by continued growth in enterprise revenues revenues.
Revenues of $77 4 million increased by $15 $5 million year over year, primarily due to improved supply partially offset by lower <unk> revenues due to less demand from service providers ahead of the ramp of product transitions to new gigabit technologies.
We have seen Pnp channel inventory declined in the first quarter, which is reflective of the chattel anticipating our new six gigahertz product.
Moving to our gross margin our non-GAAP gross margin of 52, 1% was better than anticipated and one of the best quarterly gross margins in our history, increasing by approximately 430 basis points compared to Q1 'twenty two.
The year over year increase in our non-GAAP gross margin was the result of higher volumes and a greater mix of higher margin enterprise and PTP products as well as the initial impact of the price increase completed in November of 2022.
On a sequential basis, our non-GAAP gross margin increased by approximately 250 basis points compared to Q4 dollars 22.
The higher quarter over quarter non-GAAP gross margin in Q1 'twenty. Three was the result of an improved mix of higher margin enterprise products improved efficiencies and the initial impact of our November 2022 price increase.
In Q1, 'twenty three our non-GAAP gross profit dollars or $40 3 million increased by $10 7 million compared to the prior year due to higher volumes and an improved mix of enterprise and PTP products and decreased by $1 6 million sequentially.
Our longer term goal remains a consistent non-GAAP gross margin target.
<unk>, 51% to 52% on an annual basis.
non-GAAP operating expenses, including amortization in Q1, 'twenty three increased by $2 $3 million compared to Q1, 'twenty, two and stood at $39 million or 39, 9% of revenues.
The increase in operating expenses compared to the prior year period was primarily due to higher head count in R&D and increasing wages due to inflation.
When compared to Q4 22, non-GAAP operating expenses increased by approximately $2 2 million during Q1 'twenty three.
The increase in operating expenses is due to inflationary salary increases effective January one 2023.
And a quarter over quarter increase in R&D due to higher staffing costs for development work on new products.
As well as an increase in our variable compensation.
We will continue to maintain our strong cost control discipline, including a recently enacted hiring freeze with only critical positions now opened for higher to further control, our operating costs and to protect our profitability.
Our non-GAAP operating margin for Q1 'twenty three.
Was 12, 2% up from one 6%.
In Q1, 'twenty, two and down from 15, 6% of revenues in Q4 dollars 22.
non-GAAP net income for Q1, 'twenty three was $6 8 million or 24 cents per diluted share above the high end of our previous outlook.
Between 14, and 23 cents per diluted share and compared to $300000 or <unk> <unk> per diluted share for Q1 'twenty two.
And non-GAAP net income of $10 3 million or <unk> 36 per diluted share in Q4 2002.
The higher non-GAAP net income compared to the prior year period was primarily due to higher revenues and gross profit dollars, while as expected lowered net income compared to the prior quarter's results.
Was primarily a result of lower revenues and higher operating expenses.
Adjusted EBITDA for Q1, 'twenty, three was $10 4 million or 13, 4% of revenues compared to $1 9 million or three 1% of revenues for Q1, 'twenty two and.
Compared to $14 3 million or 16, 9% of revenues for Q4 2002.
Our operating model remains solid.
We remain committed to consistently driving our adjusted EBITDA to our long term target of 18% to 19% of revenues.
Now moving to cash flow cash used in operating activities was $6 million for Q1, 'twenty three and compares to cash used in operating activities of $19 2 million for Q1 'twenty two.
And cash provided by operating activities of $4 million for Q4 22.
During Q1, 'twenty three cash was used to increase inventories and materials to support our new products and the expected increase.
In defense shipments.
And to allow for greater product availability and lower lead times for our customers.
In addition accounts receivable increased mainly as a result of the timing of revenues.
While we expect to continue increasing inventories in Q2 'twenty three as we ramp up for new product introductions, we do expect improved cash generation during the full year 2023, as we improve that linearity of orders and shipments and as revenues increase from new products in the second half of the year.
Turning to the balance sheet.
Cash totaled $38 $7 million as of March 31, 2023, which is a decrease of $90 5 million from Q4 dollars 22.
The sequential decrease in cash primarily reflects changes in working capital driven by higher inventory and accounts receivable.
As a reminder, in addition to our strong cash balance. We also have a $45 million revolver with bank of America, which remains undrawn.
Net inventories of $68 3 million in Q1, 'twenty three increased by $11 3 million from Q4 dollars 22 and were higher by $28 1 million year over year.
Inventories were higher sequentially because of the timing of shipments for defense products and the PTP business higher availability of components and finished goods in order to reduce customer lead times and an increase in inventories for the expected ramp up of new product introductions during the second half of calendar year 2020.
Right.
In summary, cambium <unk> first quarter results were strong.
We had a near record gross margin and adjusted EBITDA and EPS were both above the high end of our outlook. We continue to see improvement in the supply chain environment, resulting in shorter lead times for our customers.
While managing the supply of components during Covid was especially challenging as many components were in short supply and lead times tripled to 12 months to 18 months.
Our investment in inventory has reduced our product lead times to almost pre COVID-19 levels.
We plan to continue to invest in inventory related to new product introductions and expect to generate cash from operations and increase our cash balances during the full year 2023.
Moving to the second quarter and full year 2020 financial outlook.
Cambium Networks' financial outlook does not include the potential impact of any possible future financial transactions acquisitions pending legal matters or other transactions considering.
Our current visibility as of today, our Q2 'twenty three financial outlook is expected as follows.
Revenues of between $72 million to $80 million, representing growth of approximately 4% to 15% year over year and down slightly from Q1, 'twenty three due to sluggish global economies, while our defense business remains strong.
non-GAAP gross margins of between 53 and 51, 8%.
non-GAAP operating expenses of between $33 million and $31 3 million.
And non-GAAP operating income of between $5 nine and $10 1 million.
Interest expense net of approximately $600000.
And non-GAAP net income of between four 2% and $7 $6 million or net income per diluted share between 15 and 27.
Adjusted EBITDA between $6 nine at $11 $1 million and adjusted EBITDA margin of between $9 six and 13, 9%.
We expect the non-GAAP effective income tax rate of approximately 17% to 21%.
And approximately $28 6 million weighted average shares outstanding.
We expect cash requirements as follows paydown of debt $700000 cash interest approximately $500000 and capex of one and a half to $2 5 million for.
For the full year 2023 financial outlook, we expect it to be as follows revenues.
Revenues of between 327 million to $337 million representing growth of approximately 10% to 14%.
non-GAAP gross margin of approximately 59%.
non-GAAP net income of between 33, 7% to $36 million were net income per diluted share of between $1 18 and $1 26.
And adjusted EBITDA margin of between 14, 8% and 15, 5%.
For the year capital expenditures are expected to be approximately $13 million to $16 million, mainly driven by an expansion in our R&D labs and equipment and software costs in connection with new products.
Overall, while we're being more conservative with our revenue guidance to reflect the current risks in the global economy.
Our EPS guidance increased slightly as we have proactively taken steps to reduce costs through incremental cost controls, including a hiring freeze except for critical positions.
And improving our gross margin.
I'll now turn the call back to a tool for some closing remarks.
Cambium is at the cusp of a new phase of growth.
We have made continuous progress in the development of new products, including our 28 gigahertz <unk> fixed 60 gigahertz <unk> and we are getting closer to FCC approval of affordable six gigahertz fixed wireless BMP solutions, which will accelerate growth of the BNP business.
During the second half of 2023.
We are adding our first ever exciting new fiber products during Q2.
<unk> network convergence and our enterprise business remains strong led by <unk>, Our PDP base defense business continues to have robust growth and diversify globally.
And we expect strong growth in Q2 and 2023 for defense.
Our vision of Cambium, one network with an integrated converged highly differentiated fabric is becoming a reality resonating well with customers by providing ease of deployment scalability of networks and lower total cost of ownership as the award the prize next generation high performance converged broadband.
<unk>.
We delivered a strong quarter of financial results with outstanding gross margin based on our technical differentiation and.
A diverse portfolio of products.
Delivering excellent profitability and our balance sheet remains strong.
We remain focused on judiciously, managing our costs improving our operations.
Turning to invest in innovative products to maintain our technological edge and expect increased scale during.
During the second half of 'twenty, three which will benefit our future operating results.
Finally, I would like to show my appreciation for our employees partners and customers I look forward to a prosperous 2023.
This concludes our prepared remarks, so with that I would like to turn the call over to the duals and begin the Q&A session.
Thanks.
Okay.
Thank you.
At this time, we'll be conducting the question and answer session.
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Also remind you to please limit yourself to one question and one follow up question.
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Our first question comes from the line of Simon Leopold of Raymond James Your line is now open.
Great. Thank you very much for taking the question.
I'm glad to hear that you've announced the upcoming general availability of the fiber products I know you've suggested they were they were on the way I guess I'm, just looking for a little bit better sense.
When we should think about the timing of revenue.
Words, where is this in your sales funnel is this something that would contribute this year or is this more of a 2024 opportunity just help us understand how to put this into the model.
Then I've got a follow up.
Simon. Thank you excellent question, when we did <unk> I want to compare a little bit of our lessons. When we did buy Fi about five six years back we went back to our customers and our customers said you know you guys are giving us BMP BTB, but I want you to give us by five and Youll know rest of the story of what happened in the last six years.
By five north of $100 million business, we went to customers again.
And in last two years, they said well you guys give us good ROI you have lower do you feel you have excellent quality, but I want you to give us the single pane of glass and many of our current customers, particularly North America, they offer both wireless and fiber.
And Thats why we embarked on the program so Simon to answer your question specifically.
We'll start this quarter with early deployments, we already have four beta going we're incorporating that feedback and our differentiation is simplicity.
<unk> pane of glass management, and lower total cost of ownership for mid sized service provider wireless Internet service providers and I think in terms of revenue as usually takes time.
Bill the momentum in all of that but we are receiving very very good reception as we do the beta testing this quarter and we will ship for revenue later in the quarter, but again.
<unk>, probably still be ramp up and maybe later in the year you can start orly, maybe Andrew if you understand yes and that revenue will be included in our Pnp product line.
Incorporated into our numbers.
Great I appreciate that I was just going to ask for where you were going to show it and then just as.
A quick follow up if you could just give us an update on what youre seeing from the government funded programs art off indeed in your thinking there.
Sure. So what we're seeing is that as we said I think for last two three quarters, we expect our enough funding for our products point to Multipoint to increase in second half we are beginning to see that and the six gigahertz product the progressive service providers that already deploying to get an advantage in the net.
<unk> and our current assumption is that later this summer FCC will get all the approvals done they already have engaged desktops as we are working with them as we speak so overall, our <unk> second half and the lead initiative by initiative.
We'll start 24, beginning is my current guests and each state is going to get significant latitude.
In terms of how they deploy that $100 million minimum which each state will get so beat 24, starting 'twenty four and although I think we are going to start seeing in second half as we have maintained in the last calls.
Thank you for taking the questions. Thanks, Tom.
Thank you please standby for our next question.
Our next question comes from the line of Scott Searle of Roth Capital Partners.
Your line is now open.
Hey, good afternoon, Thanks for taking my questions and nice to see the strong outlook into the back half of the year.
Maybe two on that front looking at the guidance for the year the midpoint of the range for the second quarter. It still implies a pretty significant uptick in the second half of this year I think at the midpoint would average about $89 million or so in third quarter and fourth quarter revenues.
Wondering if you could help us understand a little bit better what youre, assuming that goes into that certainly it sounds like theres. Some six gigahertz starting to come in some 28 gig some art off contribution, but I was wondering if you could go down one layer and kind of provide a little bit more quantification on that front.
Possibly as well give us some idea of what you think the timeline looks like right now for AFC approval.
In terms of what you're factoring into your thought process in the second half of this year. Thanks, Scott excellent question.
So let me answer the FCC, we're pretty engaged with our partners, who also deal with the FCC as well as ourselves.
As I said desktop because theyre now engaged they are building. The best cases, we are working with them. My sense is that somewhere around August September is when the approvals will come.
The timeline and we already see some of the milestones happening theyre going to leap the deck, so timing wise that but I think so Q3 is what we anticipate for six gigahertz shipments revenues and the progressive Progressive service providers already actually trying to get a leg up but Q3 onwards.
For revenue in second half you are absolutely right, we expect four or five key revenue sources, mostly new product introductions to overlay them very well and remember too though that we are prepared for last 12 to 15 months. This is not overnight, we figured out that we'll do product and they come out.
It has taken a good 15 months, we have used the time to really reengineer the platform necessary. So the first one which will absolutely overlay very well at 60 gigahertz huge pent up demand and the reason I say that is five gigahertz to six gigahertz is incremental transition unlike 28 gigahertz.
60, gigahertz millimeter wave network operators know how to deal with it. So that's the first SKU revenue early the second tier revenue order level in the second half will be some amount of fiber and we are getting very good feedback because of the simplicity single pane of glass easy diagnostics complete solution. So that's another.
Surely you will see millimeter wave in fact, one comment I'll make is 60 gigahertz is getting good traction and CCTV and the security markets.
As we go into Q4, we'll talk more about that so 60 is getting good traction. There 28, we have good 10 poc's many of them have done and we announce every quarter and many of them will turn into production. So $28 60 will overlay and then there is cannot be five which is 450 <unk> week, which.
<unk>, which is the 450 line six gigahertz line.
Reporting five and six gigahertz that will also ship end of Q3. So you will have probably a little Q3, but more in Q4. These are all NPI, we had been planning for lots of 10 months, which come in and then art off helps us in second half as I said, we're beginning to see the out of revenue and BNP November plus phase of Arda has always point to point.
And we know access will get money starting second half of the year you get a hard up and then Biden initiative kicks in in 2004 early so hopefully that gives you a flavor.
Thats perfect very helpful and lastly, if I could on the follow up.
Look at the point to Multipoint revenue certainly point to point is performed well the last couple of quarters enterprise has been on fire, but point to multi point is still probably about 60% below peak levels, seven or eight quarters ago.
How quickly can that come back and is that still an attainable number if we look out over the next six plus quarters for you to get to $60 million in revenue for point to multi point. Thanks, yes.
I really believe that access for cambium is a very primary market affordable access high quality asset and lower total cost of ownership, that's what drives our business.
My sense is Scott that six gigahertz.
<unk> hundred 50 <unk>.
And then fiber these three combined probably but it will take us four quarters or so to get all of these platform moving full speed, but second half 'twenty four ish timeframe you will see these things running in full throttle and I believe I believe that whether it's whether it's 'twenty for second half of 'twenty five.
We need to think about that but you can see what we'll overlay over time in the BNP business as we accelerate that.
Yes, I would just add to that.
But we do we do anticipate Scott that we're going to see.
Decline in the second quarter in <unk> as we've said last quarter as well and then in the second half of this year both in the third and fourth quarter, we do expect sequential and year over year increases in that product line.
Great. Thank you.
Thanks Scott.
Thank you please standby for our next question.
Okay.
Our next question comes from the line of <unk> <unk> of Jpmorgan and Chase.
Your line is now open hi, yes.
Yes, hi, Thank you for taking my questions I guess.
Just to follow up on the last question, there and sort of the response about the overlays that we can sort of have visibility into visibility into and ramping into the second half of 'twenty four.
Interesting is if I look at your full year guide this year, you'll be exiting sort of the back half of this year still at sort of high single digit low double digit growth rates on a year over year basis, and really what I'm hearing from you is for you to maybe get closer to that long term target of 15 to 17 on the top line.
It's more of a second half 'twenty four sort of build into that.
And to that momentum is that the right way of thinking about it in terms of the products new product cycle starts to ramp into more second half 'twenty for that sort of ECB.
Growth rates start to come closer to the long term growth rate because the second half. This year also seems to below deck, yes. So.
The way I would say this is we really in some ways have not really guided for 'twenty for second half, but I am just give me a flavor that it'll be probably in that timeframe now by the second half of 'twenty four or early 'twenty five I think some of that will clarify as we accomplished things, but we can see.
Line of sight.
B.
Diversity of products high differentiation economic equation, lower total cost of ownership for the service providers.
In that timeframe.
I think those values will be very very well received.
So.
Overall, I think again as we guide 24 will come back, but we feel very good where cambium is positioned after the COVID-19. The innovations we have done the differentiation. We believe we are positioned as macro turns a little bit economic goes little.
Our direction.
Customers look for the gigabit network, we are the company and with convergence play. We also showing that we are we will go where the dollar will go where the business is we'll go where the customers are asking us to go and offer that fantastic convergence that is what we have done.
Thank you for that and just a quick follow up I know you mentioned in your prepared remarks, the conservatism in the <unk> guide because of the macro backdrop any more color that you can share like what what are you seeing in terms of customers responding to the macro in nature at all or is it more downsizing of deals are cancellations.
I know you mentioned there was one deal Thats now pushed out to Q2 from Q1 that you would expecting but more flavor around what you're seeing and any color on the inventory in the channel.
Channel partners have at this point of time. Thank you.
Yeah, I'll answer that a couple a couple of items here. So first on the deal that you mentioned really wasn't pushed out from Q1 to Q2, we had said last quarter that will either be Q1 or Q2.
And it is a defense deal that we're part of we're a part of so we don't have complete control over when the whole thing gets shipped out. So it will be Q2 in terms of our expectation, but when you look at the macro environment.
Especially outside of North America, where by the way we were quite strong in Q1, but when you look outside of North America between the strengthening of the U S dollar and our price increase we did too.
To cover our inflationary cost throughout the year last year.
That that.
Along with some of the issues around the <unk>.
Banking sector over the past, especially six weeks I think has caused the slowdown, especially outside the U S. In terms of what we've seen.
And we are being.
We're conservative in the second quarter because of that and we have seen a bit of a slowdown in some orders, but we do expect based on our talking with our customers.
That those orders will pick up in Q3 and Q4 in terms of their expectations.
And we do expect that that our defense business with that shipment that we mentioned earlier.
The large shipment going out in Q2.
Will be a positive to Q2, but that will be somewhat offset by lower revenues from our enterprise business, which we don't expect to be nearly as strong as in Q1 and.
In Q1, so that's how I see it playing out maybe one more point Andrew if I can add is this is in some ways post COVID-19 environment.
The inventories by channel customers Thats, all being adjusted it'll be it's being absorbed so I think starting Q3 Q4, it will become a little more normalcy as it was before Covid. That's why we are being conservative about Q2, and yet the gigabit demand the demand for broadband globally. It was a pretty secular.
Trends as we look at second half and beyond but I will say from a profitability viewpoint.
We've stayed with our numbers from an EPS viewpoint and in fact slightly increase them through the year because of taking action on the cost side.
Thank you thanks for taking my questions.
Thanks Amy.
Please standby for your next question.
Our next question comes from the line of George Notter Jefferies LLC. Your line is now open.
Hey, everyone. This is Blake on for George Thanks for taking the question so.
So I know you mentioned that channel inventory rates declined in the quarter, but it sounds like theres, some more digestion to come in.
In Q3, and Q4 is that the right way to think about that.
In terms of lead times being back down near pre Covid levels, I'm curious where lead times were at the peak of constraints and where they are now.
Yes, so in terms of channel inventories Pnp channel inventory that came down not total channel inventory and in fact enterprise channel inventory went up.
So.
That's one of the reasons why we believe that it's going to take some time to absorb that inventory and why we brought the numbers down a bit in terms of revenues in Q2.
What was the second part of your question.
With regard to lead times being back down near pre Covid levels, where were they at the peak of constraints and where are they now yes.
Yes. So so we are now able to have orders placed and filled within the same quarter, whereas whereas during during COVID-19.
As little as six to nine months ago.
That was not the case, so our customers now know that so they.
They are placing orders on more of a.
I won't say real time basis, but certainly closer to it in terms of what they were doing pre COVID-19 and we have the inventory now to be able to satisfy that demand, which our customers truly appreciate it.
Some of our competitors are in a similar position some are not but that we believe has certainly helped us in the market.
And we're still dealing with some supply constraints in terms of lead times on some components, which some of which are still two or three times higher than they were pre COVID-19, but we are dealing with that through higher inventories.
We're able to satisfy that demand.
That's helpful. And then also curious what type of deployments youre expecting from from customers for your fiber product.
Be weighted more towards brownfield or greenfield deployments. Thank you.
Very very good question.
Cambium is very focused on mid tier.
We'll not see US go after large service providers.
I think we have plenty of fish to Fry.
The mid tier market, we have thousands of service providers worldwide.
Cambium very well.
And most of them I would say have hybrid network wireless and fiber.
So we are going to concentrate on them.
Already use maestro our management, we're going to give them a single pane of glass and we're also going to go after enterprises.
Some city governments.
Local and state governments. So there are a lot of opportunity for us in our existing customer base and Thats why we have kept simplicity single pane of glass and total cost of ownership is very key differentiation.
In that solution and one more point automakers.
With the advent of AI, particularly generative artificial intelligence.
Which is very good for predictive diagnostics and reducing support costs you.
We will also see cambium used from a single pane of glass data captured.
And with these new tools of generative AI is the right time for us to be doing that so we are capturing data we have a single pane of glass, which makes it easier to get.
The customer.
Data and the predictive support diagnostics all of those to be done and I think those are all things to come in future, but the stages set.
Thanks Blake.
We take the next question.
Alright.
Please standby for our next question.
And as a reminder, if you would like to ask a question. Please press star one on your telephone.
One one on your telephone.
Our next question comes from the line of Erik <unk> of JMP Securities. Your line is now open.
Yes, thanks for taking my question.
First off just to clarify you did say that you are expecting the PMT to decline in Q2 is that correct.
That's correct.
Yes.
Inventory.
Increased a fair amount in last couple of quarters as inventory at the level that you wanted is that does that.
The target range or where are you in terms of your inventory management and then secondly.
Who are you competing against who are you displacing.
For fiber fiber business.
So on the inventory question.
I do expect inventory will increase so our target is to increase inventory a bit in Q2, and then I would expect that it will begin to level out or even slightly declining.
Through the rest of this year.
And.
As we ramp up for these new products that we spoke about earlier and the new product introductions. Many components you have to purchase 12 to 18 months in advance.
Being able to manufacture them at the time of release. So this happens over a period of time and that inventory builds up over a period of time.
So.
By the way just to clarify the point on Pnp going back to that.
As I mentioned I do expect a decline in the TNT revenues Thats consistent with what we said last quarter in Q2.
And that's.
Thats quarter over quarter on a sequential basis. However in Q2, we do expect to see a small increase in PMT revenues on a sequential basis in Q2.
And then in terms of the fiber question.
Let me, let me give you more color on the fiber question I think the first set of customers. We are going after as I said mid mid sized service providers and enterprises.
They are also our customers on wireless.
Of them also use our Wi Fi so that's it that's it.
Current set of targeted customers for us. Many are also going to be greenfield because they know cambium.
We will provide the means of Hughes ease of diagnostics.
And better economics, I think I will ask the discussion lot more clearly probably in six months and yes, I would say.
First set of target would be mid tier market.
And we.
We will know who we're displacing first we need to displace them claim that right now I think it's the early part of our journey, but.
But we are excited about what we're offering.
Yes.
So can I ask one quick one.
Was weather a factor in and your service provider business.
And the.
In March quarter.
Okay.
No I don't think so.
Okay.
No I don't think so.
Okay very good thank you.
Yes.
Thank you. Please standby for your next question.
Okay. Thanks.
Our next question.
Comes from the line of Paul <unk> of William K would drop your line is now open.
Thank you for taking my question I wanted to follow up on the.
The global impact.
Is it can you quantify what impact on revenue the first quarter had in your mind and then also how.
What kind of a quantification of the second quarter and the full year in your guidance in other words, what would it have been.
The economy was so let's say where it was last year.
Yes, that's really hard to say, but I will say that that APAC and.
Caller or certainly by far are too.
Smallest.
Jos.
But.
The revenue sourced from those regions was pretty significantly down.
In Q1.
But on the other hand, North America was pretty significantly up so.
It certainly covered for that but I do think that the strengthening of the dollar because as you know we sell in U S dollars the strengthening of the U S dollars combined with the price increase that we did for inflationary purposes in our cost going up throughout last year and the chip increase that occurred January one of this year.
That all added to some of the sluggishness that we saw outside the U S.
Okay.
Yes.
A lot of my questions were answered, but real quick question. Your gross margins seem to be heading up and I understand the mix towards enterprise and.
The government business in TTP with the hardware. They are higher margin can you give us a flavor for how much software.
Impacted.
Dissecting it out out of the enterprise and how how much of an impact that is having on driving gross margins higher throughout the next year, Yeah, I mean software certainly helped but.
But when you look at software as a percent of total revenue. It's still when you look at software and recurring services combined it's still in that 5% to 6% range not not.
A huge uplift from what we've seen in the in the past six to nine months. So as a percentage of the total it's remained fairly the same.
If you go back to prior periods before that when when it was lower than that.
Certainly that resulted in lesser of an impact and I think that software.
Can the uplift that we're expecting over the next call. It nine to 12 months and software and services will result in probably a 1% or so gross margin uplift.
Okay. Thank you maybe if I can add just one more point to Andrews.
Our.
Defense portfolio helps quite a bit in gross margin, but equally important is NPI new product introductions every new product. We are designing we are working hard to put more software more differentiation.
And making sure gross margins going the right direction and that's what you can see from Andrew's comments that we are confident now that we are our growth gross margin absolutely delivered a good result, this year and that was not easy because that to to generate the differentiation. In this climate, we had to do quite a bit of innovation, that's what you'll see.
Innovation differentiation, good price and making sure that.
We are delighting customers with what we offered in the complete solution.
Very good thank you.
Thanks, Paul.
Sure.
Okay.
Thank you.
At this time I would like to turn it back to Paul Schuman for it.
Closing remarks.
Thanks Jewel during Q2, 'twenty three cambium networks will be meeting with investors virtually on Thursday may 11th at the Oppenheimer emerging growth conference and we'll present to meet investors in person on May 20, <unk> at JP Morgan TMT conference in Boston in the meantime, you're always welcome to contact our Investor Relations Department at $8 seven to six four.
Two 188 with any questions that arise. Thank you for joining us today that concludes todays call.
Thank you for your participation in today's conference you.
You may now disconnect.
Okay.
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