Q1 2023 Airgain Inc Earnings Call
Good afternoon, welcome to Air Games first quarter 2023 earnings Conference call.
My name is Doug and I'll be your coordinator for today's call.
Joining us for todays call are Eric games, President and CEO , Jacob Suen, and CFO , Michael that box.
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 air gain Dot com.
Following management's prepared remarks, the call will be open for questions from air gains sell side analysts.
I caution listeners that during this call are gained management will be make we'll be making forward looking statements about future events and are games 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 may 11th 2023.
Air gain 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 discussion of non-GAAP financial measures.
Please see today's earnings release for future details, including a reconciliation of the GAAP to non-GAAP results.
Now I'd like to turn the call over to our CEO Jacob Suen Jacob.
Thank you up later.
Welcome everyone and thank you for joining us today.
For today's call I'll first cover our operational highlights and achievements for Q1.
Thanks Al.
Then it over to Michael to walk you through our financial performance for the first quarter.
Tough to war I will provide an update on our strategic product and marketing initiatives for 2020 three before opening the call for questions.
As you saw from our earnings release, the first quarter sales came in at $16 $4 million at the midpoint of our guidance range.
We communicated last quarter, the combination of demand softness in technology transitions in the consumer market contributed to a slight year over year first quarter decline. However, we are optimistic about new product introductions and design wins will result.
In sequential quarterly sales increases in the second half of 2023.
We continue to see solid performance from our enterprise market, which represented just over 50% of our total sales for the quarter.
Well also seek well some of our key verticals such as rail video surveillance fleet and industrial Iot.
Our enterprise market represents a mix of components and systems that include our embedded modems I'll say truck Hurst enterprise antenna design and custom products.
With this increased revenue contribution the enterprise business continues showing resiliency against volatile market conditions.
As a result of the increased demand for connectivity to improve productivity for ink customers combined with a growing number of applications in this space.
A prime example of this is the recent customer design win we announced in Q1 with a leading provider of railcars and services to the nations top railways.
Hey against cellular based IC truck Hearst and embedded modems combined with our Enlink software platform.
Offer a unique solution that solves the key problems that have plagued this industry for years.
We started shipments in Q1, which will continue to grow over the upcoming quarters.
We're also in discussions with several other companies in this space to provide similar solutions.
With our focus on simplifying wireless connectivity, we appeal to a market segments, leading RF expertise, while those requiring a sold or time to market.
These include video surveillance as a service all of these us which requires high bandwidth and a broad deployment to provide real time video data and processing.
EV charging is another segment that continues to grow as connectivity provides its backbone and they'd be struggling to keep up with market demand.
[noise] against simplify connectivity solutions help market such as this solves complex RF.
Problems and get connect it quickly.
Our automotive market includes both our aftermarket and paint us in our vehicle networking devices.
Such as the egg and connect platform.
Within automotive, we continue to see strong engagement from our large OEM relationships.
Though our fleet intent us with their offerings to provide a total solution to the market.
In addition, we.
We are rolling out strategy to expand market share within our distribution channels.
Our automotive channel strategy is threefold first its differentiation and flexibility to our product designs.
Second implement changes to the supply chain, but make us more responsive to demand.
Third expand our channels of distribution globally.
We are already beginning to see the benefits of these changes in our strategic direction and they expect to make several announcements in the coming weeks.
Well the first responder market continues to be our primary focus for automotive.
We're also seeing progress in other sectors. This includes over the road OTR fleets utilities, Aqua culture, and other market segments that manish vehicles with internal equipment that need connectivity.
This dependence on connectivity within commercial vehicles is fueling demand for better performance simplified implementation and simplified maintenance all problems again helps solve.
Shifting now to consumer these market is represented by our custom embedded antenna design for CPE devices sold primarily through a major service providers.
Consumer remains an important part of our ongoing strategy yet we continue to see near term challenges as a result of the macro economic conditions and product transitions from Wi Fi six so why five seven in several of our key customers.
Despite these headwinds which equals opportunities to secure wins in this space. We recently won a design from a major OEM for their next generation Wi Fi six E device for a tier one service provider in the U S.
We also announced in Q1 that the linked population selected are gain embedded antennas to power the Wi Fi six signal and it's D. Our airports.
The V. Herbage was built to provide a dedicated ultra low latency wireless connection between a VR headset N P C without the hassle of long cables or dependence on a Wi Fi router.
It is against design testing and manufacturing capabilities that allow innovative solutions such as this to deliver optimal connectivity.
In addition, as we continue to design integrated by G connectivity products in our various markets. We can better showcase how we solve complex RF problems with our superior RF design.
While the first half of 'twenty twenty-three present, some short term challenges. We believe we have the right strategy and roadmap to deliver on our growth targets.
Not only do we see strategic opportunities in each of our existing markets. We have some exciting announcements some of our advanced development team, but I will discuss later in the call that should position us for accelerated growth in the future.
With that I will turn the call over to Michael Michael.
Thank you Jacob.
Before diving into the numbers. Please note that my review of our financial results and guidance refers to non-GAAP figures.
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.
As Jacob mentioned Q1 sales were $16 $4 million at the midpoint of our guidance range of $15 seven to $17 $3 million.
Our sales declined 6% year over year, primarily due to demand softness in our consumer market.
Enterprise sales were $8 $4 million, which declined sequentially by one $6 million.
Lower shipments of our Wi Fi access and industrial Iot products.
Automotive sales were $2 $9 million, reflecting a sequential decrease of zero point $6 million.
Consumer sales totaled $501 million, reflecting a sequential decrease of $1 $3 million.
Q1, gross margin was 39, 1% 860 basis points higher sequentially.
As we recorded a one time inventory charge in the prior quarter.
We also experienced higher enterprise gross margins along with operational efficiencies.
Q1, operating expenses totaled $7 $3 million.
Higher than our guidance of approximately $7 million.
The variance was due to higher than expected marketing communication expenses, including trade shows and professional services in the first quarter.
We completed a workforce reduction at the end of the quarter.
All thinking at approximately $5 million decrease in quarterly expenses.
This action resulted in a $2 million, one time severance and exit costs, which is excluded from our non-GAAP results.
This decrease will lower our EBITDA breakeven point, while allowing for increased investments for our initiatives in the second half of the year.
In addition, we remain focused on streamlining operational processes to reduce our operating expenses.
As a result, our Q1 adjusted EBITDA was negative $7 million.
And non-GAAP EPS was negative <unk> eight cents.
Our cash balance as of March 31st was in line with our expectations at $9 $8 million.
$2 million lower sequentially, primarily due to annual variable compensation payments.
Our accounts receivable balance was $8 $1 million <unk> six.
$6 million lower sequentially.
Net inventory was $4 $5 million or $3 million higher sequentially.
Now moving to our outlook for the second quarter ending June 30th 2023.
We expect sales to be in the range of 15, seven and $17 $3 million or $16 $5 million at the midpoint of the range.
We expect the gross margin for the second quarter to be in the range of 37, 5% to 45%.
We project our expenses to be approximately $6 $4 million.
Adjusted EBITDA is expected to be $2 million at the midpoint of our guidance range.
non-GAAP EPS is expected to be breakeven at the midpoint of our guidance range now.
Now I would like to turn the call over to Jacob who will walk us through our product and marketing initiatives Jacob.
Thanks, Michael.
Q1 was an exciting quarter for us in terms of product announcements.
Our advanced development team under the leadership of our Chief Technology Officer. Dr. Ali accessory has spent the last two years developing new product lines that will help shape the future of AG.
We hosted an analyst and Investor day on March 15th when we discussed the impact of these new technologies on the market and our business trajectory.
The feedback from the market and the investment community has been positive.
We have made significant progress on these initiatives.
Since that event and I want to mention some of those milestones.
And there again, we believe the advancement of Fives, you technologies presents a specific set of challenges that we are uniquely positioned to solve.
With all of our ongoing efforts to simplify wireless with focus on the entire customer experience.
From customer to up later to identify unique opportunities to improve we have cast our advanced development team with building solutions to these challenges.
The fives, you experienced big gains in the home office with the Easter We believe fixed wireless access or if W. E is a killer app for five G. As it allows wireless technologies to compete with cable and wire solutions for the broadband connect certain into the.
Home.
In addition to our embedded an external antenna design to maximize the second awful if W. A devices, we announced a reference design for in outdoor the rationale if W. A device with an E easy installation kit that will break the trade off between performance.
And ease of installation.
This product appeals not only to mobile network operators, but has strong interests from our system integrator partners for enterprise environments.
We have completed validation and are moving into the product development pace, well, we are finalizing our testing and verification.
The next challenge, we set out to tackle in the customer experience, what's delivering the best five G signal to the home or in the price.
In February we announced the launch of our lighthouse smartly Peters and showcase this technology at mobile World Congress in Barcelona.
<unk> five <unk> delivers on its promises of lower latency increased capacity and higher throughput. It comes at the expense of a shoulder signal distance from the base station because at the higher frequencies.
Rather than solving this problem exclusively with the additional expensive base stations or small cells.
Hey against smartly Peters significantly reduce deployment costs and simplify implementation.
With both a network version and a small home office version called Lighthouse, Michael Hagan simplifies the delivery of the <unk> signal to your home or in the price. We completed an initial trial on a tier one operator network and are in the middle of.
Additional trials and optimizations on that network.
The third challenge, we set out to solve what's delivering a better signal at the cellular base station itself.
Massive mimo generally it's a high number of antennas on the base station compared to standard Mimo, which improves data transfer speeds and increased network capacity at.
At the mobile World Congress show in February we announced a key partnership with much linear and industry leader in <unk> wireless infrastructure to pair against latest reference design play 64, transmit 60 fall receipt antenna array with.
Their transceiver and high performance beam forming technology.
We've built samples and are in the process of finalizing the implementation and go to market strategies.
Finally, we need it to get up later and their service providers, a way to manage all current and future Aegean devices on their network remotely including.
Including configuration management chain.
Change tracking guar.
<unk> performance matrix.
Monitoring two way communications with devices and more with that in mind, and again announced its partnership with Arago, an enterprise software company specializing in network operations automation and management.
And two and network management.
Higgins firmware and middleware will push data to Ara those platform for streamlined management and monitoring.
Initial integration and testing is complete and we are in the final stages of testing our devices within the integrated platform.
In addition to improving the <unk> customer experience from customer to operator, we have several other product innovations in the final stages of development that we will announce in the upcoming months.
With our five G connectivity solutions and these new products, we believe the future looks brighter for air game.
In closing.
Well, we're facing expected near and short term headwinds we are optimistic about our long term prospects and remain focused on growth in our three major markets.
We expect the stability of our enterprise market to continue as we expand our product portfolio expand into new verticals and grow our international footprint well.
We also anticipate growth with our automotive aftermarket vertical as we add differentiation and flexibility to our new product designs.
Our supply chain strategy.
And expand our distribution channels for our aftermarket antennas.
For our consumer vertical we expect performance will be driven by our continued ability to solve the growing complexity in Iowa, and our integrated product launches with a major global service provider customers with whom we have built great partners.
Ships throughout the years.
Our roadmap is paved with ambitious product initiatives given the products, we have and the breadth of system space solutions. We have introduced our service addressable market or same has more than doubled from $7.6 billion to $16 five.
Building on.
These new products are designed to address coverage issues on the service provider side reduce deployment costs and improve the customer experience.
<unk> customer to operator.
I'm proud of the team at Air game, and how they have responded to challenging market conditions, we have a seasoned leadership team.
Chip the company on solid footing and position us for future growth.
I'm confident in our market strategy, our product deployment efforts and our position in the market and am excited for our future and with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Scott <unk> with Roth Capital Partners. Please proceed with your question.
Hey, good afternoon, thanks for taking my questions.
Okay.
Mr Surely you're cutting in and out the update on the timeline of when we expect that to contribute.
And.
In terms of introduction of the product and the ramp of that product from a revenue standpoint, and also the latest uptick on nimble link both from a supply chain perspective, and a demand perspective.
And one of the areas, where I think theres been a lot of end market demand will be working through some channel inventory what the latest thoughts were on that front and then I had a couple of follow ups.
Hey, Scott, Yes, good to hear from you Jacob here, we missed the first part of your questions. We understand the second part of your question is regarding to nimble link product inventory, which will address what was the first follow up.
Regarding new product introduction.
Yes, my apologies on the auto front are getting connect 2.0, as you're expanding beyond AT&T and band 14.
The timeline of when that would be introduced and when we start to see that ramping up from a revenue standpoint.
Okay. So next generation again connect yes.
Questions and I'll I'll I'll address.
The first one and then I'll have Michael help chime in on the Nibbling Si. So regarding next generation Air again connect we have not formally made the announcement certainly we have been informing the investment community is something that we've been working on I would say for almost a year and a half now.
Now.
We actually learned quite a bit from the initial Aegean connect H P E and I think that we feel really good about the prospect and we really got great feedback from the customers.
As far as when is it going to be available is something that we are still working on and hope to hope to be able to update you in the in the near future. So but at this point you know the product is under development and and it's you know it's got a lot of great features that customers for one thing and we really.
We feel good about the prospect and again hope to update you.
Shortly.
Scott This is Michael on the nimble and question Theres Nimbly products as you know is part of our enterprise.
Market the majority of our enterprise pocket actual either industrial Iot products.
The good news here is that the supply chain has really eased significantly we have.
Been plagued in FY 'twenty, one in FY 'twenty two through all eight quarters with a large ppvs or purchase price variances basically higher material cost, which we were able to pass through.
Through to our customers.
And also the lead time cycle some of those parts where multiple.
And most of the overall lead times, we do see a few components that have some lead time issues. However, the ppvs have disappeared entirely and in Q4 of 2022.
With the shipments that we had all the enterprise devices. We did released quite a bit of that ppvs. There was one other reason why the margin was lower than our expectation in Q4.
So we are done with that our balance sheet is pretty clean on that.
And the resumption of the.
Shipments and the supply chain have come back.
Perfect and lastly, if I could you give us some updates on the fixed wireless access solution. It sounds like youre going from reference design and.
Moving into the product development when would be the earliest of when we could expect field trials.
And revenue from that I think you've talked about the 24 timeline if that has changed at all and then secondly, just bring all the products together it sounds like there's optimism going into the second half of this year I'm wondering if you could address each of the main product categories in terms of the expectation for growth into the second half consumer Wifi.
Auto if we start to see a pick up there and it certainly sounds like nimble and starting to improve as well on the enterprise front. Thanks.
Yes, great questions Scott So I'll first talk about the prospect for second half again, we don't.
<unk> guidance outside of the you know the next quarter, although I think that it's important to let you know what we seeing the second half is going to play out and then I can talk a little bit about the F. W. A as well.
Uh huh and about the prospect so regarding the second half as.
As indicated we do think that a consumer it's in all the transition from Wi Fi six Wi Fi seven we do expect that to really you know started happening at the latter part of this year.
And that's one of the reason why because they want to clean up the inventory with the transition that's why you're seeing some of the short term.
Headwind.
Headwinds so to speak on the consumer side, although we are pleased to see that the supply chain issue that plagued us in the last two years or so is really start to come through it's a finishing line. So we're really happy to see that oh throughout the enterprise, we do see that.
You know the again some of the inventory issue on the channel side, it's going to resolve I, who say by the by the first half. So I expect the second half to really pick up.
And we expecting both on the Iot Si Aswell as our Wi.
Wi Fi AP business is going to pick up in the second half so that that that's that's an area, we're really seeing a lot of momentum.
And then on the automotive specifically we're seeing.
A growing demand on the aftermarket antenna products.
We expect that to continue with our new product introduction as well as the flexibility, we're providing to our customers. So I expect that to also start already.
<unk> in the second half of this year.
Now regarding fixed wireless access design are we made the announcement doing she yes, we actually are able to work without a partner such as arago employ VI and end to end solution and eventually that's what we really foresee aegean to be to be able to not only provide customers with <unk>.
Bits and pieces, but a complete end to end solution.
With the fixed wireless access.
We are we can target towards <unk>.
A major network operators, and then Ost, such as T Mobile's, AT&T, Verizon, where they really having a neat to address the coverage issue. We are also able to target that product for enterprise infrastructure customers.
For for even a campus environment. So we are already got a lot of interest and we're in the process of working with them on trials again, I would rather be conservative and not saying, we're going to be able to ship a much this year, but we do see a.
A really good truck churn and position the company well for next year.
Does that help Scott.
Great. Thank you perfect.
Yeah.
As a reminder, it is star one to ask a question. Our next question comes from the line of Ethan Wardell with B Riley Securities. Please proceed with your question.
Hi, this is even wider all calling in for Craig Ellis. Thanks for taking my questions to start I was hoping you could elaborate on your lighthouse product and what you expect for timing to sales there. Thanks.
Yes, I get it.
Good to hear from you eaten yes on the <unk>.
Lighthouse is really all are very innovative.
Five G smart repeaters and and we have the network smart repeater side as well as the small so whole repeater.
And as I indicated in the call that we're already doing a trial, where they complete the lab trial well into life field trial with one of the major.
Mobile network operators in the U S. We also received a quite a bit of interest internationally as well.
We actually demo this product or marketing these products doing Barcelona, four MW C and D. As we see interest in.
Some of the network operators in Europe in Middle East as well as in Asia as well.
Now the product is still in all it's not a finished product is still a product that's more for demo. So we intend to work with our customers closely to make sure we creating the features that meet what they need.
Several key things with this product that we already have one it's what we call you know.
Mark as you know a gain was found that based on our smart antenna technology, and we are able to tap into this product. So so that's a major differentiations of egging smartly Peter the other thing, it's what we call Echo cancellation and that's another unique feature that we have lost panel.
At least we're also able to dual channel aggregation and this is a not a T shirts that many network operators.
Really what we're really like to have and we would be if you got the first one to market with this particular feature.
And we have many other things, but again some of the nice differentiation were created with our product we really feel good about and we intend these product to not be able to deploy this year I would say next year will be what we are.
Aiming for.
Yes.
Got it thank you and then.
Between our consumer auto and enterprise I was wondering if you are targeting a certain mix there and the.
Implications for gross margin going forward if that's the case. Thank you.
Sure Hi, this is Michael.
So on the overall mix in Q1, we had a slightly.
Over 50%, 51% to be exact on the enterprise.
<unk> sales.
Market and this has been actually a mix it has been growing steadily over the past couple of years. This was definitely deliberate in terms of diversity diversifying our portfolio. It is.
So currently the market that he is very resilient to the current conditions.
Economic conditions.
And.
At the expense of the automotive and also the consumer mix.
Consumer happens to be our higher margin markets. So.
There is an impact on the overall gross margin, but so far we've been able to offset that with operational efficiencies and really focusing on gross margin improvement initiatives.
Got it thank you.
There are no further questions.
As a reminder, it is star one to ask a question.
Yeah.
There are no further questions in the queue at this time I'd like to hand, it back to Jacob Suen for closing remarks.
Thank you for joining us on today's call. We look forward to updating you on our next call.
Operator.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.
May disconnect your lines at this time and have a wonderful day.
Okay.