Q2 2023 Cambum Networks Corporation Earnings Call
Good afternoon, My name is Amber and I'll be your conference operator today at this time I would like to welcome everyone to the Cambium Networks' second quarter 2023 financial results Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will hear an automated message that your hand is raised.
She was drawing a question. Please press star one one again.
Please limit yourself to one question and one follow up question. Thank.
Thank you Mr. Peter Schuman, Vice President Investor and industry analysts relations you may begin the conference.
Thank you Amber welcome and thank you for joining us today for Cambium Networks' second quarter 2023 financial results conference call and welcome to all those joining by webcast.
Naga and Andrew Brown, Steve are here for today's call.
The results press release, and CFO commentary referenced on this call are accessible on the investor page of our website.
Yes release has been submitted on form 8-K with the SEC.
Certain revisions were made with within operating expenses in prior periods to conform to the classifications in the current period.
These revisions had no impact to operating income the copy of today's prepared remarks will also be available on our investor page at the conclusion of this call.
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.
That's where 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 take importantly statements to actual results or to make changes and cambium expectations, where otherwise it is cambium networks.
Policy not to reiterate our financial outlook.
Listeners to review the full list of risk factors included in our Safe Harbor statement in today's financial results press release, and our most 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.
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 of tool button augur, well provide the key operational highlights for the second quarter 2023, and Andrew will provide a recap of our financial results for the second quarter 2023, and present, our financial outlook for the third quarter and full year 2023, our prepared remarks will be followed by a Q&A session.
Now I'd like to turn the call over to a tool.
Thank you Peter Cambium oral revenue performance in Q4.
The performance was a result of Cvs slowed down in revenues from Cambium enterprise products.
I'll spend the next several minutes explaining what happened.
Describing how we will get cambium enterprise business back on track.
First what happened.
During the second quarter.
Revenue from Cambium enterprise products, what significantly below expectations.
While BMP and PTP products performed at or ahead of expectation.
The cause of the decline in revenue from enterprise products in the second quarter or all of them up with previous slowdown of sales.
So the enterprise channel to the end customers.
This slowdown in the enterprise channel was caused by several factors.
Of course.
Component supply, including chips became readily available to our competitors during the quarter and we had one dish cambium, having supply and order fulfillment was dramatically reduced.
As we have discussed in the past.
Covid caused major shifts in the global supply chain throughout the past three years.
And these ships had a significant impact on component every liberty.
New performance.
Second competitors now with plenty of supply became very aggressive with pricing and then attempt to regain market share.
We saw the impact of these factors, especially in the last month of the quarter.
Given product shipments are heavily weighted to the last few weeks of the quarter based on distributor orders and requested delivery dates.
Kurt.
Global economy resulted in cancellations and delays and end customer projects in several regions.
And in distributor ordering decisions.
All of these items resulted in a bottleneck and enterprise channel inventory.
This further accelerated our reported enterprise revenues due to a higher than normal volume of enterprises stock rotation.
How will we get the enterprise business back on track.
As a result of the poor revenue performance, we have taken several actions.
First.
We have initiated an individualized strategy with each of our largest distributors and partners to move enterprise products through the channel faster you're moving the bottleneck, while also providing aggressive incentives to gain share of wallet with new customers.
New markets and new geographies.
Second we have executed a 14 million dollar annualized cost reduction program, which will protect our profitability and strong balance sheet, while we work through the challenges in the enterprise business.
Andrew will provide more details on the cost reduction later in our call.
Outside of the disappointing revenue performance of the enterprise products, we have some very positive events.
Including a record quarter for our point to point PTP business.
Fueled by execution of large different deal.
This was during our last earnings call.
Our defense funnel remains very strong.
And we expect to have a record year in our PDP business.
Further our point to Multipoint BNP business performed better than expected.
With sequential quarter growth fueled by demand for 28 gigahertz fixed by Jeep and strong interest from our newly released cambium fiber products.
We anticipate BMP revenues will continue to grow both sequentially and year over year during the second half of 2023.
And we expect that final approval by the FCC was six gigahertz spectrum will benefit our new E&P 4600, and BNP for 50 <unk> product line.
Summarizing the results of the second quarter 2023.
Revenues decreased 14% year over year, and 23% quarter over quarter, primarily as a result of slowing revenues from enterprise products in the EMEA and North American regions.
Our other products and regions performed consistent with or above our expectations.
Our gross margin EBITDA and profitability were lower than expected due to lower shipments of our enterprise products.
Cambium second quarter 'twenty, two revenues of $59 $5 million were below the bottom of our outlook, while our gross margin of 53% came in at the lower end of our outlook.
All our profit Liberty of three cents per share was lower than our outlook due to the loss of scale.
As a result of the performance of the enterprise business.
Looking at revenues across our product line.
Our enterprise revenues declined 82% sequentially and 73% year over year.
As previously mentioned, we have begun taking aggressive steps to a degree the enterprise channel inventory.
We expect a return to sequential growth in enterprise products. During Q3, 'twenty three and a return to a normal run rate during the first half of 2024.
Our PTP revenues increased 39% sequentially and 60% year over year.
We continue to expect strong year over year defense shipments during the remainder of 2023 and we are engaged in an increasing number of global defense program of record P. O R.
Okay.
Our PMT revenues increased 20% sequentially, although lower by 5% year over year.
Our PMT revenues increased 20% sequentially, although lower by 5% year over year.
As service providers are moving from our current generation of BNP for 50 products to the new gigabit technology.
This will include cambium six gigahertz products, we should expect it to help drive BNP revenue growth during the second half of the year. Upon the FTC's approval. In addition, our 28 gigahertz fixed five year product had a record quarter and.
And we had earlier than expected.
Stocking orders for our new BNP fiber product.
Looking at some notable customer wins and new product development.
In North America Cambium reached a significant milestone as we received official approval from the world's largest global hotel chain as a vendor for our enterprise solution.
But gene has over 8600 properties 833 countries and territories with approximately $1 6 million rooms.
We are also working to get our 60 gigahertz DNV qualified with this customer.
Cambium has particular strength in the hospitality vertical and approvals such as this gives us confidence and not able to grow the enterprise business in the future.
Cambium is not working with partners, serving four of the top five global hospitality brands, including deployments with Cambium cloud managed Wifi.
And switching products.
In the Europe , Middle East and Africa region, EMEA, we had wins with managed service provider MSP.
Hospitality.
Multifamily and student housing sectors in EMEA, including with new eye at noon.
<unk> and pressed right.
One of our recent enterprise wins in EMEA included the Hilton Heathrow Airport Imager hotel and one of the busiest airports in the world.
In Spain it.
Regional operator Globe Telecom activated the first deployment of the fixed wireless safety technology in the 26 gigahertz band.
The new network users frequency acquired by global Telecom and the Spanish government Recenter, the six gigahertz band tender.
Last remaining priority tier four five new services in combination with cambium networks, <unk> and our base platform.
And in Cape Town, South Africa.
Service provider will Burnett is using cambium <unk> fixed and the license 26, or 28 gigahertz frequency band to increase service levels for broadband customers by offering packages of up to 200 megabit per second resulting in increased service levels in a macro update.
We are now seeing the early 28 gigahertz product POC turning into multimillion dollar commercial deal.
In the Asia Pacific APAC region, and Malaysia, We had an enterprise win with a government agency for our Wifi six access points for a high speed extra screen. The train provides nonstop extra stream service from Marine transportation have been Kuala Lumpur to the airport.
And in Caribbean, and Latin America, Cala region University Diglot Savannah, one of the most important private universities in the Columbia decided to upgrade their networks without Wifi, six and 60 solution, providing Wi Fi access to more than 12000 students and inexpensive campus with 14 buildings.
Can be selected already larger competitor since we gave them superior Wifi coverage at a lower total cost of ownership.
Turning to upcoming product introductions and developments since our previous quarterly update.
In the enterprise portfolio in Q2, 'twenty three we recently introduced two new layer, two and three metrics <unk> switches, which feature high power over Ethernet and support Wifi, six and <unk> video surveillance and other devices for mission critical networks.
We advanced switches support our cambium, one network architecture and feature dual removable redundant power supplies and high power and high density capability.
Within our fixed wireless portfolio.
Italy awaiting final approval from the FCC for six gigahertz spectrum during the second half of calendar year 'twenty three.
Cambium currently has approximately 25 ongoing trials for our six gigahertz BMP 4600 product with broadband service providers, which will help drive our future E&P revenues with our quest to market advantage.
Looking at our C&I, So cloud software total devices under cloud management in Q2 2003 was over 980000, an increase of approximately 6% from Q1, 'twenty, three and up 17% year over year.
Turning to our channel.
In the Q2 'twenty three we expanded our channel presence by adding approximately 390 net new channel partners sequentially and approximately 600 net new channel partners year over year, which represents an increase of approximately 3% sequentially and about 13.
13% year over year.
During Q2, 'twenty three cambium shared our strategy and vision at Cambium connection our biannual online webinars for end customers and the partner community throughout various yields.
We also had numerous customer industry analyst briefing on our new cambium fiber solution.
Which are generating lots of excitement, particularly with North American service providers.
I'll now turn the call over to Andrew Let me review of our Q2 'twenty three financial results and outlook for Q3, 'twenty three and full year 2023.
Thanks Atul.
As a tool mentioned, we have executed a significant cost reduction plan designed to align our cost structure with our current and expected near term revenue run rate in order to maintain profitability improved cash flow and to maintain our strong balance sheet.
We expect to realize annualized cost savings of approximately $14 million of which we expect about $6 million to be realized during the second half of calendar 'twenty three.
In connection with our cost reduction cambium expects to incur approximately $2 million in one time restructuring charges. During the second half of 'twenty, three mainly consisting of cash severance costs.
Financial strength and resilience are a core value and we will continue to manage costs prudently.
Turning to the quarter.
<unk> reported revenues of $59 5 million for Q2 'twenty three.
Revenues decreased by 23% quarter over quarter and by 14% year over year on.
On a sequential basis for Q2, 'twenty three revenues were lower by $17 $9 million.
The lower revenues were primarily the result of decreased enterprise revenues, particularly partially offset by record growth in PPP revenues.
And as expected a return to quarter over quarter growth in the <unk> business.
We have seen PMT channel inventories declined in the second quarter, which reflects the channel anticipating our new six gigahertz products.
Revenues of $59 5 million decreased by $9 8 million year over year, primarily due to lower enterprise revenues as a result of higher channel inventories and slowing economies, especially in EMEA.
And decreased Pnp revenues due to less demand from service providers ahead of the ramp of the product transitions to new gigabit technologies, including our six gigahertz products, partially offset by record PTP revenues due to excellent performance of <unk> defense products.
We continue to expect strong PTP revenues for the remainder of the year due to our expanding defense business.
Moving to our gross margin.
Our non-GAAP gross margin of 53% was higher by approximately 140 basis points compared to Q2 dollars 22.
The year over year increase in our non-GAAP gross margin was the result of a greater mix of higher margin PTP defense products and the impact of price increases completed in November of 'twenty two.
Partially offset by the impact of lower enterprise revenues.
On a sequential basis, our non-GAAP gross margin decreased by approximately 180 basis points compared to Q1 'twenty three.
The lower quarter over quarter non-GAAP gross margin in Q2 dollars 23 was the result of lower enterprise revenues, partially offset by higher margin PTP defense revenues.
With improved efficiencies and the impact from our November 22 price increases.
In Q2, 'twenty three our non-GAAP gross profit dollars of $29 9 million decreased by $3 9 million compared to the prior year and by $10 4 million sequentially due to lower enterprise revenues.
non-GAAP total operating expenses, including amortization in Q2, 'twenty three increased by approximately $800000 when compared to Q2 'twenty two.
And stood at $28 3 million or 47, 5% of revenues.
The increase in operating expenses compared to the prior year period.
This is primarily due to higher head count in R&D, and sales and marketing as well as increasing wages due to inflation offset in part by lower variable compensation costs.
When compared to Q1 'twenty three.
non-GAAP operating expenses decreased by approximately $2 $6 million during Q2 'twenty three.
The quarter over quarter decrease in operating expenses is due to lower variable compensation costs as a result of lower enterprise revenues.
Our non-GAAP operating margin for Q2, 'twenty three was two 8% down from nine 1% during Q2 'twenty two.
12, 2% of revenues in Q1 'twenty three.
non-GAAP net income for Q2, 'twenty three was $900000 were <unk> <unk> per diluted share well below our outlook for the quarter.
And compared to $5 million were <unk> 18 per diluted share for Q2 'twenty two.
And non-GAAP net income of $6 8 million or 24 cents per diluted share during Q1 'twenty three.
The lower non-GAAP net income compared to prior year was primarily due to lower enterprise revenues and gross profit dollars and higher operating expenses due to inflation, while the lower net income compared to the prior quarter's results was primarily the result of the lower enterprise revenues and the lower gross margin dollars, which.
Was partially offset by lower operating expenses due to reduced variable compensation and tight cost controls.
Adjusted EBITDA for Q2, 'twenty, three was $2 8 million or four 7% of revenues.
Compared to $7 8 million or 11, 3% of revenues for Q2 'twenty two.
And compared to $10 4 million or 13, 4% of revenues for Q1 'twenty three.
Moving to cash flow.
Cash used in operating activities was $4 5 million for Q2, 'twenty three and compares to cash provided by operating activities of $10 million for Q2, 'twenty, two and cash used in operating activities of $6 million in Q1 'twenty three.
During Q2 'twenty three cash was used to increase inventories for anticipated higher enterprise shipments materials to support new products.
And to allow for greater product availability and lower lead times for our customers.
We do expect the inventories to begin to decrease in Q3 'twenty three as we expect increased revenues in new products introduced at our fixed wireless business.
We expect positive cash generation during the second half of 'twenty three.
Turning to the balance sheet cash.
Cash totaled $32 million as of June 32023, a decrease of $6 7 million from Q1 'twenty three the sequential.
Decrease in cash primarily reflects changes in working capital driven by higher inventories.
Net inventories of $82 3 million in Q3, 23 increased by $14 million from Q1, 'twenty, three and by $34 $9 million year over year.
Inventories were higher sequentially because of lower than anticipated enterprise shipments and the expected ramp of new product introductions.
In summary, cambium second quarter results were disappointing driven by low enterprise revenues and high enterprise channel inventory further compounded by global economic uncertainty.
We are taking significant and aggressive actions to address the issues that we have experienced in Q2, including a significant cost reduction along with more aggressive sales actions.
We are also leveraging the positive performance in our PTP defense products and continuing the positive momentum from our Pnp products, which we expect will be fueled by FCC approval of our six gigahertz products.
Product delivery lead times are now shorter.
Nothing changes in the channels purchasing patterns.
We are well positioned for new product introductions and expect to generate cash from operations in the second half of 'twenty three.
Moving to the third quarter and full year 2023 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 Q3 'twenty three financial outlook is expected to be as follows.
We expect revenues between 62% and $70 million, representing an increase of approximately 4% to 18% from Q2 2003.
From the continued strong year over year growth in the PTP defense products.
And as we benefit from the ramp of 28 gigahertz and the new <unk> products.
As well as higher sequential enterprise revenues, although we do expect enterprise revenues to decline year over year.
We expect non-GAAP gross margin of between $49 eight and 51, 3%.
non-GAAP operating expenses between 25, 6% and $26 $6 million.
non-GAAP operating income of between five 2% to $9 $2 million interest expense net of approximately 700000.
non-GAAP net income of between $3 seven to $6 $9 million were net income per diluted share.
<unk> <unk> and 'twenty five.
We expect adjusted EBITDA between six three and $10 $3 million and adjusted EBITDA margin of between 10, 2% and 14, 8%.
And we anticipate a non-GAAP effective income tax rate.
Between 17, and 21%, we expect about 28 million weighted average diluted shares outstanding.
Cash requirements are expected to be as follows we expect paid out of that $700000 cash interest of about $500000.
And we expect capital expenditures of between four and $4 5 million.
Full year 2023 financial outlook is expected to be as follows.
We're expecting revenues of between 265 and $275 million.
Renting a decline of 7% to 11%.
non-GAAP gross margin of approximately 52 to 51, 6%.
non-GAAP net income of between $16 seven to $21 $9 million or net income per diluted share of between $59 78.
<unk>.
Adjusted EBITDA margin of between 10, five and 12, 6%.
For the year capital expenditures are expected to be approximately $12 million to $14 million, mainly driven by costs associated with new research and development projects.
I will now turn the call back to a tool for some closing remarks.
While the exact timing of a return to a more normalized revenue pattern in our enterprise business is difficult to predict.
Currently expect to see higher sequential enterprise revenues in Q3, and Q4 'twenty three.
And a return to a more normalized quarterly revenue pattern in the first half of 2024, while we work aggressively with our channel partners to digest the current level of channel inventory.
Our PDP business fueled by the defense products is strong.
And we expect a record year of revenue in 2023, as we continued to expand the number of programs and countries in which we participate.
Our BNP business has turned the corner with sequential growth in Q2, 'twenty three and.
And we expect it will continue to accelerate with the FCC approval of cambium affordable six gigahertz products with clear first mover advantage.
Further we continue to see growth in our 28 gigahertz <unk> fix.
While our new fiber products are off to a good start.
We also expect increased government funding will help accelerate the growth of our BNP business over many years.
We continue to judiciously manage our costs and have taken actions to improve our operations and to protect our profitability.
<unk> also continued to invest in innovative new products in order to provide quality products at a compelling value.
As mentioned in today's press release, although I have stepped down as the company's president and CEO effective today.
I'll continue to serve as a member of the company's board of directors.
I am proud to be handling handing the leadership role at cambium to Morgan Kurk an industry veteran.
With previous industry experience includes more than 11 years at Commscope.
Most recently as executive Vice President broadband market segment leader and Chief Technology Officer.
I will be working closely with Martin to ensure a very smooth transition.
We are very lucky to have Morgan with its rich broadband and wireless background to lead cambium in its next phase of growth and innovation.
Finally, I would like to show my appreciation for our employees.
Nurse and customers.
This concludes our prepared remarks, Morgan Kurk, our new CEO .
With us in the room with me.
So with that I would like to turn the call over to Amber and begin the Q&A session.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one one again.
Please standby as we compile the Q&A roster.
Our first question comes from Simon Leopold.
Raymond James Please go ahead.
Thanks for taking the question Morgan, it's been a bit so hello again.
<unk>.
So a couple of things I wanted to ask let's start out with sort of question that has to be asked which is why you opted not to pre announced this quarter and then I've got a follow up on the trending thanks.
Yes Simon.
Quite a few changes we were making not just revenue Miss but management chain change as well as.
The cost cutting cost reductions, we felt that all of that should be done together.
And based on that the board decided not to pre announce.
Okay, and then I want to make sure we all understand when you talk about.
Getting back to normalized run rate in the first half of 2024.
I want to make sure I understand what that needs.
Yes, I'll give you my comments and then Andrew can.
Offering his some of his color as well we are working very closely with our key channel partners on individualized strategy.
For moving the products through the channel, we're giving them aggressive incentives to move the products.
<unk>.
When we look at the sales the sales out for Q2 actually was flattish to Q1.
So we looked at full model and as Andrew and I have worked together we felt that.
Based on our experience with even fixed wireless broadband we saw something similar with fixed wireless broadband as well last year as the pendulum swung from positive two abundance. It took us two to three quarters to work through that inventory and fixed wireless broadband now.
Lockwood towards normal inventory. So we know we know what it takes we know how it has to be done and based on that we feel that first half 2024 ill come back to more of that normal run rate, maybe Andrew can make some other comments today.
I think you covered it well a tool I mean, we're not in a position yet to be talking much about 2024, but when we look specifically at enterprise.
And we speak with our channel partners and understand.
The incentives that we're offering we do believe that in the certainly by the second quarter of next year that we're going to be back to a more normalized run rate.
Yes, but what I'm really trying to get at is what's the value of normal because we had.
Three quarters in a row between 30% and $40 million a quarter.
Looked like they were.
Texas, where I would maybe interpret.
Normal is kind of in the teens millions per quarter, and then some some growth off of that level through the year.
So given sort of the variability of the history of that the enterprise Wi Fi business.
I guess I'm, just trying to get a sense of what that baseline normal valuation I understand your model. So I think the way to look at it well first you know that.
That through Covid, you're right that there were some high quarters and there is some low quarters in various areas of our business and Covid played a big part of that in terms of supply chain and availability, but I think that we're reviewing normal.
As a quarterly run rate of between 20, and $30 million and Thats really getting back to normal and we think there are good opportunities also to grow from there in the future.
Great that's exactly what I was looking for so thats helpful and just maybe a quick follow up it does sound like the the product cycles in PMT are very much on track and I want to make sure I didn't miss something in that regard on the 20th CAGR at 60 gigahertz.
Just want to double check that.
Yeah, Simon let me give a little extra color on that so first of all Youre right BNP has turned the corner and we feel pretty good about sequential growth in Q3, and Q4 as well as year over year growth in the second half.
Based on the numbers and based on the funnel, but let me give a little more color on that <unk> 4600, which is R, which had first mover advantage in the industry with six gigahertz is being very well received we have 25 POC.
Now and remember that is even before the FCC has accepted it just fantastic performance price performance. So people are very much waiting for.
FCC approval and then you will see a good pent up demand.
Cannot be five which is our upcoming fall 50 compatible backwards compatible.
BNP product with customers in the field and remember that thousands of metrics worldwide with BNP $4 50, and cannot be <unk> or <unk>, we call. It <unk> <unk> that is that also supports six gigahertz band and it also is designed to really go into the install base that will come in Q4, and we will start.
Beta trials in Q3, and 28 gigahertz had a record quarter in Q2.
Remember, we always said, while six gigahertz side, you guys might have thousands of networks.
We will have hundreds of networks, but those hundreds of Netflix will be far bigger than revenue and we are seeing that we have many multimillion dollar deals.
10, 28, gigahertz customers, which are in commercial deployment.
Another about 14, which I didnt poc's, so that kind of gives you a flavor that 38 gigahertz is moving along.
And.
Really becoming particularly in EMEA and Asia is becoming a very key bedrock of hype.
High performance broadband.
Yes, that's part of what makes me quite really gives us confidence in terms of Q3, you look at Q2, we did have as we had predicted sequential growth in the PMT business and it was actually a little bit stronger than what we had predicted.
And then the <unk>.
28 gigahertz deals that we're working on right. Now these are some significant deals that youre going to hear more about as we continue through the third quarter.
Thank you.
Amber we take the next question.
One moment for our next question.
Our next question comes from Scott Searle at Roth and km. Please go ahead.
Hey, guys just a quick clarification wonder if follow up on Simon's question related to enterprise and Wi Fi.
From a.
Relative standpoint are you, losing anything here than in a normalized environment, where competitors have availability to component supply.
That you were able to capitalize on previously could you also quantify for us what the level of channel inventories in weeks. If you have some idea that's what that looks like and where does Wi Fi seven.
Fit into the picture as we're going forward into 2024, and then I had a follow up.
Scott, Let me give my answer and I'll, let Andrew add.
Extra color.
In terms of if you remember we took a lot of market share over the last probably two years from competition.
The main reason was very good price performance of cambium products.
Clearly in hospitality and multi dwelling unit market.
As the supply became.
Every label abundant to everyone.
Some of our competition when blockboard aggressive with pricing and we did lose some deals it's not that we want everything we did lose but another key factor.
It was probably a bigger factor is the markets, we serve particularly EMEA.
The economic impact there the macroeconomic impact that is far more severe than we sometimes realized in North America.
And that also slowed down so many deals actually moved.
Many projects got delayed that also impacted quite a bit.
And then interest rate high interest rates in fact, multi dwelling unit, new construction new infrastructure far more.
So why <unk>.
As you look at different companies different companies will have different dynamics, because depending on what segment of the serve so in our segment. These are the key facts and on the channel inventory I will let Andrew give little color there, but on Wifi, Let me Wi Fi seven I'll pass it to Andrew Wi Fi Salmon is the next Wi Fi standard.
Looking at that but we have not made any commitments or any major shifts because we make these decisions really thoughtfully. We look at the need we look at the benefits to look at the differentiation. We also make sure that it's not just technology using a solution, but truly does the customer need.
We'll give more color on that probably in upcoming quarters.
Yes ill give you some more color in terms of what's happening in the channel our sales out in enterprise this past quarter.
We're in the in the mid to upper teens, so even though we reported revenue of only $6 million in the quarter the channels outlets.
The sales out of that channel.
We're still at that.
Mid to high teens level.
And we believe that with the initiatives and the more aggressive.
Sales initiatives, we are working with each individual major distributor, we will certainly helped drive that $17 million up to a higher level and towards that 20% to $30 million normalized level that I mentioned that we believe.
That will get to in the first half of next year.
So that's the pace.
No. We don't we don't disclose individual product level detail on channel inventory, but I think you have enough information you could probably back into it.
Okay. That's helpful. Thank you.
And if I could looking at the guidance for the year of $2 65 to $2 75, if I take the mid range of the guidance for the third quarter. It kind of implies a flattish fourth quarter, yet im hearing recovery in Wi Fi.
<unk> continued momentum in point to point from a defense standpoint, and point to multi point, you've got multiple new products that are going into it. So I am wondering is there some sort of seasonality or otherwise that youre expecting in one of those product lines as we go into the fourth quarter and as part of that what's your current assumption in terms of AFC approval and.
I think absent from your earlier remarks, I didn't hear a lot about 60 gigahertz, but my conversations with the channel. In addition to six gigahertz, gaining a lot of momentum as 60 gigahertz has actually been seeing a strong resurgence. So I'm kind of wondering where that fits into the picture into the end of this year in 2024.
Thanks, Scott, Let me take the 60 gigahertz and ASC and then ill pass it to Andrew for the guidance for the year.
You are absolutely right 60, and fiber is a very good combination where fiber stops to reinsert tough many of our fiber customers that are actually coming to us and asking for 60, we see momentum and 60 gigahertz, especially with.
I think we mentioned a quarter or two back that one of the risks in Canada. They have deployed about 5060 gigahertz nodes for a very high performance network Smart city projects CCTV last one to two kilometer gigabit connectivity. So we see that and also cambium overall.
I think we also mentioned last few quarters, we have unique or housing customers worldwide on <unk>.
So this is one of those things that it has taken longer but absolutely a very key building block for the last mile last few kilometers to provide gigabit connectivity.
AFC.
Sure Kirk.
Current thinking is that again remember that the government is working on approvals for six gigahertz, it's difficult to predict their schedules, but our feeling is that September October timeframe is when six gigahertz, most probably will be approved in es KFC will be.
Unleashed and algorithms will be working and customers can deploy networks most of the net profit at <unk> right now and as we said earlier.
25, <unk>, we are in already and we are very much looking forward to turning that on.
Yeah and in terms of the forecast just to get it through some of the details here. So first pnp is somewhat unchanged from where it was when we spoke last.
And you'll.
You'll see that for the year, we're expecting flattish to plus or minus 1% or so in terms of revenue growth. We do expect both Q3 and Q4 <unk> to show sequential and year over year growth.
Point to point.
As we've said before as well we have we have very good visibility in terms of in terms of opportunities within the defense sector, especially and we continue to expect that we're going to see a record year in revenues and PTP.
And we're probably going to see in Q3 and Q4 somewhat consistent revenue that we had in Q2.
And that's going to generate at the end of the year.
Strong mid to high <unk> growth rate for the year in terms of in terms of what we're currently anticipating.
And the enterprise sector is going to take some time as we said we're going to be looking at.
The first half of next year, probably Q2, when we get to that more normalized level and we've got to eat through the inventory that's in the channel and we're not counting on a significant ramp up in revenue. Although we do anticipate we are anticipating some level a very modest increase in Q3 and Q4.
We are looking at.
Getting that working through that channel inventory with each of our major distributors and seeing that further growth into next year and getting to more of a normalized 20% to $30 million quarterly level in.
In Q2 of next year.
Great. Thank you.
Our next question.
Our next question comes from George Notter at Jefferies. LLC. Please go ahead.
Yeah.
Hi, guys. Thanks, a lot just continuing with the inventory discussion.
So it sounds like your plan to clear out inventory with the distribution channel is to just incentivize them is it just simply a price cutting exercise or are there more actions that you can take there.
Be curious to hear and then also.
Can you tell us how much inventory you think is really out there and how much inventory is out there in excess of normal levels.
Any sense for that would be great.
Yeah, George let me when we say working with channel I think it's not just price cutting I think first of all we are working with each one of them. The way we did in fixed wireless broadband we looked at with work with each distributor and also.
Figured out what projects they have engaged our sales team worked with them on a very individualized basis.
In addition to that the demand generation programs, we have for enterprise. They're also focused on those segments of hospitality multi dwelling units education. So it's a combination of all of those things now working with them.
Pricing plus demand generation, plus supporting them with whatever marketing that needs with our MDF funds all of that.
Yes, the extra incentives are also to get new customers in new geographies and for those to be longer lasting in essence and get into those customers and.
Focus on the verticals that we've spoken about in the past.
So that's number one number two.
As I mentioned earlier in the call I'm not sure if you were on or not.
We spoke about the fact that we're expecting enterprise to get to a level.
Normalized level of 20% to $30 million quarterly run rate by Q2 of next year.
And and.
The sales out this past quarter.
With said were $17 million. So although revenue was only six we had sales out of 2017 and a portion of that.
That differential was a result of.
Was the result of inventory that that was in essence exchanged for other inventory in some cases it was exchanged for PMT inventory and even with that our Pnp channel inventory level went down.
So even even more than absorbing that.
That exchange in essence that came back from from the channel but.
But I think you can you can we're not going to get into.
Specific channel inventory by product line, we've never spoken about that we're not going to disclose that but I think I've given you enough information that you can pretty easily back into it.
Got it okay.
And then.
I guess the other question I had was just on the fiber product I am curious about initial reactions I think.
You kind of said earlier that the feedback has been positive, but anything more specific or tangible you can you can say it would be great.
Sure.
George as I think we mentioned in our last call. Our focus on fiber is on the mid sized customers not very large customers are focused on fiber is on our installed base wireless Internet service providers, I would say more than half of our wireless and vendor service providers, particularly North America already.
Already have fiber they use wireless, but they also use fiber.
And with the government money many of them are interested in going towards fiber. So when we conceived our fiber product we knew our differentiation has to be.
<unk> ease of deployment ease of management integration with wireless like 60, gigahertz, just making it seamless for our customers who are used to cambium simplicity.
What you will see so we have 15, POC and be able to increase that and initial customer feedback is yes. It is much simpler to deploy because we are not designed fiber for a large service provider. We have designed fiber for a mid size <unk> service provider and have kept the simplicity.
And so far.
Very very positive feedback and as the government money comes into this space you will see cambium participate there.
Got it thank you very much.
Thank you Doug.
Please hold for our next question.
Our next question comes from Erik <unk> from JMP Securities. Please go ahead.
Yes, thanks for taking the question.
First off I want to do.
Just follow up on the last question about the about fiber.
Can you can you give us some context around how you think that product how big that product could become.
Maybe you could compare it to some of your other products or what kind of contribution could we anticipate.
Then you talked about competition.
Using pricing.
Getting aggressive on pricing what competitors are you seeing is it.
Other.
Players like like ubiquity or is it more enterprise centric customer competitors like an HP or Cisco.
So Eric first one.
On the fiber.
As I said when.
When we designed the product we focus on the mid tier I think with the first.
Ultra 18 months our goal is to.
Establishing the product with the mid tier segment.
Our existing installed base.
<unk> going to situations with cambium is already known.
The quality and simplicity.
So overall, you will not see us.
The first 12 months 18 months means lots of very large installations.
The opportunity wise fiber is going to be I think a sizeable opportunity because the government is also pushing in many goldman.
Government sponsored programs fiber.
And as we work with different states. Some states are wireless friendly, but some states are also fiber friendly, particularly if you look at northeast, which has fully agent all of that.
Prefer fiber so this way I can.
Two went towards convergence.
Mr. Kasper you can use wireless you can use fiber will give you a seamless single pane of glass to manage we will give you a simplicity. That's our key message focused on your high performance network leave the layer, one wireless or fiber to us and the simplicity.
So I think in terms of size of the opportunity as our experiences are always takes four to five quarters to establish traction.
Get the PUC is going and then you have the acceleration phase maybe after a year of 15 months or so.
But fiber can be absolutely a substantial opportunity for cambium and it is in the PMT bucket is going to multiply for some customers in July .
Customer funds declines have come from Hawaii.
Your second question about.
Competition on the enterprise side no.
The low end I think that is.
The midsize enterprise class.
Wifi providers, who lost share to us it became aggressive as they also got more chips. So I think it is enterprise cambium is mid tier enterprise class Wifi.
I hope that gives you color there.
Down to your level is like a cisco or an HP coming down to your level or are they undercutting your pricing.
Not name anybody, but I think the mid tier enterprises.
<unk> class players.
Those are the ones, which competes with us.
We saw that they become aggressive and I think for cambium now as we think through especially we are focused on really few key verticals like hospitality multi dwelling units with the multifamily homes or diamond homes student housing and education. So we will continue to focus keep bringing those apis.
And application integration make our solution complete and be very superior than the outdoor setting along with.
Indoor in this segment, so that's our strategy, but very focused on mid tier.
Thank you.
Thanks, guys.
Please hold for our next question.
Our next question comes from Simeon chatter at J P. Morgan. Please go ahead.
Hi, Good afternoon. This is Jimmy Chen speaking on behalf of Sonic charter.
I wanted to ask that we've seen a slowdown in the macro environment impacting with telcos and now that we're going into the back half of the year. What are the biggest challenges you're seeing on a domestic level. For example, can we expect to see any improvement in the reduction of elevated inventory levels and extended lead times.
Did you mean overall.
When we talk about macro slowdown in our case I think we saw definitely slowdown in EMEA.
In our deals in our business in North America as I said for the enterprise we do.
Focus on multi dwelling units, which is construction new infrastructure all of that and I think my interest rates did slow them down.
In terms of other thematic things.
I'd say in some of the countries, where we sell products. The exchange rate also impacts us not everywhere, but some of the countries where the currency for them is high because we do sell in dollars.
Those are the kind of key thematic things I will I will say.
But overall.
Telecom slowdown you talked about I think is very tied to mobility. When it comes to fixed wireless broadband fixed wireless broadband actually is increasing because COVID-19 more people are stationary then mowing and everyone needs more bandwidth wherever they are so fixed wireless broadband part from telecom angle is actually going to be healthy.
Mobile it could be a different story.
Yeah.
Okay. Thank you and you mentioned telco customers. However, I'm curious about what are you seeing from non telco customers.
But our fixed wireless broadband I think.
By and large we sell to mid tier tier two tier three service providers. So when you say telco I'm, assuming you're seeing large carrier satellite service providers generally our business is very midstream or fixed wireless broadband and for the enterprise side.
We don't sell very much to the telco or the large service providers. Most of our businesses are really those three segments and enterprise I mentioned hospitality multi dwelling units and education.
Okay. Thank you.
Thanks, Jamie.
Please hold for our next question.
Our next question comes from Tim Savages.
Northland Capital markets. Please go ahead.
Hi, good afternoon, let's see pretty good follow up to that last discussion.
And so good question here focused on the PMT segment and.
Because you mentioned 20.
28 gigahertz.
As kind of a key driver.
Maybe upside in the quarter or maybe in the back half of the year.
At least some early deployments.
And those I would think might be.
Some of the larger carriers.
Right, So I guess.
That's one question is to extent, we're talking about 28 gig or are we talking more about tier one tier two type carriers.
Are you seeing any differences and.
Demand dynamics between that.
That segment in your traditional.
Smaller fixed wireless access and I'll follow up from there.
That's an excellent question, Tim let me give.
Good color on that.
28 gigahertz.
Five <unk> licensed frequency.
So by definition.
Kind of service providers, we are engaging our larger.
In fact, sometimes I missed at tier two service provider in our language, but they might be tier one in the country.
So your observation is right that 28. The reason the deal size in 28 is multiple times that of five gigahertz or six gigahertz is because when somebody paid money for the license.
And they deploy 28 gigahertz. They also want faster deployment faster monetization. So overall I would say.
Yes, we are engaging largest service providers, because it's the license frequency, which they're paid for.
And deal size is much larger.
And now we will also prolonged cambium superiority.
I think over the last three four quarters, we have done enough benchmarking POC bake offs with competition that customers have realized that cambium does have a very superior <unk> solution and in many cases, we shift into the <unk> in many cases, we showed interoperability with competition and showed superiority.
And that's how we won some of the some of the key deals. So my sense is that not only we had record quarter in Q2.
Florida <unk> got it will continue that momentum.
And it also gives the good barriers to entry in that country for other service providers.
So overall.
Overall a good.
Good.
Business, which will grow as five <unk> fixed grows and we have a very good solution.
Great and if I could follow up on that.
I don't know if you can take a shot at quantifying how meaningful the <unk> fixed dose 28 gig business is now I assume it's still a small part of.
PMT, but feel free to comment on that and I guess the real question is.
As you looked at your growth drivers and TMT.
28 gig <unk> fiber.
And maybe the traditional fixed wireless access anywhere from.
356% to 60 gig how would.
Would you rank order those.
In terms of maybe size of pipeline or growth potential going forward.
Understanding that percentage wise.
Some of your smaller pieces will probably grow faster, but which one of those are you. Most excited about I guess sure over there.
So very excited about the potential of six gigahertz because of that.
There is a large installed base cambium has.
And hundreds of millions of dollars type of installed base worldwide in five gigahertz all of those customers know how you guys would behave and six gigahertz behaves very similarly, so you will see a good graceful migration and adoption for all those folks who are looking for that about one two gigahertz of clean noise.
<unk> spectrum.
We'll move to six gigahertz, so I would say, that's probably number one opportunity followed by.
28, gigahertz, which we now are saying, it's kind of growing well and.
With those service providers largest service providers.
Followed by probably fiber with a fiber will take little time to gestate for us as well as I said earlier. It takes three to four quarters, what fiber will offer at a good time with the simplicity, we are bringing with it customer feedback is very positive.
And then I will put 60 gigahertz.
And then I'll put three gigahertz <unk> and happy you guys almost in that order.
Based on the maturity of the product based on the proof points, we have and based on the <unk>.
The market size I hope that gives you clarity.
It sure does.
Really appreciate that and last one for me if I can.
To the extent that five gigahertz.
Three years or five transitioning to six.
At the top.
The opportunity.
How would you assess the competitive environment here.
Looks like.
Some of these smaller kind of startup competitors are gaining more and more traction.
How is that changing here from a competitive standpoint from a from <unk> perspective.
Cambium strategy for last many many years has been really focused on the economics of the product.
Deliver fantastic performance and so.
Superior price performance, but always focus on economics, and we feel that the industry standard chips, whether Wi Fi six chips or whether it's five <unk> chips.
Key building algorithms and feature sets late night cancellation.
Multi massive mu mimo.
Beam forming.
Doing it in a proprietary manner is nevertheless, a winning strategy if maybe short term, but it is industry standard chips provide the economic base and we have seen that we don't get giggles platform and.
<unk> is bringing a lot of those algorithmic and.
The features.
With this shift it becomes.
Commercialized economical so cambium strategies to design products, which economical high volume.
Serve that broad mid tier segments.
It is very high end performance and very expensive. So I think there are companies, which we'll do that but that's the business strategy.
We're focused on we have shipped 14 million radios worldwide in the last 10 years towards thousands of Netflix with that economic strategy.
Six gigahertz will bring such performance with nicely environment.
<unk>.
We are very excited and then 28 gigahertz, bringing the license frequency <unk>, where we have a leadership product. So I think BNP is turnaround it took us three quarters of a lot of hard work. We just turned around and I think now you'll see PMC growth, which is a very key pillar of the company.
Take our next question ever.
One moment for our next question.
Our next question comes from Paul <unk> at William K will address please go ahead.
Thank you good afternoon, thanks for taking my question.
Most of my questions have been answered I did have one question on the on the six there's been obviously a lot of anticipation both on customers in Wall Street, and I'm sure yourself.
Assuming I think you'd mentioned October is your best guess when this thing.
Be able to go commercial I know you have some out in the field already but.
How are you prepared do you have a lot of finished inventory parts inventory, maybe give us a little color on how quickly you can ramp this thing because I know the demand is there.
Anything you can provide that would be great. Thanks, Bob Thanks for the question.
Andrew has been very supportive as we are building this new product.
Our inventories in the spend all of that we are pretty careful but with the new products. We look at all that so we already have we.
<unk> procured that Ive chips, we have the right inventory and also as you work with the customers some customers are more aggressive and deploying.
Access point on the dollar so that Ben.
FCC approves it they can get going with commercial offer to their customers and FCC is given to those 25, you will see that we are doing there given b trial licenses. So everyone can get their feet wet with less number of subscribers make sure. They can manage so all our feeling is September October time frame again, we don't we cant guarantee we can.
Governments work, but our feeling is that based on some of the work going on in <unk>. Some of the testing they are doing some of the trials and pilots going on that's it that's all.
Reasonable get them at this point.
We are ready we will have a very good first mover advantage, we probably have the largest footprint. We're also using latest chips to design. The <unk> network. So our product will be not just differentiated but also a significant first mover advantage and six gigahertz.
Right.
In terms of revenue I would qualify it to say that that we're not we're not counting on a big ramp up of revenues in.
The fourth quarter of this year, we're going to it'll be somewhere in the single digits, but we do expect a bigger impact to be next year in terms of in terms of distributors.
Stocking inventory.
Getting product out into the marketplace. So there will be impact positive impact in Q4, but not a huge ramp and the bigger ramp will be next year.
Great. Thanks, very much that's helpful.
One moment for our next question.
Our next question comes from George Notter at Jefferies. LLC. Please go ahead.
Hi, guys. Thanks, a lot for letting me ask another one I realize it's getting late here.
I'm kind of shocked it no one's asked about the CEO transition so far.
I guess I'd love to hear from Morgan why do you think joining cambium as is.
Is the right play for you and what kind of opportunity do you see here and then for a tool.
Just listening to the call until you don't sound like a guy that's going to come.
Step into the background.
Retire from the company and just be a more traditional board members you kind of sounds like youre going to be very involved here.
Sort of wondering.
I'm wondering how you think about that.
Your role in the company going forward. So thanks guys.
George I'm going to give Morgan the floor very soon but let me shift from thoughts.
First of all I'm very pleased to see Morgan with me.
He brings very good.
Industry knowledge rugby.
Broadband knowledge he brings very good channel knowledge.
Operations knowledge about our communications business.
He also brings a in my opinion very good thinking.
I think we are we.
Every company goes through growth phase change new ideas and I'll be working very closely in fact last few days. We've been looking very closely you will see a very grateful and very solid transition nothing will drop you will see human we will collaborating working together.
And.
The last point.
Also mentioned tomorrow is I'll introduce them to our customers all channels. So you will see a very methodical and thoughtful things.
So with that I'm going to pass it to Marvin yes. Thanks George.
So.
I see this as an opportunity.
For me to to move back into the wireless industry, which is something I'm very passionate about to bring some of my experience to the company, but what I see about the company as a company made up of great people with really good technology.
That I can help lead to higher a higher heights and.
Yes.
It's not such a large company that it can't be agile and adaptive and Thats.
Something that I had wanted US my my next adventure in terms of the working between myself and a tool.
It is what he said were trying for a very collaborative transition. So today being my first day. He is obviously handling these calls having the background and the history.
And we'll be handing off customer contacts and relationships throughout over the next few weeks and then he will be a standard board member that I will have as a resource.
To bounce ideas off of and understand history from 10 years of that is fantastic and I I welcome that type of.
Of relationship.
And I will say George you asked great questions I'll say I have no doubt in my mind that under Marvin's leadership cambium is going to good new height, and a new <unk>.
Level of growth and my goal is that we are going to work for our shareholders our customers our employees and continue for cambium to be a dream.
Trailblazer innovator and a good solid business performance.
Great. Thank you.
Thanks, we'll take one more question.
One moment our next question.
Our last question comes from Eric <unk> at JMP Securities Go ahead.
Actually it's just follow up from the last one can you talk about the timing of the search.
For bringing Morgan on when when did you start that search and what was the.
The recruitment process like and then you talked about.
Hey.
Our program to reduce for cost reductions.
Will there be.
Head count reductions as well.
Let me first of all we don't comment on any of the recruitment any of that so Eric I will not go there, but I'll pass it to Andrew Andrew can give a little more color on the cost reduction.
Yeah. Thanks for the question. So we are we do have head count reductions both in terms of employees as well as contractors. So when you look at it in total it's about 10% of the workforce as we said there is a total of.
$14 million annualized cost savings.
At nine to 10 of that is head count related and in about four to five of it is non head count related to.
Contract contracts and.
And.
And our R&D type projects that are that are being delayed or deferred into next year, but.
Not that.
We believe that we are going to be a stronger company as a result of this it's we're going to be a very much.
<unk> company and looking forward to success in the in the coming quarters ahead.
Hey, good thank you.
During Q3, 'twenty three cambium networks will be meeting with investors virtually on August 9th at the Oppenheimer Annual Internet Communications Conference and we will present and meet investors in person on August 29.
That the Jefferies semiconductor and communications technology summit in Chicago and on September 19 at the Northland Capital markets Institutional Investor Conference in Minneapolis in the meantime, you are always welcome to contact our Investor Relations Department at 847 to six four to $1 88 with any questions that arise.
You for joining us this concludes today's call.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
[music].
Okay.
[music].
Okay.
[music].