Q2 2023 PCTEL Inc Earnings Call
Greetings and welcome to <unk> second quarter earnings Conference call.
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A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host.
Kevin Mcgowan. Please go ahead.
Thank you for joining us on today's conference call to discuss P. C tell second quarter 2023 financial results with me today is David Neumann the company's CEO .
Please note that a webcast replay of this call will be available on our website.
Before we begin let me remind you that this call may contain forward looking statements and projections based upon current circumstances.
While these forward looking statements and projections reflect the P. C tells best current judgment.
They are subject to risks and uncertainties, particularly related to global supply chain and logistics challenges global political and economic circumstances.
Inflation and a potential recession.
Generate sales of our innovative new products success of our expansion efforts in Europe .
And ability to leverage our distribution channels that could cause actual results to differ materially from these forward looking statements and projections.
Risk factors that could cause P. P. C tell its actual results to differ materially from its projections are discussed in the earnings press release, which was issued today and the company's annual report on Form 10-K.
The company assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
Additionally, our commentary will include reference to the following non-GAAP measures.
non-GAAP gross margin percentage.
Operating expense non.
non-GAAP earnings per share and adjusted EBITDA.
We believe these non-GAAP measures facilitate comparability of results over different periods of.
A full reconciliation of these non-GAAP measures to GAAP.
But it is in our quarterly earnings press release that was issued earlier today.
I'm now pleased to turn the call over to David Neumann.
Thank you Kevin.
Good afternoon, all and thank you for joining us today on our second quarter 2023 conference call.
Today, we will discuss market conditions review, our second quarter performance and share our outlook for the third quarter 2023.
Kevin will then review our financial results in greater detail.
Incoming orders improved in the quarter driven in part by a large OEM customer increasing purchases as or higher than normal inventory levels be cant began to decline.
We were pleased to report that customer supply chain issues are improving which also contributed to the increase in orders.
At a high level, we delivered second quarter revenues of $20 6 million a decrease of $4 4 million year over year, but we achieved strong non-GAAP gross margins of 49, 5%.
Up three 5% from the prior year period.
Top line performance was in line with our expectations and then declined both on a sequential and year over year basis was due to lower revenues in both product lines.
Although revenue decrease in our antenna business incoming orders increased in the quarter, which will contribute to revenue in the second half of the year and into 2020 four.
Scanning receiver incoming orders also increase in the revenue comparison is to a stronger than expected first quarter as Kevin will highlight soon.
As always I would like to thank our Pcs health team for their continued dedication and contribution to our business and growth.
Through their diligence, we have been able to continue to successfully navigate today's challenging operating environment. Our supply chain relationships remained strong our on time delivery metrics remain high and our inventory is in a good position for the remainder of the year.
Later in todays call I will discuss our three core growth strategies in greater detail, we continue to make important progress with our industry, leading product launches customer and distribution expansion and work to provide more components for our customer systems, which continue to serve as the foundation of our operational success.
I would now like to turn the call over to Kevin for a review of our second quarter 2023 results Kevin.
Thank you David.
Total revenues were $20 6 million essentially at the midpoint of our guidance range and 17.6% lower compared to the prior year period.
Revenues for antennas and industrial Iot devices were $14 4 million in the period, a decrease of roughly $3 2 million compared to the second quarter 2022.
With lower antenna revenues for enterprises and public safety applications.
Due to customer inventory levels, as well as customer supply chain challenges and other system components.
It is worth noting that these issues are starting to abate, but still impacted performance during the quarter.
Test and measurement revenues were $6 2 million for the second quarter of 2023 1.2 million lower compared to the second quarter of 2022.
Primarily due to lower OEM sales, which declined following a particularly strong first quarter.
In addition performance in the second quarter last year was very strong impacting the comparison to that period.
We expect the rest of the year to follow the typical cyclical pattern.
Second quarter 2023, gross profit margin percentage on a non-GAAP basis was 49, 5% above our expectations and a three 5% increase from the year ago period.
The increase in gross profit margin percentage was primarily due to a stronger gross profit margin percentage for antennas and industrial Iot devices.
non-GAAP gross profit margin percentage for antennas and industrial Iot devices in the second quarter 2023 improved by six 5% compared to the second quarter of 2020 to.
Due to continued improvement and logistical and operating cost.
Relative to last year, coupled with a favorable shift in product and customer mix.
The non-GAAP gross profit margin percentage for test and measurement products was lower by four 2% in the second quarter of 2023 compared.
Compared to the second quarter of 2022.
Due to higher component costs.
Operating expenses on a non-GAAP basis or $9 million in the second quarter 2023.
Decrease of <unk> 7 million compared to the second quarter 2022.
The Europe year decrease was primarily due to lower expenses in sales and marketing related to commissions and marketing programs.
Well as well as lower expense accruals for incentive compensation.
Other income was <unk> 3 million in the second quarter of 2023, compared with <unk> 1 million in the prior year period.
The year over year increase was primarily due to higher average interest rates.
Adjusted EBITDA decreased by approximately 33% to $1 7 million in the second quarter of 2023 compared to $2 6 million from a year ago period.
EBITDA as a percentage of revenue was eight 5% in the second quarter of 2023 compared to 10, 4% in the second quarter of 2022.
And non-GAAP diluted earnings per share was seven cents in the second quarter 2023.
Getting her expectations of between two sense divorced sense, but was lower by three <unk> compared to the second quarter 2022.
The decrease in earnings per share and adjusted EBITDA can be attributed to lower sales volumes.
Cash and investments were $33 6 million at the end of the second quarter of 2023.
Prior to the end of the first quarter 2023.
Cash and investments increased by approximately $3 4 million.
With lower sequential revenues or receivables contracted by $2 6 million.
And we reduced inventories by approximately 1.2 million during the second quarter.
We will continue to focus on managing the inventory to lower levels in both product lines.
Financing activities for the second quarter included payment of a quarterly dividend of $1 million.
Our healthy cash and investments on hand, and cash flow support our capital allocation strategy.
Paying quarterly cash dividends and having available funds for M&A activity.
Turning to our third quarter outlook, we expect revenues to be in the range of 20 million to 21 million.
We see positive trends in some areas as we expect continued improvement in the inventory and supply chain headwinds that David mentioned previously.
Top line performance is expected to be flat on a sequential basis with similar performance as in the second quarter for both product lines.
We expect the non-GAAP gross profit margin percentage to be in the range of 48% to 49%.
We expect our non-GAAP earnings per share to be in the range of six to seven cents.
Well there is ongoing uncertainty around the global operating environment in 2023.
We're confident in our ability to grow our product offerings and ensure we use the cash generated by the business and accretive and value enhancing ways for our shareholders.
With that I will turn the call back to David.
Thank you Kevin.
I would now like to discuss our progress towards our three core growth strategies during the quarter and comment more generally on developments in our business.
As I mentioned earlier these include launching innovative wireless products, expanding and leveraging distribution channels and increasing market share by expanding our reach and providing more components of the overall customer systems.
Beginning with our innovative product launches. We are pleased to have now it's multiple industry leading products in quarter <unk>.
<unk>. The addition of <unk> and five <unk> network monitoring capabilities to our seahawk monitor product.
With this release the Hawk monitor can collect and evaluate downlink signals for <unk> network base stations for mission critical public safety and broadband wireless networks.
Detects into codes for G and <unk> base station signals in real time, and notifies users of changes in conditions, which may indicate interference that impacts network capacity and quality.
Ultimately this monitoring will support the growth of private broadband networks for hospitals utilities stadiums and venues and other mission critical applications, such as government emergency services.
In July we announced a ruggedized integrated Iot sensor and antenna platform.
The edge sensor.
This is a solution designed to operate in harsh environments and provide reliable and improved edge connectivity with industrial Iot sensing.
The edge sensor is a highly customizable solution that combines two of our top platforms in a single Ruggedized housing customers have the ability to select from a variety of industrial Iot onboard and external sensors based on their needs for applications in smart utilities, agriculture mining and industrial <unk>.
This automation.
We view the edge sensor is an exciting next step in PC tells evolution and the integration of our antennas with active components, including radios and sensors. These advanced product launches and build upon our commitment to innovation and are expected to contribute to driving further growth for years to come.
We also saw a number of positive developments for test and measurement business.
<unk> Rollouts continue globally with more than 25 countries planning to deploy <unk> networks in 2023 additional tests and measurement tools will be required for initial deployment and then to address the need for additional capacity as usage and applications increase.
In the second quarter, we secured significant public safety orders for in building network testing systems that will be delivered over the next year.
We also see growth in usage of our seahawk Central cloud based data management and reporting for public safety and building testing.
Finally trials of Seahawk monitor have begun to convert to sales with several other potential customers working on budget and purchase orders. We believe this product has potential to open up new markets in cellular and government beyond the current public safety use cases.
As I mentioned antenna incoming orders improved our supply chain headwinds began to ease. We're encouraged that we continue to make strides in expanding our customer reach further penetrating and receiving large orders within electric vehicle agriculture, construction and public safety markets.
To make it easier for customers to select the appropriate antenna for wireless routers, we launched an online selectric tool and expect to have the most comprehensive antenna electric tool in the market by the end of the year, which should increase antenna orders.
Additionally, we secured significant design wins that are expected to drive revenue in 2024, and beyond and launched two new omni directional antenna platforms that support the latest Wi Fi seven and five new technologies targeting Iot enterprise and industrial applications.
I would now like to touch on our momentum and our global sales channels across each of our businesses.
Within test and measurement I mentioned that we see ample opportunity within public safety markets and for five year Rollouts.
Still many markets in Europe Africa, and Asia, They have sizable opportunities ahead, as they allocate spectrum and planned fiber deployments.
With respect to antennas, we continue to see growth in the number of new customers buying through our larger distributors.
For our OEM antenna customers supply chain constraints are beginning to ease and inventory issues for one of our major public safety Oems are beginning to improve.
We also started to receive orders from a major material handling customer that had been delayed for more than a year.
Lastly, we are pleased to share that we received a large order from a European electric vehicle manufacturer building backlog for the remainder of this year and into 2024.
Our contract manufacturers in Asia continued to perform well as it relates to on time delivery quality and customer satisfaction. We continue to evaluate contract manufacturers outside China Southeast Asia, and North America and are consistently working to optimize our factory efficiency in the U S.
Moving to our third core growth strategy of increasing market share with existing customers by providing integrated solutions. We have enjoyed great success with providing our customers with complementary products that leverage our expertise and their tenants.
Our edge sensor and integrated sensor antenna platform isn't trial with utilities and smart meter customers and we expect a significant order by the end of the year for our Ruggedized access point for heavy vehicle applications.
I'd like to break some overarching comments on the business.
As previously noted.
Customers continue to work through temporary inventory issues and there is still work to be done, but as I shared we're starting to see incremental improvement.
Incoming orders are increasing and the underlying demand environment remains healthy our talent is unmatched and our solutions for antennas and industrial Iot devices and test and measurement solutions are recognized as best in class in the market with the strategic priority of growth in mind, we will continue to invest in our products people and global reach as we worked.
Through the remainder of the year and into 2024.
As Kevin mentioned, our balance sheet remains strong and provides us with the flexibility to invest in the business and also explore inorganic growth opportunities as appropriate.
Finally.
We're looking forward to some upcoming investor conferences in the back half of the year, we will be attending the Lake Street Conference in September as well as the Wolfcamp breaks in December both in New York and we look forward to meeting with some of you at these events.
Yeah.
I would also like to share that after 26 years of service Giacomo Marini retired from P. C tell board of directors in June Jackup, most experienced and tenured added a great deal valued at P. C tell.
I'm also pleased to welcome Tony Rysavy to our board of directors Tony's deep expertise within telecommunications and it industries will be invaluable to <unk> future growth and we're excited to be working alongside him.
With that I would like to turn the call over to the operator for questions.
Operator.
Thank you.
At this time, we will be conducting a question and answer session.
I'd like to ask a question. Please press Star then one on your telephone keypad.
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The first question, we have is from Jason Jason Schmidt of Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions and congrats on the really strong results just wanted to start with the gross margin performance in Q2, it seems to have come in well Jason just.
Just a moment punish you saw that we lost connection with the my speak line just a moment.
We have been rejoined by the main speaker Jason. Please go ahead and part of your question.
Hey, guys. Thanks for taking my questions and congrats on the strong results one.
With a gross margin Q2 seem to outperform our initial guidance I know you mentioned mix as well as some logistic costs coming down, but anything else that really kind of drove that outperformance.
Okay.
Hi, Jason.
No. That's really you know our freight costs were higher in the first half of last year. So that was a big big element was continuing reduction there are.
The mix with the products, you know ended up being lower tariff costs and good mix on the product side.
We also have gotten some efficiencies out of our Bloomingdale facility we've been.
<unk> been able to kind of.
Optimize the head counts and.
Lower that had come back to get some lower operating costs from here.
Okay. That's helpful and I know you updated us on the EV market in Europe , but curious if you could provide any additional color on what youre seeing on the EV market in the U S and for any traction there.
Yeah.
Yeah, So I think.
Most investors know that we initially got into the EV market through our smart Tech acquisition about two years ago.
So smart tech had a very strong position with the charging EV charging stations in the Nordic countries.
And it was also pretty strong relationship with our vehicle manufacturers, who have been able to get some wins on electric vehicles as well.
Or in the process now of.
I would say integrating and cross selling other products.
We've developed some antenna.
Integration kits that we can send to the different EV charging station manufacturers to get the broad range of both P. C telling the spartech antennas. So that's in process.
We're leveraging some of the same manufacturers that are in Europe or in the U S. So we think there's some opportunities there.
But I would say we're still up.
Pursuing accounts were not at the same scale as we are in Europe , but it does provide some excellent reference accounts.
Okay. That's really helpful. Just a last one from me and I'll jump back into queue. You noted the inventory issues at your major public safety OEM.
Our improving do you anticipate those inventory issues to be resolved.
After Q3 or is this a situation that kind of bleeds into Q4, and it doesn't really get corrected until early 2024.
Yeah. So we don't have a lot of visibility of the level of inventory that that the oem's working through.
But where we're making that assumption just based on the number of orders that they're placing with P. C tell so we see it.
We see orders, increasing we're assuming our inventories decreasing but we don't have a lot of visibility on how much inventory. They have so I think to be safe. We're estimating that this will probably run through through the rest of the year as orders orders increase and that will probably be back in.
At the same level going into the end of 'twenty four.
Okay. That's helpful. That's it for me Thanks, a lot guys.
Thank you Jason.
Jason if you have any other questions you might pose thing now.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to David Newman for closing remarks.
Thank you Irene Thank you for joining us this afternoon I'd like to once again, thank our PCL team for their continued commitment to our business to customers and into growth of the company.
Thank you all for your support of P. C tell in your time here today.
Yeah.
Ladies and gentlemen that concludes this conference. Thank.
For joining US you may now disconnect your lines.
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