Q2 2023 Airgain Inc Earnings Call
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Good afternoon, welcome to air gains second quarter, 2023 earnings conference call.
My name is Latanya and I will be your coordinator for today's call.
Joining us todays call our air games, President and CEO , Jacob Suen, and CFO Michael L back as a reminder, this conference being recorded and made available for replay via a link found any investor Relations section of air gains website at Www Dot Air game Dotcom.
Following management's prepared remarks, the call will be opened for questions from air games sell side analyst.
I caution listeners that during this call are game management will 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 are games S. SEC filings.
This conference call contains time sensitive information that is accurate only as of the date of this live broadcast August 10 2023.
Eric Gang did takes 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 todays earning release for further 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 for today's call I'll first cover our operational highlights and achievements for Q2, and I will hand, it over to Michael to walk you through all of our financial performance for the second quarter.
After the war I will provide an update on our strategic product and marketing initiatives for 2020 three M. B, yeah before opening the call up for questions.
I would like to start by briefly introducing who we are and what we do for those of you who may be new to air game in our industry and again, we simplify wireless connectivity for the enterprise automotive and consumer markets.
Our technology spans across the value chain.
Embedded components to integrated systems about products fall under three sub brands, including again embedded which represents our embedded antennas embedded modems and I O T D vitamin kits.
A gain antenna plus which represents our fleet I O T and networks and peanuts.
And any game integrated which represents our growing stable of finished products, including children. A base also truckers vehicle networking devices in five G connectivity products.
How should we evolved from being exclusively a components company to a systems company. We are creating unique solutions designed to improve and build upon them to buy G customer experience.
Earlier this year, we are introducing our <unk> fixed wireless access or if somebody way and by G. C bench smartly, Peter solutions and are making significant progress towards the commercialization of these innovative products.
Our goal is to begin shipping some of these products to partners and customers in the first half of 'twenty 'twenty four.
When they go to market perspective, we work with a global network of boss system integrators distributors and large customers to help solve critical connectivity issues in blue wireless performance Indeed.
Secondly, shorten time to market for their products.
With any against growing portfolio of products, we're able to offer complete solutions to our channel partners and customers that help them get connect it quickly.
No for all our performance the second quarter sales came in at $15 $8 million, which was near the lower end of our guidance range.
Economic conditions continue to create demand softness industrywide, which when combined with inventory correction in our channel drove a sequential decline in our enterprise and automotive markets.
Well, we underperformed in these two markets, we did see an increase in our consumer market with the deployment of Wi Fi succeed at major cable operators.
Leading to a sequential growth in this category I'll say, we do not expect this trend to continue as we project a sequential decrease in our consumer sales in the third quarter.
Furthermore, we expect that the product shipments of a large enterprise project that was initially scheduled for a third quarter to be delayed to the fourth quarter contributing to our lower third quarter guidance.
Despite current headwinds we remain optimistic about our sales expansion strategies combined with new product introductions in fleet and five G connectivity pave a path to growth in 'twenty 'twenty four and beyond.
Some of these expansion strategies include adding channels of distribution expanding geographies in diversifying our customer base.
We are already able to see tangible results from these strategies in key verticals, such as rail fleet and shipping and logistics.
Our enterprise market represents a mix of components and systems that include our embedded modems also truckers enterprise antenna design and custom products.
Well, we experienced demand.
Softness in access of channel inventories in the first half of the year 2023 with our embedded modems, our usher truckers and custom products continue to grow.
In particular our.
Asa truckers are gaining momentum in several vertical markets, including rail shipping and logistics and equipment rentals.
With the design win we announced in the first quarter for the rail industry, our shipments to the customer started to ramp up in Q2, and we expect to secure further wins in this market.
Yeah, again, it's well position and its capacity to offer a complete end to end solution that includes children are based assay truckers embedded modems and data management software to solve key customer problems for the rail industry.
<unk> offers the ability to customize a solution to truck conditions, such as location, but low status.
It opens.
Handbrake pools, well bedroom status.
Car impacts in simple mall is.
These critical features.
<unk> increased recurring revenue and even for a game, which represents a meaningful portion of our I'll say truck ourselves.
Recurring revenue growth and contribution to the top line has been an emphasis for our team to increase customer retention and loyalty.
As well as strengthen our ability to maintain competitive advantage.
With stable revenue streams in place. We believe we can continue our strategic investments in new product innovations to drive long term growth.
Our custom products offering features joint engineering and collaboration with our customers to develop products for specific applications.
Helping them reduce their time to market. This offering has been a bright spot for us. However, well, we all have seen momentum from this sector. We acknowledge that shipments can fluctuate from quarter to quarter based on the level of integration and customization.
For example, as mentioned earlier some product shipments scheduled to occur in the third quarter have now been delayed to the fourth quarter due to a shifting time lines often inherent in complex projects.
In addition to a video surveillance as a service of Visa Inc.
And EV charging we are also seeing growth in industrial equipment shipping and logistics and equipment rentals for our enterprise products.
These segments are generally looking for a shorter time to market and easy path to connectivity and better performance in challenging environments with our focus on simplifying wireless connectivity, we appeal towards these markets with products that help eliminate designed part.
Next remove the need for <unk> expertise.
So by rugged and reliable connectivity complete with a long shelf life.
Our automotive market, including both our aftermarket in vehicle networking devices, we saw a sequential decline in this market in Q2 total customers excessive inventory in forecasting changes.
We mentioned last quarter at three four channel strategy in automotive buying clothes.
Adding differentiation and flexibility to our product designs implementing changes to the supply chain and make us more responsive to demand.
And expanding our channels of distribution globally.
We're executing on these strategies and believe this will lead to sequential growth in Q3 M. B a.
In May we announced the migration of our fleet and Iot antennas. So the EZ connect platform, which simplifies the ordering and installations of our antennas.
At the same time, we also announced another addition to our lineup five gene mobile antennas the multimarket by G.
Earlier this week, we announced two new products that would be the highly differentiated our recon 13, each design, but by G connectivity and in close as many as 13 antenna elements in one device.
All in are still design that measures less than two inches in height.
This solution is combined with a universal mounting form that allows it to adapt to any little surface.
We believe this design will be a cutting edge solution for both mobile and fixed applications.
We also announced the awesome much glass by G. Our first <unk> ready windshield or dashboard mounted antenna both products. So part of our effort to build five G is really still connectivity for the fleet and first responder markets.
Well EG connect offers us flexibility in responding to general market remain without also implemented supply chain solutions to shorten lead times a T. G differentiator in the after market industry. Lastly, we're also expanding into several.
National channels to broaden our geographical reach we expect the new product introductions combined with new channels and new customers will lead us to greater growth prospects starting in Q3.
Finally, our consumer market is represented by our custom embedded antenna design for CPE devices sold primarily to all major service providers. We saw an increase in Q2 in this market primarily as a result of the deployment of Wi Fi.
Z devices by major U S cable operators. However, we saw two trends that have negatively impacted these market.
Core cutting and the availability of FW eight has cost subscriber loss at major broadband and cable operators.
This has created demand softness for the cable industry, along with excess inventory in the channel in the first half of the year.
Second cable operators are transitioning to offer Wi five seven technology as a key driver for growth in 2020 four.
While these transition will create new opportunities for a game to deliver best in class antenna solutions operators are cautiously approaching the Wi Fi six E deployment, when they need a basis to ensure that they don't accumulate excessive inventory during this technique.
Allergy transition.
Okay.
Well, we continue to work with major broadband and cable operators to flow. These CPE devices with the highest level of performance. While also securing design wins with mobile network operators or <unk> and OS on their five G wireless CPE devices.
For the broadband audience.
We are currently working on an indoor W. A router opportunity with a tier one U S. M N. All while we navigate a challenging demand environment. This year would be the our strategic focus on customer base expansion combined with Wi Fi seven investment will drive.
Next year.
While the 20th twenty-three has presented some challenges thus far we believe we have the right product roadmaps and expansion strategies to drive future growth in Q4 and into 2024.
While we're expanding our customer base channels of distribution and geographies, we're actively investing in three major product initiatives.
We believe that these will lay the foundation of our revenue growth I'll say mark as market conditions improve.
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 Q2 sales were $15 $8 million.
The low end of our guidance range of $15 seven to $17 $3 million.
Our sales declined 4% sequentially and 18% year over year, primarily due to inventory corrections with our channel and direct customers.
Consumer sales were $6 $2 million, reflecting a sequential increase of one $1 million on a strong uptick of Wi Fi six embedded antenna shipments.
Enterprise sales were $7 $3 million.
<unk> decreased sequentially by one $1 million the.
The decline was driven by lower embedded modem sales due to channel inventory corrections par.
Partially offset by higher asset tracker sales on new customer wins.
Automotive sales were $2 $3 million, reflecting a sequential decrease of $46 million, primarily due to direct customer inventory corrections.
Q2 gross margin was 44% at the high end of our guidance range of 37, 5% to 44, 5%.
Q2, gross margin was 130 basis points higher sequentially, driven by favorable consumer revenue mix, along with lower indirect cost of sales, resulting from operational efficiencies.
We are in the process of increasing the number of contract manufacturers from six to 10.
In order to ensure adequate second source supply.
All of our products and to reduce product cost.
As mentioned in prior earnings calls leveraging our C. M model is a primary driver of our gross margin improvement initiatives.
We completed the first phase of this leverage with our automotive antennas, which we expect will positively impact our gross margin about 100 basis points in Q4.
Q2, operating expenses totaled $6 $5 billion.
In line with our guidance.
<unk> $6 $4 million.
Operating expenses decreased sequentially by $750.
Driven by lower employee expenses, and lower marketing and professional fees.
We are continuously driving operational efficiencies to reduce our expenses and make room for the investments needed for our three major initiatives.
As a result.
Q2, adjusted EBITDA was positive $37.
non-GAAP EPS was negative one cent.
Our cash balance as of June 30, it was $9 $3 million.
One $5 million more sequentially.
Our accounts receivables balance was $8 $6 million.
$5 million higher sequentially due to revenue linearity in the quarter.
Net inventory was $4 $8 million or $3 million higher sequentially.
Now moving to our outlook for the third quarter ending September through yet.
23.
We project sales to be in the range of 13 to five and $14 $75 million.
Or $14 million at the midpoint of the range.
We expect non-GAAP gross margin to be in in the third quarter to be in the range of 38, 5% to 41, 5%.
Or 40% at the midpoint of the range.
We project, our operating expenses to be approximately $48 million.
non-GAAP EPS is expected to be negative two cents.
At the midpoint of our guidance.
Adjusted EBITDA is expected to be breakeven at the midpoint of our guidance.
Despite the revenue challenge, we faced in the third quarter, we remain committed to achieving a breakeven adjusted EBITDA model.
While we continue to execute on our strategic roadmap.
Now I would like to turn the call back to over to Jacob.
Who will walk us through our strategic product initiatives.
Jacob.
Thanks, Michael.
While Q1 saw several exciting product announcements Q2 was the quarter of executing on those growth initiatives. We have made significant progress since discussing the impact of this new technology initiatives on the market and our business trajectory at all or in English.
An investor day in March.
We believe that these initiatives will carry our well into 'twenty 'twenty four and beyond.
Well, if I G delivers on its promises of lower latency increased capacity and higher throughput. It comes at the expense of a shoulder signaled range from the base station.
Consequentially this creates coverage gaps for five G customers, we believe Aegean is well positioned to solve these major coverage efficiencies economically benefiting both the minerals in the end customers.
Improving <unk> connectivity and customer experience the gains in the home office with fixed wireless access.
These devices allow wireless technology to compete with cable and wire solutions for the broadband connection.
In January of 'twenty, 'twenty, three we announced our reference design for an outdoor directional if W. A device with an easy installation hardware kit and unique software tool that helps to solve the trade off between performance and ease of installation.
We're excited to announce that we have more this product from Gartner sees on stage into production under the land turn if W. A brain and have shipped samples to major customers or trial testing and evaluation.
These products not only appeals to the M N O us, but he's also receiving strong interest from our system integrator partners for enterprise applications Suntrust Robin Hello over and remote access.
Early market feedback has been positive and we expect to begin generating revenue from this product in the first half of 'twenty 'twenty four.
With the reduced transmission range of advisory signals the cost of ownership for network operators increases significantly towards the infrastructure and equipment require switch thing high quality coverage.
And active Smart me Peter can overcome this challenge by facilitating efficient use of existing infrastructure to ensure a stable and high quality signal.
Yeah again, it's at the forefront of developing advanced Smoggy theaters.
Which aim to reduce the cost of wireless infrastructure for operators. The lighthouse smart repeaters I, a major initiative announced in Q1 and feature single pole installation carrier obligation.
Echo cancellation support for multi up later frequency bands and active beam steering capability.
We have complete.
We have completed lab tests and are conducting multiple trials on tier one upgrade their networks to further optimize the performance of our products.
We expect these products to begin generating revenue by the end of 2024.
The third major initiative, we are working on and are game involves delivering a benefit signal of vehicles, we have been in the fleet and vehicle networking industry for many years.
With the deployment of <unk>.
It used cases for higher data rate applications have multiplied substantially this is especially important for several segments, including public safety transportation agriculture utilities and many more.
We will provide additional information for this opportunity in the near future.
While we continue to grow our core product lines and generate.
Organic growth, we believe our focus on improving the five G customer experience through these major initiatives came fundamentally offer cutting edge solutions for the markets in which we compete as well as create a strong growth trajectory for air again.
In closing, while we are seeing short term headwinds due to macro economic conditions. The major initiatives, we have set into motion a nearing duration, we are investing in three major product initiatives.
[noise] represent multi billion that are serviceable available market.
Diversifying our customer base, expanding our channels of distribution and entering new geographies. We're also making these investments while keeping our focus on positive EBITDA generation.
We are pleased that we have made significant advancements in our multi step goto market development process for our three major initiatives.
Our fixed wireless access offering for both consumer and enterprise environments.
Thus far completed lab M field trial.
Testing.
And he's now in customers trials with several domestic and international prospects.
Injected timetable for this device to lunch remains consistent in the first half of 2024.
Our next generation vehicle networking platform is following a similar trajectory in terms of both partner and in customer demand.
During this process, we have consider lessons from our previous offerings in this space and collect it months of feedback from customers throughout the value chain. We look forward to updating you further as we get closer to market.
Finally, our lighthouse Smart network.
The platform is also progressing steadily towards trials and is now receiving direct interest from M N O's and installers, both domestically and internationally.
This is representative of our slate of domain goes and a testament to the quality of our offering.
So all of our initiatives helped the expressed intent to solve many of the common problems and.
Oh space in the deployment of <unk> networks.
I am proud of our team members for their passion and commitment throughout the company's transformation and I feel that the solid work. Our team has put forth is nearing materialization and we should start to see it each results show.
Transformation and technology, Roadmaps ablation and shelf is an ongoing process for every successful company and we feel that we have been effective in executing on that strategy.
We have laid out over a couple of years ago.
We are very confident in the substantial strides our team has made thus far on the development of our cutting edge solutions with a dedicated commitment to simplifying wireless connectivity across a broad spectrum of our customers. We have set a course to deliver them.
There are now products that cater to the evolving needs of our customers and partners by driving innovation in the connectivity industry. We look to continue establishing ourselves not only as a leader in the market as a company that shapes the industry in the process.
We believe the future is bright for air again, and with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you we will now take questions from air gangs sell side analysts.
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Okay.
Yeah.
There are no further there are no questions in queue. At this time, so I would like to turn it back to management for closing comments.
Thank you for joining us on today's call. We look forward to updating you on our next call operator.
Yeah.
Thank you for your questions were not taken you may contact air gains Investor Relations at team at H I R. G at Gateway desk TRP Dotcoms. Thank you for joining us today on today's call. We look forward to updating you on our next call.
Thank you.
Okay.
Yes.
Yes.