J.B. Hunt Transport Services Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 5 speakers on the call.

Operator

Afternoon. Welcome to Airgain's First Quarter 2023 Earnings Conference Call. My name is Doug, and I'll be your coordinator for today's call. Joining us for today's call are Airgain's President and CEO, Jacob Sewan and CFO, Michael Abbaz. As a reminder, this call will be recorded and made available for replay via a link found in the Investor Relations section of Airgain's website at www.airgain.com.

Operator

Following management's prepared remarks, the call will be open for questions from Airgain's sell side analysts. I caution listeners that during this call Airgain management We'll be making forward looking statements about future events and Airgain's 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 qualified by the cautionary statements contained in today's earnings release and Airgain's SEC filings. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 11, 2023.

Operator

Airgain undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call may include a of the GAAP to non GAAP results. Now, I'd like to turn the call over to our CEO, Jacob Sewan. Jacob?

Speaker 1

Thank you, operator. Welcome everyone and thank you for joining us today. For today's call, I'll first Cover our operational highlights and achievements for Q1. Then I'll hand it over to Michael To walk you through our financial performance for the Q1, afterward, I will provide an update On our strategic product and marketing initiatives for 2023 before opening the call for questions. As you saw from our earnings release, the Q1 sales came in at $16,400,000 At the midpoint of our guidance range, as we communicated last quarter, the combinations of demand softness And technology transitions in the consumer market contributed to a slight year over year Q1 decline.

Speaker 1

However, we are optimistic that new product introductions and design wins will result in sequential quarterly sales increases In the second half of twenty twenty three, we continue to see solid performance from our enterprise market, Which represented just over 50% of our total sales for the quarter. We also see growth From our key verticals such as rail, video surveillance, fleet and industrial IoT. Our enterprise market represents a mix of components and systems that include our embedded modems, Asset Truckers, Enterprise Antenna Design and Custom Products. With this increased revenue contribution, The enterprise business continues showing resiliency against volatile market conditions. This is a result of the increased demand for connectivity to improve productivity for end customers, Combined with a growing number of applications in this space, a prime example of this It's the recent customer design win we announced in Q1 with a leading provider of railcars and services To the nation's top railways, AIGAN's cellular based asset truckers and embedded modems Combined with our EnLink software platform offer a unique solution that solves Key problems that have plagued this industry for years.

Speaker 1

We started shipments in Q1, Which will continue to grow over the upcoming quarters. We're also in discussions with several other companies in this space With our focus on simplifying wireless connectivity, We appeal to market segments needing RF expertise, all those requiring a shorter time to market. This include video surveillance as a service or VSaaS, which requires high bandwidth And a broad deployment to provide real time video data in processing. EV charging It's another segment that continues to grow as connectivity provides its backbone and it is Struggling to keep up with market demand. Agains' simplified connectivity solutions help markets Such as these solve complex RF problems and get connected quickly.

Speaker 1

Our automotive market includes both our aftermarket antennas and our vehicle networking devices, Such as the AirgainConnect platform, within automotive, we continue to see strong engagement From our large OEM relationships that bundle our fleet antennas with their offerings to provide A total solution to the market. In addition, we are rolling out strategies to First, add differentiation and flexibility to our product designs. 2nd, Implement changes to the supply chain that make us more responsive to demand. And third, expand our channels Distribution globally. We are already beginning to see the benefits of these changes in our strategic direction And expect to make several announcements in the coming weeks.

Speaker 1

While the first responder market Continues to be our primary focus for automotive. We're also seeing progress in other sectors. This includes over the road or OTR fleets, utilities, agriculture and other market segments I manage vehicles with internal equipment that need connectivity. This dependence On connectivity within commercial vehicles is fueling demand for better performance, Simplified implementation and simplified maintenance, all problems that Airgain helps solve. Shifting now to consumer, this market is represented by our custom embedded antenna design for CPE devices Sold primarily to major service providers, consumer remains an important part of our ongoing strategy, Yet we continue to see near term challenges as a result of the macroeconomic conditions And product transitions from Wi Fi 6 to Wi Fi 7 in several of our key customers.

Speaker 1

Despite these headwinds, we see growth opportunities to secure wins in this space. We recently won a design I'm a major OEM for their next generation Wi Fi 6E device for a Tier 1 service provider in the U. S. We also announced in Q1 that D Link Corporation selected Airgain embedded antennas to power The Wi Fi 6 signal in its VR air bridge. The VR air bridge was built To provide a dedicated ultra low latency wireless connection between a VR headset and PC Without the hassle of long cables or dependence on a Wi Fi router, it is against design, testing Manufacturing capabilities that allow innovative solutions such as these to deliver optimal connectivity.

Speaker 1

In addition, as we continue to design integrated 5 gs connectivity products in our various markets, We can better showcase how we solve complex RF problems with our superior RF design. While the first half of twenty twenty three presents some short term challenges, we believe We have the right strategies and roadmap to deliver on our growth targets. Not only do we see Strategic opportunities in each of our existing markets. We have some exciting announcements From our advanced development team that I will discuss later in the call that should position us for accelerated growth in the future. With that, I will turn the call over to Michael.

Speaker 1

Michael? Thank you, Jacob. Before diving into

Speaker 2

the numbers, Please note that my review of our financial results and guidance refers to non GAAP figures. Information about the non GAAP financial measures, including GAAP to non GAAP reconciliations are found in our earnings release. Now let's turn to this quarter's results. As Jacob mentioned, Q1 sales were $16,400,000 At the midpoint of our guidance range of $15,700,000 to $17,300,000 Our sales declined 6% year over year, primarily due to demand softness in our consumer market. Enterprise sales were $8,400,000 which declined sequentially by $1,600,000 On lower shipments of our WiFi access and industrial IoT products.

Speaker 2

Automotive sales were $2,900,000 reflecting a sequential decrease of $600,000 Consumer sales totaled $5,100,000 reflecting a sequential decrease of $1,300,000 Q1 gross margin was 39.1%, 8 60 basis points higher sequentially, As we recorded a one time inventory charge in the prior quarter, we also experienced higher enterprise gross margins Along with operational efficiencies, Q1 operating expenses totaled $7,300,000 Higher than our guidance of approximately $7,000,000 The variance was due to higher than expected marketing communication expenses, Including trade shows and professional services in the Q1. We completed a workforce reduction At the end of the quarter, resulting in an approximately $500,000 decrease in quarterly expenses. This action resulted in a $200,000 one time severance and exit costs, which is excluded from Our non GAAP results. This decrease will lower our EBITDA breakeven point, while allowing for Increased investments for our initiatives in the second half of the year. In addition, we remain focused on streamlining our operational processes To reduce our operating expenses.

Speaker 2

As a result, our Q1 adjusted EBITDA was negative $700,000 And non GAAP EPS was negative at $0.08 Our cash balance as of March 31 was In line with our expectations at $9,800,000 $2,000,000 lower sequentially, Primarily due to annual variable compensation payments, our account receivable balance was $8,100,000 $600,000 lower sequentially. Net inventory was $4,500,000 $300,000 higher sequentially. Now moving to our outlook for the Q2 ending June 30, 2020 We expect sales to be in the range of $15,700,000 $17,300,000 Or $16,500,000 at the midpoint of the range. We expect the gross margin for the 2nd quarter to be in the range of 37.5 percent to 40.5 percent. We project our expenses to be approximately $6,400,000 Adjusted EBITDA is expected to be $200,000 Now, I would like to turn the call over to Jacob, who will walk us through our product and marketing initiatives.

Speaker 2

Jacob?

Speaker 1

Thanks, Michael. Q1 was an exciting quarter for us in terms of product announcements. Our Advanced Development team under the leadership of our Chief Technology Officer, Doctor. Ali Sathri Has spent the last 2 years developing new product lines that will help shape the futures of Airgain. We hosted an Analyst and Investor Day on March 15, where we discussed the impact These new technologies on the market and our business trajectory.

Speaker 1

The feedback from the market And the investment community has been positive. We have made significant progress on these initiatives Since that event and I want to mention some of those milestones. At Airgain, we believe the advancement of 5 gs Technologies Present a specific set of challenges that we are uniquely positioned to solve. With our ongoing efforts to simplify wireless, We focus on the entire customer experience from customer to operator to identify unique opportunities The 5 gs experience begins in the home or office with the user. We believe fixed wireless access or FWA It is a killer app for 5 gs as it allows wireless technologies to compete with cable and wire solutions For the broadband connection into the home, in addition to our embedded and external antenna design To maximize the signal for FWA devices, we announced a reference design for an outdoor directional FWA device With an easy installation kit that will break the trade off between performance and ease of installation.

Speaker 1

This product appeals not only to mobile network operators but has strong interest from our system integrator partners For enterprise environments, we have completed validation and are moving into the product development phase We are finalizing our testing and verification. The next challenge we set out to Taco In the customer experience was delivering the best 5 gs signal to the home or enterprise. In February, we announced the launch of our Lighthouse Smart Repeaters and showcased This technology at Mobile World Congress in Barcelona, while 5 gs delivers on its promises Lower latency, increased capacity and higher throughput, it comes at the expense of a shorter signal distance From the base station because of the higher frequencies, rather than solving this problem exclusively With the additional expensive base stations or small cells, Airgain's smart repeaters significantly reduced deployment costs And simplify implementation with both a network version and a small home office version called Lighthouse Micro, AIGAN simplifies the delivery of the 5 gs signal to your home or enterprise. We completed In the initial trial on a Tier 1 operator network and are in the middle of additional trials and optimizations on that network. The 3rd challenge we set out to solve was delivering a better signal At the cellular base station itself, massive MIMO generally adds a high number of antennas on the Base station compared to standard MIMO, which improves data transfer speeds and increases network Capacity.

Speaker 1

At the Mobile World Congress Show in February, we announced a key partnership with MaxLinear, An industry leader in 5 gs wireless infrastructure to pair AIGAN's latest reference design For a 64 transmit, 64 receive antenna array with their transceiver and high performance beamforming technology, We built samples and are in the process of finalizing the implementation and go to market strategies. Finally, we needed to give operators and their service providers a way to manage all current And future Airgain devices on their network remotely, including configuration management, Change tracking, graphing performance metrics, alert monitoring, two way communications with devices and more. With that in mind, Airegen announced its partnership with Ergo, an enterprise software company Specializing in network operation automation and management for end to end network management, AEGAN's firmware and middleware will push data to Errigo's platform for streamlined management and monitoring. Initial integration and testing is complete and we are in the final stages of testing our devices within the integrated Platform. In addition to improving the 5 gs customer experience from customer to operator, we have Several other product innovations in the final stages of development that we will announce in the upcoming months.

Speaker 1

With our 5 gs connectivity solutions and these new products, we believe the future looks brighter for Airgain. In closing, while we are facing expected near and short term headwinds, we are optimistic about our long term prospects And we remain focused on growth in our 3 major markets. We expect the stability Of our enterprise market to continue as we expand our product portfolio, expand into new verticals And grow our international footprint. We also anticipate growth with our automotive Aftermarket vertical as we add differentiation and flexibility to our new product designs, Improve our supply chain strategies and expand our distribution channels for our aftermarket antennas. For our consumer vertical, we expect performance will be driven by our continued ability to solve The growing complexity in IFRS in our integrated product launches with the major global service provider customers With whom we have built great partnerships throughout the years.

Speaker 1

Our roadmap is paved with ambitious Product initiatives. Given the products we have and the breadth of systems based solutions we have introduced, our service Addressable market or same has more than doubled from $7,600,000,000 to $16,500,000,000 These new products are designed to address coverage issues on the service provider side, reduce deployment costs And improve the customer experience from customer to operator. I'm proud of the team at Airgain and how they have responded to challenging market conditions. We have a seasoned leadership team that has kept The company owns solid footing and position us for future growth. I'm confident in our market strategies, our product deployment efforts And our position in the market and I'm excited for our future.

Speaker 1

And with that, we're ready to open the call for your questions. Operator, Please provide the appropriate instructions.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. Our first question comes from the line of Scott Searle with ROTH Capital Partners. Please proceed with your question.

Speaker 3

Hey, good afternoon. Thanks for taking my questions.

Operator

Mr. Shirley, you're cutting in and out.

Speaker 3

Just update on the timeline of when we expect that to contribute. And in terms of introduction of the product and the ramp of that product from a revenue standpoint Also the latest update on nimbleinc both from a supply chain perspective and a demand perspective. This has been one of the areas where I think there's been a lot of market demand will be working through some channel inventory, what the latest thoughts were on that front? And then I had a couple of follow ups.

Speaker 1

Hey, Scott. Yes, good to hear from you. Jacob here. We missed the first part of your questions. We understand the second part of your questions is regarding to NimbleLink Product inventory, which we addressed, what was the first part of your questions regarding new product introduction?

Speaker 3

Yes, my apologies. On the auto front, Airgain Connect 2.0 as you're expanding beyond AT and T and Band 14, the timeline Of when that would be introduced and when we start to see that ramping up from a revenue standpoint?

Speaker 1

Okay. So next generation Airgain Connect, yes. Quick questions and I'll address the first one and then I'll have Michael help chime in on the So regarding next generation Airgain Connect, we have not formally made the announcement. Certainly, we have been informing the investment community is something that we've been working on, I would say for almost a year and a half now. We actually learned quite a bit from the initial AEGAN Connect HPUE And I think that we feel really good about the prospect and we really got great feedback from the customers.

Speaker 1

As far as when Is it going to be available? Is something that we are still working on and hope to be able to update EU in the Near future. So at this point, the product is under development and it's Got a lot of great features that customers were wanting and we really feel good about the prospect and again hope to update you shortly.

Speaker 2

Scott, this is Michael. On the nimble in question, the nimble in product as you know is part of our enterprise market. The majority of our enterprise market actually they're industrial IoT products. The good news here is that the supply chain has really eased Significantly, we have been plagued in FY 2021 and FY22 through all eight quarters With the large PPVs or purchase price variances basically higher material cost, which we were able to Pass through to our customers and also the lead time cycle where some of those parts were months months of overall lead time. We do see a few components that have some lead time issues.

Speaker 2

However, the PPVs have disappeared entirely And in Q4 of 2022 with the shipments that we had on the enterprise devices, We did release quite a bit of that PPV that was one of the reason why the margin was lower than our expectation in Q4. So we're done with that. Our balance sheet is pretty clean on that and the resumption of the shipments And the supply chain have come back.

Speaker 3

Perfect. And lastly, if I could, you gave some updates on the Wireless access solution, it sounds like you're going from reference design and moving into the product development. When would be the earliest of when we could expect Field trials and revenue from that, I think you talked about the 'twenty four timeline if that has changed at all. And then secondly, just bringing all the products together, it sounds like is optimism going into the second half of this year. I wonder if you could address each of the main product categories in terms of the expectation for growth into the second half, Consumer WiFi, auto, if we start to see a pickup there, and it certainly sounds like NimbleLink starting to improve as well in the enterprise front.

Speaker 3

Thanks.

Speaker 1

Yes, great questions, Scott. So I'll first talk about the prospect for second half. Again, we don't Provide guidance outside of the next quarter, although I think that it's important to let you know what we're seeing the second half is going to play out. And then I can talk a little bit about the FWA as well and about the prospect. So regarding the second half, As indicated, we do think that consumer, it's the transition from Wi Fi 6 to Wi Fi 7, We do expect that to really start really happening at the latter part of this year and that's one of the reason why because of they want to clean up the inventory with the transition that's why you're seeing some of the short term Headwinds, so to speak, on the consumer side.

Speaker 1

Although we are pleased to see that the supply chain issue that Splunk Glass in the last 2 years or so, it's really start to come to its finishing line. So we're really happy to see that. As far as the enterprise, we do see that the again, some of the inventory issue on the channel side is going to result, I would say, By the first half, so expect the second half to really pick up and we're expecting both on the IoT side As well as our Wi Fi AP business is going to pick up in the second half. So That's an area where we're really seeing a lot of momentum. And then on the automotive, specifically, we're seeing Growing demand on the aftermarket antenna products, and we expect that to continue with our New product introduction as well as the flexibility we're providing to our customers.

Speaker 1

So we expect that to also start to really Improve in the second half of this year. Now regarding fixed wireless access design, We made the announcement during CS. We actually are able to work with our partners such as Ergo, And provide an end to end solution. And eventually that's what we really foresee A going to be To be able to not only provide customers with bits and pieces, but a complete end to end solution. So with the fixed wireless access, We can target towards major network operators, MNOs, such as T Mobile's AT and T, Verizon's, where they're really having a need to address the coverage issue, we are also able to target that product For enterprise infrastructure customers, for even a campus environment.

Speaker 1

So, we already got a lot of interest and we're in the process of working with them on trials. Again, I'd rather be conservative in not saying we're going to be able to ship much this year, but we do see A really good truck churn and position the company well for next year. Does that help, Scott?

Speaker 3

Great. Thank you. Perfect.

Operator

The line of Ethan Waddell with B. Riley Securities. Please proceed with your question.

Speaker 4

Hi, this is Stephen Wydell calling in for Craig Ellis. Thanks for taking my questions. To start, I was hoping you could elaborate on your Lighthouse product and what you expect for timing to sales there? Thanks.

Speaker 1

Yes. Good to hear from you, Ethan. Yes, on the product lighthouse is really our very innovative 5 gs smart repeaters and we have the network smart repeater side as well as the smart SoHo repeater. And as I indicated in the call that we already doing a trial, we already complete the lab trial We're into live field trial with 1 of the major mobile network operators in the U. S.

Speaker 1

We also received quite a bit of interest internationally as well. We actually demo this product or Marketing this product doing Barcelona for MWC and we already received interest in from some of the network operators In Europe, in Middle East as well as in Asia as well. Now the product is still it's not a finished product, it's still a product that's more for demo. So we intend to work with our Customers closely to make sure we're creating the features that meets what they need. But several key things with this product that we already have, One is what we call smart.

Speaker 1

As you know, A game was founded based on our smart antenna technology And we're able to adapt that into this product. So that's a major differentiation of Airgain, smart repeater. The other thing is what we call echo cancellation and that's another unique feature that we have. Last but not least, we're also able to do Channel aggregation and this is another feature that many network operators We really like to have and we'll be the first one to market with this particular feature. And we'll have many other things, but again, Some of the nice differentiation were created with our product, we really feel good about and we intend This product to not be able to deploy this year, I would say next year will be what we are aiming for.

Speaker 4

Got it. Thank you. And then between consumer I was wondering if you are targeting a certain mix there and the implications for gross margin going forward, if that's the case. Thank you.

Speaker 2

Sure. Hi, Ethan. This is Michael. So on the overall mix in Q1, we had a slightly Over 50%, 51% to be exact on the enterprise sales market and This has been actually a mix that has been growing steadily over the past couple of years. This was definitely deliberate in terms of diversifying our Our portfolio, it is the certainly the market that is very resilient especially to the current conditions with Economic conditions and at the expense of the automotive and also the consumer mix.

Speaker 2

Consumer happens to be a higher margin market, so there is an impact on the overall gross margin, but so far we have been able to offset that with Operational efficiencies and really focusing on gross margin improvement initiatives.

Operator

There are no further questions. There are no further questions in the queue at this time. I'd like to hand it back To Jacob Sewan for closing remarks.

Speaker 1

Thank you for joining us on today's call. We look forward to updating you on our next call. Up later.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

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J.B. Hunt Transport Services Q1 2023
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