Airgain, Inc.
Q4 2020 Earnings Call Transcript

Published: 18 Feb 2021

[Operator:]

Good afternoon. Welcome to Airgain’s Fourth Quarter and Full Year 2020 Earnings Conference Call. My name is Ryan, and I will be your coordinator for today’s call. Joining us for today’s call are Airgain’s CEO, Jacob Suen; CFO, David Lyle; and Airgain's new Senior Vice President of Product and Marketing, Morad Sbahi. As a reminder, this call will be recorded and made available for replay via a link available in the Investor Relations section of Airgain’s website at http

[David Lyle:]

Thank you, and good afternoon to everyone. I caution listeners that during this call Airgain management will 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 are qualified by the cautionary statements contained in today’s earnings release and Airgain’s SEC filings.

[Jacob Suen:]

Thank you, Dave. Welcome, everyone. And thank you for joining us on the call today. I'll start with an update on the fourth quarter and a review of our strategy, and then, discuss progress with main on key progress. Dave will then provide financial details as well as our Q1 2021 outlook and color around how we expect the year to play out. Let's begin with our two big announcements. The acquisitions of NimbeLink in the release of the first AirgainConnect product into general availability. The acquisitions of NimbeLink, which closed on January 7, makes a really expanding additions to the Airgain family while at a critical inflection point in our transition to us becoming a more system-level company by providing even higher levels of innovative solutions. The acquisition is an excellent fit with our business and we'll play an important role in our overall growth strategy to broaden market diversification, especially within the industrial IoT space. NimbeLink significantly advances our strategic mission to deliver higher levels of integrated wireless systems solutions globally. The strategic rationale for this acquisition really revolves around six key points. First, NimbeLink’s expertise in industrial IoT puts them squarely in one of our targeted markets within the bigger enterprise market. Second, NimbeLink extends the breadth and opportunity for our game changing AirgainConnect platform. With the addition of critical expertise gained through NimbeLink for future AirgainConnect products such as with modem integrated design, strong management software, as well as operator certification, expect that NimbeLink will enable critical future features. We good cellular module designs, increase surprising flexibility and improved product time to market. Third because NimbeLink’s historical revenue has been almost all based in the US we have a real opportunity to leverage our international sales force with same NimbeLink sales reach. Historically NimbeLink being a smaller private company, focused almost entirely on the US market. However its products can be adapted to international markets with minimal investment and can be ready in most cases to deploy into a new market in a matter of weeks, not months or years.

[David Lyle:]

Thank you, Jacob. Fourth quarter 2020 revenue of $12.8 million was consistent with the preliminary results we issued on January 7 and just above the midpoint of our previous guidance range issued on November 5. Consumer revenue was $9.6 million down from $10.4 million in Q3, primarily due to initial inventory builds in Q3 as a result of product cycle transitions at our North American service provider and customers.

[Jacob Suen:]

Thanks, Dave. We continue to experience robust demand for our products and we are really excited about the prospects for us to grow in 2021 even in this very challenging environment. With the formalities into general availability of first AirgainConnect product, the expected revenue contribution and grow from our NimbeLink products, the ramp of products into traditional global Wi-Fi enterprise customers. In the refresh of our aftermarket products to 5G we believe we have positioned Airgain for a year of growth in 2021 with new and innovative products being developed for our targeted enterprise submarkets multiple new products out of our AirgainConnect platform we believe we are positioned for long term profitable growth. Additionally we are very appreciative of all the hard work our employees put into our company during an unprecedented and difficult environment. We are also and really appreciate it our supportive customers, suppliers and shareholders. As we are now in our earnings call released today. Our Senior Vice President of Engineering Kevin Thill will be retiring from Airgain effective May 7, 2021. Kevin made many contributions to our organization since he joined the company in 2017 through Airgain’s acquisitions of Antenna Plus where he was Founder and CEO. Under Kevin's leadership our engineering organization is well structure with strong management at each of our R&D centers across the globe to continue the engineering development and research efforts. Over the next 2.5 months, Kevin will assist in the search process to identify a successor, to execute our technology roadmap in further expense savings and a logical leadership. On behalf of the entire organization I wish Kevin the utmost happiness in health as he enjoys retirement with his wife, four adult children and three grandchildren, two of which were just born in the last eight months. In addition earlier today we announced the promotions of Morad Sbahi to the positions of Senior Vice President Global Product and Marketing. Since joining Airgain in 2013 Morad has held a number of senior management positions including General Manager of EMEA and most recently as Vice President of Corporate Strategy where he spearheaded our recent acquisitions of NimbeLink. Prior to joining Airgain, Morad held various executive management roles at leading semiconductor companies like Texas Instruments, Applied Micro, and Broadcom. While at Broadcom Morad was an integral part of a senior marketing team responsible for a $215 million business within the company. With Morad’s strong mix of semiconductor service provider sales and marketing experience we look forward to leveraging his skillset to accelerate adoptions of our product portfolio including AirgainConnect the NimbeLink portfolio in 5G millimeter wave. And with that we are ready to open the call for your questions. Operator please provide the appropriate instructions.

[Operator:]

Thank you. We will now take questions from Airgain’s publishing sales-side analysts. Our first question comes from the line of Karl Ackerman from Cowen.

[Karl Ackerman:]

Yes, good afternoon gentlemen. Two questions if I may. Jacob to me your first quarter outlook implies the core business is growing above seasonality after backing out the NimbeLink in FirstNet acquisitions. And I think many of us are aware of that. There are supply shortages and customers are seeking continuity of supply. But as we think about several of the product launches you spoke about in your prepared remarks. How does channel inventory play into your outlook for the first quarter? Do you believe that you are shipping in line with demand? And I have a follow up.

[Jacob Suen:]

Hey, good afternoon Karl. Thanks for joining the call today. The questions by the way so we have channel partners and they do have some stocking inventory. And I think that some of the supply chain constraints are on our traditional consumer business looks like it’s a minimal. There some supply constrain around the NimbeLink products which we built it's a very short term and we already making the proper adjustment to make sure that it's just going to be very short term and we'll be able to have it under control in the second quarter of this year.

[Karl Ackerman:]

Got it. I guess for Dave then we've heard several suppliers across the supply chain have raised prices given shortages across the semiconductor supply chain. Now that you have pivoted toward an integrated device company what's your strategy regarding the tradeoff between pricing and volume commitments from your customers? Thank you.

[Jacob Suen:]

Yeah. That's a complex question because it depends on the markets that we're addressing and the type of products that we're addressing. And that's pretty diverse as it stands today. That being said I think we have pretty good control about where those ASPs are going to go, what kind of margins we're getting on those. I will say though that historically on the enterprise side as well as the automotive side gross margins have been tighter in those or we’ve seen more pressure relative to our historical gross margins and those are our growth markets. But I think we're being pretty picky about how we look at projects from an ROI perspective to make sure we maximize value.

[Operator:]

We do have more questions on line; next one comes from the line of Carlin Lynch from B. Riley.

[Carlin Lynch:]

Hey, guys and congrats on the good quarter. Quick question on some of the supply constraints is, I'm curious do you guys feel confident that NimbeLink can still hit that $13 million in targeted revenue in calendar 2021 given everything that's going on in the supply chain? And I have two follow-ups.

[Jacob Suen:]

Yeah. First of all, we haven't guided revenue for 2021 on the NimbeLink side of the business. That being said, they did over $12 million last year. So we expect growth to be pretty good on the NimbeLink business especially since a lot of those revenue streams that I talked about in my comments are kind of in their native stages. So, we expect a decent growth at the entire NimbeLink across all of its revenue streams.

[Carlin Lynch:]

And then with regards to gross margin in Q2, assuming that the business continues to grow particularly in the auto, do we expect -- could you provide more color around what the corporate gross margins will look like in Q2, assuming that we do get the material step up in NimbeLink gross margins? Does that mean that NimbeLink gross margins can go towards closer to 40%? Or is that more of a -- do we need some more volume before we get to a 40% gross margin?

[Jacob Suen:]

Yeah. The NimbeLink gross margin I talked about last year was 33% for the year and in my commentary so that we can reach where we are with our existing historically Airgain business, so we can come close, which implies we can get to eventually to something closer to 40% like we’re talking about that can take a couple quarters till we have that opportunity. I think the other thing that's important to note here is the gross margins vary by revenue stream and the revenue streams that I mentioned earlier. And so for instance, if the business really takes off, of course that would put more pressure even on our corporate gross margins, even if we have improvements to the overall NimbeLink gross margin. So I just want to be clear about that because it's important that the abundance of opportunities for the industrial IoT market and especially NimbeLink are pretty good. So we’re pretty bullish about that, and that you know. So we go really well, you're going to see gross margins, more gross margin pressure. But I think that's a good thing. We'll see how it plays out. In terms of moving into Q2, we do expect to see improvement on the NimbeLink side. That's not in material from a gross margin perspective. Again it's going to be dependent on mix and assuming the supply issue starts to resolve itself a little bit which we do expect at some point to do that to happen then that higher revenue added kind of NimbeLink would obviously put a little more pressure on and put the gross margin. That being said again from an overall viewpoint, we have a guided Q2 and we want to, we want to guide, I don't think you're going to see our corporate gross margins vary dramatically from what we got in during Q1.

[Carlin Lynch:]

And then just one more for me and then a really quick clarification. With regards to the actually within just want to make sure that Airgain connect you guys had said that you guys expected roughly $500,000 in Airgain connect revenue in calendar fourth quarter. Is that, did that materialize as expected?

[Jacob Suen:]

Yes.

[Carlin Lynch:]

Okay. And I think that's it for me from right now, I'll hop back into queue if anything comes up. All right thanks, guys.

[Jacob Suen:]

Thanks a lot.

[Operator:]

We do have more questions on the line. And the next question comes from the line of Alex Vecchi from William Blair.

[Jake Gariup:]

Hi, it’s actually Jake on for Alex. I know it's still early days. So we’d just -- love to get some color on how NimbeLink impact during in terms of the second part of your question I think was how we integrate the Airgain capability into the NimbeLink products from antenna perspective or vice versa and that can take some time, that being said in terms of integration on synergy revenue selling NimbeLink’s products not only within North America where we already have an established sales force, but more importantly were NimbeLink really didn't sell before in APAC and Europe. We're seeing lots of opportunities pop up there and pretty excited Airgain sales force also because those products are great products.

[Jacob Suen:]

Yeah, I think…

[Jake Gariup:]

That’s great. Thank you.

[Jacob Suen:]

Yeah, I’ll also add the fact that now on the I’m able to sell the existing NimbeLink product we’re now also be the bundle some of the last say this skywire product with the Airgain antenna solution and that over customers a more complete solution instead of deploy there is a selling just the module and they got customer score off the shelf antenna now with the merger are now able to offer the customers a complete solution that’s prudent and that fully-tested highly -- with high performance.

[Jake Gariup:]

That’s great. Thanks for the color. That’s it from me.

[Operator:]

Our next question comes from the line of Scott Searle from ROTH Capital.

[Scott Searle:]

Hey, good afternoon. Thanks for taking my questions. Nice quarter. Nice outlook. I do apologize. I got on the call very late. So I did want to hit real quickly any of the high level commentary related to AirgainConnect in terms of the early go-to-market or mega range product in terms of demand that you're seeing? And if you put any numbers in both for the first quarter and or for 2021, any numbers around both for the first quarter and/or for 2021.

[David Lyle:]

Jacob?

[Jacob Suen:]

Hey, good to have you here Scott. So I just want to make sure I answer your questions correctly. You are looking for how do we roll out the AirgainConnect in the first quarter and the latter part of the year. Am I correct?

[Scott Searle:]

Yeah. And kind of the visibility demand. I don't know if you put any numbers or color around that as well.

[Jacob Suen:]

Yeah. Certainly, I think that Dave already shared some color around the perspective of AirgainConnect. What I would like to say is that as of January 26, FirstNet, AT&T formally launched it, it will be seeing a lot of excitements around the launch. As you can see some of the news out there FirstNet actually have gone for a $300 promo among other things so really incentivizing people to sign-up for the service. And we already have nothing but hundreds of leads in our pipeline already with customers eager to get a hold of our demo with files. So we do feel really strongly about the growth potential of the AirgainConnect product for this year.

[Scott Searle:]

Very good. And maybe if I could on the 5G front I think in the last column you were talking about some opportunities later in 2021 and 2022 as it related to 5G fixed wireless access and some other opportunities on that front. I was wondering if you could give any updates on that front in terms of design activity, level of engagements and interest that you're seeing for those types of products.

[Jacob Suen:]

Yeah. Really good questions. I'll talk first and then maybe also have Morad to chime in as well and add some color around 5G millimeter wave. So 5G in general I think that this year we are going to be able to have products, it’s already finished on the 5G sub-6 gigahertz side especially with the stick at her side, especially with the Antenna Plus products. And then we expect that those turning into the earning for the second half of the year, and certainly we’re also looking along 5G and millimeter wave development. As a matter of fact, we do anticipate to incorporate that as well as next generation AirgainConnect product…

[David Lyle:]

So yes, just to add a little bit of color on that, so the first foray that we will have to connect particular product category in the millimeter wave, we'll see if there's something in the enterprise space. And as the market starts to mature and becomes more and more pronounced, you'll see the stock to roll out those products into the our traditional consumer space. So something that really excited about the trajectory that we expect to give us a lot of growth. So…

[Scott Searle:]

Very good. Thank you. And I apologize for being redundant again, but as it relates to NimbeLink and component availability, it certainly diversifies the product portfolio, really complements what you guys are doing. Are you seeing any near-term issues on that front related to component availability or pricing? I'm sure you’ve already answered this, but thanks for indulging me.

[Jacob Suen:]

No problem, Scott. Yeah we are -- we said in our written comments earlier in the call that we expect that NimbeLink revenue in Q1 to be about $2.7 million. That's actually lower than the actual demand that we're seeing. We're seeing over $3 million in revenue in terms of demand. But supply is constrained. And therefore the module you can buy from -- can't get enough supply for the quarter. So the good news is that the demand is there and actually the demand is really solid. Obviously it’s going to put some pressure on the overall revenue. I think $2.7 million is a conservative number that is our target.

[Scott Searle:]

Yeah. Thanks so much guys.

[Jacob Suen:]

Sorry it’s very short-term and we need to get a solution for it.

[Scott Searle:]

Thanks Jacob.

[Operator:]

We do have a follow-up question from Carlin Lynch from B. Riley.

[Carlin Lynch:]

Hey, guys, really quick, just wanted to follow up on that supply point. Obviously the $300,000 delta in Q1, as you work with your suppliers how confident are you at that assuming that that does kind of materialize in Q1 that that could come back in Q2? And what steps are you guys taking to ensure supply through the year as industry tightness kind of continues?

[Jacob Suen:]

Yeah. We're really addressing that -- we started addressing that very early on. It's really about getting in line and getting in the right order in line from a supply perspective, but in terms of the demand that we're seeing versus the supply that we’ve been told that we can get we feel pretty good going into Q2 even, if we see a low pressure in Q2 we have much more confidence, so we're going to see Q3 availability. But again that's going to depend on the demand; the demand has been pretty robust on admin side of the business. And just to comment on that we’re off to the business that's the non portion of the business, we've actually checked with our end customers, our direct customers across our supply chain also to make sure that we've got the right supply to meet demand. And we think in that part of the business, that we're doing pretty well.

[Carlin Lynch:]

Got it. All right. Thanks, guys.

[Operator:]

And there are no other questions in the queue. So, at this time, this concludes our question-and-answer session. If your question was not taken, you may contact Airgain’s Investor Relations at [e-mail]. I would now like to turn the call over back to Mr. Suen, for his closing remarks.

[Jacob Suen:]

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

[Operator:]

Thank you for joining us today for Airgain's fourth quarter 2020 earnings call. You may now disconnect.