Airgain Inc (AIRG) 2016 Q2 法說會逐字稿

Good afternoon, welcome to Airgain's second quarter 2016 earnings conference call. Joining us for today's call is Airgain's President and CEO Charles Myers and CFO Leo Johnson. Following their remarks we will open the call up for your questions.

Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. I caution listeners 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, including third quarter 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 should be considered in conjunction with and are qualified by the cautionary statements contained in Airgain's earnings press release and SEC filings, including its S1 and quarterly report on Form 10-Q, which the company expects to file tomorrow, September 21, 2016.

This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, September 20, 2016. Airgain undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this conference call.

This conference call will also include a discussion of non-GAAP financial measures including adjusted EBITDA. Please see today's earnings release which is posted on Airgain's website, Airgain.com, for further details including a reconciliation of the GAAP to non-GAAP results. Any discussion of non-GAAP measures is not intended to detract from the importance of comparable GAAP measures.

Finally I would like to remind everyone this call will be recorded and made available for replay via a link available on the investor relations section of the company's website at Airgain.com.

Now I would like to turn the conference over to Airgain's President and CEO Charles Myers. Sir, please proceed.

Thank you very much. We'd like to welcome everybody and thank you for joining us today. After the markets closed, we issued a press release announcing our results for the second quarter ended June 30, 2016, a copy of which is available in the investor relations section of our website.

As you know, Airgain became public on August 12. The IPO helped us raise gross proceeds of $13.6 million at an $8 a share price. It goes without saying we are excited to be part of the public equity market, and we look forward to continuing our history of innovation and success, but now with the support of a much larger and more diverse shareholder base.

We're very pleased with our growth for the first two quarters of the years and look to build on our progress by executing on some of the key initiatives we identified in the S1, including expanding our sales force, our engineering teams, as well as our R&D efforts.

But before I provide any further commentary, I'd like to turn it over to our CFO Leo Johnson. He'll walk us through the financial details for Q2. Leo?

Thank you, Chuck. It's a pleasure to have the opportunity to speak with you today. Our financial results for the second quarter ended June 30, 2016 largely reflect the same numbers many of you have seen in our S1, which we filed on July 15.

Sales for the second quarter increased 63% to $9.9 million, from $6.1 million in Q2 a year ago. The increase is primarily due to an increase in product sales. Gross profit for the second quarter of 2016 increased 79% to $4.5 million, or 46.1% of sales, from $2.5 million or 42% of sales in the second quarter of last year. The increase in gross profit as a percentage of sales was primarily due to the increase of our port-mounted antennas which typically have higher gross margins. Our target gross margin is 40%, so therefore we're very satisfied with meeting this objective in Q2.

Our total operating expenses of the second quarter were $3.6 million, which is an increase of 31% compared to the $2.7 million same year-ago period. The increase is primarily due to higher personnel expenses to support our sales and marketing, as well as R&D initiatives.

Our net income attributable to common stockholders for the second quarter of 2016 totaled $700,000 or $0.15 per diluted share. This is an improvement over the net loss attributable to common shareholders of approximately $782,000 or $1.22 on a per diluted share basis in Q2 of last year. Our adjusted EBITDA, which we denote as earnings before interest, taxes, depreciation, amortization, and fair market value adjustments of warrants and share-based compensation, increased to roughly $1.3 million, from $71,000 the same period a year ago.

Turning to the balance sheet, cash and cash equivalents at the end of Q2 totaled $5.3 million, which is relatively flat from the amount that we had on hand at December 31, 2015, and it obviously excludes the net proceeds of approximately $11.3 million from the IPO.

This completes my financial summary. I'll now turn the call back over to Chuck.

All right, thanks, Leo. As we've discussed our results for the second quarter it should come as no surprise that they are largely a reflection of our estimated numbers contained in our S1. Having said that, though, I'd like to introduce some of the key performance metrics which we're planning on providing in our future quarterly calls. These metrics are intended to be reviewed in conjunction with our financial results to kind of help you track our performance and the progress of our business.

One of the performance metrics that we use is total customer devices, which measures the number of devices in which our antennas are installed. For the second quarter, total customer devices increased by 62% to 12 million devices, from 7.4 million devices in the same period a year ago. In addition to the total number of devices [win], we like to measure how we can expand our presence in a particular device. For this we use the average number of antennas per device, which increased by 24% year over year to 3.07 antennas per device. And finally we'll report the average selling price per device, which increased by 1% year over year to $0.79. And that's through a broad mix of devices.

Looking ahead to the third quarter, it's not our practice to provide financial guidance. However, we realize we're only a few days away from the end of Q3, and we just wanted to let you know we are optimistic about our results for this period, and we look forward to sharing them with you on the next quarterly earnings call which will take place in November.

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

(Operator Instructions)

Matt Robison, Wunderlich.

Good afternoon, and congrats on the results. Can you talk a little bit about 10% customers, if you had any and how many you had, and whether you expect the third quarter results to have any sort of customer concentration? And maybe give us a little bit of a sense of how it might compare with what you just reported?

Matt, it's Leo. Customer concentration, we're thinking that we're going to be pretty much the same. Three customers are going to be leading the way, and they'll be over 30%. So I don't know, I don't really at this point really want to get into the naming of the customers. We'll have three end customers. It's probably the same as it's been for the first six months of the year.

How about applications? What kind of equipment were the principal use cases?

This is Chuck. Most of those would be smart TVs and connected home set top gateway type devices for those two customers.

Did you say 2.7 antennas per device?

I think we actually cracked over three antennas per device in the second quarter.

I just didn't hear what you said in your prepared remarks.

I believe it's 3.07, Matt.

Okay. And how about a little color on what we should expect next quarter or for the rest of the year?

I think I gave you -- we're optimistic about our third quarter, and we're happy to share that with you on the next earnings call.

When is that going to be?

Sometime after the end of the quarter. The date hasn't been set for that.

Sometime before November 15 (laughter).

Got you.

Tom Sepenzis, Northland Capital Markets.

Hello guys, congratulations on the quarter. I just wonder if you could talk a little bit about where you see the penetration of 802.11ac today. And where do you think it gets to by the end of 2017?

This is Chuck. I don't think we have an exact metric on it. There's not a lot of research in terms of the markets we're in, and on anybody tracking what that penetration has been. We tend to think that it's very small, and it's in the early stages of penetration, and I think we expect to see that to continue on the type of growth that we've seen.

Just in terms of what the potential impact of 60-gigahertz WiFi might be on your business and when you think that might start being incorporated on the set top and access point side. So are you being delivered on the handset side through Qualcomm's 820 chipset? Just curious as to whether you're already thinking about that becoming an impact next year.

We are thinking about it. We do not see that as a significant impact in the next 12 months.

I was wondering if you could talk about, obviously you've had great success with a couple of your carrier partners. Is there anyone new that you're talking to? Or should we be expecting new carriers to start driving the adoption of your antennas over your competitors'? How is that progressing?

We very much like the progression of our business. As you may or may not be aware, our business is dependent on our customers and our carrier rollouts mainly, and there are a number of rollouts that are only going to begin in the fourth quarter. We don't see those as any new customer in particular, only customers that we'd previously discussed in the S1.

Great. Thank you and congratulations.

Paul Duggan, Jackson Capital.

Good afternoon, gentlemen. Congratulations. Nice quarter. This might be more directed to Leo. In the earnings release, I'm seeing $0.15 a share on $700,000 of income. That would yield about 4.6 million shares.

Right, and what that is, is we -- obviously at the end of June we had not completed the IPO. So we sold roughly, call it, 1.7 million in the IPO. It is also is because we have -- formerly we had six series of the preferred shares. And because the accounting treatment of some of those shares, they are not counted because they would be considered anti-dilutive. So on a go-forward basis, you're probably looking at a share count of somewhere around 8.2 million shares. Does that answer your question, Paul?

Kind of, but it creates another one. The original -- the IPO was 1.5 million. Was there an over-allotment? Was that taken down --?

Yes, there was another 200,000 shares taken down in the over-allotment.

Okay. On the S1, I thought there were 5.7 million shares outstanding which would bring me to 7.4 million.

Yes, but then you're going to have -- but we also have approximately a million options out, that will now be -- basically those options will now be in the money, so they're going to have to be counted on a fully diluted basis, so I'm including those in the 8.2 million I gave you.

Okay. And then the last follow-on relates the whole thing in that I've seen research reports, I think even by the underwriter, saying that approximately 5 million shares are locked up pursuant to the shares that existed prior to the IPO.

Yes, there's a 180-day lockup period on all of the shares that came out of the preferred batch.

So is that the same as saying all shares prior to the million, other than the 1.7 million?

Yes, that would be basically the same thing, yes. We had a handful of common shares that would not be subject to the lockup. Obviously the lion's share of the outstanding shares came from the preferreds. I'm talking like 95%.

And those are locked up for 180 days?

Yes, they're locked up till, whatever, February 21.

But we're not positive about that date.

I think it's listed as February 7 but that's fine. Okay, well thank you. Congratulations again.

And ladies and gentlemen, at this time this concludes our question and answer session. If your question was not taken you may contact Airgain's investor relations team at AIRG@Liolios.com. I'd like to turn the call back over to Mr. Myers for his closing remarks.

Great, thank you. And thank you all for joining us on today's call. As I mentioned, we're quite excited to now be in the public markets and we want to thank really all of our employees, our partners, our investors supporting us through this transition and allowing us to scale the Company much further. We look forward to updating you on our progress on our next call. Operator?

Ladies and gentlemen, that concludes our conference for today. You may now disconnect.