Airgain Inc (AIRG) 2017 Q1 法說會逐字稿

Good afternoon. Welcome to Airgain's first-quarter 2017 earnings conference call. My name is Bob and I will be your coordinator for today. Joining us for today's call are Airgain President and CEO, Charles Myers; CFO, Leo Johnson; and Director of Investor Relations, Alexis Waadt. I would now like to turn the call over to Ms. Waadt who will provide the necessary precautions regarding the forward-looking statements made by management during today's call.

Thank you and good afternoon, everyone. 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 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, including performance for the remainder of 2017.

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 release and SEC filings, including its Form 10-Q which we expect to file by May 15, 2017.

This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 3, 2017. 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 include a discussion of non-GAAP financial measures including adjusted EBITDA. Please see today's earnings release which is posted on Airgain's website 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 that this call will be recorded and made available for replay via a link available in the Investor Relations section of the Company's website at www.Airgain.com. Following management's prepared remarks we will open up the call for questions from Airgain's publishing sell side analysts and major institutional shareholders. Now with that I would like to turn the call over to our President and CEO, Chuck Myers.

Thanks, Alexis. Welcome, everyone, and thank you for joining us today. After the market close we issued a press release announcing our results for the first quarter ended March 31, 2017, a copy of which is available in the Investor Relations section of our website.

Riding our strong momentum of 2016, we continue to expand our core connected home market while adding to our sales funnel in new markets like enterprise and automotive. The Company's sales grew organically by 32% year-over-year while our margin showed expansion. This led to another strong quarter of profitability and adjusted EBITDA, more than doubling from the same period a year ago.

Complementing our healthy financial performance were several achievements on the operational front. We began shipping multiple new 802.11ac connected home devices during the quarter; I will highlight two examples. The first is a flagship DOCSIS 3.1 8x8 Wi-Fi gigabit gateway for a Tier 1 North American carrier. The second is a DOCSIS 3.1 set-top box for a major cable operator in Europe.

This is a cutting-edge 4K ultra HD device which enables wireless video to be streamed over 2.4 and 5 gigahertz Wi-Fi networks. These two new devices join an ever-growing number of design wins we've had that are based on the 802.11ac standard. Additionally, we began shipping an environmentally hardened outdoor Wi-Fi access point for a major tier 1 OEM. This product feeds our expansion into a new market with a significant existing customer.

I'll say a few words regarding the recent acquisition. We acquired the assets of Antenna Plus last week for $6.4 million in cash. In 2016 Antenna Plus had unaudited revenues of around $7.5 million and gross margins greater than 60% and positive EBITDA. We expect this transaction to be EBITDA accretive within 2017.

We were able to favorably acquire these assets due to a court ordered resolution of an ownership dispute and not due to financial impairment. The acquired company, Antenna Plus, is an early innovator in the mobile fleet antenna market. We are excited about this unique portfolio of cellular, GPS, Wi-Fi and private radio frequency antenna products.

We also took over an established network of sales distribution and value-added resellers. This provides leverage for Airgain's existing products into several new markets including the fast-growing automotive fleet in the industrial IOT space. We look forward to building our team through the addition of the employees and the leaders of Antenna Plus that have built such a solid company.

Now, before I provide any further details about our operational results as well as our future growth strategies and outlook, I'd like to turn the call over to our CFO, Leo Johnson, who will walk us through the financial results. Leo?

Thank you, Chuck, and good afternoon, everyone. Let's turn to our financial results for the first quarter ended March 31, 2017. Our sales for the first quarter increased 32% to $11.3 million from $8.5 million in the same period a year ago. The increase was driven by our continued growth in product sales.

Our gross profit for the first quarter of 2017 grew 44% to $5.3 million from $3.7 million in Q1 of last year. Gross margin as a percentage of sales increased to 47.0% in Q1 2017 compared to 43.2% in the first quarter of 2016. This increase in gross profit as a percentage of sales is primarily due to a shift in sales mix.

Our total operating expenses for the first quarter grew 37% to $4.9 million from $3.6 million in Q1 of last year. The increase was primarily attributable to higher personnel expenses to support sales, marketing and R&D initiatives. We also incurred increases in certain administrative costs as a result of being a public company.

Net income attributable to common shareholders for the first quarter of 2017 totaled $385,000 or $0.04 per share on a diluted basis, a significant increase from net loss attributable to common shareholders of $465,000 or a loss of $0.82 per share diluted in Q1 of last year.

Our adjusted EBITDA more than doubled to $712,000 from $354,000 in the same period a year ago. I'd like to remind everyone, as expected we did experience some seasonality in our quarter because of the Chinese New Year.

Now turning to the balance sheet, cash and cash equivalents at the end of the first quarter totaled $41.9 million compared to $45.2 million at the end of the quarter -- prior quarter. This completes my financial summary. I will now turn it back over to Chuck.

Thanks, Leo. Before I get into our operational results for the quarter I'd like to briefly share the results of some of our performance indicators. Our key performance indicators were positive for the quarter. Our total number of customer devices grew 23% for the quarter to 12.9 million. The average number of antennas per unit in these devices increased 5% to 3.12. And finally, our average selling price per device increased 8% to $0.86.

Moving on to some of our operational highlights, I started the call by talking about how we began shipping for two new 802.11ac devices during the quarter. The DOCSIS 3.1 set-top box is already ramping up very quickly while we expect shipments for the Wi-Fi gateway to ramp throughout the year. These new customer engagements expand our geographic footprint, especially within North American carriers, and diversify our overall sales mix.

In addition, we believe the shipments to these customers demonstrate, after much anticipation, the commercial rollout of the 82.11ac adoption. We continue to focus on driving growth through penetrating new markets, as well as widening our sales channels and introducing new products that can increase our market share. We believe the acquisition of Antenna Plus will help accelerate these objectives.

This acquisition also allows us to advance our presence in North America in terms of higher-margin product mix and geography in the automotive and IOT landscape. Looking ahead we will take advantage of our enhanced cash position to opportunistically evaluate attractive technologies and businesses like Antenna Plus that can accelerate our future growth. We will continue to invest in our sales, marketing and R&D initiatives to drive our strong organic growth.

I want to thank all the employees at Airgain for an excellent first quarter and a solid start to 2017. Their hard work has laid a solid foundation for what should be another great year. Building on our past four quarters, we continue to see the market expanding. And as a long time sailor, it's nice to feel the market trade winds at our back.

And with that we are ready to open the call for any of your questions. Operator, please provide the appropriate instructions.

(Operator Instructions). Anil Doradla, William Blair.

Chuck, Leo, congrats on the great results.

Thank you.

So Chuck, you have set the tone very positively. You talk about the 802.11ac. You talked about some of the North American service providers. So, as we look out in 2017 from a bigger picture trends point of view, whether it's ASPs, whether it's unit volumes and so forth, the tone that you set out in the first quarter should be sustainable. Is that a fair assessment?

Well, as you know, we continue to -- we look internally at our annual revenue and I think that our past performance should demonstrate what we think about the business.

So when you look at -- again, back for the full year -- from your point of view 802.11ac will be the biggest driver. Is that a fair statement?

I think with so much of our business in the IOT and more going to be in the automotive space, AC is I would say not the biggest right now. As I've stated regularly, AC is really in a nascent stage and it continues to expand nicely. And we see strong market push for that and we see that -- no reason for that to not continue. We are only in the nascent stages.

On Antenna Plus, obviously there are some cross-selling opportunities right away as you expand your channel. But then there's -- following up there's going to be integrated product synergy. Can you walk us through, Chuck, how you are looking at 2017 and 2018 from this acquisition point of view?

Yes, I think that -- just to be aware, we just closed this thing last week. So as we go through the integration what we see from the distribution channels that we have there, within that company there was a bit of a pent-up demand for other products and probably a larger service capability which Airgain provides to Antenna Plus to be able to provide even their existing products to more customers.

So, we hope that we see a lot of pull from that throughout the rest of the year. And we continue to see that -- those as some introductory products for some of the automotive opportunities that we are currently pursuing.

Great. And Leo, switching gears to the balance sheet, DSOs went up; it looks like Accounts Receivable was the factor; had impact on free cash flow too. So, can you build up and explain what happened there?

Yes, I mean, basically, we had -- March was obviously our biggest month of the quarter. Because of the way Chinese New Year fell we ended up doing almost $5 million -- or [actually] over $5 million in the month of March.

Okay, so it was just a timing thing?

Just the timing.

All right, wonderful. And congrats once again from my side.

Timothy Arcuri, Cowen and Company.

Thank you very much. I had a couple. So I guess, Chuck, you don't want to really get too specific about the guidance. But you've now grown in excess of 30% for two quarters in a row. Can I just take that growth and then add Antenna Plus of maybe $8 million so you are like in the [mid-60s] for the year? I know you don't want to like put a number out there and guide, but is that completely crazy?

You know what I love about the analysts? I never mention $8 million. I said that unaudited it was $7.5 million and you already added $0.5 million. I -- you know what, that's a tough one to add. But as you know, if you have a public company of our size, and we are growing at better than 20%, we feel that's where our business model has been modeled. I think as you can see from our performance in the past, we feel comfortable with our performance of the past.

Okay. All right, how about this one? Can you help us sort of what the impact will be from Antenna Plus on antennas per device and maybe total devices? Is there going to be any material change? Do they have a different mix that would make those numbers a little different?

They have a much different mix. They tend to be definitely a significantly higher ASP than what we do. It can go anywhere -- Leo, do you want to hit on what the numbers are? But it could be anywhere from -- these could be --

$100, some of the antennas $100.

-- $100, right? So it's going to change. At some point we are going to, as we build up our automotive and IOT business and outdoor business, our key indicators for what we do on cost per device and -- is going to change significantly. And at some point we'll come out with new direction on how we see our KPIs.

Okay, got it. And then can you talk about gross margin? It was obviously a lot better and you guys haven't done 47% before I don't think. So -- is that a sustainable number? When I put in Antenna Plus you should be able to do possibly 50% this year if you're already at 47% without them and they are much higher. Is that rational?

Well, as I've said on the other calls, it all comes down to product mix. And as we change things in and out, depending on the quarter, the mix changes will. This is probably a good time that -- people always love to touch on LeEco with us. As we said in the fourth-quarter call and the first quarter call -- or in the end of year call, that we didn't put near as much emphasis on LeEco as probably -- I'd almost call it the social media impacts did.

We don't view them necessarily as a significant customer going forward, although we still ship to them -- as I said in the last call, we still ship to one of their key vendors. But for instance their margins are lower than some of the margins on some of the other products we ship. So things -- as product mix shift can shift our margin. We've had 15 or 16 quarters now straight of greater than 40% margin and there's no reason for us to believe that that's going to change.

Okay. And then I guess last question, can you talk about the top customers in the quarter, who were they and how much were they?

Tim, I don't think we've ever really called out the top -- we've never called out the top customers. But this quarter the top three -- we've always given the percentage of what the top three were and, again, this quarter it's about the same. This quarter was 47% out of the top three customers.

But be cautious because next quarter it may be a completely different set of three. They tend to switch quarter to quarter, depending on the shipping schedules and/or customer demands. A retail product customer will have very different -- they will ship more in one quarter than they would compared to what another person would. And it's important to know when you segment customers, those customers could have multiple products in multiple product lines with multiple end customers in their own right.

Right, got it, okay. Thanks so much.

There is a lot of diversification there.

Matt Robison, Wunderlich Securities.

This is Peter Warendorf on for Matt Robison. I'm just wondering, based on water flow that you guys are already seeing, what kind of equipment is going to be driving demand in the June quarter? And how does that compare to the previous year?

I have to say that I don't necessarily follow your question. We ship to as many -- about 150 different products. And I don't know that personally I've seen what the breakdown is on each of those individually. So maybe if you have some clarity on the question, maybe I can help you out a little.

Just trying to get at if there's any product specifically that you are seeing that's a high percentage. Or if you don't have any clarity that's all right too.

No, I would say that there is no one specific product -- I think I understand your question now. There's no one specific product. Our revenues tend to be quite diverse, so that's how we see it.

All right, thank you.

Josh Goldberg, G2 Investment Partners.

I had a couple questions. I guess first of all, can you tell us how much -- because you said it's very early stages. I assume that the 802.11ac and the DOCSIS 3.1 modem business is still very, very small, less than 10% of your revenue. Is that fair to assume?

It's a tough question without seeing the numbers in front of us. Hang on.

Okay.

Tough to assume because -- the two projects that Chuck alluded to are under 10% and that's is (multiple speakers).

Based on the comment that the tailwinds are starting to come your way and you're seeing broader orders, it's fair to say that you probably entered April and now May and are doing the conference call with a better order book than you did starting the year?

I would assume so, yes.

Okay. And also you are comfortable saying that the products, the 802.11 and the DOCSIS 3.1, are not significantly below corporate average margins -- gross margins?

That would be correct.

Okay. So typical seasonality (multiple speakers).

Those are very early products -- those are very early products, so that's -- going forward those tend to be decent margin products and it gets varied over the life of the product.

As you look out to some of the other opportunities is it fair to say at least that the DOCSIS 3.1 upgrade could be pretty significant to your top line?

I think that DOCSIS 3.1 is in very, very early stages. So as a market as a whole I would absolutely agree with your comment.

Okay. Is there any comments from customers saying they're not or they are delaying the spend that are holding it back? Or just because you're only seeing the early indications that you're saying it's an early market? There's no cancellations or changes in their buying patterns?

To the contrary. I think of the designs are all geared -- for the most part are geared -- in that particular product set the products are -- the new designs are very much geared towards 3.1 DOCSIS products and AC products.

Okay.

And those are in very, very early stages.

Sure, but it looks like they're going to ramp pretty hard between now and the end of the year -- according to the customer forecasts.

Right. I think as you can see from our numbers, we continue to ramp nicely.

Okay. Regarding the acquisition, just so everyone's clear, you're going to only have two months of the acquisition in the second quarter and then a full quarter in the third quarter. Is there any seasonality in the business? Is it more backend loaded to the fourth quarter or are people looking at the [7.4] and saying okay divide that over whatever -- you've got eight months of it, divide it by eight months and it's a pretty good indication of what the revenue will be each quarter?

We'll have to see how they operate under us in terms of seasonality. They do have a little seasonality there. As we get into the integration we'll be able to going forward give you some better clarity on that. We will see some revenue from them in the first two quarters. There will be some cost associated with the integration on that.

Okay, so you're saying that maybe the first two quarters it's not as accretive as when you exit the year?

Exactly.

Okay. In terms of just the balance sheet, care to say that you think DSOs will normalize again back to the 40, 45 days in the second quarter?

Yes, I believe so. There's no indication they are not.

Got it. Just to dovetail that, Leo, it sounds like that the quarter and the order patterns and bookings seem to be much more front end loaded this quarter than last quarter?

They were. Yes.

Okay great. Thanks so much.

Thanks, Josh.

(Operator Instructions). Paul Duggan, Jackson Capital.

Good afternoon, guys. Nice quarter. I've got a question, it's a little off-topic from what these gentlemen have been asking. The stock seems to be overrun by short-sellers and the open short interest continues to go higher and higher.

Would the Company consider paying a cash dividend or instituting a buyback to combat that? We've got a lot of cash drawer. A buyback or a cash dividend would reduce the cash and provide some defense against the outstanding short-sellers. Any thoughts?

We are thinking, Paul.

Actually we were kind of hoping Paul that results would speak for themselves.

Oh, the results are great, but it seems -- there's a lot of social media negative stories. One way to counteract it is just with facts. The Company has a lot of cash, more accretive acquisitions like Antenna Plus or a dividend or a buyback I think would send the stock running.

We will bring that up to the Board. I think it's a good comment.

All right, thank you.

That's all the time we have for questions today. If your question was not taken, you may contact Airgain's Investor Relations team at investor@Airgain.com. I would now like to turn the call back over to Mr. Myers for his closing remarks.

Thank you for joining us on our call today. I especially want to thank our employees, partners and investors for their continued support and we look forward to updating you on our next call. Operator?

Thank you for joining us today for Airgain's first-quarter 2017 earnings call. You may now disconnect.