Airgain Inc (AIRG) 2021 Q3 法說會逐字稿

Good afternoon. Welcome to Airgain's Third Quarter 2021 Earnings Conference Call. My name is Bethany, and I will be the coordinator for today's call. Joining us for today's call are Airgain's CEO, Jacob Suen; CFO, David Lyle; and 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 www.airgain.com. (Operator Instructions)

I would now like to turn the call over to Mr. 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.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 9, 2021. 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 discussion of non-GAAP financial measures. Please see today's earnings 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, Dave. Welcome, everyone, and thank you for joining us on the call today. I'll start with some commentary about Q3 financial results and then an update on the progress we've made towards executing our strategy. Dave will then provide Q3 financial details as well as our Q4 2021 outlook and color around how we expect 2022 to play out.

Despite current global supply shortage pressure on our overall revenue, we are still quite excited and confident about the prospects for growth, both in 2022 and in subsequent years. We believe end demand for our products is very strong and mostly in our largest and growing markets, enterprise and automotive.

This follows our strategy to grow our integrated wireless system revenue with our industrial IoT, traditional enterprise WiFi systems and our AirgainConnect platform products. We are seeing growth across all of those markets in the first 9 months of 2021 and expect that growth to continue into 2022.

Starting with our enterprise market, we are very pleased with the contributions generated by the NimbeLink acquisition, the growth it has delivered to us and how that is serving as a launching pad for our industrial IoT market opportunity. Existing NimbeLink products are selling very well, and future products are being developed that we believe will serve as large growth engines for Airgain over the long term. For perspective, in the first 9 months of this year NimbeLink product revenue has already exceeded its revenue for the entire year of 2020.

Looking forward, we have a large opportunity pipeline. In the past quarter, we won major designs with a North American manufacturer of motorcycles, snowmobiles, ATVs and neighborhood electric vehicles; a public safety operating system company that helps communities and law enforcement to eliminate crime; and a managed wireless solutions company, each of which are expected to generate multimillion-dollar lifetime revenues.

The combinations of Airgain's historical competency, coupled with the NimbeLink business, is surpassing all of our previous expectations, and we have high confidence that this success will continue in 2022.

In addition, on the enterprise market front we are beginning to see material orders for our new integrated wireless system product at our top-tier global traditional enterprise WiFi customers. This new product, targeted at large venues like stadiums and arenas, was previously anticipated to launch last summer, but was delayed by COVID-19. With large venues opening back up, we are now seeing demand for that product. We expect this to ramp now and throughout 2022.

Moving to the automotive market, we continue to be excited about the prospects for growth out of the AirgainConnect platform. The Q3 promotion from AT&T, coupled with our own promotion with our distributors and resellers, has generated an uptick in opportunities, and the promotion was extended into Q4. Our team is actively developing follow-on products based on the AirgainConnect platform that will further increase an already very large TAM.

Moving to our aftermarket fleet products. As part of Airgain's automotive target market, we have seen revenue pressure from the global supply shortage. However, we are beginning to see an uptick in demand starting in Q1 2022, particularly as we ramp into a new product for a large long-term customer that develops technology and weapon products for military, law enforcement and civilians.

On the consumer market front, we are still seeing really strong end customer demand, and Airgain stands ready to ship product into our OEMs when they are able to procure parts to assemble products. We are getting indications from our direct OEM customers as well as from our service providers and customers that 2022 year plans remain the same as before the supply shortage, and that demand is strong. Based on their feedback, we should see orders resume in Q1 2022.

All in all, we are very pleased with the performance of our underlying business in light of the difficult global supply shortages, and we'll stay focused on executing on what we can control. We are especially encouraged by the momentum in our integrated wireless systems growth as we transition from a component antenna supplier to a system solution provider. Our embedded plastic antenna components revenue is still contributing materially to our overall revenue despite our customers being impacted by the transitory global supply chain shortages.

Now I would like to turn the call back over to Dave, who will walk us through the financial highlights. Dave?

Thank you, Jacob. Third quarter 2021 revenue of $15.5 million declined from $17.3 million in Q2 and was within our previous guidance range of $15 million to $17 million. Note that we estimate lost revenue opportunities due to the global supply shortage during the quarter totaled over $3 million and that end demand continues to be strong.

Beginning with our consumer revenue, Q3 finished at $4.6 million, down from $8.9 million in Q2, mostly due to weakness from the global supply shortage. Enterprise revenue was up materially from $6.2 million in Q2 to $8.7 million in Q3 due to revenue growth from both industrial IoT products as well as traditional enterprise WiFi products. Automotive revenue was $2.2 million in Q3, relatively flat with Q2, as the revenue growth from AirgainConnect was offset by a sequential decline out of our aftermarket fleet revenue due mainly to the global supply shortage.

Q3 non-GAAP gross margin of 36.5% was below previous guidance ranges, primarily due to product mix changes as well as incremental costs associated with the global supply shortage. In terms of product mix, we saw more significant revenue declines than previously expected from our higher-gross margin consumer market revenues.

This issue is primarily due to some of our larger direct OEM customers who serve our North American service provider end customers having difficulties in procuring parts to manufacture products, such as gateways and set-top boxes. For perspective, in Q3 we generated the lowest quarterly revenue in at least 5 years from products sold into our North American service provider end customers, despite feedback that end demand remains strong.

In terms of incremental costs associated with the global supply shortage, we saw higher costs associated with shipping, production inefficiencies due to supply chain disruptions and rapidly rising part costs to build certain industrial IoT products. Although we expect that pressure to continue in Q4, we see this as a transitory issue that we will recover from in the first half of 2022.

Excluded from non-GAAP gross margin was $93,000 for amortization of purchased intangibles. Non-GAAP operating expense in Q3 of $6.8 million was better than the midpoint of our previous guidance range. Excluded from non-GAAP operating expense was about $1.1 million in stock-based compensation expense; about $672,000 in amortization of intangible assets, mostly related to the NimbeLink acquisition; and about $103,000 for fair value of contingent consideration related to the NimbeLink acquisition. Adjusted EBITDA was negative $978,000 in Q3.

Moving on to net income. Non-GAAP net loss in Q3 was $1.1 million, and Q3 GAAP net loss was $3.1 million.

Moving to earnings per share. Our Q3 non-GAAP loss per share was $0.11, and GAAP loss per share was $0.30.

Finally, our Q3 cash, cash equivalents and restricted cash totaled approximately $19.1 million, about $1.3 million lower than in Q2, mostly related to the loss from operations. Cash used for share repurchases during the quarter totaled about $97,000.

Now I would like to provide a preliminary outlook for the fourth quarter of 2021. In Q4, we expect revenue to decline sequentially and be in the range of $13.5 million and $14.5 million, or $14 million at the midpoint of the range. Our current backlog and billings for the quarter already exceed $12 million, giving us confidence in this guidance range.

We expect to see growth in automotive from both AirgainConnect and aftermarket fleet as well as growth in enterprise, mainly from industrial IOT. We expect that this growth will be more than offset by lower consumer revenue, mostly due to the global supply shortage and its impact on revenue derived from devices shipped into our end customer service providers in North America.

We believe the impact of the global supply shortage on our consumer revenue alone will be at least $5 million in Q4, which is already reflected in our guidance range. So although we believe the global supply shortage is a transitory issue, it is having a significant impact on our top line revenue.

We expect non-GAAP gross margin in the fourth quarter to be 34%, plus or minus 100 basis points, as we see product mix shifts continue away from our consumer market revenue and towards products yielding lower gross margins but with higher volume opportunities as well as continued higher product costs associated with the global supply shortage. Again, we believe these transitory issues should resolve themselves as the impact of the global supply shortage begins to lessen over the coming quarters. Excluded from non-GAAP gross margin was $89,000 in acquisition-related amortization of purchased intangibles.

We expect Q4 non-GAAP operating expense will be about $7 million, plus or minus $100,000, as we continue to aggressively focus on minimizing operating expenses until the global supply shortage pressure on our revenue begins to ease. Excluded from our non-GAAP operating expense estimate was about $1.1 million in stock-based compensation expense and about $670,000 in acquisition-related amortization of purchased intangibles and about $355,000 of additional fair value adjustment related to the NimbeLink revenue earn-out.

At the midpoint of guidance, adjusted EBITDA in Q4 would be negative $2.1 million. At the midpoint of guidance, we expect Q4 non-GAAP loss per share to be about $0.22. And on a GAAP basis, we expect a loss per share of $0.44.

In addition to providing Q4 guidance, we also thought it would be valuable to share some color commentary about 2022. We believe that we will see material revenue growth in 2022 across all 3 of our markets. We believe that our consumer market revenue will grow sequentially in Q1, as it will be coming off of an historically low revenue in the fourth quarter, and our enterprise and automotive revenue will continue to grow sequentially, particularly with integrated systems products revenue, through our industrial IoT revenue and traditional enterprise WiFi as well as through contributions from AirgainConnect.

Speaking specifically to Q1 of 2022 revenue expectations, we already have backlog of about $11 million. This large backlog number this early on is giving us confidence that a recovery in the business is near term and that this is an indication that we can grow in Q1 2022 over Q4 2021.

In terms of gross margin, as we expect a gradual recovery in global supply in the first half of next year, we also expect to see our gross margins recover back into a range between just below or just above 40%.

Now I'd like to turn the call back over to Jacob. Jacob?

Thanks, Dave. I wanted to reiterate our confidence in our long-term strategy and our ability to manage through our near-term transitory supply chain issues. We are seeing our integrated wireless system products begin to ramp and are really excited about the next leg of growth, particularly from our newer products with industrial IoT, traditional enterprise WiFi and AirgainConnect leading the way.

We have confidence that our foundational consumer revenue will continue to provide cash flow for Airgain while we continue to transition the business and will return closer to historical revenue levels when the supply shortage issues resolve. With new and innovative products being developed for our targeted enterprise submarkets, particularly with industrial IoT, and multiple new products out of our AirgainConnect platform, we believe we are positioned for long-term profitable growth.

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

(Operator Instructions) The first question is from the line of Craig Ellis with B. Riley Securities.

Appreciate all the color, guys, in a difficult operating environment. Dave, I wanted to ask kind of a high-level question just to make sure I'm putting all the pieces together in terms of the magnitude of the supply chain impact. So I think you mentioned they were about $3 million in the third quarter. And just given the consumer math, it seems like consumer would be about $2 million in the fourth quarter.

So it's at least $3 million to $4 million below a natural level. So it seems like the business has a demand cadence even with relatively low AirgainConnect levels that would be somewhere in the $16 million to $18 million range, but supply chain impacts are really holding the business back from that. Is that a fair way to think about things? And is that the right kind of baseline to have as we look at 2022?

Just for clarity purposes, I said that there's about, in Q3, we had about $3 million lost opportunities. In Q4, we had about $5 million of lost opportunities. So that run rate that you were talking about in the, I think you said, $5 million, I can't remember, in that range, is actually a little higher on the consumer side, specific to the major service providers. But I think you otherwise have the math pretty accurate.

That being said, that means that the numbers would naturally be a little higher than the range you're talking about from a total revenue perspective.

Got it. And then secondly, I know that on the last conference call it was one that took place right around the time that AT&T announced a co-marketing program for AirgainConnect, or you did, but there was incremental promotional activity that was taking place. And I know you and supply chain partners did things. Can you just provide, you or Jacob, provide more color on what you're hearing back from the channel and what the response has been to those programs and how we should think about the way Airgain interest can convert to sales as we go through next year?

Craig, it's Jacob here. I'll give you some of my commentary. And then Morad, who's a lot closer, can provide his color around that, as well.

With the promo, we're really seeing a major uptick on the demand. Just to give you some numbers, prior to the promo and as of now we are already seeing a 200-plus percent increase on the opportunity funnel, and then the [sell tool] has been increased severalfold. So I think that we are very positive about the results of the promo. And the promo has been extended into Q4, as we indicated, and that should build a strong momentum heading into 2022.

The other thing I would add, Craig, is the interesting thing that the promo did for us is the nature of customers that we're starting to see. Before the promo, we were looking at opportunities that were smaller in size, mostly in rural. After the promo, we started to attract customers that really we want to attract in terms of size, and these are the customers that are in the urban areas.

And so that's really been excitement, like Jacob said, a significant uptick in terms of the size of the opportunity, but also in the number of opportunities that we've seen with AirgainConnect so far.

And can you provide any further color on that with regard to, say, maybe the range of agencies that would be engaging with AirgainConnect? And to what extent do you think you need to sustain promotional activity to continue to drive interest? Or do you think that word of mouth and buzz in the first responder community once you get devices out there in the field and working really can create its own marketing and viral buzz for the product so that you don't need the promotional programs, either with T or your supply chain partners?

So the flavor of customers, it's essentially first responders, and we're talking ambulance, we're talking fire, we're talking police, which is great. So we're hitting all of the targets that we want to hit as far as first responders is concerned.

In terms of the stickiness with customers, we expect -- we've got the promotion going on right now, starting in Q3, going into Q4, and we do expect that these promotions would be in some form or another into '22 to continue to sustain the level of activity that we've seen.

Just like with any new product or disruptive product going into a market, an exciting market that's still forming, you're going to need to have those triggers that allow you to create momentum. But we expect that to continue into '22, and at some point the product will be able to sell on its own as the network with AT&T becomes fully complete. And then, like you said, the word of mouth is out there and people have had a chance to play with AirgainConnect, and then we start to see traction based on that, on those initial wins.

Got it. And lastly, before I hop back in the queue, Dave, helpful to get the color on some of the Calendar '22 parameters. The question is on gross margin. So with the consumer business snapping back and with that having a solid, not your best gross margin, but a solid gross margin, is it possible that gross margins can get back to 40% in the first quarter? Or are there things that you see, whether it be shipping costs or COGS input costs, et cetera, that would preclude that so that 40% would be something that you got back to later in the year?

It's a good question. I think it's going to be completely reliant on how big consumer comes back. If it comes back into full run rate like it was before, then we've got a shot at getting closer to 40%. But I think we've still got a little tail on the end of this shortage issue. So I'm expecting it's probably going to come in somewhere below. I haven't guided specifically because we just don't have clear enough visibility quite yet this early on to determine that. I think following Q1, going into Q2 and/or Q3, we should start getting back into that range.

The next question comes from the line of Karl Ackerman with Cowen and Company.

I wanted to first go back to some of the prepared comments about your integrated offerings for enterprise and automotive and how that might help margins next year. Could you just expand a little bit more on maybe some of the initiatives you have around integrating NimbeLink with your core business and how that might drive both cross-selling capabilities as well as margin enhancement next year?

Karl, Jacob here. So I'll talk about some of the capabilities, and then I'll leave the margin portion for Dave to address. As we indicated in the earnings script, we are seeing the acquisition of NimbeLink is really doing well, better than what we expected, right? I mean, we talk about the competency that we already have, coupled with the products of NimbeLink, it's really driving a much bigger demand than we anticipated when we did the acquisition.

So we do anticipate that capability to really enhance for next year. We actually worked with them on some newer products, and we talked about several key design wins already as a result of the acquisition that we expect to generate multi-million dollars for each one of them, life time. So we do see that momentum continue to carry on throughout 2022 and beyond as part of our IoT initiative.

And then on the gross margin front, there are a bunch of different kind of profiles to some of the products we have, even within the industrial IoT market revenue, the products that we have through the NimbeLink brand. I think I talked about this previously, but the Skywire modem, for instance, has higher gross margins than the kind of newer product category called Asset Trackers. Asset Trackers are actually doing really well, and the prospects are pretty large. That has lower gross margins, though. So if that grows faster than expected, we'll see more pressure on gross margin, but of course we'll have more on the bottom, to add to the bottom line in that case. So that's a high-class problem to have.

It's the same -- there's some similar issues in other parts of the business. On the auto aftermarket, we've actually got a manufacturing efficiency program underway that we're implementing to try to improve those margins and get those more targeted towards the kind of corporate gross margin target. And then the same thing on a couple of the other newer products.

One of the unusual situations we have right now is you have the consumer products, which are higher gross margin, down right now, at the same time where we're launching and ramping a lot of kind of lower-volume and, therefore, lower-gross margin products, but that have huge opportunity in the future and are more related to the integrated wireless systems category that we talked about.

Very clear. I appreciate that, Dave. As a follow-up, thank you for providing the order backlog for the next 2 quarters. I'm curious, how does that compare versus historical quarters? And could you just maybe describe whether those orders are noncancelable? And if not, what level of conviction you have in terms of -- or preventing those orders from being canceled? Any commentary on that would be very helpful.

I would say this is a very high dollar number. It's probably the highest we've had at this point, this early on. But to be fair, that includes the industrial IoT products, which have really taken off and continue to grow sequentially quarter-to-quarter. So we've got some decent-sized backlog for that market. And we're pretty confident based on the overall bookings that we're already seeing, which is a much higher number for the entire year of 2022.

And then in terms of the other side of the equation, we also have some confidence in some of the orders because they're usually -- most of them are related to really high-demand and high-end demand types of products. And so that's giving us a lot of confidence in the number. And if you just compare it to the current quarter, we have about $12 million backlog for this current quarter. We have $11 million for next quarter. That's a pretty good number.

The next question comes from the line of Scott Searle with ROTH Capital Partners.

Maybe just to follow up on a couple of points made earlier. Dig in on the consumer and the WiFi business. Certainly down at, I think, unprecedentedly low levels. But I'm wondering what the visibility is when you're looking into that backlog figure in the first quarter, of that $11 million. How much of that is consumer related? Because it doesn't sound like it's necessarily out of the realm of possibilities that gross margins are back at 40% level. So I'm kind of wondering what your visibility is on that front.

And also with your customers on that front, there are things that are certainly beyond your control, right? It's beyond your ability to ship to them. It's their ability to get all the components they need and get the set-top or whatever the product is out there. So what is the confidence level in terms of how that is starting to work out, as well?

And then I had a couple of follow-ups.

Great questions, Scott. I'll talk about the confidence level because I actually personally went and met with several key executives at the North American service provider side. And the feedback I got have been overall very positive. They assure me about the overall 2022 numbers, which, as I indicated, they are saying they are expecting that to go back to pre the global shortage issue. So that's really pleased to hear.

They also are very optimistic about some of the supply shortage issues that are going to start improving as early as next quarter. So they iterated to me that they feel really good about the prospect for the return, the recovery in 2022.

And I can have Dave talk more about the prospects of gross margin.

Jacob, not to put words in your mouth, sorry, but does $10 million for consumer, is that something that is doable as you look to the second half of next year?

I think I'd rather let Dave -- instead of guiding you, I think I'd rather let Dave talk to you more about as we get closer. But I think that the feedback I got is all the executives at the top-tier MSOs, service providers really are optimistic about 2022.

And I want to be prudent about what we say going into, talking about 2022 because we just don't have enough visibility yet on what that will be like. Like Jacob says, from an overall perspective, next year, service providers, and these are the primary service providers that we service as our end customers through our OEMs and ODMs, are saying pretty much back to normal. So we're pretty excited about that. So the prospects of getting up to numbers that are a lot higher are obviously there.

Could that happen in Q1? We just don't know yet. We just don't have that visibility yet. If we had a full quarter of consumer, the possibility is certainly there that we could be in the 40% range.

Gotcha. Very helpful. And if I could follow up on the NimbeLink front, it sounds like demand there is very strong. That's also a component-constrained environment. So I'm wondering of that, maybe to calibrate, of that $3 million or so that you could not ship in the quarter, I'm wondering how much of that was related to NimbeLink. And as you're looking at the growth profile into 2022, how should we be thinking about the growth rate for NimbeLink, going forward?

First of all, the $3 million in Q3, there was 0 NimbeLink in that number. That was specific to consumer. There were supply shortage issues that we had in meeting demand for the quarter. So the demand was actually higher for the industrial IoT products. But most of the issue was related to consumer.

Gotcha. And is there a number in terms of how you're seeing that pipeline build now for NimbeLink that we should be thinking about growth for next year? It certainly sounds like it's double-digit growth, but is this something that's north of 25% growth? Or what do you -- how should we be thinking about how that pipeline is shaping up?

This one, again, we're being a little on the prudent side right now and not giving guidance for 2022. We'll probably address more of that in the next earnings call.

That being said, based on the overall bookings we're already seeing for 2022, which is at the highest in the history, even preacquisition for that company, preacquisition, it's looking like it's going to be some pretty good growth. And that assumes supply shortage goes away and doesn't prevent them kind of unconstrained kind of view.

So without quantifying it, we're pretty excited about that growth.

And lastly, if I could, just going to the AirgainConnect product, it sounds like the $1,200 discount program has started to really bring the right customers into the mix. I mean, it's a huge opportunity. I think the installed base is something like 0.5 million units as it relates to first responders and with 10% of that turning over a year. Are there any numbers that you would put around it? I know you talked about the opportunity pipeline growing. But how should we be thinking about that in terms of framing it as well for 2022? Still early days, it's taken a little bit longer to get going, but now it seems like it's moving in the right direction. And I was wondering if you could as well also address any sort of the supply chain issues that might go along with AirgainConnect?

I'll try to take a couple of your questions and then have Morad or Dave to chime in.

So as far as AirgainConnect, as we indicated earlier, I think that the promotion is definitely creating the demand within the right group. As Morad mentioned earlier, we were focusing more on the rural area. Now the urban customers are now getting heavily engaged, and that's going to make up the bulk of the demand. And I don't think that we can share the specific number, other than what I shared with you that we're seeing 200%, 300% increase as far as the opportunity funnel is concerned. I think that once -- look, typically, this kind of product takes about a year to 1.5 years to really get people to really do the trial and get to really know and understanding the benefits of the product.

And the product was launched at January. It feels like a long time ago. Actually, it's still less than a year since the inception of the product. And I think that it's such a differentiable product that both AT&T and us putting a lot of high hope. And that's why I want to also thank AT&T and their management team to really work with us in being so aggressive with the promo. I think that as more and more people get to use the product, they really like the benefits, right? So I think that's going to generate a greater demand for the upcoming year and beyond.

And Morad and Dave, feel free to chime in.

The only thing -- I think you've covered it, Jacob. The only thing I would add is that, and I talked about this during the last call, Scott, in that the product that we have in the market today, that's the HPUE with AT&T, that's just the first product that we released in this AirgainConnect product initiative.

So one could expect that there will be future products that will be released to address other operators, both here in North America as well as at the worldwide stage, but also products that address different price points. So now we can see that as these products come out to the market, the market will be much more significant and much bigger for us. So that part is really exciting to me.

With the HPUE as is today, we've talked about the traction that we've seen, the growth. So we think that we're moving in the right direction, and we're looking forward to continue with that momentum into '22 and beyond.

And then, Scott, you asked about the supply chain, potential impact from the supply chain on AirgainConnect. Really, the bigger issue that we face are just the long lead times, mostly on the modem side, because remember, it's a modem and antenna in a single encasing, than anything else. But we've gotten ahead of that problem pretty well over the past year since we launched the product. So it's more about kind of ordering well ahead of time to make sure we have enough parts.

The next question comes from the line of Tim Savageaux with Northland Capital Markets.

I wanted to come back on the consumer front a bit, and a lot of this has been touched on. But with regard to -- I guess what I'm trying to get to is where demand is, you've talked about '22, but currently, as well. First half of the year, kind of doing $9 million, $10 million a quarter. And you've talked about some supply impacts in the second half, although that does imply that kind of overall demand levels have come down a bit. That seems inconsistent with kind of what you're saying and what we're hearing in terms of demand levels.

So I guess, should we be thinking about normalized demand being in that $9 million, $10 million a quarter level? Or has that stepped down a little, on the one hand? And on the other, you've clearly got some qualitative data points to suggest sort of a Q4 trough in sort of consumer issues. And to what extent does backlog or orders or anything else give you any quantitative feeling on that?

Just kind of reiterating what Jacob was saying, there are 2 -- there are 3 really major North American service providers who we provide technology essentially into the boxes for them. He talked to 2 different service providers, who both gave very similar feedback that points us to volume as expected next year. Both are going through transitions on the products themselves: the move to WiFi, WiFi 6, WiFi 6E, for instance, and gateway AP router-type devices. And same for the other service providers. So when those things shift, you get a different type of mix of product and, therefore, revenue. So using the historical numbers aren't a perfect type of comparison.

But I'm going to avoid for now to kind of giving guidance around what that quarterly number could look like because, like I said before, we're trying to be a little prudent right now with the supply shortage going on. Once we get a little closer and a little more visibility, we'll give that to you.

(Operator Instructions) Our next question is a follow-up from the line of Craig Ellis with B. Riley Securities.

The first question is just on the fourth quarter guidance. So since we already have backlog at 86% of guidance, the question is, guys, if you got the turns orders that would come in to take revenues potentially above $14 million, do you have the supply to do that? And if so, where might you have supply? Because it seems like consumer is one place where you're not expecting any upside potential. I'm just trying to get a better sense for where the supply chain gives and takes are inside the current quarter.

I think you're looking at this the right way, Craig. It's -- the consumer side, I don't expect to get any surprises from. They've been pretty clear. So we have a pretty good hold on that.

In other areas, yes, you're right. There could be upside surprises. We're not banking on those at this point given where we are in the quarter and given what our current visibility is as well as the contact that we have with our customers to get kind of those indications.

But typically, probably I would say our higher-turns products are more on the auto aftermarket fleet side. So that could happen, those kinds of things. And we do have supply there. We don't have the supply constraints on the build side, on the manufacturing side there. If you remember, we manufacture our own products in our own facility for that business.

That's helpful. The second follow-up is, it's just related to the supply chain dynamics, overall. So if I take a step back and look at all the comments around the magnitude of impact in 3Q, the magnitude of 4Q, but with some of the views on the first quarter, is the company really conveying that it's believing that it gets the worst of the supply chain issues behind it in the fourth quarter? Or do you not yet have that kind of visibility, either into your customers' ability to fill their final kits or attributes of your own supply chain?

Well, I think one thing I can say is that the -- if you look at our 3 major service provider end customers' contribution to revenue, it's historically been pretty big. And the number, if you combined the estimates that we're seeing right now internally on what that revenue would be, are de minimis. They really don't amount to much. So starting off of Q4, it's starting from a very small number relative to what it should be. So if it even comes back a little bit in Q1, you're going to see an uptick, right?

But the question was really on the supply chain, on your supply and other things. Do you feel like the constraints that you see -- or are you saying, Dave, that really the issue isn't your constraints, so much as it is a huge part of this $5 million is really just what's going on downstream with customers? I guess that's the point.

I'll take that, if I may. The supply chain issue, I think that within the industrial IoT we have better control. We feel pretty comfortable that we can managing through the supply chain shortage issue. In the aftermarket, we're actually building these things on our own. We are also looking to some other avenues to really mitigate the impact. So we feel comfortable with that, along with the AirgainConnect products.

The only thing that's left that we really still have to manage through is the consumer side. As far as our own products, we have no issue as far as getting the components to build our antenna systems on the consumer side. The things that we don't have control over are relating to what we call the JDMs, the OEMs who are building these products, building the gateways, the set-top boxes for the service providers. And what they're experiencing right now is other shortages such as substrates, such as capacitors.

And we do expect then that they should be able to manage through those issues. It sounds to me the silicons they are able now to secure. So it's the other stuff that we -- I think that they've started to express some optimism on managing that. So we do expect soon this will be behind us, and that's why we talk about this being transitory, and we do expect that will turn around soon.

Got it. And then lastly for me, given how well NimbeLink has worked out and given the growth we've seen and the performance versus initial expectations, can you just talk about the appetite for M&A here? Is it something, given all the balls you're juggling with the supply chain, that you're entertaining? And if so, can you provide any color on where M&A might be most attractive inside of the portfolio?

I can take the answer, and Jacob, you can chime in. We still track opportunities on the M&A side. We're still interested. We're not letting the transitory issues that we're facing today get in the way of that. If things open back up for us, which we fully expect, then that's always an opportunity. But like you said, from the tactical perspective, we're focused on the day-to-day management of the business most to try to get as much of out of this as we can.

At this time, this concludes our question-and-answer session. If your question was not taken, you may contact Airgain's Investor Relations, at airg@gatewayir.com.

I would now like to turn the call back over to Mr. Suen for any closing remarks.

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

Thank you for joining today's Airgain Third Quarter 2021 Earnings Call. You may now disconnect.