Cambium Networks Corp (CMBM) 2024 Q1 法說會逐字稿

Good afternoon. My name is Therese, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks first-quarter 2024 financial results conference call. (Operator Instructions) Please be advised that today's conference is being recorded. Thank you, Mr. Peter Schuman, vice president, investor industry analyst and Public Relations. You may begin your conference.

Thank you, Therese. Welcome, and thank you for joining us today for Cambium Networks' first-quarter 2024 financial results conference call, and welcome to all those joining by webcast. Morgan Kurk, our CEO; and Jacob Sayer, our CFO, are here for today's call. The results press release and CFO commentary referenced on this call are accessible on the Investor page of our website, and the press release that has been submitted on a Form 8-K with the SEC. A copy of today's prepared remarks will also be available on our Investor page at the conclusion of this call.

As a reminder, today's remarks, including those made during Q&A, will contain forward-looking statements about the Company's outlook and forecasted performance. These statements are based on current conditions, forecasts, and assumptions. Risks and uncertainties could cause actual results to differ materially. Except as required by law Cambium Networks does not undertake any obligation to update or revise any forward-looking statements for any reason after the date of this presentation, whether as a result of new information, future developments or to conform these statements to actual results or make changes in Cambium's expectations or otherwise.

It is Cambium Networks' policy not to reiterate our financial outlook. We encourage listeners to review the full list of risk factors included in the Safe Harbor statement in today's financial results, press release, and our most recent form as 10-Q's and 10-K's filed with the SEC. We will also reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year-over-year comparisons reference non-GAAP numbers, except where otherwise noted. A reconciliation of non-GAAP measures to GAAP is included in the appendix to today's financial results press release, which can be found on the Investor page of our website and in today's press release announcing our results.

Turning to the agenda, Morgan will provide the key operational highlights for the first quarter 2024, and Jacob will provide a recap of the financial results for the first quarter 2024. And we'll discuss our financial outlook for the second quarter and full year 2024. Our for risk prepared remarks will also be followed by a question and answer session. I'd now like to turn the call over to Morgan.

Thank you, Peter. I want to begin by first introducing Jacob Sayer, our new CFO. For those of you who didn't see our press release, Jacob joined Cambium from Sensata Technologies, a global industrial technology company with over $4 billion in revenue where he was most recently VP of Finance and Head of Investor Relations and previously held divisional CFO roles for the various segments of Sensata.

Jacob has 15 years of experience with technology companies and another 17 years of experience in various investment banking roles. We are pleased to have him onboard to help drive operational excellence, strategy, growth, and value creation.

I would also like to thank John Becerril for stepping up as interim CFO for the past quarter. As expected, the FCC finished the process for the long-awaited approval of 6 gigabit spectrum in Q1, although later in the quarter than we had hoped, leading to lower than anticipated shipments of our point-to-multi-point PMP products. In the last call -- in the last week of the quarter, Cambium received final approval for our ePMP 4,600, 6 gigahertz access point products and standard power subscriber models with high-power subscriber modules expected to be approved in May.

Summarizing the performance of Q1 '24. Revenues for Q1 '24 were $43.2 million. The shortfall to guidance was mostly related to delays in defense orders in North America and Europe in the point-to-point PTP. business, which decreased 34% sequentially. We expect sequential increases in this portion of the business throughout 2024.

Our PMP business in North America was slower than anticipated, decreasing 14% due to the aforementioned timing of the 6 gigahertz product approval process by the FCC late in the first quarter. The FCC approval is anticipated to drive sales of Cambium's new 6 gigahertz ePMP 4600 and PMP 450 V product lines, both of which are available today.

On a positive note, enterprise revenues improved 231% sequentially as demand improved and channel inventories levels decline. Also in April, we launched our first WiFi 7 product. While revenues came in only slightly below our outlook, gross margin did not meet expectations due primarily to an increase in reserves for excess and obsolete inventory of finished goods and components.

We did see improved product mix sequentially during Q1 '24 as a result of the increased enterprise revenues and we maintained good cost controls and tightly managed our operating expenses. Sales of Cambium's products out of the distribution channel as reported by Cambium's distributors were higher for Q1 '24 than Cambium's reported revenues, and we saw corresponding declines in channel inventories.

We continue to make good progress in cleaning channel inventories, and in aggregate, the inventories are approaching healthy levels. We are diligently monitoring and managing channel inventories at shorter lead times, and increased cost of capital may drive different behaviors by distributors than in the past.

As communicated previously, we expect channel inventories to be back to normal by the end of Q2 '24, which will result in sales in and sales out approaching equilibrium. This should drive incremental improvements of sales into the channel and therefore an incremental improvement to revenues.

Looking at some customer wins that are key to our future success. In the US, our enterprise business had a sizable win with the New Orleans Convention Center of project, which is expected to ship throughout the year. This win includes over $1 million of enterprise here and was the result of Cambium's ability to deliver industry-leading performance in unique high density dynamic point. Entire upgraded system will run on our cnMaestro X single-pane-of-glass management system.

The flexibility in dynamic reconfiguration is critical for the center and demonstrates the versatility of Cambium solutions. In Australia, Glencore one of the largest mining companies in the world, selected Cambium's ONE Network to deploy and manage Cambium's fiber and WiFi upgrade for a large mining cap. This deployment will consist of a mix of over 350 indoor and outdoor WiFi access points and Cambium's fiber ONTs, all managed by cnMaestro.

The combination of indoor and outdoor WiFi and time-based interconnectivity from a single vendor results and a tightly integrated cost effective and efficient network. In the PMP space, we had a significant win with a wireless service provider in Kenya, Safaricom, for a three year deal to roll out residential and business connectivity using our ePMP product line, Cambium ONE based on technical strength, ease of deployment, and the cost effectiveness of the solution.

Now turning to upcoming product introductions since our previous quarterly update. In March, we announced our first WiFi 7 access point with the launch of our new X7-35X, tri-radio, tri-band, two-plus-two-plus-two units. WiFi 7 is another step forward in wireless connectivity, offering data speeds reaching up to 9.2 gigabits, ensuring lightning fast downloads, seamless streaming, and lag-free experiences. For pushing the boundaries of performance, WiFi 7 remains backwards compatible with all previous WiFi standards. WiFi 7 works with Cambium Networks cloud-managed or on-prem cnMaestro management system for secure end-to-end network control.

Finally, total devices under cnMaestro cloud management in Q1 '24 increased approximately 4% from Q4 '23 and were up 15% year over year. I will now turn the call over to Jacob for a review of our Q1 '24 financial results and Q2 '24 and full year 2024 financial outlook.

Thank you, Mark. While the Q1 '24 results are below expectations, we do see the business beginning to improve and can now look forward to growth. The Q1 '24, revenue shortfall was isolated to delays in government orders in the P2P business and the timing of approval for the 6gigahertz PMP solutions later in the quarter than expected, the impact of which we expect to be behind us shortly.

Q1 '24 results included additional inventory charges and additional supplier commitments, which impacted gross margins by approximately $7 million and reflect the current state of the markets and product demand. Without these charges, gross margins would have been approximately 39.2%, which would have been closer to the original forecast at the start of the quarter but only slightly lowered the impact of mix within defense products and PTP. We continue to work hard on managing our operating costs to align with the current forecasts for 2024 and are focusing resources on those products and projects that are most critical for Cambium's future success.

Turning to the quarter, Cambium reported revenues of $42.3 million for Q1 '24. Revenues increased by 5% or $2.1 million sequentially. The majority of the increase in revenues was the result of improved order volume for our enterprise business in both North America and Europe, albeit from a low base. While PMP revenues decreased 14% quarter over quarter due to delayed timing approval for 6 gigahertz products in the United States and territories, this was partially offset by some recovery for the PMP business in Europe during Q1 '24.

PTP defense revenues were lower due to delays for defense orders in Europe and North America after a strong year end results. By region, Europe increased 146% sequentially as a result of recovery in the enterprise business, while other regions decreased with North America lower by 7% due to timing of defense orders impacting the PTP business and delays in the approval for 6 gigahertz products, hurting the PMP business, while CALA dropped by 8% and Asia decreased by 10% sequentially.

Moving on to our gross margins. Our non-GAAP gross margin for Q1 '24 was 22.7% compared to a negative 25.1% in Q4 '23. A higher quarter over quarter non-gaap gross margin was primarily the result of lower rebates and higher enterprise revenues and lower freight costs, although we were once again impacted by the need to increase inventory reserves and had a lower mix of higher-margin defense products.

In Q1 '24, our non-GAAP gross profit of $9.6 million was higher by $19.7 million sequentially due to lower excess inventory charges, higher enterprise revenues, and lower rebates. Non-GAAP total operating expenses, including depreciation and amortization in Q1 '24 stood at $26.4 million or 62.3% of revenues.

When compared to Q4 '23, non-GAAP operating expenses were approximately flat during Q1 '24, the quarter-over-quarter operating expenses and higher G&A due to increased professional services and higher bad debt expense, offset by lower payroll and less spending on R&D materials.

Our non-GAAP net loss for Q1 '24 was $12.7 million or a loss of $0.46 per diluted share that was below our outlook for the quarter. And compared to a non-GAAP net loss of $28.2 million or a loss of $1.1 per diluted share during Q4 ;23. Adjusted EBITDA for Q1 '24 was a loss of $15.5 million compared to a loss of $35.2 million in Q4 '23.

Moving to cash flow, cash used in operating activities was $15.6 million for Q1 '24 and compares to cash used in operating activities of $6.2 million for Q4 '23. During Q1 '24, we continued to execute on converting receivables into cash and managing working capital closely offset by the net loss.

Turning to the balance sheet, cash totaled $38.7 million as of March 31, 2024, an increase of $20 million from Q4 '23. The sequential increase in cash primarily reflects the draw of $40 million on the company's $45 million revolver, partially offset by the net loss, material purchases to suppliers, and capital expenditures.

As we look forward, we are focused on conserving cash by minimizing operating expenses, lowering capital expenditures, and continuing to convert inventory to revenues. We expect to be EBITDA positive during the second half of calendar 2024 and have reduced our breakeven profitability to below $60 million quarterly revenue run rate.

Net revenues -- net inventories of $55.6 million in Q1 '24, decreased by $11.3 million from Q4 '23. The inventories were lower sequentially, driven by both consumption and due to higher reserves. As a reminder, our goal for 2024 is to reduce our inventories balance to closer to $40 million.

In summary, first-quarter revenues turned out slightly lower than anticipated because of delays in timing of the shipments as well as the FCC granting approval of 6 gigahertz spectrum later in the quarter than we had hoped. Ambient expects to soon receive our final approval for 6 gigahertz PMP high-power products.

On a positive note we had higher enterprise revenue as market conditions are starting to improve. Our gross margin improved sequentially as a result of lower rebates, higher enterprise revenues and a very competitive business environment. We continue to see improvements in channel inventories and remain vigilant about managing costs, which should benefit future operating performance.

During Q1 '24, we saw an improving start for enterprise business as the channel inventories continued to decline. As we regain scale for enterprise, we expect to improve our operational efficiency each quarter this year.

For the PMP business, we now have approval by the FCC of the 6 gigahertz spectrum, which will help that business. For the P2P business, we are pursuing several large defense opportunities, and we continue to work to consolidate a smaller number of product to a smaller number of product platforms for our overall business for the next few years.

Moving to the second-quarter and full-year 2024 financial outlook. Cambium Networks' financial outlook does not include the potential impact of any possible future financial transactions, acquisitions, pending legal matters or other transactions.

Considering our current visibility, our Q2 '24 financial outlook is as follows. Revenues between $43 million to $48 million, representing growth of approximately 2% to 13% sequentially. Non-GAAP gross margins of between 40% to 42%.

Non-GAAP operating expenses, including D&A between $24.6 million to $25.6 million, leading to a non-GAAP operating loss between $5.4 million to $7.4 million. Interest expense net is expected to be approximately $1.8 million and non-GAAP net loss of between $5.4 million to $6.9 million or net loss per diluted share between $0.19 and $0.24.

Adjusted EBITDA is expected to be between negative $4.2 million to negative $6.2 million and adjusted EBITDA margin between negative 8.8% to negative 14.4% . We expect a non-GAAP tax benefit of approximately 25%, and we expect to have about $28 million weighted average diluted shares outstanding.

Cash requirements are expected to be as follows in Q2. First, the paydown of debt of $700,000, cash interest of approximately $1.7 million, and capital expenditures between $1.5 million and $2.5 million.

Our full year 2024 financial outlook is expected to be as follows. Revenues between $205 million to $225 million, representing a decrease of 7% to up 2%. Non-GAAP gross margins are approximately 40%. Non-GAAP net loss between $11.6 million to a net loss of $18 million or a loss of between $0.41 to $0.64 per diluted share.

Adjusted EBITDA margin between negative 2.2% to negative 6.8%. And for the year, capital expenditures are expected to be approximately $9 million to $11 million. I'll now turn the call back to Morgan for some closing remarks.

We continue to work with our channel and end customers to manage inventory and improve efficiency while maintaining service levels. This has and continues to impact revenue and we believe we started this work earlier than others and expect equilibrium to occur by the end of Q2.

We continue to focus on our internal processes to ensure that we don't overcorrect and fail to meet our customers' demand while minimizing inventory throughout the supply chain. Our PMP business is well positioned to grow with the newly released 6 gigahertz spectrum as our risk customers compete with other broadband solutions on speed and reliability.

Our platforming activities continue to progress with both the architectural decisions and beginnings of development of both hardware and software. While the benefits from these initiatives will be in future is one of the most important actions we can take impact our long term prospects, driving faster initial development, decreasing feature implementation time, and lowering costs. After my initial review of the business last fall over the past three months, I've been working with our go-to-market teams and our customers to make sure where we are going is aligned with where our customers need to go in our highly competitive market.

I'm pleased with the level of access Cambium has with certain customers and the interest our channel has in driving the business forward. I intend to continue to be directly involved with our sales force and customer base to ensure that the direction we're going and the decisions we're making are fully aligned.

While there continues to be challenges both internally and throughout the industry, I'm encouraged to how we meet these challenges, solve problems efficiently and effectively and help move the industry forward, I'd like to share my continued appreciation for the efforts and collaboration of our employees, partners, customers as well as the investor support. And with that, I'd like to turn the call over to Therese and begin the Q&A session.

(Operator Instructions) Scott Searle, ROTH MKM.

Good afternoon. Thanks, for taking my questions. Jacob, congratulations and welcome aboard.

Thank you very much.

But maybe just a quick clarification. I'm not sure if I heard it, but but Morgan in the past, I think you've talked about enterprise WiFi shelter. I'm wondering if there was a number there. Also wanted to clarify the gross margin impact on reserves. I think it was about $7 million. I wanted to clarify that.

And then looking into the guidance for the full 2024, it implies a pretty significant uplift in the second half of this year, I think north of $58 million a quarter. What gives you the comfort and visibility at the current time? And then I had a quick follow-up.

Yes. So I'll start off, Scott, with the question on enterprise sell through. It maintains a healthy level, very similar. I think we've said in the past in the $15 million to $20 million range. The range we're giving you and it hasn't changed much this quarter at all. And we're working to start to drive that number up. And I will let Jacob talk specifically to your other portions of question.

Yes, you heard correct, Scott. In terms of the gross profit impact on the E&O reserves, that was $7 million in the quarter. And then lastly, to your question, with regard to the uplift in the second half of the year. You're absolutely right. We are we are expecting an uplift in revenue in the second half of the year. That primarily comes from the inventory contraction in the sales channel with distributors falling away.

And that's been a pretty significant headwind for the company as inventory levels have come down over the last four quarters. And we expect that that process will come to an end here near the end of the second quarter of this year.

Okay. Thank you. Very helpful. And if I could, Morgan, from a high level, bead is starting to get into the grand phase still early on significant number of dollars that are available there, right, in terms of the $42.5 million. But wireless has been, I guess, a second candidate technology for that, right?

It's a fiber first mantra in effect, but there are initiatives to trying to push wireless as a viable medium within the B deployments, particularly given that this is the last time effort to connect the unconnected and that wireless is a much more cost effective medium to be able to do that. So I'm wondering what your early thoughts are in terms of wireless and point-to-multipoint participation in the BD program and specifically maybe coupling 6 gigahertz into that conversation today?

So a couple of things. So our funding, which has been out for a while requires a set level of speed, but does not require a licensed spectrum. So 60 gigahertz is absolutely applicable toward this, and our customers are eagerly starting to deploy and what 6 gigabits for that in the case of the need to have some additional restrictions be can only be but on on licensed spectrum. So that has to be done in the 3.5 gigahertz range. And while we think there will be some uplift from this. It is probably not so much '24 event, probably more like a '25 event.

Great. Thanks. I'll get back in the queue. Thank you.

Simon Leopold, Raymond James. Your line is open.

Hi, guys. This is Victor Chiu in for Simon. You noted lower than expected six gigahertz shipments this quarter because of delayed FCC approval, does that shortfall kind of mostly roll into Q2 or is that recover kind of through the balance of the year maybe or how do we think about that?

So there are still I'll call it learnings to go on and 6 gigahertz. So I don't think that just rolls into Q2, it's probably more of rolling throughout the year. So 60 gigahertz is different for our customers and five gigahertz because of AFC. because they have to be granted various pieces of spectrum and how they can use it varies based on what what current users of the band are doing.

And so I think we're going to see some learnings and this will take sort of three to six months for people to really get a better understanding of how they do mass scale deployments. And then we'll see a significant takeoff on that I'd probably model it to take on throughout the year.

Okay. So even without the delay, the six gigahertz ramp was a little a little slower than kind of what you're right than we had originally anticipated.

And I think that's a good way of putting it.

Okay. That's helpful. And then just a quick follow-up. Can you give us an update on progress with the adoption of the 60 gigabyte product and how we can how we should think about momentum around that?

Sure. On 60 gigahertz, yes, yes, though, we're actually finding success in this product line with some I call it enterprise customers more than we had thought some were using it for core for a variety of projects for what I'll call it our original intended base, but we're finding that are out there.

Other markets so on, I'm hopeful with that. But it's it's a slow build. I would say it's not going to be a step function, it's going to be a continued drive and increase. And the reason for this is economics. And there are specific areas where this makes a lot of sense where you have to transport a lot of data for a relatively short distance and you don't want to be have any chance really of interference. And so it's not like what I expect to happen in 60 gigahertz where after achieving period you see a big uplift, this will just be a it's a slow growth.

That's helpful. Thank you.

George Notter, Jefferies LLC.

Hey, guys. Thanks very much. And I guess I was curious about the gross margin structure of the business I think I heard you say 42% as a target for the year. But if you just sort of step back and think about where the gross margins would naturally land. Obviously in Q1 you had some E&O expense. You mentioned that obviously you're going to have some more scale relative to the run rates right now as the inventory comes off the business rebound, like what do you think a good sort of run rate gross margin would be as the business normalizes?

Could probably George and I are in around the 40% range for the business. Obviously, there's a range of gross margins by product family with defense being at that at the higher end of those. But yes, 40% overall is probably good and good modeling.

Are you referring to for this year? Are you referring to a long term?

Long term?

Okay. So I think we have historically sort of modeled in kind of 50% was our target, and we're hitting a few points below that. And I think we're going to it's going to be a bit before that occurs with the excess inventory and channel. The enterprise margins are suppressed us. Everybody is competing to get inventory out of channel and that probably won't recover tremendously until WiFi 7 becomes the dominant term and so if to long-term margins, we should be able to move back up as we get scale. But as Jacob set for this year, that's what we're looking at.

Do you think that sort of 45% gross margin of 43% or 47%, like in any kind of thought on what that might look like.

I think that the long term it's certainly my goal is to have a north of 45% of them. And I think with with our government business, which is higher than normal. And with our focus on enterprise, which is higher than average, I believe those are cheap.

Okay. And then I think you mentioned a bad debt expense going through G&A, was that in the pro forma financials or excluded? I guess I'm trying to figure out how big that and if it's in the numbers I'm looking at.

$600,000 and in the non-GAAP numbers, we haven't excluded it.

Thank you very much.

(Operator Instructions) I'm showing no further questions at this time. So I will turn the call back over to Peter Schuman, vice president, investor industry and now analyst and public relations for the closing statements.

Thank you, Therese. Through Q2 '24, Cambium Networks will be presenting and meeting with investors virtually on Thursday, May 16th, 2024 at the Needham Technology Media and Consumer Conference and on Tuesday, June 25, at the Northland Growth Conference. In the meantime, you're always welcome to contact our Investor Relations department at eight four seven two six four two one eight eight with any questions that arise. Thank you for joining us. And this concludes today's call.

Thank you. Everyone. You may now disconnect from the phone call.