Cambium Networks Corp (CMBM) 2021 Q4 法說會逐字稿

Good afternoon. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks Fourth Quarter and Full Year 2021 Financial Results Conference Call. (Operator Instructions)

Mr. Peter Schuman, Senior Director, Investor and Industry Analyst Relations, you may begin your conference.

Thank you, Carmen. Welcome and thank you for joining us today for Cambium Networks fourth quarter and full year 2021 financial results conference call and welcome to all those joining by webcast. Atul Bhatnagar, our President and CEO; and Stephen Cumming, our CFO, are here for today's call. The financial results press release and CFO commentary referenced on this call are accessible on the investor page of our website and the press release has been submitted on Form 8-K with the SEC. A copy of today's prepared remarks will also be available on the 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 outlook and expected performance of the company. These statements are based on current expectations, 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, 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. 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 measures 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. Cambium Networks President and CEO, Atul Bhatnagar, will provide the key investment highlights for the fourth quarter and full year 2021; and Stephen Cumming, Cambium Networks CFO, will provide a recap of the financial results for the fourth quarter and full year 2021 and present our financial outlook for the first quarter and full year 2020 (sic) [2022]. Our prepared remarks will be followed by a Q&A session.

I'd now like to turn the call over to Atul.

Thank you, Peter. Demand and backlog remained strong due to the continued need for expansion of broadband wireless communications networks and a strong rebound in enterprise WiFi shipments. We experienced an incremental improvement with supply chain challenges and are winning more sizeable enterprise deals while taking market share during Q4 '21. For calendar year 2021, our enterprise business grew 67%, well ahead of our original forecast of 40% to 60% growth announced during our Q4 '20 financial results conference call last February.

We achieved our overall results without the full benefit of the price increases and surcharges which continue to layer into our financial results over the next few quarters. We are still facing supply chain challenges within our industry although things seemed to have bottomed and are expected to improve incrementally over the next few quarters as we have adjusted to the new normal which includes expedite fees, extended lead times, as well as increased freight expenses. Demand remained strong. We exited the fourth quarter 2021 with backlog up 7% quarter-over-quarter and 16% year-over-year.

We are at the forefront of the next wave of high-performance wireless broadband technology with our millimeter wave solutions. Our new 28 gigahertz 5G multi-gigabit fixed wireless products are expected to be released during the first quarter. We presently have 8 POCs for our 28 gigahertz cnWave going on in 4 continents. Our 60 gigahertz cnWave products are changing the way fixed wireless is viewed by customers and expands our serviceable available market bringing a standards based multi-gigabit fixed wireless solution using licensed and unlicensed spectrum to network operators serving residential, urban and enterprise markets.

Cambium's enterprise solutions bring sophisticated cost-effective multi-gigabit WiFi, wireless savvy switching, premium software solutions, and subscription services to our customers and the results have been outstanding during 2021. We had a breakthrough quarter for the WiFi business, with record revenues of $25.8 million, which grew 140% sequentially, and 136% year-over-year during Q4 '21. To put this in perspective, WiFi represented 1/3 of company revenues during the fourth quarter 2021. A previous record was 20% of revenues during the second quarter 2021.

We are winning as a result of Cambium's attractive cost of ownership, which makes our fixed wireless solutions a compelling choice for wireless infrastructure projects around the world. With increased government spending on infrastructure projects accelerating over the next few years, and our commitment to deliver cost-effective and scalable multi-gigabit solutions to local communities and distributed enterprises around the globe. Cambium will be a winner over the next several years with its cloud managed wireless fabric solution extending from few meters to over a 100 kilometers, all done wirelessly.

Turning to the results of the fourth quarter 2021. Revenues of $78.7 million came in above the outlook of $73.5 million to $77.5 million announced during the Q3 '21 earnings call. The supply constrained environment mainly affected shipments of fixed wireless products and limited further upside to our fourth quarter results. The enterprise market had a strong rebound in Q4 '21 as supply constraints began to ease. We were able to opportunistically purchase chips on the secondary market at higher prices. Non-GAAP fully diluted EPS of $0.16 was within the outlook announced during the Q3 '21 earnings call of between $0.11 and $0.17 per diluted share.

Looking at revenues across our different product lines. Our point-to-multipoint, PMP business revenues decreased 26% sequentially and 31% year-over-year, due to global supply constraints negatively impacting shipments of products. We continued to see strong momentum in network traffic, increased demand for CBRS solutions, and broadening interest in our new product introductions. We expect the component shortages to continue to improve, although gradually, during the first half of calendar year 2022.

The point-to-point PTP business improved by 10% sequentially during Q4 '21, with component shortages limiting shipments of certain products, although we had higher shipments for Federal products, while year-over-year revenues decreased 9% due to lower shipments for backhaul products compared to a very strong prior-year period. Our enterprise WiFi business had a break-through quarter with record revenues of $25.8 million. Our previous record for WiFi was $18.3 million, during Q2 '21.

We were fortunate to have improved supply conditions and pent-up demand, with WiFi increasing 140% sequentially, and higher by 136% year-over-year during Q4 '21, although supply constraints remain. This is an indication of the strong potential of the WiFi business for Cambium Networks. Demand remains very healthy for our enterprise WiFi and wireless savvy switching solutions and we continue to win larger and more diverse customers in this end market all over the world as customers adopt our next generation leading-edge WiFi 6 and 6E solutions.

For the full year 2021, revenues of $335.9 million increased 21% from 2020. The 2021 growth was primarily driven by our point-to-multipoint and enterprise WiFi solutions, which both grew double-digit percentages over the previous year. For the full year 2021, our PMP products grew 19% and enterprise WiFi grew 67%, while the point-to-point products increased 1% compared to calendar year 2020.

Looking at some notable customer wins and new product developments. In North America, we had several competitive wins aided by government funding. A service provider in Texas ripped and replaced a competitor's gear with Cambium's PMP 450m technology. A second service provider with a new focus on Fixed Wireless in rural Western New York State replaced Huawei equipment with Cambium's PMP 450 with the aid of government funding. Within our industrial customer base, a North American railroad operator selected our PTP 820 for its range, throughput performance, small footprint, and superior reliability.

Also in the transportation space, Buckeye Mountain, a leading system integrator of communications solutions to the railroad and intermodal industries, has integrated Cambium Networks' fixed wireless and outdoor WiFi technology into their rapid deploy family of connectivity solutions. As ports and rail yards deal with unprecedented supply chain issues, communications reliability is vitally important. We also see 60 gigahertz cnWave as an emerging application at rail yards and railways for communications across rail tracks to avoid trenching fiber to cross railroad tracks.

We had one of our first WiFi 6E wins with a university in Texas. Not only did they select over 1,000 Cambium access points to cover the indoor and outdoor areas of the classrooms and dorms, but they selected our ultra-high-density radios for their auditorium and public areas. They also chose our 60 gigahertz cnWave to backhaul the WiFi for their stadium areas. Cambium's first mover status for the FCC's 3.5 gigahertz CBRS spectrum continued to benefit our PMP 450 products, and our CBRS SAS service in both the U.S. and its territories.

As of today's call, we now have over 129,000 devices managed by our CBRS SAS service, an increase of over 12% since we reported last quarter and an increase of approximately 93% year-over-year. In the Europe, Middle East, and Africa region EMEA, recent strategic wins since our last call include: In France, one of the largest restaurant chains in the country, servicing 600 various quick service restaurants, selected Cambium's WiFi 6 and switching. The deal is a sizeable one, and we beat out several larger competitors.

Our WiFi performance superiority is propelling us forward in competitive wins. We had several wins in the enterprise hospitality vertical in Germany and Italy. These resorts in the northern hemisphere are upgrading their WiFi for their guest rooms and convention areas during the off-peak season. Cambium's quality, affordability, support, and relationships with partners are some of the reasons why we are winning over these customers.

In the APAC region, we had record revenues; WiFi bookings were also very robust. We received a major enterprise order for over 7,000 access points from WorldLink Nepal for outdoor WiFi. We had our first win with a large telco Managed Service Provider, MSP, in Japan for our WiFi business. The project involved connectivity for schools and hospitals and featured our WiFi 6 product. This opens the door for future opportunities as the Japanese market is dominated by larger telecom MSPs and we won this project over a larger competitor.

And in Malaysia, one of the largest oil and gas companies in the region selected Cambium's intelligent positioners with our PTP 450i for connectivity between oil rigs and oil tankers. In Caribbean and Latin America CALA region, Cambium had a solid quarter with record bookings. We had a strong enterprise quarter with an education win in Brazil for 1,600 schools in the State of Sao Paulo. Cambium's outdoor access points were selected versus several larger competitors due to our superior performance and total cost of ownership for the customer.

Brazil represents a large opportunity to expand our enterprise business and we are making tremendous progress in the country. We had a win with our 60 gigahertz and WiFi combo for a major port in the CALA region to provide coverage across a facility in days. The maritime port facility found that mobile cellular service did not perform adequately in an environment where metal containers were moved and stacked on a continual basis. After deploying Cambium fixed wireless and WiFi technology, the port experienced consistent connectivity and higher data throughput. Our partner is expanding their deployment to cover 4 additional ports and equip 2 container ships.

Turning to new product introductions since our previous quarterly update. We officially launched our first WiFi 6E products, the XE-series, which triples the available spectrum for WiFi usage, including utilization up to 1.2 gigahertz of new clean spectrum in the 6 gigahertz band. The WiFi 6E solution is a compatible solution with existing WiFi 6 networks and enables customers to upgrade to 6 gigahertz when they are ready without a price premium. We continued with extensive field trials and proof-of-concept deployments for our new 28 gigahertz cnWave 5G NR fixed wireless product with a formal launch during Q1 '22 and revenues beginning to ramp during calendar 2022.

Interest and demand from service providers is very high for this long sought-after product which uses millimeter wave for fixed wireless access in areas where it's not possible to use either fiber or traditional mobile technologies like 4G or 5G. Our 28 gigahertz cnWave solution will include a mandatory software attach with cnMaestro X, our cloud-based network management platform to support service delivery, and Cambium Care for software maintenance and upgrades. One of our key goals for 2022 is to build a strong foundation for our software and subscription services business, which delivers customer stickiness, recurring revenue, and accretive margin.

We are building a sustainable subscription business through 3 principal initiatives. First, cnMaestro Essentials provides important core services valued by all of our enterprise and fixed wireless customers; and cnMaestro X provides enhanced services, functionality, and ecosystem integrations for a fee basis. We continue to invest in cnMaestro X for enterprise and fixed wireless broadband network administration through organic development and ecosystem integration including mandatory rates on certain products.

Second, through the development and introduction of new products that are subscription first by design. During Q1 '22, we expect to launch our new Quality of Experience, QoE service. QoE provides visibility and network traffic optimization in real-time to mitigate congestion and control network traffic. This feature will be increasingly important to high-bandwidth multi-gigabit networks across wired and wireless platforms. Network operators subscribing to Cambium's QoE, can optimize the average revenue per user, ARPU and improve customer satisfaction. QoE allows network administrators to confidently offer higher service level agreements, SLAs at targeted higher ARPU subscribers. Additional products are anticipated in the second half of 2022 to accelerate annual recurring revenue.

Third, we are aligning, training, and incentivizing our internal go-to-market team, and more importantly our more than 10,000 global partners, to effectively position and sell our subscription services. Having conducted business in approximately 170 countries in 2021, it is critical that we harness the knowledge, skill, and presence, of our channel partners to advance our subscription services business.

Looking at our cnMaestro Cloud software, our end-to-end cloud-powered connectivity solution to manage the network from a single pane of glass. The cnMaestro Cloud software continued to experience strong growth. The total devices under cloud management in Q4 '21 were over 744,300, an increase of 4% from Q3 '21, and up 42% year-over-year. The expansion and growth of our subscription services will be a multi-year journey for Cambium. In the coming quarters, we will provide investors metrics to measure our progress.

Looking at the Channel. In Q4 '21, we expanded our channel presence by adding over 530 net new channel partners sequentially, and over 2,160 net new channel partners year-over-year, which represents an increase of approximately 5% sequentially and 24% year-over-year.

I will now turn the call over to Stephen for a review of our Q4 '21 financial results and Q1 '22 and full year '22 outlook.

Thanks, Atul. Cambium had revenues of $78.7 million for Q4 '21. Revenues increased by 4% quarter-over-quarter, and decreased by 5% year-over-year. The global supply constraints continued to impact shipments of our point-to-multipoint and point-to-point products, while we had better than anticipated supply of WiFi chips, enabling a record-breaking quarter for our enterprise WiFi business, which had significant pent-up demand and we opportunistically managed to obtain supply in the secondary market, increasing revenues by 140% sequentially and 136% year-over-year.

Our backlog and end demand remained strong, with backlog increasing by 7% quarter-over-quarter and 16% year-over-year. On a sequential basis for Q4 '21, revenues were higher by $2.8 million. The higher revenues were primarily the result of record demand for enterprise WiFi solutions and higher point-to-point revenues driven by our federal business and increased demand for backhaul products, offset by lower point-to-multipoint revenues due to global supply constraints negatively impacting shipments of products.

Moving to our gross margin. Non-GAAP gross margin of 44.2% decreased by 700 basis points compared to Q4 '20. The year-over-year decrease on non-GAAP gross margin was the result of lower revenues and increased component costs, as well as higher freight and distribution costs caused by expedited shipping. On a sequential basis, non-GAAP gross margin was 360 basis points lower than Q3 '21. The lower quarter-over-quarter non-GAAP gross margin was also the result of higher component costs and increased freight and distribution costs offset by a richer mix of WiFi business.

Our previously announced price increases began to help offset some of the gross margin degradation during the latter part of Q4 '21. We believe we will continue to see sequential improvements to gross margin during calendar 2022 from both the benefits of the actions we have already taken and increased scale in our business as we progress through the year. The full impact of both the price increases will be realized during the second half of 2022.

In Q4 '21 our non-GAAP gross profit dollars of $34.8 million decreased by $7.6 million compared to the prior year due to lower volumes and were lower by $1.5 million sequentially. For the full year 2021, non-GAAP gross margin declined by 210 basis points to 48.2%, compared to 50.3% for 2020 due to higher component costs and increased freight and distribution costs. Our longer-term goal remains an annual non-GAAP gross margin target of 51% to 52%.

Non-GAAP operating expenses, research and development, sales and marketing, general administrative, depreciation and amortization in Q4 '21 decreased by approximately $100,000 when compared to Q4 '20, and stood at $29.1 million or 36.9% of revenues. Year-over-year we had increased sales and marketing expenses due to higher headcount and the return to in person trade shows and customer meetings offset by lower R&D spending, while G&A remained flat. When compared to Q3 '21, non-GAAP operating expenses increased by $1.4 million during Q4 '21. Quarter-over-quarter sales and marketing increased as a result of higher headcount and return to in-person events, including WISPAPALOOZA, a significant fixed wireless trade show, partially offset by lower R&D spend due to lower engineering material costs.

For the full year 2021, non-GAAP operating expenses increased by $7.6 million and were at $114.3 million compared to $106.7 million for 2020. The higher non-GAAP operating expenses during 2021 reflect the increased headcount in sales and marketing to support higher revenues and more spend on R&D resulting from new technologies. We did a good job controlling G&A with only a modest increase in expenses. Non-GAAP operating margin for Q4 '21 was 7.3%, down from 16% during Q4 '20, and 11.4% of revenues in Q3 '21. For the full year 2021, non-GAAP operating margin was 14.1% compared to 12% for 2020, primarily reflecting higher revenues.

Adjusted EBITDA for Q4 '21 was $6.7 million or 8.6% of revenues compared to $13.9 million or 16.8% of revenues for Q4 '20 and compared to $9.6 million or 12.6% of revenues for Q3 '21. For the full year 2021 adjusted EBITDA was $51.2 million or 15.3% of revenues compared to $37.4 million or 13.4% of revenues for the full year 2020. This represents a 190 basis point improvement for full year 2021, and a 37% increase in adjusted EBITDA dollars. With the current supply constraints, we temporarily lost some operating leverage in our business, although we remain committed to driving our adjusted EBITDA to our target model of 18% to 19% of revenues.

Moving to cash flow. Cash provided by operating activities was $5.6 million for the fourth quarter of 2021. The cash from operating activities included a $7 million pre-payment to a contract manufacturer to secure incremental supply. Cash flow from operations compares to $15.1 million of net cash flow provided from operating activities for the fourth quarter 2020, and $11.8 million for the third quarter of 2021. For the full year 2021, operating cash flow was $30 million, compared to $56.9 million during calendar 2020, with the decrease largely reflecting higher receivables and pre-payments to secure inventories.

Non-GAAP net income for Q4 '21 was $4.4 million, or $0.16 per diluted share, compared to $10.7 million, or $0.38 per diluted share for Q4 '20, and non-GAAP net income of $6.7 million, or $0.23 per diluted share for Q3 '21. The lower non-GAAP net income compared to both the prior year and prior quarter's results was primarily due to the lower revenues impacting gross profit dollars, and higher component costs and shipping costs. For the full year 2021, non-GAAP net income was $35.6 million, or $1.26 per diluted share, and represented a 48% increase for the year, compared to $24.1 million, or $0.86 per diluted share in 2020.

Turning to the balance sheet. Cash totaled $59.3 million as of Q4 '21, an increase of $700,000 from Q3 '21. The sequential increase in cash primarily reflects net income partially offset by the pre-payment of $7 million for inventories. During Q4 '21 we re-financed our outstanding debt of $30.2 million at a significantly lower interest rate of approximately 2.2% per annum, compared with our prior term loan which had an interest rate of 5.3%. Additionally, we increased our total borrowing capacity by $34 million to $75 million, which will further allow us to grow our business. Since becoming a public company, we've decreased our debt and improved our capital structure and have positioned the company to support our future growth.

Net inventories of $33.8 million in Q4 '21 decreased by approximately $200,000 year-over-year, while increasing by $5 million from Q3 '21. Inventories were higher sequentially because of an increase in component inventory. While the supply chain remains an ongoing challenge, we are working to increase our inventory position during 2022 to help support the growth of our business.

In summary, the fourth quarter played out roughly as anticipated with scarcity and high component costs from some of our supply-chain partners while our price increases are now layering in with the full benefit expected by the second half 2022. Our order book remained strong, we are at the start of new product cycles, and we expect a tailwind from increased government spending in our wireless broadband and federal business during the second half of 2022. Once the supply issues are resolved, we expect to re-gain scale, improve operational efficiency, and make significant progress to achieving our long-term target operating model.

Moving to the first quarter and full year 2022 financial outlook. Considering our current visibility as of February 17, 2022, our Q1 '22 financial outlook is expected to be as follows: Revenues between $77.5 million to $81.5 million; non-GAAP gross margin between 44.4% to 45.9%; non-GAAP operating expenses between $30.2 million to $31.2 million; and non-GAAP operating income between $4.2 million to $6.2 million. Interest expense, net of approximately $700,000 and non-GAAP net income between $2.9 million to $4.4 million or net income between $0.10 to $0.15 per diluted share.

Adjusted EBITDA between $5.2 million to $7.2 million; and adjusted EBITDA margin between 6.7% to 8.8%. A non-GAAP effective tax rate of approximately 18% to 20%, and approximately 28.3 million weighted average diluted shares outstanding. Cash requirements are expected to be as follows: Paydown of debt: $700,000, cash flow interest expense: approximately $300,000; and capital expenditure of $1.6 million to $1.8 million.

Full year 2022 financial outlook is expected to be as follows: Revenues between $355 million to $365 million, increasing between approximately 5.7% to 8.7%; non-GAAP net income between $35.5 million to $39.5 million, or net income between $1.23 to $1.36 per diluted share; adjusted EBITDA margin between 14% to 16%.

I'll now turn the call back to Atul for some closing remarks.

Cambium remains very well positioned for 2022 with multiple growth drivers including our multi-gigabit wireless products such as enterprise WiFi 6 and 6E, wireless savvy switching products, 60 gigahertz cnWave, and our 28 gigahertz millimeter wave solutions for Fixed 5G, new 6 gigahertz fixed wireless solutions arriving later in 2022, a reinvigorated federal business, as well as our software-as-a-service solutions. We expect increased scale should benefit our future operating results, and we remain focused on judiciously managing our costs, while continuing to invest in innovative products to maintain our technology edge.

Finally, Cambium was named as one of the best places to work as a large company in Chicago area. The evaluation recognizes employers who have created a diverse, equitable and inclusive culture that support employees, no matter if they are in the office or at home. We also got named by Forbes as number 22 on their list of the best top 100 small cap companies for 2022. I would like to show my appreciation for our employees, partners, and customers for their resolve during these unprecedented times. This concludes our prepared remarks.

So, with that, I would like to turn the call over to Carmen, and begin the Q&A session.

(Operator Instructions) Your first question comes from Scott Searle with ROTH Capital Partners.

Congratulations, guys. Nice job on the quarter. Steve, Atul, I'm not sure if I missed it, but did you provide a number in terms of what was left on the table due to supply constraints in the fourth quarter? And then looking to the first quarter guidance, I'm wondering if you could directionally give us an idea by product line, how that looks. WiFi had an absolutely huge fourth quarter, does that continue into the first quarter, how much of recovery are you expecting on the multipoint front given a lot of products, given the supply chain issues. I was wondering, if you could talk around that? And then I had a follow-up.

Yes, Scott. So I'll take this, this is Stephen, and Atul can come in at the end, if he has anything else to add. But it's tough to accurately quantify that in terms of what was left on the table. I think the best way to answer is, if you look at our peak revenues in 2021 prior to these major supply chain disruptions, they were approximately about $93 million. So I think it's fair to say given the increased backlog and momentum that we're seeing on our product lines at the moment especially enterprise as you commented on, you could expect that we would have been beyond that, that peak had we not been supply constrained.

Certainly, our order book and the bookings activity and the backlog indicates that we can do much more than $93 million. You saw from those results, we benefited from some of the supply chain upsides in particular in enterprise in Q4. And as you saw, we're hitting annualized $100 million run rate for that business. So there's strong momentum in the business, certainly as I say, to sort of recap higher than what our previous peaks were is a fair way to assess it.

With regards to growth rates by product line for Q1, again we are living in a very dynamic environment with regards to the supply chain, but this is how we see it panning out at the moment. For the PMP side of the business for Q1, we are seeing that in, I would say, the upper 20s sequential growth rate. For PTP, coming off a very strong Q4, I would say, flattish. And WiFi, off an exceptional record Q4, we're going to be down roughly about 40%. And then there's a little bit in other, but that should give you some flavor of the breakout.

And lastly, if I could then looking to your guidance for fiscal '22, which is, I think well above where the consensus is, it certainly implies an inflection as we get past the first quarter. So I'm wondering in terms of your visibility, your comfort both on the supply and the demand side, does that start to happen in the second quarter or was that second half? And then as part of that, gross margins as well, right?

Your target being 51% plus, is it an exit rate in 2022? Is that possible I know there's some price increases going through, but supply chain coming together. A lot of different elements there to get to the numbers, though, it certainly implies, right, that, that we start to see a pickup either in second quarter or second half with improved gross margin outlook. So, I was wondering, if you could provide some more color around that?

Yes. I think you're right. We still see and nobody's got a crystal ball at the moment, but we still see the first half of the year being more challenging from a supply chain perspective and then that starts to ease in the second half. So you're going to start -- the 2 things going to be happening in Q2, specifically. One is, hopefully we're going to see a slight easing of some of these supply constraints, obviously, it's not going to spring back to full supply, but we're going to start to see that ease coupled with, again, you'll start to see layering in of some of the price increases that will help revenue and gross margin.

And then with regards to gross margin, I think we're going to see continued progression. You've already seen that in our guidance for Q1. We're up almost 100 basis points in Q1 as some of these price moves come in. And then you see a little bit more in Q2, and we'll see improving in the second half of the year. It's tough for me to comment whether we're going to get back into the 50s, because that's just too far out for us to predict at this point in time. But certainly, we've got a path to see continued progression and we're working towards that.

Yes, Scott, I'll just add one comment. The new products we have introduced, very gratifying to see the adoption of 60 gigahertz worldwide and the 28 gigahertz funnel, very, very strong funnel and the average deal size on 28 gigahertz 5G is much larger, we are seeing that dynamic. And the last point I want to make is that, that government and defense will also accelerate I think in the second half. But overall from products point of view, we feel very good how we're positioned.

Our next question comes from Samik Chatterjee with JPMorgan.

This is Joe Cardoso on for Samik. My first question is just on the revenue guide for 1Q. It sounds like this quarter, you were up 4% quarter-over-quarter, ahead of your guide. And I would assume that you'd see some sequential growth at that level or better heading into the first quarter, just given what you're talking about in terms of an improving or better demand backdrop in terms of both our -- including seeing some robust backlog.

And then on top of that you're seeing improving supply from what seems to be your suppliers as well as some of the actions that you guys took, but you're only guiding for kind of like low-single digit sequential improvement. I guess what am I not understanding there, like why aren't we seeing a stronger sequential increase going into the first quarter with -- it seems like all the -- you seem like you're benefiting from both the demand and supply easing already going into the first quarter of this year?

Yes, Joe, this is Stephen, again. I'll take it, and then I'll let Atul comment at the end. But I think the bottom line is, we're still in a very -- we and the rest of the industry are in a very challenging supply-constrained environment. And so, every day provides a new set of challenges. And you're absolutely right, we've got ahead of this. We've taken some actions. We've moved on pricing.

We've done some redesigns. And maybe you could say that our guide is a little bit conservative at this point in time, but I think we're seeing modest progression where we're actually growing sequentially, and certainly hope we can beat that number. But I think that's sort of reflective of this environment that we see at this point in time. I think we think things have stabilized. We were particularly pleased on what happened in Q4 on some additional supply for enterprise. But likewise, we were curtailed in our PMP business on supply. So it's a bit of a moving target. So we're being a little bit conservative for our Q1 guide and hopefully, we can beat it.

Yes, I think, Joe, just one point I want to add is, first half you will see gradual improvements, that's why we are being conservative. I think in the second half where we see accelerated improvements in supply chain. We work very closely with our partners, all the key chip partners. So I think you're just seeing a level of conservatism because I think we want to see couple of quarters of continued strong supply which will then give us confidence and now it's on the accelerated path.

And then my follow-up question is a little bit more simpler. And I apologies if I missed this in your prepared remarks, but it sounded like you gave us an update in terms of pricing and when you're expecting to see the full benefits of that. Can I just get an update in terms of where you guys are at with the product redesigns that you talked about last quarter?

Yes, let me take that one. We have done the first phase of our product redesign very well and actually that helped us with some of the acceleration in Q4. And yet for -- in the first half, I think there will be some parts, which will still be in paucity, so we keep looking at where we could redesign. But I think the major redesign part is over, and pretty much built into our products.

And your next question comes from Rod Hall with Goldman Sachs.

Yes. I want to come back to the WiFi and obviously a huge number there, it feels like I think you kind of commented on it in the remarks that you had a lot of supply release there. But I'm just kind of curious whether you might have changed your sourcing strategy a little bit here. I know that, Atul it's kind of a -- it's a footprint kind of model. So if you get that footprint over time that's worth something to you. So maybe it makes sense to overpay for chips shorter-term or pay more for them, so that you can supply it. I'm just curious kind of how you're thinking about that supply strategy now in the context of this market?

Sure. Let me take this. So Rod in terms of the -- particularly WiFi chip supply, we have a very strategic partner, long-range partner. We work very closely with them. And whatever price increases they announced publicly, that's all we are paying. But since we are driving lot of innovation with their chips, we get good attention. And we do see improving situation in 2022, especially in second half. As I said gradual improvements in first half, but I think pretty solid improvements, that's the indication we get on the WiFi side.

Fixed wireless broadband uses diverse set of chips. They are not just chipsets, there we have to buy distinct chips from multiple vendors. So fixed wireless broadband is a little more sophisticated that way. That's why, in general, fixed wireless broadband will kind of lag the WiFi side, because WiFi side is a complete chipset with a partner we do. So, hopefully that gives you a little more color.

And I just -- on the WiFi, again, could you just clarify the -- I mean, you're saying down 40% in Q1, and with this huge almost doubling of revenues in Q4. Is that -- was that a single deal? Or can you maybe dive into a little bit more about what drove that, because it's such a gigantic fluctuation in numbers from one quarter to the next. I'd just like to make sure that I understand the detail on that?

Yes, let me take this, and if Stephen has any suggestion he can add. I think some of the supplies for the chips came in late in Q3. So we could not turn that into Q3, whereas we were able to use those chips which came way late in Q3 into Q4. And then the Q4 chip supply was decent. So that's why, I used the word, pent-up demand a little bit there. But this does tell you, there is a strong demand and as WiFi situation keeps improving, you will see continuous improvement in our enterprise numbers especially in the second half.

And just to add to that, Rod. I think that the guidance for Q1 on WiFi, this is all supply-related. We have a record -- not just a record number in Q4, but we've got record bookings for enterprise. We enter the year with record backlog for enterprise. So this is us really navigating the supply constraints. And as Atul mentioned, we had a little bit fall in from Q3, and remember that we had a disappointing Q3 on enterprise, again, all supply related. So that helped us out in Q4. And so we're navigating now Q1 with the continuous supply constraints.

And Rod, to answer your specific question, no there was no large deal of any such thing. We have lots of mid-size, a large number of customers, but our average deal size is increasing in enterprise WiFi. We are closing in more strategic accounts, but this result doesn't include any large onetime bluebird. It does not.

So it sounds like we should do it just kind of smooth those numbers through Q3 and Q4, and we'd have a better picture of what the underlying kind of demand look like?

I think that's a good way of looking at it.

And your next question comes from George Notter with Jefferies.

I guess, I also wanted to ask about the supply chain environment. You guys are talking about a substantial improvement in the second half of the year, and you're just going through earnings season, it certainly feels like that's a bit of a non-consensus view. I think many out there expect things to remain pretty tough through all of this year. But is there any more detail you can give us on exactly why you think the supply chain is going to ease for you in the second half? Is there -- is it specific conversations, specific fabs that are coming online like what kind of detail could you give us there?

Let me take this. When you look at the WiFi part, as I said, WiFi product chipsets, and they seem to be recovering faster, #1. #2, in the WiFi, about maybe 9 months back or so, we sense that things are changing on WiFi 4 and 5 versus WiFi 6. So we shifted the design. We redesigned the product. We shifted the design to WiFi 6. And we will benefit in 2022 and onwards with good strong leadership in WiFi 6, because WiFi 6 supply is I think improving faster because WiFi 4 and 5 use older fabs. They are kind of lagging behind, there's definitely positive supply. So that's kind of WiFi.

The fixed wireless broadband. They use analog chips. They use variety of chips, DSPs, FPGAs. So I think what you will see, George, different dynamic for different companies. It depends upon what all chips you use, because not all chip vendors are improving at the same rate. They all use different fabs, some have 20, 28-nanometer or above, some have 28-nanometer or below. So in general, our read is for Cambium business, we will see a good improvement in WiFi enterprise supply in second half. In the fixed wireless broadband, it might be a little behind compared to the enterprise because of the reasons I mentioned, complexity, different chips and all that. And we will keep you guys posted. We work very closely with our partners every week. We do meetings with them, all of them. And as a result, I think we believe we have a good handle on where things are.

George, just to add to that, we mentioned in our last call about some of the redesigns that we were doing in fixed wireless to more widely available parts. So we do expect and Atul commented on this earlier, we do expect some of those initiatives to work their way through the system and help us out in the second half. I think from a sort of quantifying really what we're hearing from supply overall, certainly, we're hearing from our vendors and our suppliers that things are improving, and they seem a little bit more committal to us for the second half of the year, but it's sort of wait and see mode at this point in time.

A few minutes ago, you kind of mentioned the bookings and backlog strength on the enterprise side of the business, is that -- can you give us any comment on what you're seeing on fixed wireless access. Is that also strong in terms of bookings, backlog and so on?

Yes, bookings, backlog, I would say, strength is across pretty much all of our product lines. We entered the quarter with a higher backlog position. We are well over 100% of our guide for Q1. So, yes, I would say, strength both for bookings and backlog goes across pretty much all of our product line.

And then the last one, I was just going to ask on was channel inventory levels. Any comment on where the channel stands right now in terms of inventory?

Yes, so, as expected, we were more back-end loaded with our shipments into the channel. And so there was a lot of product that was shipped towards right at the end of the year. So for the distributor to turnaround and POS that was unlikely from a reporting perspective. So we did see a slightly higher level of channel inventory, which we expected given as I say, the linearity of shipments happening right at the end of the quarter. POS for the beginning of the year is strong. So we're expecting that to sell through nicely.

Our next question comes from Simon Leopold with Raymond James.

This is Victor Chiu in for Simon. I just wanted to follow-up really quickly on the guidance. It seems like the 1Q adjusted EBITDA margin is for 6.7% to 8.8% in 1Q, but the full year you're guiding for 14% to 16%. So understanding that you're expecting improvement gradually throughout the year, but can you just help us bridge that gap a little and what the trajectory looks like there? Because that implies 3Q, 4Q EBITDA margin used to kind of be well above the 16% to kind of pent-up your guidance for the rest of the year. So can you just kind of help us flush that out a little bit first?

Yes, I think, Victor the way you should be thinking about this, and we may have said it on previous calls, but 2022 is shaping out to be an inverse of 2021. And so, if you think of '21, we had a phenomenal first half of the year. I think we peaked at EBITDA margins to almost 20%. And so our expectation is that supply chain constraints ease. There will be a tremendous operating leverage in our model. So we'll see some nice leverage in the second half of the year, but the first half is going to be squeezed.

And I guess just can you speak some about the demand pipeline for the 28 gigahertz product by geographic region. I'm assuming most of the demand for 28 gigahertz is just driven primarily by international customers, since that bandwidth is mostly occupied by Tier 1 carriers in the U.S.?

So, Victor, let me take this one. So 28 gigahertz, as I said, we are doing about 8 POCs. And right now, I would say, Cambium Networks has a clear line of sight to maybe over 50 service providers in our funnel. And what is very gratifying to see is, so many countries are adopting 28 gigahertz 5G, #1. #2, it gives a performance as we are doing POC testing, it gives a performance of truly a gigabit-type connectivity.

So overall very pleased to see. One comment I made on my comments earlier, the average deal size on 28 gigahertz is much larger, because we are dealing with now larger Tier 2s and internationally some Tier 1s as well, particularly in EMEA. So every quarter, we'll give you a lot more flavor, but very excited about the 28 gigahertz 5G fixed and Cambium product will be one of the leadership products in that segment.

Our next question comes from Tim Savageaux with Northland Capital.

You mentioned a couple of kind of I guess government funding aided wins, I think more in the rip and replace category, which I think you're referring to a different kind of specific bucket of funds there relative to RDOF or anything else we see coming at us. And my question is, to what extent was that any type of that activity under whichever bucket you like, a contributor in '21. And as you look at your guidance and growth outlook for '22, what proportion of that growth would you say is accounted for by either the beginning ramps in RDOF, or we're starting to hear about some acceleration here or other government programs?

Tim, I'll take this one. Excellent question by the way. I think there are multiple sources of government funding. There is definitely RDOF, which everyone has been tracking which is focused on the rural side. Then there is infrastructure bill, which is focused on dissemination of the money through the local -- to the states and local governments. But there's a third bucket, which is the CAF II. CAF II is the Connect America Fund II, it was about $8 billion fund. I think about $2 billion has been spent, but it still has 5 years of life still before that fund gets completely dissipated. So many of the projects which we participate are actually CAF II and the CARES Act type of projects.

When we look at the different government funding, RDOF for us will probably start, I would guess late this year, second half this year, because we are into access, and there are still questions which need to be answered before the RDOF money really gets released completely. Some people are seeing the benefit, but Cambium probably will see the benefit, I would say, maybe late this year. Biden initiative, we anticipate late this year or next year. So for us, really at this point, some RDOF later this year, but really some of it is for us CAF II and CARES Act funding, which we are participating right now.

So it sounds like not much into (inaudible) there.

Yes, I would say late this year, maybe RDOF but not much. CAF II is the one where we are very active right now.

And to follow up, again focusing in on kind of the guidance for growth in '22. To what extent do you think price increases will contribute to that meaningfully? I know you talked about initiating one last quarter. It seems like you may have done that again in Q4, but and pretty significant in magnitude potentially. So does pricing play a significant role and what you're looking at for growth next year -- or sorry this year?

This is Stephen. I think you can assume the pricing is not terribly meaningful in the first half of the year, but once we work through the backlogs, you're going to see the impact of that happen in the second half of the year. We've actually done 2 price increases, one in Q3, and one in Q4, but obviously had a sizable amount of backlog. So we're working through that. And once we do, you're going to start to see that more meaningfully materialize in the second half of the year.

And our last question comes from Chris Howe with Barrington Research.

Yes. Just asking a follow-up on some of these questions that you've already received here. First off with the cnMaestro product, you talked about the success that you're seeing there. Still a several year timeline as we look at the maturation of software as a percent of overall business. Can you talk about the different puts and takes there as we navigate this timeline towards the positive perhaps getting beyond that initial double-digit percentage of revenue?

Let me take this. On cnMaestro, we basically had 2-pronged strategy. Strategy 1, let it get adopted by the customers. And now that we have hundreds of thousands of customers using cnMaestro we know it can scale, it as the cloud architecture, it is reliable. Where we are going now with cnMaestro X is to offer enhanced services, which are highly differentiated. Let me give an example. So we offer for example, for MSPs, managed service providers very advanced dashboards, so they can manage hundreds of customers, and also brand properly for those customers. So that's a unique dashboard we charge for that.

Second, we are offering restful advanced APIs, so some of these vertical hospitality, education can integrate very specific applications, we charge for that. And then lastly, now increased storage for not just a month, but maybe they want to see analytics over 1-year period, we charge for that. So very specifically we are offering differentiated services and we charge for that. The basic management, which is very necessary for these radios, that's part of the base product. Hopefully, that gives you a flavor, how we are layering the monetization.

And just following up on the question about government programs. We still have many that are in the pipeline like RDOF in the infrastructure bill that will happen later this year and into next year. As we take next year and kind of from an overall perspective obviously, and look at the thematics compared to this calendar year, how should we think about that in terms of the sustainability of demand especially when you consider some of these newer products, 28 and 60 will be much further down the line?

Right. I think, let me go one by one. RDOF, as I said, for us by the time we start to see money flowing for our solutions will be probably late this year, early next year, is my sense. And RDOF is going to be going for more gigabit access, things like that, so the products we are coming out with, especially in 6 gigahertz band, that'll be very well suited for that market.

Biden initiative is about a year away for us. So I think '23 onwards -- and I think one thing to keep in mind is, all of these things are multiyear plans. They won't just get disseminated in 1 year. It'll take probably 3, 4, 5 years to keep building the infrastructure, to keep providing connectivity to unconnected. So overall, my sense is '23, is probably when we start to see meaningful acceleration for Cambium and then it's a multiyear-prong from that point onwards.

And the new products we are doing, many of them are providing the foundation which will give us not just a gigabit connectivity, but also 500 megabit connectivity, 200 megabit connectivity for scalable networks at very different price points. So that's one thing Cambium will offer, different price points, different scalability and a very good economic equation.

Thank you. And now I would like to turn the call back to our Senior Director of Investor and Industry Analyst Relations, Peter Schuman for his closing statements.

Thank you, Carmen. During Q1 '22, Cambium Networks will be presenting and meeting with investors on March 8 at the JMP Securities Conference, and on March 15 at the Roth Annual Conference. In the meantime, you are always welcome to contact our Investor Relations Department at (847) 264-2188 for any questions that arise. Thank you for joining us. And this concludes today's call.

And ladies and gentlemen, this concludes today's quarterly earnings call. Thank you for your participation. And you may now disconnect.