Cambium Networks Corp (CMBM) 2022 Q1 法說會逐字稿

Good afternoon. My name is Delfin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks First Quarter 2022 Financial Results Conference Call. (Operator Instructions) Thank you.

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

Thank you, Delfin. Welcome, and thank you for joining us today for Cambium Networks First Quarter 2022 Financial Results Conference Call, and welcome to all those joining by webcast.

Atul Bhatnagar, our President and CEO; and Andrew Bronstein, 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 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 expected performance. 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 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 first quarter 2022; and Andrew Bronstein, Cambium Networks' CFO, will provide a recap of the financial results for the first quarter 2022 and present our financial outlook for the second quarter and full year 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. We faced supply chain challenges within our industry, which impacted our first quarter results because of 2 unexpected events. First, the Chinese government COVID lockdown in Shenzhen impacted manufacturing during the middle of March. And second, during the last 2 weeks of the quarter, a lockdown in Shanghai closed our distribution and warehousing facility. Although our contract manufacturers have a global footprint, certain products and components are manufactured in China and cannot rapidly be relocated to facilities in different geos.

Despite this setback, we are confident that once the supply chain recovers, we expect improved financial performance. We anticipate some recovery in revenues during the second quarter 2022, given our strong backlog and increased pricing actions now fully in place. We exited the first quarter 2022 with backlog up 7% quarter-over-quarter and higher by 10% year-over-year. Cambium's cost-effective multi-gigabit Wi-Fi and ePMP product lines were most affected by the lockdowns in China. Despite the lockdowns, we saw strong demand for our enterprise solutions and exited Q1 '22 with record backlog for Wi-Fi.

During late Q1 '22, we began taking orders for our new quality of experience, QoE, subscription service, which provides visibility and network traffic optimization in real time to mitigate congestion and control network traffic. One customer, an Italian service provider, noticed immediate improvements including a clear reduction in support center calls and actual reports of improved broadband performance.

We are at the forefront of the next wave of high-performance wireless broadband technology, including our millimeter wave solutions. Our new 28 gigahertz 5G multi-gigabit fixed wireless products shipped for revenue in limited quantities during the first quarter. We presently have 8 POCs for our 28 gigahertz cnWave going on in 4 continents with 3 additional customers planning POCs pending receipt of equipment shipped in March. As we previously mentioned during our last earnings call, we expect larger deal sizes with 28 gigahertz cnWave. Cambium's attractive cost of ownership and cloud-managed wireless fabric solutions make our fixed wireless solutions a compelling choice for wireless infrastructure projects around the world.

Turning to the results of first quarter 2022. Revenues of $61.9 million came in below the outlook of $77.5 million to $81.5 million announced during Q4 '21 earnings call. The supply-constrained environment affected shipments of both fixed wireless and Wi-Fi products during Q1 '22. The Wi-Fi market and ePMP product lines were most affected by Chinese government lockdowns in Shenzhen and Shanghai, although demand remains very strong for our Wi-Fi, wireless heavy switching, and ePMP products.

Looking at revenues across our different product lines. Our Point-to-Multi-Point, PMP business, revenues decreased 16% sequentially and decreased 46% year-over-year due to global supply and distribution constraints negatively impacting shipments of ePMP products and slower demand from North American service providers. We are seeing the component shortages continue to improve, although gradually, and expect the lockdowns in China to loosen during Q2 '22.

The Point-to-Point, PTP business, decreased 4% sequentially during Q1 '22 with component shortages limiting shipments of certain products, while year-over-year revenues decreased 16% due to lower shipments for backhaul products compared to a very strong prior year period. Our enterprise Wi-Fi business had revenues of $15.5 million, with revenues decreasing 40% sequentially due to supply and distribution disruption, although higher by 28% year-over-year during Q1 '22.

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 across the world as customers adopt our next-generation leading-edge Wi-Fi 6 and 6E solutions.

Looking at some notable customer wins and new product developments. In North America, in Scottsdale, Arizona, a leading broadband service provider, Desert iNET, is extending fiber networks with Cambium's 60-gigahertz cnWave fixed wireless broadband solution to deliver multi-gigabit access to residential subscribers with faster time to service than trenching fiber at a very attractive cost of ownership. Cambium's wireless fabric makes it easy to plan, deploy and manage affordable gigabit speeds to the home and enterprise.

An assisted living facility in New Jersey selected Cambium's Wi-Fi 6 access points, cnMatrix wireless heavy switches, and cnMaestro X cloud management to enable further efficiencies from digital transformation initiatives while minimizing total cost of ownership for the assisted living facility. Residents wanted the ability to connect with friends and family, and assisted living care operations managers needed reliable Wi-Fi at reasonable costs.

In our Defense business, we landed the first portion of a 5-year contract from the U.S. Federal Government for Cambium's PTP 700 technology to upgrade global military-based security with high-capacity fixed wireless broadband communications infrastructure. The first phase of this program is mid-single-digit millions for Cambium with a potential to be tens of millions of dollars.

In the Europe, Middle East and Africa region, EMEA, we continue to have healthy demand for our Enterprise business and continue to win more and larger projects, although revenues were down due to COVID supply constraints from China. Recent strategic wins since our last call include, in Northern Italy, we displaced a Tier 1 enterprise networking supplier to deploy over 1,000 Wi-Fi 6 access points, wireless savvy switching and cnMaestro X cloud management across 20 schools in the region. We won because of our wireless fabric end-to-end solution and Cambium's superior customer support.

In South Africa, we had a fixed wireless win with Ikeja Wireless for our ePMP 3000 for residential broadband access across the country. We won as a result of strong performance versus the incumbent supplier. In APAC region, we received orders from 2 different service providers on both sides of the Australian continent for our first-generation 28 gigahertz cnWave. In Korea, we had a Wi-Fi 6E win with our newly released high-density four radio access points, the XE3-4 for Sangji University. And in Caribbean and Latin America, CALA region, we had a win with a government service provider in Brazil, PRODEPA, in the state of Pará. They selected our PMP 450 to provide Internet access and communications to government buildings and schools. Cambium was selected for our superior performance and lower total cost of ownership for the customer.

Turning to the new product introductions since our previous quarterly update. Before our next earnings call, we expect to announce the next expansion of our Wi-Fi 6 portfolio, including models specifically designed for the hospitality market and value-conscious buyers with availability during the second half of calendar 2022. At the higher end of the market, Cambium's new five-radio high-density Wi-Fi 6E access point announced in January will begin shipping this quarter. This solution targets high-density indoor applications such as auditoriums, meeting rooms, classrooms, libraries and public venues.

Cambium has the industry's first five-radio Wi-Fi 6E solution which is much more efficient and cost-effective for high-density use cases. Our expertise and history with high-density Wi-Fi enable us to deliver a highly differentiated Wi-Fi 6E solution at a lower total cost of ownership than the competition. Cambium continues to build a strong foundation for our software and subscription services business, which delivers customer stickiness, recurring revenue and accretive margin. Cambium has begun trialing in North America a new Network-as-a-Service, NaaS solution. We are offering a package of cnMaestro X and Cambium Care combined with our Wi-Fi hardware made available as a subscription service. The subscription packages are billed monthly and are available in 3- and 5-year terms. Our initial POCs are performing well, and we are seeing strong interest in our commercial offering in Q2 '22.

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 continue to experience strong user growth. Total devices under cloud management in Q1 '22 were over 791,000, an increase of 6% from Q4 '21 and up 37% year-over-year.

Turning to the channel. In Q1 '22, we expanded our channel presence by adding 70 net new channel partners sequentially and approximately 1,670 net new channel partners year-over-year, which represents an increase of approximately 1% sequentially and 17% year-over-year. During the first quarter, Cambium showcased our wireless fabric at the WISPAMERICA Trade Show in New Orleans. We received excellent customer feedback on our 60 gigahertz cnWave, 28 gigahertz cnWave, enterprise Wi-Fi 6 portfolio and wireless savvy switching. Our upcoming 6 gigahertz ePMP solution is also generating lots of excitement for gigabit connectivity, particularly with North American service providers. Our technology and platforms, including the new software capabilities like QoE and cnHeat, were also well received by customers.

I will now turn the call over to Andrew for a review of our Q1 '22 financial results and Q2 '22 outlook.

Thanks, Atul, and hello, everyone. Cambium had revenues of $61.9 million for Q1 '22. Revenues decreased by 21% quarter-over-quarter and by 30% year-over-year. The global supply constraints combined with the Chinese lockdowns impacted shipments of our products, which continue to have significant pent-up demand. Our backlog and end demand remained strong with backlog increasing by 7% quarter-over-quarter and 10% year-over-year. On a sequential basis for Q1 '22, revenues were lower by $16.8 million. The weaker revenues were primarily the result of the lower enterprise Wi-Fi solutions and Point-to-Multi-Point revenues due to global supply constraints negatively impacting the manufacture and shipments of our products.

Moving to our gross margin. Non-GAAP gross margin of 47.8% decreased by 230 basis points compared to Q1 '21. The year-over-year decline in our 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 positive note, on a sequential basis, our non-GAAP gross margin improved by 360 basis points compared to Q4 '21. The higher quarter-over-quarter non-GAAP gross margin was the result of previously announced price increases and mix as we shift a higher proportion of WiFi and switching relative to fixed wireless products.

We believe we will continue to see sequential improvements to gross margin during 2022 from both the benefits of the actions we've already taken and increased scale in our business as we progress through the full year. The full impact of the price increases will be realized during the second half of 2022.

In Q1 '22, our non-GAAP gross profit dollars of $29.6 million decreased by $14.7 million compared to the prior year and were lower by $5.3 million sequentially, both due to lower volumes. Our longer-term goal remains an annual non-GAAP gross margin target of 51% to 52%.

Non-GAAP operating expenses comprised of research and development, sales and marketing, general and administrative and depreciation and amortization in Q1 '22 decreased by approximately $200,000 when compared to Q1 '21 and stood at $28.6 million or 46.2% of revenues. Given the lower revenues, non-GAAP operating expenses were relatively flat compared to the prior year period.

When compared to Q4 '21, our non-GAAP operating expenses decreased by approximately $500,000 and during Q1 '22. Quarter-over-quarter sales and marketing decreased primarily because of lower variable compensation for salespeople due to the lower revenues, while R&D and G&A had modest increases due to higher wages and professional services. Non-GAAP operating margin for Q1 '22 was 1.6%, down from 17.5% during Q1 '21 and 7.3% of revenues in Q4 '21.

Non-GAAP net income for Q1 '22 was $300,000 or $0.01 per diluted share compared to $11.7 million or $0.41 per diluted share for Q1 '21 and non-GAAP net income of $4.4 million or $0.16 per diluted share for Q4 '21. The lower non-GAAP net income compared to both the prior year period and prior quarter's results was primarily due to the lower revenues impacting our gross profit dollars.

Adjusted EBITDA for Q1 '22 was $1.9 million or 3.1% of revenues compared to $16.5 million or 18.6% of revenues for Q1 '21 and compared to $6.7 million or 8.6% of revenues for Q4 '21. With the current supply constraints, combined with the China lockdowns impacting shipments, we temporarily lost some of our operating leverage in our business, although we remain committed to driving our adjusted EBITDA to our target model of 18% to 19% of revenues.

Now moving to cash flow. Cash used in operating activities was $19.2 million for Q1 '22. The cash used in operating activities included a $12.1 million decrease in accounts payable, principally due to the timing of inventory payments and annual variable compensation of about $10.2 million related to incentive compensation earned during calendar 2021 and distributed in the first quarter of '22. Q1 '22 cash used in operations compares to $7.6 million of net cash used in operating activities for the first quarter of 2021 and $5.6 million of net cash provided by operating activities for Q4 of '21.

Now turning to our balance sheet. Our cash totaled $38.4 million as of the end of Q1 '22, a decrease of $20.9 million from Q4 '21. As previously mentioned, the sequential decrease in cash primarily reflects a $12.1 million decrease in accounts payable principally due to the timing of inventory payments and a payment for annual variable compensation of the $10.2 million that was just recently mentioned. Net inventories of $40.2 million in Q1 '22 increased by approximately $8.8 million year-over-year, while increasing by $6.4 million from Q4 '21.

Inventories were higher sequentially because of an increase in finished goods due to the inability to ship products from the Shanghai warehouse and distribution center during the last 2 weeks of Q1 '22. While the supply chain remains an ongoing challenge, we are working to selectively increase our inventory positions during 2022. As of right now, the manufacturing facilities in Shenzhen are open and operating. Factories are now open for 95% of our products. Components are in decent supply, and we expect improvement during the balance of the year. We are moving some products from our manufacturing and distribution centers in China to our other distribution centers in North America and Europe until Shanghai is fully operational.

In terms of logistics, we are shipping by air freight as much as we have to compensate for the Shanghai COVID lockdown. Once Shanghai is fully operational, we expect it to take an additional 1 to 2 weeks to completely normalize our distribution activities.

In summary, the quarter did not play out as expected given the COVID lockdowns in China on top of an already challenging supply chain environment. We strive to become more predictable. Our price increases are now layering in with the benefit that we expect to happen in full by the second half of 2022. Our backlog remains strong, and we are at the start of new product cycles. Once the supply issues are resolved, we expect to regain scale, improve operational efficiency and make significant progress towards achieving our long-term target operating model.

Now moving to the second quarter and full year 2022 financial outlook. Considering our current visibility as of today, our Q2 '22 financial outlook is expected to be as follows. We expect revenues to be between $65 million and $73 million, non-GAAP gross margin between 47.5% and 48.5%, non-GAAP operating expenses of between $29.7 million to $30.7 million, and non-GAAP operating income between $1.2 million and $4.7 million, interest expense net of approximately $700,000, and non-GAAP net income to be between $400,000 and $3.2 million, yielding net income per share of $0.01 to $0.11 per fully diluted share.

Adjusted EBITDA, we expect to be between $2.2 million and $5.8 million, and adjusted EBITDA margin between 3.4% and 7.9%. And we expect a non-GAAP effective income tax rate of approximately 18% to 20%, and 28.7 million weighted average diluted shares outstanding. Our cash requirements are expected to be as follows. We expect to pay down debt of $1.3 million; cash flow interest expense of approximately $300,000. We expect CapEx to be between $1.4 million and $1.6 million.

Next, turning to the full year 2022 financial outlook. We expect revenues to be between $280 million to $300 million, decreasing approximately 10.7% to 16.6%. We expect non-GAAP net income to be $8.1 million to $20.1 million or $0.28 to $0.70 per diluted share, and adjusted EBITDA margin of 6% to 10.8%.

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

Cambium's growth drivers remain intact. As we said on the last quarter's earnings call, we reiterate increasing chip supply during the second half of this year and our growth strategy remains solid. We expect to see above-market returns from our investments in multi-gigabit wireless products such as enterprise Wi-Fi 6 and 6E, wireless savvy switching products, 60 gigahertz cnWave, our new 28 gigahertz millimeter wave solutions for fixed 5G, the new 6 gigahertz fixed wireless solutions arriving later in 2022, a reinvigorated federal business as well as our software-as-a-service solutions.

The integrated wireless fabric from Cambium brings together ease of deployment, scalability of networks and lower total cost of ownership as the world deploys next-generation, high-performance wireless broadband. We remain focused on judiciously managing our costs, continuing to invest in innovative products to maintain our technology edge and expect increased scale should benefit our future operating results.

I would like to show my appreciation for our employees, partners and customers during these unprecedented times. This concludes our prepared remarks. So with that, I would like to turn the call over to Delfin for beginning Q&A session.

Thank you. Once again, that's our CEO and President, Mr. Atul Bhatnagar. (Operator Instructions)

Our first question is with Simon Leopold of Raymond James.

I guess I was a little bit surprised that the gross margin was actually better than I expected, several hundred basis points better and sequential improvement. And so I'm just trying to make sure I get a grounding in terms of how to think about modeling. And so I'm looking for maybe a little bit color in terms of if you could rank order, your segments in terms of kind of the gross margin contributions and the supply chain impact, just to help us understand what the trends are in gross margin. And then I've got a follow-up.

Yes. This is Andrew. So when you look at the gross margin versus last quarter, as you mentioned, it was up, which was great news. And there's really 2 major factors that are causing that increase. One is the product mix. So as Atul mentioned, our Wi-Fi products, despite the issues that we had with the China lockdowns, were still up year-over-year and also very healthy, just given that situation on a quarter-to-quarter basis. And in terms of the percentage mix versus the other products, the Wi-Fi was a higher portion of that mix.

And then the second reason is the price increases that we had that we've mentioned before, where we had price increases last year that's working its way through the system, and we expect that to be fully -- see the full benefit of that in the second half of the year, but it started to impact our numbers in the first quarter favorably.

And I wanted to follow-up on particularly the 28 gigahertz product. You did mention a large award in Italy. And I'm guessing and presuming that this product is playing into that award. But ultimately, what I'm trying to get a sense of is how to think about the size of that product's contribution as it ramps over time and the materiality or opportunity for 28 gigahertz platforms?

Thanks, Simon. This is Atul. I'll take that one. So let me give you a little more color around 28, because I'm very excited about the potential of 28 for probably next 4 to 5 years with what we are releasing right now. The way 28 gigahertz solutions are different, they are addressing larger service providers in Europe, South America, North America and Asia, in that sequence, in that priority order. It's a license frequency.

So the service providers are going after many square miles of area and fortifying the territory with that licensed broadband solution. So what we see is, if you had X amount of total dollars spent by a service provider for the sub-5 gigahertz solution, traditional solution for a width for a medium-sized service provider, 28 gigahertz solution is probably 2 to 3x the deal size.

And I think in the next 12 months, you're going to see us announce many larger Tier 2 and Tier 1 service providers with substantial business, and it is changing our own dynamics. And in return, Cambium is scaling the support structure because when you engage these types of service providers, you really have to have 24/7 across the globe support teams, and that's what we'll be offering. So pretty excited.

And just to give you an idea, I think we didn't mention in the earnings call script, about 10 POCs, 8 of them, I think, going on 2 or 3 coming through, these are all pretty sizable customers. So very positive, very exciting. And this opens the runway to Cambium Networks towards 5G fixed. These are -- this is -- when we say next-generation architecture, 28 is a very key plank of the next-generation architecture.

And maybe just to put some quantification around that opportunity. If we think about 2023 when we're past supply chain constraints hopefully, could you see these products being on the order of 20%, say, of PMP or is that just too ambitious a goal?

No, I think you are not too far off. Because again, the deal sizes we are looking, that is, to be very frank, for me, the pleasant surprise is, as I gave you indication if we did X amount of revenue for traditional products, I think we might be looking at 2 to 3x because the service providers are going after a larger area and they have largest subscriber base to cater to.

Our next question is with Rod Hall from Goldman Sachs.

This is Bala, on for Rod. Looking at full year guidance, I'm just wondering what is being baked in into the full year guidance with respect to your operations in Shenzhen and also in Shanghai. It looks like Shenzhen is more or less fully operational now, but maybe just double click on what you're expecting? How do you see the ramp as we go through the year? And then I've got a follow-up.

Yes. Thanks for the question. This is Andrew. So in terms of looking at the $280 million to $300 million that we mentioned for the outlook for the year, we're being prudent in terms of looking at what's happened in China and what the current status and the current situation is. So we do believe that revenues will continue to increase as we go throughout the year. And we think that the second quarter revenues will be higher than the first quarter as well. But we don't -- we still, just given the manufacturing distribution facilities that we have in China, we want to be very careful in terms of looking at the outlook going forward and the impact of COVID, which obviously is very hard to predict.

So we're trying to really have a very balanced view and to be prudent in terms of what we believe the full year to be. As you saw in the numbers, and we discussed our strong backlog as well, the total backlog that we have today is as high as it's been in the recent past or even higher than it's been in the recent past. And especially as we look at the Wi-Fi product line, that continues to be very, very favorable. And that's what gives us that confidence that we'll get into that range despite the situation over in China and the supply chain constraints.

Right. And if you look at the second half of the year, the new guidance compared to the previous guidance indicates maybe about 15% to 20% cut in revenue guidance for the second half of the year. And I assume this -- prudently assumes that whatever -- the lockdowns are related to supply issues that you're seeing would extend well beyond Q2 and then possibly into throughout the year. Is that the right thinking there?

Well, I think the first half of the year is really what's taking the largest hit. So when you think about Q1 and Q2, those 2 quarters are quite a bit below what we had originally anticipated for the year. We do believe that Q3 and Q4 will continue to ramp up. We're getting better visibility now in terms of supply chain and chips, which is very good news, and that's consistent with what we have predicted, in fact, when we -- when I wasn't here yet, when the company spoke back in February. So that impact is coming true.

But the setback that we had, given the China lockdowns, is what's really hurt in the first half -- the first quarter, and we expect in the second quarter of the year. We certainly do hope that Shanghai does reopen soon. There's some glimmer of hope that we've received as recently as today that, that could happen in the next couple of weeks, if not sooner. But as I said, we want to be prudent in terms of how we're thinking about it and have a balanced approach. So I do think by the second half of the year, especially in the fourth quarter, we will see things beginning to return to somewhat of a normal situation, and we will continue to have acceleration in certain areas of the business such as Wi-Fi, as we mentioned.

Yes, Bala, if I can just add one comment. I think we have taken very proactive steps for the second half of this -- of 2022, working very closely with our chip partners, supply chain partners. And I think, as we said in last quarter's earnings call, we expect second half to be increasingly better, whether it's chip availability, whether it's supply chain partners, that's kind of what we see right now. And we are baking that in. And I think my sense is that, cautiously very optimistic as we go into second half.

Yes. And one other thing I would add to that is that even as we sit here today, we're not waiting for Shanghai to reopen. We have a plan that we've started to enact, as I mentioned during my opening comments, of shipping products out of the Shanghai region or directly out of the manufacturing areas in Shenzhen and elsewhere to other distribution facilities in Europe and in North America. And that may cause some additional shipping costs that we will incur as a result of that. But even despite that, we think that with the favorable mix with Wi-Fi becoming a bigger part of the business that, that will help offset those incremental costs and hitting the margin.

Our next question is with Samik Chatterjee of JPMorgan.

I have a couple. And for the first one, actually, I wanted to follow up on Bala's question there, but ask you in terms of what do you think the exit revenue run rate for 4Q looks like? Because I'm trying to compare it to June '21 quarter where you did about $93 million of revenue. From everything sort of you've talked about today, it doesn't look like you're seeing demand as a problem, it's more either logistics or supply.

So I'm wondering, with sort of the supply situation that's now recovering with pent-up demand, like what's holding back the 4Q exit revenue run rate to be higher than the sort of June number that you had? Particularly your guidance for the full year, to me, it implies you're sort of thinking more mid-80s versus the $90-plus million run rate that you've exhibited in the past? And I have a follow-up as well.

Yes. And I think that's about right. We do expect around the mid-80s in terms of the fourth quarter, as you mentioned. And again, we're being prudent in terms of how we're looking at where we think we're going to be for the balance of the year. And that, even at the mid-80s, is an acceleration from where -- certainly where we are today and where we expect to be in Q3, which is in the likely mid-70s range or so.

So there's still a sizable increase in Q4, but we didn't really want to get overly aggressive in terms of that outlook of Q4, given the situation with China and how they're treating COVID and the lockdowns for any sorts of cases of COVID that come up in the country and what's happening in China with their vaccine, et cetera. So we want to be prudent and estimate, when we look out over the next few quarters, the best that we can. So that's where we ended up.

And also, Samik, Atul here. While things are improving, the normalcy will, I think, only come in '23. So the needs of the Cambium emerging product lines, high-growth product lines, I think it will be improving. But what we really need to go like a rocket, I think that's '23. So that's what you see built in here based on our experience realistically where it goes. And as I said, we have taken a lot of proactive steps. We have given a 21-month forecast to our chip suppliers. We have redesigned certain products as necessary. We are making sure test capacity in our manufacturing lines are ready for higher volumes. So these are also the times when companies need to do proper planning for expansion. And that's what we are focusing on right now.

For my follow-up, Atul, I mean I don't have the exact absolute number in terms of backlog that you guys are reporting. But just directionally looking at the quarter-over-quarter growth numbers here, you said a 7% quarter-on-quarter increase in backlog. It's very similar to what you had in 4Q as well. And given that you had the issues around shipping in 1Q, I would have expected a bigger increase in the backlog, unless I'm thinking about it wrong. So maybe just directionally set me right there in terms of why doesn't backlog have a bigger sort of number on it despite being not able to shape a lot in 1Q?

Yes. So as the backlog actually has continued to increase throughout this quarter that we're in. And as I mentioned, we have the highest backlog today than we've had in the near recent past year. So when you look at where our strength is in the business right now, in the Wi-Fi product especially, and the margins associated with that, we think that, that is going to continue to grow. And we've seen good acceleration of that this quarter. But in terms of looking at the outlook both for Q2 as well as Q3 and Q4, that all takes into consideration where we ended up at the end of the first quarter and what the mix was and what the total backlog was at that time.

As Atul mentioned, we have products that we're introducing into the marketplace that we believe will be very beneficial to our revenue outlook, especially towards the last half of this year and going into next year. And that's where, I think, given -- as long as we see normalcy returning to the supply chain, we'll see continued acceleration of both backlog as well as revenues that you'll see showing up in the financials.

So Samik, Atul here, 2 or 3 points I want to make. Number one, I think as we go into the second half, the supply chain situation is getting better. And we said that last quarter as well, and I'm reiterating that. Secondly, the enterprise segment of Cambium is fully transitioning to Wi-Fi 6. Remember, these are S curves of growth. We are on a S new growth curve with our enterprise full portfolio, fully mature, full road map, very well received. Next point is while fixed wireless broadband is also going through a technology transition, and this is an important point, and we anticipated that with 60 gigahertz and 28 gigahertz, both of those product lines are in early gestation.

So as we come through Q3, Q4 and then Q1 next year, you will see us talk a lot more about the wins, the deal sizes, because we see that new S curve or gigabit networks in wireless coming and really augmenting fiber and the transition of fixed wireless broadband is probably about 6 months behind Wi-Fi. Wi-Fi transition happened faster, but it's also simpler. And the right comes behind the fixed wireless broadband transition. And I'm very excited, Cambium will beta test 6 gigahertz band for multi-gigabit connectivity or PMP line and ship volume in Q4. This is new, very advanced technology. And this will assure the new S curve of fixed wireless broadband.

Our next question is with Mr. George of Jefferies.

I guess in the past, you guys have given us some commentary on channel inventory levels. I guess I was just curious if you have some comments about where channel inventories stood at the end of Q1?

George, good to hear from you. Let me take that question. So in fixed wireless broadband, there's definitely assimilation going on of accelerated buying in, say, second half '20 and then '21. And we see that. But the point of sale is pretty -- and we monitor that pretty closely. So I think in some products, there might be inventories because customers are kind of digesting, assimilating. And also, customers are beginning to think about what is the next-generation fixed wireless broadband architecture. I think those are the 2 key drivers we see in terms of the inventory. When it comes to the enterprise products, they can -- whatever we can give them, they're driving right now.

So I think over the next few quarters, we will know, a steady state wise, where things land. But in general, there is still, I would say, overall, a good balance of where the inventories are, what the demand is. And in certain products, they are kind of still being assimilated in the field. Anything, Andrew, do you want to add?

No, I think you covered it well.

Got it. So I guess I'm inferring then that there's some products where channel inventories came out higher at the end of the quarter. I presume we're talking about fixed wireless access products, Point-to-Multi-Point products and then maybe other products which are lower, so Wi-Fi.

Yes, it's possible. And I think, George, in our industry, what ends up happening is that customers are conceiving the next set of frequencies. Remember, if you are a service provider and you're conceiving on 60 gigahertz, you might have some frequencies which are sub-6 and as you're shifting to 60 or you're shifting to 28. And all of that gets taken care of over 2, 3 quarters. But net-net, at this point, we are still -- or a lot of our key product lines, we are still building our inventory. Like for example, ePMP product lines, we are very constrained in inventory right now. If we had more chips right now, we'll be cranking more products. So a little bit of balancing act goes in, but net-net, customers are able to handle that over a quarter or 2 period.

Got you. And then I also want to ask about pricing. So it sounds like you took pricing increases in Q4. I'm just curious, can you remind us how much those pricing increases were? And then how much of that might have been assimilated into the model in Q1?

Yes. So I'll talk and Andrew can please add based on anything I missed. Approximately, I would say 10% to 15% price increase cumulatively across product lines based on some of the increases of prices we faced from our suppliers. And overall, we did have inventory and existing inventory, existing contracts. I would say Q2 is probably the first quarter where you'll see pretty wholesome impact. And then in the second half, clean, because we would have eaten into those inventories and contracts and all that will be all new pricing.

(Operator Instructions) Our next question is with Scott Searle from ROTH Capital.

Atul, I apologize for going back to the supply chain again. But it looks like you've been doing things in terms of best job that you can't struggle where everyone else has from a supply chain perspective, redesigning products. I was wondering if you could talk a little bit about more manufacturing, diversity of that manufacturing from a geographic standpoint, and how you could be more resilient to not have any single points of failure going forward. Two of the last 3 quarters we've had some problems on that front caused by China. What can you do to design around that so you're a little more flexible if there's a third wave?

Yes. Scott, good to hear from you and excellent question. There are 2 areas we are working very proactively. One is linearity. In fact, I'm going to -- you didn't ask that, but I'm going to address that. We are working very proactively on linearity because we also realize that I think when you are more back-end loaded, you also get hit harder with these type of events. And Andrew, one of the reasons we brought Andrew into the company is Andrew brings excellent background with some of the manufacturing companies he worked for and linearity and those type. So that's one project we have started.

Secondly, with respect to China and dependency on China, about -- I would say maybe half of our manufacturing or so happens in Guadalajara with Flex. So we are already -- we have a very strong relationship with them and many of our fixed wireless broadband products are done there. In addition, we are very proactively diversifying from our ODMs in Taiwan into Southeast Asia proactively, areas like Penang. So you will see Cambium continue to diversify opportunistically and strategically.

Having said that, there are a lot of components, power supplies, mechanicals, they come out of China. And so it's not just manufacturing. We have to look at it pretty wholesomely in a 360-degree way. And we are going through all that. A lot of our attention being paid because we totally realize that the more diversified, but in a meaningful manner, we are, the better it is.

So both projects are getting a lot of good attention inside. And over the next few quarters, as we make those decisions, as we diversify -- just to give you an idea, our new products we are designing, we are increasingly moving them towards Southeast Asia.

Okay. Very helpful. And if I could then follow-up on the gross margin front. It sounds like the price increases, you see more of an impact in the second quarter, you benefited from the Wi-Fi mix in the first quarter. But if I kind of work through some of the numbers in the annual guidance, it either implies that OpEx is ramping up a lot more or gross margins are kind of plateauing, if not sort of rolling over. So I'm wondering, is there something else going on in the second half of year as you think about the gross margin profile? Does it stagnate? Does it not continue to increase? Or is it just a level of conservatism in terms of how you're guiding?

So we're, again, being prudent on taking a look at where we are with OpEx as well as gross margin as we go throughout the year. But the way that we're looking at it is that the OpEx will increase a bit as we move ahead throughout the year because of inflationary pressures and increased salaries, for example, and costs relating to some of the R&D materials that we need in terms of the next-gen products that we are focused -- very much focused on.

And in terms of the gross margin, we still believe very strongly in our overall operating model goal to work up towards that 51% to 52% goal over time. But we don't necessarily see that happening in the very short term because of all of the issues around the tightening of the supply chain as well as pricing of components and chips. So I think once things begin to stabilize further, and there's more supply of chips in the marketplace that should happen towards the end of this year and certainly next year. I think that you'll see the gross margin increase further. So I hope that answers your question.

No, very helpful. By the way, congratulations, too. Welcome aboard. If I could follow up on that front. Is that 51%, 52% a realistic goal for '23?

I think we could hit that goal, especially in the last half of '23 driven by our new products along with a normalization of the supply chain.

Yes. Maybe Scott, one more point I want to add is, we have a very strong federal defense funnel right now, never has been this strong and the geopolitical events actually are driving that even stronger. So I think you can expect that in the second half of this year and in '23, the federal defense will also play a key part and generally that gives us a good uplift to the gross margin.

But I will say that as we look to diversify as well out of China, that there will be a cost of doing that. And that's why we're being really prudent in how we're looking at gross margins going forward. So I'd be looking at that towards the end of next year.

Okay. And lastly, if I could throw three quick questions on the product front. Atul, you're talking about the excitement related to 5G at 28 gig to 60 gigahertz products, you've got multiple POCs for the 28 gig. Could you help us understand, you talk about them being larger opportunities? Could you put a number of framework around it, either what you would expect revenue to be exiting this year or maybe what the revenue opportunity for them is in 2023?

Also, on the ePMP front, I know that there's some new products coming that offer some higher, possibly multi-gigabit speeds, I think, around more of the 5G architecture. I was wondering if you could talk about that. And lastly, I just want to confirm the availability of the Wi-Fi 6, the outdoor solutions, when we'll see them getting certification and then rolled into market?

Thanks, Scott. One of the power or strength of Cambium is that we have a wireless fabric. And I'm going to go a little deeper into that, just to position that. Each region has a different frequency plan. Each region has a different dynamic. So for example, in Europe and CALA, South America, they have 28 gigahertz license frequency with so many different service providers. So we are seeing acceleration in 28 there, very well received. And as I said, deal sizes are larger. And these deal sizes are multi-million dollars each type of a deal. So I wouldn't go deeper than that, but it can start to give you a flavor. Then when it comes to North America, the 6 gigahertz band is the excitement. This is clean frequency. This is 1.2, 1.3 gigahertz of band, which has been released for the first time in 2 decades.

So you're going to see a significant solutions for multi-gigabit based on that frequency band. And Cambium will be one of the first in the world to offer beta in Q3 and volume shipments. This is what I call new S curve in fixed wireless broadband we're going to write. Our strategy is based on 2 key words: affordability and quality. That's how we have built this company. Always maintain affordability, but yet have fantastic quality. You will see us offer that in the fixed wireless broadband in North America.

So overall, the fabric integrates the different frequencies and different architectures manages from single pane of glass and then tell the customers, "Mr. Customer, the last edge, 0.5 kilometer or so, you have indoor-outdoor Wi-Fi, which is Wi-Fi 6." And that's why in many of these calls, I'd say, the combination of technologies like 60 gigahertz and Wi-Fi 6 is the hand in a glove. And we are seeing that in municipalities, we are seeing that in educational institutions, we are seeing them in so many different situations where they use fixed wire as broadband. Now they're using Wi-Fi. In some, they went with Wi-Fi and now they're saying, can you do metrics with 60 gigahertz. So interplay of this multi-gigabit technology is very powerful. And you'll see that, I think, definitely in second half as well as in '23.

There are no more questions on the queue. And with that, I would like to turn the call over to Mr. Peter Schuman for the closing statement.

Thank you, Delfin. During Q2 '22, Cambium Networks will be presenting and meeting with investors on May 19 at the Barrington Research Virtual Spring Conference, and on Wednesday, May 25 at the JPMorgan Global TMT Conference in Boston Mass. In the meantime, you're always welcome to contact our Investor Relations department at (847) 264-2188 with any questions that arise. Thank you for joining us, and this concludes today's call.

Ladies and gentlemen, that concludes quarterly earnings call. Thank you for your participation. You may now log off.