Airgain, Inc. (NASDAQ:AIRG) Q1 2024 Earnings Call Transcript

Airgain, Inc. (NASDAQ:AIRG) Q1 2024 Earnings Call Transcript May 8, 2024

Airgain, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. Welcome to Airgain’s First Quarter 2024 Earnings Conference Call. My name is Shamali, and I will be your operator for today’s call. Joining us today are Airgain’s President and CEO, Jacob Suen; and CFO, Michael Elbaz. As a reminder, this call will be recorded and made available for replay via a link found in the Investor Relations section of Airgain’s Web site at investors.airgain.com. Following management’s prepared remarks, the call will be opened for questions from Airgain’s covering analysts. I caution listeners that during this call Airgain’s management will be making forward-looking statements about future events as well as Airgain’s business strategy and future financial and operating performance.

Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company’s business. These forward-looking statements are qualified by the cautionary statements contained in today’s earnings release and Airgain’s SEC filings. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 08, 2024. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call will include a discussion of non-GAAP financial measures. Please see today’s earnings release for future details, including a reconciliation of GAAP to non-GAAP results.

Now, I would like to turn the call over to Airgain’s CEO, Jacob Suen. Jacob?

Jacob Suen: Thank you, operator. Welcome everyone, and thank you for joining us this afternoon. To begin today’s discussion, I will give some company background, followed by a review of our performance for the quarter before handing the call over to our CFO, Michael Elbaz. He will review our financial results for the quarter in more depth, as well as provide our outlook for second quarter 2024. After that, I’ll share some closing remarks before opening the call for questions. All right. Let’s begin. For those of you who may be new to our story, at Airgain, we simplified wireless connectivity across the value chain, from embedded components to integrated systems. Our primary markets encompass the enterprise, consumer and automotive sectors.

Within our enterprise market, our products include embedded cellular modems, custom products, asset trackers, 5G and IoT antennas, our new 5G Outdoor Fixed Wireless Access Device and our 5G Smart Network Controlled Cellular Repeaters. Our consumer market is comprised mostly of our embedded antenna business, a traditional area of expertise for Airgain. Our consumer products include custom embedded antenna design for customer premises equipment or CPE, devices such as those that enable Wi-Fi 6E and will enable Wi-Fi 7. Lastly, our automotive market includes both our aftermarket antennas, as well as our vehicle networking devices, highlighted by our recently announced Airgain Connect Fleet Device. We believe the global connectivity opportunity is large and durable.

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Q&A Session

Secular tailwinds, including increased connectivity technology adoption and growing serviceable addressable markets across our product suite will continue to propel the industry and our company forward. At Airgain, we have a track record of developing and offering optimized wireless solutions to our channel partners and customers that help them get connected quickly. As new technologies emerge, we are confident that we will continue providing leading edge products to [market]. Turning now to a review of our recent operational results in three core markets. We generated $14.2 million in sales in the first quarter, above the midpoint of our guidance range and a 41% increase over the prior quarter. Our indicators saw that the macroeconomic headwinds and industry wide demand softness that we have faced in recent quarters are continuing to dissipate, which we believe is a positive sign for the rest of the year.

Specifically, we completed significant shipments in Q1 in a few of our product areas, such as our custom products and embedded modems. Additionally, while still behind we expect our typical run rate to be. Our consumer market performed better than we anticipated, above our usual seasonality for the beginning of the year. Also, as we have discussed in prior quarters, it is crucial for our long term growth that we continue to invest in our R&D and sales efforts. We believe that cutting edge products and experienced and trained sales teams are significant contributors to our growth, and we expect to continue investing in these areas as we grow our revenue. While headwinds remain in each of our markets, we believe that our Q1 sales result is a positive sign for our expected growth opportunity in the second half of the year.

Taking a closer look at our three markets. Our enterprise market performance in Q1 was largely driven by our custom products and embedded modems products lines. Our IoT antenna ramp-up is off to a good start, showing both an increase from Q4 and a strong pipeline of opportunities through the year. Although, closing IoT antenna contracts sometimes take time due to the product’s position within internal router solutions, we are confident in the demand that we’re seeing and believe that this is a growth opportunity for us through the rest of 2024. Looking ahead to second quarter, we expect to hold total enterprise revenue steady, even as we expect a sequential decline in our custom products due to the large project for which we completed shipments in the first quarter.

With our 5G product roadmap, [infrastructure] portfolio expansion with new railcar focused features and strong IoT antenna pipelines, we are confident that we can offset this custom product [low]. In addition, we are pleased that our FWA products are set to ship in second quarter, a significant milestone, especially in light of the extensive efforts across our organization and the achievement of the key certifications that will require to get these products to ship. In our consumer market, our first quarter show some encouraging signs, even with our typical seasonality for our consumer products, which tends to show a slower start to the year. We outperformed Q4 2023 in this market in the first quarter. Also, we believe that there are positive growth indicators in our consumer market.

First, as we have mentioned in recent quarters, we expect a significant transition from Wi-Fi 6 and 6E to Wi-Fi 7 among MSOs. While this shift continues to cause cautious buying behavior among our OEM customers as they work to avoid excess inventory, the industry has indicated that this shift will likely start in the second half of the year as MSOs are keen to improve performance and user experience. We believe this shift presents a compelling long term opportunity for Airgain to deliver its cutting edge Wi-Fi 7 antenna technology, as evidenced by the Tier 1 MSO design win we were awarded in March. Additionally, we expect to receive our first production purchase order from another Tier 1 MSO in the coming weeks. Second, consumer demand continues to shift from wire to wireless providers for Internet service as consumers transition to FWA.

We recognized this trend last year and have focused our strategy on penetrating this growing market. As we announced last November, we have secured a design win with a Tier 1 mobile network operator for the antenna design in the indoor FWA router, and we began product shipments in Q1. We expect the shipment ramp of our MNO product along with some market recovery with our MSOs to generate sequential growth in the second quarter. Lastly, our automotive market. As we expected, our automotive market continues to face industry wide headwinds across our products in this market, which include aftermarket products that are deployed in a wide range of vehicles, mostly focused on public safety and transportation. Inventory corrections from lead customers have dampened growth.

We continue to expect to face some challenges in this market in the second quarter as well. However, while we are still at least a quarter away from clearing our inventory challenges, we are pleased with the interest that we’re seeing in our automotive market, especially for our Airgain Connect Fleet or AC Fleet product. We are reaching the last few important development milestones and are still on track to ship AC Fleet early in the second half. Overall, we were encouraged by the early indications of recovery that we witnessed in our enterprise and consumer markets. We understand that we are not yet fully clear of these persistent industry challenges and we’ll remain responsive to the macroeconomic environment. But we believe that we have line of sight into progress across our other products in these markets to anticipate a continued rebound.

As we’ve communicated in past quarters, we are transitioning from being exclusively a component manufacturer to a wireless system solutions provider. As such, our growth strategy is focused on two key elements. First, continued execution of our established business. Across our embedded modems, custom products, embedded antennas and aftermarket automotive products, Airgain’s traditional expertise is in component based products that are deployed in various consumer and enterprise applications. We have developed strong relationships with our partners through the value chain and believe that there are lucrative opportunities available ahead for these product categories. As I mentioned, we have already secured a design win this quarter with a Tier 1 MSO, and that is on top of the other Tier 1 design win that we announced last year.

We still expect to start shipments to both MSOs in the second half of 2024. Also, the new line of products we launched in 2023 for our IoT custom products, automotive markets and industrial IoT antennas are expected to ramp up throughout the year as well. With our customer agreements and funnel, we are encouraged that we will return to growth in our established business this year. Second, Integrated Wireless Solutions expansion. While we continue to drive our existing components business forward, many of our forward-looking indicators for 2024 point to our wireless connectivity product lines as our solutions with the greatest upside. Specifically, our asset tracking in 5G connectivity products offer the largest strategic growth opportunities for our business.