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Edited Transcript of AIRG earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 Airgain Inc Earnings Call

SAN DIEGO Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Airgain Inc earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anil Kumar Doradla

Airgain, Inc. - CFO & Secretary

* Jacob Suen

Airgain, Inc. - President, CEO & Director

* James K. Sims

Airgain, Inc. - Chairman of the Board

* Kevin Thill

Airgain, Inc. - SVP of Engineering

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Conference Call Participants

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* Alessandra Maria Elena Vecchi

William Blair & Company L.L.C., Research Division - Research Analyst

* Auguste Philip Richard

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Craig Andrew Ellis

B. Riley FBR, Inc., Research Division - Senior MD & Director of Research

* Karl Fredrick Ackerman

Cowen and Company, LLC, Research Division - Director & Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon. Welcome to Airgain's Second Quarter 2019 Earnings Conference Call. My name is Christine, and I'll be your coordinator for today's call. Joining us for today on today's call are Airgain's outgoing CEO and current Chairman of the Board, Jim Sims; newly appointed CEO, Jacob Suen; SVP of Engineering, Kevin Thill; and CFO, Anil Doradla.

I would now like to turn the call over to Mr. Doradla who will provide the necessary cautions regarding the forward-looking statements made by management during today's call.

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [2]

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Thank you and good afternoon, everyone. Please note that certain information discussed on the call today is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that during this call Airgain management will be making forward-looking statements about future events and Airgain's business strategy and future financial and operating performance, including performance for the third quarter 2019. 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 should be considered in conjunction with, and are qualified by, the cautionary statements contained in Airgain's earnings release and SEC filings, including its Form 10-Q, which will be filed today August 8, 2019.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 8, 2019. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. This conference call may include a discussion of non-GAAP financial measures, including non-GAAP net income, non-GAAP Diluted EPS and adjusted EBITDA. Please see today's earnings release, which is posted on Airgain's website for further details, including a reconciliation of GAAP to non-GAAP results. Any discussion of non-GAAP measures is not intended to detract from the importance of comparable GAAP measures.

Finally, I would like to remind everyone this call will be recorded and made available for replay via a link available in the Investor Relation section of the company's website at www.airgain.com. Following management's prepared remarks, we will open up the call for questions from Airgain's publishing sell-side analysts.

Now with that, I would like to turn the call over to the Chairman of the Board, Jim Sims. Jim?

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James K. Sims, Airgain, Inc. - Chairman of the Board [3]

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Thank you, Anil. Welcome, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the second quarter ended June 30, 2019, along with the appointment of Jacob Suen, as the Chief Executive Officer of the company, which is available in the Investor Relations section on our website.

I am very pleased with our second quarter 2019 results with sales of $14.5 million, down 3% on a year-over-year basis and above our guidance range of $14.2 million to $14.4 million. Key highlights in the second quarter results included the strong sequential improvement in a company-wide gross margin of 130 basis points to 46%, largely driven by the efforts that we put in place over the past several quarters around efficiency improvements on the manufacturing front along with favorable product and pricing mix. Like the last several quarters, we continue to be engaged with design wins across our consumer, enterprise and automotive markets. And underpinning these wins are the ever-increasing demand for complex antenna designs to support higher bandwidth applications.

The second quarter also witness healthy demands for applications around the automotive market. This was largely driven by strong demand of the new products launched the past couple of quarters. As we entered into the second half of 2019, we remain bullish on the market as we leverage our Antenna Plus brand that is known across the industry for its innovation and first-to-market products. On the 5G front, we continue to be engaged across multiple programs as we highlighted in the previous quarter. We are excited and looking forward to the industry's transition to 5G over the next several quarters. Our engagement on the 5G front span gateways, small cells, and automotive applications.

We also reported second quarter 2019 GAAP and non-GAAP diluted earnings per share of $0.07 and $0.12 respectively, well ahead of prior expectations of a loss of $0.05 to a loss of $0.03 on a GAAP basis and a loss of $0.01 to a profit of $0.01 on a non-GAAP basis. The upside, both on a GAAP and non-GAAP basis, was driven by a combination of factors that included strength on the gross margin front driven by operational efficiencies and favorable product mix, along with continued discipline on the expense front.

In many ways the continued strength on both these fronts, we're largely achieved by our efforts that we put in place over the past several quarters. Before I get into some of the key design wins across our different markets during the quarter, I'd like to share some insight into the end market trends and the demand environment. As many of you know, the ongoing tension on global trade and macro trend are impacting the whole supply chain to varying degrees. Last quarter when we provided commentary around the outlook, we highlighted the impact of the macro environment, along with a slowdown at a handful of customers. Additionally, we highlighted that these were short-term issues and we are expecting these customers to revert back to growth over the course of the third quarter.

While we continue to believe that these customer issues are short term in nature, the macro uncertainty and customer-specific factors are impacting our supply chain and customer base in a more profound fashion. This in turn is impacting our business and this has resulted in the recovery taken longer than our prior expectations. Consequently, the timing issues have carried over into the third quarter, resulting in our outlook being down on a sequential basis and a heightened uncertainty being reflected in our guidance for the third quarter which has a wide of the normal range. Once again, I'd like to highlight to investors that the demand environment for complex antenna designs, continue to be healthy and we are confident that Airgain will bounce back strong as we overcome these near term headwinds.

I would also like to highlight some notable design wins and key programs in the second quarter across the consumer, enterprise, and automotive market. On a consumer front, we started shipping a fiber gateway that supports Wi-Fi 6 802.11ax to a Tier 1 carrier. The gateway supports a 4 by 4 configuration across three distinct frequency bands. We expect volume shipments to commence in the 2020 timeframe.

On the enterprise front, we'll be shipping antennas to an energy management company for smart utility applications. Shipments have begun and we expect shipments to continue in the second half of 2019. On the automotive front, our infotainment design win with a European based Tier 1 vendor is expected to start shipping in the first half of 2020. We are excited with this opportunity as the timing of shipments is sooner than our prior expectation. That said, we continue to believe the majority of our design wins will ship into 2022 timeframe and beyond.

The Board of Airgain also announced today the appointment of Jacob Suen as the new CEO and President of the company. I'd like to take this opportunity to congratulate Jacob on his new role. As many of you know, Jacob has been with the company for over 13 years in various management roles. The latest being the President of the company. Jacob has been instrumental in building a strong service provider relationships and has proven to be an effective leader in the company success over the years. I am confident that under his leadership, the company will continue maintaining leadership and a unique position across the industry.

I'd also like to take this opportunity to thank our employees and shareholders for supporting me during 15 months tenure as interim CEO and CEO. During the short time I've had the opportunity of meeting a cross-section of customers, partners and vendors and have been amazed by the outstanding achievements of our employees in shaping key programs and rollouts with our global service providers. I'm truly proud of our employees' achievement and eagerly looking forward to continuing to support the company as a Chairman of the Board.

Before we move on to the financials, I'd like to invite Jacob to share a couple of thoughts.

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Jacob Suen, Airgain, Inc. - President, CEO & Director [4]

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Thank you very much for the kind words, Jim and good afternoon to everyone. As many of you know, I have been with the company for over 13 years. And during this time, I have seen Airgain steadily becoming one of the market leaders for complex antenna designs across the globe. Over the years, time and again, I have witnessed the company solving complex customer solutions that have resulted in superior performance across global deployments. I continue to have strong conviction in the company's future and believe Airgain is poised to become a significantly larger company over the next several years, as it benefits from continued demand for its products across the consumer, enterprise and automotive markets.

Going forward, I hope to build up on the direction that Jim has set for the company over the past 15 months and I am eagerly looking forward to take on the new challenges and opportunities. While I will have more opportunities to interact in greater detail in the future, I would like to highlight some of the areas of strategic focus, including 5G opportunities and gaining greater share across the enterprise.

Once again, I would like to thank Jim and the Board of Airgain for the opportunity and look forward to meet many of you on the phone or in person in the near future.

I would like to turn the call over to our Chief Financial Officer, Anil Doradla, who will walk us through the financial highlights for the quarter. Anil?

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [5]

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Thank you, Jacob. And good afternoon. I will provide key financial highlights for the second quarter 2019 and provide some preliminary color around third quarter 2019. Similar to previous quarters, we will continue to provide quarterly guidance as we believe this will provide more clarity to the investment community and keep us more focused on the execution front. That said I would once again like to remind investors that our business is subject to short lead times, and this may result in short-term quarterly fluctuations, and our ability to accurately predict our business.

Now coming to the second quarter 2019 highlights. Sales of $14.5 million, declined 4% on a sequential basis and 3% on a year-over-year basis, above our guidance of $14.2 million to $14.4 million. The strength in the second quarter was largely driven by robust demand in the automotive market. Second quarter gross profit was $6.7 million or 46% of sales versus $6.8 million or 45% in the first quarter and $6.6 million or 44% in the same period a year ago.

The strong sequential improvement of 130 basis points in the second quarter marked the second consecutive quarter of 100 basis points plus gross margin improvement and was largely driven by the benefits derived from our efforts over the last several quarters around restructuring our operations, combined with streamlining our relationships with existing and new contract manufacturers. Additionally, a favorable product mix driven on the robust demand in our automotive market also contributed to the strong performance, I would like to remind investors that we continue to maintain our long-term gross margin outlook of 44% to 45% and would recommend the street to model these levels for the remainder of 2019.

Our GAAP net income totaled $0.7 million or $0.07 per diluted share, based on 10.1 million shares compared to a GAAP net income loss of $3.2 million or a loss of $0.34 per diluted share, based on 9.4 million shares in the same period a year ago. On a non-GAAP basis, our net income was $1.2 million or $0.12 per diluted share compared to $0.25 million or $0.02 per diluted share in the same period a year ago. These results are better than our prior outlook of a loss of $0.05 to a loss of $0.03 on a GAAP basis and a loss of $0.01 to positive [$0.01] on a non-GAAP basis. The better than expected results was largely driven by our strong showing on the gross margin front combined with continued focus on expense control.

And finally, our cash, cash equivalents and short-term investments totaled $34.2 million, which was up from $32.8 million last quarter.

I would also like to provide an update on adoption of the ASC 606 revenue standard. Over the past several quarters, we've been taking a closer look at the standard and the impacts to the company. We are continuing with our process of adopting ASC 606 and while we continue to evaluate changes that are necessary to the processes and systems we have come to the conclusion with the adoption of the standard. We do not expect a significant change to the overall pattern and timing to our revenue recognition.

Now I would like to provide preliminary outlook for the third quarter 2019. For the third quarter 2019, we expect sales to be in the range of $12 million to $14 million. At the midpoint of $13 million, we expect it to decline 10% sequentially and 18% year-over-year. As Jim highlighted, the sequential decline is largely tied to macro and customer-specific factors that have resulted in customers taking longer than expected in the recovery to normalized levels of growth. Furthermore, this uncertainty is reflected in a wider than normal guidance range for our third quarter guidance. I would like to reiterate Jim's comments of our belief that this is a near-term pause and we expect to bounce back to historical growth rates over time. On a GAAP basis, we expect third quarter diluted earnings per share to be between a loss of $0.09 to breakeven and on a non-GAAP earnings basis, we expect diluted earnings per share to be in the range of a loss of $0.04 to positive $0.05.

This completes my financial summary. I will now turn the call over to Jim. Jim?

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James K. Sims, Airgain, Inc. - Chairman of the Board [6]

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Thank you Anil. And thanks to everyone for being on the call today. Before I open the call up to your questions, I wanted to share a couple of closing thoughts. When I took over the company in 2018, we set out some specific goals to position the company for the long-term success. This involves several changes across our sales, marketing, engineering and operations organizations. As results have shown over the course of several quarters, we have made significant progress across each of our business units. While the macro and customer-specific issues are a near term hiccup to the company, I believe the company is in a stronger position and is well positioned to leverage growth opportunities over the next several years. The company's core strength have been around complex antenna design and deployment across large service providers around the world.

While the near-term poses some volatility, we believe the company will be in a stronger position as we enter 2020 and beyond. A combination of 5G adoption into the enterprise market, continued scaling of our automotive business and the upgrade cycle to the 802.11ax are just some of the key growth drivers. I am confident that under Jacob's leadership, the company will achieve new levels of success, and once again I wish him all the best.

And with that, we're open to questions. Operator, please provide the appropriate instructions.

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Questions and Answers

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Operator [1]

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We will now take questions from Airgain's publishing sell-side analysts. (Operator Instructions) Our first question will come from Craig Ellis from B. Riley, FBR.

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Craig Andrew Ellis, B. Riley FBR, Inc., Research Division - Senior MD & Director of Research [2]

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Team congratulations on the strong job in a tough environment in the reported quarter, especially on margins. I wanted to start with a couple of clarifications. Jim, thanks for all the detail, just summarized in the macro environment, is it fair to say that what we have out there for Airgain is a similar situation to what we had three months ago, but more intensified cross currents? And related to that, how do you feel about market share on programs that had been in progress that may be somewhat impacted by the delays and other issues that are out there?

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James K. Sims, Airgain, Inc. - Chairman of the Board [3]

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Look, what we are experiencing as we entered the third quarter. We indicated before that there were three clients that would be affected by what was going on in China. We're pleased that one of them now has developed and they're -- they're starting to produce in the third quarter. The other two, we really thought that would be into production or back into production this quarter. It's just not going to materialize until the beginning of Q4. So it is what it is. It has nothing to do with our performance and nothing to do with our capabilities, it's just what's going on in China.

I don't believe there is any impact on us losing market share. I just believe that the disruption that our vendors are moving substantial amount of business out of China, and that part it's delaying our ability to ship new products to them. So I'm optimistic about the future. I wish these -- several clients would have gone into production in this quarter. It just didn't materialize, the way we had planned.

On the other hand, I'm pleased with what we did do that -- look we went into all pieces of this operation -- six, nine months ago, we've got our operating expenses in control, we've got our R&D up to five centers up and working, our integration between R&D and sales and working on new projects. I think we're world-class. So we're in a great position to leverage off this foundation of the expense in the margins that we have today.

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [4]

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Craig, this is Anil. Just building up on Jim's point. As he rightly pointed out, certain customer-specific factors that he highlighted, but also the overarching team out there is something that we don't even have to get onto the call. There is a bigger thing playing out there. So again, I think -- I said this last quarter, when we look at kind of the range of our customers, we see different reactions right from people taking a pause versus doubling down in other countries. So it's a combination of those plus, as Jim pointed out certain customers and remember we are a company where a handful of customers contribute to a large portion of our business, right. So the movements are impacted kind of on both fronts.

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James K. Sims, Airgain, Inc. - Chairman of the Board [5]

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I think one of the things you're going to see as we move forward, our consumer business, which is the business that was impacted with the majority of what we just spoke about our growth though is really in the enterprise and our growth is in the automotive, those have different characteristics and we're really pleased on our wins on the enterprise and we're really pleased that even some of the automotive is going to production sooner than we thought. So I think over time, our mix of business will become more positive and less affected by a single client or two clients.

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Craig Andrew Ellis, B. Riley FBR, Inc., Research Division - Senior MD & Director of Research [6]

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Let me just take up on that point, then because I wanted to ask some more strategic questions and I'll come back to a few OpEx items later. Jim, one of the things that we've seen from a lot of our companies is an observation that there has been a significant pick up in 5G related engagement in the last three months and one of the things that you talked about, when you talked about things that are happening are the three different types of programs that you have with 5G. The question is you mentioned that quoting activity has been good, can you compare quoting activity or just design win engagement activity in the second quarter, what you've seen in other quarters in the past?

And the second question would be, with respect to capabilities around some of the new growth initiatives that you have, whether it's the 5G test labs or other things, how do you feel the company is positioned for some of these bigger waves that are upon us?

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James K. Sims, Airgain, Inc. - Chairman of the Board [7]

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I'll start to answer and I'll now turn over some of the specific Jacob since he's the one that runs all the sales and marketing for our organization. The first thing that happened during the quarter, we did put together a full group just focused on 5G now in the engineering, major change because we think there's a huge opportunity there, we promoted somebody and that's one of the five centers that we have now to specifically go after 5G.

What we are seeing in the 6 gigahertz and below, which is a first lease of 5G in the small cells in lot of the new platforms that are coming out, our win ratio there has been very good. We continue to win there. Now we're in the process of bidding opportunities around the millimeter wavelength and that's what you're going to see a lot of that really won't go into production until next year. A lot of activity, we're bidding it, but you'll see some production probably closer to the second half of next year. I'll turn it over on to Jacob, so he's a little closer with the bids we've been doing in that specific area.

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Jacob Suen, Airgain, Inc. - President, CEO & Director [8]

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Jacob here. So in regards to your questions about quotation. We certainly have seen a substantial increase on the quotations, in particular for the enterprise and the auto and that's where we are positioned our company towards. So and we expect this trend to continue to grow, entering into the second half of the year. And then I think that you have also -- what was your second questions again, if you don't mind reminding me again.

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Craig Andrew Ellis, B. Riley FBR, Inc., Research Division - Senior MD & Director of Research [9]

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The second part of the question was there are some obvious areas for the company's added capability intra-quarter, press released 5G testing labs, but what are some of the other things that the company has done to prepare for some of the waves of growth that you see coming?

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Kevin Thill, Airgain, Inc. - SVP of Engineering [10]

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We've gone ahead and upgraded every facility around the globe right now to go ahead and be able to test and measure at the higher frequencies and we've, like we said earlier, we released a press release on the 5-millimeter wave on test lab, that's up and running. So we can go ahead and make those measurements in-house and that capability it allows us to go ahead, develop the product faster. Prior to us opening of that, we had to go outsource that testing. So now we can do it internally and what that's going to do for us now is not only allow us to do testing but also allow us to go ahead and attract more talent to come into our company to go ahead and work on those projects because we can do all this internally.

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Craig Andrew Ellis, B. Riley FBR, Inc., Research Division - Senior MD & Director of Research [11]

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And then the next question I have is more financial, it's more for Anil, clear explanation on the positive gross margin variance but operating expense also came in quite a bit better than I expected, were there any one-time items like accrual reversal or was all that a lowering of expense that would flow through into the back half of the year?

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [12]

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So let me break the question in two parts, let me talk about the gross margins and I'll go into ongoing operating expenses.

I think what is happening on the gross margins is a couple of things. As Jim pointed out, we put in place a new structure, right and what happens is it takes some time to realize the benefits and what you saw last quarter and what you saw this quarter is just kind of a continuation of that trend. There is another element to it, which is the mix and as Jim talked about in his opening comments, he talked about automotive being strong. So I think that's kind of the two trends. Now as I said, I would like to continue maintaining 44% to 45% gross margin, not because there's fundamentally something wrong with the business that is reversing the business downward, but what happens is as we go into 5G as we go into new development, it allows us and the team to make some investments on the gross margin front. So that's where I want to keep that.

Now coming to your operating expenses, I think if there is some one thing that the company has done since Jim has taken over is introduce a heightened level of focus on the operating structure. And this was very clear and evident over the last 4 or 5 quarters that we've actually executed on. Now look, I mean the way I look at operating expenses, there are always key necessary things that you just have to invest, but there is at times some optional things and something that you time it. As the macro entered into an uncertain period, we had a higher level of scrutiny on the operating expenses and things perhaps that I would have typically spent in the second quarter we chose to hold off till these things kind of recover.

As far as the reversals and everything is concerned, one off the items no, there was nothing, it's pure kind of blocking and tackling and making sure that every dollar we spend there is a return. I would also like to say that as we go into the third and fourth quarter, we would start putting some of our spending into use. So as you model, we can get into the details later on, but we -- I expect to see a little pickup from these levels in Q3 and Q4.

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James K. Sims, Airgain, Inc. - Chairman of the Board [13]

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All right. Just want to add one note on that if you look at the income statement, we've held our R&D pretty steady. That's where in my opinion, a year ago we were not investing into the R&D into this company the way we should have. So there -- been really no reductions that are meaningful at all, it's really been around some of the marketing programs that are not going to come back, those are one-time marketing programs that we stopped, they were not adding value to the company and the G&A that we brought down and that's not going to come back. So I think we -- all the measures and the efforts we put in are paying off in both the margins and are paying off in the G&A and the marketing expenses.

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Craig Andrew Ellis, B. Riley FBR, Inc., Research Division - Senior MD & Director of Research [14]

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That's very helpful guys before jumping back into the queue. Jim, congratulations on all you've accomplished as CEO, but look forward to being in touch when you are back in Chairman as Chairman. And Jacob, look forward to working with you as new CEO.

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Operator [15]

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Our next question comes from Gus Richard from Northland.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [16]

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In terms of the consumer, when I believe you said that that was a Tier 1, is this for a home gateway for cable company?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [17]

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Gus, Jacob here. It's not a cable company, but a telco company.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [18]

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Okay. And then in terms of, I noticed it was a tri-band 4 by 4, in the new designs that for Wi-Fi 6 that are going to be coming out, do you see those being 4 by 4 dual band, 4 by 4 tri-band or 8 by 8, or what sort of mix do you expect?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [19]

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Yes. I think that we based on what we're seeing I think that you're going to see more 4 by 4 than 8 by 8 and you're going to see more dual band in the tri-band. That's what we are seeing from the customer space.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [20]

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That's very helpful. And then on the automotive win, what is the application, is that telematics, is it vehicle tracking, what -- can you give a little bit more color on that?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [21]

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It's more for infotainment so or call it infotainment, right, it's the system, the sound system, the display et cetera, inside the vehicle?

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James K. Sims, Airgain, Inc. - Chairman of the Board [22]

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Yes. It's interesting. We're actually finding that the infotainment is going to have I think they are higher volume in a closer time to market than other aspects of the automobile because the whole car is becoming an entertainment center.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [23]

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Right. And that's a Wi-Fi design. I'm assuming not LTE...

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James K. Sims, Airgain, Inc. - Chairman of the Board [24]

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Wi-Fi and 5G -- Wi-Fi and Bluetooth.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [25]

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Bluetooth. Okay. Got it. And then in terms of the enterprise...

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [26]

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Gus, there is one point. I just want -- I think the thing that I would like to highlight. I don't know whether it was missed by some investors, but if you look at our narrative on automotive especially on the OEM, we've been talking about late '21, '22 and so forth, right and as Jim pointed out in his comments, this is something that's happening much earlier than we expect in 2020. I think that's a very important thing. And it's very exciting within the company because typically in technology you see projects and typically they move out. This is one of those great things that are moving in and we are pretty optimistic on this. So I think this is going to really shape our company over the next five years.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [27]

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And this is automotive OEM, correct? A European automotive OEM?

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [28]

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We won't get into the geography, but it's fair to say it's an OEM.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [29]

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Okay. You said I think in the prepared remarks and European, but anyway. And then in terms of the enterprise, you're putting more effort into that and I'm assuming this is access points. And I was wondering when you might expect those wins to ramp?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [30]

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Yes. Actually, we are doing really well in that regards. We are expecting some of these to ramp as early as the end of this year. And we are talking about heavily engaging with some of the top 5 players in the world today.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [31]

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Okay. And does that -- can you in terms of the port required for the customer for dollar of opportunity, how does that compare to the consumer space?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [32]

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It's much higher. You're talking about ASPs, you're talking about close to a $100 or even more compared to $2 to $5 for the consumer, and that's why we feel really good about the market, we are going. So building upon the strength we have already build up on the wireless side.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [33]

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Okay. So your content in these enterprise applications -- or did I get that right it could be as much as $100 per box?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [34]

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Yes.

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [35]

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Gus, it's as much as $100, that's the key thing it not like every design is going to be $100, so --.

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James K. Sims, Airgain, Inc. - Chairman of the Board [36]

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But substantially above what we're doing in the consumer, in embedded consumer.

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Auguste Philip Richard, Northland Capital Markets, Research Division - MD & Senior Research Analyst [37]

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Okay. And so again this is cellular plus Wi-Fi or am I getting that correct?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [38]

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Well, I think they are in multiple projects we are working on, but needless to say, I think that none of them is below 20, right?

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James K. Sims, Airgain, Inc. - Chairman of the Board [39]

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I think what he is asking is this Wi-Fi...

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Kevin Thill, Airgain, Inc. - SVP of Engineering [40]

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Frequency bands, yes, cellular band, it's a Wi-Fi bands that we're covering. And some of the IoT bands also.

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Operator [41]

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Our next question comes from Karl Ackerman from Cowen. Please proceed.

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Karl Fredrick Ackerman, Cowen and Company, LLC, Research Division - Director & Senior Research Analyst [42]

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Jacob, congrats on the appointment and Jim it's great to see you still heavily involved in your new role. A few questions from me, but to start. I guess I understand the trade imbalances are influencing global growth, but in reality this is now second quarter we have seen sequential and year-over-year revenue deceleration. And so I guess I'm trying to just get a sense of where you think we are in the cycle for DOCSIS upgrades across carrier networks? And I have a follow-up.

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Jacob Suen, Airgain, Inc. - President, CEO & Director [43]

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So I think with DOCSIS, I think that is getting, becoming much more mature, but now all of them will talk about AX version as well. Right and then the Wi-Fi 6, right. So from -- on the MSO side, 3.1 I think is getting to be really stable, now they're looking into an upgrade into the 11axa named Wi-Fi 6. So that -- so we expect these to continue for the next 2 or 3 years.

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [44]

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Now in terms of -- Karl, this is Anil, in terms of your comments about the sequential decline, you're right. This time of the year, typically we are into a seasonally strong pattern and it's not been the case. I think I just want to get back to our business model, right. We tend to be focused, our significant revenues come from our Top 10 customers and we tend to be more exposed to large telcos and service providers and all it takes is a handful of these guys going on the positive side or even going on the other side and that's what shows up in our results here.

So I think, as Jim and Jacob pointed out, one of the things that we are doing is diversifying ourselves from some of these consumer-oriented service provider businesses and that's why we focus on antenna plus, we focus on automotive, and focus on enterprise. Our trends which are going on, so it's -- one of those things the life cycle of a small company, which is growing exposed to a little bit more concentrated set of customers.

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Karl Fredrick Ackerman, Cowen and Company, LLC, Research Division - Director & Senior Research Analyst [45]

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I appreciate that. As a follow-up, are you seeing anything in the competitive environment, given the weaker demand outlook presence in the context of pricing both from merchant providers and from in-house OEM engineering departments?

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James K. Sims, Airgain, Inc. - Chairman of the Board [46]

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Maybe I should try to address it. I think that's a -- I think externally from competitors, I don't think there has been a material change in what we've seen over the past year. It's not unusual as you get maturity in a product life cycle that some of the customers of ours who have capabilities internally want to compete because they are trying to cut cost and improve their margin. So we are seeing some of that as we go forward.

But I'm pleased to see that in majority of the cases we're able to outperform. The advantage we have is that we have 100s of projects that we've done, we have close to that amount in development at any one time and we can quickly move, what we've done in one client and that technically move the technology, but learning that we've had there and move it to another client to show differentiation and performance. So we continue to focus on performance hence our reason to make it darn sure that we beefed up the R&D organization, we brought in the key people that could help with that, and we work closely with marketing to understand what we have to do in each vertical, but it is fair to say that we'll always have pressure from internal R&D capabilities, specifically as it relates to the consumer. That does not exist as we move into the enterprise and it does not exist at least what we've seen so far in the automotive both the OEM and the aftermarket.

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Karl Fredrick Ackerman, Cowen and Company, LLC, Research Division - Director & Senior Research Analyst [47]

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That's helpful. Last one for me as a follow up, could you discuss the automotive opportunity you alluded to for the first half of 2020? And how you see the linearity of that business, both from an aftermarket and an OEM perspective, from now until those design wins gain momentum in late 2001 and 2022?

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Jacob Suen, Airgain, Inc. - President, CEO & Director [48]

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Yes. So I mean the, so the auto OEM that we discussed, they actually supply to several potentially several other Tier 1s, if you want to call them, right and we do expect that -- we do expect that this particular opportunity, it's not going to be in the millions initially, but in the hundreds, but now I think that the market for infotainment, as Jim mentioned earlier, we really see that going to be a big market as we move forward, it is the big data people are now onto watching video from their cars. So we expect a lot more opportunities in the next several quarters.

On top of that, we're also focusing on the bigger module that's going to have the LTE, the AM/FM, the Wi-Fi etcetera and the ADAS as well and that's going to -- that takes little bit longer life cycle, but overall we do see the market really being a big market for us in the next 3 to 5 years. Does that answer your questions, Karl?

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Karl Fredrick Ackerman, Cowen and Company, LLC, Research Division - Director & Senior Research Analyst [49]

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Yes, it does. Thank you, Jacob.

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Operator [50]

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Our next question comes from Alessandra Vecchi from William Blair.

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Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division - Research Analyst [51]

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Jacob, congratulations on the promotion. It seems a little earlier than expected, so wonderful news for you.

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Jacob Suen, Airgain, Inc. - President, CEO & Director [52]

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Thank you.

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Alessandra Maria Elena Vecchi, William Blair & Company L.L.C., Research Division - Research Analyst [53]

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Anil and Jim, just sort of on the auto opportunity. How -- in the past you've talked about being a little bit capacity constrained on the fleet side of things, is the upside this quarter fair assessment to say some of that capacity has been alleviated? And then as well, have you started reaping the benefits of the Axon partnership, I believe you announced either last quarter or in Q1?

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James K. Sims, Airgain, Inc. - Chairman of the Board [54]

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Clearly, and I'll let both Kevin and Anil maybe address part of this, look part of the -- we think upside potential now and going forward is in the antenna plus business. And the management team there has worked diligently to expand our manufacturing capabilities and going forward. So I'm comfortable that we can start to expand that business on a more predictable basis based on the work that was done. So that was a lot of the work that was accomplished during the last 6 months and I'm really pleased with the results.

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Anil Kumar Doradla, Airgain, Inc. - CFO & Secretary [55]

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This is Anil, you're right. Good observation. Yes, we -- some of the capacity constraints have been relieved and just to share some insights what we've done. We're adding on people both permanent staff as well as temporary, part time. We just are initiating a night shift. So while we were doing kind of a day time now we want to run a 2 shift, so aspiring to be a 24/7 company on that front. What we're also doing is we're expanding our manufacturing, some of the skills that we can't build here we're looking at our existing teams in China and doing that. And over the next 6 months, both Jacob, Jim, have actually strategized on how to take this brand on a more global basis. So we're very optimistic we believe that some of the constraints have been relieved and we're benefiting from it, but there is still a long way to go. And there is a significant opportunities.

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Operator [56]

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There are no further questions at this time. I would like to turn the call back over to Jim Sims for final remarks.

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James K. Sims, Airgain, Inc. - Chairman of the Board [57]

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Look, I want to thank all of you for joining us today on the call. And I especially want to thank all of our employees, our partners, our investors for their support and their continued support as we go forward. I look forward to updating you all of you on the next call if Jacob invites me to be part of that call. I'm now the Strategic Chairman and Strategic Advisor, and trying to get my handicap lowered by one. So operator?

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Operator [58]

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Thank you for joining us today for Airgain's second quarter 2019 earnings call. You may now disconnect.