Airgain, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless otherwise noted. Airgain designs and sells antenna technologies for consumer, enterprise and automotive wireless products. Results are unaudited interim results.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $15.11 million | $13.31 million | +13.5% |
| Gross profit / margin | $6.79 million / 44.9% | $6.19 million / 46.6% | Profit +9.5%; margin down 1.7 percentage points |
| Operating expenses | $6.61 million | $7.36 million | Down 10.2% |
| Operating income (loss) | $178,402 | $(1.16) million | Returned to operating profit |
| Net income (loss) | $336,443 | $(1.11) million | EPS: $0.03 vs. $(0.12) |
| Operating cash flow | $(874,963) | $(1.83) million | Cash use narrowed |
| Cash and cash equivalents | $11.75 million | $13.62 million at Dec. 31, 2018 | Down $1.87 million |
| Short-term investments | $21.14 million | $20.17 million at Dec. 31, 2018 | Up $0.97 million |
Gross margin fell mainly because of sales mix. Revenue growth was attributed to higher demand, ramping existing programs and new designs, primarily in Consumer and Enterprise. Operating expense reductions reflected lower sales and marketing spending, including terminated marketing activities and reduced trade-show spending; R&D expense increased modestly.
Liquidity, debt and cash flows
- Cash, cash equivalents and short-term investments totaled $32.89 million at quarter-end; current assets were $43.06 million and current liabilities $6.38 million.
- No term loan or revolving-credit balance was outstanding. The company had access to a revolving facility of up to $10 million, subject to an 80% eligible-receivables borrowing base; it matures January 31, 2020. Airgain reported compliance with its financial covenants.
- Investing cash use was $1.04 million, principally reflecting purchases of available-for-sale securities exceeding maturities; capital expenditures were $159,126. Financing cash provided $37,601, from option exercises less share repurchases.
- Management said existing cash and cash equivalents, together with cash proceeds from operations, should meet working-capital requirements for at least the next 12 months. The company expects to invest in sales, engineering, R&D and market expansion.
Material changes, outlook and risks
- Interest income rose to $188,005 from $110,431, while interest expense declined to $600 after the term loan matured in December 2018.
- Airgain provided no specific numeric revenue or earnings guidance. It expects R&D and sales and marketing spending to rise as it invests for growth; G&A was expected to remain consistent with 2018.
- Customer concentration is significant: one customer represented 42% of Q1 revenue and 43% of quarter-end receivables. China accounted for 71% of revenue by customer bill-to location. Most products were manufactured by two vendors in China and Airgain’s Arizona facility.
- Management noted pricing pressure, reliance on a limited number of end-customer devices, product-cycle and customer-demand uncertainty, and exposure to purchasing patterns around Chinese holidays. Results may be seasonal, with Q1 historically tending to be lower.
- Airgain planned to adopt Topic 606 in 2019 using the modified retrospective method; it expected certain product revenue timing to shift from recognition at delivery to recognition over time and was still evaluating the full reporting impact. The filing says interim results are not necessarily indicative of full-year performance.
- The share-repurchase authorization runs through August 14, 2019. In Q1, Airgain repurchased 14,350 shares for $193,278, or an average $13.44 per share.
- No material legal proceedings, material changes to previously disclosed risk factors, or material off-balance-sheet arrangements were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether revenue growth and new program ramps persist, and whether gross margin recovers from the sales-mix-related decline.
- Whether customer and China concentration, along with reliance on a small number of manufacturing vendors, changes or creates supply or demand risk.
- Operating cash flow and working-capital trends, including receivables and accrued-bonus movements, and management’s 12-month liquidity assessment.
- The eventual effects of Topic 606 on revenue timing, reported results and internal controls.
- Use of the remaining repurchase authorization and the terms, borrowing-base availability and covenant compliance of the revolving credit facility.