Airgain, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Airgain designs and supplies antenna technologies for consumer, enterprise, and automotive wireless devices and networks.
Financial highlights
| Metric | FY2019 | FY2018 |
|---|---|---|
| Sales | $55.7 million | $60.6 million |
| Gross profit / margin | $25.3 million / 45.4% | $26.5 million / 43.7% |
| Operating income (loss) | $0.4 million | $(3.4) million |
| Net income (loss) | $0.9 million | $(2.6) million |
| Diluted EPS | $0.09 | $(0.27) |
| Operating cash flow | $2.4 million | $1.4 million |
- Fourth-quarter sales were $13.0 million, versus $16.6 million in Q4 2018. Q4 net income was $63,000, versus $1.3 million.
- At year-end, cash and cash equivalents were $13.2 million, short-term investments $21.7 million, working capital $38.4 million, and total assets $54.7 million. Total liabilities were $6.8 million; the company reported no outstanding debt.
- Investing cash flow was a use of $2.4 million, primarily reflecting net purchases of available-for-sale securities and $1.2 million of capital expenditures. Financing cash flow used $0.4 million, including $1.2 million of share repurchases.
Changes versus prior period
- Sales declined 8.1% year over year, primarily because of product-cycle transitions in several high-volume embedded antenna products and slower-than-expected customer rollouts of 802.11ac, 802.11ax, and DOCSIS 3.1 upgrades.
- Gross margin improved by 1.7 percentage points to 45.4%, which management attributed primarily to product mix.
- Operating expenses fell $5.0 million, or 16.6%, principally due to lower sales and marketing costs after termination of a marketing agreement in 2018, as well as lower personnel-related expenses. The company returned to operating and net profitability after losses in 2018.
- FY2018 included a one-time $389,000 gain on settlement of a deferred purchase-price liability; no corresponding gain was recorded in 2019.
Outlook, risks and other notable items
- No numerical revenue or earnings guidance was provided. Management said it expects to continue investing in sales, engineering, R&D, international growth, and new products. Active beam-steering millimeter-wave 5G antenna technology was expected to be ready for customer engagement in Q1 2020.
- COVID-19 and extended Lunar New Year closures had delayed certain China shipments as of the filing date. Management said the duration and financial impact were uncertain; the outbreak could also disrupt customers, suppliers, and contract manufacturers.
- Customer concentration is significant: the two largest customers represented approximately 36% and 14% of 2019 sales. The substantial majority of sales were made to ODMs and distributors based in China, while end-customer sales were approximately 58% North America and 42% elsewhere.
- Manufacturing for most products is outsourced to two contract manufacturers in China. Management cited potential supply, quality, capacity, tariff, and transition risks; switching manufacturers could take six to nine months.
- The $10 million revolving credit facility had no balance outstanding at year-end and expired January 31, 2020 without renewal. Management believed existing cash and operating proceeds would meet working-capital needs for at least 12 months.
- Management changes included Jacob Suen becoming CEO in August 2019 and CFO Anil Doradla’s November 2019 resignation; David Lyle became CFO in January 2020. In February 2020, Airgain extended its San Diego lease through 2025, adding approximately $3.2 million in future lease payments.
- The company repurchased 108,000 shares in 2019 for $1.2 million. Its September 2019 program authorized up to $7 million of repurchases over 12 months; approximately $6.0 million remained available at year-end.
Important facts for investors to verify
- Whether delayed customer product rollouts and the 2019 decline in sales persisted or reversed after year-end.
- COVID-19’s subsequent effects on shipments, Chinese manufacturing, customer demand, and costs.
- Sales concentration by customer and device, and the renewal or growth of major programs.
- Cash generation, liquidity following expiration of the credit facility, and the use of funds for repurchases and growth investment.
- Progress on Wi-Fi 6 and 5G design wins, automotive OEM programs, and the planned 5G antenna technology.
- Tax assets: Airgain reported a $7.5 million valuation allowance against deferred tax assets and noted that use of tax-loss and credit carryforwards may be limited.