Airgain, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Unless otherwise noted, financial figures are in U.S. dollars and millions.
Business context and reporting period
Airgain provides wireless connectivity solutions for consumer, enterprise, and automotive markets. On January 7, 2021, it acquired NimbeLink, an industrial IoT cellular-connectivity company, to broaden its enterprise offerings and advance its strategy of providing more integrated wireless systems. NimbeLink contributed $3.2 million of revenue and $0.2 million of net loss during the quarter.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales | $17.377 million | $11.216 million |
| Gross profit / margin | $6.897 million / 39.7% | $5.325 million / 47.5% |
| Operating expenses | $8.778 million | $6.635 million |
| Operating loss | $1.881 million | $1.310 million |
| Net income (loss) | $0.237 million | $(1.202) million |
| Basic and diluted EPS | $0.02 | $(0.12) |
| Net cash used in operating activities | $3.920 million | $0.902 million |
- Sales increased 54.9% year over year. Consumer sales rose to $10.3 million, primarily on a gateway design win for a large North American service-provider end customer; enterprise sales rose to $4.4 million, primarily reflecting NimbeLink; and automotive sales rose to $2.7 million, including AirgainConnect shipments.
- Gross margin fell 7.8 percentage points. Management cited lower-margin NimbeLink product mix, acquired-intangible amortization, inventory step-up charges, and higher production and procurement costs.
- Operating expenses increased 32.3% year over year, including costs associated with NimbeLink, personnel, and acquisition-related legal and professional fees.
- The $2.117 million income-tax benefit—primarily associated with releasing part of the valuation allowance following the acquisition—turned a $1.880 million pretax loss into $0.237 million net income. The benefit materially affects comparability and should not be assumed to recur.
- Cash and cash equivalents were $21.458 million at March 31, 2021, down from $38.173 million at December 31, 2020. Including restricted cash, the quarter-end balance was $21.633 million. Operating activities used $3.920 million; investing activities used $14.246 million, mainly for the acquisition.
- Current assets were $35.673 million and current liabilities were $9.505 million. The company reported no borrowings under NimbeLink’s secured credit facility, which has availability of up to $1.5 million subject to a borrowing base. It also recorded $6.686 million of deferred purchase-price liabilities and $3.667 million of lease liabilities.
Material changes versus the prior comparable period
- Revenue grew sharply, but cost of goods sold rose faster than sales, reducing gross margin and increasing the operating loss.
- Operating cash use increased from $0.902 million to $3.920 million; acquisition-related investing outflow drove the decrease in cash.
- The acquisition added $7.145 million of goodwill and $14.065 million of identifiable intangible assets based on a preliminary purchase-price allocation. The allocation remains subject to refinement.
- Airgain adopted lease accounting standard ASC 842 on January 1, 2021, recognizing right-of-use assets and lease liabilities; management reported no impact on quarterly operating results.
Outlook, commentary, and risks
- No numerical revenue, earnings, or margin guidance is provided. Management expects continued investment in sales, engineering, research and development, and capital expenditures, and believes existing cash and operating proceeds will meet working-capital needs for at least the next 12 months.
- Management identified the global semiconductor shortage as delaying customer product rollouts and sourcing of components for some NimbeLink products. Longer lead times, advance purchasing, and supplier cost increases could delay sales and pressure margins.
- COVID-19 disruptions, dependence on contract manufacturers, NimbeLink integration and supplier transition risks, pricing pressure, and unpredictable customer demand may affect results. Management noted that quarterly results can fluctuate and historical performance may not predict future results.
- Revenue and receivables are concentrated: two customers represented 40% of Q1 revenue; the largest represented 25%. A small number of end-customer devices also account for a significant portion of sales.
- The company reported no material legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls. Internal controls for the acquired business were being integrated.
Most important facts for investors to verify
- Whether the large North American gateway design win and AirgainConnect shipments continue to support sales, and whether customer concentration changes.
- The duration and financial impact of chip shortages, component availability, supplier transitions, and any resulting gross-margin pressure.
- NimbeLink’s post-acquisition performance and integration progress, including whether revenue targets trigger up to $8.0 million of contingent consideration; the recorded fair value was $5.986 million.
- How much of Q1 net income depended on the acquisition-related tax valuation-allowance release, and whether future periods remain profitable before tax.
- Cash use, acquisition and deferred-payment obligations, lease liabilities, and the company’s ability to fund planned investments without borrowing.