Airgain, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; comparisons are with the corresponding 2022 period. Financial amounts below are in U.S. dollars.
Business context
Airgain provides wireless connectivity products and solutions across enterprise, consumer, and automotive markets. It operates as one reportable segment and uses third-party manufacturers. The filing describes demand softness across the industry, customer and channel inventory corrections, and a shift in service-provider demand from Wi-Fi 6E toward Wi-Fi 7.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales | $13.7 million | $19.2 million | $46.0 million | $56.0 million |
| Gross profit | $5.2 million | $7.4 million | $17.8 million | $22.1 million |
| Gross margin | 38.2% | 38.8% | 38.8% | 39.5% |
| Operating expenses | $7.1 million | $8.7 million | $24.7 million | $27.4 million |
| Operating loss | $1.9 million | $1.3 million | $6.9 million | $5.3 million |
| Net loss | $1.9 million | $1.3 million | $6.9 million | $5.4 million |
| Net loss per diluted share | $0.18 | $0.13 | $0.67 | $0.53 |
At September 30, 2023, cash and cash equivalents were $10.0 million, current assets were $22.3 million, and current liabilities were $9.5 million. Total liabilities were $10.5 million, including $1.8 million of lease liabilities; the filing reports no outstanding borrowings and notes that a $4.0 million revolving credit line expired in February 2023. Stockholders’ equity was $35.8 million and accumulated deficit was $73.0 million.
For the first nine months, operating activities used $1.4 million of cash, compared with $2.1 million provided in 2022. Investing activities used $0.2 million and financing activities used $0.5 million. Cash, cash equivalents, and restricted cash decreased $2.0 million to $10.1 million. Management said existing cash and expected operating cash proceeds should meet working-capital needs for at least 12 months.
Changes versus the prior comparable period
- Q3 sales fell 28.7%; nine-month sales fell 17.9%. Q3 declines were concentrated in consumer (down $2.9 million) and automotive (down $2.6 million); enterprise sales were approximately flat.
- For the first nine months, consumer sales decreased $3.7 million, automotive sales decreased $4.4 million, and enterprise sales decreased $1.9 million. The filing attributes these changes to demand softness, customer/channel inventory corrections, lower AirgainConnect HPUE sales, and lower embedded-modem sales, partly offset by higher enterprise IoT sales.
- Gross margin declined 60 basis points in Q3 and 70 basis points for the nine-month period, reflecting unfavorable mix and lower enterprise margins, partly offset by lower indirect costs.
- Operating expenses fell 17.9% in Q3 and 9.7% year to date, mainly due to lower employee compensation and marketing or outsourced-service costs. General and administrative expense increased in both periods.
- Net losses widened year over year in both the quarter and the nine-month period; lower revenue and gross profit more than offset reduced operating expenses.
Outlook, risks, and unusual items
- Management said market softness worsened in the second half of 2023 and, together with a delayed enterprise project, contributed to a material sales decline versus the first half. Customer-demand visibility has decreased and business-management volatility has increased.
- No quantitative revenue or earnings guidance is provided. Management said it remains focused on strategic product initiatives and operational efficiencies and expects to continue investing in sales, engineering, capital expenditures, and research and development.
- In August 2023, Airgain applied for approximately $2.5 million of Employee Retention Credit refunds, net of professional fees. Receipt and timing depend on IRS review; the company stated there is no assurance it will receive the expected amount.
- A share-price and market-capitalization decline triggered impairment assessments. The company recorded no impairment of goodwill or intangible assets at September 30, 2023, but stated that adverse business conditions or changes in customer behavior could lead to future non-cash impairment charges.
- Customer concentration remains relevant: Customer A contributed 22% of Q3 revenue, and three customers each accounted for at least 10% of nine-month revenue. The company also relies on six contract manufacturers.
- Warranty accruals were approximately $0.1 million. The filing reports no known material indemnification costs and no subsequent events. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether demand and customer inventory corrections stabilize, and whether the delayed enterprise project is completed and contributes revenue.
- Whether the expected $2.5 million ERC refund is approved, in what amount, and when cash is received.
- Cash burn and liquidity trends, particularly if operating losses continue; the former revolving credit facility has expired.
- Revenue concentration and the pace of recovery across consumer, automotive, and enterprise markets.
- Assumptions underlying goodwill and intangible-asset impairment assessments, given the share-price decline and sensitivity to forecast changes.