Airgain, Inc. — Q3 2019 Form 10-Q
Business and period: Airgain designs and sells antenna technologies for consumer, enterprise and automotive wireless applications. This unaudited report covers the quarter and nine months ended September 30, 2019; comparisons are with the corresponding 2018 periods. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Sales | $13.142 | $15.787 | $42.713 | $44.064 |
| Gross profit | $6.075 | $6.865 | $19.546 | $19.661 |
| Gross margin | 46.2% | 43.5% | 45.8% | 44.6% |
| Operating income (loss) | $(0.205) | $0.307 | $0.470 | $(4.505) |
| Net income (loss) | $(0.135) | $0.437 | $0.863 | $(3.858) |
| Diluted EPS | $(0.01) | $0.04 | $0.09 | $(0.41) |
| Operating cash flow | Not separately provided | Not separately provided | $0.875 | $(1.241) |
- Q3 sales fell 16.8% year over year; nine-month sales fell 3.1%. Management attributed the declines to softer demand and slower-than-expected ramps in new and existing programs, particularly consumer and enterprise designs.
- Gross margin improved 2.7 percentage points in Q3 and 1.2 points year to date, primarily due to sales mix. Despite higher Q3 margin, lower sales and operating expenses of $6.280 million resulted in a $0.205 million operating loss.
- Nine-month operating expenses declined 21.1% to $19.076 million, primarily reflecting reduced sales and marketing spending and lower G&A costs compared with 2018. Q3 G&A rose 25.7% to $2.416 million, primarily due to personnel-related costs.
- Other income benefited from interest on investments. The 2018 nine-month comparison also included a one-time $0.389 million gain on a deferred purchase price liability.
Liquidity, debt and capital resources
- At September 30, 2019, cash and cash equivalents were $12.871 million and short-term investments were $21.001 million, totaling $33.872 million, versus $33.790 million at December 31, 2018. Current assets were $45.087 million and current liabilities $7.437 million.
- Nine-month operating cash flow was $0.875 million. Investing used $1.605 million, including $1.045 million for property and equipment; financing used $0.020 million. Cash declined $0.750 million to $12.871 million.
- No balance was drawn on the $10 million revolving credit facility. The facility matures January 31, 2020, is subject to an eligible-receivables borrowing base and financial covenants, and the company reported covenant compliance. The company reported no other debt outstanding in the presented balance sheet.
- Management believes existing cash, cash equivalents and operating cash proceeds will meet working-capital requirements for at least 12 months. A new share repurchase authorization permits up to $7 million over 12 months; $0.6 million was repurchased in Q3 and $0.8 million in the first nine months.
Outlook, risks and notable items
- No quantified revenue or earnings guidance is provided. Management expects continued investment in sales, engineering, R&D and capital expenditures, and expects R&D expense to increase in absolute dollars. Sales and marketing expense may fluctuate as the company redirects efforts toward enterprise and automotive markets; G&A was expected to be higher for the rest of 2019, partly due to the new CEO.
- Key risks include unpredictable customer purchasing and product rollout timing, pricing pressure, dependence on a small number of customer programs, and global trade and macroeconomic conditions. The filing notes that slower customer rollouts and delayed Wi-Fi/DOCSIS upgrade cycles have affected results.
- Customer A represented 34% of Q3 revenue and 38% for the first nine months; Customer B represented 18% and 14%, respectively. China accounted for 71% of Q3 revenue and 72% year to date, based on customer bill-to location. Most products were manufactured by two vendors in China and Airgain’s Arizona facilities.
- The company implemented a new ERP system in Q3. Management said disclosure controls were effective at the reasonable-assurance level; the filing identifies potential disruption or reporting delays from ERP implementation as a risk. No material legal proceedings or off-balance-sheet arrangements were reported. Indemnification provisions had no recorded liabilities.
Important facts for investors to verify
- Whether customer demand and new-program ramps recover, and whether customer concentration or delayed product cycles materially affect future sales.
- Whether improved gross margins can be sustained while revenue remains below the prior-year quarter and operating expenses reflect planned investment.
- Liquidity, covenant compliance and the status or renewal of the revolving credit facility before its January 2020 maturity.
- Execution and control effects of the ERP rollout, and the pace and funding of the new share repurchase program.