Airgain, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; filed November 14, 2017. Airgain designs and sells antenna technologies for wireless, home, enterprise, industrial, and automotive applications.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Sales | $12.45 million | $12.44 million | $36.71 million | $30.81 million |
| Gross profit | $6.00 million | $5.58 million | $17.41 million | $13.80 million |
| Gross margin | 48.2% | 44.8% | 47.4% | 44.8% |
| Operating income | $0.20 million | $1.23 million | $0.50 million | $2.32 million |
| Net income | $0.23 million | $1.18 million | $0.55 million | $2.63 million |
| Diluted EPS | $0.02 | $0.16 | $0.05 | $0.25 |
- Q3 sales were essentially flat year over year; nine-month sales rose 19.2%, including $3.3 million from the Antenna Plus acquisition.
- Nine-month operating expenses rose 47.3% to $16.91 million, led by higher general and administrative expense, including acquisition costs and public-company costs. Q3 operating expenses increased 33.5% to $5.80 million.
- Cash generated from operations was negative $0.99 million for the first nine months, versus positive $1.97 million in 2016. Investing cash outflow was $24.99 million, including the Antenna Plus purchase and purchases of securities; financing cash outflow was $1.02 million.
Financial position and liquidity
- At September 30, cash and cash equivalents were $18.17 million and short-term investments were $18.46 million, together $36.63 million. Cash alone was $45.16 million at December 31, 2016; the company said it transferred some cash into investments in August.
- Total assets were $55.97 million; current assets were $45.70 million and current liabilities $9.12 million. Stockholders’ equity was $46.08 million.
- Notes payable totaled approximately $1.67 million, including $1.33 million current; no amount was drawn on the $3.0 million revolving credit facility. The term loan carries a fixed 5% rate and matures in December 2018. Airgain reported covenant compliance at quarter-end.
- Management stated existing cash, cash equivalents, short-term investments, and operating cash proceeds should cover working capital needs for at least the next 12 months.
Changes, outlook, and risks
- Gross margin improved year over year, which management attributed primarily to sales mix. Profitability nevertheless declined as operating expenses increased.
- Organic device volume fell 34.0% in Q3 and 8.4% for the nine-month period; management cited lower television and set-top-box device volumes. Antennas per device and average selling price per device increased.
- Airgain acquired substantially all Antenna Plus assets in April for approximately $6.35 million in cash, expanding into automotive fleet, public safety, government, and industrial IoT markets. Acquired operations contributed $1.8 million in Q3 sales and $3.3 million for the nine-month period.
- The board authorized up to $7 million of share repurchases over 12 months. By September 30, 52,200 shares had been repurchased for $468,823, at an average $8.98 per share.
- No specific revenue or earnings guidance was provided. Management expects continued investment in research and development, sales, engineering, and capital expenditures, and expects related spending to increase in absolute dollars.
- Key risks include customer and product concentration, pricing pressure, dependence on two China-based contract manufacturers for most products, and the potential for manufacturing or supply disruptions. Three customers each represented at least 10% of Q3 sales; China accounted for 71% of reported revenue by customer bill-to location. The company also noted that quarter results can be affected by purchasing patterns around Chinese holidays.
- The filing reported no material legal proceedings, no material changes to previously disclosed risks other than the manufacturing-dependence disclosure, and no material change in internal control over financial reporting. Disclosure controls were deemed effective at a reasonable assurance level.
Important facts for investors to verify
- Whether lower organic device volumes and television/set-top-box weakness persist, and whether increased antennas per device and selling prices can offset them.
- Whether Antenna Plus integration delivers the expected growth, synergies, and operating contribution.
- Whether higher operating expenses and acquisition-related costs moderate, allowing revenue growth to translate into improved operating profit.
- Customer concentration, China exposure, and reliance on two contract manufacturers, including manufacturing capacity and transition alternatives.
- Liquidity and covenant requirements under the amended loan agreement, the remaining share-repurchase authorization, and the company’s continued ability to fund planned investments.