Airgain, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filed August 10, 2023. Airgain provides embedded connectivity components, antennas and integrated wireless systems for enterprise, consumer and automotive markets. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $15.83 | $19.29 | $32.27 | $36.81 |
| Gross profit / margin | $6.28 / 39.7% | $7.49 / 38.9% | $12.60 / 39.0% | $14.65 / 39.8% |
| Operating loss | $(2.21) | $(1.61) | $(5.00) | $(4.04) |
| Net loss | $(2.21) | $(1.62) | $(5.06) | $(4.14) |
| Diluted loss per share | $(0.21) | $(0.16) | $(0.49) | $(0.41) |
- Revenue mix: Q2 enterprise revenue was $7.37 million, consumer $6.19 million and automotive $2.28 million. Versus Q2 2022, enterprise and automotive declined while consumer rose modestly. U.S. revenue was $2.8 million in Q2 versus $12.4 million a year earlier; China, including Hong Kong and Taiwan, contributed $6.1 million.
- Cash flow: Six-month operating cash flow was $(2.00) million, compared with $1.98 million provided in the prior-year period. Investing used $0.10 million and financing used $0.53 million. Cash, cash equivalents and restricted cash declined $2.63 million to $9.45 million, including $9.27 million of unrestricted cash and equivalents.
- Liquidity and obligations: At June 30, cash and equivalents were $9.27 million and current assets were $24.38 million, against current liabilities of $11.21 million. Total liabilities were $12.43 million, including $2.00 million of lease liabilities. No borrowings are reported; the $4.0 million revolving credit facility expired in February 2023. Management stated existing cash and expected operating proceeds should fund requirements for at least 12 months.
- Balance sheet: Total assets were $49.51 million, stockholders’ equity $37.08 million and accumulated deficit $71.16 million. Inventories were $4.80 million, including $1.0 million of excess and obsolete inventory reserves. Goodwill was $10.85 million; net intangible assets were $9.72 million.
Material changes and management commentary
- Q2 revenue fell 17.9% year over year; first-half revenue fell 12.3%. Management attributed softness to macroeconomic demand conditions and excess channel inventory, which reduced demand visibility and increased operating volatility.
- Q2 enterprise sales declined mainly due to lower industrial IoT and enterprise access point sales; automotive declined on lower AirgainConnect HPUE and aftermarket sales. Consumer improved on Wi-Fi 6E demand in Q2, partly offsetting first-quarter softness.
- Q2 gross margin increased 0.8 percentage points, primarily from favorable consumer mix; first-half gross margin declined 0.8 points, primarily from unfavorable enterprise product mix. First-half operating expenses decreased 5.8%, but higher general and administrative costs and lower sales contributed to a wider operating loss.
- Management said it remains focused on strategic product initiatives and operating efficiencies, and expects to continue investing in sales, engineering, capital expenditures and R&D. The filing provides no numerical revenue, earnings or margin guidance.
Risks, contingencies and unusual items
- Customer concentration is material: Customer A represented 24% of Q2 revenue and Customer B 14%; Customer A was 21% of receivables at quarter-end. Six contract manufacturers produced the company’s products during the first half.
- In August 2023, Airgain applied for $2.5 million of employee retention credit refunds, net of professional fees. Receipt and timing depend on IRS review; the company cautioned that eligibility and payment are not assured.
- The company reported $407,000 of accrued severance and exit costs at June 30, 2023. Product warranty accruals were approximately $0.1 million. It reported no material known costs under indemnification provisions and no material legal proceedings.
- Most cash was moved in Q2 from a bank placed into FDIC receivership in March 2023. Airgain reported no losses on those deposits and said it moved most funds to accounts at a larger institution.
- The company reported continuing net losses and a full valuation allowance against net deferred tax assets as of year-end 2022. Management cited macroeconomic demand, channel inventory, pricing pressure, customer/product concentration, supply conditions and execution of its transition toward systems products as business risks.
Investor verification priorities
- Track revenue recovery, channel inventory and demand trends across enterprise, consumer and automotive, including whether Wi-Fi 6E gains offset weakness elsewhere.
- Verify the IRS determination, amount and timing of the $2.5 million ERC refund application; do not treat it as assured liquidity.
- Monitor customer concentration, particularly Customer A, and changes in receivables or customer purchasing patterns.
- Assess cash burn against management’s stated 12-month liquidity expectation, including the impact of continued R&D and growth investment.
- Review inventory quality and reserves, lease obligations, severance costs, and potential dilution from equity awards; approximately 2.4 million potentially dilutive shares were excluded from diluted loss per share as anti-dilutive.