Airgain, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Airgain designs and sells antenna technologies for wireless devices and markets including connected home, enterprise, automotive and IoT.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Sales | $13.31 million | $11.25 million; up 18.2% |
| Gross profit / margin | $6.19 million / 46.6% | $5.29 million / 47.0% |
| Operating expenses | $7.36 million | $4.86 million; up 51.3% |
| Operating income (loss) | $(1.16) million | $0.43 million |
| Net income (loss) | $(1.11) million; $(0.12) per diluted share | $0.39 million; $0.04 per diluted share |
| Operating cash flow | $(1.83) million | $(3.12) million |
- At March 31, cash and cash equivalents were $15.46 million and short-term investments were $17.52 million, totaling $32.98 million. Current assets were $42.86 million versus current liabilities of $8.10 million.
- Term-loan principal outstanding was $1.0 million; no revolver borrowings were outstanding. The amended revolving facility provides up to $10 million, subject to an 80% eligible-receivables borrowing base. The company reported compliance with financial covenants.
- Investing cash flow was positive $3.27 million, mainly reflecting $7.5 million of investment maturities, partly offset by purchases of investments and $0.50 million of capital expenditures. Financing cash use was $1.01 million, including $0.78 million of share repurchases and $0.33 million of debt repayment. Cash increased $0.44 million during the quarter.
Changes versus the prior-year quarter
- Sales growth included $2.3 million from the 2017 Antenna Plus acquisition; management said sales from the organic business decreased slightly. Organic device volume fell 18%, or 2.3 million devices, primarily due to lower set-top-box sales. Average antennas per device increased 22% to 3.8, and average selling price per device rose 19% to $1.02.
- Gross margin declined 0.4 percentage point, which management attributed primarily to sales mix. R&D rose 42.1%, sales and marketing 77.2%, and general and administrative expense 34.6%; increased marketing, staffing and acquisition-related costs contributed to higher spending.
- Q1 2018 included $2.3 million of Antenna Plus revenue, $0.9 million of related cost of goods sold and $0.7 million of related net income. Total company results nevertheless moved from profit to loss as operating expenses grew faster than gross profit.
Outlook, risks and notable items
- No quantified revenue or earnings guidance was provided. Management said it expects continued investment in sales, engineering, R&D, marketing and capital expenditures, and believes cash, investments and operating proceeds will meet working-capital needs for at least 12 months.
- Management cited price pressure, reliance on a limited number of end-customer devices, customer purchasing patterns around Chinese holidays, and the need to diversify products and markets. Customer A accounted for 30% of Q1 revenue; China represented 64% of revenue by customer bill-to location. Products were manufactured by two vendors in China and Airgain’s Arizona facilities.
- Airgain disclosed that ZTE halted future orders for antenna products previously shipped to it following U.S. export-control action; the filing said restrictions would likely also prevent new shipments to ZTE. Further regulatory action could affect sales, particularly in China.
- After quarter-end, COO Glenn Selbo resigned effective April 2 and CEO Charles Myers resigned May 2. Chairman James K. Sims became interim CEO. Myers’s severance includes $484,000 cash and accelerated options; Airgain expected about $1.2 million in Q2 stock-compensation expense. Selbo’s severance includes $150,000 cash, with about $44,000 of expected Q2 stock-compensation expense. The interim CEO receives a $400,000 annualized retainer and was granted 175,000 options.
- The company repurchased 86,168 shares for $0.78 million in Q1 at an average $9.06 per share. The filing reported $2.0 million repurchased under the $7.0 million program through March 31. Management reported effective disclosure controls and no material legal proceedings.
Important facts for investors to verify
- How much of subsequent sales and growth is organic versus attributable to Antenna Plus, and whether lower organic device volumes persist.
- Whether operating expenses and marketing investment translate into improved margins and a return to profitability.
- The actual sales and earnings impact of lost ZTE orders, export restrictions and customer concentration in China.
- Leadership succession, execution during the management transition, and the timing and amount of related severance and stock-compensation charges.
- Liquidity and covenant headroom, including the receivables-based limit on the undrawn credit facility and continued share repurchases.