Airgain, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; financial statements are unaudited. Airgain provides wireless connectivity products and solutions for consumer, enterprise, and automotive markets, including products acquired with NimbeLink.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales | $19.2 million | $15.5 million | $56.0 million | $50.1 million |
| Gross profit | $7.4 million | $5.5 million | $22.1 million | $19.7 million |
| Gross margin | 38.8% | 35.9% | 39.5% | 39.4% |
| Operating loss | $1.3 million | $3.0 million | $5.3 million | $7.7 million |
| Net loss | $1.3 million | $3.1 million | $5.4 million | $5.4 million |
| Basic and diluted loss per share | $0.13 | $0.30 | $0.53 | $0.54 |
Q3 sales rose 24.2% year over year; nine-month sales rose 11.7%. Q3 gross margin improved 2.9 percentage points, which management attributed mainly to favorable consumer mix and improved aftermarket margins. Nine-month gross margin was essentially flat. Q3 operating expenses were $8.7 million, up 1.3%; nine-month operating expenses were $27.4 million, approximately unchanged. The company remained loss-making.
For the nine months, operating cash flow was positive $2.1 million, versus cash used of $6.9 million a year earlier. Investing activities used $0.6 million, principally for equipment; financing activities used $6.8 million, primarily for acquisition-related payments. Cash, cash equivalents, and restricted cash declined $5.3 million to $9.4 million; balance-sheet cash and cash equivalents were $9.2 million.
At September 30, 2022, current assets were $30.0 million and current liabilities $14.4 million. Total liabilities were $16.3 million and stockholders’ equity $42.0 million. No amount was outstanding on the $4.0 million Silicon Valley Bank revolving facility. It is borrowing-base limited, secured by company assets other than intellectual property, subject to covenants, and matures in February 2023. The company said existing cash and expected operating cash flows should cover working capital needs for at least 12 months.
Material changes and business developments
- Q3 consumer sales increased to $7.3 million from $4.6 million, which the company linked to easing supply shortages affecting customers’ product rollouts. Automotive sales grew to $5.1 million from $2.2 million, mainly on higher aftermarket sales. Enterprise sales declined to $6.8 million from $8.7 million, primarily due to lower industrial IoT and enterprise Wi-Fi access-point sales.
- For the nine months, enterprise sales increased to $24.5 million from $19.2 million and automotive sales to $12.1 million from $7.1 million. Consumer sales decreased to $19.4 million from $23.8 million, primarily due to supply shortages affecting customers in the first half.
- Revenue remains concentrated: four customers each represented at least 10% of nine-month 2022 sales, and three each represented at least 10% of receivables at period end. Sales also depend on contract manufacturers and component availability.
- The company completed its Arizona in-house manufacturing shutdown and moved production to contract manufacturers. It also reduced UK research and sales headcount, incurring $123,000 of severance costs in the first nine months.
- In April 2022, Airgain paid $8.0 million of NimbeLink contingent consideration and $0.6 million of deferred purchase price. Remaining deferred purchase price liability was $0.2 million at quarter end.
Outlook, risks, and unusual items
No quantified revenue or earnings guidance is provided. Management expects continued investment in sales, engineering, research and development, and capital expenditures. It states that cash and expected operating cash flows should meet working capital requirements for at least the next 12 months.
Management cites COVID-19-related disruption, supply shortages and proactive inventory purchases, inflation, pricing pressure, customer product cycles, and the successful development and adoption of new products as factors affecting results. The filing specifically warns that AT&T ended special promotional service credits for AirgainConnect AC-HPUE in Q3; this has adversely affected, and may continue to affect, product sales. The company also notes risks to its transition toward integrated wireless systems and dependence on customer acceptance of AirgainConnect follow-on products. It reported no material changes to previously disclosed risk factors, no material legal proceedings, and no material off-balance-sheet arrangements.
Subsequent to quarter end, Michael Elbaz was appointed CFO and Secretary on October 17, 2022. Morad Sbahi was appointed Chief Revenue Officer in November 2022.
Investor verification priorities
- Assess whether Q3 supply-chain improvement is sustainable and how shortages, customer launches, and inventory levels affect future sales and cash conversion.
- Track the impact of discontinued AT&T promotional credits on AC-HPUE sales, and the progress and market acceptance of follow-on AirgainConnect products.
- Review customer concentration and the contrasting market trends, especially the Q3 enterprise decline and nine-month consumer weakness.
- Monitor liquidity, operating cash generation, the February 2023 credit-facility maturity and covenants, and acquisition-related cash uses.
- Evaluate whether improving gross margins and operating losses can continue while the company invests in product development and growth.