Airgain, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Airgain provides wireless connectivity products and technologies for consumer, enterprise, and automotive markets. This unaudited report covers the quarter and nine months ended September 30, 2021. Results include NimbeLink, an industrial IoT business acquired on January 7, 2021.
Financial performance
Amounts below are in millions of dollars except per-share data; comparisons are with the corresponding 2020 periods.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales | $15.455 | $13.010 | $50.129 | $35.672 |
| Gross profit | $5.546 | $6.029 | $19.742 | $16.748 |
| Gross margin | 35.9% | 46.3% | 39.4% | 46.9% |
| Operating loss | $(3.046) | $(0.200) | $(7.661) | $(2.108) |
| Net loss | $(3.069) | $(0.261) | $(5.441) | $(2.199) |
| Net loss per share | $(0.30) | $(0.03) | $(0.54) | $(0.23) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(6.921) | $3.477 |
- Revenue mix: Q3 enterprise sales rose to $8.7 million from $0.8 million, primarily reflecting NimbeLink industrial IoT products. Consumer sales fell to $4.6 million from $10.4 million, while automotive sales increased to $2.2 million from $1.8 million. The nine-month pattern was similar: enterprise grew to $19.2 million, consumer declined to $23.8 million, and automotive rose to $7.1 million.
- Margins and expenses: Gross margin fell 10.4 percentage points in Q3 and 7.5 points over nine months. Management attributed the decline to product mix, lower-margin industrial IoT and AirgainConnect sales, acquisition-related intangible amortization, and, for the nine-month period, inventory step-up costs. Operating expenses increased 37.9% in Q3 and 45.3% year to date. The nine-month results included $1.660 million of expense from remeasuring NimbeLink contingent consideration.
- Cash flow and liquidity: Cash and cash equivalents were $18.954 million at September 30, 2021, plus $0.175 million of restricted cash. Cash and cash equivalents declined from $38.173 million at December 31, 2020. Nine-month cash use included $14.185 million, net of cash acquired, for the NimbeLink acquisition and $0.542 million in property and equipment purchases. Working capital was approximately $18.309 million.
- Debt and liabilities: The company reported no outstanding borrowings; the NimbeLink-assumed revolving credit line was closed in April 2021 without borrowing. The balance sheet included $8.346 million of current deferred purchase price liabilities, $3.138 million of lease liabilities, and total liabilities of $21.418 million.
- Other financial items: The nine-month income-tax benefit was $2.214 million, primarily associated with releasing part of the valuation allowance following the acquisition. The Q3 tax provision was $0.030 million. Goodwill was $10.845 million and net intangible assets were $14.985 million at quarter-end.
Material changes versus the prior comparable period
- Sales increased 18.8% in Q3 and 40.5% for the first nine months, with acquisition-related enterprise growth more than offsetting lower consumer revenue.
- Despite higher sales, Q3 gross profit declined 8.0%; gross margin dropped from 46.3% to 35.9%. Operating and net losses widened in both comparison periods.
- Operating cash flow shifted from $3.477 million provided in the first nine months of 2020 to $6.921 million used in 2021, including working-capital outflows from higher receivables and inventory.
- The acquisition materially increased goodwill, intangible assets, amortization expense, contingent consideration, and operating costs. NimbeLink’s reported contribution included $0.5 million of net income in Q3 and $0.4 million for the nine months; management cautioned that these amounts were not indicative of acquisition results due to integration activities.
Outlook, management commentary, and risks
- Management said existing cash and cash equivalents, together with cash proceeds from operations, should be sufficient for working-capital needs for at least the next 12 months. The filing provides no quantified revenue or earnings guidance.
- Airgain plans continued investment in sales, engineering, research and development, new products, and international market penetration; management expects these investments to increase in absolute dollars.
- Management identified global component and chip shortages, China power shortages, shipping delays and higher freight costs, inflation in component and manufacturing costs, and COVID-19-related disruption as factors affecting supply, customer rollouts, sales timing, and margins.
- Other risks include customer and product concentration, pricing pressure, product lifecycle changes, acquisition integration, and the uncertain timing and scale of demand. Four customers each accounted for at least 10% of Q3 sales; customer concentration and exposure should be considered alongside the reported revenue growth.
- The NimbeLink acquisition included up to $8.0 million of contingent consideration tied to 2021 revenue targets; the reported contingent consideration payable was $7.6 million at September 30. The valuation depends on estimates and forecasts.
- The company reported no material legal proceedings and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective at the reasonable-assurance level; integration of NimbeLink’s financial controls was ongoing.
Important facts for investors to verify
- Whether component availability, customer rollouts, and freight or input costs continued to constrain sales and gross margins after quarter-end.
- How much of sales growth and future profitability depends on NimbeLink and AirgainConnect, including the revenue-target assumptions underlying contingent consideration.
- Whether elevated receivables and inventory convert to cash, and whether operating cash flow improves from the nine-month outflow.
- The expected pace of acquisition-related amortization and operating expense, and the sustainability of the tax benefit associated with the valuation-allowance release.
- Customer concentration, potential product end-of-life effects, and the effect of the company’s planned investment on expenses and liquidity.