Airgain, Inc. — Q2 2019 Form 10-Q
Business and period: Airgain designs and supplies advanced antenna technologies for consumer, enterprise and automotive wireless products. This unaudited report covers the quarter and six months ended June 30, 2019; amounts below are in U.S. dollars.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $14.5m | $15.0m | $29.6m | $28.3m |
| Gross profit / margin | $6.7m / 46.2% | $6.6m / 44.1% | $13.5m / 45.6% | $12.8m / 45.3% |
| Operating income (loss) | $0.5m | ($3.6m) | $0.7m | ($4.8m) |
| Net income (loss) | $0.7m | ($3.2m) | $1.0m | ($4.3m) |
| Diluted earnings (loss) per share | $0.07 | ($0.34) | $0.10 | ($0.45) |
- Q2 revenue fell 3.4% year over year, which management attributed mainly to slower-than-expected ramps in new and existing programs. First-half revenue increased 4.6%, supported by demand and program ramps, including new designs in consumer and enterprise markets.
- Gross margin improved year over year in both periods, primarily due to sales mix. Operating expenses declined 39.6% in Q2 and 27.3% in the first half. Lower sales and marketing costs reflected terminated marketing activities and reduced trade-show spending; lower G&A primarily reflected reduced personnel costs.
- Prior-year comparisons included unusual costs: $1.3m to terminate a marketing agreement and $1.2m of stock compensation associated with the former CEO’s departure, as well as other related termination costs. Q2 2018 also included a $0.4m gain on a deferred purchase price liability.
Cash, liquidity and debt
- At June 30, 2019, cash and cash equivalents were $13.6m and short-term investments were $20.6m, totaling $34.2m. Current assets were $46.0m and current liabilities $8.0m; working capital was approximately $38.0m.
- First-half operating cash flow was positive $0.2m, versus negative $1.6m a year earlier. Net cash increased $0.02m to $13.6m. Receivables grew $2.7m during the first half and were a substantial operating cash-flow use.
- No balance was outstanding on the $10m revolving credit facility, which matures January 31, 2020. The company reported compliance with its financial covenants. It had no material interest expense in the first half.
- Investing cash flow was negative $0.6m, including $0.4m of property and equipment purchases and net purchases of available-for-sale securities. Financing cash flow was positive $0.4m, mainly option-exercise proceeds, partly offset by $0.2m of share repurchases.
Outlook, risks and other notable items
- No numerical revenue or earnings guidance is provided. Management stated existing cash, investments and operating cash proceeds should meet working-capital needs for at least the next 12 months. It expects to continue investing in sales, engineering, R&D, new products and market expansion; it anticipates R&D expense to increase, sales and marketing expense to decrease, and G&A to remain generally consistent with 2018.
- Risks highlighted include variable program timing and customer purchasing, pricing pressure, slower customer product rollouts, and global trade tensions affecting the supply chain. Results can fluctuate with Chinese holiday purchasing patterns. A few customer devices represent a significant portion of sales.
- Customer A represented 37% of Q2 revenue and 44% of quarter-end receivables. China accounted for 75% of Q2 revenue by customer bill-to location. Products were manufactured primarily by two vendors in China and Airgain’s Arizona facility.
- Management disclosed that implementation of a new NetSuite accounting system could disrupt operations or timely financial reporting. The company reported no material legal proceedings, no material indemnification liabilities, and no material change in internal control over financial reporting; disclosure controls were considered effective.
- After quarter-end, Jacob Suen was appointed CEO effective August 8, 2019, succeeding Jim Sims, who became an advisor while remaining Board Chair. Suen was also appointed to the Board. The filing describes related compensation terms and a proposed 250,000-option grant.
- Management noted adoption of the new revenue recognition standard was planned for 2019 using the modified retrospective approach, with the full impact still under evaluation. The interim results are not necessarily indicative of full-year results.
Investor verification priorities
- Check subsequent filings and results for whether new and existing program ramps accelerated and for the persistence of Q2’s revenue decline.
- Monitor customer and geography concentration, especially Customer A’s sales and receivables shares, and China-related demand and supply-chain exposure.
- Assess receivables growth and operating cash conversion, along with spending plans and the expected sufficiency of liquidity.
- Verify implementation progress and reported effects of NetSuite and the revenue recognition standard; review the CEO transition, option grant and compensation disclosures.