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spk03: and $18 million, or $17.25 million at the midpoint of the range, with most of the growth coming from the recovery of our consumer product revenue as we are seeing less impact from supply shortages. We expect non-GAAP gross margin in the first quarter to be 37%, plus or minus 100 basis points, as we see a recovery from our higher margining consumer product revenue. Excluded from non-GAAP gross margin is $89,000 in acquisition-related amortization of purchased intangibles and about $16,000 in stock-based compensation expense. We expect Q1 non-GAAP operating expense will be about $7.5 million, plus or minus $100,000. Higher sequential operating expense is related to the reset of the annual management bonus program timing of engineering development costs, as well as from the acquisition of talent, mostly in our marketing and sales organization, to ensure we execute on our growth prospects. Excluded from our non-GAAP operating expense estimate is about $1.3 million in stock-based compensation expense and about $668,000 in acquisition-related amortization and purchase intangibles. At the midpoint of guidance, adjusted EBITDA in Q1 would be negative by about $1 million. At the midpoint of guidance, we expect Q1 non-GAAP loss per share to be about 11 cents, and on a GAAP basis, we expect a loss per share of 33 cents. With regard to cash, we expect our total cash, cash equivalents, and restricted cash balance to increase from Q4 2021 to Q1 2022, as we expect to benefit from positive working capital changes. Now I'll turn it back over to Jacob. Jacob?
spk01: Thanks, Dave. I would like to reiterate that we have confidence in our long-term strategy and that we are pleased with the progress we have made in becoming a high-performance integrated wireless system provider. We believe the successful transition from an antenna component supplier to an integrated wireless system company, as well as our expansion into the lucrative enterprise, and automotive markets puts Agan in a position to sustain long-term profitable growth. While we are still managing through some remaining supply shortage issues, we are seeing a recovery already taking place this quarter and expect that positive trend to continue into 2022. With rising demand for our new and innovative industrial IoT, Agan Connect and aftermarket products. We are optimistic about our growth prospects in 2022 and beyond. With continuing focus on customer satisfaction, operational efficiency, and product innovation, we are keen on delivering on our mission to connect the world through AIGEN's optimized integrated wireless systems. And with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
spk06: Thank you very much. And if you would like to ask a question, please press star followed by one in the telephone keypad. And if you do change your mind, please press star followed by two. Our first question on the line comes from Michael Mani of B Riley Securities. Please go ahead with your question, Michael. Thank you.
spk10: Hey, guys. This is Michael on for Craig. Thanks for letting us ask a couple of questions. My first question is concerning gross margins. It's nice to see the guide at 37% for next quarter. I was just wondering if you could walk us through how you see the gross margin trajectory playing out. throughout the year. Just a year ago, we were back at the low 40% levels, and I was just wondering if you could walk us through the relative contribution of mixed benefits and maybe easing supply headwinds and also as you outsource manufacturing, how we could potentially get back to that 40% level.
spk03: Yeah, I'll take that one, Michael. This is Dave. On the gross margin front, going into Q1, we're getting some beneficial product mix with the consumer revenue starting to grow. We said historically the consumer revenue has had a higher gross margin profile than on enterprise and automotive, especially as we ramp new products for automotive and enterprise. We think we'll continue to see growth as we get through the final issues related to the supply, global supply shortage on the consumer front, which should help us a little bit more going into Q2 and beyond on a gross margin front. In terms of the rest of the year, I think it'll really depend on how fast and how big we grow both automotive and enterprise, which have lower gross margin profiles. And so I think if we grow much more rapidly, we're going to see more pressure on gross margin, but obviously more dollars falling to the bottom line in that case. In any case, I do think we can get back into this year, the 40% range from a gross margin perspective.
spk10: Got it. That's helpful. Thank you. And my next question is concerning AirGain Connect. I was wondering if there were any updates to your promotional activity with AT&T and any updates you can get on the opportunity funnel and sell through customer dynamics, et cetera.
spk04: Yes, good afternoon. This is Murad. So I'll take that one. So the promotional activity that we started last year with AT&T, that's continuing to be in effect for this quarter. And it's the same model where we provide $400 of cost savings, and then AT&T kicks in $800, which means that the customer winds up paying $320. It's a really very, very... has been very beneficial for us. So like I said in the last earnings call, what that promotion has done for us is it not only increased the funnel in a substantial way, but also the color of those customers has changed. And what I mean by that is that we are starting to see more and more urban customers showing interest in AirGain Connect. And these are the kind of customers that really are going to fuel that growth that we've been waiting for for AirGain Connect. So if you're talking about rural customers that are ordering, let's say, tens of units or low hundreds, these are the kind of customers that order in the mid-hundreds to over 1,000 units. So it's really, really very healthy for us. So we're really excited about that, and that trend continues. It started, like I said, the second half of last year, and it's continuing this year, and we expect it to go on for the rest of 2022. Great. Thank you.
spk06: Our second question today comes from Carl Ackerman of Cowan & Company. Please go ahead, Carl. Thank you.
spk09: Yes, thank you. And, Dave, enjoyed working with you, and Best of luck in your future endeavors. Two questions for me, if I may. I understand you're pivoting your manufacturing strategy, I think for NimbleLink products, from internal to external contract manufacturers, but I guess first, why has inventory been creeping higher throughout the year when sales have moderated, and then second, I guess as you address that question, you've faced supply shortages over the last couple of quarters. So have you been able to lock in volume commitments that give you confidence you can achieve the backlog and billings you have today?
spk03: I'll start, and Jacob, you can pipe in. First of all, thank you, Carl. It's been great working with you. I'm sure we'll bump into each other again. Related to the contract manufacturing, that's actually, we've used contract manufacturers for NimbleLink historically and that model is not going to change. This is more related to some of our antenna plus branded products as well as area and connect products, which we've done in our Arizona facility. That's a facility that we're shutting down and moving to contract manufacturers. That should help us in a variety of ways, including inventory reduction. To your question about inventory and seeing higher levels right now, that was a conscious decision on our part to go ahead and buy ahead on parts that we thought would have more problems related to the global supply shortage, so more of the risky items in terms of procurement. And so I would say if you characterize that total inventory number, A large portion of it is Airgating Connect and NimbleLink, both of which we have high confidence in demand, so we feel pretty good there. I do think, though, that we're going to see a pretty significant reduction in that inventory number over the next couple of quarters, especially as we move to contract manufacturers on Airgating Connect and the Antenna Plus branded products.
spk09: That's helpful. I appreciate that. I guess, sorry, then just to follow up on the last question I had. I mean, if you just speak to the level of volume of commitments you have that allow you to work down that backlog in billings, it sounds like you have some of the inventory today. But I guess as you think about the growth opportunities throughout 2022, which you spoke about earlier in your prepared remarks, how do you think about the ability or willingness to engage on some longer term contracts with your suppliers so that you can fulfill the end customer demand both across consumer but also in automotive and enterprise networks. Thank you.
spk03: Yeah, it's an interesting question. On the NimbleLink side, where we have a lot of inventory, we carry a lot of inventory, we actually have pretty significant backlog for all of 2022, which gives us some pretty high confidence. Again, like I said, historically, our biggest issue has been trying to grow through the global supply shortage issues. I think our growth would be even bigger with NimbleLink if there was no supply shortage, but you're seeing us continue to grow that business. So we have pretty high confidence in terms of, you know, just hard backlog for the year, which gives us a lot of confidence there. On the other part of the kind of inventory equation on the AirGain Connect side, that's still, you know, I would call it in its early stages. So we're still trying to grow that business. We, you know, the demand, the end demand is obvious. The sales pipeline, like Marat had talked about, is big. We just got to close deals and get it sold through.
spk09: Understood. Thank you.
spk02: No problem.
spk05: Anthony Stoss from Craig Hallam.
spk06: Your line is now open. Please go ahead.
spk02: Thank you. Pretty impressive guide, all things considered, up 22% at the midpoint sequentially, guys, especially supply chain. So kudos to pulling that off. Along those lines with the growth rate heading up into Q1, do you expect all of the business segments to grow? And maybe a generic question for Jacob, you know, what do you expect or what's the ballpark range of how much you think the IoT business can grow? And, you know, Dave just talking about significant backlog. I'm curious what you think the growth rate might be for IoT this year and maybe next.
spk01: Hey, good having you joining us, Tony. It's Jacob here. Great questions, by the way, and I appreciate the fact that you recognize that the team has done a phenomenal job to be able to overcome the supply shortage issue. And we're looking really good about not only Q1, but the rest of the year. So regarding the three markets, what I can tell you is that we do have high demand from the customers, that's with consumer, That's with the enterprise and that's with the automotive. Now, on the consumer side, as I indicated, it's, you know, we are in the recovery mode. And the fact that the supply shortage issue is starting to resolve itself, that's going to be helpful for the, not only for Q1, but the rest of the year. In regarding enterprise, you know, that's a lot of it's with the industrial IoT product with our nimble brain. The demand is high. But we are certainly also dealing with some parts shortage issue that we still got to overcome. And then on the automotive side, the AirGain Connect, it's certainly also seeing a much greater demand. And then the aftermarket fleet, we're also seeing a high growth as well. But I would not be able to tell you that, hey, is all three going to, we're going to be able to see sequential quarter after quarter, but we do feel strongly about the overall growth across all three market segments.
spk00: So what I can add to what Jacob said.
spk04: Yeah, go ahead. So I was just going to add something to what Jacob said in that, you know, the direction that was set for the company to become more of an oil system integrator, all of those products that we are offering, we're seeing that those business lines are growing. That's where the trend is heading. And consumer is more or less a return to normal with our supplier or our customers finding or gaining access to supply. So that's what's driving really what's happening in 2022. Okay.
spk02: And then maybe as a follow-up, give this transition for a couple of product lines to the contract manufacturing side. Have you done extensive qualifications with this contract manufacturer? Do you expect it to be smooth? Are you building up? you know, internal inventory, those parts in case it's not smooth and there's any hiccups on the contract manufacturer side, any color would be helpful just to make sure that the handoff is smooth.
spk01: Yes, very good questions again. So we actually not only have one, but we actually have a couple for our new North American, you know, manufacturing, contract manufacturers. And we have created some redundancy as well. And so all of that, we do feel strongly that, you know, one can serve as the backup of the other. And then we are training them, you know, and we actually have much easier access to them. And, you know, and they're working really closely with our operation team as well, you know, which is located in Arizona. So we feel pretty good about being able to make sure that, you know, they deliver. And just so you know, we actually started work with them at Q4 last year really closely. and they've been able to deliver the type of product and the type of quality that we expected. So it's something that we already done enough trial launch, you want to call it, to get to where we are. That's why we have made the decision that we feel comfortable to shutting down our Arizona facility.
spk03: Yeah, we kind of used, Tony, a phased approach where we put our one larger product line from the Antenna Plus branded products first, and then we put another one on and did it slowly over the, like Jacob says, since the beginning of Q4. So we have very high confidence that they can deliver pretty high quality. We're also pretty excited about, you know, the fact that they can improve just through scale and buying parts, procuring parts, you know, more cheaply for us. to improve our gross margin. So I think we're going to benefit on two sides there.
spk02: Great. Thanks for all the detail, guys. Best of luck. Thanks, Tony.
spk06: Our next question on the line comes from Tim Savu of Northland Capital Markets. Please go ahead, Tim. Thank you.
spk07: Thanks, and good afternoon. I wanted to follow up on kind of the segment dynamics going into Q1. I'm going to assume that the majority, if not the vast majority, of the sequential growth you're forecasting is coming from consumer. Is that supply situation recovers and that likely has a positive impact on gross margins as well? Is that a fair assumption in your estimation or are there any other segments driving sequential growth in a meaningful way?
spk03: No, I think in a meaningful way, consumer is driving the majority of the growth. There's contribution across some of the other product lines, but nothing like the consumer recovery.
spk07: Okay, great. And then, well, just to follow with consumer, and I have one more, and I think there was an earlier comment about getting back to normal. I mean, You know, which likely represents something in the $10 million a quarter range where you started calendar 21 and ended calendar 20. You know, at this point, does that seem like a reasonable target to get back to those levels by the end of the year in consumer?
spk03: Yeah, I think it's possible. I don't think we're planning at something a little more conservative, especially, you know, with some of the supply shortage issues out there still remaining. But even if we improve off our Q1 number, which we expect to, it's going to contribute both not only in top line growth but on gross margin.
spk07: Right. And then last one for me had a nice uptick in the quarter for automotive, which I think you attributed to AirGain Connect. And I guess... Given how sharp that increase was, I wonder if you could give us a little more color as to whether, you know, we could look at that as kind of maybe a stocking situation that needs to be digested or whether you're seeing that sharp of an uptick in end demand that you feel like you can continue to build on throughout 22. Yeah, we...
spk03: We saw growth out of both AirGain Connect and aftermarket fleet, Q3 to Q4. We're also suffering a little bit on the supply shortage issue on the automotive aftermarket fleet revenue over the past couple of quarters, too. So I think we're starting to see a little bit of a return there. You know, again, we've got to keep an eye out on what this supply shortage will do to that business going forward in 2022, but we do think we can grow through it, mostly because we've kind of redone our sales strategy on the Antenna Plus brand of products, and we've upgraded some of the key products to 5G. And I think that should drive growth for us. And I think in terms of AirGain Connect, we were saying we've got this really large opportunity funnel that we've been chasing. It's taking some time to close those deals. I think we should see really more of an inflection point, which I think is where you're trying to get to starting in the second half. It's possible this half, but I think it's going to be more in the second half.
spk07: Okay, thanks very much.
spk03: No problem.
spk06: As a reminder, if you would like to ask a question, please press star followed by one in your telephone keypad. We have a question in from Scott Searle of Roth Capital. Please go ahead, Scott. Thank you.
spk08: Hey, guys. Thanks for taking my questions. Nice job on seeing consumers starting to recover. And, Dave, I want to wish you all the best. I'll miss harassing you on a regular basis.
spk03: Thanks, Scott.
spk08: Hey, to dive in on the consumer, it sounds like you answered part of it with Tim's question. It doesn't sound like you're seeing any sort of immediate snapback to the levels. We exited 20 and entered 2021 in at the $10 million level. It seems like it's going to build after the first quarter, but you're not building in that type of expectation. I just want to clarify that that's correct. And then as part of it, there's a big transformation going on from Wi-Fi 6 to Wi-Fi 6E. I'm wondering how important Wi-Fi 6E is, what that's doing to the dialogue, the opportunity. And are you seeing opportunities not only traditional indoor in APs, but are you starting to see some outdoor opportunities as well as it relates to 6E?
spk01: Yes. Hey, good to talk to you. Scott Jacob here. I'll take the questions first and then having Morel or InnoDay to chime in. So regarding the consumer, you're correct, it's recovering. But no, it's going to take some time to get back to where it was. Although, based on what we're seeing, as I indicated, Q1, we're already seeing a substantial improvement over Q4 of last year. And we do see, even in our backlog right now, give you some even visibility into Q2, we are seeing also numbers in the backlog that it's much higher than what we used to get at this point during the quarter. So those are positive indication that consumer is on its recovery path, how fast and when we feel good that it's going to be happening this year. And I also want to mention that consumer used to be, like I said, 80% of our overall revenue just two or three years ago. It's now, last year, it's 40%. And I would expect these years to be even taking on a smaller percent of the overall revenue. And the reason for that is that even though it's growing, what we are doing with the system product with automotive, with enterprise, is really outpacing that. And I do expect that the number of consumers, the revenue will be better than last year, but it's actually going to become a smaller percentage of our overall revenue. and that's why we made a decision to go with the system product approach, and it's really paying dividends. The product we now have with enterprise, with automotive, and with the demand that we're seeing, as I indicated, it's really evidence of our successful transition from an antenna company, component company, now to a system integrator. Now, you've mentioned about Wi-Fi 6E. Yes, absolutely. One carrier that I spoke to, one major North American carrier that I spoke to, basically told me that starting 2022, they're not going to ship anything that's not Wi-Fi 6E. So what they have in the 11AC, they're no longer going to ship any of those. And that's one of the reasons that should help. help with the recovery on the consumer side. And I'm sure other carriers are thinking the same thing, that all of them are going to quickly move into the 11X or Wi-Fi 660. Okay. Okay, great.
spk08: Very helpful. Thanks, Jacob.
spk01: Yeah, a little more commenting on the outdoor versus indoor.
spk04: So I was just going to say, Scott, that, you know, a lot of the growth that just like Jacob said, a lot of the growth that you're seeing or a lot of the traction that you're seeing in the business in 2022 is 6E and 6 that we had won, let's say, a year ago or maybe a little bit earlier than that. Where the opportunities are, particularly in the back part of 21, is mostly in what we're seeing. It's mostly indoor, by the way. We do some outdoor, but mostly indoor. But there's a lot of traction right now in fixed wireless access, right, as you start to see with the CBAN deployment. You've got a lot of the operators that want to go out there and then compete with the wired guys. And here's an opportunity for them to provide these platforms like, you know, for instance, what T-Mobile is doing and the other guys are doing. And that provides an opportunity for AirGain to work with ODMs, right, In that, Airgain has the capabilities to solve these complex wireless problems, and so you already have that traction in the Wi-Fi area, but now you add the uplink being also wireless and let's call it cellular. That gives us the capability to not only be able to solve these even more complex problems, but also increase the ARPU per box. So that's where you're going to see some of the traction going forward in the design wins for consumer for us.
spk08: Gotcha. Very helpful. Hey, and if I could, to follow up on the NimbleLink front, it sounds like business continues to be strong there. I was wondering if you could give us an indication of the size of the business in the fourth quarter, at least if it was up sequentially from the third quarter. And it sounds like you not only have a good visibility backlog, but also visibility supply. So I was wondering if you could kind of frame the growth rates at the low end and the high end of what you see, or at least the baseline level expectation for NimbleLink in 2022.
spk03: Yeah, I'll take a shot at that, Scott. In Q3 to Q4, we grew sequentially. I don't want to talk specifically about Q1. We do, I think, in terms of demand, we should be growing, but we still haven't resolved all of the supply shortage issues, so that's putting a little pressure on us on the Nimble Inc. branded products right now. So the jury is still out on that, but I think for the entire year, even with uh, supply shortages, we're going to grow, uh, 21 to 22. Okay.
spk08: And, and lastly, if I could, um, to, to dig in on the auto front and air game connect, um, I'm not sure if you've provided any numbers, um, uh, on this call in the past, you know, you've talked about the number of pilots and we're engagement kind of helping to frame the opportunity. You did mention an inflection is teeing up maybe for the second half of this year, but did air game connect cross the million dollar threshold in the fourth quarter? Is there any other color you could kind of put around the level of activity that's going on for AirGain Connect? And then I guess in terms of other product extensions, right, you've talked about evolution with other carriers and other commercial markets. I'm kind of wondering what the updated thoughts are on that front. Thanks.
spk03: Yeah, in terms of the revenue breakout for AirGain Connect, we're trying not to disclose that at this point and just accumulate that with our automotive number. But in terms of, like you're talking about, the opportunity and the potential demand that we're seeing here is pretty material. So, you know, I'll let Jacob and or Murat.
spk01: I can share with you, Scott, that we are seeing, you know, really a much stronger opportunity size. And the orders that we're anticipating to receive, it's also in much larger volume. as Maura indicated earlier, with the new approach that AT&T and I have been working on since really second half of last year, we are now seeing a lot of these major urban opportunities now come to fruition. So we expect to really pick it up, you know, even already it's already happening. We expect that to continue throughout the year. And I also want to share that, you know, More was seen in D.C. earlier this week to receive an innovation award during the 10-year anniversary of FirstNet. And AT&T, FirstNet are really focusing on the mega-range service, which is the flagship product for that offering. It's AirGain Connect. So there's a concerted effort by AT&T, FirstNet, and certain AirGain to make this a really successful product. for all of the first responders out there.
spk04: And, you know, the other thing I would add to that, Scott, is that what I noticed from that event is that, and I'm not here speaking for AT&T, but what I can tell you that the general theme that came out of there is that FirstNet is becoming a reality, and there are more and more towers being deployed, more towers, better coverage, better opportunities for AirGain Connect, and we see that. We actually see that on the other side, not only in urban, but also in rural areas. Just to kind of address your point about another question that you had, in terms of roadmap, I mentioned this last time in the call, in that Air Gain Connect, HPUE, the unit that we have today, that's just the first product in this product line SKU. You can expect this year that we will have derivatives that will address other operators, not only here in North America, but also overseas. But we do want to be disciplined. We do want to be focused. There's so much out there that needs to be taken care of, and we need to do this thing carefully so that we can be successful with what we have at hand and also not lose sight of what this could provide to us in terms of opportunity at the global scale.
spk08: Great. Thanks so much.
spk06: Thank you. We have no further questions registered, so I'll hand back over to Jacob for closing remarks. Thank you very much.
spk01: Thank you for joining us on today's call. We look forward to updating you on our next call.
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