Airgain, Inc.

Welcome to Airgain's first quarter 2025 conference call. My name is Diego, and I will be your operator for today's call. Joining us today are Airgain's president and CEO, Jacob Suen, and CFO, Michael Elbass. As a reminder, this call will be recorded and made available for replay via a link found in the investor relations section of Airgain's website at investors.airgain.com. Following management's prepared remarks, the call will be open for questions from Airgain's covering analysts. I caution listeners that during this call, Airgain management will be making forward-looking statements about future events as well as Airgain's business strategy and future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in today's earnings release and AirGain's SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 7, 2025. AirGain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, This conference call will include a discussion of non-GAAP financial measures. Please see today's earning release for further details, including a reconciliation of GAAP to non-GAAP results. Now, I'd like to turn the call over to Airgain CEO, Jacob Suen. Jacob?

Good afternoon, and thank you all for joining us today. Ergen entered 2025 with real momentum and a focused strategy. We are now executing on the foundation we laid last year and approaching this year as a period to scale Lighthouse and Ergen Connect and deepen our presence in key global markets. Before I get into product-related details, I want to briefly address the broader macro backdrop and its potential impact on our business. Our standard customer terms, the flexibility of our fabulous model, and the tariff classifications for many of our products have, to date, resulted in no material impact on our product costs. we recognize the tariff environment remains fluid and are prepared to adapt quickly to minimize any potential impact on our customers. We are closely monitoring broadband and enterprise markets for any signs of downstream demand disruption. As of early May, we have not observed meaningful changes in customer purchasing behavior due to tariffs. Our public model supported by nine cancer manufacturers operating across diverse geographies, containers to provide operational resilience. We have experienced no significant disruption to date and are ready to adjust as needed. Importantly, our leadership team has navigated similar challenges in the past, and we are applying that experience to manage evolving conditions. Our transformation from a low ASP component supplier to a high-value wireless solutions provider is well underway. With platforms like Lighthouse and AirGain Connect, we are moving up the value chain into higher margin system-level solutions that address some of the most difficult connectivity challenges, including coverage, power, and deployment constraints. This shift from components to intelligent wireless systems has expanded our addressable market from $1.1 billion in 2024 to $2.6 billion today with continued growth expected as adoption scales. We have fundamentally redefined our business model, transitioning from sub-five dollars embedded components to full system solutions like Lighthouse, which carry ASPs in excess of $20,000. These positions, again, to deliver not only top-line growth, but also long-term gross margin expansion and improve operating leverage. As noted on our Q4 call, excess inventory persisted across certain product areas, including IoT-embedded modems, custom products, and aftermarket automotive antennas. We are seeing improvement on the IoT side with sales returning to more normal levels that say we expect the inventory correction in our aftermarket automotive channel to take additional time. Looking to the remainder of the year, we expect to drive sequential revenue growth supported by the consumer and IoT market recovery and the transition of our Lighthouse and AirGain Connect platforms from trial to deployment. laying the groundwork for broader commercial adoption in 2026. When we refer to Lighthouse and AirGain Connect as platforms, we mean they are not single products, but scalable, modular solution families. Each platform is designed to support a range of use cases, deployment environments, and customer segments. with the flexibility to evolve through new skills, certifications, and geographic expansion. This platform-based approach allows us to build repeatable go-to-market models and extend the value of our IND investments over time. In Q1, we executed effectively across both of our primary growth vectors. Let's start with the Lighthouse. In January, we entered into a strategic and commercial agreement with Omantia, a leading telecom operator in the Middle East. We view this as a multi-year opportunity supporting both indoor and outdoor deployment across Oman and potentially into broader regional markets. This partnership extends beyond deployment. It includes commercial collaboration, joint marketing, and co-development of new solutions. We are working closely with Omantia on implementation plans with revenue contribution expected to ramp in the second half of 2025 and expand further in 2026. The Omantia engagement also led to the debut of Lighthouse Solar. our off-grid solar power smart repeater, designed for coverage challenge in sustainability-driven deployments. Initial field trials demonstrated strong performance, including meaningful gains in coverage and spectral efficiency, reinforcing our technical differentiation. Recent field trials of Lighthouse Solar have confirmed its market potential. including a 20% expansion in 5G coverage, average speeds increasing from 1 megabits per second to 250 megabits per second, with peaks over 425 megabits per second, over 50% improvement in spectrum efficiency, and same-day installation with no need for fiber or power grid access. Multiple Lighthouse trials are underway or planned across key regions, including the Middle East, Latin America, Southeast Asia, and Europe. Each represents a meaningful opportunity as we work toward broader commercial adoption. Turning to AirGainConnect, we also made key strides during the quarter. we achieved commercial certifications with all three major US carriers and achieved AT&T FirstNet capable status, supporting our aim to address mission critical public safety communications. We remain focused on converting solar cycle tier two and tier three opportunities in the near term while building a long cycle tier one pipeline for 2026. Our sales fleet team now includes dedicated reps across five U.S. regions and a targeted channel strategy aligned with carrier partnerships. In the first quarter, we also secured several notable wins across our embedded modems, asset trackers, and aftermarket product lines, alongside a tier one MSO launching its Wi-Fi 7 offering. These design wins underscore the continued strength of our core business and play a critical role in supporting our overall operations as we scale revenue from our new strategic product platforms. Finally, I want to take a moment to highlight the strength of our leadership team. This is a seasoned, resource-focused team built for today's environment. One that knows how to drive operational performance, strategically engage customers and navigate global uncertainty, all while positioning again for long-term value creation. We are building a wireless connectivity company that doesn't just participate in the 5G expansion. We help make it possible in places others can't. With that, I'll turn it over to Michael to walk through our financial results and outlook.

Michael. Thank you, Jacob. Before diving into the numbers, please note that my review of our financial results and guidance refers to non-GAAP figures. Information about the non-GAAP financial measures, including GAAP to non-GAAP reconciliations, can be found in our earnings release. Now, let's turn to our first quarter results. Q1 sales came in at $12 million, in line with the midpoint of our guidance range. Consumer sales reached $6.4 million, down just $0.1 million sequentially, reflecting another strong performance. Automotive sales were $1.3 million, down $2 million sequentially, driven by lower shipments of aftermarket antennas and air-gain-connect gateways. Enterprise sales were $4.3 million, down $1 million sequentially, marking a low point for the year due primarily to lower shipments of enterprise antennas and custom IoT products. Q1 gross margin was 44.3%. marking our fifth consecutive quarterly increase. The 90 basis points sequential improvement was largely due to higher enterprise product margins. Operating expenses totaled $6.6 million, up $.1 million sequentially and flat year over year. While expenses have remained stable over the past year, Our engineering sales and marketing organizations have undergone some significant changes. In Q1 2025, our strategic initiatives accounted for two-thirds of our total R&D sales and marketing expenses, up from roughly 50% in Q1 of 2024. Over the past year, we have built dedicated sales, marketing, and customer support teams to support AC Fleet and Lighthouse, while streamlining the engineering and sales expenses of our existing business. As a result, adjusted EBITDA was negative $1.2 million, primarily due to the lower revenue base. Non-GAAP EPS came in at negative 11 cents. We ended the quarter with a cash balance of $7.4 million, down $1.1 million sequentially, and up $.2 million from the same quarter a year ago. Now, moving to our outlook for the second quarter ending June 30, 2025. As a reminder, we provide quarterly guidance for sales, non-GAAP gross margin and expenses, non-GAAP EPS, and adjusted EBITDA as we believe these metrics are key indicators of our overall performance. For Q2, we project sales to range between $12.5 million and $14.5 million, with a midpoint of $13.5 million, representing approximately 12% sequential growth. The growth is expected to come from a rebound in our enterprise market. Enterprise performance will be supported by the correction of excess inventory and increased design wind activity, specifically among our industrial IoT customers. We also anticipate lighthouse deployments beginning to contribute to enterprise revenue in the second half of the year. Our consumer market remains a bright spot as an uptick in March shipments ahead of anticipated tariff activity offset the negative seasonal impact. We do expect some moderation in Q2, followed by steady growth throughout the rest of the year, especially as another tier one MSO launched its Y57 platform this quarter. Automotive hit a low point in Q1, and it is expected to remain relatively flat in Q2. However, shipments of AgainConnect gateways are expected to drive meaningful growth in the second half of 2025. We expect non-GAAP growth margin to be 42% to 45%, or 43.5% at the midpoint. We expect operating expenses to be approximately $6.6 million. Non-GAAP EPS is expected to be negative 6 cents at the midpoint, and adjusted EBITDA is expected to be negative $.6 million at the midpoint. We expect to receive at least half a million dollars in ERC refunds this quarter, which will help mitigate the impact of the adjusted EBITDA loss. We remain mindful of the current macroeconomic environment. and we are focused on executing our strategy while targeting positive adjusted EBITDA in Q3. Finally, as a housekeeping item, we plan to file an updated S3 shelf as our current shelf registration is set to expire in two days. While we have no imminent plans to raise capital, maintaining this filing reflects good corporate governance and financial flexibility in time of uncertainty. Now, I would like to turn the call over to Jacob for his closing thoughts. Jacob.

Thanks, Michael. As we move through Q2 and into the second half of 2025, Our focus remains on converting early traction into sustained commercial momentum. Across both our Aiken Connect and Lighthouse platforms, we provide a compelling value proposition, lower total cost of ownership, simplified installation and maintenance, in alignment with sustainability and cost efficiency priorities that are especially important in today's environment. Following stronger than expected performance in our consumer segment during Q1 and increasing visibility into enterprise engagements, we enter Q2 on firmer footing. We're encouraged by the sequential momentum building in our pipeline and are executing with growing confidence. In summary, we're executing well against our strategy with early traction across both platforms. We are investing prudently, maintaining a strong balance sheet, managing working capital carefully, and keeping operating expenses aligned with our growth pace. And we are building for the future with a clear roadmap, a seasoned leadership team, and growing customer engagement. I want to take a moment to thank all our employees for their continued hard work and dedication. Your focus on innovation and discipline execution is what propels AirGain forward. I also want to thank our customers, partners, and investors for their trust and support. We remain energized by the opportunities ahead and confident in our ability to deliver meaningful value as we execute our strategy. With a strong foundation, a proven leadership team, and clear growth initiatives, I am optimistic about what lies ahead. Operator, we are now ready to take questions.

Thank you. We will now take questions from AirGain's sell-side analysts. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from Anthony Stoss with Craig Hallam. Please state your question.

Good afternoon, Jacob and Michael. Two things I wanted to focus on. Your comments, I think it was yours, Michael, about AirGain Connect's meaningful ramp in the second half of the year. Can you maybe talk about either design wins or customer traction, how many customers you think you'd be launching with the new product? And then the second part of my question, probably for Jacob, just the expectation of the IoT business to rebound in Q2. Given the visibility you may or may not have for the rest of the year, do you think that your enterprise group can actually grow in 2025 or 2024?

Hi, Tony. This is Michael. Thank you for the questions. So in terms of the AC fleet, we've done quite a bit in terms of laying the foundation really to scale the overall AC fleet business. As we mentioned in the script, we have onboarded a full team dedicated to the AC fleet with a very deep experience in covering all of the regional U.S. This is a brand-new team for us and with a brand-new also type of experience. We also have established our distribution channels. They are now fully operational. We also have launched a whole marketing campaign around the a large U.S. carrier in the coming weeks. And so right now, while we don't expect strong orders taking place in Q2, many of our customers are in the trial phase and some of them are nearing completion. We are very optimistic that we'll have those design wins in the coming months. and we expect larger programs, the Tier 1 type of customer classification that we have explained last quarter, those to start contributing in the second half of the year and laying the foundation for 2026. As we know, this is a long cycle sales cycle, and the momentum itself is building, and we are looking also for executing on some MNO-level partnership as well to broaden the overall market reach.

And hi, Tony. Yes, Jacob here. So answering your number, the second questions in regards to IoT rebound. Yeah, we are encouraged by the fact that at least a couple of the key customers that had inventory corruption issue last year, start to give us visibility for this year. And in fact, in second quarter, they already started to resume shipment. So that give us the confidence that we're near the end of some of these inventory correction, especially in the modern business. So that's encouraging to see. As far as the overall enterprise market, certainly we're still seeing the enterprise AP tracking well. That's the business that we're selling to partners for stadium application, arena application. also we're seeing you know certainly the infrastructure which is also a part of the enterprise which is headlined by our lighthouse product we're making some very good progress you know certainly the the headliner there it's the oman partnership it's not just a strategic partnership but also has a commercial element to it so we're working with them on the deployment schedule as we speak and we should expect deployment for the second half of the year and then really limping up 2026. So all in all, we're encouraged by the progress, the positive progress on these several fronts.

And Tony, to piggyback on Jacob's point, right now the enterprise market, the backlog at this point of the quarter is one of the strongest that we've seen over the past three, four quarters. And in addition to that, excess inventory correction that we're starting to see happening, we're also seeing a nice level of design win activity, especially with specifically industrial IoT customers. So this bodes well, and of course, the visibility in the second half of the year is clouded by the current macroeconomic environment, but the fact that we are where we are right now from a backlog perspective, we feel good about the enterprise business.

Perfect. Thanks for all the color, guys.

Thank you.

Thanks. Reminders to the audience, to ask a question, press star 1. To remove yourself from the queue, press star 2. Your next question comes from Scott Searle with Roth Capital. Please see your question.

Good afternoon. Thanks for taking the questions. Hey, Jacob, Michael, I apologize. I got on the call a little bit late, so I apologize if this is redundant. But to jump to Lighthouse, I'm wondering if you could give us an update in terms of Any incremental pilots that are occurring? I think the target was still a third quarter where we start to see the circle ramp up. Are we still tracking on that standpoint for Omnitel? And can we expect any other carriers in 2025?

Hello, Scott. Yes, great questions. So, regarding the Lighthouse, certainly this product, you know, was pleasantly surprised that we're able to, you know, start getting commercialization back in Q4, and it's limping up. And, you know, right now it's with Omantia. And with Omantia, the partnership, it's not just for Omar. We're actually working with them for other opportunities outside of Oman into several other regions within the Middle East. So we expect more trials going to be taking place outside of Oman, you know, in the Middle East. And additionally, we'll also complete a trial in first quarter in the Latin America region. We're expecting to have two more trials, one in Europe and one in Southeast Asia in third quarter, and also anticipate at least one other trial in the fourth quarter in the Asia region, as well as the hope to have even trial here in the US. So while we are really optimistic about, but we're gonna keep you appraised, but right now, many of them are still in the trial space at this point. Sorry, Scott, you're gonna ask for something.

No, no, no, that's great. That's a lot of color. I appreciate that. And then just going back to HC Fleet, we've talked about some European opportunities as well. I wonder if you could update us in terms of what you're seeing on that front if you're going through the certification process or if that's been put on the back burner to 26.

So right now, Scott, we are fully focused on the U.S. market, the sales, the marketing, the engineering, the certification, and getting into even more of the FirstNet trusted along with frontline with Verizon along with T-Mobile, Priority One. Those are really our key focus. We do have the CE certification in our roadmap, but this may take a couple more quarters before we get there.

Fair enough. And lastly, and I'm sure you probably addressed this, but I'm wondering if you could just hit the highlights again in terms of tariff implications, what you guys are actually building into your expectations, and kind of what you're seeing out there from a competitive standpoint. You know, you do have an advantage versus some other foreign suppliers, so I'm kind of wondering how that's transitioning to business in core, NimbleLink and otherwise, and how you guys are approaching it from a total strategy standpoint. Thanks.

Sure. Thank you, Scott. This is a very good question. So, of course, the tariff situation is really fluid, very dynamic, and it can change on a week-by-week basis. At this point, we're not seeing a change in the buying pattern of our customers, which is very good news. That was our first worry. And at this point, from a supply chain constraints, in the beginning, there was quite a bit of signals of hoarding and constraints on that end. We're not seeing that either right now. And right now, I would say that the majority of our products are not going to be impacted by the tariff, although things can change very fast as well, too. And this is a combination of our standard terms. It's a combination of our established model as well, too. And it's also the overall tariff code and exemptions associated with those, depending upon the different type of regions. So our key focus right now is with our customers and to minimize, really minimize the impact on our customers from the tariffs so that we have basically a very transparent and also smooth relationship with them on that end. I would say that the Fabless model, having nine contract manufacturers in different regions of the world, Some of them do operate factories in other type of geographies. So we've been very proactive on our second sourcing strategy a year ago by running some pilot runs across different regions. And so we are ready to adapt. There will be some disruption, of course, on that, but we are ready to adapt wherever the signals really show us, basically. Okay.

And to add to that, I think that, you know, that's really a competitive advantage at this point, right? Versus our other competitors out there, they are getting somewhat impacted by the terror one way or the other. And this really speaks to the experience with the operation team. We've been preparing for this thing, you know, the last time four years ago. And that's why we started really diversify and then really having this unique fabulous model across different regions. Asia, North America, etc. So that way, we can actually go to talk to the customers and telling them that with us, no tariff, go ahead and place more orders. And that's what we're encouraging them as we speak.

Great. If I could just one more in terms of consumer and Wi-Fi. I'm just wondering, are we at a steady state now? Or is there some more growth either with incremental MSOs coming on board or Wi-Fi 7? Are we kind of at a steady state? We should be thinking about that business going forward. Thanks.

Good question, Scott. Actually, I wish we were kind of the level of normalized level at this point, but as you know, in Q1, we were expecting about a $1 to $1.5 million impact on the seasonal factor, basically the Lunar New Year. However, as you can tell, the revenue came in pretty much flat to Q4. So what we saw was a bit of an uptick in the month of march with especially cable operators uh odms placing some orders and we believe in anticipation of the impending tariffs taking place so we expect a moderation in a q2 because of the uptick in q1 but overall after q2 we expect to come back to some normalized level with some steady but modest growth especially as another MSO Tier 1 has also launched its Wi-Fi 7 program.

Great. Thanks so much. I'll get back to you.

Your next question comes from Tim Savageau with Northland Capital Markets. Please state your question.

Hey, good afternoon. Mention the expectation... Hey, missed an expectation for a lighthouse to begin to contribute in the second half. I wonder if you could qualify that we've talked about the total opportunity or we talking a few million bucks or anything, you know, kind of material there. And in addition to that, I think you mentioned Europe. I don't know if that we've heard about that trial before. But you know, as you and maybe the US as well. But as you look at this group of trials, I wonder if you could take a stab at, you know, sizing that aggregate opportunity relative to what you've, what you're looking at in with Omontel or either each individual opportunity or in the aggregate. Thanks.

Yeah, sure, Tim. I'll start, and then certainly, you know, Michael can add more color. So, regarding the, you know, the revenue expectation, I think that we would still continue to be cautious about the second half. As I mentioned, we are working with Omontia on the deployment schedule. We actually have a multi-year, you know, multi-million dollar contract that we signed with them, and, you know, and... We're expecting, you know, low seven figure numbers for the remainder of the year with them. And then it ramps up. And that's only on Oman. And we are certainly expecting to work with them in a bigger fashion for the rest of Middle East. Look, they are much bigger than we are. And we really want to leverage in their sales and marketing and their influence. As you know, all of them are connected in the Middle East region, and that really going to help us to really be able to penetrate into other region and be able to do, you know, be more successful really quick. Now, when you mention about Europe, this particular, MNO has been waiting for us to get CE certification on Lighthouse. That's actually one of the reason why it's been delayed, because we're still gonna work on the CE certification, which should be completed by the end of the quarter. That's the plan. And at that point, that's why you have that slated for Q3, because of that reason. They're already seeing the value they have certainly in need. And that's what we're seeing across the globe. The lighthouse really addressing a major deficiency today, whether it's outdoor or indoor, where there are many places is simply having connectivity issue. and to put another base station, another small cell, first of all, it's time consuming to get all of the approvals through the city with the local municipality takes time. Usually it takes about six months. That's what we are learning. And then it's the cost, right, to put up a fiber, to take out the fiber, to put a base station, small shell, sometimes it's really cost-prohibitive, right? And think about just simply putting a lighthouse there within a day. You know, and now that's why when we talk to the upper management team of Omantel, they also know about the lighthouse solar which will launch in q1 this year and they really see a huge potential for the middle east region and north africa where you know there are many areas it's out there and they got a lot of sun and it's difficult to have connectivity to the power grid and to simply install a lighthouse day in middle of hours that's actually what we did in oman with the trial and give connectivity you know not only connectivity on the you know on the the the broadband case but also give them connectivity similarly it means a lot and that's what we're seeing out there we're addressing a real need uh as well as expectation uh you know we're going to continue to do the trial go through the process but the market's huge uh i think that we have started also penetrate into the u.s market i think that when you with the u.s market it's a little bit different you know dealing with the mno's the big animal is just going to take time and we are working with them that's the likes of verizon at&t mobile as you know but we also now come up with an enterprise model where you can also go up to the broadband service provider Something that our team is working on. It's a little bit too early for me to give you a lot more color, but we are coming up with a strategy that's going to really accelerate the sales cycle or the deployment cycle with the customer share in the US.

Okay, great. Thank you. And to follow up, it seems like the, at least elements of the enterprise IRT inventory issue might be clearing up a little bit sooner than you might have expected. Is that fair to say? That is correct.

That is correct, Tim. On the other hand, on the aftermarket, we still think that there's still a little bit more time to sort that out.

Okay. Thanks very much.

Thank you.

At this time, this concludes our question and answer session. If your question was not answered, you may contact AirGain's investor relations team at A-I-R-G at gateway-grp.com. I'd now like to turn the call back over to Mr. Suen for his closing remarks.

Well, thank you all for your thoughtful questions and continuing interest in AirGain. We really appreciate your support and look forward to updating you on our progress next quarter. Up later, you may now conclude the call.

Thank you for joining us today for AirGain's first quarter 2025 earnings call. You may now disconnect.