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spk01: Good afternoon. My name is Daphne, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Network's fourth quarter and full year 2020 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, press star, followed by the number one, on your keypad. To withdraw your question, press the pound sign. Please limit yourself to one question and one follow-up question. Thank you, Mr. Peter Schumann, Senior Director of Investor and Industry Analyst Relations. You may begin your conference.
spk09: Thank you, Daphne. Welcome and thank you for joining us today for Cambium Network's fourth quarter and full year 2020 Financial Results Conference Call, and welcome to all those joining by webcast. Atul Bhatnagar, our president and CEO, and Stephen Cumming, our CFO, are here for today's call. The financial results, press release, and CFO commentary referenced on this call are accessible on the investor page of our website, and the press release has been submitted on Form 8K with the SEC. A copy of today's prepared remarks will also be available on our investor page at the conclusion of this call. As a reminder, today's remarks, including those made during Q&A, will contain forward-looking statements, about the company's outlook and expected performance. These statements are based on current expectations, forecasts, and assumptions. Risks and uncertainties could cause actual results to differ materially. Except as required by law, Cambium Networks does not undertake any obligation to update or revise any forward-looking statements for any reason after the date of this presentation, whether as a result of new information, future developments, to conform these statements to actual results or make changes in Cambium's expectations or otherwise. It is Cambium Network's policy not to reiterate our financial outlook. We will encourage listeners to review the full list of risk factors included in the safe harbor statement in today's financial results press release. We will also reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year-over-year comparisons reference non-GAAP numbers except where otherwise noted. A reconciliation of non-GAAP measures to GAAP measures is included in the appendix of today's financial results press release, which can be found on the investor page of our website and in today's press release announcing our results. Turning to the agenda, Cambium Network's president and CEO, Atul Bhatnagar, will provide the key investment highlights for the quarter, and Stephen Cumming, Cambium Network's CFO, will provide a recap of the financial results for the fourth quarter and full year 2020, and he will provide our financial outlook for the first quarter and full year 2021. Our prepared remarks will be followed by a Q&A session. I'd now like to turn the call over to Atul.
spk07: Thank you, Peter. We have built Cambium into a next-generation global wireless infrastructure leader for broadband communications, and the results are clearly demonstrated in our financial performance during the fourth quarter and second half of 2020. Demand for wireless infrastructure projects around the world remain robust, driven by work, learn, and play from home, and accelerated by government funding of broadband solutions. Fixed wireless broadband is a critically important networking fabric to connect our local communities. We are benefiting greatly from the investments we have made over the past few years in fixed wireless infrastructure technologies in such areas as point-to-multipoint, PMP, including the Citizens Broadband Radio Service, CBRS, compatible products, and in new opportunities, such as gigabit wireless solutions with our 60 gigahertz millimeter wave products, our new enterprise Wi-Fi 6, and cloud-savvy wireless switching products. And we have now added a premium version of our software-as-a-service solution the cloud-first CN Maestro X, allowing network operators to dramatically improve quality of service from a single pane of glass in the cloud. We are at the start of a new era of end-to-end wireless speeds equivalent to that of fiber. Our multi-gigabit wireless fabric can deliver fiber's performance and reliability at a fraction of the cost. Our recently launched 60 GHz CN wave solution is shipping in volume, and the forthcoming 5G 28 GHz millimeter wave products arriving during 21 will further accelerate this trend as we reach new customers and enter new markets demanding higher broadband performance. For the first time in Cambium's history, we will purposefully compete in urban markets in a meaningful way, as existing networks upgrade infrastructure and new high-speed networks proliferate with more cost-effective technology provided by Cambium Networks. In early December, the Federal Communications Commission, FCC, announced the identity of the winners of the first phase of $20.4 billion Rural Digital Opportunity Fund, RDOF, over the next 10 years to bring high-speed broadband service to millions of unserved Americans. The first phase of the auction ended at $9.2 billion, money that will go toward providing Internet connections to over 5.2 million unserved homes and businesses around the country. The winners included fixed wireless service providers, as well as cable operators, electric cooperatives, incumbent telephone companies, and satellite companies. The winners have six years to deploy broadband to winning locations and will be paid by the FCC in equal monthly installments over the next 10 years, assuming the winners can meet the service-level agreements. You will see a mix and match of technologies and different partnerships involving Cambium as a result of the RDOF program. High-quality and affordable, resilient Cambium solutions will lower TCO and stand to gain substantially from RDOF initiative. Cambium expects to see deployments of our equipment for RDOF beginning late 2021 when all is said and done. Cambium's significant new product introductions combined with government funding around the world will provide a catalyst to our financial results for many years into the future. Turning to the results of the fourth quarter 2020. We achieved record revenues of $82.8 million above the high end of our outlook of between $74 to $78 million. Non-GAAP diluted EPS of $0.38 also exceeded the high end of our outlook of between $0.24 and $0.28 per diluted share. We finished the year with another record quarter of executions by our entire Cambium team, as we worked remotely during the COVID pandemic. We continued to have strong product momentum across our different product lines. Within the PMP business, we grew 24% sequentially and 62% year-over-year, as we continued to see strong momentum in network traffic, increased demand for our CBR solutions, and the benefit of new product introductions. Our U.S. customers continue to build out their networks using general authorized access licenses, and we expect the successfully completed Priority Access License PAL to contribute in 2021. We also believe we are taking share from both larger and smaller competitors as we continue to expand our portfolio of solutions offering industry-leading spectral efficiency, scalability, quality, reliability, and attractive economics for our customers. Our PTP business had better than expected results during Q420. After delivering a strong third quarter performance, declining 7% quarter over quarter and 8% year over year, our enterprise cloud-based Wi-Fi business continued to recover within certain verticals, namely healthcare and education, growing 10% sequentially during Q420, due to the continued growth of our new Wi-Fi 6 solutions and record revenues for our cloud-savvy CN Matrix enterprise switching products. For the full year 2020, revenues of $278.5 million increased 4% from 2019. The 2020 growth was primarily driven by our point-to-multipoint and enterprise Wi-Fi solutions. which both grew double-digit percentages over the previous year. For the full year 2020, our PMP products grew 11%, and enterprise Wi-Fi grew 12%, while the point-to-point products decreased 16% compared to calendar year 2019. Looking at some notable customer wins and new product developments. During Q420, I'm pleased to report Cambium networks continue to have several high-profile customer engagements. In North America, we had a win with an industrial customer, a Canadian rail operator for backhaul at rail yards with our new 60 GHz CN wave products. Cambium will be displacing a competitor's 5 GHz products with 60 GHz CN wave. We had a win at an American gas and electric utility company which is currently the second largest utility company in the U.S. in terms of customer base. Cambium displays a competitor with our PTP670 due to our superior performance and reliability. A broadband internet service and voice over IP phone systems provider in Little Rock, Arkansas, selected Cambium's PMP450 and PTP820 over solutions from two competitors. The win was a result of CARES Act funding to deliver broadband services to some of the most rural communities in Arkansas. This deployment includes hundreds of towers and will provide services of 25 megabits per second and greater. We had an exceptional quarter of customer wins with Native American tribal nations as a result of CARES Act funding and efforts by the FCC to provide 2.5 gigahertz licenses to qualifying tribal nation applicants. A tribal nation in Arizona selected Cambium for a broadband rollout, including our PMP450M and PMP450B products, our PTP820 product for backhaul, as well as Wi-Fi, including our CN pilot and CN matrix switches. Two different tribal nations in New Mexico selected Cambium for broadband wins, including the use of our CN Ranger LTE solutions, PMP450M and PMP450B solutions, and our PTP820 products for backhaul. We had a new customer win with a managed service provider, MSP, focused on the multiple dwelling unit market. Cambium displays competitors in both fixed wireless and enterprise Wi-Fi. This win included both our new ePMP Force 425, enterprise Wi-Fi 6 access points, and the first sale of our recently released Cloud First CN Maestro X management software. We won over the customer with our outstanding cloud management, scalability, superior performance, and value. Cambium's first mover status for the FCC's 3.5 GHz CBR spectrum continues to pay dividends in both the acquisition of new customers and sales of our PMP450 products and our SaaS service in both U.S. and its territories. Our full end-to-end solutions includes high-performance radios, over-the-air CBRS upgrades, and cloud-based software solutions. As of today's call, we now have approximately 76,000 devices managed by our CBRS SaaS service, an increase of over 29% since we reported last quarter. In the Europe, Middle East, and Africa region, EMEA, strategic wins from Q4 include, in Germany, we beat out a larger competitor with a win in the Bitburg School District. This selected Cambium as a result of our ability to provide an entire wireless fabric network including our ePMP and enterprise Wi-Fi for both indoor and outdoor capabilities, as well as our wireless-aware CN metric switching technology. In the UK, we had a high-profile enterprise Wi-Fi win at the largest private girls' school in the country, St. Mary's School. The campus-wide deployment included our XV3-8 access points, and we beat out a sizable competitor. In Africa, we had a win in Botswana with MTN Group, one of Africa's largest operators, providing telecom services to 23 countries. The win was for enterprise Wi-Fi. Cambium was selected for flexible CN Maestro cloud management as MTN is an existing customer of Cambium's fixed wireless solutions. MTN's operating companies value the benefits of the complete Cambium wireless fabric solutions. We added a new national carrier in Africa with the addition of Telecom Kenya. We won both fixed wireless with our EPMP solutions and enterprise Wi-Fi with our E410 CN pilot line. We beat out the incumbent equipment provider in the multi-year effort as a result of attractive economics for the performance offered and strong customer support provided by Cambium. In the APAC region, We had a sizable enterprise Wi-Fi 6 win with a new customer, Korea Baptist Theological University. The customer is deploying 900 access points, including both our XSuite 2-2 and XSuite 3-8 products and our Cambium Care Pro support. Korea Baptist was looking for the latest Wi-Fi 6 solutions that deliver performance for classrooms, streaming video, for remote learning as classes were remote, due to COVID. Cambium won the deal from a larger competitor because of performance, ease of installation, value, and leading-edge Cambium Care Pro support. We had another enterprise Wi-Fi 6 win in Thailand with Pongswadi Technology College. Due to COVID-19, the college removed the campus computer center to prevent gathering in larger groups. Their new plan provided all students with laptops, for which they needed pervasive and reliable Wi-Fi across campus. They selected the Cambium wireless fabric, including our high-density APs, cloud-savvy CN matrix switching, all controlled by our cloud-managed CN Maestro software. In the Caribbean and Latin America Cala region, we had a record quarter, breaking the $10 million barrier for the first time in the company's history. We had a significant win in Colombia, with the Ministry of Telecom and Technology. The Ministry selected Cambium and our partners to provide indoor Wi-Fi and switching solutions for schools and government offices in 15,000 remote rural locations throughout the country. We also won the backhaul portion of the network to connect these remote locations. We won this third phase of the project based on our reputation plus the functionality of CN Maestro cloud management software. Aeronet, one of the top service providers in the Caribbean, offering broadband internet connectivity to the residential and enterprise markets, selected Cambium to implement Puerto Rico's first CBRS system. Aeronet plans to cover 90% of the island of Puerto Rico. Aeronet selects Cambium's PMP portfolio, including our PMP450M portfolio, with CN Medusa technology, along with our PMP450B high-gain subscriber modules. In Ecuador, the Ministry of Telecommunications created a program to provide free internet access at 4,500 extremely remote locations throughout the country. The ministry selected CNT, who is a large service provider owned by the Ecuadorian government, to deploy and manage the network. CNT selected Cambium Networks Enterprise Portfolio Outdoor Access Points, E510, to provide these public hotspots. Looking at new products since our previous quarterly update. Within the PMP products, we are rounding out our product lines with the addition of two new solutions for the PMP450 line. The additions include the 5 GHz PMP450B connectorized and 450 micropop connectorized. The 450 MicroPOP Connect Rise adds a new option to provide hard-to-reach coverage and fill-in for the operator's network with an affordable solution. Both new products allow for a customized antenna specific for a customer operator's needs. Also, in our PMP and PTP product lines, Cambium's highly anticipated 60 GHz CN wave for millimeter wavelength began shipping in volume in December. This is significant as network operators can now compete with fiber and cable operators in urban and suburban markets with comparable gigabit data rates and with compelling economics, which increases our serviceable available market SAM. Cambium now has approximately 40 proof-of-concept POCs underway, and several are turning to commercial operations, including YTL communications. a Malaysian telecommunications operator, which has placed the world's first significant commercial order. YTL will be deploying our CN-Wave 60 GHz millimeter wave radio in Georgetown in the state of Penang, Malaysia. This is a key reference deployment for Cambium, as this is where Facebook implemented their largest tera-graph trial. The city of Georgetown has legacy infrastructures and a prestigious UNESCO status, making it difficult to deploy fiber. With 60 gigahertz, it is possible to provide the city with high-speed broadband access by utilizing existing street furniture, such as street lamps, traffic lights, and utility poles. As a result, it can be deployed faster and more cost-effectively than fiber broadband. Cambium Networks is very excited about being able to provide fiber-like broadband performance and reliability at a fraction of the cost of fiber. We anticipate traditional fiber operators to deploy hybrid networks by using CN Wave to extend the fiber plant to customer premises, accelerating time to revenue at lower operating and capital costs. Wireless is the new fiber. Within our PTP product line, during the fourth quarter 2020, Cambium added two new next-generation point-to-point licensed microwave products for backhaul featuring wider channels. The first is the PTP850S that can deliver up to 2 gigabit per second plus throughput featuring up to 4K quadrature amplitude modulation QAM. The second is the PTP850C, which can deliver up to 4 gigabit per second and 4x4 massive MIMO. The PTP850S and 850C are important additions to our backhaul portfolio. Also, in licensed spectrum, during the Q4, Cambium Networks released a 3G LTE CPE with a full system release, our next-generation fixed wireless broadband LTE platform, CN Ranger, for 3 GHz spectrum, commencing during Q1 2021. CN Ranger is an ideal solution for Internet service providers and industrial customers. We continue to experience strong growth in accounts utilizing CN Maestro cloud software, our end-to-end cloud-powered connectivity solution to manage the entire network from a single pane of glass. Total devices under cloud management in Q420 totaled over 524,000, an increase of 7%, from Q320 and up 40% year over year. After years of development in December, Cambium launched our new CN Maestro X, the premium version of CN Maestro. It has taken a lot of effort to add a majority of Cambium's products to be supported by CN Maestro X and to develop the sophisticated features that will command subscription payment. CN Maestro will now become the platform that will be the basis for many subscription software and service offerings. CN Maestro X will continue to make Cambium hardware products more differentiated and over the long run will contribute to a higher gross margin for the company. Turning to the channel, in Q420, we expanded our channel presence by adding over 640 new channel partners sequentially and over 2,340 new channel partners year over year, which represents an increase of approximately 7.5% sequentially and 34% year over year. Given the global pandemic, we will be holding our first global virtual event called Cambium Connections on February 24th and 25th for our end customers and partner community. We are excited to share our vision of where the industry is headed over the next few years. I will now turn the call over to Stephen for a review of our Q420 financial results and outlooks.
spk06: Thanks, Atul. Cambium's record fourth quarter results are the combination of multiple years of investment in our strong R&D pipeline and new product momentum as demand strengthened for Cambium's high quality fixed wireless and enterprise Wi-Fi products. Our partner community remains resilient and demand continued to increase for our new Wi-Fi 6 products, and we are seeing healthy shipments of our 60 gigahertz products and record shipments of our latest EPMP products during the fourth quarter. Record revenues of $82.8 million for Q420 came in above the high end of our outlook of $74 to $76 million. Revenues increased by 13% quarter over quarter, and up 29% year-over-year from $64.1 million. This was the first quarter in our company's history to break the $80 million revenue threshold, having just broken the $70 million barrier for the first time during Q3 2020. On a sequential basis for Q4 2020, revenues were higher by $9.8 million, or an increase of approximately 13%. The higher revenues, were driven by our PMP products, which grew 24% sequentially due to service providers continuing to scale networks driven by requests for increased capacity, higher demand for CBRS compatible solutions, CARES Act and CAR2 funding, and the start of volume shipments of our new 60 gigahertz technologies. As anticipated, our point-to-point revenues declined by 7% sequentially, but performed better than anticipated after a very strong seasonal third quarter in North America for federal products. Enterprise Wi-Fi solutions grew 10% quarter over quarter, driven by higher shipments of our new Wi-Fi 6 products and record shipments of our cloud-savvy switching products. Looking at revenues by geography, all regions grew on a quarter over quarter basis. North America, our largest region, represented 55% of company revenues compared to 53% during Q320. North America had a record quarter with revenues growing 17% on a sequential basis driven by higher PMP. EMEA, our second largest region, grew 6% sequentially and represented 26% of revenues during Q420 and 28% of revenues during Q320. The quarter-over-quarter growth in EMEA primarily reflects stronger PTP revenues and continued recovery in enterprise Wi-Fi revenues. Cala had another strong quarter of revenues, breaking the $10 million barrier for the first time in the company's history and represented 12% of sales during Q420, growing by 14% quarter-over-quarter due to a broad-based revitalization in the region and a number of significant customer wins. APAC revenues grew 16% sequentially and represented 7% of revenues during Q420, flat as a percent of revenues from Q320. Looking at our gross margin, non-GAAP gross margin of 51.2% decreased by 120 basis points compared to Q419. The year-over-year decrease in non-GAAP gross margin was a result of less mix of higher margin PTP and Wi-Fi products and higher inventory reserves. On a sequential basis, non-GAAP gross margin in Q420 of 51.2% was 150 basis points higher than Q320. The higher quarter-over-quarter non-GAAP gross margin was a result of higher volumes, richer mix of higher margin enterprise Wi-Fi, lower rebates and inventory reserves, and improved supply chain efficiencies. In Q420, our non-GAAP gross profit dollars increased by $8.8 million to $42.4 million compared to the prior year, and improved by $6.2 million sequentially. I'm particularly pleased with the improvements we've made with our gross margin initiatives and progress towards our longer-term goal of achieving an annual non-GAAP gross margin target of 51% to 52%. For the full year 2020, non-GAAP gross margin improved 80 basis points to 50.3%, compared to 49.5 percent for 2019. Non-GAAP operating expenses, research and development, sales and marketing, general administration, depreciation and amortization in Q420 decreased by $171,000 when compared to Q419 and stood at $29.1 million or 35.2 percent of revenues. The majority of the year-over-year decrease in non-GAAP operating expenses was a result of lower discretionary spending in sales and marketing expenses due to less travel and trade show expenses as a result of COVID. When compared to Q320, non-GAAP operating expenses increased by approximately $3.5 million. The quarter-over-quarter increase reflects higher R&D and sales and marketing expenses from the four-quarter reinstated salaries and increased variable compensation resulting from higher revenues due to the company's strong performance during Q420. For the full year 2020, non-GAAP operating expenses decreased by $3.1 million and stood at $106.7 million compared to $109.8 million for 2019. The lower non-GAAP operating expenses during 2020 reflect the benefits of past restructuring activities as well as lower discretionary spending in sales and marketing. Non-GAAP operating margin was 16%, up from 6.6% during Q4 2019, and increased from 14.6% of revenues in Q3 2020. For the full year 2020, non-GAAP operating margin was 12%, compared to 8.3% for 2019. We had another excellent quarter of profitability with adjusted EBITDA for Q4 2020 at a record $13.9 million, or 16.8% of revenues, compared to $5.3 million, or 8.2% of revenues, for Q4 2019, and up from $11.4 million, or 15.6% of revenues, for Q3 2020. Four-year 2020 adjusted EBITDA was $37.4 million, or 13.4% of revenues, compared to $26.2 million, or 9.8% of revenues, for the four-year 2019. This represents a 43% increase in adjusted EBITDA from 2019. We see continued leverage in our business and remain committed to driving our adjusted EBITDA to our target model of 18% to 19% of revenues over the next few years. Moving to cash flow, cash flow provided by operating activities was $15.1 million for the fourth quarter 2020, primarily the result of increased profitability improved collections as a result of better linearity of revenues and an increase in accounts payable. This compares to $6.1 million of net cash flow provided by operating activities for the fourth quarter 2019 and $16.4 million for the third quarter 2020. For the four-year 2020, operating cash flow was $56.9 million compared to $3.6 million during calendar year 2019. Non-GAAP net income for Q420 was a record $10.7 million, or $0.38 per diluted share, compared to $2.3 million, or $0.09 per diluted share for Q419, and non-GAAP net income of $7.8 million, or $0.29 per diluted share for Q320. The higher non-GAAP net income compared to the prior year period was due to higher revenues and gross profit dollars, lower OPEX as a result of benefits from our past restructuring, lower sales and marketing and R&D expenses, and lower interest expense due to the reduction in long-term debt. The increase in non-GAAP net income compared to Q320 was primarily attributable to higher revenues and gross profit dollars as we efficiently scale our business. For the full year 2020, non-GAAP net income was $24.1 million or 86 cents per diluted share compared to $12.1 million or 47 cents per diluted share in 2019. Turning to the balance sheet, cash totaled $62.5 million as of Q420, an increase of $12.4 million from Q320, and represented a positive net cash position for the company in the first time in its history. The sequential increase in cash balance during Q420 was primarily the result of improved earnings strong cash collections resulting from improved linearity of revenues and an increase in accounts payable. Q420 net receivables totaled $58.1 million, a decrease of half a million dollars from Q419 and an increase of $4.2 million sequentially. Day sales outstanding for the fourth quarter stood at 56 days, an all-time record and a decrease of 22 days from the prior year and lower by two days sequentially As a result, a strong collection has improved shipping linearity. In Q4-20, days payable outstanding stood at 55 days, a decrease of five days from the fourth quarter of the prior year, and lower by three days from the third quarter of 2020. Net inventories of $34 million in Q4-20 decreased by $7.7 million year-over-year and increased by $4.9 million from Q3-20. Inventory days stood at 71 days, down 58 days compared to Q4-19, and down by two days from the end of September. Given the rapid growth in revenues, we expect a modest increase in inventories over the next few quarters. Finally, Cambium was able to successfully increase our equities trading liquidity with a secondary offering of 2.5 million shares sold from Vector Capital. The offering was non-dilutive to our existing shareholders, and we welcome those new shareholders that are now part of Cambium's journey. In summary, we continue to make excellent progress on achieving our long-term target operating model by accelerating growth, gaining scale, and improving our operational efficiency. All of this is demonstrating the tremendous operating leverage we have in our business. Our balance sheet is strengthened with another excellent quarter of cash generation, and we continue to see improving visibility into our business. Moving to the first quarter and calendar year 2021 financial outlook, please note that Cambium Network's financial outlook does not include the potential impact of any possible future financial transactions, acquisitions, pending legal matters, or other transactions. Accordingly, Cambium Network only includes such items in our financial outlook to the extent they are reasonable However, actual results may differ materially from the outlook. Considering our current visibility as of February the 18th, 2021, our Q1-21 financial outlook is expected to be the following. Revenues between $81 to $85 million. Non-GAAP gross margin between 49.5 to 50.5%. Non-GAAP operating income between $11.6 to $13.4 million. interest expense net of approximately $1.4 million, non-GAAP net income between $8.4 to $9.7 million, or between 30 to 34 cents per diluted share, adjusted EBITDA between 12.6 to $14.5 million, and adjusted EBITDA margin between 15.6 to 17%. Non-GAAP effective tax rate of approximately 17 to 19%, and approximately 28.3 million weighted average diluted shares outstanding. Turning to our cash requirements, pay down of debt of $2.5 million, cash flow interest expense of approximately $900,000, and capital expenditures between $3.2 and $3.6 million. So the four-year 2021 financial outlook is expected to be as follows. Revenues between 317.5 to $331.4 million, increasing between 14% to 19%, and adjusted EBITDA margin between 15% to 16%. I'll now turn the call back to Atul for some closing remarks.
spk07: We started this journey over nine years ago with our separation from Motorola with a shared set of values and the goal to win by delivering high performance, high quality, yet affordable products, providing end-to-end wireless fabric managed by our cloud-based CN Maestro software. We haven't deviated from that vision, and today, the market is coming to Cambium. As fixed wireless is now becoming mainstream, and as we enter urban markets for the first time in a significant way. With wireless now matching the end-to-end speeds of fiber, Cambium Networks is very well positioned to win based on our superior value and lower TCO. Wireless is the new fiber. We continue to strive to achieve our goal of long-term top-line growth in the mid-teens and adjusted EBITDA in the upper teens as a percentage of revenues. Cambium has multiple revenue drivers to reach this goal, including our new gigabit wireless products, such as Enterprise Wi-Fi 6, 60 gigahertz, and in the middle of this year, 28 gigahertz millimeter wave solutions for 5G fixed wireless. We also expect the continued adoption of CBRS-compatible solutions, and we can now add software as a service to the list of growth drivers for 2021 with the inclusion of our CN Maestro X solution. Our profitability should benefit from increased scale in our business while we judiciously manage our costs. although we'll continue to fuel new investments in R&D to maintain our technology edge. Our balance sheet is net cash positive for the first time in company's history and continues to improve. We had another solid quarter of cash generation, and we remain excellent stewards of capital. Looking at the upcoming year, 2020 showed how the wireless communications community rapidly stepped up to meet demand in response to the pandemic. We predict 2021 will see many of those changes become permanent and sets the stage for future growth opportunities. Beyond calendar 2021, Cambium Networks remains excited to support the next round of Connect America funding, the Rural Digital Opportunity Fund, to bring high-speed broadband service to millions of unserved Americans. and next-gen EU funding programs for high-capacity networks in Europe. Cambium solutions stand to benefit significantly from the general network infrastructure upgrades and the RDOF initiative beginning in a substantial way during 2022 and lasting for six or more years. Our ability to scale our business, including our 24x7 global support and our focus on customer delight through cutting-edge innovations remain our winning formula. Finally, I would like to thank our employees, partners, and customers for the hard work and cooperation and outstanding results during these unprecedented times. This concludes our prepared remarks. So with that, I would like to turn the call over to Daphne and begin the Q&A session.
spk01: Thank you, Atul. At this time, as a reminder, to ask a question Press star, follow by the one on your telephone. To withdraw your question, press the pound key. Please limit yourself to one question and one follow-up question. And your first question comes from the line of Paul Koster with J.P. Morgan.
spk05: Yeah, thank you for taking my question. A couple of quick ones. First up, the... The move into urban markets, is it with existing customers and existing channel, or is it going to be a new customer base and a new channel? In either case, can you just describe to us the sort of sequence of events there?
spk07: Thanks, Paul. I think it's going to be a mix. Many of our customers are drawing concentric circles around their markets. They have won the developing community side, and now they're to expand business. They are going towards maybe 5 kilometers, 10 kilometers more, and some of that could be enterprise connectivity, some of that could be home connectivity. So I think we do have existing customers who are now diversifying, but also many new customers who might be in video surveillance, for example, and they need broadband at a particular point. new applications or someone who really needs very strong multi-gigabit urban point-to-point connectivity with meshing architecture. So those are a mix of the two and very exciting new applications opening up. I think I made this remark in one of the calls. If you ask me what all markets will 60 gigahertz get into, I don't think we can predict it. I think it will be very pleasant surprises in new markets, new applications. because they're very enabling technology.
spk05: How would you describe the current adoption process? Is it a sort of land and expand, or are people going full bore to complete installations without testing and scaling? Are they going straight to full deployment?
spk07: No, I think it'll be land and expand, because wireless always, you have to, the proof is always in the pudding. Everybody can claim whatever number they want to claim, But ultimately, you have to deliver the resilience, the performance, and deliver in the noisy conditions, in different atmospheric conditions. So, no, I think it will be land and expand. And that's why Cambium always focuses on, and we always say that, you know, first four to six months of POCs and pretty much all of our solutions. And then the expansion starts. And that expansion then lasts for multiple years.
spk05: And when you bring out the 5G 28 gigahertz product, will that be sold into the same market, same customers? And if so, how are the two products positioned?
spk07: Yeah, I think they are very complementary because 60 gigahertz is one kilometer, two kilometers type of distances. And maybe with meshing, you can do a little more. Whereas 28 gigahertz will be probably five to seven kilometers without mesh. So I think you will see them as very complementary products. as customers expand the network with multi-gigabit. And I always say that LAN-WAN convergence is happening because we used to always separate the WAN is slower, LAN is faster. Increasingly, when you achieve multi-gigabits on those type of distances, you start to bring a lot of computing to the edge, which is kind of what you're seeing.
spk05: My last question, Atul, thanks for taking these questions, is You know, you're doing so well. And yeah, it feels like half your customers are still struggling or not available to you. And I'm thinking in particular, hospitality and airports and education facilities, campuses, campus environments where, you know, they're still sub optimal in terms of occupation levels and activity levels. And, you know, sort of the pandemic continues to weigh on the activity. So, you know, surely they haven't even tested out the need for new capacity with Wi-Fi 6 and some of these new capabilities. Is that a true statement and do things just get better and better as the world opens up here or are you already seeing that business?
spk07: No, I think, Paul, a very insightful comment. I definitely think there is good upside as the world gets better and better because our new products are just getting off the gate. These are POCs, and we know the life cycle. The product life cycle's new deployment is anywhere, you know, good, solid, four years, five years. Cambium has products which are on the towers for five years, six years. So, no, I think your observation is right, that as the world gets better, I think our opportunity gets stronger.
spk11: Thanks, Paul.
spk01: Thank you.
spk07: Thanks, Paul. Thanks, Paul.
spk01: As a reminder... please limit yourself to one question and one follow-up question. Up next is Scott Searle with Roth Capital.
spk11: Hey, good afternoon. Thanks for taking my questions. Hey, you know, in terms of the fourth quarter results, a lot of demand certainly on the point-to-multipoint front and within North America. I was wondering if you could quantify or provide a little bit more detail in terms of some of the new products and their contribution in the quarter, whether it's 60 gig and And also, if you could clarify, I think you said 40 proof of concepts that are going on right now or trials for 60 gig. I want to confirm that that was 60 gig, not another product line. But, you know, where was 60 gig, where was CBRS in the fourth quarter results? And then second question, shifting the outlook or to your guidance for the first quarter in 2021, what's the current visibility that you've got to the March quarter? And then as we're looking into 2021 results, you know, it kind of implies that things soften a little bit. So is that an error of conservatism on your part? And what is the expectation for the new product contribution in 2021? A lot of big products, a lot of momentum, but I'm kind of wondering if you could put some, some, uh, you know, quantified a little bit more around the edge. Thanks.
spk06: Yeah. Wow. How many, how many questions are that?
spk11: I'm trying to get ABCD.
spk06: Yeah. Scott, thank you for asking. And, uh,
spk07: So first of all, 4040 proof of concepts for 60 gigahertz is the right number. I think we are seeing good expansion on POCs. And as I said to Paul, I think good four months, five months or so are always POCs and then expansion starts. So normal life cycle. So NPI, Wi-Fi 6 is expanding. some places moving into deployment, but still lots of POCs, 60 gigahertz POCs, and then expansion will start. I think 2021 you'll see good expansion of 60 gigahertz. So overall, as we look at fourth quarter results as well as Q1, the CBRS continues to accelerate pleasantly. I think CBRS is also finding new applications. Enterprises are looking at it. industrial automation guys are looking at it. So in general, that pressure spectrum of 3.5 gigahertz is finding new applications. So good for us. In terms of Q1 visibility, I think Stephen can give you a lot more color there. And in terms of numbers, we always like to make sure that while we all have good momentum, good wind in the sail, we remain kind of realistic about things as well. So I will let Stephen give you some rundown.
spk06: Yes, Scott. So visibility for us, I would say over the last few quarters, has continued to get better and better. It's actually something as a young public company we spent a lot of time on in terms of trying to improve that, both in terms of our forecasting and the tools that we have access to to try and get better information from our network, our channel, and our distributors. So I would say in terms of the backlog position when we've been entering the quarters, historically we like to have a solid backlog and by the end of the first month have about 60% of the revenues booked. Q3 was stronger than that. Q4 was even stronger, I would say, as we enter Q1, which tends to be a sort of flattish seasonal quarter for us. The backlog coverage is even stronger than it was in Q4. So that gives us confidence about the Q1 guide. I think in terms of your other question with regards to 2021 and is there sort of an element of conservatism in that number, you know, we're forecasting the full year, as I said, in prepared remarks to be somewhere between 14% and 19% growth. You know, overall, you heard from Atul, we see strong momentum in the business, both in rural fixed wireless broadband coupled with shoots of improvement from even hospitality and enterprise. So things are looking good from that perspective, coupled with a lot of the new products that we introduced at the tail end of 2020. I think we are being a little bit cautious, given some of the supply constraints that we see out there, particularly in the semiconductor space. And so our guidance incorporates that for 2021. Did we get all of them?
spk11: Thank you. Perfect. Thank you. Good.
spk01: Your next question comes from the line of George Notter with Jefferies.
spk10: Hi, guys. Thanks very much. Congratulations on the good results. If I want to nitpick on you guys a little bit, I guess I'm wondering if you could have shipped more in the quarter. Obviously, it's a very healthy environment out there, and I was wondering if there was an opportunity to ship more that maybe you couldn't because of supply chain or distribution issues or manufacturing issues. Anything you could tell us would be great. As we've been chatting with customers, it sounds like there have been some shortages out there of specific products for Cambium. So I was just wondering how you guys see that situation.
spk07: George, there's no doubt that there is some tightness in chips and some supplies. Nothing to be overly concerned, at least for our business, as we forecast. But there is definitely tightness. And I think as we look at the numbers, as we forecast the year, we've already taken all that into account. And in terms of the shipments and all that, I think every quarter, no matter how hard you work, from different logistic reasons, sometimes you're not able to ship everything. There's never perfection in those things. But overall, I think most of our key customers got their products. And in some key products where there were shortages, we are catching up fast in Q1. So overall, I would say, yeah, there is some conservatism built in, but we are also realistic that not everything works out in every situation. So that's what you're seeing. But we are pretty positive. about where we are. We have excellent relationships with our suppliers. And actually, in our case, we anticipated that the demand will be increasing based on last six to eight months of Cambium demand. So we proactively started working with our suppliers as early as November, early December. So we feel good where we are.
spk10: Got it. That's great. And just as a quick follow-up, any commentary on where the distribution channel is right now in terms of inventory levels? Are they pretty light? Are they normal? How would you characterize it?
spk06: Yeah, I mean, obviously we get a lot of good channel data now with our channel management tools, so we track both the whole POS very closely, and we get pretty much all of our distributors to report on their inventory, in some cases a weekly basis, but certainly on a monthly basis. So I would say it's been reasonably consistent certainly pos has been very healthy so we know the end demand is strong but i would say from an inventory perspective in the channel it's consistent and it's roughly around that sort of six or seven weeks okay great thank you thanks george your next question comes from the line of simon leopold with raymond james
spk12: Hi, guys. This is Victor Chew in for Simon. Regarding the RDOF opportunity, I think you said on the call hundreds of million dollars over the span of the initiative. So can you just help us to understand what you're expecting around the timing and trajectory of the contributions from this opportunity?
spk07: Okay. So RDOF, as we said, it's an initiative. I think it will kick off for us in a good way, maybe end of the year, early next year, that kind of timeframe. And then it will go for next six years. solid six years. And I think we have said in the past, overall total cumulative incremental business for Cambium will be about $350 million or something like that. So when we compute how that money will be spent, the large $20.4 billion, it will be spread across many initiatives. I think for Cambium, that type of a number incremental over the next six, seven years, we feel pretty good about.
spk12: Okay. Okay. That's helpful. And I just wanted to double-click on the progress with the Wi-Fi business. The year-over-year decline seemed to be stabilizing somewhat, but can you help us understand what you're observing from the demand environment, since you seem to be pretty optimistic that the growth recovers here?
spk07: Yeah. So I think Wi-Fi, we definitely see recovery. And I think the bottom part is over. And this year, we are projecting about 50% year-over-year growth, 5-0. And remember, in 2019, we did like 81% or 82% year-over-year. So we are back towards, I think, the kind of direction we were before. And let me share with you why we are confident. Cambium focuses on solutions. Cambium doesn't focus on a technology. And that's why when we go to customers, we say, Mr. Customer, we have wireless fabric. We have different frequencies, both indoor, outdoor. We have Wi-Fi. We have LTE. We have fixed wireless broadband, other solutions. I think the benefit of that is that we are able to go into new segments where we may not have been present. For example, health care. I think we are beginning to sell more Wi-Fi solutions in health care globally. and we are beginning to go beyond, like warehouses, for example. Some of the warehouses have outdoor needs. There we are very differentiated, so we are seeing that. We are seeing retirement communities, retirement homes. So what Cambium is finding is new segments. So as old segments come back, like hospitality, and as education accelerates again, I think we will have some good upsides.
spk06: Okay. Just to add to that a little bit, healthcare is at all mentioned, education is another area, but we are actually starting to see a little bit of a pulse now in hospitality. I mean, it's a bit early days to say if it's going to continue, but certainly in EMEA, we're starting to see some activity there as things start to ease a little bit after the COVID pandemic. So we're factored into our growth expectations, which we think are somewhere between 40% and 60% for Wi-Fi, midpoint of 50% growth for 2021. We are anticipating a little bit of an improvement in hospitality as we go through the year.
spk12: Okay, and if we're assuming that Candium is not going head-to-head against the incumbents like Cisco and HP, how are you thinking about the size of the addressable market, the opportunity that you're thinking about?
spk07: Yeah, Simon, there is plenty of market in the mid-market. And again, I won't point to anybody, but no, I don't think we need to go after the giants of our industry. There is plenty of value we provide for the mid-market. And we see pretty strong growth. I think we need to just keep walking before we run. And there's plenty of business for us to be had.
spk12: Great. Thank you.
spk07: Thanks, Simon.
spk01: Your next question comes from the line of Rod Hall with Goldman Sachs.
spk08: Hi. Thanks for taking my question. This is Bala Reddy on for Rod. I want to – congrats on the good riddles, by the way. I want to circle back to the foliar guidance. So it's clearly very strong. Just wondering how much visibility do we have for the full year, given we know how the space can be. I know you've got tons of smaller customers, so there is a good amount of diversification. But just wondering, as you think broadly, how much are you factoring in from the new products, especially the 60 gigahertz as well as the 28 one that's coming? And I've got a follow-up. Thanks.
spk06: Yeah, so visibility for us, certainly within the immediate quarter, is always very good. Given the strength of the business and the booking activity, we've actually been working with a lot of our channel partners and distributors to book as early as possible. So we are seeing more activity now go into Q2 as well. So that gives us a good snapshot of how the first half of the year is looking. And that's improving. I think we can certainly, with the products that we released during 2020, that being Wi-Fi 6 and 60 gigahertz, we've seen a lot of momentum as we exited 2020, which gives us very strong comfort that 21 is going to be a strong year for adoption of these new products. I think the other point to note in terms of visibility and predictability of the business, and we comment on this a lot, but much of our business is repeat business. And in fact, when we look at customers, once they order Cambium products, they come back and order time and time again. So about 70% of our revenue is actually repeat reoccurring purchases from our customer base. And that allows us to give us some confidence in terms of predicting that ongoing run rate business and then overlaying the adoption of new products.
spk07: So maybe, Bala, in addition to what Sifan mentioned, I think you touched upon 6 gigahertz and 28 gigahertz. I don't think you will see much of 6 gigahertz additional product revenue. 60 gigahertz. Did you say 6 gigahertz or 60?
spk08: I was talking about 60.
spk07: Oh, 60, okay. So at 60, you will see a strong 21 performance because a lot of POCs activity started in November, December last year, continues in Q1. 28 gigahertz, I think, will be a lot of POCs in probably second half. and then 22 is when 28 will kick in. So lifecycle-wise, very consistent, all new products, you know, four to six months of POCs, and then you start the first deployment, then starts the acceleration for the following, you know, two, three years. So I think you'll see the same in 28.
spk08: Okay, thanks, Adil. I got a follow-up on the competitor landscape. I saw the recent article about how you're – Wi-Fi 6 products are performing better than competition, but in general, broadly, could you talk about the competition that you expect to see, especially in urban markets, et cetera, in the other product segment?
spk07: Okay. So on Wi-Fi 6, one of the benefits Cambium had is as we did Xeris acquisition, we picked up a lot of strong multi-radio architecture cloud management expertise because they used to focus on high-performance Wi-Fi. And I think that year was a very good design center. And we recently released a Tolley Group report. It's a public domain information where you can see the superiority of Cambium Wi-Fi 6 performance compared to competition because of those things I described to you. So I think overall ease of deployment, higher performance, and making sure we keep our cost structure tight so we can give better affordability to the end customers, that has been the winning formula. And that's why we are projecting about, you know, this year approximately 50% growth over last year. So I think that formula has worked for us before, and we feel pretty good where we are with Wi-Fi 6. And the design wins and the customer wins and the customer testimonials are giving us the confidence.
spk01: Okay. Thanks a lot.
spk07: Great. Thank you. Thank you. Thank you.
spk01: Your next question comes from the line of Eric Suppaker with JMP Security.
spk03: Yeah, thanks for taking the question. Congrats on a very good quarter.
spk07: Thanks, Adam.
spk03: First off, can you discuss whether there's been a shift in terms of the contribution from your service provider business? I think historically that's been in the range of 45% of your business. Has that contribution changed in light of... you know, the whole COVID acceleration. And then secondly, on CBRS, I think it was up 29%. Can you talk a little bit in terms of how you think that might change? Is the installed base, you know, the The traditional products that were already in your installed base, have those been refreshed at this point and now it's new product, new units that would be shipping out? Or how should we think about the CBRS customer base?
spk07: Thanks, Eric. So the first is the service provider business actually strengthened because as the broadband became a lifeline in worldwide different communities, I think the networks had to be scaled. So in general, I would say what we see is that the WISP definitely demanded more product, but more than that, the Tier 2 and Tier 3 service providers worldwide got more engaged with Cambium, and actually in many countries, even Tier 1 got engaged with Cambium. So I think service provider business is actually, if anything, strengthening. That's one point.
spk03: Is it a larger contribution? Can you tell us?
spk06: Eric, it's going to be north of 50%. So, yeah, your 45% is a bit light. I would say it's north of 50%, and probably has a slightly larger contribution nowadays.
spk07: Eric, what's changing there is that the progressive service providers are now looking for emerging multi-gigabit technologies. whether it's 60 gigahertz, whether it's emerging 28 gigahertz. So I think that bodes well for us because we invested in these areas two years back. Everything I'm describing, some of these investments we made two years back, we knew this was coming, and we are at the right place at the right time. In terms of CBRS, CBRS is finding new applications. I think many enterprises are looking for now more bandwidth, They are looking at CBRS. Industrial side is not looking at CBRS. So I think CBRS is not just our existing customers. Existing customers was the natural, easy part for us, and it still continues to grow. But I think what we are finding is that it's opening new applications and new customers for us. So far, I don't think you will see 22, 23, 24, the kind of growth We saw probably in the last 12 months or so, at some point it will taper off, but so far it remains pretty robust.
spk03: Very good. And then last question. Can you talk about the competitive dynamics with the 60 gigahertz product? I think Ubiquiti is shipping a product like that. Is there much of a competitive market out there?
spk07: So far, our focus has been standard. Our focus has been .11ay standard, nothing proprietary, based on commercial chipsets, and very easy to deploy, same cloud management as our other fixed wireless broadband and Wi-Fi, consistent single pane of glass, and very good performance. So far, I would say we are probably leading, and the fact that we have 40 POC is going worldwide. We have one of the largest deployment going right now. We feel pretty good in terms of our differentiation.
spk03: Great. Thank you very much.
spk07: Thanks, Eric. Thanks, Eric.
spk01: Your next question comes from the line of John Roy with Water Tower Research.
spk02: Great. Thank you very much. A little bit of a question. I want to dig in a little bit into the cloud management take rate. And maybe you could give us a little bit of an idea of the color on that and maybe your SAS revenue. Is there any particular, you know, growth weight we can think about or targets you want to try and hit for that going forward?
spk07: So, John, I think it's still going to be an early year for our software subscription revenue still, and we always said that. 21, the journey has started, and every quarter we will give a good color on where we are. I think, in general, our strategy was to make sure we have a strong foundation with most of our devices, whether it's PMP or PTP or Wi-Fi or switching or LTE or 60 gigahertz. I think that's where our effort went, just to make sure we can take care of different network models and integrate that in CN Maestro. Now that we have done that, our attention shifted to differentiating features which we can charge for. So I think this year, it will be modest numbers. I don't think it will be huge numbers. But we are beginning to kind of put the systems in place to generate software revenue. This has been a journey because it's very easy to say we'll claim software revenue, we'll bring that, but it has to be highly differentiating. So I feel good where we are, and we'll give you more color, but I don't think this will be suddenly a hockey stick. I don't think it will be a hockey stick. I think it will start growing very well, and the features we are adding will give us more and more ability to charge for it.
spk02: Great. Thank you very much.
spk07: Thanks, John.
spk01: And we'll take one more caller. The last question comes from the line of Tim Savakoks with Northland Capital.
spk04: Thanks. Good afternoon. And I'll try to make it quick. Kind of back on the topic of the guidance and what might be behind that for the year, that is. You know, even at the high end of the range, and especially, you know, given your comments about visibility into Q2, it seems like you're projecting a lower second half than first half. And, you know, that's with probably decent ARDOF ramp. Maybe later in the year, new products continuing to ramp, Wi-Fi growth that you've spoken to. So, you know, are you modeling some degree of capacity pull forwards here in the first half? We have seen that. with some of your fiber-based peers focused on the rural market. You mentioned the supply constraints, but nothing on the capacity pull-forward front, or are we just really being conservative here? And I have a follow-up.
spk06: No, I wouldn't say this is a capacity pull-forward. I mean, certainly, you know, we're putting up a strong Q1 number, off of a strong Q4 that we've just reported, right? So the year-on-year growth rates, yeah, on a midpoint of our guide is going to be north of 30% for Q1, and I think you can assume that probably won't be that same sort of growth rates in the second half. We are being a little bit more conservative given some of the supply constraints that we see, but as I say, that's factored into our guidance, and we're not going to provide a quarterly break out, and we hope that supply eases, that we can do better than that. Certainly, PMP, given the strength of rural fixed wireless broadband, is going to be a very nice growth driver for us, coupled with the release of our 60 gigahertz product. So we anticipate that piece of the business to grow somewhere between 14% and 16%. And as Atul mentioned earlier, Wi-Fi business to grow somewhere between 40% and 60%. So some pretty strong growth rates in those businesses, but we are being a little bit cautious given the supply environment.
spk04: Fair enough. And it sounds like PTP could be another area of caution, and that was actually my follow-up question, which is a little bit of a multi-parter, but not very much, which is to say, You have seen, you mentioned gaining share in PMP, and you're doing quite well there. We've seen a couple of meaningful competitive wins by one of your competitors with a couple of the big RDOF winners, by the way, recently, LTD and Nextlink. And that might suggest maybe there's some competitive dynamic shifting in PTP that might be a bit of a headwind. And the kind of multi-part aspect is, is that activity amongst those providers, both of whom were big RDOF winners, meaning they might be accelerating their access deployments where I would imagine you're pretty well positioned given these backhaul awards. And that's it for me.
spk07: Tim, I would say that PTP business for Cambium is very much driven not just from the WISP backhaul, but also defense. A lot of defense uses Cambium PTP. So sometimes you will see very, very strong quarters. Sometimes there will be little softer quarters than PTP. That is not driven from service. For us, it's actually pretty strong. We feel very good about our PTP business worldwide. In general, access is a far bigger business than PTP business for Cambium. So I think overall, as we look at first half, second half, I think PTP will grow. PTP will do what it has done in 2020. But we don't see massive head being one way or the other in that business. But definitely, it modulates a lot more for Cambium from the defense and government side.
spk04: Okay. Thanks very much.
spk07: Thank you.
spk01: And I would now like to turn the call back over to Mr. Peter Schuman for closing remarks.
spk09: Thank you, Daphne. During Q1 2021, Cambium Networks will be presenting and meeting virtually with investors on February 24th with J.P. Morgan, February 25th with Water Tower Research at the JMP Securities Technology Conference on March 2nd, and the Raymond James Institutional Investor Conference on March 3rd, and the Roth Capital Partners Conference on March 16th. In the meantime, you're always welcome to contact our Investor Relations Department at 847- 264-2188 with any additional questions that arise. Thank you for joining us, and this concludes today's call.
spk01: Ladies and gentlemen, that concludes today's quarterly earnings call. Thank you for your participation, and you may now log off.
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