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spk03: Good afternoon. My name is Carmen, 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 2021 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 during that time, you will need to press star 1 on your telephone to get in the queue. Please limit yourself to one question and one follow-up question. Thank you. Mr. Peter Shulman, Senior Director, Investor, and Industry Analyst Relations, you may begin your conference.
spk06: Thank you, Carmen. Welcome and thank you for joining us today for Cambium Network's fourth quarter and full year 2021 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 the 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 outlook and expected performance of the company. 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 Networks' policy not to reiterate our financial outlook. We 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 to 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 fourth quarter and full year 2021. And Stephen Cumming, Cambium Network's CFO, will provide a recap of the financial results for the fourth quarter and full year 2021 and present our financial outlook for the first quarter and full year 2020. Our prepared remarks will be followed by a Q&A session. I'd now like to turn the call over to Atul.
spk01: Thank you, Peter. Demand and backlog remained strong due to the continued need for expansion of broadband wireless communications networks and a strong rebound in enterprise Wi-Fi shipments. We experienced an incremental improvement with supply chain challenges and are winning more sizable enterprise deals while taking market share during Q4 2021. For calendar year 2021, our enterprise business grew 67%, well ahead of our original forecast of 40% to 60% growth announced during our Q420 financial results conference call last February. We achieved our overall results without the full benefit of the price increases and surcharges, which continue to layer into our financial results over the next few quarters. We are still facing supply chain challenges within our industry, although things seem to have broadened and are expected to improve incrementally over the next few quarters as we have adjusted to the new normal, which includes expedite fees, extended lead times, as well as increased freight expenses. Demand remains strong. We exited the fourth quarter 2021 with backlog of 7% quarter over quarter and 16% year over year. We are at the forefront of the next wave of high performance wireless broadband technology with our millimeter wave solutions. Our new 28 gigahertz 5G multi-gigabit fixed wireless products are expected to be released during the first quarter. We presently have eight POCs for our 28 gigahertz CN wave going on in four continents. Our 60 gigahertz CN wave products are changing the way fixed wireless is viewed by customers and expands our serviceable available market bringing a standard-based multi-gigabit fixed wireless solution using licensed and unlicensed spectrum to network operators serving residential, urban, and enterprise markets. Cambium's enterprise solutions bring sophisticated, cost-effective multi-gigabit Wi-Fi, wireless-savvy switching, premium software solutions, and subscription services to our customers, and the results have been outstanding during 2021. We had a breakthrough quarter for the Wi-Fi business with record revenues of $25.8 million, which grew 140% sequentially and 136% year-over-year during Q4 2021. To put this in perspective, Wi-Fi represented a third of company revenues during the fourth quarter 2021. A previous record was 20% of revenues during the second quarter 2021. We are winning as a result of Cambium's attractive cost of ownership, which makes our fixed wireless solutions a compelling choice for wireless infrastructure projects around the world. With increased government spending on infrastructure projects accelerating over the next few years, and our commitment to deliver cost-effective and scalable multi-gigabit solutions to local communities and distributed enterprises around the globe, Cambium will be a winner over the next several years with its cloud-managed wireless fabric solution extending from few meters to over 100 kilometers, all done wirelessly. Turning to the results of the fourth quarter of 2021, revenues of $78.7 million came in above the outlook of $73.5 million to $77.5 million announced during the Q3 21 earnings call. The supply-constrained environment mainly affected shipments of fixed wireless products and limited further upside to our fourth quarter results. The enterprise market had a strong rebound in Q421 as supply constraints began to ease. We were able to opportunistically purchase chips on the secondary market at higher prices. Non-GAAP fully diluted EPS of 16 cents was within the outlook announced during the Q321 earnings call of between $0.11 and $0.17 per diluted share. Looking at revenues across our different product lines, our point-to-multipoint PMP business revenues decreased 26% sequentially and 31% year-over-year due to global supply constraints negatively impacting shipment of products. We continue to see strong momentum in network traffic, increased demand for CBRS solutions, and broadening interest in our new product introductions. We expect the component shortages to continue to improve, although gradually, during the first half of calendar year 2022. The point-to-point PTP business improved by 10% sequentially during Q4-21, with component shortages limiting shipments of certain products. Although we had higher shipments for federal products, while year-over-year revenues decreased 9% due to lower shipments for backhaul products, compared to a very strong prior year period. Our enterprise Wi-Fi business had a breakthrough quarter with record revenues of $25.8 million. Our previous record for Wi-Fi was $18.3 million during Q2 21. We were fortunate to have improved supply conditions and pent-up demand, with Wi-Fi increasing 140% sequentially and higher by 136% year-over-year, during Q421, although supply constraints remain. This is an indication of the strong potential of the Wi-Fi business for Cambium Networks. Demand remains very healthy for our enterprise Wi-Fi and wireless-savvy switching solutions, and we continue to win larger and more diverse customers in this end market all over the world as customers adopt our next-generation leading-edge Wi-Fi 6 and 6E solutions. For the full year 2021, revenues of $335.9 million increased 21% from 2020. The 2021 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 2021, our PMP products grew 19%, and enterprise Wi-Fi grew 67%, while the point-to-point products increased 1% compared to calendar year 2020. Looking at some notable customer wins and new product developments. In North America, we had several competitive wins aided by government funding. A service provider in Texas ripped and replaced a competitor's gear with Cambium's PMP450M technology. a second service provider with a new focus on fixed wireless in rural western New York State replaced Huawei equipment with Cambium's PMP450 with the aid of government funding. Within our industrial customer base, a North American railroad operator selected our PTP820 for its range, throughput performance, small footprint, and superior reliability. Also in the transportation space, Buckeye Mountain, a leading system integrator of communication solutions to the railroad and intermodal industries, has integrated Cambium Network's fixed wireless and outdoor Wi-Fi technology into their rapid deploy family of connectivity solutions. As ports and rail yards deal with unprecedented supply chain issues, communications reliability is vitally important. We also see 60 GHz CNWave, as an emerging application at rail yards and railways for communications across rail tracks to avoid trenching fiber to cross railroad tracks. We had one of our first Wi-Fi 6E wins with a university in Texas. Not only did they select over 1,000 Cambium access points to cover the indoor and outdoor areas of the classrooms and dorms, but they selected our ultra-high density radios for their auditorium and public areas. They also chose our 60 gigahertz CN wave to backhaul the Wi-Fi for their stadium areas. Cambium's first mover status for the FCC's 3.5 gigahertz CBR spectrum continued to benefit our PMP450 products and our CBRS SaaS service in both the US and its territories. As of today's call, we now have over 129,000 devices managed by our CBRS SaaS service, an increase of over 12% since we reported last quarter, and an increase of approximately 93% year over year. In the Europe, Middle East, and Africa region, EMEA, recent strategic wins since our last call include, in France, one of the largest restaurant chains in the country, servicing 600 various quick service restaurants, selected Cambium's Wi-Fi 6, and switching. The deal is a sizable one, and we beat out several larger competitors. Our Wi-Fi performance superiority is propelling us forward in competitive wins. We have several wins in the enterprise hospitality vertical in Germany and Italy. These resorts in the northern hemisphere are upgrading their Wi-Fi for their guest rooms and convention areas during the off-peak season. Cambium's quality, affordability, support, and relationships with partners are some of the reasons why we are winning over these customers. In the APAC region, we had record revenues. Wi-Fi bookings were also very robust. We received a major enterprise order for over 7,000 access points from WorldLink Nepal for outdoor Wi-Fi. We had our first win with a large telco managed service provider, MSP in Japan, for our Wi-Fi business. The project involved connectivity for schools and hospitals and featured our Wi-Fi 6 product. This opens the door for future opportunities as the Japanese market is dominated by larger telecom MSPs, and we won this project over a larger competitor. And in Malaysia, one of the largest oil and gas companies in the region selected Cambium's intelligent positioners with our PTP-450i for connectivity between oil rigs and oil tankers. In Caribbean and Latin America Cala region, Cambium had a solid quarter with record bookings. We had a strong enterprise quarter with an education win in Brazil for 1,600 schools in the state of Sao Paulo. Cambium's outdoor access points were selected versus several larger competitors due to our superior performance and total cost of ownership for the customer. Brazil represents a large opportunity to expand our enterprise business and we are making tremendous progress in the country. We had a win with our 60 gigahertz and Wi-Fi combo for a major port in the Cala region to provide coverage across a facility in days. The maritime port facility found that mobile cellular service did not perform adequately in an environment where metal containers were moved and stacked on a continual basis. After deploying Cambium fixed wireless and Wi-Fi technology, the port experienced consistent connectivity and higher data throughput. Our partner is expanding their deployment to cover four additional ports and equip two container ships. Turning to new product introductions since our previous quarterly update. We officially launched our first Wi-Fi 6E products, the XC series, which triples the available spectrum for Wi-Fi usage including utilization up to 1.2 GHz of new clean spectrum in the 6 GHz band. The Wi-Fi 6E solution is a compatible solution with existing Wi-Fi 6 networks and enables customers to upgrade to 6 GHz when they are ready without a price premium. We continued with extensive field trials and proof-of-concept deployments for our new 28 GHz CN-Wave 5G NR network fixed wireless product with a formal launch during Q1 2022 and revenues beginning to ramp during calendar 2022. Interest and demand from service providers is very high for this long sought after product which uses millimeter wave for fixed wireless access in areas where it's not possible to use either fiber or traditional mobile technology like 4G or 5G. Our 28 gigahertz CN Wave solution will include a mandatory software attach with CN Maestro X, our cloud-based network management platform to support service delivery, and Cambium Care for software maintenance and upgrades. One of our key goals for 2022 is to build a strong foundation for our software and subscription service business, which delivers customer stickiness, recurring revenue, and a creative margin. We are building a sustainable subscription business through three principle initiatives. First, CN Maestro Essentials provides important core services valued by all of our enterprise and fixed wireless customers. And CN Maestro X provides enhanced services, functionality, and ecosystem integration for a fee basis. We continue to invest in CN Maestro X for enterprise and fixed wireless broadband network administration through organic development and ecosystem integration, including mandatory rates on certain products. Second, through the development and introduction of new products that are subscription-first by design. During Q1 2022, we expect to launch our new quality of experience QoE service. QoE provides visibility and network traffic optimization in real time to mitigate congestion and control network traffic. This feature will be increasingly important to high bandwidth multi-gigabit networks across wired and wireless platforms. Network operators subscribing to Cambium's QoE can optimize the average revenue per user ARPU and improve customer satisfaction. QoE allows network administrators to confidently offer higher service level agreements, SLAs, at targeted higher ARPU subscribers. Additional products are anticipated in the second half of 2022 to accelerate annual recurring revenue. Third, we are aligning, training, and incentivizing our internal go-to-market teams. And more importantly, our more than 10,000 global partners. to effectively position and sell our subscription services. Having conducted business in approximately 170 countries in 2021, it is critical that we harness the knowledge, skill, and presence of our channel partners to advance our subscription services business. Looking at our CN Maestro cloud software, our end-to-end cloud-powered connectivity solution to manage the network from a single pane of glass the CN Maestro cloud software continued to experience strong growth. The total devices under cloud management in Q4-21 were over 744,300, an increase of 4% from Q3-21 and up 42% year-over-year. The expansion and growth of our subscription services will be a multi-year journey for Cambium, In the coming quarters, we will provide investors metrics to measure our progress. Looking at the channel, in Q421, we expanded our channel presence by adding over 530 net new channel partners sequentially and over 2,160 net new channel partners year over year, which represents an increase of approximately 5% sequentially and 24% year over year. I will now turn the call over to Stephen for a review of our Q421 financial results and Q122 and full year 22 outlook. Thanks at all. Cambium had revenues of $78.7 million for Q421.
spk04: Revenues increased by 4% quarter over quarter and decreased by 5% year over year. The global supply constraints continue to impact shipments of our point-to-multipoint and point-to-point products. While we had better than anticipated supply of Wi-Fi chips, enabling a record-breaking quarter for our enterprise Wi-Fi business, which had significant pent-up demand, and we opportunistically managed to obtain supply in the secondary market, increasing revenues by 140% sequentially and 136% year-over-year. Our backlog and end demand remained strong, with backlog increasing by 7% quarter over quarter and 16% year over year. On a sequential basis for Q421, revenues were higher by $2.8 million. The higher revenues were primarily the result of record demand for enterprise Wi-Fi solutions and higher point-to-point revenues driven by our federal business and increased demand for backhaul products. offset by lower point-to-multipoint revenues due to global supply constraints negatively impacting shipments of products. Moving to our gross margin, non-GAAP gross margin of 44.2% decreased by 700 basis points compared to Q420. The year-over-year decrease on non-GAAP gross margin was a result of lower revenues and increased component costs, as well as higher freight and distribution costs caused by expedited shipping. On a sequential basis, non-GAAP gross margin was 360 basis points lower than Q321. The lower quarter-over-quarter non-GAAP gross margin was also the result of higher component costs and increased freight and distribution costs offset by a richer mix of Wi-Fi business. Our previously announced price increases began to help offset some of the gross margin dedication during the latter part of Q421. We believe we will continue to see sequential improvements to gross margin during calendar 2022 from both the benefits of the actions we have already taken and increased scale in our business as we progress through the year. The full impact of both the price increases will be realized during the second half of 2022. In Q4 21, our non-GAAP gross profit dollars of $34.8 million decreased by $7.6 million compared to the prior year due to lower volumes and were lower by $1.5 million sequentially. For the four-year 2021, non-GAAP gross margin declined by 210 basis points to 48.2% compared to 50.3% for 2020 due to higher component costs and increased freight and distribution costs. Our longer-term goal remains an annual non-GAAP gross margin target of 51 to 52%. Non-GAAP operating expenses, research and development, sales and marketing, general administrative, depreciation and amortization in Q421 decreased by approximately $100,000 when compared to Q420 and stood at $29.1 million or 36.9% of revenues. Year over year, we had increased sales and marketing expenses due to higher headcount and the return to in-person trade shows and customer meetings offset by lower R&D spending while G&A remained flat. When compared to Q3 21, non-GAAP operating expenses increased by $1.4 million during Q4 21. Quarter over quarter, sales and marketing increased as a result of higher headcount and return to in-person events, including Whisperpalooza, a significant fixed wireless trade show, partially offset by lower R&D spend due to lower engineering material costs. For the full year, 2021, non-GAAP operating expenses increased by $7.6 million and were $114.3 million compared to $106.7 million for 2020. The higher non-GAAP operating expenses during 2021 reflect the increased headcount in sales and marketing to support higher revenues and more spend on R&D resulting from new technologies. We did a good job controlling G&A with only a modest increase in expenses. Non-GAAP operating margin for Q421 was 7.3%, down from 16% during Q420, and 11.4% of revenues in Q321. For the full year, 2021, non-GAAP operating margin was 14.1% compared to 12% for 2020, primarily reflecting higher revenues. Adjusted EBITDA for Q421 was $6.7 million, or 8.6% of revenues, compared to $13.9 million or 16.8% of revenues for Q4-20 and compared to $9.6 million or 12.6% of revenues for Q3-21. For the full year 2021 adjusted EBITDA was $51.2 million or 15.3% of revenues compared to $37.4 million or 13.4% of revenues for the full year 2020. This represents a 190 basis point improvement for the full year 2021 and a 37% increase in adjusted EBITDA dollars. With the current supply constraints, we temporarily lost some operating leverage in our business, although we remain committed to driving our adjusted EBITDA to our target model of 18% to 19% of revenues. Moving to cash flow. Cash provided by operating activities was $5.6 million for the fourth quarter of 2021. The cash from operating activities included a $7 million prepayment to a contract manufacturer to secure incremental supply. Cash flow from operations compared to $15.1 million of net cash flow provided from operating activities for the fourth quarter of 2020 and $11.8 million for the third quarter of 2021. For the full year, 2021, operating cash flow was $30 million, compared to $56.9 million during calendar 2020, with a decrease largely reflecting higher receivables and prepayments to secure inventories. Non-GAAP net income for Q421 was $4.4 million, or $0.16 per diluted share, compared to $10.7 million, or $0.38 per diluted share for Q420. a non-GAAP net income of $6.7 million, or $0.23 per diluted share for Q3 2021. The lower non-GAAP net income compared to both the prior year and prior quarter's results was primarily due to the lower revenues impacting gross profit dollars and higher component costs and shipping costs. For the full year 2021, non-GAAP net income was $35.6 million, or $1.26 per diluted share, and represented a 48% increase for the year compared to $24.1 million or 86 cents per diluted share in 2020. Turning to the balance sheet, cash totaled $59.3 million as of Q4 21, an increase of $700,000 from Q3 21. The sequential increase in cash primarily reflects net income partially offset by the prepayment of $7 million for inventories. During Q4 21, we refinanced our outstanding debt of $30.2 million at a significantly lower interest rate of approximately 2.2% per annum compared with our prior term loan, which had an interest rate of 5.3%. Additionally, we increased our total borrowing capacity by $34 million to $75 million, which will further allow us to grow our business. Since becoming a public company, we've decreased our debt and improved our capital structure and have positioned the company to support our future growth. Net inventories of $33.8 million in Q4 21 decreased by approximately $200,000 year over year, while increasing by $5 million from Q3 21. Inventories were higher sequentially because of an increase in component inventory. While the supply chain remains an ongoing challenge, we're working to increase our inventory position during 2022 to help support the growth of our business. In summary, the fourth quarter played out roughly as anticipated with scarcity and high component costs from some of our supply chain partners, while our price increases are now layering in with the full benefit expected by the second half of 2022. Our order book remains strong. We are at the start of new product cycles and we expect a tailwind from increased government spending in our wireless broadband and federal business during the second half of 2022. Once the supply issues are resolved, we expect to regain scale, improve operational efficiency, and make significant progress to achieving our long-term target operating model. Moving to the first quarter and full year 2022 financial outlooks, Considering our current visibility as of February the 17th, 2022, our Q1-22 financial outlook is expected to be as follows. Revenues between $77.5 to $81.5 million. Non-GAAP gross margin between 44.4 to 45.9%. Non-GAAP operating expenses between $30.2 to $31.2 million dollars. and non-GAAP operating income between $4.2 to $6.2 million. Interest expense net of approximately $700,000, and non-GAAP net income between $2.9 to $4.4 million, or net income between $0.10 to $0.15 per diluted share. Adjusted EBITDA between $5.2 to $7.2 million, and adjusted EBITDA margin between 6.7 to 8.8%. a non-GAAP effective tax rate of approximately 18% to 20%, and approximately 28.3 million weighted average diluted shares outstanding. Cash requirements are expected to be as follows. Paydown of debt, $700,000. Cash flow interest expense, approximately $300,000. And capital expenditure of $1.6 to $1.8 million. Four-year 2022 financial outlook is expected to be as follows. Revenues between $355 to $365 million. increasing between approximately 5.7 to 8.7%. Non-GAAP net income between $35.5 million to $39.5 million, or net income between $1.23 to $1.36 per diluted share. Adjusted EBITDA margin between 14% to 16%. I'll now turn the call back to Atul for some closing remarks. Cambium remains very well positioned for 2022.
spk01: with multiple growth drivers, including our multi-gigabit wireless products, such as Enterprise Wi-Fi 6 and 6E, wireless savvy switching products, 60 GHz CN wave, and our 28 GHz millimeter wave solutions for fixed 5G, new 6 GHz fixed wireless solutions arriving later in 2022, a reinvigorated federal business, as well as our software-as-a-service solutions. We expect increased scale should benefit our future operating results, and we remain focused on judiciously managing our costs while continuing to invest in innovative products to maintain our technology edge. Finally, Cambium was named as one of the best places to work as a large company in Chicago area. The evaluation recognizes employers who have created a diverse, equitable, and inclusive culture that support employees. no matter if they are in the office or at home. We also got named by Forbes as number 22 on their list of the best top 100 small cap companies for 2022. I would like to show my appreciation for our employees, partners, and customers for their resolve during these unprecedented times. This concludes our prepared remarks. So with that, I would like to turn the call over to Carmen and begin the Q&A session.
spk03: Thank you. And as a reminder, to ask a question, simply press star 1 on your telephone. To withdraw the question, press the hash or the pound key. Please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Your first question comes from Scott Searle with Roth Capital. Your line is open.
spk08: Hey, good afternoon. Congratulations, guys. Nice job on the quarter. Hey, Steve, I'm not sure if I missed it, but did you provide a number in terms of what was left on the table due to supply constraints in the fourth quarter? And then looking to the first quarter guidance, I'm wondering if you could directionally give us an idea by product line how that looks. Wi-Fi had an absolutely huge fourth quarter. Does that continue into the first quarter? How much of a recovery are you expecting on the multipoint front, given a lot of products, given the supply chain issues? I was wondering if you could talk around that, and then I had a follow-up.
spk04: Yes, Scott. So I'll take this. This is Steven. And Atul can come in at the end if he has anything else to add. But, you know, it's tough to accurately quantify that in terms of what was left on the table. I think the best way to answer it is if you look at our peak revenues in 2021, prior to these major supply chain disruptions, they were approximately about $93 million. So I think it's fair to say, given the increased backlog of and momentum that we're seeing on our product lines at the moment, especially enterprise as you commented on, you could expect that we would have been beyond that peak had we not been supply constrained. Certainly our order book and the bookings activity and the backlog indicates that we can do much more than 93. You saw from those results we benefited from some of the supply chain upsides, in particular in enterprise in Q4. And as you saw, you know, we're hitting an annualized $100 million run rate for that business. So there's strong momentum in the business. Certainly, as I say, to sort of recap, higher than what our previous peaks were is a fair way to assess it. With regards to growth rate by product line for Q1, again, we're living in a very dynamic environment with regards to the supply chain. This is how we see it panning at the moment. For the PMP side of the business, the Q1, we're seeing that in, I would say, the upper 20s sequential growth rate. For PTP coming off a very strong Q4, I would say flattish. And Wi-Fi off an exceptional record Q4, we're going to be down roughly about 40%. And then there's a little bit in other. But that should give you some flavor of the breakout.
spk08: Gotcha. Very helpful. And lastly, if I could, then looking to your guidance for fiscal 22, which is I think well above where the consensus is, you know, it certainly implies an inflection as we get past the first quarter. So I'm wondering in terms of your visibility, your comfort, both on the supply and the demand side, did that start to happen in the second quarter or is that second half? And then as part of that, gross margins as well, right, your target being 51% plus, is it an exit rate? in 2022? Is that possible? I know there's some price increases going through, but supply chain coming together, a lot of different elements there. To get to the numbers, though, it certainly implies, right, that we start to see a pickup either in second quarter, second half with improved gross margin outlook. So I was wondering if you could provide some more color around that. Thanks.
spk04: Yeah, I mean, I think you're right. You know, we still see, and nobody's got a crystal ball at the moment, but we still see the first half of the year you know, being more challenging from a supply chain perspective, and then that starts to ease in the second half. So, you know, you're going to start – two things are going to be happening in Q2 specifically. One is hopefully we're going to see a slight easing of some of these supply constraints. Obviously, it's not going to spring back to full supply, but we're going to start to see that ease. Coupled with, again, you'll start to see layering in of some of the price increases that will help revenue and gross margin. And then with regards to gross margin, I think we're going to see continual progression. You've already seen that in our guidance for Q1. We're up almost 100 basis points in Q1 as some of these price moves come in. And then you see a little bit more in Q2, and you'll see it improving in the second half of the year. You know, tough for me to comment whether we're going to get back into the 50s because that's just too far out for us to predict at this point in time, but certainly we've got a path to see continual progression, and we're working towards that.
spk01: Yes, Scott, I'll just add one comment. The new products we have introduced, very gratifying to see the adoption of 60 gigahertz worldwide and the 28 gigahertz funnel, very, very strong funnel, And the average deal size on 28 gigahertz 5G is much larger. We are seeing that dynamic. And the last point I want to make is that the government and defense will also accelerate, I think, in the second half. But overall, from product's point of view, we feel very good how we are positioned. Hey, great. Thanks so much. Nice job. Thanks, Scott. Thanks, Scott.
spk03: Our next question comes from Samik Chatterjee with J.P. Morgan. Your question, please.
spk05: Hi, this is Joe Cardoso on for Sonic. You have my first question is just on the revenue guide for one queue. You know, it sounds like, you know, this quarter you were up 4% quarter recorder, you know, ahead of your guide. And I would assume that you'd see some sequential growth at that level or better heading into the first quarter, just given what you're talking about in terms of, you know, an improving or better demand backdrop in terms of both are including, you know, seems robust backlog. And then on top of that, you're seeing, you know, improving supply from what seems to be your suppliers as well as some of the actions that you guys took. But you're only guiding for kind of like a low single-digit sequential improvement. I guess, you know, what am I not understanding there? Like why aren't we seeing a stronger sequential increase going into the first quarter, you know, with, you know, it seems like all the, you know, you seem like you're benefiting from both the demand and supply easing already going into the first quarter of this year.
spk04: Yeah, Joe, this is Steven again. I'll take it and then I'll let a tall comment at the end. But, you know, I think the bottom line is we're still in a very – we and the rest of the industry are in a very challenging supply-constrained environment. And so, you know, every day provides a new set of challenges. And you're absolutely right. We've got ahead of this. We've taken some actions. We've moved on pricing. We've done some redesigns. And maybe you could say that our guide is a little bit conservative at this point in time, but I think we're seeing modest progression. We're actually growing sequentially, and certainly hope we can beat that number, but I think that's sort of reflective of this environment that we see at this point in time. I think we think things are stabilized. We were particularly pleased on what happened in Q4 on some additional supply for enterprise, but likewise, we were curtailed in our PFP business on supply. It's a bit of a moving target, so we're being a little bit conservative for our Q1 guide, and hopefully we can beat it.
spk01: Yeah, I think, Joe, just one point I want to add is first half you will see gradual improvements. That's why we are being conservative. I think the second half where we see accelerated improvements in supply chain. We work very closely with our partners, all the key chip partners. So I think you are just seeing a level of conservatism because I think we want to see a couple of quarters of continued strong supply in which will then give us confidence, and now it's on the accelerated path.
spk05: Got it. And then my follow-up question is a little bit more simpler. And apologies if I missed this in your prepared remarks, but it sounded like you gave us an update in terms of pricing and when you're expecting to see the full benefits of that. Can I just get an update in terms of where you guys are at with the product redesigns that you talked about last quarter?
spk01: Yeah, let me take that one. We have done the first phase of our product redesigns, Very well, and actually that helped us with some of the acceleration in Q4. And yet, in the first half, I think there will be some parts which will still be in paucity, so we keep looking at where we could redesign, but I think the major redesign part is over and pretty much built into our products.
spk05: Got it. Thanks for the call, guys. Thank you.
spk03: All right. Your next question comes from Rod Hall with Goldman Sachs. Your question, please.
spk02: Yeah, hey guys, thanks for the question. I want to come back to the Wi-Fi and, you know, obviously a huge number there. It feels like, I think you kind of commented on it in the remarks that you had a lot of supply release there. But I'm just kind of curious whether you might have changed your sourcing strategy a little bit here. I know that, you know, a tool is kind of a, it's a footprint kind of model. So if you get that footprint, you know, over time, that's worth something to you. So maybe it makes sense to you know, overpay for chips shorter term or pay more for them so that you can supply it? I'm just curious kind of how you're thinking about that supply strategy now in the context of this market.
spk01: Sure. Let me take this. So Rod, in terms of the particularly Wi-Fi chip supply, we have a very strategic partner, long-range partner. We work very closely with them. And whatever price increases they announce publicly, that's all we are paying. But since we are driving a lot of innovation with their chips, we get good attention. And we do see improving situation in 2022, especially in second half. As I said, gradual improvements in first half, but I think pretty solid improvements. That's the indication we get on the Wi-Fi side. Fixed wireless broadband uses diverse set of chips. They are not just chipsets. There we have to buy distinct chips from multiple vendors. So fixed wireless broadband is a little more sophisticated that way. That's why, in general, fixed wireless broadband will kind of lag the Wi-Fi side because Wi-Fi side is a complete chipset with the partner we do. So hopefully that gives you a little more color.
spk02: Yeah, that's great, Atul. Thank you. And just on the Wi-Fi again, could you just clarify the – I mean, you're saying down 40% in Q1 and this huge almost doubling of revenues in Q4 – Was that a single deal, or can you maybe dive into a little bit more about what drove that? Because it's such a gigantic fluctuation in numbers from one quarter to the next. I'd just like to make sure that I understand the detail on that.
spk01: Yeah, let me take this, and if Stephen has any suggestions he can add. I think some of the supplies for the chips came in late in Q3, so we could not turn that into Q3, whereas we were able to use those chips which came very late in Q3 into Q4. And then the Q4 chip supply was decent. So that's why I use the word pent-up demand a little bit there. But this does tell you there's a strong demand, and as Wi-Fi situation keeps improving, you will see continuous improvement in our enterprise numbers, especially in the second half.
spk04: Yeah, and just to add to that, Rod, you know, I think the guidance for Q1 on Wi-Fi, this is all supply-related. You know, we have... a record, not just a record number in Q4, but we've got record bookings for enterprise. We enter the year with record backlog for enterprise. So this is us really navigating the supply constraints. And as Atul mentioned, we had a little bit fall in from Q3. And remember that, you know, we had a disappointing Q3 on enterprise. Again, all supply-related So that helped us out in Q4, and so we're navigating now Q1 with the continual supply constraint.
spk01: And Rod, to answer your specific question, no, there was no large deal, any such thing. We have lots of midsize, a large number of customers, but our average deal size is increasing in enterprise Wi-Fi. We are closing in more strategic accounts, but this result doesn't include any large one-time bluebird. It does not.
spk02: I got it. So it sounds like what we should do is just kind of smooth those numbers through Q3 and Q4, and we'd have a better picture of what the underlying kind of demand looked like.
spk04: I think that's a good way of looking at it, yes.
spk02: Okay, great. Thanks, guys. Appreciate it. Thank you.
spk03: And your next question comes from George Notter with Jefferies. Your line is open.
spk07: Hi, guys. Thanks very much. I guess I also wanted to ask about the supply chain environment. You guys are talking about substantial improvement in the second half of the year, and you're just going through a ring season. It certainly feels like that's a bit of a non-consensus view. I think many out there expect things to remain pretty tough through all of this year, but is there any more detail you can give us on exactly why you think the supply chain is going to ease for you in the second half? Is there Is it specific conversations, specific fabs that are coming online? What kind of detail could you give us there?
spk01: Let me take this. When you look at the Wi-Fi part, as I said, Wi-Fi part of chipsets, and they seem to be recovering faster, number one. Number two, in the Wi-Fi, about maybe nine months back or so, we sensed that things are changing on Wi-Fi 4 and 5. versus Wi-Fi 6. So we shifted the design. We redesigned the product. We shifted the design to Wi-Fi 6. And we will benefit in 2022 and onwards with good, strong leadership in Wi-Fi 6, because Wi-Fi 6 supply is, I think, improving faster, whereas Wi-Fi 4 and 5 use older fabs. They are kind of lagging behind. There's definitely a positive supply. So that's kind of Wi-Fi. The fixed wireless broadband, they use analog chips, they use a variety of chips, DSPs, FPGAs. So I think what you will see, George, different dynamic for different companies. It depends upon what all chips you use because not all chip vendors are improving at the same rate. They all use different fab, some have 28 nanometer or above, some have 28 nanometer or below. So in general, our read is for Cambium business, we will see a good improvement in Wi-Fi enterprise supply in second half. In the fixed wireless broadband, it might be a little behind compared to the enterprise because of the reasons I mentioned, complexity, different chips and all that. And we will keep you guys posted. We work very closely with our partners every week. We do meetings with them, all of them. And as a result, I think we believe we have a good handle on where things are.
spk04: And George, just to add to that, you know, we mentioned our last call about some of the redesigns that we were doing in fixed wireless to more widely available parts. So we do expect, and it's all coming on this early, we do expect some of those initiatives to work their way through the system and help us out in the second half. You know, I think from a sort of quantifying really what we're hearing from supply overall, certainly we're hearing from our vendors that and our suppliers that things are improving and they seem a little bit more committal to us for the second half of the year. But it's sort of wait and see mode at this point in time.
spk07: Got it. That's super helpful. A few minutes ago, you kind of mentioned the bookings and backlog strength on the enterprise side of the business. Is that Can you give us any comment on what you're seeing on fixed wireless access? Is that also strong in terms of bookings, backlog, and so on?
spk04: Yeah, bookings, backlog, I would say strength is across pretty much all of our product lines. You know, we entered the quarter with a higher backlog position. We are well over 100% of our guide customers. So, yeah, I would say strength both for bookings and backlog goes across pretty much all of our product lines.
spk07: Got it. Great. And then the last one I was just going to ask on was channel inventory levels. You know, any comment on where the channel stands right now in terms of inventory? Thanks a lot, guys.
spk04: Yes. So, as expected, you know, we were more back-end loaded with our shipments into the channel. and so there was a lot of product that was shipped towards right at the end of the year. So for the distributors to turn around and POS that was unlikely from a reporting perspective. So we did see a slightly higher level of channel inventory, which we expected given, as I say, the linearity of shipments happening right at the end of the quarter. POS for the beginning of the year is strong, so we're expecting that to sell through nicely.
spk07: Great. Thank you.
spk03: Thank you. Our next question comes from Simon Leopold with Raymond James. Your question, please.
spk09: Hi, guys. This is Victor Truen for Simon. I just wanted to follow up really quickly on the guidance. It seems like the 1Q adjusted EBITDA margin is for 6.7% to 8.8% in 1Q, but the full year you're guiding for 14% to 16%. So, you know, understanding that you're expecting improvement, you know, gradually throughout the year. But can you just help us bridge that gap a little and what the trajectory looks like there? Because, you know, that implies, you know, 3Q, 4Q EBITDA margin needs to kind of be well above the 16%, you know, to kind of pan out to your guidance for the rest of the year. So can you just kind of help us, you know, flesh that out a little bit first?
spk04: Yeah, you know, I think, Victor, the way you should be thinking about this is, We may have said it on previous calls, but, you know, 2022 is shaping out to be an inverse of 2021. And so if you think of 21, we had a phenomenal first half of the year. I think we peaked at EBITDA margins of almost 20%. And so, you know, our expectation as a supply chain constraints ease that we'll see tremendous operating leverage in our model. So we'll see you know, some nice leverage in the second half of the year. But the first half is going to be squeezed.
spk09: Okay. Okay. Okay. That's fine. And let me see. And I guess just can you speak some about the demand pipeline for the 28 gigahertz product by geographic region? I'm assuming most of the demand for the 28 gigahertz is driven primarily by international customers. Since then, it's mostly occupied by tier companies. tier one carriers in the US?
spk01: Yeah, Victor, let me take this one. So 28 gigahertz, as I said, we are doing about eight POCs. And right now, I would say Cambium Networks has a clear line of sight to maybe over 50 service providers in our funnel. And what is very gratifying to see is so many countries are adopting 28 gigahertz 5G, number one. Number two, it gives a performance as we are doing POC testing, it gives a performance of truly a gigabit type connectivity. So overall, very pleased to see. One comment I made on my comments earlier, the average deal size on 28 gigahertz is much larger because we are dealing with now larger tier twos and internationally some tier ones as well, particularly in EMEA. So every quarter will give you a lot more flavor. We're very excited about the 28 gigahertz, 5G fixed, and Cambium product will be one of the leadership products in this segment.
spk09: That's helpful. Thank you.
spk01: Thanks.
spk03: Thank you. Our next question comes from Tim Savajal with Northland Capital. Your question, please.
spk10: Hi. Good afternoon. Pardon me. You mentioned a couple of kind of I guess government funding aided wins. I think more in the rip and replace category, which I think you're referring to a different kind of specific bucket of funds there relative to RDOF or anything else we see coming at us. And my question is, you know, to what extent was that a, you know, any type of that activity under whichever bucket you like. I'm a contributor in 21, and as you look at your guidance and growth outlook for 22, what proportion of that growth would you say is accounted for by either the beginning ramps in RDOF, where we're starting to hear about some acceleration here, or other government programs?
spk01: Yes, I'll take this one. Excellent question, by the way. I think there are multiple sources of government funding. There's definitely RDOF, which everyone has been tracking, which is focused on the rural side. Then there is infrastructure bill, which is focused on dissemination of that money through the states and local governments. But there's a third bucket, which is the CAF II. CAF II is the Connect America Fund II. It was about $8 billion fund. I think about $2 billion has been spent, but it still has funds. five years of life still before that fund gets completely dissipated. So many of the projects which we participate are actually CAF II and the CARES X type of projects. When we look at the different government funding, RDOF for us will probably start, I would guess, late this year, second half this year, because we are into access. And there are still questions which need to be answered You know, before the RDOF money really gets released completely. Some people are seeing the benefit, but Cambium probably will see the benefit, I would say, maybe late this year. Biden initiative, we anticipate late this year or next year. So for us, really, at this point, some RDOF later this year, but really some of it is for us CAF2 and CARES Act funding, which we are participating right now.
spk10: Got it. So it sounds like not much.
spk01: Yeah. I would say later this year, maybe RDOC, but not much. CAP2 is the one where we are very active right now.
spk10: Well, and to follow up, again, focusing in on kind of the guidance for growth in 22, to what extent do you think price increases will contribute to that meaningfully? I know you talked about initiating one last quarter. Seems like you may have done that again in Q4, and pretty significant in magnitude, potentially. So does pricing play a significant role in what you're looking at for growth next year? Or sorry, this year?
spk04: Yeah, I mean, this is Stephen. I think you can assume the pricing is not terribly meaningful in the first half of the year, but once we work through the backlog... you're going to see the impact of that happen in the second half of the year. We've actually done two price increases, one in Q3 and one in Q4, but obviously had a sizable amount of backlog. So we're working through that, and once we do, you're going to start to see that more meaningfully materialize in the second half of the year. Okay, thanks.
spk01: Thank you.
spk03: Thank you. And our last question comes from Chris Howe with Barrington Research. Your line is open.
spk11: Good afternoon, everyone.
spk01: Good afternoon. Good afternoon.
spk11: Yeah, just asking a follow-up on some of these questions that you've already received here. First off, with the CN Maestro product, you talked about the success that you're seeing there. Still a several-year timeline as we look at the maturation of software as a percent of overall business. Can you talk about the different puts and takes there as we navigate this timeline towards the positive, perhaps getting beyond that initial double-digit percentage of revenue?
spk01: Yeah, let me take this. On CN Maestro, we basically had two-pronged strategy. Strategy one, let it get adopted by the customers. And now that we have hundreds of thousands of customers using CN Maestro, we know it can scale significantly. It has the cloud architecture. It is reliable. Where we are going now with CN Maestro X is to offer enhanced services which are highly differentiated. Let me give you an example. So we offer, for example, for MSPs, managed service providers, very advanced dashboards so they can manage hundreds of customers and also brand properly for those customers. So that's a unique dashboard. We charge for that. Second, we are offering RESTful advanced APIs. So some of these verticals, hospitality, education, can integrate very specific applications. We charge for that. And then lastly, increased storage for not just a month, but maybe you want to see analytics over a one-year period. We charge for that. So very specifically, we are offering differentiated services, and we charge for that. The basic management, which is very necessary for these radios, That's part of the base product. Hopefully that gives you a flavor how we are layering the monetization.
spk11: And just following up on the question about government programs, we still have many that are in the pipeline like RDOF and the infrastructure bill that will happen later this year and into next year. As we take next year and kind of from an overall perspective, obviously, and look at the thematics compared to this calendar year. How should we think about that in terms of the sustainability of demand, especially when you consider some of these newer products, 28 and 60, will be much further down the line?
spk01: Right. I think, let's go one by one. RDOF, as I said, for us, by the time we start to see money flowing for our solutions in We'll be probably late this year, early next year is my sense. And RDOF is going to be going for more gigabit access, things like that. So the products we are coming out with, especially in 6 gigahertz band, that will be very well suited for that market. Biden initiative is about a year away for us. So I think 23 onwards. And I think one thing to keep in mind is all of these things are multi-year projects. They won't just get disseminated in one year. It'll take probably three, four, five years to keep building the infrastructure, to keep providing connectivity to unconnected. So overall, my sense is 23 is probably when we start to see meaningful acceleration for Cambium, and then it's a multi-year problem from that point onwards. And the new products we are doing, many of them are providing the foundation, which will give us not just a gigabit connectivity, but also 500 megabit connectivity, 200 megabit connectivity for scalable networks at very different price points. So that's one thing Cambium will offer, different price points, different scalability, and a very good economic equation.
spk11: Great. Thank you for taking my questions.
spk01: Thank you. Thanks, Chris.
spk03: Thank you. And now I would like to turn the call back to our Senior Director of Investor and Industry Analyst Relations, Peter Schumann, for his closing statements.
spk06: Thank you, Carmen. During Q122, Cambium Networks will be presenting a meeting with investors on March 8th at the JMP Securities Conference and on March 15th at the Roth Annual Conference. In the meantime, you're always welcome to contact our Investor Relations Department at 847-264-2188 for any questions that arise. Thank you for joining us, and this concludes today's call.
spk03: And ladies and gentlemen, this concludes today's quarterly earnings call. Thank you for your participation, and you may now disconnect.
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