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spk08: Good afternoon. My name is Jason. I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Network's second quarter 2022 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, you may press star, then one on your touchtone phone. To withdraw from the question queue, please press star, then two. Please limit yourself to one question and one follow-up question. Thank you. Mr. Peter Schuman, Vice President, Investor and Industry Analyst Relations, you may begin your conference.
spk10: Thank you, Jason. Welcome and thank you for joining us today for Cambium Network's second quarter 2022 financial results conference call, and welcome to all those joining by webcast. Atul Bhatnagar, our President and CEO, and Andrew Brownstein, our CFO, are here for today's call. The financial results, press release, and CFO commentary referenced on the 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. Risk 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 to 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 second quarter 2022 And Andrew Bronstein, Cambium's CFO, will provide a recap of the financial results for the second quarter 2022 and present our financial outlook for the third quarter and full year 2022. Our prepared remarks will be followed by a Q&A session. I'd now like to turn the call over to Atul.
spk04: Thank you, Peter. Cambium had recovery in our second quarter results with revenues of $69.3 million, increasing 12% sequentially, slightly ahead of our midpoint of between $65 to $73 million announced during the Q1-22 quarter call. Profitability improved significantly, with EPS of 18 cents ahead of our outlook of between 1 to 11 cents. As we regained some scale, had higher gross margin, and spending was lower than anticipated due to our tight cost controls. Our technology roadmap and strategy continue to strengthen. Cambium is at the start of a new growth S-curve. During evolutionary change, performance starts from a slow initial phase, goes into an accelerated deployment phase, before stabilizing and maturing. This is about a five-year cycle for Cambium, and the last time we entered this cycle was 2016. We are now at the cusp of entering the accelerated phase of growth for high-performance broadband networks. We anticipate continued recovery in revenues during the third quarter 2022. Given our record backlog, pricing actions announced late last year are now fully in place, and we expect further improvements in the supply chain and distribution of components and finished products during the second half of 2022. We exited the second quarter 2022 with backlog up 5% quarter over quarter and higher by 29% year over year. We saw strong demand for our enterprise solutions, which grew 55% sequentially and increased 31% year over year, including record Wi-Fi 6 revenues. We now expect our enterprise business to grow over 45% for calendar year 2022. While the supply situation remains tight and challenging, we exited Q2 2022 with another record quarter of backlog for enterprise products. Cambium's attractive total cost of ownership and cloud-managed wireless fabric of solutions integrate multiple communication standards and emerging broadband technologies, which we are now calling Cambium One Network. Our solutions are a compelling choice for wireless infrastructure projects around the world with network management from a single pane of glass. Turning to the results of the second quarter 2022. Looking at revenues across our product lines, our point-to-multipoint PMP business revenues decreased 9% sequentially and decreased 53% year-over-year due to the continued sluggish demand from service providers for legacy PMP450 products. ahead of the ramp of both 28 GHz CNWave 5G fixed technology and the introduction of 6 GHz products expected during Q4-22. We are seeing the component shortages continue to improve, although gradually, which benefited the EPMP product lines as a result of the reopening of China during Q2-22. The point-to-point PTP business increased 7% sequentially during Q2-22, while year-over-year increased 12% due to higher shipments for PTP products using unlicensed frequencies. Our enterprise business had robust revenues of $24 million during Q222, increasing 55% sequentially and higher by 31% year-over-year due to improved supply and distribution and strong demand for our Wi-Fi 6 solution. Cambium has an opportunity to be a significant leader in mid-market enterprise networking, served by our extensive enterprise channel built over the last few years. In May, Cambium was named an outperformer in the 2022 Giga Ohm Radar Report for Wi-Fi 6 and 6E solutions. We are also beginning to see software become a more meaningful contributor to bookings and revenues. looking at some notable customer wins and new product development. In North America, we are receiving very strong orders in enterprise Wi-Fi. White Sky Communications, a managed service provider, MSP, focusing on the multi-dwelling unit, MDU market, placed a large order for enterprise Wi-Fi, including CN Maestro X, our flagship subscription network management solution. Cambium was selected for our price performance and superior value proposition. CN Maestro X is fine-tuned and optimized for MSP and MDU applications. An NFL city in the southeast placed an order for 60 gigahertz CN Wave connectivity and Wi-Fi as part of a smart city deployment. Cambium was selected for our portfolio breadth and ability to deliver backhaul and access with a single management platform. In our federal defense business, we have a large funnel of deals as the hostilities in Eastern Europe are leading to multiple nations wanting to upgrade their military communications infrastructure with same equipment as the US defense establishment using Cambium's PTP 700 technology for fixed wireless broadband communications. This enables total equipment interoperability and rapid deployment in the field. In the Europe, Middle East, and Africa region, EMEA, we continue to have healthy demand for our enterprise business and continue to win larger projects. A recent strategic win in Germany included Cambium partnering with NCR OrderMan, a global market leader for mobile ordering, providing high-performance Wi-Fi solutions for hospitality industry, including connectivity for point-of-sale systems, as well as handhelds for mobile order-taking and billing. More than 80,000 restaurants around the world are equipped with an orderment system. With this new solution, restaurants and other venues can deliver fast and reliable service with Wi-Fi from Cambium. This win included Cambium's Wi-Fi 6 access points, CN Matrix Ethernet switches, and CN Maestro cloud management solutions. Cambium's wireless fabric makes it easy to plan, deploy, and manage affordable gigabit speed for the home and enterprise. In the UK enterprise market, we closed a few large MSP deals specialized in MDUs with a focus on providing services for student housing accommodations. These deals cover multiple quarters and countries across Europe. In the Asia-Pacific APAC region, we received a sizable order in India from Airtel for small cell backhaul using our EPMP product line for unlicensed spectrum covering LTE in less dense locations. And in the Caribbean and Latin America, Cala region, we had a significant win, lending our first multimillion-dollar agreement for 28 gigahertz CNWave 5G fixed technology from a leading telecommunications and IT service provider operating in Puerto Rico and U.S. Virgin Islands. Cambium was selected for our ability to support gigabit speeds with low latency and consistently high performance. Turning to new product introductions since our previous quarterly update. The industry is eagerly awaiting the availability of 6 gigahertz spectrum for wider channels and higher throughputs. Cambium will have an industry-leading position when our next-generation multi-gigabit EPMP4600 product is expected to be released before year-end. Approximately a half dozen customers, including Nextlink Internet, are already field testing our product under special FCC licenses. In May, Nextlink announced the results of 6 GHz spectrum testing utilizing an FCC experimental license and achieved actual throughput of over 1 Gbps download and 500 Mbps upload to each subscriber module under full load, utilizing a 160 megahertz channel at two miles, clearing the way for more gigabit fixed wireless deployments nationwide. Upon full commercial deployment next year, NextLink will be rolling out gigabit speed plans for the existing fixed wireless service network expansion for the FCC's Rural Digital Opportunity Fund, RDOF, program. Ultimately, NextLink's expansion of gigabit fixed wireless will cover over 4 million households and businesses. The promise of 6 gigahertz enabling gigabit speeds over wireless is real, and fixed wireless enables Cambium's customers to roll out gigabit speeds faster than they can with fiber in an economical and timely manner. Fixed wireless broadband takes months as compared to years for fiber to be deployed. For our federal and national security PTP business, before year end, we plan to roll out a new smart antenna. The PTP 700 antenna will facilitate rapid alignment of a remote radio with a primary site in a highly automated manner. And within our software and subscription services business, this fall, Cambium will launch our network service edge NSC solution. NSE bundles a rich set of network services, SD-WAN, and security features, optimizing SaaS applications performance and reliability at the network edge. This complements our cloud-managed Wi-Fi and switching products to deliver Cambium One network solution, especially for mid-market enterprises which are looking for easy-to-deploy and operate networks with our significant IT help. Instead of building solutions from multiple vendors and spending excessive time dealing with complex install problems, service providers and enterprises can manage one efficient solution utilizing Cambium's expertise in Wi-Fi, fixed wireless broadband switching, management, and security solutions. Our integrated solution provides better combined insights into the network performance to improve overall quality of experience and security while reducing complexity, and lowering total cost of ownership. This fall, Cambium's newest version of the 28 GHz mmWave solutions for 5G fix will become available. Network operators will be able to support scale deployment featuring competitive differentiation with our 4x4 multi-user MIMO and software-defined radio architecture that delivers 400 Mbps speeds for business and residential subscribers in urban suburban, and rural locations at scale. We believe this newest version of CN Wave 5G fixed will drive high volumes with large deal sizes. Cambium presently has over 10 POCs in four continents for our 28 GHz equipment, and during the second quarter, we landed our first multimillion-dollar contract for this technology. We remain excited about the revenue potential for this upcoming PMP product. 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 user growth. Total devices under cloud management in Q222 was over 837,000, an increase of 6% from Q122 and up 36% year-over-year. For our premium CN Maestro X offering, we booked a major deal with a sizable service provider for fixed wireless broadband during the second quarter and are now seeing healthy growth in annual recurring revenue, ARR, for this product. ARR for CN Maestro X, which includes both enterprise and fixed wireless solutions, grew 66% sequentially during the quarter. Turning to our channels. In Q222, we expanded our channel presence by adding over 520 net new channel partners sequentially and approximately 1,600 net new channel partners year-over-year, which represents an increase of approximately 5% sequentially and 15% year-over-year. This is expanding our reach into new mid-market customers around the world. During the second quarter, Cambium shared our strategy and vision at Cambium Connections, our biannual online webinars for end customers and the partner community throughout various geos. Our upcoming 6 GHz ePMP solution is generating lots of excitement for gigabit connectivity, particularly with North American service providers. And we held separate events surrounding the opening of this important spectrum for future commercial use. I will now turn the call over to Andrew for a review of our Q2 22 financial results and Q3 22 outlook. Thanks, Atul.
spk06: Cambium had revenues of $69.3 million for Q2 22. Revenues increased by 12% quarter over quarter and decreased 25% year over year. While revenue and global supply constraints are beginning to ease, we still had impact to shipments of our products during the first two months of the quarter as a result of the China COVID shutdown. Although we continue to have significant pent up demand, especially in our enterprise products. Our backlog and end demand remain strong with backlog increasing by 5% quarter over quarter and 29% year over year. On a sequential basis for Q2 22, revenues were higher by $7.4 million. The higher revenues were primarily the result of increased enterprise and PTP solutions, while PMP revenues were lower due to softer demand for legacy PMP450 partly offset by improved supply benefiting ePMP shipments. Moving to our gross margin, our non-GAAP gross margin of 48.9% was significantly better than anticipated, although decreasing by 110 basis points compared to Q221. The year-over-year decline in our non-GAAP gross margin was the result of lower revenues, increased component costs, as well as higher freight and distribution costs due to expedited shipping. On a positive note, on a sequential basis, our non-GAAP gross margin improved by 110 basis points compared to Q122. The higher quarter-over-quarter non-GAAP gross margin was the result of a higher mix of enterprise products, tight cost controls, and the benefit from the previously announced price increases that we instituted approximately three quarters ago. The higher gross margin is notable considering we had expedited shipping from the Shenzhen factory to distribution hubs in North America and EMEA in order to balance freight congestion and fuel surcharges as Shanghai unlocked from COVID. We believe we will continue to see sequential improvements to our gross margin during 2022 from both the benefits of the actions we have already taken and increased scale in our business as we progress through the full year. In Q2-22, our non-GAAP gross profit dollars of $33.9 million decreased by $12.5 million compared to the prior year due to lower revenues and increased by $4.3 million sequentially due to higher volumes and improved mix of enterprise products. Our longer term goal remains an annual non-GAAP gross margin target of 51 to 52%. Non-GAAP operating expenses in Q2 22 decreased by approximately $1.3 million when compared to Q2 21 and stood at 27.5 million or 39.7% of revenues. The decrease in operating expenses compared to the prior year period was related to the timing of R&D expenditures and lower variable compensation. When compared to Q1-22, non-GAAP operating expenses decreased by approximately $1 million during the quarter. Quarter over quarter sales and marketing increased slightly, primarily because of higher travel, while R&D decreased relating to the timing of expenditures and overall lower variable compensation. Non-GAAP operating margin for Q2-22 was 9.1%, down from 18.9% during Q2-21, and up significantly from 1.6% in Q1-22. Non-GAAP net income for Q2-22 was $5 million, or 18 cents per diluted share, ahead of the previous outlook of between 1 and 11 cents per diluted share, and compared to 12.9 million, or 45 cents per diluted share for Q2-21. and non-GAAP net income of $300,000, or one cent per diluted share, for Q1-22. The lower non-GAAP net income compared to the prior year period was primarily due to the lower revenues impacting our gross profit dollars, while higher net income compared to the prior quarter's results was primarily a result of higher revenues benefiting gross profit dollars, improved mix, and lower operating expenses. Adjusted EBITDA for Q2-22 was 7.8 million or 11.3% of revenues compared to 18.4 million or 19.9% of revenues for Q2-21 and compared to 1.9 million or 3.1% of revenues for Q1-22. Our operating model remains solid. We are beginning to regain some operating leverage in our business as Cambium increased revenues and benefits from improved pricing. we remain committed to driving our adjusted EBITDA to our target model of 18 to 19% of revenues. Next, moving to our cash flow. Cash provided by operating activities was $10 million for Q2 22 and compares to 20.1 million of net cash provided by operating activities for Q2 21 and cash used in operating activities of 19.2 million for Q1 22. We expect to maintain positive operating cash flow for the remainder of the year. Next, turning to our balance sheet, cash totaled $45.9 million as of June 30th, 2022, an increase of $7.5 million from Q1 22. The sequential increase in cash primarily reflects higher earnings and improved working capital. Our net inventories of $47.4 million in Q222 increased by approximately $19 million year-over-year and about $7.2 million from Q122. Inventories were higher sequentially because of an increase in component and finished goods as we grow our business. While the supply chain remains an ongoing challenge, we are working to selectively increase our inventory position during 2022. So in summary, the second quarter was better than we anticipated due to recovery in the COVID situation in China and an improving supply chain environment. We are now benefiting from the price increases in 2021. Our backlog remains strong, and we are at the start of new product cycles. We expect to continue to regain scale, improve operational efficiency, and make significant progress toward achieving our long-term target operating model. Moving to the third quarter and full year 2022 outlook. Cambium Network's financial outlook does not include the potential impact of any possible future financial transactions, acquisitions, pending legal matters, or other transactions. Considering our current visibility as of today, our Q3 22 financial outlook is as follows. Revenues of between $72 and $76 million representing approximately 4 to 10 percent sequential growth. We remain supply constrained, especially in the enterprise product lines. Non-GAAP gross margin between 48.5 to 49.5 percent. Non-GAAP operating expenses between 28.9 and 29.9 million dollars. And non-GAAP operating income between 6.1 and 7.8 million. Interest expense net of approximately 500,000 dollars and non-GAAP net income of between 4.5 million to 5.8 million, which represents 16 to 20 cents per diluted share. Adjusted EBITDA between 7 and 8.7 million dollars, and adjusted EBITDA margins of between 9.8 percent and 11.5 percent. We expect a non-GAAP effective income tax rate of approximately 18 to 20 percent and approximately 28.2 million weighted average shares outstanding. Our cash requirements are expected to be as follows. We expect pay down of debt of $700,000. Positive, we expect cash flow interest expense of approximately $500,000, and we expect CapEx of $2.4 to $2.6 million. Turning to our full year 2022 financial outlook, We expect revenues of between $280 and $300 million, and we expect non-GAAP net income to be $13.1 to $25.1 million, or $0.46 to $0.89 per diluted share, and adjusted EBITDA margin of 7.8 to 12.5%. I will now turn the call back to Atul for some closing remarks.
spk04: Cambium's growth strategy and drivers remain solid. We are now benefiting from increasing chip supplies, which will drive our growth during second half of this year. Our investments in multi-gigabit wireless products, such as enterprise Wi-Fi 6 and 6E, wireless-savvy switching products, 60 GHz CN wave, 28 GHz mmWave solutions for fixed 5G, and the upcoming launch of 6 GHz fixed wireless solutions arriving later in 2022, will drive future revenue growth. Our federal business is at the start of significant growth, and we are now benefiting from our software-as-a-service solutions. The integrated wireless fabric, which we are now calling Cambium One Network, brings together ease of deployment, scalability of networks, and lower total cost of ownership as the world deploys next-generation high-performance wireless broadband. We remain focused on judiciously managing our costs, continuing to invest in innovative products to maintain our technology edge, and expect increased scale. And all of this will benefit our future operating results. I would like to show my appreciation for our employees, partners, and customers during these unprecedented times. This concludes our prepared remarks. So with that, I would like to turn the call over to Jason and begin the Q&A session.
spk08: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw from a question queue, please press star then two. In the interest of time, please limit yourself to one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Simon Leopold from Raymond James. Please go ahead.
spk11: Thanks for taking the question. I want to start off first trying to get a better understanding of what you think is going to happen in your mix for the balance of the year. You offered us the comment that you expected the Wi-Fi business to be up by 45% for the year, which is a nice uptick. But you tend to have kind of lumpy quarters, and in particular I'm looking at the PMP products being down sequentially two quarters in a row, trying to figure out where that stabilizes. So ultimately, I'm looking for some sense of what you're thinking about for mix in the next couple quarters. And then I've got a follow-up.
spk06: Sure. Yeah, thanks for the question. So in terms of mix, we expect the enterprise business to continue to be strong. and to continue as a percentage of our overall business to grow. In terms of PMP, we think that that will begin to stabilize late third quarter, early fourth quarter. We do think that there will be a continued downtick because of the product cycle that we're in, and the fourth quarter, keep in mind, is when we're going to begin to see revenues from the new product introductions and that should drive positive quarter-over-quarter results in the fourth quarter.
spk04: Yeah, maybe one more point, Simon, I want to add is we have entered the S-curve on enterprise probably about two quarters back or so, and we are now entering the acceleration phase, and if the supply continues, you'll see that. I think the S-curve on the fixed wireless broadband, we will start, we are at the cusp of it, we'll start probably Q4, Because Q4 is when we'll introduce six gigahertz products. It's in beta test right now. And 28 gigahertz funnel is now also beginning to mature into deals as we announced. We closed our first multimillion dollar deal. So I think you will see, and the PTP business actually is also beginning to accelerate well because of defense. And the PTP 700 is our bedrock for the defense business. And there we're introducing new products like smart antenna in Q4. So in general, You will see, I think, the fixed wireless broadband, which is a bedrock of Cambium with a lot of differentiation, with significant install base, is ready to move to the new technologies and ready to ride the new S-curve. So we feel pretty good as we head towards 23 that you will see. And the way I always describe is Cambium has two wheels of a motorcycle. Both wheels, sometimes one wheel might operate a little more efficiently, a little more faster, but both wheels are going to be pretty important for our future.
spk06: Yeah. And specifically PTP in the third quarter, we're expecting a pretty good uptick because of the government business. And I think you'll see that come through in Q3.
spk11: Great. And then as my follow-up, I'd like to get both the near-term as well as longer-term take on government stimulus programs, RDOF, BEAD, how you see them contributing to the business. And I'd like to hear that both from sort of a current year view as well as the longer term. Thank you.
spk04: Simon, let me take that question. I'll give you a good rundown on both RDOF and BEAD. Let me first touch upon RDOF. RDOF overall was, remember, $20 billion over the next 10 years or so. Out of $20 billion, $9 billion was promised, and then out of $9 billion, $4.5 billion was committed, mostly to fiber. You will see wireless awards coming through either late this year or early next year. That's our expectation, that the wireless part of the funding, and some of our customers are very much participating in that. I think Cambium will see first half 23 is my best guess right now. And when you look at the BEAD, which is the federal program, that's about a $142 billion large fund. They are going through a mapping phase by FCC. It's called Broad Data Collection, BDC project. Until all that mapping is done for the different communities and all that, there'll be no funding release. So my guess is The B, the federal side of things, probably end 23 or late 23, early 24, if I were to guess. And that gives you timing on both of them where we see things.
spk11: Great. Thank you.
spk08: Thanks, Simon. Thanks. The next question comes from Sami Chatterjee from J.P. Morgan. Please go ahead.
spk05: Great. Thanks for taking my question. The first one is, I just wanted to see if you can comment on the linearity of revenues during the June quarter. I know a couple of months were impacted by the China COVID situation and things got better as they exited the quarter, but just trying to sort of see where the exit rate was in terms of shipment or revenue sort of in the last month of the quarter and how it was heading into sort of the 3Q time period and have a follow-up. Thank you.
spk06: Sure. So you're right. In terms of In terms of linearity, as a result of the COVID shutdown, things were pretty slow to gradually open up, especially when you look at the shipping situation and the freight shipping out of China and the backup that they had as a result of coming out of COVID. And that didn't really begin to recover until late May, early June. But despite that, we were still doing some shipping or some shipping by air, as I mentioned during my prepared remarks. And as a result, we were still able to get product out to customers during the first two months of the quarter. But certainly, I would say that linearity in terms of this quarter versus prior quarters was even a little bit more heavily weighted to that last month of the quarter. And we ended the quarter, as Atul mentioned, and I mentioned as well, with a very, very strong backlog.
spk05: Okay. And if I can just clarify on that, are you assuming any further supply disruptions in the third quarter?
spk06: I wouldn't say we're assuming any supply disruptions, but supply chain in general is still challenging, especially in our enterprise business. where despite the fact that we're growing by more than 45% year over year is our expectation, we're still supply constrained. So we are still seeing pockets of areas within our supply chain that is still quite challenging. The freight situation is getting better, certainly, but there's just lumpiness. There's still lumpiness in where there's issues and where there's product availability.
spk04: And Amit, maybe one point I want to add is when we say this year we'll see 45% plus growth enterprise business, we have taken into account what we have. We have taken into account the commitments we have and all that. And if the supply situation improves, that tells you that we could do better.
spk05: And Atul, just a question for you which is more broader is obviously everyone's concerned about the macro here. And you have the two legs sort of that you talked about. How are you thinking about resilience of the top line in the event of a sort of reasonable level of economic slowdown, particularly on the enterprise business side where you're seeing strong growth right now?
spk04: You know, from our vantage point, Amit, we see that the need for bandwidth, the need for connectivity, especially in enterprise, we are going out of mid-enterprises, hospitality, education, managed service providers who are really providing very affordable Wi-Fi, smart city Wi-Fi across the world, that is an unabated need. That need cannot be slowed down. And since we are going after mid-market enterprises, we don't anticipate a macro to really slow that down massively, at least on the enterprise side. Now, on the fixed wireless broadband side, anyone who's depending on a lot of government money, they could slow down. But a lot of our customers are buying Cambium in the fixed wireless broadband side because of economics. Solutions are economical. Solutions are performant. So far, I'm not concerned about that.
spk06: Yeah, and keep in mind that we're gaining market share. So I think that's a very important element, especially on the enterprise side.
spk04: Yeah, and like, for example, on enterprise, we are at a very early cusp, and customers are liking the economics, the ease of deployment, in the mid-market segment. So we have a significant opportunity to emerge as a leader in that segment.
spk05: Good. Thank you. Thanks for taking my questions.
spk08: Thank you. The next question comes from Rod Hull from Goldman Sachs. Please go ahead.
spk01: Hey, guys. Thanks for taking my question. This is Bala on for Rod. I guess I want to start off with the performance in the quarter. Clearly, Wi-Fi performance was better than you had expected three months back, and we see that in the margins also. Gross margins were better. On the contrary, PMP performance at $28 million revenues in the quarter is the lowest that I could see in the last five years for you. Clearly, demand is weak there, and I see a commentary like customers are taking a pause ahead of the new 28-gig product, et cetera. But maybe could you expand a bit more and kind of explain more why do you feel confident or maybe talk more in terms of visibility that you have? I see the number of POCs that you got, but still more tangibly, do you have any backlog there or what generally gives you more confidence for that particular segment? And I got follow-ups.
spk04: So follow-up. A couple of key points for explaining why we feel good. In the PMP business, the last time we entered the S-curve was with Medusa in 2016, timeframe or so. And the customer expectations at that time was maybe 25, 50 megabit per second type of throughputs. And we had a fantastic performing product, very economical, and we saw a lot of growth. I think that S-curve is over. The new S-curve is you need to deliver 100% to maybe in some markets 200, 300 megabit per second. That needs band and frequencies which are wider, less noisy, where you can really deliver that kind of performance. And hence the 28 gigahertz 5G fixed product. We conceived that two years back. We knew that new Esker will need that performance. And we are feeling very good about the funnel. And one of the deals we just closed is a sizable deal. And we have significant deals in the funnel. And you will see Cambium announced through press releases over the next probably three quarters, fantastic deals in 28 gigahertz, sizable. And the size of these deals in our last 10-year history, we have not seen. Because these are tier one, large tier two customers globally. So that gives us confidence that we have the next generation product, next generation S-curve growth product. Secondly, the 6 gigahertz band, which we will start to release the products for full volume Q4, we are already beta testing that with 10 customers. That gives that wider channel, honest to good gigabit performance. So overall, when we say new S-curve of growth, this is now five years are done. This is the next five years. And the last point I want to make is that the government money has not flown in, at least for wireless part. I think the first half, 23%, you'll start to see the PMP money come in, access for RDOF side. And I think late 23, early 24, you will see the BID money coming in. And Cambium's formula is very simple. We focus on affordability. We don't go after very high performance, very high-end, and very expensive networks. We go after that strong mid-tier 80 percentile, and those are the products we have now. So we feel good where we are, where we are going. and you see both parts of our business accelerating the new S-curve.
spk06: I would just add one thing to that, too, in terms of PMP, is that the channel inventory is down about 5% or so from what we can see, which is our comment about demand and working through the channel backlog is beginning to get more favorable as well.
spk04: And, Bala, one more point. NTIA and the BEAD part of the program, they announced that CBRS 3.5 gigahertz will be treated as licensed frequency. This just came in the last few weeks. So that basically means that the government funding will allow the CBRS 3 gigahertz to be treated at par with fiber. So you will see cambiums. These are all changes happening as we speak. So I think we feel good about where we are, the kind of products we are, and the kind of innovations we have done, which gets us ready for this acceleration as the next growth curve comes in.
spk01: Got you. Very helpful. Thank you so much, Atul. And I've got a follow-up. Full year guidance, it's still pretty... I feel like the guidance range for revenues are margins, et cetera. It is still pretty wide with only two quarters left. You know, And it could be because, like you say, you do have pipeline in the near term, but the transition to new products would probably cause some sort of turbulence in terms of customer adoption in the near term. Is that the reason why you are still maintaining a wider guidance because of that uncertainty for Q4?
spk06: Yeah, I mean, I would say that's part of it. I think when you look at the whole macro environment of supply chain overall and the tightness that I mentioned within the enterprise market, the availability of those specific chips that we need for our products, there's limited room from where we sit here right now for expansion, now there may be some inventory that frees up in the secondary market, that's always possible, but we're forecasting based on what we know today, and we're forecasting based on what our commitments are to get those chips into our numbers, into our products that will result in sales and get into our numbers. I think that while the range for the full year is basically where we were last quarter and we're one quarter later, I think it's appropriate given the overall macro environment.
spk01: Yeah, that's fair. And finally on backlog, you talked about significant backlog, but could you maybe quantify it for us? I assume most of it is probably in that enterprise Wi-Fi business, but could you just quantify it for us?
spk06: Yeah, we're not going to quantify it exactly, but it is higher than what we had said where we were last quarter, as I mentioned, by about 5%, even though last quarter, if you remember, we were in the midst of a China complete shutdown. So even with China lifting, coming out of COVID and reopening, we're still higher than where we were last quarter. And you're right, a significant amount of that. is in the enterprise portion of the market. But the PTP segment is also quite strong. The government segment is quite strong. And that's where we see there being benefit this quarter, this third quarter, as well as the fourth quarter. And keep in mind that when you look at the margins in the government business, as well as Wi-Fi and enterprise, those tend to be stronger margins, and that further gives us confidence over our margin projections as well.
spk01: Thanks so much.
spk08: Thanks, Len. The next question comes from Scott Searle from Roth Capital. Please go ahead.
spk02: Hey, good afternoon. Thanks for taking my questions, and nice to see Wi-Fi is bouncing back towards record levels. Maybe if I could, Atul, digging in on the last question, you know, the guidance for the year of 280 to 300 million, given what you're guiding to for the third quarter, implies that the higher end for the fourth quarter, you could be looking at 90 plus million. I guess you've referred to this a couple of different ways in terms of strength of Wi-Fi, point-to-point in federal government coming back, but I'm wondering if you could go through what your confidence level is starting to look like going into the fourth quarter that you've left that guidance out there, because it certainly implies that there's some good demand. I know you've got some new products, but How are you thinking about that? And as part of that, I'm not sure I heard a number in terms of the revenue that was left on the table due to supply constraints in the second quarter.
spk04: Yeah. So, Scott, number one, supply chain is improving, and we are anticipating that Q4, it will give us even more leeway than Q3. So more optimism in terms of supply chain, chip positivity, and we are working very closely with our suppliers. on a weekly basis, so we know what they are committing. But it is still work in progress. When people ask me, when do you expect some normalcy, I will always say 23, mid-23, some semblance of normalcy. Because the markets we are in, and you might see some availability in some chips, but the markets we are in, they are hot markets, you know, with 5G or Wi-Fi 6, all these products. And when you look at calendar 22, the areas where especially as we're going towards Q4, we get a lot of good feeling, good confidence is the new products. The 6 gigahertz comes in Q4, and as I said, a lot of excitement around that within our WISC community as well as some of the verticals where they are waiting for this gigabit connectivity. So we feel good. New products, 28 gigahertz is accelerating very well. And as I said, size of the deals are superior. Europe, Cala, Asia are leading the charge. We feel good. We have not seen this size deals in our history. PTP defense, the world has actually, because of the Ukrainian war, many defense establishments are now converging because they want fast interoperability. That is driving our PTP 700 business. So there are many things converging. and supply chain improving, that gives us a good feel for Q4. But net-net, the reason we still have that wider range is supply chain continues to be still an improving thing and work in progress.
spk02: Okay. Very helpful. I appreciate the color. And if I could, as a follow-up, on the 6 gigahertz front, huge opportunity there both domestically and growing internationally given the amount of spectrum, given that you leverage existing Wi-Fi 6E infrastructure. So I'm wondering a couple things. If you could kind of take us through the milestones, right? Product will be available in the fourth quarter. How quickly does that ramp? What is the level of interest? And how quickly, you know, do we see this become a meaningful portion of the revenue stream? And I don't know if you have any early thoughts on that front in terms of how you're thinking about 2023. Thanks. Okay.
spk04: Good question, Scott. The way we approach our point-to-multipoint, especially the EPMP line, is we very much focus on affordability. And the fact that the Wi-Fi 6 has gone to 6E, that gives us a very affordable, cost-effective chipset to use where we do a lot of innovation in software and antennas. So it gives us a truly gigabit solution with fantastic affordability. And this is for global markets. Many service providers will have no government dollars in many countries. So we are making sure that government dollars or no government dollars, Cambium's solution remains very affordable and very performant. That's kind of point number one. Point number two, these solutions will complement fiber. Many of our customers are going to be fiber customers because when it comes to terrain and the last mile, last two miles, they have ARPU challenges. Service providers have significant average revenue per user challenges in many geographies. So they want this type of solution for 6 gigahertz. We are, in Q4, going to use the experimental license, which our customers will acquire. This is called STA, Special Temporary Authority, STA licenses. So under STA licenses, you will see Q4, Q1, Q2. Lots of POCs across North America. And many countries are now watching what we do in North America and copy that. And FCC is evaluating. Right now they're testing the AFC. So my anticipation is, that the AFC approvals and all that will be done in first half 23, somewhere there. And the STA licenses will be used in Q4 to start the proof of concepts going. And this is basically a coordinated spectrum strategy and very innovative. So we feel good. We will be one of the first companies to produce volume, quality product. And my anticipation is, as usual, two to three quarters will be lots of POCs. And then the ramp starts probably second half of 23.
spk02: Perfect. Thanks so much. Appreciate the color and looking forward to the ramp. Thank you.
spk08: The next question comes from Eric Suppiger from JMP Securities. Please go ahead.
spk09: Yeah, thanks. Thanks for taking the question and great job on the enterprise. We haven't heard too much in terms of the macro economy, any slowing on your WISP customers or your end customers. What are you seeing in light of kind of an uncertain economy right now?
spk04: You know, on the WISP side, there is no question that they all want to participate in these new government-funded projects, whether it's RDOF, whether it's BidMoney, But they also know that this could take time. As I said, RDoF for wireless is first half 23, because the dollars have gone to fiber right now so far, $4.5 billion, but there's a lot more money still to be allocated. So that's our anticipation. And also the very small WISP definitely are CapEx constrained. So there could be acquisitions there. There could be more consolidation happening there. But this is not the story in everywhere. When you go to different countries, there's different dynamics. So my sense is that as government dollars come in, you'll see this adopt this next generation technologies, 6 gigahertz, for example. And in other countries, 28 gigahertz is basically the key acceleration that is happening. In fact, there's a press release you will see by one of our customers called Pentanet, in Australia, in the city of Perth. And they are using 60 gigahertz to really deploy gigabit connectivity in Australia. So I think the new S-curve is starting, and that's what I said. 2016, we entered last time. I think 2022, late Q4, and then it's a five-year cycle. Probably a good solid one year in the early phase of S-curve, solid mid-two years in acceleration, and then it enters maturity. So that's what we see a new escrow starting probably late this year.
spk09: Okay. Then a number of the telcos, Verizon, T-Mobile in particular, have been really embracing fixed wireless access. How is that changing the competitive dynamics for you?
spk04: You know, actually, that's a good thing. Remember, fixed wireless broadband used to be afterthought. It was not mainstream. I think what 5G has done, 5G in 28 gigahertz has legitimized fixed wireless broadband. But I'm very glad that Verizon and AT&T of the world are pushing it because their solutions might be very large-scale solutions or urban solutions. Our solutions are suburban, rural in many cases, and economical. So overall, if the awareness of fixed wireless broadband increases, that benefits Cambium because we don't have those kind of marketing dollars, what they have. So I think net-net, you will see another dynamic. Another dynamic is that many areas, these large service providers may win a deal or they may have a license or the government-funded project they might win, but they will subcontract or they will bring other service providers which are smaller, and for them that's a good enough business, And that's how these larger companies will participate. And these second-tier service providers will engage Cambium. So no matter how you see, when the water trickles down, Cambium will be a beneficiary in anything in fixed-pilot broadband where affordability and quality is required.
spk09: Very good. Thank you.
spk08: The next question comes from George Nodder from Jefferies. Please go ahead.
spk03: Hey, thanks for taking our question. This is Blake on for George. You mentioned that price increases have begun to work into the model, but you still have not felt the full impact from those, correct? And is there any specific segment where you've been able to pass along more price increases through?
spk06: So the price increases that we enacted last year are in our numbers, pretty much fully in the numbers for Q3 at this point. If you remember, we didn't impact our backlog, and we worked through that backlog at this point. So when you look at the Q2 results and then what we're expecting in Q3, those include the price increases. And there still may be some that are going to trickle in, but it's really immaterial. So I think that's what you're seeing there. We certainly have experienced price increases on the cost side that is also offset the price increases that we've had and increases in components, in chips, in freight costs, and all the things that we've spoken about. So net-net, that's the impact of the price increases from last year. And overall, what's really driving the increase in our gross margins is more mixed, with the mix being more heavily weighted towards our enterprise products, which carry a higher gross profit margin by nature and by market. And that's really what's driving the increase much more so than price increases that were offset by cost increases.
spk03: Got it. That's helpful. And then? I think you mentioned channel inventory was down 5%. Was that sequentially or year-on-year? And then do you expect channel inventory to kind of stabilize around these current levels or still work lower?
spk06: Yes, that's sequentially, and that was specifically in the PMP product line. And I think they'll probably continue to. work down a bit as they're waiting for the new product introduction and waiting for that to happen. And I think that'll happen in terms of stabilization in late Q3, early Q4.
spk08: Awesome. Thank you very much. Yep.
spk04: Thanks, Blake.
spk08: The next question comes from Tim Savageau from Northland Capital Markets. Please go ahead.
spk07: Hi, good afternoon, and I'm on a little late, so forgive me if I repeat something here. But I just want to focus on PMP from a couple different perspectives. One, and I'm not sure what sort of guidance you gave about, you know, what's driving sequential growth next quarter, but should we be looking at Q2 as the trough for PMP revenues, I guess is the first question.
spk06: No. No. So we expect that there will be a further decline in PNP in Q3. And then we expect that it will begin to stabilize late Q3, early Q4. And then you'll see an uptick in Q4.
spk07: Okay, great. So Q3 is the trial, or at least I guess we hope. In terms of the 28 gigahertz deals, I think you mentioned those in the context of Q4, but they seem like they should be drivers for calendar 23. And you'd mentioned these deal sizes are pretty big relative to what you've seen in the past. I don't know if that's a PMP-specific comment. You've booked some pretty big deals on the PTP side, on the federal side, including recently. I think you'd characterize those in maybe tens of millions type thing. So should we be thinking about these 28 gigahertz deals in a similar order of magnitude?
spk04: Let me give Tim a quick rundown on that. So 28 gigahertz, as I said, deal sizes are larger. And the reason for that is that these are larger service providers who have the money to buy licenses for 28 gigahertz. They have larger scale networks. So right off the gate, they want to monetize faster. And we have 10 POCs going in four continents. So we have closed one of them when one contract is done, and we are working now to close other deals. My sense is the needle will start to move probably 23, because this is still the early phase of that 28 gigahertz acceleration. But we will announce as we close these deals, from time to time you will see through press releases. So I'm pretty pleased when we look at the size of the deals. And as I said earlier, these are pretty sizable deals. And the differentiation we are building in our product, 4x4 MU MIMO, 400 megabit per second throughput at scale, we're building some very good differentiations for these service providers. And they're also taking the service providers towards 5G. Remember, this is a 5G network. And we conceived these products, you know, two years back, and now they are coming out. So in terms of acceleration, I would say more 23. But in terms of contracts closing, we might announce as we close, and the fact that we are beginning to close contracts, that gives me confidence we have the right product, and this is really the start of a new S-curve.
spk07: Well, just one more on that. So you want to take a shot at quantifying the aggregate opportunity of those 10 POCs should they go to full deployment?
spk04: I wouldn't give a specific number, but you're not far off in terms of These deals are generally, Tim, four- or five-year long-range deals. They are rarely one-year contracts. These are five-year contracts, four-year contracts. Almost all of them are long-range. And those contracts will be you're not too far off when you say tens of millions of dollars.
spk07: All right. Sounds good. Last question on 6 gigahertz. And I guess my question is, you know, does more need to happen – from an operator, regulator, licensing standpoint, or from a Cambium-specific product standpoint to enable that ramp?
spk04: Excellent question, Tim. A very good question, very insightful question. From product point of view, we feel very good. As I said, we have approximately, I would say, close to 10 beta customers as we speak. So this is not something we are going to do. We are doing that right now. And in Q4, we will have ability to ship volume. This will be like production units and production software. And as I said, FCC's special temporary authority STA license is what we use to get the POCs going. I think the more, what is needed more, probably over the next six months is for FCC to finish the evaluation and testing of the AFC algorithm. Six gigahertz is a coordinated spectrum, and FCC has got a good experience from CBRS. CBRS is a tremendous success story for three and a half gigahertz band. So I think what you're going to see is that when FCC testing is done, sometime in, I'm guessing, end of Q1, early Q2, somewhere there, this will all be allowed, and operators want to see it operational, because then they can start to make money or those high-performance networks. So I think a little more needs to be done by the service providers and the FCC working together to enable multi-gigabit networks, which are very affordable. And Cambium is ready. Cambium will be ready with AFC algorithms. Cambium will be ready with cloud management. Cambium will be ready with products. So from our side, we are ready in Q4. And we will be doing everything possible in our power to be educating FCC and pushing that and they did a great job with CBRS and 3.5 gigahertz, so we're very confident. And AFC is not as sophisticated as CBRS algorithms were. So if they did a great job with CBRS and 3.5 gigahertz, I think they couldn't do this in first half. So we feel pretty good.
spk07: Okay, thanks very much.
spk04: Thanks, Tim.
spk08: This concludes our question and answer session. I would like to turn the conference back over to Peter Schumann for any closing remarks.
spk10: Thank you, Jason. During Q3 2022, Cambium Networks will be presenting a meeting with investors on August 10th at the Oppenheimer Internet Communications Conference held virtually. On August 31st at the Jefferies 2022 Semiconductor IT Hardware Communications Infrastructure Summit in Chicago, Cambium will host a tour of our Rolling Meadows headquarter facilities on September 1st with Barrington Research, And on September 14th and 15th, the company will hold one-on-ones and present at the Goldman Sachs Technology Conference in San Francisco. In the meantime, you're always welcome to contact our Investor Relations Department at 847-264-2188 with any questions that can arise. Thank you for joining us, and this concludes today's earnings call.
spk08: Conference is now concluded. Thank you for attending today's presentation.
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