Cambium Networks Corporation

Good afternoon. My name is Amber and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Network's second quarter 2023 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 the session, you will need to press star one one on your telephone. You will hear an automated message that your hand is raised. To withdraw your question, please press star 11 again. 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 the conference.

Thank you, Amber. Welcome and thank you for joining us today for Cambium Network's second quarter 2023 financial results conference call, and welcome to all those joining by webcast. Atul Bhatnagar and Andrew Bronstein 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 press release has been submitted on form 8K with the SEC. Certain revisions were made with within operating expenses and prior periods to conform to the classifications in the current period. These revisions had no impact to operating income. 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 and our most recent SEC filings, including our most recent Form 10-K. 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 is included in the appendix that today's financial results Press release, which can be found on the investor page on our website and in today's press release announcing our results. Turning to the agenda, Atul Bhatnagar will provide the key operational highlights for the second quarter of 2023. And Andrew Bronstein will provide a recap of the financial results for the second quarter of 2023 and present our financial outlook for the third quarter and full year 2023. Our prepared remarks will be followed by a Q&A session. I'd now like to turn the call over to Atul.

Thank you, Peter. Cambium's overall revenue performance in Q2 was poor. The performance was a result of a severe slowdown in revenues from Cambium's enterprise products. I will spend the next several minutes explaining what happened, as well as describing how we will get Cambium's enterprise business back on track. First, what happened? During the second quarter, revenue from Cambium's enterprise products was significantly below expectations. while PMP and PTP products performed at or ahead of expectations. The cause of the decline in revenue from enterprise products in the second quarter were all a symptom of a severe slowdown of sales through the enterprise channel to the end customers. This slowdown in the enterprise channel was caused by several factors. First, component supply including chips became readily available to our competitors during the quarter and the advantage Cambium had in supply and order fulfillment was dramatically reduced. As we have discussed in the past, COVID caused major shifts in the global supply chain throughout the past three years. And these shifts had a significant impact on component availability and revenue performance. Second, competitors now with plenty of supply became very aggressive with pricing in an attempt to regain market share. We saw the impact of these factors, especially in the last month of the quarter, given product shipments are heavily weighted to the last few weeks of the quarter based on distributor orders and requested delivery dates. Third, a decline in global economy resulted in cancellations and delays in end customer projects in several regions and in distributor ordering decisions. All of these items resulted in a bottleneck in enterprise channel inventory. This further exacerbated our reported enterprise revenues due to a higher than normal volume of enterprise stock rotation. How will we get the enterprise business back on track? As a result of the poor revenue performance, we have taken several actions. First, We have initiated an individualized strategy with each of our largest distributors and partners to move enterprise products through the channel faster, removing the bottleneck, while also providing aggressive incentives to gain share of wallet with new customers, new markets, and new geographies. Second, we have executed a $14 million annualized cost reduction program, which will protect our profitability and strong balance sheet while we work through the challenges in the enterprise business. Andrew will provide more details on the cost reduction later in our call. Outside of the disappointing revenue performance of the enterprise products, we had some very positive events, including a record quarter for our point-to-point PTP business, fueled by execution of large defense deals discussed during our last earnings call. Our defense funnel remains very strong, and we expect to have a record year in our PTP business. Further, our point-to-multipoint PMP business performed better than expected, with sequential quarter growth fueled by demand for 28 gigahertz fixed 5G and strong interest from our newly released Cambium fiber products. We anticipate PMP revenues will continue to grow both sequentially and year-over-year during the second half of 2023. And we expect that final approval by the FCC for 6 gigahertz spectrum will benefit our new EPMP4600 and PMP450V product line. Summarizing the results of the second quarter 2023, revenues decreased 14% year-over-year and 23% quarter-over-quarter. primarily as a result of slowing revenues from enterprise products in the EMEA and North American regions, while our other products and regions performed consistent with or above our expectations. Our gross margin, EBITDA, and profitability were lower than expected due to lower shipments of our enterprise products. Cambium's second quarter 2023 revenues of $59.5 million were below the bottom of our outlook, while our gross margin of 50.3% came in at the lower end of our outlook. Overall profitability of $0.03 per share was lower than our outlook due to the loss of scale as a result of the performance of the enterprise business. Looking at revenues across our product line, our enterprise revenues declined 82% sequentially and 73% year-over-year. As previously mentioned, we have begun taking aggressive steps to decrease enterprise channel inventories. We expect a return to sequential growth in enterprise products during Q3 2023 and a return to a normal run rate during first half of 2024. Our PTP revenues increased 39% sequentially and 60% year-over-year. We continue to expect strong year-over-year defense shipments during the remainder of 2023 as we are engaged in an increasing number of Global Defense Program of Record, POR. Our PMP revenues increased 20% sequentially, although lower by 5% year-over-year. As service providers are moving from our current generation of PMP450 products to the new gigabit technologies. This will include Cambium's 6 gigahertz products, which are expected to help drive PMP revenue growth during the second half of the year upon the FCC's approval. In addition, our 28 gigahertz fixed 5G product had a record quarter, and we had earlier than expected stocking orders for our new PMP fiber product. Looking at some notable customer wins and new product development. In North America, Cambium reached a significant milestone as we received official approval from the world's largest global hotel chain as a vendor for our enterprise solution. The chain has over 8,600 properties in 133 countries and territories with approximately 1.6 million rooms. We are also working to get our 60 gigahertz CNWave qualified with this customer. Cambium has particular strength in the hospitality vertical and approvals such as this give us confidence in our ability to grow the enterprise business in the future. Cambium is now working with partners serving four of the top five global hospitality brands, including deployments with Cambium's cloud-managed Wi-Fi and switching products. In the Europe, Middle East, and Africa region, EMEA, we had wins with managed service providers, MSPs, in hospitality, multifamily and student housing sectors in EMEA, including with Navaya, Nonius, and Freshway. One of our recent enterprise wins in EMEA included the Hilton Heathrow Airport, a major hotel at one of the busiest airports in the world. In Spain, a regional operator, Globe Telecom, activated the first deployment of the fixed wireless 5G technology in the 26 gigahertz band. The new network uses frequencies acquired by Global Telecom in the Spanish government's recent 26 GHz band tender, the last remaining priority tier for 5G services in combination with Cambium Network's CNWave 5G NR-based platform. And in Cape Town, South Africa, a service provider, WilberNet, is using Cambium CNWave 5G fixed in the licensed 26 to 28 GHz frequency bands to increase service levels for broadband customers by offering packages of up to 200 megabits per second, resulting in increased service levels in a matter of days. We are now seeing the early 28 gigahertz product POCs turning into multi-million dollar commercial deals. In the Asia-Pacific APAC region in Malaysia, we had an enterprise win with a government agency for our Wi-Fi 6 access points for a high-speed express train. The train provides nonstop express train service from main transportation hub in Kuala Lumpur to the airport. And in Caribbean Latin America Cala region, Universidad La Sabana, one of the most important private universities in the Columbia, decided to upgrade their networks with our Wi-Fi 6 and 6C solution, providing Wi-Fi access to more than 12,000 students in an expansive campus with 14 buildings. Cambium was selected over a larger competitor since we gave them superior Wi-Fi coverage at a lower total cost of ownership. Turning to upcoming product introductions and developments since our previous quarterly update. In the enterprise portfolio in Q3-23, we recently introduced two new layer 2 and 3 CNmetrix EX3K switches, which feature high power over Ethernet and support Wi-Fi 6 and 6C video surveillance and other devices for mission critical networks. The advanced switches support our Cambium One network architecture and feature dual removable redundant power supplies and high power and high density capability. Within our fixed wireless portfolio, we are eagerly awaiting final approval from the FCC for six gigahertz spectrum during the second half of calendar year 23. Cambium currently has approximately 25 ongoing trials for our 6 gigahertz EPMP4600 product with broadband service providers, which will help drive our future PMP revenues with our first-to-market advantage. Looking at our CN Maestro Cloud software, total devices under cloud management in Q223 was over 980,000, an increase of approximately 6% from Q123 and up 17% year-over-year. Turning to our channel. In the Q223, we expanded our channel presence by adding approximately 390 net new channel partners sequentially and approximately 1,600 net new channel partners year over year, which represents an increase of approximately 3% sequentially and over 13% year over year. During Q223, Cambium shared our strategy and vision at Cambium Connections, our biannual online webinars for end customers and the partner community throughout various geos we also have numerous customer industry analyst briefings on our new cambium fiber solutions which are generating lots of excitement particularly with north american service providers i will now turn the call over to andrew for a review of our q223 financial results and outlook for q3 23 and full year 2023. thanks atul