Cambium Networks Corporation

Good afternoon. My name is Michelle, 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 2023 financial results conference call. All lines have been placed on mute to rid any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question at that time, please press star 1-1. Please limit yourself to one question and one follow-up question. Thank you. Mr. Peter Schumann. Vice President, Investor, and Industry Analyst Relations, you may begin your conference.

Thank you, Michelle. Welcome and thank you for joining us today for Cambium Network's fourth quarter and full year 2023 financial results conference call, and welcome to all those joining by webcast. Morgan Kirk, our President and CEO, and John Bessereau, our Interim 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 a 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 forecasted performance. These statements are based on current conditions, 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 and our most recent SEC filings, including our most recent Form 10-K and Form 10-Qs. 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 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, Morgan Kirk will provide the key operational highlights for the fourth quarter and full year 2023, and John Becerril will provide a recap of the financial results for the fourth quarter and full year 2023, and we'll discuss our financial outlook for the first quarter and full year 2024. Our prepared remarks will be followed by a Q&A session. I'd now like to turn the call over to Morgan.

Thank you, Peter. Summarizing the performance of Q4 23. As mentioned in our preliminary Q4 23 results on January 18th, while the company shipped $51 million in product revenues during the quarter, this was offset in part by an $11 million reduction to revenues as the result of incentives provided to distributors during the fourth quarter of 2023 that provides aggressive enterprise product discounts to clear excess channel inventories. The gross margin was also depressed during Q4 23 due to the aforementioned incentives and higher inventory reserves. Operationally, our team executed to expectations during my first full quarter as CEO, including in the point-to-point PTP business, which had strong growth, and in the multi-point PMP business in North America, thanks in part to increasing orders of 6 GHz products ahead of the FCC's formal approval. While revenues came in below our outlook and gross margins decreased during Q4-23 as a result of increased incentives provided to enterprise distributors and higher inventory reserves, we maintained good cost controls and tightly managed our operating expenses. As expected, our PTP revenues were strong, increasing 38% sequentially and improving 3% year over year as U.S. federal spending for defense applications recovered. Our PMP revenues decreased 4% sequentially and were lower by 24% year-over-year. Channel inventories for PMP had been significantly reduced year-over-year while waiting for the FCC's approval of 6 GHz spectrum, now expected during the first half of CY24. The FCC's approval is anticipated to drive sales of Cambium's new 6 GHz ePMP4600 and PMP450V product lines, both of which are available today. During Q4-23, the North America region's sequential growth for PMP and PTP was offset by a decrease in EMEA's PMP revenues as a result of the large 28 gigahertz fixed 5G shipments that occurred during Q3-23. Our enterprise revenues decreased $8 million sequentially and decreased $37.5 million year over year due in part to the $11 million channel inventory discount. Orders for our enterprise business continue to experience headwinds in both North America and EMEA due to high channel inventories and competition. Enterprise revenues were negatively impacted by stock rotations of approximately $3 million. We have seen a significant reduction in enterprise stock rotations as channel inventories decreased and expect this to continue to decrease throughout the year. Sales of Cambium's products out of the distribution channel, as reported by Cambium's distributors, were significantly higher for Q4-23 than Cambium's reported revenues, and we saw a corresponding decline in channel inventories for enterprise products, while the PMP channel inventories remained relatively stable. We are making good progress in reducing channel inventories, and in the aggregate, the inventory is approaching pre-pandemic levels. We will continue to be diligent about monitoring and controlling this as shorter lead times and increased cost of capital may drive different behaviors by distributors than in the past. Looking at full year 2023, revenues of $220.2 million represent a decrease of 26% from 2022. The 2023 decline was predominantly driven by our enterprise products, which decreased 64% from the prior year, and to a lesser extent, lower PMP revenues, which declined 17% from the prior year, partially offset by the growth in our PTP business, which had a record year, increasing 20% for the full year 2023. breaking the $80 million threshold for the first time in Cambium's history, largely due to the strength of our defense business. We continue to expect enterprise channel inventories to decrease in the first half of CY24 as supply remains abundant and lead time short, but also expect incremental improvement in sales into the channel throughout the year. We foresee modest growth for the PMP business, driven by new product momentum in our 6 GHz products, continued adoption of our 60 GHz solutions, and lumpy ordering of our 28 gigahertz solution. We expect continuing strength in the defense portion of the PTB business in North America and abroad. And in enterprise, we expect recovery during the second half of CY24. Now looking at some customer wins that are key to our future success. In North America, we received sizable orders from Nextlink, a large service provider in the Midwest, for the new EPMP4600, using six gigahertz spectrum. NexLink will use ePMP primarily to reach locations in low density rural areas. The CEO of NexLink commented that the ePMP six gigahertz platform is an unmatched blend of performance and cost, allowing NexLink to be cost effectively offer gigabit broadband to their customers. This purchase is testimony to our value strategy. Once the spectrum is approved by the FCC, we expect rapid deployment by many of our over 100 customers who are trialing the product. In Mexico, a wireless internet service provider, Siglo, is offering internet service subscription packages to customers within Walmart supermarkets. Cambium's ePMP radios are bundled as part of the service offering. Customers purchase the equipment through Walmart to contract the connectivity services. This is a disruptive model that departs from the usual go-to-market of WISPs and shows industry maturation and Cambium support of continued expansion. Turning to upcoming product introductions since our previous quarterly update. This spring, we will introduce our first fiber aggregation switch within our enterprise portfolio. The new switch features dual independent redundant power supplies, non-blocking level two and level three switching line rates, and will be fully managed by Cambium CN Maestro. The addition completes the high end of our switch portfolio. Also in the spring, we expect to release the PMP450B6, a single-band 2x2 MIMO subscriber module as a low-cost complement to the recently released PMP450V, a dual-band 4x4 MIMO subscriber module. Finally, total devices under CM Maestro Cloud Management in Q4 23 increased approximately 1% from Q3 23 and was up over 14% year over year. I will now turn the call over to John for review of our Q4 23 financial results and Q1 24 and full year 2024 financial outlook.