Cambium Networks Corporation

Good afternoon. My name is Therese, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambian Network's first quarter 2024 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please limit your questions to one question and one follow-up. Please be advised that today's conference is being recorded. Thank you. Mr. Peter Schuman, Vice President, Investor, Industry Analyst, and Public Relations. You may begin your conference.

Thank you, Therese. Welcome and thank you for joining us today for Cambium Network's first quarter 2024 financial results conference call, and welcome to all those joining by webcast. Morgan Kirk, our CEO, and Jacob Sayre, our CFO, are here for today's call. The results, press release, and CFO commentary referenced on this call are 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 forecasted performance. These statements are based on current conditions, 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 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 today's financial results press release, and our most recent form 10Qs and 10Ks filed with the SEC. 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 will provide the key operational highlights for the first quarter 2024, and Jacob will provide a recap of the financial results for the first quarter 2024, and we'll discuss our financial outlook for the second quarter and full year 2024. Our prepared remarks will also be followed by a question and answer session. I'd now like to turn the call over to Morgan.

Thank you, Peter. I want to begin by first introducing Jacob Sayre, our new CFO. For those of you who didn't see our press release, Jacob joined Cambium from Sensata Technologies, a global industrial technology company with over $4 billion in revenue, where he was most recently VP of Finance and headed Investor Relations, and previously held divisional CFO roles for the various segments of Sensata. Jacob has 15 years of experience with technology companies, and another 17 years of experience in various investment banking roles. We're pleased to have him on board to help drive operational excellence, strategy, growth, and value creation. I would also like to thank John Besserell for stepping up as interim CFO for the past quarter. As expected, the FCC finished the process with a long-awaited approval of 6 GHz spectrum in Q1, although later in the quarter than we had hoped. leading to lower-than-anticipated shipments of our point-to-multipoint PMP products. In the last week of the quarter, Cambium received final approval for our ePMP4600 6 GHz access point products and standard power subscriber modules, with high-power subscriber modules expected to be approved in May. Summarizing the performance of Q1 24, revenues for Q1 24 were 43.2 million. The shortfall to guidance was mostly related to delays in defense orders in North America and Europe in the point-to-point PTP business, which decreased 34% sequentially. We expect sequential increases in this portion of the business throughout 2024. Our PMP business in North America was slower than anticipated, decreasing 14% due to the aforementioned timing of the six gigahertz product approval process by the FCC late in the first quarter. The FCC approval is anticipated to drive sales of Cameo's new 6 GHz ePMP4600 and PMP450V product lines, both of which are available today. On a positive note, enterprise revenues improved 231 percent sequentially as demand improved and channel inventories levels declined. Also in April, we launched our first Wi-Fi 7 product. While revenues came in only slightly below our outlook, gross margin did not meet expectations due primarily to an increase in reserves for excess and obsolete inventory of finished goods and components. We did see improved product mix sequentially during Q124 as a result of increased enterprise revenues, and we maintained good cost controls and tightly managed our operating expenses. Sales of Cambium's products out of the distribution channel, as reported by Cambium's distributors, were higher for Q1-24 than Cambium's reported revenues, and we saw corresponding declines in channel inventories. We continue to make good progress in clearing channel inventories, and in aggregate, the inventories are approaching healthy levels. We are diligently monitoring and managing channel inventories At shorter lead times, an increased cost of capital may drive different behaviors by distributors than in the past. As communicated previously, we expect channel inventories to be back to normal by the end of Q2 24, which will result in sales in and sales out approaching equilibrium. This should drive incremental improvements of sales into the channel and therefore an incremental improvement to revenue. Looking at some customer wins that are key to our future success. In the U.S., our enterprise business had a sizable win with the New Orleans Convention Center, a project which is expected to ship throughout the year. This win includes over $1 million of enterprise gear and was the result of Cambium's ability to deliver industry-leading performance in unique, high-density, dynamic employment. The entire upgraded system will run on our CN Maestro X single-plane of glass management system. The flexibility in dynamic reconfiguration is critical for the center and demonstrates the versatility of Cambium's solution. In Australia, Glencore, one of the largest mining companies in the world, selected Cambium's One Network to deploy and manage Cambium's fiber and Wi-Fi upgrade for a large mining cap. This deployment will consist of a mix of over 350 indoor and outdoor Wi-Fi access points, and Cambium's fiber ONTs, all managed by CN Maestro. The combination of indoor and outdoor Wi-Fi and PON-based interconnectivity from a single vendor results in a tightly integrated, cost-effective, and efficient network. In the PMP space, we have a significant win with a wireless service provider in Kenya, Safaricom, for a three-year deal to roll out residential and business connectivity using our ePMP product line, Cambium One based on technical strength, ease of deployment, and the cost effectiveness of the solution. Now turning to upcoming product introductions since our previous quarterly update. In March, we announced our first Wi-Fi 7 access point with the launch of our new X7-35X tri-radio, tri-band, 2 plus 2 plus 2 unit. Wi-Fi 7 is another step forward in wireless connectivity, offering data speeds reaching up to 9.2 gigabits, ensuring lightning-fast downloads, seamless streaming, and lag-free experiences. While pushing the boundaries of performance, Wi-Fi 7 remains backwards compatible with all previous Wi-Fi standards. Wi-Fi 7 works with Cambium's Cambium Network's cloud-managed or on-prem CM Maestro management system for secure end-to-end network control. Finally, total devices under CM Maestro cloud management in Q1-24 increased approximately 4% from Q4-23, and were up 15% year-over-year. I will now turn the call over to Jacob for a review of our Q1-24 financial results and Q2-24 and full-year 2024 financial outlook.