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spk05: Good afternoon. Thank you for standing by and welcome to MobX Labs Inc. Second Fiscal Quarter 2024 Financial Results Conference Call. Please be advised today's conference is being recorded and a replay will be available on MobX's Investor Relations website. In addition, this call includes non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our second quarter earnings release posted on the Investor Relations section of our website. I would now like to hand the conference over to Lori Barker, Investor Relations. Please go ahead. Thank you.
spk04: Good afternoon, everyone. I'm Lori Barker, Investor Relations for MobX Labs, and I'd like to thank you for joining us today as we report MobX Second, fiscal quarter 2024 financial results for the period ending March 31st. With me on the call today are Fabian Battaglia, Mobix's Chief Executive Officer, and Kayvon Samini, President and Chief Financial Officer. This call is simultaneously being webcast on the investor relations section of our website at mobixlabs.com. Before we get started, I would like to remind everyone of our safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections, future market conditions, or future product enhancements or development, is a forward-looking statement. MOBIX's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. MOBIX assumes no obligation to update any forward-looking statements, except as required by law. For greater detail about risks and uncertainties, please see our SEC filings, including our Form 10-Q for the quarter ended December 31, 2023, and the section titled Risk Factors in our Form S-1 Amendment filed on May 2, 2024. With that, I will turn the call over to Fabian Battaglia. Fabian, please go ahead.
spk02: Thank you, Lori. Today, we are excited to host our first earnings call as a public company. We have had several exciting developments so far in 2024, and today I'll review the March quarter and share our overarching strategy with you. Kayvon, our president and CFO, will follow with financial comments. In the March quarter, we grew revenue sequentially by more than 300%, and it was a record quarter for product revenue. This confirms that our acquisition strategy is successfully expanding our portfolio of innovative products and extending our customer base and related SAM. In the first few months as a public company, we've already executed foundational milestones. We signed a committed equity facility that provides for up to $100 million, which we believe positions us well for acquisitions, including the recently announced acquisition of Rage Systems. Rage Systems is a provider of joint design and manufacturing services for the development of radio frequency technologies for a variety of customers in the fields of millimeter-wave 5G communications, radar sensors, and imaging sensors. Tremendous synergies exist between our products and those that Rage brings to us, and we believe customers from both companies will benefit substantially from our expanded offering. As a past customer of Mobics Labs, we know the team at Rage well. We are excited to have Russell Sear and Jeff Daw, RAGE's co-founders, and their team join Mobics Labs as we accelerate our comprehensive, industry-leading tech portfolio in next-generation wireless communications. This RAGE acquisition follows quickly on the heels of the acquisition of EMI in late December. Integration of EMI is completed, and we have announced several critical contracts for electromagnetic interference filtering products to defense and aerospace customers, serving well-known companies like BAE, General Dynamics, Raytheon, and Lockheed Martin. Most recently, we announced the delivery of EMI solutions to the U.S. military for the Tomahawk missile systems, and we are awarded contracts for the M1 Abrams tank and the Javelin missile system. We are excited about what the EMI and RAGE acquisitions bring to Movix Labs, and along with the up to $100 million equity facility, we feel confident that we are rapidly and efficiently assembling the foundational elements necessary to execute our strategy. Also, we have announced the addition of Arrow Electronics as our global distribution partner to support our growing business. In this first call as a public company, I'll discuss our history, our strategy, markets, and products. We were founded to simplify development, reduce costs, and maximize performance of wireless millimeter wave 5G products used primarily for infrastructure applications. Innovation is at our core, and we already have over 40 patents issued or pending. Like past transformations from 1G through 4G, demand continues to expand for both bandwidth and coverage, and infrastructure gets built over many years as it becomes economically viable. With the advancements in the areas of AI, autonomous vehicles, remote surgery, and other high bandwidth data intensive applications, the need for innovative solutions at the component level, like our IP rich solutions, will contribute to the deployment of advanced wireless infrastructure. But today, while the 5G millimeter wave market is nascent, we are leveraging these early investments and diversifying into other synergistic applications. We believe that, along with our acquisitions, these synergistic products will fuel our revenue growth and help build deeper customer relationships which, when combined with our continued innovation, will be instrumental to Mobics Labs' growth as the 5G market emerges. Today, we are proud to be doing business with more than 200 customers. We anticipate this number to grow as we introduce more products like the recently announced high-power RF switches focused on the land and mobile radio, or LMR, market. The LMR market is going through a transition from the current push to talk to utilizing a higher frequency spectrum and providing data and video. This allows first responders, firefighters, police, and military personnel to send secure data or still photos over standard wireless radio. This development validates our strategy to continue developing state-of-the-art solutions for infrastructure and wireless markets. Our innovative products provide the necessary technology to enhance future devices in the field. Since our inception, as part of our commitment to enhancing communication services, our corporate strategy has evolved to encompass the pursuit of synergistic product acquisitions in diverse industry sectors, including aerospace, defense, medical, and automotive. This strategy not only expands our customer base, but also extends our current customer footprint, making Mobics Labs a key partner in allowing our customers to reduce their number of suppliers. Each acquisition must meet strict criteria to help accelerate Mobics Labs' growth and cash generation, and Rage System is an excellent example of a company expected to grow by more than 40% in the remainder of our fiscal year. Also, the acquisition is projected to be immediately accretive. Earlier in my remarks, you heard how both EMI and the RAGE acquisitions during the last few months continued to add to our scale and accelerate our innovative offerings. This has led to expanding our end markets and diversifying our offerings, which in turn added to the stability of our business. Also in 2021, we acquired CoSemi, a global supplier of high speed connectivity solutions, including a broad range of AOCs and optical engines. This acquisition was an earlier validation of our ability to acquire and integrate teams and technology. Our leadership has a solid track record of identifying the right assets and integrating the teams and technologies. You might have seen our recent announcement of the appointment of Mike Long, former CEO of Arrow Electronics, to our board of directors. Mike is an excellent example of the board's impressive track record, including several of us who are instrumental in growing well-known companies such as MicroSemi, Skyworks, and Broadcom. Another unique part of our strategy is how we go to market. We believe our strategy is highly scalable and allows us to quickly integrate acquisitions using manufacturing reps and distributors as extended resources. We believe this model enables us to blanket wide geographies and can help support high growth. It is made possible by leveraging the strong relationships developed over multiple decades. Through our acquisitions and go-to-market strategy, we have amassed four product lines. First, wireless components. Demand for data has exploded to enable many current and future data-intensive applications, including alternative reality, virtual reality, autonomous vehicles, and the Internet of Things, or IoT sensors. All of these and others in development will impose added strain on existing wireless networks. The next generation of wireless networks, including 5G millimeter wave and beyond, is expected to revolutionize the way data is transferred worldwide. Due to the complexities of 5G millimeter wave, substantially more complicated systems will be required, needing multiple antennas and RF front-end devices. RF front ends for wireless enabled products and infrastructure will be driven by cost and power efficiency and they need to be highly integrated and manufactured in high volumes utilizing low cost and readily available manufacturing such as CMOS technology to reduce per unit cost. Our second product line is EM filters. Electromagnetic filtering market is experiencing significant growth due to increased demand for noise reduction and signal integrity in electronic devices. Our filtering devices are designed to reduce electromagnetic interference. Our high reliability filters are designed to consistently meet or exceed performance requirements and are vitally important to any industry with a high cost of failure. Currently, our filtering products from the EMI acquisition are widely used in various applications and industries, including aerospace, military, defense, and healthcare. In the summary of the March quarter, you heard me mention several key wins, particularly in military and defense. The third product line, wireless systems. This is our exciting new offering mentioned earlier from the acquisition of Rage Systems. These are specialized products for 5G communications, millimeter wave imaging, and software-defined radios. Our wireless systems offerings are targeted at a number of markets, including physical security, defense, industrial, and communications. Typical products designed and manufactured include 2, 3, 4, and 5G O-RAN systems and subsystems, millimeter wave modules for threat scanning, and highly integrated systems for multiple aerospace and defense applications. Fourth is AOC, or Active Optical Connectors. Connectivity demand for high bandwidth and low latency connections is necessary for both wireless and optical connections for many applications. For example, professional audio video or pro AV systems, such as video conferencing, are capitalizing on the advantages of AOC connections to provide high bandwidth and uncompressed high definition signal with low latency over greater distances. These four product lines combine to serve diverse end markets, infrastructure, automotive, consumer premise equipment, high reliability, military, aerospace, satellite communications, medical, and security. In the future, I will tell you more about these markets. In addition to these diversified markets and products and our strong leadership team focused on acquisitions, I want to tell you more about our other competitive strengths. Our millimeter-wave 5G chip designs are based on a CMOS process, which enables higher levels of integration, leading to more cost-effective solutions that accelerate our customers' time to market. Another competitive strength and customer benefit is that we are a U.S.-based supplier. Many of our customers produce mission-critical applications in the wireless communications, defense, and medical markets with domestic manufacturing preferred. Nearly all of our offerings are proprietary in nature. Our customer engagements are directly with their development teams where we work side by side to help solve technical challenges. It's this design-centric methodology that leads to technology breakthroughs and creates value for our customers and Mobics Labs. In future calls, I will be highlighting key design wins as it is core to our operating strategy. In summary, I'm excited about March quarter's execution on fundamental milestones and our recent synergistic product acquisition of Rage Systems. Looking ahead, we believe we have set the stage for MobX Labs' continued best-in-class innovative solutions to capture opportunities in wireless, connectivity, electromagnetic filtering industries, which we expect will create a versatile company that serves diverse end markets. Now, Kayvon, we'll take you through our financials. Kayvon.
spk01: Thanks, Fabian. In my comments today, I will take you through the financial highlights of our recent acquisition of Rage, review our second fiscal quarter ending March 31st, and I'll provide our outlook for the third and fourth fiscal quarters. The numbers I will be discussing represent non-GAAP unless otherwise stated. I'm thrilled to report that we've not only met but exceeded our top line expectations for the second quarter. Our financial performance for our second fiscal quarter ending March 31st, 2024, was exceptionally strong. We saw more than 300% sequential increase in revenue quarter over quarter. Our gross margin increased to 33.7% of net revenue, up from 8.4% for the immediately preceding quarter. In the longer term, we are committed to achieving a 60% gross margin and a 30% operating margin. We plan to ramp up our R&D spending and SG&A expense as we grow. However, we foresee gross profits increasing more significantly than operating expenses due to the synergies we expect to capture. Our loss from operations held steady at 4.1 million, mirroring the prior quarter. Our loss from operations has decreased by 1.6 million compared to last year, driven by higher revenue, better gross margins, and improved operating expense leverage. Recently, we finalized an agreement to acquire Rage Systems. This strategic acquisition valued at 1.4 times Rage's projected calendar 2024 revenue of $8.5 million is poised for substantial growth with just north of a 40% increase in revenue expected in both 2024 and 2025. As we move forward, the integration of RAGE systems is expected to significantly increase our revenue. For the third fiscal quarter of 2024, we are forecasting consolidated revenues between $1.8 million and $2.2 million. To provide a perspective, our total revenue for 2023 fiscal year was $1.2 million. We forecast robust revenue growth in our fourth fiscal quarter ending September 30th, of $2.6 to $3.2 million. Looking at our balance sheet, we ended the quarter with $3 million cash compared to the $14.8 million at the end of our prior quarter. The change in our cash balance includes repayment of debt, payments for the acquisition of EMI, merger-related costs, and cash used in our operations. Thanks to a $100 million equity line of credit from B. Reilly Securities, we have access to substantial liquidity to support our ambitious growth through strategic acquisitions. Each acquisition is targeted to be quickly accretive as we work diligently to enhance our revenue, gross margins, and operating income over the coming year. As the operator prepares us for questions and answers, I'd like to mention that we look forward to seeing some of you in May at the upcoming B. Reilly Conference in California and the TD Cal and TMT Conference in New York. Operator, we're now ready to take questions.
spk05: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We will pause for a moment. Your first question comes from the line of Craig Ellis with B Raleigh Securities. Your line is open.
spk00: Yeah, thanks for taking the question and appreciate all the information on this call team. So Fabian, I wanted to go back to some of the prepared remarks you have and focus in on your description of the four product lines for the company. I'm hoping what you could do is provide some qualitative color on your view on the relative growth potential of those businesses, both near-term and longer-term, so we have a better sense of how you're seeing growth unfold for the company?
spk02: Sure. Well, first of all, thanks for calling in, Craig. Appreciate the question. So all four of our product lines, we are anticipating growth. There's varying degrees of growth with each But again, our criteria that we use when we look at acquisitions is, number one, is it synergistic to what we're developing internally? Is it bringing us new markets? Is it bringing us new customers? Or is it bringing us added footprint to an existing project that we're interested in? So all four of those product lines go through that criteria. We anticipate growth in all four of those product lines. And you could see our opportunity funnel in our CRM. There's more opportunities coming in each and every day, and we're very pleased with the growth.
spk00: Yeah, nice to hear. And then the related question, you've made clear that you expect to be acquisitive with the business and That's one of the uses of resources that you have at your disposal and plan to have at your disposal. The question is this, as we look at the four product groups, beyond wireless systems where we've got the in-progress RAGE deal, is there equal or particularly notable potential for inorganic growth in the other three segments or further in wireless systems?
spk02: Yeah, I would say that in the business that Rage brings to us, those customers are, I would say, more defined, and there are projects that are being developed specifically for those customers. If you look at our other product lines, it's a combination of development that's targeted for specific customers, but I would say more so for a market segment.
spk00: That's helpful. And then I was hoping I could just get some further insight on the Arrow Distribution Agreement. So nice to see a global leader as one of the ways you can go to market. The question is this. As we think about any distributor's capability to serve either a demand generation or a fulfillment function, how do we think about the way Arrow augments the MobX business? And as we think about that, how should we think about the mix of go-to-market capability between direct sales and direct outreach versus what you'll try to do via distribution?
spk02: So we look at distribution for both fulfillment and demand creation, and that's why we chose to connect with Arrow. And we've had a lot of experience with Arrow. So, again, we look at it from both directions. We obviously, with our internal resources, we're connected directly with the design teams at our customers. And in terms In many cases, we'll do the heavy lifting on the design side, but we do lean on Arrow, and we have a high degree of confidence that Arrow can help on the demand creation side. Obviously, they're going to be supporting the fulfillment side.
spk00: Yep, and then lastly, one for Kayvon, and I'll get back in the queue. Kayvon, really appreciate getting the further color just beyond calendar 2Q with calendar 3Q on revenue potential. Can you just confirm the relative contribution between what RAGE is adding into the guidance for the immediate and out quarter versus what the organic business is doing? Thanks very much, guys.
spk01: Yes. So we expect that RAGE will provide a sizable portion of the Q3 and Q4 revenue. However, if We're not really ready to break that down in any great detail simply because we've got a pretty aggressive M&A strategy in place, and we don't think it's going to serve the market or us well to start breaking those numbers down right now. Got it. Thanks, guys. Thank you. Thank you.
spk05: Your next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.
spk03: Yes, thanks for taking my question and congratulations on the milestones you achieved and the great progress you're making. Thank you. My questions are maybe along those lines with the distributors, but even the manufacturing rep strategy for go-to-market. And as you're making acquisitions, I guess right now you're already saying you're supplying 200 customers Are there reps in place around the country or worldwide, or what's the strategy as you grow the market for your manufacturing reps?
spk02: Sure. Sure. Yes, we do have manufacturers' reps. They are in place today. We do make good use of them, and they do help with the design in cycle or the demand creation part of it. Going forward, we anticipate that we will have a hybrid sales model. So we'll make use of extended resources as well as our internal resources. I think what you'll see going forward, we're going to be adding more resources in the form of FAEs and AEs that will work alongside both our reps and our distributors. But we will lean on our extended resources to do some of the demand creation work for us, and we have high confidence with those that we're engaged with now, and we've had long-standing relationships with them, and we've had great success with them in the past. So we're highly confident that our model is effective, and we do intend to use all three. Okay, great.
spk03: I understand. And maybe on the... Great expansion of gross margin quarter over quarter. Can you talk about that? You went from 8.4% to 33.7%. What drove that expansion?
spk01: Right. So the expansion of that gross margin is based on a mix of our higher margin business, which is with the filters, connectors, and with our lower margin, which are the other products that we use. that we have in our portfolio.
spk03: I see. And so going to your target for 60% gross margin, will it be like a similar mix as you grow each one of those product segments?
spk01: No. Our growth towards the 60% and 40% is based on our strategy that we plan to execute on as we move forward with additional M&A, and also as we gain further operating expense leverage as we continue to grow, be able to reduce our operating expenses, increase our operating margin.
spk03: I see. Okay. Great. Thanks.
spk05: There are no further questions at this time. This will conclude today's conference call. We thank you for joining. You may now disconnect your line.
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