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spk02: Welcome to the PCTEL fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. As a reminder, this conference is being recorded. I will now turn the call over to Kevin McGowan, the company's CFO.
spk04: Thank you for joining us on today's conference call to discuss PCTEL's fourth quarter and fiscal year 2022 financial results. With me today is David Newman, the company's CEO. Please note that a webcast replay of this call will be available on our website. Before we begin, let me remind you that this call may contain forward-looking statements and projections based upon current circumstances. While these forward-looking statements and projections reflect PcTel's best current judgment, they are subject to risks and uncertainties, particularly related to global supply chain and logistics challenges global, political, and economic circumstances, including a potential recession, ability to generate sales of our innovative new products, success of our expansion efforts in Europe, and the ability to leverage our distribution channels that could cause actual results to differ materially from these forward-looking statements and projections. Risk factors that could cause PcTel's actual results to differ materially from its projections are discussed in the earnings press release, which was issued today and the company's annual report on Form 10-K. The company assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. Additionally, our commentary will include reference to the following non-GAAP measures, non-GAAP gross margin percentage, non-GAAP operating expense, non-GAAP earnings per share, and adjusted EBITDA. We believe these non-GAAP measures facilitate comparability of results over different periods. A full reconciliation of these non-GAAP measures to GAAP is included in our quarterly earnings press release that was issued earlier today. I'm now pleased to turn the call over to David Newman.
spk05: Thank you, Kevin. Good afternoon, and thank you for joining us. In today's call, we will provide a summary of our fourth quarter and fiscal year 2022 performance and share our outlook for the first quarter of 2023. We will also discuss our views on fiscal year 2023 and highlight our key priorities consistent with our three-pronged growth strategy. I'll begin with a few highlights, and then Kevin will discuss our financials in greater detail. Overall, we were pleased with our company's performance in 2022 as we delivered $99.4 million in revenue for the year, which is a 13.2% increase year over year. This success was driven by growth in our European antenna business and strong customer demand for our test and measurement products. The company also maintained strong gross margins of 46% for the year, supported by improving market conditions, continued execution, and financial discipline. Throughout the year, PCTel delivered on our commitments to our customers while providing a high level of customer service. I am particularly proud of our team as they continue to successfully navigate today's challenging operating environment, including inflationary pressures and supply chain disruptions, both of which have eased from peak levels. We have been extremely diligent in mitigating these challenges. While there continues to be headwinds in the broader macro environment, we have started to see a rebound in logistics and the supply chain, with availability of parts and transportation timeframes returning to near pre-pandemic levels. We provide our products to customers throughout the world, and we remain in close contact with our shippers and suppliers to assure on-time delivery of our products to our customers. Throughout the fourth quarter and year, our progress was driven by executing on our three core growth strategies. As a reminder, these include launching innovative wireless products, expanding and leveraging our distribution channels, and increasing market share by providing more components of the overall systems. We have made exciting strides through new product launches, new end market penetration, and leveraging our global distribution channels, all of which I will detail later in today's call. With that, I'll turn the call over to Kevin for a closer look at our fourth quarter and fiscal 2022 results. Kevin?
spk04: Thank you, David. During 2022, we developed many new products and further diversified our end market exposure. This led to double digits, top line growth, and significant improvement in the bottom line. Our teams are executing well, mitigating many of the headwinds our industry has faced, and we're pleased with the company's performance in the quarter and for the year. I would like now to detail our fourth quarter and fiscal 2022 results. For the fourth quarter of 2022, total revenues were $25.9 million, in line with our guidance range, and essentially flat compared to the fourth quarter of 2021. Revenues for antennas and industrial IoT devices was $16.4 million in the period, a decrease of roughly 14%, or $2.7 million compared to the fourth quarter of 2021, negatively impacted by higher customer inventory levels. Despite the year-over-year decline, we expect organic growth in the antenna segment. Test and measurement revenue is $9.9 million for the fourth quarter of 2022, 37.7% higher compared to the fourth quarter of 2021, primarily due to stronger sales for 5G products in the US. We delivered an all-time record revenue quarter for our test and measurement business, and ended fiscal 2022 with a strong backlog for 2023. Fourth quarter 2022 gross margin, gross profit margin on a non-GAAP basis was 50.6%, which exceeded our expectations and represents an increase of 400 basis points over the year-ago period. The increase in the gross profit margin was due to the larger mix of test and measurement products in the quarter compared to the fourth quarter of fiscal 2021. Non-GAAP gross profit margin for test and measurement products was 73.1%, a decline from 77.7% in the comparable prior year period. The decline in gross margin percentage was primarily due to a high mix of revenues from OEM customers and the impact of short-term increases in component costs. Non-GAAP gross profit margin for antennas and industrial IoT devices improved by 170 basis points in the fourth quarter of 2022 to 36.2%, primarily because of lower freight costs. Operating expenses on a non-GAAP basis were 10 million, an increase of approximately 100,000 compared to the fourth quarter of 2021. The year-over-year increase in non-GAAP operating expenses was the result of higher expenses for incentive compensation programs and employee severance expenses, offsetting lower product development expenses. Adjusted EBITDA increased by 21.7% to $3.7 million in Q4 2022 compared to $3.1 million in the year-ago period. Adjusted EBITDA as a percentage of revenue was 14.4% in Q4 2022 compared to 11.8% in Q4 2021. The improvement in adjusted EBITDA is primarily due to higher gross profits. These results demonstrate the operating leverage built into our business model as our revenues have outpaced overall operating expenses, despite continued inflationary challenges. Non-GAAP deleted earnings per share was $0.16 in the fourth quarter of 2022, higher by $0.04 compared to the fourth quarter of 2021. Now let's turn to our fiscal 2022 results. We're pleased to report that our total revenues were $99.4 million, an increase of 13.2% compared to $87.8 million in fiscal 2021. Revenue for antennas and industrial IoT devices was $69.7 million in the period, an increase of roughly 10.5% compared to fiscal 2021, driven by persistent strength in the infrastructure, agriculture, and automotive market segments. We achieved record test and measurement revenues of $30.6 million for fiscal 2022, 18.9% higher compared to fiscal 2021, primarily due to stronger sales for 5G products for OEM customers. Fiscal 2022 gross profit margin on a non-GAAP basis was 46.3%, a 70 basis point decline from fiscal 2021. The decrease in fiscal 2022 non-GAAP gross profit margin was primarily due to less favorable customer and product mix within the product lines. Non-GAAP gross profit margin for antennas and industrial IoT devices in fiscal 2022 was 33.8%, a 60 basis point decrease from fiscal 2021. Non-GAAP gross profit margin for test and measurement was 74.3%, a 250 basis point decrease compared to fiscal 2021. The decline in gross margin percentage for the year was also primarily due to a high mix of revenues from OEM customers and the impact of short-term increases in component costs. Non-GAAP operating expenses for fiscal 2022 were $38.1 million, an increase of $2.2 million compared to fiscal 2021. The year-over-year increase was due to a full year of expenses for smart tech, as well as higher expenses for incentive compensation programs, employee severance expenses, and travel expenses, offsetting lower product development expenses. Adjusted EBITDA increased by 26.8% to 10.7 million in fiscal 2022, compared to 8.5 million in the year-ago period. Adjusted EBITDA as a percentage of revenue was 10.8% in fiscal 2022, compared to 9.6% in fiscal 2021. Higher operating income from higher revenues contributed to the improvement in adjusted EBITDA. Non-GAAP diluted earnings per share was 41 cents in fiscal 2022, first $0.27 in fiscal 2021. Cash and investments were $30 million as of December 31, 2022, a decrease of approximately $0.8 million compared to December 31, 2021. While we generated strong EBITDA in 2022, we used working capital for inventories in both product lines, and we paid our quarterly dividends. We closely monitor our inventory levels and are taking the necessary actions to ensure that we're not hampered by supply chain constraints and are well-positioned to continue on-time deliveries for our customers. Although we have decided to make investments to maintain higher than normal inventory levels, we've been experiencing a modest normalization in our supply chains, particularly in logistics, and we expect that normalization to continue in the coming quarters, which may allow us to ease the inventory levels. Turning to our first quarter 2023 outlook, we expect to achieve revenues in the range of $22 million to $23 million. Based on our anticipated product mix, we expect our non-GAAP gross profit margin percentage to be in the range of 47% to 48%, and we expect our non-GAAP earnings per share to be in the range of $0.05 to $0.07. We continue to see significant opportunities for our products in the markets we serve and are excited about our progress in growing our European market presence. Although there is an uncertainty around the global operating environment in 2023, we're confident in our ability to grow our product offerings and ensure we use the cash generated by the business in a creative and value-enhancing ways for our shareholders. With that, I will now turn the call back to David.
spk05: Thank you, Kevin. Now I would like to provide an update on our growth strategies, which have been the cornerstone for PcTel success, launching innovative wireless products expanding and leveraging distribution channels, and increasing market share by providing more components of the overall systems. I will begin with our first strategy of launching innovative products. Our product suite presently includes wireless IoT devices, antennas, and RF test and measurement equipment used across a variety of wireless technologies, including 5G, Wi-Fi 6E, P25, LoRa, and others. Over the course of 2022, we launched many exciting products to further build out our portfolio and diversify our offerings. Most notably, our G Flex scanning receivers announced in September 2021 were delivered in quantity beginning in early 2022. The demand for this product has been strong due to its support for the deployment of 5G wireless networks. In June 2022, we received multimillion-dollar orders from major OEM customers for our best-in-class 5G scanning receivers required for network rollouts, validation, and benchmarking. These scanning receivers are capable of measuring 4G and 5G networks across all licensed bands using only one unit to measure low, medium, and high, or millimeter wave, frequency bands. These scanning receivers and feature iterations will be used in cellular public safety and federal government testing applications that require portability, ability to scale, and advanced features like baseband-level data collection. We were also pleased to expand our test and measurement product offering the release of the Seahawk Monitor in August 2022. This product automatically monitors spectrum for P25 public safety radio and other critical communication networks. Its capabilities include continuous monitoring of spectrum for noise interference, detailed spectrum analysis in real-time or event replay modes, and automatic testing of the uplink signal during in-building coverage testing. For our antenna portfolio, the CMTA antenna product line, launched in June of 2022, is designed for hazardous environments and supports 10-in-1 multiband configurations for rail applications. This antenna portfolio enables the connectivity necessary for rail networks to identify where rail support vehicles are on the tracks, ensuring that they stay within their designated track. We also launched the new Medallion low-profile 5G antenna platform for industrial IoT applications, and in September, we launched the Multicent 7-in-1 antenna, which offers robust RF performance and flexibility in a low-profile shark fin design. Also in 2022, we received FCC regulatory certification for a rugged industrial IoT radio module with industry-leading performance to increase efficiency and reliability. In summary, we were very busy in 2022 with new product launches, showcasing our commitment to both innovation and the evolution of our product lines. As Kevin previously mentioned, we enjoyed record revenue for our test and measurement product line in the fourth quarter, and entered 2023 with our strongest backlog to date. We just concluded the first full year of sales for the GFlex scanning receiver with great success. Seahawk Central, which is our cloud-based data management product, has gained traction as a standard cloud-based platform to manage, report, and store in-building P25 collection data for the entire public safety network. The Seahawk Monitor previously mentioned which is our fixed scanner product, also continues to enjoy notable momentum with numerous product trials underway and our first order from an operator in Canada. With respect to antennas, we have witnessed continued momentum in the rail, agriculture, utilities, logistics, and vehicular market segments. We have made great progress providing our ruggedized IoT devices in off-road applications and for rail antenna networks. Railways are transitioning to cellular networks and thus need to support 4G and 5G wireless networks for critical communications. As such, we will be providing our rail customers with our critical application antennas and test and measurement products to support this upcoming system-wide upgrade. We have also seen strong traction with antennas for electric vehicles, EV charging stations, and vehicle-specific applications worldwide, with a notable presence of PCTEL's EV antennas sold in European markets. We are well prepared to execute our exciting antenna opportunities with the support of our strong distribution channels. Moving to our second growth strategy, we continue to see expansion in our global sales channels. As mentioned earlier, we have a strong foundation in Europe with the automotive and electric vehicles markets. We are gaining traction in this industry and view it as an exciting opportunity to supply antennas for both the charging stations and vehicles themselves. Also as discussed, Last quarter, we have secured our first large European stocking distributor and added a new distribution sales leader to streamline and drive our European sales efforts. This leads us into our third core growth strategy of increasing market share with existing customers by providing integrated solutions. We continue to see unique industrial IoT sensor, radio, and antenna opportunities for critical communication applications across various end markets such as agriculture, heavy machinery, and mining. We are supporting multiple trials in these markets to support ruggedized and reliable wireless connections in harsh environments. These three growth strategies that we have reviewed today continue to serve as PCTL's foundation for growth and expansion. Before I turn today's call to the operator for questions, I will make a few closing remarks. Our strategic priority for 2023 is growth. We have one of the strongest antenna, IoT device, and test and measurement portfolios in the industry. We'll continue to make investments in new products and leverage our sales reach globally through selected distributors and resellers to grow organically and capture a greater share of the market focusing on critical communications. Our strong balance sheet also supports inorganic growth as we evaluate strategic acquisitions to expand our presence in the U.S. and Europe. We remain confident in our ability to execute on our core three-pronged growth strategies, delivering best-in-class products and customer service, and drive shareholder value as we progress into an exciting 2023. We are well prepared to succeed, even in a challenging economic environment, and look forward to continuing growth for PCTel. With that, Kevin and I are available to take questions. Operator?
spk02: At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
spk01: Once again, that's star one if you have a question or a comment.
spk02: First question comes from Jason Schmidt with Lake Street. Please proceed.
spk03: Hey, guys. Thanks for taking my questions, and congrats on a strong finish to the year. You know, I want to start with your comments on the supply chain. I know you mentioned some of the trade and logistics dynamics easing. Are you also seeing an easing in component sourcing as well?
spk05: Yeah, so supply chain impacts us and customers. So I think we've done a good job, and I'm talking specifically on the antennas. We've done a good job trying to get ahead of this and building some safety stock in our high runners to make sure we have products to get to customers. And at the same time, I think over the last couple of years, our Our customers have built a little bit of stock as well to make sure that they had product. So on getting components for the PC-TEL products and getting them to customers, I think we're in pretty good shape. The challenge, or I guess the second half of the challenge that we see is our antennas are part of a larger system. And there are still constraints with chips and other components for the end customers. And some of those components for their systems have been delayed. Gray market is getting more expensive in some cases. And we've seen some shift of deliveries of antennas, even though we can build them and ship them, some delivery requests to delay those until the customer gets the rest of their systems. So I think there's two... areas we'll work on throughout the rest of the year. One is working on getting our inventories down on the antenna side because we are able to get the components, logistics are improving. But we're also going to have to be a bit patient with end customers. Typically in a year, our revenue is more weighted to the second half of the year. I think it will probably be the same this year. So we see a bit of a shift. But I think as Kevin mentioned in his comments, you know, we do expect to see a year-over-year growth.
spk03: Okay. No, that's really helpful, Collar. And then just following up on that, I mean, do you think customers are sitting on significant antenna inventory that they need to work through or is just kind of normal course of business given the supply chain backdrop that we've been dealing with over the past couple of quarters?
spk05: I think it's a mix across customers, and we have more visibility with some customers than others. So we can infer that they have more inventory than maybe they should by just their historical order rates. So I think we do see that there is a bit of inventory that has to be worked through, but it's not across all customers.
spk03: Okay. Yeah. And you guys have seen a great traction in the EV and EV charging station market. Just curious if you think most of that momentum is just being driven by the growth of that space, or are you guys taking share there? And I guess, relatedly, I know it's coming from a smaller base, but should we expect revenue from those applications to outpace overall antenna growth?
spk05: I don't know, the antenna space is pretty large. But with the EV charging stations, and I would even go as far as EV cars or electric vehicles, the team and the smart tech acquisition that we did, we're going almost on two years, that team did a great job getting into EV charging space in the Nordic countries. So they have established markets there, and many of those vendors that are developing those systems for the Nordic countries and for Europe are some of the same vendors that are developing them for the U.S. market. So over the last year or so, we spent quite a bit of time working on – product portfolios from pctel that would be very applicable in europe that we could sell through the smart tech team and vice versa smart tech antennas and products that we could sell in the us and the ev spaces is definitely an exciting area but with that like like any product it has to go through introduction trials before you see it at the end market I think it's going to be a contributor for sure in growth in the antenna space. I don't necessarily think it'll outpace some of the other areas. We're very strong in agriculture, very strong now in key space and public safety, but I think it could be one of the top drivers.
spk03: Okay. And then just the last one from me, and I'll jump back into Q, sort of going off that last comment. When you look at this year, what end market do you feel most confident about, and what end market presents the largest risk here?
spk05: That's a good question, Jason. I think the market that we feel most comfortable in is probably agriculture. Historically, we've been strong in that. that space for the last couple of years. Some of the forecasts for this year are just as strong. IoT space, not only the antennas, but also the IoT devices, I think will be an emerging market for us on the antenna front. We've got a couple of interesting trials going on that should produce some early wins. That's interesting. Another area that find very exciting on the test and measurement side is public safety. We've been in that space doing the in-building data collection for a couple years now. But now we have the Seahawk Central, which is our cloud-based SAS system for our SAS product for collecting and providing the reports. And then we've just launched the monitor product for public safety. So now we have a portfolio of products for public safety, and we're definitely in the number one spot there. You know, the area that's most challenging, I would say probably in the enterprise space. That seems to be more competitive. I think the ODMs are playing a bigger role in there, in that market. So if we had a challenge, I think that would be it.
spk03: Okay, got it. Really appreciate all the color. Thanks, guys. Thanks, Jason. Thanks, Jason.
spk02: If there are any remaining questions, please indicate so now by pressing star one on your touch tone phone. Once again, that's star one if you have a question or comment.
spk01: We appear to have no further questions in queue.
spk02: I'd now like to turn the call back over to management for any closing remarks.
spk05: Thank you, operator, and thank you all for joining us this afternoon. We're grateful for the dedicated team we have in place, which has been supporting our customers through these challenging environments. We look forward to growing our business through 2023. I would like to thank you for your support of PCTel, and also thank you for your time this afternoon. Thanks.
spk02: Thank you for joining us today for PCTel's fourth quarter and fiscal year 2022 earnings call. You may now disconnect your lines.
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