Airgain Inc Q1 FY2022 Earnings Call

Good afternoon. Welcome to Airgain's First Quarter 2022 Earnings Conference Call. My name is Karen, and I will be your coordinator for today's call. Joining us for today's call are Airgain's CEO, Jacob Suen; Senior Vice President of Product and Marketing, Morad Sbahi; and Vice President of Operations, Victor Blair. As a reminder, this call will be recorded and made available for replay via a link found in the Investor Relations section of Airgain's website at www.airgain.com. Following management's prepared remarks, the call will be opened up for questions from Airgain's publishing sell-side analysts. I caution listeners that during this call, Airgain management will be making forward-looking statements about future events and Airgain's business strategy and future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in today's earnings release and Airgain's SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 10, 2022. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call may include a discussion of non-GAAP financial measures. Please see today's earnings release for further details, including a reconciliation of the GAAP to non-GAAP results. Now I'd like to turn the call over to our CEO, Jacob Suen. Jacob?

Thank you, operator. Welcome, everyone, and thank you for joining us on the call today. I'll start with some commentary about our Q1 highlights and financial results. Then our Senior Vice President of Product and Marketing, Morad Sbahi will provide an update on our product and marketing initiatives. Afterwards, our Vice President of Operations, Victor Blair will provide an update on our key operational initiatives. Airgain's mission to connect the world to optimized integrated wireless solutions is building momentum, demonstrated by the 24% sequential top line growth we delivered in Q1. This robust growth was a result of successful initiatives in penetrating the connectivity market by providing high-quality products and solutions to the enterprise, automotive, and consumer markets. For those newer to our company, the consumer market encompasses a large growing number of consumers using wireless-enabled devices, including wireless gateways, smart home devices and more, while utilizing technologies like Wi-Fi, LTE, 5G, and LPWAN. The enterprise market is characterized by providing solutions for reliable wireless connectivity in dense environments such as buildings, stadiums, and transportation terminals. In the automotive market, our products are deployed in a wide range of vehicles to support a variety of wireless connectivity solutions in the fleet and automotive aftermarket segments. Historically, the consumer market was the foundational pillar of our model. Today, we see the largest and fastest growing opportunities in the automotive and enterprise markets. Demand for greater wireless connectivity across fleets is increasing, causing end users, software and hardware partners, carriers, and integrators to turn to Airgain's solutions. Additionally, the expanding IoT use cases across various industries, including asset tracking, logistics, packaging, and supply chain management, is creating significant demand for our NimbeLink IoT solutions. Along that line, the partnership we formed with Cloudleaf, a SaaS-based digital supply chain platform in January exemplified our gentle integration of existing solutions. NimbeLink asset trackers now assist Cloudleaf's comprehensive supply chain SaaS platform by providing location and conditional monitoring of critical components in Cloudleaf's customers' supply mechanisms. Our many partnerships over the previous quarters saw the successful ecosystem we're building to meet the needs of our growing, growth-oriented markets. Our recently announced collaboration with Mobix Labs highlights how Airgain's expertise in 5G millimeter wave and C-band applications can provide lasting future-proof 5G technology to meet market demand and bolster our vertical markets. In addition, several of our major wins show the growth in market demand for the products we are building. This includes a recent win with a major U.S.-based water utility company that selected AirgainConnect AC-HPUE to improve the connectivity of its fleet. The deployment of AirgainConnect will enable optimum connectivity for their fleet even in the most remote environments. And the first 3,000 units will be fully deployed by the end of 2022. This customer win is significant not only because of its volume, but the fact that we're seeing sizable new market opportunities for AirgainConnect beyond the first responder market. To meet the growing demand for advanced connectivity, Airgain launched the Multimax 5G, a high-performance antenna platform created for 5G connectivity in fleet, industrial IoT, and public safety applications. With the introduction of so many new 5G vehicle orders in the market, it was critical for us to provide flexibility to our customers to get the most out of the growing 5G suite of products we offer. The growing partnerships and customer wins not only reflect the increasing demand for Airgain's innovative technology, but also our world-class global team, who is committed to realizing our company's vision in scaling our business. Our search for our next CFO is progressing and being led by the National Executive search firm. We are being patient to find the right CFO to build on our solid foundation and take us to the next level of growth and profitability. On that note, I'll discuss our financial results for the first quarter ended March 31, 2022. Revenue increased 24% sequentially to $17.5 million, up from $14.1 million in Q4 of 2021. Beginning with our consumer revenue, Q1 finished at $6.1 million, up from $2.5 million in Q4 of 2021. The growth in consumer revenue was due to continued easing of global supply shortages. Enterprise revenue increased from $8.1 million in Q4 of 2021 to $8.6 million in Q1 of 2022. The growth in enterprise revenue was mainly due to higher revenue generated from the enterprise Wi-Fi access point products. Automotive sales declined from $3.5 million in Q4 of 2021 to $2.8 million in Q1 of 2022, primarily due to lower sales from AirgainConnect products as we worked on product enhancements that resulted in fewer shipments during the quarter. These enhancements have now been completed. Overall, the market demand for AirgainConnect AC-HPUE continues to improve, and the backlog for the product has grown substantially since the beginning of the year. This positive momentum is expected to continue through 2022 and beyond. Our non-GAAP gross margin was strong at 41.4%, while exceeding our previous guidance range for Q1. The substantial improvement in gross margin was primarily due to the favorable sales mix in the quarter, including increased sales of consumer products, which yield a higher gross margin and lower materials and other production-related costs. Non-GAAP operating expense of $7.7 million was slightly above our guidance range, mainly due to higher-than-anticipated professional fees. Non-GAAP net loss in Q1 was $431,000 and our non-GAAP loss per share was $0.04. Both represent substantial improvements from the prior quarter. Adjusted EBITDA was negative $263,000 in Q1, an improvement from our guidance range and an improvement from negative $2.1 million in Q4 of 2021. Finally, our balance sheet remains strong with cash, cash equivalents, and restricted cash at quarter end of $18.8 million. NimbeLink exceeded the earn-out financial performance metrics for 2021, and we paid $8 million in earn-out plus $570,000 in holdback. Post-earn-out payment, we will have approximately $9 million in cash and $4 million in credit facility. Now I would like to provide a preliminary outlook for the second quarter ending June 30, 2022. In Q2, we expect sales to be in the range of $18.5 to $20 million or $19.25 million at the midpoint of the range. Our billings and backlog are currently tracking over our projected target for revenues in Q2. Looking ahead, deeper into 2022, we believe the growth from enterprise and automotive markets will outpace that of the consumer segment moving forward. The consumer market will remain a healthy business for Airgain, but will represent an increasingly smaller percent of the total revenue because of broader growth in the other two markets. We expect non-GAAP gross margin for the second quarter to be in the range of 38.5% to 42.5%. We expect Q2 non-GAAP operating expense will be about $7.7 million, plus or minus $200,000. Non-GAAP net income per share for Q2 is expected to be $0.01 at the midpoint. Adjusted EBITDA is expected to be $260,000 at the midpoint. Now I would like to turn the call over to Morad, who will walk us through our sales and marketing initiatives for 2022. Morad?

Thanks, Jacob. Our sales and marketing teams created an efficient and comprehensive and flexible framework to further penetrate our core growth markets. We internally call the framework the 3 Es, which are evolution, ecosystem, and expansion. The evolution pillar represents our current list of products as well as new versions of those products and subsequently the wins associated with those offerings. The win that Jacob referenced with the major utility company to deploy AirgainConnect products at a large scale represents a solid example of how our products evolve and improve based on customer feedback and data from the field. The next E is ecosystem, which focuses on the partnerships we're forming with leading software developers, component and device manufacturers, channel partners, and carriers. Generally, there are two types of partners, namely partners that we sell to and partners that we sell with. The sell-to partners are those we sell our products and solutions directly to. A good example of this is Axon, the leader in connected public safety technologies. Airgain designs and builds a range of small form factor and high-performance antennas for use in Axon solutions, which are primarily used in first responder vehicles. Another example is our work with Cloudleaf, a SaaS-based digital supply chain platform. Cloudleaf's platform leverages supply chain, edge, IoT, and contextual data to provide one of the world's leading end-to-end supply chain digital twin solutions to manage risk and volatility in product flows. Cloudleaf is partnering with Airgain to utilize our asset trackers to monitor not only location, but environmental conditions such as temperature, humidity, motion, and more to increase the quantity and the quality of data inputs on their operations platform. Our sell-with partnerships represent joint selling opportunities where Airgain goes to market with the partner. A prime example of this is Airgain's antenna solution set for Cradlepoint routers and gateways. Cradlepoint has an extensive portfolio of enterprise-class wireless routers and adapters, and their solutions span branch connectivity, IoT, and mobile in-vehicle networks. Airgain provides the high-performance antennas it recommends for Cradlepoint. Simply put, we are able to couple our products with existing systems which lead not only to joint sales opportunities, but also lead-sharing agreements. We frequently receive requests for these arrangements for our asset trackers, aftermarket antennas, and with our AirgainConnect products. In addition, there is a growing opportunity for these types of partnerships with our embedded products. The final E of our framework is expansion, representing our development of future technology. The Mobix Labs collaboration is a great example. The collaboration is intended to provide new growth opportunities for both companies as the combined solution would serve multiple industries such as consumer electronics, infrastructure, automotive, and IoT, combining Airgain's expertise in 5G systems and Mobix Lab's expertise in system-on-chip design. The collaboration will focus on the development of products designed to significantly reduce the cost of ownership and provide solutions in 5G coverage gaps among carriers that fall within the high-band millimeter wave and C-band operating frequencies. With the third E expansion, we are establishing Airgain technology leadership in the space of advanced developments and leading-edge connectivity. Looking ahead, that's exactly where Airgain is positioned as the company becomes synonymous with the concept of wireless technology leadership. In recognition of our advancements, over the quarter, we were honored to receive the Andrew Seybold Award for technology innovation by the Public Safety Broadband Technology Association. This illustrated our dedication to producing and providing technology for customers that has a lasting and multifaceted use case value. Looking ahead, our product suite is aligned with the expanding demand from our markets and customers. In addition, we are focused on leveraging Airgain's proven expertise in radio frequency to help build world-class hardware coupled with software solutions that often run across multiple product lines. To deliver on our strategies, we've added four positions in marketing in just the past 45 days. The sales and marketing teams will continue to work to engage customers on all the incredible advancements our products and engineering teams have accomplished.

Thanks, Morad. As Jacob alluded to, Airgain's operations team has fully implemented strategies to maintain and grow the gross margins across the breadth of the Airgain product offering. The company's gross margin performance in Q1 is solid evidence that the execution of the various programs we have put in place are delivering the expected outcomes. Macroeconomic headwinds still affect the world economy as we see manufacturing shutdowns in various provinces of China. Despite this, we were able to both mitigate and overcome this issue with our implemented manufacturing redundancy strategy with the express goal to reduce the risk factors of the supply constraints. With the closing of our manufacturing plant in Arizona and the addition of two manufacturers, we now have eight independent contract manufacturers, two in Vietnam, two in China, and four in North America. The consumer embedded components and modules are manufactured in Vietnam and China; meanwhile, the integrated and Antennas Plus products are manufactured in Vietnam and North America. I am pleased to announce that Airgain is now 100% fabless. Taking this step has given Airgain greater scalability while mitigating risks surrounding manufacturing halts in countries and municipalities where governments and markets are subject to different fluctuating macroeconomic forces. Additionally, to mitigate the effects of widespread supply shortages, we've selectively built and purchased inventory in advance. That, along with flexible product designs to align with material availability, has properly positioned Airgain to efficiently and productively manufacture and ship products on foreseeable timelines to greater match demand.

Thanks, Vic. The theme for this year is execution. Our global team is laser-focused on executing our strategic roadmap, which is designed to scale Airgain to the next level of growth and profitability. As you can see from our Q1 numbers, our strategy is working. We have discussed the big wins that demonstrated the demand for our current products. We have touched on the many partnerships and paths we will take for future collaborations. We also share our vision for advanced development that will carry us into the future. Moreover, our focus on driving profitable growth, optimizing our cost structure, and realizing organizational efficiencies give us confidence in our ability to generate cash going forward. We are being mindful of risks associated with various macroeconomic factors; we expect sequential growth throughout 2022. Our outlook for growth is supported by the strong tailwinds in our end markets and our confidence in our team's ability to capitalize on the demand for Airgain's advanced wireless technologies. And with that, we are ready to open the call for your questions. Operator, please provide the appropriate instructions.

The floor is now open for questions. We'll take our first question today from Scott Searle with ROTH Capital.

Jacob, congratulations nice job on a difficult operating environment, particularly on the Wi-Fi supply chain.

Thank you, Scott.

Maybe to start on Wi-Fi. I'm wondering if you could talk a little bit about the supply chain. Give us an update in terms of your visibility, what you're seeing the backlog on that front because it sounds like your backlog has been building. And in the past, you ran that business, at least on the consumer Wi-Fi front, a $8 million to $10 million a quarter. Is that something that's achievable and you have visibility to over the next couple of quarters? Or is it going to take a little bit longer on that front?

Yes. So certainly, as you can see in Q1, a nice recovery in the consumer side. So as we indicated, we went from $2.5 million in Q4 to $6.1 million in Q1. We do expect that trend to continue. How quickly can we get back to normality? We don't have the insight yet. As you can tell, the pandemic is still impacting China, as an example, right? You're still seeing unexpected shutdowns by the Chinese government on certain cities periodically, and that's creating the kind of uncertainty we will not be able to tell you. But we do feel strongly that it's trending up well, and we expect the recovery to happen over time.

Okay. Maybe real quickly to just hit on NimbeLink. I'm not sure if you kind of broke it down in the quarter, but if you could give us some guideposts in terms of how much it was up sequentially. Did you leave revenue on the table as it relates to NimbeLink, kind of similar supply chain issues on the cellular front? And what the outlook is for the remainder of this year? That's certainly been a supply constraint in the area, but it looks like things are starting to improve on that front.

Yes. I mean, we don't give the specifics, although I think the indication that we already gave is the fact that we paid the earnout, and they actually exceeded the number that we have agreed to for the earnout. So we're very pleased with the performance, and we also feel strongly about this year. We really got very strong backlog support. And you're absolutely right, the hindrance is about how do we overcome some of these supply shortages. Although our team, engineering and operations have done tremendous work to mitigate that, such as doing some redesigning to accommodate multiple chipsets instead of being single-sourced. We're also creating redundancy among the different contract manufacturers we now have. So we feel strongly about the outlook for the IoT products, although as you indicated, I think that we could have done even better if not for some of these supply constraints. And this is going to continue, I would think, throughout the year. But we feel strongly that with the team on hand, we're going to be able to overcome that.

And lastly, if I could, you talked a little bit more about some of the opportunities in millimeter wave. You referenced Mobix today in that relationship. But also on your website, you started to talk about other opportunities, not just with 5G and things like C-band and the mid-band, but 60 gigahertz and 802.11ad. I was wondering now that you're becoming a little bit more public in these moves out of stealth operations, when do these opportunities start to contribute? And do they become meaningful in 2023? Thanks and congrats again.

Maybe I'll start and then I'll turn it over to Morad. Certainly, we are very excited about the partnership with Mobix Labs, right? They are one of the well-recognized players when it comes to 5G. The partnership is really not only on the millimeter wave, but for the C-band. It's our reinforcement about our commitment to 5G. I'm going to have Morad speak to the opportunities that it could project.

Scott, hope you're doing well. To give you a little bit more color on our partnership with Mobix Labs, which is something that we're really excited about. What that partnership does for us, and if you see the evolution where our consumer business is heading, you can see that there are two things that are happening. The technology roadmap is moving forward, and I'm talking here about LTE to 5G, millimeter wave. Also, Airgain is becoming more of a systems company where we are selling systems. What that does for us is that it gives us access to be able to continue to provide that relevance to our customers, those that want to buy just the components from us or those that want to buy systems from us. One can expect Airgain, being a CPE company, to ensure that the signal strength coming into the consumer home is optimized and allows you to carry the maximum data rate. In terms of how that's going to play out, obviously, everybody knows that millimeter wave got a little bit ahead of itself, let's say, two or three years ago. Now there's a lot of focus in C-band. Our strategy is to continue to drive the roadmap, perhaps more closely in C-band. Soon after that, we will have that opportunity to transition to millimeter wave when it starts to gather steam. As you know, with millimeter wave, we have the volumes and the relevance that Airgain has that should materialize in a significant market for us.

Yes. To finish up your question, we do not expect revenue from this partnership in 2022, although we expect some of the product we will be able to demonstrate, hopefully, come early 2023.

We'll take our next question from Alex Vecchi with William Blair.

This is Sabrina on for Alex. Last quarter, you mentioned bringing gross margin back to the 40% range this year and achieved 41.4% this quarter. Can you talk about or provide any additional detail here maybe by end market growth and how to think about that going forward for the remainder of this year?

Good to hear from you, Sabrina. I'll start, and then I may turn it over to Vic to talk more about his teams, some of his team's work to be able to achieve the gross margin. Certainly, we are also pleasantly surprised to see that; we thought we were going to be able to come close to fully... we were pleasantly surprised that we have actually been able to exceed that at 41.4% for Q1. It's a number of things. Certainly, the favorable sales mix. As you know, our consumer business always has a higher gross margin, and we were able to achieve a higher expected revenue stream from the consumer business in Q1, which helps. But it's also a number of other things. It's the way we're managing our logistics, the redundancy, and even how we work around the tariffs; all of that really contributes to the overall gross margin improvement. I'm going to turn it over to Vic to elaborate further.

Thanks for the question, Sabrina. Jacob did hit on some of the highlights of it. In the reconfiguration of fabless, we've had a real decrease in our cost of logistics. We've been able to eliminate the tariffs, and we've really gone through a lot of redesign on cost initiatives to make sure that we have the appropriate configurations of parts on the printed circuit board, which also eliminated some of the component restraints that helped us to avoid any of the purchase price variances that were occurring in the markets. That really gave us a very sustainable model for Q2, and we expect it to continue.

That's really helpful. I saw the announcement of the auditor change for this year. Can you provide any insight into the motivation there? Any commentary about the change?

Well, yes, I mean we really appreciate KPMG has been helping us throughout the years. But as you know, they started having some resource constraints because of what's out there, and also as a result of that, they also expressed the need to raise more fees. You saw one of the issues we identified in Q1 was the excess of professional fees. This is one of the efforts we're making to go ahead and make the change to a very reputable company, Grant Thornton, that will help us moving forward.

For our next question, we'll turn to Anthony Stoss with Craig-Hallum.

Nice execution and really strong guide, Jacob. A couple of questions. I just wanted to hone in on a statement in the press release talking about on the AirgainConnect side that it was down sequentially as you work on product enhancements. I'm curious what that is. And then also, I'd love to hear more in addition to the water utility AirgainConnect win, kind of thoughts on additional launches perhaps in the second half of the year? And then I had follow-ups after that.

Okay. Great questions, Tony. I'm going to start, and then I'm going to turn it over to Vic to talk a little bit more about the enhancements and certainly to more like to talk about the product side and regarding the utility opportunity. So certainly, just overall, I want to share with you that we are seeing a strong demand for AirgainConnect. The trials we've gone through and the much greater footprint now we have are showing that we're recognizing some of the enhancements we will need to perform, and Vic will elaborate further. But that's all behind us. We actually were able to make some enhancements. We're actually going to provide an enhancement kit to customers who would have a need. Overall, the AirgainConnect demand is increasing. I can add even a little bit more color: the backlog is doubling since the beginning of the year. With that being said, I'm going to turn it over to Vic to talk a little bit about some of the enhancement specifics and then more on what utility opportunity.

Thanks for the question, Anthony. The whole purpose of our reset was due to the fact that we wanted to maximize the customer experience on AirgainConnect. We wanted to be absolutely certain that we could increase the performance to the level of expectations required with the product. Specifically, we looked at the performance of the interaction between the Ethernet injector and the modem, and we were able to reset that into a configuration that maximizes the output of our AC-HPUE.

Yes. So Anthony, yes, just to give some color. Jacob talked about how the pipeline has doubled for AirgainConnect. What I can tell you that's actually more interesting than the fact that the pipeline has doubled is the quality of that pipeline. The opportunity that we've announced with this major utility company is one of many opportunities of similar size and quality that we are starting to see in the pipeline. This is very exciting because now that means that AirgainConnect is in that upswing momentum where it's going to give us those type of size opportunities that we like, those that are urban, large in size, with the visibility and stickiness to make this a very successful product line for us.

I'm curious. Have you signed additional deals? You just can't announce them yet? Or do you expect those launches sometime this year?

I can't talk about what's in there in terms of deals. Obviously, if we have them and we secure deals, we would be sure to do the maximum to make sure that we have a press release behind that. But all I can tell you right now is that the health of the pipeline is looking very good, and the engagements that we have today are very promising.

Got it. And then last question for me on growth rates going forward. I know you guys talked about enterprise and auto expected to grow the fastest. Would you say that the IoT business is growing ultimately the fastest? Or is it Wi-Fi? Or kind of if you could break out your thoughts on growth rates, that would be helpful.

Yes. As I mentioned in the earnings script, the consumer segment appears to be stable, so it's not going to grow as quickly as the other two markets. In the enterprise sector, which includes IoT and automotive, I believe we have significant opportunities in both areas. On the IoT side, it's more about how quickly we can develop the products, as the market demand is present. Similarly, we are experiencing positive trends in the automotive market. In addition to AirgainConnect, we have also begun to see strong interest in traditional Antenna Plus aftermarket products. We expect substantial growth in this area throughout the year. While I can't predict which sector will grow faster, I feel optimistic about both.

We'll take our next question from Craig Ellis with B. Riley Securities.

Yes, congratulations on the progress, team. I wanted to start clarifying some comments around consumer. Clearly, consumer has rebounded off severely restrained levels. The question is this, Jacob, as you look at the business returning to 'normal', is normal the $10-ish million a quarter levels that we would have seen at times in the past? Or just given the current environment, would it be something lower than that, maybe 7% to 9%? Or for whatever reason, do you actually see it going into the low double digits or better than that?

Yes, we believe there is a possibility of returning to normal. We definitely think it can happen. The specific number is uncertain, but historically, we've seen fluctuations in a seasonal range of about $8 million to $11 million, or even $8 million to $12 million. We expect to return to that range, though it will take some time. As I mentioned earlier, we are still facing headwinds due to the overall supply shortage. Our dependency on external partners in the consumer market is quite high. It’s important to note that we do not have product shortages on our end; we can produce our products. The challenge lies with our partners and the essential components for our antennas that go into gateways or set-top boxes. These missing elements are causing delays. Consequently, there are many uncertainties that we can't forecast accurately, and it will take some time given the current macroeconomic conditions.

Yes, that's understandable. There's just so many components on a set-top box system board. The next question and issue I wanted to dig into was AirgainConnect. Just great to see the utility win; very substantial. The question is this: If we estimate that that's worth about $3 million, given AirgainConnect ASPs, how much of that is included in the second quarter guide? And how should we think about the rev rec on the balance through calendar '22?

Yes. Great questions, Craig. We're also pleased to see that particular design win. I want to mention that this is only the first order from them. They actually have a nationwide utility company across many different states, and this was only the first order, and they have a lot more vehicles that could use AirgainConnect in the foreseeable future. With that being said, the other key point I want to reiterate is that this was actually not part of our SAM, the Subscriber Addressable Market that we've been telling the market, which is the first responders, which is actually $500 million plus for us. So this is in addition to that. Now how is this year going to play out? Certainly, not all of these are going to be shipping in the second quarter. It's going to be shipped throughout the year for this utility purchase order that we mentioned. We do have other opportunities, other wins that should produce revenue streams for the rest of the year. Looking into the opportunity funnel, we're seeing every one of them is increasing. The promotions that AT&T continues to put forth are also making all of us feel confident about the future for AirgainConnect. We're at the cusp of that growth going forward.

So are you saying you would expect AirgainConnect revenues to grow sequentially through the year? Jacob, was that the message you were conveying there?

Yes.

Got it. Okay. Moving on to NimbeLink, and I wanted to ask a revenue and gross margin question because they're related. As we saw, the business performed exceptionally well last year; we also saw that it was one that had an adverse gross margin mix impact. The question is this: I wasn't clear if NimbeLink actually rose or declined in the first quarter. Can you clarify that? Then, given that it was previously very significantly below corporate gross margin average, are there things that have been done operationally to get that margin back to corporate average, or do we still have ways to go before that business would be at low to mid-40s gross margin?

Yes. Great questions again, Craig. So let me try to make sure I answer both of them correctly. First question regarding the demand for the IoT product. Am I correct? Yes, the revenue for Q1 versus Q4 was steady to slightly increase. Some of it was because we actually got more demand, and some of it was going to ship because of some unexpected shutdowns in Asia, right? But as I indicated, we actually have backlog even throughout the rest of the year, and they're looking really strong. It's more about can we build and make sure we can meet the demand? Some of the last-minute chipset shortage issues are creating some issues for us. We're going to continue to see that. But as I indicated, as Vic alluded to earlier, we are now creating different designs to mitigate the risk. So we feel good about the growth of the IoT products. Your second question was about the gross margin. When we acquired NimbeLink, we already knew that was an issue. But quarter-after-quarter, we continue to execute. I want to complement our operations team; they really stepped up in looking into different avenues. If you think about our average, I would say we have increased from what they had previously substantially. I won't be able to give you the specifics, but I do think that we have a path to be above the 40% range. They're not the ones at the IoT; they are different product lines, some are actually looking really good, and certain ones, not as good, but we are working our ways to address that. Overall, the IoT is looking pretty good.

We'll take our next question from Tim Savageaux with Northland Capital Markets.

Congratulations on a solid report and positive outlook. I wanted to follow up on the factors driving your guidance for strong sequential growth. Initially, it appeared your comments suggested that you anticipate a continued recovery in consumer demand, potentially accounting for around half of that growth. Can you provide any insights on this, as well as the initial increase in AirgainConnect shipments in the utility sector? Considering these two aspects, would they represent the majority of the growth you expect to see in the midrange, or are there additional factors we should take into account?

Yes, Tim. I'd say, actually, there are a number of other growth areas. IoT is definitely a strong growth engine we would be counting on, as well as the aftermarket. Because we did a refresh on a lot of our products in the 5G side, we expect that growth to be happening as well. You're right about the consumer; I think it's going to be steady. It's going to take its course. We feel good that you're going to see improvement quarter after quarter until we get back to normality. That could be in another two or three quarters; we're going to see. We don't know that yet. As far as AirgainConnect, certainly, we see a bright future for that product. It took us a couple or three quarters more than we were hoping for, but it's now here for us to take advantage of. I indicated the IoT and the aftermarket are two of the key growth drivers for us in the foreseeable future.

Got it. Given the win that you're shipping this year in AirgainConnect and the potential for follow-ons with that customer, new wins, and more traction in the first responder market; is it possible that we see AirgainConnect revenue at or above 10% of total revenue for the year? And as a follow-on, what would be the margin implication to that?

Well, we certainly hope so; that’s what we're going to strive for. We feel there’s a really good chance we can exceed that. The gross margin is something we’re going to have to work on. One of the issues right now with AirgainConnect is the gross margin, because when we ship small volumes, the cost is high. But a couple of things that we are working on: One is what I indicated to you about scaling. The other thing is the fact that we transitioned that product now; we used to build it in-house, and now we transitioned it with the contract manufacturers. It's creating a lot of benefits from a quality supply chain perspective. We expect that under Vic and his team’s effort, we’re going to start to continue to see improvements from a gross margin perspective for AirgainConnect.

The other thing I would add, Tim, is that in the roadmap of AirgainConnect, just as you can imagine, with every product that you release, there will always be areas of cost optimization, and that's what Vic and his team have been doing for us the past 12 months. There are also product derivatives that are being planned to address markets that are very specific and also a redesign of the current platform that would allow us to get those margins much higher than where they are today.

At this time, this concludes our question-and-answer session. If your question was not taken, you may contact Airgain's Investor Relations at AIRG@gatewayir.com. I'd now like to turn the call back over to Mr. Suen for his closing remarks.

Thank you for joining us on today's call. We look forward to updating you on our next call. Operator?

Thank you for joining us today for Airgain's First Quarter 2022 Earnings Call. You may now disconnect, and have a great day.