Airgain Inc Q1 FY2025 Earnings Call

Good afternoon. Welcome to Airgain's First Quarter 2025 Conference Call. My name is Diego, and I'll be your operator for today's call. Joining us today are Airgain's President and CEO, Jacob Suen; and CFO, Michael Elbaz. 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 investors.airgain.com. Following management's prepared remarks, the call will be open for questions from Airgain's covering analysts. I caution listeners that during the call, Airgain's management will be making forward-looking statements about future events as well as 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 7, 2025. 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 will include a discussion of non-GAAP financial measures. Please see today's earnings release for further details, including a reconciliation of GAAP to non-GAAP results. Now, I'd like to turn the call over to Airgain's CEO, Jacob Suen. Jacob?

Good afternoon, and thank you all for joining us today. Airgain entered 2025 with strong momentum and a focused strategy. We are executing on the foundation we established last year and approaching this year as a time to scale Lighthouse in AirgainConnect and strengthen our presence in key global markets. Before discussing product-related details, I want to quickly address the broader macro environment and its potential effects on our business. Our standard customer terms, the flexibility of our fabless model, and tariff classifications for many of our products have not resulted in any significant impact on our product costs so far. However, we recognize that the tariff situation is changing, and we are ready to adapt swiftly to minimize any potential effects on our customers. We are closely watching the broadband and enterprise markets for any signs of demand disruptions. As of early May, we have noticed meaningful changes in customer purchasing behavior due to tariffs. Our model, supported by nine contract manufacturers across various regions, continues to provide operational strength. We have not experienced significant disruptions to date and are prepared to adjust as necessary. Importantly, our leadership team has successfully navigated similar challenges before, and we are using that experience to manage evolving conditions. Our transformation from a low ASP component supplier to a high-value wireless solutions provider is progressing well with platforms like Lighthouse and AirgainConnect. We are advancing in the value chain into higher-margin system-level solutions that tackle challenging connectivity issues like coverage, power, and deployment constraints. This shift from components to intelligent wireless systems has grown our addressable market from $1.1 billion in 2024 to $2.6 billion today, with continued growth anticipated as adoption increases. We have fundamentally redefined our business model, moving from sub-$5 embedded components to complete system solutions, Lighthouse, which have average selling prices exceeding $20,000. This strategy positions Airgain for not only top-line growth but also long-term gross margin improvement and enhanced operating leverage. As mentioned on our Q4 call, excess inventory has persisted in certain product areas, including IoT embedded modems, custom products, and aftermarket automotive antennas. We are seeing improvements on the IoT side with sales returning to more normal levels, but we expect it will take more time for inventory corrections in our aftermarket automotive channel. Looking ahead for the rest of the year, we expect to achieve sequential revenue growth driven by a recovery in the consumer and IoT markets and the transition of our Lighthouse and AirgainConnect platforms from trial to deployment, which will set the stage for broader commercial adoption in 2026. When we refer to Lighthouse and AirgainConnect as platforms, we mean they are not isolated products but scalable modular solution families. Each platform is tailored to support various use cases, deployment environments, and customer segments, with the flexibility to evolve to new SKUs, certifications, and geographic expansion. This platform-based strategy allows us to develop repeatable go-to-market models and maximize the value of our R&D investments over time. In Q1, we executed well across both of our primary growth areas. Let's start with Lighthouse. In January, we entered into a strategic and commercial agreement with Omantel, a leading telecom operator in the Middle East. We see this as a multiyear opportunity that will support both indoor and outdoor deployments across Oman and potentially in broader regional markets. This partnership goes beyond deployment; it includes commercial collaboration, joint marketing, and co-developing new solutions. We are closely collaborating with Omantel on implementation plans, with revenue contributions expected to ramp up in the second half of 2025 and further expand in 2026. The engagement with Omantel also led to the introduction of Lighthouse Solar, our off-grid solar power smart leader, designed for coverage challenges and sustainability-driven deployments. Initial field trials showed strong performance, including significant improvements in coverage and spectral efficiency, highlighting our technical edge. Recent trials of Lighthouse Solar confirmed its market potential, including a 20% increase in 5G coverage, an average speed boost from 1 megabit per second to 250 megabits per second, with peaks over 425 megabits per second, and a more than 50% improvement in spectrum efficiency, all with same-day installation requiring no fiber or power grid access. Multiple Lighthouse trials are currently underway or planned across key regions, including the Middle East, Latin America, Southeast Asia, and Europe, each representing significant opportunities as we work towards broader commercial adoption. Moving to AirgainConnect, we also made important progress during the quarter. We received commercial citations from all three major US carriers and achieved AT&T FirstNet capable status, which supports our goal of enhancing critical public safety communications. We remain committed to converting Tier 2 and Tier 3 opportunities in the near term while building a long-cycle Tier 1 pipeline for 2026. Our sales leadership team now includes dedicated representatives across five US regions and a targeted strategy aligned with carrier partnerships. In the first quarter, we also achieved several notable wins across our embedded modems, asset trackers, and other product lines, including a Tier 1 MSO launching its WiFi 7 offering. These design wins highlight the ongoing strength of our core business and are essential for supporting our overall operations as we scale revenue from our new strategic product platforms. Finally, I want to recognize the strength of our leadership team. This is an experienced, resource-focused team that is well-equipped for today's environment, adept at driving operational performance, strategically engaging customers, and navigating global uncertainties, all while positioning Airgain for long-term value creation. We are establishing a wireless connectivity company that does not just participate in the 5G expansion; we are making it possible in areas that have struggled. With that, I'll hand it over to Michael to review our financial results and outlook. Michael?

Thank you, Jacob. Before diving into the numbers, please note that my review of our financial results and guidance refers to non-GAAP figures. Information about the non-GAAP financial measures including GAAP to non-GAAP reconciliations can be found in our earnings release. Now let's turn to our first quarter results. Q1 sales came in at $12 million, in line with the midpoint of our guidance range. Consumer sales reached $6.4 million, down just $0.1 million sequentially, reflecting another strong performance. Automotive sales were $1.3 million, down $2 million sequentially, driven by lower shipments of aftermarket antennas and AirgainConnect gateways. Enterprise sales were $4.3 million, down $1 million sequentially, marking a low point for the year due primarily to lower shipments of enterprise antennas and custom IoT products. Q1 gross margin was 44.3%, marking our fifth consecutive quarterly increase. The 90 basis point sequential improvement was largely due to higher enterprise product margins. Operating expenses totaled $6.6 million, up $0.1 million sequentially and flat year-over-year. While expenses have remained stable over the past year, our engineering, sales and marketing organizations have undergone some significant changes. In Q1 2025, our strategic initiatives accounted for two-thirds of our total R&D sales and marketing expenses, up from roughly 50% in Q1 of 2024. Over the past year, we have built dedicated sales, marketing and customer support teams to support AC-Fleet and Lighthouse while streamlining the engineering and sales expenses of our existing business. As a result, adjusted EBITDA was negative $1.2 million, primarily due to the lower revenue base. Non-GAAP EPS came in at negative $0.11. We ended the quarter with a cash balance of $7.4 million, down $1.1 million sequentially and up $2 million from the same quarter a year ago. Now, moving to our outlook for the second quarter ending June 30, 2025. As a reminder, we provide quarterly guidance for sales, non-GAAP gross margin and expenses, non-GAAP EPS and adjusted EBITDA as we believe these metrics are key indicators of our overall performance. For Q2, we project sales to range between $12.5 million and $14.5 million with a midpoint of $13.5 million, representing approximately 12% sequential growth. The growth is expected to come from a rebound in our enterprise market. Enterprise performance will be supported by the correction of excess inventory and increased design win activity, specifically among our industrial IoT customers. We also anticipate Lighthouse deployments beginning to contribute to enterprise revenue in the second half of the year. Our consumer market remains a bright spot as an uptick in March shipments ahead of anticipated tariff activity offset the negative seasonal impact. We do expect some moderation in Q2, followed by steady growth throughout the rest of the year, especially as another Tier 1 MSO launched its Wi-Fi 7 platform this quarter. Automotive hit a low point in Q1, and it is expected to remain relatively flat in Q2. However, shipments of AirgainConnect gateways are expected to drive meaningful growth in the second half of 2025. We expect non-GAAP gross margin to be 42% to 45% or 43.5% at the midpoint. We expect operating expenses to be approximately $6.6 million. Non-GAAP EPS is expected to be negative $0.06 at the midpoint and adjusted EBITDA is expected to be negative $0.6 million at the midpoint. We expect to receive at least $0.5 million in ERC refunds this quarter, which will help mitigate the impact of the adjusted EBITDA loss. We remain mindful of the current macroeconomic environment, and we are focused on executing our strategy, targeting positive adjusted EBITDA in Q3. Finally, as our housekeeping item, we plan to file an updated S-3 shelf as our current shelf registration is set to expire in two days. While we have no imminent plans to raise capital, maintaining this filing reflects good corporate governance and financial flexibility in a time of uncertainty. Now, I would like to turn the call over to Jacob for his closing thoughts. Jacob?

Thanks, Michael. As we move through Q2 and into the second half of 2025, our focus remains on converting early traction into sustained commercial momentum across both our AirgainConnect and Lighthouse platforms. We provide a compelling value proposition, a lower total cost of ownership, simplified installation and maintenance, in alignment with sustainability and cost efficiency priorities that are especially important in this environment. Following stronger-than-expected performance in our consumer segment during Q1 and increasing visibility into enterprise engagements, we enter Q2 on firmer footing. We are encouraged by the sequential momentum building in our pipeline and are executing with growing confidence. In summary, we are executing well against our strategy with early traction across both platforms. We are investing prudently, maintaining a strong balance sheet, managing working capital carefully, and keeping operating expenses aligned with our growth base. And we are building for the future with a clear road map, a seasoned leadership team, and growing customer engagement. I want to take a moment to thank all our employees for their continued hard work and dedication. Your focus on innovation and disciplined execution is what propels Airgain forward. I also want to thank our customers, partners, and investors for their trust and support. We remain energized by the opportunities ahead and confident in our ability to deliver meaningful value as we execute our strategy. With a strong foundation, a proven leadership team, and clear growth initiatives, I am optimistic about what lies ahead. Operator, we are now ready to take questions.

Our first question comes from Anthony Stoss with Craig-Hallum. Please state your question.

Good afternoon, Jacob and Michael. Two things I wanted to focus on your comments, I think it was yours, Mike, about AirgainConnect meaningful ramp in the second half of the year. Can you maybe talk about either design wins or traction, how many customers you think you'd be launching with the new product? And then the second part of my question, probably for Jacob, just the expectation of the IoT business rebound in Q2. Given the facility you may or may not have for the rest of the year, do you think that your enterprise group can actually grow in 2025 over 2024?

Hi, Tony, this is Michael. Thank you for the questions. So in terms of the AC-Fleet, we've done quite a bit in terms of laying the foundation really to scale the overall AC fleet business. As we mentioned in the script, we have onboarded a full team dedicated to the fleet with a very deep experience covering all of the regional US. This is a brand-new team for us with a brand new auto type of experience. We also have established our distribution channels. They are now fully operational. We also have launched a whole marketing campaign around a large US carrier in the coming weeks. And so right now, while we don't expect strong orders taking place in Q2, many of our customers are in the trial phase and some of them are nearing completion. We are very optimistic that we'll have those design wins in the coming months, and we expect larger programs, the Tier 1 type of customer classification that we have explained last quarter to start contributing in the second half of the year, laying the foundation for 2026. As we know, this is a long-cycle sales cycle and the momentum itself is building, and we are looking for executing on some Mobile Network Operator level partnerships as well to broaden the overall market reach.

Hi, Tony, yeah, Jacob here. So entering your number the second question in regards to IoT rebound. Yeah, we are encouraged by the fact that at least a couple of key customers who had inventory correction issues last year, have started to give us visibility for this year. In fact, in the second quarter, they already started initiating shipments. So that gives us the confidence that we are near the end of some of this inventory correction, especially in the modem business. So that's encouraging to see. As far as the overall enterprise market, certainly, we are still seeing the enterprise AP tracking well. That's the business that we're selling to partners for stadium applications, arena applications. But also, we're seeing certainly the infrastructure, which is also a part of the enterprise, which is headlined by our Lighthouse product; we're making some very good progress. Certainly, the headline today, it's the Omantel partnership. It's not just a strategic partnership, but also has a commercial element to it. So we're working with them on the deployment schedule as we speak, and we should expect a deployment for the second half of the year and then really ramping up in 2026. So all in all, we are encouraged by the progress, the positive progress on these several fronts.

And turning to piggyback on Jacob's point. Right now, the enterprise market, the backlog at this point of the quarter is one of the strongest that we've seen over the past three or four quarters. In addition to that, the excess inventory correction that we're starting to see happening, we can also see a nice level of design win activity, especially with specifically industrial IoT customers. So this bodes well, and of course, the visibility in the second half of the year is clouded by the current macroeconomic environment, but the fact that where we are right now from a backlog perspective, we feel good about the enterprise business.

Perfect. Thanks for all the color guys.

Thanks. Your next question comes from Scott Searle with ROTH Capital. Please state your question.

Good evening. Thanks for taking the questions. Hey, Jacob, Michael, I apologize. I got on the call a little bit late, so I apologize if this is redundant. But to jump to Lighthouse, I'm wondering if you could give us an update in terms of any incremental pilots that are occurring. I think the target was still a third quarter where we start to see this ramp up. Are we still tracking on that standpoint for Omantel? And can we expect any other carriers in 2025?

Hello, Scott. Yes, great questions. So regarding the Lighthouse, certainly, this product was pleasingly surprised that we were able to start getting commercialization back in Q4, and it's ramping up. And right now, it's with Omantel, and with Omantel, the partnership, it's not just for Oman. We're actually working with them for other opportunities outside of Oman into several other regions within the Middle East. So we expect more trials to take place outside of Oman, in the Middle East. Additionally, we also completed a trial in the first quarter in the Latin American region. We're expecting to have two more trials, one in Europe and one in Southeast Asia in the third quarter and also anticipate at least one other trial in the fourth quarter in the Asia region, as well as hope to have even trial here in the US. So while we are really optimistic about this, we are going to keep your praise. But right now, many of them are still in the trial state at this point.

No, that's great. That's a lot of color. I appreciate that. And then just going back to AC-Fleet, we've talked about some European opportunities as well. I'm wondering if you can update us in terms of what you're seeing on that front if you're going through the certification process or if that's been put on the backburner to 2026?

So right now, Scott, we are fully focused on the US market, the sales, the marketing, the engineering, the certification and getting into even more of the FirstNet trusted along with frontline with Verizon, along with T-Mobile, Priority one, those are really our key focus. We do have the CE certification on our roadmap, but this may take a couple more quarters before we get there.

Okay. Fair enough. And lastly, and I'm sure you probably addressed this, but I'm wondering if you could just hit the highlights again in terms of tariff implications, what you guys are actually building into your expectations? And kind of what you're seeing out there from a competitive standpoint. You do have an advantage versus some other foreign suppliers. So I'm kind of wondering how that's transitioning to business in core NimbeLink and otherwise and how you guys are approaching it from a total strategy standpoint? Thanks.

Sure. Thank you, Scott. This is a very good question. So of course, the tariff situation is really fluid, very dynamic, and it can change on a week-by-week basis. At this point, we're not seeing a change in the buying pattern of our customers, which is very good news. That was our first worry. And at this point, from a supply chain constraint in the beginning, there were quite a bit of signals of holding and constraints on that end, we're not seeing that either right now. I would say that the majority of our products are not going to be impacted by the tariffs, although things can change very fast as well. This is a combination of our standard terms, our fabless model, and also the overall tariff code and exemptions associated with those, depending upon the different regions. So our key focus right now is really on our customers to minimize the impact on our customers from the tariffs so that we have basically a very transparent and also good relationship with them on that end. I would say that the fabless model having nine contract manufacturers in different regions of the world, some of them do operate factories in other geographies. So we've been very proactive on our second-sourcing strategy a year ago by running some pilot runs across different regions. And so we are ready to adapt. There will be some disruption, but we are ready to adapt wherever the signals really show us.

Yes. And to add to that, I think that's really a competitive advantage at this point, right, versus our other competitors out there, they are getting somewhat impacted by the tariff one way or the other. This really speaks to the experience of the operations team. We've been preparing for this over the last four years. That’s why we started to really diversify and implement this unique fabless model across different regions, Asia, North America, etc. This allows us to speak to our customers and tell them that with us, no tariffs are going into place, and we encourage them as we speak.

Great. If I could just add one more in terms of consumer and WiFi, I'm just wondering, are we at a steady state now? Or is there some more growth either with incremental MSOs coming on board or WiFi 7? Are we kind of at a steady state that we should be thinking about that business going forward? Thanks.

Good question, Scott. Actually, I wish we were kind of at the level of normalized level at this point. But as you know, in Q1, we were expecting about a $1 million to $1.5 million impact from seasonal factors, basically due to the Lunar New Year. However, as you can tell, the revenue came in pretty much flat to Q4. So what we saw was a bit of an uptick in the month of March, particularly with cable operators and ODMs placing some orders, and we believe, in anticipation of the impending tariffs taking place. So we expect some moderation in Q2 because of the uptick in Q1. But overall, after Q2, we expect to come back to some normalized levels with some steady but modest growth, especially as another MSO Tier 1 has also launched into a WiFi 7 program.

Great. Thanks so much. I’ll get back in the queue.

Your next question comes from Tim Savageaux with Northland Capital Markets. Please state your question.

Good afternoon. You mentioned that you expect Lighthouse to start contributing in the second half. Could you provide more details on that? Are we looking at a few million dollars, or something more significant? Also, regarding Europe, I remember hearing about that trial before, and possibly the US as well. Could you give an estimate of the total opportunity from these trials compared to what you're pursuing in Oman with Omantel, whether for each individual opportunity or overall? Thank you.

Yes, sure, Tim. I'll start and then certainly Michael can add more color. So regarding the revenue expectation, I think that we would still continue to be cautious about the second half. As I mentioned, we are working with Omantel on the deployment schedule. We actually have a multiyear, multimillion dollar contract that we signed with them. We're expecting low seven-figure numbers for the remainder of the year with them and then it ramps up. And that's only on Oman, and we are certainly expecting to work with them in a bigger capacity for the rest of the Middle East. Look, they are much bigger than we are. We really want to leverage their sales and marketing and their inputs. As you know, all of them are connected in the Middle East region, and they are going to help us to really be able to penetrate into other regions and be more successful really quickly. Now when you mentioned about Europe, this particular opportunity has been waiting for us to get CE certification on Lighthouse. That’s actually one of the reasons why it's been delayed because we are still going to work on the CE certification, which should be completed by the end of the quarter. That's the plan. And at that point, that's what you have slated for Q3 because of the lesion. They're already seeing the value they have certainly they need. And that's what we're seeing across the globe. The Lighthouse is really addressing a major deficiency today, whether it's outdoor or indoor. There are many places simply having a connectivity issue and to put another base station or small cell, first of all, it's time-consuming to get all of the approvals through the local municipality. Typically, it takes about six months. We are learning. And then it’s the cost, to put up a fiber, to take out the fiber to put a base station or small cells is sometimes cost prohibitive. Then think about simply putting a Lighthouse there within a day. When we talk to the upper management team of Omantel, they also know about the Lighthouse Solar, which we launched in Q1 this year, and they're seeing a huge potential for the Middle East region and North Africa where many areas are out there, and it's difficult to have connectivity to the power grid and to simply install a Lighthouse in a matter of hours. That's actually what we did in Oman with the trial and give connectivity, not only activity on the broadband case but also get them connectivity. This means a lot. And that is what we're seeing out there. We're genuinely seeing a real need. As for expectations, we're continuing to do the trial and go through the process, but the market is huge. I think that we have also started penetrating in the US market. The US market is a little bit different. Dealing with the Mobile Network Operators will take time. We are working with them, but the likes of Verizon, AT&T, and T-Mobile, as you know. But we also now come up with the enterprise model, where we can also go after the broadband service providers. This is something our team is working on, and it's a little bit too early for me to give you a lot of color, but we are coming up with a strategy that's going to really accelerate the sales cycle or the deployment cycle here in the US.

Okay. Great. Thank you. And to follow-up, it seems like the at least elements of the enterprise IoT inventory issue might be clearing up a little bit sooner than you might have expected. Is that fair to say?

That is correct. That is correct, Tim. On the other hand, on the aftermarket, we still think that there's still a little bit more time to sort that out.

Okay. Thanks very much.

Thank you.

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

Well, thank you all for your thoughtful questions and continued interest in Airgain. We really appreciate your support and look forward to updating you on our progress next quarter. Operator, you may now conclude the call.

Thank you for joining us today for Airgain's first quarter 2025 earnings call. You may now disconnect.