Airgain Inc (AIRG) Q3 2026 Earnings Call Transcript

Graded modems and custom products draw the growth, with particularly strong demand from longstanding industrial customers. This demand spans energy management, smart buildings, public safety, EV charging infrastructure, and remote monitoring applications where reliable connectivity is essential. The diversity is a key strength as we serve multiple end customers rather than depending on any single application or product cycle. One example is the strategic program we announced in March with a leading IoT solutions provider. This longstanding customer initially placed a multimillion-dollar order for delivery through March 2027. As its own programs gained traction, the customer accelerated its shipment requirements for delivery by the end of September 2026 and placed additional orders covering the next several quarters. This is an encouraging indication of the momentum our customer is experiencing in the continuing demand for our IoT solutions. While also gaining traction in newer applications, in Q3, we complete initial production shipments to Cocoa Robotics and are sampling our products with three additional potential robotics customers. We continue to pursue opportunities in drone applications and are also sampling with three potential drone customers. We also secure two IoT design wins supporting AI data center infrastructure, including remote energy monitoring and intelligent REC-level power management. We expect these programs to begin contributing revenue in 2027. Looking to the fourth quarter, enterprise demand remains healthy. And we expect it to drive continued sequential revenue growth for air gain. Component and module availability will remain important factors in shipment timing. But the strength of our established programs and the breadth of newer applications give us confidence in the opportunities ahead. Turning to consumer, revenue decline sequentially as anticipated, reflecting continued memory shortages that affect gateway production for certain cable and mobile network operator customers. These supply constraints, along with higher component costs, have prompt customers and manufacturing partners to reassess product configurations and launch schedules. Creating greater uncertainty around order timing. That said, we are beginning to see encouraging signs of improvement. A key OEM customer indicated that it secure additional memory supply. While this is encouraging, improved component availability takes time to translate into gateway production and antenna shipments. More broadly, Wi-Fi 7 remains an important opportunity as major service providers transition to next-generation platforms, with the timing dependent on customer launches and supply conditions. We have also made progress with new mobile operator programs. Our OEM partners received the regulatory waivers discussed last quarter. And we are now focused on bringing those programs into production, combined with the ongoing transition to Wi-Fi 7 and early signs of improved memory supply. These developments could support a consumer recovery as we move through 2027. We remain major on timing, particularly given normal first quarter seasonality and customer launch schedules. We're also taking a new approach to expanding our antenna business. We recently announced AI-GAIN RF Intelligence, an AI-powered platform being developed to make our antenna engineering expertise accessible to more wireless device developers. For more than two decades, we have shipped over 1 billion antennas and developed thousands of unique designs for leading telecommunications and connected device customers. AirGain RF intelligence builds on that extensive experience, creating a new way to reach customers and generate additional opportunities from our existing antenna portfolio. Historically, the engineering resources required for custom antenna programs made many smaller opportunities uneconomic. Our initial focus is on compact wireless devices, particularly IoT applications with relatively straightforward antenna requirements. AirGain RF Intelligence is designed to simplify antenna selection using our existing portfolio and engineering expertise, allowing us to reach customers we previously could not serve efficiently and create opportunities for incremental antenna sales, while complementing our traditional custom engineering business. We have opened applications for a selective early evaluation program, with initial customer access targeted for the first half of 2027, subject to development and testing. Longer term, we see opportunities to expand the platform into more advanced AI-assisted RF engineering capabilities. Turning to AgenConnect. We see a significant opportunity to expand our presence in the vehicle connectivity market across public safety and commercial fleets. Organizations increasingly depend on reliable wireless connectivity to support critical applications, creating demand for more integrated, higher-performance solutions. We are pursuing these opportunities with two distinct products and go-to-market strategies tailored to each market. In public safety, coverage and reliability are essential, particularly at the edge of the cellular network. That's where A-Gain Connect NECA-52 differentiates itself. Its high-power U.C. equipment, or HPV technology, is designed to maintain connectivity in challenging coverage environments. Our FirstNet trusted status and close relationship with AT&T provide an important foundation for bringing Mega 5.2 to public safety customers. While working closely with AT&T on customer requirements, deployment support, and future product opportunities, this collaboration is helping us advance a qualified pipeline, including larger agencies with more extensive evaluation and certification processes. We continue to make progress on the Tier 1 public safety opportunity discussed last quarter and are targeting completion by year-end, subject to final commercial and network certification requirements. Our work to support multi-network connectivity could also open doors to additional agencies. Beyond this opportunity, we are pursuing additional Tier 1 and Tier 2 opportunities and expand our carrier relationships. Turning to commercial fleets, the opportunity is driven by a different set of needs. Many vehicles rely on separate connections for telematics, cameras, tablets, and other systems, adding cost and complexity. Traditional router and antenna installations can also take up valuable space and require more extensive installation. AGAN Connectly addresses these challenges with an integrated roof-mounted gateway and antenna solution. By simplifying installation, improving connectivity, and enabling customers to consolidate data planes, we believe the product can reduce operating costs and improve efficiency. Our initial focus is on construction, utilities, waste, services, and vegetation management, where these benefits are particularly relevant. We are seeing tangible progress. We secure a small initial purchase order from a leading national construction company to support its commercial fleet operations. We also have active trials with major waste services in vegetation management fleets, along with utility design wins. These engagements are encouraging, although commercial fleet sales cycles are typically long. with deployments expanding in phases as customers validate the technology and economics. We're also working to expand the carrier-assist sales model we've developed with AT&T to additional partners, expanding our reach into these markets. While Egg & Connect remains a modest contributor to near-term revenue, we're building a tangible pipeline across both markets. Our current pipeline includes approximately 60 Tier 1 and Tier 2 opportunities, with approximately 55% in public safety and 45% in commercial fleet applications. Importantly, approximately half of these opportunities have progressed to the trial or post-trial stage. We have secured four Tier 2 designs since our last earnings call. Public safety offers opportunities to serve larger agencies with differentiated coverage technology, while non-public safety fleets represent a broad market where successful trials could lead to deployments across sizeable vehicle fleets. We believe commercial fleets represent an even larger addressable market with significant growth potential as operators increasingly adopt integrated connectivity solutions. As we look toward 2027, we believe these two complementary opportunities position Ag and Connect to become an increasingly meaningful contributor to our growth as customer programs progress toward broader commercial deployments. Turning briefly to Lighthouse. We're focused on building a repeatable partner-led commercial model in the U.S., supported by real-world deployments. We recently completed a deployment with a systems integrator at a Southern California residential community, improving service in areas with limited or unusable cellular coverage. This deployment uses a T-Mobile M41-band configuration. We are also advancing a warehouse and logistics application, where reliable connectivity is essential to daily operations. This deployment uses our current production-ready configuration, which supports the mid-band spectrum used by AT&T and Verizon. We're also in the trial phase for our integrated 4G and 5G combo solution with an international customer. These projects help establish reference use cases for extending cellular coverage indoors and at the network edge. We continue engaging EOS mobile operators while working with system integrators to identify customer needs, manage installations, and support repeatable deployments. We are pursuing the opportunity with disciplined investment. We are encouraged by the strength of our enterprise demand and progress across our growth initiatives, supporting our expectation for continued sequential revenue growth and positive adjusted EBITDA in the fourth quarter. Looking ahead, our focus is on converting these opportunities into revenue and building on our momentum as we enter 2027. With that, I'll turn the call over to Michael for a more detailed review of our third quarter financial results and fourth quarter 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 third quarter results. U3 sales were $15.3 million, slightly above the midpoint of our guidance range and up 9% year-over-year, marking our second consecutive quarter of year-over-year growth. Sequentially, Q3 sales increased $1.6 million, or 12%, driven by significant growth in our enterprise market. Enterprise sales were $10 million, up $3.3 million sequentially, driven by higher IoT modem and cost-driven product sales. Automotive sales were $1 million, down $0.3 million sequentially. And consumer sales were $4.4 million, sequentially down $1.4 million due to the impact of memory shortages on our OEMs and ODMs. Non-GAAP gross margin for the third quarter was 42.4%, 60 basis points lower than the midpoint of our guidance range. Q3 gross margin declined 120 basis points sequentially, driven by higher sales of lower-margin IoT custom products and lower sales of higher-margin and consumer antennas. Non-GAAP operating expenses were $6 million, in line with guidance, and up on $3 million sequentially. On a year-to-date basis, operating expenses declined 7% year-over-year, reflecting continued cost discipline and operational efficiencies. Adjusted EBITDA was $0.6 million, an increase of $0.2 million, or 50% sequentially. Non-GAAP EPS was positive $0.04, $0.02 higher than the prior quarter. On a year-to-date basis, growth in our enterprise and automotive businesses more than offset lower consumer sales, reflecting the benefit of the diversification of our revenue base in light of macroeconomic challenges. Adjusted EBITDA also improved by $1.4 million year-over-year, reflecting improved operating leverage as revenue scales. As of September 30, 2026, our cash balance was $7.7 million, $0.1 million higher than the prior quarter, and $0.6 million higher than the same quarter a year ago. Net cash proceeds from our ATM were $0.2 million. Now, moving to our outlook for the fourth quarter ending December 31, 2026. 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 to be key indicators for the overall performance of our business. For the fourth quarter of 2026, We project sales to range from $15.5 million to $17.5 million, with a midpoint of $16.5 million. The midpoint represents approximately 8% sequential growth, driven by continued strength in enterprise. We expect non-GAAP gross margin to range from 40% to 43%, with a midpoint of 41.5%. Our guidance reflects a continuation of the sales mix dynamics we experienced in Q3, with greater contribution from lower-margin IoT cost in products and a lower sales mix from higher-margin consumer antennas. We continue to experience higher component and module cost, but our pricing initiatives offset these increases. At the midpoint of our Q4 guidance, our second half of 2026 gross margin is expected to be approximately 42 percent, compared to approximately 44 percent in the first half of 2026. While this decline is driven by a change in sales mix, we continue to work on gross margin improvement initiatives. Which we anticipate will drive a gradual return to the first-half gross margin level within the next two quarters. We project non-GAAP operating expenses to be approximately $6.2 million. Non-GAAP EPS is expected to be positive $0.05 at the midpoint of our guidance. Adjusted EBITDA is expected to be positive $0.8 million at the midpoint of our guidance. Now, I would like to turn the call back over to Jacob for his closing thoughts. Jacob?

Thanks, Michael. As we approach the end of 2026, I want to highlight the progress we have made against the priorities we established at the beginning of the year. We have returned to adjust the EBITDA profitability, deliver sequential revenue growth, and improve operating efficiency while broadening our customer base and expanding our opportunity pipeline. Our acquisition of Named Activity's HPUE product line has also strengthened Ag & Connect and deepened our strategic relationship with AT&T. These are meaningful accomplishments, particularly given the supply constraints we have navigated this year. Looking toward 2027, I'm increasingly optimistic about our growth prospects. We see several specific opportunities that could meaningfully accelerate growth across the business. In enterprise IoT, demand from established customers remains strong, and we are seeing additional opportunities emerge in robotics, drones, and AI data center infrastructure. In consumer, we are seeing early improvements in memory availability, and the Wi-Fi 7 transition provides an opportunity to return to growth. We're also establishing a new growth platform through AirGain RF intelligence. With the potential to expand our antenna business into markets we haven't previously been able to serve efficiently. In AirGain Connect, our strategy is becoming increasingly focused. The Mega 5 II next-generation product position us to pursue larger public safety deployments. While AirGain Connect Fleet is gaining traction in clearly-defined commercial markets, our pipeline and expanding carrier relationships provide a more tangible path toward broader deployments. And with Lighthouse, we're focused on the U.S. market where we see opportunities to build on our initial deployments. Expand our work with system integrators and potentially establish deeper relationships with major mobile network operators while maintaining discipline investment.

Before we move to questions,

I would also like to welcome Stefan Memen, who recently joined our board of directors. Stefan brings extensive leadership and operating experience across the wireless and antenna industries, and we look forward to benefiting from his expertise as we execute our growth strategy. Taken together, we believe we are entering 2027 with a stronger foundation, a clear path to growth, and multiple opportunities to scale our business. Our focus remains on execution, sustaining enterprise IoT momentum, capitalizing on a consumer recovery, converting our expanding pipeline into revenue, and continuing to improve profitability as we grow. Up later, we are now ready to take questions.

Thank you. At this time, we'll conduct a Q&A session. If you would like to ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that 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 pull for questions. And our first question comes from Jason Schmidt with Lake Street Capital Markets. Please state your question.

Hey, guys. Thanks for taking my questions. I just want to start on the AI infrastructure wins. Can you help us think about the size of those wins? And then when we look further out, looking at this market specifically, how should we think about the opportunity here longer term?

Hi, Jason. Yeah, good to hear from you. When you talk about the AI infrastructure wins, are you talking about the IoT?

Yes.

Oh, okay. Yes. Those are still early. I mean, we mentioned that now with our product, we are now able, you know, we want one of the opportunities pertaining to PDUs. And we have another one that we won recently as well. And we talked about we are going after another three additional design wins. So that builds the momentum as we enter 2027. So we will expect some material revenue contribution from the AI Data Center in 2027.

Gotcha. And then just looking at the supply chain environment, you noted some constraints here. Can you quantify any revenue that you were unable to ship in Q3? And then what are your assumptions here in Q4 for that environment?

Hi, Jason. This is Michael. So on the memory supply shortage. It impacts us in different ways. In the consumer business, it's primarily impacting our OEM and ODMs, the gateway manufacturers, and it is creating quite a bit of uncertainty on the overall forecast visibility. And so there is an impact on our revenue for sure. We felt it in Q3. We did anticipate it. And that same sales dynamic will continue on in Q4 and probably until Q1 as well, too. But at the same time, we expect a recovery on the consumer business starting in Q2 of next year. And this would be fueled by the Y57 transition, which is really critical for our MSOs. Also, the revenue ramp coming from MNO design wins. Those require some FCC waivers to get going, which they have received last quarter. And so, those programs will come back certainly in the first half of 2027. In the meantime, we are trying to be very agile and stay very close to not only the service providers, but also the OEM and ODMs. From a margin standpoint, the consumer margin was not impacted by any of this issue. We basically are supplying the antenna components. On the IoT business, on the other hand, the impact really has been on the overall forecast visibility and the supply chain. We did have some delivery misses in Q3. Our Q3 number would have been a bit higher than what we have reported, and that mainly has to do with the supply chain management of the IoT modules, some other components, and our own manufacturing capacities that are contract manufacturers. There, the gross margin was not impacted, mainly because we are putting together pricing initiatives to offset the cost increases. And then from a revenue standpoint, the underlying demand is quite strong there. The current customers that we have right now on the traditional applications are doing very well. We see new market application. We did have a nice shipment, first initial shipment of production. We have the production units for the robotics customer this past quarter, and at the same time, we have this other strategic customer in our custom products, which came back, not only accelerated its purchase order that it placed with us back in March, but also adding some more orders as well, too, for this current quarter. And then finally, on the AirGain Connect and the Lighthouse, no impact on the memory shortages and the supply chain, mainly because of the importance of the launches of both platforms, but we did secure quite a bit of inventory, enough to meet the rest of the year from a supply standpoint. I hope this answers your question.

No, I really appreciate all the color. I'll come back to Q. Thanks a lot, guys. Thank you.

Thank you. And a reminder to the audience to ask a question, press star 1 on your phone. To remove yourself from the queue, press star 2. Your next question comes from Anthony Stoss with Craig Hallam. Please state your question.

Hey, Jacob and Michael. Maybe this is more towards Michael. The roughly $1.2 million in revenue sequential increase into the December quarter, you talked about enterprise going to be up sequentially. What's your view on your auto business or your consumer business? Are those roughly flat or down a little bit sequentially? Then I had a couple of follow-ups.

Yeah. Hi, Tony. This is Michael. So, we expect the automotive and the consumer businesses to be relatively flat, if not slightly up. The growth is going to be fueled by the enterprise market. On both cases, in the enterprise antennas, where we do have a couple of key design wins that we are fulfilling, and also the IoT business, which comprises the majority of the enterprise market.

Okay. Wi-Fi 7, you know, whenever you see these technology transitions, sometimes there's a lull and a drop-off in order, say, at Wi-Fi 6 as they transition to Wi-Fi 7. What's your view on any potential drop-off during this transition for you guys on the consumer side, kind of in Q1, Q2, and on forward?

So the transition of Wi-Fi 7 already took place a year ago. That was a reason for the consumer market to be doing so well last year. What we do see right now is quite a bit of uncertainty on some of the offerings that our OEM, ODM, and event service provider are trying to procure, many because of the cost increases. And so once we start having a better visibility on the overall forecast landscape, and one OEM did indicate to us that it is able to procure the memory chipset that it needs to have. So this is a good early sign of positive turn on this. Once we have that, then we expect the full transition of the next generation Wi-Fi 7 to continue just like it did last year.

Gotcha. And then, Jacob, you mentioned of your 60 opportunities on the AirGain Connect that you secured for the Tier 2 side. What markets are they in, and what are you learning, and how can you help turn some of those 60 companies in the design into revenue?

Yeah, good question. This is Michael, and I'll let also, Jacob, weigh in on that. But the four design wins that we closed last quarter, two of them were in the public safety sector and two others were in the non-public safety sector. And in terms of the 60 Tier 1, Tier 2 design win, it seems to be kind of the nice level for our sales team to really manage. Our focus is really all about the conversion to revenue generation. I would say that how Half of the pipeline of that 60 Tier 1, Tier 2, is basically at the trial or post-trial phases. Of course, our attention is on the strategic account, especially on the non-public safety sector, because we believe those are definitely larger and fast-growing. It does take some time to be able to convert those, but this is where, from an executive level, this is where we are spending a lot of attention to.

Yes, and the fact that we are a lot more focused. We now understand the public safety and the non-public safety needs really well. And especially with the partnership with AT&T, you know, it's only getting stronger, and this is where we are really launching the next-gen product maker 5.2 with them. But on the non-public safety, we are targeting primarily with the construction, utility, and sanitation waste management. The reason why we're seeing a major differentiation with AIG and Kinect is the fact that these sectors, many of them require multiple data plans. So not only are we able to help them improve coverage from a performance perspective, we're also helping them to consolidate the data plan to be able to reducing costs significantly every month. So that's why we're really seeing a really good traction. And as Michael is saying, we are really laser focusing the team on conversion. And I'll just add that, not only on AirGain Connect, but overall, I feel really good about the four business lines that we've been communicating to you all. And with each business line, now we're having a really clear growth driver for each of them. And I think that's rare that we didn't have that before, especially with the traditional foundational business. With the consumer, with these… AI, what we call the AI intelligence. It's a nice AI platform that we're going to be able to access to customers such as the IoT routers that we've never been able to sell to before. That should help us entering newer markets. IoT space, you know, in the emerging market, we're now able to go up to the AI data center, the drones, and the robotics. And definitely, with our strategic initiatives, Agen Connect, we now have the Mega 5 II, we have the AC fleet, targeting public safety, non-public safety. Last but not least, Lighthouse. We are now. Understanding the place where we can really play, making a strong play with the outdoor shell edge, where there are gaps that we can really fulfill, whether in residential communities, warehouse, the logistics. Space, we are going to make a difference there. In addition, for the in-building service applications, we're seeing hospitals, you know, stadiums that require our lighthouse. That's how we're going to play as we enter into 2027, and we're really making a lot of traction in all areas. So, I hope to report more good news to you come 2027.

Very helpful. Thanks for the detail, Jacob.

Thank you, Tony.

Thank you. And at this time, this concludes our question and answer session. If your questions were not answered, you may contact AirGain's Investor Relations team at AIRG at gateway-grp.com. I'd now like to turn the call over to Mr. Schwendt for his closing remarks.

Thank you. I'll be right back. And thanks to everyone for joining us today and for your continued interest in AirGain. Michael and I look forward to connecting with investors at the Quakellum Alpha Select and Roth Technology conferences in New York later this month. Have a great afternoon. Thank you.

Thank you for joining us today for AirGain's third quarter 2026 earnings call. You may now disconnect.