Cambium Networks Corp. Q2 FY2023 earnings call

Management Statement and Operational Highlights:

• Enterprise Challenges: Severe slowdown in Enterprise revenues due to component supply issues, competitor pricing, and global economic factors. Took actions like individualized strategies with distributors and a $14M annualized cost reduction program to address inventory bottlenecks and regain market share.
• Positive Performances: PTP had a record quarter from large defense deals, PMP had sequential growth with 28 GHz fixed 5G and new fiber products. Notable customer wins included a global hotel chain in North America and deployments in EMEA and APAC regions. Channel partners expanded, with 390 net new partners sequentially and 1,600 year-over-year.
• Product Developments: Introduced new cnMatrix EX3K switches for mission-critical networks. Ongoing 6 GHz ePMP 4600 trials with broadband service providers. cnMaestro Cloud software had over 980,000 devices under management, up 6% sequentially and 17% year-over-year.

Segment Performance:

• Enterprise Products: Revenues declined 82% sequentially and 73% year-over-year. Caused by component supply issues, competitor pricing aggression, global economic slowdown, and enterprise channel inventory bottleneck. Revenue contribution from Enterprise was significantly reduced.
• PTP (Point-to-Point) Products: Revenues increased 39% sequentially and 60% year-over-year, driven by large defense deals. This segment performed well and is expected to continue strong growth.
• PMP (Point-to-Multipoint) Products: Revenues increased 20% sequentially, with 28 GHz fixed 5G having a record quarter and new fiber products showing positive interest. Revenue was lower by 5% year-over-year due to service providers moving to new gigabit technologies. The 6 GHz ePMP 4600 had ongoing trials, and 28 GHz had multimillion dollar commercial deals in the works.

Guidance:

• Q3 2023: Expected revenues between $62 million and $70 million, non-GAAP gross margin 49.8% - 51.3%, non-GAAP net income $3.7 million to $6.9 million or net income per diluted share $0.13 to $0.25.
• Full-Year 2023: Expected revenues $265 million to $275 million, non-GAAP net income $16.7 million to $21.9 million or net income per diluted share $0.59 to $0.78. Adjusted EBITDA expected $6.3 million to $10.3 million.

Risks:

• Component Supply: Competitors gaining access to components, reducing Cambium's supply advantage, impacting Enterprise revenue.
• Global Economic Uncertainty: Cancellations and delays in end customer projects in regions like EMEA, affecting Enterprise revenues.
• Competitive Pricing: Aggressive pricing by competitors affecting market share in the Enterprise segment.

Question and Answer: Q: Simon Leopold asks why Cambium didn't preannounce the quarter and about normalized Enterprise revenue.

A: Atul Bhatnagar and Andrew Bronstein respond that changes like management change and cost cutting led to not preannouncing, and normalized Enterprise revenue is expected at $20 million to $30 million quarterly.

Q: Scott Searle asks about competition, channel inventory, and Wi-Fi 7.

A: Atul Bhatnagar and Andrew Bronstein discuss competitive impact, sales out in Enterprise, and that Wi-Fi 7 plans are thoughtful with customer need in mind.

Q: George Notter asks about inventory clearance and fiber product feedback.

A: Atul Bhatnagar and Andrew Bronstein detail inventory clearance strategies with distributors and positive feedback on fiber products from mid-size service providers.

Q: Erik Suppiger asks about fiber product impact and 28 GHz business.

A: Atul Bhatnagar talks about fiber product potential and 28 GHz business growing with larger service providers due to license frequency and superior solutions.

Q: Tim Savageaux asks about 5G fixed and 28 GHz business ranking.

A: Atul Bhatnagar ranks 6 GHz as top growth driver, followed by 28 GHz, with focus on economical, high-volume products.

Q: Paul Essi asks about 6 GHz commercialization.

A: Atul Bhatnagar states readiness for 6 GHz with ongoing trials and expectation of September/October commercial launch.

Q: George Notter asks about CEO transition.

A: Morgan Kirk and Atul Bhatnagar discuss collaborative transition, with Morgan leading and Atul as Board Member providing support.

Q: Erik Suppiger asks about cost reduction headcount.

A: Andrew Bronstein states ~10% headcount reduction as part of $14M annualized cost savings, with focus on agile operations.