Cambium Networks Corp. Q3 FY2023 earnings call

• Priorities: Execution (keeping promises, delivering innovations, using capital wisely), focus and simplify strategy (building core platforms to improve efficiency), and improving go-to-market. - Product portfolio: Impressed by technology and technical talent; immediate priorities in execution, focus, and go-to-market. - Customer wins: Wins in Huntington Park, AB InBev, Gulf of Suez petroleum, Oil and Natural Gas Corporation, and hospitality markets. - Product introductions: PTP 700 beam steering unit, Wi-Fi 6 home mesh gateway, cnMaestro Cloud software with over 1M devices under management. - Human interest: Donated outdoor Wi-Fi equipment to Maui disaster center.

Point-to-point (PTP): Revenues decreased 37% sequentially and grew 3% year over year due to temporary US federal budgetary issues resulting in a gap of more than $8 million in defense orders. Point-to-multi-point (PMP): Revenues decreased 12% sequentially and 10% year over year due to inventories and channel waiting for FCC approval of 6 gigahertz spectrum; new 6 gigahertz ePMP 4600 and PMP 450v product lines expected to drive sales. 28 gigahertz fixed products: Record revenues, increasing 144% sequentially. Enterprise: Revenues decreased 61% sequentially and 93% year-over-year due to high channel inventory and stock rotations.

• Q4 2023 revenue outlook: $45M to $50M, sequential increase of ~10.5% midpoint. - Non-GAAP gross margin: 38% to 45%. - Non-GAAP operating expenses: $25.7M to $26.7M. - Non-GAAP net loss: $4M to $7.5M. - Evaluate drawing portion of $45M revolver.

• Economic headwinds affecting revenues. - Delays in defense orders due to US federal budgetary issues. - Inventory and channel issues impacting PMP and enterprise revenues. - Uncertainty around FCC approval timing for 6 gigahertz spectrum. - Competitive landscape and discounting pressures.

Q: More on Wi-Fi channel inventory, sell-through in Wi-Fi product portfolio and normalized revenues once channel inventory returns to pre-COVID levels.

A: Morgan Kurk said it's in the $15 million to $20 million range, and revenues will return to levels and grow from there after channel inventory is burned off.

Q: Help decipher gross margin, specifically $5 million inventory adjustment and segment contributions to weak gross margin.

A: Andrew Bronstein said the $5 million inventory adjustment was a big impact, along with less freight capitalization and working with distributors to move inventory, including discounting older products.

Q: Update on government programs like BEAD and international opportunities.

A: Morgan Kurk said BEAD and other funding are focused on fiber with uncertain timing, and international programs have varying requirements with no specific impact number yet.

Q: Views on product portfolio rationalization and focus.

A: Morgan Kurk said to emphasize best-in-class products and consolidate on a unified platform over time, starting with emphasizing where to spend.

Q: Competitive environment for enterprise products and headcount reductions.

A: Morgan Kurk said industry facing similar challenges, not leading in discounting; headcount reduced by 12%-15%, overall headcount in 800 range.

Q: Gross margin recovery, product mix, and 28 gig margin.

A: Andrew Bronstein said defense sector increase and working with distributors on enterprise inventory are drivers; 28 gigahertz products are in mid to high 40s margin on average.

Q: Gross margin recovery outlook for second half of 2024 and free cash flow.

A: Andrew Bronstein said ultimately expecting gross margins back to ~50% range, and will model cash flow with revolver use considering covenants not restrictive currently.