Cambium Networks Corp. Q2 FY2024 earnings call

• Revenues for Q2 '24 were just above the midpoint of the outlook provided during Q1 '24 call, up 9% sequentially due to growth in enterprise and PMP businesses.
• Adjusted gross margin improved quarter-over-quarter but was muted by higher than expected reserves for excess finished goods and raw materials.
• Free cash flow was negative $1.8 million during Q2 '24, but cash flow from operations was positive $2.4 million.
• Key customer wins include Cal.net in the US, Voneus in England, and the Indian Institute of Technology in India.
• Product introductions: Released PTP 850EX in 80 gigahertz E-band, introduced Elite concierge program for channel partners, and total devices under cnMaestro cloud management increased 6% QoQ and 15% YoY.

Revenues for Q2 '24 were $45.9 million. The enterprise business grew 58% sequentially. The PMP business grew slightly up 1% sequentially. The point-to-point business declined by 5% sequentially. By region, EMEA increased revenue 78% sequentially, North America was lower by 18% sequentially, APAC increased by 25% sequentially, and Latin America improved by 8% quarter-over-quarter. Revenue contribution details: Enterprise growth contributed to the overall revenue increase, PMP had slight growth, and point-to-point declined.

• Q3 '24 financial outlook: Revenue between $43 million to $48 million; non-GAAP gross margin between 41.5% and 43.5%; non-GAAP net loss between $5.4 million to $3.8 million, or net loss per diluted share between $0.19 and $0.14; adjusted EBITDA between a negative $4.4 million to a negative $2.4 million; adjusted EBITDA margin between negative 10.2% to negative 4.9%.
• Full year 2024 financial outlook: Revenues between $180 million and $190 million; non-GAAP gross margins of approximately 37%; non-GAAP net loss between $29.4 million and $24.6 million, or a loss of between $1.04 to $0.87 per diluted share; adjusted EBITDA margins between negative 16.2% to negative 12%.

• E&O reserves are primarily driven by estimated long term demand for products, which can change over time depending on market, future technology development, and anticipated technology migration.
• Channel inventory management risks as some partners still have work to do to get inventories to appropriate levels.

Q: Maybe Morgan, Jacob, just a couple of quick clarifications. Looking at the gross margins into the third quarter, you have them up slightly sequentially, but there were a lot of reserves that were taken in the second quarter. I'm wondering if you could clarify what those reserves or what are you thinking about and is embedded into those -- that guidance for the third quarter? And also, you talked about sell through being higher than sell-in, I think, from the WiFi product line or enterprise. The last couple of quarters, I think that's been in the $15 million to $20 million range. I wonder if you could clarify if we're still seeing that demand at those levels. And it sounds like you're expecting that to normalize by the end of this year?

A: Jacob Sayer: On the excess and obsolete, the charges have been pretty large for the last couple of quarters at $7 million each. They stem from accounting tests regarding component and finished good balances. For the third quarter, embedded in the guidance is just under a $2 million assumption for E&O. It's expected to reduce substantially from recent quarters. Morgan Kurk: The delta in sell-in versus sell-through is in the $10 million range, destocking on a quarterly basis but less than past levels.

Q: I want to see if maybe you could unpack your thoughts about the full year forecast, because basically you've given us September and given us a full year, so that allows us to determine what you're assuming for the fourth quarter? And basically, it looks like you averaged $36 million-ish in 3Q and given us a full year, so what's the assumption for the fourth quarter? And basically, it looks like you averaged $36 million-ish in 3Q and given us a full year, so that allows us to determine what you're assuming for the fourth quarter? Just help us unpack what applies for the fourth quarter.

A: Jacob Sayer: Unpacking the guidance, at the midpoint of the $185 million full year, you can back into a number close to $51 million for Q4, expecting sequential improvement, driven by sequential enterprise growth and some growth in PMP.