Good afternoon, welcome to Airgain's Fourth Quarter 2018 Earnings Conference Call. My name is Sharon, and I will be your coordinator for today's call. Joining us for today's call are Airgain's Interim CEO, Jim Sims; CFO, Anil Doradla, and Senior Vice President, Jacob Suen. I would now like to turn the call over to Mr. Doradla who will provide the necessary cautions regarding the forward-looking statements made by management during today's call. Thank you.

Thank you, and good afternoon, everyone. Please note that certain information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. I caution listeners that during this call, Airgain's management will be making forward-looking statements about future events and Airgain's business strategy and future financial and operating performance, including performance for the first quarter and fiscal 2019. 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 should be considered in conjunction with and/or qualified by the cautionary statements contained in Airgain's earnings release and SEC filings, including its Form 10-K, which we expect to filed by March 15, 2018. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, February 14, 2019. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. This conference call may include a discussion of non-GAAP financial measures, including non-GAAP net income, non-GAAP EPS and Adjusted EBITDA. Please see today's earnings release, which is posted on Airgain's website for further details, including a reconciliation of the GAAP to non-GAAP results. Any discussion of non-GAAP measures is not intended to detract from the importance of comparable GAAP measures. Finally, I would like to remind everyone that this call that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at www.airgain.com. Following management's prepared remarks, we will open up the call for questions from Airgain's publishing sell-side analysts. Now with that, I would like to turn the call over to our Interim CEO, Jim Sims. Jim?

Thank you, Anil. Welcome everyone and thank you for joining us today. After the market closed, we issued a press release announcing our unaudited results for the fourth quarter ended December 24, 2018, and fiscal 2018 which is available in the Investor Relations section of our website. I am very pleased with our fourth quarter and full year results. Once again, we witnessed another record sales quarter for Airgain. For the fourth quarter 2018, our sales were $16,000,600. Up 5% sequentially and 29% year-over-year. The results in the December quarter marked the fourth consecutive record sales quarter in the company's history. Like the last three quarters, the continued strength in our results reflect robust demand across existing and new programs in our consumer enterprise and automotive market. Furthermore, customers are increasingly becoming aware of the complexities in delivering gigabit per second data throughput over wireless systems and this in turn is leading them to seek reliable and tenant partners with extensive experience in solving our problems. As we look into 2019 and beyond, our designed win momentum combined with our customer engagement pipeline leads us to be positive and we expect specialists such as Airgain will increasingly become important in the end-to-end system performance. Our fourth quarter results marks a milestone in a company's performance both on the sales and profitability front. As I highlighted earlier on the sales front, the fourth consecutive quarter of record sales for the company was driven by a combination of continued robust demand for complex antenna systems combined with strong execution. On a possibility front, our continued effort around efficiency improvements since I stepped in as Interim CEO in May, that paid off significantly. In the past six months alone, we have gone from a net loss of $3.2 million in the second quarter…

Thank you, Jim. And good afternoon. I will provide key financial highlights for the fourth quarter 2018 and provide some preliminary color around first quarter of 2019. As you know, we started providing quarterly guidance in 2018 as we realigned the company and highlighted the possibility of getting back to our historical practice of providing annual guidance in 2019. Moving forward, we have decided to continue providing quarterly guidance in 2019 and beyond. We believe this will provide more clarity to the investment community and keep us more focused on the execution front. That said, I would also like to remind investors that our business is subject to short lead times and this may result in short term quarterly fluctuations and our ability to accurately predict our business. Now coming to the fourth quarter 2018 highlights, sales of $16.6 million grew 5% on a sequence you'll basis and 29% on a year-over-year basis versus our guidance of $16.4 million to $16.5 million. The strength in the fourth quarter was driven by her service brighter business combined with a pickup in our automotive from the third quarter. As a reminder, we completed the antenna-plus [ph] acquisition in May, 2017 so the fourth party year-over-year growth of 29% was organic in nature. On a separate note, I would also like to highlight that we are taking steps to prepare us to report our results under the updated ASC 606 revenue recognition rules. We are assessing the impacts across our business and over the course of the next several quarters we will provide incremental color both qualitatively and quantitatively around the impact of these new rules. Fourth quarter gross profit was $6.9 million or 41% of sales versus $6.9 million or 43.5% in the third quarter and $5.9 million or 46% of sales…

Thank you, Anil and thanks to everyone for being on the call today. Before hop to take your questions, I want to share a couple of closing thoughts. Over the course of 2018 we embarked on several initiatives to get the company back towards healthy profitability and long-term competitiveness. When I took over in May, I embarked on what I typically refer to escorts, granularity, where the emphasis is to prioritize the critical and most pressing issues around the organization. I'm happy to say as we exit 2018 we have made several changes across our marketing, sales and engineering organizations that lead me to believe the company being in a much stronger position than when I took over. Furthermore, we have strengthened our core executive team with the promotion of Jacob Suen to President, Kevin Thill to Senior Vice President Engineering combined with our region higher Cathy Peterson as Vice President of Global Administration and Human Resources. We believe we are put in place to right organization and leadership team and as we look into 2019 there are multiple reasons to be and we're excited with the opportunities in the consumer enterprise and automotive market. And finally, I'd like to reiterate the continued need for specialized antenna companies such as Airgain across the wireless industry. And I believe that our unique product offering and years of experience in solving difficult RF engineering problems are increasingly becoming more valuable across the technology ecosystem. And with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

The first question comes from Karl Ackerman of Cowen & Company. Please proceed.

Good afternoon everyone. Jim and Anil, a lot of focus on the guidance for the March quarter. How much of a sequential decline in March is coming from channel inventory digestion and perhaps other imbalances in your customer supply chain as they attempt to mitigate tariffs? And secondly, I know it's early in the year but I'm curious if you have a view yet on the full year revenue run with it. Do you think the net of the seasonality of those supply chain issues, it's still a sizable positive of the technology of 2019?

Thanks a lot for that question. Good question. So, there are two parts of it and let me take the first part. Remember, and this is something we've talked about in the previous several quarters. Our lead times are very short, right? I mean, unlike semiconductor companies that could have lead times as long as 15 to 20 weeks, our lead times tend to be more like three to five, four to six weeks. So in a way what ends up happening is that if you look at the channels inventory, at least from our point of view on our component, that's not much of an issue there. Now, when you take this problem and go across the whole supply chain and look at the inventory issues at our customers, that's the second issue. Now, the way I look at it at this stage, based on what we have seen and as you know, we uniquely positioned in the component industry because of our focus on more high-end or more cutting-edge products and we're in the midst of a product cycle. At this stage, we are of the opinion that from an inventory point of view, at least from our perspective, that is not much of an issue. So that is not what we are looking at. Now, as we switch into the year, as I pointed out earlier on, based on the investor feedback and based on internal deliberations, what we decided to do is revert to quarterly guidance and I think that is what more or less investors wanted. Now, when I look back at the full year -- I will let Jim add some color to it, but in general, our thoughts are positive. As we said, we are in the product cycle that kicked off in the second half of 2018 and as we go into 2019 that product cycle continues to move. Now, we did talk about seasonality in the first quarter, but where we are today and the way we look at 2019, based on what we're seeing on the 3.0 to 3.1 [ph], the greater proliferation of AC, in general, we feel that our end markets are growing healthy and we feel positive. Jim, I don't know whether you wanted to add.

Yes, I think I'll add to the really starting in the second quarter and beyond because I think Anil addressed the first quarter for effectively. Our attitude is sequentially, we become more positive as the year developed second, third and fourth quarter. Due to the transformation and the movement in the HC, we should be on full strength going into the second quarter and incrementally drive our business forward. Our win rates, as we explained before, both in the consumer and the enterprise, continue to strengthen and a real positive that we had frankly, was the auto OEM marketplace are moving into the infotainment area. Originally, when we went after the automotive, it was primarily going to be driven on what's going on in the B2B in the VTE which we didn't see any real revenues for probably '21 or likely '22. What's happening, there's a movement now on the OEM and we've been successful now on two engagements during the last several quarters that'll be moving the OEM we think revenue sooner than later. So we're pretty positive about that. So going into the second half or the second part of the second half, we see nothing but positive trends and we think we're well-positioned for that.

That's very helpful. I appreciate that. As my fault, if I may, one of your ecosystem partners has talked about shifting from single-band to dual-band routers. And while I'm not asking you to comment on that particular partner, I'm curious how you see the industry broadly adopting dual-band as well as the content uplift perhaps from that over the next 12 months. Thank you.

I would have Jacob, our President address that.

That's a really good question. So, as you can see, they say moves off single vein typically own the 2.4 frequency band would be combinations of 2.4 in [indiscernible]. So, you do see that transformation across the industry and for us, we would have the right product back in cover a single-band or the dual-band and actually the people already talking about a tri-band. And we're more than we'll prepare for that. And that really fits our expertise. Do you remember what we are known for? The more complex the system, the better off we are and it's our motto pretty well.

[Operator Instructions] The next question comes from the line of Alessandra Vecchi of William Blair. Please proceed.

I guess my question is around the antenna plus revenue. As you said, it was up pretty significantly year-over-year and sequentially as well grinds it slightly lower base and Q3. As we look at that revenue for 2018, I'm estimating it was about 13% of the total. How do we think about that as we started going through 2019 and 2020 in terms of potentially a percentage of total revenue and where you see that business going?

Thanks a lot for your congrats to us. I think a couple of things, as we had antenna plus and as we acquired, what we said was kind of low to mid-teens is what we were expecting these guys to kind of contribution. And I think we more or less feel that we're kind of on track in this year. Now, as we look at 2019 and 2020, we are optimistic. We believe that this asset is going to be a positive on our margin profile and we believe that it's going to be positive on a goal profile. So, we are optimistic. We're not going to be giving out the breakdown quantitatively as we're going into 2019, but fair to say that we believe antenna plus should be a tailwind to our business over the next two years.

Maybe I could add something to it. If you recall my remarks earlier about the infotainment area, there is a perfect example of the merger between antenna plus and between Airgain, that that technology quite frankly is derived both from our organizational structures because it will fit the profile of what the antenna plus did with the capabilities that Airgain had on custom design. So I think you're going to see more and more of that would that that some of the complex designs that come out will be an integration between the antenna plus acquisition and between the Airgain. And what it allows us to do, which quite frankly I'm excited about is, A; our margins improved, B; our ASP increases. And that's always been the goal. It was never been the goal that these will be two independent directed activities. We should see more and more integration and bringing the strength of the two companies together to go after problems we couldn't quite frankly, solve several years ago.

Okay, that's fair. And then just on the gross margin front, and you said you throw out Q4 was the bottom and margin should improve the rest of the year. How do we think about the long-term target margin there as we look maybe a year or two out?

Good. So, Alex, before I answered the question, let me also build up a little bit on kind of the moving parts. And this is something I've told in the past and I kind of repeat myself. There's two or three components of a gross margin, right? There is an engineering component. You know, how efficiently you design a product, there's an operations component, how well and efficiently you run your contract manufacturers. And then there's a sales component where you actually price the product. All these three combined contribute to gross margins. And if you hear what Jim and I had been talking about since taking over the company early in the year, we were going about fixing each of these issues. And on the gross margin front, the last part that we were focused on was on the operations front. And what I feel confident about at this stage is that we have resolved most of these issues and we're going to incrementally add one or two contract manufacturers and it takes a little bit of an investment. Now, in terms of the cadence or the slope, we believe that there should be an upper trend. I like to believe that our long-term gross margin should revert back to our historical averages, right? Our aspiration is that's where we believe we can get to. Now, if you're wondering the cadence on how we go from Q1 to Q1 all that stuff at this point, we're not talking about it. We're not highlighting and providing that level of granularity largely because as we speak, there are many decisions that I'm making right now where it's a combination of benefiting as well as investing. So we feel good. We feel that we're going to get back into our long-term gross margin trend. And you'll start seeing the benefits of it in 2019. And Jim, I didn't know you wanted to add to that.

Yes, let me just add to that Alex. If you take what we said really at the beginning of the second quarter on what we're going to focus on operating efficiencies then on marketing sales organization, then reengineering our engineering department, you'll notice that the results of those were reflected in our business results quickly because they put themselves into that. At the same time, if you recall in the second we went over, we spent time in China working with the factories, working on cost downs, the group just went over went back several weeks ago picking a new supplier and what you're going to see in order to get the margins back to where we want them and we are highly competent this is going to happen, this is a longer term solution because we got to get it through the inventory. We have to get it through the process. We got to get it through the factories. But the tight integration now between what we're doing in research and development and A, what we're doing in sales, now we can make sure we're designing products that have the cost effectiveness that we want. At the same time, we have worked into the factories to look at the bill of materials, to look at how we can get cost downs and how we can drive profitability there. At the same time, we're working at bolting up new factories, which quite frankly, and the new factories we're looking at, we see a substantial improvement in cost. Now, after nine months, I think you're going to start to see the same results that you saw in the operating expenses. You're going to see in the margins going forward between the first, second, third and fourth quarter and there's no reason we can't get back to our historical margins in the business and we are dedicated and focused on doing that as kind of the last tail of what we had to do to turn this company around.

At this time, this concludes our question-and-answer session. If your question was not taken, you may contact Airgain's Investor Relations at investorsatairgame.com. I'd now like to turn the call over to Jim Sims for closing remarks.

Well, I want to thank all of you for joining us today, and I especially want to thank our employees, partners, and investors for their continued support. We absolutely look forward to updating you on our next call with the continued progress of the company. So, thank you very much. Operator.

This is collaborative to this conference call, you may now disconnect.