Good afternoon. Welcome to Airgain’s Second Quarter 2024 Earnings Conference Call. My name is Joe, and I will be your operator for today’s call. Joining us today are Airgain’s President and CEO, Jacob Suen, and CFO, Michael Elbaz. As a reminder, this call will be recorded and made available for replay via a link found in the Investor Relations section of Airgain’s website at investors.airgain.com. Following management’s prepared remarks, the call will be opened for questions from Airgain’s covering analysts. I caution listeners that during this call, Airgain management will be making forward-looking statements about future events as well as Airgain’s business strategy and future financial and operating performance. 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 are qualified by the cautionary statements contained in today’s earnings release and Airgain’s SEC filings. This conference call contains time sensitive information that is accurate only as of the date of this live broadcast, August 6, 2024. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call will include a discussion of non-GAAP financial measures. Please see today’s earnings release for further details including a reconciliation of GAAP to non-GAAP results. Now, I’d like to turn the call over to Airgain’s CEO, Jacob Suen. Jacob?

Thank you, operator. Welcome, everyone, and thank you for joining us this afternoon. To begin today’s discussion, I will give some company background, followed by a review of our performance for the quarter, before handing the call over to our CFO, Michael Elbaz. He will review our financial results for the quarter in more depth as well as provide our outlook for the third quarter. After that, I’ll share some closing remarks before opening the call for questions. Before we dive into our quarterly results, I would like to take a moment to introduce Airgain to those who may be new to our story. At Airgain, we simplify wireless connectivity across the value chain from embedded components to integrated systems. Our primary markets encompass the enterprise, consumer, and automotive sectors. Within our enterprise market, our products include embedded cellular modems, asset trackers, custom IoT products, 5G IoT antennas, our new 5G fixed wireless access device, and our 5G Smart Network Controlled Cellular Repeaters. Our consumer market is comprised mostly of our embedded antennas business, a traditional area of expertise for Airgain. Our consumer products include custom embedded antenna design for customer premises equipment devices such as those that enable Wi-Fi 6E and Wi-Fi 7. Lastly, our automotive market encompasses both aftermarket antennas and vehicle networking devices, notably our AirgainConnect Fleet solution. The global connectivity opportunity is substantial and enduring. We believe secular trends, including increased adoption of connectivity technologies and expanding addressable markets across our product range will drive industry and company growth. Airgain has consistently developed and delivered optimized wireless solutions, enabling our channel partners and customers to connect efficiently. As new technologies emerge, we are well positioned to continue providing cutting-edge products to meet evolving demands. Turning now to a review of our recent operational results in three…

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 reconciliation can be found in our earnings release. Now, let’s turn to our second quarter results. As Jacob mentioned, Q2 sales were $15.2 million, above the $15 million midpoint of the guidance range. Our second quarter sales increased sequentially by $1 million, driven by strong contributions from our consumer market. While sales increased by 7% sequentially, they were lowered by 4% year-over-year, primarily because we are still addressing an excess inventory environment. Enterprise sales were $8.6 million, reflecting a sequential decrease of $0.3 million or 3%. The slight decrease in sales was due to the large shipment of custom products in Q1, which was mostly offset by increases in our embedded modems, asset trackers, enterprise antennas, and first shipments of our Lantern FWA product. Consumer sales reached $4.8 billion, representing a sequential increase of $1.3 million. This growth was primarily driven by a broad-based market recovery and the ramp-up of Tier 1 MNO shipments. Additionally, we completed our first shipments of Tier 1 MSO Wi-Fi 7 antennas. Automotive sales were $1.7 million, reflecting a sequential decrease of $0.1 million. Q2 gross margin was 41.5%, 130 basis points higher sequentially due to a higher enterprise margin and a favorable market sales mix. On a year-over-year basis, Q2 gross margin was 110 basis points higher as a result of continuous margin improvement in our automotive and enterprise markets. These improvements more than offset the unfavorable year-over-year market sales mix. Q2 operating expenses totaled $6.9 million, relatively flat sequentially. On a year-over-year basis, Q2 expenses increased by $0.3 million. Our first half of 2024 expenses amounted to $13.4 million, reflecting…

Thanks, Michael. A few closing thoughts before we take questions. First, I am immensely proud of our team’s unwavering commitment and tireless dedication to our strategic roadmap initiatives. We are currently developing several groundbreaking products under stringent timelines. As of today, I can confidently report that we are not only executing on our promises, but also maintaining our scheduled milestones. This remarkable achievement is a testament to our team’s exceptional dedication and the expertise of our highly effective management team. Second, our outlook on market potential and industry recovery remains optimistic. Despite ongoing challenges in certain product segments, we have achieved significant progress across multiple facets of our business, including product innovation, partnership expansion, and geographical diversification. We are maintaining our investment in new product launches and bolstering our salesforce as part of an assertive growth strategy designed to counter the industry-wide inventory correction. We are confident that our resilience and skillful navigation of these challenges will yield substantial returns in the coming quarters. Third, our products remain the cornerstone of our value proposition to customers in light of emerging industry trends, including the transition to Wi-Fi 7, growing demand for asset tracking capabilities, and persistent challenges in 5G coverage. We are confident that the global connectivity opportunity is not only vast, but expanding. Many regions worldwide represent untapped markets for both our industry and our business. For instance, our next generation Smart FWA, AC Fleet, and Lighthouse Smart Repeater products are designed to address critical connectivity challenges and have garnered significant interest from major industry players. We believe these innovations distinguish us as a pivotal force in our sector. Q2 has seen us not only sustain our operational excellence, but also make substantial progress on our strategic initiatives. Our team’s performance reinforces our strong confidence in the effectiveness of our forward-looking strategy. We are really optimistic about Airgain’s growth trajectory and are well positioned to capture market share. And with that, operator, please open the call for Q&A.

Thank you. We will now take questions from Airgain’s sell-side analysts. [Operator Instructions] And our first question comes from the line of Anthony Stoss with Craig-Hallum. Please proceed.

Hi, guys. Good afternoon and nice execution both for the quarter and the guide.

Thank you.

Thank you, Tony.

Jacob, I wanted to start with your comments about, I believe, you said it was a European design win for your antennas that should be shipping late this year. Can you maybe describe the opportunity and kind of the nature of this customer, if there are other customers that you can attack quickly? Then, I have a couple of follow-ups.

Yeah, sure. Yeah, so this is a design that we actually work with our partner in another OEM out of Taiwan for the last, I would say, year plus. It’s actually one of the major, I would say, carrier in the U.S. space. And they’re encompasses not only the Germany market, but other markets as well in Europe. It’s a gateway. We actually – this is more of our traditional business, where we actually do the design with the Wi-Fi 7 for this particular fiber gateway. And the expectation is that they’re going to begin shipping by the end of this year for the next 2 to 3 years. And, the volume will be, I would say, anywhere about 1 to 2 million devices per year.

Got it. Thanks. And then another one for you, Jacob, before I move to Michael, your asset trackers have been really strong, which is nice to see. Do you think that the inventory in the channel is kind of depleted, and what do you see in terms of design traction and kind of growth rates seems like that’s back growing pretty quickly again?

Yes. Actually, asset tracker relating to our overall IoT business, it’s an area of focus. We actually are coming up with several new products focusing on the asset tracking customers. Specifically, we talked about the railcar customers we want, and we’re actually winning new designs with these particular customers. And, we’re working on even longer-term contracts with these particular customers. In addition, we’re also engaging some opportunities in some of the flight applications, which I hope to be able to provide more color in the coming weeks. Last but not least, we’re also working on some of the strategic logistics customers’ partnerships. And we feel strongly about the asset tracking system being pivotal part of our future growth business.

Got it. Perfect. Thanks for the color. And then, just two quick ones for Michael, then I’ll jump back in queue. I’d love to hear your thoughts on gross margins kind of longer-term if we’re now set to continue to move higher kind of each and every quarter. And then, I know you’re only guiding for the September quarter, but I’d love to hear your thoughts kind of on seasonality for the December quarter, if you think December is subsequently flat down from September.

Thank you, Tony. So, gross margin has been a continuous focus for us for the past year-and-a-half. We haven’t seen the result of all the efforts up until now, which is actually coinciding with the dissipation of some of the excess inventory that the industry still faces. But, overall, just to give you some color on that and just on some of those broad changes taking place, we certainly over the past year have introduced some high performance antenna products and also some asset tracker products that are premium and so, therefore, garnering a better than average gross margin. We certainly want to continue with the product portfolio expansion on new products that are really focused on premium or high performance. We also have a continuous focus on product cost reductions and margin improvement and we have done so over the past 3 quarters. And then, finally, this leverage of the CM model that we have talked about is definitely very helpful now that the excess inventory in the channel has dissipated. And then in addition to that would be the launch of the product initiative, which we expect to be higher gross margin. That overall so far has been able to offset some of the price pressure that we have seen because of the excess inventory force right now. So, overall, I would say this is a key focus for us and we expect to see some margin improvements in future quarters.

Just your thoughts on December seasonality are up, down, sequential flat, just any initial thoughts?

December, I believe that the AC Fleet is going to be a key determinant in terms of the direction of our overall growth altogether. And so, right now, we just focus on the full execution and the customer trials that we are undertaking right now.

Okay. Very good. Thanks, guys. Best of luck.

Thank you, Tony.

[Operator Instructions] And the next question will come from the line of Tim Savageaux with Northland Capital Markets. Please proceed.

Hey, good afternoon, and congrats on the results and the outlook as well. I want to kind of continue with that thinking about heading into year-end. On the consumer side, you talked about, and Jacob wasn’t clear whether it was the cable MSO design wins you expect to be positively impacting Q3 or whether they’re really kicking in yet. And, of course, you mentioned a couple of others as well. So obviously, expect consumer to grow in Q3 looks like pretty decently, given the gross margin guide, I’ve seen that’s mix effective. It seems like there’s – whether it’s seasonality or ramping design wins, a decent reason to believe that consumer strength continues into Q4 that’s independent of AC Fleet. But I just want to kind of bounce that scenario off to you guys and see what you think.

Hi, Tim. This is Michael. So the Q1 MSO design win that we announced and got the PO that we announced also last quarter, that we started shipment in Q2, and we’re seeing a strong ramp in Q3. And we’re hoping and we expect that that ramp will continue on into Q4 as well, too. Other Tier 1 MSOs may be delayed on their Wi-Fi 7 deployments, so we may expect that to be taking place at the end of the year. But the other part that is fueling some of that growth on the consumer market is really the MNO Tier 1 design win that we announced last November. That one continues to also ramp in the shipment itself. So, right now, we certainly are optimistic about Q3 and optimistic that the trend hopefully will continue on into Q4 as well, too.

Great. And kind of following up on that, you talked about some inventory on the custom product side and enterprise. I don’t know if there’s a timeframe and also some offsetting drivers across the rest of the product line. Is there a timeframe that you expect that to clear? Would you expect that to persist, again, through the end of the year to kind of keep a lid on enterprise growth until next year? Would you expect that to…

Yeah, that one is – yeah, sorry, go ahead, Tim. Tim, go ahead.

No, I was just going to say, would you expect that to persist for a few quarters or clear any earlier?

Yes. And I think this is a great question, because the broad demand softness that we’ve seen last year has become much more product and customer-specific, and this is one of those. This is something that we have learned in the beginning of the year, and we are monitoring very closely with our strategic customer on their excess inventory levels, and we don’t have a timeframe as of yet as to when it will be clearing, but this is certainly something that we are watching very carefully. But the overall excess inventory, as I mentioned before, is becoming much more customer-specific, and we expect that to be clearing over time, and there is no reason to believe that that would be an overall persistent headwind for us, so this is more of a timing at this point, Tim.

Okay. Great. And then maybe last question for me, a little higher level, sort of like the way you frame the kind of 5G connectivity or coverage sort of portfolio across Lantern, Lighthouse, and AC Fleet. I mean, as you look at the opportunities heading into 2025, at this point, are you ready to talk in any way about, what kind of, I guess, incremental revenue contribution, if you look at that portfolio that you’re targeting or would be happy with or disappointed by, yes, as you’re looking to 2025 or any sense of the size of the pipeline?

Yeah, great questions, Tim. I’ll talk about the business and I’ll let Michael take the harder questions about revenue projection, because we typically don’t guide. But certainly from a business perspective, we are very optimistic about the major initiatives. As I indicated earlier, we have been executing according to schedule. The Lantern FWA was successfully launched in second quarter and AC Fleet, which is a phenomenal product, highly differentiated, all-in-one gateway. It’s due to go out by the end of September. We actually have trials ongoing and the initial feedback has been phenomenal. Some of the feedback we got is very easy to install and this is one of the major differentiation. And the performance, this is so much better than otherwise. So all-in-all, we’re already getting a lot of feedback and we anticipate to have 25-plus customers up and running on the trial in the next week or so. So things are moving along quite well and we do see the AirgainConnect, or AC Fleet, being the main driver as we enter into Q4 in 2025 in particular. This is the one we’re focusing on both direct and indirect. Indirect are going through the vast channels targeting mostly public safety customers; and the direct are the private and public fleets and we are really engaging in both avenues. And then, the Lighthouse also really pleased the trial we have done. I mentioned to you last quarter about a live networking trial with Lighthouse. It was done completed in second quarter. It also went very well. The in-building service testing, we’re able to achieve almost 25 times the performance over the existing on the down-line, and about 8 to 10 times the performance improvement over the up-line. We’re also testing an outdoor device where the base station, we were able to achieve before, we’re able to improve another 30% to 50% range. So we’re able to extend the range of the sale edge by another 30% to 50%. So, I think that it was really successful. The customers were very pleased to see those results, and we’ll see with them on the next engagement topic, which is commercialization. So all-in-all, we are optimistic about where we’re heading into 2025 and even 2024 Q4. And I’ll let Michael answer about some of the potential revenue projections.

Sure. So, Tim, overall, I would say we are very optimistic about the traction that we are in right now, not only from a product execution standpoint, but also the customer trial. There is definitely a long sales cycle, especially when we are looking for AC Fleet in terms of strategic partnership with direct customer. That will take some time, especially because of the overall budget windows that some of those larger customers have. Likewise, in Lighthouse, we’re talking about an infrastructure type of a product that is definitely getting into a long sales cycle, but we are very encouraged by all the trials taking place at this point. As Jacob mentioned, we do believe at this point that the AC Fleet will be the primary driver from all those product initiatives, simply because Lighthouse will take some more time from a sales cycle. And Lantern is more of a very premium niche type of a market designed for premium enterprise and residential customers that require extended coverage and performance. However, in terms of next year and the thought process for next year is that if we are looking to be relatively flat to single-digit growth on our existing business to get to the higher growth that we all are vying for, the launch of those products is going to be very key for us. And so, at this point, I would say we’re optimistic.

Thanks very much.

Thank you, Tim.

Thank you. At this time, this will conclude our question-and-answer session. If your question was not taken, you may contact Airgain’s Investor Relations team at AIRG@gateway-grp.com. I’d now like to turn the call back over to Mr. Suen for his closing remarks.

We sincerely appreciate your participation in today’s call. I would like to extend special recognition to our exceptional employees for their tireless efforts and invaluable contributions. Equally, we are grateful to our investors for their steadfast support and trust in our vision. We eagerly anticipate sharing further updates with you at our next opportunity. Operator, we can now conclude the call.

Thank you for joining us today for Airgain’s second quarter 2024 earnings call. You may now disconnect.