Good afternoon. My name is Sean, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks' Second (sic) [Third] Quarter 2022 Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Peter Schuman, Vice President, Investor and Industry Analyst Relations, you may begin your conference.

Thank you, Sean. Welcome, and thank you for joining us today for Cambium Networks third quarter 2022 financial results conference call and welcome to all those joining by webcast. Atul Bhatnagar, our President and CEO; and Andrew Bronstein, our CFO, are here for today's call. The financial results press release and CFO commentary referenced on this call are accessible on the investor page of our website and the press release has been submitted on a Form 8-K with the SEC. A copy of today's prepared remarks will also be available on our investor page at the conclusion of this call. As a reminder, today's remarks, including those made during Q&A, will contain forward-looking statements about the company's outlook and expected performance. These statements are based on current expectations, forecasts, and assumptions. Risks and uncertainties could cause actual results to differ materially. Except as required by law, Cambium Networks does not undertake any obligation to update or revise any forward-looking statements for any reason after the date of this presentation, whether as a result of new information, future developments, to conform these statements to actual results or to make changes in Cambium's expectations or otherwise. It is Cambium Networks policy to not reiterate our financial outlook. We encourage listeners to review the full list of risk factors included in the safe harbor statement in today's financial results press release. We will also reference both GAAP and non-GAAP financial measures and specifically note that all sequential and year-over-year comparisons reference non-GAAP numbers except where otherwise noted. A reconciliation of non-GAAP measures to GAAP is included in the appendix to today's financial results press release which can be found on the investor page of our website and in today's press release announcing our results. Turning to the agenda, Cambium Networks' President and CEO, Atul Bhatnagar, will provide the key investment highlights for the third quarter 2022 and Andrew Bronstein, Cambium Networks' CFO, will provide a recap of the financial results for the third quarter 2022 and present our financial outlook for the fourth quarter 2022. Our prepared remarks will be followed by a Q&A session. I'd now like to turn the call over to Atul.

Thank you, Peter. Cambium continued growth in our third quarter with revenues of $81.2 million, increasing 17% sequentially, ahead of the high end of our outlook of between $72 million to $76 million announced during the Q2 '22 quarter call. Profitability improved significantly, with strong gross margin and EPS of $0.40, ahead of the high end of our outlook of between $0.16 to $0.20. We saw improved supply of components for enterprise products including record revenues for Wi-Fi, switching, and SaaS solutions. Cambium had better product mix and spending was lower than anticipated due to our tight cost controls. We anticipate improving demand for fixed wireless Point-to-Multi-Point PMP solutions driven by new technologies and stronger demand for Point-to-Point PTP for defense applications. Our enterprise solutions also remained strong, and we expect further improvements in the supply chain. We had an exceptional quarter for our enterprise solutions, with record demand, growing 60% sequentially and increasing 257% year-over-year, including record Wi-Fi 6, Wi-Fi 6E, and switching revenues. Our switching business had strong backlog which we were able to fulfill during Q3 '22. We continue to gain market share and now expect our enterprise business to grow by more than 50% for calendar year '22. During Q3 '22, we shipped our 13 millionth radio as a standalone company. Cambium's ONE Network solution is a compelling choice for wireless infrastructure projects around the world, featuring our attractive total cost of ownership, cloud-managed wireless fabric of solutions integrating multiple communications standards, and emerging broadband technologies, with network management from a single pane of glass. Turning to the results of the third quarter 2022, looking at revenues across our product lines. Our PMP business revenues decreased 8% sequentially and decreased 48% year-over-year, due to lower demand as service providers move from our legacy PMP 450 products…

Thanks Atul. Cambium reported revenues of $81.2 million for Q3 '22. Revenues increased by 17% quarter-over-quarter and increased by 7% year-over-year. During the third quarter, our global supply constraints continued to ease, leading to increased production and shipment of our high-demand enterprise products. On a sequential basis for Q3 '22, revenues were higher by $11.9 million. The higher revenues were primarily the result of increased enterprise solutions, while PMP revenues were lower for legacy PMP 450 products ahead of customers anticipating a technology transition, partly offset by improved supply benefitting ePMP shipments, while PTP revenues were down slightly. Moving to our gross margin. Our non-GAAP gross margin was 51.3% was significantly better than anticipated, increasing by 350 basis points compared to Q3 '21. The year-over-year increase in our non-GAAP gross margin was the result of higher volumes and a greater mix of higher margin enterprise and PTP products. On a sequential basis, non-GAAP gross margin improved by 240 basis points compared to Q2 '22. The higher quarter-over-quarter non-GAAP gross margin was the result of higher volumes, an increased mix of enterprise solutions, tight cost controls, lower freight costs and increased pricing, offset in part by higher component costs due to inflation and supply chain challenges. In Q3 '22, our non-GAAP gross profit dollars of $41.6 million increased by $5.4 million compared to the prior year due to higher volumes and improved mix of enterprise products, and increased by $7.8 million sequentially, due to higher volumes, improved pricing and a higher product mix of enterprise products and lower freight costs. This was offset in part by higher component costs due to inflation and supply chain challenges. While we achieved our target gross margin on a quarterly basis, our longer-term goal remains a consistent non-GAAP gross margin target of 51% to 52%…

We delivered a solid quarter of results and are expecting a strong finish to the year, ending on a high-note with increased revenues, strong profitability, significant new product introductions, increasing chip supplies, and a return to growth for our PMP business driven by 60 GHz cnWave, 28 GHz cnWave 5G Fixed, and the imminent launch of affordable 6 GHz fixed wireless solutions. Our enterprise business remains strong, led by Wi-Fi 6 and 6E, wireless savvy switching products, and solid growth in our software-as-a-service solutions. The Cambium ONE Network integrated wireless fabric is resonating with customers and brings together ease of deployment, scalability of networks, and lower total cost of ownership as the world deploys next-generation high-performance wireless broadband. We remain focused on judiciously managing our costs, improving our operations, continuing to invest in innovative products to maintain our technology edge, and expect increased scale will benefit our future operating results. I'd like to show my appreciation for our employees, partners, and customers during these unprecedented times. This concludes our prepared remarks. So with that, I'd like to turn the call over to Sean and begin the Q&A session.

[Operator Instructions] Our first question comes from Samik Chatterjee with J.P. Morgan.

This is MP on for Samik Chatterjee. First of all, congratulations on a strong quarter. So my question is regarding like this quarter has been very strong. I just wanted to ask in your outlook given a tough macro situation and moderation in CapEx from service providers as well as the broadband -- like the broadband service providers as well as the telcos. So how do you look into 2023? How like do you still believe for a double-digit growth that you generally guide?

Yes. My overall message for 2023 is, we are very well positioned for solid growth. And there's a reason behind that. We prepared for this. If you look at the amount of innovation in the last two years we've been bringing about, and we are working very diligently on technology validations for the next-generation networks. So overall, our organic growth in 2023, I think mid-teens type of a number around that, we feel pretty good. 5G fixed rollout is happening. We are beginning to see larger deals and now proof points are coming, as I mentioned in my call. PMP definitely in Q4 starts turning around with these new products. We have proof points with 6 gigahertz, as I mentioned, 1.8 gigabit per second and 1.5 miles. Now we are beyond that validation and these networks will scale. Supply situation is improving for us. Enterprise growth continues and Cambium is a mid-tier market, if Cambium doesn't go out to a very large service providers worldwide, which is very seasonal, which is we go after the mid-tier market, both for enterprise and for service providers, which is very resilient for us. So Samik (sic) [MP], we feel pretty good about 2023.

[Operator Instructions] Our next question comes from Scott Searle with ROTH Capital Partners.

Nice job on the quarter, guys and I see the Wi-Fi business recovering pretty strongly there. Maybe just to dive right in to looking at your guidance for the fourth quarter, gross margin is coming down a little bit sequentially. I assume part of that is just margin mix, less Wi-Fi. So I was wondering if you could kind of talk us through the puts and takes on that front, particularly how you see Point-to-Multipoint ramping up into the fourth quarter and how the supply chain is behaving on that front?

Yes, I'll take that one, and thanks for the question. So we see the gross margin coming down a bit in the fourth quarter, and you're exactly right, it's because mainly of mix. And as we said during the commentary, we had -- we were able to fulfill some accumulating backlog, especially in the enterprise switch area. And the level of revenue that we see coming from that in the fourth quarter will likely be lower than the third quarter, and that will have an impact on the margin. Also, there's -- as we mentioned during the call product transition in terms of PMP, and we do see PMP beginning to get to a growth stage in the fourth quarter on a sequential basis. And that's going to be driven by the new products that we're introducing into the market and commercializing. And then also, we still see the impact of inflation in terms of cost increases from our suppliers. And that's one of the reasons for the increase -- the major reason for the increase that I mentioned in terms of our pricing beginning later on in Q4. That impact on pricing will have a very minimal effect in the quarter, but begin to ramp up more so in the second quarter of next year and a full impact in the third quarter as we look ahead. Maybe just a…

Scott, if I can just add to what Andrew mentioned. I think in general, Andrew and I both feel very good about our long-term model of 51% to 52% for 3 reasons. Reason number one, the software is playing more and more meaningful role in Cambium, and this again has been a 2-year work. Second, mix is also going to help us as we move forward with our new products, both enterprise and new designs, which are coming out. And third, defense is becoming, again, a larger business. So I think in general, the margin -- gross margin is in the right direction. And we feel pretty good, where we will be in terms of long-term model.

That's very helpful. If I could just follow up on that point, and then I had one follow-up. The -- just for the component challenges on the Point-to-Multipoint front. For the new products, are you pretty well positioned on that? And then talking about that 51% to 52% gross margin, is that something that's achievable in '23? And then if I could, specifically around 6 GHz, huge market opportunity there. I know you're just starting to ship now, but Atul, I was wondering if you could put a framework around it in terms of, I don't know, quantifying the interest level, what that pipeline of opportunity looks like? Or where you think that's going to be in 2023? Because huge, huge product opportunity there, given the price points that you can be delivering gigabit like speeds, I'm kind of wondering what's going to deem success for that product line when we're looking into 2023?

Okay. Let me take 6 GHz question, first, because I think that's a strategic question. We were very gratified and very pleasantly surprised as our 10 pilots come back with performance numbers in 6 GHz band. We never shared the performance number of that 1.8 gigabit at 2.1 miles. But now customers are saying, wow, very affordable products, very large bandwidth available. So 6 GHz is going to be a, I think, a very strong product line of Cambium. Having said that, I would still say that first half of '23 would be large sub trials, POCs across the board, and again, working with FCC, making sure AFC, all that gets approved, and we are working closely with them. So my sense is that second half is, when you will see lots of those POCs turn into production networks. So that's one key point. Second is the Cambium's key strategies based on merchant silicon standards based and very affordable pricing. So it matches all of that. So very excited and U.S. will lead it. Rest of the world, I think, will follow after that. And on the 51% to 52% gross margin, let me pass it to Andrew.

Yes. So on the long-term operating model of 51% to 52%, I think that we will see within the next two years. I do think that next year, as we continue to improve our mix and look at trade-off of headwinds in front of us in terms of inflation as well, the way we see it is we're going to be in around the 50% mark, which is a nice improvement over the past couple of years as well. And in terms of components for new products, yes, we are well positioned to be able to ship those out as soon as we are able to commercialize the products and get approval from the FCC, et cetera. And that's one of the reasons for the increase in inventory as we continue to strategically buy supplies for those products and getting ready for those product launches. So hopefully, that answers all parts of your question.

[Operator Instructions] And our next question comes from George Notter with Jefferies.

This is Kyle on for George Notter. We're trying to get a sense for how much of your Wi-Fi momentum right now is driven by demand versus more of the easing of supply that you're talking about or Wi-Fi components just easier to get than PTP, PMP. Can you quantify it at all? How much you thought the quarter came from benign supply versus demand picking up? And is there any other structural reason, why you'd see more growth in Wi-Fi versus PMP and PTP other than the fact that the PTP has this wait for effect going into the fourth quarter?

Thanks, Kyle. First of all, in Wi-Fi, Cambium is emerging as a strong mid-tier enterprise player globally. I think that's a pretty important statement I'm making. It has taken us 5 to 7 years with the right road map, right features, understanding customer needs. We are now a strong brand in that mid-tier segment. Just to give you an idea how much growth or acceleration or adoption Cambium is getting, we have added in last 3 quarters, 2,600 new customers. And the reason Cambium is winning is 3 words. Number one, simplicity. Our products are simple. Number two, we have added a lot of automation in cnMaestro for scaled enterprise networks. And number three, affordability. Our solutions have a lower total cost of ownership. And by the way, these words, our customers are telling us. And at this point, the segments which are accelerating for us are managed service providers serving multiple dwelling units, MDU markets, hospitality, healthcare, education. And we are beginning to get into some verticals globally, where these values of simplicity and lower TCO is playing very well. So I think, overall, this is not about chip supply. The bigger companies can get more chips than Cambium. Cambium is earning its way in through superior solution, superior TCO.

I would add to that, too, just in terms of your question about the level of shipments that happened in the quarter because of improved supply. I would quantify that somewhere around the $5 million range. And most of that is related to what we had said earlier about the switches that we were able to fulfill and get supply, get inventory to fulfill orders, where customers were really wanting that product -- that particular product and begin to fulfill those orders. So we'll continue to -- it's a very popular product. We're going to continue to see nice sales in Q4 and beyond. But in terms of being able to satisfy kind of backlog that was growing, it was about $5 million of shipments.

And Kyle, to add, we are making our solutions sticky, not necessarily by hardware. We are making our solutions sticky by providing APIs for smart locks, like, for example, for hospitality and hotels. We are providing a lot of good software in Maestro and making it easier for them to integrate Cambium products in their enterprise applications. So overall, we feel pretty good about 23% and continue the growth.

Okay, great. And one last one for me, it looks like the guide was solid for revenue and gross margin going into Q4, but OpEx seems a little higher. Are there specific areas that you're investing in maybe ahead of the launch of the new products? Is there some additional sales and marketing that you're doing? Could you contextualize anything important that you're spending on right now and when revenue scale might pick up to cover the OpEx investment?

Yes. There's really two areas. One is within R&D, and you're right about the new products and the right -- it's really regulatory activity that happens as a result of getting approvals ahead of those launches. And the other is with the success that we've had in the enterprise business this year, which, as you know, is going to be in that $100 million range of total revenues for the year. The sales compensation reflective of that and the people who sell those products will hit overages in the fourth quarter. So there will be some additional sales and marketing costs in the fourth quarter.

[Operator Instructions] Our next question comes from Paul Essi with William K. Woodruff.

First question is on your switch business, I know you're gaining market share there. You're growing very rapidly versus the market. How long do you think you can sustain that growth in the switches? And who are you taking market share from?

So Paul, first of all, switching is a very large market and there are a lot of generic players there. Our switching business caters to only wireless savvy products. The savvy -- we always say wireless savvy switching. And it's a very good companion to our Wi-Fi. Very, very good companion to Wi-Fi 6 and 6E products, it has a very good cloud management, single pane of glass. So I think overall, we'll keep growing, but this is not a generic switch. But for the wireless networks, for wireless internet service providers, for midsized enterprise networks, for smart city projects, very well positioned to grow in those markets.

Okay. Second question is on the 28. Your main competitor there, I'm wondering, are they going to be able to maintain the spend that you guys have? And do they have a 2 gig coming next year like you guys do? Do you know if there's one in the works?

On 28 GHz 5G, and I think Paul, you asked a very good question. I think the companies which are adopting 5G fixed are going to do well, because 5G is a very key standard, which is bringing a lot of key feature sets and speeds and feeds. And again, we bet on that 3 years back, and now we have the products. It has taken us good investments. I think who are wants to enter has to also invest substantially. As of now, you will see, Cambium as a very key leader in 5G fixed. I'm not talking 5G mobile, 5G fixed. And we don't believe, as of now, there is another company, which has the kind of feature set and performance we have. And that's why we are beginning to close those deals. We always had the POCs going now they're turning into production networks. So the key answer, I don't know another company, but as the market expands, I'm pretty sure others will enter as well.

At this time, I would like to turn it over to Peter Schuman for closing remarks.

Thank you, Sean. During Q4 '22, Cambium Networks will be presenting and meeting with investors on November 15 at the Needham Virtual Security Networking and Communications Conference; and on November 16 at the ROTH Capital Technology Conference in New York, and December 13 at the Oppenheimer 5G Summit. In the meantime, you are always welcome to contact our Investor Relations Department at 847-264-2188 with any questions that arise. Thank you for joining us and this concludes today's call.

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