Good afternoon. My name is Therese, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks' First Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Mr. Peter Schuman, Vice President, Investor Industry Analysts and Public Relations. You may begin your conference.

Welcome and thank you for joining us today for Cambium Networks' First Quarter 2024 Financial Results Conference Call, and welcome to all those joining by webcast. Morgan Kurk, our CEO; and Jacob Sayer, our CFO, are here for today's call. 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 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 forecasted performance. These statements are based on current conditions, 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 make changes in Cambium's expectations or otherwise. It is Cambium Networks' policy not to 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 and our most recent Form 10-Qs and 10-Ks filed with the SEC. 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 for 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. Morgan will provide the key operational highlights for the first quarter 2024, and Jacob will provide a recap of the financial results for the first quarter 2024, and we'll discuss our financial outlook for the second quarter and full year 2024. Our prepared remarks will also be followed by a question-and-answer session. I'd now like to turn the call over to Morgan.

I want to begin by first introducing Jacob Sayer, our new CFO. For those of you who didn't see our press release, Jacob joined Cambium from Sensata Technologies, a global industrial technology company with over $4 billion in revenue, where he was most recently VP of Finance and Head of Investor Relations and previously held divisional CFO roles for the various segments of Sensata. Jacob has 15 years of experience with technology companies and another 17 years of experience in various investment banking roles. We are pleased to have him on board to help drive operational excellence, strategy, growth and value creation. I would also like to thank John Veseral for stepping up as interim CFO for the past quarter. As expected, the FCC finished the process for the long-awaited approval of 6 gigahertz spectrum in Q1, although later in the quarter than we had hoped, leading to lower-than-anticipated shipments of our Point-to-Multi-Point, PMP products. In the last week of the quarter, Cambium received final approval for our ePMP 4600 6 gigahertz access point products and standard power subscriber models with high-power subscriber modules expected to be approved in May. Summarizing the performance of Q1 '24. Revenues for Q1 '24 were $43.2 million. The shortfall to guidance was mostly related to delays in defense orders in North America and Europe in the Point-to-Point, PTP business, which decreased 34% sequentially. We expect sequential increases in this portion of the business throughout 2024. Our PMP business in North America was slower than anticipated, decreasing 14% due to the aforementioned timing of the 6 gigahertz product approval process by the FCC late in the first quarter. The FCC approval is anticipated to drive sales of Cambium's new 6 gigahertz ePMP 4600 and PMP 450b product lines, both of which are available today. On…

While the Q1 '24 results are below expectations, we do see the business beginning to improve and can now look forward to growth. The Q1 '24 revenue shortfall was isolated to delays in government orders in the PTP business and the timing of approval for the 6 gigahertz PMP solutions later in the quarter than expected, the impact of which we expect to be behind us shortly. Q1 results included additional inventory charges and additional supplier commitments, which impacted gross margins by approximately $7 million and reflect the current state of the market and product demand. Without these charges, gross margins would have been approximately 39.2%, which would have been closer to the original forecast at the start of the quarter, but only slightly lower due to the impact of mix within defense products and PTP. We continue to work hard on managing our operating costs to align with the current forecast for 2024 and are focusing resources on those products and projects that are most critical for Cambium's future success. Turning to the quarter. Cambium reported revenues of $42.3 million for Q1 24. Revenues increased by 5% or $2.1 million sequentially. The majority of the increase in revenues was the result of improved order volume for our enterprise business in both North America and Europe, albeit from a low base. While PMP revenues decreased 14% quarter-over-quarter due to the delayed timing of approval for 6 gigahertz products in the United States and the territories. This was partially offset by some recovery for the PMP business in Europe during Q1 '24. PTP defense revenues were lower due to delays for defense orders in Europe and North America after strong year-end results. By region, Europe increased 146% sequentially as a result of recovery in the enterprise business, while other regions decreased…

We continue to work with our channel and end customers to manage inventory and improve efficiency while maintaining service levels. This has and continues to impact revenue. However, we believe we started this work earlier than others and expect the equilibrium to occur by the end of Q2. We continue to focus on our internal processes to ensure that we don't overcorrect and fail to meet our customers' demand while minimizing inventory throughout the supply chain. Our PMP business is well positioned to grow with the newly released 6 gigahertz spectrum as our WISP customers compete with other broadband solutions on speed and reliability. Our platforming activities continue to progress with both architectural decisions and beginnings of development in both hardware and software. While the benefits from these initiatives will be in the future is one of the most important actions we can take impact our long-term prospects, driving faster initial development, decreasing feature implementation time and lowering cost. After my initial review of the business last fall, over the past 3 months, I've been working with our go-to-market teams and our customers to make sure where we are going is aligned with where our customers need to go in our highly competitive markets. I'm pleased with the level of access Cambium has to its end customers and the interest our channel has in driving the business forward. I intend to continue to be directly involved with our sales force and customer base to ensure that the direction we're going and the decisions we are making are fully aligned. While there continue to be challenges both internally and throughout the industry, I'm encouraged to how we meet these challenges, solve problems efficiently and effectively and help move the industry forward. I'd like to share my continued appreciation for the effort and collaboration of our employees, partners, customers as well as the investor support. With that, I'd like to turn the call over to Therese and begin the Q&A session.

[Operator Instructions] Our first question today comes from Scott Searle with ROTH MKM.

Jacob, congratulations and welcome aboard. Maybe just a quick clarification. I'm not sure if I heard it, but Morgan in the past, I think you've talked about enterprise or Wi-Fi sell-through. I'm wondering if there was a number there. I also wanted to clarify the gross margin impact on reserves. I think it was about $7 million. I wanted to clarify that. And then looking into the guidance for the full 2024, it implies a pretty significant uplift in the second half of this year, I think, north of $58 million a quarter. What gives you the comfort and visibility at the current time? And then I had a quick follow-up.

Yes. So I'll start off, Scott, with the question on enterprise sell-through. It maintains a healthy level, very similar. I think we've said in the past in the $15 million to $20 million range, the range we're giving you, and it hasn't changed much this quarter at all. And we're working to start to drive that number up. And I'll let Jacob talk specifically to your other portions of the question.

Yes, you heard correct, Scott, in terms of the gross profit impact on E&O reserves that was $7 million in the quarter. And then the last in of your question was regard to the uplift in the second half of the year. You're absolutely right. We are expecting an uplift in revenue in the second half of the year. That primarily comes from the inventory contraction in the sales channel with distributors falling away. That's been a pretty significant headwind for the company as inventory levels have come down over the last 4 quarters. We expect that, that process will come to an end here near the end of the second quarter of this year.

And if I could, Morgan from a high level, BEAD is starting to get into the grand phase still early, significant number of dollars that are available there, right, in terms of the $42.5 million. But wireless has been, I guess, a second candidate technology for that, right? It's a fiber-first mantra in effect, but there are initiatives to try and push wireless as a viable medium within the BEAD deployments, particularly given that this is a last time effort to connect the unconnected and that wireless is a much more cost-effective medium to be able to do that. So I'm wondering what your early thoughts are in terms of wireless and point-to-multipoint participation in the BEAD program and specifically maybe coupling 6 gigahertz into that conversation.

Sure. So a couple of things. So are funding, which has been out for a while requires a set level speed but does not require licensed spectrum. So 6 gigahertz is absolutely applicable towards this, and our customers are eagerly starting to deploy and want the 6 gigahertz for that. In the case of BEAD, BEAD has some additional restrictions. BEAD can only be put on license spectrum. So that has to be done in the 3.5 gigahertz range. And while we think there will be some uplift from this, it is probably not so much a 24 event, probably more like a 25 event.

Great. Thanks. I'll get back in the queue.

Our next question comes from Simon Leopold with Raymond James.

This is Victor Chiu in for Simon. You noted lower-than-expected 6 gigahertz shipments this quarter because of the delayed FCC approval. Does that shortfall kind of mostly roll into Q2? Or has that recovered kind of through the balance of the year? Maybe how do we think about that?

Yes. So there are still, I'll call it, learnings to go on in 6 gigahertz. So I don't think that just rolls into Q2. It's probably more rolling throughout the year. So 6 gigahertz is different for our customers than 5 gigahertz because of AFC because they have to be granted various pieces of spectrum and then how they could use it varies based on what current users of the band are doing. And so I think we're going to see some learnings and this will take sort of 3 to 6 months for people to really get a better understanding of how they do mass scale deployments and then we'll see a significant take off on it. I'd probably model it to take on throughout the year.

Okay. So even without the delay, the 6 gigahertz ramp was a little slower than kind of what.

Than we had originally anticipated yes, I think that's a good way of putting it.

That's helpful. And then just a quick follow-up. Can you give us an update around progress with the adoption of the 60 gigahertz product? And how we should think about mention that?

Sure. On 60 gigahertz?

Yes.

So we're actually finding success in this product line with, I'll call it, enterprise customers more than we had thought. We're using it for a variety of projects for what I'll call it, our original intended base, but we're finding that there are other markets. So I'm hopeful with that. But it's a slow build, I would say. It's not going to be a step function. It's going to be a continued drive and increase. And the reason for this is economics. There are specific areas where this makes a lot of sense where you have to transport a lot of data for a relatively short distance. And you don't want to be -- have any chance really of interference. And so it's not like what I expect to happen in 6 gigahertz, where after [indiscernible] period, you see a big uplift. This will just be a slow growth.

Our next question comes from George Notter with Jefferies LLC.

I guess I was curious about the gross margin structure of the business. I think I heard you say 42% of the target for the year. But if you just sort of step back and think about where the gross margins would naturally land. Obviously, in Q1, you had some E&O expense, you mentioned that obviously, you're going to have some more scale relative to the run rates right now as the inventory comes off, the business rebounds? Like what do you think a good sort of run rate gross margin would be as the business normalizes?

Probably, George, in around the 40% range for the business. Obviously, there's a range of gross margins by product family with defense being at the higher end of those. But yes, 40% overall is probably a good modelling rate.

So you were trying to -- for this year, are you referring to long term?

Long term.

Okay. So I think we have historically sort of modeled in kind of 50% was our target, and we were hitting a few points below that. I think we're going to -- it's going to be a bit before that occurs with the excess inventory in channel, the enterprise margins are suppressed as everybody is competing to get inventory out of channel. And that probably won't recover tremendously until Wi-Fi 7 becomes the dominant term. And so the long-term margins, we should be able to move back up as we get scale. But as Jacob said, for this year, that's what we're looking at.

Got it. So do you think that's what a 45% gross margin of 43% or 47%, like any kind of thought on what that might look like?

Yes, I think it's -- I think that the long term, it's certainly my goal is to have a north of 45%. And I think with our government business, which is higher than normal and with our focus on enterprise, which is higher than average, I believe those are 2.

Got it. Okay. And then I think you mentioned a bad debt expense going through G&A. Was that in the pro forma financials or excluded? I guess I'm trying to figure out how big that is and if it's in the numbers I'm looking at.

It's about $600,000, and it's in the non-GAAP numbers. We haven't excluded it.

[Operator Instructions] I'm showing no further questions at this time. So I will turn the call back over to Peter Schuman, Vice President, Investor, Industry Analyst and Public Relations for the closing statement.

During Q2 '24, Cambium Networks will be presenting and meeting with investors virtually on Thursday, May 16, 2024, at the Needham Technology Media and Consumer Conference on Tuesday, June 25, at the Northland Growth Conference. In the meantime, you're 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.

Thank you, everyone. You may now disconnect from the phone call.