Alexis Waadt - Director, Investor Relations Charles Myers - President and Chief Executive Officer Leo Johnson - Chief Financial Officer.

Anil Doradla - William Blair Karl Ackerman - Cowen & Co. Craig Ellis - B Riley.

Good afternoon. Welcome to Airgain's Second Quarter 2017 Earnings Conference Call. My name is David and I will be your coordinator for today. Joining us for today's call are Airgain's President and CEO, Charles Myers; CFO, Leo Johnson; and Director of Investor Relations, Alexis Waadt. I would now like to turn the call over to Ms.

Waadt who will provide the necessary cautions regarding the forward-looking statements made by management during today's call..

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 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 remainder of 2017.

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 are qualified by the cautionary statements contained in Airgain's earnings press release and SEC filings, including its Form 10-Q, which we expect to file by August 15, 2017.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 07, 2017. 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 will also include a discussion of non-GAAP financial measures, including 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 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 and major institutional shareholders. Now, with that, I would like to turn the call over to our President and CEO, Chuck Myers.

Chuck?.

Thanks, Alexis. Welcome everyone and thank you for joining us today. After the market close we issued a press release announcing our results for the second quarter ending June 30, 2017 a copy of which is available in the Investor Relations section of the website.

Overall Q2 represented a continuation of the momentum Airgain has as achieved over the last several quarters and years. We're still accelerating in our core connected home and IoT markets while work in development and further expand our opportunities with automotive, enterprise and industrial IoT markets.

Our total revenue for the quarter increased 32% year-over-year and 16% from Q1 to $13 million. The Q2 '17 gross margin came in at 47%. Our diluted non-GAAP EPS was $0.10 a share, adjusted EBITDA $1.2 million with GAAP net income of negative $70,000 and GAAP EPS of negative $0.01.

Included in the GAAP net income were acquisition related expenses of $795,000. I would like to highlight several significant announcements which reflect the continued operational progress of our strategy and roadmap.

We are very active in low power wide area network space during the quarter, we're currently participating in three network trials and continue to develop additional reference design. As we announced in May we joined the LoRa Alliance, at that time we had already committed shipments into the LoRa network trial for a large North American carrier.

Our antenna systems have been implemented in two additional network trials one in North American the other in China.

We have developed programs for several new outdoor antennas to address the growing demand in this emergency space and through our early involvement such trial's reference designs we've positioned ourselves to take advantage of the anticipated growth in this market. In Q2 one of our major new retail router programs hit volume production.

The program is with a leader in the consumer wireless routers where we are supplying custom external dipole antennas, this business is important to us because we are displacing incumbent supplier in the program this represents a significant revenue opportunity outside of our core antenna business with corresponding higher antenna ASPs We're also making stronger inroads with Tier One enterprise networking customer where the second design win for ceiling mounted access point which has begun volume production.

During the second quarter we saw a ramp of another major U.S. carrier 802.11ac strategy, their portfolios comprised of full of array of 4x4 Wi-Fi products forming 802.11ac video streaming ecosystem. Airgain optimized both the flagship video gateway and set-top box antenna solutions to enable maximum system.

Switching gears to our antenna plus acquisition which we closed during Q2 and Antenna Plus was an early innovator in the mobile fleet external antennas. With this acquisition we gained access to their unique portfolio, cellular GPS, Wi-Fi and private radio frequency antenna products.

We also acquired an established network of sales distribution of value added resellers. We believe this arrangement will provide leverage for Airgain's existing products to gain entry into several new markets including the fast growing automotive fleet and industrial IoT space.

Just three months into the acquisition, we are now seeing how Airgain's engineering expertise can strengthen and accelerate Antenna Plus's existing product lines. Overall we're very pleased with the acquisition and the opportunities presented to us.

Now before I provide any further details about our operational results as well as future growth strategies and outlook, I would like to turn our call over to Leo Johnson, our CFO who will walk us through the financial results.

Leo?.

Thank you, Chuck and good afternoon everyone. Let's turn to our financial results for the second quarter ended June 30, 2017. Our sales for the second quarter increased 32% to $13 million from $9.9 million in the same period a year ago. The increase was driven by our continued growth in product sales.

Our gross profit for the second quarter of 2017 grew 35% to $6.1 million from $4.5 million in Q2 of last year. Gross profit as a percentage of sales in the second quarter was 47.0% compared to 46.1% in the second quarter of 2016. The increase in gross profit as a percentage of sales is primarily due to sales mix.

Our total operating expenses for the second quarter were $6.2 million up from $3.6 million in Q2 of last year. The increase was primarily due to higher personnel expenses to support our sales, marketing and R&D initiatives. The ongoing operating expenses related to Antenna Plus and acquisition cost of $795,000.

In July, we consolidated the Antenna Plus operations into the Arizona headquarters to streamline product development and production. Our adjusted EBITDA decreased 8% or $108,000 to $1.2 million as compared to the same year ago period.

Non-GAAP EPS was $0.10 per share on a per diluted share basis based on $10.2 million shares compared to non-GAAP EPS of $0.19 per share based on 6 billion shares a year ago. The net income for the second quarter of 2017 was negative $70,000.

GAAP EPS was negative $0.01 per diluted share compared based on 9.5 million shares compared to GAAP EPS of $0.15 per share based on 4.5 million shares a year ago. Now turning to the balance sheet cash and cash equivalents at the end of the second quarter totalled $36.5 million compared to $41.9 million at the end of the prior quarter.

The decrease was primarily driven by the $6.3 million we pay for the Antenna Plus assets. This completes my financial summary. I will now turn the call back over to Chuck.

Chuck?.

Great. Thanks, Leo. Before I provide additional remarks I'd like to share some of—share the results around some of our key performance indicators excluding Antenna Plus. We'll reassess our current KPIs as they are only relevant to Airgain's OEM business.

In the second quarter on a year-over-year basis or KPI's the average number of the antennas per device increased 16% to $3.51, while our average selling price increased 22% to $0.99. Our total number of customer devices we shipped was 11.7 million as compared to 12 million.

As I mentioned previously we joined the LoRa Alliance one of the largest and fastest growing alliances in technology sector. Becoming a LoRa alliance member provides us an opportunity to work globally with some of the most innovative partners and major gold mobile network carriers. We're also joined both with ZigBee and the Z-Wave alliances.

These three strategic coalition should drive more opportunities in the connected car, connected home and internet of things business. Looking ahead to the second half of 2017 we continue to execute on the strategies which have driven our success. We're a company with advanced solutions growing new end markets and strong financial position.

We will continue to invest in our sales, marketing and R&D to further drive our already strong organic growth. We will also evaluate and look to acquire businesses in technologies like Antenna Plus, it can be additive to our business and accelerate our future growth.

The proliferation of the IoT devices helps drive a profit and growth potential for Airgain to benefit from some of these trends, we have further diversified our market offering and extend our products and services.

We believe we have set ourselves further apart from our competition by helping to solve problems of network deployments in homes, enterprises and cities in the global scale.

Performance improvement is more important than ever and the necessity for Airgain's real world performance testing validation services and device characterization has become a requirement not a benefit.

Airgain strives to be the essential value added partners that our customers rely on and our strong reputation is highly valued within our customer ecosystem. We take pride in consistently providing high performance solution among the competitive landscape and we will continue to raise the bar in the industry that sees swift technological changes.

And with that we're ready to open the call for your questions Operator, please provide the appropriate instructions..

[Operator Instructions]. Our first question is from Anil Doradla with William Blair. Please proceed with your question..

Hey, guys good results and good job on the execution. Just a couple of questions Chuck. So Antenna Plus, relative [indiscernible] model, there was a little bit more cost associated with it.

So can you just give us an update on the costs that you've taken on with Antenna Plus and going forward you how the revenues look like? I mean it sounds like there was a little bit of a reset on the revenue front but in terms of opportunities what are the opportunities on the revenue front and cost?.

Yes, hang on just one second..

Anil, I think at the question typically of—I mean the cost from our model really wasn't any more it was really just the shift from cost of sales and OpEx. These guys—you know we had to reaudit their financial so some of the cost that they had in the OpEx piece we had to push up into cost of sales..

Okay. All right.

Also gross margins are running well above your target so any latest thoughts on that front?.

As we always say we always kind of model above 40%. It's creeping up, we like where our margins are, we think that the Antenna Plus acquisition adds a little bit to that and we'll always continue—you constantly have margin pressure.

We will always continue to work that up but the reality of it where for our business where it is today we're kind of in the range..

Now Chuck when you look at the remainder of 2017 and 2018 obviously in the cable side you know there's a lot of talk about 8x8 DOCSIS 3.1 802.11ac, now can you share some qualitative comments in terms of what you're seeing? Obviously still the mix is on the lower kind of configurations but in terms of higher configuration antennas where are you and when do you think you will get the sweet spot?.

I think that you're going to see some of that this year. I think that most of the people you know we don't disclose customers and our customers are starting to roll out their 8x8 solution.

I think you're right Anil, I think the majority of the roll outs are not 8x8 I don't think we would ever expect a majority to be 8x8 when you have a high end gateway for instance and you're looking for a lot of streams in a home you know there's a lot of justification for an 8x8, but I don't think any of us that have ever in a near term expect that to be the majority of the shipments I think you're going to consistently see a lot more of the 4x4, 2x2, 3x3 on the ac side..

Final question if you don't mind, Antenna Plus, you've been very excited about the opportunities and technology and the differentiation.

Can you share some insights as to any new traction or design wins or what you're seeing and then potentially what would we see with Antenna Plus call it over the next couple of years?.

I think that the—we continue to like the fact that it brings us into new markets and we think that there was some pent up demand for our kind of our expertise in that business. So in the very, very short term that we've kind of been in control we've started to see some growth in that area. We would hope to see that continue.

We think as we mentioned in the notes the business was originally primarily located in Wisconsin and in Arizona and we consolidated that into the Arizona market that was kind of anticipated early on. We confirmed that you know in our model that was going to be the best approach.

We still do continue to have some assembly and things here as well which has been nice and our team out there the acquired team has been integrated well and is doing a great job running that business.

We do see geographically some expansion in that as we really looked to Antenna Plus could be kind of a flag bearer for us as we move into the connected car market and it's given us some ground to put that flag into as we drive forward with our discussions with the kind of the Tier One and Tier Two automotive suppliers in the worldwide probably our best traction so far without naming anything too specifically has really been in the EMEA for a variety of customer opportunities there..

All right. Thanks a lot Chuck and Leo..

Thanks, Anil..

Our next question is from Karl Ackerman with Cowen & Co..

Hi, everyone. When you look into the second half of the year how do you view the demand environment and the pace on the DOCSIS 3.1 upgrade cycle from U.S.

cable operators? And then secondarily, how do you view the opportunity from the largest smartphone provider who appears to have a new streaming device that may finally support 4K streaming, curious if you could talk about the opportunity there please?.

From the standpoint of the first questions around 3.1, we are definitely seeing a lot of uptake in that area. We see a lot of it right now in Europe right, would be kind of our really the initial deployments. So we—there is obviously because of the high def side of it.

There's been a lot of push in that area and that's really where we see the carriers putting their deployment. We do think that that shift overall will continue to drive kind of a revolutionary change in those products.

Then as far as the streaming devices you know we've always kind of our thought process is always been as long as there's a Wi-Fi chip we like streaming devices.

People bring up questions about what happens if the boxes go away, well the Wi-Fi chip is going to exist whether it exists in one device or another and it's always been our belief that the all those Wi-Fi chips, we feel pretty comfortable need antenna's where it's located is probably less of a concern but making sure that we're participating with the designs of those products..

Understood and appreciate the color. If I may earlier in your prepared comments you talked about displacing a key competitor during the quarter with your customers and that would be a meaningful revenue contributor for you. I was just curious if you can talk about the size of the opportunity on maybe at least an annual basis please..

Yes—and I couldn't do that off the top of my head. So I don't want to go there—sales guys in here. But it was a—it's a request from an existing customer we're providing an embedded products already that you know was looking to consolidate if I believe that that's one of them. They were looking to consolidate their—all of the antenna supply chain..

Understood. One final one for me on gross margins and I'm circling back to the previous question.

How should we think about the linearity of gross margins extending into the second half of the year particularly as we contemplate antenna plus adding to the results and you've got I think the large TV provider that you had in 2016 appears to be less of a headwind to margins.

Earlier in your comments you mentioned margins are "in the range" but why wouldn't margins stay within the high 40% for the next two quarters? Thank you..

Thanks, Karl. No, I think that that's what I'm saying about the range you know and we've always stated that our models are based around 40% and I think we give have—and I will give a lot of credit to our team and Leo and growing those and making sure that we have maintained those margins.

So I think that we clearly, our vision is that those margins going forward for the next couple quarters would stay in kind of that 45%-ish to 47% inch range that would, you know that's surely our plan..

[Operator Instructions]. Our next question comes from Tom Sepenzis with Northland Capital..

Hey. Thank you and congratulations on the good quarter.

Just a follow-up on that, can you speak to look longer term the impact I believe originally when you announced the acquisition of Antenna Plus the idea was that margins would continue to grow moving forward, does that increase in the mix? Is that still the plan or did you think it settles in around the 45 to 47 range?.

I will let Leo take a crank at it..

Tom that one obviously if the existing base of Antenna Plus products increases in mix it will help the margin, but at the end once we did the audit on Antenna Plus the margins weren't so far out of line to make a big turn one way or the other.

So at the end of day I think our margins like Chuck said, we probably—we feel pretty comfortable to maintain a 45 plus on a go forward basis at least for the foreseeable future..

Thank you.

Then in terms of that acquisition, G&A obviously was up in June but was back down on the non-GAAP basis, what should we be expecting in September? Are there going to be additional acquisitions expenses or does that come back up? Or is this onetime?.

For the September quarter it depends you know, a lot of it dependent but right now if things were to cut off as of today the acquisition cost in the second and third quarter will be de minimis..

In the prepared remarks in the press release you mentioned that units were actually down but ASPs in the number of antennas per device were up which led to the upside in the revenue.

I'm just wondering what was the cause or what was the weakness in terms of the units and what are you expecting here in Q3?.

Year-over-year it was in the TV section, TV demand from last year compared to this year..

Okay, and then Q3 do you expect a rebound there or?.

I would suspect there will—suspect in Q3 we will continue to see ASP increases and probably flatness on devices for the same reason and I think what we also said in our prepared remarks is that we're kind of going to move away from those KPIs because with the addition of Antenna Plus they become a little bit nonsensical..

As we move more into the IoT space, the LoRa space and the connected car space those KPI's yet mean they will reiterate, they do become a little irrelevant for our business..

Sure. Then lastly just in terms of this new router win.

Did I understand it right that this is for an external antenna product in addition to an existing embedded relationship with the customer?.

Hang on, I just want to make sure I get the right one, Tom. That one is the one you're referencing is dipole connected enterprise and home market, retail, small business..

Thank you very much. Appreciate it..

Yes. Thanks..

Our next question is from Craig Ellis with B Riley..

Yes, thanks for taking the questions and nice to be on the call with you guys. Chuck I wanted to follow-up on some of the comments about long range wide area networks and specifically LoRa. You mentioned that you're participating in programs there.

The question is, is it both on the hub side and the endpoint side and if so can you characterize the content differential for you hub versus end point?.

I know on the hub side it's definitely going to be a larger, it's definitely a larger device, we're working on that with a carrier deployment so it's an external or enterprise device and then obviously the endpoints we're participating in the end point designs as well, those tend to be much smaller, lower kind of ASP type products you know because it's really many to one when you look at it from that perspective..

Yes our prior work is usually a thousand or as much as 10,000 to one end points versus hubs. Related to—.

We certainly haven't quantified that and I think every deployment is a little bit different I can tell you we're working on some things in Asia where that might be true on some of the carriers that I'm not sure that those numbers are that big but they're big enough that they obviously make sense for including the technology in their networks..

Okay, that's helpful and just sticking with that and following up on your comments regarding deployments it's very early innings here in terms of deployments and really driving I think a deep enough and broaden enough set of use cases that we can have a clear idea of how things are trending but for your technology are there particular applications that are particularly well suited either on the hub side or on the end point side for example with end points more asset tracking versus other things, anything stand out with the work that you've done so far?.

You know it's really poor peripheral and additional devices that the carriers see, you know security could be a lot of different things that fit within the networks that they're already providing.

In Asia we're looking at problems primarily [indiscernible] let's call it public equipment and tracking those and notifying where people like to steal things off the streets and it causes problems in the transportation network..

Okay, that makes sense. People want to keep the things they own.

Moving on both you and Leo noted that the KPIs were becoming less relevant and as the portfolio [indiscernible] after picking up Antenna Plus, any color on what you might do to help the street keep track of some of the more important longer term trends for the company or is that just under review at this point?.

It's under review at this point.

I mean we've you know that's one of the reason that we added the non-GAAP EPS to our disclosures this time was because that started to make more sense and I'm saying we will evolve it that what seems to give people better information and some of these that are—you know it can't be—these KPIs can get a little bit misleading once the mix gets all kind of jumbled up..

Got it. Thanks, guys. Appreciate the help..

Thank you. At this time this concludes our question and answer session. If your question was not taken you may contain Airgain investor relations team at investors@airgain.com. I would now like to turn the call back over to Mr. Myers for his closing remarks..

Thanks everybody for joining us. We definitely appreciate your support. Thanks for joining us today's call. And always I want to especially thank our employees I mean if it wasn't for them none of us would be in here and our partners and our investors and we're happy to support you. We look forward to updating you on our next call.

Operator?.

Thank you for joining us today for Airgain's second quarter 2017 earnings call. You may now disconnect..