Alexis Waadt - Director of IR Jim Sims - Chairman & CEO Anil Doradla - CFO.

Karl Ackerman - Cowen & Co. Gus Richard - Northland Capital Markets.

Good afternoon, welcome to Airgain’s First Quarter 2018 Earnings Conference Call. My name is Ariel 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 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. Ms. Waadt, your line is live..

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 fiscal 2018.

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 release and SEC filings, including its Form 10-Q, which we expect to file on or before May 10, 2018.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 03, 2018. 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 will be recorded and made available for replay via a link available in the Investor’s Relation 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, Alexis, and welcome everyone joining us today. After the market closed, we issued a press release announcing our unaudited results for the first quarter ending March 31, 2018, and our CEO cessation process, which is available in the Investor Relations section of our website today.

I would like to start by acknowledging Chuck Myers’ contribution to the company. As we highlighted in the press release, Chuck has moved on to the next phase of his career and he wants to pursue other opportunities.

As you may know, he has been with the company for more than seven years and has played a very key role over those years and on behalf of the entire organization, I would like to thank Chuck for his contribution and wish him the very best in the future.

Now before we share some of our financial results and operational progress for the quarter, I would like to briefly introduce myself for those of you who do not know me. I have been Chairman of the Board since 2003 and before that involved with Airgain, I founded several companies.

Concurrent Computer Corporation in the 70s, Cambridge Technology Partners in the 90s, and in many ways I see similarities with these companies and Airgain. In addition to be Chairman of Airgain, I am also one of the larger shareholders of the company and I will be taking a very active role and remain at this position until we select a permanent CEO.

When I first became involved with Airgain more than a decade ago, my vision was for the company to grow into an organization it is today by solving very complex engineering problems in Innovative Antenna Designs.

I have always believed that the rising demand of wireless data and the need for high performance solutions, meant that the ever increasing need for complex antenna solutions, I still hold these beliefs even more today and I am confident that the best days of Airgain are in front of us.

Turning now to our results, I am very happy to report that 2018 is off to a very strong start and we are witnessing positive demand trends in our entire operations. First quarter sales of $13.3 million or 18% over prior year, represent an all-time record for the company.

Underpinning these strong results, were continued tailwinds across our connected home, automotive and IoT markets. These are the core markets we have been in since beginning of the business. We continue to be bullish on our prospect throughout the remainder this year, based on the business momentum we've been generating.

We are reaffirming our 2018 Annual Revenue Growth of 20% year-over-year from 2017. In many ways we view our business as being supported by three pillars of growth. The first is tied to the upgrade cycle to the Next-Generation Wi-Fi Technology in the connected home.

On that front we continue to be bullish as programs that were delayed last year are finally ramping up. We believe these trends should be a catalyst for us over the next couple of years, just in the United States, to these estimated, that there is over a 100 million homes have broadband access or will have to be upgraded to 802.11ac and 802.11ax.

The second pillar of growth is the automotive fleet or IoT and enterprise areas. As you might recall, those are predicated on the acquisition we did last year with antenna plus. As many of you know, this has been a high ASP business with very healthy margins.

We are seeing positive results on the demand front and believe the fleet market could potentially outpace the rest of our business. The rollout of the nationwide First Fleet Network, combined with the demand to support of New Frequency Bands, and the support of SG systems will be a major growth driver for us moving forward.

And finally, the third pillar of growth is our strategy with the Automotive OEM.

Over the past couple of months, we have been actively engaged with several providers and expect to steadily gain traction in this market, as we start to get new designs in the next generation automotive vehicles that require the absolute best in High Performance Wireless Connection.

As many you know, this has been a focus of our investment and we expect revenues to begin in 2020. Diluting these three pillars of growth will be our enhanced focus on achieving greater efficiency, especially on the cost front. With our strategy not change, we will continue to invest in the business and support growth.

We will be taking a more disciplined approach to how we execute, which should enable us to maintain and expand our historical levels of profitability. This is to say, we will stay focused on growth, a profitable growth to be clear.

In a moment, I will be happy to take any questions, but before I do, I would like to turn the call over to our Chief Financial Officer, Anil, who will talk to us and welcome through the financial highlights for the quarter..

Thank you, Jim and good afternoon, everyone. Before I turn to our financial results, I would like to mention a couple of noteworthy highlights for the quarter that illustrate the breadth and depth of our customer engagements. First, we started ramping up volume shipments of the Next-Generation wireless set-top box to an existing tier 1 U.S.

MSO customer. This is a cutting-edge 802.11ac device with a very sleek and streamline form factor. In addition, one of our major European carrier customer started ramping up shipments of a second-generation 802.11ac gateway to its customers. This product has seven antennas and can be used in a switchable configuration.

We also had a US-based product company that's focused on Asset Tracking Space Starter Ship, one of our embedded antennas for fleet asset tracking for trailers and light-duty vehicles. Our aftermarket fleet antennas are gaining traction for law-enforcement and body camera applications.

In fact, our solution support both body-to-vehicle communications necessary to capture mission-critical video streams. And finally, during the quarter, we also rolled out the first of our new M2Max Product Line.

These external antennas address M2M and fleet applications and are Band 14 compliant, which means they are capable of supporting FirstNet applications as well. We already announced a second antenna in April and expect 13 more to be launched before the end of the year.

Coming to the financial numbers, our sales for the first quarter totaled $13.3 million which is an 18% increase from the same period a year ago. The growth was driven by strength in our product sales across the board.

Looking at some other financial highlights for the quarter, gross profit increased 17% to $6.2 million or 46.6% of sales, up from $5.3 million or 47% of sales in the same period a year ago.

Our GAAP net loss totaled $1.1 million or a loss of $0.12 per diluted shares based on 9.5 million shares, compared to a GAAP net income of $385,000 or $0.04 per diluted share, based on 10.2 million shares in the same period a year ago.

On a non-GAAP basis, net loss was $635,000 or a loss of $0.07 per diluted share, and finally our cash and investments totaled $33 million. Once again, we were active during the quarter in terms of the share buyback program, which as a reminder our Board approved in August of last year.

During the first quarter, we bought 86,000 shares at an average price of $9.06. Since the date of implementation through March 31, 2018, we repurchased a total of 221,158 shares for a sum total of $2 million. Looking ahead, we will continue to be opportunistic in our capital allocation strategy.

Finally, we are affirming our 2018 sales growth guidance of 20% growth over '17. Given our current pipeline and how we structure the business for success, we're confident that we will achieve this target. This completes my financial summary.

Now I will turn over the call to Jim, Jim?.

Thanks Anil, and I want to thank everyone for being on the call today. Before we end this call and go into a question period, I would just like to draw your attention to a couple very important highlights.

First, looking ahead, I see tremendous potential for the business as we sharpen our product focus and extract maximum value from innovative technologies. Look, I have been here for five days working with the team.

We have a solid team, a robust product line up, and a very strong secular multiyear tailwinds, with the transition that are taking place, specifically in a contracted market.

And the long-term focus remains unchanged as we continue to execute on our strategies and major growth drivers; particularly in the connected home, the automotive and the IoT market. And finally, but certainly not the least, we want to continue to invest in the business to support our growth.

However, we will be taking a more disciplined approach with greater emphasis on profitability. And with that, we are ready to open to any questions you might have.

Operator, could you please provide the appropriate instructions now?.

Thank you. We will now take questions from Airgain’s publishing sell-side analysts. [Operator Instructions] Our first question comes from Karl Ackerman of Cowen & Co..

Hi everyone, thank you for taking my questions. I must say I am a bit surprised by Chuck's departure, particularly ahead of the strong DOCSIS upgrade ramp, that’s now just starting to inflect.

So, I was hoping you may elaborate if this departure has anything to do with left optimism on your opportunity here in 2018 within broadband or any potential challenges you see with ramping your automotive revenue..

Thanks, this is Jim. One, I see no change in the opportunity to grow potential that we have in the broadband, in the connected home. I have been actively looking at the automotive OEM market.

The change there is I think we can have a more effective way, a more cost-effective way to enter that market, and it’s my plan to focus on that because I think it's a big market and we just have to be more effective on how we enter that particular market. Look, things change.

It was, we are really ready to take the next level of growth in this company. At least it is my opinion that you can grow the business, but you can grow it profitably, and so the emphasis you see is not a lack of opportunity, is a lack of growth.

The transitions that are taken place today are in the connected home are accelerating, the new markets were well positioned for; but I think we also own a great return to our shareholders.

So, I plan to focus on that in addition to focusing on the growth, but don't under any circumstance think we have a less potential, less opportunity, and a less dedicated team to make this happen..

Understood, I appreciate the color. As my follow-up, if I look at your guidance for the year the higher revenue in March and positive outlook from peers within the supply chain the upgrade cycle would seem to setting up well to achieve your 20% revenue target for the year.

As you target that level of growth, you allude to this earlier, but how should we think about the level of spending any first half of the year to pursue the second half of the year to target new program ramps?.

Yes, what a great question and I am glad you separated the first half and the second half. Now, like it or not, we are four months and two days into the first half. So, the amount of flexibility we have is somewhat limited to make dramatic improvements or changes to the operating side.

Moving into the second half, I think you'll start to see improvements in that area. My focus along with Leo over the next several weeks is to just to look at that and see how it is going to happen.

I know there are opportunities there, if not appropriate that I speak to him today, because they are not declared or properly put in position, but we think the second half you will start to see improvements in the operating efficiency of the company. Let me be real clear, with no change in the growth potential, and that includes 2019 and beyond..

Thank you, I will seize the floor..

Our next question comes from Gus Richard of Northland..

Yes, thanks for taking my question. I just want a follow-up on the cost reductions you are looking at and I am assuming you are going to be focusing on driving down R&D or your SG&A.

Could you just talk a little bit about your thinking at this point?.

Why don’t we answer it this way? I will give you a kind of a generic response and maybe Anil can be a little more specific if that's warranted. The significant expenditures have been primarily focused around going into the automotive OEM market place. That is heavily in, if I give it a 2:1 is two in marketing, one R&D, okay.

You probably won't see a significant change in the R&D, because our investments and what we have to do in 5G is crucial and not just for the OEM marketplace, but for the fleet as well, is what we are doing in the aftermarket, where you can see a steady improvement.

We will be in the marketing side which I don't think we have impacted at all on a revenue growth in 2019 and 2020. So, I focus more on that, but I would focus on the R&D..

Hey Gus, thanks for your question, this is Anil. Yes, kind of building up on that, I think what you know when we look at the strategy, as Jim pointed out, there three pillars of this growth and you are pretty familiar, and who ever has looked at the Airgain’s story, they like it.

There is our connected home business and then we've got the automotive business and within that you could further bifurcate that into the fleet side of it and kind of the OEM side of it. I think over the last six to eight months, what we have seen is that the fleet part of the business has exceeded our expectations and it is trending very well.

So coming back to Jim's point, the strategy remains unchanged from a big picture point of view over tweaking a little bit in the sense that we see some very healthy opportunities in the near-term from a revenue point of view, thereby us focusing a little bit more on the fleet side.

That's to say, we are not deemphasizing on the OEM side, but I think we're just taking a second look on how we want to invest into some of the non-R&D programs and initiatives.

So, coming back to Jim’s point, absolutely from a revenue point of view, as we look at ’18, ’19, I mean there are really no impacts, but this is more kind of little bit of a longer-term..

Maybe just to add the last piece on that Anil, in the OEM what we are finding our core organizational structure has been more effective in going after the OEM than we thought in the beginning. We thought we will take complete independence and complete new investments.

We are finding that are core sales organization and R&D organization has done a very effective job in getting out multiple OEM potential contracts and that gives me great encouragement that we can fulfill our growth opportunities in the OEM, but at the same time maybe be more effective as we get into the second half, and specifically you will see I think pretty dramatic improvements in the first quarter of 2019..

And then as a follow-up, could you talk a little bit about your -- it sounds like you are not long into your search process for a new CEO, could you just give us a little color on that as well?.

Yes look, look, I'll try to be as directive as honest as I can? Look I have been here since beginning of the company. The first technology developed here which was the first Smart Antenna Technology, it was my company that developed for Airgain back in 2002 and 2003, before we even formed the company.

So, I have been committed to this and I have a good background in our radar technology along with computer technology. My goal is and I have been chairman of the company since the beginning. So, my goal is to stay active. I have not started the search yet.

I intend to spend initially time on the management team which I think is really stepping up to what we have to do and to make sure when the search is started, that we bring in the talent that mergers with the management team, and the direction that I and the rest of us including the board would like to take on this company..

So, Gus, I mean that is a great question.

Building up on Jim's point, I think when the board and Jim, and the management team looked at this whole issue on succession, what we are finding is, the health of the business is really good and coming back to Karl's point, the question was you know, when he talked about slightly being surprise of Chuck moving on, as a matter of fact we thought when we interacted with Chuck is this is the right time for the transition, because Chuck did a great job in bringing the company to where it was and you know we are on cruise control in many ways.

So, Jim coming on board, what he wants to do is that, you know kind of harvest all these efforts that we are putting in right now for 2018, 2019, 2020; and really some of the design wins, product wins are set in motion.

So I think that we were looking at the business is as they go into the second half, we clearly have certain some work to do on some of the got cost efficiencies, and we do not want any kind of disruption.

So, I think the whole management team is on unison and we are all thinking alike, and more importantly it's in a very good state of affairs in terms of the demand, the health of the company. We are not talking about any restructuring so to speak..

Yes, let me just add. I have been through this several times and I have probably the best example is when, when I found in Cambridge. We took it public at a 20 million valuation, a $20 million is a revenue pretty close to what Airgain was..

And I have been through it twice now personally and been Chairman of companies that have gone towards more times in that and my goal is to make sure this transition happens without a hiccup, and we can maximize the growth. This is an extraordinary opportunity.

I remember ten years ago when we sat down and we said, you know nobody believed that Wireless Embedded Antennas are going to be the future.

It’s everywhere, every car, every home, every person walking down the street is going to have this today, and we are the single best in the world at doing that and our job is to make sure we have the single best management team to execute against this, and my goal was to help facilitate that..

Got it. I appreciate the response. I will move along. Thank you so much..

At this time this concludes our question-and-answer session. If your question was not taken, you may contact Airgain's Investor Relations team at investors@airgain.com. I would now like to turn the call back over to Mr. Sims for his closing remarks..

Thank all of you for joining the call today. I especially want to thank our employees, partners and investors for their continued support.

We look forward to updating you on our next call and potentially seeing some of you at the upcoming events here in the next several months; including the Cowen 46th Conference along with the William Blair Conference on June 14.

We will be providing more details of our participation in those conferences as we move closer to the event, but for now, thank you again for joining us and we look forward to sharing our progress with you as soon as we can. Thank you..

Thank you for joining us today for Airgain’s first quarter 2018 earnings call. You may now disconnect..