Airgain(AIRG) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements, management's analysis, and key disclosures Item 1. Condensed Consolidated Financial Statements (Unaudited) This section contains the unaudited condensed consolidated balance sheets, statements of operations, cash flows, and accompanying notes Condensed Consolidated Balance Sheets Balance Sheet Summary | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (vs. Dec 31, 2022) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------------------ | | Assets | | | | | Total current assets | $22,252 | $27,154 | $(4,902) | | Total assets | $46,302 | $54,400 | $(8,098) | | Liabilities & Equity | | | | | Total current liabilities | $9,514 | $12,900 | $(3,386) | | Total liabilities | $10,537 | $14,575 | $(4,038) | | Total stockholders' equity | $35,765 | $39,825 | $(4,060) | Condensed Consolidated Statements of Operations Operations Summary | Metric | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------------------ | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Sales | $13,696 | $19,198 | $45,970 | $56,006 | | Gross profit | $5,236 | $7,443 | $17,833 | $22,104 | | Loss from operations | $(1,910) | $(1,264) | $(6,912) | $(5,303) | | Net loss | $(1,881) | $(1,299) | $(6,944) | $(5,439) | | Basic net loss per share | $(0.18) | $(0.13) | $(0.67) | $(0.53) | | Diluted net loss per share | $(0.18) | $(0.13) | $(0.67) | $(0.53) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive Loss Summary | Metric | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------- | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Net loss | $(1,881) | $(1,299) | $(6,944) | $(5,439) | | Comprehensive loss | $(1,881) | $(1,299) | $(6,944) | $(5,439) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' Equity Summary | Metric | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------------------------------ | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Total stockholders' equity, beginning | $37,079 | $42,248 | $39,825 | $44,173 | | Stock-based compensation | $500 | $964 | $3,342 | $3,043 | | Net loss | $(1,881) | $(1,299) | $(6,944) | $(5,439) | | Total stockholders' equity, ending | $35,765 | $42,012 | $35,765 | $42,012 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary | Metric | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | | Net cash (used in) provided by operating activities | $(1,364) | $2,083 | | Net cash used in investing activities | $(172) | $(624) | | Net cash used in financing activities | $(458) | $(6,780) | | Net decrease in cash, cash equivalents and restricted cash | $(1,994) | $(5,321) | | Cash, cash equivalents, and restricted cash; end of period | $10,084 | $9,365 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements Note 1. Description of Business and Basis of Presentation - Airgain, Inc, including its subsidiary NimbeLink Corp, is a leading provider of connectivity solutions for consumer, enterprise, and automotive markets[24] - The company operates as a single operating segment, with its chief executive officer reviewing results on an aggregate basis[27] Note 2. Summary of Significant Accounting Policies - No material changes to significant accounting policies occurred during the nine months ended September 30, 2023[29] - The company adopted ASU 2016-13 (Financial Instruments-Credit Losses) in Q1 2023, which did not materially impact financial statements[54] Note 3. Net Loss Per Share Net Loss Per Share Calculation | Metric | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss (in thousands) | $(1,881) | $(1,299) | $(6,944) | $(5,439) | | Basic weighted average common shares outstanding (in thousands) | 10,430 | 10,210 | 10,370 | 10,179 | | Diluted weighted average common shares outstanding (in thousands) | 10,430 | 10,210 | 10,370 | 10,179 | | Basic net loss per share | $(0.18) | $(0.13) | $(0.67) | $(0.53) | | Diluted net loss per share | $(0.18) | $(0.13) | $(0.67) | $(0.53) | - Potentially dilutive securities totaling 2.2 million shares for the three months and 2.3 million shares for the nine months ended September 30, 2023, were excluded from diluted EPS calculation as they were anti-dilutive[57] Note 4. Cash and Cash Equivalents Cash and Cash Equivalents Breakdown | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------- | :-------------------------- | :-------------------------- | | Cash | $9,719 | $8,323 | | Money market funds | $270 | $3,580 | | Total | $9,989 | $11,903 | - Restricted cash for lease commitments was $95,000 as of September 30, 2023, down from $175,000 at December 31, 2022[59] Note 5. Inventory Company-Owned Inventory | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------- | :-------------------------- | :-------------------------- | | Raw materials | $864 | $1,060 | | Finished goods | $3,086 | $3,166 | | Total Inventory | $3,950 | $4,226 | Consigned Inventory | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------- | :-------------------------- | :-------------------------- | | Total Consigned Inventory | $2,570 | $2,903 | - Excess and obsolete inventory reserves increased to $1.0 million as of September 30, 2023, from $0.9 million at December 31, 2022[61] Note 6. Property and Equipment Property and Equipment, Net | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Property and equipment, gross | $7,343 | $7,170 | | Less accumulated depreciation | $(4,889) | $(4,405) | | Property and equipment, net | $2,454 | $2,765 | - Depreciation expense was $0.2 million for the three-month period and $0.5 million for the nine-month period ended September 30, 2023, consistent with the prior year[62] Note 7. Intangible Assets and Goodwill Intangible Assets, Net | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :---------------------- | :-------------------------- | :-------------------------- | | Total intangible assets, net | $8,977 | $11,203 | - Amortization expense for intangible assets was $0.7 million for Q3 2023 and $2.2 million for the nine months ended September 30, 2023[64] - Despite a decline in market capitalization, the company concluded no impairment charges were necessary for intangible assets and goodwill as of September 30, 2023[66][67][71] Note 8. Accrued Liabilities and Other Accrued Liabilities Breakdown | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Accrued expenses | $879 | $815 | | VAT payable | $339 | $339 | | Accrued income taxes | $201 | $166 | | Advanced payments from contract manufacturers | $124 | $210 | | Contract liabilities | $0 | $32 | | Goods received not invoiced | $821 | $529 | | Other current liabilities | $174 | $524 | | Accrued liabilities and other | $2,538 | $2,615 | Note 9. Leases - The weighted average remaining lease term was 2.0 years with a weighted average discount rate of 3.8% as of September 30, 2023[75] Lease Liability Reconciliation | Metric | Sep 30, 2023 (in thousands) | | :-------------------------- | :-------------------------- | | Total minimum payments | $1,855 | | Less imputed interest | $(70) | | Less unrealized translation gain | $2 | | Total lease liabilities | $1,787 | | Less short-term lease liabilities | $(909) | | Long-term lease liability | $878 | Note 10. Income Taxes - The effective income tax rate was -1.2% for the nine months ended September 30, 2023, compared to -2.5% for the same period in 2022[78] - As of December 31, 2022, the Company had a valuation allowance of $11.9 million against net deferred tax assets[80] Note 11. Stockholders' Equity Equity Plan Summary | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Stock options issued and outstanding | 2,046 | 2,065 | | Stock awards issued and outstanding | 764 | 581 | | Authorized for grants under the 2016 Equity Incentive Plan | 423 | 507 | | Authorized for grants under the Inducement Plan | 335 | 294 | | Authorized for grants under the 2016 Employee Stock Purchase Plan | 440 | 378 | | Total | 4,008 | 3,825 | - The number of authorized shares in the 2016 Plan and the 2016 Employee Stock Purchase Plan increased due to evergreen provisions on January 1, 2023[82] Note 12. Stock Based Compensation Stock-Based Compensation Expense | Category | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Cost of goods sold | $29 | $36 | $73 | $71 | | Research and development | $230 | $255 | $747 | $800 | | Sales and marketing | $(223) | $273 | $53 | $856 | | General and administrative | $487 | $556 | $1,599 | $1,848 | | Total stock-based compensation expense | $523 | $1,120 | $2,472 | $3,575 | - Total unrecognized compensation cost was $2.3 million for stock options and $3.9 million for restricted stock units as of September 30, 2023[86][87] - The company settled $0.9 million related to 2022 bonus awards by granting 187,200 immediately vested RSUs during the first nine months of 2023[90] Note 13. Commitments and Contingencies Severance and Exit Costs | Metric | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | Jun 30, 2023 (in thousands) | Sep 30, 2023 (in thousands) | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Severance and Exit Costs | $0 | $113 | $407 | $0 | - The general warranty accrual decreased to approximately $0.1 million as of September 30, 2023, from $0.2 million at December 31, 2022[94] Note 14. Concentration of Credit Risk Customer Revenue Concentration | Customer | Three months ended Sep 30, 2023 (Revenue %) | Three months ended Sep 30, 2022 (Revenue %) | Nine months ended Sep 30, 2023 (Revenue %) | Nine months ended Sep 30, 2022 (Revenue %) | | :--------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Customer A | 22% | 1% | 15% | 16% | | Customer B | 12% | 12% | 10% | 12% | | Customer C | 8% | 12% | 16% | 13% | - Products were primarily manufactured by six contract manufacturers located in China, Mexico, Minnesota, and Vietnam[98] - Following a bank receivership in March 2023, the company moved most of its cash deposits to a larger institutional bank, experiencing no losses[99] Note 15. Revenue Revenue by Market Group | Market Group | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------- | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Enterprise | $6,791 | $6,747 | $22,594 | $24,496 | | Consumer | $4,404 | $7,334 | $15,725 | $19,377 | | Automotive | $2,501 | $5,117 | $7,651 | $12,133 | | Total sales | $13,696 | $19,198 | $45,970 | $56,006 | Revenue by Geography | Geography | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :-------------------------- | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | North America | $8,261 | $11,128 | $27,867 | $34,031 | | China (including Hong Kong and Taiwan) | $4,961 | $7,443 | $16,989 | $20,170 | | Rest of the world | $474 | $627 | $1,114 | $1,805 | | Total sales | $13,696 | $19,198 | $45,970 | $56,006 | Note 16. Subsequent Events - There were no subsequent events to report[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook Overview - Airgain is transitioning from a component provider to a wireless systems provider, leveraging expertise in RF technology, embedded antennas, and modems[109] - Key product offerings include Airgain Embedded™, Airgain Antenna+™, and Airgain Integrated™[108] - The company adopted a fabless manufacturing model in 2022, relying on third parties for production[110] Core Markets - Airgain focuses on three core markets: Enterprise, Consumer, and Automotive[112] Macroeconomic conditions - Macroeconomic conditions have led to industry-wide demand softness and excess inventories, resulting in year-over-year sales declines[114] - These conditions worsened in the second half of the fiscal year, contributing to a material sales decline and increased volatility[114] Factors Affecting Our Operating Results - Performance depends on macroeconomic uncertainties, inflation, the transition to a wireless systems provider, and product diversification[115][116] - Inflation increases raw material and employee-related costs, while global economic conditions and political instability also pose risks[117] Seasonality - Operating results are not historically subject to significant seasonal variations, but sales tend to be lower in the first quarter due to the Lunar New Year[119] Key Components of Our Results of Operations and Financial Condition - Revenue is primarily generated from product sales, recognized at shipment[120] - Operating expenses are categorized into research and development, sales and marketing, and general and administrative, with personnel costs being the largest component[123] Results of Operations Operations Summary | Metric | Three months ended Sep 30, 2023 (in thousands) | Three months ended Sep 30, 2022 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------------------ | :----------------------------------- | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Sales | $13,696 | $19,198 | $45,970 | $56,006 | | Cost of goods sold | $8,460 | $11,755 | $28,137 | $33,902 | | Gross profit | $5,236 | $7,443 | $17,833 | $22,104 | | Operating expenses | $7,146 | $8,707 | $24,745 | $27,407 | | Loss from operations | $(1,910) | $(1,264) | $(6,912) | $(5,303) | | Net loss | $(1,881) | $(1,299) | $(6,944) | $(5,439) | - Sales decreased by 28.7% for the three months and 17.9% for the nine months ended September 30, 2023, due to demand softness and inventory correction[132][133] - Gross profit decreased by 29.7% for the three months and 19.3% for the nine months ended September 30, 2023, driven by lower sales and unfavorable product mix[136][137] - Operating expenses decreased by 17.9% for the three months and 9.7% for the nine months ended September 30, 2023, due to lower employee compensation and marketing expenses[138][139] Liquidity and Capital Resources Cash Flow Summary | Metric | Nine months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2022 (in thousands) | | :------------------------------------------ | :------------------------------------ | :------------------------------------ | | Net cash (used in) provided by operating activities | $(1,364) | $2,083 | | Net cash used in investing activities | $(172) | $(624) | | Net cash used in financing activities | $(458) | $(6,780) | | Net decrease in cash, cash equivalents and restricted cash | $(1,994) | $(5,321) | - The company had $10.0 million in cash and cash equivalents at September 30, 2023, and an accumulated deficit of $73.0 million[143] - Management believes existing cash will be sufficient to meet working capital requirements for at least the next 12 months[145] Employee Retention Credit - In August 2023, the company applied for $2.5 million in Employee Retention Credit (ERC) refunds[149] - Receipt of ERC refunds is anticipated within the next nine months, but there is no assurance of the ultimate amount or timeframe[149] Contractual Obligations and Commitments - No material changes to contractual obligations occurred during the nine months ended September 30, 2023[150] Critical Accounting Estimates - No material changes to critical accounting policies and estimates were reported[153] - The company performed interim impairment tests and concluded no impairment charges were necessary for intangible assets and goodwill as of September 30, 2023[154][156][158] Recent Accounting Pronouncements - Refer to Note 2, "Summary of Significant Accounting Policies," for information on recent accounting pronouncements[161] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Airgain is not required to provide these disclosures - Airgain, Inc is a smaller reporting company and is not required to provide disclosures about market risk under this item[162] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023 - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of September 30, 2023[164] - No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2023[165] PART II. OTHER INFORMATION This part covers other required disclosures including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Current legal proceedings are not expected to have a material adverse effect on the business - The company believes current legal proceedings will not materially adversely affect its financial condition or business[168] Item 1A. Risk Factors There have been no material changes to previously disclosed risk factors - No material changes to risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2022[169] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - No unregistered sales of equity securities occurred[170] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[171] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - No mine safety disclosures are applicable[172] Item 5. Other Information There is no other information to report under this item - No other information is reported under this item[173] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q - The exhibits include certifications, corporate governance documents, and various Inline XBRL documents[174][175] SIGNATURES This section contains the certifying signatures of the company's authorized officers - The report is signed by Jacob Suen, President and Chief Executive Officer, and Michael Elbaz, Chief Financial Officer, on November 9, 2023[179]