Sales Performance - First quarter 2024 sales were $14.2 million, a sequential increase of 41.3% from $10.1 million in Q4 2023[3] - Total sales for Q1 2024 were $14,231,000, a decrease of 13.4% compared to $16,444,000 in Q1 2023[25] - Enterprise market sales contributed $8.9 million, consumer market sales were $3.5 million, and automotive market sales were $1.8 million[3] - For Q2 2024, sales are expected to range from $14.25 million to $15.75 million, with a midpoint of $15.0 million[12] Profitability Metrics - GAAP gross profit for Q1 2024 was $5.6 million, compared to $2.9 million in Q4 2023[4] - GAAP gross margin improved to 39.2% in Q1 2024 from 29.1% in Q4 2023[5] - Gross profit for Q1 2024 was $5,576,000, down from $6,318,000 in Q1 2023, resulting in a gross margin of 39.2%[25][34] - GAAP gross margin reported at 40.2%, with a non-GAAP gross margin of 41.0%[42] Net Loss and Adjusted Metrics - GAAP net loss for Q1 2024 was $2.5 million, or $(0.23) per share, an improvement from a net loss of $5.5 million in Q4 2023[8] - Non-GAAP net loss for Q1 2024 was $0.8 million, or $(0.08) per share, compared to a non-GAAP net loss of $3.5 million in Q4 2023[8] - Net loss for Q1 2024 was $2,455,000, an improvement from a net loss of $2,858,000 in Q1 2023[25][37] - Non-GAAP net loss for Q1 2024 was $833,000, compared to a non-GAAP net loss of $859,000 in Q1 2023[37] Operating Expenses - Operating expenses decreased to $8,205,000 in Q1 2024 from $9,108,000 in Q1 2023, with R&D expenses increasing to $3,120,000[25][35] - Total operating expenses reported at $8.4 million under GAAP, and $6.8 million under non-GAAP[42] - Non-GAAP operating expenses for Q2 2024 are projected to be approximately $6.8 million[12] Cash and Current Assets - Cash and cash equivalents at the end of Q1 2024 were $7,169,000, down from $9,839,000 at the end of Q1 2023[27] - Trade accounts receivable increased to $9,644,000 in Q1 2024 from $7,375,000 in Q4 2023[23] - The company reported a decrease in inventory to $2,588,000 in Q1 2024 from $2,403,000 in Q4 2023[23] Future Outlook and Strategic Focus - The company plans to continue focusing on R&D to drive future growth, with R&D expenses reflecting a strategic investment[25] - GAAP gross margin for Q2 2024 is expected to be between 38.7% and 41.7%[12] Adjusted EBITDA - Adjusted EBITDA for Q1 2024 was $(0.7) million, an improvement from $(3.3) million in Q4 2023[9] - Adjusted EBITDA stands at a loss of $0.5 million[43] - Depreciation and amortization included in adjusted EBITDA reconciliation totaled $0.9 million[43]

Airgain, Inc. (NASDAQ:AIRG) Q4 2023 Earnings Conference Call March 6, 2024 5:00 PM ET Company Participants Jacob Suen - President and Chief Executive Officer Michael Elbaz - Chief Financial Officer Conference Call Participants Scott Searle - ROTH MKM Anthony Stoss - Craig-Hallum Capital Group Tim Savageaux - Northland Capital Markets Operator Good afternoon and welcome to Airgain's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Diego, and I will be your operator for today's call. Joi ...

[Financial Results](index=1&type=section&id=Financial%20Results) [Fourth Quarter 2023 Financial Results](index=1&type=section&id=Fourth%20Quarter%202023%20Financial%20Results) Airgain's Q4 2023 sales declined to $10.1 million, resulting in a wider GAAP net loss of $5.5 million Q4 2023 Key Financial Metrics (GAAP vs. Non-GAAP) | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | Sales | $10.1 million | - | | Gross Margin | 29.1% | 30.3% | | Operating Expenses | $8.4 million | $6.5 million | | Net Loss | $5.5 million | $3.5 million | | Net Loss per Share | $(0.52) | $(0.33) | | Adjusted EBITDA | - | $(3.3) million | Q4 2023 Sales by Market (in millions) | Market | Q4 2023 Sales | Change vs. Q3 2023 | Change vs. Q4 2022 | | :--- | :--- | :--- | :--- | | Enterprise | $4.6 | -$2.2 | -$5.4 | | Consumer | $3.2 | -$1.2 | -$3.2 | | Automotive | $2.3 | -$0.2 | -$1.2 | | **Total** | **$10.1** | **-$3.6** | **-$9.8** | - The CEO stated a belief that the fourth quarter represented the "**trough**" for the business after sequential declines throughout the year[3](index=3&type=chunk) - The decrease in GAAP gross margin from **38.2%** in Q3 2023 to **29.1%** in Q4 2023 was primarily attributed to an excess and obsolete inventory charge[6](index=6&type=chunk) - The **increase in GAAP net loss** was driven by lower sales, higher personnel and engineering project expenses, and the inventory charge[7](index=7&type=chunk)[8](index=8&type=chunk) [Full Year 2023 Financial Results](index=2&type=section&id=Full%20Year%202023%20Financial%20Results) Airgain's full-year 2023 sales decreased to $56.0 million, resulting in a wider GAAP net loss of $12.4 million Full Year 2023 Key Financial Metrics (GAAP vs. Non-GAAP) | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | Sales | $56.0 million | - | | Gross Margin | 37.1% | 37.9% | | Operating Expense | $33.2 million | $26.4 million | | Net Loss | $12.4 million | $5.1 million | | Net Loss per Share | $(1.20) | $(0.50) | | Adjusted EBITDA | - | $(4.5) million | Full Year 2023 Sales by Market (in millions) | Market | 2023 Sales | Change vs. 2022 | | :--- | :--- | :--- | | Enterprise | $27.2 | -$7.3 | | Consumer | $18.9 | -$6.9 | | Automotive | $9.9 | -$5.7 | | **Total** | **$56.0** | **-$19.9** | - Reasons for the **annual sales decline** include: channel excess inventory correction impacting IIoT products, weaker demand from cable operator customers, and the discontinuation of the AC-HPUE product line[10](index=10&type=chunk) - The **increase in annual net loss** was primarily due to a **$7.2 million decrease in gross profit** from lower sales, which was only partially offset by a **$3.4 million reduction in operating expenses**[14](index=14&type=chunk) [Financial Outlook](index=3&type=section&id=Financial%20Outlook) [First Quarter 2024 Financial Outlook](index=3&type=section&id=First%20Quarter%202024%20Financial%20Outlook) Airgain anticipates Q1 2024 sales of $13.3-$14.7 million, projecting a sequential recovery from the Q4 2023 trough Q1 2024 Financial Outlook (Midpoint) | Metric | GAAP | Non-GAAP | | :--- | :--- | :--- | | Sales | $14.0 million | $14.0 million | | Gross Margin | 38.6% - 41.6% | 39.5% - 42.5% | | Operating Expense | ~$8.1 million | ~$6.4 million | | Net Loss per Share | $(0.24) | $(0.06) | | Adjusted EBITDA | - | $(0.5) million | - The company anticipates a year of **gradual growth in 2024**, driven by recoveries in end markets, product innovation investments, and the launch of 5G connectivity initiatives[3](index=3&type=chunk) [Supplemental Information](index=3&type=section&id=Supplemental%20Information) [Conference Call Information](index=3&type=section&id=Conference%20Call%20Information) A conference call was held on March 6, 2024, to discuss Q4 and full-year 2023 financial results - A conference call to discuss financial results was held on Wednesday, **March 6, 2024**, at 5:00 p.m. Eastern Time[17](index=17&type=chunk)[18](index=18&type=chunk) [About Airgain, Inc.](index=3&type=section&id=About%20Airgain%2C%20Inc.) Airgain, Inc. simplifies wireless connectivity through embedded components and integrated systems for various markets - **Airgain specializes** in solving complex connectivity issues and enhancing wireless signals across the enterprise, automotive, and consumer markets[19](index=19&type=chunk) [Forward-Looking Statements & Non-GAAP Measures](index=4&type=section&id=Forward-Looking%20Statements%20%26%20Non-GAAP%20Measures) This section outlines risks of forward-looking statements and explains non-GAAP measures for clearer operational insights - **Forward-looking statements** include the Q1 2024 financial outlook and expectations for market recovery, which are subject to numerous business risks and uncertainties[21](index=21&type=chunk) - The company uses **non-GAAP measures** such as Adjusted EBITDA, non-GAAP net loss, and non-GAAP gross margin to provide investors with a clearer view of core business operating results by excluding non-cash or non-recurring expenses[22](index=22&type=chunk)[23](index=23&type=chunk) [Consolidated Financial Statements](index=6&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Airgain's balance sheet shows total assets decreased to $42.2 million, primarily due to reduced cash and inventories Key Balance Sheet Items (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $7,881 | $11,903 | | Inventories | $2,403 | $4,226 | | **Total Assets** | **$42,229** | **$54,400** | | Total current liabilities | $9,991 | $12,900 | | **Total Liabilities** | **$10,816** | **$14,575** | | **Total stockholders' equity** | **$31,413** | **$39,825** | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated statements show a full-year 2023 net loss of $12.4 million on $56.0 million sales, worsening from 2022 Key Income Statement Data (in thousands) | Metric | Q4 2023 | Q4 2022 | Full Year 2023 | Full Year 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales | $10,070 | $19,889 | $56,040 | $75,895 | | Gross Profit | $2,931 | $5,880 | $20,763 | $27,972 | | Loss from Operations | $(5,488) | $(3,277) | $(12,400) | $(8,580) | | **Net Loss** | **$(5,484)** | **$(3,220)** | **$(12,428)** | **$(8,659)** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities for 2023 was $3.3 million, a significant shift from 2022, decreasing cash by $4.1 million Cash Flow Summary (in thousands) | Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(3,301) | $4,446 | | Net cash used in investing activities | $(346) | $(750) | | Net cash used in financing activities | $(458) | $(6,304) | | **Net decrease in cash** | **$(4,102)** | **$(2,608)** | [Sales by Target Market](index=10&type=section&id=Sales%20by%20Target%20Market) Sales by target market show declines across Consumer, Enterprise, and Automotive segments for Q4 and full-year 2023 Sales by Target Market (in thousands) | Target Market | Q4 2023 | Q4 2022 | Full Year 2023 | Full Year 2022 | | :--- | :--- | :--- | :--- | :--- | | Consumer | $3,209 | $6,438 | $18,934 | $25,793 | | Enterprise | $4,615 | $10,015 | $27,209 | $34,533 | | Automotive | $2,246 | $3,436 | $9,897 | $15,569 | | **Total sales** | **$10,070** | **$19,889** | **$56,040** | **$75,895** | [Reconciliation of GAAP to Non-GAAP Measures](index=11&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) This section details reconciliations between GAAP and non-GAAP financial measures, adjusting for non-cash items for clearer insights Reconciliation of Net Loss to Adjusted EBITDA (Full Year, in thousands) | Description | Full Year 2023 | Full Year 2022 | | :--- | :--- | :--- | | **Net loss (GAAP)** | **$(12,428)** | **$(8,659)** | | Stock-based compensation expense | $3,681 | $4,978 | | Depreciation and amortization | $3,630 | $3,701 | | Severance and exit costs | $612 | $— | | Other (income) expense | $(109) | $(11) | | Income tax expense | $128 | $84 | | **Adjusted EBITDA (Non-GAAP)** | **$(4,486)** | **$93** | - The **primary adjustments** to reconcile GAAP to Non-GAAP figures are non-cash expenses like stock-based compensation and amortization of intangible assets[36](index=36&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk)

Financial Performance - The company reported an accumulated deficit of $78.5 million as of December 31, 2023, with a net loss increasing from $8.7 million in 2022 to $12.4 million in 2023[70][73]. - The company incurred an accumulated deficit of $78.5 million as of December 31, 2023, and has a history of losses since its inception before 2013[88]. - The company has net operating loss (NOL) carryforwards of $23.2 million for federal income tax purposes and $11.5 million for state income tax purposes, which may be subject to limitations and begin to expire in 2026[118]. - The company recorded a $14.6 million valuation allowance related to its NOL carryforwards and other deferred tax assets due to uncertainty regarding the realization of future tax benefits[120]. - The company has never paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future, focusing instead on retaining earnings for business growth[162]. Market Strategy and Growth - The company aims to drive growth in the enterprise and automotive markets, which may develop at varying rates and depend on competitive factors[71]. - The company’s future success depends on its ability to develop new products that meet customer needs in a rapidly evolving wireless market[83][86]. - The company is transitioning to a wireless systems solution provider, which requires significant investment in research and development to stay competitive[83][86]. - The introduction of the next generation AirgainConnect platform necessitates coordination and resources, with potential impacts on operating results if competitive solutions are not developed[85]. - The company is developing new products and wireless connectivity solutions in partnership with other companies, but failure of these partnerships could limit market introduction and sales[113]. Operational Challenges - The company has experienced significant operational strain due to expansion, necessitating improvements in management and infrastructure to handle growth effectively[77][79]. - The company faced challenges in maintaining relationships with channel partners, which are crucial for sales and support of its products[99]. - The company has no minimum purchase commitments with channel partners, which could lead to reduced sales if relationships are not maintained[101]. - The company experienced supply chain disruptions in 2021 and 2022, leading to increased costs and volatility in sales[94]. - The company experienced shortages in supply of components throughout 2021 and 2022, with some relief seen in 2023, but future shortages remain a concern[96]. Competition and Market Risks - The company faces intense competition in antenna solutions, with pricing pressure and reduced profit margins as potential risks[80][82]. - The company’s products generally cost more than competitors' products, leading to aggressive price negotiations and potential lower margins[91]. - The company’s reliance on third-party components and technology companies poses risks if suppliers face disruptions or quality issues[98]. - Approximately 40% of the company's sales for the year ended December 31, 2023, came from customers that accounted for 10% or more of total revenue[90]. Regulatory and Compliance Issues - Compliance with evolving data privacy laws, such as the California Consumer Privacy Act and the EU General Data Protection Regulation, may increase operational costs and complexity[134][135]. - The company faces risks related to compliance with anti-bribery laws, which could result in costly investigations and penalties[151]. - Compliance with evolving governmental regulations regarding radio frequency devices is critical, as failure to meet these standards could delay product introductions and harm business[149]. - The company incurs significant costs due to public company compliance, including legal, accounting, and governance expenses, which are expected to increase as it no longer qualifies as a smaller reporting company[164]. Economic and Geopolitical Factors - The company’s sales are influenced by external factors such as economic conditions, geopolitical events, and customer purchasing cycles, which could adversely affect operating results[76][74]. - Geopolitical tensions, including trade wars and military conflicts, could disrupt supply chains and negatively impact the company's business operations[137][138]. - The United States has imposed supplemental tariffs of up to 25% on certain imports from China, creating significant uncertainty regarding future trade policies and their impact on the company's operations[148]. - The company has engaged new contract manufacturers outside of China to diversify its supply chain and mitigate tariff impacts, although this adds uncertainty to its future operations[148]. Financial and Operational Risks - The company may need to raise additional funds for acquisitions, which could result in stockholder dilution or increased indebtedness, potentially affecting financial condition[117]. - The company may face significant restrictions on operations if it raises additional capital through debt financing, which could impose covenants affecting its ability to conduct business[111]. - The company is exposed to risks from natural disasters, particularly due to its headquarters in Southern California, which could adversely impact business operations[172]. - Rising interest rates and commodity prices may lead to reduced demand for the company's products and increased operational costs[175]. - Recent closures of financial institutions have created liquidity risks that could impair the company's access to working capital and affect its growth strategy[176].

Financial Data and Key Metrics Changes - Q3 2023 sales were $13.7 million, a decline of 13% sequentially and 29% year-over-year, primarily due to high inventories and demand softness in the consumer market [19] - Q3 gross margin was 39.1%, lower than the guidance midpoint of 40%, primarily due to an unfavorable consumer sales mix [20] - Q3 operating expenses totaled $6 million, slightly higher than the guidance of approximately $5.8 million, but represented the lowest spend level since Q1 2021 [21] - Cash balance as of September 30 was $10 million, reflecting a $0.7 million increase sequentially, driven by working capital management [21] Business Line Data and Key Metrics Changes - Consumer sales were $4.4 million, reflecting a sequential decrease of $1.8 million, attributed to cautious inventory management by OEMs in anticipation of the Wi-Fi 7 transition [19][10] - Enterprise sales were $6.8 million, a sequential decrease of $0.5 million, driven by lower sales of custom products, partially offset by higher sales of embedded modems [19] - Automotive sales increased sequentially by $0.2 million to $2.5 million, supported by inventory corrections and new product introductions [19] Market Data and Key Metrics Changes - The consumer market is experiencing downward pressure due to the transition from Wi-Fi 6E to Wi-Fi 7, leading to cautious inventory management by key OEM customers [10] - The enterprise market is facing inventory overhang, but there is growing end customer demand for embedded modems, particularly in EV charging and VSaaS [12] - The automotive market is showing growth potential, with inventory corrections strengthening growth, and new product initiatives expected to contribute positively [15] Company Strategy and Development Direction - The company aims to improve the 5G customer experience by addressing coverage gaps and enhancing performance through new product initiatives [6][7] - Strategic focus includes expanding into new geographies and enhancing product offerings, particularly in asset tracking and 5G connectivity solutions [17][25] - The company is transitioning from components to full systems, which is expected to drive future growth [36] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges faced in 2023 due to macroeconomic pressures but remains optimistic about recovery starting in Q1 2024 [34] - The company expects to generate positive cash flows in early 2024, driven by resolution of inventory issues and demand for new products [35] - Management emphasizes the importance of operational efficiencies and strategic product initiatives to navigate the current environment [21][35] Other Important Information - The company has secured design wins with Tier 1 operators for new products, which are expected to begin shipping in Q1 2024 [11][29] - The serviceable available market for cellular connected asset trackers is estimated to be $900 million in 2024, indicating significant growth potential [25] - The company is focused on maintaining a strong pipeline of opportunities to accelerate future growth [34] Q&A Session Summary Question: Insights on product mix and revenue drivers for Q4 and 2024 - Management noted that consumer revenue is expected to decline further in Q4 due to OEMs managing inventories and the transition to Wi-Fi 7, with growth anticipated in Q1 2024 from a Tier 1 design win [41][42] - The enterprise segment is facing inventory overhang, but growth is expected to resume in 2024 as inventory issues are resolved [42] - Automotive sales are mixed, with inventory corrections offset by new product introductions and channel expansions [43] Question: Cash levels and inventory management - The cash balance increased to $10 million, driven by working capital management and strong collections, which is deemed sufficient for growth initiatives [47]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements, management's analysis, and key disclosures [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section contains the unaudited condensed consolidated balance sheets, statements of operations, cash flows, and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) 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](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) 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](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) 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](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) 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](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) 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](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements [Note 1. Description of Business and Basis of Presentation](index=8&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) - Airgain, Inc, including its subsidiary NimbeLink Corp, is a leading provider of **connectivity solutions** for consumer, enterprise, and automotive markets[24](index=24&type=chunk) - The company operates as a **single operating segment**, with its chief executive officer reviewing results on an aggregate basis[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=8&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) - **No material changes** to significant accounting policies occurred during the nine months ended September 30, 2023[29](index=29&type=chunk) - The company adopted ASU 2016-13 (Financial Instruments-Credit Losses) in Q1 2023, which did **not materially impact** financial statements[54](index=54&type=chunk) [Note 3. Net Loss Per Share](index=11&type=section&id=Note%203.%20Net%20Loss%20Per%20Share) 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](index=57&type=chunk) [Note 4. Cash and Cash Equivalents](index=12&type=section&id=Note%204.%20Cash%20and%20Cash%20Equivalents) 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](index=59&type=chunk) [Note 5. Inventory](index=12&type=section&id=Note%205.%20Inventory) 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](index=61&type=chunk) [Note 6. Property and Equipment](index=13&type=section&id=Note%206.%20Property%20and%20Equipment) 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](index=62&type=chunk) [Note 7. Intangible Assets and Goodwill](index=13&type=section&id=Note%207.%20Intangible%20Assets%20and%20Goodwill) 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](index=64&type=chunk) - 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](index=66&type=chunk)[67](index=67&type=chunk)[71](index=71&type=chunk) [Note 8. Accrued Liabilities and Other](index=15&type=section&id=Note%208.%20Accrued%20Liabilities%20and%20Other) 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](index=15&type=section&id=Note%209.%20Leases) - 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](index=75&type=chunk) 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](index=16&type=section&id=Note%2010.%20Income%20Taxes) - 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](index=78&type=chunk) - As of December 31, 2022, the Company had a valuation allowance of **$11.9 million** against net deferred tax assets[80](index=80&type=chunk) [Note 11. Stockholders' Equity](index=16&type=section&id=Note%2011.%20Stockholders'%20Equity) 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](index=82&type=chunk) [Note 12. Stock Based Compensation](index=17&type=section&id=Note%2012.%20Stock%20Based%20Compensation) 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](index=86&type=chunk)[87](index=87&type=chunk) - 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](index=90&type=chunk) [Note 13. Commitments and Contingencies](index=19&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) 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](index=94&type=chunk) [Note 14. Concentration of Credit Risk](index=19&type=section&id=Note%2014.%20Concentration%20of%20Credit%20Risk) 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](index=98&type=chunk) - Following a bank receivership in March 2023, the company moved most of its cash deposits to a larger institutional bank, experiencing **no losses**[99](index=99&type=chunk) [Note 15. Revenue](index=20&type=section&id=Note%2015.%20Revenue) 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](index=21&type=section&id=Note%2016.%20Subsequent%20Events) - There were **no subsequent events** to report[104](index=104&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook [Overview](index=22&type=section&id=Overview) - Airgain is transitioning from a component provider to a **wireless systems provider**, leveraging expertise in RF technology, embedded antennas, and modems[109](index=109&type=chunk) - Key product offerings include **Airgain Embedded™**, **Airgain Antenna+™**, and **Airgain Integrated™**[108](index=108&type=chunk) - The company adopted a **fabless manufacturing model** in 2022, relying on third parties for production[110](index=110&type=chunk) [Core Markets](index=23&type=section&id=Core%20Markets) - Airgain focuses on three core markets: **Enterprise**, **Consumer**, and **Automotive**[112](index=112&type=chunk) [Macroeconomic conditions](index=23&type=section&id=Macroeconomic%20conditions) - Macroeconomic conditions have led to **industry-wide demand softness** and excess inventories, resulting in year-over-year sales declines[114](index=114&type=chunk) - These conditions worsened in the second half of the fiscal year, contributing to a **material sales decline** and increased volatility[114](index=114&type=chunk) [Factors Affecting Our Operating Results](index=24&type=section&id=Factors%20Affecting%20Our%20Operating%20Results) - Performance depends on macroeconomic uncertainties, inflation, the transition to a wireless systems provider, and **product diversification**[115](index=115&type=chunk)[116](index=116&type=chunk) - Inflation increases raw material and employee-related costs, while **global economic conditions** and political instability also pose risks[117](index=117&type=chunk) [Seasonality](index=24&type=section&id=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](index=119&type=chunk) [Key Components of Our Results of Operations and Financial Condition](index=24&type=section&id=Key%20Components%20of%20Our%20Results%20of%20Operations%20and%20Financial%20Condition) - Revenue is primarily generated from **product sales**, recognized at shipment[120](index=120&type=chunk) - Operating expenses are categorized into research and development, sales and marketing, and general and administrative, with **personnel costs** being the largest component[123](index=123&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) 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](index=132&type=chunk)[133](index=133&type=chunk) - 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](index=136&type=chunk)[137](index=137&type=chunk) - 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](index=138&type=chunk)[139](index=139&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) 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](index=143&type=chunk) - Management believes existing cash will be **sufficient to meet working capital requirements** for at least the next 12 months[145](index=145&type=chunk) [Employee Retention Credit](index=29&type=section&id=Employee%20Retention%20Credit) - In August 2023, the company applied for **$2.5 million** in Employee Retention Credit (ERC) refunds[149](index=149&type=chunk) - Receipt of ERC refunds is anticipated within the next nine months, but there is **no assurance** of the ultimate amount or timeframe[149](index=149&type=chunk) [Contractual Obligations and Commitments](index=29&type=section&id=Contractual%20Obligations%20and%20Commitments) - **No material changes** to contractual obligations occurred during the nine months ended September 30, 2023[150](index=150&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) - **No material changes** to critical accounting policies and estimates were reported[153](index=153&type=chunk) - The company performed interim impairment tests and concluded **no impairment charges** were necessary for intangible assets and goodwill as of September 30, 2023[154](index=154&type=chunk)[156](index=156&type=chunk)[158](index=158&type=chunk) [Recent Accounting Pronouncements](index=31&type=section&id=Recent%20Accounting%20Pronouncements) - Refer to Note 2, "Summary of Significant Accounting Policies," for information on recent accounting pronouncements[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) 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](index=162&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) 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](index=164&type=chunk) - **No material changes** in internal control over financial reporting occurred during the nine months ended September 30, 2023[165](index=165&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers other required disclosures including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) 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](index=168&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) 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](index=169&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities during the reporting period - **No unregistered sales** of equity securities occurred[170](index=170&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - **No defaults** upon senior securities occurred[171](index=171&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report - No mine safety disclosures are **applicable**[172](index=172&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item - **No other information** is reported under this item[173](index=173&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q - The exhibits include certifications, corporate governance documents, and various **Inline XBRL documents**[174](index=174&type=chunk)[175](index=175&type=chunk) [SIGNATURES](index=34&type=section&id=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](index=179&type=chunk)

Financial Data and Key Metrics Changes - Q2 2023 sales were $15.8 million, at the low end of guidance, reflecting a 4% sequential decline and an 18% year-over-year decrease due to inventory corrections [18][19] - Q2 gross margin was 40.4%, at the high end of guidance, and improved by 130 basis points sequentially due to a favorable consumer revenue mix and operational efficiencies [20] - Adjusted EBITDA for Q2 was positive $37,000, while non-GAAP EPS was negative $0.01 [21] Business Line Data and Key Metrics Changes - Consumer sales increased to $6.2 million, driven by a strong uptick in Wi-Fi 6E embedded antenna shipments [19] - Enterprise sales decreased to $7.3 million, primarily due to lower embedded modem sales from inventory corrections, although asset tracker sales increased [19] - Automotive sales fell to $2.3 million, reflecting a sequential decrease due to direct customer inventory corrections [19] Market Data and Key Metrics Changes - The consumer market saw growth due to the deployment of Wi-Fi 6E, but is expected to decline in Q3 due to core cutting and inventory issues [8][16] - The enterprise market is experiencing demand softness, but asset trackers are gaining momentum in verticals like rail and logistics [9][10] - The automotive market is facing challenges due to excessive inventory and forecasting changes [12][13] Company Strategy and Development Direction - The company is transitioning from a components provider to a systems provider, focusing on 5G customer experience and connectivity solutions [6][7] - Strategic initiatives include expanding distribution channels, diversifying the customer base, and entering new geographies [9][15] - Major product initiatives include fixed wireless access devices, smart repeaters, and enhanced vehicle networking solutions, with expected revenue generation starting in 2024 [24][26][27] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic conditions have created demand softness, impacting sales across various markets [8][28] - Despite current challenges, the company remains optimistic about growth prospects in 2024 due to strategic investments and new product introductions [8][28] - The focus on improving 5G connectivity and customer experience is expected to drive future growth [27][30] Other Important Information - The company is increasing the number of contract manufacturers to ensure adequate supply and reduce product costs [20] - Operating expenses for Q2 were $6.5 million, in line with guidance, and decreased sequentially due to lower employee and marketing expenses [21] - The company expects Q3 sales to range between $13.25 million and $14.75 million, with a projected non-GAAP gross margin of 38.5% to 41.5% [22] Q&A Session Summary - No specific questions or answers were recorded in the provided content, indicating a lack of interaction during the Q&A segment [31][32]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis [Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, reporting a net loss and decreased assets [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$49.5 million** by June 30, 2023, driven by reduced cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $9,270 | $11,903 | | Total current assets | $24,381 | $27,154 | | Total assets | $49,512 | $54,400 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $11,207 | $12,900 | | Total liabilities | $12,433 | $14,575 | | Total stockholders' equity | $37,079 | $39,825 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Sales decreased to **$32.3 million** for the six months ended June 30, 2023, widening the net loss to **$5.1 million** Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales | $15,830 | $19,286 | $32,274 | $36,808 | | Gross Profit | $6,279 | $7,493 | $12,597 | $14,649 | | Loss from operations | $(2,212) | $(1,613) | $(5,002) | $(4,039) | | Net loss | $(2,205) | $(1,619) | $(5,063) | $(4,140) | | Diluted Net loss per share | $(0.21) | $(0.16) | $(0.49) | $(0.41) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was **$2.0 million** for the six months, resulting in a **$2.6 million** decrease in cash Cash Flow Summary (in thousands) | Activity | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,004) | $1,980 | | Net cash used in investing activities | $(104) | $(164) | | Net cash used in financing activities | $(525) | $(6,879) | | **Net decrease in cash** | **$(2,633)** | **$(5,063)** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue disaggregation, customer concentration, and a **$2.5 million** ERC refund application - The company operates as a single operating segment providing connectivity solutions, including embedded components, external antennas, and integrated systems[26](index=26&type=chunk) Revenue by Market Group (in thousands) | Market Group | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Enterprise | $7,366 | $9,120 | $15,803 | $17,749 | | Consumer | $6,189 | $5,981 | $11,321 | $12,043 | | Automotive | $2,275 | $4,185 | $5,150 | $7,016 | Customer Concentration (% of Total Revenue) | Customer | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Customer A | 24% | 14% | 19% | 14% | | Customer B | 14% | 8% | 13% | 8% | | Customer C | 9% | 22% | 12% | 19% | - In August 2023, the company applied for **$2.5 million** in Employee Retention Credit (ERC) refunds, which it anticipates receiving within the next six months, pending IRS review[95](index=95&type=chunk)[144](index=144&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **12.3%** sales decline from market softness, reduced operating expenses, and liquidity [Overview and Core Markets](index=20&type=section&id=Overview%20and%20Core%20Markets) The company transitions to a wireless systems provider, with core markets impacted by demand softness and excess inventories - The company is transitioning from a component provider to a wireless systems provider, leveraging its expertise in RF technology[100](index=100&type=chunk) - Core markets include Enterprise, Consumer, and Automotive, all of which have been affected by industry-wide demand softness and excess channel inventories[102](index=102&type=chunk)[103](index=103&type=chunk)[106](index=106&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Sales decreased **12.3%** for the six months, with declining gross profit and reduced operating expenses Sales Comparison (in thousands) | Period | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three months ended June 30 | $15,830 | $19,286 | $(3,456) | (17.9)% | | Six months ended June 30 | $32,274 | $36,808 | $(4,534) | (12.3)% | - The sales decrease for the first six months of 2023 was driven by lower sales of IIoT products in the Enterprise market and a decrease in AirgainConnect HPUE and aftermarket sales in the Automotive market[126](index=126&type=chunk) Gross Profit Comparison | Period | 2023 | 2022 | | :--- | :--- | :--- | | **Three months ended June 30** | | | | Gross Profit | $6,279K | $7,493K | | Gross Margin | 39.7% | 38.9% | | **Six months ended June 30** | | | | Gross Profit | $12,597K | $14,649K | | Gross Margin | 39.0% | 39.8% | - Total operating expenses for the six months ended June 30, 2023 decreased by **$1.1 million (5.8%)** compared to the prior year, driven by lower company-wide people costs and professional outsourced services[133](index=133&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds **$9.3 million** in cash, used **$2.0 million** in operations, and expects 12 months of liquidity - Cash and cash equivalents were **$9.3 million** at June 30, 2023, with an accumulated deficit of **$71.2 million**[137](index=137&type=chunk) - Net cash used in operating activities was **$2.0 million** for the first six months of 2023, compared to **$2.0 million** provided by operating activities in the same period of 2022[140](index=140&type=chunk)[141](index=141&type=chunk) - The company believes its existing cash balance and operational cash flow will be sufficient to meet working capital requirements for at least the next 12 months[139](index=139&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Airgain, Inc. is exempt from providing market risk disclosures - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide quantitative and qualitative disclosures about market risk[149](index=149&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes to internal financial reporting controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[151](index=151&type=chunk) - No changes in internal control over financial reporting occurred during the six months ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[152](index=152&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, risk factors, equity sales, and other related information [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) No current legal proceedings are expected to materially affect the company's financial condition or business - The company is not currently party to any legal proceedings that are expected to have a material adverse effect on its financial condition or business[154](index=154&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the Annual Report on Form 10-K for December 31, 2022 - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[155](index=155&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[156](index=156&type=chunk) [Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[157](index=157&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[158](index=158&type=chunk) [Other Information](index=29&type=section&id=Item%205.%20Other%20Information) The company reported no other information required to be disclosed under this item - None[159](index=159&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL data files

Financial Data and Key Metrics Changes - Q1 2023 sales were $16.4 million, a 6% year-over-year decline primarily due to demand softness in the consumer market [4][11] - Q1 gross margin was 39.1%, an increase of 860 basis points sequentially due to operational efficiencies and higher Enterprise gross margins [12] - Q1 adjusted EBITDA was negative $0.7 million, and non-GAAP EPS was negative at $0.08 [12][13] - Cash balance as of March 31 was $9.8 million, down $2 million sequentially [14] Business Line Data and Key Metrics Changes - Enterprise sales were $8.4 million, reflecting a sequential decrease of $1.6 million [12] - Automotive sales totaled $2.9 million, a sequential decrease of $0.6 million [12] - Consumer sales were $5.1 million, reflecting a sequential decrease of $1.3 million [12] Market Data and Key Metrics Changes - The Enterprise market represented just over 50% of total sales for the quarter, showing resilience against volatile market conditions [5] - The consumer market faced near-term challenges due to macroeconomic conditions and product transitions from Wi-Fi 6 to Wi-Fi 7 [9] Company Strategy and Development Direction - The company is optimistic about new product introductions and design wins leading to sequential sales increases in the second half of 2023 [4] - Focus on expanding market share within distribution channels, particularly in the automotive sector [7][8] - The service addressable market (SAM) has more than doubled from $7.6 billion to $16.5 billion due to new product initiatives [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledges short-term challenges but remains optimistic about long-term growth prospects across major markets [21] - The company expects stability in the Enterprise market and growth in automotive and consumer sectors as supply chain issues resolve [31][32] Other Important Information - The company completed a workforce reduction at the end of the quarter, resulting in a decrease in quarterly expenses [13] - New product lines are being developed to address challenges in 5G technologies and improve customer experience [16][17] Q&A Session Summary Question: Update on the timeline for new product introduction and NimbeLink - Management is still working on the next-generation AirgainConnect and hopes to provide updates soon [26][27] - Supply chain issues for NimbeLink have eased significantly, improving the overall situation [28][29] Question: Timing for fixed wireless access solution and growth expectations - Management is optimistic about the second half of the year, expecting improvements in consumer, Enterprise, and automotive sectors [31][32][33] Question: Details on the Lighthouse product and sales expectations - The Lighthouse product is in live field trials, with expectations for deployment next year [35][36] Question: Targeting mix between consumer, auto, and Enterprise - The Enterprise market has been growing steadily, providing resilience against economic conditions, while consumer remains a higher-margin market [38]

[Report Information](index=1&type=section&id=Report%20Information) This section provides essential identification and status details for Airgain, Inc., including its incorporation, filing type, and stock information [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides key identification details for Airgain, Inc., including its incorporation state, filing type, and stock exchange listing - Registrant: **AIRGAIN, INC.**, incorporated in Delaware, with headquarters in San Diego, CA[2](index=2&type=chunk) - Filing Type: **Quarterly Report (Form 10-Q)** for the period ended March 31, 2023[2](index=2&type=chunk) Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common stock, par value $0.0001 per share | AIRG | Nasdaq Capital Market | [Filer Status and Shares Outstanding](index=1&type=section&id=Filer%20Status%20and%20Shares%20Outstanding) Airgain, Inc. is categorized as a Non-accelerated filer and a Smaller reporting company, and its common stock outstanding as of May 5, 2023, is reported - Filer Status: **Non-accelerated filer** and **Smaller reporting company**[4](index=4&type=chunk) - Shares Outstanding: **10,407,336 shares** of common stock as of May 5, 2023[4](index=4&type=chunk) [Table of Contents](index=2&type=section&id=Table%20of%20Contents) This section outlines the report's structure, detailing the main parts and included financial and other information sections - The report's table of contents outlines two main parts: **Part I. Financial Information** and **Part II. Other Information**, detailing the structure and page numbers of the included sections[7](index=7&type=chunk) [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part encompasses the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Airgain, Inc., including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items for the quarter ended March 31, 2023 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | **Assets** | | | | | Total current assets | $24,197 | $27,154 | $(2,957) | | Total assets | $50,423 | $54,400 | $(3,977) | | **Liabilities and Stockholders' Equity** | | | | | Total current liabilities | $10,660 | $12,900 | $(2,240) | | Total liabilities | $12,123 | $14,575 | $(2,452) | | Total stockholders' equity | $38,300 | $39,825 | $(1,525) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement presents the company's revenues, expenses, and net loss for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Operations (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Sales | $16,444 | $17,522 | $(1,078) | (6.2)% | | Cost of goods sold | $10,126 | $10,366 | $(240) | (2.3)% | | Gross profit | $6,318 | $7,156 | $(838) | (11.7)% | | Total operating expenses | $9,108 | $9,582 | $(474) | (4.9)% | | Loss from operations | $(2,790) | $(2,426) | $(364) | 15.0% | | Net loss | $(2,858) | $(2,521) | $(337) | 13.4% | | Net loss per share (Basic) | $(0.28) | $(0.25) | $(0.03) | 12.0% | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This statement reports the company's net loss and comprehensive loss for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Comprehensive Loss (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | % Change | | :----------- | :----- | :----- | :----- | :------- | | Net loss | $(2,858) | $(2,521) | $(337) | 13.4% | | Comprehensive loss | $(2,858) | $(2,521) | $(337) | 13.4% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement details changes in the company's stockholders' equity, including net loss and stock-based compensation, for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Stockholders' Equity (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | | :------------------------------------ | :----- | :----- | :----- | | Total stockholders' equity, beginning balance | $39,825 | $44,173 | $(4,348) | | Stock-based compensation | $1,874 | $1,051 | $823 | | Net loss | $(2,858) | $(2,521) | $(337) | | Total stockholders' equity, ending balance | $38,300 | $42,823 | $(4,523) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Condensed Consolidated Statements of Cash Flows (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Net cash (used in) provided by operating activities | $(1,434) | $4,152 | $(5,586) | | Net cash used in investing activities | $(89) | $(128) | $39 | | Net cash (used in) provided by financing activities | $(541) | $120 | $(661) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(2,064) | $4,144 | $(6,208) | | Cash, cash equivalents, and restricted cash; end of period | $10,014 | $18,830 | $(8,816) | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's business, accounting policies, and specific financial line items [Note 1. Description of Business and Basis of Presentation](index=8&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Airgain, Inc. provides wireless connectivity solutions, including embedded components, external antennas, and integrated systems for consumer, enterprise, and automotive markets, operating as a single segment - Airgain, Inc. (with subsidiary NimbeLink Corp.) is a leading provider of connectivity solutions (embedded components, external antennas, integrated systems) for consumer, enterprise, and automotive markets[24](index=24&type=chunk) - The company operates as a single operating segment, with its chief executive officer reviewing results on an aggregate basis[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=8&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting policies, including those for restricted cash, inventories, revenue recognition, and stock-based compensation, noting no material changes or impacts from recent accounting pronouncements - No material changes to significant accounting policies during the three months ended March 31, 2023, compared to the 2022 Annual Report on Form 10-K[30](index=30&type=chunk) - The Company adopted **ASU 2016-13 (Financial Instruments-Credit Losses)** in Q1 2023, which did not have a material impact on financial statements[52](index=52&type=chunk) - Revenue is primarily generated from sales of wireless connectivity solutions, recognized 'point-in-time' upon transfer of control, with minor service and data subscription revenue recognized 'over time' or monthly[39](index=39&type=chunk)[41](index=41&type=chunk) [Note 3. Net Loss Per Share](index=11&type=section&id=Note%203.%20Net%20Loss%20Per%20Share) This note details the computation of basic and diluted net loss per share, indicating that potentially dilutive securities were excluded from the diluted EPS calculation due to the net loss Net Loss Per Share Computation (Three months ended March 31, in thousands except per share data) | Item | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net loss | $(2,858) | $(2,521) | | Basic weighted average common shares outstanding | 10,266 | 10,130 | | Diluted weighted average common shares outstanding | 10,266 | 10,130 | | Net loss per share (Basic) | $(0.28) | $(0.25) | | Net loss per share (Diluted) | $(0.28) | $(0.25) | - Potentially dilutive securities (**2,224 thousand in 2023** and **1,960 thousand in 2022**) were excluded from diluted net loss per share calculation as their inclusion would be anti-dilutive[57](index=57&type=chunk) [Note 4. Cash and Cash Equivalents](index=12&type=section&id=Note%204.%20Cash%20and%20Cash%20Equivalents) This note provides a breakdown of cash and cash equivalents, primarily consisting of cash and money market funds, showing a decrease from December 31, 2022, to March 31, 2023 Cash and Cash Equivalents (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :------------------ | :------------- | :---------------- | :----- | | Cash | $8,123 | $8,323 | $(200) | | Money market funds | $1,716 | $3,580 | $(1,864) | | Total | $9,839 | $11,903 | $(2,064) | [Note 5. Inventory](index=12&type=section&id=Note%205.%20Inventory) This note details the composition of inventories, including raw materials and finished goods, and also provides information on consigned inventories, noting the company's transition to a fabless model Inventories (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :-------------- | :------------- | :---------------- | :----- | | Raw materials | $1,130 | $1,060 | $70 | | Finished goods | $3,351 | $3,166 | $185 | | Total Inventory | $4,481 | $4,226 | $255 | Consigned Inventories (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :------------------ | :------------- | :---------------- | :----- | | Raw materials | $795 | $631 | $164 | | Finished goods | $2,613 | $2,272 | $341 | | Total Consigned Inventory | $3,407 | $2,903 | $504 | - The company transitioned to a **fabless model** in April 2022, with third parties manufacturing products[33](index=33&type=chunk) [Note 6. Property and Equipment](index=12&type=section&id=Note%206.%20Property%20and%20Equipment) This note provides a breakdown of property and equipment, net of accumulated depreciation, showing a slight decrease from December 31, 2022, to March 31, 2023, with consistent depreciation expense Property and Equipment, Net (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Property and equipment, gross | $7,242 | $7,170 | $72 | | Less accumulated depreciation | $(4,559) | $(4,405) | $(154) | | Property and equipment, net | $2,683 | $2,765 | $(82) | - Depreciation expense was **$0.2 million** for both three months ended March 31, 2023 and 2022[61](index=61&type=chunk) [Note 7. Intangible Assets](index=13&type=section&id=Note%207.%20Intangible%20Assets) This note summarizes the company's acquired intangible assets, including market-related intangibles, customer relationships, and developed technologies, showing a decrease in net carrying amount due to amortization Intangible Assets, Net (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Market related intangibles | $940 | $1,025 | $(85) | | Customer relationships | $6,492 | $7,060 | $(568) | | Developed technologies | $3,028 | $3,117 | $(89) | | Covenants to non-compete | $0 | $1 | $(1) | | Total intangible assets, net | $10,460 | $11,203 | $(743) | Estimated Future Amortization of Intangible Assets (in thousands) | Year | Estimated future amortization | | :-------------------------- | :-------------------------- | | 2023 (remaining nine months) | $2,226 | | 2024 | $2,968 | | 2025 | $2,958 | | 2026 | $557 | | Thereafter | $1,751 | | Total | $10,460 | - Amortization expense was **$0.7 million** for Q1 2023, down from $0.8 million in Q1 2022[62](index=62&type=chunk) [Note 8. Accrued Liabilities and Other](index=13&type=section&id=Note%208.%20Accrued%20Liabilities%20and%20Other) This note provides a detailed breakdown of accrued liabilities and other current liabilities, showing a decrease in total from December 31, 2022, to March 31, 2023 Accrued Liabilities and Other (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | Accrued expenses | $1,051 | $815 | $236 | | VAT payable | $339 | $339 | $0 | | Accrued income taxes | $243 | $166 | $77 | | Advanced payments from contract manufacturers | $208 | $210 | $(2) | | Contract liabilities | $0 | $32 | $(32) | | Goods received not invoiced | $94 | $529 | $(435) | | Other current liabilities | $221 | $524 | $(303) | | Accrued liabilities and other | $2,156 | $2,615 | $(459) | [Note 9. Notes Payable and Line of Credit](index=14&type=section&id=Note%209.%20Notes%20Payable%20and%20Line%20of%20Credit) The company's $4.0 million revolving line of credit with Silicon Valley Bank expired in February 2023, with no outstanding balance as of March 31, 2023 - The **$4.0 million revolving line of credit** with Silicon Valley Bank expired in February 2023[65](index=65&type=chunk)[66](index=66&type=chunk) - No balance was owed on the line of credit as of March 31, 2023[66](index=66&type=chunk) [Note 10. Leases](index=14&type=section&id=Note%2010.%20Leases) This note details the company's operating lease arrangements, primarily for office and warehouse facilities, with a weighted average remaining lease term of 2.5 years and a discount rate of 3.9% as of March 31, 2023 - Weighted average remaining lease term for operating leases was **2.5 years** as of March 31, 2023[69](index=69&type=chunk) - Weighted average discount rate for operating leases was **3.9%** as of March 31, 2023[69](index=69&type=chunk) - Short-term lease expense was **$22,000** for the three months ended March 31, 2023, a decrease from $48,600 in the prior year period[70](index=70&type=chunk) Estimated Future Lease Obligations (in thousands) | Year | Estimated future lease obligation | | :-------------------------- | :-------------------------- | | 2023 (remaining nine months) | $732 | | 2024 | $904 | | 2025 | $687 | | Total minimum payments | $2,323 | | Total lease liabilities | $2,210 | | Long-term lease liability | $1,321 | [Note 11. Treasury Stock](index=15&type=section&id=Note%2011.%20Treasury%20Stock) The company's share repurchase program, which expired in September 2021, resulted in the purchase of approximately 541,000 shares for a total cost of $5.4 million - The share repurchase program expired in **September 2021**[73](index=73&type=chunk) - Total shares purchased under the program: **541,000 shares for $5.4 million**[73](index=73&type=chunk) [Note 12. Income Taxes](index=15&type=section&id=Note%2012.%20Income%20Taxes) The company's effective income tax rate was -2.9% for Q1 2023, primarily due to the utilization of deferred tax attributes with a full valuation allowance, a portion of which was released - Effective income tax rate: **-2.9% for Q1 2023** (compared to -3.3% for Q1 2022)[74](index=74&type=chunk) - The variance from the U.S. federal statutory rate of 21.0% is primarily due to the utilization of deferred tax attributes that had a full valuation allowance[74](index=74&type=chunk) - A portion of the valuation allowance was released in Q1 2023 due to deferred tax liabilities associated with acquired intangible assets from the NimbeLink acquisition[76](index=76&type=chunk) [Note 13. Stockholders' Equity](index=15&type=section&id=Note%2013.%20Stockholders'%20Equity) This note provides details on common stock reserved for future issuance under various equity incentive plans, including increases in authorized shares for the 2016 Plan and 2016 Employee Stock Purchase Plan Common Stock Reserved for Future Issuance (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Stock options issued and outstanding | 2,224 | 2,065 | | Stock awards issued and outstanding | 822 | 581 | | Authorized for grants under the 2016 Equity Incentive Plan | 328 | 507 | | Authorized for grants under the Inducement Plan | 323 | 294 | | Authorized for grants under the 2016 Employee Stock Purchase Plan | 457 | 378 | | Total | 4,154 | 3,825 | - Authorized shares for the **2016 Plan increased by 431,000 shares** on January 1, 2023, due to evergreen provisions[78](index=78&type=chunk) - Authorized shares for the **2016 Employee Stock Purchase Plan increased by 100,000 shares** on January 1, 2023, due to evergreen provisions[79](index=79&type=chunk) [Note 14. Stock Based Compensation](index=16&type=section&id=Note%2014.%20Stock%20Based%20Compensation) This note details stock-based compensation expense, which decreased to $0.981 million in Q1 2023, and summarizes activity for stock options, restricted stock units (RSUs), and performance stock units (PSUs) Stock-Based Compensation Expense (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | % Change | | :-------------------------------- | :----- | :----- | :----- | :------- | | Cost of goods sold | $15 | $13 | $2 | 15.4% | | Research and development | $237 | $267 | $(30) | (11.2)% | | Sales and marketing | $161 | $287 | $(126) | (43.9)% | | General and administrative | $568 | $674 | $(106) | (15.7)% | | Total stock-based compensation expense | $981 | $1,241 | $(260) | (20.9)% | - Unrecognized compensation cost for unvested stock options was **$3.6 million** (expected over 2.6 years) and for unvested restricted stock units was **$5.1 million** (expected over 3.4 years) as of March 31, 2023[82](index=82&type=chunk)[84](index=84&type=chunk) - The company settled **$0.9 million of 2022 bonus awards** by granting 187,200 immediately vested RSUs in Q1 2023[87](index=87&type=chunk) [Note 15. Commitments and Contingencies](index=17&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) This note discloses severance costs incurred and the general warranty reserve, also mentioning indemnification agreements with no material costs to date - Severance costs incurred and paid were **$0.1 million** for the three months ended March 31, 2023[90](index=90&type=chunk) - A general warranty reserve of approximately **$0.1 million** was recorded as of March 31, 2023[91](index=91&type=chunk) [Note 16. Concentration of Credit Risk](index=18&type=section&id=Note%2016.%20Concentration%20of%20Credit%20Risk) This note highlights significant customer concentrations in sales and accounts receivable and addresses the concentration of cash, noting no losses from a bank placed into FDIC receivership Concentration of Sales (Three months ended March 31) | Customer | 2023 | 2022 | | :--------- | :--- | :--- | | Customer A | 16 % | 12 % | | Customer B | 14 % | 17 % | | Customer C | 13 % | 6 % | | Customer D | 11 % | 12 % | Concentration of Trade Accounts Receivable | Customer | March 31, 2023 | December 31, 2022 | | :--------- | :------------- | :---------------- | | Customer A | 13 % | 21 % | | Customer B | 11 % | 3 % | | Customer C | 11 % | 0 % | | Customer D | 10 % | 15 % | - The bank where most of the Company's cash was held was placed into receivership with the FDIC on March 10, 2023; however, depositors had access to their funds, and the Company experienced **no losses**; the Company is reallocating cash deposits to mitigate concentration risk[95](index=95&type=chunk) [Note 17. Disaggregated Revenue](index=19&type=section&id=Note%2017.%20Disaggregated%20Revenue) This note disaggregates revenue by market group (Enterprise, Consumer, Automotive) and by geography (North America, China, Rest of the world), showing an overall sales decrease of 6.2% year-over-year Disaggregated Revenue by Market Group (Three months ended March 31, in thousands) | Market Group | 2023 | 2022 | Change | % Change | | :----------- | :----- | :----- | :----- | :------- | | Enterprise | $8,437 | $8,629 | $(192) | (2.2)% | | Consumer | $5,132 | $6,062 | $(930) | (15.3)% | | Automotive | $2,875 | $2,831 | $44 | 1.6% | | Total sales | $16,444 | $17,522 | $(1,078) | (6.2)% | Disaggregated Revenue by Geography (Three months ended March 31, in thousands) | Geography | 2023 | 2022 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | North America | $10,168 | $10,479 | $(311) | (3.0)% | | China (including Hong Kong and Taiwan) | $5,969 | $6,459 | $(490) | (7.6)% | | Rest of the world | $307 | $584 | $(277) | (47.4)% | | Total sales | $16,444 | $17,522 | $(1,078) | (6.2)% | [Note 18. Subsequent Events](index=19&type=section&id=Note%2018.%20Subsequent%20Events) No subsequent events requiring disclosure were reported - No subsequent events were reported[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2023, covering business overview, core markets, operational processes, and financial performance [Overview](index=20&type=section&id=Overview) Airgain is a global provider of wireless connectivity solutions, including embedded components, external antennas, and integrated systems, transitioning to a wireless systems provider with a fabless manufacturing model - Airgain provides wireless connectivity solutions (embedded components, external antennas, integrated systems) globally, simplifying connectivity and enhancing wireless signals[100](index=100&type=chunk) - The company is transitioning from a component provider to a wireless systems provider, focusing on platforms like AirgainConnect (e.g., AC-HPUE™ antenna-modem) and cellular-based asset trackers[101](index=101&type=chunk) - Airgain adopted a **fabless manufacturing model** in 2022, utilizing third parties for production while maintaining quality oversight, and holds over **281 issued and pending patents** worldwide[102](index=102&type=chunk) [Core Markets](index=20&type=section&id=Core%20Markets) Airgain focuses on three core markets: Enterprise (IIoT, smart cities, asset tracking), Consumer (Wi-Fi Mesh, smart TVs, 5G FWA), and Automotive (fleet and aftermarket segments, rugged vehicular wireless routers) - **Enterprise Market:** Provides reliable wireless access for high-density environments (buildings, campuses, transportation terminals, stadiums) with antennas for access points, fixed wireless access, small cells, and embedded modems for IIoT, EV charging, smart city, agriculture, and asset tracking[103](index=103&type=chunk) - **Consumer Market:** Deploys antennas in consumer access points, wireless gateways, Wi-Fi Mesh systems, smart TVs, smart home devices, and supports technologies like WLAN, Wi-Fi, LTE, 5G, and LPWAN, with a focus on improving 5G access via FWA and repeaters[103](index=103&type=chunk) - **Automotive Market:** Products are deployed in fleet and aftermarket vehicles, supporting Wi-Fi, LTE, 5G, Satellite, and LPWAN, with a rising demand for in-vehicle connectivity in segments like first responder, utility, agriculture, and service fleets[103](index=103&type=chunk) [Our Process](index=21&type=section&id=Our%20Process) Airgain's process involves partnering with customers from early design stages for internal antennas, offering custom engineering and OTA testing, and assisting with carrier certification for embedded modems - For internal antennas, Airgain partners with customers from prototyping to device throughput testing, offering design, custom engineering, integration, and over-the-air (OTA) testing to optimize performance and reduce time to market[104](index=104&type=chunk) - For embedded modems, the company enables faster time to market by assisting with carrier certification and providing future-proofing features like remote firmware updates and module vendor flexibility[105](index=105&type=chunk) [COVID-19 Pandemic](index=21&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic caused instability and disruptions, negatively impacting sales and operating results in 2021 and 2022, though recent effects have lessened, future impacts remain uncertain - COVID-19 caused significant instability, including travel restrictions, customer/supplier facility closures, and supply chain disruptions, negatively impacting sales and operating results in 2021 and 2022[106](index=106&type=chunk) - The negative effects from COVID-19 have recently had less impact on sales and operations, but future impacts remain highly uncertain[106](index=106&type=chunk)[107](index=107&type=chunk) [Factors Affecting Our Operating Results](index=21&type=section&id=Factors%20Affecting%20Our%20Operating%20Results) The company's performance is influenced by macroeconomic uncertainties, global supply shortages, inflation, technology leadership, market expansion, manufacturing costs, and product diversification - Performance and future success depend on macroeconomic uncertainties, epidemic diseases, recovery from global supply shortages, inflation's impact on consumer spending, and the ability to develop technology leadership and expand markets[108](index=108&type=chunk) - Other factors include manufacturing costs, investments in growth, expansion into consumer, enterprise, and automotive markets, average selling prices, number of antennas per device, and product diversification[109](index=109&type=chunk) - Inflation increases raw material and employee-related costs, and global economic conditions, trade disputes, or political instability could impact financial results, though no material adverse impact was noted for Q1 2023[111](index=111&type=chunk) [Seasonality](index=22&type=section&id=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 and broader economic conditions - Operating results historically lack significant seasonal variations, but Q1 sales tend to be lower due to the Lunar New Year[113](index=113&type=chunk) - Broader economic impacts from COVID-19 and general weakening economic conditions may contribute to slower sales[113](index=113&type=chunk) [Key Components of Our Results of Operations and Financial Condition](index=22&type=section&id=Key%20Components%20of%20Our%20Results%20of%20Operations%20and%20Financial%20Condition) This section defines the key components influencing Airgain's financial results, including sales, cost of goods sold, and operating expenses, and discusses the provision for income taxes - **Sales:** Primarily generated from product sales, recognized at shipment, with immaterial service and subscription revenue[114](index=114&type=chunk) - **Cost of Goods Sold:** Includes manufacturing costs from third-party contract manufacturers and personnel costs for service/subscription revenues[115](index=115&type=chunk) - **Operating Expenses:** Classified into Research and Development, Sales and Marketing, and General and Administrative, with personnel costs (salaries, benefits, stock-based compensation) being the largest component[116](index=116&type=chunk) - **Research and Development:** Expected to increase in absolute dollars with continued investment in new solutions and markets[117](index=117&type=chunk) - **Provision for Income Taxes:** Realizability of deferred tax assets is assessed quarterly, with a valuation allowance established for unrealizable portions, dependent on future taxable income[122](index=122&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's operating results for the three months ended March 31, 2023, versus 2022, highlighting changes in sales, cost of goods sold, gross profit, operating expenses, and other income/expense, leading to an increased net loss Statement of Operations Data (Three months ended March 31, in thousands and as % of sales) | Item | 2023 (k$) | 2023 (%) | 2022 (k$) | 2022 (%) | Change (k$) | % Change | | :-------------------------- | :-------- | :------- | :-------- | :------- | :---------- | :------- | | Sales | $16,444 | 100.0% | $17,522 | 100.0% | $(1,078) | (6.2)% | | Cost of goods sold | $10,126 | 61.6% | $10,366 | 59.2% | $(240) | (2.3)% | | Gross profit | $6,318 | 38.4% | $7,156 | 40.8% | $(838) | (11.7)% | | Research and development | $2,449 | 14.9% | $3,242 | 18.4% | $(793) | (24.5)% | | Sales and marketing | $2,866 | 17.4% | $2,855 | 16.3% | $11 | 0.4% | | General and administrative | $3,793 | 23.1% | $3,485 | 19.9% | $308 | 8.8% | | Total operating expenses | $9,108 | 55.4% | $9,582 | 54.6% | $(474) | (4.9)% | | Loss from operations | $(2,790) | (17.0)% | $(2,426) | (13.8)% | $(364) | 15.0% | | Net loss | $(2,858) | (17.4)% | $(2,521) | (14.4)% | $(337) | 13.4% | [Sales Performance](index=24&type=section&id=Sales%20Performance) Sales decreased by $1.1 million (6.2%) year-over-year to $16.4 million in Q1 2023, driven by lower Enterprise and Consumer market sales, partially offset by a slight increase in Automotive market sales - Total sales decreased by **$1.1 million (6.2%) to $16.4 million** for Q1 2023 compared to Q1 2022[126](index=126&type=chunk) - Enterprise market sales decreased by **$0.2 million** due to lower IIoT product sales[126](index=126&type=chunk) - Consumer market sales decreased by **$1.0 million** due to demand softness[126](index=126&type=chunk) - Automotive market sales increased by **$0.1 million**[126](index=126&type=chunk) [Cost of Goods Sold and Gross Profit](index=24&type=section&id=Cost%20of%20Goods%20Sold%20and%20Gross%20Profit) Cost of goods sold decreased by $0.2 million (2.3%) due to lower sales, but gross profit decreased more significantly by $0.8 million (11.7%), with gross profit margin declining to 38.4% due to an unfavorable sales mix - Cost of goods sold decreased by **$0.2 million (2.3%)** for Q1 2023, primarily due to sales decline[127](index=127&type=chunk) - Gross profit decreased by **$0.8 million (11.7%) to $6.3 million** for Q1 2023[128](index=128&type=chunk)[129](index=129&type=chunk) - Gross profit as a percentage of sales decreased by **240 basis points to 38.4%** due to an unfavorable sales mix in the consumer and enterprise markets[128](index=128&type=chunk)[129](index=129&type=chunk) [Operating Expenses Analysis](index=25&type=section&id=Operating%20Expenses%20Analysis) Total operating expenses decreased by $0.5 million (4.9%) in Q1 2023, driven by lower variable compensation and reduced engineering outsourced services, partially offset by increased trade show, advertising, and travel costs - Total operating expenses decreased by **$0.5 million (4.9%) to $9.1 million** for Q1 2023[130](index=130&type=chunk)[131](index=131&type=chunk) - The decrease was primarily due to lower company-wide variable compensation costs and reduced engineering outsourced services[131](index=131&type=chunk) - Research and development expenses decreased by **$0.8 million (24.5%)**, while General and administrative expenses increased by **$0.3 million (8.8%)**[130](index=130&type=chunk) [Other (Income) Expense](index=25&type=section&id=Other%20(Income)%20Expense) The company reported total other income of $(14) thousand in Q1 2023, a change from $10 thousand in other expense in Q1 2022, primarily driven by increased net interest income Other (Income) Expense (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | % Change | | :------------------ | :----- | :----- | :----- | :------- | | Interest income, net | $(18) | $(5) | $(13) | 260.0% | | Other expense | $4 | $15 | $(11) | (73.3)% | | Total other income | $(14) | $10 | $(24) | (240.0)% | [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Airgain had $9.8 million in cash and cash equivalents as of March 31, 2023, and an accumulated deficit of $69.0 million, with management believing existing cash and operational cash flow will be sufficient for the next 12 months - Cash and cash equivalents totaled **$9.8 million** at March 31, 2023[133](index=133&type=chunk) - The company has an accumulated deficit of **$69.0 million** as of March 31, 2023, having incurred net losses in prior years[133](index=133&type=chunk) - The **$4.0 million revolving line of credit** with Silicon Valley Bank expired in February 2023[134](index=134&type=chunk) - Management believes existing cash and cash equivalents, combined with cash proceeds from operations, will be sufficient to meet working capital requirements for at least the next 12 months, despite planned investments in sales force, engineering, and R&D[135](index=135&type=chunk) Summary of Cash Flow Activity (Three months ended March 31, in thousands) | Item | 2023 | 2022 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Net cash (used in) provided by operating activities | $(1,434) | $4,152 | $(5,586) | | Net cash used in investing activities | $(89) | $(128) | $39 | | Net cash (used in) provided by financing activities | $(541) | $120 | $(661) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(2,064) | $4,144 | $(6,208) | - Net cash used in operating activities was **$1.4 million** in Q1 2023, a significant decrease from $4.2 million provided in Q1 2022[137](index=137&type=chunk)[138](index=138&type=chunk) - Net cash used in financing activities was **$0.5 million** in Q1 2023, primarily for taxes on net share settlement of restricted stock units, compared to $0.1 million provided in Q1 2022[139](index=139&type=chunk)[140](index=140&type=chunk) [Contractual Obligations and Commitments](index=26&type=section&id=Contractual%20Obligations%20and%20Commitments) No material changes to contractual obligations were reported during the three months ended March 31, 2023, compared to the disclosures in the Annual Report on Form 10-K for 2022 - No material changes to contractual obligations and commitments were reported for Q1 2023[141](index=141&type=chunk) [Critical Accounting Estimates](index=26&type=section&id=Critical%20Accounting%20Estimates) The preparation of financial statements requires management to make estimates and assumptions, with no material changes to critical accounting policies and estimates reported for Q1 2023 - No material changes to critical accounting policies and estimates were reported for Q1 2023[143](index=143&type=chunk) [Recent Accounting Pronouncements](index=26&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for details on recent accounting pronouncements, which indicated the adoption of ASU 2016-13 with no material impact and no other material pronouncements expected - Refer to Note 2 for details on recent accounting pronouncements[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, Airgain, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Airgain, Inc. is not required to provide quantitative and qualitative disclosures about market risk[145](index=145&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were **effective at the reasonable assurance level** as of March 31, 2023[148](index=148&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2023[149](index=149&type=chunk) [PART II. OTHER INFORMATION](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company may be involved in legal proceedings in the ordinary course of business, but currently believes that the final outcome will not have a material adverse effect on its financial condition or business - The company believes that the final outcome of current legal proceedings will not have a material adverse effect on its financial condition or business[152](index=152&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, were reported - No material changes to risk factors were reported compared to the Annual Report on Form 10-K for 2022[153](index=153&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities were reported during the period - No unregistered sales of equity securities were reported[154](index=154&type=chunk) [Item 3. Defaults Upon Senior Securities](index=28&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[155](index=155&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported during the period - No mine safety disclosures were reported[156](index=156&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) No other information requiring disclosure was reported under this item - No other information requiring disclosure was reported[157](index=157&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL interactive data files - The section lists various exhibits, including Amended and Restated Certificate of Incorporation, Bylaws, Specimen stock certificate, Certifications of Principal Executive and Financial Officers, and Inline XBRL documents[157](index=157&type=chunk)[158](index=158&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section formally attests to the accuracy and completeness of the report through authorized signatures [Signatures](index=30&type=section&id=Signatures) The report is duly signed on behalf of Airgain, Inc. by Jacob Suen, President and Chief Executive Officer, and Michael Elbaz, Chief Financial Officer, on May 11, 2023 - Report signed by **Jacob Suen (President and CEO)** and **Michael Elbaz (CFO)** on May 11, 2023[162](index=162&type=chunk)