Airgain, Inc. (AIRG) Earnings Call Transcript & Summary

Good afternoon. Welcome to Airgain's Second Quarter 2026 Conference Call. My name is Jasmine, and I will be your operator for today's call. Joining us today are Airgain's President and CEO, Jacob Suen, and CFO, Michael Elbaz. As a reminder, this call will be recorded and made available for replay via a link found in the Investor Relations of Airgain's website at investors.airgain.com. [Operator Instructions] I caution listeners that during this call, Airgain management will be making forward-looking statements about future events as well as Airgain's business strategy, and future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in today's earnings release and Airgain's SEC filings. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 5, 2026. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call will include a discussion of non-GAAP financial measures. Please see today's earnings release for further details, including a reconciliation of GAAP to non-GAAP results. Now I'd like to turn the call over to Airgain's CEO, Jacob Suen.

Good afternoon, everyone, and thank you for joining us. The second quarter marked another meaningful step forward for Airgain. Revenue increased 19% sequentially to $13.7 million. We achieved positive adjusted EBITDA, and we advanced important customer programs across the business. Enterprise and Automotive continue their revenue growth trajectories, while consumer sales remain relatively stable, supported by WiFi 7 demand and strong Tier 1 relationships. We entered the second half with a stronger foundation than we had at the beginning of the year. Customer engagement is deeper. Our pipeline is more mature, and more programs are progressing from evaluation into trials and deployments. We are encouraged by this progress, and we are increasingly confident in the direction of the business. Our priorities are clear, built on the momentum in our core businesses convert the AirgainConnect pipeline into revenue, advance Lighthouse toward commercialization and increase the operating leverage of our business model. Let me start with AirgainConnect. During the second quarter, we continue to expand our AirgainConnect portfolio through our work with FirstNet, built with AT&T. We added MegaFi 2 and MegaGo 2, both FirstNet trusted solutions that use high-power technology designed for demanding targets environments. Together with AC-Fleet and Go-Kit Pro, AirgainConnect now provides multiple connectivity solutions for vehicle, fixed, portable and rapid-response applications. The portfolio serves first responders, utilities, transportation, energy and other critical field operations. Through FirstNet, AT&T offers Airgain's HPUE vehicle solution for public safety customers. Airgain also retains the ability to offer its HPUE technology through other carrier networks globally. This broader portfolio gives customers greater deployment flexibility, simplifies installation and improves operational readiness. It also gives Airgain more entry points with customers and more ways to support them as their connectivity needs expand. The AirgainConnect pipeline continued to grow since our last call and now includes approximately 60 Tier 1 and Tier 2 opportunities. Our focus is increasingly on pipeline conversion and more than half of the pipeline is now in trial or post-trial stages, up from approximately 1/3 since our last call. The mix remains balanced with approximately 55% of opportunities in first responder markets and 45% in utilities and other commercial fleet applications. In Q2, we secured five Tier 2 design wins across AirgainConnect, four with first responder organizations and one is with a utility company. One of these wins is with large countrywide public safety customer covering fire, ambulance and police fleets. The potential deployment spans more than 1,000 vehicles, but units are expected to be added in phases as vehicles enter service. This illustrates how these programs can begin modestly and grow into meaningful long-term opportunities. We are also in the final phase of the sales cycle for a Tier 1 first responder opportunity, which we are targeting to close by the end of the year. Work remains before a final award, including customer-specific certification requirements. We are making the necessary investments because the opportunity demonstrates the scale of the programs we are pursuing, and the certification can be leveraged to other fleet opportunities as well. Carrier relationships are an important part of our go-to-market strategy. As announced in June, we expand our work with FirstNet built with AT&T across public safety, utilities and other critical field operations. Under this model, carrier sales teams help identify and advanced customer opportunities, while Airgain supports product demonstrations, trials, integration and customization. This extends our commercial reach and helps move qualified opportunities toward deployment. We have also developed a plug-and-play AirgainConnect configuration for the AT&T channel with the eSIM and require cabling pre-installed. The goal is to simplify evaluation and deployment for utilities, sanitation fleets and other non-first responder customers. We are working to extend this carrier-enabled model to additional markets. We continue to strengthen our relationship with carriers and the FirstNet authority with the support of well-respected industrial veterans. Most recently, Jim Bugel, former President of AT&T FirstNet and a member of the prestigious Wireless Hall of Fame Class of 2026 has joined Airgain as a strategic adviser. Jim will help us deepen relationships with public safety, the FirstNet authority and large fleet OEMs. We believe the pipeline for AirgainConnect has reached a stable level and our emphasis is now on execution, advancing trials, supporting post-trial requirements and helping customers move into phased deployments. We believe this is the right approach to build a durable AirgainConnect business. Turning to Lighthouse. We continue to prioritize the U.S. market opportunity given the ongoing geopolitical dynamics in the Middle East. We are deepening our engagement with domestic mobile network operators, service providers, enterprises and communities. We now have two scheduled end customer trials in the U.S., but collectively support coverage across all three major carriers. This represents meaningful progress from our prior U.S. testing, which was conducted primarily with a network provider. The first trial is with a large logistics company seeking to improve coverage across its operating environment. Our current production-ready configuration supports the mid-band spectrum used by AT&T and Verizon. The second trial is with a residential community seeking to address coverage gaps commonly experienced by large communities and HOAs. Our new configuration extends Lighthouse to the spectrum used by T-Mobile, and we expect preproduction samples during Q3. In Q3, we also secured an international customer's trial for our integrated 4G and 5G combo solution. Initial samples are expected this quarter as well. These trials address a common problem, inconsistent cellular coverage across large operating environment and communities. Traditional solutions can be expensive, disruptive and slow to deploy. Lighthouse is designed to provide a faster and more cost-effective alternative while giving mobile network operators control over network performance. We also continue to advance our engagement with a Tier 1 U.S. mobile network operator previously mentioned. We are now working through the final certification and approval process for its enterprise offering, and the operator has identified several customers for potential trials. Our commercial approach combines a top-down and bottom-up strategy. We work with the MNOs to obtain network approval and reach enterprise accounts. At the same time, we engage directly with end customers, including enterprises and communities to validate the need and create demand. Service providers and system integrators remain important deployment partners. While we are making very good strides with Lighthouse, we view Lighthouse primarily as a 2027 revenue opportunity. Our near-term objective is to complete trials, establish reference deployments and demonstrate a repeatable commercial model. Any revenue before then would be incremental to that plan. Now turning to our core markets. Enterprise IoT was the main driver of our sequential growth in second quarter, and we expect it to remain an important growth driver in Q3. Demand from our long-standing end customers continues to increase, primarily in the energy monitoring applications, and we see renewed activity in the EV charging market, shipments under the previously announced $4 million purchase order accelerated and are now expected to be completed by the end of this quarter. In parallel, we continue to expand opportunities in emerging applications such as robotics, drones and data centers. Coco Robotics is preparing to launch its next-generation autonomous delivery vehicles, and we expect the program to begin ramping up production shipments this quarter. Initial production shipments for a drone application are also expected to begin this quarter. The near-term revenue contribution is modest but the program expands our presence in autonomous and mission-critical applications. Finally, we recently secured a design win for remote energy monitoring in data centers with revenue expected to begin in early 2027. This win extends the Skywire platform into the data center connectivity market and creates a reference point for similar opportunities. IoT order patterns can be uneven, so we are not assuming the current growth rate will continue every quarter. Still, the recovery in established programs and the breadth of new applications give us greater confidence in the long-term opportunity. The near-term picture in consumer is more mixed. Q2 revenue was relatively stable, supported by WiFi 7 antenna shipments and demand from Tier 1 service providers. We're managing two distinct factors that are affecting consumer during Q3. The first is the continuing memory shortage. Rapid growth in AI infrastructure is causing suppliers to prioritize high bandwidth memory, tightening the availability and increasing the cost of the standard memory used in home gateways. The timing of improvement in the environment remains uncertain. The second factor was the FCC ruling, which affected the timing of our MNOs new product launches. Our OEM partners have recently received conditional approvals. As a result, this issue contributed to shipping delays in the second half. Based on our backlog and customer forecast, we expect consumer revenue to decline sequentially in Q3, which is reflected in our guidance. Importantly, these timing issues do not reflect a change in underlying demand. Our solution spans multiple OEM platforms and service providers, reducing our reliance on any one gateway supplier. WiFi 7 and our Tier 1 MNO programs remain important long-term growth drivers. We have secured the inventory required to support our current AirgainConnect and Lighthouse plans into 2027, limiting the near-term impact on these growth platforms. With that, I'll turn the call over to Michael.

Thank you, Jacob. Before diving into the numbers, please note that my review of our financial results and guidance refers to non-GAAP figures. Information about the non-GAAP financial measures, including GAAP to non-GAAP reconciliations can be found in our earnings release. Now let's turn to our second quarter results. Q2 sales were $13.7 million, slightly above midpoint of our guidance range and up 0.7% year-over-year, marking our first quarter of year-over-year growth in 6 quarters. Sequentially, Q2 sales increased $2.2 million or 19%, driven by growth across all our markets. Enterprise sales were $6.7 million, up $1.7 million sequentially, driven by higher IoT modems and custom product sales. Automotive sales were $1.2 million, up $0.3 million sequentially, reflecting higher sales of AirgainConnect vehicle gateways. Consumer sales were $5.8 million, sequentially up $0.2 million, driven by WiFi 7 antenna shipments. Non-GAAP gross margin for the second quarter was 43.6% compared to 44.2% in the prior quarter and relatively flat year-over-year. The sequential decline was primarily due to a change in product and customer sales mix. Non-GAAP operating expenses were $5.7 million, down $0.4 million sequentially and down $0.8 million or 12% year-over-year, reflecting continued expense discipline. Separately, GAAP operating expenses included $0.6 million in severance expenses associated with the headcount reduction we mentioned on our last call. These actions align resources with our highest priority development and customer programs. In Q2, adjusted EBITDA was $0.4 million, $0.2 million higher than the midpoint of guidance. Adjusted EBITDA improved by $1.3 million sequentially on higher sales and lower expenses, highlighting the operating leverage in our business model. Non-GAAP EPS was $0.02, $0.01 above the midpoint of guidance and an improvement of $0.10 from the prior quarter. As of June 30, 2026, our cash balance was $7.6 million, $0.5 million higher than the prior quarter. Net cash proceeds from our ATM were $1 million. Now moving to our outlook for the third quarter ending September 30, 2026. As a reminder, we provide quarterly guidance for sales, non-GAAP gross margin and expenses, non-GAAP EPS and adjusted EBITDA, as we believe these metrics to be key indicators for the overall performance of our business. For the third quarter of 2026, we project sales to range from $14.25 million to $16.25 million with a midpoint of $15.25 million. The midpoint represents an 11% sequential growth, driven by continued strength in enterprise and automotive, partially offset by the projected sequential decline in consumer that Jacob just discussed. We expect non-GAAP gross margin to range from 41.5% to 44.5%, with a midpoint of 43%. The sequential change at the midpoint primarily reflects the anticipated decline in consumer market sales. We are experiencing higher component and module costs, but we have offset these increases through pricing and product cost initiatives. We project non-GAAP operating expenses to be approximately $6 million. Non-GAAP EPS is expected to be positive $0.04 at the midpoint of our guidance. Adjusted EBITDA is expected to be positive $0.7 million at the midpoint of our guidance. Now I would like to turn the call back over to Jacob for his closing thoughts. Jacob?

Thanks, Michael. Q2 reinforced our confidence in the direction of the business. We delivered on our commitments and enter the second half with building momentum. Our Q3 outlook reflects continued sequential growth and improved profitability, with operating expenses expected to remain relatively stable, which should generate greater operating leverage as revenue scales. We are also making tangible progress across our growth platforms. AirgainConnect is producing design wins and moving more opportunities through trial and post-trial stages. Lighthouse is advancing into scheduled U.S. end customer trials as we continue working through the approval process with a Tier 1 mobile network operator. We are encouraged by our progress, but we recognize that converting these opportunities takes time and consistent execution. Our priorities are clear, deliver our Q3 outlook, convert more customer programs into revenue and expand adjusted EBITDA through gross margin improvement and disciplined growth. Operator, we are now ready to take questions.

[Operator Instructions] Our first question is from Jaeson Schmidt with Lake Street Capital Markets.

Just want to start with AirgainConnect. Obviously, it sounds like the funnel continues to expand with, I think you noted over 50% in trials and post-trial stages. How should we think about those trials converting to orders and revenue and the timing around that?

Hi, Jaeson. Yes, great questions. On the AirgainConnect, yes definitely, we are very encouraged about the progress. And as I indicated in the call, in second quarter, we were able to convert five of those design wins. So we're hoping to be able to continue to increase in that rate. While we cannot give you a precise number, I would -- our goal is to convert at least 1/3 of that every quarter. That's going to be the goal. We're also very close to closing a Tier 1 opportunity, and we're really wrapping up the last stage, which is just the certification. So that should also really help the second half growth as a whole.

Okay. That's helpful. And then just following up on your comments on the drone applications, understanding it's minimal revenue here in the near term. But can you discuss what you're seeing in that market, and if you continue to target other customers in that space?

Yes. Certainly, we are very excited about this particular opportunity relating to our IoT product. So this is -- this particular application, it's actually using our IoT modem to help its brain, so to speak. For drone applications, we're also seeing a number of those using our automotive product, including our AirgainConnect solutions as well. In that setup, they're using our AirgainConnect actually on the vehicle to be able to improve communications with the drone. So we're seeing a number of those opportunities using our overall product.