Cambium Networks Corporation (CMBM) Q4 2019 Earnings Report, Transcript and Summary

Good afternoon. My name is Chris, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks Fourth Quarter and Full Year 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.Mr. Peter Schuman, Senior Director of Investor Relations, you may begin your conference.

Thank you, Chris. Welcome and thank you for joining us today for Cambium Networks fourth quarter and full year 2019 financial results conference call and welcome to all those joining by webcast.Atul Bhatngar, our President and CEO, and Stephen Cumming, our CFO, are here for today’s call. The financial results press release and CFO commentary referenced on this call are accessible on the investor page of our website and the press release has been submitted on a Form 8-K with the SEC. A copy of today’s prepared remarks will also be available on our investor page at the conclusion of this call.As a reminder, today’s remarks, including those made during Q&A, will contain forward-looking statements about the company’s outlook and expected performance. These statements are based on current expectations, forecasts and assumptions. Risks and uncertainties could cause actual results to differ materially.Except as required by law, Cambium Networks does not undertake any obligation to update or revise any forward-looking statements for any reason after the date of this presentation, whether as a result of new information, future developments, to conform these statements to actual results or to make changes in Cambium’s expectations or otherwise.It is Cambium Networks policy to not reiterate our financial outlook. I encourage listeners to review the full list of risk factors included in the safe harbor statement in today’s financial results press release.We will also reference GAAP and non-GAAP financial measures and specifically note that all sequential and year-over-year comparisons reference non-GAAP numbers except where otherwise noted. A reconciliation of non-GAAP measures to GAAP is included in the appendix to today’s financial results press release, which can be found on the investor page of our website and in today’s press release announcing our results.Turning to the agenda. Cambium Networks President & CEO, Atul Bhatnagar, will provide the key investment highlights for the quarter and Stephen Cumming, Cambium Networks CFO, will provide a recap of the financial results for both the fourth quarter and full year 2019 and he will provide our financial outlook for both the first quarter 2020 and calendar year 2020. Our prepared remarks will be followed by a Q&A session.I’d now like to turn the call over to Atul.

Thank you, Peter. Looking at the results of our fourth quarter 2019, we achieved revenues of $64.1 million, which increased 1% year-over-year and decreased 2% from Q3 2019. This was our 23rd consecutive quarter of year-over-year growth.This growth was driven by our enterprise Wi-Fi solutions, which grew an outstanding 186% year-over-year and recovery in Point-to-Point, PTP, products which improved 4% year-over-year, while Point-to-Multi-Point, PMP, products decreased 19% year-over-year due to a larger customer’s technology transition and year-end inventory rebalancing with some European customers.On a sequential basis, we continued to deliver record revenues for our enterprise Wi-Fi solutions which grew by a solid 14% from Q3 2019 and now represent 18% of total company revenues. PTP revenues increased 14% sequentially in Q4 2019 as a result of improvement in non-U.S. government programs, while PMP revenues were lower by 14% sequentially after the past four quarters of strong growth in EMEA.For the full year 2019, revenues of $267 million increased 10% from 2018. The 2019 growth was primarily driven by our Wi-Fi solutions, which grew well beyond the high-end of our expectations, increasing 82% over the previous year. For the full year 2019, our Point-to-Multi-Point products grew 7% from FY 2018, while the Point-to-Point products were flat.Looking at some notable customer wins and new product developments. During Q4 2019, I’m pleased to report Cambium Networks continued to have several high profile customer engagements.In North America, in the Service Provider space, a tier-two operator selected Cambium PMP 450m for deployment of a residential broadband network in Idaho. They selected Cambium Networks based on our superior performance enabled by our ability to transmit more data in the given frequency band than other competing products.A tier-three wireline service provider in Wyoming selected Cambium Networks for a residential access network. The service provider will use the PMP 450m in conjunction with the Federal Communications Commission, FCC’s, newly released 3 GHz CBRS spectrum for the access network, and the PTP 820 for the backhaul network. We are an early adopter and first mover in the CBRS arena. We are excited about the possibilities here for many years to come.In North America, Cambium’s enterprise team provided full-scale Wi-Fi connectivity for the Microsoft Ignite show in Orlando, Florida. It’s one of the largest users group gathering in the high-tech world, with about 30,000 attendees. Our team provided outstanding Wi-Fi performance and customer support with over 22,000 concurrent devices supported by approximately 1,200 Cambium Wi-Fi access points.In the hospitality vertical, a large resort owner and operator out of Toronto selected Cambium’s Wi-Fi solutions for two new large resort properties. Cambium’s superior performance and price, coupled with our cloud-based management software, and exceptional 24x7 support were main drivers for this customer win.In the Europe, Middle East, and Africa region, EMEA, we had a significant number of wins including service providers, hotel chains, educational institutions, many oil & gas customers, and government agencies.A U.K. based wireless managed services provider selected Cambium Networks to supply end-to-end wireless infrastructure for connectivity within major vacation parks in the U.K. This customer valued our ability to deliver wireless gigabit networking under demanding outdoor wireless conditions.This multiyear, multimillion-dollar project will outfit vacation parks with Cambium Networks’ latest wireless technology, bringing ultra-broadband gigabit connectivity and delivering value added services to park guests. This project represents a significant milestone for Cambium’s fixed wireless broadband penetration in EMEA.In the oil & gas sector, a large state-owned company in the Persian Gulf selected Cambium for backhaul to interconnect its onshore and offshore platforms, displacing an incumbent supplier. In the APAC region, a leading telco in India is using Cambium Networks backhaul to provide gigabit backhaul links in lieu of fiber. Over 100 locations are now powered using our PTP550, providing best-in-class price performance.In Caribbean and Latin America, CALA, we have a partnership with Facebook to implement Express Wi-Fi, a cloud-based division within Facebook Connectivity, which partners with local service providers to deploy Wi-Fi hotspots that are fast, affordable, and reliable, giving Facebook access to new customers in Latin America.To date, we have delivered Wi-Fi solutions in the countries of Argentina, Brazil, Colombia, Chile, Ecuador, Mexico, and Peru. We look forward to continuing this partnership in additional countries.During the fourth quarter, Cambium Networks received several high profile awards and recognitions. IDC, a leading market research firm, included Cambium in its Major Players category for its IDC MarketScape, Worldwide Enterprise WLAN 2019 Vendor Assessment. This research is a quantitative and qualitative assessment of the characteristics that explain a vendor's chances for present and future success worldwide.Cambium Networks increasing brand recognition is the result of rapid growth and continued exposure to the worldwide enterprise Wi-Fi market, which now represents 18% of our revenues, up from 6% of company revenues in the fourth quarter a year ago.Looking at new products launched since our previous quarterly update. Cambium Networks released cnVision, a new secure video surveillance solution. cnVision is a new line of purpose-built wireless backhaul solutions using our proven point-to-multipoint wireless technology to serve the video surveillance market.This line of products was created with the intention of being cost effective, scalable, and providing predictable performance and security under adverse conditions with the right blend of features that integrate smoothly into the CCTV space.Our technology leverages a cloud managed approach which increases ease-of-use and operation for system maintenance and software upgrades. cnVision brings reliable connections to video networks to standard video applications and specialized applications like disaster recovery, public safety and asset monitoring.In the Point-to-Multi-Point market in the next few months we will release our new 5 gigahertz 450 MicroPOP solution. The solution offers a lower cost and lower density alternative, with the reliability, performance and stability customers have come to expect from 450 line of products. The 450 MicroPOP enables service providers to round out their coverage areas for locations which previously could not be covered in an economic manner within their service networks.We are also excited about our future high capacity gigabit wireless solutions for PMP backhaul for enterprises and the residential market, called cnWave, utilizing 60 gigahertz millimeter wave, an unlicensed or lightly licensed spectrum and allows for smaller internet service providers to stay competitive amidst larger providers.60 gigahertz will be increasingly relevant for urban use cases and should be available in the third quarter calendar year 2020. This will be the first wireless technology to bring 1 gigabit per second to the home, cost effectively, equivalent to speed of fiber. We call this wireless fiber.Weaving together our networking solutions, we continue to experience strong growth in unique company accounts utilizing cnMaestro Cloud with the total devices under management in Q4 2019 totaling over 374,000, an increase of approximately 13% from Q3 2019, and up 62% year-over-year.As we have previously mentioned, Cambium Networks is one of the few networking companies that offer an end-to-end cloud-powered connectivity solution to manage the entire network from a single pane of glass, integrating a broad portfolio of complex wireless technologies.Turning to the channel. In Q4 2019, we expanded our channel presence by adding over 400 new channel partners sequentially and almost 1,500 new channel partners year-over-year, which represents an increase of approximately 6% sequentially and 28% year-over-year.We continue to believe the technology investments we have made over the past few years have built a strong foundation for accelerated growth during the second half of 2020 and beyond as next-generation gigabit wireless networking deployments worldwide accelerate for many years.The key drivers for our business growth over the next few years are the introduction of 60 gigahertz and 28 gigahertz millimeter wave solutions for fixed wireless 5G, the adoption of CBRS compatible solutions, and global tier-two and tier-three service providers deploying fixed wireless broadband enabled by the adoption of millimeter wave and continuing faster than the market growth from enterprise Wi-Fi solutions based on Wi-Fi 6 adoption.In addition, Cambium Networks is increasingly optimistic about our longer term outlook based on the next round of Connect America Funding, called the Rural Digital Opportunity Fund or RDOF, which is currently being evaluated by the FCC for committing $20.4 billion in funding over the next 10 years to bring high speed broadband service to millions of unserved Americans. This represents almost 10x the value of the present Connect America Fund Phase II funding which was dominated by WISPs. Expert consensus is that the auction application, registration, and rules would be set by the end of 2020 and the auction would begin in early 2021. This brings a substantial opportunity for Cambium Networks in 2021 and beyond.We are well-positioned to win business based on end-to-end wireless connectivity as the market transitions to gigabit solutions and managed by our cloud-based solution, cnMaestro, which offers easy deployment and operation.Moving to our organizational structure. I’m pleased to announce in December we appointed Mary Peterson to the newly created position of Senior Vice President and Chief Marketing Officer.Mary was most recently Vice President of Global Marketing for Ruckus Networks, a CommScope business, where she led the marketing digital transformation and development of a demand generation engine, as well as managed field and partner marketing, event marketing and social and influencer communications. Mary is chartered with building an integrated marketing strategy that advances Cambium Networks’ global strategy of strengthening its market recognition and accelerating growth. I’m excited to have Mary join our leadership team.I will now turn the call over to Stephen for a review of our Q4 2019 financial results and outlook.

Thank you, Atul. Revenues for Q4 2019 increased by 1% year-over-year to $64.1 million compared to $63.3 million in Q4 2018. As Atul mentioned, Q4 2019 revenues reflect sequential and year-over-year increases in our enterprise Wi-Fi solutions, which continued to reach record revenues.As anticipated, spending for Point-to-Point products partially recovered, improving by 14% sequentially, although the portion related to specific U.S. government defense programs remained slow. Point-to-Multi-Point products decreased 19% year-over-year and 14% sequentially due to softness in EMEA from year-end inventory rebalancing, and a result of some of our larger customers transitioning to our next-generation higher speed broadband solutions using our Wi-Fi 6 and next-generation 60 and 28 gigahertz products.Looking at revenues by geographies. North America, our largest region, represented 45% of company revenues compared to 45% in the prior year period, and 44% during Q3 2019. North America grew 3% year-over-year and was flat compared to Q3 2019.EMEA, our second largest region, decreased 11% year-over-year and 12% sequentially and represented 30% of revenues during Q4 2019, decreasing from 34% of revenues on a year-over-year basis due to softness after four consecutive quarters of strong year-over-year growth, and decreased from 33% of revenues during Q3 2019 as a result of a larger customer’s technology transition and year-end inventory rebalancing at some of our European customers.CALA represented 13% of revenues during Q4 2019, growing 32% year-over-year and increasing by 3% sequentially. And APAC represented 12% of revenues during Q4 2019, increasing by 2% year-over-year and improving by 8% from Q3 2019.Looking at our gross margin. Non-GAAP gross margin of 52.4% improved by 410 basis points compared to Q4 2018 and was our highest non-GAAP gross margin in two and a half years. The year-over-year improvement in non-GAAP gross margin is the result of a mix of higher margin enterprise Wi-Fi and PTP products, lower inventory reserves, and key initiatives put in place focused on cost reductions, price management, and supply chain efficiency.Non-GAAP gross margin in Q4 2019 was 370 basis points higher than Q3 2019. The sequential non-GAAP gross margin improvement is mostly the result of mix of higher margin products and our cost and supply chain efficiencies.In Q4 2019 our non-GAAP gross profit dollars increased by $3 million to $33.6 million compared to the prior year and improved by $1.6 million sequentially.I’m particularly pleased with the improvement we have made with our gross margin initiatives and progress towards our longer term goal of achieving an annual non-GAAP gross margin target of 51% to 52%. For the full year 2019, non-GAAP gross margin improved to 49.5% compared to 47.9% for 2018.Non-GAAP operating expenses: research and development, sales and marketing, general and administrative, depreciation and amortization, in Q4 2019 increased by $2.3 million when compared to Q4 2018, and stood at $29.3 million or 45.8% of revenues. When compared to Q3 2019, non-GAAP operating expenses increased by approximately $3.2 million.The majority of the sequential increase in non-GAAP operating expenses was primarily driven by higher R&D headcount as result of a full quarter of the Xirrus acquisition, partially offset by savings from our restructuring activities announced on last quarter’s conference call.For the full year 2019, non-GAAP operating expenses were $109.8 million compared to $104.9 million for 2018. Non-GAAP operating margin was 6.6%, up from 5.5% for Q4 2018 and down from 8.8% of revenues in Q3 2019.Adjusted EBITDA for Q4 2019 stood at $5.3 million or 8.2% of revenues, up from $4.5 million or 7.2% of revenues for Q4 2018 and compares to $6.8 million or 10.3% of revenues for Q3 2019.Full year adjusted -- full year 2019 adjusted EBITDA was $26.2 million or 9.8% of revenues compared to $15.3 million or 6.3% of revenues for the full year 2018. This represents a 71% increase in adjusted EBITDA from 2018. We are committed to continuing to drive our adjusted EBITDA expansion to our target model of 18% to 19% of revenues over the next few years.Turning to cash flows. Cash provided by operating activities was $6.1 million for the fourth quarter 2019 due primarily to stronger working capital management and compared to cash used in operating activities of $5.7 million for the fourth quarter 2018, and $11.8 million cash used in operating activities for the third quarter 2019.For the full year 2019, cash provided by operating activities was $3.6 million. If we exclude the one-time IPO expenses of $8.6 million for 2019, operating cash for the full year 2019 would be approximately $12.2 million compared to cash used in operating actives of $10.4 million during calendar 2018.Non-GAAP net income for Q4 2019 was $2.3 million or $0.09 per diluted share compared to $1 million or $0.07 per diluted share for the fourth quarter 2018, and non-GAAP net income of $3.7 million or $0.15 per diluted share for Q3 2019. The higher non-GAAP net income compared to the prior year period was due to revenue growth and improved gross margin as a result of the initiatives previously mentioned and lower interest expense due to a reduction in long-term debt.The decrease in non-GAAP net income compared to Q3 2019 was primarily attributable to higher R&D expenses from our Xirrus acquisition and higher sales and marketing expenses from trade shows and partners events.For the full year 2019, non-GAAP net income was $12.1 million or $0.47 per diluted share compared to $1.8 million or $0.14 per diluted share in 2018.Turning to the balance sheet. Cash totaled $19.3 million as of Q4 2019, $14.9 million higher than the fourth quarter 2018, and an increase of $400,000 from the third quarter 2019. The sequential increase in cash balance during the fourth quarter 2019 was primarily the result of a $3.8 million increase in payables, lower inventories, offset by a $2.7 million performance payment for the Xirrus Wi-Fi assets, and a $2.4 million pay-down of debt.In Q4 2019, days payable stood at 59 days, an increase of six days from the fourth quarter of the prior year, and up 19 days from the third quarter 2019. Q4 2019 net receivables of $58.6 million improved by $1.8 million from Q4 2018, as a result of better collections and decreased by $1.2 million sequentially. Days sales outstanding for the fourth quarter stood at 78 days, a decrease of one day from the prior year and an increase of four days from the third quarter 2019.Net inventories of $41.7 million in Q4 2019 increased by $11 million year-over-year and decreased by $0.3 million from Q3 2019, as we work to reduce inventories driven by our technology transitions.In addition to our restructuring activities announced during our third quarter results, we are taking new measures to align our cost structure with the timing of the anticipated revenue ramp from our new product introductions, which Atul mentioned earlier in the call, and we expect to happen during the second half of 2020.We expect to see sequential improvement in revenues after Q1 2020 with customer adoption of new gigabit wireless products such as Wi-Fi 6, 60 gigahertz and 28 gigahertz solutions as the year unfolds.We continue to pursue our objective of achieving our long-term target operating model by improving our cost structure and operational efficiency. We remain focused on delivering a double digit adjusted EBITDA margin.Cambium Networks continues to focus on revenue growth, but while this new product platform transition is occurring during the first half of 2020, new restructuring activities will allow us to remain financially strong and resilient.In our last quarterly earnings call we announced a restructuring plan to align our cost structure to achieve our longer term target operating model. In conjunction with today’s earnings announcement, we are now taking additional steps to align our cost structure. We expect to incur between $1.2 million to $1.4 million of additional restructuring charges over the first three quarters of 2020, mainly consisting of severance costs.In Q1 2020, we expect to recognize approximately $700,000 to $800,000 of pretax charges under this plan. In Q1 2020, we expect to recognize approximately $800,000 savings with additional savings realized throughout the remainder of the year. When completed, we expect to realize total cost savings from these combined restructuring initiatives of approximately $13 million annually.Moving to the first quarter 2020 and full year financial outlook. Please note that Cambium Networks financial outlook does not include the potential impact of any future financial transactions, pending legal matters or other transactions. Accordingly, Cambium Networks only includes such items in our financial outlook to the extent they are reasonably certain. However, actual results may differ materially from the outlook.Considering our current visibility, Q1 2020 is expected to be as follows: GAAP revenues between $56 million to $60 million; GAAP gross margin between 48.6% to 50.2%; and non-GAAP gross margin between 49% to 50.5%. GAAP operating loss between $1.5 million and operating income of $0.5 million and non-GAAP operating income between breakeven and $2 million.GAAP net loss between $3 million and a loss of $1.4 million or a loss between $0.12 and $0.05 per diluted share and non-GAAP net loss between $1.2 million to net income of $400,000 or between a loss of $0.05 per diluted share and net income of $0.02 per diluted share.Adjusted EBITDA between $1.1 million to $3.1 million and adjusted EBITDA margin between 2% to 5.2%. GAAP taxes between 19% to 21% and a non-GAAP effective tax rate of approximately 17% to 19%. Approximately 25.6 million weighted average diluted shares outstanding.Turning to our cash requirements. Pay-down of debt $2.5 million; interest expense approximately $1.1 million; capital expenditures between $1 million to $1.3 million. And pretax restructuring charges between $800,000 to $900,000.For full year 2020 financial outlook is expected to be as follows: GAAP revenues between $262 million to $272.0 million and adjusted EBITDA of between 10% and 12% of revenues.I’ll now turn the call back to Atul for some closing remarks.

Growth and profitability remain our number one core value. Cambium Networks is well-positioned for growth during the second half of 2020, and we will continue our focus on growing our fixed wireless broadband business by delivering new products by enabling gigabit wireless connectivity, opening new sales territories and adding new applications like cnVision.We are emerging as a significant enterprise Wi-Fi player with new channels and in the coming months Wi-Fi 6 leadership, which will continue making Cambium one of the fastest growing enterprise Wi-Fi business in the world.It will be the year we expand into wireless gigabit connectivity to the home and office worldwide, with innovative and highly differentiated 60 gigahertz and 28 gigahertz millimeter wave solutions, with the industry’s best-in-class price performance and ease of deployment.We will begin to leverage our cloud software-as-a-service business model to generate recurring revenues through new sales and subscription renewal models, with the launch of cnMaestro Pro, CBRS, and cnHeat.Recurring revenue is a key element to Cambium’s expansion and consistent revenue. While the first half of 2020 revenues will remain slow due to product and technology transitions, and the U.S. Federal program which utilizes our PTP kits for the defense market will remain softer until calendar 2021, we are excited for strong growth during second half of 2020, marked by significant strength and acceleration in new products within our technology portfolio.Finally, we remain committed to our goal of delivering double digit adjusted EBITDA margin during 2020.That concludes our prepared remarks. So, with that, I’d like to turn the call over to Chris and begin the Q&A session.

Thank you. [Operator Instructions]The first question comes from the line of Simon Leopold with Raymond James. Your line is now open.

Hi, guys. This is Victor Chiu in for Simon Leopold. Could you provide some color around the puts and takes around your expected mix that gets you to your current 1Q 2020 sales guidance that you provided. It was -- the year-over-year growth was just a bit lower than what we -- looks like the street was looking for. So, I just wondering see you can give us some color around what you’re expecting that that’s driving the weakness next quarter? Thanks.

Yeah, I think there are two things and we alluded into our -- this is Stephen by the way, Victor. We alluded there from our prepared remarks we certainly see some softness in EMEA, which is really due to some of the -- those customers transitioning to our next-generation platform technologies such as ax, 28 gig and 60 gig. We're generally seeing in Europe these guys adopt this technology a little faster given the fact that they are not restricted by some of the standards that would applying to the U.S.I think also in Q1 we're experiencing some delay in spending around our U.S. Federal programs that are affecting our PTP business. The government budgets have just got approved, but it got approved very late in 2019 and, obviously, that takes time for those funds to trickle down. Win rates are still pretty good. Win rates were strong actually, but on these larger deals it’s a little bit more unpredictable in terms of estimating the timing on that.

In addition, I will add the comment. Traditionally also, I think, Q1 is generally a softer quarter for us and last year Q1 we had benefited from I think stronger one-time Federal sales as well as stronger inventory buildup as EMEA was growing. So, we -- last year Q1 was little exceptional, but traditionally Q1 is softer for us.

EMEA, is that related to PMP primarily?

Yeah.

Okay. And just one more question quickly. Is there any portion of your supply chain expose to China and then impact to you guys can provide us?

We are -- Victor, we are watching the situation very closely. It is a little fluidic situation. As we all know, we have a diverse supply chain with multiple moving parts. So far we believe there is minimal impact, but this is a fluidic situation and we are monitoring pretty closely.

Okay.

Yeah, I mean, the distribution centers that we have in Shanghai are open now. We certainly, as Atul said, we are monitoring it very closely, but we don’t see any material impact to this point.

Okay. Thank you.

Thank you. And our next question comes from the line of Rod Hall with Goldman Sachs. Your line is now open.

Hi. Thank you for taking my question. This is Ashwin on behalf of Rod. I was just wondering if you could quantify the impact of customer transition and inventory adjustment on the quarter-end guidance. It sounds like that -- also if you could clarify whether these are two separate issues or interrelated and how they are impacting your performance, that would be really helpful.

Yeah, Ashwin, let me give a little bit of color and see Stephen wants to add anything. So, I think, in general what we are seeing is that the Europe is definitely adopting the 5G standards like 28 gigahertz little faster. And we are working very closely with customers. In fact, this is kind of how we designed our last generation Medusa as well working very closely customers because there are some advance customers who are transitioning technology to 28 gigahertz, 60 gigahertz, these types of products. So, I think my key message is that we see acceleration based on those millimeter wave technologies in the second half and we are ensuring that we are working with these customers because they have a very solid Cambium installed base. And most of these customers are basically going now towards offering in 100 megabit service to the home, that is the driving factor. So, overall, primarily the technology transition, but inventory buildup last year first half -- EMEA was growing very well. So, some of that is definitely mixed there, but I would say primarily technology transition.

And the inventory build-up, is that not to the same customers who are transitioning to 25, 60 gigahertz, or is it a different -- with different set of customers?

No. I think similar -- same -- similar type of customers who have the transition going. And as Wi-Fi 6 is coming, I think you will also see some of these customers adopting Wi-Fi 6 in a more progressive manner. So that is another technology transition which is happening there.

Got it. And just one last question on the guidance. Your Q1 implies about 12% decline in revenue on year-over-year basis. But the Q2 through Q4 guidance implies about 5% growth. So, pretty obvious that you're assuming significant acceleration at some point here, maybe second half. But can you give us some more clarity on the kind of visibility you have into that second half revenue? And what are some of the risk factors that we should be aware of?

Sure. Let me give a little more detail there. So, we are anticipating that Cambium Networks 802.11ax or Wi-Fi 6 product line will be shipping volume in Q2. So that's a fairly significant transition in the Wi-Fi world and especially the enterprise world. So that's the first key thing.We are working very closely with customers, so you can anticipate tail end of Q2 and early Q3 we will be shipping 60 gigahertz millimeter wave, a very high speed connectivity for the last one to two-kilometer type of space with mesh architecture. That's in that timeframe. And then in the Q3 timeframe, we will be introducing the 28 gigahertz solution, the 5G fixed. Those are the key platforms in addition to some of the products like MicroPOP we talked about in 450, they are the ones which give momentum to this gigabit wireless connectivity I described.And I think we saw this -- we saw similar transitions, by the way, in 2015, 2016, 2017, when customers went from 10, 20 megabits per second in that timeframe -- or before the timeframe to more like 30 to 50 megabits per second. So, every four to five years what you're witnessing now is that the speeds are doubling, the expectations are doubling. And now those customers are basically looking for, can we provide gigabit point-to-point connectivity? And can we provide 100 megabit plus access to the homes? And that upgrade cycle is basically starting, I would say, probably second half of this year and then the cycle will continue probably for good two to three years at least.

Okay.

I think just one other comment -- just to give you a little bit more color on the ramp is, outside of the tech refresh, the Xirrus acquisition that we made in Q3 really accelerates us into some new verticals such as education and that's sort of seasonally strong in Q3 -- Q2 and Q3. So that also gives us comfort that we expect to see more a ramp, and obviously, that will be adoption of our ax technology there.

And Ashwin, if you take like past three years performance and if you take that one-time large defense deals or one-time -- maybe a large customer inventory build-up for deployment, Q1 traditionally the softer quarter.

Got it. Understood. Thank you very much.

Thank you.

Thank you. And our next question comes from the line of George Iwanyc with Oppenheimer. Your line is now open.

Thank you for taking my questions. Atul, can you give us a sense of what you're seeing on the competitive and pricing environment? Is there any pressure? And then specifically on the enterprise Wi-Fi strength where are you picking up? Which verticals are contributing the most?

George, excellent question. Let me go deeper there. So, first, let me address fixed wireless broadband. We have emerged as clear leader globally in fixed wireless broadband. And the reason for that is that Cambium focused there and Cambium continues to focus there and with the kind of solutions we're describing for this technology transition, we're investing there, we'll have differentiated products. So number one, as the technology transitions to this millimeter wave gigabit networking, we will take larger share from competition, because this product is taking a good year and a half to two years to design. These are not products which one can just buy from somewhere. They have the cloud algorithms. They have the cloud management. They have the radio noise mitigation tech, all the things we build in.So, fixed wireless broadband, we don't see any major price pressure or anything like that. We actually charge premium on fixed wireless broadband in our products and customer value the quality we give.On the Wi-Fi side, our entire strategy is focused on mid-tier. We are not going after large enterprises. We are not going after SMB. We are going after distributed mid-tier enterprises. They value the affordability, they value the performance. And they value, above all, the ease of deployment which our cloud software provides. That's why you've seen the kind of growth we have seen year-over-year 80% plus. And I think that kind of growth will continue, because we are still at the early stage in our growth vector. So, on the Wi-Fi side if anything, we have a very competitive price. We have excellent performance. And we are now focused on building the right channel to reach the market. And as Stephen mentioned with Xirrus acquisition, we are also opening vertical like education, which bodes well for Q2, Q3 quarter for us.

And just following-up on your channel comment. I think you've added -- what, 400 this quarter, 500 the quarter before. How quickly do you see some positive leverage from the expansion you've added over the last six months?

Yeah, I think, typically, a channel takes I would say easily in a three to six months. What we do is one or two quarters, we have them win two or three deals, our SCs or our RPMs supporting them. But once they win two, three deals then they become pretty self empowered. So, I would say in three to six-month type of a zone is a good zone for our channels to start participating.

And which areas are you getting the most traction with the channel?

I think we are recruiting MSPs. We are recruiting channels for education. And also, we are recruiting channels in the new territories. It is not just enterprise Wi-Fi, but also with the fixed wireless broadband, especially as we go into the developing countries, we are continuing to expand our presence there through managed service providers and WARs [ph] NSIs in those territories. So both enterprise, as well as fixed wireless broadband expansion.

And at the moment, we're seeing that predominantly in EMEA and North America on the build-out of the mid channel there. But our expectation is over the longer term, we'll build that out in our other regions as well, but EMEA and North America are the more predominant regions for that.

Thank you.

Thank you. And our next question comes from the line of Paul Coster with JPMorgan. Your line is now open.

Yeah, thanks for taking our question. I feel like this product cycle has been taking a long while. I'm sure we started talking about Wi-Fi 6 nine months ago and 60-gig and 28-gig I think and CBRS maybe a couple of quarters ago. Why is it taking so long? How does it compare to prior product cycles? And what is it that gives you the confidence in the second half uptick? Is there some customer data you can share with us, or some anecdotal information there that will help us? Thank you.

Thanks, Paul. Let me give some color on that. So Wi-Fi 6, yes, people have been talking of Wi-Fi 6. I think the confidence we have is that the chipsets which are coming now for Wi-Fi 6 are kind of next-generation. A lot of problems have been debugged. So, I think, you will see, starting Q2, good Wi-Fi transition, especially in education. Generally, education ends up being a leading-edge Wi-Fi adopters for the classrooms. So, we see acceleration there. So, I will agree with you that it's not going to be broad everywhere people went for Wi-Fi 6, but I think demanding applications where you need speeds and feeds will go Wi-Fi 6.Secondly, Wi-Fi 6 adds that MU-MIMO technology. So, in terms of longer term scalability, that's the right architecture and many Wi-Fi installations are realizing that that's the right way to go. So, we anticipate that starting in Q2, that this will be a good acceleration, and then it will continue for a while. This is not that it will only happen in 2020, and then it will start to shift the momentum. I think momentum will start building what we are saying is starting in Q2.When it comes to the millimeter wave, same thing. If you look at 60 gigahertz, particularly, generation one was much tougher and Cambium actually did not build a generation one product. We waited until the chipsets were mature. We waited when they had the right price point, so we can provide affordable 60 gigahertz millimeter wave. So, I think the confidence we have is that the architecture has been debugged in gen one, and in both Wi-Fi 6 as well as millimeter wave, we are seeing kind of gen two which is when we are coming in with mature chipsets. So, we are confident that you will see that acceleration.And third point Paul, I want to make is we're working very closely with customers. These are large customers of Cambium, with millions of dollars on installed base. And as I said earlier, that's how we have designed Medusa and that's how we're designing this in a very collaborative manner with tremendous ease of deployment, ease-of-use, making sure these networks are production quality, they are easy to deploy.CBRS, third point you'll ask for, we have customers now who are using our CBRS. So, this is no longer academic. We have an end-to-end solution in CBRS which has a SaaS service as well as our products which are backwards compatible. So, if you are a Cambium customer base with our current products, you can migrate to CBRS with over-the-air software upgrade. We have a very sophisticated end-to-end solution. So as CBRS accelerates, I think you'll see Cambium as a very key fast mover.

Is there any way of quantifying the visibility you already have into the second half? I mean, you don't need to share the actual number with us. I'm just wondering what data it is you see outside of anecdotal conversations with clients that will reassure us that there is real either pent-up demand or planned demand as a function of projects.

Yeah, the only thing, Paul, I'll say is that as we work with our customers, both in the enterprise Wi-Fi world, but more importantly in the fixed wireless broadband world, where we have sizable installed base, that installed base is going to migrate to these new things I'm describing, the 60 gigahertz, 28 gigahertz, CBRS, these type of solutions. And we have seen in past as well -- that's why I gave the example of 2015, 2016, 2017 as those transitions are happening, our 450 base went to Medusa.I would say cnMaestro does give us visibility into the networks and how they are performing and where their performance is, where there could be deficiencies. All of that points to the fact that Cambium's 5 million-plus radios installed out there worldwide. Speeds and feeds to -- to our -- for customers to offer in 100 megabit plus type of speeds and feeds for the home and gigabit speeds for the point-to-point networks, they will have to upgrade the network. Now, if we ask a customer in detail what would you do this quarter, next quarter, they will never give us that. But we have a very good idea how those networks of that 5 million subscriber base -- 5 million radios how that will migrate to this next-generation gigabit wireless connectivity.

Okay. And I have got one last…

Paul, just to give you some comfort is we've been to this movie a few times now, so we've seen it play out. And so we've got good experience and good data on how we transition from say our next-generation of PMP products or our cnMedusa products. So we do have a good pulse for the rate of adoption and the customers' appetite for this that gives us some comfort that this will ramp in the second half.

Got it. Thank you. I've got one last question. I do apologize for taking up the time here. But you talked about -- if I heard you correctly, a 10x increase in the size of the Connect America program and that the benefits could flow as early as 2021. How much benefit did you see from the first iteration of this program, and what kinds of ways do you participate in it? Where's the bulk of it going? And what do you get out of the program?

Yeah, Paul, excellent question. Let me go deeper into this, because I think this will tell you -- this will also answer your previous question a little bit. We have seen that even in the CAF II funding, Connect America Phase 2 funding, we have won pretty sizable deals with Cambium, and they are accelerating. So, we see that the CAF II fund is now being released and some of -- it is benefiting some of the larger risks we are working with and they are buying more gear.One of the things we see which is different is that these risks why they're buying Cambium -- and we ask them, why are you buying Cambium, they say it's very important for us to have a managed network with visibility, with diagnostics which can scale, because you don't get CAF funding without management. You don't get CAF funding without SLA. So some of the things which are driving that Service Level Agreement measurement actually is the reason why they want production network. So what we are finding is that as people are going for this CAF II funding, they now need more professionally managed, cloud-managed SLA-driven type of a network. So any network will not cut it, so that has been one of the reasons why we are winning the CAF II.And in the RDOF fund which will -- we believe will start probably next year. I mean, as I said, it's 10 times the capital funding there -- the expectations will be that is definitely 100 megabit plus-type access. It's not just 50 megabit or 70 megabit. It will be a lot faster, and that's the promise for the next 10 years. And since we are focused on affordability yet quality, we believe we will take unfair share of that expansion.

Thank you.

Thanks, Paul.

Thank you. And our next question comes from the line of Brian Yun with Deutsche Bank. Your line is now open.

Hey, guys. Thanks for taking the question. I guess, first, could you break out how much of the Q1 guide essentially coming down below about $8 million versus the street? Can you quantify how much of that is attributable to those one-time Federal deals versus the product and technology transitions you referenced, if that's possible?

Let me give overall comments. In terms of the overall numbers, I would say, a significant impact of those larger deals. And when I discount those deals then I would say the shrinkages mean not really that much in terms of where the other core business is. Yeah, I would say those are probably the cool defense. We had a very big defense deal in Q1, sizable. And we also had very big expansion with a couple of key EMEA large customers in Q1. So, if you take that then the Q1 is not all that -- there's probably some shrinkage, but it's not that big.

Yeah, just to give you a little bit more color on that, Brian, at a product level. PMP, from a sequential basis, we're looking it will decline sort of low -- very low single-digits as -- again, as we work through these technology transitions. PTP which is more impacted by the Federal side, we see sort of coming down in the sort of low 20% sequentially. And obviously, Wi-Fi which has been a very, very strong growth driver for us, you saw our results, you saw that we grew year-over-year 82%, which was beyond our high-end of our ranges. But we see that on a sequential basis, declining probably low single-digits, just from a seasonality perspective. I hope that gives you some color.

Great. Thanks. That was helpful. And then can you expand on your Facebook partnership that you announced? What products or solutions are you providing there? Is there a way to quantify the revenue opportunity? And I think you mentioned potential for that to expand into other geo. So, what needs to happen for that to go that way? Thank you.

Yeah, we have not broken the Facebook revenue opportunity in terms of numbers, but let me give you some color. So, we work with them proactively as very early partner almost I would say three, four years back, because they had the reach and they wanted affordable broadband in developing countries. And we saw that as a good -- goodness project as well working with them. So, it's a very close partnership, very -- worked with them very closely. And we're also working with them on the 60 gigahertz program.So, we regularly work with them, understanding the customer needs there, making sure solutions match. And I would say that we are definitely a very premier partner working with them. But we don't break into -- we don't break the numbers how much we did there and all. The product portfolio is, as we work with them, it basically involves both the PTP products as well as PMP products.

Thank you.

Thank you.

Thank you. And our last question comes from the line of Erik Suppiger with JMP Securities. Your line is now open.

Yeah, thanks for taking the question. Can you talk a little bit about the competitive dynamics? On the Wi-Fi side, how much are you seeing of ubiquity? And then how much do you see of -- what kind of behavior do you see from the likes of HP and Cisco?

Erik, as I said, when we conceived our Wi-Fi line, we used three key principles. The first key principle we used was really need to focus on ease of deployment, ease of configuration, and totally cloud-managed, because we studied what others had done and we knew that we can build a Wi-Fi solution which is very easy to deploy and manage. So that was number one.Number two, we made sure that we design the software in-house ourselves. So, we can select the right features. You don't need all the big features and deep features, you need good set of features, because we decided to go after tier -- with mid-tier segment. So, as we look at the market and as the markets are transitioning in -- especially the mid-tier with the ax architecture, with cloud-managed competitive cost, those are the things that are playing to our strength as -- because we designed the product that way.And the last point I want to make is, there are two areas we are very superior. One, we are very superior when you have to provide Wi-Fi in outdoor environment where you need fixed wireless broadband backhauling, wireless end-to-end, no wires. We are very superior there, because we bring the solution.Second area we are very superior is everything is managed from the same pane of glass, whether it's fixed wireless broadband, whether it is Wi-Fi 6 or very soon whether it's 60 gigahertz. And customers like that. These are not 1,000 products flying in close formation. This is one aircraft. And as a result, that differentiation positions us as enterprise class -- not SMB, enterprise class, yet affordable, yet fantastic quality. And we believe that that positioning with good branding, good customer base and now we are seeing good penetration into education bodes well for our growth.

Very good. Thank you.

Thank you.

Thanks, Erik.

Thank you. And this concludes today's question-and-answer session. I would now like to hand the call back to Mr. Peter Schuman, Senior Director of Investor Relations, for any closing statements.

Thank, you Chris. During Q1 of 2020, Cambium Networks will be meeting with investors in San Francisco at the Goldman Sachs Technology & Internet Conference on February 12th and presenting at the JMP Securities Technology Conference on February 24th. We will also present at the Raymond James Institutional Investor Conference in Orlando, Florida on March 4th and the ROTH Conference in Dana Point, California on March 17th. In the meantime, you are always welcome to contact our Investor Relations Department at (847) 264-2188 with any questions that arise.Thank you for joining us and this concludes today’s call.

Thank you.

Ladies and gentlemen, that concludes today’s quarterly earnings call. Thank you for your participation. You may now logoff.