Cambium Networks Corporation (CMBM) Q1 2020 Earnings Report, Transcript and Summary

Good afternoon. My name is Quanisha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks First Quarter 2020 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 & Industry Analyst Relations, you may begin your conference.

Thank you, Quanisha. Welcome and thank you for joining us today for Cambium Networks first quarter 2020 financial results conference call and welcome to all those joining by webcast. Atul Bhatnagar, 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. We 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 both 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 measures 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 the first quarter 2020 and he will provide our financial outlook for the second quarter 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. I hope all our listeners and their families are safe. Health and wellbeing are a core value at Cambium Networks. While most of our employees worked remotely during the last month of the quarter, our employees showed perseverance and fortitude and delivered outstanding results during the first quarter 2020. We are fortunate to have a significant part of our manufacturing located in Mexico and a smaller portion located in the coastal region of China, which was minimally affected, and an even smaller amount of manufacturing located in China’s interior. We also entered the first quarter with healthy inventories, which allowed us to serve our partners and customers in a timely manner with minimal disruption, during a period where fixed wireless broadband is vital and essential infrastructure for people around the world. Broadband infrastructure is now a lifeline for most communities. Fixed Wireless Broadband is a critically important networking fabric to connect our local communities. I am proud of our employees around the world whose teamwork enabled us to meet customer commitments, and serve our communities in what has been a difficult period in recent world history. Our customers, especially the majority that are in developing communities, are working to keep up with increased demand on their networks. Virtually every wireless service provider and telecom operator around the world is seeing the following five dynamics: Overall network traffic increases of approximately 30% to 70%, driving the need to build out network capacity. Peak network traffic has shifted from typical evening peaks due to video streaming, to all-day traffic due to e-learning and working from home initiatives. Significant calls for service package upgrades are driving increased capacity requirements. Calls for new residential service and/or an opportunity to enable new public indoor and outdoor Wi-Fi locations, and broadband communications and infrastructure projects are now a priority in a significant number of countries around the world. Turning to the results of our first quarter 2020. We achieved revenues of $60.4 million, above the high-end of our outlook of between $56 million to $60 million. Non-GAAP EPS of $0.05 also exceeded the high-end of our outlook of $0.02 per diluted share. I am particularly pleased with the strong execution by our entire Cambium team during a period of unprecedented global uncertainty due to the COVID-19 pandemic. These results reflect the strength of our company, the need for our products, and the improved bookings linearity of our business during the first calendar quarter. Revenues for the company decreased 11% year-over-year and 6% from Q4 2019. The year-over-year decrease in revenues was driven by lower demand for Point-to-Multi-Point, PMP products which decreased by 18% as a result of a technology transition with larger European customers to Cambium’s next-generation technologies, and softer demand for defense-related products which impacted Point-to-Point, PTP revenues, which decreased by 33% year-over-year. This was offset by increased demand for enterprise Wi-Fi solutions, which had near-record revenues, growing an outstanding 106% year-over-year, and now represent 19% of total company revenues. On a sequential basis for Q1 2020, PMP revenues grew 5% due to strength in North America offset by a softer EMEA, which was impacted by a technology transition and COVID-19 which started in February in parts of EMEA. PTP revenues decreased by 28% sequentially in Q1 2020, as a result of weaker U.S. government defense programs. For Q1 2020, we delivered near-record revenues for our enterprise Wi-Fi solutions, which were flat from Q4 2019 due to better than anticipated demand for products ahead of the transition to new Wi-Fi 6 solutions, which will be delivered during the second calendar quarter. Looking at some notable customer wins and new product developments. During Q1 2020, I’m pleased to report Cambium Networks continued to have several high-profile customer engagements. In North America, in the Service Provider sector, Watch Communications, a rapidly growing operator in Ohio specializing in Cable TV and Wireless Internet, selected Cambium’s PMP 450m and Wi-Fi for deployment of a residential broadband network as part of a Connect America Fund Phase II, CAF2 award. Another large service provider selected our PTP 820C for multi-gigabit backhaul. This will result in multi-hundreds of devices delivered in 2020 with multiples of those volumes during the lifetime of the project. They selected PTP 820C for reliability, performance, and support. On past calls, we have spoken about the Federal Communications Commission’s newly released 3 GHz Citizens Broadband Radio Service, CBRS spectrum. As a first mover with this technology, CBRS provides additional product differentiation and stickiness for our workhorse PMP 450 products which are backwards compatible. CBRS is driving new sales of our PMP 450 products in North America. I am pleased to report as of the end of the first quarter, we had over 7,800 devices managed by Cambium Networks’ CBRS SaaS Service. As of today’s earnings call, we have over 19,000 devices managed by our service. A Tier 1 oil and gas company selected Cambium’s PMP 450m for deployment in CBRS. This has resulted in Permian Basin and will continue throughout North American oil fields. The PMP platform was selected due to its superior spectral efficiency, uplink MU-MIMO capabilities. Oil and gas will continue to spend on automation and OpEx efficiency, even in these tougher economic conditions. In the Europe, Middle East, and Africa region, EMEA, we are seeing ongoing demand from our service provider customers as they increase capacity to their networks and add new subscribers. We had a significant number of wins including service providers, healthcare institutions from both the public and private sector, educational institutions, and government agencies. Across the service provider market in EMEA, Cambium sees steady demand for its technology as new service providers switch to Cambium’s broadband solutions and existing service providers expand and fortify their networks. A few strategic wins from Q1 include: Cambium’s flagship PMP 450m technology was selected by Skytelecom, a service provider in Greece, to deliver enterprise and consumer services nationwide. In enterprise Wi-Fi, during February, Vodafone needed fast and reliable coverage at Italy’s Palazzo Reale convention center as it hosted the head of state meeting between Prime Minister Conte and French President Macron. Cambium Networks was selected to get the job done. The EMEA team closed numerous strategic opportunities supporting the healthcare and education vertical markets during this challenging time. These projects span both the public and private sectors and include: The UK’s National Health Services chose Cambium’s wireless to support temporary field hospitals being deployed in Glasgow and Birmingham. The Ministry of Health of one of the largest countries in the European Union has selected Cambium’s wireless technology to upgrade the wireless networks in 230 hospitals across the country. In Egypt, the National Health Ministry selected Cambium to deploy into its clinics and hospitals. A major healthcare group in Abu Dhabi, VPS Healthcare, also selected Cambium to outfit multiple healthcare facilities. And, the Ministry of Education of the United Arab Emirates selected Cambium’s wireless technology to cover numerous rural schools across the Emirates. In the APAC region, we won a major deal for both indoor and outdoor enterprise Wi-Fi at a five-star hotel in South Korea. This win was a new customer using our Xirrus Wi-Fi technology. We displaced one of our larger competitors due to Cambium’s quality, reliability, and advanced care and support. We also closed a deal from India’s Common Services Centre to enable outdoor Wi-Fi services to nearly 20,000 rural villages. We have already deployed Wi-Fi to nearly 5,000 villages with the balance commencing after the COVID-19 lockdown is lifted in India. In Caribbean and Latin America, CALA, a major service provider in the region is migrating a country wide network of business customers to our wireless backhaul and wide area network connectivity using our PMP 450. We also won the second stage of HughesNet’s buildout of a Wi-Fi based access network. To-date, we have deployed over 1,500 Wi-Fi access points in rural areas of Mexico, Brazil, Perú and Ecuador as part of that program. HughesNet’s network also utilizes Facebook’s Express Wi-Fi service, and Cambium Networks is now one of the largest Wi-Fi equipment providers for network operators utilizing Facebook’s Express Wi-Fi service. Looking at new products launched since our previous quarterly update. Cambium Networks will release the first of our new high-performance enterprise Wi-Fi 6 products in June. Our first new access point offers 8x8 Massive MIMO technology which offers four times the data rates and lower latency than the prior technology, and leverages our cloud-managed approach which increases ease of use and operation for system maintenance and software upgrades. We also released four new enterprise switching products targeted for the edge of networks. These switches offer cloud-based management, zero touch provisioning, and policy-based automation. Our new 802.3bz compliant switch supports Wi-Fi 6 access point deployments. In Q3 2020, Cambium Networks expects to release our gigabit wireless solutions for the enterprise and the residential access market, which utilizes 60 GHz millimeter wave technology coupled with advanced meshing technology. Initial sales engagements for the solution have been well received including selection by multiple service providers, for which we expect to receive firm orders in Q2. The solution enables service providers to reliably provide gigabit per second bandwidth to the home and business equivalent to the speed of fiber and economically. The technology and capability will be increasingly relevant for urban use cases for many years to come. Weaving together our networking solutions, we continue to experience strong growth in accounts utilizing cnMaestro Cloud, our end-to-end cloud-powered connectivity solution to manage the entire network from a single pane of glass. Total devices under cloud management in Q1 2020 totaled over 411,000, an increase of approximately 10% from Q4 2019, and up 61% year-over-year. Turning to the Channel. In Q1 2020, we expanded our channel presence by adding over 600 new channel partners sequentially, and over 1,550 new channel partners year-over-year, which represents an increase of approximately 9% sequentially and 26% year-over-year. We added Arrow as a distributor in North America for our Xirrus enterprise Wi-Fi solutions, and in EMEA, we added Nuvias Group as a distributor for our Xirrus enterprise Wi-Fi solutions and cloud-managed services. In Central America, we signed Solution Box as a new master distributor. With local offices in Costa Rica and Guatemala, Solution Box has already purchased and allocated significant inventory in the countries. I will now turn the call over to Stephen for a review of our Q1 2020 financial results and outlook.

Thanks Atul. Revenues of $60.4 million for Q12020 came in above the high-end of our outlook of $60 million and decreased by 11% year-over-year from $68.1 million. As Atul mentioned, Q1 2020 revenues reflect anticipated softness sequentially and year-over-year for our PTP solutions, which were impacted by softer demand for U.S. defense related programs, although our PMP products performed better than expectations due to strength in the service provider space, our largest end market, with North America strong ahead of a technology transition to our next generation millimeter wave technology, featuring higher-speed broadband solutions. Enterprise WiFi solutions grew an outstanding 106% year-over-year and continued to maintain near record levels, flat from Q4 2019. We remain enthusiastic about our next generation enterprise WiFi 6 products being released during the end of the second quarter. Looking at revenues by geographies North America, our largest region, represented 51% of company revenues, compared to 50% in the prior year period, and 45% during Q4 2019. North America declined 10% year-over-year, although growing by 7% compared to Q4 2019 due to the strength in our PMP business. EMEA, our second largest region, decreased 15% year-over-year and 2% sequentially and represented 31% of revenues during Q1 2020, decreasing from 32% of revenues on a year-over-year basis, and increased from 30% of revenues during Q4 2019, as a result of larger customers’ technology transition and the impact of the COVID-19 which started in February in parts of EMEA. CALA represented 9% of revenues during Q1 2020, decreasing 26% year-over-year and 37% sequentially. And APAC represented 9% of revenues during Q1 2020, improving by 16% year-over-year, and declining by 28% from Q4 2019. Looking at our gross margin. Non-GAAP gross margin of 51.0% improved by 420 basis points compared to Q1 2019. The year-over-year improvement in non-GAAP gross margin was the result of a richer-mix of our enterprise WiFi products, lower inventory reserves, and key initiatives put in place focused on cost reductions, price management and supply chain efficiencies. Non-GAAP gross margin in Q1 2020 was 140 basis points lower than Q4 2019. The lower sequential non-GAAP gross margin is mostly the result of lower revenues, including less mix of higher margin PTP products, higher rebates, offset by lower product cost and supply chain efficiencies. In Q1 2020, our non- GAAP gross profit dollars decreased by $1.1 million to $30.8 million, compared to the prior year and was lower by $2.8 million sequentially. We continue to make progress towards our longer-term goal of achieving an annual non-GAAP gross margin target of 51% to 52%. Non-GAAP operating expenses, research and development, sales, and marketing, general and administration and depreciation and amortization in Q1 2020 increased by $1 million when compared to Q1 2019, and stood at $27.8 million, or 46.1% of revenues. When compared to Q4 2019, non-GAAP operating expenses decreased by approximately $1.5 million. The majority of the sequential decrease in non-GAAP operating expenses was primarily driven by lower headcount as result our restructuring activities announced on last quarter’s conference call as well as lower sales and marketing expenses due to less travel and trade show expenses in March associated with COVID-19. Non-GAAP operating margin was 5%, down from 7.4% for Q1 2019, and 6.6% of revenues in Q4 2019. Adjusted EBITDA for Q1 2020 stood at $4.4 million or 7.3% of revenues, down from $6 million or 8.9% of revenues for Q1 2019 and compares to $5.3 million or 8.2% of revenues for Q4 2019. We remain committed to continuing to drive our Adjusted EBITDA expansion to our target model of 18% to 19% of revenues over the next few years. Moving to cash flow. Cash flow used in operating activities was $800,000 for the first quarter 2020, due primarily to a reduction of inventories offset by a decrease in accounts payables principally due to the timing of inventory payments and lower inventory purchases, and slower collections, and compares to cash provided by operating activities of $3.3 million for the first quarter 2019, and $6.1 million cash provided by operating activities for the fourth quarter 2019. Non-GAAP net income for Q1 2020 was $1.4 million, or $0.05 per diluted share, compared to $2.2 million, or $0.16 per diluted share for Q1 2019, and non-GAAP net income of $2.3 million, or $0.09 per diluted share for Q4 2019. The lower non-GAAP net income compared to the prior year period was due to lower revenues offset by 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 Q4 2019 was primarily attributable to lower revenues resulting in fewer gross margin dollars, offset by lower operating expenses due to our cost containment efforts. Turning to the balance sheet. Cash totaled $24.5 million as of Q1 2020, $20.7 million higher than the first quarter of 2019, and an increase of $5.1 million from Q4 2019. The sequential increase in cash balance during Q1 2020 was primarily the result of drawing down on our $10 million revolving credit facility to preserve liquidity in a period of macroeconomic uncertainty, an $8.7 million reduction in inventories, offset by an $8.5 million decrease in accounts payables principally due to the timing of inventory payments, a $2.2 million increase in accounts receivable, a $2.5 million scheduled principal paydown of debt, and $1.2 million in restructuring payments. In Q1 2020, days payable outstanding stood at 53 days, a decrease of five days from the first quarter of the prior year, and down by seven days from the fourth quarter 2019. Q1 2020 net receivables totaled $61.6 million, an increase of $1.9 million from Q1 2019 and increased by $3 million sequentially. Days sales outstanding for the first quarter stood at 86 days, an increase of seven days from the prior year and an increase eight days from the fourth quarter 2019 as a result of slower collections due to timing issues of COVID-19 delaying the ability to release bank transfers and timing of several customers which were collected in the first week of April. Net inventories of $32.5 million in Q1 2020 was flat year-over-year and decreased by $9.2 million from Q4 2019, as we aggressively work to reduce inventories driven by our technology transitions. Inventory days stood at 112 days, compared to 79 days during Q1 2019 and 129 at the end of December. While we remain on track during calendar 2020 for the anticipated release of new gigabit wireless products as the year unfolds, such as enterprise WiFi 6, 60 gigahertz and 28 gigahertz millimeter wave solutions, there is some uncertainty as to the ability of customers to deploy these new solutions until there is more clarity surrounding the COVID-19 situation. We remain focused on our objective of achieving our long-term target operating model by accelerating growth and improving our cost structure and operational efficiency. In addition, Cambium is taking further measures to align our cost structure in response to the COVID-19 pandemic, and in conjunction with the timing of the anticipated revenue ramp from our new product introductions that we expect to happen during the second half of 2020. Moving to the second quarter 2020 financial outlook. Please note that Cambium Networks financial outlook does not include the potential impact of any possible 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 reasonable; however, actual results may differ materially from the outlook. Considering our current visibility, as of May 12, 2020, our Q2 2020 financial outlook is expected to be as follows. GAAP revenues between $51 million to $56 million, non-GAAP gross margin between 48.5% to 49.5%, non-GAAP operating income between $1.1 million to $3.0 million, non-GAAP net loss between $100,000 to net income of $1.3 million or between breakeven per diluted share and net income of $0.05 per diluted share. Adjusted EBITDA between $2.1 million $4 million, and adjusted EBITDA margin between 4.2% to 7.2%. And non-GAAP effective tax rate of approximately 17% to 19% expense, approximately $25.7 million weighted average diluted shares outstanding. Turning to our cash requirements. Paydown of debt of $2.5 million, interest expense of $1.1 million, capital expenditures between $700,000 to $900,000 and pre-tax restructuring charges, $200,000 to $300,000. In Q2 2020, we expect to recognize approximately $200,000 to $300,000 of pre-tax charges under our restructuring plan. We have implemented several initiatives to conserve cash and optimize profitability, including limiting discretionary spending, reducing personnel costs, eliminating nonessential travel, delaying or reducing hiring activities, deferring certain discretionary capital expenditures and negotiating with landlords for reductions or deferrals of future lease payments. In addition, we recently implemented a temporary companywide salary reduction of approximately 20% for all employees which will help mitigate the short-term uncertainty. We appreciate our employees support and perseverance during this time. Although we enter Q2 2020 with strong backlog, we estimate that we are impacted by COVID-19 by approximately $10 million to $12 million during the second quarter. We are most impacted in the enterprise WiFi for hospitality and retail markets, although other vertical markets may be affected. Certain customers are challenged by lockdown and in rare instances marshal law which impacts their ability to deploy projects. Once the COVID-19 restrictions are lifted, we can resume a more normal growth trajectory. Full year 2020 financial outlook, due to the rapidly evolving uncertainty surrounding the effects of COVID-19, the company has withdrawn its previously announced full year 2020 financial outlook, although, we do expect to generate positive cash flow during 2020. Once there is more clarity in the outcome of the COVID-19 situation, we will provide an update to our full year outlook at the appropriate time. I’ll now turn the call back to Atul for some closing remarks.

Cambium Networks has always managed our business for the goal of growth and profitability. We have a solid balance sheet to weather the current global economic uncertainty. We have a loyal and diverse customer base with a strong global distribution network. Our dedicated employees remain committed to serving our customers and partners and we are well positioned to win business based on the superior value Cambium Networks provides with our end-to-end wireless connectivity. And, the market is transitioning to gigabit wireless solutions managed by our cloud-based cnMaestro solution. The key drivers for our growth over the next few years remain the upcoming introductions 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. We continue to expect faster than the market growth for our enterprise WiFi solutions, based on the WiFi 6 adoption. We are now beginning to leverage our cloud software-as-a-service business model to generate recurring revenues. Broadband is a critically important wireless fabric to connect our local communities, and I am proud of our employees around the world whose teamwork has enabled us to meet customer commitments and serve our communities in what has been a difficult period for the world. We remain confident about our future. Our inventory and supply chain are healthy and well managed. We are being diligent in working closely with all global supply chain partners. Cambium continues to innovate through our current and new products lineup. Our 2020 product introductions will position us very well as a Gigabit Wireless Leader for global markets and as an affordable competitor, offering superb reliability and scalability. We have one of the best teams in our industry, handling various frequencies and terrains, from kilobits to multiple gigabits, indoor and outdoor with highly differentiated products. We listen to our customers and partners and always strive to improve and redefine ourselves. Cambium will survive and thrive through these challenging times. Finally, profitability remains a core value at Cambium Networks. I am pleased that we have taken steps to address our cost structure prior to the COVID-19 outbreak, and we are continuing to take measures until there is more visibility to the outcome of the COVID pandemic. This concludes our prepared remarks. So, with that, I would like to turn the call over to Quanisha and begin the Q&A session.

And we do have a question from the line of Simon Leopold from Raymond James.

It – you’re taking the question. So a couple of things I just want to check on. You do offer us a lot of detail in the guidance, but with this 20% payroll reduction, understanding that there's more to operating expenses than payroll. I'm coming up with kind of a guesstimate that that total operating expenses should be in the neighborhood of $24 million, $25 million for the June quarter, am my interpreting that correctly?

Yes. That’s about right, you’re pretty close. I think the midpoint was around $24 million to…

Great. I appreciate that. And then I just wanted to understand a little bit of the balance because you did give us some color on the COVID-19 headwinds and it sounded to me, my interpretation is that you perceive the challenge of $10 million to $12 million being more around, what I would classify as demand related, basically customers can access sites as opposed to supply chain related meaning, you can't get the parts so you can't open a factory. Can you maybe delineate in that $10 million to $12 million headwind how much you considered supply related versus demand related?

Thanks Simon. Let me take the question. First of all, from the manufacturing supply chain side, we see minimal to no impact, most of our systems are running very well. So really very small, then our team has done a dynamite job. In terms of demand, the funnels are building very well. Both in enterprise – in the service provider side, tier-to-tier, remember Cambium sweet spot is mid-tier and that was a good decision we made few years back. We are not focused on large tier 1s, the recovery will have tier 2s and tier 3s leading the pack. So we see good demand, we see good funnel and even defense funnel seems to be now increasing, because there was a period of last two, three months when there was – there's nothing was operational. So the constraint is mostly I think deployment, availability of personnel and different countries are entering lockdown situation at different times. So we are being very conservative and careful.

Simon, just to add to that a little bit to Atul’s comments that, good diversified supply chain. A lot of our activity is happening out of Mexico, and that said a pretty good capacity rate. We actually entered the quarter with still a healthy amount of inventory, so we're in good shape. We are seeing a little bit of supply challenges on some of the components that get – was in a lead time pushed a little bit, but nothing is real material at this point in time. And obviously from a cost perspective we are seeing increases in airframes which has impacted a little bit from a gross margin perspective. From a demand perspective, as you heard from our prepared remarks, the service provider side of things is pretty strong. I think it really comes down to their ability to actually deploy the products in the field, which is questionable at this point in time.

And then maybe one more comment, I'll make a Simon quickly. This will be, I think, useful for everybody. I think this crisis has made fixed wireless broadband very legitimate and a very solid solution affordable to be deployed quickly in tier 2, tier 3, tier 4 cities across the world. And I'll amplify more as we go into Q&A.

And then one last one, if I might, more of a maybe bigger picture thought is, there's been some discussion around the U.S. government implementing some stimulus programs particularly ones that might help broadband around rural communities. I had heard that there were some, I guess debate about whether or not this fixed wireless would fall into those programs. Where does the opportunity stand for government stimulus related activity that might help your business? Thank you.

Yes. There are many programs. Let me touch briefly. One is CAF II, I think CAF II was before COVID and we are already seeing good CAF II wins. People who are acquiring that money, we are winning a good share of that, that's one. Secondly, government approving, CBRS spectrum approving 6 gigahertz, 1.2 gigahertz bandwidth in the 6 gigahertz spectrum is an acknowledgement that there is significant set of users across mid-America, who use WiFi and unlicensed. So I think that itself is a – in two decades, no frequency kind of has been released for that type of a usage, suddenly we have a phenomenal bandwidth. And then finally, I think there's always – there are always lobbies, everybody pulling in different directions. But the users and the communities which are being served, they are loud enough, they're organized enough that you will see fixed wireless broadband, very well represented for all the benefits of affordable yet quality delivery.

Thank you for that.

Thank you.

Thank you. Take the next question.

Yes. We have a question from the line of George Iwanyc from Oppenheimer.

Thank you for taking my question. Atul, can you give us a sense on whether you're seeing any pricing pressure from the current environment? And are any of the service providers looking for either better terms or pushing out payments

In terms of pricing pressure, not really. Remember Cambium always sells value. We know we have competition sometimes going after volume, things like that. We always sell value. So we don't see like now in general, are there deals where somebody negotiates harder? Yes, there are deals, but net-net really not – we don't see that. And even our distribution, our channel partners are able to sell the value. So, so far I would say not really, unless Stephen wants to make any comment there.

No, I think that's pretty much the case, we're not seeing much in terms of pricing pressure. I think what we are seeing and that by our design is we're certainly offering some of our customers are well-capitalized distributors, the ability to pay earlier. And so we may be offering some discount in that case, but outside of that – nothing in the way of additional pricing pressure.

Yes. And let me make one more comment. In the last three months, not one call has been placed into my office to say lower the price, not one call. Because I think people understand Cambium’s value, which is quality yet affordability. And we do price our products 10% to 15% higher than competition in many situations.

And Atul, can you maybe expand on the competitive environment? Are you seeing either more opportunities open up with the dynamic environment? Are you seeing a little bit more pressure, maybe do that both from a WiFi perspective, and then the multi-point to point to point products.

The way George I would say is COVID, COVID is a uncertainty for everybody. So if you filter couple of quarters and you look at more like six quarters, a year to year and a half zone, we are very well positioned, because and I'll give you the reasoning why I say that. We were first mover in CBRS, we innovated in cloud. CBRS is like, the way 10 years back or so compute horsepower control went to cloud, the frequency access control is going to cloud. That's how you should think about it. So that these kinds of things, we were early adopters and I think we're going to benefit more and the world is seeing what FCC is doing there in CBRS, a lot of countries are watching and you'll see that adopted across the globe. So things like that, 60 gigahertz, we are using commercial chips and yet a lot of our innovation is in cloud, in RF, algorithms in making sure we can do alignment of antennas automatically. Those are innovations we are doing, which is primarily software. Those things really point to good future, because what COVID has done, the world is not going to be the same world. World is going to be very different. The pace of digitalization has increased by two years. Things which we think we would have done probably in two years, some of those things will happen, a year or two years earlier. So the way we think about things is that the next generation architecture adoption is being accelerated. Now one or two quarters, can things slow down? Yes, COVID can slow down everybody, but we are not looking at the problem that way, we are looking at the long view.

Okay. And just one last question for me. With the product transitions that are kind of occurring right now over the second half of the year, are you seeing a normal engagement with the customers on the WiFi 6 on the 60 gigahertz and the 28 gigahertz near wave solutions. And the issue there is more so just the ability to deploy or are the conversations a little bit slower?

The conversations in 60 gigahertz are actually reasonably rapid. And I would say we have a word probably 20, 25 very eager service providers ready to POC, proof-of-concept the products. The conversation on WiFi 6 in some segments have slowed down and in some segments have sped up. So enterprise is going to be a mixed bag, because the sectors like hospitality, it has slowed down. The conversations were maybe more emphatic in January or December, but I think now they have slowed down. Conversations in education are mixed bag. Those who are well capitalized progressive, they are continuing that conversations. Those who are little – not as progressive, I think they're taking a cautious stand. So education is the one where there's a question mark. We are seeing both, we’re seeing successes, as well as we’re seeing slowed down. Then there are sectors which might speed up and outdoor WiFi deployment, smart cities, healthcare. These are sectors where there could be a speed up, because of COVID-19. So I think the WiFi fix will, in my mind would be little different pace of change depending on the sector.

Thank you.

Take our next call.

And your next question comes from the line of Rod Hall from Goldman Sachs.

Thanks for taking my question. This is Ashwin on behalf of Rod. I have one question on COVID-19 impact on revenues in the quarter Q1. I was hoping you guys could quantify what kind of impact you saw in Q1 revenue, because of COVID-19. And sort of related to that, I want to check if you saw any pull forward of demand maybe in the WiFi space as the whole pandemic was unfolding in March.

So maybe I can give some overall comment and pass it to Stephen for some comments. I would say COVID-19 impact for Cambium was higher in possibly EMEA, because some of the countries where we serve like Italy for example definitely had impact and they were in a lockdown situation for two months or so, and they are beginning to come out of it. So I would say EMEA definitely had more COVID impact, and primarily because lack of, it’s not so much demand, it's the projects could not be deployed. So some revenues probably moved from Q1 to Q2 and even Q2, it'll be interesting to see what resources get available. So that uncertainty is definitely there. Then, when you go to Asia, significant lockdowns in countries like India, definitely impacted in revenue. And the CALA is probably – is still in some of the lockdown situations. North America, I would say less compared to – and also North American customers are probably more savvier, you're working from home and using digital communications a lot more effectively. So that's kind of my qualitative run down. There was no question that mid-February onwards, EMEA, Asia, CALA impacted EMEA probably the most because of some of those countries. All right. Stephen, do you want to add anything?

Yes. I mean, I think you covered it. So I think EMEA, Italy, Spain, they went into this pandemic earlier on in February. So we did see that start to slow. I think the point to note, though, for our business is a large portion of our end market is service providers. And as Atul mentioned, North America was actually reasonably strong for us in Q1. What we're starting to see from our service providers is they're actually doing a lot more deployments around the infrastructure, so building out the access points and the backhaul. So we're actually seeing that pretty robust, and that's continuing into Q2 as well. And there's always a question in terms of the supply and their ability on capacity to keep deploying this. But that area is pretty good. But I think really it is EMEA that we saw the larger impact from an enterprise perspective early on in the quarter.

Maybe Ashwin, one more point I would add is we also saw February and March and maybe part of April, the federal defense decision-making, since people start to work from home, it was a big change for that sector. And now we are beginning to see that machinery come back up, the funnel starts to build again. So probably that also impacted us.

Okay, thank you for the color. Then Atul, I have one question for you on customer credit quality. I know you guys talked about bank account transfer issues impacting receivables. But I was wondering if you are worried at all about customer credit quality or if you're seeing anything different in terms of payment terms. If you could comment on that, that would be helpful.

Yes. Let me pass it to Stephen, then I might give some extra color.

Yes, Ashwin, we're obviously monitoring and managing our overall receivables very tightly in these times. We're doing all the usual stuff by revising credit limits where necessary, staying very close to our distributors. The company has had a very, very good track record when it comes to potential bad debt exposure or write-off and we, as I say, continue to monitor very closely. We did see a little bit of push out on payments, and I commented on that in our prepared remarks at the end of the quarter. But I'm pleased to say that collections were very strong in April. So we got that back in line. And it's just staying close to the customers. We're fortunate that our customer base really needs our Cambium products. So they want to keep payments up-to-date in order to get the supply chain continues.

And Stephen and I keep from time to time, we call the leaders of some of our customers or distribution partners and we listen to them and they listen to us. And one thing they emphasized to us is that demand is good, even if quarterly basis, things might move here and there. They're saying just please make sure you guys supply us because they see good demand in their regions.

Thank you.

Thank you.

And your next question comes from the line of Erik Suppiger with JMP Securities.

From JMP and just curious, one, how quickly do you anticipate WiFi 6 ramping up? Is this a gradual process? Or is it a replacement for the prior WiFi standards?

Erik, the way I see it is, you will see lot of PoCs in Q2, proof of concepts. The life cycle generally I see over the years is it takes good one quarter for PoCs to start. And then it starts to ramp up the following quarter. So I think Q2 will introduce the product. It will be PoCs. There'll be some positive impact, but mostly PoCs. Q3, you will see acceleration. And I think Q4 is where a lot of those PoCs will start to mature more. And as I commented, I think the progressive school districts, for example, some of them are thinking of accelerating the digitization, new servers, new access points, more VPN circuits, the kind of things they would do for e-learning. Some of them might actually delay and say, well, we may not open in fall. So a lot of that discussion is going on right now. So my sense is we will see acceleration in second half. And that acceleration will continue into 2021. Because WiFi 6 architecture is four times the performance, low latency, it has a lot of features, which will last for any deployment for three to four years. So my sense is, yes, second half, you should see – and every quarter, we'll give you a good color on that.

Okay. Then in terms of the outlook that you provided for Q2, it sounds as though personnel constraints are a challenge for WISPs. Is that in the United States? Or is that more in Europe?

No. Erik, it’s global. Let me give you more color on that. So for example, as we work with our customers in Italy, some of our customers were deploying and the channel partners are helping them in a capacity might be 60%, 70%. But demand is there because, as I mentioned, Tier 2, Tier 3, Tire 4 cities across the world, every – what this pandemic has done, everyone has understood, broadband connectivity is a lifeline. And the more rural you are, the more of a lifeline that is. So that is done. In fact, for our business, this one thing has really leveled the playing field. Everyone wants the performance. And it's also not that you need great performance in San Francisco or Silicon Valley and you need less in some – in a Tier 2, Tier 3 city, anywhere in the world. They all are doing e-learning. They’re all looking at the same content. They're all doing video. They’re all doing zoom type of things. So everyone needs a very similar performance. It's – there is another thing which has changed. Applications have become pretty similar type of application. So we see that the constraint probably for a quarter or so is going to be deployment capability. And demand wise, as I said, and Stephen also mentioned, we see good service provider traction, especially for our sweet spot. Our sweet spot is WISP, Tier 2, Tier 3 service providers. We do deer hunting, not elephant hunting. So – and our solutions are affordable, high quality. So the kind of innovations we are doing, as customers think about next-gen, every customer we talk to, they think of three things right now. Number one, is it affordable? Number two, is it reliable? Number three, is it future-proof. And that the future-proof part is the one we are making sure as we adopt standards, as we adopt architectures. And that's where we're giving the color on gigabit wireless and CBRS and all the things we're working on.

Well, in the United States, I believe the WISP are considered an essential business. Are they given that they are an essential business, do they have better personnel resources than other countries? Or is the U.S. personnel constraints and the future challenge as well?

I think U.S. is a little better positioned because our WISP have better tools and better training, better expertise. So I would say, for those reasons, what they’re able to do even with limited resources is more efficient. But rest of the world, there is constraint right now. And I think as I said earlier, different countries will come out of lockdown a different pace. And so you will see a little mixed bag Asia and CALA might come a little later. U.S. is reasonably well positioned. Western Europe comes second right after that. So I think there'll be a little more delayed impacts but net-net, my hope is by end of mid to end of Q3, constraint will not be an issue.

Very good. Thank you.

Thanks Erik.

Thanks Erik.

And your next question comes from the line of Paul Coster from JP Morgan.

Yes, thanks for taking my questions. I've got two quick ones. First, Stephen, you talked of withdrawing full year guidance. But I think at some point, and I joined a little late, so apologies if I misunderstood, but I heard either you or Atul talk about a second half ramp associated with new products. I’m just trying to reconcile those two statements that may not be related?

Well, I think what we're talking about, we mentioned this on the last earnings call, Paul, is that we've been working on our gigabit technology is the 60 gigahertz, 28 gigahertz and WiFi 6 that we are going to be releasing them, some of them in the latter part of the first half of this year and some into the second half. So I think the near-term results are clearly getting impacted by the pandemic, and we don't know how long that will last. But we believe the longer-term drivers of our business remain intact, and I think that's what we're talking about there. As I say, with the newer technologies coming online, we'll be very well positioned to resume growth, but we need to work our way out of this pandemic before and see sort of global macro environment recover to do that.

Okay. And the second question is to do with channel inventory. I imagine that many of your partners are destocking at the moment. So notwithstanding the fact that you're expanding the channel still, how does that work out? And does it sort of make the subsequent recovery when it happens a little bit more sort of spring loaded?

Yes. Actually, Paul, we're not seeing much in the way, I would say, of destocking. I would say our channel actually is in good shape. Most of our distis report to us, both POS and inventory on a monthly basis and in many cases, weekly. So we actually haven't seen much in the way of inventory dropping or increasing. It's been relatively consistent. So our sell-in is sort of somewhat matching our sell-through. Our distis tend to place orders on us when they get orders themselves. So it's pretty well aligned. And I think the other point to note, I always mention this is our whole sales force is actually commissioned on POS. So that's good hygiene in itself. But we're not really seeing much change from a POS and from an overall inventory, disti inventory perspective.

Got you, thank you.

Okay. And I’ll now like to turn the call back over to Paul [ph] for following remarks.

Thank you Quanisha. During Q2 Cambium Networks will be presenting and meeting with investors at the J.P. Morgan Technology, Media, and Communications Conference which will be held virtually tomorrow, May 13. 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.

And ladies and gentlemen, this concludes today's quarterly earnings call. Thank you for your participation. You may not log off.