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Presentation

Cambium Networks Corporation misses on earnings expectations. Reported EPS is $0.11 EPS, expectations were $0.21.

Operator: Good afternoon. My name is Amber and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Cambium Networks’ Second Quarter 2023 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, Vice President, Investor and Industry Analyst Relations, you may begin the conference.

Peter Schuman: Thank you, Amber. Welcome, and thank you for joining us today for Cambium Networks Second Quarter 2023 Financial Results Conference Call, and welcome to all those joining by webcast. Atul Bhatnagar, and Andrew Bronstein 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 Form 8-K with the SEC. Certain revisions were made within operating expenses in prior periods to conform to the classifications in the current period. These revisions had no impact to operating income. 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 not to 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 and our most recent SEC filings, including our most recent Form 10-K.

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 or 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. Atul Bhatnagar will provide the key operational highlights for the second quarter 2023. And Andrew Bronstein will provide a recap of the financial results for the second quarter 2023, and present our financial outlook for the third quarter and full-year 2023. Our prepared remarks will be followed by a Q&A session.

I’d now like to turn the call over to Atul.

Atul Bhatnagar: Thank you, Peter. Cambium’s overall revenue performance in Q2 was poor. The performance was a result of a severe slowdown in revenues from Cambium’s Enterprise products. I will spend the next several minutes explaining what happened, as well as describing how we will get Cambium’s Enterprise business back on track. First, what happened? During the second quarter, revenue from Cambium’s Enterprise products was significantly below expectations, while PMP and PTP products performed at or ahead of expectations. The cause of the decline in revenue from Enterprise products in the second quarter were all a symptom of a severe slowdown of sales through the Enterprise channel, to the end customers. This slowdown in the Enterprise Channel was caused by several factors.

First, component supply, including chips became readily available to our competitors during the quarter, and the advantage Cambium had in supply and order fulfillment was dramatically reduced. As we have discussed in the past, COVID caused major shifts in the global supply chain throughout the past three years, and these shifts had a significant impact on component availability and revenue performance. Second, competitors now with plenty of supply became very aggressive with pricing in an attempt to regain market share. We saw the impact of these factors especially in the last month of the quarter. Given product shipments are heavily weighted to the last few weeks of the quarter based on distributor orders and requested delivery dates. Third, a decline in global economy resulted in cancellations and delays in end customer projects in several regions and in distributor ordering decisions.

All of these items resulted in a bottleneck in Enterprise Channel inventory. This further exacerbated our reported enterprise revenues due to a higher than normal volume of Enterprise stock rotations. How will we get the Enterprise business back on track? As a result of the poor revenue performance, we have taken several actions. First, we have initiated an individualized strategy with each of our largest distributors and partners to move Enterprise products through the channel faster, removing the bottleneck while also providing aggressive incentives to gain share of wallet with new customers, new markets and new geographies. Second, we have executed a $14 million annualized cost reduction program, which will protect our profitability and strong balance sheet while we work through the challenges in the Enterprise business.

Andrew will provide more details on the cost reduction later in our call. Outside of the disappointing revenue performance of the Enterprise products, we had some very positive events, including a record quarter for our Point-to-Point PTP business fueled by execution of large defense deals discussed during our last earnings call. Our defense funnel remains very strong, and we expect to have a record year in our PTP business. Further, our Point-to-Multipoint PMP business performed better than expected with sequential quarter growth fueled by demand for 28 GHz fixed 5G and strong interest from our newly released Cambium Fiber products. We anticipate PMP revenues will continue to grow both sequentially and year-over-year during the second half of 2023, and we expect that final approval by the FCC for 6 GHz spectrum will benefit our new ePMP 4600 and PMP 450v product lines.

Summarizing the results of the second quarter 2023, revenues decreased 14% year-over-year and 23% quarter-over-quarter, primarily as a result of slowing revenues from Enterprise products in the EMEA and North American regions. While our other products and regions performed consistent with or above our expectations, our gross margin, EBITDA and profitability were lower than expected due to lower shipments of our Enterprise products. Cambium’s second quarter 2023 revenues of $59.5 million were below the bottom of our outlook, while our gross margin of 50.3% came in at the lower end of our outlook. Overall profitability of $0.03 per share was lower than our outlook due to the loss of scale as a result of the performance of the Enterprise business.

Looking at revenues across our product lines, our Enterprise revenues declined 82% sequentially and 73% year-over-year. As previously mentioned, we have begun taking aggressive steps to decrease enterprise channel inventories. We expect a return to sequential growth in Enterprise products during Q3 ’23 and a return to a normal run rate during the first half of 2024. Our PTP revenues increased 39% sequentially and 60% year-over-year. We continue to expect strong year-over-year defense shipments during the remainder of 2023 as we are engaged in an increasing number of global defense program of record, POR. Our PMP revenues increased 20% sequentially, although lower by 5% year-over-year as service providers are moving from our current generation of PMP 450 products to the new gigabit technologies.

This will include Cambium’s 6 GHz products, which are expected to help drive PMP revenue growth during the second half of the year upon the FCC’s approval. In addition, our 28 GHz fixed 5G product had a record quarter and we had earlier than expected stocking orders for our new PMP fiber product. Looking at some notable customer wins and new product developments. In North America, Cambium reached a significant milestone as we received official approval from the world’s largest global hotel chain as a vendor for our Enterprise solutions. The chain has over 8,600 properties in 133 countries and territories with approximately 1.6 million rooms. We’re also working to get our 60 GHz cnWave qualified with this customer. Cambium has particular strength in the hospitality vertical and approvals such as this give us confidence in our ability to grow the Enterprise business in the future.

Cambium is now working with partners serving four of the top five global hospitality brands, including deployments with Cambium’s Cloud managed Wi-Fi and switching products. In the Europe, Middle East and Africa region, EMEA we had wins with managed service providers, MSPs in hospitality, multifamily and student housing sectors in EMEA, including with Nevaya, Nonius, and Freshwave. One of our recent enterprise wins in EMEA included the Hilton Heathrow Airport, a major hotel at one of the busiest airports in the world. In Spain, a regional operator, Globe Telecom activated the first deployment of the fixed wireless 5G technology in the 26 GHz band. The new network uses frequencies acquired by Global Telecom in the Spanish government’s recent 26 GHz band tender.

The last remaining priority tier for 5G services in combination with Cambium Network’s cnWave 5G NR based platform. And in Cape Town, South Africa, a service provider, Wilbernet is using Cambium cnWave 5G fixed in the licensed 26 to 28 GHz frequency bands to increase service levels for broadband customers by offering packages of up to 200 megabits per second, resulting in increased service levels in a matter of days. We are now seeing the early 28 GHz product POCs turning into multimillion dollar commercial deals. In the Asia-Pacific APAC region, in Malaysia, we had an enterprise win with a government agency for our Wi-Fi 6 access points for a high speed express train. The train provides nonstop express train service from main transportation hub in Kuala Lumpur to the airport and in Caribbean Latin America CALA Region, Universidad de La Sabana, one of the most important private universities in the Colombia, decided to upgrade their networks with our Wi-Fi 6 and 6E solution providing Wi-Fi access to more than 12,000 students in an expansive campus with 14 buildings.

Cambia was selected over a larger competitor since we gave them superior Wi-Fi coverage at a lower total cost of ownership. Turning to upcoming product introductions and developments since our previous quarterly update. In the Enterprise portfolio in Q3 ’23, we recently introduced two new Layer 2 and 3 cnMatrix EX3K switches which feature high power over Ethernet and support Wi-Fi 6 and 6E video surveillance and other devices for mission critical networks. The advanced switches support our Cambium ONE network architecture and feature dual removable, redundant power supplies and high power and high density capability. Within our fixed wireless portfolio, we’re eagerly awaiting final approval from the FCC for 6 GHz spectrum during the second half of calendar year ’23.

Cambium currently has approximately 25 ongoing trials for our 6 GHz ePMP 4600 product with broadband service providers which will help drive our future PMP revenues with our first to market advantage. Looking at our cnMaestro Cloud software, total devices under cloud management in Q2 ’23 was over 980,000, an increase of approximately 6% from Q1 ’23 and up 17% year-over-year. Turning to our channel. In the Q2 ’23, we expanded our channel presence by adding approximately 390 net new channel partners sequentially and approximately 1,600 net new channel partners year-over-year, which represents an increase of approximately 3% sequentially and over 13% year-over-year. During Q2 ’23, Cambium shared our strategy and vision at Cambium Connections, our biannual online webinars for end customers and the partner community throughout various GEOs. We also held numerous customer industry analyst briefings on our new Cambium Fiber Solutions, which are generating lots of excitement, particularly with North American service providers.

I will now turn the call over to Andrew for a review of our Q2 ’23 financial results and outlook for Q3 ’23 and full-year 2023.

Andrew Bronstein: Thanks, Atul. As Atul mentioned, we have executed a significant cost reduction plan designed to align our cost structure with our current and expected near-term revenue run rate. In order to maintain profitability, improve cash flow, and to maintain our strong balance sheet. We expect to realize annualized cost savings of approximately $14 million, of which we expect about $6 million to be realize during the second half of calendar ’23. In connection with our cost reduction, Cambium expects to incur approximately $2 million in onetime restructuring charges during the second half of ’23, mainly consisting of cash severance costs. Financial strength and resilience are a core value and we will continue to manage costs prudently.

Turning to the quarter, Cambium reported revenues of $59.5 million for Q2 ’23, revenues decreased by 23% quarter-over-quarter and by 14% year-over-year. On a sequential basis, for Q2 ’23, revenues were lower by $17.9 million. The lower revenues were primarily the result of decreased Enterprise revenues, partially offset by record growth in PTP revenues and as expected, a return to quarter-over-quarter growth in the PMP business. We have seen PMP channel inventories decline in the second quarter, which reflects the channel anticipating our new 6 GHz products. Revenues of $59.5 million decreased by $9.8 million year-over-year, primarily due to lower Enterprise revenues as a result of higher channel inventories and slowing economies, especially in EMEA.

And decreased PMP revenues due to less demand from service providers ahead of the ramp of the product transitions to new gigabit technologies, including our 6 GHz products partially offset by record PTP revenues. Due to excellent performance of Cambium’s defense products. We continue to expect strong PTP revenues for the remainder of the year due to our expanding defense business. Moving to our gross margin. Our non-GAAP gross margin of 50.3% was higher by approximately 140 basis points compared to Q2 ’22. The year-over-year increase in our non-GAAP gross margin was the result of a greater mix of higher margin PTP defense products and the impact of price increases completed in November of ’22, partially offset by the impact of lower Enterprise revenues.

On a sequential basis, our non-GAAP gross margin decreased by approximately 180 basis points compared to Q1 ’23. The lower quarter-over-quarter non-GAAP gross margin in Q2 ’23 was the result of lower Enterprise revenues partially offset by higher margin PTP defense revenues, along with improved efficiencies and the impact from our November ’22 price increases. In Q2 ’23 our non-GAAP gross profit dollars of $29.9 million decreased by $3.9 million compared to the prior year and by $10.4 million sequentially due to lower Enterprise revenues. Non-GAAP total operating expenses, including amortization in Q2 ’23, increased by approximately $800,000 when compared to Q2 ’22 and stood at $28.3 million, or 47.5% of revenues. The increase in operating expenses compared to the prior year period is primarily due to higher headcount in R&D and sales and marketing, as well as increasing wages due to inflation, offset in part by lower variable compensation costs.

When compared to Q1 ’23, non-GAAP operating expenses decreased by approximately $2.6 million during Q2 ’23. The quarter-over-quarter decrease in operating expenses is due to lower variable compensation costs as a result of lower Enterprise revenues. Our non-GAAP operating margin for Q2 ’23 was 2.8%, down from 9.1% during Q2 ’22 and 12.2% of revenues in Q1 ’23. Non-GAAP net income for Q2 ’23 was $900,000, or $0.03 per diluted share, well below our outlook for the quarter and compared to $5 million or $0.18 per diluted share for Q2 ’22. And non-GAAP net income of $6.8 million, or $0.24 per diluted share, during Q1 ’23. The lower non-GAAP net income compared to prior year was primarily due to lower Enterprise revenues and gross profit dollars and higher operating expenses due to inflation.

While the lower net income compared to the prior quarter’s results was primarily the result of the lower Enterprise revenues and the lower gross margin dollars, which was partially offset by lower operating expenses due to reduced variable compensation and tight cost controls. Adjusted EBITDA for Q2 ’23 was $2.8 million, or 4.7% of revenues, compared to $7.8 million, or 11.3% of revenues for Q2 ’22, and compared to $10.4 million, or 13.4% of revenues for Q1 ’23. Moving to cash flow. Cash used in operating activities was $4.5 million for Q2 ’23 and compares to cash provided by operating activities of $10 million for Q2 ’22 and cash used in operating activities of $6 million in Q1 ’23. During Q2 ’23, cash was used to increase inventories for anticipated higher Enterprise shipments, materials to support new products, and to allow for greater product availability and lower lead times for our customers.

We do expect inventories to begin to decrease in Q3 ’23, as we expect increased revenues in new products introduced in our fixed wireless business. We expect positive cash generation during the second half of ’23. Turning to the balance sheet. Cash totaled $32 million as of June 30, 2023, a decrease of $6.7 million from Q1 ’23. The sequential decrease in cash primarily reflects changes in working capital driven by higher inventories. Net inventories of $82.3 million in Q2 ’23 increased by $14 million from Q1 ’23 and by $34.9 million year-over-year. Inventories were higher sequentially because of lower than anticipated Enterprise shipments and the expected ramp of new product introductions. In summary, Cambium’s second quarter results were disappointing, driven by low Enterprise revenues and high Enterprise channel inventory, further compounded by global economic uncertainty.

We are taking significant and aggressive actions to address the issues that we have experienced in Q2, including a significant cost reduction along with more aggressive sales actions. We are also leveraging the positive performance in our PTP defense products and continuing the positive momentum from our PMP products, which we expect will be fueled by FCC approval of our 6 GHz products. Product delivery lead times are now shorter, causing changes in the channel’s purchasing patterns. We are well positioned for new product introductions and expect to generate cash from operations in the second half of ’23. Moving to the third quarter and full-year 2023 financial outlook. Cambium Network’s financial outlook does not include the potential impact of any possible future financial transactions, acquisitions, pending legal matters or other transactions.

Considering our current visibility as of today, our Q3 ’23 financial outlook is expected to be as follows. We expect revenues between $62 million and $70 million, representing an increase of approximately 4% to 18% from Q2 ’23 from the continued strong year-over-year growth in the PTP defense products and as we benefit from the ramp of 28 PMP products. As well as higher sequential Enterprise revenues, although we do expect Enterprise revenues to decline year-over-year. We expect non-GAAP gross margin of between 49.8% and 51.3%. Non-GAAP operating expenses between $25.6 million and $26.6 million. Non-GAAP operating income of between $5.2 million and $9.2 million. Interest expense net of approximately $700,000. Non-GAAP net income of between $3.7 million to $6.9 million or net income per diluted share of between $0.13 and $0.25.

We expect adjusted EBITDA between $6.3 million and $10.3 million and adjusted EBITDA margin of between 10.2% and 14.8%, and we anticipate a non-GAAP effective income tax rate of between 17% and 21%. We expect about $28 million weighted average diluted shares outstanding. Cash requirements are expected to be as follows: we expect paydown of debt $700,000; cash interest of about $500,000; and we expect capital expenditures of between $4 million and $4.5 million. Full-year 2023 financial outlook is expected to be as follows. We’re expecting revenues of between $265 million and $275 million representing a decline of 7% to 11%. Non-GAAP gross margin of approximately 50.2% to 51.6%. Non-GAAP net income of between $16.7 million to $21.9 million or net income per diluted share of between $0.59 and $0.78.

Adjusted EBITDA margin of between 10.5% and 12.6%. For the year, capital expenditures are expected to be approximately $12 million to $14 million, mainly driven by costs associated with new research and development projects. I will now turn the call back to Atul for some closing remarks.

Atul Bhatnagar: While the exact timing of a return to a more normalized revenue pattern in our Enterprise business is difficult to predict. We currently expect to see higher sequential Enterprise revenues in Q3 and Q4 ’23, and a return to a more normalized quarterly revenue pattern in the first half of 2024. While we work aggressively with our channel partners to digest the current level of channel inventory. Our PTP business, fueled by the defense products is strong and we expect a record year of revenue in 2023. As we continue to expand the number of programs and countries in which we participate. Our PMP business has turned the corner with sequential growth in Q2 ’23, and we expect it will continue to accelerate with the FCC approval of Cambium’s affordable 6 GHz products with clear first mover advantage.

Further, we continue to see growth in our 28 GHz cnWave 5G fixed, while our new fiber products are off to a good start. We also expect increased government funding will help accelerate the growth of our PMP business over many years. We continue to judiciously manage our costs and have taken actions to improve our operations and to protect our profitability, while also continuing to invest in innovative new products in order to provide quality products at a compelling value. As mentioned in today’s press release. Although I have stepped down as the company’s President and CEO, effective today, I’ll continue to serve as a member of the company’s Board of Directors. I’m proud to be handing the leadership role at Cambium to Morgan Kirk, an industry veteran whose previous industry experience includes more than 11 years at CommScope, most recently as Executive Vice President, Broadband Market Segment Leader and Chief Technology Officer.

I will be working closely with Morgan to ensure a very smooth transition. We are very lucky to have Morgan, with his rich broadband and wireless background, to lead Cambium in its next phase of growth and innovation. Finally, I would like to show my appreciation for employees, partners, and customers. This concludes our prepared remarks. Morgan Kirk, our new CEO, is with us in the room with me. So with that, I would like to turn the call over to Amber and begin the Q&A session.

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Operator: Thank you. We will now conduct the question-and-answer session. [Operator Instructions]. Our first question comes from Simon Leopold at Raymond James. Please go ahead.

Simon Leopold: Thanks for taking the question. Morgan, it’s been a bit. So hello again.

Atul Bhatnagar: Hello.

Simon Leopold: So a couple of things I want to ask, and let’s start out with the sort of question that has to be asked, which is why you opted not to preannounce this quarter. And then I’ve got a follow-up on the trending? Thanks.

Atul Bhatnagar: Yes, Simon, there were quite a few changes we were making, not just revenue miss, but management change, as well as the cost cutting, cost reductions. We felt that all of that should be done together. And based on that, the Board decided not to preannounce.

Simon Leopold: Okay. And then I want to make sure we all understand when you talk about getting back to normalized run rate in the first half of 2024, I want to make sure I understand what that means?

Atul Bhatnagar: Yes, I’ll give you my comments and then Andrew can offer some of his color as well. We are working very closely with our key channel partners on individualized strategy for moving the products through the channel, we are giving them aggressive incentives to move the products. And when we look at the sales out, the sales out for Q2 actually was flattish to Q1. So we looked at full model. And as Andrew and I worked together, we felt that based on our experience with even fixed wireless broadband, we saw something similar with fixed wireless broadband as well. Last year, as the pendulum swung from paucity to abundance, it took us two, three quarters to work through that inventory. And fixed wireless broadband now is a lot more towards normal inventory.

So we know, we know what it takes. We know how it has to be done. And based on that, we feel that first half 2024, it’ll come back to more of that normal run rate. And maybe Andrew can make some other comments to that.

Andrew Bronstein: I think you covered it well, Atul. I mean, we’re not in a position yet to be talking much about 2024, but when we look specifically at Enterprise and we speak with our channel partners and understand the incentives that we’re offering. We do believe that certainly by the second quarter of next year, that we’re going to be back to a more normalized run rate.

Simon Leopold: Yes, but what I’m really trying to get at is, what’s the value of normal? Because we had three quarters in a row between $30 million and $40 million a quarter that looked like they were excessive, where I would maybe interpret normal as kind of in the teens, millions per quarter, and then some growth off of that level through the year. So given sort of the variability of the history of the Enterprise Wi-Fi business, I guess I’m just trying to get a sense of what that baseline normal value is.

Andrew Bronstein: Yes, I understand. So I think the way to look at it well, first, you know that through COVID, you’re right that there were some high quarters and there’s some low quarters in various areas of our business, and COVID played a big part of that in terms of supply chain and availability. But I think that we’re viewing normal as a quarterly run rate of between $20 million and $30 million, and that’s really getting back to normal. And we think there are good opportunities also to grow from there in the future.

Simon Leopold: Great. That’s exactly what I was looking for. So that’s helpful. And just maybe a quick follow-up. It does sound like the product cycles in PMP are very much on track, and I want to make sure I didn’t sort of miss something in that regard on the 28 GHz, 50 GHz. Just want to double check that.

Atul Bhatnagar: Yes, Simon, let me give a little extra color on that. So, first of all, you are right. PMP has turned the corner, and we feel pretty good about sequential growth in Q3 and Q4, as well as year-over-year growth in second half based on the numbers and based on the funnel. But let me give you a little more color on that. ePMP 4600, which has first mover advantage in the industry with 6 GHz is being very well received. We have 25 POCs right now. And remember, that is even before FCC has accepted, it just fantastic performance, price performance. So people are very much waiting for FCC to approve and then you will see a good pent-up demand. Canopy 5, which is our upcoming 450 compatible, backwards compatible PMP product, which customers in the field and remember, there are thousands of networks worldwide with PMP 450 and Canopy 5 or 450V we call it, PMP 450v that also supports 6 GHz band and it also is designed to really go into the installed base that will come in Q4.

And we’ll start beta trials in Q3. And 28 GHz had a record quarter in Q2. Remember, we always said while 6 GHz, 5 GHz might have thousands of networks, 28 GHz will have hundreds of networks, but those hundreds of networks will be far bigger in revenue. And we are seeing that, we have many multimillion dollar deals. There are 10, 28 GHz customers which are in commercial deployment, and there are another about 14 which are in POCs. So that kind of gives you a flavor that 28 Gigahertz is moving along and really becoming particularly in EMEA, CALA, Asia is becoming a very key bedrock of high performance broadband.

Simon Leopold: Thanks for taking the questions.

Andrew Bronstein: Yes, and that’s part of what really gives us confidence, Simon in terms of Q3, you look at Q2, we did have as we had predicted sequential growth in the PMP business and it was actually a little bit stronger than what we had predicted. And then the 28 GHz deals that we’re working on right now, these are some significant deals that you’re going to hear more about as we continue through the third quarter.

Simon Leopold: Thank you.

Andrew Bronstein: Amber, are we taking the next question?

Operator: One moment for our next question. Our next question comes from Scott Searle at ROTH MKM. Please go ahead.

Scott Searle: Hey guys, just a quick clarification. Want to follow-up on Simon’s question related to Enterprise and Wi-Fi. From a competitive standpoint, are you losing anything here then, in a normalized environment where competitors have availability to component supply that you were able to capitalize on previously? Could you also quantify for us what the level of channel inventory is in weeks, if you have some idea as to what that looks like? And where does Wi-Fi 7 fit into the picture as we’re going forward into 2024? And then I had a follow-up.

Atul Bhatnagar: Scott, let me give my answer, and I’ll let Andrew add extra color. So in terms of, remember, we took a lot of market share over the last probably two years from competition. And main reason was very good price performance of Cambium products, particularly in hospitality and multi-dwelling unit market. As the supply became available or abundant to everyone, some of our competition went a lot more aggressive with pricing. And we did lose some deals. It’s not that we won everything, we did lose, but another key factor, which was probably a bigger factor is the markets we serve particularly EMEA, the economic impact there, the macroeconomic impact there is far more severe than we sometimes realize in North America.

And that also slowed down, so many deals actually moved, many projects got delayed that also impacted quite a bit. And then high interest rates impact multi-dwelling units, new construction, new infrastructure, far more so while as you look at different companies, different companies will have different dynamics because depending on what segment they serve. So in our segment, these were the key impacts. And on the channel inventory, I will let Andrew give little color there. But on Wi-Fi. Let me do Wi-Fi 7, I’ll pass it to Andrew. Wi-Fi 7 is the next Wi-Fi standard. We are looking at that, but we have not made any commitments or any major shifts because we make these decisions pretty thoughtfully. We look at the need, we look at the benefits, you look at the differentiation.

We also make sure that it’s not just technology chasing a solution, but truly, there is a customer need. So we’ll give more color on that, probably in upcoming quarters.

Andrew Bronstein: Yes, and give you some more color in terms of what’s happening in the channel. Our sales out in Enterprise this past quarter were in the mid to upper teens. So even though we reported revenue of only $6 million in the quarter, the sales out of the channel was still at that mid to high teens level. And we believe that with the initiatives and the more aggressive sales initiatives of working with each individual major distributor will certainly help drive that $70 million up to a higher level and towards that $20 million to $30 million normalized level that I mentioned that we believe that we’ll get to in the first half of next year. So that’s the pace. So we don’t disclose individual product level detail on channel inventory. But I think you have enough information. You could probably back into it.

Scott Searle: Okay. No, that’s helpful. Thank you. And if I could, looking at the guidance for the year of 265 to 275, if I take the mid-range of the guidance for the third quarter, it kind of implies a flattish fourth quarter. Yet I’m hearing recovery in Wi-Fi, you’re seeing continued momentum in Point-to-Point from a defense standpoint. And in Point-to-Multipoint, you’ve got multiple new products that are going into it. So I’m wondering, is there some sort of seasonality or otherwise that you’re expecting in one of those product lines as we go into the fourth quarter? And as part of that, what’s your current assumption in terms of AFC approval? And I think absent from your earlier remarks, I didn’t hear a lot about 60 GHz, but my conversations with the channel, in addition to 6 GHz gaining a lot of momentum is 60 GHz has actually been seeing a strong resurgence. So I’m kind of wondering where that fits into the picture into the end of this year in 2024? Thanks.

Atul Bhatnagar: Thanks, Scott. Let me take the 60 GHz in AFC and then I’ll pass it to Andrew for the guidance for the year. You are absolutely right. 60 and fiber is a very good combination. Where fiber stops, terrains are tough. Many of our fiber customers are actually coming to us and asking for 60. We see momentum in 60 GHz, especially in Wisp. I think we mentioned a quarter or two back, that one of the Wisp in Canada. They have deployed about 5000 60 GHz nodes for a very high performance network, smart city project, CCTV, last one to two kilometer gigabit connectivity. So we see that and also Cambium. Overall, I think we also mentioned the last few quarters, we have unique over 1,000 customers worldwide on 60 GHz. So this is one of those things that it has taken longer, but absolutely a very key building block for the last mile, last few kilometers to provide gigabit connectivity.

AFC, our current thinking is and again, remember as the government is working on approvals for 6 GHz, it’s difficult to predict, it’s their schedule, but our feeling is that September, October timeframe is when 6 GHz most probably will be approved and AFC will be unleashed and algorithms will be working and customers can deploy networks. Most of the networks are in POCs right now and as we said earlier about 25 POCs we are in already and we are very much looking forward to turning that on.

Andrew Bronstein: Yes, in terms of the forecast, just to go through some of the details here. So first, PMP is somewhat unchanged from where it was when we spoke last. And you’ll see that for the year, we’re expecting flattish to plus or minus 1% or so in terms of revenue growth. We do expect both Q3 and Q4 in PMP to show sequential and year-over-year growth. Point-to-Point, as we’ve said before as well. We have very good visibility in terms of opportunities within the defense sector especially and we continue to expect that we’re going to see a record year in revenues in PTP and we’re probably going to see in Q3 and Q4 somewhat consistent revenue that we had in Q2. And that’s going to generate at the end of the year a very strong mid to high 30s growth rate for the year in terms of what we’re currently anticipating.

And the enterprise sector is going to take some time. As we said, we’re going to be looking at the first half of next year probably Q2 when we get to that more normalized level. And we’ve got to eat through the inventory that’s in the channel and we’re not counting on a significant ramp-up in revenue, although we are anticipating some level of very modest increase in Q3 and Q4. We are looking at working through that channel inventory with each of our major distributors and seeing that further growth into next year and getting to more of a normalized $20 million to $30 million quarterly level in Q2 of next year.

Scott Searle: Great. Thank you.

Operator: Please hold for our next question. Our next question comes from George Notter at Jefferies LLC. Please go ahead.

George Notter: Hi, guys. Thanks a lot. Just continuing with the inventory discussion. So it sounds like your plan to clear out inventory with a distribution channel is to just incentivize them. Is it just simply a price cutting exercise or are there more actions that you can take there? I’d be curious to hear. And then also, can you tell us how much inventory you think is really out there and how much inventory is out there in excess of normal levels? Any sense for that would be great.

Atul Bhatnagar: Yes, George, when we say working with channel, I think it’s not just price cutting. I think, first of all, we are working with each one of them, the way we did in fixed wireless broadband. We looked at we’d work with each distributor and also figured out what projects they have engaged our sales team, worked with them on a very individualized basis. In addition to that, the demand generation programs we have for Enterprise, they’re also focused on those segments of hospitality, multi-dwelling units, education. So it’s a combination of all of those things working with them, pricing plus demand generation plus supporting them with whatever marketing they need with our MDF funds, all of that.

Andrew Bronstein: Yes, and the extra incentives are also to get new customers in new geographies and for those to be longer lasting in essence and get into those customers and focus on the verticals that we’ve spoken about in the past. So that’s number one. Number two, as I mentioned earlier in the call, I’m not sure if you were on or not, but we spoke about the fact that we’re expecting Enterprise to get to a level, normalized level of a $20 million to $30 million quarterly run rate by Q2 of next year. And the sales out this past quarter were $17 million. So although revenue was only six, we had sales out of 17. And a portion of that differential was a result of inventory that was in essence, exchanged for other inventory, and in some cases, it was exchanged for PMP inventory.

And even with that, our PMP channel inventory level went down. So even more than absorbing that exchange in essence, that came back from the channel. But I think we’re not going to get into specific channel inventory by product line. We’ve never spoken about that. We’re not going to disclose that. But I think I’ve given you enough information that you can pretty easily back into it.

George Notter: Got it. Okay. And then I guess the other question I had was just on the fiber product. I’m curious about initial reactions. I think Atul, you kind of said earlier that the feedback has been positive, but anything more specific or tangible you can say would be great?

Atul Bhatnagar: Sure. George, as I think we mentioned in last call, our focus in fiber is on the mid-size customers, not very large customers. Our focus on fiber is on our installed base, Wireless Internet Service Providers. I would say more than half of our Wireless Internet Service Providers, particularly in North America, they already have fiber. They use wireless. But they also use fiber. And with the government money, many of them are interested in going towards fiber. So when we conceived our fiber product, we knew our differentiation has to be in ease of deployment, ease of management, integration with wireless like 60 GHz, just making it seamless for our customers who are used to Cambium Simplicity, that’s what you will see.

So we have 15 POCs and we are going to increase that. And initial customer feedback is yes, it is much simpler to deploy because we have not designed fiber for a large service provider. We have designed fiber for a mid-size WISP and service provider and kept the simplicity and so far, very positive feedback. And as the government money comes into this space, you’ll see Cambium participate there.

George Notter: Got it. Thank you very much.

Atul Bhatnagar: Thanks, George.

Operator: Please hold for our next question. Our next question comes from Erik Suppiger from JMP Securities. Please go ahead.

Erik Suppiger: Yes, thanks for taking the question. First off, I want to just follow-up on the last question about fiber. Can you give us some context around how you think that product, how big that product could become? Maybe you could compare it to some of your other products or what kind of contribution could we anticipate? Then you talked about competition, using pricing to getting aggressive on pricing. What competitors are you seeing? Is it other players like Ubiquity? Or is it more enterprise centric competitors like an HP or Cisco?

Atul Bhatnagar: So, Erik, first one on the fiber, as I said, when we design the product, we focus on the mid-tier. I think for the first 12 to 18 months, our goal is to establish the product with that mid-tier segment, our existing installed base and go into situations where Cambium is already known for the quality and simplicity. Overall, you will not see us for the first 12 months, 18 months, to really go up to very large installations. So, opportunity wise, fiber is going to be, I think a sizable opportunity because government is also pushing in many government sponsored programs, fiber. And as we work with different states, some states are wireless friendly, but some states are also fiber friendly. Particularly if you look at Northeast, which has foliage and all that, they prefer fiber.

So that’s why Cambium went towards convergence. That Mr. Customer, you can use wireless, you can use fiber. We’ll give you seamless, single pane of glass to manage. We’ll give you simplicity. That’s our key message. Focus on your high performance network. Leave the layer one wireless or fiber to us and the simplicity. So I think in terms of size of the opportunity, as our experience is, it always takes four to five quarters to establish traction, get the POCs going, and then you have the acceleration phase, maybe after a year or 15 months or so. But fiber can be absolutely a substantial opportunity for Cambium, and it is in the PMP bucket. It’s Point-to-Multipoint. For some customers it will be wireless, for some customers, Point-to-Multipoint will come from wire.

Your second question about competition on the Enterprise side. No, it’s not the low end. I think it’s the mid-sized Enterprise class Wi-Fi providers who lost share to us. They became aggressive as they also got more chips. So I think no, it is Enterprise. Cambium is mid-tier Enterprise class Wi-Fi. So I hope that gives you color there?

Erik Suppiger: Down to your level is like a Cisco or an HP coming down to your level? Or are they undercutting your pricing?

Atul Bhatnagar: No, I would not name anybody, but I think the mid-tier Enterprise class players, those are the ones which compete with us. And we saw that they become aggressive. And I think for Cambium now, as we think through, especially, we are focused on only a few key verticals like hospitality, multi-dwelling units with the multi-family homes, retirement homes, student housing, and education. So we’ll continue to focus, keep bringing those APIs and application integration, make our solution complete, and be very superior in the outdoor setting along with the indoor in these segments. So that’s our strategy, but very focused on mid-tier.

Erik Suppiger: Thank you.

Atul Bhatnagar: Thanks, Erik.

Operator: Please hold for our next question. Our next question comes from Samik Chatterjee at JPMorgan. Please go ahead.

Unidentified Analyst: Hi, good afternoon. This is Jimmy Chen [ph] speaking on behalf of Samik Chatterjee. I wanted to ask that we’ve seen a slowdown in the macro environment impacting Telcos, and now that we’re going to the back half of the year. What are the biggest challenges you’re seeing on a thematic level? For example, can we expect to see any improvement in the reduction of elevated inventory levels and extended lead times? Thanks.

Atul Bhatnagar: Jimmy. Overall, when we talk about macro slowdown in our case, I think we saw definitely slowdown in EMEA in our deals, in our business. In North America, as I said, for the Enterprise we do focus on multi-dwelling units, which is construction, new infrastructure, all of that. I think the interest rates did slow them down. In terms of other thematic things, I would say in some of the countries where we sell products, the exchange rate also impacts us. Not everywhere, but some of the countries where the currency for them is high, because we do sell in dollars. Those are the kind of key thematic things I will say. But overall, the telecoms slowdown you talk about, I think is very tight to mobility when it comes to fixed wireless broadband.

Fixed wireless broadband actually is increasing, because post-COVID more people are stationary than moving. And everyone needs more bandwidth wherever they are. So fixed wireless broadband part from telecom angle is actually going to be healthy. Mobility could be a different story.

Unidentified Analyst: Okay. Thank you. And you mentioned Telco customers. However, I’m curious about, what are you seeing from non-Telco customers?

Atul Bhatnagar: For our fixed wireless broadband, I think by and large we sell to mid-tier, Tier II, Tier III service providers. So when you say Telco, I’m assuming you’re saying large carriers or large service providers. Generally, our business is very midstream for fixed wireless broadband. And for the Enterprise side, we really don’t sell very much to the Telco or the large service providers. Most of our businesses really those three segments in Enterprise I mentioned hospitality, multi-dwelling units, and education.

Unidentified Analyst: Okay. Thank you.

Atul Bhatnagar: Thanks, Jimmy.

Operator: Please hold for our next question. Our next question comes from Tim Savageaux at Northland Capital Markets. Please go ahead.

Tim Savageaux: Hi, good afternoon. Actually a pretty good follow-up to that last discussion. And question here focused on the PMP segment, and because you mentioned 28 GHz as kind of a key driver, maybe of upside in the quarter and maybe in the back half of the year, at least some early deployments. And those I would think, might be with some of the larger carriers, right? So I guess that’s one question is to the extent we’re talking about 28 gig, are we talking more about Tier I, Tier II type carriers? And are you seeing any differences in demand dynamics between that segment and your traditional smaller fixed wireless access? And I’ll follow-up from there?

Atul Bhatnagar: Thanks, Tim. That’s an excellent question, Tim. Let me give good color on that. 28 GHz is a 5G licensed frequency. So by definition, the kind of service providers we are engaging are larger. In sometimes, I may say Tier II service providers in our language, but they might be Tier I in their country. So your observation is right, that 28. The reason the deal size in 28 is multiple times that of 5 GHz or 6 GHz is because when somebody pays money for the license. And they deploy 28 GHz. They also want faster deployment, faster monetization. So overall I would say, yes, we are engaging larger service providers, because it’s a license frequency, which they have paid for and deal size is much larger. And now we have also proven Cambium superiority.

I think over last three, four quarters we have done enough benchmarking POCs bake offs with competition that customers have realized that Cambium does have a very superior 5G fixed solution. And in many cases, since it is a 5G, in many cases we showed interoperability with competition and showed superiority and that’s how we won some of the key deals. So my sense is that not only we had record quarter in Q2 for 28 GHz, it’ll continue that momentum, and it also gives a good barrier to entry in that country for other service providers. So overall a good business, which will grow as 5G Fixed grows and we have a very good solution.

Tim Savageaux: Great. And if I could follow-up on that. I don’t know if you can take a shot at quantifying how meaningful the 5G fixed or the 28 gig business is. Now, I assume it’s still a small part of PMP, but feel free to comment on that. And I guess the real question is, as you look at your growth drivers in PMP 5G and 28 gig, was 5G Fixed fiber and maybe the traditional fixed wireless access anywhere from 3.5 to 60 gigs. How would you rank order those in terms of maybe size of pipeline or growth potential going forward? Understanding that percentage wise? Some of your smaller pieces will probably grow faster. But which one of those are you most excited about? I guess over there for the company going forward.

Atul Bhatnagar: Sure. I would say, I’m very excited about the potential of 6 GHz, because there is a large install base Cambium has in hundreds of millions of dollars type of install base worldwide in 5 GHz. All of those customers know how 5 GHz behave and 6 GHz behaves very similarly. So you will see a good graceful migration and adoption for all those folks who are looking for that about 1.2 GHz of clean noise free spectrum, they will move to 6 GHz. So I would say that’s probably number one opportunity, followed by 28 GHz, which we now are saying it’s kind of growing well with those service providers — larger service providers. I think followed by probably fiber, because fiber will take little time to gestate for us as well.

As I said earlier, it takes three to four quarters, but fiber will offer a good dam with the simplicity we are bringing with and customer feedback is very positive. And then I will put 60 GHz, and then I’ll put 3 GHz that CBRS 3.5 GHz almost in that order, based on the maturity of the product, based on the proof points we have, and based on the market size. I hope that gives you clarity.

Tim Savageaux: It sure does. Really appreciate that. And last one for me, if I can, to the extent that 5 GHz 3 or 5 transitioning to 6 is the top opportunity, how would you assess the competitive environment here? Looks like some of these smaller kind of startup competitors are gaining more and more traction? And how is that changing here from a competitive standpoint from Cambium’s perspective?

Atul Bhatnagar: So Cambium strategy for last many, many years has been really focused on economics of the product deliver, fantastic performance and so very superior price performance, but always focused on economics. And we feel that the industry standard chips, whether it’s Wi-Fi 6 chips or whether it’s 5G chips, they keep building algorithms and feature sets like noise cancellation, massive MU-MIMO beam forming, doing it in a proprietary manner is never a winning strategy. It may be short-term, but these industry standard chips provide the economic base and we are seeing that with 28 GHz platform. And 5G is bringing a lot of those algorithmic and features and with these chips it becomes commercialized economical. So Cambium’s strategy is to design products, which are economical, high volume, serve the broad mid-tier segments versus very high end performance and very expensive.

So I think yes, there are companies which will do that, but that’s their business strategy. We are focused on. We have shipped 14 million radios worldwide in last 10 years towards thousands of networks with that economic strategy. And I think 6 GHz will bring such performance with noise free environment that we are very excited. And then 28 GHz bringing the license frequency 5G where we have a leadership product. So I think has turned around. It took us three quarters of a lot of hard work. It has turned around and I think now you’ll see PMP grow, which is a very key pillar of the company.

Andrew Bronstein: Take our next question, Amber.

Operator: One moment for our next question. Our next question comes from Paul Essi at William K. Woodruff. Please go ahead.

Paul Essi: Thank you. Good afternoon. And thanks for taking my question. Most of my questions have been answered. I did have one question on the 6. There’s been obviously a lot of anticipation both on customers and Wall Street, and I’m sure yourself. Assuming, I think you mentioned October is your best guess at when this thing may be able to go commercial. I know you have some out in the field already, but how are you prepared? Do you have a lot of finished inventory? Do you have parts inventory? Maybe give us a little color on how quickly you can ramp this thing, because I know the demand there. Anything you can provide that’d be great?

Atul Bhatnagar: Thanks, Paul. Thanks for the question. Andrew has been very supportive as we were building this new product. Our inventories and spend all that, we are pretty careful, but with the new products we look at all that. So we are ready, we procure the right chips, we have the right inventory. And also as we work with the customers, some customers are more aggressive in deploying access point on the tower so that when FCC approves it they can get going with commercial offer to their customers. And FCC has given to those 25 POCs we are doing. They’re given the trial licenses so everyone can get their feet wet with less number of subscribers. Make sure they can manage. So overall our feeling is September, October time frame.

Again we can’t guarantee, it’s government’s work, but our feeling is that based on some of the work going on in AFC, some of the testing they are doing, some of the trials and pilots going on, that’s our reasonable guess at this point. And we are ready, we will have a very good first mover advantage. We probably have the largest footprint. We are also using latest chips to design the 6 GHz network. So our product will be not just differentiated, but also a significant first mover advantage in 6 GHz.

Andrew Bronstein: But in terms of revenue, I would qualify to say that we’re not counting on a big ramp up of revenues in the fourth quarter of this year. It’ll be somewhere in the single-digits. But we do expect the bigger impact to be next year in terms of distributers stocking inventory and getting product out into the marketplace. So there will be impact, positive impact in Q4, but not a huge ramp and the bigger ramp will be next year.

Paul Essi: Great. Thanks very much. That was helpful.

Operator: One moment for our next question. Our next question comes from George Notter at Jefferies, LLC. Please go ahead.

George Notter: Hi, guys. Thanks a lot for letting me ask another one. I realize it’s getting late here. I’m kind of shocked that no one’s asked about the CEO transition so far. I guess I’d love to hear from Morgan. Why do you think joining Cambium is the right play for you and what kind of opportunity do you see here? And then for Atul, just listening to the call Atul, you don’t sound like a guy that’s going to kind of step into the background and retire from the company and just be a more traditional Board Member. You kind of sound like you’re going to be very involved here. I’m sort of wondering how you think about that and your role in the company going forward? So thanks guys.

Atul Bhatnagar: George, I’m going to give Morgan the floor very soon. But let me share from thoughts. First of all, I’m very pleased to see Morgan with me. He brings very good industry knowledge, broadband knowledge. He brings very good channel knowledge, operations knowledge about our communications business. He also brings, in my opinion, very good thinking. So I think we are — every company goes through growth phase change, new ideas, and I’ll be working very closely. In fact, last few days we’ve been working very closely. You will see a very graceful and very solid transition. Nothing will drop. You will see him and me collaborating, working together. And the last point I also mentioned to Morgan is I’ll introduce him to all customers, all channels, so you will see a very methodic and thoughtful things. So with that, I’m going to pass it to Morgan.

Morgan Kurk: Yes. Thanks, George. So I see this as an opportunity for me to move back into the wireless industry, which is something I’m very passionate about, to bring some of my experience to the company. But what I see about the company is a company made up of great people with really good technology that I can help lead to higher heights. And it’s not such a large company that it can’t be agile and adaptive. And that’s something that I had wanted as my next adventure. In terms of the working between myself and Atul. I think it’s what he said. We’re trying for a very collaborative transition. So today being my first day, he’s obviously handling these calls, having the background and the history, and we’ll be handing off customer contacts and relationships throughout over the next few weeks.

And then he will be a standard Board Member that I will have as a resource to bounce ideas off of and understand history from. 10 years of that is fantastic. I welcome that type of relationship.

Atul Bhatnagar: And I’ll say, George, you asked great questions. I’ll say, I have no doubt in my mind that under Morgan’s leadership, Cambium is going to go a new height and a new level of growth. And my goal is that we are going to work for our shareholders, our customers, our employees, and continue for Cambium to be a trailblazer, innovator and a good solid business performance.

George Notter: Thank you.

Atul Bhatnagar: Thanks. We’ll take one more question.

Operator: One moment for our next question. Our last question comes from Erik Suppiger at JMP Securities. Go ahead.

Erik Suppiger: Actually, it’s just follow-up from the last one. Can you talk about the timing of the search for bringing Morgan on when? When did you start that search? And what was the recruitment process like? And then you talked about a program to reduce for cost reductions. Will there be headcount reductions as well?

Atul Bhatnagar: Let me — first of all, we don’t comment on any of the recruitment, any of that. So Eric, I will not go there. But I’ll pass it to Andrew. Andrew can give a little more color on the cost reduction.

Andrew Bronstein: Yes, thanks for the question. So we are — we do have headcount reductions, both in terms of employees as well as contractors. When you look at it in total, it’s about 10% of the workforce. As we said, there’s a total of a $14 million annualized cost savings. About $9 million to $10 million of that is headcount related and about $4 million to $5 million of it is non-headcount related to contracts and R&D type projects that are being delayed or deferred into next year. But not that we believe that we are going to be a stronger company as a result of this. Its — we are going to be a very much agile company and looking forward to success in the coming quarters ahead.

Erik Suppiger: Very good. Thank you.

Atul Bhatnagar: During Q3 ’23, Cambium Networks will be meeting with investors virtually on August 9th at the Oppenheimer Annual Internet Communications Conference. And we will present and meet investors in-person on August 29th at the Jeffries Semiconductor, IT, and Communications Technology Summit in Chicago, and on September 19th at the Northland Capital Markets in Institutional Investor Conference in Minneapolis. In the meantime, you’re 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.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.