UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM TO
Commission file number:
(Exact name of registrant as specified in its charter)
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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As of November 2, 2023, the registrant had
AIRGAIN, INC.
Form 10-Q
For the Quarter Ended September 30, 2023
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PART I. FINANCIAL INFORMATION |
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Item 1. Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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PART II. OTHER INFORMATION |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Airgain, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
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September 30, 2023 |
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December 31, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Leased right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued liabilities and other |
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Short-term lease liabilities |
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Total current liabilities |
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Deferred tax liability |
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Long-term lease liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock and additional paid-in capital, par value $ |
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Treasury stock, at cost: |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
3
Airgain, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Sales |
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$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other (income) expense: |
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Interest income, net |
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Other expense |
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Total other (income) expense |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Net loss per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares used in calculating loss per share: |
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Basic |
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Diluted |
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See accompanying notes.
4
Airgain, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes.
5
Airgain, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Total stockholders' equity, beginning balance |
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$ |
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$ |
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$ |
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$ |
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Common stock and additional paid-in capital: |
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Balance at beginning of period |
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Stock-based compensation |
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Common stock withheld related to net share settlement of equity awards |
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— |
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— |
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Issuance of shares for stock purchase and option plans |
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Balance at end of period |
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Treasury stock: |
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Balance, at cost -at beginning of period |
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Balance, at cost -at end of period |
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Accumulated deficit: |
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Balance at beginning of period |
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Net loss |
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Balance at end of period |
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Total stockholders' equity, ending balance |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes.
6
Airgain, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Nine months ended September 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation |
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Loss on disposal of property and equipment |
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Amortization of intangible assets |
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Stock-based compensation |
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Deferred tax liability |
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Changes in operating assets and liabilities: |
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Trade accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Accrued compensation |
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( |
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Accrued liabilities and other |
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( |
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( |
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Lease liabilities |
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( |
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Net cash (used in) provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Proceeds from sale of equipment |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Cash paid for business acquisition contingent consideration |
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Payments for withholding taxes related to net share settlement of equity awards |
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Issuance of common stock, net |
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Net cash used in financing activities |
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Net decrease in cash, cash equivalents and restricted cash |
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Cash, cash equivalents, and restricted cash; beginning of period |
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Cash, cash equivalents, and restricted cash; end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Income taxes paid |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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Operating lease liabilities resulting from right-of-use assets |
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$ |
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$ |
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Accrual of property and equipment |
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$ |
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$ |
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Cash, cash equivalents, and restricted cash: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash included in prepaid expenses and other current assets and other assets long term |
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$ |
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Total cash, cash equivalents, and restricted cash |
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$ |
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$ |
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See accompanying notes.
7
Airgain, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business and Basis of Presentation
Description of Business
Airgain, Inc. was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 17, 2016. Airgain, Inc. together with its subsidiary NimbeLink Corp. are herein referred to as the “Company,” “we,” or “our”. The Company is a leading provider of connectivity solutions including embedded components, external antennas, and integrated systems that enable wireless networking in the consumer, enterprise, and automotive markets. The Company’s headquarters is in San Diego, California.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, from which the balance sheet information herein was derived. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and investments have been eliminated in consolidation.
Segment Information
The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California and Plymouth, Minnesota.
The Company operates in
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 2. Summary of Significant Accounting Policies
During the nine months ended September 30, 2023, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Trade Accounts Receivable
We perform ongoing credit evaluations of our customers and assess each customer’s credit worthiness. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. We monitor collections and payments from our customers and analyze for an allowance for credit losses. The allowance for credit losses is based upon applying an expected credit loss rate to receivables based on the historical loss rate and is adjusted
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for current conditions, including any specific customer collection issues identified, and economic conditions forecast. Delinquent account balances are written off after management has determined that the likelihood of collection is remote.
Inventories
As of April 2022, all of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In some situations, the Company retains ownership of inventory which is held in third-party contract manufacturing facilities. In certain instances, shipping terms are delivery-at-place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances, the Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying consolidated balance sheets. In the second quarter of 2022, we closed our facility located in Scottsdale, Arizona where certain of our products were previously manufactured.
Inventory is stated at the lower of cost or net realizable value. For items manufactured by us, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. Write downs for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally to
Goodwill
Goodwill represents the excess of cost over fair value of net assets acquired. We account for our goodwill under the authoritative guidance Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 for goodwill and other intangible assets and the provisions of ASU 2017-04, Simplifying the Test for Goodwill Impairment, which we early adopted in fiscal year 2020. Goodwill is not amortized but is tested for impairment annually as of December 31 or more frequently if events or changes in circumstances indicate that our goodwill might be impaired. Such circumstances may include, but not limited to (1) a decline in microeconomic conditions, (2) a significant decline in our financial performance or (3) a significant decline in the price of our common stock for a sustained period of time. We consider the aggregation of the relevant qualitative factors, and conclude whether it is more likely than not that the fair value of our reporting unit is less than the carrying value.
If we conclude that it is more likely than not that the fair value of our reporting unit is less than the carrying value, we perform a quantitative impairment test. The quantitative impairment test compares the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value. The impairment charge is limited to the goodwill amount of the reporting unit.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. In addition, we make certain judgments and assumptions in determining our reporting unit. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates
Other Intangible Assets
The Company’s identifiable finite-lived intangible assets are comprised of acquired intangibles, developed technologies, customer relationships and non-compete agreements. The cost of the market-related intangible assets with finite lives is amortized on a straight-line basis over the assets’ respective estimated useful lives.
9
We assess potential impairments to our intangible assets in accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360) when events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of long-lived and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As a first step, we consider factors, which may include the following, but are not limited to: (1) significant underperformance relative to historical or projected future operating results; (2) significant negative industry or economic trends; or (3) a significant decline in our stock price for a sustained period.
If this assessment indicates that the carrying value of the assets may not be recoverable, the Company is required to perform the second step to test the asset group for recoverability. This recoverability test compares the future undiscounted cash flows expected from the use of the asset group to its carrying value. If the carrying value is more than the undiscounted future cash flows, the Company is required perform a third step to determine the fair value of the asset group and compare fair value against the carrying value. Any excess carrying value over the fair value needs to be recognized as an impairment loss.
Determining the recoverability of long-lived or intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and the future market value of our asset group. In addition, we make certain judgments and assumptions in determining our asset group. We base our recoverability estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Revenue Recognition
The Company generates revenue mainly from the sale of wireless connectivity solutions and technologies. A portion of revenue is generated from service agreements and data subscription plans with certain customers. The Company recognizes revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. Control transfers to customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. Revenue from the NimbeLink data subscription plans is recognized over the period of the subscription.
The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations. We only apply the five-step model when it is probable that we will collect substantially all of the consideration that we are entitled in exchange for the goods or services that we transfer to the customer.
For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation. The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Most of the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts is recognized either at a "point-in-time" or “over time” based on the terms and conditions in the contract. Revenue from data subscription plans relate to purchased asset trackers with activated data lines, through a third-party service provider. Subscription plans are recognized monthly. Service revenues are earned based on contractual milestones. Prepayments are deferred revenues and are recorded as contract liabilities. We recognize the contract liabilities over service periods ranging from (3) to (18) months.
The Company offers return rights and/or pricing credits under certain circumstances. We estimate product returns based on historical sales and return trends and record against revenue and corresponding refund liability.
The Company's contracts with customers do not typically include extended payment terms. Payment terms may vary by contract and type of customer and generally range from
The Company provides assurance-type warranties on all product sales ranging from one to two years. The estimated warranty costs are accrued for at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure.
The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.
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There were
Shipping and Transportation Costs
Shipping and other transportation costs expensed as incurred were $
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.
Stock-Based Compensation
We recognize compensation costs related to stock options and restricted stock units granted to employees and directors based on the estimated fair value of the awards on the date of grant. We estimate the option grant fair values, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards are expensed on a straight-line basis over the requisite service period of the entire reward. The Company recognizes forfeitures when incurred.
Fair Value Measurements
The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, accrued liabilities and deferred purchase price obligations approximate their fair values due to the short maturity of these instruments.
Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The Company adopted this standard in the first quarter of fiscal 2023; it did not have a material impact on our financial statements.
Recently Issued Accounting Pronouncements
There were no recently issued accounting pronouncements that the Company expects to have a material impact on the Company's financial statements.
Note 3. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss available to common stockholders by the weighted average shares of common stock outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of
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securities that are convertible into common stock. The Company calculates diluted loss per common share using the treasury stock method.
The following table presents the computation of net loss per share (in thousands except per share data):
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Three months ended September 30, |
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Nine months ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Numerator: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Denominator: |
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Basic weighted average common shares outstanding |
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Plus dilutive effect of potential common shares |
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Diluted weighted average common shares outstanding |
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Net loss per share: |
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Basic |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Diluted |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):
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Three months ended September 30, |
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Nine months ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Stock options, restricted stock and performance stock |
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Common stock equivalent shares |
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Note 4. Cash and Cash Equivalents
The following tables show the Company’s cash and cash equivalents by significant investment category (in thousands):
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September 30, 2023 |
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December 31, 2022 |
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Cash |
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$ |
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$ |
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Level 1: |
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Money market funds |
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Total |
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$ |
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$ |
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Restricted Cash
As of September 30, 2023, the Company had $
Note 5. Inventory
Inventories are comprised of the following (in thousands):
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September 30, 2023 |
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December 31, 2022 |
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Raw materials |
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$ |
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$ |
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Finished goods |
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Total Inventory |
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$ |
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$ |
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Consigned inventories, which are included in total inventories, are comprised of the following (in thousands):
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September 30, 2023 |
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December 31, 2022 |
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Raw materials |
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$ |
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$ |
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Finished goods |
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Total Consigned Inventory |
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$ |
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$ |
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Excess and obsolete inventory reserves were $
Note 6. Property and Equipment
Depreciation and amortization of property and equipment is calculated on the straight-line method based on the shorter of the estimated useful life or the term of the lease for tenant improvements and to
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September 30, 2023 |
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December 31, 2022 |
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Manufacturing and testing equipment |
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$ |
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$ |
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Leasehold improvements |
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Computers and software |
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Furniture, fixtures, and equipment |
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Construction in process |
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Property and equipment, gross |
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Less accumulated depreciation |
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( |
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( |
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Property and equipment, net |
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$ |
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$ |
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Depreciation expense was $
Note 7. Intangible Assets and Goodwill
Other Intangible Assets
The following is a summary of the Company’s acquired other intangible assets (dollars in thousands):
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September 30, 2023 |
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Weighted average amortization period (in years) |
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Gross carrying amount |
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Accumulated amortization |
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Net carrying amount |
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Market related intangibles |
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$ |
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$ |
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$ |
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Customer relationships |
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$ |
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Developed technologies |
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$ |
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Covenants to non-compete |
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$ |
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Total intangible assets, net |
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$ |
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$ |
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$ |
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December 31, 2022 |
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Weighted average amortization period (in years) |
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Gross carrying amount |
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Accumulated amortization |
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Net carrying amount |
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Market related intangibles |
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$ |
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$ |
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