# Airgain Inc: Form 10-Q for the period ended Sep 30, 2022

- Company: [Airgain Inc](/companies/airg.md) (CIK 1272842)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 17:29 ET
- Period: 2022-09-30
- Accession: 0000950170-22-025104
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1272842/000095017022025104/airg-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1272842/000095017022025104/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $19.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $56.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $11.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $33.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $7.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $22.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $2.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $9.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$5.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | −$52.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $134.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$1.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$5.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.53 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.53 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 10,210,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 10,179,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $2.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $634.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $9.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $30.0m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $58.3m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $14.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $16.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $42.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,761 characters.

*The following discussion and analysis and the interim unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021.*

### Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this quarterly report, including statements regarding our future operating results, financial position and cash flows, the impact of COVID-19, our business strategy and plans, and our objectives for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

### Overview

Airgain simplifies wireless connectivity across a diverse set of devices and markets, from solving complex connectivity issues to speeding time to market to enhancing wireless signals. We segment our product offering into three, distinct sub-brands. Airgain Embedded represents our embedded modems, antennas, and development kits that are designed to help design teams bring connected products to market quickly. Airgain Integrated represents our fully-integrated, off-the-shelf products, such as our asset trackers and AirgainConnect® platform, that help solve connectivity issues in an organization’s operating environment. Airgain Antenna+ represents our external antennas, such as our fleet and IoT antennas, that help enhance wireless signals in some of the harshest environments. Our mission is to connect the world through optimized integrated wireless solutions.

As a wireless connectivity solution provider with a rich history in radio frequency technology, we are leveraging our expertise in embedded antennas and embedded modems to effectively transition from a components provider to a wireless systems provider. In 2020, we announced our patented new flagship platform – AirgainConnect®. Our first product from this platform, the AC-HPUE™ antenna-modem offers a novel solution for our public safety and automotive fleet markets by vastly improving vehicle networking capabilities. We are currently designing the next generation of products for the AirgainConnect platform, leveraging our learnings from the AC-HPUE deployment, where such products are intended to target domestic applications beyond first responders and will also target international markets.

#### NimbeLink Acquisition

On January 7, 2021, we purchased 100% of the outstanding shares of Minnesota-based NimbeLink Corp. NimbeLink is an industrial Internet of Things, or IIoT, company focused on the design, development, and delivery of cellular solutions for enterprise customers. NimbeLink provides carrier-certified embedded modems and asset tracking solutions that minimize or often eliminate RF design and certification time from project schedules, significantly reducing costs and time to market.

The acquisition of NimbeLink supports our transition toward becoming more of a system-level company and will play an important role in our overall growth strategy to broaden market diversification, particularly within the industrial IoT space. NimbeLink’s industrial IoT expertise fits squarely into one of our targeted enterprise submarkets. Our worldwide salesforce offers an opportunity to expand the reach of NimbeLink products and also provides access to considerable design opportunities that were previously unavailable for NimbeLink products. The result is a substantial increase in the opportunities for us in the enterprise market and a more diverse offering of products and expertise for our customers.

#### Core Markets

The consumer market encompasses a large and growing audience of consumers using wireless-enabled devices. Our antennas are deployed in consumer access points, wireless gateways, Wi-Fi Mesh systems and extenders, smart TVs, smart home devices, and set-top boxes. Additionally, our antennas support a comprehensive array of coveted technologies, including WLAN, Wi-Fi, LTE, 5G and LPWAN. In addition, our embedded modems provide critical connectivity for consumer products that include smart coffee makers, smart refrigerators, aerial drones, e-bikes and e-scooters, and more.

The enterprise market is characterized by devices that provide reliable wireless access for high-density environments such as buildings, campuses, transportation terminals and stadiums. Within this market our antennas are deployed across a wide range of systems, devices, and applications that include access points and gateways, fixed wireless access infrastructure, small cells, and remote radio heads. In addition, our embedded modems are deployed across various markets with high demand for connectivity, including packaging and logistics, EV charging, smart city and smart building applications, agriculture, and more. Our products are intentionally positioned to significantly increase our growth in this specialized market.

In the automotive market, our products are deployed in a wide range of vehicles to support a variety of wireless connectivity solutions in the fleet and aftermarket segment, supporting a variety of technologies that include Wi-Fi, 3G, LTE, 5G, Satellite and LPWAN. The fleet and aftermarket segment of the automotive market consists of applications whereby rugged vehicular wireless routers are paired with external antenna systems to provide connectivity to fixed and mobile assets. Within this unique market segment, there has been a rise in the number of antennas per vehicle. Currently, the majority of our revenues are derived from fleet and aftermarket sales and going forward, our strategy is to augment our current sales in the automotive aftermarket with design wins and sales, including follow-on products in the AirgainConnect family that are designed to address broader market segments in Automotive aftermarket both domestically and internationally.

#### Our Process

With our internal antennas, our design teams partner with customers from the early stages of antenna prototyping to device throughput testing in order to facilitate optimal performance and a significant reduction in time to market. Our capabilities include design, custom engineering support, integration, and OTA testing. Leveraged in combination, these capabilities have resulted in a strong reputation across the OEM, ODM and chipset manufacturer ecosystem. Our competencies and strengths have helped us secure design wins used in multiple reference designs from leading Wi-Fi chipset vendors, OEMs, ODMs, chipset manufacturers and service providers who rely on these reference designs and our engineering skills to deliver superior throughput performance. We view our relationship with OEM, ODM, chipset manufacturers and service providers as an important attribute to our long-term strategy and success.

With our embedded modems, we offer customer design teams the ability to speed time to market by avoiding the cost and time delays of carrier certification. We combine cellular modules with the electronics and firmware to achieve end-device certification with major carriers. In addition, we offer the ability to futureproof their designs with the ability to update firmware remotely and swap module vendors, all without changing the pin design. By leveraging our embedded modems, customers designing cellular-connected products remove complexity from the design process, reducing the need for large RF engineering teams and launching products much quicker to take advantage of market opportunities.

Growth in demand for LTE, 5G, Wi-Fi 6/6E/7, LPWAN, IoT, HPUE, and many other technologies are driving significant increases in demand for our products. Every connected product needs a modem or wireless protocol and an antenna. As wireless technologies advance, the need for additional antennas and modems grows. In addition, as the trend toward smart homes, buildings, factories, and cities grows, connectivity becomes the backbone of life as we know it. From a police car patrolling the streets to a tractor plowing a farmer’s field, our world is more connected than it has ever been. With our broad portfolio of products that make wireless simple, Airgain is connecting the world.

### COVID-19 Pandemic

The United States and other countries around the world are experiencing a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. The continued spread of COVID-19 and its related effects on our business have had a material and adverse effect on our business operations. Through the date of this filing, these disruptions or restrictions include restrictions on our ability to travel to certain locations, temporary closures of our customer or supplier facilities, and through third quarter 2022 disruptions with certain components in our supply chain located in Asia as well as those of our customers. To address these challenges, we have identified and will continue to identify proactive purchases of long lead time inventory to mitigate global supply chain issues. Such disruptions to our customers have had a negative impact on our sales and operating results during 2022 and may continue to have a negative effect on our operating results in future quarters.

The impact of the COVID-19 pandemic on the U.S. and world economies generally, and our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted.

### Factors Affecting Our Operating Results

We believe that our performance and future success depend upon several factors including continuing effects of COVID-19 on our customer product rollouts, continuation of the global supply shortages, our ability to mitigate against such shortages through proactive advance purchases of long lead time inventory, the growth in sales of AC-HPUE and follow on products in the AirgainConnect family, or other related products, continued improved performance of our contract manufacturers and success in expanding NimbeLink opportunities and sales.

Our performance and future success also depend on factors such as manufacturing costs, continued investments in our growth, our ability to expand into growing addressable markets, including consumer, enterprise, and automotive, the average selling prices of our products per device, the number of antennas per device, and our ability to diversify the number of devices that incorporate our antenna products. Our customers are price conscious, and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices. In addition, a few end-customer devices which incorporate our antenna products comprise a significant amount of our sales, and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations. Our ability to maintain or increase our sales depends on, among other things, new and existing end-customers selecting our antenna solutions for their wireless devices and networks, the impact of the COVID-19 pandemic, as discussed above, the deployment level, performance and customer satisfaction of AC-HPUE and any follow on products in the AirgainConnect family, the proliferation of Wi-Fi connected home devices and data intensive applications, trends related to in-house design in our traditional set top market, investments in our growth to address customer needs, the impact of the global supply shortage on our business and that of our end customers, our ability to target new end markets, development of our product offerings and technology solutions, and international expansion, as well as our ability to successfully integrate past and any future acquisitions.

In addition, inflation generally affects us by increasing our raw material and employee-related costs and other expenses. Our financial condition and results of operations may also be impacted by other factors we may not be able to control, such as uncertain global economic conditions, global trade disputes or political instability, as well as conflicts around the world. We do not believe that such factors had a material adverse impact on our results of operations during the three months ended September 30, 2022.

While each of these areas presents significant opportunities for us, they also pose significant risks and challenges we must successfully address. We discuss many of these risks, uncertainties and other factors in greater detail in the section entitled “Risk Factors” included in this quarterly report on Form 10-Q and in Item 1A of our Annual Report on Form 10-K.

### Seasonality

Our operating results historically have not been subject to significant seasonal variations. However, our operating results are affected by how customers make purchasing decisions around local holidays in China. Although it is difficult to make broad generalizations, our sales tend to be lower in the first quarter of each year compared to other quarters due to the Lunar New Year. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year and these patterns may change because of general customer demand or product cycles.

### Key Components of Our Results of Operations and Financial Condition

### Sales

We primarily generate revenue from the sales of our products. We recognize revenue to depict the transfer of control over 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. We generally recognize product sales at the time of shipment to our customers, provided that all other revenue recognition criteria have been met. Although currently insignificant, we also generate service revenue from agreements to provide design, engineering, and testing services as well as subscription revenue from the sale of data plans.

### Cost of Goods Sold

The cost of goods sold reflects the cost of producing antenna, embedded modem and asset tracking products that are shipped for our customers’ devices as well as costs incurred for service agreements. This primarily includes manufacturing costs of our products payable to our third-party contract manufacturers, as well as manufacturing costs incurred at our facility in Arizona, prior to closure in March 2022. The cost of goods sold that we generate from services provided to customers primarily includes personnel costs and the cost to maintain data lines.

### Operating Expenses

Our operating expenses are classified into three categories: research and development, sales and marketing, and general and administrative. The largest component for these categories is personnel costs, which includes salaries, employee benefit costs, bonuses, and stock-based compensation. Each of the three categories include allocation of overhead costs for depreciation, facilities, and information technology expenses. Allocation of facilities expenses consists of amortization of leasehold improvements as well as, rent and utility expenses and taxes. Operating expenses are generally recognized as incurred.

*Research and Development*. Research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering research and development personnel. These expenses include work related to the design, engineering and testing of antenna and modem designs and antenna integration, validation and testing of customer devices. These expenses include salaries, including stock-based compensation, benefits, bonuses, travel, communications, and similar costs, and depreciation and allocated costs for certain facilities. We may also incur expenses from consultants and for prototyping new antenna solutions. We expect research and development expenses to increase in absolute dollars in future periods as we continue to invest in the development of new solutions and markets and as we invest in improving efficiencies within our supply chain, although our research and development expense may fluctuate as a percentage of total sales.

*Sales and Marketing*. Sales and marketing expenses primarily consist of personnel and facility-related costs for our sales, marketing, and business development personnel, stock-based compensation and bonuses earned by our personnel and commissions earned by our third-party sales representative firms. Sales and marketing expenses also includes the costs of trade shows, advertising, marketing programs, promotional materials, demonstration equipment, travel, recruiting, and allocated costs for certain facilities. We expect sales and marketing expenses to fluctuate as a percentage of total sales.

*General and Administrative*. General and administrative expenses primarily consist of personnel and facility-related costs for our executives, legal, human resource, finance, and administrative personnel, including stock-based compensation, as well as accounting, and other professional services fees, depreciation, and other corporate expenses. We expect general and administrative expenses to fluctuate over the next several quarters as we grow our operations.

### Other Expense (Income)

*Interest Income, net*. Interest income consists of interest from our cash and cash equivalents offset by interest expense which consists of interest charges on credit card charges and certain vendor bills.

*Other* Expense. Other expense consists of the loss from disposal of property and equipment, realized foreign exchange gains or losses, and other expenses.

### Provision for Income Taxes

Provision for income taxes consists of federal, state, and foreign income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. It is difficult for us to project future taxable income as the timing and size of sales of our products are variable and difficult to predict. We concluded that it is not more likely than not that we will utilize our deferred tax assets other than those that are offset by reversing temporary differences.

### Results of Operations

The following tables set forth our operating results for the periods presented as a percentage of our total sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

| Statement of Operations Data: | Three months ended September 30, 2022 | 2021 | Nine months ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Sales | $19,198 | $15,455 | $56,006 | $50,129 |
| Cost of goods sold | 11,755 | 9,909 | 33,902 | 30,387 |
| Gross profit | 7,443 | 5,546 | 22,104 | 19,742 |
| Operating expenses: |  |  |  |  |
| Research and development | 2,901 | 2,698 | 9,117 | 8,130 |
| Sales and marketing | 2,808 | 2,484 | 8,552 | 7,412 |
| General and administrative | 2,998 | 3,307 | 9,738 | 10,201 |
| Change in fair value of contingent consideration | — | 103 | — | 1,660 |
| Total operating expenses | 8,707 | 8,592 | 27,407 | 27,403 |
| Loss from operations | (1,264) | (3,046) | (5,303) | (7,661) |
| Other (income) expense | (17) | (7) | 2 | (6) |
| Loss before income taxes | (1,247) | (3,039) | (5,305) | (7,655) |
| Income tax expense (benefit) | 52 | 30 | 134 | (2,214) |
| Net loss | $(1,299) | $(3,069) | $(5,439) | $(5,441) |

| Statements of Operations Data: | Three months ended September 30, 2022 | 2021 | Nine months ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of goods sold | 61.2 | 64.1 | 60.5 | 60.6 |
| Gross profit | 38.8 | 35.9 | 39.5 | 39.4 |
| Operating expenses: |  |  |  |  |
| Research and development | 15.1 | 17.4 | 16.3 | 16.2 |
| Sales and marketing | 14.6 | 16.1 | 15.2 | 14.8 |
| General and administrative | 15.6 | 21.4 | 17.4 | 20.4 |
| Change in fair value of contingent consideration | — | 0.7 | - | 3.3 |
| Total operating expenses | 45.4 | 55.6 | 48.9 | 54.7 |
| Loss from operations | (6.6) | (19.7) | (9.5) | (15.3) |
| Other (income) expense | (0.1) | (0.0) | 0.0 | (0.0) |
| Loss before income taxes | (6.5) | (19.7) | (9.5) | (15.3) |
| Income tax expense (benefit) | 0.3 | 0.2 | 0.2 | (4.4) |
| Net loss | (6.8)% | (19.9)% | (9.7)% | (10.9)% |

26

### Comparison of the Three and Nine Months Ended September 30, 2022 and 2021 (dollars in thousands)

### Sales

|  | Three months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales | $19,198 | $15,455 | $3,743 | 24.2% |

|  | Nine months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Sales | $56,006 | $50,129 | $5,877 | 11.7% |

Sales increased for the three months ended September 30, 2022, compared to the same period in the prior year. Revenue from our consumer market increased $2.7 million to $7.3 million for the current quarter from $4.6 million for the same period in the prior year, primarily due to easing of global supply shortages impacting our customers' product rollout and sales. Revenue for our automotive market increased $2.9 million to $5.1 million for the current quarter, from $2.2 million for the same period in the prior year, primarily due to higher aftermarket sales. These increases were partially offset by a $1.9 million decrease of our enterprise market revenue to $6.8 million for the current quarter from $8.7 million for the same period in the prior year, primarily due to lower sales of industrial IoT products and enterprise Wi-Fi access point products.

Sales increased for the nine months ended September 30, 2022, compared to the same period in the prior year. Revenue from our enterprise market increased $5.3 million, to $24.5 million for the current nine months from $19.2 million for the same period in the prior year, primarily due to higher revenues generated from the sale of industrial IoT products and enterprise Wi-Fi access point products during the first half of 2022. Revenue for our automotive market increased $5.0 to $12.1 million for the current nine months, from $7.1 million for the same period in the prior year, primarily due to higher aftermarket and AC-HPUE sales. These increases were offset by a $4.4 million decrease of our consumer market revenue to $19.4 million for the current nine months from $23.8 million for the same period in the prior year, primarily due to weakness caused by global supply shortages impacting our customers' product sales during the first half of 2022.

### Cost of Goods Sold

|  | Three months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of goods sold | $11,755 | $9,909 | $1,846 | 18.6% |

|  | Nine months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of goods sold | $33,902 | $30,387 | $3,515 | 11.6% |

Cost of goods sold increased $1.8 million for the three months ended September 30, 2022 compared to the same period in the prior year. This increase was mainly due to sales growth, but at a lower pace due to favorable sales mix and lower manufacturing costs.

Cost of goods sold increased $3.5 million for the nine months ended September 30, 2022 compared to the same period in the prior year. This increase was mainly due to sales growth, but grew at a lower rate due to the first quarter 2021 inventory step-up adjustment of $0.4 million and overall lower manufacturing costs in 2022.

### Gross Profit

|  | Three months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Gross profit | $7,443 | $5,546 | $1,897 | 34.2% |
| Gross profit (percentage of sales) | 38.8% | 35.9% |  | 2.9% |

27

|  | Nine months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Gross profit | $22,104 | $19,742 | $2,362 | 12.0% |
| Gross profit (percentage of sales) | 39.5% | 39.4% |  | 0.1% |

Gross profit as a percentage of sales increased by 2.9% for the three months ended September 30, 2022 compared to the same period in the prior year, primarily due to a favorable consumer revenue mix and aftermarket margin improvements.

Gross profit as a percentage of sales increased by 0.1% for the nine months ended September 30, 2022 compared to the same period in the prior year as unfavorable consumer revenue mix was offset by the effect of first quarter 2021 inventory step-up adjustment and gross margin improvements.

### Operating Expenses

|  | Three months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $2,901 | $2,698 | $203 | 7.5% |
| Sales and marketing | 2,808 | 2,484 | 324 | 13.0% |
| General and administrative | 2,998 | 3,307 | (309) | (9.3)% |
| Change in fair value of contingent consideration | — | 103 | (103) | (100.0)% |
| Total operating expenses | $8,707 | $8,592 | $115 | 1.3% |

|  | Nine months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $9,117 | $8,130 | $987 | 12.1% |
| Sales and marketing | 8,552 | 7,412 | 1,140 | 15.4% |
| General and administrative | 9,738 | 10,201 | (463) | (4.5)% |
| Change in fair value of contingent consideration | — | 1,660 | (1,660) | (100.0)% |
| Total operating expenses | $27,407 | $27,403 | $4 | 0.0% |

#### Research and Development

Research and development expense increased $0.2 million or 7.5% for the three months ended September 30, 2022, compared to the same period in the prior year. The increase was primarily due to higher product development expenses.

Research and development expense increased $1.0 million or 12.1% for the nine months ended September 30, 2022, compared to the same period in the prior year. The increase was primarily due to higher personnel-related costs. Contributing to the increase of research and development expense was higher product development and engineering service expenses.

#### Sales and Marketing

Sales and marketing expense increased $0.3 million or 13.0%, for the three months ended September 30, 2022, compared to the same period in the prior year. The increase was primarily due to higher people costs and increased advertising and tradeshow expenses.

Sales and marketing expense increased $1.1 million or 15.4%, for the nine months ended September 30, 2022, compared to the same period in the prior year. The increase was primarily due to higher people costs and advertising, tradeshows and external services.

#### General and Administrative

General and administrative expense decreased $0.3 million or 9.3% for the three months ended September 30, 2022, compared to the same period in the prior year. The decrease was primarily due to lower people costs and outsourced services.

General and administrative expense decreased $0.5 million or 4.5% for the nine months ended September 30, 2022, compared to the same period in the prior year. The decrease was due to lower people costs and higher general and administrative expense allocation to other departments.

#### Change in Fair Value of Contingent Consideration

During the three and nine months ended September 30, 2021, we recorded a change in fair value of contingent consideration related to the NimbeLink acquisition of $1.7 million based on the forecasted revenue targets as of September 30, 2021.

### Other (Income) Expense

|  | Three months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income, net | $(26) | $(6) | $(20) | 333.3% |
| Other expense | 9 | (1) | 10 | (1,000.0) |
| Total other income | $(17) | $(7) | $(10) | 142.9% |

|  | Nine months ended September 30, 2022 | 2021 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest income, net | $(37) | $(21) | $(16) | 76.2% |
| Other expense | 39 | 15 | 24 | 160.0 |
| Total other expense (income) | $2 | $(6) | $8 | (133.3)% |

Other expense for the three and nine months ended September 30, 2022, consists primarily of credit card interest expense.

### Liquidity and Capital Resources

We had cash and cash equivalents of $9.2 million at September 30, 2022.

Before 2013 we had incurred net losses in each year since our inception and have incurred net losses for the years ended 2018, 2020, and 2021. As a result, we had an accumulated deficit of $62.9 million at September 30, 2022.

Since inception, we have primarily financed our operations and capital expenditures through private sales of preferred stock, public offerings of our common stock and cash flows from our operations. We have raised an aggregate of $29.5 million in net proceeds from the issuance of our preferred stock and convertible promissory notes and $37.0 million from the sale of common stock in our public offerings.

On February 18, 2022, we and our subsidiary NimbeLink Corp entered into a loan and security agreement with Silicon Valley Bank, pursuant to which we together have a revolving line of credit for $4.0 million. As of September 30, 2022, there was no balance owed on the line of credit. The line of credit will only allow for maximum advances of 80% of the aggregate face amount of certain eligible receivables. The line of credit bears an interest rate of WSJ prime (currently 3.25%) plus 1.75%,and matures in February 2023. The lender has a first security interest in all of our and NimbeLink’s assets, excluding intellectual property, for which the lender has received a negative pledge.

On January 7, 2021, as a result of the Nimbelink acquisition, we assumed a revolving line of credit, or the Line of Credit, with Choice Financial Group, or Choice, whereby Choice had made available to Airgain a secured credit facility of up to the lesser of (1) $1.5 million or (2) the sum of (a) 80% of the aggregate amount of third party accounts receivable balances, excluding progress billings, foreign receivables, accounts subject to dispute or setoff and doubtful accounts (Eligible Accounts) aged less than 90 days, net of 10% allowance, and (b) 25% of raw materials and finished goods, except those held at named contract manufacturer, after a 10% reserve for excess and obsolete inventory. Amounts borrowed under the Line of Credit bore interest at the prime rate plus 1%, payable monthly. The facility was secured by a commercial guarantee and a lien over the property of NimbeLink including inventory, equipment, accounts receivable, investments, deposit accounts, other rights to payment and performance and general intangibles. In April 2021, we closed the Line of Credit with Choice.

In September 2019, our Board of Directors, or the Board, approved a share repurchase program, or the 2019 Program, pursuant to which we could purchase up to $7.0 million of shares of its common stock over the 12 month period following the establishment of the program. The repurchases under the 2019 Program were made from time to time in the open market or in privately negotiated transactions and were funded from our working capital. Repurchases were made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors. In September 2020, the Board approved an extension to the 2019 Program for an additional 12 month period ending September 9, 2021. Upon expiration of the program, our Board has not authorized a new repurchase program, but may do so in the future.

We plan to continue to invest for long-term growth, including expanding our sales force and engineering organizations and making additional capital expenditures to further penetrate markets both in the United States and internationally, as well as expanding our research and development for new product offerings and technology solutions. We anticipate that these investments will continue to increase in absolute dollars. We believe that our existing cash and cash equivalents balance together with cash proceeds from operations will be sufficient to meet our working capital requirements for at least the next 12 months.

The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):

|  | Nine months ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $2,083 | $(6,921) |
| Net cash used in investing activities | (624) | (14,727) |
| Net cash (used in) provided by financing activities | (6,780) | 2,429 |
| Net decrease in cash, cash equivalents and restricted cash | $(5,321) | $(19,219) |

***Net cash provided by operating activities.*** Net cash provided by operating activities was $2.1 million for the nine months ended September 30, 2022. This was primarily driven by $6.4 million in non-cash expenses and $1.1 million net change in operating assets and liabilities, offset by the net loss of $5.4 million.

***Net cash used in investing activities.*** Net cash used in investing activities of $0.6 million for the nine months ended September 30, 2022, was primarily for purchases of property and equipment.

***Net cash used in financing activities.*** Net cash used in financing activities of $6.8 million for the nine months ended September 30, 2022, was primarily to pay business acquisition, partially offset by proceeds from common stock issuances under the ESPP and offset by taxes paid from the net restricted shares issued upon vesting.

### Contractual Obligations and Commitments

There have been no material changes outside the ordinary course of our business during the nine months ended September 30, 2022, to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

### Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and operating results is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported sales and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

There were no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates,” in our Annual Report on Form 10-K for the year ended December 31, 2021.

### Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies” within the unaudited condensed consolidated financial statements.

## Market risk

As filed, 197 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not required to provide the information under this item.

## Controls and procedures

As filed, 2,512 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the nine months ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,095 characters.

A description of the risk factors associated with our business is included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to such risk factors. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, other than as set forth below. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case the trading price of our common stock could decline, and you may lose all or part of your investment.

***Our future success depends on our ability to develop and successfully introduce new and enhanced products and services for the wireless market that meet the needs of our customers.***

Our sales depend on our ability to anticipate our existing and prospective customers’ needs and develop products that address those needs. Our future success will depend on our ability to introduce new products for the wireless market, anticipate improvements and enhancements in wireless technology and wireless standards, and to develop products that are competitive in the rapidly changing wireless industry. In furtherance of these efforts, we expect to invest significantly in ongoing research and development. If we do not adequately fund our research and development efforts, or if our research and development investments do not translate into material enhancements to our antenna products, we may not be able to compete effectively and our business, results of operations, and financial condition may be harmed. As we transition to a wireless systems solutions provider, we anticipate the need to increase our investment in research and development to stay on the leading edge of next generation development and to alight ourselves with the rapidly evolving technology needs of the industry. Moreover, the introduction of new products and product enhancements will require coordination of our efforts with those of our customers, suppliers, and manufacturers to rapidly achieve volume production and to support those products when they are in the field. We expect these coordination efforts to increase substantially in the future as we work with chipset vendors and OEM partners on new proof-of-concept and reference designs earlier in the development cycle. If we fail to coordinate these efforts, develop product enhancements or introduce new products that meet the needs of our customers as scheduled, our operating results will be materially and adversely affected, and our business and prospects will be harmed. We cannot assure that product introductions will meet the anticipated release schedules or that our wireless products will be competitive in the market.

In May 2020 we announced the AirgainConnect platform, including AirgainConnect AC-HPUE, an integrated FirstNet Ready™ high-power LTE modem. The introduction of the AirgainConnect platform represents a new platform that integrates high-power mobile modem technology with an antenna into the same package, enabling performance for 4G and 5G communications. The introduction of the new AirgainConnect platform, and the transition to a more expansive level of advanced product solutions, will require coordination of efforts and increased time and resources. If we fail to gain market acceptance with our customers, suppliers and manufacturers, our operating results will be materially and adversely affected, and our business and prospects will be harmed. In the third quarter of 2022, AT&T ceased special promotional service credits related to our AC-HPUE product, which has adversely affected and may continue to adversely affect sales of that product. In addition, while we plan to rollout follow-on products for the AirgainConnect platform, we may not \[MB(2\] be able to successfully develop such products and, even if do, such products may not achieve meaningful market acceptance.

Furthermore, given the rapidly evolving nature of the wireless market, there can be no assurance our products and technology will not be rendered obsolete by alternative or competing technologies. The markets in which we operate are characterized by changing technology and evolving industry standards, which includes the introduction and implementation of Wi-Fi 6 and emerging 5G cellular standards. Despite years of experience in meeting customer design requirements with the latest in technological solutions, we may not be successful in identifying, developing and marketing products or systems that respond to rapid technological change, evolving technical standards and systems developed by others. Our competitors may develop technology that better meets the needs of our customers. If we do not continue to develop, manufacture and market innovative technologies or applications that meet customers’ requirements, sales may suffer, and our business may not continue to grow in line with historical rates or at all.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-025104. Last ingested by Listed: Oct 26, 2026, 16:23 ET. No prices; not investment advice.