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New CEO Working to Streamline the Company

Cambium Networks (CMBM) is a leading mid-market wireless solutions provider. Growth is being driven by 5G and new 6 GHz products. The company believes its strengths are its RF algorithms and software. The cnMaestro X network management solution makes significant use of AI and lies at the center of the company’s product suite. CMBM negatively preannounced its 3Q23, missing the midpoint of revenue guidance by 35%. The miss was driven by a delay in US defense orders, sluggish point-to-multipoint (PtMP), a decrease in enterprise orders, and continued economic headwinds, particularly in EMEA. Given the 2Q and 3Q challenges, the company has instituted restructuring and cost-cutting plans. These are expected to enable annualized savings of ~$24 million during CY24. Gross margin was hit in the quarter and margin recovery is key. Backing out the $5 million of higher inventory reserves, the 27.7% non-GAAP gross margin in 3Q23 is adjusted to roughly 39%, down significantly from 51.3% Y/Y and sequentially from 50.3%. In discussions with the company, management indicated that with the cost-cutting and mix changes, gross margin should be in the 40% range near term (we are modeling 40.0% in 4Q23 and 42.5% in FY24). CMBM expects its next phase of growth to be driven by the FCC’s anticipated approval of 6 GHz spectrum products, the ramp of its 28 GHz cnWave 5G fixed and 60 GHz cnWave technologies for service providers, and the expansion of its fiber-based solutions. With Morgan Kurk as the new CEO, CMBM’s commitment to its enterprise WLAN efforts has come into question. In a late August communication, Kurk reaffirmed the company’s commitment to the effort. He highlighted CMBM’s low total cost of ownership (TCO), use of industry standards, intelligent software for both management and optimization, its cloud-native architecture, and its bevy of partners as key selling points. In our non-GAAP 4Q23 model, we estimate an EPS loss of $0.25 on sales of $45.8 million. We expect gross margin of 40% for the quarter and an adjusted EBITDA loss of $4.6 million. For the full-year 2024, we are modeling an EPS loss of $0.17 on sales of $216 million. CMBM is in line with comps, which have a median P/S of 0.5x. Comparables include wired and wireless networking companies of a similar size. As expectations are for losses in the next few quarters, P/E and forward P/E are not appropriate valuation metrics.