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COMSovereign Holding Corp. (COMS)·Q2 2021 Earnings Summary

Executive Summary

  • Q2 revenue rose to $3.611M, up 73% sequentially and 20% YoY; gross margin expanded to 50% (from 49% in Q1 and 48% YoY), while operating expenses increased to $12.182M; net loss improved sequentially to $(10.577)M from $(16.206)M in Q1 .
  • Fastback Intelligent Backhaul Radio volume production resumed; COMS began fulfilling $8.7M in open orders to a Tier 1 (T-Mobile) with revenue recognition expected in Q3–Q4 2021; management cited potential to produce/ship ~$40M of Fastback kits over 8–10 months .
  • Component shortages and supply chain constraints delayed some shipments into the second half; pre-buys of key parts should lower COGS on Fastback units and support margin improvement into 2022 .
  • Management expressed comfort with Street revenue targets up to $56M for FY21; catalysts include new Tier 1 deliveries, Polaris Gen1 production in Q4, and SAGUNA Mobile Edge Compute integration via Radisys partnership .

What Went Well and What Went Wrong

What Went Well

  • Fastback shipments restarted; $8.7M open orders and ~$40M potential over 8–10 months: “Resuming volume production was an important signal… we’ve resumed volume manufacturing… now fulfilling an order of $8.7 million… [and] ability to meet Fastback radio order volumes of approximately $40 million” .
  • Margin expansion and mix improvements: “Gross margin of 50%, up from 49% in Q1 and 48% YoY; improvement due to product mix, services contributions, and manufacturing efficiencies at Sovereign Plastics” .
  • Strategic tech momentum: “Radisys is looking to integrate our OpenRAN… and SAGUNA’s Mobile Edge Computing… into their worldwide offerings,” potentially embedding COMS tech into a large percentage of global 5G integrations .

What Went Wrong

  • Supply chain and component shortages: “Global shortage of key components… end of life… tight supply chain conditions… temporary shipment delays of Fastback Radios as production and testing ramped up” .
  • Elevated OpEx and cash needs: Q2 operating expenses rose to $12.182M; management addressing integration and economies of scale; going-concern disclosure cites dependence on additional financing .
  • Legacy product constraints: DragonWave Harmony enhanced production constrained by end-of-life components; transition to Polaris necessary to alleviate constraints .

Financial Results

MetricQ2 2020Q1 2021Q2 2021
Revenue ($USD Millions)$3.010 $2.086 $3.611
Gross Profit ($USD Millions)$1.457 $1.012 $1.798
Gross Margin (%)48% 49% 50%
Operating Expenses ($USD Millions)$7.588 $11.309 $12.182
Net Loss ($USD Millions)$(7.566) $(16.206) $(10.577)
Diluted EPS ($USD)$(0.18) $(0.25) $(0.15)

Revenue breakdown:

Revenue BreakdownQ2 2020Q2 2021
Products ($USD Millions)$2.697 $3.250
Services ($USD Millions)$0.313 $0.361
North America ($USD Millions)$2.735 $2.550
International ($USD Millions)$0.275 $1.061

Selected KPIs (end of period balance sheet):

KPI ($USD Millions)Q1 2021Q2 2021
Cash$10.971 $4.901
Inventory (net)$6.146 $7.147
Prepaid Expenses$5.016 $7.238
Contract Liabilities (current + LT)$2.569 $2.968

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2021No formal guidanceManagement has “comfort” with analysts’ revenue targets up to ~$56MAffirmed confidence
Gross MarginH2 2021 → 2022Not specifiedExpect margins to continue improving, aided by pre-purchased components reducing COGS on FastbackRaised trajectory commentary
Fastback DeliveriesH2 2021Not specifiedFulfillment of $8.7M open orders in Q3–Q4; capacity and materials to produce/ship ~$40M over 8–10 monthsNew information
Polaris Gen1Q4 2021 / 1H 2022Not specifiedProduction commences Q4 2021; significant revenue contributions expected in 1H 2022New program timing
OpExH2 2021Not specifiedExpense growth pace not expected to continue; integration and scale to improve costsCost discipline

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2021)Current Period (Q2 2021)Trend
Supply chain/componentsEmphasized chip shortages; secured core components; prioritizing higher-margin products Continued shortages; pre-buys; delays pushed Fastback shipments to H2 Constraints persist; mitigation improving
Fastback production & demandRamp plans; strong WISP/Tier 1 interest Volume production resumed; $8.7M Tier 1 open orders; ~$40M potential Acceleration
Polaris (DragonWave next-gen)Late 2021 ramp expected Gen1 production in Q4; revenue contributions 1H22 On track
MEC / SAGUNA / RadisysStrategic positioning; NIST CRADA; partnerships building Radisys integrating COMS OpenRAN + SAGUNA MEC globally Strengthening ecosystem
Government/securityDHS/border demos; NIST CRADA engagement Continued activity; Sky Sapience contracts/deliveries; RVision upgrades Stable to improving
OpEx & financingElevated G&A; planned integration; reliance on financing OpEx higher; management expects slower growth pace; going-concern noted Cost control intent; financing needs remain

Management Commentary

  • “Gross margin of 50%… improvement due to product mix, services revenue and increased manufacturing efficiencies at Sovereign Plastics” .
  • “We’ve resumed volume manufacturing of our Fastback Intelligent Backhaul Radios… fulfilling an order of $8.7 million for a Tier 1 customer over the remainder of the year… expect the ability to meet Fastback radio order volumes of approximately $40 million over the next 8 to 10 months” .
  • “Radisys is… looking to integrate our OpenRAN technology and SAGUNA’s Mobile Edge Computing… into their worldwide offerings… resulting in COMS’ technologies being embedded in a large percentage… of global 5G integrations” .
  • “We have comfort in our ability to meet [analyst] annual targets” .
  • “Component shortages… are ongoing… we’ve been fortunate enough to secure… inventory to produce… many Fastback units… revenues in the third and fourth quarters… you’ll see a reduced cost of goods sold” .

Q&A Highlights

  • Fastback shipments significance: Management underscored Tier 1 validation and expected follow-on orders; ~$40M Fastback revenue potential over 8–10 months as other Tier 1s and regional operators test and order .
  • Supply chain mitigation: Pre-purchasing critical parts lowered COGS and supported production continuity; transition to Polaris Gen2 to supplant legacy Fastback designs when components run out .
  • Revenue outlook H2: Expect a “big jump” in Q4 as Fastback flows and Polaris Gen1 comes online; reduced COGS on Fastback supports margins .
  • OpEx and financing: Expense growth pace not expected to continue; integration and economies of scale to help; preference to avoid equity issuance at depressed levels; exploring debt and credit lines .
  • MEC strategy: SAGUNA acquisition plus Radisys partnership positions COMS in global 5G edge deployments; integration underway and closing expected imminently .

Estimates Context

  • Wall Street consensus (S&P Global) for COMS Q2 2021 EPS/revenue was unavailable via our S&P Global data tools due to missing mapping; management referenced two covering analysts (Litchfield Hills and Trickle) and stated comfort with FY21 revenue targets up to ~$56M .
  • Without published consensus, we cannot assess beat/miss; however, sequential acceleration and margin expansion indicate improving fundamentals in H2 driven by Fastback shipments .

Key Takeaways for Investors

  • H2 revenue inflection probable: Fulfillment of $8.7M Tier 1 Fastback orders and expanded capacity to deliver ~$40M over 8–10 months should drive sequential growth in Q3/Q4; monitor shipment pace and conversion of tests to POs .
  • Margin tailwinds: Pre-bought components lower COGS on Fastback; gross margin already at 50% with further improvement expected into 2022; watch mix and Polaris ramp .
  • Product transition reduces supply risk: Transition from Harmony enhanced to Polaris alleviates end-of-life component constraints; Gen1 production in Q4 and 1H22 revenue contributions add diversification .
  • Strategic 5G positioning: SAGUNA MEC + Radisys integration could embed COMS tech in global deployments; potential long-term leverage if partnerships translate to volume .
  • Balance sheet/capital needs: Cash declined to $4.9M with rising prepaids and inventory; going-concern highlighted; expect reliance on debt/credit lines over equity per management’s preference .
  • Execution focus: Near-term drivers are production throughput, logistics, and timely fulfillment; any slippage in supply chain or testing-to-order conversions could defer revenue.
  • Watch analyst coverage expansion: As execution de-risks, broader coverage could emerge; management’s comfort with current targets signals confidence but formal guidance is absent .

Notes and sources: Q2 2021 8-K press release and embedded transcript -; Q2 2021 10-Q -; Q1 2021 8-K and 10-Q - -; Q2 shipments PR .