Airgain Inc (AIRG) Q3 2021 Earnings Call Transcript

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Airgain Inc (AIRG -2.31%)
Q3 2021 Earnings Call
Nov 9, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. Welcome to Airgain's Third Quarter 2021 Earnings Conference Call. My name is Bethany, and I will be the coordinator for today's call. Joining us for today's call are: Airgain's CEO, Jacob Suen; CFO, David Lyle; and Senior Vice President of Product and Marketing, Morad Sbahi. As a reminder, this call will be recorded and made available for replay via a link available in the Investor Relations section of Airgain's website, at www.airgain.com. Following management's prepared remarks, the call will be opened up for questions from Airgain's publishing sell-side analysts.

I would now like to turn the call over to Mr. Lyle.

David Lyle -- Chief Financial Officer

Thank you and good afternoon to everyone. I caution listeners that during this call, Airgain management will be making forward-looking statements about future events and Airgain's business strategy, and future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in today's earnings release and Airgain's SEC filings.

This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 9, 2021. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call may include a discussion of non-GAAP financial measures. Please see today's earnings release for further details, including a reconciliation of the GAAP to non-GAAP results.

Now, I'd like to turn the call over to our CEO, Jacob Suen. Jacob?

Jacob Suen -- President and Chief Executive Officer

Thank you, Dave. Welcome, everyone, and thank you for joining us on the call today. I'll start with some commentary about Q3 financial results, and then an update on the progress we have made toward executing our strategy. Dave will then provide Q3 financial details as well as our Q4 2021 outlook and color around how we expect 2022 to play out. Despite current global supply shortage pressure on our overall revenue, we are still quite excited and confident about the prospects for growth both in 2022 and in subsequent years. We believe in demand for our products, it's really strong, and mostly in our largest and growing market, Enterprise and Automotive.

This follows our strategy to grow our integrated wireless systems revenue with our industrial IoT, traditional enterprise Wi-Fi systems, and our AirgainConnect platform products. We are seeing growth across all of those markets in the first nine months of 2021 and expect that growth to continue into 2022. Starting with our Enterprise market, we are very pleased with the contributions generated by the NimbeLink acquisition. The growth it has delivered to us and how that is serving as a launching pad for our industrial IoT market opportunity.

Existing NimbeLink products are selling really well and future products are being developed that we believe will serve as large growth engines for Airgain over the long term. For perspective, in the first nine months of this year, NimbeLink product revenue has already exceeded its revenue for the entire year of 2020. Looking forward, we have a large opportunity pipeline. In the past quarter, we won major designs with a North American manufacturer of motorcycles, snowmobiles, ATV and neighborhood electric vehicles; a public safety operating system company that helps communities in law enforcement to eliminate crime; and a managed wireless solutions company; each of which are expected generate multimillion dollar lifetime revenues. The combinations of Airgain's historical competency, coupled with the NimbeLink business, is surpassing all of our previous expectations, and we have high confidence that this success will continue in 2022.

In addition, on the Enterprise market front, we are beginning to see material orders for our new integrated wireless system product at our top-tier global traditional enterprise Wi-Fi customer. This new product targeted at large venues like stadiums, in arenas was previously anticipated to launch last summer, but was delayed by COVID-19. With large venues opening back up, we are now seeing demand for that product. We expect this to ramp now and throughout 2022.

Moving to the Automotive market, we continue to be excited about the prospects for growth out of the AirgainConnect platform. The Q3 promotion from AT&T, coupled with our own promotion with our distributors and resellers has generated an uptick in the opportunities and the promotion was extended into Q4. Our team, effectively developing follow-on products, based on the AirgainConnect platform that will further increase an already very large TAM. Moving to our aftermarket fleet products.

As part of Airgain's automotive target market, we are seeing revenue pressure from the global supply shortage. However, we're beginning to see an uptick in demand starting in Q1 2022, particularly as we ramp into a new product for a large long-term customer that develops technology in weapon products for military law enforcement and civilians. On the consumer market front, we're still seeing really strong end customer demand, and Airgain stands ready to ship product into our OEMs, when they're able to procure parts to assemble product.

We're getting indications from our direct OEM customers as well as from our service provider end customers that 2022 year claims remain the same as before the supply shortage in that demand is strong. Based on their feedback, we should see orders resumed in Q1 2022. All-in-all, we are very pleased with the performance of our underlying business in light of the difficult global supply shortages.

And we'll stay focused on executing on what we can control. We're especially encouraged by the momentum in our integrated wireless systems growth. As we transition from a component antenna supplier to a system solution provider. Our embedded passive antenna components revenue, it's still contributing materially to our overall revenue, despite our customers being impacted by the transitory global supply chain shortages.

Now, I would like to turn the call back over to Dave, who will walk us through the financial highlights. Dave?

David Lyle -- Chief Financial Officer

Thank you, Jacob. Third quarter 2021 revenue of $15.5 million declined from $17.3 million in Q2 and was within our previous guidance range of $15 million to $17 million. Note that we estimate loss revenue opportunities due to the global supply shortage during the quarter totaled over $3 million, and that end demand continues to be strong. Beginning with our consumer revenue, Q3 finished at $4.6 million, down from $8.9 million in Q2, mostly due to weakness from the global supply shortage.

Enterprise revenue was up materially from $6.2 million in Q2 to $8.7 million in Q3 due to revenue growth from both industrial IoT products, as well as traditional enterprise Wi-Fi products. Automotive revenue was $2.2 million in Q3, relatively flat with Q2. As the revenue growth from AirgainConnect was offset by a sequential decline out of our aftermarket fleet revenue due mainly to the global supply shortage.

Q3 non-GAAP gross margin of 36.5% was below previous guidance ranges primarily due to products mix changes, as well as incremental costs associated with the global supply shortage. In terms of product mix, we saw more significant revenue declines than previously expected from our higher gross margin consumer market revenues. This issue is primarily due to some of our larger direct OEM customers, who serve our North American service provider end customers, having difficulties in procuring parts to manufacture products, such as gateways and setup boxes.

For perspective, in Q3, we generated the lowest quarterly revenue and at least five years from products sold into our North American service provider end customers despite feedback that end demand remains strong. In terms of incremental costs associated with the global supply shortage. We saw higher costs associated with shipping, production and efficiencies due to supply chain disruptions, and rapidly rising part costs to build certain industrial IoT products. Although, we expect that pressure to continue in Q4, we see this as a transitory issue that we will recover from in the first half of 2022.

Excluded from non-GAAP gross margin was $93,000 for amortization of purchased intangibles. Non-GAAP operating expense in Q3 of $6.8 million was better than the midpoint of our previous guidance range. Excluded from non-GAAP operating expense was about $1.1 million in stock-based compensation expense, about $672,000 in amortization of intangible assets mostly related to the NimbeLink acquisition, and about $103,000 for fair value of contingent consideration related to the NimbeLink acquisition. Adjusted EBITDA was negative $978,000 in Q3.

Moving on to net income, non-GAAP net loss in Q3 was $1.1 million, and Q3 GAAP net loss was $3.1 million. Moving to earnings per share, our Q3 non-GAAP loss per share was $0.11, and GAAP loss per share was $0.30. Finally, our Q3 cash, cash equivalents and restricted cash totaled approximately $19.1 million, about $1.3 million lower than in Q2, mostly related to the loss from operations. Cash used for share repurchases during the quarter totaled about $97,000.

Now, I would like to provide a preliminary outlook for the fourth quarter of 2021. In Q4, we expect revenue to decline sequentially, and be in the range of $13.5 million and $14.5 million, or $14 million at the midpoint of the range. Our current backlog and billings for the quarter already exceed $12 million, giving us confidence in this guidance range. We expect to see growth in automotive from both AirgainConnect and aftermarket fleet as well as growth in enterprise, mainly from industrial IoT.

We expect that this growth will be more than offset by lower consumer revenue, mostly due to the global supply shortage and its impact on revenue derived from devices shipped into our end customer service providers in North America. We believe the impact of the global supply shortage on our consumer revenue alone will be at least $5 million in Q4, which is already reflected in our guidance range. So, although, we believe the global supply shortage is transitory issue, it is having a significant impact on our top-line revenue.

We expect non-GAAP gross margin in the fourth quarter to be 34% plus or minus 100 basis points. As we see product mix shifts continue away from our consumer market revenue and toward products yielding lower gross margins, but with higher volume opportunities, as well as continued higher product costs associated with the global supply shortage. Again, we believe these transitory issues should resolve themselves as the impact of the global supply shortage begins to lessen over the coming quarters.

Excluded from non-GAAP gross margin was $89,000 in acquisition-related amortization of purchased intangibles. We expect Q4 non-GAAP operating expense will be about $7 million plus or minus $100,000, as we continue to aggressively focus on minimizing operating expenses until the global supply shortage pressure on our revenue begins to ease. Excluded from our non-GAAP operating expense estimate was about $1.1 million in stock-based compensation expense, and about $670,000 in acquisition related amortization of purchased intangibles,, and about $355,000 of additional fair value adjustment related to the NimbeLink revenue earnout.

At the midpoint of guidance, adjusted EBITDA in Q4 would be negative $2.1 million. At the midpoint of guidance, we expect Q4 non-GAAP loss per share to be about $0.22. And on a GAAP basis, we expect a loss per share of $0.44. In addition to providing Q4 guidance, we also thought it would be valuable to share some color commentary about 2022. We believe that we will see material revenue growth in 2022 across all three of our markets.

We believe that our consumer market revenue will grow sequentially in Q1, as it will be coming off of a historically low revenue in the fourth quarter. And our enterprise and automotive revenue will continue to grow sequentially, particularly with integrated systems' products revenue through our industrial IoT revenue, and traditional enterprise Wi Fi, as well as through contributions from AirgainConnect.

Speaking specifically to Q1 of 2022 revenue expectations, we already have a backlog of about $11 million. This large backlog number this early on is giving us confidence that a recovery in the business is near-term, and that this is an indication that we can grow in Q1 2022 over Q4 2021. In terms of gross margin, as we expect the gradual recovery in global supply in the first half of next year, we also expect to see our gross margins recover back into a range between just below or just above 40%.

Now, I'd like to turn the call back over to Jacob. Jacob?

Jacob Suen -- President and Chief Executive Officer

Thanks, Dave. I wanted to reiterate our confidence in our long-term strategy, in our ability to manage through our near-term transitory supply chain issues. We are seeing our integrated wireless system products begin to ramp and are really excited about the next leg of growth, particularly from our newer products with industrial IoT, traditional enterprise Wi-Fi and AirgainConnect leading the way.

We have confidence that our foundational consumer revenue will continue to provide cash flow for Airgain, while we continue to transition the business. And we'll return closer to historical revenue levels when the supply shortage issue is resolved. With new and innovative products being developed for our targeted enterprise sub-markets, particularly with industrial IoT, and multiple new products out of AirgainConnect, we believe we are positioned for long-term profitable growth.

And with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

Questions and Answers:

Operator

Thank you. We will now take questions from Airgain's publishing sell-side analysts. [Operator Instructions] The first question is from the line of Craig Ellis with B. Riley Securities. You may proceed.

Craig Ellis -- B. Riley Securities -- Analyst

Yeah, thanks for taking the questions and appreciate all the color guys in a difficult operating environment. Dave, I wanted to ask kind of a high-level question, just to make sure I'm putting all the pieces together in terms of the magnitude of supply chain impact. So I think you mentioned they were about $3 million in the third quarter. And just given the consumer math, it seems like consumer would be about $2 million in the fourth quarter.

So it's at least $3 million to $4 million below a natural level. So it seems like the business has a demand cadence even with relatively low AirgainConnect levels, that would be somewhere in the $16 million to $18 million range. But supply chain impacts are really holding the business back from that. Is that a fair way to think about things? And is that the right kind of baseline to have as we look at 2022?

David Lyle -- Chief Financial Officer

Yeah, just for clarity purposes, I said that there is about, in Q3, we had about $3 million lost opportunities. In Q4, we had about $5 million in lost opportunities. So that run rate that you were talking about in the-I think you said $5 million, I can't remember, in that range is actually a little higher on the consumer side.

Craig Ellis -- B. Riley Securities -- Analyst

Yeah, yeah.

David Lyle -- Chief Financial Officer

Specifically, the major service providers. But I think you otherwise have the math pretty accurate. That being said, that means that the numbers would naturally be a little higher than the range you're talking about from a total revenue perspective.

Craig Ellis -- B. Riley Securities -- Analyst

Got it. Thanks for that. And then, secondly, I know that on the last conference call, it was one that took place right around the time that AT&T announced co-marketing program for AirgainConnect or you did. But there was incremental promotional activity that was taking place. And I know you and supply chain partners said things. Can you just provide, you or Jacob provide more color on what you're hearing back from the channel and what the response has been to those programs, and how we should think about the way Airgain interest can convert to sales as we go through next year?

Jacob Suen -- President and Chief Executive Officer

Yeah, Craig. Yes, Jacob here. I'll give you some of my commentary. And then, Morad, who is a lot closer can provide his color around as well. The promo, we're realizing a major uptick on the demand. Just to give you some numbers prior to the promo and as of now, we are already seeing a 200%-plus increase on the opportunity funnel, and then the sell through has then increased several fold. So I think that we are very positive about the results of the promo. And the promo has been expanded into Q4, as we indicated and that should build a strong momentum heading into 2022.

David Lyle -- Chief Financial Officer

The other thing I would add, Craig is, the interesting thing that the promo did for us, is the nature of customers that we're starting to see. Before the promo, we were looking at opportunities that were smaller in size, mostly in rural. After the promo, we started to attract customers that really, we want to attract in terms of size. And these are the customers that are in any urban areas. And so, that's really been exciting, like Jacob said, significant uptick in terms of the size of the opportunity, but also in the number of opportunities that we've seen with AirgainConnect so far.

Craig Ellis -- B. Riley Securities -- Analyst

And can you provide any further color on that with regard to, say, maybe the range of agencies that would be engaging with AirgainConnect? And to what extent do you think you need to sustain promotional activity to continue to drive interest? Or do you think that word of mouth and buzz in the first-responder community once you get devices out there in the field and working, really can create its own marketing and viral buzz for the product, so that you don't need the promotional programs, either with T or your supply chain partners?

David Lyle -- Chief Financial Officer

Yeah, so the flavor of customers, it's essentially first responders. And we're talking ambulance, we're talking fire, we're talking police, which is great. So we're hearing all of the targets that we want to hit in, as far as first responders is concerned. In terms of the stickiness with customers, we expect, we've got the promotion going on right now, and starting in Q3, going into Q4.

And we do expect that these promotions, would be in some form or another, or another into 2022, to continue to sustain the level of activity that we've seen. Just like with any new product or disruptive product, going into a market, an exciting market that's still forming, you're going to need to have those, triggers that allow you to create momentum.

But we expect that to continue into 2022. And at some point, the product will be able to sell on its own as the network with AT&T becomes fully complete. And then like you said, the word of mouth is out there. And people have had a chance to play with AirgainConnect, and then we start to see traction based on that, on those wins, those initial wins.

Craig Ellis -- B. Riley Securities -- Analyst

Got it. And then, lastly, before I hop back in the queue, Dave, helpful to get the color on some of the calendar 2022 parameters. The question is on gross margins. So with the consumer business snapping back, and with that, having a solid, not your best gross margin, but a solid gross margin, is it possible that gross margins can get back to 40% in the first quarter or are there things that you see whether it'd be shipping costs or COGS input costs, etc, that would preclude that, so that 40% would be something that you got back to later in the year? Thank you.

David Lyle -- Chief Financial Officer

Yeah, it's a great question. I think it's going to be completely reliant on how big consumer comes back. If it comes back into full run-rate like it was before. Then we got a shot of getting closer to 40%. But I think we still got a little tail on the end of this shortage issue. So I'm expecting is probably going to come in somewhere below. I haven't guided specifically, because we just don't have clear enough visibility quite yet this early on, determine that. I think following Q1, going into Q2, and/or Q3, we should start getting back into that range.

Craig Ellis -- B. Riley Securities -- Analyst

Got it. Thank you.

Operator

Thank you, Mr. Ellis. The next question comes from the line of Karl Ackerman with Cowen and Company. You may proceed.

Karl Ackerman -- Cowen and Company -- Analyst

I wanted to first go back to some of the prepared comments about your integrated offerings for enterprise and automotive, and how that might help margins next year. Could you just expand a little bit more on maybe some initiatives you have around integrating NimbeLink with your core business and how that might drive both cross-selling capabilities as well as margin enhancement next year?

Jacob Suen -- President and Chief Executive Officer

Okay, Karl, Jacob here. So, I'll talk about some of the capabilities and then I'll leave the margin portion for Dave to address. As we indicated, in the earnings script, we are seeing the acquisitions of named NimbeLink is really doing well, better than what we expected, right? I mean, we talk about the competency that we already have, coupled with the product of NimbeLink is really driving a much bigger demand than we all anticipated, when we did the acquisition.

So we do anticipate that capability to really enhance, for next year. We actually worked with them on some newer product. And we talked about several key design wins already, as a result of the acquisition, that we expect to generate multimillion dollars for each one of them lifetime. So we do see that momentum continue to carry on throughout 2022 and beyond as part of our IoT initiative.

David Lyle -- Chief Financial Officer

Yeah, and then, on the gross margin front there are a bunch of different kind of profiles to some of the products we have, even within the industrial IoT, market revenue, the products that we have, through the NimbeLink brand, I think I talked about this previously, but the Skywire modem, for instance, has higher gross margins than the kind of newer product category called Asset Trackers. Asset Trackers are actually doing really well. And the prospects are pretty large. That has lower gross margins though.

So if that grows faster than expected, we'll see more pressure on gross margin. But, of course, we'll have more on the bottom, to add to the bottom line in that case. So that's a high-class problem to have. It's the same, there are some similar issues in other parts of the business. On the auto aftermarket, we've actually got a manufacturing efficiency program underway that we're implementing to try to improve those margins and get those more targeted toward the kind of corporate gross margin target.

And then, the same thing on a couple of the other newer products. One of the unusual situations we have right now, as you have the consumer products, which are higher gross margin down right now. At the same time, where we're launching and ramping a lot of kind of lower volume and, therefore, lower gross margin products, but that has huge opportunity in the future and are more related to the integrated wireless systems category that we talked about.

Karl Ackerman -- Cowen and Company -- Analyst

Very clear. Yeah. No, I appreciate that, Dave. As a follow-up, thank you for providing the order backlog for the next two quarters. I'm curious, how does that compare versus historical quarters? And could you just maybe describe whether those orders are non-cancelable? And if not, what level of conviction you have in terms of-or preventing those orders from being cancelled? Any commentary on that would be very helpful. Thank you.

David Lyle -- Chief Financial Officer

Yeah, I would say, this is a very high dollar number. It's probably the highest we've had at this point this early on. But to be fair that includes the industrial IoT products, which has really taken off and continue to grow sequentially quarter-to-quarter. So we've got some decent size backlog for that market. And we're pretty confident based on the overall bookings that we're already seeing, which is much higher number for the entire year of 2022.

And then, in terms of the other side of the equation, we also have some confidence in some of the orders, because they're usually most of them are related to really high demand and high end demand types of products. And so that's giving us a lot of confidence in the number. If you just compare it to the current quarter we have about $12 million backlog for this current quarter, we have $11 million for next quarter. That's pretty good number.

Karl Ackerman -- Cowen and Company -- Analyst

Yeah. Thank you very much.

Operator

Thank you, Mr. Ackerman. The next question comes from the line of Scott Searle with ROTH Capital Partners. You may proceed.

Scott Searle -- ROTH Capital Partners -- Analyst

Hey, good afternoon, thanks for taking my questions. Maybe just two follow-up on a couple of points made earlier. Dig in on the consumer and the Wi-Fi business, certainly, down at, I think, unprecedentedly low levels. But I'm wondering what the visibility is, when you're looking into that backlog figure in the first quarter of that $11 million. How much of that is consumer related, because it doesn't sound like it's necessarily out of the realm of possibilities that gross margins are back at 40% level.

So I'm kind of wondering what your visibility on that front. And also with your customers on that front, there are things that are certainly beyond your control, right; it's beyond your ability to ship to them. It's their ability to get all the components they need and get the set-top or whatever the product is out there. So what is the confidence level in terms of how that is starting to work out as well, and then I had a couple of follow-ups.

Jacob Suen -- President and Chief Executive Officer

Hey, great question, Scott. I'll talk about the competence level, because actually, personally went and met with several key executives at the North American service provider side. And the feedback I got happen overall really positive. They assure me about the overall 2022 numbers, which as I indicated. They are saying, they are expecting that to go back to pre the global shortage issue.

So that's a really pleased to hear. They also are very optimistic about some of the supply shortage issues are going to start improving as early as next quarter. So reiterate to me, that they feel really good about the prospect for the return to recovery in 2022. And I can't have data more about the prospects of gross margin.

Scott Searle -- ROTH Capital Partners -- Analyst

Yeah, Jacob, not to put words in your mouth. Sorry. But there's $10 million for consumer, is that something that is doable, as you look to the second half of next year?

Jacob Suen -- President and Chief Executive Officer

I think, I'll let, Dave, instead of guiding you. I think, I'll let, Dave, talk to you more about as we get closer. But I think that the feedback I got is all the executives with the top-tier MSOs, service providers really optimistic about 2022?

David Lyle -- Chief Financial Officer

Yeah, and I want to be prudent about what we say going into 2020-talking about 2022, because we just don't have enough visibility yet on what that will be like we-like Jacob says, from an overall perspective next year, service providers and these are the primary service providers that we serve as our end customers, through our OEMs and ODMs, are saying pretty much back to normal. So we're pretty excited about that. So the prospects of getting up to numbers that are a lot higher are obviously there. What could that happening in Q1? We just don't know yet. We just don't have that visibility yet. If we had a full quarter of consumer, the possibilities, certainly there we could be in the 40 range.

Scott Searle -- ROTH Capital Partners -- Analyst

Got you. Very helpful. And if I could follow-up on the NimbeLink front, it sounds like demand there is very strong, that's also a component constrained environment. So I'm wondering of that maybe to calibrate of that $3 million or so that you could not ship in the quarter. I'm wondering how much of that was related to NimbeLink, and as you're looking at the growth profile into 2022. How should we be thinking about the growth rate for NimbeLink going forward?

David Lyle -- Chief Financial Officer

Yeah, first of all, the $3 million in Q3, there was zero NimbeLink in that number that was specific to consumer. There were supply shortage issues that we had and meeting demand for the quarter. So the demand was actually higher for the industrial IoT products. But most of the issues related to consumer.

Scott Searle -- ROTH Capital Partners -- Analyst

Got you. And is there a number in terms of how you're seeing that pipeline built now for NimbeLink that that we should be thinking about growth for next year? It certainly sounds like double-digit growth, but it's just something that starts with 25% growth or what do you-how should we be thinking about how that pipeline is shaping up?

David Lyle -- Chief Financial Officer

Yeah, this one again, we were being a little on the prudent side right now and not giving guidance for 2022, probably address more of that in the next earnings call. That being said, based on the overall bookings we're already seeing for 2022, which is at the highest in the history, even pre-acquisition for that company. Pre-acquisition, it looking like it's going to be some pretty good growth. And that assumes, supply shortage goes away and doesn't prevent them kind of unconstrained kind of view.

Scott Searle -- ROTH Capital Partners -- Analyst

Got you.

David Lyle -- Chief Financial Officer

So without quantifying it, we're pretty excited about that growth.

Scott Searle -- ROTH Capital Partners -- Analyst

And lastly, if I could just go into the AirgainConnect product, it sounds like the $1,200 discount program has started to really bring the right customers into the mix. I mean, it's a huge opportunity, I think the installed base is something like 0.5 million units as it relates to first responders, and with 10% of that turning over a year.

Are there any numbers that you would put around, I know, you talked about the opportunity pipeline growing? But how should we be thinking about that in terms of framing it as well for 2020 were still early days, taking a little bit longer to get going? But now it seems like it's moving in the right direction. And I was wondering if you could as well also address any sorts of the supply chain issues that might along with AirgainConnect. Thanks.

Jacob Suen -- President and Chief Executive Officer

Okay. I'll try to take a couple of your questions, and then I'll let Morad or Dave to chime in. So as far as AirgainConnect, as we indicated earlier, I think that the promotion is definitely creating the demand within the right group. As Morad mentioned earlier, we were focusing more on the rural area. Now, the urban customers are now getting heavily engaged. And that's going to make up the bulk of the demand.

And, I don't think that we can share the specific number, other than what I share with you that we've seen 200%, 300% increase, as far as the opportunity panel is concerned. I think that even once-look typically these kind of products, takes about one year to 1.5 years to really get people, to really do the trial and get to really know and understanding the benefits of the product.

And the product was launched at January feel like long time ago, actually, is still less than a year since the inceptions of the product. And I think that is-it's such a differentiable product now, both AT&T and us putting a lot of high hope. And that's why I want to also thank AT&T and our management team to really work with us in being so aggressive. And with the promo, I think that as more and more people get to use the product. They really like the benefits, right? So I think that's going to generate a greater demand for the upcoming year and beyond. And, Morad and Dave, you also can chime in.

Morad Sbahi -- Senior Vice President of Global Product and Marketing

The only thing, I think, you covered that Jacob. The only thing I would add is that, and I talked about this during the last call, Scott. The product that we have in the market today that's the HPEU with AT&T, that's just the first product that we released in this AirgainConnect product initiative. So what we could expect that there will be future products that will be released to address other operators both here in North America as well as at the worldwide stage, but also products that address different price points.

So now you can see that as these products come out to the market, the market will be much more significant and much bigger for us. So that part is really exciting to me. With the HPUE as is today, we've talked about the traction that we've seen the growth. So we think that we're moving in the right direction, and we're looking forward to continue with that momentum into 2022 and beyond.

David Lyle -- Chief Financial Officer

And then, Scott, you asked about the supply chain potential impact on this-from the supply chain on AirgainConnect, really the bigger issue that we face are the just the long lead times mostly on the modem side, because you remember it's a modem and antenna and a single encasing than anything else. But we've gotten ahead of that problem pretty well over the past year since we've launched the product. So we-it's more about kind of ordering well ahead of time to make sure we have enough parts.

Scott Searle -- ROTH Capital Partners -- Analyst

Great, thank you.

David Lyle -- Chief Financial Officer

Thanks, Scott.

Operator

Thank you, Mr. Searle. The next question comes from the line of Tim Savageaux with Northland Capital Markets. You may proceed.

Tim Savageaux -- Northland Capital Markets -- Analyst

Hi, good afternoon. We're going to come back on the consumer front a bit, a lot of this has been touched on. But with regard to, I guess, what I'm trying to get to is, where demand is, you've talked about 2022, but currently as well first half of the year kind of doing $9 million, $10 million a quarter. And you've talked about some supply impacts in the second half, but that does imply that kind of overall demand levels have come down a bit. That seems inconsistent with kind of what you're saying and what we're hearing in terms of demand levels.

So, I guess, should we be thinking about normalized demand being in that $9 million, $10 million at quarter level? Or is that step down a little, on the one hand. And on the other, you've clearly got some qualitative data points to suggest sort of a Q4 trough, and sort of consumer issues. And to what extent is backlog, or orders, or anything else give you any quantitative feeling on that? Thanks.

David Lyle -- Chief Financial Officer

Yeah, just kind of reiterating what Jacob was saying, there are two-there are three really major North American service providers, who we provide technology essentially into the boxes for them. He talked to two different service providers, who both gave very similar feedback that points us to volume, as expected next year. Both are going through transitions on the products themselves, the move to Wi-Fi, Wi-Fi 6, Wi-Fi 6E, for instance, and gateway AP [Phonetic] router type devices. And same for the other service provider.

So when those things shift, you get a different type of mix of product, and therefore revenue, so using the historical numbers on a perfect type of comparison. But I'm going to avoid for now for to kind of giving guidance around what that quarterly number could look like it. Like I said before, we're trying to be prudent right now with the supply shortage going on. Once we have a little close, a little more visibility will give that to you.

Tim Savageaux -- Northland Capital Markets -- Analyst

Okay. Thanks very much.

Operator

Thank you, Mr. Savageaux. [Operator Instructions] Our next question is a follow-up from the line of Craig Ellis with B. Riley Securities. You may proceed.

Craig Ellis -- B. Riley Securities -- Analyst

Yeah, thanks for taking the follow-ups. The first question is just on the fourth quarter guidance, so since we already have backlog at 86% of guidance. The question is, guys, if you got the turns orders that would come in to take revenues potentially above $14 million? Do you have the supply to do that? And if so, where might you have supply, because it seems like consumers one place where you're not expecting any upside potential? I'm just trying to get a better sense for where the supply chain gives some takes are inside the current quarter?

David Lyle -- Chief Financial Officer

Yeah, I think you're looking at this the right way, Craig, it's-the consumer side, I don't expect to get any surprises from they've been pretty clear. So we have a pretty good hold on that. In other areas, yes, you're right, there could be upside surprises. We're not banking on those at this point, given where we are in the quarter. And given what our current visibility is, as well as the contact that we have with our customers to get kind of those indications.

But typically, probably, I would say our higher turns products are more on the auto aftermarket fleet side. So that could happen, those kinds of things. And we do have supply there. And we don't have supply constraints on the build side, on the manufacturing side there. If you remember, we manufacture our own products in our own facility for that business.

Craig Ellis -- B. Riley Securities -- Analyst

Yeah, that's helpful. Thank you. The second follow-up is just related to the supply chain dynamics overall. So if I take a step back and look at all the comments around the magnitude of impact in 3Q, the magnitude of 4Q, but with some of the views on the first quarter, is the company really conveying that it's believing that it gets the worst of the supply chain issues behind it in the fourth quarter? Or do you not yet have that kind of visibility either into your customers' ability to fill their final kits or attributes of your own supply chain?

David Lyle -- Chief Financial Officer

Well, I think one thing I can say is that the-if you look at our three major service provider end-customers' contribution to revenue, it's historically been pretty big. And the number of you combined, the estimates that we're seeing right now internally on what that revenue would be are de minimis. They really don't mount too much. So starting off of Q4, it's starting from very small number relative to what it should be. So if it even comes back a little bit in Q1, you're going to see an uptick, right?

Craig Ellis -- B. Riley Securities -- Analyst

Yeah.

David Lyle -- Chief Financial Officer

Yeah, and I mean...

Craig Ellis -- B. Riley Securities -- Analyst

But the question is really on the supply chain, on your supply and other things. Do you feel like the constraints that you see-or are you saying, Dave, that really the issue isn't your constraints so much as it is, but a huge part of this $5 million is really just what's going on downstream with customers? I guess that's the point.

Jacob Suen -- President and Chief Executive Officer

Yeah, I think that, if I may, the supply chain issue, I think that within the industrial IoT, we have better control. We feel pretty comfortable that we can manage into the supply chain shortage issue. In the aftermarket, we are actually building this thing on our own. We are also looking into some other avenues to really mitigate the impact. So we feel comfortable with that, along with the AirgainConnect products.

The only thing that the less that we really still have to manage through is the consumer side. As far as our own product, we have no issue, as far as getting the components to build our antenna systems on the consumer side. The thing that we don't have control over are relating to the, what we call the JDMs, the OEMs, who are building this product, building the gateways, the setup box for the service providers.

And what they're experiencing right now is other shortages, such as substrates, such as capacitors. And we do expect them that they should be able to manage through those issues. It sounds to me, the silicons, they're able to now secure. So it's the other stuff that we-I think that they start to express some optimism of managing that. So we do expect soon this will be behind us. And that's why we talk about this being transitory. And we do expect that to turn around soon.

Craig Ellis -- B. Riley Securities -- Analyst

Got it. And then, lastly, for me, given how well NimbeLink has worked out and given the growth we've seen and the performance versus initial expectations, can you just talk about the appetite for M&A here? Is it something, given all the balls you're juggling with the supply chain that you're entertaining? And if so, can you provide any color on where M&A might be most attractive inside of the portfolio? Thanks, guys.

David Lyle -- Chief Financial Officer

Yeah, I can take the answer. And, Jacob, you can chime in. We still track opportunities on the M&A side. We're still interested. We're not letting the transitory issues that we're facing today get in the way of that. If things open back up for us, which we fully expect then, that's always an opportunity. But like you said, from the tactical perspective, we're focused on the day-to-day management of the business most, try to get as much out of this as we can.

Craig Ellis -- B. Riley Securities -- Analyst

Thanks, Dave. Thanks, Jacob.

Jacob Suen -- President and Chief Executive Officer

Yeah, thank you, Craig.

Operator

And this concludes our question-and-answer session. If your question was not taken, you may contact Airgain's Investor Relations at [email protected]. I would now like to turn the call back over to Mr. Suen, for any closing remarks.

Jacob Suen -- President and Chief Executive Officer

Thank you for joining us on today's call. We look forward to updating you on our next call. Operator?

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

David Lyle -- Chief Financial Officer

Jacob Suen -- President and Chief Executive Officer

Morad Sbahi -- Senior Vice President of Global Product and Marketing

Craig Ellis -- B. Riley Securities -- Analyst

Karl Ackerman -- Cowen and Company -- Analyst

Scott Searle -- ROTH Capital Partners -- Analyst

Tim Savageaux -- Northland Capital Markets -- Analyst

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