Inseego Corp.

Hello and welcome to Intego Corp's first quarter 2022 financial results conference call. Please note today's event is being recorded. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity for analysts to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. On the call today are Ashish Sharma, CEO, Bob Barbieri, Chief Financial Officer, and other members of the management team. During this call, non-GAAP financial measures will be discussed. A reconciliation to the most directly comparable GAAP financial measures is included in the earnings release, which is available on the investor section of the company's website. An audio replay of this call will also be archived there. Please also be advised that today's discussion will contain forward-looking statements. These forward-looking statements are not historical facts, but rather are based on the company's current expectations and beliefs. For a discussion on factors that could cause actual results to differ materially from expectations, please refer to the risk factors described in our Form 10Q, and other SEC filings, which are available on our website. Please also refer to the cautionary note regarding forward-looking statement section contained in today's press release. I would now like to turn the call over to Ashish Sharma, CEO. Please go ahead.

Thank you, Operator, and welcome to NSEGO's first quarter fiscal 2022 earnings call. This is my first earnings call as the CEO, and I'm proud to be reporting a solid quarter of execution to start off 2022. Before I get into the details, I want to take a step back and reflect on where we are as a company in terms of our strategy and execution and share my vision for Nsigo's future. I will then provide a summary of our Q1 progress. Let's start with our strategy. Our objective is to position Insego as a key solutions provider for enterprises, which has taken a new sense of urgency in the last couple of years by the need for increasingly distributed enterprise workflows. We plan to address this through what we call a 5G edge cloud, which comprises three components, a highly flexible 5G WAN connection anchored by Insego's world-class devices, a cloud networking software stack allowing the creation of a 5G WAN, and a purpose-built suite of enterprise applications. Our approach to this very large market opportunity starts with first providing the best performing, highly flexible, and most secure 5G WAN access to the 5G networks built by the carriers. Inseego now has the most extensive and highest performing 5G products both mobile broadband and fixed wireless in the market today. In addition to being offered by leading carriers around the world, we have created a great pipeline of enterprise customers in multiple regions who are starting to roll out our 5G WAN solutions for many different use cases. We've also integrated into these products a comprehensive software platform to provide a unified view for our customers allowing them to fully manage these 5G WAN solutions. The software is the key technology that is powering our 5G Edge Cloud, where we are bringing all these pieces of our solutions together. This critical layer of software is key to allowing enterprises to move the corporate LAN into the Inseego 5G Cloud. When we introduce this to the market in the near future, our enterprise customers will be able to innovate at the edge and empower a more secure distributed workforce or branch locations over a 5G network fabric for the first time. Current enterprise WAN architectures are complex, highly fragmented, expensive to maintain, and dependent on costly on-premise appliances and brittle third-party integrations. They're also saddled with multiple management consoles and multiple policies. This large attack surface area makes them rather vulnerable to cyber attacks. Inseego plans on transforming the enterprise van market by offering the full stack of networking capabilities as a 5G cloud app. The cornerstone of the third part of our enterprise strategy is the C-Track application portfolio. that currently serves thousands of enterprise and SMB customers. We plan to offer this application suite as part of our 5GH cloud, as it has great synergy with the other two solution portfolios I described earlier. Since the sale of C-Track South Africa unit, we've been busy modernizing the architecture of this application, along with enabling 5G and integrating into our 5GH cloud. We see a huge opportunity to utilize this technology to digitize many facets of enterprise operations in verticals such as transportation, construction, logistics, supply chain, energy, utilities, services, local governments, and more. We will have more to say during our next call, but I'm really excited with the progress we've made and believe the improvements will help accelerate growth. Note that our carrier customers are also our key partners in this new 5G enterprise journey. In addition to selling our high-performing hotspots and FWA devices, carriers are also important go-to-market partners for our enterprise 5G solutions. T-Mobile is a great example of this where we have two ways to sell our products. First is what we call stock. where T-Mobile buys our devices directly and sells them to their customers as part of a service package. The second is what we call sell-with, where the T-Mobile sales force brings us enterprise opportunities that we fulfill through their VAR and distributor channel. We see similar arrangements developing in other global markets where we will sell both directly to the carrier and to its preferred channel partners. Ultimately, our carrier relationships will be an important driver of growth and profitability as we look to take share in what is still a nascent and rapidly growing market. With that, let's dive into the first quarter. First, I'm pleased to report that we are off to a good start in 22 with revenue growth of 23% year-over-year on a pro forma basis, excluding SeaTrack South Africa. and our gross margin rebounded from the prior quarter. Had it not been for minor supply chain issues that affected our enterprise business late in the quarter, our revenue would have exceeded street consensus. Reflecting our focus on next generation products and go-to-market expansion, 5G revenue was up 142% year-over-year and comprised 44% of total revenue. Importantly, next generation software solutions represented 23% of total revenue in Q1. Bob will go into more details in a moment. As I'm sure all of you are aware, COVID-related lockdowns were instituted in China late in Q1. I'm very proud of how Insego has navigated the global supply chain challenges over the past year. As there are few companies, large or small, that have not been affected, we continue to see lead times lengthening and with limited availability of parts in the spot markets and rising shipping costs, especially for our products with relatively short sales cycles. Although we were relatively unaffected in Q1, a prolonged lockdown in China may have more of an impact in Q2, particularly as it relates to our anticipated new product launches. I will now touch upon new customer expansions from this quarter, both on the carrier side and through our new enterprise initiatives. During the quarter, we launched a 5G solution with Telus in Canada, and you saw the US cellular fixed wireless announcement last week. In North America, our 5G products are certified by all the major carriers, and we have a broad range of engagements with both carriers and enterprises, which we are very proud of. Our investments in our targeted international markets of Europe, Middle East and Australia are beginning to pay off after a couple of years of investment. We received repeat orders from several international customers, which is encouraging. As a run-rate business in new markets is starting to build up and is expected to contribute more meaningfully to our growth in 2022. We also want a new carrier customer in the Nordics and we shipped the initial quantity of product to them recently. On the enterprise side, we saw good progress with new customer engagements for our 5G solutions in multiple regions. As I've stated in prior calls, we're still in the early stages of 5G adoption for the enterprise. 5G networks are becoming increasingly ubiquitous and are evolving to meet the requirements for enterprise use. While we may see the 5G icon on our mobile phones and conclude coverage is sufficient, the underlying infrastructure is still evolving with new mid-band capacity, new 5G SA core network, and carrier data plans to make 5G a primary event solution for the enterprises. We believe this is a large market in the making as the carriers will push hard to move many enterprise use cases onto these newly built 5G networks. With our FWA portfolio, we are well positioned to win in this market. Speaking of FWA, we are encouraged by the continued growth in our pipeline, but more importantly, we are seeing several customers move to deploy our products broadly across their organizations. These engagements follow a typical pattern where an enterprise will buy three to five first devices to test, Thereafter, they order 30 to 50 devices for small-scale deployment before rolling out company-wide, which in many cases require thousands of Inseego devices. These customers are also leveraging our cloud-based software to manage and secure the devices across their distributed workforce or branch locations. Let me provide a few examples. One example is an enterprise customer with over 27,000 employees. They were looking for a reliable 5G work-from-home solution to offer their remote employees to ensure a secure and consistent user experience, no matter where they're located. To ensure security and consistency, the customer is now using our cloud management solution so that their IT team can have visibility into the entire deployment, enabling them to manage, configure, and monitor the connections all from a single pane of glass. the retail sector we have a couple of us-based customers laying the foundation for their own digital transformation leveraging our solutions for 5g connectivity across their stores to power a number of applications that require reliable real-time connections such as surveillance these customers one in the industrial supply sector with approximately 2,000 stores, and a nationwide clothing retailer with 800 stores, respectively, have successfully completed all testing and are now starting widespread deployments. Finally, we are seeing an accelerated drive to close the digital divide. which is driven largely in part by the beauty of 5G being significantly easier and cheaper to deploy than Fiverr in many instances, in addition to its ability to handle massive amounts of data. Most recently, we secured a deal with one of the top public libraries in the US with over 90 branches, serving a population of over 3.5 million. They are leveraging our 5G cloud managed solutions. As you can see, we are making significant progress against our key strategic objectives. I want to thank the employees of Inseego for their tireless work and solid execution. Between our robust 5G product portfolio and growing enterprise pipeline, we remain confident that Inseego is well positioned to achieve our financial goals. However, there are a number of factors that cloud our near-term visibility. First is the plateauing of our 4G hotspot business. After setting records in 2020 and 2021, the first quarter reflected the normalization of 4G as 5G becomes more widespread. This has always been expected, and as that portfolio carries our lowest gross margins, it is a positive transition. Second is the evolution of enterprise 5G data plans that are key to broader adoption of FWA. These plans are now being released, and our current expectation is for several key partners to begin ramping during the summer, which will position us for a strong finish to the year. We've always planned on a strong back half of the year, but we also projected those data plans to be released a few months ago. And lastly is the supply chain. As we have said in previous quarters, we have not really experienced any meaningful supply chain issues on our existing products. This remains accurate today. However, we remain wary that ongoing supply chain challenges associated with COVID-related lockdowns in China could impact our new product launches later in 2022. Once factories reopen, we will be able to fully gauge if our new rollouts will be delayed or not. All these factors together may push out our growth expectations for 2022 calendar year. Note that we measure this as a delay by matter of months as opposed to multiple quarters or more. We will update our thinking once we have greater certainty around the timing of carrier FWA rollouts and the easing of COVID restrictions in China. I would now like to turn the call over to Bob who will provide more details on our Q1 results.

Thank you, Ashish. Let me now review the results of our first quarter fiscal 2022. Please note that all metrics and comparisons made are non-GAAP on a pro forma basis, adjusted for the divestiture of SeaTrack South Africa, which was completed in July 2021. Please refer to our earnings release for additional details on the GAAP to non-GAAP reconciliation. Q1 revenue was $61.4 million, up 23% from the prior year. Our strong growth reflects rising demand for our 5G mobile broadband and fixed wireless products and further uptake of our cloud solutions. Next-generation solutions, which are comprised of 5G devices and all of our cloud software assets, increased 68% over Q1 fiscal 2021 and represented 67% of total revenue in this quarter as compared to 43% of revenue in the year-ago quarter. First quarter IoT and mobile solution revenue was 54.5 million, up 27% from the same period last year. Our strong performance was again driven by demand for our 5G mobile hotspots from both our carrier partners and enterprises, partially offset by a decline in the sales of 4G devices. Enterprise SaaS solution revenue was 6.9 million, which was flat on a sequential and year-over-year basis. As Ashish noted, we're currently modernizing the architecture of our software assets and integrating them into our 5G Edge cloud. Consolidated gross margin was 27.3%, up from 25.4% in Q4, but down from 31% in Q1 last year. in the prior quarter. The gross margin decline from last year reflects higher freight costs, while the improvement on a sequential basis was driven by a more favorable mix of device sales. Gross margin for the enterprise SaaS segment was 53.3%, down sequentially from 58.2%, and year-over-year from 62.5%. Q1 non-GAAP net loss was $12.1 million, or $0.11 per share, down from $0.08 per share in both the prior and year-ago quarters. We reported an adjusted EBITDA loss of $3.3 million, which was down by $1.1 million and $2.1 million, respectively, compared to Q1 last year and last quarter. The change was largely due to lower levels of capitalized R&D relative to what we expense. Our overall cash spending on R&D remains consistent, and our investment in next-generation solutions is calibrated to our vision to ramp up the SaaS model over time. For additional details on our non-GAAP and adjusted EBITDA results, please refer to the reconciliation tables in our press release. Cash, cash equivalents, and restricted cash at the end of Q1 was $45.2 million. We note that our cash position benefited from the timing of some larger collections, which we expect to normalize this quarter and therefore result in the uses of cash in Q2 that is more consistent with our recent historical run rate. With that, let me turn it back to Ashish for his closing comments.