Inseego Corp.

Hello and welcome to INSEGO Corp's second quarter 2022 financial results conference call. Please note that today's event is being recorded. All participants today will be in a listen-only mode. Should you need assistance during today's call, please signal for 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. If you would like to withdraw your question, please press star then two. On the call today are Ashish Sharma, CEO, and Bob Barbieri, Chief Financial Officer, and other members of the management team. During this call, non-GAAP financial measures will be discussed, a reconciliation process 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 10-K, 10-Q, and other SEC filings, which are available on our website. Please also refer to the cautionary note regarding forward-looking statements section contained in today's press release. At this time, I would like to turn the call over to Ashish Sharma, CEO. Please go ahead.

Thank you, operator, and welcome to Insego's second quarter fiscal 2022 earnings call. We had a solid quarter with revenue of $61.9 million and an adjusted EBITDA loss of $1 million. Importantly, we saw our gross margin improve to 29.5% in Q2. This is a reflection of our longstanding focus on 5G products and improving our mix towards higher margin recurring revenue. From a business perspective, what we are most excited about is that we started to see several enterprise customers convert 5G pilots into full-fledged, large, multi-location deployments. This progress within our enterprise business and our growing pipeline of opportunities are a few of the key things that underpin our confidence in the strong second half of this year. Before highlighting how our business is evolving, I want to touch on a few things. First is our drive to generate positive free cash flow. We remain disciplined with respect to investments in our business and anticipate improved operating leverage now that we have a number of key product certifications behind us. Further, between the growth in our higher margin businesses and a keen eye on our costs, we can see Insego approaching free cash flow breakeven by the end of this year. Second is the importance of the $50 million credit facility we just closed. This facility gives us ample capacity to fuel the growth we see later this year and into 2023. Bob will touch on both of these shortly. Lastly, we believe 2022 represents a positive inflection point in our business. For the last few years, we've discussed the promise of 5G and the impact it will have on end customers. While it has taken longer than we would like, we are finally starting to see that promise become a reality. How so? From two perspectives. from our carrier partners as their 5G network coverage improves dramatically, and from end-user customers who can now benefit from these high-speed networks and are making purchase decisions for 5G deployments. Our broad suite of 5G solutions positions us well to capitalize on the long-term trends we expect to play out over the next five years. So on to the exciting developments we are seeing in our enterprise business. There are two key drivers. First are the new C-band rollouts, which many believe creates an ideal balance of range, penetration, and speed for carriers and their customers. This allows 5G to solve last mile issues with a lot more network capacity in areas where fiber just isn't feasible. This is critical for businesses with distributed sites and workforces. We're certified for these C-band rollouts with all the major carriers in the U.S., and we are working together to bring these services to enterprise customers. Second is the introduction of new cost-effective 5G data plans for businesses. As an example, we saw that T-Mobile announced their new 5G for business data plans in May of this year. This is proving to be a significant catalyst for enterprise adoption of 5G for fixed wireless access. Now let me outline the progress through the three different routes to markets we're pursuing. First is our stock business. This is where T-Mobile purchases our products directly and delivers to their customers. We are already seeing significant customer activity through this effort and continue to build a new pipeline of opportunities. As a reminder, our WaveMaker 5G indoor router FX2000 has been stocked and available to T-Mobile's business customers since November of last year. Recently, we have seen activity levels increase dramatically. Also, we've had Fortune 500 retail customers convert from pilots into full-scale deployments. Moving forward, we expect our pipeline to continue to grow with improved sell-through as T-Mobile sales teams reach more end customers. This will result in significant restocking of the FX2000 with T-Mobile over the balance of the year. Second is what we call sell-with, where we jointly sell our entire 5G FWA portfolio alongside T-Mobile Salesforce. We've sold our product to over 400 distinct new customers since the launch. I will provide some examples in a bit. As many of you are aware, our ability to capture new enterprise customers has the potential to completely transform our business. How? Simply put, these sales carry significantly higher product margins than when sold under the stock program. Most importantly, these sales also have very high software attach rates. This means we can earn recurring revenue each month for every device over a multi-year contract period. Capturing our fair share of this emerging enterprise 5G FWA market is one of the ways we see NSEGO delivering increased revenue growth, improved gross margins, and sustainable positive free cash flow. And third is our VAR channel. As previously mentioned, CBAN delivers much more capacity for bandwidth-intensive business applications. This makes the availability of CBAN a key driver for FWA adoption here in the US. Importantly, we now have multiple 5G FWA products certified with both AT&T and Verizon. Working with their top VAR partners, we've started shipping initial orders and have already started to build a large pipeline of enterprise opportunities with both of these carrier customers. We believe we're the only company with such a broad portfolio of purpose-built 5G FWA products that are CBAN certified. This places us in a very unique position in the market. So that's how we go to market. Now, let me touch upon some examples of 5G enterprise FWA use cases so you can better understand the scope and scale of the opportunity. Now, where are we seeing traction? It's in the verticals where there is a need for primary connectivity for remote workforce, branch office connectivity, distributed sites and security, and remote management. That means construction, retail, healthcare, education, utilities, manufacturing, and logistics. In the construction sector, for example, we are seeing interest from national home builders where our 5G FWA solutions are ideal for remote work sites and for development projects in the field where fiber just isn't available. In the retail sector, a handful of nationwide and regional customers have trialed our products and are now commencing rollouts. These deployments can range in size from hundreds of locations to thousands. Another prospective customer with an employee base of over 120,000 is preparing to test our solutions for their remote workforce. Then we have a large national retail chain and a leading car rental agency trialing our solutions for secure and reliable primary connectivity in both rural and urban settings. In Europe, we are now in pilot with a smart traffic light manufacturer, a leading gas supplier who's leveraging our solutions to manage remote sites, and a large paper and recycling company to enable their smart warehouse initiatives. Let's turn our focus to our expanded software portfolio. Building upon our best-in-class portfolio of 5G fixed wireless devices, we recently launched our 5G SDH solution. This expands our software capabilities beyond cloud management, to complete corporate IT management. Within Cigo's 5G SD Edge, enterprises now have the tools to secure, automate, and orchestrate the management of their wireless wide area networks, much like they do with their wired WANs. While WAN was primarily used for backup connectivity in the 4G world, 5G offers significantly more capacity which combined with an increasing need for segregated networks and workflows to combat security threats, will drive significant adoption of 5G WAN for primary connectivity. We believe this solution will offer a much more simplified approach to enhance security and network policy management compared to traditional on-premise WAN management solutions. We are already in pilots with multiple customers, and we expect our first launch customers this quarter. Much like our other software offerings, attaching 5G SDH to our enterprise sales will further increase our subscription revenue streams, increase customer stickiness, and expand our gross margin. Of course, we will have plenty more to talk about it as it relates to our software stack in time. This includes our ongoing efforts to enhance and integrate our existing C-Track applications into our 5G Edge Cloud. Before I turn it over to Bob, I just want to mention one more important launch. While our growth aspirations are clearly aligned with enterprise adoption of 5G FWA, we continue to deliver new innovation and best-in-class mobile connectivity products to market, as we've always done. We are launching the MiFi X Pro. This marks the third generation of our 5G mobile hotspot and the company's 10th generation MiFi since inception. A Tier 1 carrier in North America will be the first customer to roll out this product in Q3. I'm also very happy to report that another Tier 1 carrier, Telstra in Australia, will be launching this solution soon as well. Our mobile hotspot product line continues to be the preferred choice for business customers looking to power their mobile workforce. This is primarily due to the industry's best performance and advanced security we provide in our hotspots. I want to thank our employees for their dedication and pursuit of our strategic imperatives and And I would now like to turn the call over to Bob, who will provide more details on our Q2 results.

Thank you, Ashish. Let me now review the results of our second quarter fiscal 2022. Please note that all metrics and comparisons made are non-GAAP on a pro forma basis, adjusting 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 reconciliations. Q2 revenue was $61.9 million, up 6% from the prior year and up slightly on a sequential basis. Our growth reflects continued strong demand for our 5G solutions and increasing traction with enterprises, particularly offset by anticipated declines in 4G products sold directly to our carriers. Next-generation solutions, which are comprised of 5G devices and all of our cloud software assets, increased 25% over Q2 fiscal 2021 and represented 66% of total revenue in this quarter as compared with 50% of revenue in the year-ago quarter. Second quarter, IoT and mobile solution revenue was $55.2 million, up 7% from the same period last year. Similar to Q1, our growth was again driven by demand for our 5G mobile hotspots. further uptake of our solutions by enterprise customers, and steady growth in our attached software revenue, which partially offset by declines in our 4G product sales. Enterprise SaaS solution revenue was $6.7 million, which was relatively flat on a sequential and year-to-year basis. As noted last quarter, we're in the process of enhancing our software assets and integrating them into our 5G Edge cloud. Consolidated gross margin was 29.5%, up from 27.3% in Q1 and 28% in Q2 of last year. Gross margin for IoT and mobile business was 27.4%, an increase of over 300 basis points from 23.9% in the prior period and 24% in the prior quarter. The gross margin improvement on both a sequential and year-over-year basis reflects a higher mix of enterprise sales. Gross margin for the enterprise SaaS segment was 47.8%. Q2 non-GAAP net loss was $9.5 million, or $0.09 per share, an improvement from a loss of $0.11 per share in the prior quarter and a loss of $0.08 per share in the year-ago quarter. We reported an adjusted EBITDA loss of $1 million, which was up from a loss of $3.3 million in Q1 and $1.7 million loss in the year-ago period. The change was largely due to the combination of higher revenue and gross margin arising from our increasing mix of enterprise sales. 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 Q2 was $24.4 million. We note that our cash balance last quarter was bolstered by an early payment by a carrier customer. This quarter, our receivables returned to a more normalized level and we significantly reduced our accounts payable balance. For the balance of the year, we expect our quarterly cash usage to be significantly lower than in Q2 as our revenue growth re-accelerates, and we remain disciplined with our investments and operating costs. As Ashish mentioned, we're making significant strides toward our goal of being free cash flow positive and expect to approach break-even by the end of 2022. We believe our current cash position is sufficient to carry us through the transformation to an enterprise 5G company, but also want to ensure we have substantial financial flexibility. As announced today, we have closed on a working capital line of credit that provides us with up to $50 million in liquidity, of which $4.5 million was drawn at closing. This facility was available to us based on the nature of our receivables being largely from high-quality, investment-grade customers with long tenures and with stellar payment records, as well as the quality of our inventory. This line of credit provides us flexibility to support our customers and the growth we expect this year and into 2023. With that, let me turn it back to Ashish for his closing comments.