Inseego Corp.

Hello and welcome to INSEGO Corp's First Quarter 2025 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, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity for Q&A. To ask a question, please press star, then one on your telephone keypad. To withdraw your question, please press pound, then one. On the call today are Juho Sarvikas, Chief Executive Officer of INSEGO, and Stephen Gatoff, Chief Financial Officer. During this call, certain 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 relations 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 discussion on factors that could cause actual results to differ materially from those expectations, please refer to the risk factors described in the company's Form 10-K, 10-Q, and other SEC filings which are available on the company's website. Please also refer to the cautionary note regarding forward-looking statements section contained in today's press release. With that, I'd like to turn the call over to Juho Sarvikas, Chief Executive Officer.

Please

go ahead.

Thank you, operator, and thank you all for joining. This is my second earnings call as the CEO of Insego, and I'm even more excited to be here today than the last time we spoke in February. I'm proud of the progress we've made executing the strategy I set in motion when I joined Insego in January. We have a lot of work ahead of us, but we're getting it done. I want to thank the awesome Insego team for their focus, energy, and commitment. Today I will focus on two topics. First, I'll give you an overview of our Q1 results. Second, I'd like to share what I'm seeing in the business today and update you on the strategy that's underway and how it's laying the foundation for long-term growth. Let me start with a quick overview of our Q1 financial results that Stephen will take you through in more detail. We delivered revenue within guidance, and a trusted EBITDA came in above expectations, even with softer hardware volumes. While revenue was impacted by some delayed carrier mobile broadband promotions and FWA orders, cross-margin held strong on the favorable revenue mix. And importantly, we invested in key product and growth initiatives without compromising cost discipline as evident in the strong-adjusted EBITDA results. Before I move on to strategy and execution, I want to share one of my key initiatives that we successfully executed in Q1. Incego has a legacy of leading in wireless innovation and an exceptional team of industry-leading engineers in cellular modem and antenna technology. At Mofile World Congress in Barcelona this past March, we were the first OEM in the world to make a 5G-advanced 3G PP Release 18 data call with the new Qualcomm DragonWin Gen4 Elite FWA platform in our next-generation cellular router. This accomplishment is a testament to Incego's superior engineering capability, our strong partnership with Qualcomm, and our commitment to pioneer the latest and greatest in wireless. I am incredibly proud of the team and their unwavering dedication to make this happen. Our announcement has generated significant interest with carriers, who are exploring new monetization opportunities for their network and positioning Incego well for the future. With that, let me pivot to the second topic. Over the course of my first four months with the company, my focus has been on laying the groundwork to implement our new strategy. I am positioning Incego to power the next generation of enterprise connectivity through software-defined, high-performance wireless networking solutions. We will position our solution portfolio to support a broad range of use cases across residential, SMB, enterprise, industrial, and IoT, and deliver performance, security, and flexibility at scale. These strategies are anchored in wireless broadband, combining our MiFi and fixed wireless access hardware with cloud-managed software solutions to deliver the features and capabilities that our end customers need to operate and grow their businesses. To deliver on this mission, I am driving execution against two strategic vectors that I outlined on our first call in February. First, the execution and scaling of our FWA and MiFi business, and second, accelerating our software and services roadmap to create a full-stack solution offering and transform Incego into a true solutions company. Let's focus on the first strategic vector, execution and scaling FWA and MiFi. My immediate priority is to expand our footprint with large tier 1 carriers and multiple system operators or MSOs. This is the single largest and most immediate new and large TAM for us to capture. Today, our customer base for MiFi and FWA isn't where it needs to be. We are too concentrated, and that's something that I'm actively working to diversify. I've realigned our FWA and MiFi product roadmaps to go after new customers and markets. In the last 90 days, we've introduced several new product plans to existing and new customers to accomplish this goal. I've spent a lot of time on the road meeting these large customers to share our products and strategy, align business objectives, and prioritize opportunities. There's meaningful opportunity in front of us. Incego's valid proposition of enterprise-grade wireless broadband solutions and Incego as a company that will partner with organizations to help them reach their business goals is resonating very well. The combination of our -in-class hardware, our internally developed Edge Router OS, which is our on-device software, and Incego Connect SaaS cloud management platform delivered to a dual -to-market motion is a compelling and differentiated offering. In FWA specifically, there's a strong demand for enterprise-grade solutions for carriers to sell to their SMP and enterprise customers. Additionally, with the MSOs, there's significant opportunity in residential failover, SMP, and enterprise solutions. As we are engaging large carriers with our new MiFi portfolio, I'm getting great feedback on our solutions that can cater to both consumer and enterprise markets. There is a great opportunity to drive consolidation here with a purpose-built product that meets the needs of both markets. We've done a lot of great work this past quarter and have a compelling set of new opportunities that we're working on. Our target continues to be to deliver -over-year growth in 2025, and we're focused on closing these deals with an engaged set of new carrier customer expansion and MSO opportunities that we have visibility of today. I've also overhauled our supply chain and engineering strategy in the past 90 days, identifying significant opportunities to reduce cost, improve operational efficiency, and enable scale. This also involves ensuring that we have the right ODM and CM partnerships to support our ambition. I spent time with key component vendors, ODMs, and manufacturing partners sharing our strategy, aligning on requirements, and evaluating long-term strategic fit. It has been great to see the excitement from the supplier base to be part of our growth journey. These efforts have already enabled us to expand our MiFi portfolio from premium tier down to mid-tier. As I'm talking about supply chain, it makes sense to pause for a moment to discuss the global tariff and macroeconomic environment, which remains very fluid. We've taken deliberate steps to mitigate impacts and develop manufacturing optionality to safeguard as best as we can for potential disruptions and unfavorable economic outcomes. Our primary manufacturing sites are based in Taiwan and Vietnam, which reduces our direct exposure to potential U.S.-China tariffs. Additionally, our product's HDS code is currently exempt from tariffs. This situation is evolving constantly, and we are monitoring it very closely. Inceego is an American company with critical intellectual property designed and developed in the United States. With that, I'd like to discuss my second strategic vector, accelerating our software and services roadmap to create a full-stack solution offering. Beyond scaling our FWA and MiFi business, my focus is on evolving Inceego from what has historically been a fairly hardware-centric business to becoming a full solution provider. There are two components to this. First, Inceego Connect, our device management SaaS platform. At the beginning of 2025, we embarked on a mission to enable APIs for our partners to integrate Inceego Connect into their management platforms. Today, these APIs are already at our partners for testing. This is a huge TAM analog that is applicable for large carrier, MSOs, and MSPs, both in the channel and direct. In parallel, we have a resource roadmap to graduate Inceego Connect to large enterprise, IoT, and industrial environments. Inceego Connect sits on top of our RouterOS and our Inceego-designed modules, making it a full-stack solution that will deliver extraordinary value to an expanded set of customers and markets later this year and beyond. Second, Inceego Subscribe, our subscriber management platform, is a great solution and a strategic contributor to our broader solution-centric strategy. We have undertaken a new investment and expansion plan on this platform, and I look forward to updating you more as this moves forward over the coming few quarters. Driving and building on these two SaaS offerings, I look forward to expanding Inceego's annual reoccurring revenue opportunity, growing top-line revenue, and delivering extraordinary value to our customers and partners. To support our strategy, we have been enhancing our team with exceptional talent and expertise across various functions and disciplines. Most recently, we welcomed George Mulhern, former CEO of CradlePoint, to our board of directors. George's extensive background and leadership experience in shaping the enterprise wireless networking industry will provide tremendous value as we scale and accelerate our transformation into an enterprise solution provider. The dynamics of engineering and manufacturing broadband devices are both cyclical and long-term by nature. Product development and customer purchasing cycles typically span 9 to 12 months. While we've implemented quick and significant adjustments in the last 90 days, the larger impact from them is further out. The key to success lies in the precise execution of aligning our roadmap, strengthening customer engagement, and maintaining discipline focus. This approach ensures we position ourselves to excel both in the current cycle and those to come. With that, I'd

like to hand it over to Stephen. Thank you, Ho. Hi, everyone. Thanks for

joining us.

I'm

going to cover three topics today. First, I'll take you through the Q1 2025 financial results. Second, I'd like to share a quick update on our debt paydown that closed last week. And third, I'll provide some financial color on what we're seeing in the business and set out guidance for Q2 2025. As we always do, we'll, of course, wrap up by opening the call to your questions. Let's start with the Q1 2025 financial details. Overall, while Q1 presented a slow start to the year on a revenue basis for the three anticipated reasons that we discussed last quarter, we managed our costs well and generated solid non-GAAP profitability and a strong balance sheet as we're implementing our new strategy and setting out the foundation for growth. The three combined dynamics were, one, Q3 and Q4 2024 had record revenue that was driven by unprecedented mobile hotspot promotions by a key carrier customer that drove volumes that were double and nearly triple historical norms. Second, 2024 was the end of a special national mobile hotspot program at one of our North American carrier customers that had generated meaningful volume in 2024, but that was not continuing at historical levels. And third, Q1 2025 was impacted by temporarily lower FWA purchases from a carrier customer that is managing their inventory levels as they transition to our next generation FWA product. A very good thing on a number of fronts, but admittedly sometimes disruptive in the quarter of transition. We remain bullish on FWA over the long term and, as we'll talk about more when we get to guidance, in the short term as well. We expect FWA revenue to come up meaningfully in Q2. On the mobile hotspot product, while a larger carrier customer's promotion started later than anticipated in Q1 2025, we were encouraged to deliver mobile revenue that grew more than 16% year over year. Finishing out revenue with services, they grew nearly 50% year over year on the strength of our subscribed SaaS platform as we've discussed. Moving on to gross margin, Q1 2025 non-GAAP gross margin percentage increased to a record 47.5%. This was anticipated and was driven by a combination of sequential margin expansion in Q1 in both product and services and by a revenue mix of greater services revenue in the quarter. Looking at non-GAAP operating expenses, Q1 2025 was another quarter in which we managed the business to lower sequential dollar spend on both a P&L and cash spend basis. Going forward, we expect continued efficiencies in G&A, some modest increase in sales and marketing as we're expanding our TAM and engaging with new customers, and marginally more spend in R&D as we come to the larger investment periods and building out the new products that are rolling out in the second half of 2025 and early 2026. Pulling this all together, Q1 revenue performance, butt-risk by focused expense management and investment, delivered adjusted EBITDA dollars that came in for the fourth quarter in a row and more than doubled the prior year quarter at $3.7 million. Adjusted EBITDA margin came in at the third highest level in a decade at .6% for Q1 2025. Wrapping up Q1 2025 results with a balance sheet, we closed the quarter with more than $35 million in cash and strong DSOs, working capital management and inventory positions. That's probably the right point to turn to my second and brief topic on our materially improved capital structure and reduction of debt. On this front, we've been sharing the progress we've made over the past year. We're pleased that we completed a meaningful reduction of the company's total debt with the pay down of the $15 million outstanding stub on the convertible notes that matured on May 1st. We paid those off last week, thereby reducing total debt to $41 million and further supporting the value of common stockholders. With that, let's finish with the third topic around what we're seeing in the business and provide guidance for Q2 2025. As we've been discussing, while there was the expected revenue challenges as we started the year, we remained bullish on the prospects for the business as we move through 2025. We continue to execute on our initiatives to introduce new products and diversify the customer base to drive growth. And as we've discussed previously, we expect to deliver sequential quarterly revenue growth, beginning with Q2 2025 and specifically on the heels of improving FWA revenue traction. As we work to deliver this, we're growing our TAM and our customer base. And as we work towards scale, we continue to be influenced by large transactions in the near term. As such, we see the magnitude of the growth in Q2 being impacted by the timing of a large channel deal. It's something that we have good visibility into and confidence in closing. For services and other revenue, we expect Q2 levels to be consistent with Q1 on a dollar basis, thanks to the good work we've done with the Incego subscribed SaaS platform. And so far as gross margin percentage, with a higher anticipated proportion of product revenue in Q2 2025 versus Q1, we expect gross margin percentage to be in the high 30s percentage area in Q2 2025. Like we've called out in the past, the final revenue mix between mobile broadband, FWA, and services will be the ultimate determinant of where margins shake out. And so pulling this all together, we're providing the following guidance for Q2 2025. Total revenue in a range of $37 million to $40 million and adjusted EBITDA in a range of $2.5 million to $3.5 million. With that, we appreciate your time and support and we're glad to open the call for questions. Robert?

At this time, we will conduct the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press pound, then 1. At this time, we will pause momentarily

to assemble our roster. And our first question comes from

Jonathan Navret

of

TD Cowan. Hey, guys. How are you?

Hey,

Jonathan. Just want to start off with the broader macro environment. Given the uncertainty in all markets right now, are you concerned that some pipeline opportunities may slip into 2026?

We're not seeing that from our customer base. And again, today most of our customers are the large carriers in North America. And

we're not seeing any movement of the pipeline. Okay.

Next is just on the T-Mobile Partner Plus program. Can you quantify the potential revenue upside from this?

Okay. So we have a large carrier FWA customer here in North America. That's bulk of our FWA revenue today. And we have good growth trajectory with that partnership. The broader T-Mobile Partner program, the significance of that is that we can get T-Mobile investment in form of subsidy to our channel portfolio. So what that will do is create

pull on our channel program products.

Okay. And just my last one is just can you talk about the cadence of free cash flow for this year? Should we expect it to be positive for 2025? And if so, what are the levers to achieve that? Thank you.

Yeah, sure. Good question. The short answer is yes. We are messaging and are targeting free cash flow generation for the year still. And we see that improving. I think the message is consistent with what we said kind of going into the year, even last year called the end of Q4, which is there's some investments that we're making in the first part of the year in product, new products. And so that's a bit of a use of cash and product investment as well as we had some bonus payouts for the first time in the company's history in a decade at least. So that was a bit of a negative in the first half, but we see the second half being positive and it outweighing the first half to produce

positive for the year. Thank you. And

as a reminder, if you would like to ask a question, please press star one. And our next question comes from Torrey Swenberg of Stiefel Nicholas.

Yes, good afternoon. This is Jeremy Colling on behalf of Torrey. Just would like to dig a little deeper into the channel strategy. It sounds like you have, you know, you talked about a large potential deal for the channel business. Can you just give us an idea of, you know, maybe where this might be coming from, what, you know, any kind of additional color on that opportunity would be very helpful, including the timing.

Yes, like Stephen said, we have good confidence

in that large general opportunity closing within the quarter. If you look at our channel strategy in a broader sense, we have, of course, significant opportunity in the large carrier and MSO space, but at the same time, we continue to invest in broadening our assortment solution portfolio when it comes to our two tiered distribution. You'll see a lot of this play out between now and the end of the year.

Yes, Jeremy, to your point and to you as a good point, as we've talked about, the channel program is something relatively new for Isego with the new team in the past year. And so it takes a while to build pipeline. They're doing that. That's a good thing. There are still large deals, though, that when they happen, there's not seven huge deals in a quarter. There's fewer. And so, you know, they matter more now. Very well said.

Got it. That's very helpful. And I guess if we look at, you know, can you give us maybe an update on the competitive landscape, you know, in light of, you know, you have competitors in Asia and, you know, given the geopolitical environment, you know, what that does to your own positioning, any update on the competitive landscape would be very helpful.

Look, I think we have a really good combination of assets. So we're an American company. All of our critical IP is created here in San Diego. Like I mentioned, we've done significant work on our supply chain and operational efficiency, which has been significant in terms of our improving our competitiveness. And we've already engaged the large customer base on the back of these renewed capabilities.

So I

think

we're suited well to continue to drive growth.

Great. And one last question, if I could, in terms of the gross margin. It sounds like, you know, as the product revenue continues to recover, you know, margins will probably moderate a bit, but, you know, gross profit dollars will be up. Do you have a kind of a new target model that we can look out to over the longer term? And also on the OPEC side, is the March quarter run rate is kind of where we should expect? Thank you.

Yeah, sure. So, yeah, we haven't given a target model yet. I think, you know, it's our first year, if you will, you know, new strategy CEO. So we'll get to that. We'll, dare I say, even have an analyst day to do that. So we look forward to doing that at some point soon. But the crux of what we're saying that you're looking at, you know, in the high 30s would be a good place to be. You know, that number doesn't exist in nature. It's really the high margin SaaS and the kind of 20s margin for the product business. And so it really depends upon the mix shift, how quickly the software business continues to grow, where the product distribution business goes, what the ultimate mix will be, Jeremy. But, you know, under the current relationship and proportions, you know, it's a high 30s margin contribution. And then what we talked about on the operating expense cadence and guidance, you know, we expect some of the numbers overall on a non-GAP basis to come up a bit as we're starting to invest a little bit more in Q2 into that new product portfolio. And as well, we're seeing a lot of traction from all the good stuff that Steve Harmon is doing on the -to-market and bringing in a lot of talented folks with some great relationships and

deal flow. Great. Thank you very much. Yeah, sure.

This concludes our question and answer session. I'd like to turn the call back to Ujo Savickas for closing remarks.

Thank you, operator. Iseco is at an inflection point. The progress we've made in just a few months gives me confidence that we're building something scalable, durable, and highly relevant to the market. Strategy, execution, and innovation are coming together to unlock a new phase of growth for the company. We have strengthened our leadership team with talent that brings deep experience across wireless, enterprise, and -to-market. I've outlined a plan for sequential growth. The strategy and initiatives that we're now executing on, including refreshing our portfolio, strengthening our -to-market, improving operational efficiency, and accelerating our soft grant services roadmap, are setting the stage for compelling growth. We're transforming Iseco from a broad company into a solutions company, and I will share more detail with you in the months ahead. Thank you again for joining us and for your continued support as we execute

this important evolution for Iseco.

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