Inseego Corp.

Hello, and welcome to Seego Corp.'s second quarter 2026 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 star, then two. On the call today are Juho Sarvikas, Chief Executive Officer, and Steven 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 a discussion on factors that could cause actual results to differ materially from the 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.

Good afternoon, everyone, and thank you for joining us today. Q2 revenue was $44 million, about the high end of our guidance range. We delivered 28% sequential growth and 9% year-over-year growth, driven by strong product revenue. Our top line results benefited from late quarter orders from select carrier customers tied to expected memory cost increases going into the second half of the year. These orders supported our customers and contributed to revenue outperformance in the quarter, but they also weighted on gross margin and are expected to result in lower ordering levels from those customers in Q3. Over the last 18 months, we have moved much faster than this business has historically operated. Inseego typically introduced roughly one new product annually. Since I joined the company, we have significantly accelerated that pace, launching multiple new products and variants across mobile and FWA, while also broadening the customer base. We now have six products across three Tier 1 carriers for the first time in the company's history. That was the right strategic direction, and it helped us win important new customer opportunities, including our newest Tier 1 carrier. But as we accelerated the pace of product development, we discovered that our engineering processes could not support the rate of new product introduction. As a result, we experienced product delays, which created a revenue gap that we will not fully recover in 2026. It is disappointing, particularly against the customer wins we brought in. As I mentioned on the last call, we've taken immediate actions and amongst them the search for a new engineering leader, which is going well. We have several candidates deeply engaged and I look forward to updating you as we move through the process. Our newest tier one carrier relationship is performing well across mobile and FWA. However, instead of driving the incremental growth that we expected this year, that performance is filling the gap created by product delays and weakness with our largest FWA customer. In FWA, the recovery of our largest customer is taking longer than expected. The customer is still working through changes to its enterprise go-to-market strategy and internal organization. And while I expect our next-generation product to get us back on track, we are factoring in a slower recovery in our updated outlook. As such, we're updating our full-year 2026 outlook to reflect a lower second-half revenue expectation. It is important to note that the revenue opportunities we have won remain intact. Our focus is getting the business to a more appropriate product delivery cadence and quality to generate more consistent revenue and deliver profitability. With that context, on today's call, I'd like to add my perspective on our Q2 operational progress, the operating dynamic behind our updated outlook, and our progress preparing for the Nokia FWA integration. Starting with Q2, a key milestone was completing the launch of our refreshed mobile broad family across all three North America Tier 1 carrier customers. The MiFi Pro M4 is now launched across all three carriers, including the delayed but on-target late quarter launch with our largest MiFi customer. We also made a multi-carrier model available to the Valuated Reseller channel. This gives us a stronger mobile portfolio than the company has had in years. and positions us across three largest carrier customers and the resetter channel. These launches took longer than planned, but they are now completed and in market. Our newest tier one carrier relationship performed well in both mobile and FWA. That remains an important proof point for the strategy of broadening our customer base and reducing reliance on any one customer. And so, when we started talking with this customer about a large Q2 purchase ahead of anticipated price increases later in the year, we worked to deliver that increased volume in quarter. In channel, we supported a large industrial deployment using our IoT product with Inseego Connect. That is a good proof point for the value of pairing our hardware with cloud-based device management, and we continue to see Inseego Connect as an important part of our broader solution set. Overall, during Q2, we completed the key mobile portfolio launches, grew revenue, and executed with our newest tier one carrier. But the quarter also made it clear where we need to do better. Broad execution and delivery needs to be reliable, and we need to execute on our new broader customer base and product portfolio more consistently. That brings me to our updated 2026 outlook. We now expect full year revenue of approximately 155 million. Our updated outlook reflects a lower second half revenue expectation, particularly in Q3. There are four drivers to this updated outlook. The first half mobile delay, the slower recovery of our existing large FWA customer, Inseego's subscribe, and the MSO's unpredictable sales cycle. Let me start with subscribe, since it's reflected in the updated outlook and remains a strategically important platform for us. Over the past year, we have continued to develop Subscribe from a customer-specific services arrangement into a carrier-grade subscriber lifecycle management platform. The platform is designed to help service providers sell, onboard, manage, and support complex enterprise and government wireless services more efficiently and at scale. During the quarter, Subscribe achieved CMMC Level 2 certification, an important cybersecurity milestone for supporting U.S. federal government programs. This strengthens the platform's ability to support communication service providers serving government customers. As our Tier 1 carrier customer on the platform has evolved its internal IT and system capabilities, the subscribed pricing is stepping down the professional services component. As a result, beginning in Q3, we expect software services and other revenue to decline by approximately $2 million per quarter. Subscribe remains a high margin contributor and a strategically valuable platform. We continue to advance the roadmap, new customer business development activities, and believe Subscribe can play a broader role over time. In terms of the MSO opportunity, customer engagement remains active, and we continue to see opportunity in this market. However, the customer conversion is taking longer than expected. Given that, we have removed MSO revenue from our 2026 outlook and will treat it as upside until customer conversation is proven. Let me now turn to the acquisition of Nokia's FWA business, which we announced on April 30th. This will mark an important step in our evolution into a global wireless broadband platform. The acquired business will more than double our revenue base, expand our product coverage, and deepen our strategic collaboration with Nokia. Strategically, the acquired business is highly synergistic and a natural extension of what we do. The business will add strong engineering capability, establish global tier one customer relationships, and one of the strongest FWA portfolios in the market, including indoor, outdoor, and millimeter wave products. Combining their portfolio with Inseego's North America carrier relationships, mobile and FWA product portfolio, and cloud software capability gives us a much broader platform for growth. With an anticipated close in Q4 2026, we are taking concrete steps to build the operating foundation for a larger global Inseego. First, we have strengthened our international regional leadership. Ranaf Shroff has joined Insego to lead APAC sales, Ossi Korpal has joined to lead EMEA sales, and Steve Harmon has expanded his role to lead the Americas, including Latin America. This gives us dedicated leadership across major regions where we see opportunity for the combined portfolio. Second, Steven has expanded his role to lead our international expansion where he will oversee the global operating structure support integration activities and work closely with regional sales leadership to execute business primarily across EMEA and APAC. Third, we are establishing the engineering and operational footprint needed to support customers globally. We have selected Amsterdam as our center of international operations, extending the reach of our San Diego-based global headquarters. We are also continuing to build Athens as a key software development center for our global FWA portfolio. These are targeted actions to support integration readiness and customer continuity with an overriding benefit of bringing on a talented and effective engineering team. With these actions, integration planning is well underway. Our priorities are customer continuity, employee integration, roadmap alignment, and operating discipline. The opportunity is significant and our focus is on building the right foundation so we can integrate the business thoughtfully, support customers and enter 2027 with a strong global platform. In summary, we have streamlined our portfolio to support reliable execution and we are taking the required actions to improve the leadership and quality of our execution. We are very clear on our focus areas as we move to the second half of the year. Converting our current portfolio into more consistent revenue, improving profitability, strengthening engineering and product delivery, and aligning costs with the revised revenue profile. That focus is also critical as we prepare for the anticipated close and integration of Nokia FWA acquisition. Nokia's FWA business gives us the opportunity to become a much larger global wireless broadband platform. but our immediate priority is clear. Execute against the revised outlook, rebuild consistency in the Corp business and enter Q4 with stronger execution. With that, I'd like to hand off to Steven.

Thank you, Juho. Hi, everyone. I'd like to follow on Juho's discussion and cover three topics today. First, I'll take you through more details on our Q2 2026 financial results. Second, I'll talk through the financial profile of the business and provide our guidance for Q3 and our updated view for full year 2026 revenue. And third, I'll share some color on the FWA acquisition work that we're doing. To be clear, the discussion of our financial results for Q2 2026 and our outlook and guidance for Q3 and the full year 2026 today are for NSECO standalone only. do not include any contribution from the Nokia FWA business. We are on track for a targeted close in Q4 of 2026, and we expect to provide certain combined company and pro forma financial information then. As we always do, we'll wrap up by opening the call for your questions. Starting with Q2 2026 financial results, total revenue was $44 million above the high end of our guidance range up and many more. The financial impact of the financial impact of the financial impact of Mobile Solutions revenue was $17.3 million and was the key driver up 26% year over year on good traction with our newer Tier 1 carrier customer and strong channel activity with the refreshed MiFi portfolio. FWA revenue was $14.4 million for Q2, also with solid contribution from our newest Tier 1 carrier that had a large purchase in the quarter. As Juho mentioned, this strength was unfortunately partially offset by lackluster performance at another existing large FWA carrier customer. Services and other revenue came in at $12.3 million, or 28% of total revenue, and up 2% year over year. Let's talk a bit about the Q2 ordering activity tied to memory pricing and availability. As Juho mentioned, worked with our relatively new Tier 1 carrier customer on an upsize order in Q2 to get ahead of anticipated increases in memory prices and market supply constraints in the second half of the year. That supported us closing higher than anticipated revenue in Q2, and it also is expected to impact the current Q3 ordering cadence. In the context of typical quarterly levels, we see something on the order of $5 million to $6 million of incremental revenue that was realized in Q2. Normally, this would not have a meaningful impact quarter to quarter, but in the context of the product delays we talked about, that incremental revenue has a larger impact. Similarly, while we were pleased to support our new carrier customer with a larger order, Gross margin percentage saw an impact from this deal with Q2 2026 non-GAAP gross margin coming in at 34%. The impact of gross margin was a function that while the ASP was set on this deal, we needed to allocate higher cost memory units from follow-on purchases in order to fulfill the larger quantity ordered. The larger deal generated incremental revenue but pressured Q2 gross margin percentage. The positive on this is that we expect product margin percentage to improve to the high teens in Q3 as we've been successful going forward with this relatively new dynamic of passing along essentially all of the memory price increases to customers this quarter. Moving down to P&L, Q2 non-GAAP operating expenses were $16.9 million, or 38% of revenue, flat sequentially to Q1. So pulling this all together, Q2 2026 adjusted EBITDA came in at $.5 million, or a margin of 1% in line with our guidance, but impacted by the lower margin revenue as we discussed. Closing out Q2 with the balance sheet, we ended June with cash of approximately $2 million. This reflected the timing of significant product deals that closed late in the quarter. While you see this in the meaningful increase in accounts receivable at quarter end, we have been collecting material amounts of that cash here in Q3. We also had a balance of $10 million on our revolver at the end of June. and that too has already been paid down meaningfully from the cash collections. With that, let's now turn to the dynamics here in the current quarter and provide our Q3 guidance and updated outlook for full year 2026 revenue. Echoing Juho's earlier comments, the timing of the new product revenue drivers has shifted out. The refreshed mobile portfolio is now in market, but the first half delays created a revenue gap we will not fully realize this year. Our existing large FWA customer has a path to recovery, including the next generation product launch, but is admittedly taking longer than expected. And as Juho also mentioned, while the MSO market remains a compelling TAM expansion opportunity, it is taking longer to convert and to sign contracts, and so we've adjusted our expectations to remove that from our 2026 forecasts. Pulling this together for Q3 2026, we expect total revenue in a range of $28 million to $35 million and adjusted EBITDA in a range of negative $1 million to negative $2 million. From a margin and profitability standpoint, We expect gross margin to modestly improve in Q3, as I mentioned, as lower margin products are expected to decline and memory cost price pass-throughs take effect. We are focused on operating spend discipline and are actively aligning our spend with the revised revenue profile. Stepping back to look at the full year, we see 2026 revenue in the area of $155 million. This updated outlook is for Insego only, and reflects the dynamics we've been discussing. The first half product delays, the slower recovery at the existing large FWA customer, monetization of the MSO opportunity and marginally lower subscribed revenue. We continue to focus on delivering a more diverse product set to a more diverse customer base, both of which are a new dynamic in the company's history. We've had execution issues that are having an impact in the near term but we're addressing those and believe the trajectory is upward as we move through this quarter and get execution back to where it needs to be to get those pieces to contribute more consistently. All the while, maintaining the operating discipline and focus on improving profitability over time. Finally, I'd like to share an update on the Nokia FWA acquisition as you have discussed. It's a complimentary business and adds a compelling scale and quality of engineering to Inseego. We continue to expect the transaction to close in Q4 2026, subject to customary closing conditions. As a reminder, we are acquiring a business with an annual revenue run rate of approximately $200 million, which more than doubles our revenue base and makes Inseego a global provider in our core wireless broadband. all with the backing and go-to-market coordination with Nokia. Once the transaction closes, our reported results will naturally include the acquired FWA business from the closing date forward. We wanted to give you a sense of how we're thinking about both reporting and guiding outlook for the company from that point forward so everyone can align models and expectations. On our Q3 2026 financial results earnings call that we expect to have in a few months November. Assuming the transaction closes as expected, we plan to provide Q4 2026 revenue guidance for both the NSEGO business and for the acquired Nokia FWA business. We intend to provide that for that quarter in order to give you a clear starting point and relative performance of the businesses. We also plan to provide a historical view of quarterly revenue for the acquired FWA business so you have the context to build a combined revenue base into your models. Beginning with our Q4 2026 financial results earnings call expected in February 2027, we intend to guide and report as a single combined company and will include certain prior period financials and pro forma revenue comparisons so you have an apples to apples basis for gauging outlook and performance. Our objective is to give you the information and transparency to understand the transition, the business performance, and to model the business, all while us managing and reporting the company the way we intend to run it as one integrated segment and set of products. With that, we appreciate your time and support and are glad to open the call for questions. Operator?