Dan Mondor – President and Chief Executive Officer Steve Smith – Chief Financial Officer Ashish Sharma – Chief Marketing Officer and Executive Vice President-IoT and Mobile Solutions Chris Lytle – Chief Strategy Officer and Executive Vice President-Enterprise SaaS Solutions.

Mike Walkley – Canaccord Mike Latimore – Northland Capital Markets.

Hello, and welcome to Inseego Corp.’s Third Quarter 2017 Financial Results Conference Call. Please note that today’s event is being recorded. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity for analysts to ask questions.

[Operator Instructions] On the call today are Dan Mondor, President and Chief Executive Officer; Steve Smith, Chief Financial Officer; Chris Lytle, Chief Strategy Officer and Executive Vice President of Enterprise SaaS Solutions; and Ashish Sharma, Chief Marketing Officer and Executive Vice President of IoT and Mobile Solutions.

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 Investors 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.

I would now like to turn the call over to Dan Mondor, President and Chief Executive Officer of Inseego. Please go ahead..

P, A, I, which stands for personally accountable individual. The two businesses will align common technologies around common market segments and industry verticals as follows. Enterprise SaaS solutions is the first business. This is comprised of the Ctrack brand and Inseego North America DMS brand.

The second business is IoT and mobile solutions, and this business is comprised of the MiFi brand and Inseego North America IoT and Crossroads brands. This business has dedicated sales product development and product management. Ashish Sharma has the dual role of EVP, IoT and Mobile Solutions and CMO.

Chris Lytle has the dual role of EVP, Enterprise SaaS Solutions and CSO. The business units have broad market segment names and purposely so.

This aligns Inseego with markets we serve today and, importantly, understands – underscores our growth strategy, which is to pursue new market segments, new enterprise verticals, new geographies and bringing innovative new products to market.

The organization of our current brands accordingly demonstrates that we occupy these markets today with strong brands and establishes our credibility from which to build upon, so we can now explain who Inseego is, what we do and why we matter in a 30-second soundbite. This was previously missing.

We believe Inseego 2.0 is good for all stakeholders in the company. I can tell you employees are energized and there is now clarity for the industry and the investment community. We’ve tested this reorganization, and the overall response to the – to it has been unanimous, two thumbs up. We’ve also heard another comment, which was it’s about time.

Now turning to specifics on growth opportunities going forward. In enterprise SaaS solutions, at Ctrack, we continue to shift our subscriber acquisition investment to large fleet worldwide and SMB in Europe and away from capital-intensive consumer applications with inadequate returns.

Large fleet SMB subscriber recurring revenue grew approximately 10% in the quarter led by strong growth in Germany, Benelux and South Africa. We believe there are significant opportunities to cut capital spending on low ARPU applications which will accelerate free cash flow generation at Ctrack.

Building on our seven international airport deployments, the Ctrack aviation SaaS solution continues to gain momentum with many of the largest worldwide owners of airport motorized assets. We expect the aviation vertical to lead our North American growth strategy and accelerate our 2018 growth rate internationally and in North America.

In IoT and mobile solutions, we are making progress in growing our mobile broadband business in new markets with new customer wins. We’re also bringing our strategy on 5G into focus together with strong partners such as Verizon and Qualcomm.

With this initiative, we are looking to create a paradigm shift in the market and substantially increase our addressable market. Continuing to our IoT business. We are seeing many new enterprise opportunities for our Skyus portfolio for LTE connectivity applications.

We have won IoT projects at smart city wide area network backup and booked monitoring applications with large enterprise customers. We’re investing in our Skyus portfolio road map as it continues to be a preferred solution for many IoT opportunities.

This includes leveraging technologies and platforms we are developing for our mobile broadband portfolio. I’ll now turn the call over to Steve Smith, who will discuss our Q3 financial results and provide Q4 guidance.

Steve?.

Thanks, Dan. Before I get into the results, I want to elaborate on a couple of the things Dan said in his remarks. First, the new management team. Dan joined the company in late second quarter. Chris, Ashish and I joined during the third quarter.

Our restructuring actions and charges and recent inventory reserves that you’ll see in these financial statements are a result of decisions made by prior management. Second, business process improvements. Dan points out that the G&A spend relative to revenue is higher than the norm.

Inseego is a combination of multiple companies brought together to form a multi-disciplined entity. There was no integration of Inseego’s acquisitions.

The goal of the BPI project Dan alluded to is to complete the integration of business systems into an effective platform, eliminating the waste and inefficiencies associated with multiple and disparate systems and processes. I won’t try to hide the fact that we have a lot of hard work ahead of us. This work will take multiple quarters.

Now on with the results of the quarter. As noted last quarter, Q2 was a transitional quarter for Inseego; Q3 was as well. Consistent with the remarks made during the second quarter conference call, in the third quarter, we began to see real reductions in operating expenses from our restructuring efforts.

By the first quarter of 2018, we should see the full benefits of previously announced cost initiatives – cost-savings initiatives, I should say. As noted in our release this afternoon, Q3 revenues of $57.5 million were down sequentially from the second quarter by 4% or from $59.9 million.

On a year-over-year basis, total revenues were down by 6% from $60.9 million. Hardware revenues of $42.8 million in Q3 were down $2.2 million from $45 million last quarter. Year-over-year, hardware revenues were down 7% from $46.1 million in Q3 2016. The MiFi supply issues highlighted by Dan affected both the sequential and year-over-year comparisons.

We generated $14.7 million in SaaS, software and service revenues in Q3, down 2% sequentially from $14.9 million in the first – and 1% year-over-year from $14.8 million. Growth in Europe SMB and South African large fleet was offset by lower consumer and insurance applications as well as contract price reductions for the DMS platform.

Ctrack total revenues, which include a mix of hardware and software, were $15.2 million for the quarter, down slightly from the second quarter of $15.3 million and down 8% compared to a year ago of $16.6 million. The decrease was largely due to a shift in our customer preference towards a rental model away from the upfront sale of hardware.

GAAP gross profit was 28% for the third quarter, slightly lower than the second quarter and 10% below the same quarter last year. As previously announced, we sold approximately $7 million of older-generation MiFi product at a cost during the third quarter to improve liquidity.

Our Q3 GAAP operating expenses of $22.7 million includes a $3.4 million restructuring and charge, which included $1.3 million of severance costs as well as a reserve for ongoing lease obligations of unused facilities, which we will be unlikely to recover any benefit, and certain unused assets authorized by prior management.

Excluding the restructuring expenses, operating expenses associated with R&D, sales and marketing and G&A decreased sequentially $2.1 million to $18.4 million, showing some of the results of the cost reduction efforts. On the same basis, spending is down year-over-year by 40% from $30.4 million in Q3 of 2016.

Our GAAP net loss and net loss per share for the quarter was $13.8 million and $0.23, respectively, compared to a net loss of $12 million or $0.21 per share in Q2 and a net loss of $18.6 million or $0.34 per share in Q3 2016. Now turning on to our non-GAAP metrics.

Consolidated non-GAAP gross margin for the current quarter was 29.6%, down sequentially from 32.1% in Q2 2017 and down from 38.7% a year ago, largely resulting from the sale of older MiFi products mentioned earlier.

It should be noted that as a result of the – of this one-time sale and it’s favorable approximately $700,000 taken in the quarter for excess and obsolete inventory, gross margin percent was impacted by about 5.5 percentage points.

Non-GAAP gross margins for SaaS, software and services increased sequentially to 76.7% from 75.9% in Q2 and year-over-year from 67.3% in Q3 2016. On the hardware side, our non-GAAP gross margin declined sequentially to 13.5% from 17.5% in Q2 and year-over-year from 29.5%. The MiFi products are driving this near-term margin compression.

Our non-GAAP gross margins for overall Ctrack product was 68.3% in the third quarter of 2017 compared to 68.7% in Q2 2017 and 63.3% in the third quarter of 2016. With respect to operating expenses. Our non-GAAP operating expenses decreased to $17.5 million for the quarter, an improvement of 13% sequentially and 25% year-over-year.

As Dan stated earlier, relative to our commitments in the June call, we have reduced annualized expenses by greater than $21 million to date. We expect the continued improvement in our operating expenses as a result of cost-cutting actions we’ve recently undertaken. This can be partially offset by unpredictable legal expenses.

Our adjusted EBITDA for the third quarter of 2017 was $5.1 million as compared to $1.1 million for the second quarter of 2017 and $2.3 million in Q3 2016. Ctrack generated $2.7 million of adjusted EBITDA in the third quarter of 2017, up $400,000 from the second quarter and unchanged from the same period last year.

Our subscriber base grew by more than 5% during the third quarter, up to 700,000 compared to our June quarter subscriber count of 664,000. On a year-over-year basis, we’ve added 110,000 subscribers, an increase of 19%. This includes Ctrack and Inseego North America subscribers combined.

Our non-GAAP net loss per share in the third quarter was $0.05 per share, an improvement of $0.03 versus last quarter due to improved operating expenses and $0.02 lower than the same period last year due to lower revenue and gross margins offset by the operating expense reductions.

A reconciliation of our GAAP to non-GAAP financials is contained in the press release. Now turning to the balance sheet. Cash and cash equivalents, inclusive of restricted cash, was $20 million at the end of the third quarter, increasing some $11.4 million at the end of the second quarter.

During Q3, we paid down approximately $5.2 million of payables and paid $1.6 million of severance. In late August, we completed the refinance of a $40 million term loan facility. These funds allow us – allowed us to pay off the previous $20 million term loan that was due to mature in May of 2018.

We extinguished approximately $14.9 million of convertible senior notes and generated approximately $14.5 million of additional liquidity. Finally, on our share count.

Our weighted average shares outstanding for Q3 were 59 million, an increase of about 1 million shares from 58 million – from the 58 million share count average outstanding in the second quarter due mainly to the shares issued in connection with the financing just mentioned.

In Q3 last year, our weighted average shares outstanding was around 53.9 million. Now moving on to guidance. We’re pleased that the company met the Q3 guidance provided three months ago.

As for fourth quarter guidance, Q4 revenues will reflect the seasonality of the MiFi business and the effect of the earlier supply issues referenced by Dan combined with the benefits of the cost reductions already put in place.

We expect total revenues to be in the range of $45 million to $50 million for the fourth quarter and our consolidated adjusted EBITDA to be in the range of $2 million to $3 million.

Our Ctrack revenues over the same period are expected to be in the range of $15.5 million to $16 million and adjusted EBITDA from Ctrack in the range of $3 million to $3.3 million over the same period. That ends my prepared remarks. At this point, we’ll turn the call over to the operator and start the Q&A session..

Just before we turn it over to Q&A, just a correction, our adjusted EBITDA for the third quarter of 2017 was $1.5 million. I think there was just a slight misspeak on that..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Walkley of Canaccord. Please go ahead..

Thank you. Just looking at your MiFi hardware business, can you walk us through how you see it recovering after Q4? And to hit your targets, your intermediate-term targets, what kind of revenue and gross margin do you need to achieve in MiFi to hit maybe that $30 million run rate and some of the other targets you talked about? Thank you..

Yes. Well, it’s Dan here. Let me start – and by the way, I should mention that we have Ashish Sharma here and Chris Lytle, who can assist in some of the questions. So the model that we have does not rely on revenue growth, it’s a flat year-over-year model.

And so there is really – there isn’t really an absorption factor, if you will, in terms of cost to achieve higher margins. So a couple of things. Firstly, we are moving contract manufacturers and have negotiated quite heavily several there through a selection process.

And quite frankly, we just have better commercial terms actually both in transfer price as well as our payment terms. So there is a fairly significant contribution in terms of basis points from that alone.

Secondly, there’s been a lot of work now on the product side to look at the cost of components, the overall cost of the product as far as the housings, et cetera. So going forward, there is a new approach to essentially have a lower design floor, a cost floor, if you will, on the products.

So those in combination give us the confidence that we can run the MiFi portfolio going forward at a 10% EBITDA margin. I don’t know, Ashish, if you have anything to add..

Thanks, Dan. The only thing I would add is that’s the strategy based on the current MiFi product, on the hotspot product that we do have strategies to take that technology and move that into a more comprehensive mobile and IoT portfolio that then would allow us to grow our margins significantly in the future..

Okay. And then just maybe your visibility in growing channels.

Do you think Q1 starts to grow off the implied guidance for Q4? Or just how do you think it kind of trends in terms of your pipeline that you’re working on to expand channels?.

Well, it’s Dan here again, I’ll start. We are – to create a comprehensive channel strategy and principally centered around our IoT and mobile solutions. If that was your reference in terms of both stocking distributors as well as value-added resellers, we have a handful today. There’s a big opportunity as far as just expanding that channel to market.

Naturally, there’s a push-pull effect, and the other is broadening of our customer base which, of course, creates the pull effect. So we’re working on both directly with the end customer, and I’m speaking on IoT and mobile solutions here, to create the pull as well as a push to a new – a channel partner strategy..

Okay, great. And then just on the SaaS, your sequential revenue is a little lower than expected. I know there’s a lot of changes going on.

Can you kind of just walk us through the SaaS revenue, kind of what’s going on there and how you see the Ctrack business returning to growth from that area?.

Sure. Great question.

Chris, do you want to cover that?.

Yes. Thanks, Dan. Chris Lytle here. The sequential and year-over-year growth was heavily affected by the decline in hardware sales at Ctrack which was basically driven by a shift in our customer demand in terms of wanting a rental option on the hardware versus the cash upfront sale.

We anticipate that those year-over-year comparisons will diminish in the fourth quarter, and then we expect reported Ctrack revenue to be growing again in the first quarter of ‘18. I think it’s important to note recurring revenue growth at Ctrack was up in the quarter year-over-year and sequentially.

And then back to the guidance for ‘18, we do expect reported growth in the first quarter and that should accelerate throughout the year as increased investment in the European vertical and also momentum in the aviation solution accelerates growth throughout the rest of ‘18..

Great. Thank you very much..

[Operator Instructions] Our next question comes from Mike Latimore of Northland Capital Markets..

Great. Thanks. Yes, on the – just on the supply issue surrounding the hardware business, MiFi business.

Should that supply issue be sort of out of the mix in the first quarter? And then, if so, would that suggest that hardware should grow sequentially in the first quarter?.

Yes. So Mike, Dan here. Yes, long story short, yes. We made reference to it hurt us in Q3, and it has a lingering effect into Q4, predominantly the first half of Q4, but there is a carryforward effect. We are turning up a second contract manufacturer that we’re – that I referenced, and production is already coming online.

So essentially, that then fills the gap. We are caught up in terms of – if you look at week-to-week supply-demand, it’s the lingering effect that is the impact. But long story short, we’re going to be fully transitioned and fully caught up by the end of the quarter on the MiFi. And as a matter of fact, it is extending to all of Inseego products.

So we have a much more robust, I would say, supply chain going forward, Mike. So yes, Q1 will be, if you will, business as usual..

Got it.

And then did you say the gross margin on hardware would be into the mid-20% range in the fourth quarter? Or did I not hear it correctly?.

What we talked about was the – this is Ashish Sharma, was the adjusted EBITDA for MiFi to be above 10 percentage in 2018..

What about just the gross margin on hardware? Did you guide on that in the fourth quarter? Or did I not hear that correctly?.

We guided on total company and Ctrack only..

We did not guide on hardware per se. Obviously, we don’t guide, but you can see what we’re doing on the supply side as well as the design side. And the 10% EBITDA margin on MiFi is the plan going forward. And so as we look at some of those products, there’s an ability to underwrite some of the R&D cost with NRE.

There certainly is going to be pure gross margin improvement. But in general, we felt the better figure of merit is talking about EBITDA margin..

Got it. And then the airport win, very interesting. You said that could be your largest SaaS deal, I believe.

What is your largest SaaS deal apparently?.

At full deployment, it will be the largest SaaS Ctrack deal in history. We haven’t made reference to the sizing of prior deals. All I can say is that it’s a significantly lower number..

This is Chris. Just to give a little context on the airport opportunity. We believe the North American market represents 250,000 asset type market where we immediately have the opportunity to get material market share both in North America and worldwide. So the first win in the U.S.

is obviously important, then it adds momentum where we have seven deployments internationally in airports and really think of ourselves as a leader of IoT platforms for connected assets at airports. So it’s very exciting, a lot of work to do going forward but definitely represents a very large market opportunity for Ctrack..

Great. Thanks..

[Operator Instructions] There appear to be no further questions at this time, and the question-and-answer session has concluded. I would like to turn the conference back over to Dan Mondor for any closing remarks..

Yes. Thanks again, everyone, for joining today’s call and for your ongoing support of Inseego. The strategy and the purpose behind what I refer to as Inseego 2.0 is to relaunch the company and focus on increasing shareholder return by growing the value of our largest and most important assets.

We are certainly creating a more efficient and effective company, and we’re beginning to record important wins which translate to long-term traffic profitable growth. I look forward to providing you progress reports on future earnings calls and meeting you in person.

Lastly, I would want to thank every employee of Inseego for your tireless efforts and commitment to achieve success. So with that, we’ll conclude today’s call..

Thanks, Andrea. I think we’re – let’s conclude the call at this point..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines..