Dan Mondor - CEO, President & Director Stephen Smith - EVP & CFO.

Thomas Walkley - Canaccord Genuity Jaeson Schmidt - Lake Street Capital Markets.

Hello, and welcome to Inseego Corp.'s Fourth Quarter and Full Year 2017 Financial Results Conference Call. Please note that today's event is being recorded. [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..

Good afternoon, everyone, and thank you for joining today's call. I'll start my remarks on the continued progress of Inseego's transformation with the headlines. First, the company's turnaround strategy is progressing ahead of plan. The integration of all functional organizations has been completed, and Inseego 2.0 has been launched.

Second, the outlook for 2018 is very positive and the market conditions have never been better. Third, Inseego's IoT and mobile solutions and enterprise SaaS solutions are well positioned in the market. We are at the forefront of the 5G curve.

Inseego is in the right place with market-ready solutions, and we're making investments to bring new products to market in response to opportunities.

Since joining as CEO last June, I have personally conducted hands-on reviews of all areas of the business, including each functional group, and I've traveled to all company locations multiple times, as have the members of the new management team.

We know which assets are foundational to our long-term plans, and which assets are nonstrategic that we may choose to monetize. We have assessed market opportunities that passed my real, worth it and winnable tests.

We've redefined the company with the primary purpose of focusing Inseego 2.0 on high-growth markets in 5G, smart IoT applications, consumer and industrial products and end-to-end cloud business intelligent solutions.

Our strategic plan expands our served addressable market from $1.8 billion presently to approximately $3 billion in 2019, and to $4.5 billion in 2020, with 5G being a major driver. Product roadmaps and technology plans are in place that leverage our core technical competencies.

We have developed a sourcing strategy of new device-to-cloud technologies, which integrate with our technology to create high-value solutions. We are driving our evaluation with revolutionary thinking to create new product categories.

These are the growth engines for the company, notably 5G being pivotal as the next generation of mobile technology and the first generation of true mobile broadband. The introduction of several new product categories in current markets as well as addressing new markets is the plan we are executing.

We're strengthening our sales teams with proven talent to engage more service providers and enterprise customers in multiple geographic regions. The heavy lifting on cost reductions continues, and is paying off. I am pleased to report that we've completely blown away the original target we set for 2013.

We reduced over $30 million of annualized operating expense in 2017 versus the $15 million target we set. We generated positive GAAP operating income and positive operating cash flow in the fourth quarter. This is the first quarter since 2009 that the company has reported positive GAAP operating income.

I'm going to pause for a moment to let that sink in. On supply chain, the issues that we faced in 2017 are behind us. We now have the most robust and responsive and cost-effective supply chain in the history of the company. Period.

I want to discuss our turnaround plan starting back in June 2017 when I was appointed CEO, and then discuss the timeline going forward. The second half of 2017 was focused on correcting numerous deficiencies. In late third quarter, early fourth quarter, we started to put together a 3-year growth plan.

We've rebuilt the organization and added top talent to create the resource foundation for the future. We brought battle-tested A players into the organization at all levels. While we were fixing issues inherited from prior management, we started making solid progress in the market.

Of 13 major milestones in the second half of 2017, 9 were corrective actions. As an airline metaphor, the management team spend the majority of our time last year in the hangar doing repairs and preparing for flight.

As we moved into early 2018, the pace of our forward progress in the market has increased, and we are investing in new products and go-to-market resources to increase our product portfolio and customer engagement. I have defined 16 major milestones in 2018, including 5 corrective actions.

So 2018 is much more focused on driving the business forward with a steady improvement on results. The metaphor is, we're taxing to the runway and achieving lift-off. Projecting further 2019 is gaining altitude. It's the year of accelerating growth and reducing leverage and partial pay down of debt.

2020 is continued acceleration of revenue growth and additional deleveraging of the balance sheet. Inseego 2.0 is in full flight in 2020. Over the 3-year plan, we expect significant shareholder value creation based on our new operating model using industry comparable benchmarking. Now, let's turn to some recent highlights.

In IoT and mobile solutions, there is great progress developing a 5G product portfolio. The market is heating up with most service providers announcing intentions to begin rollouts in 2018. If you attended the Mobile World Congress in Barcelona, there is no need for me to tell you 5G is a freight train. It's very big and is moving very fast.

We continue to focus our efforts on bringing multiple form factor 5G devices to the market, including a fixed wireless residential broadband router and mobile products to meet the needs of our customers.

Our product engagements with leading chipset vendors, mobile network infrastructure vendors and service providers have put us on a path to the first 5G device offerings in the market.

So why am I confident on first to market? Well, Inseego has brought breakthrough products in every new generation of industry-standard mobile technology, and we're applying that experience and expertise to 5G. Been there, done that, have the T-shirt.

The majority of our competitors don't have the depth of experience so their pattern is to follow the pack. And had the MiFi business sold to T.C.L., the road to 5G would have been very long. Thank you, CFIUS. We've increased our investment in the IoT portfolio and plan to launch several new products in 2018, starting in the second quarter.

These products are targeted for enterprise and industrial IoT markets where we continue to see opportunity with many applications, including software-defined WAN failover, remote connectivity and smart city infrastructure management. In 2017, we made progress in our mobile business in several fronts.

We strengthened our relationship with our largest customer. We focused on winning new customers both in U.S. and abroad. We are diversifying the MiFi hotspot customer base and in introducing new product categories.

We received first purchase orders for our new Voice over LTE wireless home phone product from a Tier 1 wireline service provider with planned deployment to begin next quarter. In IoT space, we have established a solid presence with our Skyus portfolio.

We had record sales in our industrial IoT portfolio over the past year, posting a 70% year-over-year revenue growth. We won numerous SD WAN failover, infrastructure management and remote monitoring projects from large enterprise customers.

We believe our technology is a great fit for the industrial IoT and enterprise markets, and our plans are to bring new IoT products to the market, and we expect to accelerate our growth in 2018, both in North America and international markets. Now turning to Enterprise SaaS solutions.

We are seeing positive momentum at Ctrack and making good progress towards our near-term goal of double-digit revenue growth. We expect to see revenue growth in the first quarter of 2018, followed by accelerating growth this year. This is driven by market expansion and increased sales investments in the U.S.

and international aviation vertical fleet and SMB in Europe and South Africa. Late last year, we announced the major strategic partnership with Sprint. Jointly, we're engaging Fortune 500 enterprise customers to help them automate business processes with secure and specialized IoT solutions that enable data-driven decision making.

We jointly announced our first aviation win together with Sprint with a major U.S. airline during the CES show in January. I can tell you this is a very active partnership with ongoing engagements across several other large U.S. airlines. The partnership is working very well, doors are opening and we are rapidly building our U.S.

market presence and pipeline. Internationally, our aviation solution was selected by KLM for the Hong Kong International Airport. The world's largest cargo handling airport.

Building on our seventh international airport deployments to date, the Ctrack aviation solution continues to gain momentum with many of the world's largest owners of airport assets. Demand in the aviation vertical for asset tracking and business intelligence solutions is growing rapidly.

We're growing our business with existing customers and have several proof-of-concept trials underway with new customers. We have a highly differentiated proven solution, and most importantly, we're beating the competition in technology bake-off trials and winning new opportunities.

Between current customers recent wins and active opportunities, our pipeline of connected assets has reached 6 figures in numbers of units. Ctrack-connected asset growth was driven by the SMB vertical market in Europe and fleet in South Africa. Ctrack adjusted EBITDA margins grew sequentially from 18% in the third quarter to 24% in the fourth quarter.

Turning to DMS. DMS is our market-leading SaaS platform supporting carrier subscription, acquisition workflows for enterprise and government customers. We continue to have a close partnership with T-Mobile, and are focused on new accounts. Subscriber growth continues quarter-over-quarter.

Now, it has taken longer than expected to announce our new Tier 1 service provider for DMS, due to contracting delay between the service provider and the government agency end customer. We expect to announce this in the near future.

Now, I'll turn the call over to Steve, who will discuss our fourth quarter financial results and provide first quarter guidance.

Steve?.

Thanks, Dan. Before I get into the results of the quarter, I want to elaborate on a couple of things. First, Dan mentioned the Inseego 2.0 both in the last conference call and in this one.

We've gone through a comprehensive reorganization to redefine Inseego into IoT and mobile solutions under Ashish Sharma, and Enterprise SaaS Solutions under Chris Lytle. IoT and mobile includes MiFi and IoT businesses.

New development work is targeting 5G, smart IoT devices and services to expand our industrial IoT footprint and home and industrial gateway routers. Enterprise SaaS Solutions is comprised of our Ctrack asset tracking and telematics and DMS businesses. We have put together comprehensive strategic plans and budgets highlighting each of the businesses.

While we have not reported on the business this way in 2017, we will begin to -- begin providing additional transparency along these business lines in 2018. Accordingly, you will see new guidance begin to shape the dialogue going forward. We believe this is a major step forward in transparency. Second, the business process improvement or BPI project.

We did a deep dive into the current state of the business and identified not only the required actions, but also the IT platform requirements first to fully integrate the company's back-office systems and processes. We're well underway with the planning and expect to launch this initiative in the second quarter.

Ultimately, with streamlined processes and a fully integrated system, we should see tighter adherences to service level agreements, lower costs and stronger internal controls. Now onto the results of the quarter and the year. As a recap from last quarter's conference call, Q2 was a transitional quarter for Inseego. Q3 was as well.

In Q4, we made real traction with customers and operational efficiency. As noted in our press release this afternoon, Q4 revenues of $46.5 million were down sequentially from the third quarter by approximately 19%. This was expected and disclosed in the guidance we provided during the November conference call.

These revenues exclude a $1.2 million sale of previously discontinued product lines that are included as a reduction to GAAP cost of sales. Compared to Q4 '16, total revenues were down by 12%. On a year-over-year basis, annual revenues of $219.3 million were down 10% compared to 2016.

The entire deficit due to lower hardware sales, mainly MiFi, and unfortunate result of the failed efforts by prior management to sell the business. Hardware revenues of $31.8 million in Q4 were down $11 million from last quarter consistent with expectations. Year-over-year, hardware revenues were down 16% from Q4 '16.

Total year 2017 hardware revenues were $161 million compared to $187.4 million in 2016. We generated $14.8 million in SaaS, software and services revenue in Q4, up 1% sequentially from last quarter and down 1% year-over-year.

Growth in Europe and South African large fleet continue to be offset by planned lower consumer and insurance applications, along with contracted -- price reductions for the DMS platform. On a total year basis, SaaS, software and services revenues grew 4% from last year, hitting $58.3 million in 2017.

Ctrack's total revenues, which include a mix of hardware and software, were $15.7 million for the quarter, up 3% from Q3 and down about 7% compared to last year. On an annual basis, Ctrack revenues were $61.5 million in 2017 compared to $64.2 million in 2016.

Part of the change in revenue is the continued shift in customer preferences towards a rental model away from the upfront sale of hardware. Accordingly, hardware sales in Ctrack dropped 31% year-over-year. Connected asset growth in our target verticals of aviation, fleet and SMB was 5% sequentially and 15% year-over-year.

For context, a different kind of revenue for the quarter, IoT and mobile solutions posted a revenue of $29.7 million and enterprise SaaS solutions posted revenue of $16.8 million. GAAP gross margin was 37.7% for the fourth quarter, 9.2 points above last quarter and almost 21 points higher than the same period a year ago.

Favorably impacting these numbers was the $1.8 million credit to cost of goods, $1.2 million of which was associated with the sales of previously discontinued products, approximately $600,000 in previously written off raw materials and reduced contract manufacturing liabilities. This netted about 4 margin points.

Looking at the year-over-year changes, 2017 GAAP gross profit was 30.7% compared to 31.3% last year. We placed a lot of emphasis on our product cost in the second half of 2017, changed our primary contract manufacturer and addressed component level costs, all of which we expect to be reflected in future quarters.

Our Q4 GAAP operating expenses or OpEx of $16.8 million include a $0.5 million restructuring recovery, which included $400,000 in additional severance costs, offset by almost $1 million in recoveries on lease facilities from which we have been completely released.

Excluding the restructuring expense benefits, OpEx associated with R&D, sales and marketing and G&A decreased $2 million sequentially to $17.3 million, showing further results of our cost-reduction actions. On the same basis, spending is down year-over-year by 44% from Q4 '16.

Year-over-year, total GAAP OpEx closed 2017 at $89.5 million compared to $121.3 million in 2016, a 26% improvement.

Before I get into the EPS for the quarter, I need to point out that GAAP operating income, note the use of the term operating income, a term not used since 2009, was positive $800,000 in Q4, which compares to a $6.4 million loss in Q3 and a $22.1 million loss in Q4 2016.

In summary, revenue in Q4 '17 was down 12% versus the same period last year, while operating income improved approximately $23 million. Kudos to the entire Inseego team worldwide.

On a total year basis, the operating loss was reduced to -- was reduced by over 50% from $45 million to $22 million in -- I'm sorry, from $45 million in 2016 to $22.2 million in 2017.

Our GAAP net loss and net loss per share for the quarter was $3.8 million and $0.06, respectively, compared to a net loss of $13.8 million or $0.23 per share in Q3 2017 and a net loss of $27.4 million or $0.50 per share in Q4 '16.

It should be noted that as a result of the recent tax reform, we were able to recognize an alternative minimum tax credit of approximately $800,000 in Q4. Year-over-year, our net loss per share on a full year basis was reduced from $1.12 in 2016 to $0.78 in 2017.

We still have room for improvement and we'll continue to rigorously pursue cost-reduction opportunities as an ongoing process. Turning now to our non-GAAP measures. Consolidated non-GAAP gross margin for the current quarter was 35.2%, up sequentially from 29.6% in Q3 '17, and down from 39.9% a year ago.

In each case, we've excluded the impact of both any benefit or impairment associated with discontinued product lines. Non-GAAP gross margins for SaaS, software and services were 74.6% as compared to 76.7% in Q3, and increased 5.1 points year-over-year from Q4 '16.

On the hardware side, our non-GAAP gross margin increased sequentially 16.8% from 13.5% in Q3 and down year-over-year from 28.3%. The majority of the recent margin improvements are due to changes in the contract manufacturing front, from which we recognized only a partial benefit in Q4.

Comparing total year '17 and '16, our SaaS, software and services non-GAAP gross margin improvement 3.3 points to 73.8%, and hardware margins declined from 28% to 16.9%. Obviously, there was an unfortunate lack of attention to gross margins coming into 2017. Overall, gross margin on the same basis was 32% in '17 compared to 37.8% in '16.

Our non-GAAP gross margin for overall Ctrack products was 65% for Q4 '17 compared to 68.3% in Q3 and 64.5% in Q4 '16. Compared to 2016, total year Ctrack gross margin increased 2.1 points to 66.7% for the full year '17.

With respect to operating expenses, our non-GAAP OpEx was reduced to $15.3 million for the quarter, an improvement of $2.2 million or 13% sequentially and 24.3% year-over-year. Relative to the commitments made during the June call, we have reduced annualized expenses from Q1 '17 by greater than $30 million to date.

I expect expenses to increase going forward as we make salary adjustments in 2018, and begin making key strategic investments in new products, systems and sales resources. On a full year basis, non-GAAP OpEx was reduced by approximately 17.6% to $76 million.

Our adjusted EBITDA for the fourth quarter of 2017 was $2.8 million as compared to $1.5 million for Q3 and $2.6 million in Q4 '16. I'll remind you that we excluded the $1.8 million in gross profit recovery from our adjusted EBITDA. Had that been included, we would have hit an adjusted EBITDA of approximately $4.6 million in Q4.

The full year adjusted EBITDA was $2.3 million in 2017 compared to $7.8 million in 2016. I'll remind the audience that Q1 '17 included an EBITDA loss of $3.2 million. Ctrack adjusted EBITDA of $3.8 million in Q4, an improvement of $1.1 million from Q3 and $1.4 million from the same period last year.

The total year Ctrack adjusted EBITDA was $11.1 million, an improvement of $1.4 million over 2016. Our non-GAAP net loss per share in Q4 was $0.02, an improvement of $0.03 from last quarter and the same period last year, due to lowered operating expenses combined with the effects of the previously mentioned new tax legislations.

On a full year basis, 2017 non-GAAP net loss per share was $0.29 compared to $0.23 in 2016. A reconciliation of our GAAP to non-GAAP financials is contained in our press release. Now turning to the balance sheet. Cash and cash equivalents, inclusive of restricted cash was $21.3 million at the end of Q4, increasing $1.3 million from Q3.

At the end of 2016, cash and cash equivalents was $9.9 million. Positive cash flow is another key milestone for Inseego, achieved a quarter ahead of schedule. During the fourth quarter, we addressed -- we aggressively pursued working capital improvements across multiple fronts.

Restructuring is all about turning over stones, identifying opportunities and executing on improvement plans, all of which led to better-than-expected fourth quarter performance. I can't say this convergence of efforts, actions and attainment is going to happen every quarter.

Finally, on our share count, our weighted average shares outstanding for Q4 were 60.4 million, an increase of roughly 1.4 million shares from the third quarter, due mainly to shares issued in connection with the Q3 financing. Our Q4 '16 -- in Q4 '16, our weighted average shares outstanding was approximately 54.9 million. Moving on to our guidance.

We're pleased that the company met Q4 guidance. Relative to the half and full year EBITDA targets we set during our Q3 conference call, our plan is on track to hit an annualized adjusted EBITDA run rate of $20 million to $25 million by the end of the first half and exit the year with a greater than $30 million annualized adjusted EBITDA run rate.

Additionally, we are on track to the MiFi contribution margin target of 10% in 2018. As for the first quarter guidance. We expect total revenues to be in the range of $45 million to $50 million, and our consolidated adjusted EBITDA to be in the range of $3 million to $3.5 million.

Our IoT and mobile solutions revenue are expected to be in the range of $28 million to $31 million, and Enterprise Saas Solutions revenues are expected to be in a range of $17 million to $19 million. Before closing on my portion, I want to comment on investor relations. In 2017, the new management team decided to put the IR function on the shelf.

We had bigger fish to fry with the restructuring efforts and wanted to focus on the internal operations of the company. And quite frankly, rebuild the company's credibility with the investment community. Beginning now, we will be in a more active IR mode. To that end, we are contracting with a notable IR firm and beginning our proactive outreach.

On Monday, Dan and I will be ROTH Conference in Laguna. Additionally, we had been invited to other conferences in the second and third quarter. Expect to see us much more active on the IR front going forward. That ends my prepared remarks. At this point, I'll turn the call back to Dan for his closing remarks. Thank you..

Thanks, Steve. So thanks for your ongoing support of Inseego. The strategy behind Inseego 2.0 is to align our products and regional sales teams with real and permanent growth markets that are winnable, not moon shots.

We have finished the reorganization and have a very efficient and effective structure to capture emerging market opportunities in mobile, IoT and SaaS business intelligence solutions, powered by the new wave of 5G technology. The fourth quarter is a strong indicator of real progress.

Improving operating results and decreased leverage creates the flexibility to make investment in new products, such as 5G. In the early stages of a turnaround, you focus on making progress. And as you can see, we've come a long way, but there is lot more work to be done, and bumps on the road are inevitable.

So it isn't whether you're going to hit some bumps, it's how you deal with them. Turnarounds don't happen overnight. It is no place for rookies, for the faint of heart. Anyone on the call that's done it, knows it. No 2 are alike, there is a common process. It takes detailed planning and unrelenting persistence to implement the plan.

I believe that companies get into trouble because the managers can't or won't roll up their sleeves and dig deep. While the only way to get out of that trouble is to get new managers who can and will. Then create a new company culture and the set of values around it and make them permanent. This is what we're doing and improving as a result.

We have recorded several important new wins, with more to come. It must be recognized that the new win with a larger service provider for global enterprise customer doesn't translate into immediate revenue.

The design win or selection by a customer follows with the proof-of-concept, then a controlled rollout as the customer starts to ramp up to full deployment. The rewards are substantial. However, it takes times to realize the full revenue impact.

It can be 12 months, and in some cases, up to 18 months from the very first contact with a prospective customer on an opportunity to revenue. In other words, the buyer's journey in the markets we serve is long. The progress we're making announcing new wins are the leading indicator of value creation. You can be assured of that.

We believe that our continued progress in the market, combined with our investment in new products and go-to-market resources, will result in a dramatic increase in shareholder value. Sometimes it's difficult to contain the enthusiasm of new wins.

Patient investors who understand the typical timeframe from first engagement to first revenue will be rewarded. It's unfortunate if some investors think an announce win translates into an immediate revenue ramp up. Frankly, they don't understand the buyer's journey.

With the 2 business units now in place, we will begin to report on these individually in the first quarter. Better transparency is the wind of the sea, the value of the parts and the whole of the company. We believe this is very good for current shareholders, and will attract new investors to Inseego.

We have a talented and hard-working Board of Directors, who are a key part of Inseego 2.0 plan. We're fortunate to have Mark Licht recently joined our Board. Mark brings a highly successful and extensive industry background in the global telematics market. And he will be of great assistance in helping me shape our strategy in this growth market.

We have the right balance of Board members that know the business inside out and new members. So I want to thank every employee of Inseego for your creativity, tireless efforts and commitment. My thanks to the new management team for your leadership, and my thanks to our Board of Directors for their insight and guidance.

And special thanks to Bob Pons who was instrumental in bringing me to the company. All of us are 100% committed of the vision of Inseego 2.0, and taking the company onward and upward. I look forward to providing you progress reports in future earnings calls.

And as Steve said, we're going to be on the road as part of our increased focus on investor relations. So I look forward to sitting down with you and discussing Inseego 2.0 in-depth in the near future. But before we go to Q&A, I want to mention one more thing, which I think is a perfect way to wrap up and earnings call.

Inseego has been selected by a Tier 1 U.S. service provider for the first 5G commercial launches this year. But It gets better, we're in discussion with multiple operators in the U.S. and internationally to provide fixed and mobile 5G broadband products as network-wide deployments ramp up. Thanks again.

With that we'll -- let's concludes our prepared remarks, and we'll move to Q&A..

[Operator Instructions]. And our first question comes from Mike Walkley with Canaccord Genuity..

Great. Congratulations to you and your team hitting the milestones of profitability or operating income. Just for me, just kind of build the gap of the year, as you talk about little over $3 million in adjusted EBITDA for Q1 and to hit your run rate, exit the year that kind of takes it to a level more than a double from there.

Can you kind of walk us through the cadence of the year? And how we should think about the milestones to get there? You made comments about well positioned for 5G, and certainly I was a week at Mobile World Congress, and it's definitely going to come quicker than we all expected a year ago.

But it still seems like it'd be more of a 2019 opportunity for bigger volumes.

So can you help us think about where hardware revenue and margins might go over the course of the year? And then where they could be once 5G fully ramps for you guys?.

Yes, I'll give a framework, and then Steve can jump in with the comments. So there's a lot of things that were recently put in place that haven't seen their way through in the results. So firstly, we mentioned a lower cost contract manufacturing base.

So the volume of products that we put through there is substantial, and the cost reductions that come from those are underlying part of most gross margin improvement. The other part is an increased software to hardware mix. Where you can -- as we discussed on Ctrack, there's a bit of reduction of the hardware content.

Over time, we see that pretty well settling out at a level point. So in other words, going forward on a comparative basis, there's going to be higher software to hardware mix.

And then as we're introducing new products, importantly in the IoT space, and we have a number that are going to be introduced in the second quarter, the gross margin pictures of those are dramatically better than let's say, the legacy MiFi business.

And as we begin to introduce 5G product in some of these commercial launches this year, the gross margins for those are significantly higher. So in other words, as we work through the year, it's an upward ramp..

And just to build on that.

Is that upward demand on just the overall gross margins with kind of stable revenue or is both revenue and gross margins grow as the year improves in terms of the business mix?.

Yes. Well, we don't provide guidance on revenue on a long-term or year basis. But I think, as my comments earlier pointed, the first half is still in the foundational and a lot of corrective actions on getting things in place, beginning to see revenue on new wins. And we expect that acceleration to occur then in the second half..

Okay. Great. And then just on the overall cost structure, pro forma operating expenses, just a little bit over $15 million, so great job taking out all of those costs.

With some investments for the new products kind of offsetting ongoing cost reductions, is this kind of a stable level we should be thinking about for modeling? Or do you see that slightly going up or down based on your plans?.

Well, you can't correlate it. You said offsetting, so that in my mind is interpreted as a direct correlation. What we said was that we are increasing investments in new products, importantly, 5G and some IoT products. But you have to understand this is very important. We are redirecting our R&D -- current R&D resources to these investments.

Okay? And as -- 1, 2. There is a sourcing strategy for a third-party technology that we're bringing into our solutions. So in other words, there isn't an R&D tag that comes with those. There isn't an R&D investment that comes with those on our part.

So if you take those 2 things together, yes, we talked about an increased investment, but don't -- by no means should there be some impression that there is some wild upward swing. It actually as we foresee it based on those 2 factors, it's relatively modest.

But wouldn't be possible if we hadn't take the cost out, that's the fundamentally important thing to understand that the flexibility that comes from having done that allows us to look at increase investment, but we're not going to be doing things crazy.

There is a smart way to do it, number one and two, we are doing a big redirection of current R&D resources that frankly have the expertise in these new product categories, previously had not been directed and utilized as such..

Okay. And just in terms of ongoing -- you talked about some ongoing programs as part of Inseego 2.0.

Is there more cost then to come out of the operating expense line and sales marketing and other G&A or is that run rate we're on now a pretty good to think about toward modeling?.

Yes, we've made prior comments on this and we said that there was a business process improvement project that's underway. And Steve is leading that. And it was part of his remarks. So Steve you can..

Yes, I think what you'll end up seeing, Mike, is more movement amongst the lines. We will be beefing up our sales and marketing a bit as well as R&D resource.

We are underway with the business process improvement project, which as I said, will ultimately lead to more better adherence to service level agreements, but also improve cost structure, and ultimately, more efficiencies..

Okay. Great.

So I guess, the framework to think about adjusted EBIT of $7 million-plus exiting the year to hit that $30 million annual run rate would be gross margin improvements, steady OpEx and then some top line growth, that's kind of best combination I see to get there, is that a fair way to look at it?.

Yes, that's a reasonable way to look at it..

We've mentioned previously, the business process improvement project. It's a longer cycle to get all the things we need to get in place to do that. But as you can picture, integration of disparate IT system, CRM/ERP systems and other back-office systems, there's a lot of efficiencies.

So in other words, it's a little bit of a harder sledding to get to that point of getting that behind us. But once we do with these systems, there will be a big cost drop as a function of that. And so that's what we're working towards.

And then we see that also as an improvement on the bottom line as well as, again, more headroom, if you will, for our investment strategy..

Okay. Last question for me and I'll pass it on.

In terms of your targets exiting the year, is 5G meaningful at all then? Or is that really more of an investment to drive long-term growth into '19 and '20?.

Yes. So great question. That's kind of the $64 question or the 5G question. So a little hard to predict. There is initial commercial launches this year. We will be participating in them. So we do expect to see revenue from 5G. I'm not going to really try to scope or size that.

But as you can observe and I'm sure understand, naturally the acceleration begins at the end of the year and then goes into '19 and beyond.

So the mission this year is to be part of commercial launches, to prove out the technology, to round out our portfolio not just broadband router products, but other mobile technologies, and then we go forward from there. So that's one thing.

The second thing that you should know and you mentioned the activity at Mobile World Congress, we were engaged with a lot of discussions with a lot of operators as well as infrastructure network providers that are looking to partner on this technology.

So we actually see the avenue for growth wider than it has been the prior swim lane for the company, both U.S. and internationally. And I think there's other avenues to the market in conjunction with some of the big network infrastructure providers..

Our next question comes from Jaeson Schmidt with Lake Street Capital Markets..

Just first off, I'm wondering if you're willing to disclose the number of subscribers you had in Q4, either on the Ctrack side or as a whole?.

No, we're not going to disclose the total number of subscribers we have. It would be a combination of connected assets along with subscribers from DMS. We'll hold off on that one, Jason..

Yes, I think the other thing related, we're not just trying to be obstinate here. The thing related to that is that the shift of the business focus we have in Ctrack is towards fleet SMB and, obviously, aviation as you've heard.

And because of the poor ARPU, cash drain and short contract cycles and consumer insurance we mentioned this previously, we are not pursuing new business in that area. Now that's really where you'd get the definition of subscriber from it. So I think, we're shifting to connected asset and away from articulation subscriber for those reasons.

Fleet, aviation, SMB is connected assets. They're not individual subscribers. DMS is more of a subscriber count. So put those things together, you really don't have a clean way to talk about subscriber count. So that's where we're at. That's where we're going.

We'll have to figure out in the future how we work connected assets counts, but there is a shift in our business direction..

Okay. That makes sense. And then I know in the past you've mentioned that these EBITDA targets for '18 early weren't dependent on any significant revenue growth, just curious if that remains the case..

Yes, that hasn't changed..

Okay. And then with the shift and focus to some of these IoT, mobile solutions.

Just longer term, how are you thinking about the potential revenue breakdown? I'm certainly not talking about '18 or even '19, but where do you see kind of the revenue mix coming from as you look out kind of 3 years or beyond?.

The way I would look at that is twofold. So firstly, what we've decided for the organizational purposes and quite frankly, line up how we're structured with the markets is IoT and mobile solutions, device appliances, Enterprise SaaS Solutions, cloud platforms, they work together to create an end-to-end solution.

So the mobile and IoT solution is now a mix. What we do expect to see is a couple of things. So firstly, let's use the term the legacy MiFi business will on a relative basis not be as significant a portion. IoT and 5G will. So what we're going to see is a really dramatic, I think, change of mix in that business over time.

And the goodness in that is, IoT use cases are a flexible point on gross margin. There is no predetermined price cost. It's what is the power and the value prop of the use case. So you're going to see a real change in mix of IoT and mobile away from, shall we say, legacy low-margin traditional MiFi to 5G and IoT.

The exact numbers within that mix, we are not going to go into, but that's the trend..

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

This is Rishi [ph] for Mike Latimore. I have a couple of questions.

So do you see any change in the competitive landscape for aviation vertical in 2018?.

Well, yes, it's a great question. It's not that there aren't competitors. I think our position and what we're benefiting from, and certainly as we're seeing in our engagement level and pipeline growth is frankly, being in the right place at the right time with a first mover advantage on having an aviation solution.

As I -- we mentioned in the call, we have 7 deployments. So as we go into competitive situations and they're all like that. We work through usual RFP types of submissions and then we go into the proof-of-concept, they call them technology bake-offs. What comes back time and time again is that we have a solution for aviation.

It's not a repurposed SMB or repurposed fleet solution, it is an aviation solution. So that's one thing. And the second thing is, which is really, really important to know, is that we have strong reference account. I won't name names, but we have prior customers who are absolutely delighted with our solutions.

More than happy to talk to their airline ground service equipment, brothers and sisters around the world to give us strong reference. So I think, you put it all together, this first mover advantage. And we put the time and effort in to create an aviation solution, not a coat of paint on an SMB or fleet of solution..

Okay. Great.

And how is the activity in the UBI business? How much did it add in, like, 2017? And do you expect growth in FY '18?.

I'm sorry, which business?.

UBI, usage-based insurance..

Yes. So consumer and usage-based insurance. What's that tape? Dark, dogs and stars.

What we looked at when assess the parts of the company, the asset business we're in is that there were parts of the business that in terms of acquiring new customers, acquiring new customers, consumer in UBI specifically by and large had a model, whereby the monthly ARPU was very low. The customer didn't want to pay for the hardware.

So in other words, there was cash drain on us. And secondly, the duration of the contracts were in a neighborhood of two years, it was not exactly a very sticky value proposition. In other words, renewal rates weren't good. And about a 17-month payback period against the 24-month contract was uncertain renewal. So let me think about that for a minute.

What do we like about that business? And what we decided we didn't like anything about that business. So the customers that we have that we served, that are beyond the payback period. Great, fine, we love them. We're going to continue to service and support them. New customer acquisition is just not a good value prop.

So maybe it's for somebody, but it isn't for us..

All right. And just one last question.

So I missed a couple of numbers actually, could you please repeat the non-GAAP gross margins for both hardware and SaaS in the fourth quarter?.

Say that again..

Non-GAAP gross margins for hardware and SaaS, both the segments, in fourth quarter..

So non-GAAP, you're asking what was the non-GAAP gross margin in the fourth quarter for hardware?.

For hardware and Saas..

Yes. Okay. So our non-GAAP gross margins for hardware was 16.8% in the fourth quarter..

Okay.

And for the SaaS?.

For SaaS, it was 74.6% in the fourth quarter..

This concludes our question-and-answer session as well as today's conference. We thank you for attending today's presentation. And at this time, you may disconnect your lines..

Thank you..