Dan Mondor - Chairman and Chief Executive Officer Steve Smith - EVP & CFO John Weldon - SVP, Enterprise SaaS Solutions. Ashish Sharma - Chief Marketing Officer, Executive Vice President, IoT & Mobile Solutions.

Mike Walkley - Canaccord Genuity Scott Searle - Roth Capital Mike Latimore - Northland Capital Markets.

Hello, and welcome to Inseego Corp’s Third Quarter 2018 Financial Results Conference Call. Please note that today’s event is being recorded. All participants will be in a listen-only mode.

[Operator Instructions] On the call today are Dan Mondor, Chairman and Chief Executive Officer; Steve Smith, EVP and CFO; John Weldon, Senior Vice President of Enterprise SaaS Solutions and Ashish Sharma, Chief Marketing Officer and Executive Vice President of IoT & 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 our 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, Chairman and Chief Executive Officer of Inseego. Please go ahead, sir..

foreign exchange rates and supply constraints reduced Q3 revenue by approximately $6 million in total. The supply constraints stemmed from a recent jump in demand, and I'll talk about what we're doing to increase production capacity in my later remarks.

Despite the revenue headwinds, adjusted EBITDA reached $4.7 million, which is the best quarterly operating results in the earlier decade. We're on track to deliver our target of $20 million to $25 million run rate adjusted EBITDA exiting 2018, and it's another major step towards our objective of further balance sheet deleverage in 2019.

Second, we announced our new R1000 wireless home gateway product supporting Verizon 5G Home, the world's first 5G broadband Internet service. The R1000 is our entry into the wireless consumer gateway market, which is a new product category, and a $30 million home addressable market in the U.S. I'll also comment later on 5G NR mobile market traction.

And third, our company-wide momentum in capturing new accounts and pipeline expansion across domestic and international markets is simply amazing. Our new product launches are progressing to plan. Overall, I'm very pleased with our continued progress and the transformation of the business. Inseego 2.0 momentum is accelerating.

Since I joined as CEO at the end of the second quarter last year, we've increased adjusted EBITDA by $8 million going from a loss of $3.2 million in the first quarter of 2017 to positive $4.7 million this quarter. Quarterly EBITDA has grown sequentially by 32%, on average, over the last 6 quarters.

Before I turn to the business highlights, I want to address the topic of tariffs, which are top-of-mind in the industry. Actions we are taking are well underway, including the move of contract manufacturing of products sold in the U.S. out of Mainland China. Our plan is to complete the move by the end of this year.

I want to point out that we initiated the move to a new Tier 1 contract manufacturer several months ago, driven by the need for a more robust supply chain and production capacity, so we are well ahead of the curve.

We continue to see tremendous market momentum in both IoT & Mobile Solutions and Enterprise SaaS Solutions, with our growing portfolio of new products and pipeline of new business. The outlook for Q4 and 2019 is very positive. Inseego 2.0 is a new company in numerous ways and no longer [indiscernible] with static product line and narrow customer base.

We've been laser-focused on building pipeline and market momentum is accelerating. The number of design wins so far this year has been nothing sort of phenomenal with 5 new top-tier service providers, 8 new product design wins and 5 new aviation customers. So it's a positive multiplier for the business.

And I will remind everyone that predicting the precise timing of revenue ramp-up isn't an exact science in terms of service provider and large enterprise customer evaluation process. We are continuing to bring new markets -- new products to market, stacking up design wins and new customer logos and the results will obviously follow.

Our challenge currently is to project the magnitude of growth we'll see over the next 12 to 18 to 24 months. Now turning to IoT & Mobile Solutions, and starting with 5G. We are bringing both fixed wireless and mobile 5G products to the global market and have consumer affirmation -- sorry, customer affirmation of our strategy.

We are still in the early innings of a massive market opportunity, and one that we are well positioned to win. We have made significant progress in 5G, and are very excited to be participating in the world's first 5G broadband home deployment being rolled out with Verizon.

The announced 4 markets previously and most recently the addition of Florida Panhandle. 5G is an ultra high-speed, highly reliable service without wires, and is disruptive alternative to fiber and co-ax table. 5G makes consumers the winners.

5G plans for commercial deployments gained momentum over the last few months with over 70 operators planning 5G launches, and roughly 15 of them in various deployment stages. 5G opportunities are happening much faster than we expected, and, in fact, we've been surprised by the rapid increase in customer engagement over the last 90 days.

We've made great strides in our 5G and our technology development. For example, we're seeing extremely high data rates in real-world environments. What sets us apart is our ability to bring a complex set of technologies together in a short timeframe.

We've made tremendous progress in gauging the market with our 5G and our hotspot, and we continue to see increasing demand for our 4G LTE products, as you saw with our announcement of the world's first gigabit 4G LTE category 18 hotspot 2 weeks ago.

We've been accelerating our investment in development, product management and sales resources to capture these opportunities. I'd previously reported signing up new customers including a Tier 1 -- U.S. Tier 1 mobile service provider, Rogers Communications in Canada and U.S. cellular.

These wins came from seizing opportunities from the ban of Chinese suppliers by the U.S. administration. I'm very excited to report that the number of wins has increased to 5 wireless operators. We've been awarded new 4G LTE business with another Tier 1 U.S.

wireless service provider, separate from the latest announcement of the gigabit hotspot with Verizon last week. In addition, we are co-selling 4G LTE hotspots with T-Mobile. This is an incredible progress in diversifying our customer base, which is a stated goal when I took over as CEO last year.

Stay tuned for more news as these deployments get underway. Our goal is to create mobile and cloud solutions that make everything smart. This starts with connecting everything and everyone with extremely high speeds, ultra-low latency and unprecedented capacity.

Layer on top of that, EDGE intelligence as well as cloud intelligence, and you have a complete end-to-end solution. 5G and our technology is a key component that will make device-to-cloud solutions smart. It includes enhancements such as massive MIMO and extremely fast been tracking and switchover of very high-speed links.

To provide scale and business intelligence, our IoT cloud platforms are key to our research of making everything smart. We are continuing to invest in our platforms with web scale architectures that will provide our customers flexible, resilient and elastic cloud applications.

We're also investing in adding artificial intelligence capabilities to our EDGE and cloud platforms that will allow our customers to automate use cases such as smart transport and infrastructure, media everywhere and critical control of remote assets and remote human interactions and more.

We are leveraging, technology platforms across industrial IoT, home gateways and mobile hotspots. Shorter time to market and lower development costs are the outcome of this strategy. We continue to invest in enhancing our Skyus IoT portfolio for enterprise and industrial markets.

We've been industrial-grade reliability and security to this product family and that's proving to be successful for multiple IoT verticals, including SD WAN failover, with a handful of recent enterprise account wins.

To scale this business in the enterprise market, we have recently launched North American channel program and we are seeing heightened activities this quarter, including the signing of 2 distributors, SYNNEX and Novotech in North America.

We want a new IoT project with Telstra in Australia for a cat and 1 personal tracker for the consumer and enterprise markets. This is a new market category for Inseego with a large addressable market and a wide array of use cases. We're currently pursuing other cat and IoT opportunities. Turning to Enterprise SaaS business.

I'm pleased to report that we surpassed the 1 million subscription mark, in fact, reaching about 1.1 million in the quarter. This business experienced the net increase of 59,000 subscriptions in the quarter, yielding 6% quarter-over-quarter growth. One driver of growth came from the DMS pay to procures SaaS platform.

T-Mobile and Sprint are driving the expansion to the enterprise market, which was previously public sector-focused. Enterprise SaaS revenue was negatively impacted by about $1.4 million, due primarily to a decline in the South Africa rand and to a lesser degree, of other foreign currencies.

Without this effect, organic growth would have been about 3%, closer to the midpoint of guidance but below our double-digit revenue growth target. Also, I want to remind everyone that lower subscription growth was due to the planned runoff of the lower churn consumer book in South Africa.

Despite the revenue headwinds, pro forma adjusted EBITDA increased 11% quarter-over-quarter and 42% year-over-year, with an EBITDA margin at a record high of 29% in the quarter. Cost management over the last 12 months focused on high return verticals and growth at Ctrack rest of world and DMS drove margin expansion.

Ctrack Benelux in Germany, revenue grew 12% year-over-year, including wins in construction, service and government tenders. Expansion with existing client, included an additional 750 units in Holland, Australia and South Africa. 4% revenue growth in the U.K.

contrast with double digits subscription growth due to a shift in the business model to a [indiscernible] We expect that the U.K. market to match European revenue growth in 2019. We had major wins in the U.K. including the Michelin Group, North Yorkshire Council, and we took business away from 3 competitors to win a major facility service provider.

Aviation is our fastest-growing vertical, and I want to remind everyone that there's a small percentage of overall Ctrack revenue currently. The pipeline continues to grow sequentially with our first win with international airport ground service provider, do buy National Air Transport Association, commonly referred to as the NATA.

Additionally, we want proof of concept for a worldwide provider of jet airport services and have numerous new customer engagements with our partners, KLM equipment services and Undagrid.

We anticipate deployments from our 2018 customer wins and completion of proof-of-concepts to accelerate in 2019 and expect the aviation sector to represent a large and differentiated market for Ctrack in the medium to long term.

Ctrack has strong brand awareness in all markets served, and we continue to believe it is a double-digit growth for business. Last earnings call, I discussed how we restructured global sales and added high-caliber executives.

In August, we announced the appointment of Simon Rain, a Senior Vice President and Managing Director for the U.K., EMEA and Asia-Pacific. Job 1 those international market is to launch IoT and mobile businesses, grow the Ctrack base of business and continued to expand aviation pipeline.

I am delighted to have Simon on the Inseego team and to be working with him again. He previously held sales leadership roles with Microsoft Devices and Services, Nokia, Sony/Ericsson and Spectralink, leading large sales organizations selling to service providers and enterprise markets throughout the U.K., EMEA and APAC regions.

His extensive experience and knowledge of these markets make him a great addition to the team. In September, we appointed John Weldon, the Senior Vice President of Enterprise SaaS Solutions, to run the global Ctrack business, taking over from Chris Lytle.

John is a telematics industry pioneer and SaaS technology visionary, with tremendous market knowledge of asset management and telematics and a 20-year track record of success.

John was the driving force behind the creating the strategy for Verizon Connect and held many other prominent leadership roles at Telogis, prior to the Verizon acquisition, and Comtech Mobile. He's the ideal leader for the business, and I'm delighted to have him on the Inseego team.

I want to thank Chris for his invaluable contributions, and he will continue to support the company on strategic projects, leveraging his financial markets expertise. The recent announced opening of our new Cupertino Design Center is an example of how we are deepening our expertise and intellectual property across mobile, IoT and cloud.

The design center's mandate is to harness technology innovations in the emerging 5G ecosystem and smart IoT device to cloud. We want to have the best and brightest on our product team so it only makes sense to be in the heart of the world's technology innovation capital.

Now I'll turn the call over to Steve to provide financial highlights for the quarter and guidance for the fourth quarter..

Thanks, Dan, and good afternoon, everyone. I'll cover GAAP to non-GAAP results, and provide some additional details on the performance of IoT & Mobile and Enterprise SaaS Solutions. I'll start by further elaborating on the accounting for the settlement with the former RER shareholders and the resulting gap profitability for the quarter.

In Q3, we took a gain to GAAP operating expenses of $17.2 million associated with this settlement. The other key highlights for the quarter are the closing of the $19.7 million financing announced in August, and the record Q3 adjusted EBITDA $4.7 million that Dan highlighted in his comments. Now let's get into the meat of third quarter.

As noted in our press release this afternoon, we continue to see forward -- positive forward progress, improvements on both adjusted EBITDA and our strategic initiatives. Q3 revenues of $50.6 million were up $1.6 million or 3.2% from Q2 and down 12% from the same quarter last year.

Revenues included approximately $2.1 million of engineering design services, specifically in IoT and Mobile Solutions, that I'll touch on later.

GAAP gross margin was 34.8% for the third quarter, a decrease of 1.2 points from last quarter due to lower revenue contributions from enterprise SaaS solutions, and 6.3 points higher than the same period last year due to cost reductions and continued focus is on operational efficiencies.

Our Q3 GAAP OpEx, prior to the effects of the legal settlement, was $18.2 million, including approximately $250,000 of restructuring, $900,000 of amortization of purchased intangibles and $1.6 million of share-based compensation.

The third quarter gained up $17.2 million in OpEx associated with legal settlement resulted in OpEx of approximately $1 million. The GAAP operating loss prior to the effect of the settlement was $600,000 as compared to $800,000 loss in Q2 and $6.4 million loss in the same quarter last year.

Inclusive of the settlement, GAAP operating income was $16.6 million in Q3. Our GAAP net income and net income per fully diluted share for the quarter was $10.8 million and $0.15, respectively.

On a comparable basis, the GAAP net loss, excluding the settlement, were $6.3 million or roughly $0.09 per share compared to a net loss of $6.7 million or $0.11 per share in Q2 '18, and net loss of $13.8 million or $0.23 per share in Q3 '17. Now turning to our non-GAAP metrics.

Consolidated non-GAAP gross margin for the current quarter was 36.1%, up from 29.6% a year ago due to cost reductions and operational efficiencies focused, mentioned earlier, and slightly down sequentially from 36.7% in Q2 '18.

With respect to operating expenses, our non-GAAP OpEx was $15.5 million for the quarter, a decrease of approximately $600,000 from last quarter and lower by $2.1 million or 12% year-over-year. G&A decreased about $700,000 from last quarter and sales and marketing increased about $100,000, consistent with expectations.

R&D expenses remain flat to last quarter since incremental investments have been moved to cost of goods to be consistent with our revenue recognition of the engineering design services.

We currently have 11 new products, some of which have launched and others are in various stages of development, spanning a collection of technologies from 4G LTE to 5G and from industrial IoT to hotspots to EDGE gateways.

Expect that our product development costs will continue to increase as we bring these new products to market and fund carrier-specific certifications for these devices.

Our non-GAAP operating income was $2.1 million, an increase of $900,000 from last quarter and an improvement of $3.3 million from the $0.5 million loss realized during the same period last year.

Our adjusted EBITDA for the third quarter of 2018 was a record $4.7 million as compared to a $3.8 million Q2 '18 and $1.5 million in Q3 '17, a year-over-year growth of 215%. This is the highest adjusted EBITDA since Q4 2009.

Our non-GAAP net loss per share in Q3 was $0.01 as compared to a loss of $0.02 last quarter and an improvement of $0.05 versus the same period last year. A reconciliation of our GAAP to non-GAAP financials is contained in our press release. Now a breakdown of IoT & Mobile and Enterprise SaaS Solutions.

IoT & Mobile Solutions revenue was $34.6 million, up 9% from Q2 '18. Versus the same period in 2017, revenues are down 16%. Consistent with our development initiatives, we recognized $2.1 million in engineering design services in Q3.

I also want to point out that despite the operational and supply chain challenges in Q3, IoT & Mobile revenues ended up just slightly below the midpoint of guidance. We're working diligently with our suppliers, mainly chip manufacturers on some key components. These suppliers are increasing the supply into Q4.

Without the supply-chain constraints, we could have added approximately $4.6 million of revenue in Q3. This obviously would have also driven a higher adjusted EBITDA as well.

As we look to growth in 2019 and beyond, combined with the recent tariff announcements, we are moving to our production to a Tier 1 contract manufacturer with a global footprint outside of Mainland China. The result will both improve the supply-chain performance and allow us to more aggressively pursue cost reductions and margin improvement.

Non-GAAP gross margin for IoT & Mobile Solutions was 23.4% as compared to 22.8% in Q2 '18, and increased 9 points year-over-year from Q3 '17, due mainly to cost reductions, operational efficiencies and engineering services.

On a pro forma basis, adjusted EBITDA for IoT & Mobile Solutions was $2.3 million in Q3 or 7% of revenue, up by more than $300,000 or 1 percentage point from Q2 as a result of higher revenue and improved gross margins, and up $1.5 million or 5 points from the same period last year.

Enterprise SaaS solutions revenue was $16 million in Q3, down $1.3 million from the prior quarter. In quarter revenue was impacted by approximately $1.4 million quarter-over-quarter as currencies weakened across all of our international regions versus the U.S. dollar.

The South African rand, in particular, fell 13% from Q2 to the end of Q3, an in-quarter impact of approximately $1.1 million for that region alone. Year-over-year, Enterprise SaaS Solutions revenues decrease 2.1%, primarily due to the weakening in South African rand against the US dollars, offset partially by increased DMS revenue.

Non-GAAP gross margins for Enterprise SaaS Solutions was 63.6% as compared to 62.2% in Q2 '18 and 67.9% in the same period last year.

The bulk of the variation due to the combination of quarter-over-quarter or currency fluctuations, increases in service costs and somewhat lower DMS average recurring selling prices from the expansion into the enterprise market that Dan mentioned earlier.

On a pro forma basis, adjusted EBITDA for enterprise SaaS Solutions in Q3 was $4.6 million or about 29% of revenue, up 500,000 from last quarter and up $1.3 million from the same period last year, due to cost reductions executed over the past year.

To round things out [indiscernible] approximately $2.2 million unallocated corporate expenses largely G&A tied to the consolidated adjusted EBITDA. Pro forma information is strictly a non-GAAP estimate intended to illustrate the business -- the businesses as standalone entities.

These pro forma figures are based on allocations of shared services costs and are subject to change. Now turning to the balance sheet. Cash and cash equivalents, inclusive of restricted cash was $31.6 million at the end of Q3, increasing $12.7 million from Q2. Compared to the same period last year, cash and cash equivalent was up $11.6 million.

Operating cash outflow was $4.8 million in Q3, virtually, all of which is due to working capital changes. As I've stated, in previous conference call, we will see cash balance fluctuations due to inter and intraquarter working capital changes as we balance performance of payables, receivables and inventories.

Accounts receivable grew $4 million in the quarter, and inventories grew about $800,000 in Q3. Expect that inventories will continue to grow going forward for a combination of reasons that followed.

Moving our production out of China to a top-tier global contract manufacturer capabilities to match both the volume demand and technical proficiencies of 5G in our new products, and we are providing a more robust supply chain in the form of vendor-managed inventory for some of our key Tier 1 service providers, increasing our U.S.-based inventory to accommodate their own sell-through demand.

Now briefly, on the move out of China and some further comments on tariffs. As you know, in the Q3, the Trump administration announced 10% tariffs on the list 3 set of products for 2018, with the 10% increasing into 25% into 2019. We are well underway with moving the manufacturer of our products out of China to other nonimpacted jurisdictions.

We anticipate that the manufacturing of products to be sold into the U.S. will be completely moved out of China prior to the end of this calendar year. In addition, we are working directly with the U.S.

customs and border protection on tariff classification of our own products, which, if we are successful, will render the tariff issue completely moot from Inseego. In any event, we believe that completely moving out of China will, once accomplished, eliminate any future exposures to these tariffs.

Finally, our weighted average fully diluted shares outstanding for Q3 was 71.5 million, an increase of about 10 million shares from the second quarter. In Q3 '17, our weighted average shares outstanding was approximately $59 million. Now moving onto guidance. We're making investments in our product development and expanding the sales team worldwide.

Accordingly, as for the fourth quarter guidance, we expect our total revenues to be in the range of $51 million to $57 million, and our consolidated adjusted EBITDA to be in the range of $5 million to $6 million. Our IoT & Mobile Solutions revenues are expected to be in the range of $35 million to $40 million.

The rates takes into account ongoing supply-chain constraints in Q4, which we expect to have remedy by year-end. In Enterprise SaaS solutions, revenues are expected to be in the range of $16 million to $17 million at the current foreign exchange rates. That ends my prepared marks, at this point, I'll turn the call back to Dan for his closing remarks.

Thank you..

Thanks, Steve. I'm pleased with the solid progress we've made with numerous new product launches and continued customer momentum. We are increasing our investments to capture the new 5G and IoT opportunities, and are very confident in our strategy to create value for our shareholders.

We have increased the size of the sales force and face time with customers. The strategy to expand IoT in the mobile business outside of North America is gaining traction, and the corresponding strategy to expand Ctrack business in North America is progressing very well. These 2 initiatives alone have dramatically boosted our addressable market.

We added to our success capturing new customers who stop buying from Chinese suppliers and chose Inseego as their trusted U.S. business partner. As a result, we have established business relationships with all top-tier wireless service providers in the U.S. If you look back when I joined in mid-2017, we had a single Tier 1, namely Verizon.

I promise we'd go all out and, frankly, the results exceeded our expectations. Reaching an annualized adjusted EBITDA run rate of nearly $19 million is a milestone for Inseego.

Our performance improvement, and doing what we said we'd do, is the direct result of every Inseego employee's dedication, commitment, combined with relentless execution and phenomenal teamwork.

I want to take a moment to thank our employees for their tireless efforts, and be assured we are building the very best team and adding muscle with every new hire. Before I close, there's one more thing I want to mention. We recorded wins with our new 5G and our mobile hotspot by Tier 1 service providers in North America and international markets.

We expect to plant more 5G flags with our fixed and mobile products very soon, so stay tuned. There is no doubt that Inseego 2.0 is gaining momentum. And with that, that concludes my prepared remarks, and I'll turn it over to the operator to start the Q&A..

[Operator Instructions] And today's first questioner will be Mike Walkley with Canaccord Genuity..

Dan, just building on a lot of comments on the call, can you update us just on your new gigabit LTE mobile hotspot product, how that's doing? How that's leading to share gains with carriers that should lead to 5G? And are you seeing any update off from the Chinese getting back to the market? Or ship's already sailed where the carriers with Inseego going forward?.

Thanks, Mike. Let me comment on the last part first. I think I said this before but we don't see any evidence of the toothpaste going back in the tube regarding Chinese suppliers. In fact, I think, there's some recent news coming out of the U.K. and previously, Australia.

Yes, so the gigabit hotspot, I mean, that's really a first of a kind, a category 18 product. That was launched, as you saw in the press release, with Verizon. And I made mention, actually in the last call, it was part of the roll up on this call, there was another Tier 1 service provider in the U.S.

that will be deploying that product coming up, a slightly different version of it but essentially, again, 1 gigabit 4G LTE hotspot. And importantly, that platform is common amongst some of our technology in other areas. So we are taking that technology on the road and pursuing several markets internationally as well. So it's just gotten underway.

We are very excited about it and we think it's a market leader..

And building off that, you have talked in the past about a more cost optimized product road map. Obviously, some near-term headwinds with having to change contract or deciding to change contract manufacturers and some component shortages.

Can you just walk us through how we should think maybe about gross margin progression as you start to get more of these costs itemized products out to the market?.

Yes. So we talked about common technology. Now that's a boost for development costs because quite frankly, unlike previously, we're creating global platforms and using those across all of our technology domains and 4G LTE both hotspots, IoT, gateway products and industrial gateway, so that's a development cost of strategy.

On the gross margin side, once we get a blend of the newer products coming out and talked about industrial gateways, the 5G and our hotspot, the home gateways, those have much higher gross margin profiles.

So as we see ourselves currently in the IoT & Mobile Solutions business, let's call it roughly 25%-ish gross margins, we see that progressing over time to 35% and beyond. It's going to take a mix of products as we blend out the older generation and blend in the new, but we see hitting that.

And our goal, frankly, was the gross margin profile was to get in the mid-40s..

Great. And for the Q4 guidance, Steve, you indicated that it assumes ongoing component shortages.

Should we assume maybe the same type of magnitude of revenues that you'll be pushing maybe into 2019 given the component shortages in the change going on with contract manufacturers? Can you help us quantify maybe what you've left out of guidance given some of the short-term component issues?.

One of the things I said in my remarks is that we expect to be -- we expect to sell this -- have this shortage solved by the end of this calendar year, by the end of the quarter. So will it be about the same magnitude? It will probably a little bit less, at least that would be my expectation..

Okay. Last question for me, and I'll pass on the queue. Just an update on the overall Enterprise SaaS business.

Can you walk us through just some of the airline opportunity pipeline? And overall, just overall pipeline and competitive issues for that business?.

Yes, thank you, Mike. As I said, we've had 5 new aviation wins since the beginning of the year and there was 3 more recently this quarter, U.K., Germany and South Africa. So that is gaining momentum. The pipeline is growing. Significantly, it is a small base on a revenue basis but that's what we expect to capitalize on 2019.

So that's progressing very, very nicely. I would add to that our partnership with KLM equipment services is paying dividends. The number of customer engagements as a function of that partnership is large, low double digits, quite frankly. So we're really gung ho and blasting away.

And I think I made in my comments earlier, our focus is to stack up the wins. We don't -- we can't very well predict the timing because there's proof-of-concept, trial periods that sort of thing. So what we continue to focus on is stacking up the wins and the results will follow.

And that's why I said with aviation, with new product design wins, new service providers, it's really tough to calculate the magnitude over the next 12, 18, 24 months. We just know it's going to be hell of a lot more. So we're heads down, stacking them up and we'll go from there..

And the next question is from Scott Searle of Roth Capital..

Dan, Steve, just quickly to follow up on the gross margin front. In terms of the supply constraints in this quarter, did that have a corresponding gross margin impact? I think you talked about sales but I'm not sure if you mentioned anything in terms of the gross margin front.

And also as part of the CM transition, is there anything that is going to impact your onetime charges or otherwise related to the gross margins in that transition? And I had a couple of follow-ups..

Yes, I guess I'll comment on the last part first. So what we're doing is we're transitioning into a, we'll call it a global Tier 1 CM, and our expectation is cost improvements, and why is that? It's from their component supply strength, supply chain strength and able to procure, and also on their manufacturing efficiencies.

So quite frankly, we expect the gross margin development once again from that CM move. And that will start to -- really start cranking out products towards the end of this -- starting the end of this quarter. So I think that will be good all around.

I think if you look at some of the things we needed to do in Q4 as far as some of the long lead time components, we have to do some premium buys to support the capacity. So in fact, that hurt gross margins a little bit, but obviously, we have to serve our customers' needs.

So I think in combination, we're going to see a gross margin profile improvement..

Got you. So as we get into the first quarter, no component constraints, top line should reflect that along with new products in the gross margin impact as well, both from the CM front and the component front..

Yes. Largely, that's what we expect to see, Scott. And it's fundamentally part of our plan. I will say this that the long lead time components and the nature of what we purchase from Qualcomm, as an example, is the nature of the beast.

And so when you have long lead times and you get a jump in demand, you can get caught a little bit flat footed on supply, and that's really kind of part of what happened.

But looking ahead and actually doing some things for our customers with vendor-managed inventory and just a better CM partner that has a much broader reach on their supply chain backwards and I think the supply chain will mitigate those problems going forward..

Got you. And if I could, following up on the MiFi front, it seems like in terms of IoT & Mobile Solutions, this is the best quarter you've had going back, I think, about 5 or 6 quarters. Certainly, done a good job in terms of turning around the MiFi product portfolio, and now adding to cat 18 products.

Wondering if this is at the base and we should be thinking about as we are going in 2018, particularly as we ramp-up the cat 18 product and we are starting to diversify into some new Tier 1 carriers.

I guess, as part of that, what kind of growth rate are you thinking about for that core business as we go into 2019? Or is it a little bit early?.

Well, I think, yes, I mean, you take the supply constraints and where we hit. We were basically, I think taking that into account, we would have been around $40 million in supply, so anyway, you consider that the baseline going forward. Yes, I mean, we're stacking these up, who knows how high it will go.

We're always faced with the valuation periods, and rollout periods and so forth and they same to never happen as quickly as we would like. But I'm really bullish on this business. There's a lot of stuff happening. The categories we're expanding, for instance, the CATM1 tracker is a brand-new category for us all altogether, the 5G stuff, 4G LTE gigabit.

So I'm extremely bullish on that business right now and I think, yes, sky's the limit. We'll see. I think if there's a lot of things that are happening, one of the big drivers is 5G. And quite frankly, it is amazing what's happened in the last 90 days since our engagements and we talked about the wins in our mobile hotspot.

Those happened rapidly and quick, a lot faster than we expected. So yes. Much, much bigger. How big? that's the question..

Dan, if I could, one follow-up on 5G and then I'll pass it on. But looking on 2019, you talked a little bit about it sounds like multiple engagements on the mobile hotspot front on 5G NR.

When would you expect to shipments, is that kind of middle of next year? And then sounds like as well that you are pretty actively engaged on the 5G fixed front as well in terms of the Verizon relationship transitioning into some other opportunities.

Could you provide a little bit more color on that front? And when we might be able to get some more details or quantification of what that opportunity is going to look like..

Yes, I appreciate. Thanks, Scott for, the question. I don't want to be evasive but, especially in 5G, and actually also in 4G gigabit hotspot, the domain of announcing when they're going to launch is the property of the service provider. And I'm very reticent to comment on that. I'm not trying to be evasive but it's their domain.

Now having said that, I would expect to see revenue getting underway towards the end of Q2 and moving into Q3. That's my expectations, that's one thing. And the other thing is there's a lot more flags to be planted. And we'll have to see how that comes to fruition. Simon Rain has joined us, leading the charge.

And one of the charters is standing up IoT & Mobile in international markets. Not been there before, lo and behold, what do we get? We have a 5G and our hotspot when and the tracker win in Telstra, so we're expecting big things..

[Operator Instructions] Our next question is from the line of Mike Latimore with Northland Capital Markets..

In terms of the gigabit router in Verizon, doest that generate any revenue in third quarter? Or is it more kind of fourth quarter and beyond?.

We see that being a fourth quarter impact. I think the announcement occurred at Mobile World Congress, in LA, in September there. And there's a controlled introduction. Again, I don't want to speak on behalf of the service provider because that's a dangerous spot to be.

But that product is being launched and being rolled out in those trial mark and those trial markets. That's about as much as I can say, but yes, we do expect to see a contribution coming in this quarter and moving into the first part of next year..

Got it.

And then on the new Tier 1 win for that gigabit router, is there anything inherently different there that would suggest the opportunity there? Smaller, larger, the same, what you're seeing in Verizon in terms of maybe how to go-to-market or feature set?.

Well, yes, so I think it is different, and here's the reason why. That is obviously a high-performance product. And unlike days in the past where it was kind of a jump ball on 4G hotspots, this is a real differentiator. So as we're looking at it, we're seeing it as sort of a consolidator of the enterprise domain.

And frankly, absorbing more the market that might have actually been split multiple ways. So I think it's got a really strong leverage in the category, quite frankly,, because it's highly differentiated. So I think we'll see more uptake, and I actually think that we'll see our competitors kind of been less successful in the future..

Okay.

And just in terms of the hardware serial throughout the quarter, is it pretty linear? How much do you need to do that see in the last month of the quarter?.

Well, I think like years in the past where you kind of see the inventory management, those kind of things, in a sort of a seasonality effect, quite frankly, with what's going on now, I think we are blowing through that.

So we don't, as you can see, from where we're guiding, and even in the light of continuous supply constraints, we don't see a seasonality kind of a pull down at all..

Okay. All right.

And the new head of Enterprise SaaS, obviously, a great background there, but what would be his sort of number 1 or 2 priorities here kind of in the next 6 months?.

Well, he's on the call with us.

So John, why don't you answer that question?.

I'm going out to all the locations and meeting the people and the customers. And number two, focus on partnering with on the product side on the innovation as we drive [indiscernible].

An initial thoughts on innovation?.

It's early days so far..

Okay. And very last....

We've made reference to cloud technology and investment there, so a large part of John's agenda is directing our evolution in the cloud technology, and that's part of the product roadmap domain. So he's got his hands full..

And just last one, you previously given dividend, I think, EBITDA ex guidance I think for it's second quarter of '19, and exiting '19, is that still the same as it always has been?.

We are not changing our operating model targets. So yes, we're sticking with our targets..

And this will conclude our question-and-answer session. I would now like to turn the conference back over to Dan Mondor for closing remarks..

Thank you, and thanks, everyone again for joining us today. I greatly appreciate your attention and the questions. Just a couple of events coming up. We'll be at the Roth Capital 4th Annual Technology Event in New York, which is actually next Wednesday, on the 14th.

And we have a couple of other investor events this quarter hosted by Northland Capital and Canaccord Genuity. And I'm very happy to report that we'll be presenting for the first time at the upcoming Needham 21st Annual Growth Conference in New York, which is happening mid-January.

Also, we'll be showcasing some exciting new 5G and IoT products, some of which you've heard about on this call, at the upcoming 2019 CES show in Vegas. So we look forward to seeing many of you at these events and continuing the conversation on Inseego's transformation. Thanks, again, everyone..

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