Hello, and welcome to Inseego Corp's First Quarter 2022 Financial Results Conference Call. Please note 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 Ashish Sharma, CEO, Bob Barbieri, Chief Financial Officer, and other members of the management team. 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 the 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 Ashish Sharma, CEO. Please go ahead..

Thank you, operator and welcome to Inseego’s first quarter fiscal 2022 earnings call. This is my first earnings call as the CEO. And I'm proud to be reporting a solid quarter of execution to start off 2022.

Before I get into the details, I want to take a step back and reflect on where we are as a company in terms of our strategy and execution and share my vision for Inseego’s future. I will then provide a summary of our Q1 progress. Let's start with our strategy.

Our objective is to position Inseego as a key solutions provider for enterprises, which has taken a new sense of urgency in the last couple of years by the need for increasingly distributed enterprise workflows. We plan to address this through what we call a 5G edge cloud, which comprises three components.

A highly flexible 5G WAN connection, anchored by Inseego’s world-class devices, a cloud networking software stack, allowing the creation of a 5G WAN and a purpose-built suite of enterprise applications.

Our approach to this very large market opportunity starts with first providing the best performing highly flexible and most secure 5G WAN access to the 5G networks build by the carriers. Inseego now has the most extensive and highest performing 5G products, both mobile broadband and fixed wireless in the market today.

In addition to being offered by leading carriers around the world, we have created a great pipeline of enterprise customers in multiple regions, who are starting to roll out our 5G WAN solutions for many different used cases.

We've also integrated into these products, a comprehensive software platform to provide a unified view for our customers, allowing them to fully manage these 5G WAN solutions. The software is the key technology that is powering our 5G Edge cloud where we are bringing all these pieces of our solutions together.

This critical layer of software is key to allowing enterprises to move the corporate LAN into the Inseego 5G Cloud. Then, introduce this to the market in the near future, our enterprise customers will be able to innovate at the edge and empower a more secure distributed workforce or branch locations or a 5G network fabric for the first time.

Current enterprise WAN architectures are complex, highly fragmented, expensive to maintain, and dependent on costly on-premise appliances and brittle third-party integrations. They're also saddled with multiple management consoles and multiple policies. This large attack surface area makes them rather vulnerable to cyberattacks.

Inseego clients on transforming the enterprise WAN market by offering the full stack of networking capabilities as a 5G cloud app. The cornerstone of the third part of our enterprise strategy is the Ctrack application portfolio that currently serves 1000s of enterprise and SMB customers.

We plan to offer this application suite as part of our 5G Edge cloud, as it has great synergy with the other two solution portfolios I described earlier. Since the sale of Ctrack South Africa unit, we've been busy modernizing the architecture of this application along with enabling 5G and integrating into our 5G Edge cloud.

We see a huge opportunity to utilize this technology to digitize many facets of enterprise operations in verticals such as transportation, construction, logistics, supply chain, energy, utilities, services, local governments, and more.

We will have more to say during our next call, but I'm really excited with the progress we've made and believe the improvements will help accelerate growth. Note that our carrier customers are also our key partners in this new 5G enterprise journey.

In addition to selling our high performing hotspots, and FWA devices, carriers are also important go-to-market partners for our enterprise 5G solutions. T Mobile is a great example of this, where we have two ways to sell our products.

First is what we call stock, where T Mobile buys our devices directly and sells them to their customers as part of our service package. The second is what we call sell with, where the T Mobile sales force brings us enterprise opportunities that we fulfill through the VAR and distributor channel.

We see similar arrangements developing in other global markets where we will sell both directly to the carrier and to its preferred channel partners. Ultimately, our carrier relationships will be an important driver of growth and profitability as you look to take share in what is still a nascent and rapidly growing market.

With that, let's dive into the first quarter. First, I'm pleased to report that we are off to a good start in '22 with revenue growth of 23% year-over-year on a pro forma basis excluding Ctrack South Africa. And our gross margin rebounded from the prior quarter.

Had it not been for minor supply chain issues that affected our enterprise business late in the quarter, our revenue would have exceeded street consensus. Reflecting our focus on next generation products and go-to-market expansion, 5G revenue was 142% year-over-year and comprised 44% of total revenue.

Importantly, next generation software solutions represented 23% of total revenue in Q1. Bob will go into more details in a moment. As I'm sure all of you are aware, COVID-related lockdowns were instituted in China late in Q1. I'm very proud of how Inseego has navigated the global supply chain challenges over the past year.

There are a few companies large or small that have not been affected. We continue to see lead times lengthening and with limited availability of parts in the spot markets and rising shipping cost, especially for our products with relatively short sales cycles.

Although we were relatively unaffected in Q1, a prolonged lockdown in China may have more of an impact in Q2, particularly as it relates to our anticipated new product launches. I will now touch upon new customer expansions from this quarter, both on the carrier side and through our new enterprise initiatives.

During the quarter, we launched a 5G solution with TELUS in Canada. And you saw the U.S. Cellular fixed wireless announcement last week. In North America, our 5G products are certified by all the major carriers. We have a broad range of engagements with both carriers and enterprises, which we are very proud of.

Our investments in our targeted international markets of Europe, Middle East and Australia are beginning to pay off after a couple of years of investment. We see repeat orders from several international customers, which is encouraging.

As a run rate business in new markets is starting to build up and is expected to contribute more meaningfully to our growth in '22. We also want a new carrier customer in the Nordics, and we shipped the initial quantity of product to them recently.

On the enterprise side, we saw good progress with new customer engagements for our 5G solutions in multiple regions. As I've stated in prior calls, we're still in the early stages of 5G adoption for the enterprise. 5G networks are becoming increasingly ubiquitous and are evolving to meet the requirements for enterprise use.

While we may see the 5G icon on our mobile phones and conclude coverage is sufficient, the underlying infrastructure is still evolving with new mid band capacity, new 5G SA core network and carrier data plans to make 5G a primary event solution for the enterprises.

We believe this is a large market in the making as the carriers will push hard to move many enterprise used cases on to these newly built 5G networks. With FWA portfolio, we are well-positioned to win in this market.

Speaking of FWA, we are encouraged by the continued growth in our pipeline but more importantly, we are seeing several customers move to deploy our products broadly across their organizations. These engagements follow a typical pattern where an enterprise will buy three to five plus devices to test.

Thereafter they order 30 to 50 devices for small scale deployment before rolling out company wide, which in many cases required 1000s of Inseego devices. These customers are also leveraging our cloud-based software to manage and secure the devices across their distributed workforce or branch locations. Let me provide a few examples.

One example is an enterprise customer with over 27,000 employees. They were looking for a reliable 5G work from home solution to offer their remote employees to ensure a secure and consistent user experience no matter where they were located.

To ensure security and consistency, the customer is now using our cloud management solution so that their IT team can have visibility into the entire deployment, enabling them to manage, configure, and monitor the connections all from a single pane of glass. In the retail sector, we have a couple of U.S.

based customers, laying the foundation for their own digital transformation leveraging our solutions for 5G connectivity across their stores to power a number of applications that require reliable real-time connections, such as surveillance.

These customers one in the industrial supply sector with approximately 2000 stores and a nationwide clothing retailer with 800 stores respectively, have successfully completed all testing and are now starting widespread deployments.

Finally, we're seeing an accelerated drive to close the digital divide, which is driven largely in part by the beauty of 5G being significantly easier and cheaper to deploy than fiber in many instances. In addition to its ability to handle massive amounts of data. Most recently, we secured a deal with one of the top public libraries in the U.S.

with over 90 branches, serving a population of over 3.5 million. They're leveraging our 5G Cloud Managed Solutions. As you can see, we are making significant progress against our key strategic objectives. I want to thank the employees of Inseego for their tireless work and solid execution.

But we have a robust 5G product portfolio and growing enterprise pipeline, we remain confident that Inseego is well-positioned to achieve our financial goals. However, there are a number of factors that cloud our near-term visibility. First is the plateauing of our 4G hotspot business.

After setting records in 2020 and 2021, the first quarter reflected the normalization of 4G as 5G becomes more widespread. This has always been expected and as that portfolio carries our lowest gross margins, it is a positive transition. Second is the evolution of enterprise 5G data plans that are key to broader adoption of FWA.

These plans are now being released. And our current expectation is for several key partners to begin ramping during the summer, which will position us for a strong finish to the year. We've always planned on a strong back half of the year, but we also projected those data plans to be released a few months ago.

And lastly is the supply chain, as we've said in previous quarters, we've not really experienced any meaningful supply chain issues on our existing products. This remains accurate today. However, we remain wary that ongoing supply chain challenges associated with COVID-related lock downs in China could impact our new product launches later in 2022.

Once factories reopen, we will be able to fully engage if our new rollouts will be delayed or not. All these factors together may push out our growth expectations for 2022 calendar year. Note that, we measured this as a delay by matter of months, as opposed to multiple quarters or more.

We will update our thinking once you have greater certainty around the timing of carrier FWA rollouts and the easing of COVID restrictions in China. I would now like to turn the call over to Bob, who will provide more details on our Q1 results..

Thank you, Ashish. Let me now review the results of our first quarter fiscal 2022. Please note that all metrics and comparisons made are non-GAAP on a pro forma basis adjusted for the divestiture of Ctrack South Africa, which was completed in July 2021. Please refer to our earnings release for additional details on the GAAP to non-GAAP reconciliation.

Q1 revenue was $61.4 million, up 23% from the prior year. Our strong growth reflects rising demand for our 5G, mobile broadband and fixed wireless products and further uptake of our cloud solutions.

Next generation solutions which are comprised of 5G devices, and all of our cloud software assets increased 68% over Q1 fiscal 2021 and represented 67% of total revenue in this quarter as compared to 43% of revenue in the year ago quarter. First quarter IoT and mobile solution revenue was 54.5 million up 27% from the same period last year.

Our strong performance was again driven by demand for our 5G mobile hotspots from both our carrier partners and enterprises, partially offset by a decline in the sales of 4G devices. Enterprise SaaS solution revenue was 6.9 million, which was flat on a sequential and year-over-year basis.

As Ashish noted, we're currently modernizing the architecture of our software assets and integrating them into our 5G Edge Cloud. Consolidated gross margin was 27.3%, up from 25.4% in Q4, but down from 31% in Q1 last year.

Gross margin for the IoT and mobile business was 24.1%, down from 26.1 in the year ago period, but up almost 200 basis points from 22.2 in the prior quarter. The gross margin decline from last year reflects higher freight costs, while the improvement on a sequential basis was driven by a more favorable mix of device sales.

Gross margin for the enterprise SaaS segment was 53.3% down sequentially from 58.2% and year-over-year from 62.5%. Q1 non-GAAP net loss was 12.1 million or $0.11 per share, down from $0.08 per share in both the prior and year ago quarters.

We reported an adjusted EBITDA loss of 3.3 million, which was down by 1.1 million and 2.1 million respectively, compared to Q1 last year and last quarter. The change was largely due to lower levels of capitalized R&D relative to what we expense.

Our overall cash spending on R&D remains consistent and our investment in next generation solutions is calibrated to our vision to ramp up the SaaS model over time. For additional details on our non-GAAP and adjusted EBITDA results, please refer to the reconciliation tables in our press release.

Cash, cash equivalents and restricted cash at the end of Q1 was $45.2 million. We note that our cash position benefited from the timing of some larger collections, which we expect to normalize this quarter, and therefore result in the uses of cash in Q2 that is more consistent with our recent historical run rate.

With that, let me turn it back to Ashish, for his closing comments..

Thank you, Bob. Since taken over as CEO last quarter, I've had numerous conversations with our shareholders and the investment community.

There's one thing I've consistently heard it is the desire to see us move beyond the narrative of investing in the opportunity offered by 5G and to start executing consistently against our objectives for robust top-line growth and improve profitability.

That is why we are being as transparent as possible and sharing with everyone the near-term challenges that face us. But as I said before, we believe these challenges will be measured in months, not quarters or years. I want to be clear on how excited I am about the opportunity that lies ahead in 5G for the enterprise.

Inseego has become the leader in 5G Edge with our high performance mobile adaptable FWA solutions. In the coming months, the pieces will be put in place for mainstream adoption as the carriers evolve their 5G data plans and we move beyond the renewed COVID lockdowns.

We believe these factors combined with our growing pipeline and expanding go-to-market will put us back on track to achieving our financial goals. Thank you for your interest in Inseego. Now let's go to Q&A..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Lance Vitanza with Cowen and Company. Please go ahead..

Hey, guys. Thanks and congratulations on a nice quarter. I guess I had a couple questions. The first is, Ashish you mentioned the China lock downs could cause a bigger impact in 2Q. I think you mentioned in particular with respect to new product launches.

Could you provide any more color on maybe the magnitude of a delay and is that revenue likely and I think you kind of addressed this in terms of the months rather than quarters commentary but specific to what you're seeing with those lock downs? Is this revenue that you think likely gets pushed into the second half? Or is there some risk that this revenue is lost forever for whatever reason?.

Hey, Lance, nice talking to you hope you're doing well. So yes, to answer your question, it really is slight delays how I would say it. We're kind of working through all of the partners out there in Asia as a juggler to these lockdowns. It's just uncertainty that's what I would say at this point.

We will come back and provide more details as we see how things unfold. It could happen. That's what I said that these delays could happen. But we are kind of really tightly managing them right now. But it's just the overall global uncertainty, as that kicked in through to what's happening with COVID in Asia.

That's why we're kind of just saying it's a little bit of a delay. But beyond that, I mean, we're working through all the challenges we're seeing out there..

So on the last quarter, maybe the last couple of quarters, you guys obviously talked about an outlook for 2022 for 25% year-over-year growth, obviously, that's sort of pro forma for the Ctrack South Africa sale. And I think you'd also have been expecting to be free cash flow positive by year end. I know that there's a lot of uncertainties here.

But just in terms of thinking about how we model the best that we can do at this point, would you be comfortable putting, I mean, is it should we be thinking more like a 15% year-over-year growth? Or more or less than that? And could you help us think about the magnitude of a potential, when you finish the year, where do you think you'll be burning 10 million a year burning more or less than that something that we can kind of put some goalposts around those two things would be great.

And then I have one follow up for Bob, if you don't mind..

Lance, I will answer and then have Bob provide his input. So as I said earlier, to me, this is more of delayed than anything else, right? So, I mean, what I would say is, is that things come back online quickly in China.

And as you know, the second point that I mentioned earlier in the remarks was the 5G data plans put in place by the leading carriers. And we're really ready-to-go like we've got the portfolio; we've got the products. And we're super excited about all the pipeline of opportunities we are working through with lots of hundreds of enterprises right now.

So to me, this is more of a delay and if I were to talk about how you model it that I would just say you model it as a delay versus the demand leaving us or so anything like that.

Bob?.

Yes. Hopefully, that was helpful. Two things, on your previous question, I just wanted to reiterate. We don't see any demand going away. So everything is viewed as in the delay bucket. Not so it's not an effort, it's a win.

Second, certainly and a lot of these are bigger than any company, including the largest companies COVID supply chain shops and things like that, and some delays rolling up a 5G new plans. With those headwinds, the way we think about it now is we're seeing Q1 as a run rate.

And we will create greater clarity as we see through what's going on in technology.

So all of our goals and aspirations, including the numbers you threw out, probably look to be reaffirmed in our next quarterly call and for that fiscal year, call it the end of Q2 to end of Q2 next year, because we really do -- just due to these global things with some of the technology giants have come in and suspended what they provided as guidance.

And we don't want to be put ourselves ahead of that we know more than Apple as for instance..

So now that's really helpful..

The markets there and the appetite, we believe from our customers is there is just delayed..

That's really helpful. I think, Bob, just my last question before I turn it on to the next person. You mentioned, the sequential improvement in gross margin. And I may have missed the commentary, I'm actually referring to the release where you talked about the improvement in gross margin.

Presumably you're referring to the non-GAAP basis versus Q4, which I think I went back and tried to do that calc, I think it was about a 200-basis point sequential improvement in gross margin on a non-GAAP basis.

Is that correct?.

That is correct. Yes. Go ahead..

Well, so my question is, presumably, that was entirely driven by mix shift with supply chain offsetting, what would otherwise have been an even bigger improvement. Is that right? And if so, I'm wondering if you could maybe try to quantify for us how much the supply chain cost you if it did cost you in terms of gross margin in the quarter..

I didn’t think about it this way. You are correct. We did have a really nice quarter with 5G products inside of the mix. So we were up significantly and that helped. Second, I would say Q4 to Q1, our supply chain issues, both with freight and material costs were relatively the same.

So as that clears a bit, there'll be further improvement from the reduction of those effects. But the mix is the big driver in the sequential quarter..

Any ability to pass on price increases either well -- either did you do it in the quarter at hand? Or is there a chance that you could do that going forward or no? Is that really just going to show up as gross margin influence in the near-term?.

Yes, Lance. We do that whenever possible, right? I mean, there are different segments of the markets you play in. And certain segments are more sensitive to price increases than the others. So I would say, we always try to take the opportunity particularly in this environment to make those changes, but it's not always possible, not for me certainly..

Right. Okay. Thanks, guys..

Well, let me just add one thing, because I think it's relevant to your question, Lance. So thank you very, very good questions. The other way to get mix in what we've achieved is more 5G inside of our mix.

The second thing we're looking forward to as a company is greater penetration into the enterprise space that we think will bring additional margin enhancement, including some greater software attach, which even though it's a SaaS basis over time will bring certainly greater and higher margins over that extended rolling period of time..

Thanks for your help, guys. Appreciate it..

Thank you, Lance..

And your next question today comes from Mike Latimore at Northland Capital. Please go ahead..

Hi, this is [Aditya] [ph] on behalf of Mike Latimore.

Could you give some commentary on if you expect the higher inflation to affect the consumer spending on your product areas?.

Nice talking to you. So look, first off, the majority of our product goes into enterprises. So we don't really -- we're not really seeing any impacts of inflation at this point..

All right.

And did you have to 10 percentage customers again in this quarter?.

Yes, that's correct..

All right.

And also what quarterly revenue, you think you can achieve free cash flow positive?.

To be fair with what we've presented in the past, we have not given that number out. Well, we would like to do and it's kind of builds on what Lance asked earlier, is come back in Q2, with hopefully some version of a reaffirmation of what we were previously guiding.

And we'd like to get clarity as to the whole technology space supply chain COVID lock downs and those and then come back in Q2 and provide greater clarity for you..

All right. Thank you..

And ladies and gentlemen, this concludes our question-and-answer session, I would like to turn the conference back over to Ashish Sharma for closing remarks..

Thank you, operator. And thank you, everyone, for joining us on the call today. We look forward to seeing you at upcoming investor conferences, including Stifel and Cowen in June, and updating you all next quarter on our continued progress. Thank you again..

Thank you, sir. And we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..