Q1 2022 Inseego Corp Earnings Call
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Hello.
Welcome to the CECO Corp's first quarter 2022 financial results Conference call.
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On the call today are Ashish Sharma C E O.
No.
Barbie or he or.
Chief Financial Officer.
There's other management teams.
During this call non-GAAP financial measures will be discussed.
A reconciliation to the most directly comparable GAAP financial measures.
The earnings release, which is available on the investors section of the company's website.
A replay of this call will also be archived there.
Please also be advised that todays 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 of factors that could cause actual results to differ materially.
Patients. 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.
Oh, and I like to turn the call over to Ashish Sharma CEO . Please go ahead. Thank you operator and welcome to <unk> first quarter fiscal 2022 earnings call. This.
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 wanted 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 <unk> future.
Will then provide a summary of our Q1 progress.
Let's start with our strategy.
Our objective is to position <unk> 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.
Plan to address this through what we call a five <unk> edge cloud, which comprises key components.
<unk> Festival five G land connection anchored by an <unk> World class devices.
Our cloud networking software stack, allowing the creation of a five G van.
And our purpose built suite of enterprise applications.
Our approach to this very large market opportunity starts with <unk>, providing the best performing highly flexible and most secure <unk> access to the <unk>.
<unk> slowed by the carriers.
And <unk> now has the most extensive and highest performing <unk> 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, we're starting to rollout our <unk> solutions to many different use cases.
Also integrated into these products a comprehensive software platform to provide a unified view for our customers, allowing them to fully manage these <unk> solutions.
The software is a key technology that is powering our five GH cloud maybe of bringing all of these pieces of our solutions together.
This critical layer software is key to allowing enterprises to move their corporate Lan into the <unk> cloud.
Let me introduce this to the market in the near future.
Enterprise customers will be able to innovate at the edge and empower a more secure distributed workforce our branch locations.
Five <unk> network fabric for the first time.
Current enterprise van architectures are complex highly fragmented expensive to maintain and dependent on costly on premise appliances and brutal third party integrations.
Theyre also saddled with multiple management consoles and multiple policies.
This large attack surface area makes them, rather vulnerable to cyber attacks and.
<unk> plans on transforming the enterprise van market by offering a full stack of networking capabilities as a <unk>.
<unk> cloud App.
Okay.
The cornerstone of the third part of our enterprise strategy is the C track application portfolio that currently serves thousands of enterprise and SMB customers. We plan to offer this application suite as part of our five <unk> edge cloud as it has great synergy with the other two solution portfolios I.
Earlier.
Since the sale of <unk>, South Africa unit <unk> been busy modernizing the architecture of this application along with enabling five G and integrating into our <unk> cloud.
We see a huge opportunity to utilize this technology to digitize many facets of enterprise operations and 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 im 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 and this new <unk> enterprise journey.
In addition to selling our higher performing hotspots and <unk> devices.
Also important go to market partners for our enterprise <unk> solutions.
T Mobile is a great example of this where we have two ways to sell our products.
Lastly, as what he called stock where T mobile buys our devices directly and sell them to their customers as part of our service package.
The second is what we call Selwyn.
With the T mobile Salesforce brings us enterprise opportunities that can be fulfilled through the var and distributor channel.
We see similar arrangements developing in other global markets, where we sell both directly to the carrier.
<unk> preferred channel partners.
Ultimately our carrier relationships will be an important driver of growth and profitability as you look to take share and what is still a nascent and rapidly growing market.
With that let's dive into the first quarter.
First I am pleased to report that we're off to a good start in 'twenty, two with revenue growth of 23% year over year on a pro forma basis, excluding <unk> South Africa.
And our gross margin rebounded from the prior quarter had.
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.
<unk> revenue was up 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 Coalbed led and Lockdowns were instituted in China late in Q1.
Im very proud of how <unk> has navigated that global supply chain challenges over the past year and there are a few companies large or small that have not been affected the.
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 and they 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 <unk> solution that tell us and Canada and you saw that U S cellular fixed wireless announcement last week.
In North America, our <unk> products are satisfied by all the major carriers and 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.
Received repeat orders from several international customers, which is encouraging as our run rate business in new markets is starting to build up and is expected to contribute more meaningfully to our growth in 'twenty two.
We also won 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 <unk> solutions in multiple regions.
As I've stated in prior calls we are still in the early stages of <unk> adoption for the enterprise.
<unk> networks are becoming increasingly ubiquitous and are evolving to meet the requirements for enterprise use.
While we may see the <unk> icon on our mobile phones and conclude coverage is sufficient.
The underlying infrastructure is still evolving with new mid band capacity, New Fi GSA core network and carrier data plans to make <unk> a primary event solution for the enterprises we.
Believe this is a large market in the making as the case, we will push hard to move many enterprise use cases onto these newly built <unk> networks.
With our <unk> portfolio, we are well positioned to win in this market.
Speaking of <unk>, 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, the order of 30 to 50 devices for small scale deployment before rolling out companywide, which in many cases required thousands of <unk> devices.
These customers are also leveraging our cloud based software to manage and secure the devices.
Cross their distributed workforce or branch locations let.
Let me provide a few examples.
One example is an enterprise customer with our 27000 employees.
They were looking for a reliable <unk> work from home solution to offer their remote employees to ensure a secure and consistent user experience no matter, where they where theyre 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 and configure and monitor the connections all from a single pane of glass.
In the retail sector, we have a couple of USD customers laying the foundation for their own digital transformation, leveraging our solutions for fiber connectivity cross their stores to power a number of applications that require reliable real time connections such as surveillance.
These customers.
One of the initial supply sector with approximately 2000 stores and.
And a nationwide clothing retailer with 800 stores, respectively have successfully completed our testing and are now starting widespread deployment.
Finally, we are seeing an accelerated drive to close the digital divide which is driven largely in part by the beauty of <unk> 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 three.
$3 5 million.
They are leveraging our <unk> cloud managed solutions.
As you can see we are making significant progress against our key strategic objectives.
I want to thank the employees, Evan Siegel for their tireless work and solid execution.
But in our robust <unk> product portfolio and growing enterprise pipeline, we remain confident that <unk> 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 Fuji hotspot business.
After setting records in 2020, and 2021, the first quarter, reflecting the normalization of <unk> as <unk> 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 <unk> data plans that are key to broader adoption of <unk>.
These plans are now being released and our current expectation is for several key partners to begin ramping during the summer, which should position us for a strong finish to the year.
We've always planned on a strong back half of the year, but we are.
So projected those data plans to be at least a few months ago and.
And lastly is the supply chain.
As we've said in previous quarters, we have not experienced any meaningful supply chain issues on our existing products.
This remains accurate today.
However, we remain way that ongoing supply chain challenges associated with Covid related lockdowns in China could impact our new product launches later in 2022.
Once factories reopen we will be able to fully gauge 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 the measure this as a delay by a matter of months as opposed to multiple quarters or more.
We will update our thinking once we have greater certainty around the timing of <unk> 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 our non-GAAP from a pro forma basis adjusted for the divestiture of <unk>, 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 billion up 23% from the prior year, our strong growth reflects rising demand for our <unk> mobile broadband and fixed wireless products and further uptake of our cloud solutions.
Next generation solutions, which are comprised of <unk> 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 <unk> mobile hotspots for both our carrier partners and enterprises, partially offset by a decline in the <unk>.
Sales of <unk> devices.
Enterprise SaaS solutions revenue was $6 9 million, which was flat on a sequential and year over year basis.
Ashish noted we're currently modernizing the architecture of our software assets and integrating them into our <unk> 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 one in the year ago period.
200 basis points from $22.
Two in the prior quarter.
The gross margin decline from last year reflects higher freight cost 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 <unk> 11 per share down from <unk> <unk> 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 billion, 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 a usage 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 taking over as CEO last quarter I've had numerous conversations with our shareholders and the investment community.
Theres one thing Ive consistently heard it is the desire to see us move beyond the narrative of investing in the opportunity offered by <unk>.
And to start executing consistently against our objectives for robust topline growth and improved profitability.
That is why we are being as as transparent as possible and sharing with everyone in the near term challenges that face us, but as I said before we believe these challenges will be measured in months not quarters years I want to be clear on how excited I am about the opportunity that lies ahead and five <unk>.
For the enterprise.
And <unk> has become the leader in <unk> edge with our high performance mobile adaptive resolutions.
In the coming months the pieces will be put in place for mainstream adoption as the carriers evolve their 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 Segal now, let's go to Q&A.
Thank you we will now begin the question and answer session.
Ask your question in reverse stars and warm under your Touchtone phone.
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Today's first question comes from Lance Vitanza with Cowen and company. Please go ahead.
Hey, guys. Thanks.
Congratulations on a nice quarter.
I guess I had a couple of questions. The first is.
Ashish you mentioned, the China Lockdowns could cause a bigger impact in <unk> I think you mentioned in particular with respect to new product launches could you provide any more color on maybe the magnitude of the delay and and is that revenue likely I think you've kind of addressed this in terms of the months rather than quarters commentary, but.
But specific to what you're seeing with those Lockdowns 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.
Nice talking to you hope you're doing well.
So yes to answer your question.
It clearly is a slight delays how I would say it.
Kind of working through all of the partners out there in Asia.
These lockdowns.
It's just uncertainty that sort of I would say at this point.
We'll come back and provide more details as we as we see how things unfold it could happen.
These delays could happen, but we are kind of really tightly managing them right now, but it's just the overall.
Global uncertainty.
Thats kicked into what's happening with Covid in Asia. That's why we are kind of adjusting of saying, it's a little bit of a delay.
But beyond that I mean.
Working through all the challenges we are seeing.
So.
On the last quarter I think maybe the last couple of quarters, you guys, obviously talked about.
And outlook for 2020% to 425% year over year growth, obviously that sort of pro forma for the Ctrip Ctrip South Africa sale and I think you'd also been expecting to be free cash flow positive by year end I know that there is a lot of uncertainty here, but just in terms of thinking about how we model the best.
The best that we can do at this point would you would you be comfortable putting I mean is there.
Should we be thinking more like a 15% year over year growth or or more or less in that end and could you help us think about the magnitude of the potential.
When you finish the year, where do you think you'll be burning burning burning $10 million, a year burning more or less and thats something that we can kind of put some goalposts around those two things that would be great and then I have one follow up for Bob.
If you don't mind.
Yes, I will answer and then have Bob provided their input so as I said earlier to me. This is more of a.
Delayed than.
And anything else side, so I mean.
What I would say is.
Is that things come back online quickly in China, and then the second point that I mentioned earlier in the remarks was the <unk> data plans get put in place by the leading carriers.
We're really ready to go like we've got the portfolio that <unk> got the products.
We're super excited about all the pipeline of opportunities you are working through with lots of hundreds of enterprises right. Now. So so to me. This is more of a delay and.
If I were to talk about.
How are you modeling that I would just say you model it as a delay.
Voice is.
Demand, leaving.
Leaving us or anything like that.
Yes.
Hopefully that is helpful.
Two things on your previous question I, just wanted to reiterate we don't see any demand going away. So I would say news a few days.
The delay bucket not so subtle.
It's not an asset.
Second certainly and a lot of these are bigger than any company, including the largest companies COVID-19 supply chain shocks things like that.
Delays rolling up of <unk>, 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 at our next quarterly call.
For the fiscal year call. It Q2 to Q over Q2 next year, because we really do just due to these global things with some of the technology Giants commented suspended what they provided this guidance.
Don't want to put our Ed.
We know more than Apple as a for instance.
No.
That's really helpful markets there.
We believe from our customers is there it's just delayed.
That's really helpful. And then Bob just my last question before I turn it on.
The next question you mentioned the sequential improvement in gross margin and I may have missed the commentary I'm actually referring to the release, where you talk about the improvement in gross margin, presumably you are referring to 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.
Improvement in gross margin on a non-GAAP basis is that correct.
That is correct yes.
Sure.
Go ahead.
Well. So my question, presumably that was entirely driven by mix shift with with supply chain offsetting what would otherwise have been an even bigger improvement is that right and if so im wondering if you could maybe try to quantify for us how much the supply chain cost you. If it did cost you in <unk>.
Gross margin in the quarter.
I have to think about it this way.
You are correct. We did have a really nice quarter required G products outside of the mix. So we were up significantly and that helped second and 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 any ability to pass on price increases.
Well either did you do it in the quarter at hand or is there a chance that you could do that going forward or is that really just going to show up as gross margin.
Fluent in the near term.
Yeah, Lance, we do that where possible.
There are different segments of the markets, you plan and certain segments more sensitive to price increases than the others. So.
I would say.
We always try to take the opportunity, particularly in this environment too.
To make those changes, but it's not always possible.
Okay.
Alright, Okay. Thanks, guys.
Well, let me just add one thing because I think it's relevant to your question around so thank you very very good questions. The other way to get mix, what we've achieved those morphology.
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 to additional margin enhancement.
Clothing, some greater software attach, which even though its a SaaS basis over time will break.
Certainly.
Greater than higher margins over that extended rolling period of time.
Thanks, Thanks for your help guys I appreciate it.
Thank you Liz.
And our next question today comes from Mike Latimore at Northland Capital. Please go ahead.
Hi, this is other tier on behalf of Mike Lattimore.
Could you give some commentary on if you expect the higher inflation to affect the consumer spending on your product areas.
And it had nice talking to you soon.
Look first of all.
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.
Alright, and you have 210% edge customers again in this quarter.
Yes, that's correct.
Alright and auto.
What quarterly revenue.
You can achieve free cash flow positive.
To be fair with what we presented in the past we have not given that number out.
We would like to build it kind of builds or what Lance asked earlier is come back in Q2.
Hopefully.
Some version of a reaffirmation of what we were.
Previously guarding and we'd like to.
Get clarity as to the whole technology space supply chain Covid Lockdowns in those and then come back in Q2 and provide greater clarity for you.
Alright, thank you.
Okay.
And ladies and gentlemen, this concludes our question and answer session I'd 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.
Look forward to seeing you at upcoming Investor conferences, including Stifel and carbon 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.
[music].
[music].
Hello, and welcome to them. She go Corp's first quarter 2022, and financial results Conference call.
Please note today's event is being read.
Accordingly.
All participants will be in a listen only mode.
Should you need assistance, please signal a conference specialist by pressing the star.
Followed by zero.
After today's presentation there'll be an opportunity for analysts to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Your question. Please press Star then two.
On the call today.
She is jarmo C E O.
No.
Barbie or he or she.
<unk> 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 on the company's website.
An audio replay of this call will also be archived there.
Please also be advised that todays 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 of factors that could cause actual results to differ materially from our 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 <unk> 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.
Wanted 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 <unk> future.
I will then provide a summary of our Q1 progress.
Let's start with our strategy.
Although our objective is to position and Seagull is a key solutions provider for enterprises, which.
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 five <unk> edge cloud, which comprises three components.
Our highly flexible <unk> van connection anchored by an <unk> World class devices.
Our cloud networking software stack, allowing the creation of <unk> and.
And our purpose built suite of enterprise applications.
Our approach to this very large market opportunity starts with <unk>, providing the best performing highly flexible and most secure <unk> access to the <unk> networks third by the carriers.
And <unk> now has the most extensive and highest performing <unk> 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 and multiple agents, who are starting to rollout our <unk> solutions to many different use 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 <unk> NAND solutions.
The software is a key technology that is powering our <unk> cloud we are bringing all of these pieces of our solutions together.
This critical layer software is key to allowing enterprises to move their corporate land into the <unk> cloud.
Let me introduce this to the market in the near future or enterprise customers will be able to innovate at the edge and empower a more secure distributed workforce our branch locations.
Over a five <unk> network fabric for the first time.
Current enterprise van architectures are complex highly fragmented expensive to maintain and dependent on costly on premise appliances and brittle third party integrations.
They also saddled with multiple management consoles and multiple policies.
This large attack surface area makes them rather vulnerable to cyber attacks.
<unk> plans on transforming the enterprise van market by offering a full stack of networking capabilities as a <unk> cloud app.
The cornerstone of the third part of our enterprise strategy is the C track application portfolio that currently serves thousands of enterprise and SMB customers. We plan to offer this application suite as part of our <unk> cloud as it has great synergy with the other two solution.
<unk> portfolios I described earlier.
Since the sale of <unk>, South Africa, our unit.
<unk> been busy modernizing the architecture of this application along with enabling five G and integrating into our <unk> cloud.
We see a huge opportunity to utilize this technology to digitize, many facets of enterprise operations and verticals such as transportation construction logistics supply chain.
<unk> utilities services local governments in mode.
We will have more to say during our next call, but im really excited with the progress we've made and believe the improvements will help accelerate growth.
Note that our carrier customers.
Also our key partners and this new <unk> enterprise journey.
In addition to selling our high performing hotspots and <unk> devices.
Carriers are also important go to market partners for our enterprise <unk> solutions.
T Mobile is a great example of this where we have two ways to sell our products.
Lastly, as Lucky call stock, where T mobile buys our devices directly and sell them to their customers as part of our service package.
Second is what we call sell it with a T mobile Salesforce brings us enterprise opportunities.
E fulfill through the var and distributor channel.
We see similar arrangements developing in other global markets, maybe we sell both directly to the carrier and.
<unk> preferred channel partners.
Ultimately our carrier relationships will be an important driver of growth and profitability as you look to take share and what is still a nascent and rapidly growing market.
With that let's dive into the first quarter.
First I am pleased to report that we're off to a good start in 'twenty, two with revenue growth of 22% year over year on a pro forma basis, excluding <unk> 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.
<unk> revenue was up 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-19 related lockdowns instituted in China late in Q1.
Very proud of how <unk> has navigated that global supply chain challenges over the past year and 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.
Basically for our products with relatively short sales cycles.
Although he was relatively unaffected in Q1, a prolonged lockdown in China and they 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 <unk> solution that tell us and Canada and you saw the U S cellular fixed wireless announcement last week.
In North America, our <unk> products are satisfied that all the major carriers and 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.
You see it 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 'twenty two.
We also won 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 <unk> solutions in multiple regions.
As I've stated in prior calls we are still in the early stages of <unk> adoption for the enterprise.
<unk> networks are becoming increasingly ubiquitous and are evolving to meet the requirements for enterprise use.
While we may see the <unk> icon on our mobile phones and conclude coverage is sufficient.
Underlying infrastructure is still evolving with new mid band capacity, New Fi GSA core network and carrier data plans to make <unk> primary events solution for the enterprises.
We believe this is a large market and are making as the carriers will push hard to move many enterprise use cases.
Onto these newly built <unk> networks.
With our <unk> portfolio, we are well positioned to win in this market.
Speaking of <unk>.
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 with by two to five plus devices to test.
Thereafter, the order of 30 to 50 devices for small scale deployment before rolling out company wide, which in many cases required thousands of <unk> devices.
These customers are also leveraging our cloud based software to manage and secure the devices across their distributed workforce or branch locations let.
Let me provide a few examples.
One example is an enterprise customer with our 27000 employees.
They were looking for a reliable <unk> work from home solution to offer their remote employees to ensure a secure and consistent user experience no matter, where they where theyre located.
To ensure security and consistency the customers 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 usa's customers laying the foundation for their own digital transformation.
Averaging our solutions for fiber connectivity cross their stores to power a number of applications that require reliable real time connections such as surveillance disc.
These customers.
One of the initiatives supplier sector with approximately 2000 stores and.
And a nationwide clothing retailer with 800 stores, respectively have successfully completed our testing and are now starting widespread deployment.
Finally, we are seeing an accelerated drive to close the digital divide which is driven largely in part by the beauty of <unk> 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 four <unk>.
$3 5 million.
They are leveraging our <unk> cloud managed solutions.
As you can see we are making significant progress against our key strategic objectives.
I want to thank the employees of <unk> for their tireless work and solid execution.
But if we have a robust <unk> product portfolio and growing enterprise pipeline, we remain confident that <unk> 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 Fuji hotspot business.
After setting records in 2020 and 2021, the first quarter reflected the normalization of <unk> as <unk> 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 <unk> data plans that are key to broader adoption of <unk>.
These plans are now being released and our current expectation is for several key partners to begin ramping during the summer, which should 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 at least a few months ago.
And lastly is the supply chain.
As we've said in previous quarters, we have not experienced any meaningful supply chain issues on our existing products.
This came in second it today.
However, the main way that ongoing supply chain challenges associated with Covid related lockdowns in China could impact our new product launches later in 2022.
Once factories. The open we will be able to fully gauge 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 the measure this as a delay but net of months as opposed to multiple quarters or more.
We will update our thinking once we have greater certainty around the timing of <unk> 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 our non-GAAP on a pro forma basis adjusted for the divestiture of <unk>, 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 <unk> mobile broadband and fixed wireless products and further uptake of our cloud solutions.
Our next generation solutions, which are comprised of Iot 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.
Our strong performance was again driven by demand for our <unk> mobile hotspots for both our carrier partners and enterprises, partially offset by a decline in the sales of <unk> devices.
Enterprise SaaS solutions 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 biology 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 one in the year ago period, but almost 200 basis points.
From $22 two in the prior quarter.
The gross margin decline from last year reflects higher freight cost 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 <unk> 11 per share down from <unk> <unk> 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 billion, 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.
$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 a usage 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 taking over as CEO last quarter I've had numerous conversations with our shareholders and the investment community.
Theres one thing Ive consistently heard it is the desire to see us move beyond the narrative of investing in the opportunity offered by <unk> and to start executing consistently against our objectives for robust topline growth and improved profitability.
That is why we are being as as transparent as possible and sharing with everyone in the near term challenges that face us, but as I said before we believe these challenges will be measured in months not quarters years I want to be clear on how excited I am about the opportunity that lies ahead and five.
For the enterprise and.
<unk> has become the leader in <unk> edge with our high performance mobile adaptable solutions.
In the coming months the pieces will be put in place for mainstream adoption as the carriers evolve their 50 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.
Even though our financial goals. Thank you for your interest in Segal now, let's go to Q&A.
Thank you we will now begin the question and answer session.
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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 of questions. The first is.
Ashish you mentioned, the China Lockdowns could cause a bigger impact in <unk> I think you mentioned in particular with respect to new product launches could you provide any more color on maybe the magnitude of the delay and and is that revenue likely I think you've kind of addressed this in terms of the months rather than quarters commentary, but.
But specific to what you're seeing with those Lockdowns 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.
Nice talking to you hope you're doing well.
So yes to answer your question.
It clearly is a slight delay is how I would say it.
Kind of working through all of the partners out there in Asia.
These lockdowns.
It's just uncertainty that sort of I would say at this point.
I think it will come back and provide more details as we as we see how things unfold it could happen.
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.
Thats kicked into what's happening with Covid in Asia. That's why we are kind of just saying, it's a little bit of a delay.
But beyond that I mean.
Working through all the challenges we are seeing out there.
So.
On the last quarter I think maybe the last couple of quarters you guys, obviously had talked about.
And outlook for 2020% to 25% year over year growth, obviously that sort of pro forma for the Ctrip ctrip.
<unk>, South Africa sale, and I think you'd also been expecting to be free cash flow positive by year end.
Know that Theres a lot of uncertainty here, but just in terms of thinking about how we model.
The best that we can do at this point would you would you be comfortable putting.
Is it should we be thinking more like a 15% year over year growth or or more or less in that end and could you help us think about the magnitude of the potential.
When you finished the year, where do you think you'll be burning burning burning $10 million, a year burning more or less and thats something that we can kind of put some goalposts around those two things that would be great and then I have one follow up for Bob.
Mike.
Yes, I will.
Answer and then have Bob provided inputs. So as I said earlier to me. This is more of a.
Delayed then than anything else side so.
What I would say is.
Is that things come back online quickly in China, and then the second point that I mentioned earlier in the remarks was the <unk> data plans get put in place by the leading carriers.
We're really ready to go like we've got the portfolio that <unk> got the products.
And we're super excited about all the pipeline of opportunities you are working through with lots of hundreds of enterprises right. Now. So so to me. This is more of a delay.
If I were to talk about.
How are you modeling that I was just say you model it as a delay.
This is less.
Demand, leaving.
Leaving that aside anything like that.
Yes, yes.
So hopefully that is helpful.
Two things on your previous question I, just wanted to reiterate we don't see any demand going away. So I would say news a few days.
And the delay bucket so to this level.
It's not enough.
It's a web circa certainly and a lot of these are bigger than any company, including the largest companies COVID-19 supply chain shocks or things like that and some delays rolling up of <unk>, new plans with those headwinds.
And we think about it now is we're seeing Q1 as a run rate.
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 at our next quarterly call.
For the fiscal year call at the end of Q2 to Q.
Q2 next year, because we really do just due to these global things with some of the technology Giants. So commented suspended what they provided this guidance.
You don't want to put our Ed.
We know more than Apple as a for instance.
No.
That's really helpful markets there.
We believe from our customers is there it's just delayed.
That's really helpful. And then Bob just my last question before I turn it on to the next question you mentioned the.
Sequential improvement in gross margin and I may have missed the commentary I'm actually referring to the release, where you talk 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 with supply chain offsetting well.
Otherwise have been an even bigger improvement is that right and if so im 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.
So think about it this way.
You are correct, we did have a really nice quarter with GE products outside 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 any ability to pass on price increases.
Well either did you do it in the quarter at hand or is there a chance that you could do that going forward or is that really just going to show up as gross margin.
Fluent in the near term.
Yes, we do that.
Possibly right.
<unk> segments of the markets you plan and certain segments.
Sensitive to price increases than the others. So.
I would say.
This drive to take the opportunity, particularly in this environment too.
To make those changes, but it's not always possible.
Right. Okay. Thanks, guys.
Well, let me just add one thing because I think it's relevant to your question of lab. So thank you very very good questions.
Other way to get mix, what we've achieved those more five G.
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 to a traditional margin enhancement, including some greater software attach which even though its a SaaS basis over time will break.
Certainly.
Greater than higher margins over that extended rolling period of time.
Thanks, Thanks for your help guys I appreciate it.
Thank you Liz.
And our next question today comes from Mike Latimore at Northland Capital. Please go ahead.
Hi, This is Adam on behalf of Mike Lattimore could.
Could you give some.
Commentary on if you expect the higher inflation to affect the consumer spending on your product areas.
Hey, 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.
Alright, and do you have 210% edge customers again in this quarter.
Yes, that's correct.
Alright.
What quarterly revenue.
You think you can achieve free cash flow positive.
To be fair with what we presented in the past we have not given that number out well.
We would like to build it kind of builds or what Lance asked earlier is come back in Q2.
We are hopefully.
Some version of a reaffirmation of what we were.
Obviously guarding and we'd like to get clarity as to the whole technology space supply chain Covid Lockdowns from those and then come back in Q2 and provide greater clarity for you.
Alright, thank you.
Okay.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Mr. Sherwood for closing remarks.
Thank you operator, and thank you everyone for joining us on the call today.
Forward to seeing you at upcoming Investor conferences, including Stifel and carbon in June and updating you all next quarter on our continued progress. Thank you again.
Thank you Sir Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.