Q4 2022 Inseego Corp Earnings Call
Speaker 1: And.
Speaker 1: We.
Speaker 2: Hello and welcome to Insego Corp's 4th Quarter and 4 Year 2022 Financial Results Conference Call. Please note that today's session will be recorded.
Speaker 2: call will be recorded. All participants will be in listen-only mode. Should you need assistance, please signal conference messages by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity for analysts to ask questions.
Speaker 2: To ask a question, you might press star then run your telephone keypad.
Speaker 2: To withdraw your question, please press star and 2.
Speaker 2: On the call today are Ashish Sharma, CEO , Bob Barberi's Chief Financial Officer and other members of the Management Team.
Speaker 2: During this call, non-GAAP financial measure will be discussed.
Speaker 2: 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.
Speaker 2: An audio replay of this call will also be archived.
Speaker 2: Please also be advised that today's discussion will contain forward-looking statements.
Speaker 2: These forward-looking statements are not historical facts, but rather are based on the company's current expectations and beliefs.
Speaker 2: For discussion on factors that could cause actual results of the different material from expectations, please refer to the risk factors described in our forum 10K. Thank you and other SEC findings which are available on our website.
Speaker 2: Please also refer to the cautionary note regarding forward-looking statements, sections contained in today's press release.
Speaker 3: I would like to turn the call over to Ashish Sharma, CEO . Please go ahead. Thank you, operator. Good afternoon, everyone, and thanks for joining us. Before we dive into our results for the quarter, I want to step back and reflect on my first year as an Seagull CEO .
Speaker 3: I would like to turn the call over to Ashish Sharma, CEO . Please go ahead. Thank you, operator. Good afternoon, everyone, and thanks for joining us. Before we dive into our results for the quarter, I want to step back and reflect on my first year as NCEGO CEO . I will highlight three major areas of progress.
Speaker 3: First, I'm happy to report that we have now transformed Inseego into an enterprise fixed wireless access company with the momentum we saw in 2022, especially in Q4.
Speaker 3: I'm happy to report that we have now transformed Inseego into an enterprise fixed wireless access company with the momentum we saw in 2022, especially in Q4. This is evidence from the following.
Speaker 3: Our FWA business now comprises 30% of our revenue, while cloud software has grown to represent an incremental 27% of our revenue. As we have discussed on prior calls, these two businesses produce significantly higher gross margins than our legacy hotspot business.
Speaker 3: Our FWA business now comprises 30% of our revenue, while cloud software has grown to represent an incremental 27% of our revenue. As we have discussed on prior calls, these two businesses produce significantly higher gross margins than our legacy hotspot business. This was evident in our Q4 results.
Speaker 3: which saw our gross margin increase by 390 basis points to 30%. We expect to further expand our gross margin in FY23 and beyond as enterprise adoption of FWA and our cloud solutions continues. We have established our FWA and managed software offerings as the leading 5G WAN portfolio in the industry. For more information, visit www.fwa.gov
Speaker 3: We have a large and growing pipeline with dozens of large, well-known enterprise customers.
Speaker 3: and growing pipeline with dozens of large, well-known enterprise customers. They are loving our solutions.
Speaker 3: They will look to roll out deployments to their distributed sites as the carriers get more adept at pricing 5G enterprise service plans and network coverage improves.
Speaker 3: look to roll out deployments to their distributed sites as the carriers get more adept at pricing 5G enterprise service plans and network coverage improves. We are seeing that improvement every day.
Speaker 3: We are encouraged by our progress, but we recognize that the enterprise after Blu-ray market has taken time to develop and will evolve gradually over the next seven course.
Speaker 3: to run the company more efficiently.
Speaker 3: First, we identified geographic regions where initial interest was high, but the availability of 5G service offerings is lacked.
Speaker 3: So we accident those markets.
Speaker 3: Japan is a good example of this.
Speaker 3: Second, we are being more disciplined in our pursuit of any new stock device programs with carriers and will focus only on the few premium slots.
Speaker 3: Given the requisite high level of sustained R&D investments and certification costs,
Speaker 3: as well as the lower margins relative to our enterprise opportunity. We think this makes good sense. And third, we have reduced our infrastructure, headcount, and external spending costs globally as many technology companies have also done.
Speaker 3: margins relative to our enterprise opportunity, we think this makes good sense. And third, we have reduced our infrastructure, headcount, and external spending costs globally, as many technology companies have also done. So what effects did these changes have?
Speaker 3: In total, we've eliminated approximately $32 million in analyzed cash spend from our cost structure as we entered 2023. Third, I want to address our balance sheet and cash flow expectations.
Speaker 3: Between the growth in our high margin enterprise business and the significant cost actions we have taken, we expect to reach cash flow positive in Q2 and build upon that progress over the remainder of the year. This has been a top priority of the management team during 2022.
Speaker 3: and we are pleased with the progress towards achieving this important milestone. In total, we sold to a few dozen new enterprise customers in the quarter and ended the year with well over 1,000 customers.
Speaker 3: Importantly, over 90% of our enterprise sales in Q4 included software, which obviously contributes to our overall margin improvement.
Speaker 3: Let me also address the revenue decline that is driven by lower sales in our hotspot business. The transition from 4G to 5G with our carrier customers continued last quarter as they reduced purchases of 4G products and transitioned completely to 5G.
Speaker 3: We have talked about this in the last couple of earnings calls. In addition, in 2022, we had carrier upgrades in our 5G hotspots to deliver the latest Qualcomm chipsets.
Speaker 3: which added some variability during the year. Our hotspot business has normalized to a new level focused only on the business segments.
Speaker 3: Over the last couple of years, we enjoyed the sole spot with some large carrier customers, but as the market is matured for 5G hotspots, they've introduced other competing products. So while our hotspot is the flagship enterprise product of choice with those large carrier customers, the volume for other market segments is now shared by other hotspots.
Speaker 3: On the lower Hathspot sales represented a drop in our top line, the impact on our profit dollars is far less substantial due to the gross margin improvement driven by the better mix of higher margin businesses I just mentioned.
Speaker 3: So that was the progress on those three areas. Next, let me provide a brief summary of our Q4 results.
Speaker 3: In Q4, we generated revenue of 52.9 million and an adjusted EBIDA loss of 3 million. Importantly, we continue to see enterprise affiliate cross convert to deployments. It is important to note that very often, customers who purchase our FWA products
Speaker 3: Begin with a small initial pilot with 5 to 20 devices, which progresses into full-scale deployment over time for hundreds or thousands of locations.
Speaker 3: We have now been in the enterprise after Bua Business for a little over a year and we are seeing pilots convert to deployments.
Speaker 3: Our FWA business now accounts for about 30% of our revenue. Contributing to our enterprise FWA's success is the new go-to market programs we put in place with all three large carriers in the US who are helping us build this new FWA market.
Speaker 3: We've discussed and markets in previous costs. But some examples of new enterprise customer wins are in multi-location retail and restaurants, construction, home builders and the SDVAN space.
Speaker 3: Our home builder and construction customers are deploying our solutions to establish broadband services for new sites. Utilizing 5G, they can establish that connectivity instantaneously when compared to traditional ISPs.
Speaker 3: The applications that 5G enables for this sector include material tracking, surveillance, ARVR, VLTIM monitoring for OSHA compliance and reliable uptime for workers that depend on mobile applications on the job site.
Speaker 3: One of these early adopters is a new addition to our pipeline, another Fortune 500 home builder. They are now exploring applications enabled by our products to support their smart home initiatives. In the retail space, we continue to expand our footprint with existing Fortune 1000 customers spanning grocery chains, QSR,
Speaker 3: form, and agriculture supply and apparel. We are pleased to win a major off-price retailer with roughly 3,500 stores in the US alone.
Speaker 3: We will begin shipping products to this customer in Q1. In the SDVAN space, we've won the large customer in the Middle East, who is rolling out our solution as part of their SDVAN service offerings.
Speaker 3: In Seaco's products are deployed as part of this customer's virtual edge platform. We've already shipped thousands of units to this customer.
Speaker 3: We believe we are very early in the adoption cycle for Enterprise FWAA, but the market is changing rapidly as 5G networks are completed. We have seen this in how our pipeline has grown over the past year and the nature of the customers evaluating our solution. With that, let me turn the call over to Bob.
Speaker 4: who will provide more details on our Q4 results. Let me now review the results of our fourth-quarter fiscal 2022.
Speaker 4: Please note that all metrics and comparisons made are non-GAP on a pro-forma basis, adjusting for the best of your C-TRAX South Africa, which was completed in July 2021. Please refer to our earnings release for additional details on the GAP to non-GAP reconciliation.
Speaker 4: Q4 Revenant was 52.9 million down 27% from the prior year. The decline primarily reflected lower sales of our legacy hotspot products. As Ashish mentioned, our FWA business comprised 30% of total revenue and grew 122% over the prior year period.
Speaker 4: Next generation solutions, which are comprised of 5G devices and all of our cloud software assets, decrease 9% over Q4 fiscal 2021 and represented 74% of total revenue in this quarter as compared to 58% of revenue in the year ago quarter.
Speaker 4: Software Revenue, account of 427% of total revenue, and increased 6% from the year ago quarter. Fourth quarter, IOT and mobile solution revenue, was 46.3 million, down 30% from the same period last year. The decline was primarily driven by reduced sales of our hotspot products.
Speaker 4: partially offset by continued update of our solutions by enterprise customers. Enterprise SaaS Solutions Revenue was $6.6 million, relatively flat both sequentially and year over year. Consolidated gross margin was 30.3% up 390 basis points.
Speaker 4: from 26.4% in 2.3 and 490 basis points from 25.4% in 2.4 last year. Gross margin for the IoT and mobile business was 28% up from 23.4% in the prior quarter and 22.1% in the prior year period.
Speaker 4: As Ashish alluded to in his comments, the meaningful improvement in gross margin on a sequential and a year-on-year basis was attributable to a significantly higher mix of enterprise fixed wireless revenue.
Speaker 4: Recall that the contribution margin on the hotspot products has been negatively impacted post-pandemic by higher component and distribution costs, so the reduction in the associated revenue did not materially impact our gross profit dollars. We continue to see gross margin on our enterprise fixed wireless sales exceed 40%, which leaves us confident that the growth margin is not going to be as high as it was in the previous year.
Speaker 4: in the trajectory of our gross margins and further margin expansion from here. Gross margin for the Enterprise SAS segment was 56.7% up slightly compared to the sequential and prior year periods.
Speaker 4: Q4 non-GAAP net loss was $11.8 million, or $0.11 per share, compared with a loss of $0.11 per share in the prior quarter and a loss of $0.08 per share in the year-ago quarter. We reported an adjusted EBITDA loss of $3 million.
Speaker 4: which was higher than the loss of 2.5 million in Q3 and the 1.2 million loss in the year ago period. Included in the loss this quarter was approximately $1 million in expenses that we do not expect to recur going forward. As Ashish mentioned our efforts to identify...
Speaker 4: Additional operating expenses has resulted in the elimination of approximately $10 million in cash expenses during Q4. We note that this reduction is incremental to the 20 million and annualized cost savings we highlighted last quarter.
Speaker 4: For additional details on our non-GAP and adjusted EBITDA results, please refer to the reconciliation tables in our press release. Cash, cash equivalence, and restricted cash at the end of Q4 was $7.1 million. Our cash usage was impacted by the timing of our year-end payroll.
Speaker 4: payments made to suppliers, and one-time expenses related to our cost reduction efforts.
Speaker 4: As the sheesh noted, we expect our cash balance to trough near the current levels and increase beginning in Q2 of this year as we reach an inflection point in free cash flow generation. We expect Ivita and cash flow positive.
Speaker 4: noted, we expect our cash balance to trough near the current levels and increase beginning in Q2 of this year as we reach an inflection point in free cash flow generation. We expect EBITDA and cash flow positive in fiscal 23.
Speaker 4: Our FY-23 Outlook also assumes a steady increase in our mix of enterprise-fix wireless business throughout the year continued improvement in gross margin from the 30% achieved in Q4-22 and a full realization of the over $30 million in reduction in cost recently implemented. Although we are not providing specific quarterly guidance,
Speaker 4: carrier partners will continue to transition away from 4G products.
Speaker 4: That being said, there may be quarters where the timing of restocking orders or the pace at which our enterprise business scales Could create volatility in our reported revenue and gross margin. We will endeavor to highlight these impacts should they occur over the course of the year Let me turn it back to a sheesh for his closing comments
Speaker 3: Thanks Bob. We made a tremendous amount of progress in transforming in Seigo over the past year. Our Q4 results clearly demonstrate the potential margin expansion inherent in our business as 5G Enterprise after Bua Sales increasingly drive our growth. Combined with our efforts to reduce costs.
Speaker 3: We are inching closer to our goals for profitability and positive cash flow generation. Thank you all for your interest and support. We look forward to taking your questions.
Speaker 2: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your hands before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker 2: Our first question will come from Scott Cyril with Roth Capital.
Speaker 2: Our first question will come from Scott Cyril with Roth's capital. You may now go ahead. But...
Speaker 5: I'm the Army Scott Searles from Ross, Capital, in your line's opening. Oof. Oh my apologies, I had a young mute. Hey guys, thanks for taking the questions. Hey, I'm not sure if I missed it earlier on the call but I was wondering if you could give a quick break out of 4G and 5G mix and then the percentage sales of your 10% customers.
Speaker 3: Hey Scott, hey good talking to you. So we had three customers representing over 10% in sales. Answer the second question. Your first question I would say the 4G says were approximately
Speaker 3: approximately 24% 25% of the revenue of which I would say the hotspots were probably in the range of 6% of the overall revenue. Okay very helpful and Ashish I know in the past like some of the delays in the rollout had been related to C-band coverage.
Speaker 5: That is starting to improve now. There are still some ongoing issues in terms of arguing with the FAA, but it's moving in the right direction. So I'm wondering what the visibility is on that front to start seeing the carriers a bit more aggressive on that front in terms of pushing 5G fixed-row success for Tibet.
Speaker 3: It's got great question and that is what you know is been holding up the market as you know for past year and a half. Every day we are seeing progress now like we are seeing more coverage pop up on midband from all the three care years. It is starting to look a lot better. Many of these large enterprise customers who have been piloting and trialing our solutions are now...
Speaker 3: starting to go beyond a few sites to more and more sites. So it is definitely looking better, but I would say that we're still in the bottom of the first inning, right, on the market, the new afterglow market that is developing.
Speaker 3: And we expect it'll be gradual build up over next several quarters of how that market is going to develop. Obviously, this quarter for us as a company you see that was a huge transformation from being a hotspot company where a year ago,
Speaker 3: Q4 of 21, 70% of our revenue came from hotspots. This quarter, that was less than 30%. And plus, obviously our FWA business jumped with time, which now constitutes over 30% of the revenue, and hence the uplift and the margin. So, truly, company is transforming in what?
Speaker 5: still is a very early market, but the signs are super positive. Gotcha. And if I could, sequentially, it sounds like you're expecting some seasonality. I was wondering if you'd give us an idea in terms of sequentially by the product category. I would imagine historic enterprise SaaS probably stays flattish. Mobile hotspots tend to have some seasonality, but enterprise FWA, does that come down as well or is there some strength there as you're starting to build a little bit of momentum?
Speaker 3: Yeah, I mean, no, on the SaaS side, on the cloud revenue side, and on the FWA business side, we're going to continue to see gradual improvement. So, so I'm not forecasting the seasonality effect there. Hot spot continues to be seasonal.
Speaker 3: And I would say that Q1 generally is on the lower side. And so you would see that. And so that's the first half. And the second half would start to hopefully improve. Having said all that, as we've mentioned before, the 4G Devonue on the hotspot side, we've been forecasting that too.
Speaker 3: eventually went down and totally go away and that will happen sometimes this year. Hence the reason this quarter that revenue from 12 months ago just went from being 38% of our revenue to literally 6% of the revenue.
Speaker 3: But look, that's not a high margin business for us. And so, so while we take anything opportunistically that comes from our lead customers, we're really not counting on that revenue. Gotcha. And lastly, if I could, just in terms of trying to get my hands around what normalized op-x is going to be going forward, I think you said there was 1 million.
Speaker 5: of non-recurring costs in the quarter, but you've also talked about taking 32 million in costs out, and then there was a number I heard as well. Ten million in there somewhere, I'm not sure if that was recognized on an annualized basis in the fourth quarter. So if I look at your op-x, neto.com, and one-time charges, what does that number look like as we get out to the second quarter?
Speaker 5: of 23 here. Is it closer to, you know, I think this quarter was just under 25 million, you know, pro forma. Is that number then closer to 20 million? And then in terms of getting to that cash will break even cash will positive level what sort of revenue one right do you need to hit that? Thanks. Yeah, good. Great question Scott. So let me first answer your question on the.
Speaker 3: OPEX, so for Q4 actually you set the performance hours below 25, it's actually, you know, lower than 22, you know, the cash piece of it, right? And Q2, by Q2 that would be in the range of 17 million. So like overall we've removed, you know, like we said north of 32 million.
Speaker 3: by Q1 when all the full effect is in place, I mean, we would have removed close to 37 million hours in fast-from-the-opics. So you could see that we're not gonna, with the change, with the mix and change in revenue mix and the margin mix, we're not really gonna need a huge top line.
Speaker 2: Okay, thanks so much.
Speaker 2: Gotcha. Okay. Thanks so much. Thank you Scott.
Speaker 6: Our next question will come from Tores, Sandberg, with Steve Ful. You may not go ahead. Yes, good afternoon. This is Jeremy Kwan, coming for Tori. Yes, congrats for the large in execution here. This is a question in terms of the backlog that you can provide for us.
Speaker 3: business about 27%
Speaker 3: subscription business, right? So that continues, you know, as is like at the base and then continues to grow. Number two piece of the business is the hotspot business which...
Speaker 3: which the way that works is, is we have certain slots with the large carriers. And then we work with them on a weekly basis to monitor the cell through. And that's where we've seen bunch of availability in the business, one 4G, just going down as we had worked.
Speaker 3: 5G hotspot we saw that in Q4 so that I would say the hotspot business right now I would say was probably at the lowest level in Q4 and we expected to, you know, at some point rebound although we're not making that in our future models, right? We don't really, even if we continue at the level.
Speaker 3: and we continue to improve our, grow our FWA business, which grew significantly this quarter. I think we are a totally different company. So now coming to FWA business, that business, we're going through two different routes to market. One is, you know, stocking through carriers. And second is going through distribution and channel partners to a very broad enterprise market. And they're both, those both businesses are measured not as much by backlog, but much more by, I would say, you know, either the sell through or second, the health of the pipeline of opportunities. And I would say both of those.
Speaker 6: on the after-blig business that's really strong at this point and has the results in Q4. Great, thank you. And I guess I think you mentioned having 3-10% plus customers, are you able to kind of size that for us?
Speaker 3: and provide a little bit more detail there? Yeah, it's a traditional two largest customers are key mobile and Verizon, and the third one in the list now is US sell.
Speaker 6: Got it. And I guess a final question then, just going back to the six wireless access market. You know, I think he said it was 30% into four. Do you have kind of an idea of where, you know, that could go over the next 12 to 18 months?
Speaker 6: as that piece continues to grow. Yeah, any kind of, and which verticals you see kind of driving that in the near term. Thank you.
Speaker 3: Yeah, Jeremy, great question. I look, we're not providing guidance, but directionally I would say in next 12 to 18 months, we expect that to become 60 to 70% of our revenue in our equal or so. That opportunity is there and we're seeing the pipeline. I would say the...
Speaker 3: In your second question about which verticals, I mean look it's across the board right from construction to retail to To you know city infrastructures to healthcare companies We're seeing FWA become a new market, you know horizontally pretty much in
Speaker 3: and many verticals across the goal. So we've got a great mix of customers and pilots. And it just is the need being all driven by the distributed nature of a lot of the enterprises now, especially after the pandemic. And 5G, after-go-A is a great technology to provide that very economically and efficiently.
Speaker 7: in a very quick manner. Great, thank you very much. Thank you, Jeremy.
Speaker 2: Again, if you have a question, please press star then one. Our next question will come from Jonathan Navarette with Cohen.
Speaker 2: Again, if you have a question, please press star then one. Our next question will come from Jonathan Navarit with Cohen. You may not go ahead. The next question will come from Jonathan Navarit with Cohen.
Speaker 8: Hey, how are you guys? Jonathan, on for Lance. My first question is, can you call out some of the cost reductions implemented in 22 that have helped generate those NLI savings? And following up on that, are there any additional levers with which you can keep on expanding margins in terms of cost reduction in 23, or you guys pretty much have hit an end where...
Speaker 3: And there's no need or you guys can't anymore. Yeah, good questions Jonathan. So, there are a number of different areas that we took the cost out. So I would say number one was getting out of some of these geographic regions where there was a huge amount of interest in 5G over the last few years. So, I would say number one was getting out of some of these geographic regions.
Speaker 3: But for one reason or another the markets just haven't developed quick enough. I mean there's interest but they haven't developed quick enough. So we've kind of, you know, gotten out of many of those international markets. Number two, based on that number one, we've kind of just really put focus on
Speaker 3: contracting the R&D to not chase a lot of those slots that we were chasing before and being extremely focused on the markets where there is action like specifically here in North America and a little bit in Australia, that's where we are focused. So that was a big change.
Speaker 3: And number third, I mean I would say that we took a very hard look at all of the infrastructure of the company including North America, Europe Middle East, Australia, New Zealand, Japan and and we did a whole lot of cost reductions to remove the cost from the company. I would say that you know we have we still have a huge leverage built in the
Speaker 3: in the strategy that we build. So even though we have removed the car from the areas that were not quite happening yet, but we can very, very quickly expand the business with the code that we've got here. And I would say that that's the focus moving forward is use the code to grow the top line and the business in the right areas.
Speaker 8: very quickly and we believe we could do that going forward. Okay, that makes sense. So given those cost reductions as well as improving revenue mix, is it safe to assume that we can expect growth margins on catapasers to steadily remain above 30% throughout each of the four quarters in 23? Yeah, I mean, not just remain above 30%, but I would...
Speaker 8: Okay, Roger. Do you expect that just given the low cash balance of $7 million that you will be using in this quarter or do you feel like there's no need to do that? Yeah, we looked at the reason we put in that Revolver was just that, right, which is to use it for working capital.
Speaker 3: as we, you know, kind of, you know, go and get these orders from our lead customers. And we have to, you know, procure the material, put some stuff in inventory and make sure in what is still a very supply chain, you know, constrained environment from just the lead time perspective that you are able to...
Speaker 3: take all the demand and that's exactly the focus of that reward, where that's what we're going to continue to use it for. Thank you. It appears our local other questions.
Speaker 3: I would like to turn the conference back over to Shia Sharma when he calls in remarks. Thank you operator and thank you everyone for joining us on the call today. We look forward to updating you on next quarter on our continued progress. Thank you again.
Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker 1: Until the end
Speaker 2: Hello and welcome to in Zego Corp's fourth quarter and four year 2022 financial results conference call.
Speaker 2: Please note that today's call will be recorded. All participants will be in listen only mode.
Speaker 2: Should you need assistance to please signal conference, most respectful staff key followed by zero? After today's presentation, there will be opportunity for analysts to ask questions.
Speaker 2: To ask the question, my first start and one your telephone keypad. To withdraw your question, please first start with two. On the call today are a cheese, Sharma, CEO .
Speaker 2: Bob Barberi, Chief Financial Officer, and other members of the management team. During this call, non- GAAP financial Measure will be discussed. A reconciliation to the most directly comparable GAAP financial Measure is included in the earnings release.
Speaker 2: which is available on the investor 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 four looking statements. These four looking statements are not historical facts, but rather based on the company's current expectations and beliefs. For discussion on factors that could cause actual results at the different materiality,
Speaker 2: 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, sections 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. Good afternoon, everyone, and thanks for joining us.
Speaker 3: Before we dive into our results for the quarter, I want to step back and reflect on my first year as in CEO . I will highlight three major areas of progress. First, I am happy to report that we have now transformed in CEO into an enterprise fixed wireless access company with the momentum we saw in 2022, especially in Q4.
Speaker 3: This is evident from the following. Our FWA business now comprises 30% of our revenue, while cloud software has grown to represent an incremental 27% of our revenue.
Speaker 3: As we have discussed on prior calls, these two businesses produced significantly higher gross margins than our legacy hotspot business. This was evident in our Q4 results, which saw our gross margin increased by 390 basis points to 30%.
Speaker 3: We expect to further expand our gross margin in FY23 and beyond as enterprise adoption of FWA and our cloud solutions continues.
Speaker 3: We've established our FWA and managed software offerings as the leading 5G WAN portfolio in the industry. We have a large and growing pipeline with dozens of large, well-known enterprise customers. They are loving our solutions. They will look to roll out deployments to their distributed sites as the carriers get more adept.
at pricing 5G Enterprise Service Plans and network coverage improves. We are seeing that improvement every day. We are encouraged by our progress, but we recognize that the Enterprise FWA market has taken time to develop and will evolve gradually over the next several quarters. Second, beginning Q2 of 2022, we put in an intense focus on right sizing the company cost structure
while the FWM market develops. So we drove several significant initiatives to run the company more efficiently. First, we identified geographic regions where initial interest was high, but the availability of 5G service offerings is lacked.
So, we exited those markets. Japan is a good example of this. Second, we are being more disciplined in our pursuit of any new stock device programs with carriers and will focus only on a few premium slots. Given the requisite high level of sustained R&D investments and certification costs,
as well as the lower margins relative to our enterprise opportunity. We think this makes good sense. And third, we have reduced our infrastructure, headcount, and external spending costs globally as many technology companies have also done. So what effects did these changes have? In total, we have eliminated approximately $32 million in analyzed cash spent from our cost structure as we entered 2023. We have completely? 19% 100,000 crypto- lakh, beginning to spend more of our 244 and branches. We have a lot of money. We have a lot of money. We have a lot of money.
Third, I want to address our balance sheet and cash flow expectations. Between the growth in our high margin enterprise business and the significant cost actions we have taken, we expect to reach cash flow positive in Q2 and build upon that progress over the remainder of the year. This has been a top priority of the management team during 2022 and we are pleased with the progress towards achieving this important milestone.
In total, we sold to a few dozen new enterprise customers in the quarter and ended the year with well over 1,000 customers. Importantly, over 90% of our enterprise sales in Q4 included software, which obviously contributes to our overall margin improvement.
Let me also address the revenue decline that is driven by lower sales in our hotspot business. The transition from 4G to 5G with our carrier customers continued last quarter as they reduced purchases of 4G products and transitioned completely to 5G. We have talked about this in the last couple of earnings calls. In addition in 2022,
We had carrier upgrades in our 5G hotspots to deliver the latest Qualcomm chipsets, which added some variability during the year. Our hotspot business has normalized to a new level focused only on the business segments. Over the last couple of years, we enjoyed the sole spot with some large carrier customers, but as the market is matured for 5G hotspots, they were introduced to other competing products.
So, while our hotspot is the flagship enterprise product of choice with those large carrier customers, the volume for other market segments is now shared by other hotspots. On the lower hotspot sales represented a drop in our top line, the impact on our profit dollars is far less substantial due to the gross margin improvement driven by the better mix of higher margin businesses I just mentioned.
So that was the progress on those three areas. Next, let me provide a brief summary of our Q4 results. In Q4, we generated revenue of 52.9 million and an adjusted EBITDA loss of 3 million.
Importantly, we continue to see enterprise FWA trials convert to deployments. It is important to note that very often customers who purchase our FWA products begin with a small initial pilot with 5 to 20 devices.
which progresses into full-scale deployment over time for hundreds or thousands of locations. If now been in the enterprise after Bua Business for a little over a year, and we are seeing pilots convert to deployments, our after-bua business now accounts for about 30% of our revenue.
Contributing to our enterprise's apprablea success is the new go-to market programs we put in place with all three large carriers in the US who are helping us build this new apprablea market. We've discussed end markets in previous calls. But some examples of new enterprise customer wins are in multi-location retail and restaurants, construction, home builders and the SDVAN space. Our home builder and construction customers are deploying our solutions to establish broadband services for new sites.
Utilizing 5G, they can establish that connectivity instantaneously when compared to traditional ISPs. The applications that 5G enables for this sector include material tracking, surveillance, ARVR, VLTIM monitoring for OSHA compliance, and reliable uptime for workers that depend on mobile applications on the job site.
One of these early adopters is a new addition to our pipeline, another Fortune 500 home builder. They're now exploring applications enabled by our products to support their smart home initiatives.
In the retail space, we continue to expand our footprint with existing 4-1,000 customers spanning grocery chains, QSR, farm and agriculture supply and a pair.
We are pleased to win a major off-price retailer with roughly 3,500 stores in the US alone. We will begin shipping products to this customer in Q1. In the SDVAN space, we won the large customer in the Middle East who is rolling out our solution as part of their SDVAN service offerings. In Seagulls products are deployed...
as part of this customer's virtual edge platform. We've already shipped thousands of units to this customer. We believe we are very early in the adoption cycle for enterprise FWA, but the market is changing rapidly as 5G networks are completed. We have seen this in how our pipeline has grown over the past year and the nature of the customers evaluating our solution.
With that, let me turn the call over to Bob, who will provide more details on our Q4 results. Thank you Ashish. Let me now review the results of our fourth quarter fiscal 2022. Please note that all metrics and comparisons made are non-GAAP on a pro forma basis, adjusting for the divestiture of SeaTrac South Africa, which was completed in July 2021.
Please refer to our earnings release for additional details on the gap to non-gap reconciliation. Q4 revenue was $52.9 million, down 27% from the prior year. The decline primarily reflected lower sales of our legacy hotspot products.
As a Shish mentioned, our FWA business comprise 30% of total revenue and grow 122% over the prior year period. Next generation solutions which are comprised of 5G devices and all of our cloud software assets decrease 9% over Q4 fiscal 2021 and represented 74%.
of total revenue in this quarter as compared to 58% of revenue in the year ago quarter. Software revenue accounted for 27% of total revenue and increased 6% from the year ago quarter. Fourth quarter IoT and mobile solution revenue was $46.3 million, down 30% from the same period last year. The decline was primarily driven by reduced sales of our hotspot products.
partially offset by continued update of our solutions by enterprise customers. Enterprise SAS Solutions revenue was $6.6 million, relatively flat both sequentially and year over year. Consolidated gross margin was 30.3%, up 390 basis points from 26.4% in Q3 and 490 basis points to $6.7 million, the same compared to last year's. For a special edition of Under Stack That's
from 25.4% in Q4 last year. Gross margin for the IoT and mobile business was 28% up from 23.4% in the prior quarter, and 22.1% in the prior year period.
As the Xi Shilu did to in his comments, the meaningful improvement in gross margin on a sequential and a year-on-year basis was attributable to a significantly higher mix of enterprise-fix wireless revenue. Recall that the contribution margin on the hotspot products has been negatively impacted by the post-pandemic by higher component and distribution costs.
So the reduction in the associated revenue did not material impact our gross profit dollars. We continue to see gross margin on our enterprise fixed wireless sales exceed 40%, which leads us confident in the trajectory of our gross margins and further margin expansion from here. Gross margin for the enterprise assets segment was 56.7% up slightly compared to the sequential and prior year periods. Q4 non-gap net loss was 11.8 million.
or 11 cents per share compared with a loss of 11 cents per share in the prior quarter and a loss of 8 cents per share in the year ago quarter. We reported an adjusted even though loss of 3 million which was higher than the loss of 2.5 million in 2.3 and the 1.2 million loss in the year ago period. Included in the loss of this quarter was approximately 1 million dollars in expenses.
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 Q4 was $7.1 million. Our cash usage was impacted by the timing of our year-end payroll.
payments made to suppliers and one time expenses related to our cost reduction efforts. As Ashish noted, we expect our cash balance to trough near the current levels and increase beginning in Q2 of this year as we reach an inflection point in free cash flow generation. We expect EBITDA and cash flow positive in fiscal 23.
Our FY23 outlook also assumes a steady increase in our mix of enterprise fixed wireless business throughout the year, continued improvement in gross margin from the 30% achieved in Q4-22, and a full realization of the over $30 million in reductions in costs recently implemented. Although we are not providing specific quarterly guidance, we expect to see the usual seasonal trends in our business.
with revenue declining slightly sequential from Q4 to Q1 before ramping higher in the back half of the year. Informulating our IBAD on cash low expectations, we've taken a conservative view of our hotspot business, particularly with respect to the pace at which our carrier partners will continue to transition away from 4G products. That being said, there may be quarters where the timing of restocking orders or the pace at which our enterprise business scales could create volatility in our reported revenue and gross margin.
We will endeavor to highlight these impacts should they occur over the course of the year. With that, let me turn it back to a sheet for his closing comments. Thanks, Bob. We've made a tremendous amount of progress in transforming in Seigo over the past year. Our Q4 results clearly demonstrate the potential margin expansion inherent in our business as 5G enterprise after Bua Sales increasingly drive our growth.
Combined with our efforts to reduce costs, we are inching closer to our goals for profitability and positive cash flow generation. Thank you all for your interest and support. We look forward to taking your questions.
We will now begin the question and answer session. To ask the question, request starting one on your telephone keypad. If you're using a speaker phone, please pick up your hand before pressing the keys.
We will now begin the question and answer session. To ask the question, request starting one on your telephone keypad. If you're using a speaker phone, please pick up your hand before pressing the keys. Do a drier question, please press start and zoom.
At this time, we'll pause momentarily to sum our roster. Our first question will come from Scott CRL with Roth Capital. You may now go ahead. Our first question will come from Scott CRL with Roth Capital. You'll end open. My apologies, I had a young mute. Hey guys, thanks for taking the questions.
I'm not sure if I missed it earlier on the call, but I was wondering if you could give a quick breakout of 4G and 5G mix, and then the percentage sales of your 10% customers. Hey, Scott. Hey, good talking to you. We had three customers representing over 10% in sales. To answer your second question, your first question, I would say the 4G sales were approximately 18%.
Approximately 24% 25% of the revenue, of which I would say the hotspots were probably in the range of 6% of the overall revenue. Okay, very helpful. And she, so knowing the past, like some of the delays in the rollout had been related to CBAN coverage. That is starting to improve now. There are still some ongoing issues in terms of arguing with the FAA, but it's moving in the right direction. So I'm wondering what the visibility is on that front to start seeing the carriers a bit more aggressive on that front in terms of pushing.
5D fixed-walls access for Tibet. It's got great question, and that is what is been holding up the market, as you know, for past year, year and a half. Every day, we are seeing progress now. Like we're seeing more coverage pop up on midband from all the three-care years. It is starting to look a lot better. Many of these large enterprise customers who have been piloting and trialing our solutions are now starting to go beyond, you know, a few sides to more and more sides.
So it is definitely looking better, but I would say that we're still in the bottom of the first inning, right, on the market, you know, the new after-good market that is developing. And the expect will be gradually build up our next several quarters of how that market is going to develop. Obviously, this quarter, for us as a company, you see, that was a huge transformation from being a hotspot company very year ago, you know, Q4 of 21, 70% of our revenue came from hotspots. This quarter, that was less than 30%. And plus...
Obviously our FWA business jumped with time which now constitutes over 30% of the revenue and hence the uplift and the margin. So, cruelly, companies transforming in what still is a very early market but the science are super positive. And if I could sequentially, it sounds like you're expecting some seasonality. I was wondering if you'd give us an idea in terms of sequentially by the product category or out imagine.
historic enterprise assets probably stays flatish. Mobile hotspots tends to have some seasonality, but enterprise FWA does that come down as well, or is there some strength there as you're starting to build a little bit of momentum? Yeah, I mean, no, on the SaaS side, on the cloud revenue side, and on the FWA business side, we're gonna continue to see gradual improvement. So, so I'm not forecasting the seasonality effect there. hotspot continues to be seasonal, and I would say that, you know, Q1 generally is, you know, on the lower side, and so you would...
revenue but look that's not a high-module business for us and so while we'll take anything opportunistically that comes from our lead customers we're really not counting on that revenue. Gotcha and lastly if I could just in terms of trying to get my hands around what normalized stop acts is going to be going forward I think you said there was one million.
and one time charges, what does that number look like as we get out to the second quarter of 23 here? Is it closer to, you know, I think this quarter was just under 25 million, you know, pro forma? Is that number then closer to 20 million? And then in terms of getting to that cash will break even cash will positive.
level, what sort of revenue one rate do you need to hit that? Yeah, great question Scott. So let me first answer your question on the RPEX. So what Q4 actually you said the performance below 25 is actually lower than 22, the cash piece of it, right? And Q2, by Q2, that would be in the range of 17 million. efficient without with a span an error.
So like overall, we've removed, you know, like we said north of 30 to 32 million by Q1 when all the full effect is in place. I mean, we would have removed close to 37 million hours in fast from the op-x. So you could see that, you know, we're not going to, with the change, with the mix and change in revenue mix and the margin mix, we're not really going to need a huge top line to get profitable. So I'd say, you know, anything close to like 50 million in revenue will get us to...
If there's a question in terms of the backlogs that you can provide for us, any kind of comment should run
order trends, you know, as we move through the prior quarter and where we stand today in terms of bookings levels. Yeah, Jeremy, so let me address that. So first off, like certain piece of our business, about 27%
It's a subscription business site, so that continues as it is like at the base and then continues to grow Number two piece of the business is the hotspot business which Which you know the way that works is is like we have certain slots with the large carriers and then we work with them on a weekly basis to monitor the cell through
with the switch over so we're seeing lower run rate on that 5G hotspot we saw that in Q4 so that I would say the hotspot business right now I would say was probably at the lowest level in Q4 and we expected to you know at some point rebound although we're not making that in our future models right we don't really you know if even if we continue
you know, stocking through carriers. And second is going through distribution and channel partners to a very broad enterprise market. And they're both, those both businesses are measured, not as much by backlog, but much more by, I would say, either the sell through or second, the...
the health of the pipeline of opportunities. And I would say both of those on the F2Glip business are really strong at this point and has the results in Q4. Great, thank you. And I guess I think you mentioned having three 10% plus customers, are you able to kind of size that for us and provide a little bit more detail there? Yeah, it's a traditional two largest customers are key mobile and Verizon and the third one in the list now is US sell. Got it, NF.
I guess a final question then, just going back to the fixed wireless access market. I think he said it was 30% into 4%. Do you have kind of an idea of where that could go over the next 12 to 18 months, as that piece continues to grow? Yeah, because any kind of, in which verticals, you see kind of driving that in the near term. Thank you. Yeah, Jeremy, great question. I look, we're not providing guidance, but directionally I would say in next 12 to 18 months, we expect that to...
many verticals across the board. So we've got a great mix of customers and pilots. And it's just the need being all driven by the distributed nature of a lot of these enterprises now, especially after the pandemic. And 5G, after the great technology to provide that very economically and efficiently in a very quick manner.
across the board, right? So we've got a great mix of customers and pilots, and it just is the need being all driven by the distributed nature of a lot of these enterprises now, especially after the pandemic, and 5G after-go is a great technology to provide that very economically and efficiently in a very quick manner. Great, thank you very much.
Thank you, Jeremy. Again, if you have a question, please press star then one. Our next question will come from Jonathan Navarit with Cohen. You may not go ahead. Hey, how are you guys? I've done it on for Lance. My first question is, can you call out some of the cost reduction symptoms in 22 that have helped generate those analyzed savings? And following up on that, are there any additional levers with which you can keep on expanding margins with in terms of cost reduction in 23 or you guys pretty much have hit an end where there's no need or you guys can't anymore.
Yeah, good questions Jonathan. So so there are a number of different areas right that we took the cost out. So I would say number one was getting out of some of these geographic regions where there was a huge amount of interest in 5G over the last few years. But but for one reason or another the markets just haven't developed quick enough. I mean there's the interest but they haven't developed quick enough. So so we've kind of you know got an out of many of those international markets. Number two based on that that number one we've kind of just really put focus on.
contracting the R&D to not chase a lot of those slots that we were chasing before and be extremely focused on the markets where there's action like specifically here in North America and a little bit in Australia. That's where we are focused. So that was a big change. And number third, I mean, I would say that we took a very hard look at all of the infrastructure of the company including North America, Europe , the East, Australia, the Zealand, Japan. And we did a whole lot of cost reductions to remove the cost from the company. I would say that, you know, we still have a huge leverage built in the strategy that we built. So even though we have removed the cost from the areas that were not quite happening yet, but we can very, very quickly expand the business with the code.
in your 10k out yet so I haven't been able to check here but how much availability do you have in your revolver? Is it still give or take about 45 million?
out. Yeah, so I haven't been able to check here, but how much availability do you have in your revolver? Is it still give or take about 45 million? Yeah, it's in that range.
That's correct. Okay, gotcha. Do you expect that just given the low cash balance of $7 million that you will be using in this quarter or do you feel like there's no need to do that? Yeah, we looked at the reason we put in that revolver was just that, right? We just to use it for working capital.
as we, you know, kind of, you know, go and get these orders from our lead customers. And we have to, you know, procure the material, put some stuff in inventory and make sure in what is still a very supply chain, you know, constrained environment from just the lead to our perspective that we are able to take all the demand. And that's exactly the focus of that reward. That's what we're going to continue to use it for. Thank you. Thank you. Thank you, Jhatam.
It appears to be our no further questions. This concludes our question at Intercession. I would like to turn the conference back over to Xi Sharma when he calls in remarks. Thank you operator and thank you everyone for joining us on the call today. We look forward to updating you on next quarter on our continued progress. Thank you again. The conference is now concluded. Thank you for our time today's presentation. You may now disconnect.