Inseego Corp. Q1 2023 Earnings Call
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Speaker 2: Hello and welcome to NCGO Corp's first quarter of 2023 financial results conference call. Please note that the day's event is being recorded. All participants will be in listen only mode. Should you need assistance please send no conference specials for questions of Star T followed by zero.
Speaker 2: After today's presentation, there will be an opportunity for analysts to ask questions.
Speaker 2: So I also question my pros start and monitor phone keypad. To withdraw your question, please press start and tune.
Speaker 2: On the call today are Ashish, Sharma, CEO , Bob Barbary, Chief Financial Officer, and other members of the management team. During this call, non- GAAP financial measures will be discussed. A reconciliation to the most clerically-converbal GAAP financial measures is included in the earnings release, which is available on the Investor's section of the company's website. Thank you.
Speaker 2: An audio replay of this call will also be archived there. Please also be advised that today's discussion will contain four of the constraints.
Speaker 2: These four looking statements are not historical facts, but rather are based on the company's current expectations and beliefs.
Speaker 3: has few quarters to right-side our cost structure. And second, we have best in class 5G hardware and software products that care use and enterprise customer's are looking for.
Speaker 3: Most notably, growth in our cloud-driven, fixed wireless access portfolio continued to drive our business transformation this quarter, which is most easily seen in the continued improvement in our growth margins.
Speaker 3: Next, let me provide a brief summary of our Q1 results. In Q1, we generated revenue of 50.8 million and adjusted EBITDA of 4.1 million.
Speaker 3: While there may be some variability around gross margins quarter to quarter based on overall revenue mix, our expectation is that mid-30s gross margins should be our new normal going forward. As our mix continues to improve over time, we believe there is room to improve from here. Second, our OPX was 25% lower year over year, reflecting our progress in running the company more efficiently. As we have discussed in previous calls, we took significant actions in the second half of last year, the benefits of which we finally began to fully see this quarter.
Speaker 3: towards that gold escorter.
Speaker 3: This quarter was a step in the right direction.
Speaker 3: Now let's talk a little about the progress of our FWA business.
Speaker 3: Our carrier customers continue to see increasing demand for FWA services this quarter.
Speaker 3: In fact, if you look at the public announcements of the large carriers in North America, you will find that FWA continues to grow faster than their traditional smartphone subscriptions. Our revenue pipeline and bookings for FWA are stronger than ever. While the revenue build-up will be gradual, we are seeing very positive signs.
Speaker 3: as FWA gives them an incredibly fast and economic solution for broadband services. As we've discussed on previous calls, we are seeing customer use cases across a wide spectrum of industries, including multi-logation, retail, and restaurants.
Speaker 3: hospitality, construction, real estate development, grocery, government and many other sectors.
Speaker 3: Our ecosystem of carriers, channel partners, and direct enterprise sales continues to grow in lockstep with market demand, which is reflecting in a growing pipeline of opportunities.
Speaker 3: We are optimistic that we are well positioned to capture a disproportionate share of this market.
Speaker 3: In summary, we are well positioned in a very large 5G market that is still in early stages of development.
Speaker 3: Our transformation into a higher margin enterprise focused company is well underway with a cost structure that will scale well with our revenue growth.
Speaker 3: While the FWA market will develop gradually, we are beginning to see market adoption accelerate.
Speaker 3: and we are going to track any new investments with lead customers as market develops further.
Speaker 3: We are going to be extremely disciplined from a cost perspective, something the company lacked in the past due to a singular focus on growth and winning whatever business it could irrespective of expected margins and returns.
Speaker 3: With that, let me turn the call over to Bob, who will provide more details on our Q1 results.
Speaker 3: Let me turn the call over to Bob, who will provide more details on our Q1 results. Thank you, Ashish.
Speaker 4: Before I present the detailed financial information, I wanted to again reiterate how proud we are as a company to announce strong EBITDA earnings for our first quarter of 2023.
Speaker 4: We've gone through an important but difficult transition in adjusting to a rapidly changing technology environment and resizing the company around the strategic opportunity of our 5G FWA target market.
Speaker 4: Let me now review the results of our first quarter fiscal 2023.
Speaker 4: Please note that all metrics and comparisons made.
Speaker 4: are on a non-GAAP basis. Please refer to our earnings release for additional details on the GAAP to non-GAAP reconciliation. Q1 revenue was $50.8 million, down 17% from the prior year. The decline primarily reflects lower sales of our legacy hotspot products.
Speaker 4: As Ashish mentioned, our FWA and Cloud software business comprise 53% of our total revenue and grew 35% over the prior year period. Next generation solutions, which are comprised of 5G devices and all our cloud software offerings.
Speaker 4: represented 68% of total revenue in the quarter.
Speaker 4: Software Revenue accounted for 32% of total revenue. First quarter IOT and mobile solution revenue was $43.6 million, down 20% from the same period last year. The decline was primarily driven by reduced sales of our hotspot products, partially offset by the continued update.
Speaker 4: of our solutions by enterprise customers.
Speaker 4: Enterprise SAS Solution revenue was $7.2 million, up 10% sequentially and up 5% over the prior year quarter.
Speaker 4: Consolidated gross margin was 36.1% up 580 basis points from 30.3% in Q4 and 810 basis points from 27% in Q1 of last year. Of this margin improvement, we did have a few one-time effects that were not expected to require a lighter grllo effect of camera gallery zoom.
Speaker 4: excluding those items, our gross margin would have been in the 33 to 34% range. Gross margin for the IOT and mobile business was 33.4% up from 28% in the prior quarter and 24% in the prior year period.
Speaker 4: As Shish alluded in his comments, the meaningful improvement in gross margin on a sequential and year-to-year basis was attributable to a significantly higher mix of FWA and cloud revenue.
Speaker 4: Recall that the contribution margin on our 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.
Speaker 4: We continue to see gross margin on our enterprise FWA sales exceed 40%, which leaves us confident in our trajectory of our gross margins throughout this year.
Speaker 4: Gross margin for the Enterprise SAS segment was 52.7%, up from 46.9% in Q4, and down slightly from 53.3% in Q1 2022.
Q1 non-GAAP net loss was $2.7 million or a negative 3 cents per share compared with a loss of 7 cents per share in the prior quarter and a loss of 13 cents per share in the year ago quarter. We reported an adjusted EBITDA gain of $4.1 million.
which was up from a loss of 3 million and Q4 and higher than the 1.2 million loss year ago period.
As Ashish mentioned, our cost reduction efforts were an important factor in our profitability of
We believe these cost reductions preserved our 5G Enterprise fixed wireless expertise and capabilities and allow us to continue to pursue this large market opportunity. Overall, these cost reductions resulted in annual savings in excess of $30 million. For additional details on our non-GAAP
and adjust the EBITDA results, please refer to the reconciliation tables in our press release.
Cash, cash equivalence, and restrictive cash at the end of Q1 was $8.7 million.
This cash balance was up from our cash balance of 7.1 million in the prior quarter. With that, let me turn it back to Ashish for his closing comments.
was up from our cash balance of 7.1 million in the prior quarter. With that, let me turn it back to Ashish for his closing comments. Thanks, Bob.
Q1 was a good quarter for us and one that we will create as a stepping stone to keep the intense focus on creating positive free cash flow while growing with enterprise 5G adoption. I am extremely proud of our team that has stood behind our strategy even during difficult times and helped
to reposition and refocus that company quickly within the past 12 months. Thank you all for your interest and support. We look forward to taking your questions. We will now begin the question of interception. So as requested you may press star then one on your telephone keypad.
If you're using a speakerphone, please pick up your hands if you're pressing the keys.
To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Jonathan Navarez.
of the quarter given the positive adjusted either than pre-cash low. I know you mentioned the cost structure, but anything else that you would like to call out that should be important for investors.
Hey Jonathan, Ashish, good talking to you. So the number one thing I would point out is the change in product mix and the growth we're seeing in our FWA solutions and our cloud solutions portfolio. And that's the big...
transformation that we talked about in the last quarter that we started. You would see that in pulsing now in this quarter with a much better mix and improved margins. Obviously, the new resize cost structure is helping in improving the EBITDA and the cash flow.
Got it. So then the performance in the good performance in the first quarter, have you seen that spill over into April ? Okay.
Oh, yeah, like, as I mentioned in the, in the commentary earlier, we're, you know, we have a pretty strong backlog of orders into Q2 for FWA. You know, traditionally, we didn't really have that we had a lot of business which was driven by sell through, you know, with our carrier.
a lot stronger than many of the previous quarters.
I think it's a bit to say that this would be like the, I don't want to say that maybe the following quarters are going to be stronger than the first one. Or can we maybe see some ups and downs and top-inness at the unit progresses? You know in general I would say, um,
given the strong demand we are seeing on FWA, we see strength moving into Q2 and beyond. But as it is in any given quarter, right, it depends on the mix of products, sell through with our large carrier customers. And then on the enterprise side, how quickly the pilots are converting into
full blown deployment. So it's a mix of multiple of those things. In general, I would say the trend is what you said. But I would just, you know, given we are not providing guidance because of the factors I mentioned before, we just want to tread, you know, carefully and we want to take this as a step by step build up rather than some big explosive growth in the next quarter.
That makes sense. And my last question, I know that the EBLs come in due in December 24. So just, you know, a year and a half if you want to call it and just want to know if you have there been any internal conversations already about extending the maturity of the EBL or anything along those lines.
Yeah, I would say Jonathan that yes, there have been internal conversations with the key members of our management team and our board and we will continue to look at that as we move forward and create this FWA success.
Okay, great. Thank you. Thank you, Jonathan. Again, if you have a question, please press star then one.
Our next question will come from Jeremy Kwan with Steve-O.
Our next question will come from Jeremy Kwan with Stifel. You may now go ahead. You may now go ahead and close the poll.
Yes, good afternoon and congrats on the positive cash flow. This is Jeremy Cohn for TORI. I guess maybe a question on the gross margin. You prepare remarks, I think you mentioned targeting the mid-30s. Is this something that you can potentially see on the next six or how quickly can you get through that target and maybe a quick follow-up for that?
40 to be achievable in the long.
Hey Jeremy, you're cutting off a little bit, but I think you're asking how quickly we can get to mid-30s. So this quarter obviously we are at 36.
And yes, we had some one time favorable business that drove that, but I would say we are there right now and throughout this year as we move forward in any given quarter there might be some variability, but we are going to be in that mid-30s. And then as we...
build up more and more enterprise business, we could see it go beyond that. So I would say we are on that trajectory right now. Got it. And I guess.
Can you talk a little bit about, you know, maybe...
like how you're managing your inventories right now, it seems like you had a nice drawdown internally. Can you talk about your plans for inventory going forward and also what you're seeing in terms of the supply chain or in the channel with your customers?
Yeah, good question Jeremy. So what we had done in, you know, sometime in late 2020 and 21 was we had built up and bought a bunch of material given the lead times had gone crazy at the time, you know, up to 52 weeks. We have been.
you know, now with this, you know, this demand we're seeing on FWA, we've been, you know, building up and, and, and getting those products shipped. And so so I think that's going very well for us. We're converting that a lot of that material into finished finished goods now and shipping the product. And then I would say the
with this, you know, this demand we're seeing on FWA we've been, you know, building up and and, and getting those products shipped. And so so I think that's going very well for us. We're converting that a lot of that material into finished finished, you know, goods now and shipping the product. And I would say the the other players we will see.
some inventory swings would be on the next generation products we have released late last year on the hotspots, that those are next generation chipsets. So we're kind of monitoring those levels very carefully and yet making sure that we don't leave any demand on the table and what's helping.
is that you know that in general the semiconductor industry has a lot of inventory built up. So that's kind of working in our favor, that we are able to now build many of these next generation products in shorter lead times and not have to take on a lot in the inventory.
Got it. That's very helpful. Thank you. And a question on your enterprise customers. I know you mentioned, you know,
Got it. That's very helpful. Thank you. And a question on your enterprise customers. I know you mentioned, you know, you have a lot of pilots going on and...
I guess the question is how quickly they're going to move to deployments. Do you have a sense from your customers that this is something that they are pretty adamant on spending on regardless of the current macro environment or is it something that might hinge on how the macro picture shapes up?
Yes, so good question J.V. and I would say that it's the latter that we're not seeing any slowdown. In fact, majority of the customers, they want to jump onto 5G.
As soon as 5G midband is able to cover a lot of their locations and that's just about the only thing that has slowed things down over the last 18 months but the large carrier partners are building that coverage very quickly. And I would say the big driver for that transformation.
along these large enterprise customers to manage given they have to rely on dozens of different ILEX and CLEX and all that to get connectivity. Now they can go to one or two large carriers and get all of their stores covered. So this actually provides great operational efficiency and cost savings for them. So we think that that transformation will continue as the coverage improves.
what you're seeing, whether it's on the enterprise fixed wireless side or on the SaaS side. Thank you.
Jeremy, just to clarify, are you asking about the competitive landscape or which type of landscape?
Jeremy, just a clarification, are you asking about the competitive landscape or which type of landscape? Yes, sorry, the competitive landscape.
Okay, gotcha. Yeah, look, not a lot of competitors. I mean, this is, you know, this is an ecosystem.
which is kind of hard to break into because the expertise to build these extremely complex modem solutions takes a long time to develop and then it takes even longer to figure out how to go get them approved by all the large carriers, right? That's the big value to entry and that's what we know how to do.
because we've been doing it for 25 years and we've got a preseason team there. So I would say it's a very small ecosystem and with the portfolio you've got, I don't see any competitor who can match us in terms of the strength of our FWA portfolio.
we've been doing it for 25 years and we've got a free season team there. So I would say it's a very small ecosystem and when the portfolio we've got, I don't see any competitor who can match us in terms of the strength of our after-blue portfolio. Great. Thank you very much. Thanks.
Thank you, Jeremy. Again, if you have a question, please press star, then 1.
This concludes our question in answer session. I would like to turn the comments back over to the Chief Sharma for any closing remarks.