Q2 2023 Inseego Corp Earnings Call
Hello, and welcome to <unk> second quarter, 20th 23 financial results Conference call. Please note that today. The bank is being recorded all participants today will be in a listen only mild. So did you need assistance. Please signal conference specialist by pressing the star Keith followed by zero. After today's presentation, there will be an <unk>.
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On the call today are Ashish Sharma C E O, Bob Barbieri, Chief Financial Officer, and other members of the management team.
During this call non-GAAP financial measures will be discuss reconciliation to the most directly comparable got financial measures is included in the earnings release, which is available on the Investor section of the company's web site.
Audio replay of this call will also be archived there.
He's also be advised that today's discussion will contain forward looking statements. These forward looking statements are not historical facts, but rather are based on the company's current expectations and beliefs.
For a discussion on factors that could cause actual results to differ materially from the expectations. Please refer to the risk factors described in our Form 10-K. Thank you and other S. E C 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'd like to turn the call over to Ashish Sharma, Chief Executive Officer. Please go ahead.
Thank you all data.
<unk> was another solid quote O for us and I'm proud of what Oh team so achieved by all accounts.
Very good quarter for us across the board and gives us confidence.
Right back.
Each of our business is performed extremely value in the corner and you can see a continued focus on operating efficiency showing up and the financial results.
In particular, we continued to see growth in our five G. You have to do a business with revenues up 50% sequentially or last quarter, and two and a half times or Q2 2022.
Why do we don't expect after Blair to go this quickly every quarter. It is clearly an indication that market adoption is accelerating.
All our five G product portfolio, which includes both after <unk> and hot spots represented over 50 per cent off our quarterly revenues for the first time with after Louie representing roughly 33% off out overall revenues.
[noise] continued migration of our revenue mix resulted in another strong quarter from a margin perspective with gross margin of nearly 36%, which when combined with the continued focus on operating efficiency and cost controls allow.
How'd us to deliver our second consecutive quarter of Boston operating cash flow.
A solid first half 2023 performance they are very optimistic about the direction of our business.
As we look ahead to the second half of the year, we are laser focused on execution and continuing the momentum from the first half of this year.
By execution, I mean, delivering on our existing product portfolio.
Months of those products, releasing the next generation of our portfolio and maintaining strong financial discipline.
As an example in queue too we released our latest indoor router affects 3100 that covers the newly released Midband previously used by the D O D.
We have already launched it could use solar and we will be launching it soon with another large carrier.
Similarly, we continue to focus on growing our subscription and recurring revenue.
[noise] offer multiple cloud packages and different phases of the customer adoption cycle and we are seeing very good progress in terms of the attach right across the board.
We expect growth will come over the next several quarters as after Boo a customer base expands and union worse off than Sega deployments continues to grow.
These cloud applications are layered on the top off our five G. F. W. A product sale and represent a step by step growth that we are focused on achieving.
Now, let me discuss a quarterly performance as I mentioned earlier in queue too we delivered the second consecutive quarter of positive operating cash flow, which is very positive and something the company is an accomplished in a long time.
While a a cash flow will fluctuate quarter to quarter I'm extremely focused on getting to a point when siegel is cash flow positive on a consistent basis.
In queue to be generated revenue of 53.6 million and adjusted EBITDA of 4.5 million.
You're very proud of our first half quantity twenty-three EBITDA result of or 8.5 million.
Gross margin of 35.7% was consistent with our first quarter results and driven by significant growth inevitably revenue.
We expect to a gross margins to fluctuate in the mid to low thirties range based on changes in product mix in any given quota, but clearly we are on the on the right path.
Last quarter, we referenced a few one time items that improved our gross margin.
Did not have much of any one time items in queue too. So it was a much cleaner result from a margin perspective.
And as I've mentioned on previous calls we continue to focus on our controllable expenses and running and Siegel as efficiently as possible, which resulted in cash opex of close to 17 million four Q2, reflecting our commitment we're getting to a point, where we have cash flow positive on a sustainable basis.
As it relates to demand, we're seeing a different trend that is shared by the current macroeconomic environment and is impacting the entire industry flushed.
Pushed the demand for both our five G hot spots and after Blair products is solid and growing but inconsistent in any given period, we have seen sudden increases in demand at times, which often lead customers and partners to absorb these shipments prior to placing new odors second.
Customers and partners are keeping much less inventory compared to pre pandemic periods, which means we and our supply chain need to react very quickly to these demand variations.
Finally, this industry trend is making us leave some demand on the table in any given period as we try to build and ship products well within the lead times, even if their lead times are much shorter than the lead time should we have seen over the last couple of years.
This has resulted in a dynamic where we have developed backlog from quarter to quarter, something I had not seen it didn't segal prior to last quarter and it has now happened two quarters in a row.
Despite the variability in demand cycle, we are seeing enterprise customers accelerate their investments in five G. As they gain a greater understanding of what five G can do for their business.
Now, let me share a bit more detail about our after bluer deployment progress, we're seeing deployments across both small and large companies an increasing number of large well known companies have deployed five G. F. W. A across their nationwide footprints. Many more are assessing after louie as either a primary are back.
Up connection that small scale trials that'd be hopefully two large scale network wide deployments. This is a market that is in the early stages of adoption, but based on what we are seeing is one with huge potential.
As we look toward the second half of 2023, I'd like to share a few observations fussed <unk>.
Expecting to see modest revenue growth in the second half of 20 twenty-three driven by hour. After glib business. This is primarily a function of the shift in mixed from four G to five G. Fox five G will continue to grow in the second half of the year, but largely offset by decline in our four G business Sir.
Second we have a significant pipeline of customers for after blue deployments in many cases customers are waiting for better midband coverage before rolling out of skin, but we have many trials underway.
Third although financial performance is much improved and reflects the strength of our strategy and the benefits from the investments we have made over the last several years.
Our focus on operational discipline and excellence that we have implemented starting late last year is bearing fruit driving improved margins in cash flow and an increasing number of customer wins, our cost structure has been rightsized and we will continue to focus on running the business efficiently.
This focus has allowed us to generate positive cashflow the past two quarters.
We expect someone liquidity in cashflows quarter to quarter, but this will likely largely be around working capital and managing the supply chain and inventory needs of our customers based on the demand patterns I described above having said that they expect to be cash flow positive for the full year.
With potential quarter to quarter, what letter D, which is a huge milestone for the company and one that we had been working hard to achieve.
Now turn it over to Bob.
Sheesh first will extend my thanks to the entire world One should go dream for delivering another very solid quarter delivery positive profitability and Joshua well.
Well done.
Let me review the results of our second quarter. If the school 2023. Please note that all metrics and comparisons married or among non-GAAP basis. Please refer to our earnings release for additional details on the gap two non-GAAP reconciliation.
Two two revenue was 53.6 million up 5.4% from the prior quarter.
R. W. William Cloud software business comprised 65% of our total revenue and grew 42 per cent over the prior year period next.
Next generation solutions, which are comprised of five G. Two voices and all our cloud sulfur offerings represented 81% of the total revenue in this quarter.
Software revenue accounted for 29% of total revenue.
Second quarter I O T mobile solutions revenue was 46.4 million up 6.5% from the last quarter to growth was driven volume up to a bar there'll be waive solutions.
Enterprise fast solution revenue was 7.2 million.
1% sequentially.
4.5% over the prior year quarter.
Consolidated gross margin was 35.7% down 40 basis points from 36.1% in Q1.
602 basis points from 29.5%.
Gross margin for the I O T mobile business was 32.9% down slightly from 33.4% in the prior quarter and up from 27% in the prior year period.
Sheesh alluded to in his comments the meaningful improvement in gross margin on a euro your basis was attributable to significantly higher mix of F. W. A revenue.
Gross margin for beyond Reproach sash segment was 54.1% upfront 52.7% in Q1.
And up from 49.4% in Q2 of 2022.
Q2, non-GAAP net loss was $2 million or a negative two cents per share compared with a loss of three cents per share in the prior quarter and a loss of four cents per share in the year ago quarter.
We reported and adjusted EBITDA game of 4.5 million, which was up from a game you know 4.1 million in Q1 and higher than the 1 million dollar EBITDA loss of the year ago period.
For additional details on our non-GAAP and adjusted EBITDA results. Please refer to a reconciliation tables nor press release.
Cash cash equivalents and restricted cash at the end of Q1 was 15.2 million.
This cash balance was off from our cash balance of $8.7 billion in the prior quarter.
With that let me turn it back to Ashish for his closing comments.
Thanks, Bob to summarize our ability to transform and Segal and do Ah. After bluish solution company was demonstrated by our first half as us.
There remains a huge growth opportunity across many of these enterprise customer segments enable biola portfolio of five G hardware and software.
As five G. Midband coverage continues to scale the breath of our portfolio gives me confidence in our ability to capture the many opportunities ahead.
We will now became a question and answer session to ask a question you May Press Star then one on your touch downtown.
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To withdraw your question please press.
Yeah.
First question is from Scott.
Roth Capital Partners. Please go ahead.
Hey, good afternoon. Thanks for taking the questions you guys nice job on the quarter.
Maybe to quickly follow up I wanted to make sure I heard some numbers correctly I thought you said that the five G. F. W. A solution was 33 per cent of the mix wanted to confirm that also I'm not sure. If I heard a mixed number between four G and five G. I'd love to get the update on that front and is there a comparable software number I think he said it was 29.
Of the mix in the current quarter is there a comparable number the chair for the first quarter of the year ago period, and then I had a couple of follow ups.
Hey, Scott Hope, you're doing well, let me give you those numbers I'll start with the.
The software.
The 28, 29% range.
<unk> and.
And I'd say about five G was 50 per cent.
52%.
Oh G O at all it was closed.
1920 per cent of the hold on them.
Great Ah very helpful and then.
Bob maybe for you on the Outback front, you guys had tightened things up a little bit R&D was up this quarter wondering if there's anything to read into that and how we should be thinking about opex going forward. If there's some further tightening or these are the levels, we should be thinking about.
Yeah, Let me start thanks, Scott good questions.
Start with your second question.
I would view our bags flat so slightly bill.
As we go forward so that I can think about worry and regarding your your R&D question actually cash Orange D was flat.
Maine.
Slightly bill I think what you saw all the book basis is just limited to kind of <unk>.
Where with the Max of our various products. So that's what drove the boardwalk.
Right.
And then maybe Ashish just from from a high level looking at the opportunity in the pipeline for for five G. F. W. A I'm wondering if you could give us a matrix to kind of put around it.
It's it's taken some time in terms of building out the mid band coverage. It feels like we're a lot closer and you're starting to build up those pilots and that opportunity I was wondering if there's some either soft metrics or harden metrics you could give us in terms of the pipeline how big it is the number of customers or maybe the potentially the number of addressable device.
Is that are under discussion and going forward you know what is the cell cycle looking like you said, it's starting to compression and when do you really think that we start to see the inflection does it happen later this year, we wait until 2024. Thanks.
Yeah, Scott, So what I would say.
The market.
The Bachelor.
And.
Is it really is is that you know there there are a number of different factors that every enterprise R. O S have mucus looks at Yahoo.
I'll figure itself.
Really good like you know the pipeline.
First phone customers thousands of customers S ambient enterprise customers.
File the product while the five G network.
I love it but they all have.
A friend.
Friday.
Five G and kind of Saturday get segregate that away from the other broadband connection there right. So.
Making the decision process is very different from you know what we saw on our hotspot business.
The past and so it's a gradual step by step bird lots.
Lots of interests pipeline continues to be Super holiday from.
Fortune.
100, 500 companies lots and lots of Smbs and and I would say like you know the deployment cycle really depends on your use cash right where you have.
I use case of undeveloped worker I mean that said cyclists is quite small I mean that could take just a matter of a few weeks or the cashback on try the product and then start handing it out.
The workforce.
Horse.
You know, they're gonna use cases there.
Oh outdoor product is going on and acting like thousands of you know location location store locations for the customer and then and then kind of integrating the five G. Then as part of the broader networks. That's in place you know the existing plan and the existing that infrastructure. So.
Those apply that you know take a look at a time like they take you know give you. An example, like you have a large you know customer.
<unk> you know trial the product, maybe 12 to 18 months ago and they charged for a few months they loved the product and it's taken them like eight to 10 months now.
All it out multiple thousand locations apply the product so in that case at the time, but but overall.
The business with each one of these enterprises, it's really good.
Great and it may be the last one if I could you know just in terms of the channel for five G for excellence access you've got relationships with multiple carriers I'm wondering if there's anything that's particularly productive either from a character standpoint, or other channel bar or otherwise that you're seeing a lot of productivity. Thanks.
Yeah. It may be a multiple routes to market as you mentioned Scott.
The tradition of an S. T in March and there'll be have multiple programs with with with different carriers and I would say the initial push for getting a lot of assistance from the characters I mean, they're obviously super motivated to sell a lot of five G <unk> and they love our solutions and.
And that's where I would say that we're seeing the biggest success.
The stock stock program, we have with them all through multiple other.
Programs.
Great. Thanks, I'll get back in the queue.
Thanks Scott.
The next question is from Atlanta, The Panther Colony and company. Please go ahead.
Hi, Thanks, guys congratulations on the quarter.
A couple of questions here. The first show it tell me. If this makes that so you've got a fixed wireless access in cloud business. It looks like it's at about 145 million dollar revenue run rate and it's growing at 40 per cent year on year.
So I'm just wondering is it possible to talk about I guess three things one how long do you see how long do you think you can maintain that type of growth or what is the growth plain look like over the next couple of years to what is the fixed cost base necessary to support that that growing.
Revenue stream and then and finally, you know what are the incremental margins and make sure. We think about it. It is it at 35% sort of flow through you know once you've covered your fixed costs or is it a is a considerably higher or is it lower than that et cetera. I mean, I think those questions. It would really help US you know triangulate on on how to valley.
Are you this growing business. Thanks.
And that's a good question. So let me try to break that down right. So maybe I'll talk about.
To the short term right I would say in the short term.
Look at Tang says it step by step incremental improvement right I mean, I would not say that he could see this type of at the glucose every quarter I mean.
Would be you know early early and and and developing a new market. You see these you know up and down jumps, so, we'll see that but and and the next longer term right. You know for the six course, whatever you have it that should settle down and I would say at the market. The market opportunity itself is huge so we're just totally see.
<unk>, a sliver of the market right now.
Has the variability.
India and the business at the order flow.
Software business is a lot more stable you know it goes at a slower pace, but but the baby of tied up now with our five G business has been after delay grows so will our software business will grow so I would say that.
In the long term definitely you're looking at very high growth rates.
Yeah, like ear double digits higher growth rates, how within the shorter lifespan.
Lifespan of everything.
How that plays out at that just you know.
It's gotta be step by step if that makes sense and then and then your last question about margins I mean, I would just say the word just you know getting started I mean, we've got.
They've got.
All girls are inevitably coming and we've got multiple power packages that you know that.
Early adoption cycle, so as those tanks Cayenne I mean, I definitely see that overall gross margin target of all at 40%.
T mobile.
Okay. That's actually really helpful. Next bunch of questions on free cash flow, where you know you do.
Did you did a nice job there you generated free cash flow. We we were expecting you to burn some cash on a comparable kind of EBITDA number so that was good.
I'm just trying to understand the variance it looks like your Capex was pretty close to what we had expected. So you know that that doesn't explain it but can you is it possible for Bob maybe could you walk us just from EBITDA to free cash or four and a half million of EBITDA 3 million I'm calculating of sort of Levered free cash.
Hello, I'm guessing you had a an inflow from working capital working capital generated some cash is that is that accurate.
<unk> are working capital moderate.
Positive direction from a cash standpoint.
A couple of other branches the other things we had.
Working for Us is.
So we we I should say.
<unk> our expectation we also again screaming down Capex, we think we're a good.
Good spot.
Positive effect from working capital as you mentioned.
And lastly, you probably saw this from the balance sheet. We also work down the inventory levels as we've been kind of aiming to do over the last two or three quarters.
We're not just from a forward expectations favorite word I'm, sorry, we could do that indefinitely, but we've been skimming down quite a bit persons are your that's the big movements.
Okay, and then I did see something <unk>.
Below the sort of the the cash flow line. It looks like he raised five and a half million dollars in the quarter from a public offering and I'm wondering if you could provide more detail on that transaction or if I'm missing if I'm misreading that.
No no. Good labs, yeah. The other thing that was a contributor nonoperational confirm you're more of a financing is we still open.
Open the capacity and the a T M facility that was in place for the last couple of years and then working with our board one of those things you wanted to achieve was just maximum liquidity and flexibility. So so we did execute against that and that's where we raise.
It was about 4.4 million.
<unk> a great. Thanks, very much that does it for me.
Okay. Thank you much.
Yes.
The next question is from tour Sandburg at Stifel. Please go ahead.
Yes. Good afternoon. This is Jeremy Operatory I guess, yeah, just let me offer my congratulations on the salad pre cashbook performance as well and just a quick follow up on that last question.
The a T M is or does that complete now are there plans to continue raising capital or is this the 50 million sufficient.
Medium Sir.
We.
Right now I think the best way to handle it is we don't have we're not active in the market right. Now so that's first well reserved to see if we have any <unk>, but we have correctly size would company and factors we've taken some additional cost reduction actions better not yet.
Then the financials, but.
Will accrue positively to the latter part of this year. So we think we're very very well position from Ah costs back standpoint.
And just in those cost reductions in the latter part of the year that.
Is there a way to quantify that for us how should we think about that I know you you can say for the nurse.
Next quarter, what you think about being down a little bit sequentially, but how about two four.
Hey, Jeremy So what I would say the 17 Berlin cash Opex you know we have right. Now is is as Bob mentioned earlier I think you can take that are slightly Margaret that down later in the year and.
That right. There is about you know all of our 40 <unk> and of course, you know taken out of the company going back to that you know for four hours or so.
Got it. Thank you and then maybe switching to the the backlog commentary. She shouldn't you provided you said it was up sequentially the second quarter in a row and you help quantify that breath and then you know when you. When you talk about you know having somebody orders that that your meetings on the table are these.
Basically getting pushed out if you've reached your quarters and being added to backlog Uhm does help us understand kind of your visibility. Thank.
Thank you.
Yeah, Yeah. That's a good question Jeremy Yeah. Those orders you know that'd be canceled for getting pushed out with a desk or a.
This quote or like Lovely just finished the first month of the quarter.
Really good shape and dumps off our target revenue for this quarter added salt on supply chain, Alright somebody a drive in.
Oh, Yeah, and it's really hard to fall for that those <unk> in a bulk of the bulk of the revenue demand for this quarter, we already have orders for it.
Got it and I'm, sorry, I missed it but did you provide applications for this quarter Uhm. You you said you had a bulk or demand.
<unk> in place.
Yeah, I mean, Luckily you know, we're not providing exactly like the number for the order. She have I would just say like it's you know it's coming from.
Uhm different customers.
And and we're just you know if I noted.
Noted everything do you have an inventory for those specific products and without quickly find refills that inventories of you can shut the products that are best colors.
Got it and then.
Last question before I jump back in Cuba, and the and the imagery side. It sounds like you know, it's it's lower than you'd like you're trying to refill that inventory can you give us you know what what kind of targets you might have internally and and if you have any commentary in terms of channels.
Channel inventory, whether at your you know the bars or supply or carriers.
Yeah, not a lot of inventory at the channels <unk>, right, now and and I'm not anticipating burning up a lot more <unk> I think we're you know we're gonna just you know.
Pretty moderate what we have right now and again that the old <unk>.
A lot of inventories Jessie psychos debatable idea of the demand side cause kind of <unk>.
Or still.
Macro out there still up or down and so we just you know we're trying to be very cautious on trying to maximize the demand that'd be that'd be having our customers and yet not.
The inventory.
Last year.
Great. Thank you very much.
Thank you Jeremy.
This concludes our question and answer session I would like to turn the conference back over to Ashish Sharma for any closing remark.
Thank you all better and thank you everyone for joining us on the call today.
Look forward to updating you all next quarter I will continue to progress. Thank you again.
The conference is concluded. Thank you for attending today's presentation you may now disconnect.