Q1 2024 Inseego Corp Earnings Call
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Hello, and welcome to in see go Corp's first quarter 'twenty 'twenty four financial results conference call.
Operator: Hello, and welcome to Inseego Corp's first quarter 2024 financial results conference call. Please note that today's event is being recorded. All participants today will be in a listen-only mode.
Operator: Please note that today's event is being recorded.
Operator: All participants today will be in a listen only mode.
Operator: After today's presentation, there will be an opportunity for Q&A. On the call today are Phil Brace, Executive Chairman of Inseego's Board of Directors, and Stephen Gattoff, the company's Chief Financial Officer. During this call, certain non-GAAP financial measures will be discussed. A reconciliation to the most directly comparable GAAP financial measures is included in the earnings release, which is available on the Investors section of the company's website. An audio replay of this call will also be archived there.
Operator: After todays presentation, there will be an opportunity for Q&A.
Stephen Sek: On the call today are Phil brace executive Chairman of N. C goes board of directors and Stephen got off the company's Chief Financial Officer.
Operator: During this call certain non-GAAP financial measures will be discussed a reconciliation to the most directly comparable GAAP financial measures is included in the earnings release, which is available on the investors section of the company's website.
Operator: An audio replay of this call will also be archived there.
Operator: Please also be advised that today's discussion will contain forward-looking statements. These forward-looking statements are not historical facts but rather are based on the company's current expectations and beliefs. For a discussion on factors that could cause actual results to differ materially from expectations, please refer to the risk factors described in the company's Form 10-K, 10-Q, and other SEC filings, which are available on the company's website. Please also refer to the Cautionary Note regarding forward-looking statements section contained in today's press release. With that, I'd like to turn the call over to Phil Brace, Executive Chairman of Inseego. Please go ahead.
Operator: Please also be advised that todays discussion will contain forward looking statements.
Phil Brace: These forward looking statements are not historical facts, but rather are based on the company's current expectations and beliefs.
Phil Brace: For a discussion on factors that could cause actual results to differ materially from the expectations. Please refer to the risk factors described in the company's Form 10-K, 10-Q, and other SEC filings, which are available on the company's website.
Phil Brace: He's also refer to the cautionary note regarding forward looking statements section contained in today's press release.
Operator: With that I'd like to turn the call over to Phil Brace Executive Chairman of N. CECO. Please go ahead.
Phil Brace: Thank you, Operator, and good afternoon, everyone. It's a pleasure to be here.
Phil Brace: Thank you operator, and good afternoon, everyone.
Phil Brace: It's a pleasure to be here.
Phil Brace: I'd like to cover three topics for you today. First, I'd like to give you a quick summary of the Q1 results. Second, I'd like to share some thoughts on our capital structure. And third, I'll provide some high-level views of the current quarter and focus areas ahead. I'll then turn the call over to Stephen, and we'll wrap up with some Q&A.
Phil Brace: I'd like to cover three topics with you today.
Phil Brace: First I'd like to give you a quick summary of the Q1 results.
Phil Brace: Second I'd like to share some thoughts on our capital structure.
Phil Brace: Third I'll provide some high level view of the current quarter focus areas.
Stephen: I'll, then turn the call over to Steven and we'll wrap up with some Q&A.
Phil Brace: Q1 2024 was a solid quarter for Inseego. Revenue came in at $45 million, above our guidance, and helped by strong year-over-year growth in our FWA. Do You Want to Adjust to EBITDA? came in at $3.8 million, which was also better than expected and was driven by higher gross margin and lower operating costs.
Stephen: Q1, 2024 was a solid quarter Fred Segal.
Phil Brace: Revenue came in at $45 million above our guidance helped by strong Europe and your growth.
Phil Brace: Do you want adjusted EBITDA came in at $3 8 million, which was also better than expected and was driven by higher gross margin and lower operating expense.
Phil Brace: During the quarter, the sales organization launched a new channel program, which is an important part of starting to diversify the company's revenue base and expand our go-to-market capabilities. We are already starting to see opportunities develop. Finally, the company also secured a significant renewal of its subscribed management platform at a major tier one carrier customer. As I mentioned on the last call, addressing our capital structure is a significant focus for the company and the board.
Phil Brace: During the quarter.
Phil Brace: Organization launched a new channel program, which is in.
Phil Brace: An important part of starting to diversify the company's revenue base and expand our go to market.
Phil Brace: You are already starting to see opportunities.
Speaker Change: Okay got it.
Phil Brace: Also secured a significant renewal subscriber national platform at a major tier one carrier customer.
Phil Brace: As I mentioned on the last call addressing our capital structure is a significant focus for the company on the board.
Phil Brace: While we still have much work to do, the company's improved financial condition and business results give us confidence that there is a solution. On a particular note, we ended the quarter with more than $12 million in cash, which, along with a $15 million prepayment on the Subscribed Management Platform Renewal allowed us to repay our expensive ABL in April, as noted in the press release. The termination of the ABL decreases our interest expense meaning.
Phil Brace: While we still have a bunch of work to do the company's improved financial condition and business.
Phil Brace: Our results give us confidence.
Phil Brace: Sure.
Phil Brace: Of particular note, we ended the quarter with more than $12 million in cash.
Phil Brace: Which along with a 15 million dollar prepayment I'm, a subscriber management platform renewable.
Phil Brace: Allowed us to repay our expensive ABL in April.
Phil Brace: As noted in the press release, the termination of the ABL decreases our interest expenses meaningfully.
Phil Brace: Importantly, it also now provides us with the capacity to entertain other capital structures, like secure debt, that will give us flexibility in terms of our ultimate capital structure and how we seek to restructure the existing convertible network. The majority of the convertible notes are closely held.
Phil Brace: Importantly, also now provides us with the capacity.
Phil Brace: Other capital structures.
Phil Brace: Secured debt.
Phil Brace: Give us flexibility in terms of our ultimate capital structure, and how we seek to restructure existing convertible notes.
Phil Brace: The majority of the convertible notes are closely held and.
Phil Brace: And we are working on developing an acceptable solution. The board is taking a deliberate, methodical approach, and we are engaged with our legal and financial advisors. We will keep investors updated over the coming quarters as we continue to make progress. With that, I'd like to turn briefly to our progress in the CEO search. The interest has been robust, and we have identified a number of qualified candidates.
Phil Brace: And we are working on developing an acceptable solution.
Phil Brace: The board is taking a deliberate methodical approach and we are.
Phil Brace: We're engaged with our legal and financial advisors.
Phil Brace: We will keep investors updated over the coming quarters as we continue to make progress.
Phil Brace: With that I'd like to turn briefly to our CEO search process.
Phil Brace: The interest has been robust and we have identified a number of qualified candidates.
Phil Brace: Having said that, we are being thoughtful about moving forward, particularly as we navigate the important capital structure considerations I just talked about. Looking at the business, the outlook for the quarter is for continued growth in revenue and profit. We are seeing good demand for our FWA business, and we are starting to see a rebound in the mobile market. We are looking ahead to the back half of the year and beyond, as we're also building a number of exciting new product and software opportunities in both the carrier and the MSO space, based on the strength of our relationships.
Phil Brace: Having said that we are being thoughtful about moving forward, particularly as we navigate important capital structural considerations I just talked about.
Phil Brace: Looking at the business the outlook for the quarter as continued growth in revenue and profit.
Phil Brace: Good demand for our <unk> business and we are starting to see a rebound in the boat.
Phil Brace: Yeah.
Phil Brace: We are looking ahead to the back half of the year and beyond as we're also building a number of exciting new product and software opportunities in both the carrier space.
Phil Brace: Based on the strength of our rope.
Phil Brace: With that, I'd like to thank the team at Inseego who work every day to make these things happen. I'll be glad to take any questions in a few minutes. Right now, though, I'd like to pass the call over to Phil. Good afternoon, everyone.
Phil Brace: With that I'd like to thank the chairman and CEO, who work every day to make these things happen.
Phil Brace: I'm glad to take any questions in a few minutes right now I'd like to pass the call over to Steve.
Stephen Gatoff: I look forward to covering three things with you today. First, I'll take you through the Q1 2024 financial results. Second, I'd like to address some new language that the accounting rules require us to have in our 10Q that's getting filed tonight. And third, I'll provide some color on the business and our guidance for Q2. As Phil noted, we'll, of course, wrap up by opening the call to your questions.
Phil Brace: Thanks Bill.
Phil Brace: Everyone I look forward to covering three things with you today first I'll take you through the Q1 2024 financial results second I'd like to address some new language that the accounting rules require we have in our 10-Q filed Tonight.
Stephen Gatoff: I'll provide some color on the business and our guidance for Q2 as Phil noted we'll of course wrap up by opening the call to your questions.
Stephen Gatoff: With that in mind, let's start with our Q1 results. Total revenue came in above guidance and $2.2 million, or more than 5% higher sequentially, at $45 million. Overall, performance in the FWA product both sequentially and year-over-year and growth in our telematics and subscriber management platform offerings all contributed to better than anticipated revenue performance on a general uptick in demand and sales execution in the quarter. As we've talked about previously, while we expected Q1 mobile hotspot revenue to be down on the transition of the 4G product to end of life in the previous quarter, the mobile hotspot business came in ahead of expectations in Q1 on carrier uptake of our 5G product.
Stephen Gatoff: With that let's start with Q1 results.
Stephen Gatoff: Total revenue came in above guidance at $2 $2 million or more than 5% higher sequentially at $45 million overall performance in the S. W. A product both sequentially and year over year as growth in our telematics subscriber management platform offerings, all contributed to better than anticipated.
Stephen Gatoff: <unk> revenue performance on a general uptick in demand and sales execution in the quarter.
Stephen Gatoff: As we've talked about previously while we expected Q1 mobile hotspot revenue is down on the transition of the <unk> product end of life in the previous quarter. The mobile hotspot business came in ahead of expectations in Q1, our carrier uptake of our <unk> products.
Stephen Gatoff: FWA also saw good carrier demand in Q1 that drove year-over-year revenue growth of nearly 20%. Higher Growth, Higher Margin The FWA product now constitutes about a third of the company's revenue, up from 23% in the same quarter of 2023.
Stephen Gatoff: W. I also saw a good carrier demand in Q1 drove year over year revenue growth of nearly 20%.
Stephen Gatoff: The higher growth higher margin SWA product now constitute about a third of the company's revenue up from 23% in the same quarter of 2023.
Stephen Gatoff: Looking at services and other revenue, as I mentioned, the telematics business came in ahead of expectations and at its highest quarterly revenue ever on good continued demand for the business. In addition to the telematics contribution to growth, Q1 revenue from our Subscribe SaaS offering also came in ahead of expectations and was up sequentially over Q4. As Phil mentioned, we were pleased that one of our key carrier partners signed a new deal with us during the quarter.
Stephen Gatoff: Looking at services and other revenue as I mentioned, the telematics business came in ahead of expectations and at its highest quarterly revenue ever a good continued demand in the business. In addition to the telematics contribution to growth Q1 revenue from our subscribe SaaS offering also came in ahead of expectations and was up.
Stephen Gatoff: Essentially over Q4 as Phil mentioned, we were pleased that one of our key carrier partners signed a new deal with us during the quarter and began on April 1st It provides and see go with increased revenue and profitability for the next two years as we manage the investment in growth in our <unk>.
Stephen Gatoff: It began on April 1st and provides Inseego with increased revenue and profitability for the next two years as we manage the investment and growth in our FWA and mobility business. Moving on to gross margin, Q1 growth margin percentage came in at 38.7% on a non-GAAP basis. This was among the highest level in 7 quarters, and like the prior quarter in Q4, was impacted by some one-time items.
Stephen Gatoff: S. W E mobility businesses.
Stephen Gatoff: Moving onto gross margin Q1 gross margin percentage came in at 38, 7% on a non-GAAP basis.
Stephen Gatoff: This was among the highest level in seven quarters and like the prior quarter in Q4 was impacted by some onetime items.
Stephen Gatoff: Product Gross Margin benefited from a one-time pickup from components rebates, while Services and Other Margin was lower on a higher proportion of professional services revenue in a subscribed business in Q1 that we don't expect to continue going forward. Looking at non-GAAP operating expenses, Q1 came in favorable to Q4 and in line with expectations. Sequential Efficiencies and R&D and Reductions in Depreciation and Amortization Expense were partially offset by Executive Severance Costs and G&A in the first quarter.
Stephen Gatoff: Product gross margin benefited from a onetime pickup from components rebates, while services and other margin was lower at a higher proportion of professional services revenue and a subscribe business in Q1 that we don't expect to continue going forward.
Stephen Gatoff: Looking at non-GAAP operating expenses Q1 came in favorable to Q4 and in line with expectations sequential efficiencies in R&D and reductions in depreciation and amortization expense were partially offset by executive severance costs and G&A in the first quarter.
Stephen Gatoff: We continue to take a disciplined approach to managing our spend across the organization, favoring pipeline and revenue-generating sales and marketing spend and differentiation-oriented R&D spend. Also of note, and so far as overall expenses in Q1, for the first time in several years, the company's P&L contains accrued expenses for incentive bonus plans for the company's employees, while previously, no such incentive was accrued or paid.
Stephen Gatoff: We continue to take a disciplined approach to managing our spend across the organization favoring pipeline and revenue generating sales and marketing staff and differentiation oriented R&D staff.
Stephen Gatoff: Also of note in so far as overall expenses in Q1 for the first time in several years the company's P&L contained accrued expense for incentive bonus plans for the company's employees.
Stephen Gatoff: Previously no such incentive was accrued or paid.
Stephen Gatoff: With Inseego's improving operating performance, growing profitability, and increasing free cash flow, we're pleased to be able to return to more market-based compensation arrangements for the terrific group of employees that are driving the turnaround here in the business. Putting this all together. The favorable revenue performance and more focused operating expenses resulted in Q1 adjusted EBITDA coming in higher than anticipated at $3.8 billion, a margin of nearly 9%, and the fifth consecutive quarter with positive adjusted EBITDA.
Stephen Gatoff: When she goes improving operating performance growing profitability and increasing free cash flow. We're pleased to be able to return to more market based compensation arrangements for the terrific group of employees that are driving the turnaround here in the business.
Stephen Gatoff: Putting this all together.
Stephen Gatoff: The favorable revenue performance and more focused operating expense resulted in Q1, adjusted EBITDA coming in higher than anticipated at $3 $8 billion, a margin of nearly 9% in the fifth.
Stephen Gatoff: Second quarter of positive adjusted EBITDA.
Stephen Gatoff: Wrapping up our Q1 results with a balance sheet, cash improved meaningfully from year end, coming in at $12.3 million on March 31st. And while we had $4.7 million drawn on our credit facility at the end of Q1, as Phil mentioned, we voluntarily paid that off and terminated the APL facility in April.
Stephen Gatoff: Wrapping up our Q1 results with the balance sheet cash improved meaningfully from year end coming in at $12 $3 million at March 31.
Stephen Gatoff: While we had $4 $7 million drawn on our credit facility at the end of Q1 as Phil mentioned, we voluntarily paid that off and terminated the ABL facility in April.
Stephen Gatoff: Additionally, the combination of the $15 million upfront payment on the subscribed renewal in April 2024 and our improving financial profile has provided the company with the liquidity on hand to finance our working capital needs going forward. With that, I'd like to move to my second topic today and call out some new language that's going to be in our 10Q that is getting filed tonight that relates to the accounting rules around our outstanding convertible notes.
Stephen Gatoff: Additionally, the combination of the $15 million upfront payment on the subscribe renewal in April 2024.
Stephen Gatoff: Our improving financial profile has provided the company with the liquidity on hand to finance, our working capital needs going forward.
Stephen Gatoff: With that I'd like to move to my second topic today and call out some new language, that's going to be in our 10-Q, that's getting filed Tonight.
Stephen Gatoff: Rates to the accounting rules around our outstanding convertible notes.
Stephen Gatoff: As you heard Phil say, we're being methodical and thoughtful about how we move forward to achieve an outcome that's optimized for our stockholders and relevant stakeholders in restructuring and refinancing the convertible notes. With the maturity of the notes now technically being one year out in May 2025, the accounting rules dictate that we include wording in our 10-Q that's typically referred to as going concern-less because we are engaged with our bondholders to restructure and refinance the notes. We cannot be 100% certain that the desired restructuring and refinancing will be accomplished.
Stephen Gatoff: You heard Phil say, we're being methodical and thoughtful about how we move forward to achieve an outcome, that's optimized for our stockholders and relevant stakeholders and restructuring and refinancing the convertible notes.
Stephen Gatoff: With the maturity of the notes now technically be in one year out. It may 25, the accounting rules dictate that we include worthy and our 10-Q, it's typically referred to as going concern language.
Stephen Gatoff: Because while we are engaged with our bondholders to restructure and refinance the notes.
Stephen Gatoff: We cannot be 100% sure.
Stephen Gatoff: <unk> restructuring and refinancing will be accomplished.
Stephen Gatoff: It should go without saying that Inseego is in a positive and fairly uncommon position to include this required accounting disclosure. We're profitable on an adjusted EBITDA basis. We're free cash flow positive. We don't need any financing for operations, and we're continuing to improve our near-term liquidity.
Stephen Gatoff: It shouldn't go without noting that an ego isn't a positive and fairly uncommon position, including this required accounting disclosure.
Stephen Gatoff: Profitable on an adjusted EBITDA basis.
Stephen Gatoff: Free cash flow positive we.
Stephen Gatoff: We don't need any financing for operations.
Stephen Gatoff: And we're continuing to improve our near term liquidity.
Stephen Gatoff: With that, let's turn to the third discussion topic on what we see in the current quarter. On product revenue, there are two drivers of higher revenue in Q2 over Q1. First, we're seeing strong carrier demand for our mobile products from a combination of increased structural demand as well as some more perishable in-quarter promotions at one of our carrier customers. Second, we're continuing to see growth in FWA in Q2 on early traction from the Q1 relaunch and rebranding of the Inseego channel program, Inseego Ignite.
Stephen Gatoff: With that let's turn to the third discussion topic of what we see in the current quarter.
Stephen Gatoff: On product revenue there are two drivers of higher revenue in Q2 over Q1 first we're seeing strong carrier demand for our mobile products from a combination of increased structural demand as well as some more perishable in quarter promotions at one of our carrier customers.
Stephen Gatoff: Second we're continuing to see growth in F. W. E. Two on early traction from the Q1 relaunch and rebranding of being single channel program and CECO ignite.
Stephen Gatoff: Services and other revenue is also seeing sequential revenue growth in Q2, driven by increased revenue from subscriber renewal, that's adding a combination of SaaS subscription expansion and additional professional services revenue. Pulling this together, Q2 non-GAAP gross margin percentage is expected to be down slightly on product mix, as the high-margin subscribe revenue is offset by an even greater increase in the lower gross margin mobile. Q2 non-GAAP operating expenses are expected to be relatively flat on a dollar basis over Q1.
Stephen Gatoff: Services and other revenue was also seen in sequential revenue growth in Q2, driven by the increased revenue from that subscribe renewal, that's adding a combination of SaaS subscription expansion and additional professional services revenue.
Stephen Gatoff: Deployments together Q2, non-GAAP gross margin percentage is expected to be down slightly on product mix as the high margin subscribe revenue offset by an even greater increase in the lower gross margin model that.
Stephen Gatoff: Q2, non-GAAP operating expenses are expected to be relatively flat on a dollar basis over Q1.
Speaker Change: And so considering all of this we're providing the following guidance for Q2 2020 for total revenue in a range of $52 million to $56 million and adjusted EBITDA in the range of $6 $5 million to $7 $5 million.
Stephen Gatoff: And so, considering all this, we're providing the following guidance for Q2 2024: total revenue in a range of $52 million to $56 million, and adjusted EBITDA in a range of $6.5 million to $7.5 million. In closing, we're pleased with the results that we delivered in Q1, and we're encouraged by the several positive dynamics going on in the business that are driving greater revenue and profitability in Q2. With that, we appreciate your time and support, and we're glad to open the call for questions.
Stephen Gatoff: In closing we're pleased with the results that we delivered in Q1 and we're encouraged by the several positive dynamics going on in the business that are driving braver greater revenue and profitability in Q2 with that we appreciate your time and support and we're glad to open the call for questions.
Stephen Gatoff: Later.
Operator: 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 handset before pressing the key. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Tori Svonberg on Stifle. Please go ahead.
Speaker Change: We will now begin the question and answer session.
Operator: To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Operator: At this time, we will pause momentarily to assemble our roster.
Operator: [laughter].
Tori Svonberg: Our first question comes from Tories Fun Berg with Stifel. Please go ahead.
Tori Svonberg: Yes, thank you, and congratulations on the continuous progress here. So my first question is on the Q2 guidance. So just from a mixed perspective, just so I understand this. So product revenue is obviously up, but carrier revenue is up more than fixed wireless. And then what were some of the moving parts on the services again, please?
Tori Svonberg: Yes, Thank you and congratulations on the continued progress here.
Tori Svonberg: My first question is on the Q2 guidance.
Tori Svonberg:
Tori Svonberg: So just from a mix perspective, just so I understand this so product revenue, obviously up but carrier up more than fixed wireless and then what were some of the moving parts on that on the services again please.
Speaker Change: Sure Pedro.
Stephen Gatoff: Sure, Pedro, and Stephen. So what we talked about was that the subscriber renewal is coming in, and we're successful in negotiating higher revenue for that. And so in services and others, the subscriber business, that's driving the bigger increase in revenue on that piece. And as you said, in product revenue, we talked about the increased revenue coming from both mobile and FWA.
Stephen Gatoff: Stephen So.
Stephen Gatoff: Well, we talked about was that the subscriber renewals I mean that Oh, we were successful in negotiating a higher revenue for that and so in services another subscribed business.
Stephen Gatoff: That's driving the.
Stephen Gatoff: A bigger increase in revenue on that piece and as you said in product revenue.
Stephen Gatoff: We talked about the increased revenue coming from both mobile and W. S.
Tori Svonberg: Great, and as my follow-up question, this sort of new language that's coming into Penn Q, so is this sort of a recent accounting rule change, or was this kind of more you were notified about, you know, this is just typical language that you have to include?
Speaker Change: Great and as my follow up.
Speaker Change: The new language, that's coming in the 10-Q.
Speaker Change: Is this sort of a recent accounting rule change or was this kind of more you were notified about you know this is just typical language that you have to include.
Stephen Gatoff: Again, neither of you were notified at all. It's really just self-reporting and description in the footnotes of the financials. And it really is the standard, if you will, accounting requirement for what they define as a going concern. And so they look to say, okay, you're one year out from the maturity of the notes, the $163 million of notes in the capital structure. And so because those are now within one year, they're considered current. And so if you look technically at the cash balance, it's not $160. And so that requires and triggers the disclosure of that language, the quote, and going concern language, because of the capital structure.
Tori Svonberg: Yes, neither of those those people were not notified them at all it's really a self reporting.
Stephen Gatoff: A description and up but notes of the financials and it really is the standard if you will accounting requirement for what they define as a going concern and so they look to say, okay. You're one year out from the maturity of the notes the $163 million of notes in the capital structure and so.
Stephen Gatoff: So those are now within one year. They are considered current and so if you look technically at the cash balance it's not 160, and so that says that.
Stephen Gatoff: It requires the triggers the disclosure of that language to quote going concern language because of the capital structure.
Stephen Gatoff: Sounds good. Actually, just one last one. You mentioned Telematics revenue reaching a record this quarter. Is that business expected to be up as well in the June quarter, or will it take a breather?
Speaker Change: It sounds good actually just one last one you mentioned telematics revenue, reaching a record and this quarter is that this is expected to be up as well in the June quarter or it will take a breather.
Stephen Gatoff: Probably more of the latter. We were pleased that in the first quarter it did nicely coming off of 2023, but our expectations are that it kind of continues at a consistent pace.
Speaker Change: Probably more of the latter we were we were pleased that is in the first quarter. It did nicely coming off of 2023, but our expectations are that it kind of considered continues.
Stephen Gatoff: Consistent approach.
Speaker Change: Great. Thank you.
Speaker Change: Uh huh.
Operator: The next question is from Lance Vitanza with TD Cowan. Please go ahead.
Stephen Gatoff: The next question is from Lance Vitanza with T. D. Cowen. Please go ahead.
Lance William Vitanza: Hi, Thanks, guys and first off congratulations great quarter, I guess, let me just start with the first quarter and we'll get to the guidance in the second but revenue was up 5% sequentially I assume that's the right way to analyze revenue growth at this stage.
Lance William Vitanza: Hi guys, and first off, congratulations on a great quarter. I guess, let me just start with the first quarter, and we'll get to the guidance in a second, but revenue was up 5% sequentially. I assume that's the right way to analyze revenue growth at this stage. And so I'm just wondering if there's anything unusual there from a timing perspective, either, I guess not pulled forward given the guidance, but perhaps that got pushed out of the fourth quarter of last year and into the first quarter.
Stephen Gatoff: On which piece specifically, do you mean in general? On revenue, yeah.
Stephen Gatoff: And so I was just wondering if there's anything unusual there from a timing perspective, either I'm guessing not pulled forward given the guidance, but perhaps that got pushed out of the fourth quarter of last year and into the first quarter.
Stephen Gatoff: But on Oh watch piece, specifically I mean in general on revenue Yeah.
Stephen Gatoff: Yeah, the short answer is no; there was nothing meaningful that got to both your good points and questions. Nothing meaningful that got pushed from Q4 to Q1 and nothing that got pulled from Q2 into Q1. It was a pretty, pretty good demand generation and execution quarter.
Stephen Gatoff: Yes.
Speaker Change: The short answer is there's no there was nothing meaningfully that Oh Gee bolt here, but good point. Some question nothing meaningful that got pushed from Q4 into Q1 and nothing they got pulled from Q2 into Q1 it was a pretty.
Speaker Change: Pretty in quarter demand Gen and execution quarter, Okay. Okay, great and then so in the second quarter guide right. So it's 20% sequential growth at the midpoint.
Lance William Vitanza: Okay. Okay, great.
Stephen Gatoff: And then on the second quarter guide, right, so it's 20% sequential growth at the midpoint. And I'm wondering how much of that is an artifact of the prepayment that you took in in April. I assume that you're not recognizing the 15, it's a prepayment, right? So how much of that 15 million are you recognizing in the second quarter? And then, you know, can you give us just at least a rough feel for how quickly the rest of that prepayment will be recognized as revenue over the balance of the year going forward?
Stephen Gatoff: And I'm wondering how much of that is an artifact of the prepayments that you took in in April I assume that you're you're not recognizing the 15, it's a prepayment right. So how much of that $15 million are you recognizing in the second quarter and then you know can you give us just at least a rough feel for her.
Stephen Gatoff: Sure, the easy answer both conceptually, business-wise, and financially is that the prepayment does not affect revenue recognition at all, zero. So it just affects cash. We had more cash on hand, which was helpful.
Stephen Gatoff: How quickly the rest of that pre payment will be recognized as revenue over the balance of the year or going forward.
Stephen Gatoff: Sure.
Stephen Gatoff: Easy answer Paul conceptually Businesswise in a financially is.
Stephen Gatoff: The prepayment does not affect revenue recognition at all zero.
Stephen Gatoff: So it just affects cash we had more cash on hand, which was helpful that contract is basically taken straight line ratably over the two year period. So the fact that we had prepayment upfront has zero impact on our P&L on revenue recognition is recognized ratably over the period.
Stephen Gatoff: That contract is basically taken straight-line ratably over the two-year period. So the fact that we had prepayment up front has zero impact on the P&L, on revenue recognition. It's recognized ratably over the period.
Stephen Gatoff: Okay, great. So then I guess my question is, you know, how much confidence do you have in the visibility of revenues at this point? And what's changed? Because it wasn't that long ago, and I know this predates you, but it wasn't that long ago that the leadership of this company was fairly adamant that they had virtually no visibility.
Speaker Change: Okay. Great. So then I guess my question is you know you've got how much confidence do you have and the visibility of revenues at this point and what's changed because it wasn't that long ago and I know this predates you, but that it wasn't that long ago that the leadership of this company was fairly adamant that they had.
Stephen Gatoff: Really no visibility.
Stephen Gatoff: Yeah, it's a fair and understandable question, and Phil and I will tag team on it a bit, but Yeah, the news on Guide and Flickr in Q2, the quarter we're in, as we said, we are bullish on the business itself, on the product business specifically. There's a lot of activity going on in the second half of the quarter, kind of right now, which is why you see us saying, okay, there's some demand that we think looks potentially perishable, meaning it's in the quarter promotion.
Speaker Change: Yeah, It's a fair and understandable question and Bill and I will tag team on it a bit but.
Philip Gordon Brace: Yeah. The the news on guidance looking into Q2 the quarter. We're in as we said we are bullish on the business itself on the product business, specifically, there's a lot of activity going on in the second half of the quarter kind of right now which is a.
Stephen Gatoff: Which is why you see us saying, okay. It's there's some demand that we think it looks potentially perishable, meaning it's in quarter promotion and the big question is gonna be as as we as you know some of the new team and in others as we evolve the business and grow more is how the increase in demand and how the ing.
Stephen Gatoff: And the big question is going to be, as we, some of the new team, and others, as we evolve the business and grow more, how the increase in demand and the increase in the channel program and how well they've done, how much of that is sustainable growth in Q3 and Q4. So right now, we're not being presumptuous about what we think we can do; we're encouraged right now.
Stephen Gatoff: So the channel program and how well they've done you know how much of that is sustainable growth in Q3 and Q4. So right now we're not being presumptuous on what we think we can do we're encouraged right now and so the visibility comes because I think we'll tag team on that so it's a combination of increasing demand and longer.
Stephen Gatoff: And so the visibility comes because I think, and we'll touch on this, it's a combination of increasing demand and longer term, so that helps by definition. And then also, our view is there's just a different rigor and cadence in the business. Steve Harmon and the sales team track the business differently; everything is in Salesforce. We have pipeline review calls where we talk about what Q3 and what Q4 look like now. And so there's just a different construct of how we look at the business than perhaps there a year ago with different folks. So that's certainly part of it, and there's probably a bit of an uptick in demand in the market.
Stephen Gatoff: Your term so that helps by definition.
Stephen Gatoff: And then also.
Stephen Gatoff: Our view is there's just a different rigor and cadence in the business just keep arm and a sales team in New York.
Stephen Gatoff: Track the business differently everything isn't Salesforce, we have pipeline review calls, where we talked about you know what Q3 and once you for look like now and and so there's just a different construct of how we look at the business than perhaps was here a year ago with different folks.
Stephen Gatoff: So that's certainly part of it and it's probably a bit of an uptick in demand in the market.
Stephen Gatoff: and I guess this is, oh, go ahead, sorry, please.
Stephen Gatoff: And then I guess.
Speaker Change: Oh go ahead sorry please.
Phil Brace: Yeah, no problem. I mean, I think just in general, look, we're seeing strong demand across the board for our FWA products. Stephen mentioned we've got some promotional activity that we're trying to take advantage of. They came when the sun shines, if you will, for the quarter. So I think we've got some of that we're trying to take advantage of. And the subscriber renewal helps us as well. So this is a situation where we have had a bit of a tailwind given by some of our strong product roadmaps. The customer acceptance has been good. And we'll just go from there.
Speaker Change: Yeah, No problem I mean, I think just in general what we're seeing.
Phil Brace: Strong strong demand across the board from our FW de products. You mentioned, we got some promotional activity that we're trying to take advantage of that came on the Sunshine dwell for the quarter. So I think we've got some of that we're trying to take advantage of and.
Phil Brace: Scribe renewal help subs as well so this is a situation where.
Phil Brace: You know, we had some a bit of a tailwind giving them by giving by some of our strong product roadmap. The customer acceptance has been good and you know, we'll just go from there.
Phil Brace: If I could just squeeze one more in before I jump back in line, the fact that this carrier was incentivized to give you a $15 million prepayment suggests to me that the pricing trends that you guys are seeing are most likely in your favor and that the carrier was trying to get ahead of, perhaps, escalating prices over time. Is that a reasonable read, or were there some other factors that we're not privy to behind the scenes that might have driven that prepayment?
Speaker Change: If I could just squeeze one more in before I jump back in queue. The the fact that this carrier was incentivized to give you a $15 million prepayment that suggests to me that the pricing trends that you guys are seeing or are most likely in your favor and that the carrier was trying to get ahead.
Phil Brace: Head of you know, perhaps you know escalating prices over over time is that is that a reasonable read or were there. Some other factors that you know, we're not privy to behind the scenes that might have driven that that that prepayment.
Phil Brace: You know, look, I think that I mean, you'll see the effect of that particular, you know, renewal in our financials. And so you can make assumptions about what that is, that, you know, in particular, prepayment. Honestly, we've worked very closely with this customer for many years; this product's been embedded for a long time. And we had a, it was one facet of a multifaceted negotiation, and we were able to successfully negotiate it. So that's why I wouldn't read too much more into it.
Speaker Change: You know look I I think that I mean, you'll see the effect of that particular.
Phil Brace: Renewables in our financials and so you can make assumptions about what that is.
Phil Brace: In particular prepaid so we worked very closely with this customer for many years. This product's been embedded for a long time and we had a we had.
Phil Brace: It was one facet of our multifaceted negotiation.
Phil Brace: We were able to successfully negotiate them. So that's I wouldn't read too much more into it than that.
Speaker Change: Thanks very much.
Phil Brace: Thank you. Bye, friend.
Speaker Change: Thanks, Dan.
Operator: Next, we have a follow-up question from Tori Svonberg. Please go ahead.
Phil Brace: Next we have a follow up question from tore Svanberg. Please go ahead.
Tori Svonberg: Yes, thank you. Phil, I had a question about the channel program.
Tore Egil Svanberg: Yeah. Thank you Phil I had a question on the channel program.
Tori Svonberg: You know, this is obviously something that's going to diversify the revenue base. Could you talk about some of the areas that you are targeting with that program? And also, from an OPEX perspective, what does that program necessarily mean? Obviously, I assume that it's already included in your 2Q guidance, but even beyond that, you know, would you have to invest more OPEX dollars to get that program up and running?
Tore Egil Svanberg: This is something that's gonna have diversified the revenue base could you talk about what some of the areas that you are targeting.
Tori Svonberg: That program and also from an Opex perspective.
Tori Svonberg: What was that program necessarily mean.
Tori Svonberg: I, obviously I assume that's already included in your Q2 guidance, but even beyond that you know would you have to invest more opex dollars to get that program up in graphic.
Phil Brace: Yeah, let me try my best to answer that. And Stephen can jump in here if I'm wrong.
Speaker Change: Yeah, Let me try the best to answer that and then Stephen can jump in here, if I'm right I mean, so what we're trying to do here and historically the company has I'd say the revenue profile of the company has been dominated.
Phil Brace: I mean, look, what we're trying to do here. Historically, the company has, say, the revenue profile of the company has been dominated by very large carrier customers. And we're very thankful to have them, and they mean a lot to us.
Phil Brace: By very large carrier customers and we're very thankful to have them and they mean a lot to us and that's an important part of the business for US obviously also for our own Judy perspective, we need to diversify that revenue base. So we're not as dependent on those large customers and so some things that happened there. They turn those customers tend to be focused on you know more specialized higher value.
Phil Brace: And it's an important part of the business for us, obviously. Also, for our own duty, we need to diversify that revenue base. So we're not as dependent on those large customers. And so some things that happen there, those customers tend to be focused on more specialized, higher-value solutions where we're part of the solution. And frankly, the sales team has experience; some of the new sales team that we're bringing on has experience in building programs around that.
Phil Brace: Solutions, where we're part of the solution and are.
Phil Brace: Frankly, the sales team has an experience of the new sales team that we're bringing on have the experience and building programs around that and that's going to be part of our revenue diversification strategy going forward with respect to additional costs are where our goal is to actually reallocate existing capital to fund that self fund that so I would not expect any significant change in our cost profile.
Phil Brace: And that's going to be part of our revenue diversification strategy going forward. With respect to additional costs, our goal is to actually reallocate existing capital to fund that, and self-fund that. So I would not expect any significant change in our cost profile as a result of doing that. We're choosing where we spend the money. That's a great perspective. Thank you.
Phil Brace: As a result of doing that we're choosing borders where they spend the money.
Phil Brace: That's great perspective, thank you.
Phil Brace: Yeah.
Operator: Next, we have a follow-up from Lance Vitanza. Please go ahead.
Phil Brace: Next we have a follow up from Lance Vitanza. Please go ahead.
Lance William Vitanza: balance at the end of the first quarter. So before the prepayment came in, you put up 12 million dollars in cash, which was actually, recognizing that it's not a lot in absolute dollars, but it was well ahead of what we had estimated. And I'm just hoping you could maybe explain that the beat in your cash at the end of the quarter seemed considerably larger than the beat in EBITDA. We're pleased to see both. But so I'm guessing that you had some favorable working capital inflows in the first quarter. Is that correct? And if so, will those reverse later in the year? I'm just thinking about how we should model your cash flows from here on out.
Lance William Vitanza: Hey, Thanks, guys. Thanks for letting me jump back in here I wanted to ask about cash balance at the end of the first quarter. So before the prepayment came in you are you'd put up $12 million of cash which was actually recognizing.
Lance William Vitanza: Recognizing it's not a lot in absolute dollars, but it was well ahead than we had estimated and I'm just hoping you could maybe explain that this the beat in your cash at the end of the quarter seemed considerably larger than the beat in EBITDA.
Lance William Vitanza: We're pleased to see both but so I'm guessing that you had some favorable working capital inflows in the first quarter is that correct and if so will those reverse later in the year I'm just thinking about how we should model you know your cash flows from here on out.
Stephen Gatoff: Yeah, that's right. I think essentially recall the conversation we had in Q4, where the cash flow at your end and the cash balance were a little bit lighter. And so, you know, there's a view that that was a timing difference between Q4 and Q1. But if you look at the two together, it's pretty consistent quarter to quarter. And so One, we expect a bit of an uptick in Q2, as you would suspect, with the core business growing and the EBITDA profitability growing. And then we'll see what happens in the back half of the year, but we expect it to be consistent.
Speaker Change: Yeah, that's right I think essentially you recall the conversation we had from Q4.
Stephen Gatoff: Where the cash flow at year end cash balance was a little bit lighter and so yeah. There's a view that that was a timing difference between Q4 and Q1 to be a little bit the two together, it's pretty consistent quarter to quarter.
Stephen Gatoff: And so.
Stephen Gatoff:
Stephen Gatoff: One we expect a bit of the uptick in Q2 is as you would suspect with you know the core business growing in the and the EBITA and profitability growing and then you know, we'll see what happens in the back half of the year, but we yeah, we expect it to be.
Stephen Gatoff: System.
Stephen Gatoff: Great. Okay. Thank you.
Speaker Change: Great. Okay. Thank you.
Speaker Change: Yeah sure good question.
Operator: This concludes our question and answer session, and it concludes our conference. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: This concludes our question and answer session and that concludes our conference. Thank you for attending today's presentation. You may now disconnect.
Operator: Yeah.
Operator: Okay.
Operator: Okay.
Operator: Yeah.