Inseego (INSG) 3 Nov 172017 Q3 Earnings call transcript

Hello, and welcome to Inseego Corp.’s Third Quarter 2017 Financial Results Conference Call. Please note that today’s event is being recorded. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity for analysts to ask questions. [Operator Instructions] On the call today are Dan Mondor, President and Chief Executive Officer; Steve Smith, Chief Financial Officer; Chris Lytle, Chief Strategy Officer and Executive Vice President of Enterprise SaaS Solutions; and Ashish Sharma, Chief Marketing Officer and Executive Vice President of IoT and Mobile Solutions.

financial be non-GAAP call, this measures discussed. will During company’s directly financial release, measures reconciliation of is to included GAAP most the the section Investors earnings A is comparable in on the website. available which the An audio also there. call be archived of replay this will also discussion contain that forward-looking today’s advised be statements. Please will historical but and beliefs. are statements on based forward-looking These facts the are not rather company’s expectations current

described differ also Executive in I that forward-looking our statements materially would Officer on Form are go For factors could ahead. of refer the cause Mondor, risk call results which section to a release. and to note factors expectations, from like Dan press the website. Inseego. turn Please XX-Q today’s to our please to the now XX-K, filings other refer over discussion actual Please cautionary SEC on Chief contained and regarding to in President available

you my on today’s of you. and joining is clear. call. Good report progress for the start thank I’ll the The with goal everyone, afternoon, Inseego. Thank transformation remarks

the to increasing mobile benefit expense to financials prior We IoT, reductions annualized as first of adjusted become management significant. issues to innovative $XX In to our reduction free I begun expense since an by seen profitable driving In million third report Inseego the management. EBITDA continued we actions we am The inherited to over reduction, of repositioning flow. in $XX XXXX. growth. in the cash obviously implemented target to the quarter, over value by and financials targets June, long-term quarter solutions This team the for deliver we enterprise to pleased leader efficiencies million our implement SaaS are and strengthen financial has OpEx corrective shareholder and set. that from new address are provided

improvement the have expense Steve project reduction, a company-wide we’ve more opportunity discuss he process we will his G&A with business launched G&A. Smith, in To which remarks. largest reduce reduction Additionally, led expense identified prepared in by

margins of gross focused with is on to great the also the attention margins reflect MiFi unacceptable technology sold, the previously. is and goods top The target are to reducing XX% improving in MiFi We differentiated completely as adjusted a But have EBITDA lack of product market. highly gross cost state priority. MiFi XXXX and has the MiFi margins obvious, for the portfolio. of minimum

to are shortfalls note underway encountered improvement the these We comments was due a before faced contract on objectives. margin implementing I manufacturer. that supply reach gross we to issues to to This important it’s action provide detailed our we plan But plans, with QX have a pleased joined as immediate that when I’m late in back Inseego were I very on behind worked chain the track, significant established. and and hard issues now to actions CEO The supply get issue corrective we us. team report

supply important remain in with process revenue with the QX. customer. QX effect that key the and hurt the supplier into constraints and closely worked our largest to However, note our through we choice we of MiFi customers carries It’s

that achieves improvement strategy the reductions, cost in product improvement cost expect sold by of margin goods of fourth chain see both we addresses supply a gross to and design and starting MiFi commercial quarter. established and have We a supply Through supply steady percentages gross margin flexibility. security lowering in

So QX represents the low watermark.

quarter. we previously, in cost the inventory discussed liquidated As product we at old

impact a So of as result. several margin were points there

for We at in continue double-digit potential the Ctrack. to revenue growth believe

impacted revenue not vertical lower deemphasis of consumer hardware sales will below industry year-over-year we reported accept While comparisons, rates the upfront growth insurance average. and

entering throughout vertical XXXX Europe XXXX the investments increase the in momentum aviation and importantly, the and growth to U.S. growth We revenue overall first market. in in accelerating strong by in to worldwide expect of return to Ctrack due at quarter and, sales very

too our was low in subscriber any leading ARPU, investment growth at long, capital-intensive to applications. focused For management on cost

increase with cash return, sequentially despite due in EBITDA the consolidated MiFi subscriber to we the seasonality quarters will growth. prior in the quarter over – invest an generation high next rates ongoing capital On incentivized of to on anticipated free as flow only well adjusted and fourth basis, effect as we of be the and in several expect decline revenue effect Ctrack’s forward, a issues Going acquisition measured the quarter. success supply and will

that complexity. call and a longer our of quarter initiatives said to second August, their projection On to due restructuring little are the original than June some taking in implement scope we the

Our have not medium- changed. long-term to targets

run quarter to flow free annualized XXXX expect of million and EBITDA minimum half million of first of $XX $XX EBITDA XXXX. adjusted year-end a adjusted $XX rate achieve and of cash adjusted run in We annualized first positive in to rate the XXXX million by the

five a the reduction of adjusted four has team. we XXXX. and thank There accomplishments came end to relentless debt most time, result, Inseego significant progress to focus want execution. the expect EBITDA times and, in a detailed been the by certainly, from company-wide short reach As of a times These our tremendous ratio I to amount of total to planning,

Turning is for solution. the in deal to its for Qualcomm application, North address expect announced a in emphasize this we first to gateway American us marking be largest market. trials is major it widescale residential Not Inseego, broadband In This milestone radio, a the the the airline selected win America, for full by market, changer massive commercial allowing some the Ctrack deployment. the Ctrack game to history at to collaboration recent that and stands on first Inseego is strategic was aviation a major for North new U.S. the Verizon SaaS I XG rollout. win aviation We want only highlights. with and for it Ctrack. NR,

global deliver airport We asset partnership currently shortlisted of with comprehensive support a a strategic solution. airline Additionally, Undagrid RFPs ground five pilot announced projects to of major are total airport connected and we on owners with and equipment. a

cover medium Europe in we non-motorized as adjusted motorized quarter sequentially comprehensive and So SMB, margins in growth large the a assets XX% both fleet solution. markets and can airport quarter. subscriber well third second Double-digit XX% to business, EBITDA as small South grew from in now Africa, at Ctrack, the for in and

the on level continued XXXX at and leveraging expansion gigabit Dip]. investment, [Audio fourth announced in MiFi Mobile due markets, to of cost expect mid quarter World MiFi launched global the full Congress XX% the We X.X hotspots prior the to speed next-generation demonstrated previously Americas. impact hotspot for We

million the We won MiFi U.S. customer in expanding integrator continues growth engaged maturing which of a customer portfolio. additional city and refinance have in and curve new and distinguishing new XXXX, markets term IoT global project awarded in for the which convertible major are closed with provides $XX.X XXXX one We a a paying smart maturing senior in are We by base city a device more into our $XX August opportunities. of were million entering notes. May previous the of loan business liquidity Skyus system IoT four up of

Chief the the Marketing with Lastly, strengthened we Officer Officer, management of Officer. team Strategy new Chief Chief and appointments Financial

our framework. to growth turning Now strategy

strategy that September Part delever highlight four Part XXXX. and create of one a the matters most, aspect XX. value. three in a strategic provides verticals the go-to-market established in aligns planning the the formally long-term line what line launched order three-year to two we strategy multi-year consisted sales growth parts so want and need financial technology all model, on is and And three-year on we a the we product is that period a top cash to plan to Part growth I a it’s objective and defines achieve the technology which and achieve balance need focus repeats our based August term on balance is is annual by marketing bottom methodology in on and First, map an growth three-year within plan and finance It’s three-year road markets, One which which, target part continuous coincidence, is the we’ve a matures which defines process. our growth, together – in with cycle, the loan in refinance proven investments generation it ties significantly deleverage company-wide sheet to framework, sheet. recent long-term geographies. a no targets. four to strategy industry

strategy unifying services. the second on restructuring is the of expertise company areas which is part company, have our growth corporate and now we’re focused into Inseego of Inseego businesses X.X will The common and competencies. X.X. calling Inseego core two

expression comprised A, and The frequently you accountability. win first to common new The SaaS efficiency, now DMS We customer in the in accounts. P, can accounts solutions America Inseego brand definition product opportunities apply the more our This the stands two market personally accountable serve in I, adopt clear X.X as engagement, maximize a which time-to-market of to better individual. with is of customers segments common sales drive very technologies for will and to has team align more businesses hear will verticals current around all industry organizations. resources shorten best able those brand. follows. Inseego portfolio establishes broader product Inseego to The Enterprise sell practices three and and initials: will will and across be effectiveness deeper Ctrack business. is in to North resources new

dedicated Inseego IoT the MiFi is and brands. comprised and America business IoT business of has and solutions, Crossroads this sales management. product development product mobile second and This The business and is brand North

pursue have has build are Ashish This is also stakeholders we it’s soundbite. Enterprise business for comment, with has and Inseego aligns so a units We’ve the two company. tell role and dual and Sharma brands role This products and, The it response CMO. purposely and and new was to previously Solutions establishes the CSO. – of geographies all the Chris has brands for market. employees and our which Lytle been so. the verticals, which to serve occupy credibility We’ve our from you today SaaS about matter to the we and – segment unanimous, Solutions X.X We importantly, there was bringing Inseego EVP, XX-second to new dual our explain IoT strong Mobile names the clarity can and we is, EVP, The is and market can current energized who broad of which industry the strategy, of overall in innovative Inseego markets up. community. accordingly growth believe now this I another market demonstrates heard new we that we time. thumbs in do new upon, why tested enterprise these missing. what today underscores with segments, markets organization and understands to investment good reorganization, now is

Africa. and worldwide In by opportunities and We to our owners fleet ARPU shift Germany, solutions, strong Ctrack. solution of and forward. flow specifics in capital the capital-intensive inadequate growth SMB on Ctrack, Building approximately believe in applications subscriber away assets. continues there generation Europe at applications with enterprise free going with opportunities momentum SaaS revenue airport seven Large in Benelux to grew on consumer are acquisition low led the airport South recurring accelerate growth many subscriber quarter which from our Now Ctrack fleet at gain will investment to on of to continue aviation SaaS the we returns. spending cash worldwide XX% turning significant cut large deployments, motorized SMB to international largest

mobile to with lead progress and growth wins. new solutions, internationally our broadband rate making and mobile our markets business new customer and growth aviation American growing in XXXX the in North accelerate vertical in strategy are we North In expect America. We IoT our

a We’re such initiative, IoT in into this are the market. shift With focus our market paradigm and substantially XG looking we together Verizon as strong partners also to increase our Qualcomm. our strategy create bringing on addressable business. Continuing to and with

We are portfolio applications. for for new connectivity our opportunities enterprise seeing Skyus LTE many

network at monitoring projects We area large and booked IoT have applications with wide backup enterprise won smart customers. city

to preferred results platforms for We’re be provide guidance. our it Skyus financial solution portfolio. over mobile developing will now Smith, in broadband This and we our call includes many and turn to technologies QX our investing road the map opportunities. discuss who for continues Steve as are Steve? portfolio leveraging a I’ll IoT QX

Dan. Thanks,

Before his I elaborate want get a to into couple I in of on the Dan said the remarks. results, things

quarter. management the joined the the Dan in First, I third late team. Chris, and quarter. company joined new during Ashish second

Our and restructuring financial see a recent reserves of you’ll these in actions prior are made result statements inventory that decisions charges by and management.

of integration points out platform, The associated Dan a of multiple than systems Inseego together of complete to business process relative no improvements. lot alluded is that the effective processes. of the acquisitions. work to take the multiple and BPI will This of Second, to Inseego’s multiple business spend entity. a the higher and is norm. G&A multi-disciplined won’t the hide I us. companies disparate is integration was to that combination to hard goal revenue There Dan waste systems brought a form we the an try fact and with inefficiencies quarters. eliminating have of work into project ahead

Now with the of results on the quarter.

As for conference QX the was Consistent made QX Inseego; noted well. call, second a during quarter, with transitional quarter in third last remarks to the quarter, began we see operating quarter was the XXXX, By initiatives full efforts. should we I the real restructuring – benefits see first cost-savings expenses previously initiatives, of of reductions announced say. in from our should quarter the as cost

year-over-year million by a lower down sequentially reductions for X% million SaaS, fleet from revenues the applications Hardware $XX.X well QX from of Year-over-year, which down from revenues in QX, towards to million in hardware. due profit of year. and was slightly QX generated were basis, customer were the afternoon, in comparisons. $XX.X revenues $XX.X from down of from DMS Europe Ctrack by of from down highlighted a issues million million. affected compared $XX.X quarter, consumer X% $XX.X this from for and $XX.X software down million as were $XX.X price hardware and quarter We last the from – quarter. platform. South million million. in in year-over-year include hardware year SMB away Growth by $XX.X model XXXX. the quarter down the total year-over-year the X% service of $XX.X were quarter, lower sequentially were million the and decrease mix for the African than million revenues, and software, a QX contract X% sale revenues $XX.X release MiFi On sequential a to insurance was GAAP below X% second in million. X% and last a from preference or as total $X.X of million and second and XX% million. down both revenues by in rental ago large $XX.X quarter first offset shift third slightly our in $XX Dan noted The As was largely XX% quarter upfront our second the gross same The the supply

cost sold million we to older-generation As product the improve previously of during announced, a third liquidity. quarter MiFi approximately at $X

and Our prior costs lease a includes will severance $XX.X QX any GAAP included we by benefit, which charge, operating of expenses management. ongoing of reserve assets certain of to be which million facilities, million well and recover authorized as a $X.X unused unused million for as restructuring $X.X unlikely obligations

reduction of sequentially Excluding marketing the cost efforts. $XX.X associated with expenses, the restructuring and R&D, operating decreased to sales G&A showing and $X.X million, some expenses results million of the

same XXXX. in down million of the XX% On $XX.X spending basis, from year-over-year is QX by

loss of net net million million was compared million share share $XX.X $X.XX respectively, $XX.X in $XX and to loss QX loss and $X.XX, in $X.XX share a and QX for loss net per GAAP net of per per XXXX. a quarter or Our the or

MiFi Now $XXX,XXX turning percentage products XX.X% ago, and to one-time a our for and as XX.X% year-over-year percent by in should sale down increased from and from gross in non-GAAP Consolidated the QX noted the current favorable margin XX.X% SaaS, largely on the mentioned down metrics. points. about of of gross older XXXX was quarter and this year the in XX.X% for It and from sequentially was that QX margins non-GAAP impacted to from resulting from XX.X% XXXX. earlier. margin a be in result quarter Non-GAAP sequentially it’s of excess obsolete QX for services – X.X software sale approximately gross taken inventory, XX.X%,

compression. non-GAAP our XX.X% On from The side, near-term products in the and this are hardware declined to QX margin year-over-year from driving margin sequentially XX.X%. gross MiFi XX.X%

Ctrack of respect overall in gross in XX.X% to compared XX.X% product third the and quarter Our the in operating third With non-GAAP XXXX of expenses. for was margins to QX XXXX XXXX. XX.X% quarter

of the $XX.X to an decreased XX% for expenses million sequentially operating non-GAAP and quarter, Our year-over-year. improvement XX%

to Dan annualized reduced stated earlier, million June commitments to the $XX we greater call, than As in relative our by date. have expenses

We by undertaken. of a actions recently expect as expenses partially improvement operating result unpredictable cost-cutting legal the continued offset This be our we’ve in can expenses.

million million the from second the adjusted Our quarter adjusted of as last of $X.X period $XXX,XXX XXXX, the in Ctrack up $X.X generated EBITDA for from year. million compared second million third and XXXX in XXXX XXXX. to quarter $X.X third the and $X.X was the unchanged same of EBITDA quarter of for QX quarter

more grew XX%. to our North Our quarter, On XXX,XXX quarter subscribers subscriber compared of the and subscriber XXX,XXX an basis, by a subscribers, Ctrack year-over-year base we’ve increase XXX,XXX. Inseego up X% combined. includes during June This of third added than to count America

Our quarter non-GAAP press to lower improvement same in the improved last margins due the versus the by expenses reductions. of share, third period quarter to operating $X.XX the to lower expense $X.XX A in than last operating financials gross net release. loss per and per was of is an non-GAAP and reconciliation due share $X.XX contained offset GAAP our revenue year

the balance sheet. the at Now quarter, third cash, end $XX turning second of Cash $XX.X quarter. to restricted was the cash inclusive end some increasing million of of million and at the equivalents, the

and notes generated million off was million additional We loan approximately mature convertible $X.X allowed facility. a million that XXXX. of million May term refinance $XX allow loan In QX, us approximately paid approximately million August, of the severance. $X.X liquidity. During term the extinguished we paid completed payables of previous – due senior million of in to funds of to late These down and of we pay $XX us $XX.X $XX.X

count. share our on Finally,

of in million. million, increase mentioned. shares average million were share mainly outstanding QX was just with X in issued average weighted XX.X connection about XX million our In second outstanding XX from the to average shares the – shares weighted the quarter year, around XX million due shares for from QX outstanding an last count financing the Our

to on moving guidance. Now

We’re ago. pleased that the the months guidance met QX company provided three

QX the quarter the the supply MiFi for already the seasonality As referenced in of combined business the will Dan fourth issues effect cost reductions with guidance, put and of of reflect revenues benefits the by place. earlier

million the of $XX million range the for revenues range We $X be million adjusted quarter $XX million. to be $X expect EBITDA consolidated and total to in of the in to to our fourth

over Our we’ll are start in of Ctrack expected be million At operator turn this the million prepared EBITDA $XX.X over That call $XX from over and and the my revenues the period adjusted to $X point, $X.X million to same million Q&A range the Ctrack period. in the same to to the the of remarks. ends range session.

the we turn our $X.X XXXX a just quarter before third to Just for adjusted Q&A, of over it EBITDA was million. correction,

I on think slight misspeak that. there was just a

Thank you.

now We Canaccord. go will the question Walkley Please session. first Our question-and-answer begin ahead. of comes [Operator from Instructions] Mike

Thank you.

MiFi hit of through rate to after you recovering achieve your hit talked to you. you some business, targets, your see in QX? $XX at maybe and targets And to Thank looking how walk MiFi gross targets, it other do you margin Just you that and the hardware of what run about? kind can us million your intermediate-term revenue need

Dan it’s here. Well, Yes.

questions. Sharma have I start that here by Ashish – of some we Lytle, assist Chris me can should way, the and the in Let who and mention

have not model rely growth, revenue does that model. So year-over-year it’s a we flat on the

achieve will, there if there margins. cost terms of you higher to And is in factor, absorption an – really isn’t really so

a So things. of couple

quite process. have selection payment better moving several well as actually we we price and frankly, both our terms. there manufacturers transfer have contract And Firstly, in commercial quite as terms a are negotiated through just heavily

in fairly is significant from of that alone. there a terms basis So points contribution

now there’s et the as of a been overall housings, product at look of Secondly, product the cetera. far the on lot the components, the to side of work as cost cost

a going you have if cost new products. essentially floor, there on design floor, approach to forward, the is a So will, a lower

portfolio MiFi have don’t anything confidence XX% can know, So we Ashish, run forward give you margin. the I combination in at those if to going us a the that EBITDA add.

a that would The and I significantly IoT allow Dan. to the on that grow based do the that’s our only move have future. technology to is Thanks, then thing product, margins strategies us the that hotspot on add and current strategy more in would comprehensive we into the product portfolio mobile MiFi that take

for think to visibility Okay. you on in expand how off And channels. QX kind you’re QX? channels? just to pipeline then guidance just of your Do think starts growing maybe trends that grow of you the your working terms in it Or implied do

start. Well, I’ll it’s Dan again, here

IoT broadening opportunity We today. resellers, effect, far If just terms customer as base a our are handful to that the create we solutions. creates and reference in that channel There’s expanding principally well mobile both effect. big around as Naturally, our – course, to market. stocking your and a channel and a a there’s strategy comprehensive push-pull of was is pull value-added as have of as the other which, centered of distributors

working the new we’re here, channel partner mobile both speaking and create pull to a I’m to So on the and as end directly push strategy. a as well on customer, a – solutions with IoT

than you what’s growth see lot revenue, area? of a from us Okay, going I you sequential on. Can is a and on Ctrack the the on to business how SaaS, going know of expected. great. through And there’s kind just changes your there the kind just walk little that then revenue returning lower SaaS of

want do you Chris, cover to question. Great that? Sure.

by Dan. of in a growing anticipate by sequential ‘XX. growth sale. to basically revenue driven upfront in reported the be then Thanks, shift was at again hardware our customer of in affected terms Lytle in and Yes. expect sales quarter decline rental we cash fourth which a comparisons here. that year-over-year first hardware will We option in Ctrack on The and heavily Chris the quarter, the wanting year-over-year demand the diminish those versus the Ctrack was

should ‘XX, quarter growth in year-over-year do to in solution sequentially. guidance the vertical expect then for in at the rest throughout momentum that and in the back and it’s important the we European growth to quarter first throughout also the revenue year note as And increased think growth was ‘XX. Ctrack the up and accelerates accelerate reported I investment of the recurring aviation

very you Thank much. Great.

next Mike Latimore [Operator Our Capital Instructions] from of Markets. question Northland comes

Thanks. MiFi hardware Great. that should issue the business. first supply hardware mix business, surrounding supply suggest of the grow – if Should issue Yes, would first sort quarter? on just so, the on in of sequentially be And out in quarter? the then, that that the the

Yes.

So Mike, Dan here. carryforward Yes, long story it there QX, short, yes. and into We half QX, QX, made predominantly the reference a to is has first it hurt of us in effect lingering but effect. a

production We up we’re are referenced, second already online. – coming that turning I a is that contract manufacturer and

then that fills essentially, gap. So the

are of And We effect a all lingering to the impact. MiFi. of and short, the we’re quarter the going of the week-to-week terms transitioned up supply-demand, look extending that of at matter long you But end to is as the products. if up be – fully Inseego it fact, caught on in caught it’s is story fully by

So we say, would have going forward, I a much Mike. chain supply more robust,

business usual. So yes, if be, you QX will, will as

hardware the then quarter? into Got say not be correctly? mid-XX% And did did it. I range hear fourth Or the in margin you gross the on it would

XX What to was for this is EBITDA the Ashish XXXX. the above talked be we – was in MiFi about adjusted percentage Sharma,

not that hardware? hear just on did guide correctly? gross What Or about Did margin the that you fourth I the on in quarter?

only. total Ctrack on and guided company We

don’t well we’re can We Obviously, the supply design doing hardware what but did as per see plan the on se. on we you on EBITDA MiFi guide, And side. side is XX% margin not as the guide going forward. the

some going to as general, NRE. But figure is felt at the EBITDA cost talking products, pure be is with margin of about we And of those of underwrite merit to improvement. ability the an some look in margin. certainly there’s so There R&D gross better we

And win, Got very interesting. airport it. the then

could your deal believe. your What deal, said SaaS largest You I that is be apparently? SaaS largest

At it will Ctrack deployment, deal in SaaS largest be history. full the

I prior can that significantly is sizing reference a haven’t the say All of number. it’s to We made lower deals.

Chris. is This

get represents North North and Just to little in We immediately give on opportunity American market America both the the XXX,XXX airport type to a context market opportunity. the we where share market asset have worldwide. believe material

So is airports for internationally where seven the in really the leader first assets momentum of and important, win obviously it at platforms as in a adds have ourselves then we U.S. connected of deployments think airports. IoT

a of represents work lot but very it’s Ctrack. to opportunity going forward very for do a definitely market large exciting, So

Thanks. Great.

There to further question-and-answer like to has closing the concluded. the for remarks. I appear to would over Instructions] this Mondor [Operator no at be Dan questions back session conference and any time, turn

important today’s shareholder Thanks and the the Inseego. X.X support strategy Inseego call for and again, increasing most assets. as purpose refer ongoing joining for what everyone, of focus I is on relaunch Yes. your to return by The the company and of and behind to growing value our largest

we’re record growth. I more translate meeting beginning you earnings important traffic which creating on We reports a and efficient in to providing forward you and person. wins look future company, to to effective are long-term profitable calls and certainly progress

of achieve employee I commitment to and would Lastly, efforts your every want Inseego to tireless success. thank for

that, we’ll So today’s call. conclude with

Thanks, Andrea.

call at this the conclude let’s – we’re think point. I

The you presentation. Thank attending today’s now for concluded. conference has

lines. You disconnect may your now