Hello and welcome to Inseego Corp.'s Second Quarter 2021 Financial Results Conference Call. Please note, today's event is being recorded. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity for analysts to ask questions. On the call today are Dan Mondor, Chairman and CEO; Ashish Sharma, President; Bob Barbieri, Interim Chief Financial Officer, and other members of the management team. During this call, non-GAAP financial measures will be discussed. A reconciliation of 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. 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 the expectations, please refer to the Risk Factors described in our Form 10-K, 10-Q, and other SEC filings available on our website. Please also refer to the cautionary note regarding forward-looking statements section contained in today's press release. I would now like to turn the call over to Dan Mondor, Chairman and CEO. Please go ahead.

Thank you, operator, and hello, everyone. Thanks for joining the call today. I'm pleased to report a very strong second quarter for Inseego with revenue up 14% sequentially to $65.7 million. We approached breakeven adjusted EBITDA, both well ahead of consensus. The strength of the second quarter was driven by continued growth in the sell-through of our suite of 5G hardware and software solutions. I want to highlight an important fact: our 5G solutions now represent almost 29% of total revenue, an increase of 182% over the second quarter of last year. These remarkable results reflect the continued overall market growth and customer adoption of Inseego 5G products. One of the core reasons we can meet our customers' growing demand for our products is our longstanding direct relationships with key components suppliers and manufacturing partners. Unlike what other players are experiencing, our business was not impacted this quarter by the global semiconductor supply shortage. That said, we believe this challenging environment will last at least through the rest of the year. We remain vigilant and have confidence that our supply chain is set up to support growth for the remainder of the year. Our rapidly growing software-as-a-service business also experienced similar strain. Excluding Ctrack South Africa, software including Ctrack rest of world, Inseego managed to grow 49% year-over-year, and subscriptions increased 10% sequentially and 139% year-over-year. More details on our software initiatives will be provided by Ashish. After the close of the quarter, we successfully completed the sale of our Ctrack South Africa unit, which brought in more than $36 million to our balance sheet. This gives us the financial flexibility to meet customer 5G demand and continue to invest in our products while striving for free cash flow positivity. So here we are halfway through the year, and we see great momentum in our business as we remain diligently focused on our transformation into a 5G pure-play company. Back in May, we stated we believe that the second half of 2021 will be better than the first half, and we remain confident in that expectation. Here’s why: First, we continue to see 4G LTE sell-through stabilize at levels higher than we had pre-pandemic. With two more 4G U.S. carrier launches planned for this quarter, you will note that we now sell to the four largest mobile networks in the U.S., and our pipeline of opportunities with international carriers and enterprise customers continues to grow. Overall, we expect continued robust demand for 4G LTE solutions. Second, we continue to roll out 5G product deployments with new carrier customers across the globe. The reception to both our existing and new products as well as our software platform has been fantastic. We are steadily building our fixed wireless business, and we see fixed wireless as a major contributor in the second half of 2021 and 2022. Third, we continue to see strong sales of our software offerings, which not only add to the top line but improve the overall value proposition of our solutions with greater stickiness, pricing power, and Inseego's overall margin profile. Finally, I'm happy to report that we're seeing a dramatic increase in engagement and pipeline for enterprise 5G fixed wireless solutions. These opportunities are being driven primarily by well-known enterprises that are increasingly looking for ways to integrate 5G into their workforce. This quarter, we began to see our investment in this strategy pay off. Ashish will go into more specifics on these, but I would like to highlight that there are well over 100 companies trialing and purchasing Inseego 5G solutions for primary connectivity use cases. These customers represent a wide range of verticals, from the Department of Defense, federal, state and local agencies to major global logistics companies, automotive manufacturers, global airlines, retailers, utility companies, and many other Fortune 1000 companies. Given what I just discussed, I'm confident that the groundwork has been laid for a strong second half, and I can only imagine what 2022 will look like. With that, let me turn the call over to Ashish to provide additional detail.

Thank you, Dan. For the past few years, the company has been investing in state-of-the-art 4G, 5G, and cloud solutions to form a powerful engine for business transformation and growth. As you heard from Dan, we had impressive momentum in Q2, which gives me great excitement and optimism for what's ahead. We saw customer demand across the business led by major market shifts, hybrid work, digital transformation, and continued strong uptake of our subscription-based software offerings. As Dan mentioned, our 5G broadband portfolio grew 182% year-over-year in Q2 and now represents almost 29% of total revenue. Our cloud software portfolio grew 49% year-over-year, and is now 20% of total revenue. Combined, these next-generation products now represent almost half of total revenue, up from 44% of our business just last quarter. Let me reiterate that because it's impressive: our new generation of products now represents almost half of total revenue, and we're just getting started. Inseego's end-to-end portfolio is laying the foundation towards 5G-controlled enterprise networks that can support numerous applications and extend reach to areas never connected before. What an exciting time to be in the 5G space! Now let me provide details on our key businesses. Starting with mobile broadband, we saw great growth in this portfolio during the quarter, and as Dan mentioned earlier, we see no signs of that slowing down with two more 4G launches on track for the third quarter in the U.S. Our 5G solutions are proving to be perfect for the work-from-anywhere paradigm. Our carrier customers are leveraging these solutions to provide amazing broadband experiences for a variety of use cases like employee remote connectivity. Let me provide an example of a new use case: We are collaborating with a tier-one carrier in Western Europe for digital transformation. This program is powering a wide range of innovative use cases across multiple sectors. One such use case is for mission-critical search and rescue efforts in which our 5G mobile solutions are being leveraged to greatly improve the time to locate and rescue injured persons. By utilizing drones outfitted with location equipment and cameras, search and rescue teams can map unknown areas, especially areas with complex terrain before deploying a land team. Our solution is enabling real-time mapping with ultrafast processing of massive data. Use cases like this are not possible with the lower speeds and higher latency of legacy technologies. Next, let's talk about fixed wireless access. In the first half of the year, we released a series of 5G FWA products, including two indoor products and two rugged outdoor products, which were certified for use in many markets globally. We also just released a new industrial 5G gateway purpose-built for vertical markets. The response has been extremely positive, and we believe 5G FWA will be a major revenue driver for us moving forward. In addition to anchor channel partners who have been quick to adopt our portfolio, we secured four product awards with operators in the U.S., Australia, and the Middle East. Also note that we now have five 5G products certified by both T-Mobile and Verizon, including hotspots and FWA. These new products are the primary drivers of the dramatic increase in customer engagements, and they will be instrumental in driving revenue growth in the coming quarters. Let me highlight three factors that are driving the adoption of these 5G products. First, the 5G networks continue to be rolled out at an aggressive pace, and operators are looking to quickly capitalize on this newly added network capacity. This is reinforced by the work-from-anywhere paradigm and a growing enterprise customer pool. Second, the breadth and depth of our 5G portfolio is resonating with customers. Our partners and customers tell us that Inseego products bring out the best in their networks. No other vendor has the performance of our 4G and 5G solutions. Not only are Inseego solutions fast, but they're also extremely reliable and proven to deliver consistent throughput for long periods of time. Our new fixed wireless outdoor products can also sustain their connection at exceptionally long distances. In addition, our products are built with a security-first mindset with multiple layers of security built into our proprietary hardened operating system software, which is at the core of all of our devices. In an environment where ransomware and security breaches are dramatically rising, everyone is realizing that security is one of the killer applications for 5G. The combination of performance and security is unique to Inseego and creates a highly differentiated competitive advantage. To put it simply, no other company empowers users to connect wirelessly with confidence, like Inseego. Third, our strategic decision last year to increase our investments in go-to-market is yielding fantastic results. I'm very pleased with our performance and momentum across all geographies, all market segments, and all products. We're building a strong pipeline of 5G customer opportunities across many enterprise segments in our global markets. Allow me to now go over some of the use cases that are driving this incredible growth in user engagement for our FWA products. The work-from-anywhere shift across the board has increased the demand. When the pandemic began, business continuity or connect first was paramount and often meant that security considerations took a backseat. This created significant vulnerabilities to an enterprise's overall network security posture. Now as we come out of the pandemic, we're seeing demand extend beyond work from home, as enterprises look to create more flexible work environments for their workforces. Our FWA portfolio is a natural choice as it improves on the already impressive capabilities of our mobile hotspots with stronger antennas and better heat dissipation that allows for 24/7 use and centralized cloud management. Another growing use case is the branch office or remote location connectivity. Whereas in the past, wireless was used as a backup, the capabilities of our 5G products allow enterprises to make wireless their primary source of broadband. For example, we're working with household name retail outlets buried deep inside shopping malls, a heavy equipment manufacturer wanting to implement a digital print application at a remote location, and a global airline to provide secure wireless connectivity at all their gates, just to name a few. With record-breaking long-distance connectivity capabilities, work-from-anywhere locations such as secluded industrial parks, remote logistics centers, pop-up emergency response centers, and other rural and outdoor settings can be set up with high-speed wireless access in no time. We're seeing this in action now through trials and deployments across the globe. We're also working with a police department in one of the largest metro areas here in the United States. They're piloting an application to deploy new innovative counterterrorism tactics, leveraging our Wavemaker FW2010 millimeter-wave solution to enable a secure and reliable live stream of 4K surveillance video at the edge, where fiber would just not be economically feasible. Another exciting pilot leveraging our 5G FWA CPE is a Department of Defense testbed powered by a handful of partners. This initiative aims to demonstrate a smart warehouse for a military logistics space. The secure 5G network ensures that the necessary material is ready to deploy at a moment's notice. In this example, Inseego 5G solutions are enabling several applications, including autonomous vehicles for inventory management, machine learning for inventory tracking, and augmented reality for improved workforce efficiency. Again, these incredible use cases and applications were not possible before with other broadband technologies. Lastly, let me cover the progress of our software business that continues to perform well. During the first half of this year, we added over 55 new large enterprise customers to our Inseego managed software subscription customer base. Major retailers and wholesalers are using our cloud to securely connect, configure, and monitor operations at distributed locations. We will continue to drive new cloud innovations to improve our software attach rates. In closing, I'm proud of the 5G and cloud innovations we've been bringing to market, which are driving such phenomenal growth for Inseego. Our unique ability to bring out the best in the network is making Inseego the partner of choice to deliver 5G solutions to the enterprise. Our team will continue the rapid pace of innovation so we can continue fueling the fantastic growth we are seeing with 5G. And now I would like to hand the call over to Bob.

Thank you, Ashish. Let me now review the results of our second quarter fiscal 2021. Before I start, I would like to remind everyone that year-over-year comparisons will be impacted by the pandemic-driven surge for current and 4G hotspots, which began in the June quarter last year and continued through the remainder of fiscal 2020. That demand for our latest generation 4G products has now normalized at a level higher than where it was pre-pandemic. With that, let us get into the results. Q2 revenue was $65.7 million, up 14% from the prior quarter's $57.6 million. The strong result was driven by 5G solution revenue, which was up 71% sequentially and 182% from the prior year. Second quarter IoT and mobile solutions revenue was $51.8 million, up 20.7% quarter-over-quarter due to the strength of 5G solution sales. Accelerating sell-through of 5G products led to strong reorders in the quarter from our current partners, T-Mobile in particular. Enterprise SaaS solutions revenue of $13.9 million was down 5.3% from Q1, but up 21.8% from Q2 of 2020. The year-over-year increase resulted from continued subscriber growth and Ctrack rest of the world that we are now able to recognize as COVID-related restrictions have eased in some countries, allowing Inseego to install our IoT modules. Cash at the end of Q2 was $40.4 million and includes $5.8 million of cash classified as held-for-sale, as well as $3.7 million of restricted cash related to the sale of Ctrack South Africa. The decrease in our cash balance is reflective of increased R&D spending on 5G products and networking capital adjustments. We continue to diligently manage our use of cash, including working capital, and we expect cash burn will steadily decline in the coming quarters consistent with our free cash flow positive goal for Inseego. With respect to the sale of Ctrack South Africa, the deal closed on July 30 with net proceeds of approximately $36.6 million. You will see that amount reflected in the balance sheet when we report our Q3 results. From this point forward, I will focus on non-GAAP measures. A reconciliation from GAAP to non-GAAP is detailed in our earnings release and is found on our IR web page. Gross margin for the IoT and mobile business was 24%, down from 26.1% in the prior quarter but up from 23% in the prior year. The decline from the prior quarter was due to product mix, more specifically, much stronger hardware sales versus Q1. We expect gross margin to steadily improve through the year as we see a higher mix of 5G and software revenue. This dynamic is evident in the 100 basis point improvement from Q2 fiscal 2020. Enterprise SaaS solution gross margin was approximately 60%, which is roughly in line with the prior quarter and prior year. Our Q2 operating expense was $28 million, up $1.3 million from the prior quarter and up from $22.9 million in the prior year. The increase in operating expense year-over-year reflects the investments we have made to take advantage of the considerable 5G opportunities we are pursuing. The significant increase in engagement and the opportunity pipeline is clear evidence that we were right in pursuing this path. Q2 net loss was $8.7 million or $0.08 a share, compared with a loss of $7.7 million or $0.08 a share in the prior quarter, and a loss of $1.3 million or $0.01 in the year before. Our adjusted EBITDA loss of $51,000 improves on the prior quarter's loss of $868,000 but is down from the pandemic-aided EBITDA gain of $4.3 million last year. For additional details on non-GAAP and adjusted EBITDA results, please refer to the reconciliation tables in our press release. Finally, some thoughts for the rest of 2021: we have seen a significant expansion of our sales pipeline with the carriers, especially with our fixed wireless products and from enterprises. As a result, we remain confident to reiterate that the second half of the year will be stronger than the first half. In addition, we expect to see IoT and mobile growth sequentially for the rest of this fiscal year. With that, let me turn it back to Dan for his closing remarks.

Thanks, Bob. Before moving into Q&A, I want to welcome Stephanie Bowers to our Board of Directors. Stephanie brings a wealth of experience in international relations and government affairs, and we're delighted to have her join our Board. She will be instrumental in opening new global markets for Inseego by helping us with the security, supply chain, and government approval aspects of our 5G products. On the CFO search, we continue to make good progress and we have narrowed our list of candidates. That said, Bob has been doing an excellent job. I am in no great rush and plan on taking the necessary time to find the right candidate. One, they will have the experience and capabilities to support the growth of our next-generation 5G and software solutions. I will conclude by expressing my sincere thanks to our dedicated employees who continue to execute so amazingly well in these challenging times. They are the driving force behind the strong second quarter, and the tremendous growth in our opportunity pipeline, and I can't thank them enough. Their accomplishments give us even more confidence in our ability to become a high growth, high margin 5G and software-as-a-service global solutions company. Thanks again, everyone.

We will now begin the question-and-answer session. Our first question will come from John Marchetti with Stifel.

If I can just start first on the Ctrack sale. Can you let us know what revenue was for the portion of that business that you're divesting in the first half, just as I'm assuming given your comment about your better second half over first, we need to exclude that out and just want to make sure that we have a sense of what your revenue is that we should be accounting for?

Hi, John. It's Dan. Thanks very much. Good question. I think Bob was jumping in ready to answer. So take it away, Bob.

Yes. Thanks a lot, John. In respect to South Africa, in the first two quarters, the amount of revenue generated was $14.2 million. In July, I think it was about $2.5 million, because we closed exactly at the end of the month. That's helpful.

Thank you very much. That's helpful there. And if I can just follow up with a question on the margins, I want to make sure that I understand this correctly, you clearly saw more 5G in the quarter, all of that very, very positive. So I was a little bit surprised that margins took a step back here, given the growth that we're seeing in 5G and in the software portfolio. Is it solely a function of more 5G Wi-Fi hotspots versus something like fixed wireless access or things of that nature? Just, can you help me understand that dynamic so we can think about that as we're looking out over the next several quarters and into '22?

Yes, thanks, John. The overall margin for our 5G products is better than our 4G products. That said, our fixed wireless access products are even better than our hotspots. We believe there will be a large improvement in overall 5G solutions gross margin, especially when we have the value-added software attached to the hardware, economies of scale, and learnings we did throughout the journey in 4G, resulting in appreciable gross margin improvement over time due to better inventory supply chain costs. That said, there were premiums for spot market purchases, as well as higher freight and shipping costs that we saw in the quarter for all the reasons that I think the market knows well.

Great. And then maybe one last one for me, and I'll jump out. Just on the software side, should we expect more applications launched this calendar year, or is that more of a '22 event?

Yes, let me turn it over to Ashish.

Hey, John, good question. So we do expect to launch some new solutions later this year, in addition to continuing to add more functionality and more features to the existing customer solutions. So there will be some new ones coming out, but we do continue to bolster the existing ones.

Our next question will come from Lance Vitanza with Cowen and Company.

And congratulations on the nice quarter. I wanted to actually ask you about the pipeline in the enterprise channel, and actually, I don't know if it was Dan or Ashish, someone mentioned that there's now well over, I think the phrase was well over 100 customers trialing and buying right now. And then, there was the list of all the different types. I wanted to try to get a sense of how close or far you are from converting the pipeline to revenue. But it sounded like from that statement that maybe you're already beginning to do that. And I'm just wondering, from the press release and the language regarding the improved revenues in the back half versus the first half, it sounds like that's largely attributable to the enterprise pipeline being sort of converted. Is that right? Am I reading that the right way? Was enterprise, was it measurable? Was there a contribution in 2Q? Was it measurable? Will it be measurable in Q3? How should we be thinking about that? Thanks.

We are just beginning to explore the enterprise and 5G markets. As you noted, we have over 100 5G customers in our enterprise pipeline, which has grown from none in May, demonstrating remarkable growth. Some of the largest companies in the world are showing a strong interest in adopting 5G, and we have clear visibility into our pipeline. We know the scope of the projects, the budget, the start dates, and who is involved in the decision-making process. Regarding the timeline, the project start dates can range from 30 days to a few months. While there was some 5G enterprise revenue in Q2, it was very minimal. However, we anticipate significant growth moving forward.

Okay. And then my other question was, if I think about 5G plus cloud that if I got it right, that improves sequentially to 49%. I think you said 49% of revenue from 44% in the first quarter. And I think it was the 5G piece went from 20% to 29%. The cloud piece, if I got it right, that actually, as a percent of revenues, went down, even though the revenue grew 49% year-on-year. So was that, I guess it was just that when you've got the 5G piece, it's tripling year-over-year, then that piece is going to get smaller? But are you pleased with sort of the way that those two are growing relative to one another?

Well, very, very pleased. You hit it; the denominator was a different number. So larger numbers showed how the ratios were different. 5G is clearly going gangbusters. I think overall, if you look at the 49% growth from where it was a year ago compared to last quarter, I'm happy to say we’re getting the growth in the areas we want to see. Those are the engines that we invested in, and the market traction is incredible; the numbers speak for themselves. So, we expect to see that growth curve continuing.

Great. If I could just squeeze in one more on the cash balance. If I just take the $37 million from the sale of Ctrack and add it to the $30 million that you reported, is that sort of the way that your pro forma cash balance is? Kind of $67 million? Or will there be some taxes payable there? I know you mentioned that you think the burn is going to decline? I think you mentioned noticeably over the next few quarters. But on a straight math basis, I mean, with $20 million burned versus $67 million pro forma cash, that means only three or four quarters where in cash. Are you feeling comfortable with your liquidity position? Would there be perhaps a need to raise incremental capital at this stage?

Yes, I'll ask Bob to comment. Just a slight correction: it was $40 million cash at the end of Q2. But your question—

Yes, Lance, a couple of things first. In the held-for-sale treatment, what happens is the cash that we have gotten after the sale closed, a little bit under $7 million accrues to us, but was under the line of the assets held-for-sale. And then we have a restricted cash of about $3.7 million for a period of about 12, or exactly 12 months after closure. That is our cash. That is just held separately from a lack of a better term, the rep and warranty standpoint on the sale, but that is our cash. If you add those together, you get the $40 million that Dan mentioned. In the first quarter, a couple of things have impacted cash burn. One is the company paid its bonuses and restricted stock in the first quarter. We had an impact of holding taxes from the employees in our cash account in the first quarter, then relieved them in the second quarter through our outside payroll company. So that was about a $7 million impact on cash movement. The remainder was, yes, just the transition from quarter to quarter; we had some less rebates only because of each unit. If you look at the Q3 and Q4 prior year versus the lower Q1 revenue, there were fewer rebates if we earned them—there's about a one-quarter lag. That contributed to more cash burn. That will reverse itself going forward because of the strength in Q2. We will continue to manage cash burn down as we continue to execute.

Our next question will come from Mike Walkley with Canaccord Genuity.

This is Daniel on for Mike. Thanks for taking my question. Just as a quick one for me. Could you just give us a sense of the timing of some of the new carrier launches you mentioned moving forward?

Yes. Hi, thanks for your question. We have a number of launches that we expect to occur this quarter and going forward. The pipeline has a pretty long tail on it, and it’s in different stages, so I can't really give specific numbers. But again, it goes back to a very healthy pipeline. We expect to have and we expect to announce a steady flow of new carrier customers. Additionally, it's about utilizing product slots within a customer we already have.

Our next question will come from Mike Latimore with Northland Capital.

Hi. This is Aditya on behalf of Mike Latimore. Could you tell me how many 10% customers did you have?

Bob is looking for numbers? The answer I'm going to give is two.

Okay. Can you give me like, what were their individual percentages to total revenue for these two customers?

No, we're not going to; we don't break out the actual revenue dollars. That's just not something that we discuss because we do not want to identify revenue numbers for any specific customer. So we just don't provide that kind of breakout.

All right. And on the mobile and IoT pipeline, what percentage of it is international?

Yes. Aditya, not a lot at this point. We've got a nice pipeline, and we have some early customers, but the majority of the value is still coming from North America.

I think the financial relative to revenues answer relative to pipeline. So not a lot of international revenue currently, I would say on a relative basis, because the international market is a new market. We're building it with products and our go-to-market teams. The pipeline on a percentage basis would be much higher than the current revenue on a percentage basis, if that helps.

This concludes our question-and-answer session. I would like to turn the conference back over to Dan Mondor, for any closing remarks.

Thank you, operator. I will say this and just to wrap up: the Inseego team is executing exceptionally well in every part of the company. As you saw, we're seeing growing customer adoption of our 5G and software solutions with carriers, and the market reception of our newly launched enterprise portfolio was incredible. We have highly differentiated processes, and our go-to-market teams have never been stronger. Putting it all together, these are the reasons behind our pipeline of opportunities being the largest in recent company history. Overall, we've laid the groundwork for a strong second half as we discussed, and I think an amazing 2022. Thanks again, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.