Hello and welcome to Inseego Corporation's Fourth Quarter 2023 Financial Results Conference Call. Please note that today's event is being recorded, and 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 Phil Brace, Executive Chairman of Inseego's Board of Directors; and Steven Gatoff, 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 Investor 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 are rather 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. And with that, I would now like to turn the call over to Phil Brace, Executive Chairman of Inseego. Please go ahead, sir.

Thank you. Good afternoon, everyone. It's a pleasure to be with you today. My prepared remarks will cover three topics. First, I'd like to start by sharing a brief perspective on why I joined the Board of Directors of Inseego some six months ago. Second, I'd like to share some thoughts on the leadership change that was announced today and my focus going forward. And third, I'll provide some high-level view of the current quarter. I'll then turn the call over to Steven, and we'll wrap up with some Q&A. Let me first address why I joined the board. First off, I'm very optimistic about the wireless industry. 5G technology is still in the relatively early stages of deployment, and I see that technology having the potential to change the way people and machines work. Second, from my time at Sierra Wireless, I was familiar with Inseego and its great products. I was bullish on the opportunity for Inseego to offer leading 5G mobile and fixed wireless access solutions, the strong market relationships that existed, and the investments in FWA to drive future growth. All of these things remain true today. By now you have seen the news of the change in leadership we just announced. The board felt that the time was right to make a change to ensure we had the right leadership going forward. With that, I took on the newly created Executive Chairman role to help lead the company through this critical time while we search for a new CEO. We have already engaged a top-tier recruiting firm, and I will be actively involved in the search process. I'll also be spending time reviewing and addressing some of the changes that need to be made in our business, our capital structure, and our portfolio of investments. It is important to note that I'm not doing this alone. We have a very strong and engaged Board of Directors, and we are glad to have added some key leadership in finance and sales to the company recently to complement the strong skills of the Inseego engineering product team that's on the front line of developing all of our products and technology. Finally, let me offer some high-level summary of the quarter we just completed. Both the revenue and adjusted EBITDA came in slightly better than we expected. Revenue for Q4 2023 was $42.8 million. Full year 2023 revenue was $195.7 million. Adjusted EBITDA for Q4 2023 was $4.1 million, and full year 2023 adjusted EBITDA was $16.7 million. From a reporting perspective, you will notice a change in our financial reporting to clearly break out revenues in our business of mobile and fixed wireless access solutions. Steven will review these changes momentarily. Going forward, throughout 2024, we are going to be focused on keeping the momentum on the revenue side while increasing our full year adjusted EBITDA. Before taking questions, I'll now turn the call over to Steven, who will review the financials in detail.

Thanks, Phil. Good afternoon, everyone. I look forward to covering three things today. First, I'll share some color on changes that we've made as Phil mentioned in our reporting of the business in order to drive greater transparency and better align with what we believe is important for creating stockholder value. Second, I'll take you through our Q4 and 2023 financial results. And third, I'll provide some color on the business as we move into 2024 and our financial guidance for Q1. As Phil noted, we'll of course wrap up by opening the call to your questions. Diving right into things, as you saw in our earnings press release today and as you'll see in our 2023 10-K that we're filing tonight, we've changed the reporting categories for the company's revenue streams. Where we use the revenue into two categories of IoT & Mobile and Enterprise SaaS. We're providing more visibility to our offerings and are now reporting revenue categories that align with what we're fundamentally delivering to customers, our growth drivers, and the investments that we're making. We're now showing revenue in the two categories of product revenue and services and other revenue. We're further breaking out product revenue into the two core product offerings of mobile hotspot revenue and fixed wireless access or FWA revenue, the center point for our growth strategy. In this regard, we believe that you'll be able to clearly see the results of our initiatives and success in focusing on driving FWA revenue growth, the overall profitability profile of our product business, and the contribution from our SaaS offerings. In making the change, it was important to us to make sure that you had the needed history and comparative numbers, so we've provided the historical quarterly results for the previous eight quarters under the new reporting constructs so that you have the apples to apples info on gauging performance. As you'll see in the data, the hotspot product has sequentially declined in revenue as we've expected and communicated, primarily as a result of the anticipated runoff of 4G technology products in the market. Our FWA business has shown overall growth in terms of both aggregate dollars and growth rate over the past two years and has grown from essentially nothing three years ago to be a $55 million business in 2023 that grew approximately 26% year-over-year. Looking at the metrics in the supplemental tables, you'll also see our product gross margin percentage, which is the total product gross margin number that includes both FWA and mobile, has continued to increase over the past two years as our higher margin FWA products gained traction and became a larger portion of total product revenue. In looking at our services and other revenue, this new category combines our non-core telematics and DMS subscriber management SaaS offerings. These revenue streams operate fairly independently, and you'll see a pretty consistent aggregate revenue result and a consistent contribution to gross margin, both on a dollar and a percentage basis. The final change we wanted to flag for you is that we reclassified all depreciation and amortization expense that has historically been recorded in the OpEx line items of R&D, sales and marketing, and G&A expenses into one separate line labeled depreciation and amortization. We believe this provides helpful transparency to the fundamental operating expense amounts, our cash spend, and the trends in the business. All prior periods have been reclassified to conform to this presentation. With that, I'd like to turn to the second topic and go through our Q4 2023 results. Overall, for the quarter, Q4 total revenue came in modestly above guidance, as Phil noted, at $42.8 million, and adjusted EBITDA came in at $4.1 million as cost-saving initiatives, a favorable product mix, and some one-time benefits resulted in a higher adjusted EBITDA than anticipated. Looking at the revenue dynamics, as we talked about on the previous call in November, Q4 was expected to be a down quarter with nearly all of the revenue decline coming in hotspot product revenue. This was due to the anticipated runoff of legacy 4G-based product revenue from the announced end of life of a 4G hotspot product line at a large carrier customer. On the FWA side, as I noted a moment ago, FWA revenue grew on a sequential basis and now constitutes 29% of total revenue. Looking at our services and other revenue, the telematics business reported modestly lower revenue in Q4 on a booked adjustment that related to the elimination of prior period intercompany revenue. Q4 DMS revenue came in about 2% sequentially lower, reflecting the runoff of prior year COVID-driven fled subscriber increases at our carrier customer. And so as far as gross margin, Q4 gross margin percentage came in at 39.7% on a non-GAAP basis or about 650 basis points higher than the prior quarter. This favorable performance was the result of three primary factors. First, there was a favorable product mix shift where our higher margin FWA offerings made up a greater proportion of revenue in Q4. Second, there was a benefit from some one-time adjustments in the telematics business that I just mentioned. And third, FWA margins returned to the mid-20s in Q4. Spending a moment on GAAP gross margin, we recorded a reserve of $3.4 million in Q4 as a result of our continued rigor and scrubbing of sales forecasts and demand estimates on some of the older finished goods and raw materials in inventory and at our contract manufacturers. These charges are excluded from the calculation of adjusted EBITDA. As I mentioned on my first earnings call at Inseego in November, as we manage the revenue dynamics of the business and the evolution of our product portfolio, we're taking a very disciplined approach to managing our spend across the organization. The outcome of this focus was that Q4 adjusted EBITDA came in at $4.1 million higher than anticipated, and at a margin of nearly 10%. Even considering that some of the positive performance was due to one-time items, the outcome was still that we generated $17 million in positive adjusted EBITDA for 2023. That was versus a loss of $10 million of adjusted EBITDA in 2022. Let me turn to the GAAP accounts for a moment as there were a few additional charges in the quarter that are excluded in the definition and calculation of adjusted EBITDA that we wanted to give you visibility to. In Q4, we recorded a charge of approximately $1.5 million for the correction of a functional currency designation in the telematics business. The charge was recorded in other income with an offset to other comprehensive income on the balance sheet. It was non-cash, and it did not impact any of our key metrics such as revenue, gross margin, adjusted EBITDA, or cash. In Q4, we also booked a reserve associated with our telematics business of approximately $4.1 million against the capitalized software development costs from the past several years in building what was originally designed to be a next-gen platform for the telematics offering. We came to the conclusion that it made sense to reserve against this historical spend after conducting an intensive review of our telematics business in the past several months. This included evaluating the product and service needs of our customers and an assessment of the likelihood that the development would be included in future product releases. Wrapping up our Q4 results with the balance sheet, cash was fairly consistent year-over-year, coming in at $7.5 million, and we had a modest amount drawn on our credit facility of $4.1 million at year-end. I'll talk more about capital structure in a moment. Let's turn to the third topic in so far as our trajectory into 2024 that we're focused on and what we think Q1 looks like. As Phil highlighted, we've begun a strategic assessment in evaluation of our product portfolio and focus going forward, how that translates to growth in our core FWA business, and how that drives continued increases in profitability. Another important focus for us now as we head into 2024 is right-sizing our capital structure. As I mentioned on the last call, we have a small group of bondholders of our convertible notes. We're engaged with the right parties, and we anticipate that it can take several months to work this through and develop an optimal capital structure solution. In the near term, we've been improving our short-term borrowing dynamics. As you may have seen in today's filings, we amended our ABL facility to ease the covenants and improve our liquidity and borrowing capacity, all done by our lender at no cost to the company and based upon the improving execution and relationship that we've had with them over the past few months. Similar to our bondholder discussions, we're engaged with them in the various ways that they might be helpful in our overall capital structure solution. Moving on to provide some color on Q1 2024, we expect total product revenue to be roughly flat with Q4 2023 with anticipated growth in FWA offset by a decline in mobile hotspot. For services and other revenue, we expect reasonably consistent revenue contribution for Q1 over Q4. On Q1 gross margin, you saw that there were some one-time items that resulted in the relatively higher non-GAAP gross margin percentage in Q4 2023. For Q1 2024, we expect non-GAAP total gross margin percentage to be in the mid-30% area. And so, considering all this, we'd like to provide the following financial guidance for the first quarter of 2024. Total revenue in a range of $40 million to $42 million and adjusted EBITDA in a range of $2.5 million to $3 million. In closing, we’re thrilled that Phil has taken on the Executive Chairman role, and we're already benefiting from his involvement, deep product knowledge, and focus on addressing our go-to-market execution and performance quickly and effectively as we move into 2024. With that, we appreciate your time and support, and we're glad to open the call for any questions.

We will now begin the question-and-answer session. At this time, we will take our first question, which will come from Lance Vitanza with Cowen. Please go ahead.

Thanks, guys, and congratulations on the nice quarter. Phil, before I get into the details of the quarter, you had mentioned that you were impressed with the products, I think back when you were at Sierra. And I'm just wondering if you could maybe elaborate on that a little bit more, whether it was what you saw then, or maybe more importantly, where you see the opportunities today? What are the offerings that you find most exciting today?

Yes, that's a good question. Look, one of the things that is just different, if you look at where Inseego's products are today, they really cover a different segment of the market than what Sierra does. And their channels are different. They have very good relationships with some of the big carriers, and they are really at the more, we'll call them the value end of the spectrum. I think that there are opportunities at Inseego to really start adding some more software content, broadening out the distribution channels. I just think that 5G really opens up a range of solutions in that space, particularly as some of the carriers and some of the technology providers try to ramp up their fixed wireless access solutions, which really enable broadband to remote places where there aren't any cables down, remote offices, branch offices, schools, mobile solutions. I just think that Inseego has a pretty good position on where it is and how to expand that from here.

Okay, thanks. Maybe just in terms of the revenue beat, it was a nice beat in the quarter. As we think about the first quarter, I'm just wondering if perhaps, given that the guide is sort of flat, maybe down a little bit, was there perhaps some revenue from the first quarter that maybe was pulled into the fourth quarter? Does that sort of both explain a little bit of the beat and also maybe the guidance in the first quarter?

Yes, good question. Sorry, I'll tag team with Phil. Not meaningfully, we had a solid close to the quarter. There are always some deals that get pulled forward, but there was no meaningful large contracts or contracts en masse that got pulled into the quarter.

Okay. I didn't see any mention of software revenue in the release. I think that was about 30% of revenue in the third quarter. I'm wondering how it looked in the fourth quarter and maybe if you could talk about the trend going forward?

Yes, again we'll happily tag team on this. So there's really two parts to that if you will. There's the bucket that we now provide, the category of services and other that have the telematics and DMS business, as well as some early products in there. But that's really the SaaS revenue. And then we have a growing software business also SaaS around Inseego Connect that is currently included up in the product revenue. It's not material candidly to break out into its own category or have down below in services bucket, but as it does we will break that out. But it's been on a kind of consistent trajectory and so there's continued growth in that piece, albeit small dollar numbers.

I have one last question about gross margin, and I appreciate the insights you provided in the prepared remarks. I'm curious about the fixed wireless access and its potential reversion. If we examine gross margin on a more detailed, product-by-product or service-by-service level, what trends do you observe? Has the relationship between price and cost remained flat sequentially? I'm more interested in the sequential trends rather than year-on-year comparisons. Is there any potential for improvement here? Are you seeing any opportunities to recover from the cost increases experienced during the inflationary period, and how would you characterize that situation? Thank you.

Yes, there are two key aspects we should consider. First, within our product offerings, the fixed wireless access (FWA) and mobile hotspot products have distinctly different economic characteristics. Second, we need to compare the traditional carrier slotted market with the channel market. Our primary focus on growth and profitability is because the FWA product offers higher margins, higher pricing, and contributes more to value creation. As 5G becomes more widespread in suburban and rural areas, we anticipate an increase in the adoption of FWA as a main connection device, which will lead to more rollout and greater profit contributions over time. Therefore, we aimed to highlight FWA separately to showcase its revenue growth. As we scale this product, there are significant cost efficiencies that allow us to achieve higher marginal revenues from FWA, which is beginning to reflect in our financials. The second factor is our market approach; our historical focus on being a slotted carrier has served us well in the past.

Thanks, guys.

And our next question will come from an unidentified analyst with Stifel. Please go ahead.

Yes, good afternoon. This is Jeremy calling for Tori. My first question about your liquidity is that it appears you have $7.5 million in cash and $4.1 million drawn on your revolver. How much do you have available in your revolver? Additionally, can you discuss cash burn in relation to free cash flow and adjusted EBITDA?

Yes, so we feel good and better about where we are with our liquidity, both from a standpoint of having a small amount, relatively small amount, $4.1 million outstanding. The reduction also, Jeremy, if you saw the fine print where our lender worked with us and offered up a reduction in the covenants, that freed up another $2 million of liability. We're looking to be in a cash generation mode going forward. And so, I think the past where you've seen cash burn, that's something that is behind us. And we continue to look forward to generating modest amounts of cash, increasing going forward, now with more liquidity available on the revolver. So if we're drawing $2 million to $3 million at a time and paying that down, that's kind of a working capital management between carrier payments and some payroll and other expenses. But that becomes less and less significant for us as we move through the year.

Great. That's good. If we consider moving throughout the year, can you discuss what might give you confidence that the business could be stabilizing, or that the second half might be stronger than the first half? Are there any trends you can highlight, perhaps in terms of bookings or decreased cancellations? That would be helpful.

Sure. And Phil, obviously feel free to chime in on any or all of it. We feel like there's a pronounced effort without, Jeremy, to your appreciated caveat of not giving guidance for the year. We are looking to meaningfully grow the business and the biggest driver of our growth is the FWA products and business. And so, that's something that we're investing in. We manage the business, particularly now, it would be probably premature to say this, but with Phil joining and all of the work that we have starting to look at products and how we go to market, we're all pretty bullish on this. So coming short of offering guidance, we're looking favorably at the year.

Great. And if I could just squeeze one more question in on the gross margin side, can you help us maybe just characterize the differences between the three segments? And also I guess within fixed wireless, is there a difference between the channel margins and the carrier margins?

Yes, so the last question: yes, definitely. The channel margins are higher, full stop. Think of those really as enterprise, mid-market, but enterprise sales, where the carriers are selling through VARs and other third parties to enterprises. So there's generally larger, higher dollar sales that have higher margin contribution as well. Whereas the stocked carrier business tends to be more competitive, more price pressured, different base level functionality that carriers buy and sell to their customers. So yes, there's definitely a different margin profile so that the expansion of channel has a higher marginal contribution to gross margin. And then I think on your first question, you were a little garbled, I apologize, but I think you were asking about what was the dynamic of the impact of the gross margin change.

Oh, I'm referring to the relative contribution from each segment. Specifically, I'm talking about fixed wireless as a whole compared to the mobile segment and software services.

Yes, I'm pleased to inform you that this information is included in the supplemental data and within the statement itself. We have detailed the gross margin, which is now clearly calculated for you, highlighting product gross margin as well as services and others. This allows you to see the contributions from each segment, as the gross margin varies significantly between the product side of the business and on both GAAP and non-GAAP bases, compared to the services and others.

I'm sorry, I meant the margin differences, the three drivers of the margin for the current quarter, I think partially, some of it was a one-time benefit, some of it was the fixed wireless access returning to mid-20s. Is there a way to kind of maybe just rank order those?

Yes, sure. So one of the larger changes, almost 200 basis points of change was the telematics business that I mentioned was an adjustment for a prior period intercompany revenue that needed to be eliminated. And so that was probably the largest, almost 290 basis points of impact. And then the next biggest bucket was around the fixed wireless, which you just said last, the fixed wireless margins, kind of, you know, returning to the mid-20s. They were lower in Q3 because in Q3 there was an adjustment for a prior period that was taken of over a million dollars. So that depressed the FWA margins in Q3, which is why you saw a rise in Q4. So that was the number two item. And then the third driver of level, which was up there also around 170 basis points was the product mix and just having less mobile solutions in the mix.

Perfect. Thank you very much.

Yeah, sure, happy to.

And our next question will come from Scott Searle with ROTH MKM. Please go ahead.

Hey, good afternoon. Thanks for taking my questions. Nice to see you with stability in the business, Phil. Very exciting to see you on board and more deeply integrated in day-to-day operations with the company, so congratulations. And Steve, really appreciate the new financial categories.

Thanks, Scott.

Hey, maybe just to follow up on a couple of the other questions. From a gross margin standpoint, Steve, just wondering if there are any one-time benefits that you saw from previously written-off inventory of anything of that nature. And then Phil, fixed wireless access seems like it's becoming more of a centerpiece going forward. Just kind of wondering how you're thinking about it in different channels go to market and where that expansion occurs. Is that within the existing carrier relationships? Is that just some other channels or you're starting to think about more expansion beyond North America?

Yes, good question, Scott. I think that our initial focus, we have lots of opportunity, primarily in North America to start with, so I would look to us to continue to try and build and expand our strong carrier relationships. But then frankly, glad to do a little bit more as Steven talked about, enterprise-like sales via a more robust channel that has higher-end solutions, focuses on small businesses, medium enterprises, those kinds of things. I expect we're going to get, if things go our way, we're going to get the double growth, right? Because we'll have overall growth in the fixed wireless market, plus we'll continue to work to expand our channels. So that's kind of how we're looking at it.

Yes, good question. There was no benefit from the previous reserves, the large one obviously we took last quarter. There is some older inventory that we would look to sell if we can, but obviously we think the value is zero, so there is no benefit.

Got you. And Steve, I just want to clarify this. I thought I heard positive cash flow generation in the first quarter, and it sounds like you're expecting that for calendar 2024 as well as we started to hit the bottom. And even with getting a little bit into growth mode, you're expecting to be cash flow positive. Is that correct?

That's right.

Okay. And Phil, I know this is probably unfair, but since you are a wireless veteran, I'm wondering as you look at the business today, you've talked about some of the things that you found exciting about the company. But there are a lot of dynamics that are ongoing. Mobile hotspots have been basically in a sequential decline for an extended period of time. Does that go away in terms of the business as you start to think about things strategically over the next two to three years. What is Inseego? Is Inseego 70% of its sales from a recurring nature? Are you converting a lot of that fixed wireless access more to a recurring cradle point model? How are you kind of at a high level thinking about it with the understanding I know it's day one? So my apologies.

I want to clarify that my answer may evolve over time. When I consider Inseego, I see it focusing on providing 5G wireless connectivity solutions for both mobile and fixed applications. Currently, fixed wireless access is the area experiencing growth because, as you've mentioned, mobile hotspots are declining. While I'm not certain that mobile hotspots will completely disappear, I believe there will always be a market for mobile connectivity, particularly for the mobile workforce. However, the company's primary focus will shift toward fixed wireless access, which is a more advanced solution aimed at enterprises and presents greater opportunities to add value. Additionally, we've only just begun exploring software monetization and solutions related to device and network management. We are definitely planning to move in that direction, though it's difficult to predict exactly what that will look like in the coming years.

Got you. Very helpful. And if I could, Steve, just to quickly follow up on the recapitalization process. It sounds like you're in multiple dialogues. It sounds like the timeline of the process here is going to take a bit. I think the convert doesn’t go current until May. But it sounds like you guys are trying to get out ahead of it. Is there anything else you can kind of provide in terms of what you think is the optimal capital structure or otherwise kind of going forward? It's obviously a big impediment that's kind of hanging over the company, but once you were able to deal with that, it seems like there's a lot of opportunity for investors here to come back and revisit the name. Just kind of wonder if there's any additional thoughts that you could provide on that front.

Yes, it's an important topic for us. As you mentioned, Scott, you've captured the key points we're focusing on as we seek to determine the right structure moving forward. We remain optimistic about the enterprise value and how it will impact our future performance. We're evaluating our EBITDA profile along with our available cash and liquidity to manage our debt effectively. This is what we are currently discussing with various stakeholders as we explore different scenarios and the associated trade-offs.

Okay, great. Thanks so much for taking the questions. Congrats on the quarter and Phil, congrats on coming on board. Thanks, guys.

Thank you.

Thanks, Scott.

And this concludes our question-and-answer session, and will also conclude today's call. Thank you very much for attending the presentation today, and you may now disconnect your lines.