Oh, hello. I'm Lance Vitanza, Senior Analyst at TD Cowan, and I'm delighted to have the Ensego team with me here. Of course, to my left, Yuho Sarvakis, and to his left, the CEO, Yuho, and to his left, Stephen Gadoff, the CFO. So thank you, gentlemen, both for being here with us today. Great to be here again. I can't believe it's been a year. I know, right? Time flies. So look, we were talking about this before we got started, right? So a month ago, the stock was was at 15. Two things have happened since then. You announced a transformational transaction with Nokia in which revenues are going to double, and Nokia winds up being your number three shareholder. That's good. Then you reported earnings. There was a post-Nokia bump from 15 to 20, and now the stock's at 12. Now we've had war. All kinds of things going on. The reason I'm setting it up this way is I'd like to focus on the earnings first, because I think that that's clearly what is driving the stock in the near term. And then we'll clearly get into Nokia as well. So the quarter was in line. We had 8% year-on-year revenue growth. We had a 300 basis point bump in gross margin to nearly 49%. But the stock reaction suggests investors remain worried. So what do you think is the most underestimated thing here as we think about the setup for the rest of 2026?
You know, just to acknowledge first that I think the reaction is somewhat to the Q2 guidance. So we were guiding that to the 40 range midpoint. Perhaps there were expectations higher. quite frankly our original expectations were hardened that there's two elements that we're working on I'm sure we'll talk about here we had an execution delay on our MiFi portfolio which we're launching now across all three carriers but that's something that is a timing issue more than anything else and then secondly our main FWA partner is still realigning on the go to market side but if you look at like the fundaments of the business and the growth that we're set to drive here. The big thing really is that we're going from a one-by-one matrix when it comes to customers and products to now having six products across all of the three large customers, others carriers in the US. And then the next wave of expansion is really with the AMSOs, where there's a huge
opportunity with 5G as well. So you reiterated the 190 million full-year revenue path, right? So 2Q guidance, as you mentioned, right? There's some timing issues that are going on there. What are the two or three highest confidence drivers that give you comfort that you're going to get to the 190 million for the
full year? If I look at that one by one, we have the broadest mobile portfolio in the company's history. We actually also announced that we'll expanding further from there in the future, but if you look at going into Q3, we're now covering the sweet spot in the portfolio across AT&T, T-Mobile and Verizon which is a great platform to continue to drive mobile and growing mobile quite frankly and then the other two key elements really one is the recovery with our existing large customers so while while we've done a great job in wrapping up a new tier one carrier in FWA the existing large guy continues to falter so what was supposed to be 1 plus 1 equals two we're not quite there yet but that's something that we we foresee going into Q3 in addition to adding on MSO customer on top there's been a lot of great work by the team on product solution readiness getting a commercial framework in place to start engaging with the large cable guys here
in US so just to sort of paraphrase and recap a little bit so on FWA you cited the disruption at a large customer that was tied to enterprise go-to-market reset but you also secured a commitment from this customer for next-gen FWA platform what needs to happen to re-accelerate that account and and I
guess the timing you're saying is Q3 yeah yeah look the movie that played out late last year was a complete overhaul of the leadership team at this specific carrier particularly on their enterprise team which then of course goes to the next thing that you logically do is to revisit your strategy take a look at how should we go to market and all of that and that process and realignment has taken longer than we expected we were expecting to see that bounce back already in q2 but i think there's good activity now to towards q3 in getting where where we need to be and then to your point i think a strong testimony of the relationship is the new product that we've won an award for and will be launching this year that product will be the fastest fwa in the market not only in the the portfolio of this carrier, but US-wide. So that's technology leadership, strong partnership with the customer. So the thing that needs to come back together, like you said, is really the go-to-market motion and making sure that we have the right incentives and programs in plan for their field teams.
So it sounds like then the issues, the delays, to the extent that their delays were really on the customer side and not execution-oriented at Enzigo? We had both. So the mobile was internal, let's call it self-inflicted,
That's something that we've done a lot of work on. I'm sure we'll touch on that later in the conversation. Meanwhile, the FWA performance with the large customer was really external. Yeah, and I was really referring... Outside of our span of control.
Okay, so then to pivot to mobile, so you've launched, obviously, we've talked about two of the three tier one carrier hotspot models, and now we have the third expected late July, plus we have a new low-tier MiFi win. So how should investors think about volume versus margin as we sort of ramp up with the lower tier product.
Yeah, well, tag team, if that's cool. To the conversation we have on mobile specifically, as you always says, it's a fixed pie, essentially, and we're growing because we have the better product and we have new carrier relationships that are coming to fruition. And so we are winning share and growing the business, but the gross margin for mobile that used to be in the 20-something range is now in the teens. And so there is margin compression on mobile, but there's growth in total revenue because you have a unit volume growth So we see a total revenue curve growth Was a combination of margin offset by higher volume and so
What do you get out of it in the bottom line, right? So how do we drive more margin capture overall and in this case there is a volume volume ASP margin trade-off the other thing I'll say on mobile is that if you've got our market share let's say last year when we were exiting the year, think 25%. Exiting this year will be in a much higher market share out of that, like Steven was saying, fixed buy. So if we call it 2 million units, our run rate will be around 50% market share at the end of the year before we expand the portfolio further. And there's also opportunity that we're engaged on the premium tier. In addition to the customer expansion and getting all three guys, like we've done now with the large carriers, I also want us to see see us have a good better best lineup in the mobile category so while while that market segment is not growing unlike the FWA the job really is to drive consolidation in that space and so far so what so far we've been training pretty well so it sounds like then it's not just adding customer
I mean adding customers is huge but it's also doing more with the existing
customers correct is that okay that's and that's where we have the new value segment when is with one of the existing customers and so just to sort of go back
Back to something that, Steven, you said about the margin compression from the mid-30s to kind of mid-20s today. I know that this has been happening forever, but for those of us that are less familiar with that trend, is this just sort of the unending price compression on a unit basis that we've seen, at least I feel like I've seen in my entire career, or is there something specific?
Yeah. On mobile hotspot, yes. And it's different. It is a little bit kind of tale of two cities where mobile hotspot is what you said, and but we see continued strong gross margin on the organic FWA business. That's more enterprise, a little bit of channel. It's higher in the mid to high 20s. And so that's a higher gross margin business by nature.
But on the compression piece, there's nothing. That's not something you can plan your way around.
It's not something that's... I think it goes also with the maturity of the technology cycle. So 5G is now, what, almost at 6G. We're a couple of years out. So what's very typical is that with the technology cycle, you also see an effect on the cross-margin, right? And we have historically done the best when things get really difficult, very complicated, and it's early adoption of new technology. But now the new muscle for the company that we've been building since the beginning of last year is the ability to try to scale and win at scale in the marketplace.
And then how does the software piece, how does that impact margins and what can we expect? or how much of that was baked into the commentary a minute ago when you said that you think there's sort of the margin offset?
The software has two pieces to it. It has the Ensego Connect, which is our device management software for Ensego devices, and then there's Subscribe, which is the subscriber management across all devices for carriers that we've taken the latter from what used to be historically at Ensego as a professional services function for a carrier, And we've really over the last year productized that and turned that into a platform that we're having conversations with other carriers about.
The other key push that we have from a product strategy standpoint of view in the hotspot or mobile category is that it now has the same routing capabilities as our FWA. So it's actually very disruptive looking from a capability standpoint of view compared to the previous generations. And with that, what we're targeting also to do to see if we can drive a higher attach also in mobile. Meanwhile, in FWA, when our key customers sell it, it typically becomes bundled with our cloud solution. So that reduces the friction when the end enterprise is taking into adoption. And quite frankly, if you're doing an enterprise deployment, you need the manageability to begin with.
So as the attach rates go up, though, there should be a natural uplift on margins overall, right?
Just as the mix shift. There's definitely an install base play here where, over time, we'll have growth in Connect. connect and like Steven was saying I think the subscribe is like a crown Jubal that we likely should be talking more about okay and the work that we've done now to make what essentially was a professional services with a single large customer to a true platform and engage in the broader community we're
getting really good feedback so okay so let's get to the fun stuff the Nokia P at least for me that is so you've called this a transformational acquisition obviously it more than doubles revenue it makes you global instantly what do you think though there's a lot of different benefits from my standpoint but what do you think is the most important strategic benefit and I'm thinking you you've got the global customer access you've got portfolio breadth platform
unification or is it something else you know I think the first thing is the global reach second I would mention synergies and maybe Steven you can talk into that a bit more in terms of what do we expect on that front but look the big thing here is that CEO of a company of our size might wake up in the morning worried about how to grow the company. We won't have to worry about that because now we have these large global anchor customers that we can use as a base to build or reinforce a global go-to-market machine and the associated capabilities and with that we can expand the Nokia FWA business as it is which I expect we'll be able to do but then very importantly cross-sell our mobile products and our enterprise FWA to the global market. Meanwhile we can take the Nokia which is more residential product it's an excellent portfolio indoor and outdoor but their end market has been more residential so they deployed that with the large customers here in u.s where we have excellent relationships but i really think that this global uh reach global uh anchor customers is something that will be a really valuable strategic asset for us that goes beyond the conversation that we're having here as we look at future strategic optionality
anything to add nope okay uh so the um from a cultural standpoint i know you obviously used to work at nokia um how do you think that this is likely to play out how have your conversation or have you had conversations with the team there and if so you know uh what's how would you describe the you know the energy level excitement level are people please you know the um the big thing
for me here is that i know the nokia engineering capability but also the quality of their processes across the board. I think there's a lot there where it's not going to be one where we're going to do the INSEGO way, but we're going to pick the best of both worlds. And the way I look at it is that, yes, we have a strong, robust company as we are today INSEGO, but it's an opportunity to create something new as well by adopting best practices from both companies. The other thing is just like from an employee experience standpoint of view. The capital markets day was in November, where it was announced that there's this portfolio of businesses that will be divested from Nokia, which of course was a lot of uncertainty for the employee base. So now they have certainty, they know that they have a good home. As a part of the due diligence, we had the chance to meet with the teams globally, at least the key leadership. I'm actually traveling the next two weeks so is steven to meet with some of our new european colleagues um so i think i think it's great like the question is that how do you harness this process discipline structure and the capability that they have to operate at a large scale because they are number one globally in fwa but then like i like to think of ourselves as american technology entrepreneurs if you will so like how do you create the benefit plan where you're aggressive you're innovating you're bold you're making moves but then at the same time adopt the best practices from
from our new colleagues at nokia and um you know financial stuff aside like how long of an integration do you expect this will will be is this something that in multiple years or is it you know six months and done so so think of it we're targeting october one to close so right
now we're kind of in pre-integration planning and and to use good point there's a ton of work work in the US earlier, they're very engaged. We meet multiple times a week. They have dedicated integration managers and leads, a dozen people from the Nokia side who work with us constantly. And so we're doing all the work now to get to closing, and then you'll have integration. And our view is really approaching that as a one-year time frame to, as we've said publicly before, to get to break even and to turn the business and to the conversation earlier around synergies on the cost side because it is about running the company as a global engineering, a global product management, a global supply chain. And so it is putting two businesses together that have an unbelievably high amount of overlap in cost and people.
What I really liked about the discussion with Justin and the Nokia leadership team was that we were immediately on the same page in terms of how important the business and customer continuities. And what was important for them, now as they're focusing very successfully, so on the infrastructure side of the AI supercycle and making sure that there's a good home for the edge. And of course, like the partnership, the whole concept of the deal reflects all of that, right? So they will benefit from our success. Like Steven was saying, we have that one year period to make sure that we do a great job with the integration, associate TSA. So I think we feel good about the risk mitigation activities in the plan and the churning ahead.
Any risk to whether or not this transaction closes?
Not that we see, no. Yeah, yeah. We don't believe that there's any regulatory or other major considerations.
And so in terms of the economic bridge, and I know it's obviously early, I'm not going to ask you about what to look for on the back end of the merger, But, you know, you do have a one-year $38 million of sort of guaranteed EBITDA backstop, so to speak, from Nokia. And then there's a profit sharing on the back end of that. I think there may be, in some of the conversations that I've had, there's some confusion about the extent to which the incentives for Nokia are tied to revenue versus tied to profitability. Sure, yeah.
So the make-hole, to your point, the first year, run the business, deliver the products, transition, put them together, that make-hole is based on the EBITDA of the acquired business. So what that business does is, to your point, backstop to get to zero. That's year one. Year two is a profit sharing of the profitability from that business with Nokia that is based on the revenue of that business. So if they hit the revenue numbers that we entered the deal into, very simple, like there was management presentations, awesome, you do that. And then we'll share the EBITDA with you that they can get upwards of 50% of that EBITDA if it hits the number. And if it doesn't, it could be zero.
But it's the EBITDA, that's right. There's no way for them to load up on unprofitable consumer FWA and then claw back EBITDA dollars that were
generated. No, no, no, it's just it's profits generated from the acquired business to the extent they... And I get it. And Luke, you know the lead times in the
industry, so if we close October 1, it will be a year before World 1 joined hardware platform, software platform, and device roadmap. So it's really really designed to protect and give us the time to do it properly and create a profitable new business.
I know it's obviously early, you haven't closed the transaction yet, but is it possible to think about which of the synergies you expect you'll get first? I would assume it's go-to-market, you know, probably the two big pieces.
There's the revenue, go-to-market, selling, revenue-generating synergies, if you will, But then there's also the cost-saving synergies of putting two businesses together that's likely the first to come to fruition, right? As you close the business and you put together two engineering teams and product management teams, those are probably the two biggest areas.
We're not going to go and discontinue committed customer programs day one to be able to drive the synergies. So we need to have that complete and then transition to one team, one platform, and everything else. On the go-to-market side, in the US, we have very robust sales teams, or I should say, North America and customer relationships. For APAC, Europe, Middle East, Africa, some of the key markets, we're building virtually brand new. There's people and key roles that are coming over from the transaction, but there's also new ones to resource. So the go-to-market, as in the sales motion, global perspective, less synergistic, like Steven was saying, from a revenue synergy the cross-sell. We do expect, we're not assuming in the base scenario, any of the of the revenue synergies than the cross-selling, but that's obviously something that we have a keen eye on.
And I know that you mentioned that when Nokia announced that they were going to do something with this business, right? I would imagine that that certainly put a damper on the revenue growth and maybe even turn the revenue growth to negative revenue growth that the acquired. um do you think that is it possible that that gets turned around before you take over or would
that be too optimistic i mean now that people know that our our 200 million number that we put out there is assuming existing run rate so that's not assuming any pro new customer existing run rate
the at closing 200 million or no uh now no okay now q1 200 based on the q1 run rate
But you're not making any statement as to whether or not that number will be higher, lower, or the same in October when you close?
So the key thing here really is that we also know which customers walked away. So of course, it would be a great idea to have an intro discussion with those customers. It's like, hey, we're here. Here's what we do. Here's the partnership with Nokia. And here's how much more we can do for you now on the pack of the broader portfolio, broader engagement. Let's talk. So that has been key. And of course, we'll wait for October 1 before we operate the business or do any of that. But these initial introductions, I think, really favorable reception, Western player, known brand, known technology leader.
No reason to stop, to wait to have those conversations. It sounds like those are already ongoing.
Yeah, we've definitely done the introductions.
And so just when you say walk away, I had the sense that it wasn't so much that people walking away as it was just saying, like, hey, we're going to take a pause here and we're going to just wait to see how things shake out. Is that sort of, you know, more accurate or no? Is it really the case that people sort of said like, hey, I'm moving away from Nokia and now you got to go get them and bring them back?
Well, some deals that were getting done in the December, January, February timeframe that were in process got paused and, you know, got done away. Okay, I see. And so, because they needed to fulfill a deal in january and they're like i don't know what's going to happen so it wasn't
just pushing stuff to the right necessarily okay yeah i got you okay um so on the so maybe just in terms of some additional upside drivers you know looking ahead here software services we talked about that just a little bit but i want to kind of come back to that you know you highlighted nokia's global footprint and that obviously has the ability to really expand that with strong reception so far but you know what's the plan to broaden software and services beyond the existing customer base and you know how should we be thinking about how relevant that might ultimately be to the broader story I think twofold one
so our in sego connect and subscribe for that matter centers around the carrier and now we have all of a sudden access to all of the large carriers globally so So I think it would be very nice to develop a broader strategy from where we're today with Insego Connect, which is device and network management for our own enterprise products. But now we'll be participating in residential, and we could do something broader with that same carrier audience when it comes to device network management. I'm sure you can name multiple consumer-facing features, whether it's content filtering or other elements. There's a rich domain that we can now look at with a much broader lens than we've done previously. So that's something that we're exploring. And then on subscribe, now that we've done the investment and made it a true platform, in a sense, we're getting really good feedback in segments where you have the most complicated customers. Large enterprises with difficult customization requirements, unique billing requirements, and then anything really has to do with government or federal sled categories, where we have a lot of unique IP in understanding how the contracting works, how the spend management works, and everything else. So those discussions we've already started some time ago in the U.S. to identify areas where we can have value to new partners with that solution.
So what about the sort of, you know, the impact potentially of tariffs and or, you know, kind of by American, you know, increasing sentiment that that's something that's a strategic priority, at least for the administration that's in the White House these days. And I'm thinking about that as more of a potential positive for your base business than anything else. But are you seeing any positive or negatives from either the tariffs or the, you know, look, I think the
FCC ruling that started with presidential routers. So if you have a router that's intended for residential use case as a primary primary end market needs to be designed developed and manufactured in the US I think you might already know this but there's limited manufacturing US today but we are unique in that we have design and development resources in the US so yes and then and then manufacturing I'm not gonna say it's super easy but it's easy the industry just needs to agree that now we're going to increase the manufacturing value at and everybody needs to accept that fact. We're already doing the difficult stuff, we can easily move our production to US. But let's see how that environment develops. The way it works today is that if you already have FCC approval, you don't need to do anything, so it's only on new products that you plan to take to US. So it's going to catch potential future competition devices trying to enter US that do not tick those three boxes, which none of them would, no one in the industry does today. So I think that's a really interesting thing that that we're watching super closely. The other thing I'll mention is that today, our end market is enterprise. If you look at our mobile, over 60% sales turns to an enterprise end customer. Our FWA is exclusively enterprise. So as we approach FCC with filings, which we've done since all of this came to effect, we have our literature, we have our end market, we have everything pointed towards enterprise. So we have not had any reason to engage on this. Of course, now with the Nokia residential products, when the time comes, we'll engage on that discussion. But we have very flexible resourcing strategy. We can choose to work, do the work in the U.S. And we'll continue to closely monitor how the manufacturing ecosystem develops.
So it's amazing that we, I mean, two years ago, we could not have gotten 25 minutes into a conversation about Ensego without talking about balance sheet and liquidity. And so now it's easy to ignore. But I do want to just ask you, as we think about liquidity, sources of working capital and so forth over the balance of the year, obviously we're not worried, but what should investors expect to see, if anything, in terms of sources of liquidity, whether or not there's credit facilities that get drawn to support the pending merger or capital raising and so forth?
Yeah. You just named them all. That's spot on. So those two pieces, one, when the acquisition closes, we in Sego receive a $10 million investment from Nokia. So that's helpful. That's incoming cash. We also are making investment in inventory and in the launch of new products and to drive the growth that we see in the back half of the year. So that is a use of capital. And we are funding that and would expect to start drawing on credit facility we have a 20 million dollar revolver that was put in place many months ago and so that is part of
the capitalization over the next six months gotcha the the the other key thing to notice with the memory dynamic um i keep saying that i'm actually very happy with what the team has done in terms of creating a buffer so that's also informing the uh cash conversation of course like how do you how do you strike the perfect balance we'll we'll see what the prices are first half of next year They're not sure if they will be coming down yet.
So actually, you got me thinking about Nokia now, right? They're at 11% shareholder, I think you've said, right, on the back end of this transaction. So what does that mean in terms of their involvement, corporate governance? Are they on the board? Are they, you know, how voting?
No, they're a, they're not, no board seat, no, they're a common stockholder. So there's no preference on their shares or super voting rights or anything. They're a passive commercial partner. But passive shareholder, passive shareholder.
And also from a strategic standpoint of view, two important things. One is this go-to-market collaboration, which we announced. So we'll have a joint sales pipeline incentive training program where we'll continue to leverage the big Nokia machine. They're super deep across all of the global carrier accounts. So that's going to be helpful for us. And then secondly, technology collaboration. So as we get towards the AI-ran, distributed AI, computing infrastructure, 6G, all of that, the CPE will become more of an integrated part of the network. Because if you look at today, the network and the CPE kind of know what one another are doing, but it's not a part of the same management stack. It's not pervasive. But that world, there's a lot of opportunity for us to lead and also differentiate together with Nokia.
So we just have another couple of seconds, but before we finish, I do want to ask you, what is, if there's just one thing that you want to leave in the mind of the investor that's maybe taking a fresh look or or a new look at Nsego, how would you kind of characterize the opportunity?
Look, I think we've done a great job in what we said a year ago, which is to diversify the revenue base and take a very predominant role at the enterprise wireless edge here in the U.S. And now what we're doing on top of that is that we're unlocking this global opportunity with strong anchor customers that we can build that will fund the investment and build the required global infrastructure as a huge benefit doubling the company revenue and enabling the cross-sell so if you look at from addressable market that we have now than what we've been talking about just like a couple of months ago completely different picture there's good path to further expansion with what i would consider our organic business but then this new global opportunity that will materialize first of october really changes the company from addressable market growth trajectory everything else standpoint of views I think we're super excited yeah on the journey ahead and now it's really all we need to do is to execute thank you very much for being here we're
gonna have to leave it here but I really look forward to continuing to follow the
progress of the company thanks so much lens thank you