Inseego Reports Second Quarter 2020 Financial Results

  • New 5G product portfolio delivering breakthrough performance in multiple pre-launch field trials with operators globally
  • Continued strong demand for mobile products

SAN DIEGO–(BUSINESS WIRE)–$INSG #5G–Inseego Corp. (Nasdaq: INSG) (the “Company”), a pioneer in 5G and intelligent IoT device-to-cloud solutions, today reported its results for the second quarter ended June 30, 2020. The Company reported second quarter net revenue of $80.7 million, reflecting year-over-year growth of 44%, GAAP operating loss of $5.3 million, GAAP net loss of $74.8 million, including $67.2 million of one-time non-cash charges relating to refinancing activities during the quarter, GAAP net loss of $0.78 per share, adjusted EBITDA of $4.3 million and non-GAAP net loss of $0.01 per share. Cash and cash equivalents at quarter end was $42.1 million.

“We reported an exceptionally strong quarter with outstanding operational execution in every part of the company and over $80 million in revenue. We’re on track to launch our new 5G portfolio with multiple operators in the coming months and are seeing phenomenal performance in pre-launch field trials on live 5G networks,” said Inseego Chairman and CEO Dan Mondor. “We rapidly increased our supply chain capacity in response to the surge in demand and continue to see strong demand for our 4G mobile products driven by work-from-home and distance learning and our 5G products as the technology is deployed in more networks worldwide.”

Corporate Highlights

  • Q2 revenue growth up 42% sequentially and 44% year-over-year, driven by IoT & Mobile Solutions
  • Operating cash flow increased to $4.3 million in the quarter
  • Strengthened balance sheet with repayment of high interest term loan and $180 million convertible note issued with maturity in May 2025
  • Rapidly scaled supply chain to meet initial surge and continued demand for mobile products
  • Next-generation 5G portfolio demonstrating superb performance with multi-gigabit and gigabit-plus speeds in high-band (mmWave) and lower-band (sub-6 GHz) spectrum in live pre-launch field trials with multiple operators

IoT & Mobile Solutions

  • Q2 revenue of $66.2 million, up 64% sequentially and up 66% year-over-year
  • GAAP gross margins for mobile products up 180 basis points sequentially with non-GAAP gross margins up 240 basis points sequentially
  • Q2 growth driven by 4G LTE mobile solutions sold into enterprise channel
  • Won another North American Tier One mobile operator customer for the MiFi® 8000 4G LTE mobile hotspot
  • Expanded channel, including Skyus® 160 4G LTE global-band gateway with Verizon Wireless

Enterprise SaaS Solutions

  • Q2 revenue of $14.4 million, down 9% year-over-year and 12% sequentially due to COVID-related installation delays and foreign exchange rate headwinds
  • Ctrack business seeing strong recovery in multiple geographies exiting the quarter and continued positive market traction and customer acceptance with Ctrack Clarity SMB-focused application
  • DMS cloud-based subscription management service grew subscriber base 27% and revenue up 51% sequentially

“In addition to delivering strong top-line growth and improved operating cash flow, we strengthened our balance sheet in Q2 by refinancing the balance of our debt, lowering the interest rate to 3.25%, extending maturities to 2025 and adding approximately $13 million in cash,” said Inseego EVP and CFO Steve Smith. “We incurred some higher short-term cost of goods in order to fulfill customer demand; however, we expect to fully recover these costs over the coming quarters.”

Conference Call Information

Inseego will host a conference call and live webcast for analysts and investors today at 5:00 p.m. ET. A Q&A session with analysts will be held live directly after the prepared remarks. To access the conference call:

  • In the United States, call 1-844-881-0135
  • International parties can access the call at 1-412-317-6727

An audio replay of the conference call will be available beginning one hour after the call, through August 19, 2020. To hear the replay, parties in the United States may call 1-877-344-7529 and enter access code 10145477 followed by the # key. International parties may call 1-412-317-0088. In addition, the Inseego Corp. press release will be accessible from the Company’s website before the conference call begins.

About Inseego Corp.

Inseego Corp. (Nasdaq: INSG) is an industry pioneer in smart device-to-cloud solutions that extend the 5G network edge, enabling broader 5G coverage, multi-gigabit data speeds, low latency and strong security to deliver highly reliable internet access. Our innovative mobile broadband and fixed wireless access (FWA) solutions incorporate the most advanced technologies (including 5G, 4G LTE, Wi-Fi 6 and others) into a wide range of products that provide robust connectivity indoors, outdoors and in the harshest industrial environments. Designed and developed in the USA, Inseego products and SaaS solutions build on the company’s patented technologies to provide the highest quality wireless connectivity for service providers, enterprises, and government entities worldwide. www.inseego.com #Putting5GtoWork

Cautionary Note Regarding Forward-Looking Statements

Some of the information presented in this news release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this context, forward-looking statements often address expected future business and financial performance and often contain words such as “may,” “estimate,” “anticipate,” “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar words and phrases indicating future results. The information presented in this news release related to our future business outlook, the future demand for our products, as well as other statements that are not purely statements of historical fact, are forward-looking in nature. These forward-looking statements are made on the basis of management’s current expectations, assumptions, estimates and projections and are subject to significant risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. We therefore cannot guarantee future results, performance or achievements. Actual results could differ materially from our expectations.

Factors that could cause actual results to differ materially from the Company’s expectations include: (1) the future demand for wireless broadband access to data and asset management software and services; (2) the growth of wireless wide-area networking and asset management software and services; (3) customer and end-user acceptance of the Company’s current product and service offerings and market demand for the Company’s anticipated new product and service offerings; (4) increased competition and pricing pressure from participants in the markets in which the Company is engaged; (5) dependence on third-party manufacturers and key component suppliers worldwide; (6) the impact that new or adjusted tariffs may have on the cost of components or our products, and our ability to sell products internationally; (7) the impact of fluctuations of foreign currency exchange rates; (8) the impact of geopolitical instability on our ability to source components and manufacture our products; (9) unexpected liabilities or expenses; (10) the Company’s ability to introduce new products and services in a timely manner, including the ability to develop and launch 5G products at the speed and functionality required by our customers; (11) litigation, regulatory and IP developments related to our products or components of our products; (12) dependence on a small number of customers for a significant portion of the Company’s revenues; (13) the Company’s ability to raise additional financing when the Company requires capital for operations or to satisfy corporate obligations; and (14) the Company’s plans and expectations relating to acquisitions, divestitures, strategic relationships, international expansion, software and hardware developments, personnel matters and cost containment initiatives, including restructuring activities and the timing of their implementation; (15) the potential impact of COVID-19 on the business.

These factors, as well as other factors set forth as risk factors or otherwise described in the reports filed by the Company with the SEC (available at www.sec.gov), could cause actual results to differ materially from those expressed in the Company’s forward-looking statements. The Company assumes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to applicable law and our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.

Non-GAAP Financial Measures

Inseego Corp. has provided financial information in this news release that has not been prepared in accordance with GAAP. Adjusted EBITDA, non-GAAP net loss and non-GAAP net loss per share exclude share-based compensation expense, amortization of intangible assets purchased through acquisitions, amortization of discount and issuance costs related to the Company’s convertible 3.25% and 5.5% senior notes and term loan, loss on debt conversion and extinguishment relating to the Company’s convertible 5.5% senior notes, and fair value adjustments on derivative instruments. Adjusted EBITDA also excludes interest, taxes, depreciation and amortization (unrelated to acquisitions, the convertible senior notes and the term loans) and foreign currency transaction gains and losses.

Adjusted EBITDA, non-GAAP net loss and non-GAAP net loss per share are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. These non-GAAP financial measures have limitations as an analytical tool and are not intended to be used in isolation or as a substitute for operating expenses, net loss, net loss per share or any other performance measure determined in accordance with GAAP. We present these non-GAAP financial measures because we consider each to be an important supplemental measure of our performance.

Management uses these non-GAAP financial measures to make operational decisions, evaluate the Company’s performance, prepare forecasts and determine compensation. Further, management believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company’s performance when planning, forecasting and analyzing future periods. Share-based compensation expenses are expected to vary depending on the number of new incentive award grants issued to both current and new employees, the number of such grants forfeited by former employees, and changes in the Company’s stock price, stock market volatility, expected option term and risk-free interest rates, all of which are difficult to estimate. In calculating non-GAAP financial measures, management excludes certain non-cash and one-time items in order to facilitate comparability of the Company’s operating performance on a period-to-period basis because such expenses are not, in management’s view, related to the Company’s ongoing operating performance. Management uses this view of the Company’s operating performance for purposes of comparison with its business plan and individual operating budgets and in the allocation of resources.

The Company further believes that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision-making. The Company believes that the use of these non-GAAP financial measures also facilitates a comparison of our underlying operating performance with that of other companies in our industry, which use similar non-GAAP financial measures to supplement their GAAP results.

In the future, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. The limitations of relying on non-GAAP financial measures include, but are not limited to, the fact that other companies, including other companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting their usefulness as a comparative tool.

Investors and potential investors are encouraged to review the reconciliation of our non-GAAP financial measures contained within this news release with our GAAP financial results.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2020

 

2019

 

2020

 

2019

Net revenues:

 

 

 

 

IoT & Mobile Solutions

$

66,243

 

$

39,983

 

$

106,624

 

$

72,764

 

Enterprise SaaS Solutions

14,446

 

15,908

 

30,905

 

31,683

 

Total net revenues

80,689

 

55,891

 

137,529

 

104,447

 

Cost of net revenues:

 

 

 

 

IoT & Mobile Solutions

53,223

 

33,986

 

86,087

 

61,586

 

Enterprise SaaS Solutions

5,466

 

6,350

 

12,215

 

12,546

 

Total cost of net revenues

58,689

 

40,336

 

98,302

 

74,132

 

Gross profit

22,000

 

15,555

 

39,227

 

30,315

 

Operating costs and expenses:

 

 

 

 

Research and development

10,540

 

5,188

 

18,764

 

8,673

 

Sales and marketing

8,648

 

7,229

 

17,403

 

13,620

 

General and administrative

7,396

 

7,464

 

14,558

 

13,938

 

Amortization of purchased intangible assets

753

 

857

 

1,579

 

1,728

 

Total operating costs and expenses

27,337

 

20,738

 

52,304

 

37,959

 

Operating loss

(5,337

)

(5,183

)

(13,077

)

(7,644

)

Other income (expense):

 

 

 

 

Loss on debt conversion and extinguishment

(67,241

)

 

(75,174

)

 

Interest expense, net

(3,160

)

(5,142

)

(6,540

)

(10,217

)

Other income (expense), net

787

 

(72

)

1,765

 

241

 

Loss before income taxes

(74,951

)

(10,397

)

(93,026

)

(17,620

)

Income tax provision (benefit)

(115

)

322

 

(24

)

570

 

Net loss

(74,836

)

(10,719

)

(93,002

)

(18,190

)

Less: Net loss (income) attributable to noncontrolling interests

6

 

(60

)

(26

)

(74

)

Net loss attributable to Inseego Corp.

(74,830

)

(10,779

)

(93,028

)

(18,264

)

Preferred stock dividend

(835

)

 

(1,227

)

 

Net loss attributable to common shareholders

$

(75,665

)

$

(10,779

)

$

(94,255

)

$

(18,264

)

Per share data:

 

 

 

 

Net loss per common share:

 

 

 

 

Basic and diluted

$

(0.78

)

$

(0.14

)

$

(1.01

)

$

(0.24

)

Weighted-average shares used in computation of net loss per common share:

 

 

 

 

Basic and diluted

96,487,344

 

78,844,666

 

93,680,846

 

76,618,142

 

 

INSEEGO CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

June 30,

2020

December 31,

2019

 

(Unaudited)

 

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

$

42,100

 

$

12,074

 

Accounts receivable, net

40,556

 

19,656

 

Inventories, net

20,173

 

25,290

 

Prepaid expenses and other

11,876

 

7,117

 

Total current assets

114,705

 

64,137

 

Property, plant and equipment, net

12,198

 

10,756

 

Rental assets, net

4,704

 

5,385

 

Intangible assets, net

45,642

 

44,392

 

Goodwill

28,030

 

33,659

 

Right-of-use assets, net

6,248

 

2,657

 

Other assets

385

 

387

 

Total assets

$

211,912

 

$

161,373

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

Current liabilities:

 

 

Accounts payable

$

49,239

 

$

26,482

 

Accrued expenses and other current liabilities

18,569

 

17,861

 

Convertible 5.5% senior notes, net

2

 

 

DigiCore bank facilities

126

 

187

 

Total current liabilities

67,936

 

44,530

 

Long-term liabilities:

 

 

Convertible 3.25% senior notes, net

176,171

 

 

Convertible 5.5% senior notes, net

 

101,334

 

Term loan, net

 

46,538

 

Deferred tax liabilities, net

3,101

 

3,949

 

Other long-term liabilities

6,632

 

2,380

 

Total liabilities

253,840

 

198,731

 

Stockholders’ deficit:

 

 

Preferred stock

 

 

Common stock

97

 

82

 

Additional paid-in capital

686,410

 

584,862

 

Accumulated other comprehensive loss

(15,783

)

(3,879

)

Accumulated deficit

(712,558

)

(618,303

)

Total stockholders’ deficit attributable to Inseego Corp.

(41,834

)

(37,238

)

Noncontrolling interests

(94

)

(120

)

Total stockholders’ deficit

(41,928

)

(37,358

)

Total liabilities and stockholders’ deficit

$

211,912

 

$

161,373

 

 

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2020

 

2019

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

Net loss

$

(74,836

)

$

(10,719

)

$

(93,002

)

$

(18,190

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation and amortization

5,192

 

3,769

 

9,692

 

7,208

 

Provision for bad debts, net of recoveries

59

 

155

 

74

 

385

 

Provision for excess and obsolete inventory, net of recoveries

147

 

27

 

180

 

336

 

Share-based compensation expense

4,428

 

3,645

 

5,981

 

4,702

 

Amortization of debt discount and debt issuance costs

1,548

 

2,443

 

3,245

 

4,886

 

Fair value adjustment on derivative instrument

(826

)

 

(826

)

 

Loss on debt conversion and extinguishment

67,241

 

 

75,174

 

 

Deferred income taxes

8

 

1

 

10

 

(17

)

Other

672

 

560

 

158

 

680

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable

(12,908

)

3,978

 

(21,498

)

688

 

Inventories

(6,151

)

3,242

 

2,725

 

(4,608

)

Prepaid expenses and other assets

(4,315

)

(1,522

)

(5,298

)

(1,208

)

Accounts payable

20,413

 

(7,370

)

22,334

 

(3,861

)

Accrued expenses, income taxes, and other

3,662

 

(3,231

)

5,713

 

(1,056

)

Net cash provided by (used in) operating activities

4,334

 

(5,022

)

4,662

 

(10,055

)

Cash flows from investing activities:

 

 

 

 

Purchases of property, plant and equipment

(2,264

)

(2,545

)

(2,831

)

(2,973

)

Proceeds from the sale of property, plant and equipment

72

 

404

 

235

 

454

 

Additions to capitalized software development costs and purchases of intangible assets

(6,184

)

(4,859

)

(10,637

)

(8,801

)

Net cash used in investing activities

(8,376

)

(7,000

)

(13,233

)

(11,320

)

Cash flows from financing activities:

 

 

 

 

Gross proceeds from the issuance of convertible 3.25% senior notes

100,000

 

 

100,000

 

 

Payment of issuance costs related to convertible 3.25% senior notes

(2,544

)

 

(2,544

)

 

Payoff of term loan, net of extinguishment costs

(48,830

)

 

(48,830

)

 

Cash paid to investors in exchange transaction

(32,062

)

 

(32,062

)

 

Gross proceeds received from issuance of Series E preferred stock

 

 

25,000

 

 

Repurchase of Series E preferred stock

(2,354

)

 

(2,354

)

 

Proceeds from the exercise of warrants to purchase common stock

 

 

1,861

 

10,639

 

Net repayment of DigiCore bank and overdraft facilities

(30

)

(359

)

104

 

(394

)

Principal payments under finance lease obligations

(805

)

(264

)

(1,462

)

(532

)

Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units

1,455

 

311

 

1,431

 

598

 

Net cash provided by (used in) financing activities

14,830

 

(312

)

41,144

 

10,311

 

Effect of exchange rates on cash

771

 

724

 

(2,547

)

317

 

Net increase (decrease) in cash, cash equivalents and restricted cash

11,559

 

(11,610

)

30,026

 

(10,747

)

Cash, cash equivalents and restricted cash, beginning of period

30,541

 

31,939

 

12,074

 

31,076

 

Cash, cash equivalents and restricted cash, end of period

$

42,100

$

20,329

$

42,100

 

$

20,329

 

INSEEGO CORP.

Reconciliation of GAAP Net Loss to Non-GAAP Net Loss

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

June 30, 2020

 

Six Months Ended

June 30, 2020

 

Net Income

(Loss)

Income (Loss)

Per Share

 

Net Income

(Loss)

Income (Loss)

Per Share

GAAP net loss

$

(74,836

)

$

(0.78

)

 

$

(93,002

)

$

(0.99

)

Adjustments:

 

 

 

 

 

Share-based compensation expense(a)

4,428

 

0.05

 

 

5,981

 

0.06

 

Purchased intangibles amortization(b)

1,172

 

0.01

 

 

2,475

 

0.03

 

Debt discount and issuance costs amortization(c)

1,548

 

0.02

 

 

3,120

 

0.03

 

Fair value adjustment on derivative instrument(d)

(826

)

(0.01

)

 

(826

)

(0.01

)

Loss on debt conversion and extinguishment(e)

67,241

 

0.70

 

 

75,174

 

0.80

 

Non-GAAP net loss

$

(1,273

)

$

(0.01

)

$

(7,078

)

$

(0.08

)

(a)

Includes share-based compensation expense recorded under ASC Topic 718.

(b)

Includes amortization of intangible assets purchased through acquisitions.

(c)

Includes the debt discount and issuance costs amortization related to the convertible 3.25% and 5.5% senior notes.

(d)

Includes the fair value adjustment related to the Company’s interest make-whole derivative instrument.

(e)

Includes the loss on debt conversion and extinguishment of the convertible 5.5% senior notes.

See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.

INSEEGO CORP.

Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses

Three Months Ended June 30, 2020

(In thousands)

(Unaudited)

 

 

GAAP

Share-based

compensation

expense(a)

Purchased

intangibles

amortizatio(b)

Non-GAAP

Cost of net revenues

$

58,689

$

760

$

419

$

57,510

Operating costs and expenses:

 

 

 

 

Research and development

10,540

1,510

9,030

Sales and marketing

8,648

816

7,832

General and administrative

7,396

1,342

6,054

Amortization of purchased intangible assets

753

753

Total operating costs and expenses

$

27,337

3,668

753

$

22,916

Total

 

$

4,428

$

1,172

 

(a)

Includes share-based compensation expense recorded under ASC Topic 718.

(b)

Includes amortization of intangible assets purchased through acquisitions.

See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.

INSEEGO CORP.

Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses

Six Months Ended June 30, 2020

(In thousands)

(Unaudited)

 

 

GAAP

Share-based

compensation

expense(a)

Purchased

intangibles

amortizatio(b)

Non-GAAP

Cost of net revenues

$

98,302

$

987

$

896

$

96,419

Operating costs and expenses:

 

 

 

 

Research and development

18,764

1,802

16,962

Sales and marketing

17,403

1,279

16,124

General and administrative

14,558

1,913

12,645

Amortization of purchased intangible assets

1,579

1,579

Total operating costs and expenses

$

52,304

4,994

1,579

$

45,731

Total

 

$

5,981

$

2,475

 

(a)

Includes share-based compensation expense recorded under ASC 718.

(b)

Includes amortization of intangible assets purchased through acquisitions.

 

INSEEGO CORP.

Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA

(In thousands)

(Unaudited)

 

 

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2020

Loss before income taxes

$

(74,951

)

$

(93,026

)

Depreciation and amortization(a)

5,192

 

9,692

 

Share-based compensation expense(b)

4,428

 

5,981

 

Loss on debt conversion and extinguishment(c)

67,241

 

75,174

 

Interest expense, net(d)

3,160

 

6,540

 

Other income, net(e)

(787

)

(1,765

)

Adjusted EBITDA

$

4,283

 

$

2,596

 

(a)

Includes depreciation and amortization charges, including amortization of intangible assets purchased through acquisitions.

(b)

Includes share-based compensation expense recorded under ASC Topic 718.

(c)

Includes the loss on debt conversion and extinguishment of the convertible 5.5% senior notes.

(d)

Includes debt discount and issuance costs amortization related to the convertible 3.25% and 5.5% senior notes.

(e)

Includes the fair value adjustment related to the Company’s interest make-whole derivative instrument, as well as foreign currency transaction gains and losses, net of the gain on the sale of certain fixed assets.

Contacts

Inseego Corp.
Media Contact:
Anette Gaven

+1 (619) 993-3058

Anette.Gaven@inseego.com
or

Investor Relations Contact:
Joo-Hun Kim

MKR Group

+1 (212) 868-6760

joohunkim@mkrir.com

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