Inseego Corp. (INSG) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Novatel Wireless First Quarter 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask a question. [Operator Instructions] We’d like to remind all listeners that during this call, 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 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 of factors that could cause actual results to differ materially from expectations, please refer to the Risk Factors described in our Form 10-K, 10-Q and other SEC filings, which are available on our website. Please note this event is being recorded. I would now like to turn the call over to Sue Swenson, Chief Executive Officer.

Thank you, operator. Good afternoon and thanks to everyone for participating in today’s call. We really look forward to sharing, our Q1 results and updating you on the progress, we’re making with our business transformation. During the first quarter of 2016, Novatel Wireless enjoyed its most profitable quarter since 2014. Q1 revenues and adjusted EBITDA both came in above our guidance range and was driven by continued strong sales of Ctrack Telematics and FW sales and services and a strong quarter for mobile broadband products. Our Q2 EBITDA guidance demonstrates continued improvements in our cost structure and profitability. As you may recall from our last earnings call, I provided a breakout of how we see the new sales and services focused Novatel Wireless. I’ll recap those three segments and provide a view into the progress within each of them. As you might recall our first segment is a SaaS solutions business that focuses on Telematics verticals of LTE via our Ctrack brand. Our second segment is a SaaS solutions business which focuses on the telemetry vertical of LTE, including both SaaS and connectivity solutions for the connected retail vertical via our FW brand. And our third segment is a profitable MiFi hotspot and mobile broadband business that helps fund our IoT SaaS growth initiatives. Let me start with our first segment, Ctrack. We remain very pleased with this business which increased fleet subscribers at an annualized rate of 17% in the first quarter of 2016. This is up from an annualized rate of 13% in the fourth quarter of 2015. This sequential improvement was driven by key customer wins in the first quarter. Based on the strong pipeline and on the heels of several notable first quarter award wins, we continue to expect new fleet subscriber growth to accelerate throughout 2016 reaching in excess of 20% annualized subscriber growth. As you saw today we announced an exciting deal with MTN, a multinational telecommunications company with 229 million subscribers in Africa, Europe and Asia. During the first quarter, MTN began selling Ctrack fleet management and vehicle tracking solutions to its subscribers through the MTN sales channels. This solution will enable MTN subscribers, which includes small and medium size enterprises, as well as multinational corporations, to seamlessly integrate fleet management and vehicle tracking solutions to their existing MTN mobile network offering. Initial uptake has been quite encouraging. Also in our first quarter, Ctrack and Combined Motor Holdings Limited or CMH, a leading automobile dealership and distributor based in South Africa, agreed to an exclusive partnership that delivers pre-installed Ctrack Telematics services for dealer/lot management, vehicle-tracking and stolen vehicle recovery to over 60 CMH owned dealerships, including Toyota, Volkswagen and Ford. The addition of the CMH network significantly increases our footprint in the auto dealer market segment. These exciting opportunities for Ctrack help highlight the strong international growth opportunities we see amid the relatively underpenetrated segments of fleet management, vehicle tracking and stolen vehicle recovery and usage based insurance. In addition, Ctrack has been successfully piloting and deploying derivative products and solutions such as asset tracking solutions and ride-sharing platform. Ctrack’s global presence, market experience, enterprise focus and ability to innovate, dovetail with the global growth trends and opportunity within the Telematics space. Finally, we continue to work on the rollout of a global SMB-focused platform. Ctrack already has the infrastructure and teams in place to successfully market, sell and support an SMB product in many high growth and under penetrative global regions for SMB including the UK, Australia, Netherlands, Germany, Middle East Africa and Asia. Yet the platform that we are developing, adds to the features, overhauls the look and simplifies the user interface of the SMB platform at Ctrack is currently selling internationally. We plan to enter the U.S. market with this new SMB platform. Moving on to our second business segment, and the focus of FW, we also remain very optimistic and excited about FW sales opportunities within the telemetry vertical of IoT. FW’s 15-year heritage as a connectivity, services and solutions provider within IoT, combined with Novatel’s IoT focused MiFi routers, enables FW the ability to offer carriers unique and end solutions to simplify IoT and remove the common logistical pain points of a large scale IoT deployment. We are currently working with select carriers to target the connected retail segment. FW’s recent announcement with Acumera highlights the value proposition we bring to this ecosystem. Together FW and Acumera provide multi-site merchants that the hardware tools, connectivity and managed services, which enable them with the security compliance and control to run their back office systems. Empowered by our services, these businesses can now view fuel tank levels in more than 100 locations simultaneously, thereby eliminating unnecessary tanker deliveries. These same deployments also help the merchant to improve their point-of-sale availability, reduce the cost of a wireless local area network failover and reduce the complexity of the Payment Card Industry or PCI compliance. Our third segment, the MiFi business continues to benefit from the focus on our leading customer. Our plan remains very simple. Delivering cutting edge mobile broadband devices to Verizon and working strategically with them to support their network transitions. And our plan is working. We estimate that more than 25% of our Q4, 2016 revenues from Verizon will be driven by non hotspot products, highlighting the diversity efforts already underway. Our product launches in the second half of this year at Verizon remain on track, including a new flagship MiFi hotspot and the introduction of a compelling new product that leverages our engineering capability and hotspot know-how, but angles the value proposition more towards home networking. But now I’ll like to turn into an update on our divestiture activities. As I’m sure many of you have questions about some of our recent announcements. As we have discussed on past earning calls, the strategy of focusing on IoT sales and services requires that we take a hard look at each of the predominantly hardware only businesses at Novatel to determine how each segment can be streamlined or refocused to strategically and profitably contribute to the sales and services portions of the business. For business segments lacking a strategic and profitable path forward, we will consider strategic and compelling alternatives. Consistent with this strategy on the April 11, we announced the sale of three of our module lines to Telit for $14.75 million. Developing a portfolio of modules for non-IoT use cases was a very expensive endeavor for Novatel Wireless, which took focus and resources away from our efforts to expand our global IoT sales and services offerings. Partnering with Telit and leveraging its broad module portfolio, provides added flexibility and operational savings. Further, we have retained the IP and know-how to develop module for own consumption should we find it compelling to do so in order to win recurring revenue sales and services business. During the quarter, we also terminated our agreement to sell the hardware portion of our Telematics hardware business to Micronet. Telematics hardware is important to Novatel, as having feature-rich, competitively priced hardware, as part of the Ctrack Telematics solution is an important part of Novatel’s current strategy. Although we were not able to close this transaction due to our concerns about Micronet’s ability to finance the transaction and be a strong supply partner, we are rapidly moving forward on our contingent, alternative path for the Telematics hardware business. We are confident in a near term outcome that enables us to achieve our strategic direction. As we look ahead with our growing SaaS and services revenues, improving gross margins and continued operational efficiencies, we do remain confident that EBITDA will grow in each quarter throughout 2016, while the delayed outcome for the Telematics hardware business will defer our ability to hear our previously announced $7 million quarterly adjusted EBITDA target by Q3. We do remain confident that we will achieve the $7 million in quarterly adjusted EBITDA for the first quarter, based on several initiatives we have underway. I realize that it can be very difficult to understand how our transformation is progressing and we are not always in a position to share all of the activities underway at the company and when announced plans may not proceed, as originally indicated. Where I see it as [indiscernible] one must always planned contingency, so when things change, we can always reach our destination. I hope that today’s call will confirm for you that our strategic direction and initiatives are on the right track, with revenue and EBITDA, above our guidance range, wealth and subscribers and customers globally and substantial progress on our targeted strategic changes. We believe that our initiatives are firmly taking hold and that we remain committed to delivering value to our shareholders. With that I’d like to turn the call over to Mike Newman, our CFO to go over the details of the quarter. Mike?

Thanks Sue and thanks to everyone for joining us on this call. The results of our just completed first quarter validate our efforts to create a new Novatel Wireless. It was our first full-quarter with both Ctrack and FW offerings is part of our overall portfolio, driving increased revenues from SaaS, software and services, along with the associated higher gross margins and profitability. We exceeded the high end of our guidance ranges for all three of our key metrics, revenue, non-GAAP gross margin and adjusted EBITDA. And as you know, we continue to engage in strategic transactions to improve our operational focus with an expectation of sequentially increasing our adjusted EBITDA for each quarter throughout 2016. Now I will move on to the details of our strong first quarter results. Total revenue in the first quarter of 2016 exceeded the high-end our guidance range at $66.9 million, up 25% from $53.5 million in the first quarter last year. Our Ctrack operations significantly contributed to these results with Q1 revenues of $15 million, which is at the very high end of our Q1 guidance range for Ctrack revenues. The company’s transition towards SaaS, software and services drove our improved first quarter financial performance. We closed the first quarter with 534,000 subscribers through our SaaS and services offerings. With a $164,000 Ctrack fleet subscribers, 206,000 other Ctrack Telematics subscribers and 164,000 FW subscribers. Together, this group of subscribers generated $12.8 million in SaaS, software and service revenues in the first quarter of 2016, representing more than 19% of our total first quarter revenues. In the first quarter of 2015, we only generated a nominal $500,000 in revenue from SaaS, software and services. As we have been explaining for some time, this is the real transformation of Novatel Wireless’ business, transitioning towards SaaS, software and services revenues that are much higher margin and much stickier that hardware revenues, because of their recurring nature. Hardware revenues in the first quarter of 2016 were $54.1 million, up 2.1% from $53 million in the first quarter of 2015, with consistent product purchases throughout the quarter from our top MiFi customer, Verizon. Ctrack and FW, also continue to sell hardware as part of their overall product portfolios. With these hardware sales being targeted to create opportunities for combined solutions with SaaS, software and other recurring revenues. Non-GAAP gross margin exceeded the high end of our guidance range in the first quarter of 2016 with 35.2% non-GAAP gross margin, increasing by 10.4% from only 24.8% in Q1 a year ago. The significant jump in non-GAAP gross margins is driven by the additional revenues and profitability generated by our Ctrack and FW-branded SaaS and other recurring revenue solutions. Our non-GAAP gross margin from towards SaaS, software and services revenues increased to 71.5% in the first quarter of 2016. Our non-GAAP gross margins from our hardware revenues also increased in Q1 of 2016 to 26.6%, up 2.4%, as compared to 24.2% in Q1 a year ago, as we reduced the sales volume of our legacy, lower margin MiFi products. Our non-GAAP gross margins for Ctrack products also grew in Q1, increasing 63.7% as compared to 60.5% one quarter ago in the fourth quarter of 2015. I know that some of you still like to track the quarterly performance of our IoT products versus our MiFi products. We believe that the categorization of our SaaS, software and services revenues, versus our hardware revenues is now much more meaningful as you evaluate the Company’s performance and our future prospects, because our strategy is focused on growing those higher margin SaaS, software and service revenues and growing our subscriber base with this recurring revenue streams. But for historical continuity for those who are interested, our IoT with MiFi metrics are contained in today’s press release. Our operative – I’m sorry, our operating expenses in the first quarter were lower than the midpoint of our guidance range for the first quarter of 2016, at $24.4 million. In January, we conducted a reduction-in-force of 33 roles, which when combined with our August 2015 reduction-in-force and the closure of our Richardson, Texas facility at the end of January 2016, resulted in the elimination of 88 full and part time employees and contractors. We also plan to see some manufacturing operations in Durban, South Africa later this quarter with 44 employee rolls begin eliminated at that time. We continue to pursue a muriate of other cost savings measures as well and when combined with our focus on selling higher margin IoT SaaS solutions, these measures should help drive us to profitability throughout our business in 2016. Our adjusted EBITDA in the first quarter exceeded the high-end of our guidance range with $1.3 million of positive adjusted EBITDA in first quarter of 2016, compared to negative $100,000 just one quarter ago in the fourth quarter of 2015. This was our highest adjusted EBITDA since 2014. And we are now building a sustainable, profitable business around high margin the current revenues. Ctrack alone generated $2.2 million of positive EBITDA in Q1, 2016 towards the high end of our Ctrack guidance range. We continue to drive the rest of our consolidated business toward increase profitability with our transition toward higher margin SaaS and service revenues, as well as on going cost reductions. I think most of you know how to we calculate our non-GAAP financial results. And a reconciliation of the GAAP to non-GAAP financials is contained in our earnings release. So I won’t go into detail on this call. Our non-GAAP net loss was negative $4.3 million for the first quarter, or negative $0.08 non-GAAP net loss per share. Moving on the balance sheet. We ended the first quarter with cash and cash equivalents of $8.3 million with $3.4 million outstanding on our $48 million revolving credit facility with Wells Fargo. It is important to note that our balance sheets gains really strengthened with the sale of certain assets related to our cellular modules hardware business to Telit on April 11. We received $9 million in cash at closing, so as of today our cash balances have increased and no amounts are drawn down now on our Wells Fargo revolver. We are also scheduled to receive another more than $5 million in cash from Telit over the next three years, plus potential earn-out payments. On a year-over-year basis, accounts receivables, account payables, inventories and other balance sheet items were all significantly impacted by the October 5 closing of our acquisition of Ctrack. On a sequential quarterly basis, inventories declined by $7.5 million and accounts payable declined by $9.3 million, both primarily related to our inventory management efforts. Crude expenses increased by $6.9 million, primarily due to the restructure of our FW acquisition payments from stock-to-cash that we announced in January. Other sequential quarterly variances in the balance sheet were less significant. Finally, on our share count, our weighted average shares outstanding was 53.3 million shares in the first quarter, a decrease of 2.8 million shares from 56.1 million shares in the fourth quarter. This decrease resulted from our restructured FW acquisition agreement in which we replaced certain stock issuances with cash payments, spread evenly from 2016 through 2019. Those previously agreed upon stock issuances have been reflected in our share count in previous quarters, including in our fourth quarter share count but have now been removed. Now I’d like to briefly discuss our second quarter guidance which of course is based on our current expectations for second quarter, as well as current currency exchange rates. We are providing a revenue guidance range of $57 million to $63 million for second quarter. Remember that this guidance range excludes approximately $3 million of hardware revenue per quarter that was divested in the asset sale for Telit in early April. In the second quarter, we anticipate continued strength in SaaS, software and services revenues with our portfolio of Ctrack and FW products and solutions driving sales for IoT businesses. In particular, Ctrack solutions are expected to contribute $14 million to $16 million of revenue in our second quarter with expected non-GAAP gross margins for Ctrack products of 60% to 65%. Our continued focus on SaaS, software and services revenues with our Ctrack and FW solutions should drive an increase in non-GAAP gross margins in the second quarter to a range of 34.5% to 37.5%. On the expense side, with our cost reductions in the second half of 2015 and Q1 of 2016, continuing into Q2 and beyond, we anticipate Q2 non-GAAP operating expenses to be $22.5 million to $25.5 million. Adjusted EBITDA should return to profitability in the first quarter as our increased mix of high margin SaaS Software and Services revenue continues to improve our P&L profile. We expect positive adjusted EBITDA in Q2 of $1 million to $2 million, driven by our expectation for positive adjusted EBITDA in Q2 from Ctrack of $1.5 million to $2.5 million. We also anticipate Q2 non-GAAP loss per share will improve to between negative $0.05 to negative $0.08 based on an expected 54 million weighted average shares outstanding in Q2. As you can see this is an exciting time at Novatel Wireless, as we transition from a hardware-centric company, to a full solution provider, with profitabilities driven by sticky, recurring SaaS, software and services revenues. Our significantly improved adjusted EBITDA in Q1 is the first step towards this vision. We expect to achieve sequential quarterly improvement and profitability throughout the year with $7 million in quarterly adjusted EBITDA in the fourth quarter. And now I will turn the call over to the operator for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jaeson Schmidt of Lake Street Capital Markets. Please go ahead.

Hey guys, thanks for taking my questions. Just wondering on the $7 million in adjusted EBITDA push out, is that entirely due to the walking away from the Telematics hardware sale or are you baking in some other assumptions to go along with that?

Thanks, good question. We expected, when we announced our guidance in February for the $7 million at Q3 and Q4 EBITDA, at that time we also announced the Micronet transactions. So obviously the Micronet transaction is baked into that. There are no obvious significant changes to our plans today as they were a few months ago. That transaction, we’re still going to get to the long-term goal that we expect which is the $7 million EBITDA. But that by itself delayed by a quarter, but otherwise we are on track. No other moving pieces there.

Okay that’s helpful. And what sort of assumptions are you thinking about for the MiFi business throughout this year or how should we think about that business going forward?

So we project the MiFi business to be relatively stable going forward. Our customer, our top customer who we talked about a lot is Verizon and Verizon’s purchase patterns over the longer term have been very consistent. I know, we talked about in Q4 Verizon doing – having some efforts underway to help them manage their balance sheet, which caused them to push some purchases from Q4 into Q1 and then in Q1 they came right back. So when you – our job is to line out over a couple of quarters, with very consistent performance. And that’s what we expect through the end of the year and beyond. We not only have our core MiFi hotspots a lot with Verizon, but we’re working on the next-generation flagship hotspot device for them, that would launch later this year. We’ve got other products in play with Verizon whether selling through Verizon today or we you mentioned some things that we plan to launch with Verizon later this year and beyond. So we still feel very good about the stability of that revenue stream as we look out through end of this year and well into the next year.

Okay. And the last one for me and I’ll jump back into queue. Wondering if you can talk a little bit about what you’re seeing in the Ctrack business from a geography perspective, if you’re seeing anything out of the ordinary there?

No, hi Jason. No, the business is actually doing quite well across all the geographies and in some of the geographies even seeing some improvement. So nothing out of the ordinary and I think you’ve seen some of our announcements recently, you just saw the MTN that we announced today, obviously that’s a fairly, substantial customer. And we expect to see continued progress there.

All right, thanks a lot guys.

Thank you

[Operator Instructions] Our next question will come from Kevin Dede of Rodman. Please go ahead.

Thanks, good afternoon everybody. Thanks for taking the question. So, Sue you mentioned MTN so congratulations on that. Was there somebody there already or I mean one would think I mean to your point this is a multi-country operator, or a multi-continent operator. And I guess I was thinking that they would have had a solution in place. So kudos to your team for getting in there, but I’m just kind of wondering how that happened?

Well as you know Ctrack has been in the business for quite some time. Some of these larger accounts take quite a few quarters if not years to actually land. And I actually think some of the carriers, Kevin are just starting to sort of figure out how to go-to-market with IoT. So I think they found the Ctrack solution and team competitive with other options out there. So I agree with you, kudos to the Ctrack team for landing that. And I think that should indicate to you and the other listeners that just the quality of the Ctrack team and the types of customers that that might lie ahead of us.

So do you see your work with them transcending just deployments in Africa?

Yes, it’s across multiple geographies. So they are multinational, you are talking about MTN, correct?

Yes.

Yes. So they’re multinational and so depending on where they want to go and we’re doing it through their MTN sales channels. So wherever they want to go, we’re going to be happy to support them.

So did you team work on integrating the solution to their billing and operations software?

It depends on what their solution is, so depending on what they want to do, the beauty of it is that there’s recurring revenue and at the solution for them. So depending on what segments they go after. But we would probably want to be as integrated as possible with them because that’s better for us and for them.

You also mentioned sort of a redesign of – is it primarily just sort of the front end the operational interface.

Yes, I would say that the Ctrack general platform is pretty robust and have lots of capability. But as you know approaching this particular segment, the SMB segment and with advances in UI technology and interfaces are really looking to improve upon just that UI interface with the customer and just the customer experience in terms of the sales process and the support process. So making good progress on that front.

Okay. So could you give us a little tighter timeline on your development forecasts and I guess corollary to that is your mention of coming to the North America market.

Yes, obviously we want to move out as quickly as we possibly can and we’re probably targeting towards the end of this year to launch globally and focusing on the U.S., but we will see how the development of the UI goes.

I see, so it is pretty much continued on that software development.

Now we are making good progress on it Kevin, I mean I would tell you that. Again, I think that customer experience, I think we have an advantage taking a look at that without particularly in the U.S. without embedded customers, we have an opportunity to take to market, something kind of unique and contemporary, relative to other UIs that are out in the marketplace.

Okay, so that was sort of my next question Sue. So thanks for leading me in.

Thanks. Okay.

You see, your advantage in I guess the interface and I’m just wondering how you intend to market it, is it something similar to what you’re doing with MTN, marketing through their sales channel and with the help of wireless carrier?

Yes, there are different ways you can go-to-market, as you know Kevin. You can go through distribution and that’s obviously one effective way. I also think that there’s an opportunity to go direct. And I think that’s an opportunity as well. So we’re still exploring what different options we may be going to market with. But anyone of those may work for us.

Okay with the focus I presume again on the small to medium business?

Right we think there’s a great opportunity there, as you know particularly in the U.S. and around the world, small business is what moves our economy and it’s a segment that grows fairly substantially every year. And it also I think is a segment that needs a particularly simple solution for a variety of reasons, the obvious reason being that, as a small business owner, you have a lot of time to worry about this kind of stuff. You don’t want it to be complex you want to be simple, and easy to use. So that really is the focus of our design.

Okay. And will that design come exclusively out of Ctrack or is there an opportunity to leverage some of the assets you have with Feeney?

We’re actually doing a really a cross company collaboration on this on Kevin. We’re taking all the experience and assets that we across the company that’s the advantage of those acquisitions, we’ve got a lot of people with a lot of experience. And I think we’re taking all of that into consideration. And also bringing in some other views on that, because as sometimes you need an outside view to give you another perspective.

Okay. Could you just sort of refresh my perception of how you’re marketing Feeney at this point?

How we’re marketing Feeney?

Yes.

Actually in terms of the Feeney product?

Well, I guess I was sort of looking at it more from a software and services consulting and implementation perspective.

Yes, I mean we’re really focused on connected retail that’s really the solution that we’re looking at. As I mentioned in my remarks, we have recent announcement with Acumera which is providing solutions to a lot of the issues that they have. And so through a variety of marketing efforts we’re reaching out to those accounts, and finding those opportunities and also enhancing our ability to go-to-market, as we continue to grow that particular market focus. So you’ll see us probably expand our marketing reach over the next several months, in terms of how we go-to-market.

Okay, well thanks to Mr. Newman there for breaking out the subscriber balance at FW. I appreciate seeing that, I’m just kind of curious on how work with someone like that most recent announcement there would influence those subscriber figures.

The most recent announcement with sort of Acumera?

Acumera, yes. Even that it’s more of, I apologize for interrupting Mike, just given that it seems to me to be more of an installation type versus a fleet.

So this is why we are breaking up the subscriber numbers separately whether it’s Ctrack Fleet, Ctrack Non-Fleet or FW just because we’ve got, look all subscriptions are good for us from my perspective, anything that generates those gross margins on a recurring basis is fantastic, but they all have very different textures into whether it’s a fleet customer or we talked about the Acumera, but the subscriber at core is a subscribes unit. So whether it’s an SMB fleet customer that’s got eight WANs and they’ve got eight units in their WAN, a modern age WAN that’s eight subscriber units or it’s Acumera type situation where they’ve got units installed a number of our different service stations each one of those installed units that is conveying information back would be a subscriber.

Okay fair enough, would Acumera have more than one device per location?

They would have in locations where to deploy they would have at least one device. They could have multiple devices they may not it depends on how it’s deployed in any given location. But in general and the reason when you saw on a subscription basis folks are selling or paying new license fees or subscription fees on a per unit basis.

Okay, another question for you, since I have your attention, you’ve offered section of press release to other key metrics and you have two quarters of 2015, so thank you for providing that. But I was wondering if there was a chance to share the June quarter and the September quarter last year before basis to work from and looking at how this year might come together?

Yes, it’s a fair question. I’m going to give you a difficult answer to that unfortunately. The June quarter and the September quarter, Ctrack still operates as DigiCore listed on the Johannesburg Stock Exchange and reporting under IFRS. It is very difficult to do the IFRS-to-GAAP reconciliation. And back in the June 30 timeframe when they were still public they recorded on six-month basis not a three-month basis and then you add that sub quarter ending September 30, which was they never probably reported. So between all of that it’s just very difficult to do so. I’ll tell you though from a seasonal basis, even though Ctrack reported on a six-month basis, I do have a sense of how those seasonality would go in general. Q2, our Q2 the quarter ended June 30 was their strongest quarter because that was their fiscal year-end and it also aligned with the fiscal year-end for the government in South Africa. So the quarter ended June 30 tended to be their best quarter. And then they were flat into Q3 and then up a little into Q4.

Well, that’s a great answer. Thanks very much for your time Mike, appreciate it and thank you, Sue.

Thank you. Hope to see you soon.

[Operator Instructions] Our next question comes from Cobb Sadler of Novatel. Please go ahead.

Hey, guys thanks for taking the question. Just, I had a question on the, I may have missed it, but did you nail down the timing for release of the global SMB product. And could you talk about pricing how that might be priced versus the traditional Ctrack product and how it might be priced competitively like versus the competition I’m thinking like maybe a free max? I mean could you elaborate that on a little bit. Thanks.

Sure. Thanks Cobb. Let me start with the pricing first, obviously we’ll be looking at that as we get closer to the time that we launched to see what’s happening in terms of pricing activity in the marketplace. We obviously want to be competitive, and also comparing it from a value proposition perspective. And as I said earlier, we are targeting the end of the year as the current plan.

Okay got it. And the MTN deal, that was – how was – I mean obviously you have a big presence in Africa and there you also – so it’s kind of a natural fit but who showed up there? Who was the competition, usual customers and it was free max, there. Who would you beat out, I mean, going forward, do you expect to have similar success at kind of on non-home based carriers. I mean is the idea that to tackle all the carriers like MTN globally. Thanks.

Yes I mean, in all of the opportunities that we see, we see a variety of competitors depending on what region we are in. So we see the usual suspects. But as I said earlier Cobb, I think Ctrack has a pretty good record with this type of customer. And as you would, I think suspect, gaining an account like this is a fairly long process to actually win the account. So again, kudos I think to the Ctrack team for continuing to work with MTN, it’s a very good relationship and we’re hoping that the good start that we’re off to will continue and we’ll see additional opportunities with them.

Sounds good. And do you – as it relates to other carriers, I guess the idea is, you’d probably want to replicate your success with MTN at other carriers. I mean, is there – I realize it could be a multi – at least, multi several quarter or maybe even year and half type process but are you kind of actively pursuing other carriers or it’s like MTN all you can basically steer on for now?

No, we’re constantly looking at those opportunities around the globe and in the U.S. And I think, Cobb as you look at the IoT world, particularly in the U.S., people are in different stages in terms of their deployments. So I think there will be plenty of opportunity with carriers, because it’s not a simple solution for them to do it themselves. And so, I think that what we’re hoping that we’ll be able to communicate very shortly another opportunity that we’ve been pursuing for a little bit here.

And as Feeney kind of enrolled [ph], I guess I think, Feeney historically pre-purchase lot of small customers probably not partnered up with the large carriers or certainly like the Verizons of the world. Can you kind of reposition Feeney as kind of a glue between you and a carrier or maybe helping the carrier do installations that type of environment or do you expect Feeney kind of you remain in the small SMB type integrator.

You know what you said it better than I did Cobb. Actually that’s what FW does I think so the carrier is bring together what is complicated to some and bringing those pieces together on behalf of the carrier it’s part of the solution. We will look at carriers in a lot of different ways, it could be a distribution partner, it could be basically, it could be more than that depending on what it is they want to do based on their own capability. So I think as we continue down this path and show our capability and FW’s capability to be beyond SMB and kind of a one-off kind of custom shop where you would say as you know have been for a while, I think we’re looking at taking something to market that’s replicatable and has volume. So I think you described it very well, I appreciate it.

Okay got it. God down. From then, the hotspot that – I guess if I got that right, you all said maybe 25% of revenue in Q4 that be at Verizon might not be or you want to discuss customer might not be traditional hotspot business. And I guess would those products – I mean would those products would they be usable or marketable to another carrier I guess I’m asking you’ve kind of retrenched into a small set of customers well with the hotspot business I mean do that ultimately expand again or is it just too much and you got your hands full with your major customer providing them with products. I guess, I mean Sue should I consider – Verizon should basically be your major customer and hotspot going forward you’re not looking for any new customers I guess you have too much going on with the other business did I have that right or not?

Well I think the way we’ve been at it, Cobb, I think you have some history here. I think it was an effort to try to diversify to other customer. Problem is the investment to do that, you can’t just take a Verizon product and just sell it to somebody else there is quite a bit of our engineering work that has to be done to make it appropriate for other big customers, the problem is there was never the volume to support the cost structure there. So we’ve really have chosen to focus on Verizon, not only in the near-term, but in the long term and as we indicated, we’re continuing to have appropriate discussions helping and being a partner to Verizon as they work on different strategic directions that they are involved with. So if there was another large volume opportunity we certainly be interested, however the history here is that even though people thought there was an opportunity, it didn’t quite work out and so the margins on these products ended up being horribly low, which I think you’re well aware off. So we really want to stay away from that and if we’re going to invest the R&D time to develop these products, we want to have a view into their producing, some volume to support that R&D investment.

Okay, great. And then certain over to the Acumera kind of hotspot partnership, I mean, not too much detail, but generally how does that work, I mean do you have – does Feeney evolve there, does Acumera kind of have the leads, do you all had the leads. Do you supply just the hotspot, and Acumera handles software, I don’t know how that works. Can you just give me, just a kind of a general overview and I will be out?

It’s not a, sorry…

It’s not a hotspot.

Look that continues, it’s not a hotspot at all.

Okay.

That is FW, its FW product and they are providing the service and it is an IoT telemetry device.

Is retail like the end-market there, or is it multiple end markets?

I mean the primary end-market we are looking after that product and product that commit [ph] in the connected retail space, the ability of these pumps or kiosks, or anything else you got out there is an impact.

So when I think of like the, one of the players there, it would be like a Cradlepoint, which I think is raising money at pretty good valuation. Is that the type of market that you're going after that similar market? You would see Cradlepoint, I guess at RPs and that type of thing?

Yes, we would, that would be very similar.

Yes, got it exactly right.

And then when is that product GA, if we get later this year, just like, is it later this year?

No, they’ve been deployed, already, you know on Acumera.

Okay.

Yes, now they’re in the market now and see that’s the beauty of FW, I mean they really have that capability existing. They really didn’t have to develop anything and they already have those capabilities, so now it’s just a matter Cobb of just the focus into that retail segment. So it’s really starting, let me describe it this way, I think FW used to start with the customer and work back to the solution. Now, we’re saying look, we’ve got an asset let’s create a solution and go to a market is the way I would describe that. So that there’s a lot of opportunities in the segment and we really want to do that in a targeted fashion. So we can replicate that and drive more volume.

Our next question is follow-up from Jaeson Schmidt of Lake Street Capital Markets. Please go ahead.

Hey, just a quick clarification. I know, you guided for Q2 OpEx but will OpEx also declined then in Q3 and Q4?

So OpEx will decline in Q2, as I mentioned, at least at the midpoint of our guidance range, we’d expect it to decline. We don’t envision making additional investments in the business. So, I don't really want to get into great detail on Q3 and Q4 guidance, but I can't see us adding to our investments in the business. I think we're going to continue to look for ways to streamline the business to help ensure that we are running profitably. Obviously, as we look at the back half of the year, we want to grow revenues in the strongest areas of the business, that's our higher margin SaaS and service revenue. In areas in the business that are hardware only. We are succumbing to point us to make those areas of the business run profitably, and I don't anticipate that that's going to happen by growing the hardware only business segments.

Okay.

It’s going to come cost…

That's helpful. Thank you.

Our next question comes from [indiscernible]. Please go ahead.

Hi good afternoon. I have three questions, and I'll just ask them altogether once. Just let me know if you want me to repeat it. The first one is the deal with Micronet for the divestiture fell through. And I view they’re going to sell that asset and it's reflected in your EBITDA guidance for the fourth quarter. Can you just confirm that if that is the case and as to as where are you in that process?

Sorry, I thought you said you had three questions.

Yes, you want to ask them all?

So, start after the one.

So one at a time.

I will answer that one. So with the Micronet deal, selling the hardware Telematics, that was a deal that we announced and we didn't close. The $7 million EBITDA target for Q4 is not dependent on our ability to sell the hardware Telematics unit. We may sell, we may not sell but that target is not dependent on that. We expect to achieve that target in Q4 regardless of which path we've pursuing a lot of our Telematics business.

But do you intend to sell it? I mean are you actively looking to sell it?

I think we've tried to make as clear as possible that we are open to offers for that part of the business. Even when we announced that we will be terminated our agreement with Micronet, we indicated that we were open for offers in that part of the business. And if we can get an acceptable offer from of a suitor that we feel can be a good supply partner to us as well, then we might pursue that transaction. But if not we’ve got plans for how to run that business ourselves.

Okay. That's great. Sue, I think we have spoken in the past and you just laided on the call again that Novatel plans to launch SMB offering within the U.S. and in the entire world, pretty much by the end of year. And a lot is going with [indiscernible] the streamline and get it to profitability before you do that. But can you like provide us a guideline as to the efforts in that direction with the development in the front end and the sales strategy? I mean there are different strategies as to how you are going to take it to the market, whether through carriers, whether directly how even you sell it, whether through internet, whether through direct sales, telemarketing. When do you feel comfortable to provide that information by the next quarter or something?

Yes. I think we’re continuing to make progress, Anchor [ph]. Like I said, we plan to launch it by year-end and everything that I see today causes me to feel pretty comfortable about that timing. As far as distribution strategies, it could be a combination of all those that you’ve mentioned. I mean it doesn’t have to be one and then we’re exploring all those different options and some may start earlier than others, but all of those have the pluses and challenges that all distribution have. So we’re exploring those in great detail. And as we launch, you’ll see what particular distribution strategies we select. And distribution is really important to a strategy like that, it may sound easy to get a third-party distribution. But those have, I can tell you that, from experience the third-party distribution has real challenges. So we want to make sure just like Mike said on getting a good supply partner, we want to make sure that our plans are solid and that they are effective. So we’re putting quite a bit of time and effort and energy across the company into this initiative. We think it’s very important.

All right so the last one, I think the same question came up in the last call as well, which is the usage of cash. You have a bit of an excess cash now [indiscernible] divestiture and the company could buyback its debt which could actually work two ways, decreasing the stock that’s short and you could buy at a discount. Can you just comment on that? And the last one is, the ARPU for the FW subscribers, is it less than then the Ctrack, I mean are you – is it a whole unit with the SaaS or is it just like device software that you’re giving on the IoT device?

Okay, I’ll handle both of these questions. Let’s see first off on the cash, I guess I would disagree I don’t think we have excess cash. I would love to get at a point where we’re at that. I think we’re comfortable with our cash position, and I think once we get to the fourth quarter when we get to that $7 million EBITDA run rate, I think we’ll all feel lot better about generating positive cash flow at that time. I’m please that Telit transaction did put some cash on our balance sheet to get us to a little more comfortable place. But we don’t anticipate using any of that cash to buyback stock or debt in the very near-term. With respect to ARPU, the ARPU the FW subscribers is indeed less than the ARPU on the Ctrack subscribers and that’s part of the reason that we break them out separately. They are different products, very different transactions and as you can see the volume of FW subscribers that we report, that FW doesn’t generate the revenues that Ctrack has in topline and it’s a function of, in part the ARPU being less. Obviously they’ve got fewer customers and fewer sales as well.

And this concludes today’s conference call. We want to thank you all for joining today’s presentation. You may now disconnect your lines and have a fantastic day.