Inseego Corp. (INSG) Q3 2016 Earnings Report, Transcript and Summary

Good day and welcome to the Novatel Wireless third quarter 2016 financial results conference call and webcast. All participants will be in a listen-only mode. [Operator Instructions] Please note that event is being recorded. I would now like to turn the conference over to Mr. Michael Sklansky. Please go ahead.

Thanks Stephanie. 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 be advised that today's discussion will contain forward-looking statements. These forward-looking statements are not historical facts, but rather are based on the company's current expectations and beliefs. For a discussion on factors that could cause actual results to differ materially from 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. Now, I would like to turn the call over to Sue Swenson, Chief Executive Officer of Inseego.

Thank you, Michael. Good afternoon everyone and thank you for joining today's call where we'll share our Q3 results and provide an update on our key initiatives. It's really hard to believe, but just last week I celebrated the one year anniversary of my appointment as CEO of Novatel Wireless. I now begin the second year of my tenure as CEO of Inseego as we move beyond our hardware roots and emerge as a pure play IoT solutions providers. This past year our strategic focus has been on transforming Novatel Wireless from a hardware centric business model to a profitable, high-margin, recurring revenue business model by streamlining or selling our despaired hardware businesses and focusing on our thriving IoT, SaaS, services and solutions businesses. Within this past year, we achieved four key transition milestones: number one, we sold our modules business to Telit; number two, we ceased our unprofitable business of selling standalone telematics hardware to third-parties; number three we rationalized and refocused our operations to be more reflective of a SaaS business, which has led to improving profitability in each successive quarter since I became CEO; and number four, we announced the pending sale of our MiFi mobile broadband router business to TCL. The TCL transaction is proceeding on schedule with the close of the transaction expected to occur in the first quarter of 2017. The collaboration with TCL to prepare for the close has been very good. We have a transition team in place, focused on integration planning that enables us to continue to execute on our MiFi deliverables without any distraction to the other parts of our business. Upon the closing of the transaction with TCL, our company will no longer sell any products at fold at the beginning of 2015. We will have transition the company from a hardware-only business with approximately 80% of its revenues tied to one customer into a predominantly SaaS, services and solutions business, for thousands of customers generating recurring revenues within high growth verticals of the Internet of Things. Going forward, we will continue our focus on our recurring revenue IoT solutions such as our Ctrack Telematics Solutions including free management, usage-based insurance and asset tracking and monitoring and our business connectivity solutions such as our recently launched Ignite offering at T-Mobile. We believe Inseego revenue and profit growth will greatly benefit from management employee focus in a market with strong growth trends. Turning to Ctrack, our telematics, SaaS, services and solutions business, the pace of Ctrack subscriber growth has accelerated each successive quarter since acquiring the business in October of 2015. As laid out on our last earnings call, we see three key differentiating factors for Ctrack contributing to this accelerating growth. Number one, Ctrack is well-positioned in global region experiencing rapid telematics growth, which includes Africa, Australia and certain regions of Europe. Number two, Ctrack's broad portfolio aligns world with market opportunities in segments. And number three, Ctrack's strong relationships with wireless carriers and automotive OEMs. As we continue to seek to capitalize on current growth opportunities, we are also deploying and developing derivative, next-generation Telematics Solutions that provide even greater depth and utility to the data collective buyer platforms. For instance, in our fleet management business, we offer a fleet monitoring service, which is a full outsource of fleet control room activities backed by highly proficient data analytics and reporting. This service provides insights for running a cost effective and efficient fleet operation. In addition, our fleet connect product leverages the telematics information we collect on a customer suite combines it with Ctrack's global database as vehicle performance and driver behavior and applies a proprietary data analytics and algorithms to help fleet owners manage their equipment more efficiently. And finally, with our usage based insurance offerings, we are disrupting the industry standard UBI business model by incorporating robust data analytics platforms and developing unique go-to-market strategies and value propositions. Historically, insurance company customers have relied on telematics company solely to provide hardware and to collect raw data on driver behavior while using their own algorithms and ratings models to draw conclusions from the data. However, with customer such as MiWay and Boom Insurance Ctrack provides the rating models and algorithms that underpin the driver behavior scoring model. As we continue to explore new ways to monetize data via productive analytics, we believe our large and globally diverse subscriber base will reinforce the richness and utility of our algorithms and predictive analytics platforms. And while we explore incremental telematics business models we will continue to focus on growing our smaller, medium and business and enter a fleet management offerings, which we expect should have 20% subscriber and revenue growth rates. In addition to high growth rates experienced in the low penetration, SMB and enterprise fleet management markets, ARPUs remain strong for these markets. Another opportunity is the expansion of subscriber revenue growth in our lower ARPU, higher volume business unit such as consumer telematics and usage-based insurance. The large scale of the deals in these business offsets the lower ARPUs to revive attractive profitability metrics even relative to SMB and enterprise suite management deals. One such example is our recently announced deal with the Cameroon National Taxi Union to provide Ctrack vehicle tracking and driver behavior monitoring solutions to over 100,000 subscribers. With traffic accidents the leading cause of death for young people in Africa, we are proud to offer a solution that improves the safety of drivers, passengers and the public in general. Our proficiency and the design, deployment and management of these large scale telematics rollout is one element of our secret sauce to achieving strong subscriber and revenue growth. Given the scale of the typical deal in these markets, whether it'd be consumer telematics opportunities like Cameroon National Taxi Union or UBI opportunities like Discovery Insurance, they provide an excellent opportunity to achieve our corporate growth goals on their own, let alone in combination with other SMB and enterprise suite opportunities. Our objective is simply to continue the steady growth of our SMB and enterprise suite management business and intersperse that activity with these impactful consumer telematics and UBI wins. We believe we are the global leader in the deployment of these sorts of large scale telematics rollout and we see comparatively less competition when pursuing these opportunities. We believe there are many more opportunities in this area of telematics. Who knew there was an opportunity to deploy Telematics Solutions to 100,000 taxis in the Republic of Cameroon? We see growth potential in this segment from similar opportunities and other African nation, as well as across other unique consumer telematics and UBI opportunities. On a final Ctrack note, I'd like to provide an update on our plans to introduce a new fleet management platform with an overhaul user experience and user interface for small and midsize businesses in the U.S. and several other global regions. We are on track to launch this product with various customers by the end of 2016. These initial deployments will help inform which region or regions are best suited for large scale deployments, as well as the most effective distribution channels. Turning to our IoT services business, formally referred to as FW, we are pleased with the initial performance of Ignite with T-Mobile. As you recall, we recently launched Ignite, which is a bundled connectivity solution targeted at retail businesses to help them easily deploy and manage their connective store operations such as digital signage, kiosks and wireless local access network sale over. Ignite follows the problem for businesses of purchasing and managing technology from multiple vendors, including a device cloud management platform, hardware, support and the data service. The customer feedback from our initial deployments so far reinforces our value proposition. The early success we are seeing with Ignite also validates the efforts we made transitioning FW from a consulting and integrated business model into a scalable, more profitable, solutions-focused IoT business. I believe it's appropriate to say what a difference a year makes. As you can see, Inseego is well-positioned to take advantage of the strong global growth trends in SaaS, IoT. We're truly optimistic and looking forward to our future. With that, I'll now turn the call over to Mike Newman, our CFO. Mike?

Thanks, Sue and thanks to everyone for joining us on this call. I have to say that we had an extremely busy third quarter. Transformation does not come easy, but we really put our foot on accelerator during the past three months. Our biggest news was the announcement of the sale of our mobile broadband business including our MiFi brand and hotspots and USB model product line to TCL for $50 million in cash. That divestiture remains on track to close in the first quarter of 2017. And while working on what could have been a very distracting transaction, we remain steadfastly focused on driving and improving our business. Our third quarter financial performance was at the high-end of our gross margin, EBITDA and EPS guidance ranges, so our team remained as execution-oriented as ever. In addition, our success was led by the most important elements of our business, our SaaS, software and services revenues increased at an annualized rate of 36% in the third quarter. These are our most profitable revenues and represented a record 24.3% of our total revenue mix in the third quarter. One of our primary objectives in our core subscriber base businesses is always subscriber growth and we are successful across the board, ending the third quarter with 590,000 total subscribers to our SaaS software and services offerings. Breaking down that subscriber into three categories in the third quarter: one, our Ctrack fleet subscriber based grew at an annualized rate of 20% ending the quarter with a 182,000 Ctrack fleet subscribers; second, our other Ctrack telematics subscriber base grew at an annualized rate of 29% to 229,000 subscribers; and third, our FW subscriber base grew at an annualized rate of 29% to 179,000 subscribers. This continued strength in our IoT solutions with our comprehensive SaaS, software and service offerings provides confidence that we will emerge from our MiFi divestiture with a healthy financial profile led by higher margins recurring revenues that reduced volatility in our business model enabling better investment planning and expense management. As we said, we announced the divestiture in the first quarter after the closing we estimate that the company will be generating approximately $90 million in annualized revenues with non-GAAP gross margins of more than 60% and adjusted EBITDA margin of approximately 10%. Now, we'll move on to the details of our strong third quarter results. Total revenue in the third quarter of 2016 was $60.9 million, up 12.2% from $54.3 million in the third quarter last year. We generated $14.8 million in SaaS, software, and services revenues in the fourth quarter of 2016. Highlighting our corporate transformation, SaaS, software and services revenue in Q3 of 2015 prior to our acquisition of Ctrack was only $2.3 million. Hardware revenues in the third quarter of 2016 declined to $46.1 million, down 11.3% from $52 million in the third quarter of 2015, which is consistent with our strategic objective of improving our mix with overall revenues toward a higher margin SaaS, software and service offerings, while also due prioritizing unprofitable hardware owned products lines for our interior customer. Our Ctrack operations significantly contributed to our third quarter results with Q3 Ctrack revenues of $16.6 million, increasing 5.7% sequentially from $15.7 million in Ctrack revenues in second quarter. Remember that Ctrack revenues consist of SaaS, software and services in combination of the deployed hardware units as a total Telematics Solution. Non-GAAP gross margin exceeded the high-end of our guidance range in the third quarter of 2016 with a record 38.7% non-GAAP gross margin, increasing by 11% from 27.7% in Q3 a year ago, 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 SaaS, software and service revenues was 67.3% in the third quarter of 2016, riding the strength of our Ctrack and FW, IoT solutions. While still generating such a healthy non-GAAP gross margins level, this was down a bit sequentially from 74.2% in the second quarter of 2016 as a result of increased revenues from some larger telematics customers. Our non-GAAP gross margins from our hardware revenues increased to 29.5% in the third quarter of 2016 compared year-over-year to 25.4% in the third quarter of 2015 primarily as a result of reduced sales of lower margin legacy hardware products in the third quarter of 2016. Our non-GAAP gross margins for Ctrack products, which are a mix of hardware and SaaS, software and services sold as bundled Telematics Solutions was 63.3% in the third quarter. Ctrack has now exceeded 60% non-GAAP gross margins in each of the four quarters since our acquisition. I know that some of you still like to track the quarterly performance of our IoT products versus MiFi products and for historical continuity, for those who are interested, those metrics are contained in today's press release. Needless to say, we don't expect to be reporting MiFi metrics next year. Our non-GAAP operating expenses were $23.3 million in the third quarter, towards the lower end of our guidance range, while non-GAAP operating expenses were up from $16.3 million in Q3 last year prior to our Ctrack acquisition; we were down $1 million sequentially from $24.3 million in the second quarter of 2016. These expense reductions were driven by the restructuring actions we undertook in the third quarter, which were consistent of our ongoing desire to transform the company into a subscriber-based business focused on delivering high-margin SaaS, software and services solutions. While we benefited from the impact of the restructuring activities for a portion of the third quarter, sequentially reducing our operating expenses, the restructuring activities are expected to yield the full, approximately $8 million of annual cost savings commencing in the fourth quarter. Now we'll get back to earnings. Our adjusted EBITDA for the third quarter was $2.3 million, which was $600,000 higher than the $1.7 million that we achieved last quarter, the second quarter of 2016 and was $2.6 million higher than the negative $300,000 adjusted EBITDA from Q3 last year. Ctrack alone generated $2.7 million of adjusted EBITDA in Q3 of 2016 towards the high end of our Ctrack guidance range. We continue to drive the rest of our consolidated business toward increased profitability with our transition towards higher margin SaaS and service revenues and our corporate restructuring capabilities. Our non-GAAP net loss per share in the third quarter was above the high end of our guidance range at negative $0.03 per share as compared to a non-GAAP net loss per share of negative $0.06 per share sequentially from second quarter and negative $0.04 per share in Q3 last year. I think most of you know how we calculate our non-GAAP financial results and a reconciliation of our GAAP to non-GAAP financials is contained in our press release. In the third quarter, in addition to the usual items, such as share-based compensation expense, restructuring charges and acquisition of divestiture related charges, we had some one-time events. We incurred $2.6 million in non-cash charges for the impairment of certain developed technology, primarily related to the FW acquisition, a reduction of $2.4 million of the $6.9 million gain that we previously recorded from Telit divestiture transaction due to changed payment terms we negotiated in the third quarter and we reach a $2.8 million legal settlement for contract related to our hardware products. Turning to the balance sheet, we ended the third quarter with a strong cash position. Cash and cash equivalents were $17.2 million and no amounts are drawn down on our Wells Fargo revolver. The company is in his best cash position in more than a year, while we also anticipate the $50 million cash in the first quarter of 2017 for the divestiture of the MiFi business. In other balance sheet items on a sequential quarterly basis, inventories increased by $5.7 million for launch activities related to MiFi products, with accounts payables increasing by $12.5 million also related to MiFi products. Accounts receivables decreased by $8 million in the quarter, due to a combination of strong commercial collections, as well as the conclusion of our payments due from Telit related to our second quarter asset divestiture. Finally, on our share count, our weighted average shares outstanding was 53.9 million shares in the third quarter, increasing by 300,000 shares from 53.6 million shares in the second quarter. Now, very briefly, I'll summarize our fourth quarter guidance. We're providing a revenue guidance range of $58 million to $63 million for the fourth quarter. With our continued focus on SaaS, software and services revenues from our Ctrack and FW solutions, we expect strong non-GAAP gross margins in the fourth quarter in the range of 36.5% to 38.5%. With respect to Ctrack specifically, Ctrack solutions are expected to contribute $15.5 million to $17.5 million of revenue to our fourth quarter with expected non-GAAP gross margins for Ctrack products up 62% to 67%. On the expense side with our corporate restructuring fully impacting our cost structure in the fourth quarter we anticipate Q4 non-GAAP operating expenses to be $21 million to $23 million. Adjusted EBITDA should improve meaningfully in the fourth quarter as our increased mix of high margin SaaS, software and services revenues combines with the expense savings from our corporate restructuring activities. We expect adjusted EBITDA in Q4 of $3.5 million to $4.5 million driven by EBITDA from Ctrack of $2.2 million to $3.2 million. We also anticipate Q4 non-GAAP loss per share of somewhere between breakeven and negative $0.03 based on an expected 55 million weighted average shares outstanding in fourth quarter. We've been talking all year about our corporate transformation and now it's nearly complete. Q4 should be the last full quarter with our MiFi and IoT businesses together in a single company as we expect the MiFi divestiture to close in Q1. Our new pure play IoT company will emerge with its SaaS, software, and services solutions targeted for the telematics, telemetry and connected retail markets. We expect to conclude 2016 remaining focused on operational improvements, building on the steady progress that we have achieved throughout this year. This should set the stage for our strong corporate revival at Inseego. I'm now going to turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from Jaeson Schmidt with Lake Street Capital Markets.

I just want to start on the Ignite business with T-Mobile. Wondering if you can help us kind of understand the size of the customer pipeline within that. I know you said the response so far has been really positive, but just trying to quantify it a bit more?

Sure. We're actually pretty pleased with what's happening with Ignite. Obviously a new product offering into a new market, but as time progresses we continue to see, reach out to more and more customers for whom this product is a good product. I think what we've really learned in the last short period of time is just what the distribution opportunities are and how we can best reach these customers, so as we continue to learn that, in addition to our own capability in terms of lead generation, we're also working collectively with T-Mobile for their insights into that. So I probably am not going to talk specifically about this specific pipeline, but just to tell you that our early deployments have reinforced the value proposition that we put in the marketplace, which is really solving that big pain point of purchasing and integrating all the technology from the multiple vendors. So as with any new product, I think we're just starting to see the traction really start to pick up and we'll be anxious to give you more and more detail as we add more customers and we find more effective points of distribution.

And then curious if you're seeing anything out of the ordinary from a pricing standpoint within the Ctrack business?

No, not at all. We're seeing fairly stable price points and continuing to see competitors out there with the same offer, so not really much change. I think what we're seeing is the opportunity for us to win. I had mentioned in my comments that I think we've been pretty effective with the broad portfolio of offers that we have depending on the market and the competition, and so I think the team has done an extraordinarily good job of mapping customer needs with offers and making any slight adjustments to that offer from a product perspective that actually meets their needs. I think the -- I don't know people found it surprising about the taxi deal in Cameroon, but to me that's an example of taking what is perhaps -- maybe people not see that as an opportunity and we actually took and turned it into an opportunity. We're also saying it has potential globally, because they'll be on Cameroon obviously. But who would have thought a taxi business in Cameroon would have been a great opportunity.

And then the last one from me and I'll jump back into queue. I know your new SMB product for North America is set to launch later this year. Just curious if your strategy for expansion has changed from a geography standpoint?

We're continuing to look at that, Jaeson, in terms, it really hasn't -- we're looking at where next most SaaS and continuing to work with our leaders around the globe to understand where it is. It's a matter of priority. I think it's a good product for probably lots of regions, but it's a matter of priority at this particular point in time.

Your next question comes from the Mike Latimore with Northland Capital Markets.

I guess just following up on the small business offering, what's the sales strategy there? You would use like an inside sale key, reduced channel partners, how you're going to go-to market with that?

That's a really great question, because I think it’s kind of all of the above. When you look at the different opportunities, when you think of what we've done in Ctrack, we've actually taken our products through, let's say, a big carrier as an example, we do that through MTN in Africa, so I think there is going to be multiple channels through which we may take that product and we're still working up the final details on that, but I don't think we want to limit ourselves to one particular distribution channels.

And then in terms of the subscriber adds in the quarter, I guess the non-fleet and the Feeney wireless subscribers really, it look like they accelerated a little bit there, I guess. Can you just elaborate on what caused that acceleration?

So on the Ctrack non-fleet I think what we're looking at are the kinds of subscriber growth that Sue mentioned earlier, which are a lot of these sort of hybrid UBI type deals. Obviously the Cameroon taxi deal didn't figure that number, but it can and it will. If these larger scale deployments that aren't traditional fleet of what we might think of as traditional fleet. They maybe Thrifty Rental cars, I know we have talked about in the past, those sorts of things. On the FW side, it’s really a matter of focus, like we have been talking about we're looking for FW to undergo a similar transformation that Novatel is undergoing, of course without the divestitures, but in terms of transforming itself a hardware oriented company, IoT, hardware and solutions into a productized version that really focuses on growing the subscriber base and growing the SaaS software and services revenue streams. So I think what you are seeing at FW is really a focus on driving the parts of the business that we're looking to grow.

And then how about, is there any seasonality on the Ctrack business, like because the December quarter have any positive or negative seasonality?

So the Ctrack business had a majority based in South Africa. And their fiscal yearend was June 30, so their best quarter historically was actually Q2. And then they will be strongest in Q2 and then historically they'd be a little bit weaker in Q4 as with many European economies, the South African, this economy tends to shut down through the second half of December. That's obviously different than our seasonality at Novatel and our seasonality in states. But that's typical of the Ctrack seasonality. We feel like, obviously as we globalize it that stabilizes and frankly just increasing the recurring revenue components, the SaaS, software and services components also stabilizing that.

And the non-GAAP service gross margin was 67%, kind have been 67% to 74%. Is that kind of the outer balance of the range there or what's your title range would you think about?

Well, I think that is outer balance of the range. We did add a couple of large scale deployments this quarter. Some of them had rental units as part of the service and that tends to pull down the services gross margins a little bit when it's on the rental units as well. I expect gross margins to from the SaaS and services to come up a little bit from the 67% that we just did. So I think those are the outer balance of the range. We've always set our target to 70%, 70% plus and that remains our target.

And then just last one, you talked about this $90 million run rate, once you sold the MiFi business, have you determined whether you're going to report a separate a hardware line or is all hardware going to be recognized on a pro rata basis?

So I think initially we will report a separate hardware line. The economy rules are changing, so whether we sell hardware upfront or not, when the new rules go in effect, we'll be pro rating it across all the likes of the subscription. I know we actually had some internal discussion here about early adopting that for next year just to simplify things, but we've got -- there are divestiture transaction that closes -- that is expected to close in the first quarter and we need to take one step at a time. So we're going to get that close. I expect next year we will report hardware separately. I would expect that practice to see slow by the time we get to 2018.

Your next question comes from Kevin Dede with Rodman.

I'm going to follow Jaeson's line of questioning, back on Ignite please. Sue, I was wondering if you could give us some insight on what the subscription level was there, thus far. And whether or not you see T-Mobile taking that package, that meaning prepared for them and trying to morph it into other solution?

Well, I think that they are pretty focused on this right now. I mean just as I mentioned, Kevin, this is new for them as well. This whole IoT space is kind of a new category for them and so while we tell you that they're focused like we are on building this business before they are thinking about transitioning to something else. I mean, we're working very collaboratively with them on just looking at continuous ways to improve how we're going to market, the customers we're targeting, things like that and so my sense will be is that we're going to be -- they're going to be pretty focused on this for the foreseeable future. I don't see any indication of them getting away from this right now.

Any indication on the subs there or initial take up and response from their end customers?

We actually are working with them to identify their customers and that's -- I'm glad you asked the question, because clearly having customers who already have T-Mobile as their wireless carrier and starting with that versus going to other customers with other wireless carrier has been a real focus and that has proved to be very productive, because then most customers already are aware of T-Mobile and their coverage, because for customers obviously, for this particularly product are very interested in the quality of the coverage. So that's one kind of abjection I would say that you might get, if you didn't focused that way. And so they've got a nice base of customers for us to mine and so we're working with them to identify customers within their base for whom this product is applicable.

But T-Mobile is a marquee brand and I'm wondering how you've been able to leverage it; granted you have at hand a lot of time, but I'm just sort of wondering, given that you've got that in your back pocket, how many doors have you been able to leverage open with it?

Actually we've done some joint action marketing with them and we recently were at a fairly big show to focus on this particular marketplace, so yes, they are brand that makes the big difference for us in terms of, when I think talking to customers with that brand and having them, like I said, talking to customers who first have T-Mobile as their carrier, they are already a fan of T-Mobile and so that works pretty productively. It also helps in terms of positioning at shows partner with them and that's what we felt frankly was one of the advantages of doing this with them because of their marketing prowess, their capability of lead generation and frankly their sales force. I mean they have a very capable sales force that is focused on just particular segment from where this is applicable and we're continuing to expand that capability within T-Mobile. This is a new program for them. I'll just reemphasize that, it's a new program for them and so we're taking incremental steps with them to expand, but do it in a way that actually is very productive, but they're very pleased with the progress that we're making here.

Sue, I apologize I didn't make my question very clear. I was wondering how you're able to leverage that connection outside of the T-Mobile ecosphere.

The fact that we announced it, it was of interest, let me just say, to other parties. And as a result of that announcing and I think people kind of stood up and say, wow, that's an interesting idea. So while we haven't concluded those discussions, we're certainly in discussions with others for whom this now is an interest. Maybe that's more responsive to your question.

That helps. I'm wondering if there are any examples you could point to, anything that you might want to speak to as a specific example I guess.

Well, I can't announce it right now, but I think very shortly, I would just tell you that in terms of distribution, there may be some names that you would recognize as a fairly large points of distribution that I am sure are as a result of our T-Mobile relationship. I can't give you the specifics right now, but hopefully we'll be able to give you more information in short order.

I know you and Mike were very clear on leaving a pretty broad window for the closing of the MiFi business sale. And I guess, what I am wondering is whether or not you think it might fall before the fourth quarter report or after? If you might be able to narrow it down a little bit for us?

So obviously we need to get, as we discussed, approval of our shareholders, approval of our convertible bond holders as well as getting U.S. approval. We anticipate within the next couple of weeks filing our proxy materials with the SEC and once those go through the approval process at the SEC we will be able to release those. So if you think about that kind of timeline that I had to bet, I bet that we're earlier in Q1 versus later in Q1, but that depends on a lot of things including U.S. government approval and SEC clearance of our paperwork and things like that, so it’s not entirely in our control, but I'd be thinking more early than late in the quarter.

In fact, I'm going to circle back again to align that I think Jaeson was going down. Your Ctrack gross margins guidance for the third quarter was 63% to 68% and then for the fourth quarter, down a percentage point. And I think maybe that's what drove that idea, I mean I'm not going to put words in his mouth, but it’s sort of got me thinking, I'm wondering if its tied to larger deals as you reference in your prepared remark Mike or what's going on there that would make gross margin target range change so much for you?

Well, first off, Kevin, I'm not sure of the gross margin range. We guided to 63% to 68% in Q3 and we're guiding to 62% to 67% in Q4 as opposed to 63% in Q3, so I think given that gross margin was a little lower in Q3 where appropriately moving one percentage point down in our guidance range for Q4. But it really is a factor of large deals. When we do large deals and large deployments that results in a large number of a hardware unit shipping out and hardware gross margins are always going to be lower than software gross, and in addition you're always going to have in very large scale, you're always going to have some level of discounting. But these will drive revenues, they drive gross profit, they drive EBITDA, they just don't necessarily drive Ctrack gross margins up because the FW is little lighter on the gross margins side in exchange for the volume. Now, you noticed in Q3, our overall corporate gross margins went up, because they drove high volume of revenues and as the mix continues to improve that just pulls our overall corporate gross margins up, but on the Ctrack side that's the variability and volatility you'll see is the magnitude of large deals versus small deals. There are other companies in the telematics space that will focus on sort of a single segment of the market, let's just say company that focuses exclusively on the SMB segment of the market, and you'll see more consistent gross margins from them. Ours will be consistently high, but because we do consumer business, we do large fleet business, we do SMB business, it's really, ours will move slightly just based on where those are, they're always going to be high. We're always targeting, like I said, gross margins in the 60s for the Ctrack business and 70 plus for SaaS, software and services, but we'll have a little bit more movement around that, but the good news is when gross margins decline a little bit, because we have large deals, that also means gross profit itself is growing up if the item is growing up.

Can we take it one step further and look at the specific example that Sue mentioned. In Cameroon you talked about 100,000 subscribers; I'm wondering how you'll expect them to ramp? Whether or not maybe some of that it's factored into your projections? And what sort of an ARPU range you're looking at in the deal of that size? And finally who did you beat out to win it?

So couple of things there. First in terms of the ARPU range for deal of that size, I mean, all I can really say is that indeed lower. I mean we talk a lot about -- I don't like talking about pricing of deals, but we do talk a lot about pricing in the fleet space typically being in that $25 to $35 per month kind of range. And in the consumer range, four of the large fleet space -- and Cameroon taxis, even though they're not large vehicles it is a very significant deployment. We'd expect to see lower ARPUs in that kind of business. In terms of the deployment, obviously you're not going to -- as much as we like to have a 100,000 taxis deployed next quarter, it’s just not going to go that fast, you're going to see -- we expect to see a consistent ramping of that deployment as we go forward over the next couple of months, in the next couple of quarters. And then there was a third question there? Who did we beat out for that; that's one of the real nice things about this business and being in the global business, I know sometimes here in the U.S. we tend to have a very U.S. centric approach and thought process about where business can be accomplished. We are a very, very, very strong player not just in South Africa, but throughout Africa. We've talked about our relationship with the MTN, which is a larger carrier in interiors, we talked about here that are based in North America. And this Cameroon taxi opportunity for 100,000 vehicles is a sort of our bread and butter. There are things that you'll hear a lot of other U.S. companies talking about because they're not chasing those deals, but we are. And from a competitive standpoint, I know it's hard to belief but it was kind of our Solus, we were in there, its quarter of what we do. I mean, we not only try and win these deals, but we actually help develop these deals, due to our feet on the street there and our distribution channels down there.

Can we circle back to some of what Sue touched on in her prepared remarks about the integrated, new interface for the small-to-medium launch of fleet management here in the states and I suppose other developed nations? Can you talk a little bit about how it's going to look and how easy you foresee it being able to be implemented both from the carrier's perspective and the fleet operators' perspective? I'm just wondering if you could make it a little bit more tangible.

Sure. And I guess the easier to talk about it is when you think about the apps that you have on your iPhone and how easy they are kind of intuitive and many of those you can sort of figure out on your own, that you don't require training to do, that's really the design pieces that we use when we put it together, so that as you think about this market, they don't have the luxury of having fleet managers and IT people to do this, so that is what we had in mind. And not only does it allow for some but simple flexibility about moving tiles around for the information that you want, we actually are going to push some information to the end user, whether it'd be to the desktop or to the handset, the information that through research we have determined is useful to the user, so fairly intuitive, like I said more icon like, and more push information, with some real simple ways for the customer to customize that for their particular needs, so that's how I would describe it. It's very, very simple. Some of the higher end fleet products are quite robust in their capability, but they do take quite a bit of training to figure out how to best configure them and we want this to be easily configurable and usable for the end user, not only for people sitting at a desktop, but for people who are mobile and on their handsets, so we want to make it usable for both screens, so to speak. I don't know does that help a little bit more?

That helps a ton, yes. I'm still wondering now, Sue, you've integrated carrier portion of the service portion into the app? When someone signs up for it, it comes complete with wireless connectivity?

Sure. I mean you have to have that to push the information full. Like I said, Ctrack has done this for years, so that's really not a difficult thing to figure out. You just got to have those relationships and now it’s part of the offer, plus the customer doesn't have to make any decision on that.

So that sort of leads me to my next question, which is the branding of that, and the Inseego name that you've chosen and I'm just sort of curious about the way that you're going to brand it and the Inseego name that you've chosen for your new company -- new company name that is. I'm just wondering why you thought it’s wise to grow the brand equity that Feeney has developed or that Ctrack has developed?

So I wouldn't presume that we're not going to leverage the brand equity of Ctrack, so you'll see more on that as we roll that up, but that was certainly was part of the discussion and decision making, so I think you'll see that we're going to leverage that pretty effectively. I'm not sure that Feeney name has as much equity, particularly with where we are. Remember they were systems integrator business versus an IoT business that was going direct to the end user with a scalable product, so I think you'll see that we're going to integrate some leverage brand equity where we think it makes sense. And I'll tell you we're pretty excited about the name. This is our interesting process. I'll tell you we're particularly pleased with where we came out as we own the name globally, we own the global domains, which is not easy these days, there is a market out there for picking a variety of names and then buying them from people, so we weren't in that position. And what we love about it, is it’s easy to say. I hearken back, Kevin, and you called what I remember when Verizon launched their new brand after they were ballistic I think. And I remember seeing the name in the newspaper or online or whatever was that day, everybody is going, Verizon, what is that. And it turns out -- remember when you heard it, what kind of crazy name is that. But I mean, as you know a brand kind of starts out, people kind of cock their heads a little bit and wonder about it, but it’s really up to us to create the brand and make something of it. I think that's what good companies do. But for all the reasons I have stated, we are pretty excited about where we are. I think the team is pretty excited about where it can go.

And that obviously will tie to the app that you will allow for your small, mid-sized business fleet management in the fourth quarter that will go under that brand?

Yes, we'll be using the name. You can go on to wwe.inseego.com today and you'll start to see some of it and then our ticker symbol actually goes live on November 9, next week, and so you'll start us to continue to start to use the new brand on an iterative basis.

And I was so bold to write up in expectation that this wouldn't be launched until CES. So I'm just kind of wondering what your -- I mean what you've mastermind, you're thinking in terms of pushing your brand at that venue?

Well, that's a long time from now in the world we live in, but we're starting to make plans for where it looks like longer term. We thought this is the right time to do it as we really transition and move away from the Novatel name and so we'll continue to have plans at the different venues depending on what our presence will be at those particular events. And so you'll start to see that being used and we'll certainly talk more about that as the time comes.

Your next question is a follow-up question from Jaeson Schmidt.

Wondering if you guys envision needing to hire more sales on the Ctrack side next year?

I think that obviously as we grow the business, we're always looking to expand our investment in sales. I shouldn't assume though that all regions and everything is the same and we are looking at different ways to expand our sales, whether it's direct or indirect. Indirect will be through distributors, partner relationships, we have et cetera. So we are looking to grow our revenues and grow our sales, but we're always looking at ways to do that more efficiently as well. So we'll continue and try and hone that mix based on target segments as well as our geographic markets.

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