Hello, and welcome to Inseego Corp's Fourth Quarter and Full-Year 2019 Financial Results Conference Call. Please note that today's event is being recorded. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity for analysts to ask questions. [Operator Instructions] On the call today are Dan Mondor, Chairman and CEO; Steve Smith, Executive Vice President and Chief Financial Officer; Ashish Sharma, President of IoT & Mobile Solutions; Doug Kahn, Executive Vice President of Operations and Customer Success; Wendy Caceres, Chief Marketing Officer and Head of Investor Relations; John Weldon, Senior Vice President of Enterprise SaaS Solutions. 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 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. Please also refer to the cautionary note regarding forward-looking statements section contained in today's press release. I would now like to turn the call over to Dan Mondor, Chairman and CEO. Please go ahead.

Thank you. Hello, everyone. It's great to be with you today. 2019 was a year of historic progress for Inseego. We moved 5G technology out of the lab and into commercial deployment and recognized nearly $11 million in 5G revenue. In 2019, consolidated revenue exceeded $219 million, despite foreign exchange headwinds and a change in subsidies for a flagship LTE hotspot which significantly impacted the fourth quarter. Our IoT & Mobile Solutions business generated $154 million in revenue, growing 14% year-over-year, and our Enterprise SaaS business generated $65 million, the increase of 3% from 2018 on a constant currency basis. On Tuesday, we announced a $25 million investment from Mubadala Capital, an Abu Dhabi based sovereign investor. Mubadala joins existing major investors Tavistock Group and North Sound Partners. This investment strengthens Inseego's balance sheet and provides the company additional liquidity to continue capitalizing on the unprecedented global opportunity that 5G presents. Further actions have been taken to strengthen our balance sheet, eliminate near-term debt maturities and reduced cash interest payments. Steve will cover the balance sheet improvements in his remarks. So let's start with some comments on our IoT & Mobile Solutions business. We launched our first-generation 5G products last July. And in the fourth quarter and at CES in January, we previewed our second-generation 5G portfolio in private customer briefings, and these products were enthusiastically received. I am pleased to announce that in calendar year 2019, Inseego signed 5G product agreements with leading operators in North America, Europe, the Middle East and Asia Pacific. These agreements include wins for our new fixed wireless access products and for our mobile broadband hotspot products, exceeding our target for the year. We are laser-focused on converting these 2019 wins into successful commercial launches this year. We are seeing 5G network rollouts ramping…

Thanks Dan, and good afternoon, everyone. As Dan highlighted, we've made tremendous progress over the past 12 months. We've won new business with existing and many new domestic and international service providers. And we've distinguished ourselves as a key player in the 5G ecosystem. 5G products will be the top growth drivers for Inseego in the future. Before getting into the details of the quarter and the full-year, I am going to draw your attention to some very important recent achievements, specifically around the balance sheet. To take advantage of the opportunities that are presented to us by 5G, we significantly strengthened our balance sheet. There are four major components to this. First has been to reduce our overall level of debt. We've accomplished this by converting approximately $60 million of the $105 million of our convertible debt to equity. In addition, we have eliminated a number of restricted covenants that limited our flexibility. Second, we have amended our $47.5 million term loan, so that the interest payments will no longer be made in cash, but through shares of preferred stock. Thirdly, also related to the term loan, we agreed with the lender to extend the term loan from a maturity of August 2020 to March of 2021. As a result of the above actions, both debt instruments have been reclassified to long-term on the balance sheet. And we've eliminated the cash interest payments by approximately $7.8 million annually. And lastly, we announced yesterday the $25 million investment by Mubadala Capital. This substantially bolsters our cash position, and we expect that this gives us the runway to positive capital. 2019 total year revenue was $219 million, 8.4% better than 2018. Q4 revenue was $52.3 million, broken down by business units as follows. Total year IoT & Mobile Solutions revenue was…

Thanks, Steve. 2019 was a year of tremendous achievement, building the foundation for profitable growth and increasing shareholder value in 2020 and beyond. Our entry into multiple new geographies and our expanded product portfolio requires relentless execution, and the improvements we've made to the balance sheet and reduction in cash interest payments strengthens our ability to capitalize on these global 5G market opportunities. I want to say a few words about the impacts of the coronavirus. We planned for a major presence at Mobile World Congress last month. However, we appreciate the decision by the GSMA organizing body to cancel the show for the right reasons. We immediately got to work in other ways to conduct the schedule meetings with our customers and partners, including extensive use of online meeting systems. We've seen a very gradual recovery of our supply chain in Asia from the coronavirus as factory employees returned to work and production lines ramp up output. Thus far, Inseego has experienced minimal supply chain disruptions and we've taken numerous actions to mitigate possible impacts. We've described how we transferred manufacturing out of China, avoiding exposure to tariffs. And I'm pleased to report our 1 million products will ship this quarter out of Taiwan with our partner Foxconn. Lastly, I want to mention one other aspect of the coronavirus situation. We've seen a sudden increase in demand from several of our carrier and [indiscernible] customers for our products. This increase is driven by many businesses mandating work-from-home policies as a result of the outbreak, and they want MiFi, secure and reliable connectivity for the remote employees. We are working with our contract manufacturer, Foxconn, to fulfill this upside demand. I want to thank all stakeholders in the company, and particularly Inseego employees who are working around the clock to bring groundbreaking 5G solutions to our customers. That concludes my prepared remarks, and I will turn it back to the operator for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mike Walkley of Canaccord Genuity. Please go ahead.

Great. Thanks for taking my question. Just on the VMware. With the increased demand with the work-from-home, how quickly could you ramp up the product and how might this impact the model in terms of both sales and gross margins? Just kind of help us think about this upside demand. Thank you.

Yes. Well, thanks, Mike. It's an incoming that's occurred quite recently. We are still getting our arms around it. We have an understanding of the drivers behind it and we have an understanding of the magnitudes. And we are literally working in real-time now with Foxconn to understand the quantities we can supply and at what timeframe we can supply them. But it's a very interesting development. I think everyone understands the reason for it. Obviously, MiFi is the ultimate secure work-from-home product and it's a result of that. So I can't really comment further. It is a very recent development, and the magnitude of which is really something that we're not prepared to discuss at this time. So as we have concrete news to report, we will certainly do so.

Okay. Understood. And then just with the Board decision to increase investments for the 5G opportunity, can you just talk about any profitability targets, maybe longer-term or anything on the model that helped us out. I know there's good growth coming, but obviously, different world than different demand trends could happen in the short-term?

Well, okay. Great question, obviously. And I'll just go back to the comments we made and with the capital raise for Mubadala, we just announced $25 million. We expect that that will take us to a cash flow positive.

Okay, great. That's helpful. Last question for me and I'll pass it on. Congratulations on all of the different design win activity. As you see things today kind of working with your supply chain and X55 availability, does it – everything looks like it's still on track for that second half ramp?

Yes, it does in a nutshell. Yes, it does. We're very close to these customers. Of course, we've engaged deeply. We know what their plans are and are adjusting our plans accordingly. But in a nutshell things remain on track. That's our current outlook for, as we discussed in the past.

Okay, great. Congrats on the capital raises and best wishes for the year.

Thank you, Mike.

Thanks Mike.

Our next question comes from Scott Searle of ROTH Capital. Please go ahead.

Hey, good afternoon. Thanks for taking my questions. Hey, first off, just to get some clarification on the gross margins. Steve, it sounds like there's some one-time charges related to freight and write-downs. Could you give us an idea, quantify that for us a little bit, so we know what the normalized gross margin looks like? And then sequentially as we're going into the first quarter and first half of this year, how are you expecting things to directionally trend in the near-term? And then I had a couple of follow-ups.

Yes, Scott. This is Steve. So like I said on my prepared remarks, we still had a 2 point increase from cost reductions that were generated from the work we're doing with Foxconn. The rest of it, the takedowns – versus all of the combination of mix and then the one-time charges. But directionally, I do expect we'll continue to see upticks in the gross margin. The cost reductions we have are pretty much prescribed, and we [indiscernible] to all of them that are coming through the balance of the year.

So Steve, just to clarify then, 200 basis points up on a normalized basis, it would have been closer to 19% versus the 14.7%. Is that the way to think about our starting point?

Yes, that would be a good way of looking at it.

Okay.

And again, Scott, that's barring any changes in the mix because we have some lower-margin products. But in general, about two point increase or something.

Okay. And then in terms of the outlook into the first half, you talked about it – historically, talked about the expectation of it being flattish from the fourth quarter. It wasn't clear to me, if that's still where you were guiding before some of these orders and discussions started around the upside starting to roll in for remote workers right now. So was the baseline, they're still in the ballpark of flattish and then remote opportunities for hotspots is upside. Is that how we should be reading into the comments?

Well, the answer to your question is the flattish comments was really before this incoming on incremental demand. And as I said, we're very [recent] – we're modeling it. We're working with our supply chain partners to determine how much we can fulfill, frankly, now before the end of this quarter as well as in the second quarter. So it's a situation that we're studying in real time, and we really can't comment any further because it's a combination of, quite frankly, how much we could fulfill and how fast.

Got you. But the baseline is still flattish, and that's upside to that.

Exactly right.

Correct. Yes.

Okay. Then just looking to the second half and the 5G ramp, you did $11 million with 5G in 2019. I'm sorry, I missed the actual number of signed deals with operators at the end of the year. If you could repeat that? And then just maybe help us understand, how many operators you would expect to be shipping to, given your current visibility into the second half of this year? It sounds like from Mike's earlier question, the X55 remains on track. I'm wondering if you're seeing any issues related to that ramp there? And then kind of how the X60 is going to factor into the design development going forward? Thanks.

Yes. Well, Scott, what we said was we signed 5G product agreements for both our fixed wireless and our mobile broadband hotspots. And these were basically regions all around the world. Domestically, Europe, Middle East, Asia Pacific, and we exceeded our target from last year. We've not made further comments on the quantity. We've made the comments previously in our target, but we just basically are saying and stating, we exceeded our targets. So we're very happy about that. And we're moving now on to ensuring we convert these into successful commercial launches. That's our focus.

Hey, Dan. Is there a number that you would put at a bare minimum for 5G in 2020? Thanks.

Well, we're not going to be able to comment on the 5G revenue for 2020 per se, Scott. So it's not a number we're prepared to give at this time. It will be something we'll be reporting upon obviously subsequently as we move through the quarter. But at this point in time, we're not putting out a number for 5G revenue in 2020.

Okay. Thank you.

Welcome. Thanks Scott.

Thanks Scott.

Our next question comes from Lance Vitanza of Cowen. Please go ahead.

Hi guys. Thanks for taking the questions. I wanted to gear to the 20 leading mobile operators in trial. Could you talk a little bit first about how that breaks it out between the wireless in-home broadband products versus mobile WiFi hotspots and consumer versus enterprise and so forth or is it typically the case that when you say you're trialing with a mobile operator that you're trialing multiple products and applications?

Yes. Well, it's great. Thanks, Lance for the question. It is a combination of our fixed wireless products and our mobile products. I made a comment earlier about seeing the – more or less macro, but 60% of the 5G deployments, thus far our fixed wireless access. So it's kind of 60/40. So we're seeing a combination of those two. Some carriers are trialing one product. Some carriers are traveling multiple products. So it's a blend. But as we work through, and I think last time we reported, I think it was 15 or 16 trial around this. So we've gone up from that point to 20. And the metric that we look at is number of all subscribers that these operators represent, and that figure is moving up nicely corresponding as you can imagine.

Well, in fact that was going to be my next question. Can you talk about like on average or in the aggregate, how many subscribers these 20 carriers represent?

We're in the $650 million to $700 million range.

Okay. And then – and how long do these trials tend to run? And what kind of hit rate should we be thinking about in terms of getting the product agreements and then ultimately, the commercial launches? And if you don't feel comfortable putting out a number out there, can you at least maybe talk about last go-around when you rolled out 4G products? How many global carriers did you trial to get to the relatively limited number of commercial launches that you had 10 years ago?

Well, I guess I can probably comment on that kind of succinctly. The company really was squarely focused on Verizon. So the breadth and the depth of the operators was not that – really that wide. And so it was really the situation we're trying to change which is that of customer concentration to a broader range of customers, product concentration to a broader range of products and certainly, North American-centric, U.S. centric to a broader range of geographies. It's a completely different dynamic. But with the 20 trials, typically, when an operator is investing and engaged in the trial, providing that you improve your products performance and robustness and reliability to fall successfully. It generally converts to a deal. Does it always happen? Though it doesn't always happen, but it's really dependent on how we perform. And we're certainly focused on performing well. The robustness of our first-generation 5G product, the M1000 has really given us a leg up. It's basically saying, we know how to make a robust multi-gigabit product, reliable, high-quality and it's really helped us – helped our credibility frankly on our second generation. So that's a factor frankly as you go into these trials, there is a proof point.

And when you talked – I heard you talk about the factors that are sort of driving your success there? And you mentioned the technology solution that you have. You mentioned reliability, you mentioned you're establishing yourselves as the sort of the non-China vendor, you didn't mention price or cost. And I'm wondering if that was a intentional omission or is that just one that is also part of the equation that maybe matters a little bit less or to some extent?

Well, it was an omission because we don't discuss the size of contracts with a particular customer nor do we discuss the price – the commercial terms and price points for the customer. We don't disclose that information for lots of obvious reasons. So it's just not something that we will comment on. We haven't commented in the past, and we're not going to discuss commercial terms because that's a confidentiality between us and our customers.

No, I understand that. I'm just saying, as you enter into trials, is the eventual price point part of the conversation? And how competitive are those or how competitive or non-competitive is that as a factor?

Those are part of the conversation to move forward, kind of in the on-boarding process that they do of course, yes, pricing is a conversation. It's of course a competitive market. We do not try to compete on price. We are a premium supplier. And the other element of – I will say right now, relative to some of the comments I made in our views in Washington, D.C., but a secure 5G Edge is becoming increasingly important, and you know the legacy in the history of putting all the security measures that we do in our products. And it's a 45 minute conversation about encryption security, no hard quarter password, no back doors, – all this sort of stuff. So that's becoming extremely important. And the conversation on secure 5G Core has now moved to secure 5G Edge. So it doesn't help to have a secure highway, if you don't have secure on-ramps. And that's really a conversation that we've taken forward quite recently to various parts of the administration and agencies in Washington, and that of course is what they are communicating to the international or the international partners. So what I'm trying to get at there is security is extremely important, and we are not competing on consumer grade because we don't have consumer grade. We have highly secure robust products. So that is the high-end of the market.

That's great. That answers my question. Thank you so much.

Thank you, Lance.

Our next question comes from Mike Latimore of Northland Capital Markets. Please go ahead.

Great. Yes, thanks. I guess on this kind of recent demand around teleworkers. Is the conversation about we need more of your 4G product now or is it we need 4G now, and we also are probably going to be increasing our 5G orders later? Like how are those conversations going?

Yes. Well, the incoming is in the hear-it-now context, Mike, as you might imagine. So it is the current generation of products. We obviously have a first-generation 5G product, but it is in that category, currently. It would be second on my part to know whether that will carry over to the 5G products. I could only imagine if the work-at-home movement were to continue. It would, but there again that – I would be speculating.

Got it. And then it seems in certain verticals, there's a lot of verticals, there's less travel going on, maybe less like you said, conferences, does that have any impact on your sales cycles or can you kind of overcome that with these online meetings?

It really hasn't because I think everyone's coming to grips with kind of the new way to work. And so we immediately shifted course of actions too, not necessarily just remote meetings, but did a combination of on-site customers. It's naturally a collections point at these conferences that everyone comes. So it's a convenience factor. So we did travel to see customers at their locations. And we are – and they are together with us using online media. So we've really beefed up our IT capabilities recently with a number of online meeting vehicles and they're working great. So I think who knows that may be the new way in the world, but that's what we immediately shifted to.

Got it. And then just on operating expense. Can you give us some color on how we should think about OpEx progressing through the year relative to the fourth quarter levels?

Well, like I – this is Steve. Mike, like I pointed out, we're going to continue to invest in 5G, specifically our engineering for our new product development. So that new product development is going to be split about 50-50 between certifications and actual development of product. And then sales and marketing will be increasing that as well as we put out a larger doable footprint.

Got it. And I guess, just last one. Of the 5G wins last year, are there like one or two that really drives incremental revenue in the second half or – of this year or will it be pretty diverse among the wins?

Yes. I can comment without getting into specifics. It's actually fairly diverse, which is for us, relative to our missions, a mission accomplished, as you know. So it's fairly diverse. There's a mixture of Tier 1s and Tier 2s in there. I'm not going to get into more specifics, but it's a nice mixture and is really the path forward to diversifying a customer base and diversifying the product base. It's a mix of fixed wireless and mobile. It is what we were aiming to do.

Great.

I wanted to come back – the question on the sales cycle on this current situation. And I would say this incoming demand, the sales cycle has been zero. So literally that phenomenon is great in this work-at-home environment. And we have the ideal vehicle in the MiFi hotspots for a work-at-home product that is secure high-performance connectivity. You name what you name it. So this has really been frankly in the last couple of weeks and even as of yesterday, incoming demand that's coming to us to determine how much we can supply. So from that point of view something cheap, the sales cycle was zero.

That makes sense. Thanks.

Thank you, Mike.

Our next question comes from Matthew Galinko of National Securities. Please go ahead.

Hey, good afternoon, everybody. Thank you for taking my questions. I think it's been a few months, since you launched initially on FirstNet. So I was wondering if you could comment on how that launch went, and your thoughts on that as a channel going forward?

Yes. Hi, Mike. Thanks for the question. Honestly, Ashish is here, so maybe you could take that one.

Yes. So yes, I mean look, we've been in the market now and it's ramping up. There's a fair amount of education that goes on with launching into a particular new vertical like FirstNet. So we're going through that education right now with our carrier partner in that market, so far, so good. It does look like a very nice market for us in our backout here, which we will continue to grow in the future.

Got it. Thank you. And then you touched on work from home driving some opportunities I think in the first half of the year. I guess two questions around that before I hand it off. One being, did the issues around device subsidization that we talked about last quarter, changed at all sort of organically as you move through the end of the year and into Q1? And I guess what they did and didn't the pandemic and sort of demand – as a demand driver for some carrier hand to become more accommodative in subsidization?

Okay, yes. Thanks, Matthew. I'm not going to comment on subsidization, because it's not really – it's not our commercial action. It's a decision by the carrier to subside on devices and how much they do and what are the terms of their wireless agreements. So all I can say is that what we announced previously is carried forward. I think the information that's come in very recently, possibly could change that dynamic. We are right now focused on quantity of supply, how much and how fast. That's what our focus is, how this incremental demand might change the subsidization equation. That's not really our decision. We supply the product and the carrier does the treat term subsidization.

Got it. Thank you. And one just quick follow-up to that being I guess I'm hoping to get your thoughts on I guess, why is the end user going with your device to – for secure mode access versus traditional VPN or something along those lines? Why wouldn't they be using their traditional last mile connection? Thanks.

Yes. Thanks, again. So high performance, high reliability, secure connections and sustained connectivity as well as the robustness of the Wi-Fi part of the product. There's a whole combination of reasons, but it is a premium home office product. Naturally, these are not people that are – these are doing their work from home. So secure connection is very important, depending on the type of work that they're doing. So this is really moving their office to their home, and they want to apply their IT criteria to that environment. Our product fits that criteria. Actually, you do the process of elimination, there's very, very few companies that make that level of a hotspot type of product, Inseego does. That's been our roots in history. Ashish, I guess you could maybe comment on some of the fastest as to why and where for the security capabilities and why they're choosing us?

Yes. I mean to compare to trying to hook on to Wi-Fi networks to do these workflows and our solutions are fully secured on a carrier frequency and with full VPN capabilities. And then in addition to all the reasons that Dan, gave and also, please keep in mind working from home also means for multiple verticals. Its taking connectivity, not just per se in your home, it's remotely, right. Working remotely, and lot of these remote locations, and I'm not going to get specific on the verticals because that's one of our customers to talk about. In a lot of those verticals, there is no other option of connectivity other than hooking to carrier than for us.

Got it. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Dan Mondor for any closing remarks.

Thank you. Well, in summary, we've had a tremendous year in 2019, and we're carrying that momentum into 2020. We're very confident in our position to make 2020 the best year in Inseego's history. Thanks again everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.