Hello and welcome to Inseego Corp.'s Second Quarter 2021 Financial Results Conference Call. Please note, 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; Ashish Sharma, President; Bob Barbieri, Interim Chief Financial Officer and other members of the management team. During this call, non-GAAP financial measures will be discussed. A reconciliation of 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 be also 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 the 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, operator and hello, everyone. Thanks for joining the call today. I'm pleased to report a very strong second quarter for Inseego with revenue up 14% sequentially to $65.7 million. And we approached breakeven adjusted EBITDA both well ahead of consensus. The strength of the second quarter was driven by continued growth in the sell through of our suite of 5G hardware and software solutions. I want to highlight an important fact. Our 5G solutions now represent almost 29% of total revenue, the increase of 182% over the second quarter of last year. These remarkable results reflect the continued overall market growth and customer adoption of Inseego 5G products. One of the core reasons we can meet our customers growing demand for our products is our longstanding direct relationships with key components suppliers and manufacturing partners. I'd like what other players are experiencing, our business was not impacted this quarter by the global semiconductor supply shortage. That said we believe this challenging environment will last at least through the rest of the year. We remain vigilant and have confidence that our supply chain is set up to support growth for the remainder of the year. Rapidly growing software-as-a-service business also experienced similar strain. Excluding Ctrack South Africa, software including Ctrack rest of world, Inseego managed to grew 49% year-over-year, and subscriptions increased 10% sequentially and 139% year-over-year. More in our software initiatives will be provided from Ashish. After the close of the quarter, we successfully completed the sale of our Ctrack South Africa unit, which brought in more than $36 million to our balance sheet. This gives us the financial flexibility to meet customer 5G demand and continue to invest in our products while striving for free cash flow positive. So here we are halfway through the year and…

Thank you, Dan. For the past few years, the company has been investing in the state-of-the-art, 4G, 5G and cloud solutions to form a powerful engine for business transformation and growth. As you heard from them, we had impressive momentum in Q2, which gives me great excitement and optimism for what's ahead. We saw customer demand across the business led by major market shifts, hybrid work, digital transformation and continued strong uptake of our subscription-based software offerings. As Dan mentioned, our 5G broadband portfolio grew 182% year-over-year in Q2 and now represents almost 29% of total revenue. And cloud software portfolio grew 49% year-over-year, which is now 20% of total revenue. Combined, these next generation products now represent almost half of total revenue, up from 44% of our business just last quarter. Let me reiterate that because it's impressive. Our new generation of products now represents almost half of total revenue and we're just getting started. Inseego's end-to-end portfolio is laying the foundation towards 5G controlled enterprise networks that can [under] [ph] numerous applications and extend reach to areas never connected before. What an exciting time to be in the 5G space. Now let me provide details on our key businesses. Let's start with mobile broadband. We saw great growth in the quarter with this portfolio. And as Dan mentioned earlier, we see no signs of that slowing down with two more 4G launches on track for the third quarter in the U.S. Our 5G solutions are proving to be perfect for the work from anywhere paradigm. And our carrier customers are leveraging these solutions to provide amazing broadband experiences for a variety of use cases like employee remote connectivity. This is because these solutions are capable of delivering sustained 5G performance with gigabit plus speeds, lower latency and security.…

Thank you, Ashish. Let me now review the results of our second quarter fiscal 2021. Before I start, I would like to remind everyone that year-over-year comparisons will be impacted by the pandemic driven surge for current and 4G hotspots, which began in the June quarter last year and continued through the remainder of fiscal 2020. That domain for our latest generation 4G products has now normalized at a level higher than where it was pre-pandemic. With that, let us get into the results. Q2 revenue was 65.7 million up 14% from the prior quarters, 57.6 million. The strong result was driven by 5G solution revenue, which was up 71% sequentially and 182% from the prior year. Second quarter, IoT and mobile solutions revenue was $51.8 million, up 20.7% quarter-over-quarter due to the strength of the 5G solution sales. Accelerating sell through of 5g products led to strong reorders in the quarter from our current partners T Mobile in particular. Enterprise SaaS solutions revenue of 13.9 million was down 5.3% from Q1 and up 21.8% from Q2 of 2020. The year-over-year increase resulted from continued subscriber growth and Ctrack rest of the world that we are now able to recognize as COVID-related restrictions have eased in some countries allowing Inseego to install our IoT modules. Cash at the end of Q2 was $40.4 million and includes 5.8 million of cash classified as held-for-sale, as well as 3.7 million of restricted cash related to the sale of Ctrack South Africa. The decrease in our cash balance is reflective of increased R&D spending on 5G products and networking capital adjustments. We continue to diligently manage use of cash including working capital and we expect cash burn will steadily decline in the coming quarters consistent with our free cash flow positive goal for…

Thanks, Bob. Before moving into Q&A, I want to welcome Stephanie Bowers to our Board of Directors. Stephanie brings a wealth of experience in international relations and government affairs and we're delighted to have her join our Board. She will be instrumental in opening new global markets for Inseego by helping us with the security, supply chain and government approval aspects of our 5G products. On the CFO search, we continue to make good progress and we have narrowed our list of candidates. That said Bob has been doing an excellent job. I am in no great rush and plan on taking the necessary time to find the right candidate. One, they will have the experience and capabilities to support the growth of our next generation 5G and software solutions. I will conclude by expressing my sincere thanks to our dedicated employees who continue to execute so amazingly well in these challenging times. They are the driving force behind the strong second quarter, and the tremendous growth in our opportunity pipeline, and I can't thank them enough. Their accomplishments gives us even more confidence in our ability to become a high growth, high margin, 5G and software-as-a-service global solutions company. Thanks again, everyone.

We will now begin the question-and answer-session. [Operator Instructions] Our first question will come from John Marchetti with Stifel.

If I can just start first on the Ctrack sale. Can you let us know what revenue was for the portion of that business that you're divesting in the first half, just as I'm assuming given your comment about of your better second half over first, we need to exclude that out and just want to make sure that we have a sense of what that your revenue is that we should be accounting for?

Hi, John. It's Dan. Thanks very much. Good question. I think Bob was jumping in ready to answer. So take it away, Bob.

Yes. Thanks a lot, John. If you with respect to South Africa, in the first two quarters, the amount of work revenue generated was 14.2 million. And in the July month, I think in terms of about 2.5, because we saw exactly at the end of the month. That's helpful.

Thank you very much. That's helpful there. And if I can just follow up with a question on the margins, I want to make sure that I understand this correctly, you clearly saw more 5G in the quarter, all of that very, very positive. So I was a little bit surprised that margins took a step back here, given the growth that we're seeing in 5G and in the software portfolio. Is it solely a function of more, 5G Wi-Fi hotspots versus something, fixed wireless access or things of that nature? Just, you can help me understand that dynamic, just so we can think about that, as we're looking out over the next several quarters and into '22?

Yes, thanks, John. Thanks. Well, the overall margin for our 5G products is better than our 4G products. That said, our fixed wireless access products are even better than our hotspots, we believe there will be a large improvement in overall 5G solutions, gross margin and especially we have the value added software, when we attach to the hardware, economies of scale, learnings and we did through the journey in 4G, get pretty appreciable gross margin improvement over time, better inventory supply chain costs. That said there was premiums for spot market purchases, as well as higher freight and shipping costs that we saw in the quarter for all the reasons that I think the market knows well.

Great. And then, maybe one last one for me, and I'll jump out. Just on the software side, should we expect more applications launched this calendar year or is that more of a '22 event?

Yes, let me let me turn it over to Ashish.

Hey, John, good question. So we do expect to launch some new solutions later this year, in addition to continuing to add more functionality and more features to the existing customer solutions. So there will be some new ones coming out but we do continue to puff up the existing ones.

Our next question will come from Lance Vitanza with Cowen and Company.

And congratulations on the nice quarter. I wanted to actually ask you on the pipeline in the enterprise channel, and actually, I don't know if it was Dan or Ashish, someone mentioned that there's now well over, I think the phrase was well over 100 customers trialing and buying right now. And then, there was the list of all the different types. I wanted to try to get a sense for how close or far you are from converting the pipeline to revenue. But it sounded like from that statement that maybe you're already beginning to do that. And I'm just wondering, from the press release and the language regarding the improved revenues in the back half versus the first half, it sounds like that's largely attributable to the enterprise pipeline being sort of converted. Is that right? Am I reading at the right way? And was enterprise was it measurable, was there a contribution in 2Q? Was it measurable? Will it be measurable in Q3? How should we be thinking about that? Thanks.

Well, as you know, an enterprise and 5G is what we were referencing. We're just getting going. Really, when the comment was, you're right, 100 plus 5G customers in our enterprise pipeline, but that's from zero in May. So that's pretty incredible growth, yes. And some of the -- can't name names, but largest corporations and brands in the world, very, very impressive 5G pipeline, they're looking to adopt them. So, we have a good visibility in the pipeline. Projects are defined, we understand the scope, the budget, the start time, who the decision makers are, who cuts the POs, that sort of thing and the selection process. So in terms of timeline to answer your question, the start dates for the pipeline we're referencing can be anywhere from 30 days to a few months. And the other part of your question, yes, there was 5G enterprise revenue in Q2, but it was a very, very small number, as you could imagine. So we do see that ramping up quite nicely.

Okay. And then, my other question was, if I think about 5G plus cloud that if I got it right, that improves sequentially to 49%. I think you'd said 49% of revenue from 44% in the first quarter. And I think it was the 5G piece went from 20% to 29%. The cloud piece, if I got it right, that actually, as a percent of revenues went down, even though the revenue grew 49% year-on-year. So was that, I guess it was just that, when you've got the 5G piece is tripling year-over-year, then that piece is going to get smaller? But are you pleased with sort of the way that those two are growing relative to one another?

Well, very, very pleased. And I think you hit it, the denominator was a different number. So larger numbers, how they, the ratios were different. 5G is clearly going gangbusters. I think overall, if you look at the 49%, up from where it was a year ago on last quarter, the way I said it is we're getting the growth in the areas we want to get the growth. Those are the engines that we invested in incredible market traction, the numbers speak for themselves. So, we expect to see that growth curve continuing.

Great. If I could just squeeze in one more on the cash balance. If I just take the 37 million from the sale of Ctrack and add it to the 30 million that you reported, is that sort of the way that your pro forma cash balance is kind of 67 million? Or, will there be some taxes payable there? And I'm just wondering, I know, you mentioned that you think that the burn is going to decline? I think you mentioned noticeably over the next few quarters. But on a straight math basis, I mean, 20 million burned versus 67 million pro forma cash, so only three or four quarters where in cash. Are you feeling comfortable with your liquidity position? Would there be perhaps a need to raise incremental capital at this stage?

Yes, I'll ask Bob to comment. Just a slight correction. It was 40 million cash at Q2 end. But your question –

Sorry, I apologize.

Yes, No problem. There was some things associated with Q2 that were, if you will specific to Q2, if you will, also one-time cash burn aspects. And we want to know, Bob ask you to explain that. So we can go through that. But we do see cash burn what's high because of the working capital changes, and we certainly see a steady decline going forward. But Bob can give you some of the color on the Q2 cash -- use of cash.

Yes. Lance, a couple things first, just in terms of the raw cash amount. In the held for sale treatment, what happens is the cash that we have gotten after the sale closed, a little bit under 7 million accrues to us, but was in the line of the assets held-for-sale. And then second, we have a restricted cash of about 3.7 million for a period of about 12, or exactly 12 months after closure. And that will be our cash. And that is just held separately from a lack of a better term, the rep and warranty standpoint on the sale but that is our cash. And then if you add those together, that's where you get to the 40 million that Dan mentioned. And then going forward and how do you think about it. In the first quarter, a couple things. One is the company paid its bonuses and restricted stock in the first quarter. And that had an impact in that we basically held taxes from the employees and our cash account in the first quarter, but then relieve them in the second quarter through our outside payroll company. So that was about $7 million of an impact of the cash movement. The remainder was, yes, certainly just the movement from quarter-to-quarter, we had some less rebates only because of each unit. If you look at the Q3 and Q4 prior year, versus the lower Q1 revenue, certainly less rebate if we earn them, there's about a one quarter lag, so that contributed –

Qualcomm rebates.

Qualcomm, yes, for more of a cash burn. And then, that'll reverse itself going forward because of the step up in revenue to Q2. And as well as some other in and out of working capital. Certainly when you have a lower like a Q1 revenue number, your accounts receivable activity is less on your recovery and then I'll reverse itself because of the strength of Q2 as we move forward. So hopefully it's a little bit of color. Actually, the other thing as Dan mentioned, we are managing that cash burn down and that's the goal. And that's how we're executing.

[Operator Instructions] Our next question will come from Mike Walkley with Canaccord Genuity.

This is Daniel on for Mike, thanks for taking my question. Just as a quick one for me. Could you just give us a sense of the timing of some of the new carrier launches you mentioned moving forward?

Yes. Hi, thanks for your question. Well, we have -- it's part of our pipeline, we have a number of launches that we expect to occur this quarter. And going forward, the pipeline has a pretty long tail on it, different stages. So can't really give specific answers as to numbers. But again, it goes back to a very healthy pipeline. And in terms of the carrier pipeline, it's a longer cycle -- sales cycle, as you can imagine. So the engagement from testing the products to approval to certification to launch takes time, but we expect to expand our carrier customer base going forward. I think, at any moment in time, I think right now we've got something like 30 RFPs, that we're responding to. Again, it's a function of healthy pipeline but we expect to have and we expect to announce a steady flow of new carrier customers. That's number one. Number two, it's additional product slots within a customer we already have. That's another aspect.

Our next question will come from Mike Latimore with Northland Capital.

Hi. This is Aditya on behalf of Mike Lattimore. Could you tell me how many 10 percentage customers did you have?

Bob is looking for numbers? The answer I'm going to give is two.

Okay. Can you give me like, what were their individual percentages to total revenue of these two customers?

No, we're not going to -- we don't break out the actual revenue dollars. So it's just not something that we discuss because we do not want to identify revenue numbers for any specific customer. So we just don't provide that kind of breakout.

All right. And on the mobile and IoT pipeline, what percentage of it is international?

Ashish?

Yes. Aditya not a lot at this point. We've got a nice pipeline. We have some early customers, but majority of the value still coming from North America.

I think the financial relative to revenues answer relative to pipeline. So not a lot of international revenue currently, I would say on a relative basis, because the international market is a new market. And we're, we're building it products and our go-to-market teams, The pipeline on a percentage basis would be much higher than the current revenue on a percentage basis, if that helps.

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

Well, thank you, operator. I will say this and just to wrap up, the Inseego team is executing exceptionally well, in every part of the company. As you saw, we're seeing growing customer adoption of our 5G and software solutions with carriers and the market reception of our newly launched enterprise portfolio was incredible. We have highly differentiated process and our go-to-market teams have never been stronger. So if we put it all together, these are the reasons behind our pipeline of opportunities being the largest in recent company history. So net-net, we've laid the groundwork for a strong second half as we discussed, and I think an amazing 2022. So thanks again everyone.

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