Hello, and welcome to Inseego Corp's Fourth Quarter and Full Year 2022 Financial Results Conference Call. Please note that today's call will be recorded. All participants will be in 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 Ashish Sharma, CEO; Bob Barbieri, Chief Financial Officer; and other members of the management team. During this call, non-GAAP financial measure will be discussed. A reconciliation to the most directly comparable GAAP financial measures is included in the earnings release, which is available on the Investors section of the company's website. An audio replay of this call will also be archived there. Please also be advised that today's discussion will contain forward-looking statements. These forward-looking statements are not historical facts, but rather are based on the company's current expectations and beliefs. For a discussion of factors that could cause actual results to differ materially from expectations, please refer to the risk factors described in our Form 10-K, 10-Q and other SEC filings, which are available on our website. Please also refer to the Cautionary Note Regarding Forward-Looking Statements sections contained in today's press release. I would now like to turn the call over to Ashish Sharma, CEO. Please, go ahead.

Thank you, operator. Good afternoon, everyone, and thanks for joining us. Before we dive into our results for the quarter, I want to step back and reflect on my first year as Inseego's CEO. I will highlight three major areas of progress. First, I'm happy to report that we have now transformed Inseego into an enterprise fixed wireless access company with the momentum we saw in 2022, especially in Q4. This is evident from the following: our FWA business now comprises 30% of our revenue, while cloud software has grown to represent an incremental 27% of our revenue. As we have discussed on prior calls, these two businesses produced significantly higher gross margins than our legacy hotspot business. This was evident in our Q4 results, which saw our gross margin increased by 390 basis points to 30%. We expect to further expand our gross margin in FY 2023 and beyond as enterprise adoption of FWA and our cloud solutions continues. We've established our FWA and managed software offerings as the leading 5G RAN portfolio in the industry. We have a large and growing pipeline with dozens of large well-known enterprise customers. They are loving our solutions. They will look to roll out deployments to their distributed sites, as the carriers get more adept at pricing 5G enterprise service plans and network coverage improves. We are seeing that improvement every day. We are encouraged by our progress, but we recognize that the enterprise FWA market has taken time to develop and will evolve gradually over the next several quarters. Second, beginning Q2 of 2022, we put in an intense focus on rightsizing the company cost structure while the FWA market develops. So we drove several significant initiatives to run the company more efficiently. First, we identified geographic regions where initial interest…

Thank you, Ashish. Let me now review the results of our fourth quarter fiscal 2022. Please note that all metrics and comparisons made are non-GAAP on a pro forma basis, adjusted for the divestiture of Ctrack South Africa, which was completed in July 2021. Please refer to our earnings release for additional details on the GAAP to non-GAAP reconciliation. Q4 revenue was $52.9 million, down 27% from the prior year. The decline primarily reflected lower sales of our legacy hotspot products. As Ashish mentioned, our FWA business comprised 30% of total revenue and grew 122% over the prior year period. Next-generation solutions, which are comprised of 5G devices and all of our cloud software assets, decreased 9% over Q4 fiscal 2021 and represented 74% of total revenue in this quarter as compared to 58% of revenue in the year-ago quarter. Software revenue accounted for 27% of total revenue and increased 6% from the year-ago quarter. Fourth quarter IoT & Mobile Solutions revenue was $46.3 million, down 30% from the same period last year. The decline was primarily driven by reduced sales of our hotspot products, partially offset by continued uptake of our solutions by enterprise customers. Enterprise SaaS solutions revenue was $6.6 million, relatively flat, both sequentially and year-over-year. Consolidated gross margin was 30.3%, up 390 basis points from 26.4% in Q3 and 490 basis points from 25.4% in Q4 last year. Gross margin for the IoT and Mobile business was 28%, up from 23.4% in the prior quarter and 22.1% in the prior year period. As Ashish alluded to in his comments, the meaningful improvement in gross margin, on a sequential and a year-on-year basis, was attributable to a significantly higher mix of enterprise fixed wireless revenue. Recall that the contribution margin on the hotspot products has been negatively…

Thanks, Bob. We've made a tremendous amount of progress in transforming Inseego over the past year. Our Q4 results clearly demonstrate the potential margin expansion inherent in our business as 5G enterprise FWA sales increasingly drive our growth. Combined with our efforts to reduce costs, we are inching closer to our goals for profitability and positive cash flow generation. Thank you all for your interest and support. We look forward to taking your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Scott Searle with ROTH Capital. You may now go ahead. Scott Searle with ROTH Capital? Your line is open.

My apologies. I had it on mute. Hey guys, thanks for taking the questions. I'm not sure if I missed it earlier on the call, but I was wondering, if you could give a quick breakout of 4G and 5G mix and then the percentage sales of your 10% customers.

Hey Scott, good talking to you. So we had three customers representing over 10% in sales, to answer your second question. Your first question, I would say the 4G sales were approximately 24% -- 25% of the revenue, of which I would say the hotspots were probably in the range of 6% of the overall revenue.

Okay. Very helpful. And Ashish, I know in the past, like some of the delays in the rollout had been related to C-band coverage. That is starting to improve now. There are still some ongoing issues in terms of arguing with the FAA, but it's moving in the right direction. So, I'm wondering, what the visibility is on that front to start seeing the carriers a bit more aggressive on that front in terms of pushing 5G fixed wireless access for C-band?

Hey Scott, great question. And that is what has been holding up the market, as you know, for past one year, 1.5 years. Every day, we are seeing progress now. Like, we're seeing more coverage pop up on mid-band from all the three carriers. It is starting to look a lot better. Many of these large enterprise customers who've been piloting and trialing our solutions are now starting to go beyond a few sites to more and more sites. So it is definitely looking better. But I would say that, we're still in the bottom of the first inning, right, on the market, the new FWS market that is developing. And we expect it will be gradual build-up over next several quarters of how that market is going to develop. Obviously, this quarter for us as a company, you see that was a huge transformation from being a hotspot company where a year ago, in Q4 of 2021, 70% of our revenue came from hotspots. This quarter, that was less than 30%. And plus, obviously, our FWA business jumped big time, which now constitutes over 30% of the revenue and hence, the uplift in the margin. So truly, company is transforming in what is a very early market, but the signs are super positive.

Got you. And if I could, sequentially, it sounds like you're expecting some seasonality. I was wondering, if you could give us an idea in terms of sequentially by the product category. I'd imagine historic enterprise SaaS probably stayed flattish, mobile hotspots tends to have some seasonality. But enterprise FWA, does that come down as well, or is there some strength there as you're starting to build a little bit of momentum?

Yeah. I mean on the SaaS side, on the cloud revenue side and on the FWA business side, we're going to continue to see gradual improvement. So I'm not forecasting a seasonality effect there. Hotspot continues to be seasonal. And I would say that, Q1 generally is on the lower side, and so you would see that. And so that's the first half. And the second half would start to hopefully improve. Having said all that, as we've mentioned before, the 4G revenue on the hotspot side, we've been forecasting that to eventually wind them down and totally go away and that will happen sometime this year. And hence, the reason in this quarter, that revenue from 12 months ago, just went from being 38% of our revenue to literally 6% of the revenue. But look, that's not a high-margin business for us. And so while we'll take anything opportunistically that comes from our lead customers, we're really not counting on that revenue.

Got you. And lastly, if I could, just in terms of trying to get my hands around what normalized OpEx is going to be going forward, I think you said there was $1 million of nonrecurring costs in the quarter, but you've also talked about taking $32 million in costs out. And then there was a number I heard as well, $10 million in there somewhere, I'm not sure if that was recognized on an annualized basis in the fourth quarter. So if I look at your OpEx, net of stock comp and one-time charges, what does that number look like as we get out to the second quarter of 2023 here? Is it closer to – I think this quarter was just under $25 million pro forma. Is that number then closer to $20 million? And then in terms of getting to that cash flow breakeven cash flow positive level, what sort of revenue run rate do you need to hit that? Thanks.

Yeah. Great questions, Scott. So let me first answer your question on the OpEx. So for Q4, actually, you said the pro forma was below $25 million, it's actually lower than $22 million, the cash piece of it, right? In Q2, by Q2, that would be in the range of $17 million. So like overall, we've removed like we said north of $32 million. By Q1 when all the full effect is in place, I mean, we would have removed close to $37 million in cost from the OpEx. So you could see that, we're not going to with the change, with the mix and change in revenue mix and the margin mix, we're not really going to need a huge top line to get profitable. So I'd say, anything close to like $50-ish million in revenue will get us to – and obviously, that depends on more and more FWA, it could be even lower number than that, but that would be enough to get us cash flow positive.

Got you. Okay. Thanks so much.

Thank you, Scott.

Our next question will come from Tore Svanberg with Stifel. You may now go ahead.

Yes. Good afternoon. This is Jeremy Kwan calling for Tore. Yes. Just -- congrats, first of all, on the gross margin execution here. Just a question in terms of the backlog that you can provide for us, any kind of commentary around that, maybe order trends, as we move through the prior quarter and where we stand today in terms of the bookings levels?

Yes, Jeremy. So let me address that. So, first off, like certain pieces of our business, about 27% in subscription business, right? So that continues as is, like as the base, and continues to grow. Number two piece of the business is the hotspot business, which the way that works is, like, we have certain slots with the large carriers and then we work with them on a weekly basis to monitor the sell-through. And that's where we've seen a bunch of variability in the business: one, 4G kind of just dwindling down as we had forecasted; and second, we basically launched a new generation of 5G hotspot here with multiple large carriers in Q3 and Q4, so there's some seasonality with the switchover, so we're seeing lower run rate on that 5G hotspot we saw that in Q4. So that, I would say, the hotspot business right now, I would say, was probably at the lowest level in Q4, and we expect it to, at some point, rebound, although we're not baking that in our future models, right? We don't really know. Even if you continue at this level, and we continue to improve our -- grow FWA business, which grew significantly this quarter. I think we are a totally different company. So now coming to FWA business, that business, we're going through two different routes to market: one is stocking through carriers, and second is going through distribution and channel partners to a very broad enterprise market. And they're both -- those, both businesses, are measured not as much by backlog, but much more by, I would say, either the sell-through or second, the health of the pipeline of opportunities. And I would say, both of those on the FWA business are really strong at this point and hence the results in Q4.

Great. Thank you. And I guess, I think you mentioned having three 10%-plus customers are you able to kind of size that for us and provide a little bit more detail there?

Yes. Its -- our traditional two largest customers are T-Mobile and Verizon. And the third one on the list now is U.S. Cellular.

Got it. And then, I guess, a final question then, just going back to the fixed wireless access market. I think you said it was 30% in Q4. Do you have kind of an idea of where that could go over the next 12 to 18 months as that piece continues to grow? And, yes, just any kind of -- and which verticals you see kind of driving that in the near-term? Thank you.

Yes, Jeremy, great question. And look, we're not providing guidance. But directionally, I would say in the next 12 to 18 months, we expect that to become 60% to 70% of our revenue every quarter. So that opportunity is there and we're seeing the pipeline. I would say the -- in your second question about which verticals, I mean, look, it's across the board, right, from construction to retail, to city infrastructures, to healthcare companies. We're seeing FWA become a new market horizontally, pretty much in many verticals across the board, right? So we've got a great mix of customers and pilots. And it just -- it's the need being all driven by the distributed nature of a lot of these enterprises now, especially after the pandemic. And 5G FWA is a great technology to provide that very economically and efficiently in a very quick manner.

Great. Thank you very much.

Thank you, Jeremy.

[Operator Instructions] Our next question will come from Jonnathan Navarrete with Cowen. You may now go ahead.

Hey, how are you guys. It's Jonnathan on for Lance. My first question is, could you call out some of the cost reductions implemented in 2022 that have helped generate those annualized savings? And following up on that, are there any additional levers with which you can keep on expanding margins with in terms of cost reductions in 2023, or are you guys pretty much have hit an end where there's no need or you guys can't do more?

Yes. Good questions, Jonnathan. So there are a number of different areas, right, that we took the cost out. So I would say, number one was getting out of some of these geographic regions where there was a huge amount of interest in 5G over the last few years. But for one reason or another, the markets just haven't developed quick enough. I mean there's interest, but they haven't developed quick enough. So we've kind of gotten out of many of those international markets. Number two, based on that number one, we've kind of just really put focus on contracting the R&D to not chase a lot of those slots that we were chasing before and be extremely focused on the markets where there's action like specifically here in North America and a little bit in Australia, that's where we are focused. So that was a big change. And number third, I mean I would say that we took a very hard look at all of the infrastructure of the company, including North America, Europe, Middle East, Australia, New Zealand, Japan. And we did a whole lot of cost reductions to remove the cost from the company. I would say that we have -- we still have a huge leverage built in the strategy that we've built. So even though we have removed the core from the areas that were not quite happening yet, but we can very, very quickly expand the business with the core that we've got here. And I would say that, that's the focus moving forward is use the core to grow the top line and the business in the right areas very quickly, and we believe we could do that moving forward.

Okay. That makes sense. So given those cost reductions as well as improving revenue mix, is it safe to assume that we can expect gross margins on a non-GAAP basis to steadily remain above 30% throughout each of the four quarters in 2023?

Yeah. I mean not just remain above 30%, but I would say, gradually keep improving. So absolutely.

Great. And the last one for me. I haven't seen your 10-K out yet, so I haven't been able to check here, but how much availability do you have in your revolver? Is it still, give or take, about $45 million?

Yeah, it's in that range. That's correct.

Okay. Got you. Do you expect that just given the low cash balance of $7 million that you will be using in this quarter, or do you feel like there's no need to do that?

Yeah. I mean, look, the reason we put in that revolver was just that, right, which is to use it for working capital as we go and get these orders from our lead customers and we have to procure the material, put some stuff in the inventory and make sure, in what is still a very supply chain constrained environment from just a lead time perspective, that we're able to take all the demand. And that's exactly the focus of that revolver. That's what we're going to continue to use it for.

Got it. Thank you.

Thank you, Jonnathan.

It appears there are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Ashish Sharma for any closing remarks.

Thank you, operator, and thank you, everyone, for joining us on the call today. We look forward to updating you all next quarter on our continued progress. Thank you again.

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