Inseego Corp. — FY 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, not standalone Q4 results. Inseego designs and sells 4G/5G wireless devices, industrial IoT solutions and telematics and SaaS services. It reports as one operating segment. The 2021 comparison reflects the July 2021 sale of Ctrack operations in Africa, Pakistan and the Middle East.
Key financial metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $245.3 million | $262.4 million |
| Gross profit / gross margin | $66.9 million / 27.3% | $75.9 million / 28.9% |
| Operating loss | $57.9 million | $46.5 million |
| Net loss | $68.0 million | $47.9 million |
| Net loss attributable to common stockholders | $70.7 million; $0.66 per share | $52.4 million; $0.51 per share |
| Cash used in operating activities | $33.3 million | $25.2 million |
| Cash used in investing activities | $13.3 million | Cash provided: $6.1 million |
| Cash and cash equivalents at year-end | $7.1 million | $46.5 million, plus $3.3 million restricted cash |
| Working capital at year-end | $21.4 million | $52.8 million |
Revenue mix: IoT & Mobile Solutions revenue was $218.4 million, up 0.2%; Enterprise SaaS Solutions revenue was $26.9 million, down 39.4%. Operating margin was negative 23.6%, versus negative 17.7% in 2021. Inseego reported an accumulated deficit of $857.8 million and stockholders’ deficit of $70.1 million at year-end.
Debt and liquidity: The company had $161.9 million principal amount of 3.25% convertible senior notes due May 1, 2025. Its secured, asset-backed revolving facility matures December 31, 2024; year-end borrowings were $7.9 million. The filing reports $6.1 million of facility availability in MD&A but $7.8 million in the debt note; verify the correct amount. The facility’s reported 2022 effective interest rate was 17.71%, including issuance-cost amortization. Series E preferred stock had a $25 million liquidation preference and a 9% cumulative dividend rate.
Material changes versus the prior comparable period
- Revenue declined 6.5%, while gross margin fell 1.6 percentage points. Gross profit decreased $9.0 million.
- Net loss widened by $20.1 million. Operating costs rose 1.9%, including higher research and development spending and a $3.0 million capitalized-software impairment charge.
- SaaS revenue fell mainly because the sold Ctrack South Africa operations no longer contributed revenue; the company said growth in the remaining regions partially offset the decline.
- Operating cash use increased by $8.1 million. Cash and cash equivalents fell by $39.3 million year over year.
- Verizon and T-Mobile together represented approximately 67.3% of FY 2022 revenue, compared with 70% in FY 2021.
Outlook, commentary, risks and unusual items
- Inseego provided no numerical revenue or earnings guidance in the supplied filing text. Management said cash, anticipated operating cash flows and facility availability should meet needs for the 12 months after filing, while noting continued losses, operating cash use and dependence on achieving sufficient revenue and managing costs.
- Management expects products launched in 2021 and 2022, including a fourth-generation 5G hotspot launched in 2022, to contribute to 2023 revenue as 5G markets grow. This is an expectation, not a quantified forecast.
- Principal risks include customer concentration; sustained losses and cash consumption; debt service and refinancing; competition and uncertain 5G adoption; contract manufacturing and component availability; inflation and macroeconomic conditions; cybersecurity and service continuity; and international, regulatory and intellectual-property risks.
- The revolving facility requires at least $10 million of defined consolidated liquidity. A February 25, 2023 amendment, effective December 15, 2022, clarified borrowing-base definitions after the company identified that the original terms could have produced a covenant violation at year-end. The company stated it complied with the amended covenant as of December 31, 2022.
- Other notable items include $17.9 million of share-based compensation, $77.6 million of non-cancellable purchase obligations, and $9.1 million of accrued Series E dividends. The 2021 results included a $5.3 million gain on the Ctrack sale; FY 2022 had no such gain.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls and reported no critical audit matters. Management and the auditor concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Reconcile the facility availability disclosure: $6.1 million in MD&A versus $7.8 million in the debt note, and review the amended liquidity-covenant definitions and compliance calculation.
- Assess whether the stated liquidity runway remains adequate given $7.1 million of unrestricted cash, operating cash use of $33.3 million in 2022, and facility maturity in 2024.
- Review the 2025 Notes’ repayment, conversion and potential dilution exposure, as well as the $25 million preferred-stock liquidation preference and accrued dividends.
- Evaluate the durability of the two largest customer relationships and progress in diversifying revenue, particularly as the two customers generated about two-thirds of FY 2022 sales.
- Track SaaS performance excluding the divested Ctrack operations, gross-margin recovery, software impairment charges and the use of capitalized software development costs.