Inseego Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Inseego develops 4G/5G wireless devices, industrial IoT products and cloud-based software and services.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $313.8 million | $219.5 million |
| Gross profit / margin | $90.8 million / 28.9% | $64.0 million / 29.1% |
| Operating loss | $25.1 million | $19.5 million |
| Net loss | $111.2 million | $40.1 million |
| Net loss attributable to common stockholders | $114.1 million; $1.19 per share | $40.5 million; $0.52 per share |
| Cash from operating activities | $20.1 million provided | $18.0 million used |
| Cash used in investing activities | $34.7 million | $28.2 million |
| Cash from financing activities | $42.1 million | $27.5 million |
Revenue rose 43.0%. IoT & Mobile Solutions revenue increased 62.3% to $261.2 million, while Enterprise SaaS Solutions revenue fell 10.2% to $52.7 million. The filing attributes device growth mainly to LTE gigabit and second-generation 5G hotspot sales, subscriber growth in Inseego Subscribe, and COVID-related remote work and learning demand. SaaS weakness reflected COVID-19 and stronger U.S. dollar effects on international sales. Gross margin slipped 0.2 percentage points, primarily due to product mix, partly offset by improved IoT & Mobile margins.
Research and development expense increased to $45.0 million, largely from 5G development spending. The company recorded a $76.4 million loss on debt conversion and extinguishment, including a $67.2 million charge related to the 2022 Notes exchange and a $7.9 million inducement expense. Interest expense declined to $9.9 million from $20.4 million after debt conversions, repayment of the term loan and issuance of lower-rate notes.
At year-end, cash and cash equivalents were $40.0 million, working capital was $38.4 million, total liabilities were $255.3 million, and stockholders’ deficit was $27.9 million. Outstanding debt was principally $166.9 million of 3.25% convertible senior notes due 2025. The company had $35 million liquidation preference of Series E preferred stock, bearing cumulative 9% annual dividends. Management said cash, cash equivalents and anticipated operating cash flows were expected to cover needs for the 12 months following the filing, while noting that continued liquidity depends on adequate revenue and execution of its operating plan.
Fourth-quarter 2020 revenue was $86.1 million and gross profit was $26.4 million. Net loss attributable to common stockholders was $13.6 million, or $0.14 per share.
Material changes, outlook and risks
- Debt and equity actions: In 2020, Inseego issued $100 million of 2025 Notes, exchanged additional 2022 Notes for 2025 Notes and cash, repaid its term loan, and completed other note conversions. In January 2021, it sold shares through an at-the-market offering for $29.6 million net proceeds; the program permits sales of up to $40 million.
- Business outlook: Management anticipated introducing additional telematics SaaS offerings, industrial IoT products and services, and mobile and fixed wireless products targeting 5G over the next 12 months. No quantified revenue, earnings or margin guidance is provided in the filing.
- Customer concentration: Verizon Wireless represented approximately 55% of 2020 revenue (54.5% in the financial-statement concentration disclosure), compared with 53% in 2019. A material change in this relationship or its product demand could significantly affect results.
- COVID-19 and supply chain: Pandemic-related demand boosted mobile device sales, but management cautioned that this increase may not persist. Restrictions, supply disruptions, installation delays in South Africa, and slower customer or network activity could weigh on future results.
- Strategic transaction: In February 2021, the company agreed to sell Ctrack’s South African operations for 528.9 million rand (approximately $36.2 million at the stated exchange rate). The deal remained subject to conditions, including regulatory approval and the buyer closing a new investment fund; completion was not assured. The company expected closing in Q2 2021 and anticipated providing at least six months of transition services.
- Other principal risks: Persistent losses; competitive and execution risks in 5G and fixed wireless access; reliance on contract manufacturers and some sole-source suppliers; foreign-exchange and South African operating exposure; cybersecurity, privacy, software and intellectual-property risks; and potential dilution or cash demands from convertible notes, warrants and preferred dividends.
- Unusual accounting and audit matters: Inseego recorded a $1.4 million capitalized software impairment. The auditor highlighted capitalization and recoverability of software development costs as a critical audit matter; related capitalized and in-process software balances totaled $37.2 million. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded controls were effective at year-end.
Important facts for investors to verify
- Whether Verizon’s share of revenue declines and the company makes progress diversifying customers.
- Whether mobile-device demand and revenue growth continue after the pandemic-related surge, and whether SaaS revenue recovers.
- Operating cash flow, working capital needs, and the company’s ability to fund investment and service or refinance the $166.9 million 2025 Notes.
- Closing terms and proceeds from the proposed Ctrack South Africa sale, including remaining operations, transition obligations and use of proceeds.
- Actual 5G product launches, customer adoption, margins and returns on increased research and development and capitalized software spending.
- Potential dilution from note conversions, warrants and future equity sales, and the cumulative cost and priority of Series E preferred dividends.