Inseego Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Inseego develops wireless 4G/5G, IoT hardware, and SaaS solutions. It reports one operating segment.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $57.6 million | $56.8 million | Up 1.3% |
| Gross profit / margin | $18.5 million / 32.1% | $17.2 million / 30.3% | Margin up 1.8 percentage points |
| Operating expenses | $34.7 million | $25.0 million | Up 38.9% |
| Operating loss | $16.2 million | $7.7 million | Loss widened |
| Net loss attributable to Inseego | $17.2 million | $18.2 million | Loss narrowed |
| Net loss per common share | $0.18 | $0.20 | Improved |
| Operating cash flow | $1.0 million provided | $0.3 million provided | Higher inflow |
| Investing cash flow | $9.4 million used | $4.9 million used | Greater investment |
IoT & Mobile Solutions revenue was $43.0 million, up 1.3%; Enterprise SaaS Solutions revenue was $14.6 million, up 1.5%. Gross-margin improvement was attributed mainly to a favorable mix of Inseego Subscribe revenue.
R&D rose to $14.6 million from $8.2 million, primarily from 5G development spending and the timing of employee bonus grants. Sales and marketing and general and administrative expenses also increased, partly due to bonus-grant timing. Share-based compensation was $9.1 million, including $7.0 million of immediately vested RSUs related to fiscal 2020 bonuses.
Other income was $1.7 million, including a $1.9 million gain from revaluing the 2025 Notes’ embedded interest make-whole derivative. Net interest expense fell to $1.8 million from $3.4 million, following the debt restructuring. The 2020 comparison included a $7.9 million noncash debt-exchange inducement charge.
Financial position and liquidity
- March 31 cash and cash equivalents on the balance sheet were $54.0 million, plus $5.5 million classified as held for sale; the cash-flow statement reports $59.6 million including held-for-sale cash. Management reported working capital of $46.1 million, excluding held-for-sale balances.
- Outstanding 2025 Notes principal was $161.9 million; net carrying value was $158.6 million. The notes are senior unsecured, bear 3.25% annual interest, and mature May 1, 2025. About $80.4 million principal was held by related parties.
- January 2021 ATM share sales generated $29.4 million net proceeds from 1.52 million shares. The agreement permits up to $40.0 million of total share sales.
- Stockholders’ deficit was $1.5 million, compared with $27.9 million at December 31, 2020.
- Investing outflows included $8.0 million for capitalized software development and intangible purchases. Financing cash flow was $29.5 million, mainly reflecting ATM proceeds.
Material changes, outlook, and risks
- Ctrack South Africa sale: In February, Inseego agreed to sell Ctrack operations in Africa, Pakistan, and the Middle East for 528.9 million rand, approximately $35.4 million at the quarter-end exchange rate, subject to working-capital adjustment. Closing requires customary conditions, including South African antitrust approval and the buyer closing an investment fund. Management expected completion in Q2 2021. The sale would reduce some SaaS revenue; the company said it would continue telematics operations in other regions.
- Management outlook: No specific revenue or earnings guidance is provided. Management expected cash and cash equivalents plus anticipated operating cash flows to cover needs for the 12 months following the filing, while noting that sustained positive cash flow depends on achieving sufficient revenue and mix for the cost structure.
- Demand and supply: 5G demand was described as consistent with expectations, supported by remote work and learning. LTE gigabit hotspot sales had eased as pandemic-related demand softened. The semiconductor shortage had not materially affected the company at filing, but could disrupt component supply, testing, or production and materially harm results if it persists.
- Concentration and other risks: Two customers generated 60.8% of Q1 revenue and represented 26.0% and 25.2% of receivables at quarter-end. Risks include customer dependence, competition and 5G adoption, contract-manufacturer and component availability, COVID-19 effects, foreign exchange, and litigation. A hypothetical 10% move in foreign functional currency rates would change quarterly revenue by about $1.5 million; foreign-currency translation losses were $1.7 million.
- Inseego reported a history of operating and net losses and cash use from operating and investing activities. It warned that a shortfall against its plan, litigation expenditures, or product and business disruptions could require additional financing or cost reductions. Existing patent cases were not expected by management to have a material adverse effect, though outcomes are uncertain.
Important facts for investors to verify
- Whether the Ctrack sale closed, its final proceeds after adjustments, and the impact of divestiture on revenue and cash.
- Whether semiconductor availability, component costs, and easing hotspot demand affected subsequent quarters.
- Progress toward operating profitability and positive cash flow, given rising operating expenses and continued investment needs.
- Cash availability and debt terms, including the 2025 Notes’ conversion, make-whole, and repayment provisions.
- Customer concentration, related-party holdings of the notes, and the dilution impact of equity issuance and note conversions.