Inseego Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated results; comparisons are with the corresponding 2019 periods. Inseego develops wireless, IoT and SaaS solutions.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $80.7 million | $55.9 million | $137.5 million | $104.4 million |
| Gross profit / margin | $22.0 million / 27.3% | $15.6 million / 27.8% | $39.2 million / 28.5% | $30.3 million / 29.0% |
| Operating loss | $5.3 million | $5.2 million | $13.1 million | $7.6 million |
| Net loss attributable to common shareholders | $75.7 million | $10.8 million | $94.3 million | $18.3 million |
| Loss per common share | $0.78 | $0.14 | $1.01 | $0.24 |
| Operating cash flow | Not stated by quarter | $4.7 million | $(10.1) million |
Revenue mix: Q2 IoT & Mobile Solutions revenue was $66.2 million, up 65.7%; Enterprise SaaS Solutions revenue was $14.4 million, down 9.2%. For the first half, the respective figures were $106.6 million, up 46.5%, and $30.9 million, down 2.5%. Q2 gross margin eased 0.5 percentage points year over year; first-half margin declined 0.5 points.
Cash, working capital and debt: Cash and cash equivalents were $42.1 million at June 30, versus $12.1 million at December 31, 2019; working capital was $46.8 million. First-half investing cash outflow was $13.2 million and financing inflow was $41.1 million. The company reported $180.4 million principal of 3.25% convertible senior notes due 2025 and $2,000 principal of 2022 notes at quarter-end; the remaining 2022 notes were redeemed July 22. Total liabilities were $253.8 million and stockholders’ deficit was $41.9 million.
Material changes versus prior period
- Q2 revenue growth was driven by LTE gigabit hotspots, USB modems and 5G hotspot sales. Management attributed lower SaaS revenue chiefly to reduced Ctrack system revenues amid COVID-19 effects and currency movements, partly offset by DMS growth.
- Research and development expense increased to $10.5 million in Q2 from $5.2 million, reflecting staffing, test units and 5G product development. First-half R&D rose to $18.8 million from $8.7 million.
- May debt restructuring replaced the term loan and much of the 2022 notes with 2025 notes. The company issued $100.0 million in a registered offering and $80.4 million in private exchanges, paid $32.0 million cash to participating noteholders, and repaid the $47.5 million term loan principal plus fees and interest.
- Common shares outstanding rose to 97.0 million at June 30 from 82.0 million at year-end, including shares issued in debt exchanges. Series E preferred stock issuance raised $25.0 million in March; it carries a 9% cumulative dividend.
Outlook, risks and unusual items
- Management said available cash and anticipated operating cash flows were expected to meet working-capital needs for the next 12 months without additional financing. It cautioned that failure to meet operating plans, revenue shortfalls, business interruptions or unforeseen litigation costs could require new capital, reduced R&D or other cost reductions. No specific revenue or earnings guidance was provided.
- COVID-19 had disrupted global supply chains and economic activity; the duration and financial impact were described as uncertain. The filing also cites component availability, contract manufacturing and sole-source supplier reliance, competition, 5G adoption and execution, tariffs, foreign exchange, and customer concentration as risks.
- The $67.2 million Q2 loss on debt conversion and extinguishment was a major unusual charge, principally related to the 2022-note exchange; it drove the sharp increase in reported net loss. The first-half total was $75.2 million. The filing also recorded a $7.9 million noncash inducement charge in Q1 for shares issued in an earlier note exchange.
- One customer represented 55.6% of Q2 revenue and 54.7% of first-half revenue. COVID-19 effects contributed to weaker Ctrack sales. The company disclosed ongoing patent litigation and customer indemnification obligations, but said it did not expect existing matters to have a material adverse effect; outcomes remain uncertain.
- The 2025 notes are convertible at an initial price of approximately $12.61 per share and include an interest make-whole feature. Approximately $13.5 million of notes converted after quarter-end into 1.2 million shares. Conversion or cash settlement could dilute shareholders or affect liquidity. Management also disclosed that certain investors and affiliates held about 29.2% of common shares and approximately $80 million of the 2025 notes.
Important facts for investors to verify
- Whether IoT and mobile sales growth is sustainable and offsets SaaS weakness, especially Ctrack performance and the effects of COVID-19.
- Cash generation excluding working-capital movements, including the effects of the large increase in accounts payable and receivables during the first half.
- Remaining 2025-note principal after post-quarter conversions, potential further dilution, related-party holdings and future interest obligations.
- Customer concentration, supply-chain continuity, and the financial exposure from litigation or indemnification claims.
- The assumptions supporting management’s 12-month liquidity assessment and the availability and terms of any financing if operating performance falls short.