Inseego Corp. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The unaudited filing was dated August 9, 2022. Inseego develops fixed and mobile 4G/5G wireless, IoT, and cloud solutions. It reports one operating segment, with revenue grouped into IoT & Mobile Solutions and Enterprise SaaS Solutions.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $61.9M | $65.7M | $123.2M | $123.3M |
| Gross profit / margin | $17.9M / 28.9% | $20.3M / 31.0% | $33.1M / 26.9% | $38.8M / 31.5% |
| Operating loss | $10.0M | $10.5M | $31.8M | $26.7M |
| Net loss | $12.4M | $13.0M | $37.6M | $30.0M |
| Net loss per common share | $0.12 | $0.14 | $0.37 | $0.31 |
| Cash used in operating activities | Not separately stated for Q2 | $17.6M | $12.0M |
- Revenue mix: Q2 IoT & Mobile Solutions revenue rose 6.1% to $55.0M; Enterprise SaaS Solutions fell 50.5% to $6.9M. For the first half, the categories were $109.5M (+15.5%) and $13.7M (-51.8%), respectively.
- Margins and expenses: Gross margin declined year over year in both periods, which management attributed mainly to higher freight charges and production costs on 4G products. First-half operating expenses were $64.9M, down slightly from $65.5M; research and development increased while sales and marketing and general and administrative expenses decreased.
- Cash and liquidity: At June 30, cash and cash equivalents were $21.1M, plus $3.3M restricted cash. Cash, cash equivalents and restricted cash decreased $25.5M in the first half, ending at $24.4M. Investing activities used $7.3M; financing activities used $1.3M.
- Balance sheet and debt: Total assets were $191.3M; current liabilities were $69.9M and total liabilities $235.0M. Stockholders’ deficit was $43.7M. The 2025 Notes had $161.9M principal outstanding and a $157.7M net carrying amount; they bear 3.25% interest and mature May 1, 2025.
Material changes and unusual items
- Enterprise SaaS revenue was lower primarily because Inseego sold its Ctrack South Africa operations in July 2021; the company said revenue from other regions remained relatively flat.
- Growth in IoT & Mobile Solutions reflected higher second-generation 5G hotspot sales and Inseego Subscribe subscribers, partly offset by weaker 4G product sales. Management also noted that demand for LTE gigabit hotspots had eased from pandemic-era levels.
- First-half operating cash use increased year over year, with working capital use of $10.9M, including a $10.1M increase in inventory. Capitalized software development spending was $6.2M, compared with $15.4M in the prior-year period.
- First-half results included a $0.9M noncash gain from revaluing the embedded interest make-whole derivative, while other expense was $1.4M. The company also recorded $8.8M of immediately vested RSU awards as fiscal 2021 employee bonus payments in Q1 2022.
Outlook, risks and contingencies
- No quantified revenue, earnings, or cash-flow guidance was provided. Inseego said it anticipated introducing additional SaaS offerings, industrial IoT products and services, and mobile and fixed wireless devices over the next 12 months.
- Management stated that cash and expected operating cash flows should be sufficient for the next 12 months from the filing date, but emphasized that this depends on achieving adequate revenue and cash generation. It warned that shortfalls or unforeseen litigation expenditures could require additional financing, reduced R&D or other cost actions.
- On August 5, 2022, after quarter-end, the company entered into a secured, asset-backed revolving facility with a stated maximum of $50M, subject to a borrowing base and financial covenants, with a minimum $4.5M draw upon execution. It matures December 31, 2024; the company guarantees the borrowers’ obligations and the facility is secured by substantially all borrower property, subject to exclusions. SOFR spreads vary with borrowing levels.
- Key risks include losses and ongoing cash consumption, dependence on a small number of customers, semiconductor and other component supply, contract manufacturer execution, uncertain demand and macroeconomic conditions, competition and 5G product execution, foreign-exchange movements, and litigation or intellectual-property claims. Two customers represented 72.3% of Q2 revenue and 74.7% of first-half revenue.
- Noncancellable contract-manufacturer purchase obligations were approximately $145.1M at June 30, 2022. The filing says the company’s other ordinary-course legal matters are not expected to have a material adverse effect, while noting that outcomes cannot be assured.
Important facts for investors to verify
- Whether the August 2022 credit facility’s borrowing-base availability, draw, costs, covenants and collateral terms provide sufficient liquidity.
- Whether operating cash burn, inventory levels and the $145.1M purchase commitments are manageable given demand and component supply conditions.
- Whether 5G and IoT growth can offset the post-divestiture SaaS revenue decline and lower 4G hotspot demand while improving gross margins.
- How customer concentration evolves and whether major customers maintain or change purchasing levels.
- The company’s ability to service or refinance the $161.9M 2025 Notes and fund operations without materially diluting shareholders.