Inseego Corp. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 3, 2023. Inseego designs cloud-managed 4G/5G wireless, enterprise networking, IoT, and telematics products and services. It reports one operating segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $53.6M | $61.9M | $104.4M | $123.2M |
| Gross profit / margin | $18.9M / 35.3% | $17.9M / 28.9% | $37.1M / 35.5% | $33.1M / 26.9% |
| Operating loss | $3.3M | $10.0M | $6.9M | $31.8M |
| Net loss | $4.9M | $12.4M | $10.0M | $37.6M |
| Net loss attributable to common stockholders | $5.7M | $13.1M | $11.5M | $38.9M |
| Basic and diluted loss per share | $0.05 | $0.12 | $0.10 | $0.37 |
Revenue mix: Q2 IoT & Mobile Solutions revenue declined 15.7% to $46.4M, while Enterprise SaaS Solutions increased 4.5% to $7.2M. For the first half, IoT & Mobile fell 17.8% to $90.0M and Enterprise SaaS rose 4.3% to $14.3M.
Cash flow and liquidity: First-half operating cash flow was positive $12.7M, versus cash use of $17.6M a year earlier. Investing used $4.6M, including $4.4M for capitalized software development; financing provided $1.2M, including $6.1M of public-offering proceeds and $4.6M of revolving-credit repayments. Cash was $15.2M at June 30, up from $7.1M at year-end. The company reported $14.2M of excess revolver availability and said available cash, anticipated operating cash flow, credit availability, and cost savings should cover needs for the next 12 months from the filing date.
Balance sheet and debt: Total assets were $153.7M and total liabilities $224.5M; stockholders’ deficit was $70.8M. The 2025 convertible notes had $161.9M principal outstanding, due May 1, 2025, with a 3.25% stated annual coupon. The revolver had $3.3M outstanding, a $17.5M borrowing base, and a December 31, 2024 maturity. The company said it complied with the revolver’s liquidity covenant at quarter-end. Its reported effective revolver interest rate was 28.5% for the first half, including issuance-cost amortization.
Changes and management commentary
- Revenue fell 13.4% in Q2 and 15.3% in the first half, primarily due to lower carrier offerings and LTE gigabit hotspot sales as pandemic-related demand eased. Newer 5G hotspots, enterprise fixed wireless access, and subscriber growth partly offset the first-half decline.
- Gross margin improved year over year, which management attributed to a greater contribution from SaaS, lower recurring-service costs, and production-efficiency initiatives.
- Operating expenses declined substantially year over year, reflecting fewer new R&D projects, lower consulting costs and sales headcount, and lower share-based compensation. First-half results included a $0.5M capitalized-software impairment associated primarily with lower product demand.
- First-half operating cash flow improved materially, but the company still recorded net losses. Management’s liquidity assessment depends in part on forecast cash flows and cost reductions; it cautioned that failure to meet its operating plan could require additional financing or expense and investment reductions.
Risks, contingencies, and unusual items
- Customer concentration: Two customers represented 25.9% and 33.2% of Q2 revenue; three customers accounted for 39.5%, 22.2%, and 12% of receivables at June 30.
- Nasdaq listing: The company received a minimum-bid-price deficiency notice and had until September 20, 2023 to regain compliance. A further compliance period or delisting could be possible under the conditions described in the filing.
- Purchase commitments: Noncancellable contract-manufacturer purchase obligations were approximately $49.7M, generally covering the following three to four quarters.
- Revolver amendment and related parties: In May, related parties acquired a $4.0M last-out participation interest; the borrowing base was increased by $4.0M and certain terms changed. Exit fees range from 7.5% to 12.5%, depending on when an exit event occurs. The participants are affiliates of holders of more than 5% of the company’s common stock; a director has an affiliation with an entity related to one participant.
- Equity dilution: The company sold about 8.0M shares through its ATM offering during the first half for $5.9M net proceeds; approximately $3.5M remained available at June 30. The common-share count rose from 108.5M at year-end to 116.9M at June 30.
- Other risks: The filing identifies macroeconomic and inflation uncertainty, supply and semiconductor availability, foreign-exchange exposure, competition, product demand, and the company’s ability to service or refinance debt. It reported no litigation expected to have a material adverse effect.
- Unusual lease item: A San Diego property sublease began in June; the original lease obligations remained in place. The company recorded an approximately $0.5M right-of-use asset impairment because the lease carrying value exceeded estimated fair value.
Outlook: No specific revenue, earnings, or margin guidance is provided in the filing. Management said demand for 5G products was consistent with expectations, while noting lower LTE hotspot sales and an uncertain macroeconomic environment.
Investor verification priorities
- Assess whether lower IoT & Mobile revenue can stabilize and whether SaaS and newer 5G products can offset declines.
- Track cash burn, working-capital movements, cost-saving execution, and the assumptions underlying management’s 12-month liquidity view.
- Review the high-cost revolver terms, covenant headroom, related-party participation and exit fees, and the $161.9M notes due in 2025.
- Monitor Nasdaq bid-price compliance and any resulting listing action or reverse-stock-split decision.
- Evaluate customer concentration, the $49.7M purchase commitments, and further equity issuance and dilution risk.