Inseego Corp. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Inseego designs and sells wireless broadband, IoT, intelligent-edge and SaaS solutions.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $48.6 million | $69.2 million | $152.9 million | $192.4 million |
| Gross profit / margin | $1.9 million / 3.9% | $18.0 million / 26.0% | $39.0 million / 25.5% | $51.1 million / 26.6% |
| Operating loss | $18.4 million | $11.9 million | $25.2 million | $43.7 million |
| Net loss | $21.8 million | $15.7 million | $31.8 million | $53.3 million |
| Net loss attributable to common stockholders | $22.6 million; $0.19/share | $16.4 million; $0.15/share | $34.1 million; $0.30/share | $55.4 million; $0.52/share |
| Operating cash flow | Not separately reported for Q3 | $22.4 million provided | $24.7 million used |
- Q3 IoT & Mobile Solutions revenue fell 34.0% to $41.4 million; Enterprise SaaS Solutions revenue rose 10.6% to $7.2 million. For the nine months, the segments declined 23.7% to $131.4 million and grew 6.4% to $21.6 million, respectively.
- Operating expenses declined 32.2% in Q3 and 32.3% for the nine-month period, including lower research and development and sales and marketing spending. Despite these reductions, Q3 operating loss widened as revenue and gross profit fell sharply.
- At September 30, cash was $18.9 million, current assets were $63.9 million and current liabilities were $59.9 million. Total liabilities were $227.5 million, compared with assets of $136.8 million, resulting in a stockholders’ deficit of $90.8 million.
- The company reported $161.9 million principal amount of 3.25% convertible notes due May 1, 2025. The revolving facility had no borrowings; reported borrowing availability was approximately $5.2 million. The facility matures December 31, 2024.
- Operating cash flow for the first nine months was supported by $20.5 million of cash from working-capital changes, including collections and inventory reductions. Investing used $6.5 million, including $6.1 million of capitalized software development. Cash increased $11.8 million from year-end to $18.9 million.
Material changes and unusual items
- Q3 gross profit included $6.8 million of inventory write-downs, a $1.3 million write-off of capitalized inventory order fees and $6.3 million of contract-manufacturing liabilities for excess materials. Management said new information and updated sales projections informed the charges. The company also recorded a $0.6 million capitalized-software write-down in Q3.
- The revenue decline was primarily attributed to lower carrier offerings and LTE gigabit hotspot sales during the transition from 4G to 5G. Management said demand for 5G products was consistent with expectations; newer MiFi 5G products partly offset lower legacy-product sales. SaaS growth was attributed partly to the lifting of prior COVID-related installation restrictions.
- For the nine months, foreign-exchange-related other income improved by $4.0 million versus the prior year, contributing to lower total other expense. Interest expense increased modestly, reflecting higher rates and the credit facility.
- Cash from a public offering during the nine months was $6.1 million net, from 8.0 million shares sold at an average $0.75 per share. The ATM agreement was terminated effective November 2, 2023; no ATM sales occurred in Q3.
Outlook, liquidity, and risks
- Management stated that cash, anticipated operating cash flows, credit-facility availability and cost-reduction savings were expected to meet cash needs for the 12 months following the filing. It also cautioned that profitability and positive cash flow depend on sufficient revenue and that additional financing, expense reductions or reduced R&D may be needed if plans are not met. This is management’s assessment, not a guarantee.
- The credit facility requires at least $10 million of consolidated liquidity; the company reported covenant compliance at September 30, 2023. Its borrowing base depends on eligible receivables and inventory. A $4 million last-out participation was purchased by related parties, with an exit fee of 7.5% to 12.5% depending on timing.
- Noncancellable purchase obligations were approximately $28.4 million as of September 30, 2023. The company also disclosed customer concentration: two customers accounted for 29.6% and 35.1% of Q3 revenue; three customers represented 66.7% of receivables at quarter-end.
- Nasdaq had notified the company of bid-price noncompliance. A temporary exception extended the deadline to regain compliance to March 15, 2024. Stockholders had approved a potential 1-for-5 to 1-for-10 reverse split; the company warned that delisting remained possible.
- Other risks include reliance on contract manufacturers and key suppliers, semiconductor availability, uncertain demand and inflation, product-transition and execution risks, foreign exchange, and the ability to refinance or repay the 2025 Notes. The filing reported no litigation expected to have a material adverse effect.
Key facts for investors to verify
- Whether the lower sales mix and substantial Q3 inventory and manufacturing charges recur, and whether gross margins recover.
- Whether operating cash generation continues after the working-capital benefits, and whether management’s 12-month liquidity assumptions are achieved.
- How the company plans to address the $161.9 million 2025 Notes maturity and its limited borrowing availability under the asset-backed facility.
- Whether Nasdaq bid-price compliance is regained by March 15, 2024, including any reverse split and its effects.
- Whether revenue and receivable concentration among a small number of customers changes, and whether outstanding purchase commitments align with demand.