Inseego Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Inseego designs and sells cloud-managed 4G/5G wireless, IoT, telematics and enterprise SaaS solutions. The company reports one operating segment, with revenue presented as IoT & Mobile Solutions and Enterprise SaaS Solutions.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $50.8 million | $61.4 million |
| Gross profit / margin | $18.2 million / 35.8% | $15.2 million / 24.8% |
| Operating loss | $3.6 million | $21.8 million |
| Net loss | $5.1 million | $25.2 million |
| Net loss attributable to common stockholders / diluted loss per share | $5.8 million / $0.05 | $25.9 million / $0.24 |
| Operating cash flow | +$7.7 million | -$0.6 million |
| Investing cash flow | -$2.5 million | -$3.9 million |
| Financing cash flow | -$3.3 million | -$1.1 million |
IoT & Mobile Solutions revenue was $43.6 million, down 20.0%; Enterprise SaaS Solutions revenue was $7.2 million, up 4.2%. Operating cash flow improved despite the net loss, with working-capital movements and noncash expenses contributing. The company invested $2.4 million in capitalized software development.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $8.7 million; current assets were $80.3 million and current liabilities were $61.7 million.
- Total liabilities were $230.5 million against total assets of $157.7 million, resulting in a stockholders’ deficit of $72.7 million.
- The 2025 Notes had $161.9 million principal outstanding and a $158.8 million net carrying amount. The filing states the principal is due May 1, 2025, absent repurchase or conversion.
- The asset-backed revolving facility had $4.5 million outstanding, a $16.3 million gross borrowing base and $11.8 million excess availability. Inseego reported compliance with its $10 million minimum-liquidity covenant at quarter-end.
- Management stated available cash, anticipated operating cash flows, facility availability and cost savings should fund needs for the next 12 months from the filing date. The company also had approximately $9 million remaining under its ATM equity offering.
Material changes and significant items
- Revenue fell 17.3% year over year, primarily because of lower carrier offerings and LTE gigabit hotspot sales as pandemic-era demand eased. Newer 5G hotspot sales and subscriber growth partly offset the decline.
- Gross margin increased to 35.8% from 24.8%, which management attributed to product mix, Enterprise SaaS revenue and production-efficiency initiatives.
- Operating expenses decreased 41.2% to $21.8 million. R&D fell as fewer new projects were undertaken; sales and marketing and G&A also declined. The company recorded a $0.5 million capitalized-software impairment.
- The company sold 858,098 shares through its ATM offering at an average $0.62 per share, generating $0.5 million net proceeds.
- After quarter-end, on May 2, 2023, affiliated participants purchased a $4.0 million subordinated participation interest in the credit agreement. The related amendment increased the borrowing base by $4.0 million, raised the minimum draw to $8.5 million and modified covenants. Inseego agreed to an exit fee of 7.5%–12.5% of the participation interest, depending on timing. The participants are affiliates of holders of more than 5% of the company’s common stock.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management cited uncertain macroeconomic conditions, inflation and interest rates, semiconductor and component availability, product demand, competition, 5G adoption and the company’s ability to reach profitable operations.
- Customer concentration is substantial: two customers generated 31.1% and 26.6% of Q1 revenue. Three customers represented 42.4%, 16.0% and 14.6% of receivables at quarter-end.
- Noncancellable purchase obligations were approximately $53.4 million. Inseego also disclosed ongoing ordinary-course legal matters and customer indemnification obligations, but said it did not expect existing matters to have a material adverse effect.
- Nasdaq notified the company on March 24, 2023 that its share price had failed the $1 minimum bid-price requirement. The initial compliance deadline was September 20, 2023; delisting could follow if compliance was not regained or an additional compliance period was unavailable.
- The company reported effective disclosure controls as of March 31, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Liquidity runway and covenant headroom, particularly after the May 2 facility amendment, increased minimum draw and related-party participation and exit-fee terms.
- Ability to fund the $53.4 million of purchase commitments while managing the $161.9 million note maturity in 2025.
- Whether revenue declines in IoT & Mobile Solutions stabilize and SaaS growth and margin improvements continue.
- Exposure to major customers and suppliers, including the high concentration of revenue and receivables.
- Progress on Nasdaq bid-price compliance and the potential effect of any reverse split or additional equity issuance on shareholders.
- The filing describes the 2025 Notes as bearing 3.25% interest in the debt note and MD&A, but also refers to them as “3.5%” notes elsewhere; verify the applicable coupon in the governing documents.