Inseego Corp. — Q3 2021 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited. Inseego develops wireless 4G/5G hardware, IoT solutions and SaaS offerings.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $66.2 million | $90.2 million | $189.5 million | $227.8 million |
| Gross profit / margin | $18.9 million / 28.6% | $25.2 million / 27.9% | $57.8 million / 30.5% | $64.4 million / 28.3% |
| Operating loss | $10.0 million | $3.4 million | $36.7 million | $16.5 million |
| Net loss | $7.2 million | $5.4 million | $37.2 million | $98.4 million |
| Net loss attributable to common stockholders | $9.0 million | $6.3 million | $41.0 million | $100.5 million |
| Basic and diluted loss per share | $0.09 | $0.06 | $0.40 | $1.06 |
Q3 IoT & Mobile Solutions revenue fell 26.3% to $57.0 million; Enterprise SaaS Solutions fell 28.3% to $9.2 million. For the nine months, the segments declined 19.7% and 2.5%, respectively. Management cited lower LTE gigabit hotspot sales as pandemic-driven demand eased, lower enterprise and carrier sales, and the Ctrack South Africa divestiture. Growth in second-generation 5G hotspots and Inseego Subscribe partially offset the declines.
Gross margin improved year over year in both comparison periods, primarily due to product mix and Inseego Subscribe margins. Operating costs increased: nine-month R&D rose to $39.0 million from $29.4 million, largely reflecting 5G development spending and staffing. Nine-month sales and marketing increased to $30.0 million from $25.8 million, including higher 5G marketing spend.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $58.1 million, with $3.5 million restricted cash; working capital was $61.2 million.
- For the nine months, operating activities used $14.8 million of cash, versus $16.7 million provided in 2020. Investing activities provided $7.7 million, including divestiture proceeds, versus $25.0 million used in 2020. Financing activities provided $29.0 million, principally from the January ATM equity offering. Cash, cash equivalents and restricted cash ended at $61.6 million.
- Outstanding 2025 convertible notes had $161.9 million principal and a $157.9 million net carrying amount. The notes are senior unsecured, bear 3.25% interest and mature May 1, 2025. Approximately $80.4 million principal was held by related parties.
- Total liabilities were $235.9 million and stockholders’ deficit was $15.3 million. Management said cash and anticipated operating cash flows should cover needs for the next 12 months from the filing date, while noting this depends on achieving sufficient revenue and managing costs.
Material changes and unusual items
- In July 2021, Inseego completed the sale of Ctrack operations in Africa, Pakistan and the Middle East. It recognized a $5.3 million gain and reported $31.5 million net cash proceeds at closing, after cash sold. A further $2.6 million working-capital adjustment was due; $2.2 million was received in October and $0.4 million was offset against payables. $3.5 million was placed in escrow, scheduled for release in July 2022 subject to potential claims.
- The nine-month loss comparison benefited from the prior-year $76.4 million debt conversion and extinguishment loss. In 2021, the company recorded a $1.2 million capitalized-software impairment and a $3.4 million gain from the fair-value change in the notes’ embedded interest make-whole derivative.
- In September, holders exchanged 10,000 Series E preferred shares for approximately 1.525 million common shares. The exchange generated a $1.1 million deemed dividend; preferred dividends and deemed dividends totaled $3.6 million for the nine months.
- Common shares outstanding increased to approximately 105.0 million at quarter-end. In January, an ATM offering raised $29.4 million net through the sale of approximately 1.516 million shares.
Outlook, commentary and risks
The filing provides no specific financial guidance or quantified forecast. Management expected to introduce additional telematics SaaS offerings, IoT hardware and services, and mobile and fixed wireless products over the following 12 months. It described Q3 5G demand as consistent with expectations, but cautioned that prior-year pandemic-related demand may not be sustainable.
Risks highlighted include ongoing semiconductor and component shortages, COVID-19 uncertainty, reliance on third-party manufacturers and sole-source suppliers, customer concentration, competition and execution in 5G, and the company’s history of operating losses and operating cash use. Two customers represented 72.9% of Q3 revenue and 60.9% of accounts receivable at quarter-end. The company also faces foreign-exchange exposure; it estimated a hypothetical 10% currency-rate change could change nine-month revenue by approximately $3.8 million. Patent litigation and customer indemnification claims are disclosed; management did not expect existing matters to have a material adverse effect. Management stated disclosure controls were effective at September 30, 2021.
Important facts for investors to verify
- Whether revenue trends stabilize, particularly in LTE hotspots and enterprise/carrier IoT, and whether 5G and Subscribe growth offsets declines.
- Operating cash use, working-capital needs and the assumptions underlying management’s 12-month liquidity assessment.
- 2025 Notes’ conversion, interest and repayment obligations, including the related-party-held portion and potential dilution.
- Customer concentration and the effect of losing or reducing business with major customers.
- Final divestiture adjustments and escrow exposure, as well as continuing supply-chain, litigation and foreign-exchange risks.