Inseego - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue of $31.7M came in within guidance but modestly below S&P Global consensus ($32.1M*), while non‑GAAP profitability was strong: Adjusted EBITDA $3.7M (11.6% margin) and GAAP gross margin 47.3% (non‑GAAP 47.5%) on a richer Services mix. Versus estimates, revenue was a slight miss, but “Primary EPS” (S&P Global) was a clear beat (0.028 vs -0.063*) (S&P Global).
• Management guided Q2 2025 total revenue to $37–$40M and Adjusted EBITDA to $2.5–$3.5M, with non‑GAAP gross margin expected in the “high-30s” given higher product mix; guidance excludes potential tariff impacts.
• Mix and execution drove the upside in profitability despite softer hardware volumes; Services & Other grew 49% YoY to $12.0M, and mobile revenue rose 17% YoY even as some carrier promotions slipped later in the quarter.
• Balance sheet de‑risking continued: Inseego repaid the remaining ~$15M of its 2025 convert on May 1, leaving ~$41M of 9% senior secured notes due 2029 outstanding—a key catalyst for equity holders by removing the convert overhang.

What Went Well and What Went Wrong

• What Went Well

  • Services mix and margins: GAAP gross margin reached 47.3% (non‑GAAP 47.5%), helped by higher Services & Other revenue ($12.0M, +49% YoY) and favorable mix; Adjusted EBITDA was $3.7M (11.6%), the ninth consecutive positive quarter.
  • Strategic product/tech progress: “We were the first OEM in the world to make a 5G Advanced 3GPP Release 18 data call with the new Qualcomm Dragonwing…platform,” positioning Inseego for future FWA/enterprise opportunities.
  • Capital structure: “We…fully repay[ed] the remaining $15 million…on our convertible debt on May 1st,” leaving only the 2029 senior secured notes (~$41M) and supporting shareholder value.

• What Went Wrong

  • Top‑line softness: Revenue declined 16% YoY to $31.7M, down sequentially from Q4, as delayed carrier mobile promotions and temporarily lower FWA orders during a product transition impacted volumes.
  • Product drag: Product revenue fell to $19.7M vs $35.9M in Q4, with FWA particularly soft ($1.9M in Q1 vs $10.4M in Q4) during customer inventory management ahead of next‑gen devices.
  • Customer concentration/large deal timing: Management acknowledged the base “isn’t where it needs to be” and that Q2 growth magnitude hinges on timing of a “large channel deal”.

Transcript

Operator (participant)

Hello, and welcome to Inseego Corp's First Quarter 2025 Financial Results Conference Call. Please note that today's event is being recorded. All participants today will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity for Q&A. To ask a question, please press star, then one on your telephone keypad. To withdraw your question, please press pound, then one. On the call today are Juho Sarvikas, Chief Executive Officer of Inseego, and Steven Gatoff, Chief Financial Officer. During this call, certain non-GAAP financial measures will be discussed. A reconciliation to the most directly comparable GAAP financial measures is included in the earnings release, which is available on the investor relations section of the company's website. An audio replay of this call will also be archived there.

Please also be advised that today's discussion will contain forward-looking statements. These forward-looking statements are not historical facts, but rather are based on the company's current expectations and beliefs. For discussion on factors that could cause actual results to differ materially from those expectations, please refer to the risk factors described in the company's Form 10-K, 10-Q, and other SEC filings, which are available on the company's website. Please also refer to the cautionary note regarding forward-looking statements section contained in today's press release. With that, I'd like to turn the call over to Juho Sarvikas, Chief Executive Officer. Please go ahead.

Juho Sarvikas (CEO)

Thank you, Operator, and thank you all for joining. This is my second earnings call as the CEO of Inseego, and I'm even more excited to be here today than the last time we spoke in February. I'm proud of the progress we've made executing the strategy I set in motion when I joined Inseego in January. We have a lot of work ahead of us, but we're getting it done. I want to thank the awesome Inseego team for their focus, energy, and commitment. Today, I will focus on two topics. First, I'll give you an overview of our Q1 results. Second, I'd like to share what I'm seeing in the business today and update you on the strategy that's underway and how it's laying the foundation for long-term growth.

Let me start with a quick overview of our Q1 financial results that Steven will take you through in more detail. We delivered revenue within guidance, and adjusted EBITDA came in above expectations, even with softer hardware volumes. While revenue was impacted by some delayed carrier mobile broadband promotions and FWA orders, gross margin held strong on the favorable revenue mix. Importantly, we invested in key product and growth initiatives without compromising cost discipline, as evident in the strong adjusted EBITDA results. Before I move on to strategy and execution, I want to share one of my key initiatives that we successfully executed in Q1. Inseego has a legacy of leading in wireless innovation and an exceptional team of industry-leading engineers in cellular modem and antenna technology.

At Mobile World Congress in Barcelona this past March, we were the first OEM in the world to make a 5G Advanced 3GPP release 18 data call with the new Qualcomm DragonWing Gen4 Elite FWA platform in our next-generation cellular router. This accomplishment is a testament to Inseego's superior engineering capability, our strong partnership with Qualcomm, and our commitment to pioneer the latest and greatest in wireless. I am incredibly proud of the team and their unwavering dedication to make this happen. Our announcement has generated significant interest with carriers who are exploring new monetization opportunities for their network and position Inseego well for the future. With that, let me pivot to the second topic. Over the course of my first four months with the company, my focus has been on laying the groundwork to implement our new strategy.

I'm positioning Inseego to power the next generation of enterprise connectivity through software-defined, high-performance wireless networking solutions. We will position our solution portfolio to support a broad range of use cases across residential, SMB, enterprise, industrial, and IoT, and deliver performance, security, and flexibility at scale. This strategy is anchored in wireless broadband, combining our MiFi and fixed wireless access hardware with cloud-managed software solutions to deliver the features and capabilities that our end customers need to operate and grow their businesses. To deliver on this mission, I'm driving execution against two strategic vectors that I outlined on our first call in February. First, the execution and scaling of our FWA and MiFi business, and second, accelerating our software and services roadmap to create a full-stack solution offering and transform Inseego into a true solutions company. Let's focus on the first strategic vector: execution and scaling FWA and MiFi.

My immediate priority is to expand our footprint with large tier-one carriers and multiple system operators, or MSOs. This is the single largest and most immediate new and large TAM for us to capture. Today, our customer base for MiFi and FWA isn't where it needs to be. We are too concentrated, and that's something that I'm actively working to diversify. I've realigned our FWA and MiFi product roadmaps to go after new customers and markets. In the last 90 days, we've introduced several new product plans to existing and new customers to accomplish this goal. I spent a lot of time on the road meeting these large customers to share our products and strategy, align business objectives, and prioritize opportunities. There's meaningful opportunity in front of us.

Inseego's value proposition of enterprise-grade wireless broadband solutions and Inseego as a company that will partner with organizations to help them reach their business goals is resonating very well. The combination of our best-in-class hardware, our internally developed EDGE router OS, which is our on-device software, and Inseego Connect SaaS cloud management platform delivered through a dual go-to-market motion is a compelling and differentiated offering. In FWA specifically, there's a strong demand for enterprise-grade solutions for carriers to sell to their SMB and enterprise customers. Additionally, with the MSOs, there's significant opportunity in residential failover, SMB, and enterprise solutions. As we are engaging large carriers with our new MiFi portfolio, I'm getting great feedback on our solutions that can cater to both consumer and enterprise markets. There is a great opportunity to drive consolidation here with a purpose-built product that meets the needs of both markets.

We've done a lot of great work this past quarter and have a compelling set of new opportunities that we're working on. Our target continues to be to delever year-over-year growth in 2025, and we're focused on closing these deals with an engaged set of new carrier customer expansion and MSO opportunities that we have visibility of today. I've also overhauled our supply chain and engineering strategy in the past 90 days, identifying significant opportunities to reduce cost, improve operational efficiency, and enable scale. This also involves ensuring that we have the right ODM and CM partnerships to support our ambition. I spent time with key component vendors, ODMs, and manufacturing partners sharing our strategy, aligning on requirements, and evaluating long-term strategic fit. It has been great to see the excitement from the supplier base to be part of our growth journey.

These efforts have already enabled us to expand our MiFi product portfolio from premium tier down to mid-tier. As I'm talking about supply chain, it makes sense to pause for a moment to discuss the global tariff and macroeconomic environment, which remains very fluid. We've taken deliberate steps to mitigate impacts and develop manufacturing optionality to safeguard as best as we can for potential disruptions and unfavorable economic outcomes. Our primary manufacturing sites are based in Taiwan and Vietnam, which reduces our direct exposure to potential U.S.-China tariffs. Additionally, our product's HS code is currently exempt from tariffs. This situation is evolving constantly, and we are monitoring it very closely. Inseego is an American company with critical intellectual property designed and developed in the United States. With that, I'd like to discuss my second strategic vector: accelerating our software and services roadmap to create a full-stack solution offering.

Beyond scaling our FWA and MiFi business, my focus is on evolving Inseego from what has historically been a fairly hardware-centric business to becoming a full solution provider. There are two components to this. First, Inseego Connect, our device management SaaS platform. At the beginning of 2025, we embarked on a mission to enable APIs for our partners to integrate Inseego Connect into their management platforms. Today, these APIs are already at our partners for testing. This is a huge TAM unlock that is applicable for large carriers, MSOs, and MSPs, both in-the-channel and direct. In parallel, we have a resource roadmap to graduate Inseego Connect to large enterprise, IoT, and industrial environments. Inseego Connect sits on top of our router OS and our Inseego-designed modules, making it a full-stack solution that will deliver extraordinary value to an expanded set of customers and markets later this year and beyond.

Second, Inseego Subscribe, our subscriber management platform, is a great solution and a strategic contributor to our broader solution-centric strategy. We have undertaken a new investment and expansion plan on this platform and look forward to updating you more as this moves forward over the coming few quarters. Driving and building on these two SaaS offerings, I look forward to expanding Inseego's annual recurring revenue opportunity, growing top-line revenue, and delivering extraordinary value to our customers and partners. To support our strategy, we have been enhancing our team with exceptional talent and expertise across various functions and disciplines. Most recently, we welcomed George Mulhern, former CEO of Cradlepoint, to our board of directors. George's extensive background and leadership experience in shaping the enterprise wireless networking industry will provide tremendous value as we scale and accelerate our transformation into an enterprise solution provider.

The dynamics of engineering and manufacturing broadband devices are both cyclical and long-term by nature. Product development and customer purchasing cycles typically span 9-12 months. While we've implemented quick and significant adjustments in the last 90 days, the larger impact from them is further out. The key to success lies in the precise execution of aligning our roadmap, strengthening customer engagement, and maintaining disciplined focus. This approach ensures we position ourselves to excel both in the current cycle and those to come. With that, I'd like to hand it over to Steven.

Steven Gatoff (CFO)

Thank you, Juho. Hi, everyone. Thanks for joining us. I'm going to cover three topics today. First, I'll take you through the Q1 2025 financial results. Second, I'd like to share a quick update on our debt paydown that closed last week. Third, I'll provide some financial color on what we're seeing in the business and set out guidance for Q2 2025. As we always do, we'll, of course, wrap up by opening the call to your questions. Let's start with the Q1 2025 financial details. Overall, while Q1 presented a slow start to the year on a revenue basis for the three anticipated reasons that we discussed last quarter, we managed our costs well and generated solid non-GAAP profitability and a strong balance sheet as we're implementing our new strategy and setting out the foundation for growth.

The three combined dynamics were: one, Q3 and Q4 2024 had record revenue that was driven by unprecedented mobile hotspot promotions by a key carrier customer that drove volumes that were double and nearly triple historical norms. Second, 2024 was the end of a special national mobile hotspot program at one of our North American carrier customers that had generated meaningful volume in 2024, but that was not continuing at historical levels. Third, Q1 2025 was impacted by temporarily lower FWA purchases from a carrier customer that is managing their inventory levels as they transitioned to our next-generation FWA product. A very good thing on a number of fronts, but admittedly, sometimes disruptive in the quarter of transition. We remain bullish on FWA over the long term and, as we'll talk about more when we get to guidance, in the short term as well.

We expect FWA revenue to come up meaningfully in Q2. On the mobile hotspot product, while a larger carrier customer's promotion started later than anticipated in Q1 2025, we were encouraged to deliver mobile revenue that grew more than 16% year-over-year. Finishing out revenue with services, they grew nearly 50% year-over-year on the strength of our subscribed SaaS platform, as we've discussed. Moving on to gross margin, Q1 2025 non-GAAP gross margin percentage increased to a record 47.5%. This was anticipated and was driven by a combination of sequential margin expansion in Q1 in both product and services and by a revenue mix of greater services revenue in the quarter. Looking at non-GAAP operating expenses, Q1 2025 was another quarter in which we managed the business to lower sequential dollar spend on both a P&L and cash spend basis.

Going forward, we expect continued efficiencies in G&A, some modest increase in sales and marketing as we're expanding our TAM and engaging with new customers, and marginally more spend in R&D as we come to the larger investment periods and building out the new products that are rolling out in the second half of 2025 and early 2026. Pulling this all together, Q1 revenue performance, buttressed by focused expense management and investment, delivered adjusted EBITDA dollars that came in for the fourth quarter in a row and more than doubled the prior year quarter at $3.7 million. Adjusted EBITDA margin came in at the third highest level in a decade at 11.6% for Q1 2025. Wrapping up Q1 2025 results with a balance sheet, we closed the quarter with more than $35 million in cash and strong DSOs, working capital management, and inventory positions.

That's probably the right point to turn to my second and brief topic on our materially improved capital structure and reduction of debt. On this front, we've been sharing the progress we've made over the past year. We're pleased that we completed a meaningful reduction of the company's total debt with a paydown of the $15 million outstanding stub on the convertible notes that matured on May 1st. We paid those off last week, thereby reducing total debt to $41 million and further supporting the value of common stockholders. With that, let's finish with the third topic around what we're seeing in the business and provide guidance for Q2 2025. As we've been discussing, while there were the expected revenue challenges as we started the year, we remain bullish on the prospects for the business as we move through 2025.

We continue to execute on our initiatives to introduce new products and diversify the customer base to drive growth. As we have discussed previously, we expect to delever sequential quarterly revenue growth beginning with Q2 2025, specifically on the heels of improving FWA revenue traction. As we work to delever this, we are growing our TAM and our customer base. As we work towards scale, we continue to be influenced by large transactions in the near term. As such, we see the magnitude of the growth in Q2 being impacted by the timing of a large channel deal. It is something that we have good visibility into and confidence in closing. For services and other revenue, we expect Q2 levels to be consistent with Q1 on a dollar basis, thanks to the good work we have done with the Inseego's Subscribe SaaS platform.

So far as gross margin percentage, with a higher anticipated proportion of product revenue in Q2 2025 versus Q1, we expect gross margin percentage to be in the high 30% area in Q2 2025. Like we've called out in the past, the final revenue mix between mobile broadband, FWA, and services will be the ultimate determinant of where margins shake out. Pulling this all together, we're providing the following guidance for Q2 2025: total revenue in a range of $37 million-$40 million and adjusted EBITDA in a range of $2.5 million-$3.5 million. With that, we appreciate your time and support, and we're glad to open the call for questions. Operator?

Operator (participant)

At this time, we will conduct the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press pound, then one. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jonnathan Navarrete of TD Cowen.

Jonnathan Navarrete (VP of Equity Research)

Hey, guys. How are you?

Juho Sarvikas (CEO)

Hey, Jonathan.

Jonnathan Navarrete (VP of Equity Research)

Just want to start off with the broader macro environment. Just given the uncertainty in all markets right now, are you concerned that some pipeline opportunities may slip into 2026?

Juho Sarvikas (CEO)

We're not seeing that from our customer base. Again, today, most of our customers are the large carriers in North America, and we're not seeing any movement of the pipeline.

Jonnathan Navarrete (VP of Equity Research)

Okay. Next is just from the T-Mobile Partner Plus program. Can you quantify the potential revenue upside from this?

Juho Sarvikas (CEO)

Okay. We have a large carrier FWA customer here in North America that's bulk of our FWA revenue today. We have good growth trajectory with that partnership. The broader T-Mobile Partner program, significance of that is that we can get T-Mobile investment in the form of subsidy to our channel portfolio. What that will do is create pull on our channel program products.

Jonnathan Navarrete (VP of Equity Research)

Okay. Just my last one is just, can you talk about the cadence of free cash flow for this year? Should we expect it to be positive for 2025? If so, what are the levers to achieve that? Thank you.

Steven Gatoff (CFO)

Yeah, sure. Good question. Yeah, the short answer is yes. We have messaged and are targeting free cash flow generation for the year still, and we see that improving. I think the message is consistent with what we said kind of going into the year, even last year called at the end of Q4, which is there's some investments that we're making in the first part of the year in new products. That is a bit of a use of cash and product investment, as well as we had some bonus payouts for the first time in the company's history in a decade, at least. That was a bit of a negative in the first half, but we see the second half being positive and it outweighing the first half to produce positive for the year.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one. Our next question comes from Tore Svanberg of Stifel Nicolaus.

Jeremy Newston (Managing Director)

Yes, good afternoon. This is Jeremy calling on behalf of Tore. Just would like to dig a little deeper into the channel strategy. It sounds like you talked about a large potential deal for the channel business. Can you just give us an idea of maybe where this might be coming from? Any kind of additional color on that opportunity would be very helpful, including the timing.

Juho Sarvikas (CEO)

Yeah. Like Steven said, we have good confidence in that large channel opportunity closing within the quarter. If you look at our channel strategy in a broader sense, we have, of course, a significant opportunity in the large carrier and MSO space, but at the same time, we continue to invest in broadening our assortment solution portfolio when it comes to our two-tier distribution. You'll see a lot of this play out between now and the end of the year.

Steven Gatoff (CFO)

Yeah, Jeremy, to your point, and to you, it's a good point. As we've talked about, the channel program is something relatively new for Inseego with the new team in the past year. It takes a while to build pipeline. They're doing that. That's a good thing. There are still large deals, though, that when they happen, there's not seven huge deals in a quarter. There's fewer.

They matter more now.

Juho Sarvikas (CEO)

Very well said.

Jeremy Newston (Managing Director)

Got it. That's very helpful. I guess if we look at, can you give us maybe an update on the competitive landscape in light of you have competitors in Asia and given the current geopolitical environment, what that does to your own positioning? Any update on the competitive landscape would be very helpful.

Juho Sarvikas (CEO)

Look, I think we have a really good combination of assets. We are an American company. All of our critical IP is created here in San Diego. Like I mentioned, we've done significant work on our supply chain and operational efficiency, which has been significant in terms of improving our competitiveness. We've already engaged the large customer base on the back of this renewed capability. I think we're suited well to continue to drive growth.

Jeremy Newston (Managing Director)

Great. One last question, if I could, in terms of the gross margin. It sounds like as product revenue continues to recover, margins will probably moderate a bit, but gross profit dollars will be up. Do you have a kind of a new target model that we can look out to over the longer term? Also, on the OpEx side, if the March quarter run rate is kind of where we should expect. Thank you.

Steven Gatoff (CFO)

Yeah, sure. Yeah, we haven't given a target model yet. I think it's our first year, if you will, new strategy CEO. We'll get to that. We'll, dare I say, even have an Analyst Day to do that. We look forward to doing that at some point soon. The crux of what we're saying that you're looking at in the high 30s would be a good place to be. That number doesn't exist in nature. It's really the high margin SaaS and the kind of 20s margin for the product business. It really depends upon the mix shift, how quickly the software business continues to grow, where the product distribution business goes, what the ultimate mix will be, Jeremy. Under the current relationship and proportions, it's a high 30s margin contribution.

What we talked about on the operating expense cadence and guidance, we expect some of the numbers overall on a non-GAAP basis to come up a bit as we're starting to invest a little bit more in Q2 into that new product portfolio. As well, we're seeing a lot of traction from all the good stuff that Steve Harmon is doing on the go-to-market and bringing in a lot of talented folks with some great relationships and deals flow.

Jeremy Newston (Managing Director)

Great. Thank you very much.

Steven Gatoff (CFO)

Yeah, sure.

Operator (participant)

This concludes our question and answer session. I'd like to turn the call back to Juho Sarvikas for closing remarks.

Juho Sarvikas (CEO)

Thank you, Operator. Inseego is at an inflection point. The progress we've made in just a few months gives me confidence that we're building something scalable, durable, and highly relevant to the market. Strategy, execution, and innovation are coming together to unlock a new phase of growth for the company. We have strengthened our leadership team with talent that brings deep experience across wireless, enterprise, and go-to-market. I've outlined a plan for sequential growth. The strategy and initiatives that we're now executing on, including refreshing our portfolio, strengthening our go-to-market, improving operational efficiency, and accelerating our software and services roadmap, are setting the stage for compelling growth. We're transforming Inseego from a product company into a solutions company, and I will share more detail with you in the months ahead. Thank you again for joining us and for your continued support as we execute this important evolution for Inseego.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.