UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 For the transition period from to . Commission File Number: 001-38358 INSEEGO CORP. (Exact name of registrant as specified in its charter) FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 81-3377646 (State or Other Jurisdiction of Incorporati ...

Inseego Corp (NASDAQ:INSG) Q1 2019 Earnings Conference Call May 8, 2019 5:00 PM ET Company Participants Dan Mondor - Chairman & CEO Steve Smith - EVP & CFO Conference Call Participants Michael Walkley - Canaccord Genuity Jaeson Schmidt - Lake Street Scott Searle - Roth Capital Mike Latimore - Northland Capital Markets Matthew Galinko - National Securities Operator Good afternoon, and welcome to the Inseego Corp.'s 1st Quarter 2019 Financial Results Conference Call. Please note that today's event is being re ...

[Part I](index=7&type=section&id=PART%20I) [Item 1. Business](index=7&type=section&id=Item%201.%20Business) Inseego Corp. provides 4G/5G mobile, IoT, and cloud solutions, focusing on 5G transition, IoT expansion, and SaaS growth, with significant revenue from Verizon Wireless and outsourced manufacturing - **Inseego** operates in the mobile (**4G/5G**), **IoT**, and cloud solutions markets, targeting enterprise, service providers, and small to medium-sized businesses[18](index=18&type=chunk) - The company's strategy is centered on leveraging the **5G** transition, expanding its **IoT** and **SaaS** portfolios, and capitalizing on long-standing relationships with wireless operators[29](index=29&type=chunk)[30](index=30&type=chunk)[35](index=35&type=chunk) Fiscal Year 2018 vs 2017 Net Revenues | Year | Total Net Revenues | | :--- | :--- | | 2018 | **$202.5 million** | | 2017 | **$219.3 million** | - The business is divided into two main areas: **IoT & Mobile Business** (**MiFi** and **Skyus** brands) and **Telematics & Asset Tracking Business** (**Ctrack** brand)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - A **significant customer concentration risk** exists, with **Verizon Wireless** accounting for approximately **49%** of total revenues for the year ended December 31, **2018**[55](index=55&type=chunk) - **Hardware manufacturing** is outsourced to contract manufacturers, including a recent transition to **Foxconn** to increase capacity and move production of **U.S.**-bound products out of mainland China[56](index=56&type=chunk) [Item 1A. Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) Inseego faces material risks including a history of net losses, significant debt, high dependence on Verizon Wireless, supply chain vulnerabilities, intense competition, and international operational exposures including currency fluctuations and trade tariffs - The company has a history of **net losses** and an **accumulated deficit**, and it may not achieve or sustain profitability[63](index=63&type=chunk) - The emerging **5G** market presents risks, as it may materialize slower than expected or the company may fail to meet aggressive development schedules and technical specifications[65](index=65&type=chunk) - **Significant debt service requirements** for the **Term Loan** and **Convertible Notes** pose a risk, as future cash flow may be insufficient to cover payments[79](index=79&type=chunk) - Heavy reliance on **Verizon Wireless**, which accounted for **49%** of consolidated **net revenues** in **2018**, presents a **major customer concentration risk**[104](index=104&type=chunk) - The company relies on third-party contract manufacturers (e.g., **Foxconn**) and sole-source suppliers for critical components (e.g., **Qualcomm chipsets**), exposing it to **supply chain disruptions**[114](index=114&type=chunk)[118](index=118&type=chunk) - Global operations, especially the **Ctrack** subsidiary in South Africa, create exposure to **foreign currency exchange rate fluctuations** (particularly the **South African Rand** vs. the **U.S. Dollar**), **political risks**, and local regulations like **Broad-Based Black Economic Empowerment (BBBEE)**[131](index=131&type=chunk)[136](index=136&type=chunk)[144](index=144&type=chunk) - The business is exposed to **U.S. tariffs** on goods imported from China. While mitigation efforts like moving manufacturing are underway, adverse impacts on costs and operations remain a risk[154](index=154&type=chunk)[155](index=155&type=chunk) [Item 1B. Unresolved Staff Comments](index=42&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments to report - None[169](index=169&type=chunk) [Item 2. Properties](index=42&type=section&id=Item%202.%20Properties) Inseego maintains corporate headquarters in San Diego, a principal executive office in Alpharetta, and leases various global office spaces, alongside owning a property in Centurion, South Africa - The company's corporate headquarters are located in San Diego, California, under lease agreements. It also owns a facility in Centurion, South Africa[170](index=170&type=chunk) [Item 3. Legal Proceedings](index=42&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal actions not expected to materially adversely affect its business - The company is engaged in ordinary course legal actions and does not expect them to have a **material adverse effect** on its business[171](index=171&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - None[173](index=173&type=chunk) [Part II](index=43&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=43&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Inseego's common stock trades on Nasdaq under 'INSG', with no history or current plans for cash dividends, as earnings are retained for business development - The company's common stock is traded on The **Nasdaq Global Select Market** under the ticker symbol '**INSG**'[175](index=175&type=chunk) - **Inseego** has **never paid cash dividends** and does **not plan to in the foreseeable future**, as funds will be retained for business operations and development. Debt covenants also limit the ability to pay dividends[177](index=177&type=chunk) [Item 6. Selected Financial Data](index=43&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable - Not applicable[180](index=180&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net revenues decreased by **7.7%** to **$202.5 million** in 2018, yet gross margin improved to **34.9%**, and operating income reached **$14.0 million** due to cost containment and a **$17.2 million** gain, with liquidity strengthened by a **$19.7 million** private placement [Results of Operations](index=47&type=section&id=Results%20of%20Operations) Net revenues decreased by **7.7%** to **$202.5 million** in 2018, primarily from an **11.5%** decline in IoT & Mobile Solutions, while gross profit increased to **$70.6 million** (**34.9%** margin) and operating income reached **$14.0 million** due to cost containment and a **$17.2 million** gain Net Revenues by Product Category (in thousands) | Product Category | 2018 | 2017 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **IoT & Mobile Solutions** | **$135,349** | **$152,851** | **$(17,502)** | **(11.5)%** | | **Enterprise SaaS Solutions** | **$67,114** | **$66,446** | **$668** | **1.0%** | | **Total** | **$202,463** | **$219,297** | **$(16,834)** | **(7.7)%** | - **Gross profit** for **2018** was **$70.6 million**, representing a **gross margin** of **34.9%**, an improvement from **$67.3 million** and a **30.7%** margin in **2017**. The increase was primarily due to changing contract manufacturers and higher-margin services revenue[205](index=205&type=chunk) - **Operating expenses decreased** in **2018** compared to **2017**: **R&D expenses** were **$20.6M** (vs. **$21.4M**), **Sales & Marketing** was **$23.0M** (vs. **$25.0M**), and **General & Administrative** was **$25.3M** (vs. **$34.4M**), all reflecting cost containment initiatives[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) - A **gain of $17.2 million** was recorded in **2018** related to the **extinguishment of certain acquisition-related liabilities** from a settlement agreement[211](index=211&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents increased to **$31.0 million** by December 31, 2018, supported by a **$19.7 million** private placement, while net cash used in operating activities improved to **$1.8 million**, despite significant debt obligations including a **$48.0 million** Term Loan and **$105.1 million** in convertible notes - **Cash and cash equivalents increased** to **$31.0 million** as of December 31, **2018**, from **$21.2 million** at the end of **2017**[217](index=217&type=chunk) - In August **2018**, the company completed a **private placement** of common stock and warrants, raising **gross proceeds** of **$19.7 million**[218](index=218&type=chunk) Outstanding Debt Principal (as of filing date) | Debt Instrument | Principal Outstanding (in thousands) | | :--- | :--- | | **Inseego Notes** (due 2022) | **$104,875** | | **Novatel Wireless Notes** (due 2020) | **$250** | | **Total Convertible Notes** | **$105,125** | | **Term Loan** (due 2020) | **$47,500** (as of 12/31/18) | Historical Cash Flows (in thousands) | Cash Flow Activity | 2018 | 2017 | | :--- | :--- | :--- | | **Net cash used in operating activities** | **$(1,765)** | **$(14,576)** | | **Net cash used in investing activities** | **$(4,234)** | **$(4,375)** | | **Net cash provided by financing activities** | **$17,667** | **$30,366** | [Critical Accounting Policies and Estimates](index=56&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies requiring significant estimates include revenue recognition (ASC 606 adoption in 2018 with no material impact), valuation of goodwill and long-lived assets, and accounting for convertible debt - The company adopted the **new revenue recognition standard**, **ASC 606**, on January 1, **2018**, using the modified retrospective method. The adoption did not have a **material impact** on the consolidated financial statements[253](index=253&type=chunk)[271](index=271&type=chunk) - **Valuation of goodwill**, which resulted from the acquisitions of **RER** and **DigiCore**, is a critical estimate. **Goodwill** is tested for **impairment** at least annually[284](index=284&type=chunk) - **Accounting for convertible debt** requires separating the **liability and equity components** and estimating the fair value of similar debt without a conversion feature, which impacts **non-cash interest expense**[285](index=285&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=62&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable - Not applicable[294](index=294&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=62&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and independent auditor reports are referenced and included in Part IV of this report - The company's consolidated financial statements and auditor reports are included in **Part IV** of the Form **10-K**[295](index=295&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=62&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[296](index=296&type=chunk) [Item 9A. Controls and Procedures](index=63&type=section&id=Item%209A.%20Controls%20and%20Procedures) Disclosure controls and internal control over financial reporting were deemed effective as of December 31, 2018, with an unqualified opinion from Marcum LLP and no material changes identified - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, **2018**[298](index=298&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective** as of December 31, **2018**, based on the **COSO 2013 framework**[300](index=300&type=chunk) - The independent auditor, **Marcum LLP**, issued an **unqualified opinion** on the effectiveness of the company's **internal control over financial reporting** as of December 31, **2018**[301](index=301&type=chunk)[305](index=305&type=chunk) [Item 9B. Other Information](index=63&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[303](index=303&type=chunk) [Part III](index=65&type=section&id=PART%20III) [Items 10-14. Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees](index=65&type=section&id=Items%2010%2C%2011%2C%2012%2C%2013%20and%2014) Information for Items 10 through 14 is incorporated by reference from the forthcoming 2019 definitive proxy statement - Information regarding directors, executive compensation, security ownership, related transactions, and principal accountant fees is incorporated by reference from the forthcoming **2019 proxy statement**[313](index=313&type=chunk) [Part IV](index=65&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=65&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance, debt agreements, and material contracts - This section contains a list of all exhibits filed with the Form **10-K**, including the company's **articles of incorporation**, **bylaws**, **debt indentures**, and **material contracts**[315](index=315&type=chunk) [Item 16. Form 10-K Summary](index=70&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary for its Form 10-K - None[319](index=319&type=chunk) [Consolidated Financial Statements](index=72&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Financial Statements](index=75&type=section&id=Financial%20Statements) As of December 31, 2018, total assets were **$162.3 million**, total liabilities **$198.8 million**, and stockholders' deficit **$36.5 million**, with **$202.5 million** in net revenues and a net loss of **$8.1 million** (**$0.12** per share) Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Cash and cash equivalents** | **$31,015** | **$21,198** | | **Total Current Assets** | **$84,352** | **$66,437** | | **Total Assets** | **$162,256** | **$158,207** | | **Total Current Liabilities** | **$53,681** | **$59,965** | | **Total Liabilities** | **$198,781** | **$203,822** | | **Total Stockholders' Deficit** | **$(36,525)** | **$(45,615)** | Consolidated Statement of Operations Data (in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | **Total Net Revenues** | **$202,463** | **$219,297** | | **Gross Profit** | **$70,597** | **$67,335** | | **Operating Income (Loss)** | **$14,011** | **$(22,214)** | | **Net Loss Attributable to Inseego Corp.** | **$(8,058)** | **$(45,735)** | | **Basic and Diluted Net Loss Per Share** | **$(0.12)** | **$(0.78)** | Consolidated Statement of Cash Flows Data (in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | **Net cash used in operating activities** | **$(1,765)** | **$(14,576)** | | **Net cash used in investing activities** | **$(4,234)** | **$(4,375)** | | **Net cash provided by financing activities** | **$17,667** | **$30,366** | [Notes to Consolidated Financial Statements](index=81&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, financial components, debt structure (including **$152.6 million** long-term debt), income taxes (with a **$93.8 million** valuation allowance), and contingencies, including a **$17.2 million** gain from a lawsuit settlement - The company adopted the **new revenue recognition standard** (**ASC 606**) on January 1, **2018**, which did not have a **material impact** on the financial statements[396](index=396&type=chunk)[420](index=420&type=chunk) - As of December 31, **2018**, total **long-term debt principal payments due** are **$152.6 million**, with **$47.8 million** due in **2020** and **$104.9 million** due in **2022**[511](index=511&type=chunk) - The company maintains a **valuation allowance** of **$93.8 million** against its **deferred tax assets** as of December 31, **2018**, as it is more likely than not that these assets will not be realized[515](index=515&type=chunk) - A **lawsuit with former stockholders of RER was settled** in July **2018**, resulting in the company recognizing a **gain of $17.2 million**[568](index=568&type=chunk) - One **customer accounted for 48.8%** of **net revenues** in **2018**, down slightly from **51.2%** in **2017**, highlighting **significant customer concentration risk**[573](index=573&type=chunk)

Financial Data and Key Metrics Changes - Inseego reported Q4 2018 revenue of $56 million, which was $5.4 million better than the previous quarter and up $9.5 million from Q4 2017, marking a 20% year-over-year growth [45] - Adjusted EBITDA for Q4 was $5.8 million, the highest in nearly a decade, with a 10% EBITDA margin, contributing to an annualized adjusted EBITDA target of $20 million to $25 million [7][59] - Full-year 2018 total revenue was $202.5 million, a decrease of 7.7% from 2017, while full-year adjusted EBITDA was $17.6 million, significantly up from $2.3 million in 2017 [44][45] Business Line Data and Key Metrics Changes - IoT & Mobile Solutions revenue for Q4 was $40 million, up 16% sequentially and 35% year-over-year, driven by the launch of the MiFi gigabit hotspot and design services revenue for new 5G products [61] - Enterprise SaaS Solutions revenue in Q4 was flat sequentially at $16 million, but on a constant currency basis, it grew 1% sequentially and 3% year-over-year [29][65] - Adjusted EBITDA for IoT & Mobile Solutions was $3.3 million in Q4, up 46% from Q3 and up $2.3 million year-over-year, while Enterprise SaaS adjusted EBITDA was $4.4 million, down slightly from the prior quarter [64][66] Market Data and Key Metrics Changes - The company has seen a significant increase in customer engagements, with a service provider pipeline exceeding 20 opportunities in mobile and fixed wireless 5G [11] - The Ctrack business outside of South Africa experienced double-digit annual subscription revenue growth, despite challenges from foreign exchange fluctuations [28][65] - The company is focusing on expanding its presence in the industrial IoT market, with new enterprise customers and partnerships being established [26] Company Strategy and Development Direction - Inseego's strategy includes a focus on 5G market opportunities, with plans to leverage its universal platform architecture for 4G LTE and 5G products [8][15] - The company aims to continue its transformation into Inseego 2.0, emphasizing product innovation, market expansion, and operational improvements [14][20] - A new go-to-market structure has been implemented, with sales leaders appointed for North America and international markets to enhance customer acquisition [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position within the 5G ecosystem, highlighting the importance of live product demonstrations in securing customer interest [89] - The outlook for 2019 is positive, with expectations for significant growth in the second half of the year as new products are launched and customer engagements increase [38][74] - Management acknowledged challenges in Q1 due to component supply shortages but remains optimistic about overcoming these issues and achieving revenue targets [72][96] Other Important Information - The company moved contract manufacturing to Foxconn in Taiwan to enhance scale and reduce tariff exposure [19] - Inseego raised approximately $20 million in new capital to accelerate investment in product development and market resources [16] - The company has strengthened its Board of Directors and resolved a significant lawsuit, contributing to a more stable operational environment [17] Q&A Session Summary Question: Can you help us think about the pipeline with the carriers you are meeting with? - Management noted that the ability to demonstrate live working products has significantly impressed potential customers, leading to follow-ups and engagement for testing and trials [89][91] Question: How should we think about your OpEx levels exiting the year? - Management expects OpEx to eventually stabilize, with a goal of maintaining a $40 million annualized run rate by year-end [92][93] Question: Can you tell us what component was short and its impact on Q1? - The shortage was due to an LED driver part, which caused delays in product launches and affected Q1 revenue [95][96] Question: Can you provide insight into the design activity engagement with new carriers? - Management highlighted strong interest across various service providers for both 5G hotspots and home gateways, with several design wins already secured [110][112] Question: When do you expect to see meaningful revenue from the industrial IoT products? - The launch of industrial IoT products has been delayed to early Q2 due to component shortages, with revenue expected to ramp up thereafter [118]

| --- | --- | |----------------------------------------------------------|-------| | | | | | | | | | | | | | | | | | | | | | | NEEDHAM 21st ANNUAL GROWTH CONFERENCE January 16, 2019 | | | Dan Mondor, Chairman and CEO | | | Steve Smith, EVP and CFO | | Safe Harbor Safe Harbor Statement The following presentation contains statements about expected future events that are forward-looking and subject to risks and uncertainties. For these statements, we claim the safe harbor for "forward-looking statements" withi ...