Inseego (NASDAQ:INSG) executives told investors at a TD Cowen event that the company’s recent stock weakness appears tied to near-term timing issues, even as management reiterated its full-year revenue path and described the pending Nokia transaction as a major expansion of its global opportunity.
TD Cowen Senior Analyst Lance Vitanza opened the discussion by noting that Inseego’s shares had moved from about $15 to $20 after the Nokia announcement before falling to about $12 following earnings. Vitanza said the quarter was “in line,” citing 8% year-over-year revenue growth and a 300-basis-point increase in gross margin to nearly 49%, but said the market reaction suggested investors remained concerned.
Management Points to Timing Issues Behind Guidance Reaction
Sarvikas characterized the MiFi delay as internal and “self-inflicted,” while the FWA pressure at a large customer was external and outside Inseego’s control. He said Inseego is now launching its MiFi portfolio across all three major U.S. carriers and moving from what he described as a “one-by-one matrix” of customers and products to six products across AT&T, T-Mobile and Verizon.
Asked what gives management confidence in the company’s $190 million full-year revenue path, Sarvikas cited the broadest mobile portfolio in the company’s history, expected recovery with existing large FWA customers and the addition of opportunities with cable operators, or MSOs.
FWA Customer Reset Expected to Improve in Q3
Sarvikas said a large FWA customer went through a leadership overhaul and enterprise strategy review that took longer than expected. Inseego had anticipated a recovery in the second quarter, but he said activity now points toward improvement in the third quarter.
He also said Inseego secured a new product award from that customer for a next-generation FWA platform that is expected to launch this year. Sarvikas described it as the “fastest FWA in the market” in the United States, saying the remaining issue is the customer’s go-to-market motion, including incentives and programs for field teams.
Mobile Growth Comes With Margin Trade-Off
Chief Financial Officer Steven Gatoff said Inseego is gaining share in mobile hotspots as new carrier relationships come online, but noted that gross margin in mobile has compressed from the 20% range into the teens. He said the business is expected to grow through higher unit volumes, with revenue gains offsetting some of the margin pressure.
Sarvikas said Inseego exited last year with about 25% share in mobile hotspots and expects to exit this year at a “much higher” level, with a run rate around 50% share before further portfolio expansion. He said Inseego is also pursuing a “good, better, best” lineup and sees opportunity in premium-tier products.
Gatoff contrasted mobile hotspot margins with Inseego’s organic FWA business, which he said remains higher margin, in the mid- to high-20% range, driven more by enterprise and channel sales.
Software Viewed as Margin and Platform Opportunity
Gatoff said Inseego’s software business includes Inseego Connect, a device management platform for Inseego devices, and Inseego Subscribe, a subscriber management platform for carriers. He said Subscribe had historically operated more like a professional services function for one carrier, but has been productized over the past year and is now being discussed with other carriers.
Sarvikas said FWA deployments are typically bundled with Inseego’s cloud solution because enterprise customers need manageability. He added that mobile devices now have routing capabilities similar to FWA products, which could help increase software attach rates over time.
Nokia Deal Expected to Expand Global Reach
Sarvikas said the most important strategic benefit of the Nokia transaction is global reach, followed by synergies. He said the deal gives Inseego large global anchor customers and creates opportunities to cross-sell Inseego’s mobile products and enterprise FWA products internationally, while also bringing Nokia’s residential FWA portfolio into U.S. customer relationships.
Gatoff said Inseego is targeting an Oct. 1 close and is already in pre-integration planning with Nokia. He said the company views integration as roughly a one-year process to reach breakeven for the acquired business and capture cost synergies across engineering, product management and supply chain.
Gatoff said Inseego does not currently see regulatory or other major obstacles to closing. He also clarified the economics of the transaction, saying Nokia provides a first-year EBITDA “make whole” for the acquired business to bring it to zero, followed by a second-year profit-sharing arrangement tied to the revenue and EBITDA of the acquired business. Sarvikas said the structure is designed to give Inseego time to integrate properly and create a profitable business.
Regarding Nokia’s ownership stake, Gatoff said Nokia will become an approximately 11% common shareholder, with no board seat, preferred shares or super-voting rights. Sarvikas said Nokia will remain a strategic partner through go-to-market collaboration, joint sales pipeline efforts and technology collaboration.
On liquidity, Gatoff said Inseego will receive a $10 million investment from Nokia when the acquisition closes. He also said the company expects to draw on a $20 million revolver as it invests in inventory and new product launches for expected second-half growth.
Sarvikas said Inseego has diversified its revenue base and built a stronger role at the enterprise wireless edge in the U.S. He said the Nokia deal changes the company’s addressable market and growth trajectory, adding that the next step is execution.
About Inseego (NASDAQ:INSG)
Inseego Corp is a U.S.-based technology company specializing in 5G and intelligent Internet of Things (IoT) device-to-cloud solutions. The company develops hardware and software platforms designed to connect devices, vehicles and remote locations to high-speed wireless networks. Its core offerings include mobile hotspots, fixed wireless access gateways and ruggedized routers optimized for enterprise, industrial and government applications.
Inseego’s product portfolio encompasses 5G MiFi® mobile hotspots, virtual network functions (VNFs) for network management, telematics devices for fleet tracking and asset monitoring, as well as a suite of cloud-native software for device lifecycle management and data analytics.
