Hello, and welcome to Inseego Corp.’s First Quarter 2018 Financial Results Conference Call. Please note that today’s event is being recorded. All participants are in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity for analysts to ask questions. On the call today is Dan Mondor, President and Chief Executive Officer; Steve Smith, Chief Financial Officer; Chris Lytle, Chief Strategy Officer and Executive Vice President of Enterprise SaaS Solutions; and Ashish Sharma, Chief Marketing Officer and Executive Vice President of IoT & Mobile Solutions. During this call, 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 Investors 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 a discussion on factors that could cause actual results to differ materially from expectations, please refer to the risk factors described in our Form 10-K, 10-Q and our SEC filings, which are available on our website. Please also refer to the cautionary note regarding forward-looking statements section contained in today’s press release. I would now like to turn the call over to Dan Mondor, President and Chief Executive Officer of Inseego. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining today’s call. I’m pleased to report that Inseego is off to a great start in 2018. We reported Q1 in line with guidance and we continued to make solid progress in the transformation of Inseego 2.0. In the first few months of this year, we saw momentum in both IoT & Mobile and Enterprise SaaS Solutions on numerous fronts, with new wins, recurring software revenue growth, which drove solid year-over-year growth in the Ctrack business and continued momentum in the aviation vertical. Also, we have a number of new enterprise IoT and 5G products in our development pipeline. Inseego has always been about creating ubiquitous mobile connectivity. Our reputation is built upon decades of expertise in every generation of mobile technology and connected asset platforms, which are deployed around the world in SMB, large fleet, and now, aviation. And we have a powerful solution of intelligent mobile IoT solutions for our customers. Our emerging 5G device-to-cloud IoT solutions opens up an unprecedented market opportunity for the company. Device-to-cloud IoT solutions supercharged by 5G will power new applications in multi-gigabit fixed and mobile broadband, autonomous vehicles, industrial automation, robotics, drones and utility infrastructure monitoring. 5G device-to-cloud will play a vital role in public safety and security, with real-time response to critical events, for example, in smart city deployments. 5G will also play a huge role in multimedia markets such as cloud-based gaming, with real-time virtual reality. Suffice to say, 5G device-to-cloud is a game changer in the foreseeable future, period. In the first quarter, Inseego made tremendous progress in continuing to grow our Ctrack aviation pipeline, further validating our leading position and value proposition in this important market vertical. I’m pleased to report that we signed Sprint to a 5-year contract for our…

Thanks, Dan, and good afternoon, everyone. Before I get into the results of the quarter, I want to elaborate on several things. First, as said during the last conference call, we’ve gone through a comprehensive reorganization to redeploy Inseego into IoT & Mobile Solutions under Ashish Sharma and Enterprise SaaS Solutions under Chris Lytle. IoT & Mobile Solutions includes the MiFi and IoT businesses. New development work is targeting 5G, smart IoT devices and services to expand our industrial IoT footprint in home and industrial gateway routers. Enterprise SaaS Solutions is comprised of our Ctrack asset tracking and telematics and DMS businesses. Going forward, we will no longer report hardware and software revenue, but provide the revenue of these two units as I just described. As this is how management is tracking the health of our business, we have provided a table in the press release with a year of historical data to provide more context to these numbers. In addition, note we are beginning to make investments in key personnel and technologies. Investments in 5G, IoT and cloud products are being made as we act on our plans and as a result of new opportunities that have materialized this year, as Dan elaborated upon. We will see some impact to previously targeted short-term EBITDA and cash expectations on a go forward basis, but we believe the visibility and size of these opportunities merit increased investment. Second, we continue to see positive work progress improvements on adjusted EBITDA and our strategic initiatives. As I stated last quarter, we will see cash balances moving up and down due to the result of inter- and intra-quarter working capital swings as we balance the performance of payables, receivables and inventories. Given that approximately 70% of our business is booked and shipped, this should…

Thanks, Steve. In summary, I’m pleased with the solid start to the year despite some legacy MiFi headwinds that, frankly, are rapidly turning into tailwinds with 5G. While there is more work to be done in operating efficiencies throughout the business, we enter 2018 confident in our financial position and we are making focused investments for growth in 2019. We’ve made key hires to accelerate sales and are taking advantage of new opportunities on our radar. I want to assure investors, and repeating what I said before, that management will continue to take a very disciplined approach to investment. Real, worth it and winnable is always the test. We are committed and confident in improving EBITDA sequentially through the year. Regarding the ban on Chinese vendors, we’re in the right place at the right time to fill the void. The phone has been ringing off the hook, so to speak, literally in the last couple of weeks. And make no mistake, the signal products are red, white and blue, designed and built in the U.S. 5G is the first true broadband technology that is untethered by copper wire, coax cable or optical pipes, and think about it. Now I’ve been in the front row seat in this industry as a technology supplier to enterprises and service providers around the world for four decades. Consumers and businesses live in a mobile universe, period. This is why 5G is once-in-a-lifetime and why I’m so bullish. Combined with IoT and intelligent cloud platforms is unprecedented, it will permeate many more industries, more than we can currently predict. Our R&D teams are working around-the-clock alongside with our customers and technology partners to deliver world-class products. What’s really weird is the articles and earnings transcripts of some of my fellow technology suppliers, which should go…

[Operator Instructions] And the first question comes from Tom Walkley from Canaccord Genuity.

My first question is just on this large airline deal, congrats on this deal. Can you just give us a sense, maybe not specific to that customer, but on such a large footprint, what is the time frame? Is it quarters or years to roll out such a large project? And what could be the -- a top five airline total revenue opportunity over the life of the deal for Ctrack?

Well, as we mentioned earlier, our pipeline right now is in the tens of millions of dollars annually, and these deals are multiyear. The U.S. airline covers a five year period. In this particular instance, the EU airline can be even a longer period of time. So it is substantial. Back to your question on timing. As I said, everyone wants that, everyone wants right now, and we do too. It is a slow ramp. It moves to proof of concept, then to deployment ramp. And you have to remember, there’s airports around the world that this is deployed. So it is a slow ramp, there are sizable deals, and so we expect that kind of run rate to occur in a couple of years, hopefully sooner. But the business will definitely build up over time. And what we’re focused on now is landing these deals.

Okay, understood. And then just on the legacy MiFi being weaker than expected. Can you maybe help us think about gross margin trends in the short term? And then, where do you think gross margins could be for that division as 5G starts to ramp over time?

Steve, why don’t you...

Yes, Mike, we expect the gross margins to improve as we move forward. As I alluded to, we took a $600,000 charge for reserve for some raw materials. And that was about a two margin-point hit in the first quarter. So we expect that, combined with newer products coming on, Dan talked about our gigabit hotspots coming in later in the year. And we’ve not provided any real guidance for 5G, but expect 5G to be substantially better than the MiFi portfolio relative to gross margins.

Yes. I think, also, in our gigabit 4G product, now let’s face -- 5G doesn’t get universally deployed. So this is a gigabit solution that will fill the void until then. And it directionally has stronger margins than the legacy portfolio.

Okay. Got it. But with your kind of adjusted EBITDA targets pushed out, is it just purely a lower revenue for IoT solutions this year relative to your expectations on the legacy business? Is that the best way to characterize the quarter to push out on your targets?

Yes, it’s the softness in the legacy MiFi. And as I mentioned earlier, the headwinds turned to tailwinds with 5G. So that’s really been the driver in lowering our guidance. However, it’s a pushout, not a re-vectoring.

Okay. And then just staying with IoT solutions. So is it fair to think it kind of bounces around this 25 million to 30 million for a quarter or two and saw 5G or new product exiting this year and then could really ramp each quarter toward 2019? Is that a fair way to kind of think about the shape of that business is going?

Yes. We certainly see a ramp-up in ‘19.

Yes. Well, currently, you look at 5G, we’re going to see some deployment this year. And realistically, we’ll see an uptick in deployment probably in the latter half of 2019.

Okay, great. That’s helpful. Last question for me and then I’ll pass the line. Just you’re hiring some strong people to drive growth and make targeted investments. So just on your OpEx going forward, should we expect that to just to trend up a little bit R&D and SG&A and maybe offset a little bit in the, I guess, general administrations? I know you’re still working on some projects to cut cost there.

Yes. That’s the right way to look at it. As I stated, we’re making headroom to accommodate the investments we are making.

Yes. And G&A is where we have a principal focus still and there’s more opportunity for reduction. I will say this and they want to reiterate it. I think I said it on the last earnings call. We are fully staffed in development for 5G. This is not a recruiting effort ongoing to add resources, and that’s frankly taken advantage of the great teams here that was -- that’s worked on the multiple generations. So 5G is fully staffed. We’re going to add selectively here and there for pockets of expertise perhaps in development, perhaps thinking about smart camera, video analytics, that sort of capability. But it’s really about executing what we have in development pipeline. And based on the opportunities we see, it’s time to muscle up, frankly, on the sales front.

And the next question comes from Mike Latimore from Northland Capital Markets.

This is [indiscernible] for Mike Latimore. What kind of growth rate do you see for Enterprise SaaS revenue this year?

We don’t provide guidance on full year growth rates. We have provided -- we provide guidance on a sequential quarterly basis. We have targets for double-digit growth. We talked about it. We are very encouraged by the start in Q1 with the growth rates we’ve seen in Enterprise SaaS and specifically Ctrack. So you can project from there, relative to double digits, but we’re very encouraged and off to a great start.

Is there a gross margin expansion possibility for the Enterprise SaaS from your current levels of 65%?

Yes. The mix – it’s depending on the mix between hardware and software. So over time, we’ve seen a reduction in the hardware content in the mix, and therefore higher recurring software. So as that business grows, and like most -- like all SaaS businesses, you have basically absorption of costs. And so on an incremental basis, it’s margin grade. So that’s a long-winded way of saying, yes, we see upside potential.

Just one last question. How many 10% customers were there in the quarter? And like, what were their percentages?

How many 10% customers, is that what you asked?

Yes, yes.

Just one, just one.

And the next question comes from Jaeson Schmidt from Lake Street Capital Markets.

Wondered if you could comment on what you’re seeing from a pricing standpoint in the Ctrack business. Are you seeing anything out of the ordinary there?

No. I guess, a short answer would be no. It varies between the verticals. So there is a cluster of price ranges in the -- I’m speaking about ARPU, monthly ARPU in SMB. There’s another cluster of price points in the monthly ARPU in fleet and there’s another in aviation. And those -- as you look at those SMB to fleet deviation, it increases. So that’s the mix. So when you put it all together, you come up with a blend. But it’s really, really important to understand those price tiers.

The other thing I think we need to add is, you’ll recall Dan’s comment during his prepared remarks. We’ve deemphasized the consumer business, and that had a much lower ARPU. So I think, just by virtue of that slowly working out, we’ll see ARPUs creeping up as a result of that.

Yes. That’s a good point. Yes.

Okay. That makes sense. And then sticking with the Ctrack business, wondering if -- looking at both your domestic business and international, if you saw a particular strength in either one of those geographies? Or if it was more broad-based?

No. Really, it’s more broad-based. It really is more broad-based. The deployment historically has been non-North American and we’re now moving forward and especially with increased sales resources to focus now on increasing North America. It’s very balanced, it’s very broad. The solutions are universally applicable.

Okay. And the last one for me, and I apologize if I missed it. But when we look at your 5G product portfolio, do I assume that it will be accretive to the gross margin profile?

In IoT & Mobile Solutions, yes. We have a built-in better margin profile in 5G from day 1 and as well as in the other side of the IoT in industrial IoT products.

And this concludes our question-and-answer session, thus concluding the conference. Thank you for attending today’s presentation. You may now disconnect.