Hello. I'm Lance Vitanza, senior analyst at TD Cowen, and I'm delighted to have the Inseego team with me here. Of course, to my left, Juho Sarvikas, the CEO, and to his left, Steven Gatoff, the CFO. Thank you gentlemen both for being here with us today.
Great to be here again. I can't believe it's been a year.
I know, right? Time flies. Look, we were talking about this before we got started. A month ago the stock was at $15. Two things have happened since then. You announced a transformational transaction with Nokia in which revenues are going to double, and Nokia winds up being your number three shareholder.
Right? That's good. Then you reported earnings. There was a post-Nokia bump from $15 to $20, and now the stock's at $12. We've had war. All kinds of things going on, but the reason I'm setting it up this way is I'd like to focus on the earnings first, because I think that that's clearly what is driving the stock in the near term, and then we'll get into Nokia as well. The quarter was in line. We had 8% year-on-year revenue growth. We had a 300-basis-point bump in gross margin to nearly 49%, but the stock reaction suggests investors remain worried. What do you think is the most underestimated thing here as we think about the setup for the rest of 2026?
Just to acknowledge first that I think the reaction is somewhat to the Q2 guidance. We were guiding that to the 40% range midpoint, where perhaps there were expectations higher. Quite frankly, our original expectations were harder than that. There's two elements that we're working on that I'm sure we'll talk about here. We had an execution delay on our MiFi portfolio, which we're launching now across all three carriers.
That's something that is a timing issue more than anything else. Secondly, our main FWA partner is still realigning on the go-to-market side. If you look at the fundamentals of the business and the growth that we're set to drive here, the big thing really is that we're going from a one-by-one matrix when it comes to customers and products to now having six products across all of the three large carriers in the U.S. The next wave of expansion is really with the MSOs, where there's a huge opportunity with 5G as well.
You reiterated the $190 million full-year revenue path, right? 2Q guidance, as you mentioned, there's some timing issues that are going on there. What are the two or three highest confidence drivers that give you comfort that you're going to get to the $190 million for the full year?
If I look at that one-by-one, we have the broadest mobile portfolio in the company's history. We actually also announced that we're expanding further from there in the future. If you look at going into Q3, we're now covering the sweet spot in the portfolio across AT&T, T-Mobile, and Verizon, which is a great platform to continue to drive mobile and growing mobile, quite frankly. Then, the other two key elements, really, one is the recovery with our existing large customers.
While we've done a great job in ramping up a new Tier 1 carrier in FWA, the existing large guy continues to falter. What was supposed to be 1 + 1 = 2 equals two, we're not quite there yet. That's something that we foresee going into Q3. In addition to adding on MSO customer on top, there's been a lot of great work by the team on product solution readiness, getting the commercial framework in place to start engaging with the large cable guys here in the U.S.
Just to sort of paraphrase and recap a little bit. On FWA, you cited the disruption at a large customer that was tied to enterprise go-to-market reset. You also secured a commitment from this customer for next gen FWA platform. What needs to happen to re-accelerate that account, and I guess the timing you're saying is Q3?
Yeah. Look, the movie that played out late last year was a complete overhaul of the leadership team at this specific carrier, particularly on their enterprise team, which then of course goes to the next thing that you logically do is to revisit your strategy, take a look at how should we go to market and all of that. That process and realignment has taken longer than we expected. We were expecting to see that bounce back already in Q2.
I think there's good activity now towards Q3 in getting where we need to be. Then to your point, I think a strong testimonial of the relationship is the new product that we've won an award for and will be launching this year. That product will be the fastest FWA in the market, not only in the portfolio of this carrier, but U.S.-wide. That's technology leadership, strong partnership with the customer. The thing that needs to come back together, like you said, is really the go-to-market motion and making sure that we have the right incentives and programs in play for their field teams.
It sounds like then the issues, the delays to the extent that they're delays, were really on the customer side and not execution oriented at Inseego.
We had both.
Okay.
The mobile was internal. Let's call it self-inflicted, and something that we've done a lot of work on. I'm sure we'll touch on that later in the conversation. Meanwhile, the FWA performance with the large customer was really external.
Yeah.
Outside of our span of control.
To pivot to mobile, you've launched, obviously we've talked about two of the three Tier 1 carrier hotspot models, and now we have the third expected late July, plus we have a new low-tier MiFi win.
Yeah.
How should investors think about volume versus margin as we sort of ramp up with the lower tier product?
Yeah. We'll tag team if that's cool.
Yeah.
To the conversation we have on mobile specifically, as Juho always says, it's a fixed pie, essentially, and we're growing because we have the better product, and we have new carrier relationships that are coming to fruition. We are winning share and growing the business. The gross margin for mobile that used to be in the 20-something range is now in the teens. There is margin compression on mobile, but there's growth in total revenue because you have unit volume growth. We see a total revenue curve growth, but it's a combination of margin offset by higher volume.
And so-
But what really matters-
Go ahead, sorry.
Well, what do you get out of it on the bottom line, right? How do we drive more margin capture overall? In this case, there is a volume ASP margin trade-off. The other thing I'll say on mobile is that if you look at our market share, let's say last year when we were exiting the year, think 25%. Exiting this year, we'll be at a much higher market share out of that, like Steven Gatoff was saying, FWA. If you call it two million units, our run rate will be around 50% market share at the end of the year.
Wow, okay.
Before we expand the portfolio further.
Right.
There's also opportunity that we're engaged on the premium tier.
Wow.
In addition to the customer expansion and getting all three guys like we've done now with the large carriers, I also want us to see us have a good, better, best lineup in the mobile category. While that market segment is not growing, unlike the FWA, the job really is to drive consolidation in that space. So far we've been trending pretty well.
It sounds like it's not just adding customer. Adding customers is huge, it's also doing more with the existing customers.
Correct.
Is that-
Yeah.
Okay.
That's where we have the new value segment win is with one of the existing customers.
Just to go back to something that, Steven, you said about the margin compression from the mid-30s. I think you said it was from mid-30s to mid-20s today. I know that this has been happening for forever, but for those of us that are less familiar with that trend, is this just the unending price compression on the unit basis that we've seen at least, I feel like I've seen my entire career? Or is there something specific?
Yeah, on mobile hotspot, yes.
Yes.
It's different. It is a little bit kind of Tale of Two Cities where mobile hotspot is what you said.
Okay.
We see continued strong gross margin on the organic FWA business. That's more enterprise, a little bit of channel. It's higher, in the mid to high 20s.
Okay.
That's a higher gross margin business by nature.
On the compression piece, that's not something you can plan your way around. It's not something.
I think it goes also with the maturity of the technology cycle.
Right.
5G is now what? Almost at 6G. We're a couple of years out.
Yeah. Oh, God.
What's very typical is that with the technology cycle, you also see-
Right.
... effect on the gross margin, right?
Yeah.
We have historically done the best when things get really difficult, very complicated, and it's early adoption of new technology. Now the new muscle for the company that we've been building since.
Yeah.
I joined beginning of last year is the ability to drive scale and win at scale in the marketplace.
How does the software piece, how does that impact margins and what can we expect, or how much of that was baked into the commentary a minute ago when you said that you think that there's a sort of the margin offset?
Yeah, the software has two pieces to it. It has the Inseego Connect, which is our call it device management software for Inseego devices, and then there's Subscribe, which is the subscriber management across all devices for carriers. We've taken the latter from what used to be historically at Inseego as a professional services function for a carrier, and we've really, over the last year, productized that and turned that into a platform that we're having conversations with other carriers about.
The other key push that we have from a product strategy standpoint of view in the hotspot or mobile category is that it now has the same routing capability as our FWA. It's actually very disruptive looking from a capability standpoint of view compared to the previous generations. With that, what we're targeting also to do to see if we can drive a higher attach also in mobile. Meanwhile, in FWA, when our key customers sell it typically comes bundled with our cloud solution. That reduces the friction when the end enterprise is taking it to adoption. Quite frankly, if you're doing an enterprise deployment, you need the manageability to begin with.
As the attach rates go up, though, there should be a natural uplift on margins overall, right?
There's definitely-
Just as the mix shift.
There's definitely an installed base-
Okay.
... at play here where over time we'll have growth in Connect. Like Steven was saying, I think the Subscribe is like a crown jewel that we likely should be talking more about.
Okay.
The work that we've done now to make what essentially was a professional services with a single large customer to a true platform and engaging the broader community. We're getting really good feedback.
Let's get to the fun stuff, the Nokia piece. At least for me, that is Inseego. You've called this a transformational acquisition. Obviously, it more than doubles revenue. It makes you global instantly. What do you think, though, there's a lot of different benefits from my standpoint, but what do you think is the most important strategic benefit? I'm thinking you've got the global customer access, you've got portfolio breadth,-
Yeah.
... platform unification, or is it something else?
I think the first thing is the global reach. Second, I would mention synergies. Maybe Steven, you can talk into that a bit more in terms of what do we expect on that front.
Yeah.
Look, the big thing here is that CEO of a company of our size might wake up in the morning worrying about how to grow the company. We won't have to worry about that because now we have these large global anchor customers that we're going to use as a base to build or reinforce a global go-to-market machine and the associated capabilities. With that, we can expand the Nokia FWA business as it is, which I expect we'll be able to do, very importantly, cross-sell our mobile products and our enterprise FWA to the global market.
Meanwhile, we can take the Nokia, which is more residential product. It's an excellent portfolio indoor and outdoor, their end market has been more residential. To deploy that with the large customers here in the U.S. where we have excellent relationships. I really think that this global reach, global anchor customers is something that will be a really valuable strategic asset for us that goes beyond the conversation that we're having here as we look at future strategic optionality.
Anything to add? No. Okay. From a cultural standpoint, I know you obviously used to work at Nokia. How do you think that this is likely to play out? Have you had conversations with the team there, and if so, how would you describe the energy level, excitement level? Are people pleased?
The big thing for me here is that I know the Nokia engineering capability, but also the quality of their processes across the board. I think there's a lot there where it's not going to be one where we're going to do things Inseego way, but we're going to pick the best of both worlds. The way I look at it is that, yes, we have a strong, robust company as we are today in Inseego, but it's an opportunity to create something new as well by adopting best practices from both companies. The other thing is just from an employee experience standpoint of view, the Capital Markets Day was in November, where it was announced that there's this portfolio of businesses that will be divested from Nokia.
Yeah.
Which of course, was a lot of uncertainty for the employee base. Now they have certainty. They know that they have a good home. As a part of the due diligence, we had the chance to meet with the teams globally, at least the key leadership. I'm actually traveling the next two weeks, so is Steven, to meet with some of our new European colleagues. I think it's great.
The question is that how do you harness this process discipline structure and the capability that they have to operate at a large scale? Because they are number one globally in FWA. I like to think of ourselves as American technology entrepreneurs, if you will. How do you create the perfect blend where you're aggressive, you're innovating, you're bold, you're making moves, at the same time, adopt the best practices from our new colleagues at Nokia?
Financial stuff aside, how long of an integration do you expect this will be? Is this something that, multiple years, or is it six months and done?
Think of it, we're targeting October 1 to close.
Yeah.
Right now we're kind of in pre-integration planning, and to you, it's a good point. There's a ton of work, and you asked earlier, they're very engaged. We meet multiple times a week. They have dedicated integration managers and leads, a dozen people from the Nokia side who work with us constantly. We're doing all the work now to get to closing, then you'll have integration. Our view is really approaching that as kind of a one-year timeframe to, as we've said publicly before, to get to breakeven, and to turn the business, and to the conversation earlier around synergies on the cost side, because it is about running the company as a global engineering and a global product management, a global supply chain. It is putting two businesses together that have an unbelievably high amount of overlap in cost and people.
What I really like about the discussion with Justin and the Nokia leadership team was that we were immediately on the same page in terms of how important the business and customer continuity is. What was important for them, now as they're focusing very successfully so on the infrastructure side of the AI super cycle, making sure that there's a good home for the edge. Of course, the partnership, the whole concept of the deal reflects all of that, right? They will benefit from our success. Like Steven was saying, we have that one-year period to make sure that we do a great job with the integration, associated TSAs. I think we feel good about the risk mitigation activities and the plan and the journey ahead.
Any risk to whether or not this transaction closes?
Not that we see, no.
Yeah. We don't believe that there's any regulatory or other major considerations.
In terms of the economic bridge, and I know it's obviously early, I'm not going to ask you about what to look for on the back end of the merger, but you do have a one-year $38 million of sort of a guaranteed EBITDA backstop, so to speak.
Yep.
from Nokia, and then there's a profit-sharing on the back end of that. I think there may be, in some of the conversations that I've had, there's some confusion about the extent to which the incentives for Nokia are tied to revenue versus tied to profitability.
Sure, yeah. The make whole, to your point, the first year, run the business, deliver the products, transition, put them together. That make whole is based on the EBITDA of the acquired business. What that business does is, to your point, backstop to get to zero. That's year one. Year two is a profit sharing of the profitability EBITDA from that business with Nokia that is based on the revenue of that business. If they hit the revenue numbers that we entered the deal into, very simple, like there was management presentations, there's awesome, you do that, and then we'll share the EBITDA with you that they can get upwards of 50% of that EBITDA if it hits the number, and if it doesn't, it could be zero.
Of the acquired business.
It's the EBITDA-
Of the acquired business. That's right.
Yeah, there's no way for them to load up on unprofitable consumer FWA and then claw back EBITDA dollars-
No.
... that were generated [into you] Right.
No. It's profits generated from the acquired business to the extent they got it.
And look-
Yeah.
... you know the lead times in the industry. If we close October 1-
Right.
... it will be a year before-
Right.
... we're all one joined hardware platform, software platform, and device roadmap. it's really designed-
Yeah.
... to protect and give us the time to do it properly and create a profitable new business.
I know it's obviously early, you haven't closed the transaction yet, but is it possible to think about which of the synergies you expect you'll get first? I would assume it's go-to-market, you know. Probably, the two big pieces, there's the revenue go-to-market selling. R evenue-generating synergies, if you will, but then there's also the cost-saving synergies.
Yeah.
Of putting two businesses together, that's likely the first to come to fruition. Right as you close the business and you put together two engineering teams and product management teams, those are probably the biggest, two biggest areas.
We're not going to go and discontinue committed customer programs-
Sure.
... day one to be able to drive the synergy. We need to have that complete.
Right.
Transition to one team, one platform, and everything else.
Okay.
On the go-to-market side, in the U.S., we have very robust sales teams, or I should say North America, and customer relationships. For APAC, Europe, Middle East, Africa, some of the key markets, we're building virtually brand new. There's people and key roles that are coming over from the transaction, there's also new ones to resource. The go-to-market, I think the sales motion, global perspective, less synergistic, like Steven was saying from a revenue synergy with the cross-sell.
We do expect. We're not assuming in the base scenario any of the revenue synergies than the cross-selling, but that's obviously something that we have a keen eye on.
I know that you mentioned that when Nokia announced that they were going to do something with this business, right, I would imagine that that certainly put a damper on the revenue growth and maybe even turned the revenue growth to negative revenue growth. Do you think that is it possible that that gets turned around before you take over, or would that be too optimistic?
Our $200 million number that we put out there-
Yeah.
... is assuming existing run rate.
Okay.
That's not assuming any growth, new customer, existing run rate.
At closing, $200 million, or no? Now.
Now.
Okay.
Now.
Yes.
It would be Q1, $200 million based on the Q1 run rate.
Yeah, Q1 times four.
More the same.
$200 million.
You're not making any statement as to whether or not that number will be higher, lower, or the same in October when you close?
That's right.
Yeah. The key thing here really is that we also know which customers walked away.
Yeah.
Of course, it will be a great idea to go have an intro discussion with those customers and say, "Hey, we're here. Here's what we do. Here's the partnership with Nokia, and here's how much more we can do for you now on the back of the broader portfolio-
Sure.
... broader engagement. Let's talk." That has been key, of course, we'll wait for October 1 before we operate the business or do any of that, these initial introductions, I think really favorable reception. Western player, known brand, known technology leader in the industry.
No reason to stop to wait to have those conversations. It sounds like those are already ongoing.
Yeah, we've definitely done the introductions.
Just, when you say walk away, I had the sense that it wasn't so much that people walking away as it was just saying like, "Hey, we're going to take a pause here, and we're going to just wait to see how things shake out." Is that sort of more accurate or no? Is it really the case that people sort of said like, "Hey, I'm moving away from Nokia," and now you got to go get them and bring them back?
Well, some deals that were getting done-
Yeah.
... in the December, January, February timeframe that were in process-
Yeah.
... got paused and got done away.
Okay. I see.
Because they needed to fulfill a deal in January.
I see.
I don't know what's going to happen.
It wasn't just pushing stuff to the right necessarily.
Right.
Combination.
Okay.
Yeah.
I got you. Okay. Maybe just in terms of some additional upside drivers, looking ahead here, software services, we talked about that just a little bit, but I want to kind of come back to that. You highlighted Nokia's global footprint, and that obviously has the ability to really expand that with strong reception so far. What's the plan to broaden software and services beyond the existing customer base and how should we be thinking about how relevant that might ultimately be to the broader story?
I think twofold. One, our Inseego Connect, and Inseego Subscribe for that matter, centers around the carrier, and now we have all of a sudden access to all of the large carriers globally. I think it will be very nice to develop a broader strategy from where we're today with Inseego Connect, which is device and network management for our own enterprise products. Now we'll be participating in residential, and we could do something broader with that same carrier audience when it comes to device network management. I'm sure you can name multiple consumer-facing features, whether it's content filtering or other elements. There's a lot. There's a rich domain that we can now look at with a much broader lens than we've done previously. That's something that we're exploring.
On Inseego Subscribe, now that we've done the investment and made it a true platform in a sense, we're getting really good feedback in segments where you have the most complicated customers. Large enterprises with difficult customization requirements, unique billing requirements, and then anything really that has to do with government or federal/SLED categories where we have a lot of unique IP in understanding how the contracting works, how the spend management works and everything else. Those discussions we've already started some time ago in the U.S. to identify areas where we can add value to new partners with that solution.
What about the sort of the impact potentially of tariffs and/or kind of Buy American increasing sentiment that that's something that's a strategic priority, at least for the administration that's in the White House these days? I'm thinking about that as more of a potential positive for your base business than anything else. Are you seeing any positive or negatives from either the tariffs or?
Look, I think the FCC ruling-
Yeah.
... that started with residential routers.
Yeah.
If you have a router that's intended for residential use case as a primary end market, needs to be designed, developed, and manufactured in the U.S. I think you might already know this, but there's limited manufacturing in the U.S. today. We are unique in that we have design and development resources-
Right.
... in the U.S. So that is-
To create that.
Yes. Then manufacturing, I'm not going to say it's super easy, but it's easy. The industry just needs to agree that now we're going to increase the manufacturing value add, and everybody needs to accept that fact. We're already doing the difficult stuff. We can easily move our production to U.S. Let's see how that environment develops. The way it works today is that if you already have FCC approval, you don't need to do anything. It's only on new products that you plan to take to U.S. It's going to catch potential future competition devices trying to enter U.S. that do not tick those three boxes, which none of them would, no one in the industry does today. I think that's a really interesting thing that we're watching super closely. The other thing I'll mention is that today our end market is enterprise.
If you look at our mobile, over 60% sales channels to an enterprise end customer. Our FWA is exclusively enterprise. As we approach FCC with filings, which we've done since all of this came to effect, we have our literature, we have our end market, we have everything pointed towards enterprise. We have not had any reason to engage on this.
Now you do.
Nokia residential products, when the time comes, we'll engage on that discussion, but we have very flexible resourcing strategy.
We can choose to do the work in the U.S., and we'll continue to closely monitor how the manufacturing ecosystem develops.
It's amazing that two years ago, we could not have gotten 25 minutes into a conversation about Inseego without talking about balance sheet and liquidity. Now it's easy to ignore, but I do want to just ask you, as we think about liquidity sources of working capital and so forth over the balance of the year, obviously we're not worried, but what should investors expect to see, if anything, in terms of sources of liquidity, whether or not there's credit facilities that get drawn to support-
Yeah.
... pending merger or capital raising and so forth?
Yeah. You just named them all. That's spot on. Those two pieces, one, when the acquisition closes, we in Inseego receive a $10 million investment from Nokia, so that's helpful. That's incoming cash. We also are making investment in inventory and in the launch of new products and derive the growth that we see in the back half of the year, so that is a use of capital, and we are funding that and would expect to start drawing on credit facility. We have a $20 million revolver that was put in place many months ago. That is part of the capitalization over the next six months.
Got you.
The other-
Yeah, go ahead.
... key thing to note is with the memory dynamic.
Oh, right.
I keep saying that I'm actually very happy with what the team has done in terms of creating a buffer.
But-
That's also informing-
Yeah.
... the cash conversation, of course.
Yeah.
How do you strike the perfect balance? We'll see what the prices are first half of next year.
Right.
Not sure if they will be coming down yet.
Actually you got me thinking of Nokia now, right? They're at 11% shareholder, I think you've said-
That's right.
... on the back end of this transaction.
Yep.
What does that mean in terms of their involvement, corporate governance? Are they on the board?
No.
How voting?
No. They're not, no board seat. They're a common stockholder, so there's no preference on their shares or super voting rights or anything.
They're a passive-
They're a passive.
... commercial partner-
Yeah.
... but passive shareholder.
Passive shareholder.
And also-
Common.
... from a strategic standpoint of view, two important things. One is this go to market collaboration, which we announced.
Sure.
We'll have a joint sales pipeline incentive training program.
Yeah.
where we'll continue to leverage the big Nokia machine. They're super deep across all of the global carrier accounts, so that's going to be helpful for us. Secondly, technology collaboration. As we get towards the AI RAN, distributed AI computing infrastructure, 6G, all of that, the CPE will become more of an integrated part of the network. Because if you look at today, the network and the CPE kind of know what one another are doing, but it's not a part of the same management stack. It's not pervasive. There's a lot of opportunity for us to lead and also differentiate together with Nokia.
We just have another couple of seconds, but before we finish, I do want to ask you, what is, if there's just one thing that you want to leave in the mind of the investor that's maybe taking a fresh look or a new look at Inseego, how would you characterize the opportunity?
Look, I think we've done a great job in what we said a year ago, which is to diversify the revenue base and take a very predominant role at the enterprise wireless edge here in U.S. Now what we're doing on top of that is that we're unlocking this global opportunity with strong anchor customers that we can build, that will fund the investment and build the required global infrastructure as a huge benefit, doubling the company revenue and enabling the cross-sell. If you look at from addressable market that we have now, than what we've been talking about just a couple of months ago, completely different picture. There's good path to further expansion with what I would consider our organic business. This new global opportunity that will materialize 1st October really changes the company from addressable market growth trajectory, everything else standpoint of view.
I think we're super excited.
Yeah.
On the journey ahead, now it's really all we need to do is to execute.
Thank you very much for being here. We're going to have to leave it here, but I really look forward to continuing to follow the progress of the company.
Awesome.
Thanks so much, Lance.
Thanks, Lance.
Thank you.