viewInseego Corp

Inseego is a microcap play for the coming 5G revolution

The former Novatel Wireless has retooled itself for the Internet of Things and beyond

A hand holding a virtual 5G network
There’s no question Inseego should be at the top of your 5G-related watchlist

Up until about 15 years ago, most consumers believed a cable subscription was necessary to watch TV, surf the internet, and in some cases, talk on the phone. But thanks to increased internet speeds, reduced latency, and improved internet stability, consumers have options.

And those options begin with cutting the cord. 

It’s no longer necessary to pay Comcast, Cox, or Time Warner an obscene amount of money to watch TV or talk on the phone. An internet connection and a relatively inexpensive smart TV are all that are needed to enjoy the wonders of Netflix, YouTube TV, Sling, and Apple TV.

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And thanks to the consistent downward spiral in cell phone plan pricing, most consumers no longer need landline telephone service.

But wait, what about the internet?

While canceling that expensive monthly cable TV subscription and ditching the landline telephone service is fantastic, we still need the internet. Netflix and Apple TV won’t work on their own; an internet connection is still required.

If you’re like me, you’re probably counting the days until you’re no longer reliant on a cable wire running from a three-foot vertical box on the back corner of your property line, into your home office and throughout all the rooms of your home. Unfortunately, neither you nor I have a choice. Because satellite-provided internet is unreliable and the current wireless standard, 4G LTE, isn’t fast enough for most households to eliminate wired broadband (cable).

But 5G mobile internet connectivity is coming, and it’s bringing with it significantly faster-than-cable internet speeds, with ultra-low latency and the ability to connect all your Internet of Things (IoT) devices.

The bottom line is 5G is going to change the way you watch TV, surf the net, and live your life.

Profiting from the rollout of 5G

If you’re interested in investing in the 5G revolution, you have several options.

A diversified large-cap approach would involve buying a basket of stocks like Apple Inc (NASDAQ:AAPL), Verizon (NYSE:VZ), AT&T (NYSE:T), Qualcomm (NASDAQ:QCOM), and Skyworks (NASDAQ:SWKS). While a large-cap basket approach is a fine strategy, you’re likely trading the potential for outsized gains for increased safety.

A second option would be to forgo investment safety in favor of home-run investment potential and investigate a microcap company that has the potential to grow exponentially from its role as an early player in the rollout of 5G.

And if it’s home-run potential you’re after, then Inseego Corp (NASDAQ:INSG) should be at the top of your 5G-related watchlist.

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San Diego, California-based Inseego is a $365 million company dedicated to the design and development of products that enable high-performance mobile applications for large enterprise verticals, service providers, and small and medium-sized business around the globe.

In simpler terms, Inseego provides software-as-a-service (SaaS), Internet of Things (IoT), and mobile solutions for both the enterprise and residential consumer worldwide.

While you’re probably unfamiliar with Inseego, you may recognize the company’s previous name – Novatel Wireless and its MiFi wireless router.

Novatel produced the MiFi mobile Wi-Fi hotspot wireless router for years, but as that business began to decline, the company agreed to sell the MiFi brand to TCL Industries Holdings of Hong Kong.

However, between the time the original agreement was signed in 2016, and when the Committee on Foreign Investment in the United States (CFIUS) requested additional time to review the transaction in late May 2017, Novatel realized it made more sense to restructure the company, retain the MiFi Business and the associated technical know-how and hang on to its valuable intellectual property.

Novatel, renamed Inseego in 2016, recognized the potential of the newly emerging 5G NR standard, and on June 8, 2017, replaced CEO and chair Sue Swenson with Dan Mondor as CEO, and HC2/Harbinger’s Philip Falcone as chairman.

Under new leadership and with the emerging 5G technology as their guiding light, Inseego set out to restructure the company and identify millions of dollars in annualized cost savings, boost operating efficiencies, and exit its underperforming businesses. All these actions were taken to return the company to a positive free cash flow position and grow its EBITDA in as short a time as possible.

Diversified business segments

Inseego isn’t only focused on opportunities arising from the deployment and buildout of 5G. The company also has an IoT business called Skyus, which will likely benefit from 5G, and a SaaS business.

Skyus isn’t an unusually large business segment, but Inseego believes it is on solid footing with its loyal customer following and plans to continue investing and growing their IoT and industrial IoT portfolio of products to take advantage of that industry’s 5G-related growth.

Inseego’s SaaS business, which is led by senior vice president John Weldon, consists of subscription offerings to the company’s Ctrack telematics platforms for the tracking and performance analysis of fleet and aviation ground vehicles, other telematics applications, and Device Management Systems (DMS).

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While it’s great to see Inseego nurturing its IoT and SaaS business segments, it’s the company’s potential to be a significant player in the first phase of the 5G rollout that attracted me to the name.

You see, 5G is a very different animal from 4G.

When 4G was rolled out, Inseego’s (then Novatel) MiFi products lost their appeal as mobile hot spots because one’s phone had similar functionality. But 5G is not starting as a mobile phone product. It’s beginning with fixed wireless at home. And as residential 5G users sign up for service, they’re going to need 5G-compatible routers and hotspots – and that’s where Inseego comes into play.

With all the scrutiny surrounding Chinese companies like Huawei and ZTE, Inseego has the potential to emerge as a significant player in the early, residential buildout of 5G. And thanks to Inseego’s Verizon-branded 5G mobile hotspot device, the company already has its foot in the door!

Improving financials

Investors received their first evidence that Inseego’s restructuring and turnaround plan was working when the company released second-quarter 2018 financial results on August 7, 2018.

In that report, Inseego disclosed that despite a double-digit decline in revenue, gross profit increased, the company’s operating loss narrowed substantially, and operating expenses were slashed.

Wall Street, having written Inseego off for dead when its shares were trading under a buck just days after Mondor took over for Swenson as CEO in early June 2017, now had a reason to give the company a second look.

Inseego’s shares soared from around $2 when its 2Q results were released in early August 2018, to more than $4 in a month. But investors weren’t in a hurry to cash in, as the stock was still trading near $4 when the company released third-quarter results on August 6, 2018.

Here’s what Inseego’s CEO Dan Mondor said when his company, newly restructure and in full turnaround mode, released 3Q 2018 financial results on November 6, 2018:

“Q3 was Inseego’s strongest quarter in years. We had record adjusted EBITDA and made tremendous progress in the newly evolving 5G market with key customer wins. Despite significant revenue headwinds during the quarter due to foreign exchange rates and supply chain constraints we delivered results that keep us on track to meet our target adjusted EBITDA run-rate exiting 2018. Inseego’s progress demonstrates our customers’ interest in our latest innovations and ability to deliver market-leading solutions.”

Inseego went on to include the following IoT and Mobile 5G solutions highlights in their third-quarter release:

  • 3Q 2018 net revenue of $34.6 million, 9% quarter-over-quarter growth.
  • Announced R1000 wireless home gateway solution supporting Verizon 5G Home, the world’s first 5G broadband internet service.
  • Awarded 5G NR hotspot business with global Tier 1 service providers in North America and international regions.

When Inseego reports fourth-quarter 2018 results on March 7, investors will be looking at the company’s consolidated revenue, adjusted EBITDA, and operating expenses. If operating expenses continue to contract and the company reports a revenue figure toward the top end of its $51 million to $57 million outlook it provided in November, I’d expect investors to respond by bidding shares higher.

Charting a long-term breakout

Inseego’s stock chart is an accurate depiction of the company’s business struggles over the past 10 years. But since bottoming out under a buck shortly after Mondor took over for Swenson, Inseego’s stock has strengthened considerably.


While Inseego’s share price will continue to reflect the success of the company’s turnaround strategy, the fact that the stock has broken above a multi-year downtrend line can only be viewed as a bullish development. And assuming the stock continues to attract buyers on a dip to $3.20, there’s no reason an earnings-related breakout above $6 can’t propel the stock toward its decade-old highs near $12.

The shares were recently trading 3.7% higher to $5.41 on Nasdaq.

Verizon has gone on record as describing 5G as the Fourth Industrial Revolution, where everything that can be connected will be and the "full force of transformative technologies like artificial intelligence and autonomous vehicles will permeate where we live, work and play.”

And if you’re an aggressive investor in search of a microcap company with an early leg up on the competition, there’s no question Inseego should be at the top of your 5G-related watchlist.

At the time of publication, Byrne had no positions in the stocks mentioned.

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Quick facts: Inseego Corp

Price: 7.28 USD

Market: NASDAQ
Market Cap: $699.76 m

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