Inseego Corp. (INSG) Q1 2019 Earnings Call Transcript
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Inseego Corp. (NASDAQ: INSG)
Q1 2019 Earnings Call
May. 08, 2019, 5:00 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good afternoon, and welcome to the Inseego Corp.'s first-quarter 2019 financial results conference call. Please note that today's event is being recorded. [Operator instructions] On the call today are Dan Mondor, chairman and CEO; Steve Smith, EVP and chief financial officer; Ashish Sharma, chief marketing officer and executive vice president of IoT & Mobile Solutions; and John Weldon, senior vice president of Enterprise SaaS 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 other SEC filings, which are available on our website. Please also refer to the cautionary note regarding forward-looking statements section that contained -- that is contained in today's press release. I would now like to turn the call over to Mr. Dan Mondor, chairman and CEO of Inseego.
Please go ahead.
Dan Mondor -- Chairman and Chief Executive Officer
Thank you. Good afternoon, everyone. It's great to be speaking with you again, and thanks for joining today's call. I'll start with the headlines for the quarter.
We started 2019 with revenue at the high end of our guidance. We continue to make great progress with our 5G NR millimeter wave and sub-six gigahertz fixed wireless and mobile solutions with our key customers. Our global customer pipeline of 5G opportunities has grown substantially since the last earnings call. Starting with our mobile business.
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We have conducted live field trials on real 5G NR networks, with results showing mind-blowing speeds. For confidentiality purposes, I won't discuss the specifics, but there should be no doubt that the promise of 5G is very real. The number of customer engagements with our 5G portfolio continues to grow with our global pipeline now in excess of 30 mobile operators. We are out in front of the competition by bringing high-performance, standards-compliant and fully interoperable solutions to the market right out of the gate.
The size and diversity of the 5G pipeline is providing this tremendous market insight, which is paying dividends as we move toward commercialization. In addition to 5G, we are seeing strong traction with our new 4G LTE advanced product portfolio. We have won new 4G customers, who will launch mobile services with our 8000 series hotspot this year starting in the second quarter, and we are working on additional LTE opportunities. The global 5G market momentum is accelerating.
As of last month, there were 224 operators in 88 countries investing in 5G networks in the form of lab testing, field trials and planned and actual deployments. And this is up from 134 operators in 62 countries at the end of 2018. From our extensive customer engagements, we are seeing many operators accelerating lab and field trials in preparation for initial deployments. It's important to note that we're working with the entire spectrum of customer deployment time lines, which I place in three categories: First are the market disruptors, close behind are the early adopters, and then there are the market followers.
Every new customer engagement helps us gain more insight on how 5G deployment will unfold in 2019 and 2020. If I were to summarize the pace of market development in one word, the word would be spectacular, but amazing or astonishing would also apply. There's obviously a lot of market opportunity, and I assure you that our very capable sales and product teams are working around the clock to capture maximum market share. The time-to-market in product and time to engagement in sales are the metrics we focus on to capture these opportunities.
The industry is all about new applications and use cases that 5G enables. Working with innovative partners, we have showcased telemedicine, first responders, robotics and live 4K and 8K video streaming. These are just a few examples that show the power of 5G technology, and there are countless new applications in development. Inseego's 5G technology as an intelligent mobile edge device is a fundamental part of these applications.
By enabling these new 5G use cases, we are already proving the need for high-performance devices that can connect a variety of consumer and enterprise devices with the latest gigabit WiFi speeds. Inseego's M1000 5G hotspot is a high-performance, enterprise-grade mobile router with gigabit per second speeds and ultralow latency. And importantly, the user can hold it in their hand and take it wherever they need to go. In contrast, 5G consumer smartphones could not meet the demanding performance and the cybersecurity requirements of enterprise applications.
I said in the past that our strategy to invest upfront in universal 4G and 5G platforms that support global bands will pay ongoing dividends by opening up new customer opportunities, and it has. Our new gigabit LTE hotspot is now FCC-certified for the CBRS band, which opens the way to address more enterprise market applications. The M1000 also supports CBRS, providing the user an end-to-end 5G experience. Turning to industrial IoT.
We are pursuing the industrial IoT wireless connectivity market, which is growing greater than 25% compounded annually across numerous segments, including public safety, manufacturing, oil and gas and transportation. We believe 5G and gigabit LTE will play major roles in this market segment, which plays to Inseego's strength. We are building a powerful industrial IoT portfolio with our newly released Skyus 300 and 500 series of ruggedized edge routers. The 300 and 500 provide gigabit LTE speeds, are purpose-built for extreme environmental conditions and address a variety of applications across multiple vertical markets, including SD WAN failover, remote WAN connectivity, connected infrastructure, transportation and first responders.
We've secured new account wins with Skyus, which has been integrated into Dell's solution for the enterprise market. We are expanding with SD WAN providers, such as Riverbed, and extending our market reach by offering bundled solutions to our customers. And we are selling these solutions in international markets, including Australia, where we recently secured a design win with one of the world's largest financial service providers. We strengthened our relationship this quarter with Hertz, who has deployed our SD WAN Skyus solution in select locations in North America.
And it's proven its value in quality, reliability and security and is now being deployed throughout their locations in Europe. We are building a world-class enterprise distribution network of channel partners, which is an initiative that we launched in the second half of last year. Our channel recruitment efforts has yielded numerous new value-add reseller partners this quarter, including Connected Solutions Group, MicroAge, Five Star Technology and Connected Technology Solutions. And in March, as you know, we announced Arrow, another anchor distributor with global reach.
Moving to our Ctrack business. We are focused on two key growth opportunities: the emerging aviation market and our traditional fleet business. Starting with aviation. Our patience with the inherent, long sales cycle in this vertical is paying off as we begin to convert proof of concepts into deployments.
The proof of concepts are clearly demonstrating Ctrack's value proposition with compelling return on investment numbers from saving millions in annual capital and operating expenses through the identification of unused and unutilized assets, wasted fuel and incidents from unsafe driving. One of our key strategic objectives in 2019 is to add anchor aviation customers. I'm pleased to report that we are finalizing the agreement with a European-based mobile carrier, which mandates Ctrack as the tracking system for their motorized ground assets worldwide. This agreement further validates the potential of the aviation vertical and Ctrack's market-leading solution.
We have a large installed base and a purpose-built solution in the growing fleet market, and Ctrack fleet business has experienced growth across all the key markets and geographies in which we have a presence. Ctrack Europe continues to perform well with over 8% growth in all the countries we serve. In the last earnings call, I discussed how we began implementing turnaround plans in two underperforming regions. New leadership in South Africa has shown very good progress over the past few months.
The fleet business grew 7% year over year in the first quarter in the SMB segment. The business turn on Australia began only very recently, so it is still in the early days. While there is plenty of work to be done in both countries, leading indicators show that we are moving in the right direction. In summary, Inseego's turnaround has entered the middle innings.
We are launching new products, winning new customers and expanding into new regions. New initiatives don't come about without challenges. However, we tackle them when we come -- when they come very aggressively. Our outlook for 2019 and beyond is bullish, with the second half of 2019 shaping up to be much stronger than the first half.
Now I'll turn the call over to Steve, who will provide financial highlights for the first quarter and guidance for the second quarter.
Steve Smith -- Executive Vice President and Chief financial officer
Thank you, Dan, and thank you, everyone, for joining today's call. The results for Q1 '19 met guidance for both revenue and adjusted EBITDA. Revenue for Q1 was $48.6 million, which is up 3.9% on a year-over-year basis and down 13.4% on a sequential basis. IoT & Mobile Solutions revenue was a $32.8 million, up 13.5% year over year and down 18.2% sequentially.
This anticipated sequential decline is primarily due to a combination of the impact of a specific component shortage highlighted during the last call and lower engineering design services revenue as development projects were completed. These projects are expected to translate into revenue in 2019. Enterprise SaaS solutions revenue was $15.8 million, down 11.6% year over year and 1% sequentially. Foreign exchange rates continue to impact our results.
On a constant-currency basis, Enterprise SaaS revenue was down approximately 2% compared to both Q1 and Q4 2018, reflective of real growth in the U.K., Europe and Australia, offset by lower consumer revenues in South Africa. As we stated in earlier conference calls, we are implementing a turnaround in both South Africa and Australian businesses. Consistent with our strategy, we deemphasized the low ARPU consumer business, which began in early 2018 in favor of higher margin, higher ARPU fleet and SMB businesses. To that end, we had renewed growth in fleet and SMB in Q1 across all key markets.
From this point on, my discussion will focus on non-GAAP numbers. Reconciliation from GAAP to non-GAAP is detailed in our earnings release. The non-GAAP gross margin in the first quarter of 2019 was 31.7%, which is down 4.2 points year over year and 4.8 points compared to Q4 '18. Compared to last quarter, margins were impacted by spot buys to overcome these specific component shortage, expedited shipping, lower-than-planned cost reductions and factory transition costs.
In aggregate, this resulted in about 1.5 points of margin reduction, and about an additional 0.5 point was due to product mix between hardware and software at Ctrack. The remaining margin impact was due to lower engineering design services. We are disappointed with our gross margins. Accordingly, we have put in place actions to reduce product costs and improve margins going forward, including leveraging box accounts' buying power and supply network to bring additional cost reductions online starting in Q2.
We expect gross margins to improve throughout the year. Inseego is investing in high-growth products and markets, and we expect results to start showing in the second half of 2019 with further expansion in 2020. As such, R&D investment remains critical for the future success of all of our businesses, and we continue to invest in product development and sales and marketing in quarters to come. Starting in 2019, we began increasing capitalization of certain costs associated with software development and product certifications in order to align expenses with product revenues.
In Q1, our non-GAAP R&D expense was $3.3 million or 6.8% of revenue, as compared to 9.4% in Q4 '18 and 10.2% in Q1 '18. However, to put this in perspective, when combined with capitalized software development, net R&D was 13.6% of revenue in Q1 '19, as compared to 10.1% of revenue in Q4 2018 and 11.4% of revenue in Q1 '18. The other area of investment for Inseego is in sales and marketing. As Dan pointed out, we are growing our sales and product teams globally to address increasing 4G, 5G and industrial IoT opportunities globally and investing in marketing activities to support these sales initiatives.
Accordingly, in Q1, sales and marketing expenses were $6.2 million, up $300,000 from Q4 and up $1.1 million from Q1 '18. Total non-GAAP operating expenses were $15.4 million, which is down 2.6% year over year and down 6.3% sequentially, reflecting the increased capitalization of development costs. We reported non-GAAP net loss of $2.6 million, non-GAAP loss per share of $0.03 and positive adjusted EBITDA of $2.1 million. Turning to the balance sheet.
We ended the first quarter with approximately $32 million in cash and equivalents, including $10.6 million from the exercise of warrants. As a result of the increased demand for our products and the move of our contract manufacturing out of Mainland China to Foxconn in Taiwan, beginning in Q4, we've built an inventory of long lead time and scarce components to provide continuity to supply during the transition. As of the end of Q1, we had approximately $33.3 million in inventory, of which about $12.6 million was raw materials. We expect the majority of these raw materials will be consumed over the coming months.
As we look forward, we believe that we are well-positioned to capitalize on the large pipeline of 5G market opportunities that Dan highlighted. As we bring new products to market in the coming months, we expect the second half of 2019 to start driving growth from new and existing customers. With this as a backdrop, our guidance for the second quarter is: Revenue is expected to be in the range of $50 million to $56 million, Q2 IoT & Mobile Solutions revenue is expected to be in the range of $35 million to $40 million, Enterprise SaaS solutions revenues are expected to be in the range of $15 million to $16 million. Given this increase in our top line, Q2 adjusted EBITDA is expected to be in the range of $2.8 million to $4.5 million.
So with that, I'll turn the call back over to Dan. Thank you.
Dan Mondor -- Chairman and Chief Executive Officer
Thanks, Steve. In my opening remarks, I said that our global 5G pipeline has grown substantially since our last earnings call, surpassing 30 mobile operators. The total number of subscribers served by these operators across the Americas, EMEA and APAC is massive, exceeding 2 million mobile subscribers combined. Our contract manufacture move in the fourth quarter of 2018 from a Tier 2 manufacturer in Mainland China to Foxconn in Taiwan was clearly the right decision at the right time for several reasons.
Foxconn has steadily increased production volume in the first quarter and has given us much more flexibility to scale capacity going forward. Foxconn is currently building and shipping four product families, including our first 5G device, with more on our new product introduction pipeline. We are working hand-in-hand with Foxconn to strategically leverage the buying power and supply network going forward. Hats off to our operations and supply chain team, who have done an amazing job to quickly address the inherent challenges that arise from switching contract manufacturers.
Before I close, there are just a couple of more things. I'm delighted to report that we have chalked up more 5G success by signing an MOU with a leading mobile operator in Europe, and our 5G products are being tested by a new operator in South America, leveraging our strategic partnership with Ericsson. Additionally, our gigabit 4G LTE hotspot has been standardized with Sprint and will deploy in the second quarter, and Bell Canada will deploy later this year. Once again, I want to thank every Inseego employee for their tireless efforts.
Our progress in transforming Inseego 2.0 is the result of their capabilities and dedication. Anecdotally, I'll also tell you that very talented engineers who left the company prior to the beginning of our transformation are now eagerly rejoining us. Inseego 2.0 continues to gain momentum. We're bringing innovative new products to market and aggressively doing the blocking and tackling necessary to win in those markets.
So that concludes my prepared remarks. I'll turn it back over to the operator to start Q&A.
Questions & Answers:
Operator
[Operator instructions] The first question comes from Mike Walkley from Canaccord Genuity. Please go ahead.
Mike Walkley -- Canaccord Genuity -- Analyst
Great. Thank you. Dan, it sounds like the pipeline's continuing to grow. Can you help us just think about your engagement with [Inaudible], now 30 operators, just kind of the cadence, the time to win these big customers and turn it into product revenue? And I guess what I'm trying to get at is your comments about the stronger second half, how we should see some of these new operator and customers layering into the revenue in Q3 and Q4.
Dan Mondor -- Chairman and Chief Executive Officer
Yeah. Hello, Mike. Thanks. I think the way to think about it is probably going back to my description of the time line spectrum, if you will.
And the work that we're doing across these 30 operators, I think, fair to say, represents those three parts of the spectrum I described. They're definitely the market disruptors, and there's a handful of those. Early adopters are there and following, and then there's going to be the fast followers. So I'm not going to break it out specifically, but there are many in each category.
The first of which, of course, will start to produce revenue, we expect, in the second half of this year. So it's going to be a continuum. The rollouts that will start this year will continue in 2020. And as more operators get past their trials and planning periods and deployment, of course, it stacks up, and it yields an acceleration of revenue.
So that's broadly what we're going to see. We're going to see it phase out over time.
Mike Walkley -- Canaccord Genuity -- Analyst
Great. Thanks. So is there any one or two major customers important to the second half? Or is it just broad-based strength of multiple customers with multiple different product lines?
Dan Mondor -- Chairman and Chief Executive Officer
Well, I would say there's a couple of anchored customers in there, and there's a handful of others that will be contributors. I did say in prior earnings call, we were targeting eight to 10 design wins this year. We are on our way to doing that. And the revenue will start to contribute as more and more of these operators begin their deployments.
Mike Walkley -- Canaccord Genuity -- Analyst
Great. Thanks. And a follow-up question, just on the gross margin, near-term impact and then the progression. Thinking about for the year, you've talked about the need, with the pipeline growing to support sales and marketing and R&D with gross margins under pressure here in the short term.
Is this $40 million adjusted EBITDA run rate exiting '19 still possible? Or is -- right now, you just see the need to invest and maybe pushing out those type of EBITDA numbers?
Dan Mondor -- Chairman and Chief Executive Officer
Mike, great question. We're not changing anything. We're obviously assessing as we go. I think you can appreciate that the rate of change in the market is extraordinary.
And naturally, to capture those opportunities, we're going to do what we need to do investment-wise to capture them. So we'll be assessing that going down the road, but right now, it's really -- there's no -- it's indeterminate to make a change or to comment further on it.
Mike Walkley -- Canaccord Genuity -- Analyst
OK. Thanks. Last question for me, and I'll jump back in the queue. Just on the component shortages, are those mainly behind Inseego now going forward? Or are there going to be some more expedited cost maybe hampering gross margin in Q2 and you should see better margins into Q3 and Q4?
Steve Smith -- Executive Vice President and Chief financial officer
Thanks, Mike. This is Steve. The component shortages are all behind us at this stage. Of course, you can never predict the unpredictable.
But as of right now, we don't have any issues with component shortages.
Dan Mondor -- Chairman and Chief Executive Officer
I think also on that note, part of the values of Foxconn is basically their massive supply chain and behind their production with a wide array of the inventory that they hold, volume and material and all kinds of components. So it really does diversify. You can never predict, I think, as Steve said, the unpredictable. But I think the mitigation of risk just inherently via our work with Foxconn now is much, much better than it has been in the past.
Mike Walkley -- Canaccord Genuity -- Analyst
Great. Thanks for taking my questions. Good luck with the upcoming ramps.
Dan Mondor -- Chairman and Chief Executive Officer
Thanks, Mike.
Operator
The next question comes from Jaeson Schmidt from Lake Street. Please go ahead.
Jaeson Schmidt -- Lake Street Capital Markets -- Analyst
Hey, guys. Thanks for taking my questions. And sorry if I missed this, but first, can you provide the IoT and Enterprise SaaS non-GAAP gross margin for each segment?
Dan Mondor -- Chairman and Chief Executive Officer
Yeah. Hi, Jaeson. Just -- we -- Steve --
Steve Smith -- Executive Vice President and Chief financial officer
We typically don't provide that -- Jaeson, we typically don't provide that on the call. We provided the revenue number. But I'll give you some -- at least some high-level numbers on IoT & Mobile. We're in the mid to high teens, and then the Enterprise SaaS, mid-60s.
Jaeson Schmidt -- Lake Street Capital Markets -- Analyst
OK. Appreciate that. And then looking at the industrial IoT business, I know it's early. But would you mind sort of outlining what verticals you're most bullish on going forward?
Dan Mondor -- Chairman and Chief Executive Officer
Yeah. Well, we've talked on the call about SD WAN, WAN connectivity, remote monitoring, that sort of thing, but we're starting to see our solutions being integrated as part of a broader vertical solution. So if you will, you can think of horizontal and vertical. Talked about our integration into Dell for an enterprise application.
But if you look at manufacturing, if you look at oil and gas, if you look at smart city, if you look at field services, there's a pretty broad range of verticals that these products go into. So it's not really a question of a concentration of particular verticals, really quite a wide range. But I think if you can look at one area, it would be SD WAN connectivity is really where the bulk of the action is happening. We have a number of strategic partners in that vertical, Riverbed being one of them, we mentioned.
And that is a high-growth market. So there's a big pull from the standpoint of SD WAN.
Jaeson Schmidt -- Lake Street Capital Markets -- Analyst
OK. That's helpful. And last one for me. Curious if you could comment how you're viewing the opportunity for Ctrack in the North American market these days?
Dan Mondor -- Chairman and Chief Executive Officer
Well, great question. It is definitely growing, I will say this, from the standpoint of initiatives and engagements we have for North American enterprises, also global enterprises with North American operations. And from that point of view, if -- our comments earlier on our European carrier, I will say this, that there are U.S. operations of that carrier.
Also if you look at some of our major customers in the Benelux region, Germany, they have North American operations. So the synergies of Ctrack being deployable across multiple geographies are allowing those kinds of decisions to be easy decisions, and we extend those agreements to then include some of their operations in North America.
Jaeson Schmidt -- Lake Street Capital Markets -- Analyst
OK. Thanks a lot, guys.
Dan Mondor -- Chairman and Chief Executive Officer
Yup. Thank you.
Operator
Our next question comes from Scott Searle from ROTH Capital. Please go ahead.
Scott Searle -- ROTH Capital Partners -- Analyst
Hey, good afternoon. Thanks for taking my question. Hey, just to follow up on some of the earlier questions for gross margins. Could you give us an idea about directionally what we should expect going into the second quarter? Clearly, in the first quarter, there were some headwinds.
Is all of that gross margin pressure related to component shortages and freight makeups? Or is there something else going on from a pricing standpoint? And where would you expect gross margins or target gross margins on the hardware front to exit the year?
Steve Smith -- Executive Vice President and Chief financial officer
We expect the gross margins to continue to increase each quarter going forward, Scott. I would expect a couple of points this quarter to be -- this quarter being Q2 to be what we got overall. The component shortages are behind us. We don't expect to pay any more premium as we move forward.
Scott Searle -- ROTH Capital Partners -- Analyst
Gotcha. OK. And to follow up on some other costs, Steve. Capitalizing some of the R&D, as you start to go live with some of these products, that will start to reverse a little bit.
So what is kind of the normalized level of R&D as we get out to the back half of this year?
Steve Smith -- Executive Vice President and Chief financial officer
Well, expect that we'll be amortizing it over like a two-year time frame. Obviously, they'll -- we'll start to amortize the cost back to the P&L as the product sells. So it will start selling later in the year in the second half, and then we'll see the amortization come back in the GAAP P&L.
Dan Mondor -- Chairman and Chief Executive Officer
I guess to add a comment, we have and we will continue to do a very good job of managing our costs. We also need to be on the money in capturing these new opportunities that come along. And so as we've commented it and discussed, if you look at the normalization of the R&D with respect to the capitalization, it is growing. And that's a function of market opportunities, it's a function of new products being brought to market, and then similar on sales and marketing.
So we're going to be diligent on cost, but we sure as heck are going to go after the opportunities in front of us.
Scott Searle -- ROTH Capital Partners -- Analyst
Gotcha. And Dan, if I could on the hotspot front, sounds like, now, you're engaged with 30 mobile operators that takes the addressable subscriber base to 2 billion from 1 billion, I think, last quarter. Somewhere in that ballpark. And your target is still eight to 10 carriers this year that you develop a relationship with.
Can you give us an idea how many do you think you'll actually be commercially shipping to by the end of this year? And how does the mix, what does it look like when you think about gigabit LTE versus 5G NR hotspots? And then how does fixed wireless access kind of feather into that as well? We've got Verizon waiting for NR, but we're just concluding option 102, where the number's up to $2 billion right now. So presumably, these guys are going to spend. I'm curious what the level of activity is also on the fixed wireless front, not just domestically but internationally. Thanks.
Dan Mondor -- Chairman and Chief Executive Officer
Sure. Well, my comment on the 30 opportunities encompass both our fixed wireless gateway solution, as well as mobile hotspots, just for clarity on that, across those operators. So it's both those product categories. We talked about the eight to 10 design wins.
The question about contributing revenue is, of course, a timing-related question. But we see a contribution of revenue from several operators beginning in the second half. I'm not going to say specific numbers, but it will be several. The timing is dependent on the design win and the term from testing to field trial to deployment.
But we feel very comfortable in what we've discussed. And I will say this, that the 5G phenomenon doesn't come to an end in 2019. It's in fact just at the beginning in 2019. So our focus, as I said in the past, is stacking up design wins, working with the customers, working with them through trials, evaluation, supporting them and then being there with them as they roll out their technology.
So second half of 2019 is where we see the action beginning. And sure as hell, the action is going to continue fiercely in 2020.
Scott Searle -- ROTH Capital Partners -- Analyst
Great. Thank you.
Dan Mondor -- Chairman and Chief Executive Officer
You're welcome.
Operator
The next question comes from Mike Latimore from Northland Capital Markets. Please go ahead.
Mike Latimore -- Northland Capital Markets -- Analyst
Great. Yeah. Thanks. Yeah, on the eight to 10, just to be specific, that is the deals with -- the goal for 5G-related wins, is that right? And then -- and second, how many do you have now?
Dan Mondor -- Chairman and Chief Executive Officer
Yeah. Thanks, Mike. Yeah, hi. 5G.
The commentary is on 5G.
Mike Latimore -- Northland Capital Markets -- Analyst
And then how many wins do you have now of those eight -- like how many wins relative to eight to 10 do you have now?
Dan Mondor -- Chairman and Chief Executive Officer
Well, we're about halfway there.
Mike Latimore -- Northland Capital Markets -- Analyst
OK. Got it. And obviously, the big opportunity around 5G is multiyear. But when do you think you might start seeing a couple million of revenue a quarter from 5G-related products?
Dan Mondor -- Chairman and Chief Executive Officer
The beginning, a couple of million a quarter?
Mike Latimore -- Northland Capital Markets -- Analyst
Yeah.
Dan Mondor -- Chairman and Chief Executive Officer
OK. That's easy. Second half of this year.
Mike Latimore -- Northland Capital Markets -- Analyst
OK. Great. And then you may wait until the 10-Q for this, but what was Verizon as a percent of revenue?
Steve Smith -- Executive Vice President and Chief financial officer
Roughly 45%.
Mike Latimore -- Northland Capital Markets -- Analyst
OK. And for the kind of the hotspot and fixed wireless product category, should we -- I mean should we think about -- I guess a different question would be, for growth in the overall hotspot and fixed wireless category this year, should most of that come from like new opportunities? Or would be -- would Verizon be the kind of the biggest driver there?
Dan Mondor -- Chairman and Chief Executive Officer
Well, as I said, there's going to be several, and it's going to be a mix, very dependent on how aggressive the stance is of the operator to a market disruptor, get out of the gate early. Verizon has certainly been making announcements as is AT&T, of course, and there's others in other parts of the world. So it's a microcosm, but we are really spending a lot of time studying the international markets and spending time in the international markets. And they're equal number on a percentage basis, if you will, Tier 1s that are going to take a market disruptor stance.
So yes, we expect Verizon to be in the mix, but there will be a lot more in there, too.
Mike Latimore -- Northland Capital Markets -- Analyst
Yeah. And then just last on gross margin. Any change to your long-term gross margin targets for the IoT and mobile category?
Dan Mondor -- Chairman and Chief Executive Officer
No, no. We're not changing that.
Mike Latimore -- Northland Capital Markets -- Analyst
OK. Great. Thank you.
Dan Mondor -- Chairman and Chief Executive Officer
Thanks, Mike.
Operator
[Operator instructions] Our next question comes from Matthew Galinko from National Securities. Please go ahead.
Matthew Galinko -- National Securities -- Analyst
Hi. Thanks for taking a couple of questions from me. You mentioned a few new distribution partners. Just curious how you think about the sales cycle and how long it takes to get them from kind of signing to ramping and contributing?
Dan Mondor -- Chairman and Chief Executive Officer
Yeah. Hi, Matthew. Good question. The sales cycle in that part of the market is actually quite short.
It really is a function of recruiting the channel partners, training them on the products, getting them all the collateral support they need. But the time to market and the time to engage and sell is really quite short. So we can recruit a new bar. We can have revenue from them in the same quarter.
So again, it's a very different model. And with the two-tier models, of course, you have typically stocking distributors. We've talked about Arrow, SYNNEX and others and then the value-add resellers. So we'll see revenue from the standpoint of stocking orders going to distributors, and then you have the sales out that goes to the VARs to the market and replenishment.
So it's a very different dynamic in that part of the market and certainly, the carrier or service provider market and the name of the game there. So it's short -- long sales cycles and short sales cycles in the enterprise.
Matthew Galinko -- National Securities -- Analyst
Got it. All right. Thank you. And then you talked about some improvements in kind of your South African operation.
Can you be specific around -- I know you changed leadership there, but what -- anything specific you can point to that will help us understand how sustainable those improvements are?
Dan Mondor -- Chairman and Chief Executive Officer
Well, it's -- yeah. So good question. Yeah. Well, excellent new leadership.
There is certainly, I would say, much more sales discipline. There is talent upgrades going on in the sales force. There are partner and programs that are being done. There's a lot more outreach being done, pursuing new logos.
So really, it is really an upgrade, if you will, from a leadership point of view and importantly in the sales area on many, many fronts. So the market was always there and, in fact, growing, and we weren't doing a very good job of capturing it. So as I said, the -- on my comments, we had a 7% growth in the first quarter in South Africa in the SMB subsegment, if you will. So that is very good early indicator.
And we're seeing a stronger order book, all these kinds of leading indicators that you look for. So that's the nature of my comment.
Matthew Galinko -- National Securities -- Analyst
Got it. All right. Thank you.
Dan Mondor -- Chairman and Chief Executive Officer
Welcome.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Dan Mondor, chairman and CEO, for any closing remarks.
Dan Mondor -- Chairman and Chief Executive Officer
Thank you. So before we wrap up the call, I wanted to mention a couple of things. First, we'll be at the Cowen 47th Annual Technology, Media & Telecom Conference in New York on May 29 and also building upon the momentum from the Mobile World Congress in Barcelona and, as we discussed, the strong and growing pipeline of 5G opportunities. I want to also mention I'll be on the road this month meeting with customers throughout the Asia Pacific region.
And in June, I'll be hosting meetings with EMEA operators at the 5G World conference in London. I look forward to seeing many of you at these events and continuing the dialogue on Inseego's transformation. Thanks again, everyone.
Operator
[Operator signoff]
Duration: 45 minutes
Call participants:
Dan Mondor -- Chairman and Chief Executive Officer
Steve Smith -- Executive Vice President and Chief financial officer
Mike Walkley -- Canaccord Genuity -- Analyst
Jaeson Schmidt -- Lake Street Capital Markets -- Analyst
Scott Searle -- ROTH Capital Partners -- Analyst
Mike Latimore -- Northland Capital Markets -- Analyst
Matthew Galinko -- National Securities -- Analyst
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