Q4 2023 Inseego Corp Earnings Call
Participants
Phil Brace; Executive Chairman; Inseego Corp
Steven Gatoff; Chief Financial Officer; Inseego Corp
Lance Vitanza; Analyst; Cowen Inc
Tore Svanberg; Analyst; Stifel Financial Corp
Scott Searle; Analyst; ROTH MKM Partners LLC
Presentation
Operator
Hello, and welcome to Inseego Corporation's Fourth Quarter 2023 financial results conference call. Please note that today's event is being recorded and all participants will be in a listen only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity for analysts to ask questions.
To ask a question, you may press star and one on your telephone keypad. And to withdraw your question, please press star then two on the call today are Phil Brace, Executive Chairman of Inseego Board of Directors, and Steven Gatoff, the Company's Chief Financial Officer.
During this call, certain 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 are rather 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 the Company's Form 10-K, 10-Q and other SEC filings, which are available on the company's website. Please also refer to the cautionary note regarding forward-looking statements section contained in today's press release.
And with that, I would now like to turn the call over to Phil Brace, Executive Chairman of Inseego. Please go ahead, sir.
Phil Brace
Thank you. Good afternoon, everyone. It's a pleasure to be with you today. My prepared remarks will cover three topics. First, I'd like to start by sharing a brief perspective on why I joined the Board of Directors in Inseego some six months ago. Second, I'd like to share some thoughts on the leadership change that was announced today, my focus going forward. And third, I'll provide some high-level overview of the current quarter. I'll then turn the call over to Steve and we'll wrap up with some Q&A.
Let me first address while I joined the board First off, I'm very optimistic on the wireless industry. 5g technology is still in the relatively early stages of deployment. And I see that technology as having potential to change the way people and machines work.
Second, from my time at Sierra Wireless, I was familiar with Inseego and its great products. I was bullish on the opportunity for Inseego to offer leading 5G mobile and fixed wireless access solutions, strong market relationships that existed and the investments in FWA to drive future growth.
All of these things remain true today by now, you've seen the news of the change in leadership. We just announced the Board felt that the time was right to make a change to ensure we had the right leadership going forward.
With that, I took on the newly created Executive Chairman role to help lead the Company through this critical time. While we search for a new CEO, we have already engaged a top-tier recruiting firm and I will be actively involved in the search process. I will also be spending time reviewing and addressing some of the changes that need to be made in our business, our capital structure and our portfolio of investments. It is important to note that I'm not doing this alone, we have a very strong and engaged Board of Directors, and we're glad to have added some key leadership in finance and sales to the Company recently to complement the strong skills of the Inseego engineering and product team that's on the frontline of developing all of our products and technology.
Finally, let me offer some high-level summary of the quarter. We just completed, both the revenue and adjusted EBITDA came in slightly better than we expected. Revenue for Q4 2023 was $42.8 million. Full year 2023 revenue was $195.7 million. Adjusted EBITDA for Q4 2023 was $4.1 million. Full year 2023 adjusted EBITDA was $16.7 million. From a reporting perspective, you will notice a change in our financial reporting to clearly breakout revenues in our business of mobile and fixed wireless access solutions Steve will review these changes momentarily going forward throughout 2024, we are going to be focused on keeping the momentum on the revenue side, while increasing our full year adjusted EBITDA before taking questions. I'll now turn the call over to Stephen, who will review the financials in detail.
Steven Gatoff
Thanks, Bill. Good afternoon, everyone. I look forward to covering three things today first, I'll share some color on changes that we made, as Phil mentioned in our reporting of the business in order to drive greater transparency and better align with what we believe is important for creating stockholder value.
So now I'll take you through our Q4 and 2023 financial results. And third, I'll provide some color on the business as we move into 2024 and our financial guidance for Q1. And as Phil noted, we'll of course, wrap up by opening the call to your questions.
Diving right into things as you saw in our earnings press release today. And as you'll see in our 2023 10-K that we're filing tonight, we've changed the reporting categories for the Company's revenue streams where we used to bucket revenue into two categories of IoT & Mobile and Enterprise SaaS. We're providing more visibility to our offerings and are now reporting revenue categories that align with what we're fundamentally delivering to customers, our growth drivers and the investments that we're making, we're now showing revenue in the two categories of product revenue and services and other revenue for further breaking out product revenue into the two core product offerings of mobile hotspot revenue and fixed wireless access for FWA revenue. The center point for our growth strategy in this regard we believe that you'll be able to clearly see the results of our initiatives and success and focusing on driving FWA revenue growth, the overall profitability profile of our product business and the contribution from our SaaS offering in making the change. It was important to us to make sure that you had the needed history and comparative numbers. So we've provided the historical quarterly results for the previous eight quarters under the new reporting construct so that you have the apples to apples info on gauging performance. As you'll see in the data, the hotspot product has sequentially declined in revenue, as we've expected and communicated primarily as a result of the anticipated runoff of 4G technology products in the market. Our FWA business has shown overall growth in terms of both aggregate dollars and growth rate over the past two years, it has grown from essentially nothing three years ago to be a $55 million business in 2023, that grew approximately 26% year over year. And looking at the metrics in the supplemental tables, you'll also see that our product gross margin percentage, which is the total product gross margin number that includes both SWA and mobile, has continued to increase over the past two years as our higher margin FWA products gain traction and became a larger portion of total product revenue.
And looking at our services and other revenue, this new category combines our noncore telematics and DMS subscriber management SaaS offerings. These revenue streams operate fairly independently and you'll see a pretty consistent aggregate revenue results and a consistent contribution to gross margin, both on a dollar and a percentage basis.
Final change. We wanted to flag for you is that we reclassified all depreciation and amortization expense that has historically been recorded in the OpEx line items of R&D, sales and marketing and G&A expenses into one separate line labeled depreciation and amortization. We believe this provides helpful transparency to the fundamental operating expense amounts, our cash spend and the trends in the business. All prior periods have been reclassified to conform to this presentation.
With that, I'd like to turn to the second topic and go through our Q4 2023 results. Overall, for the quarter, Q4 total revenue came in modestly above guidance, as Phil noted, at $42.8 million and adjusted EBITDA came in at $4.1 million as cost savings initiatives, a favorable product mix and some one-time benefits resulted in a higher adjusted EBITDA than anticipated.
Looking at the revenue dynamics, as we talked about on the previous call in November, Q4 was expected to be a down quarter with nearly all of the revenue decline coming in hotspot product revenues. This was due to the anticipated runoff of legacy 4G base product revenue from the announced end-of-life of a 4G hotspot product line at a large carrier customer.
On the SWA side, as I noted a moment ago, FWA revenue grew on a sequential basis and now constitutes 29% of total revenue.
Looking at our services and other revenue, the telematics business reported modestly lower revenue in Q4 on a booked adjustment that related to the elimination of prior period inter-company revenue. Q4 DMS revenue came in about 2% sequentially lower, reflecting the runoff of prior year COVID driven lead subscriber increases at our carrier customer. Insofar as gross margin Q4 gross margin percentage came in at 39.7% on a non-GAAP basis or about 650 basis points higher than the prior quarter. This favorable performance was the result of three primary factors. First, there was a favorable product mix shift where our higher margin FWA offerings made up a greater proportion of revenue in Q4. Second, there was a benefit from some onetime adjustments in the telematics business that I just mentioned. And third, FWA margins returned to the mid-20s in Q4.
Spending a moment on GAAP gross margin. We recorded a reserve of $3.4 million in Q4 as a result of our continued rigor and scrubbing of sales forecasts and demand estimates on some of the older finished goods and raw materials and inventory and that are contract manufacturers. These charges are excluded from the calculation of adjusted EBITDA.
As I mentioned on my first earnings call at Inseego in November. As we manage the revenue dynamics of the business and the evolution of our product portfolio, we're taking a very disciplined approach to managing our spend across the organization the outcome of this focus was that Q4 adjusted EBITDA came in at $4.1 million higher than anticipated and at a margin of nearly 10%. Even considering that some of the positive performance was due to one-time items. The outcome was still that we generated $17 million in positive adjusted EBITDA for 2023. That was versus a loss of $10 million of adjusted EBITDA in 2022.
Let me turn to the GAAP accounts for a moment. As there were a few additional charges in the quarter that are excluded in the definition and calculation of adjusted EBITDA that we wanted to give you visibility to. In Q4, we recorded a charge of approximately $1.5 million for the correction of a functional currency designation in the telematics business. The charge was recorded in other income with an offset to other comprehensive income on the balance sheet. It was non-cash and did not impact any of our key metrics such as revenue, gross margin, adjusted EBITDA for cash and Q4. We also booked a reserve associated with our telematics business of approximately $4.1 million against the capitalized software development costs from the past several years and building on what was originally designed to be a next gen platform for the telematics offering. We came to the conclusion that it made sense to reserve against this historical spend. After conducting an intensive review of our telematics business in the past several months. This included evaluating the product and service needs of our customers and an assessment of the likelihood that the development would be included in future product releases.
Wrapping up our Q4 results with the balance sheet cash was fairly consistent year over year, coming in at $7.5 billion. And we had a modest amount drawn on our credit facility of $4.1 million at year end, and I'll talk more about capital structure in a moment.
Let's turn to the third topic. Insofar as our trajectory into 2024 that we're focused on and what we think Q1 looks like, as Phil highlighted, we've begun a strategic assessment and evaluation of our product portfolio and focus going forward, how that translates to growth in our core FWA business and how that drives continued increases in profitability.
Another important focus for us now as we head into 2024, is rightsizing our capital structure. As I mentioned on the last call, and we've spoke about we have a small group of bond holders of our convertible notes. We're engaged with the right parties, and we anticipate that it can take several months to work this through and develop an optimal capital structure solution. In the near term, we've been improving our short term borrowing dynamics. As you may have seen in today's filings, we amended our ABL facility to ease the covenants and improve our liquidity and borrowing capacity all done by our lender at no cost to the Company and based upon the improving execution and relationship that we've had with them over the past few months. Similar to our bondholder discussions, we're engaged with them in the various ways that they might be helpful in our overall capital structure solution.
Moving on to provide some color on Q1 2024. We expect total product revenue to be roughly flat with Q4 2023, with anticipated growth in FWA, offset by a decline in mobile hotspots for services and other revenue. We expect reasonably consistent revenue contribution for Q1 over Q4.
On Q1 gross margin, you saw that there were some one-time items that resulted in the relatively higher non-GAAP gross margin percentage in Q4 2023. For Q1 2024, we expect non-GAAP total gross margin percentage to be in the mid-30 percent area. And so considering all this, we'd like to provide the following financial guidance for the first quarter of 2024 total revenue in a range of $40 million to $42 million and adjusted EBITDA in a range of $2.5 million, just $3 million.
In closing, we're thrilled that Phil had taken on the Executive Chairman role, and we're already benefiting from his involvement, deep product knowledge and focus on addressing our go-to-market execution and performance quickly and effectively as we move into 2024 with that, we appreciate your time and support, and we're glad to open the call for any questions.
Question and Answer Session
Operator
Operator, we will now begin the question and answer session to ask a question you may press star then one on your telephone keypad. And if you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question. You may press star then two.
At this time, we will take our first question, which will come from Lance Vitanza with Cowen. Please go ahead.
Lance Vitanza
Thanks, guys, and congratulations on the nice quarter. Phil before I get into the details of the quarter, you had mentioned that you were impressed with the products, I think back when you were at Sierra. And I'm just wondering if you could maybe elaborate on that a little bit more, whether it was what you saw then or maybe more importantly, where you see the opportunities today? What are the offerings that you find most exciting today?
Phil Brace
Yes, it's a good question. Look, we're not one of the things is just different. If you look at where Inseego products are today, they really cover a different segment of the market than what's here. It is right there and their channels are different. They have very good, good relationships with some of the big carriers and they're really kind of at the more we call them value end of the spectrum. And I think that there's opportunities at Inseego to really start adding some more software content to broadening out the distribution channels. And I just think they're I mean, I have one that I that I use quite frequently actually there for their great little product. And I think particularly as some of the carriers and some of the technology providers tried it and really start ramping up their fixed wireless access solutions, which really enable things like broadband to remote places where there aren't any cables down remote offices, branch offices, schools, mobile solutions, right? I just think that 5G really opens up a range of solutions in that space. And I think he goes pretty good position and where it is and how to expand that from here. So that's what I think about that.
Lance Vitanza
Okay, thanks.
And maybe just in terms of the revenue beat as nice beat in the quarter as we think about the first quarter. I'm just wondering if perhaps given that the guide was sort of flat, maybe down a little bit, I think, really. But was there perhaps some revenue from the first quarter that maybe was pulled into the fourth quarter? Does that sort of both explain a little bit of the B and also maybe that the guidance in the first quarter?
Steven Gatoff
Yes, definitely a question and Emblem has already sort of tag team with Bill toward a not meaningfully We had a solid close to the quarter. There are always some deals that get pulled forward, but there was no there was no meaningful large contracts or contracts and mass that got pulled into the quarter.
Lance Vitanza
Okay.
I didn't see any mention of software revenue in the release. I think that was about 30% of revenue in the third quarter. I'm wondering how it looked in the fourth quarter and maybe if you could talk about the trend going forward.
Steven Gatoff
Yes. The again, we'll happily take payment on this. So there's really two parts to that, if you will, there's the bucket that we now provide the category of services and other that have telematics and DMS business as well as some NRE product in there, but that's really the SaaS revenue, and that's where we have a growing software business.
Also SaaS around Inseego Connect that is currently included up in the product revenue, but it's not material candidly, to break out into its own category or that or have down below it and not in services bucket. But as it does, we will we will I'll break that out, but it's been on a kind of consistent trajectory. And so there's continued growth in that piece, albeit small, small dollar numbers.
Lance Vitanza
Okay.
And then just last one for me on gross margin, and I appreciate the color that you provided in the prepared remarks. I'm just wondering, and I think you kind of touched on this with respect to fixed wireless access kind of reverting, right. If we were to look more closely sort of on a product by product or our service by service basis at gross margin, what would we see there sort of is that the price cost relationship is that been sort of flat sequentially and I'm really thinking more sequentially than I am you kind of year on year on year, but is there is there any upside here? Are you getting any ability to sort of catch up to some of the cost increases that you may have seen through the inflationary period? And how would you describe that dynamic?
Steven Gatoff
Yes, sure. There's probably two vectors to look at that in our view. One is, as you said, within product, there's the FWA versus mobile hotspot that have a fairly different economic profile A. And then B, the other vector would be the traditional carrier slotted market versus the channel market.
So let me just take those two, our whole focus on growth and profitability, as you heard from us ad nauseam and kind of with a lot of vigor is that the FWA product is just a higher margin, higher price, greater contribution to value creation. And so when you go back in time and you'll see this are the numbers we provided in the supplemental data you'll see as FWA becomes a greater part of the profile, you see revenue lift good, but you see gross margin tick up. And so FWA business, obviously dependent upon the proliferation of 5G, the more of the 5G becomes greater proliferated and suburban and rural markets, the more adoption as FWA as a primary connection as device, you see more rollout of that you see greater marginal contribution to profit. And so that's something that we will continue to focus on and which is one of the reasons why we wanted to break out FWA so you see that you see the revenue contribution to growth has one dynamic that you're the more you scale that others have a step function in cost. So you're able to extract higher marginal revenues from SWAG. and added overtime and use that you're seeing that just starting to work its way through the financials.
The second dynamic is our go-to market. And our route-to-market and so far is our legacy history around being a slotted carrier company that's worked out fine in the past. The one part of the business model and route to market that has been less successful was around our channel, both our execution and presence in the channel and how we have grown that revenue. And so Steve Hartman joining right when I did essentially, he's already made phenomenal progress in bringing over there. The team that he's worked with in the past, Phil, is we're a grid and running channel running sales operations. And so our presence in that channel is meaningfully improving, getting better. And B is exactly what you asked about, which is a source of driving higher marginal revenue going forward, so you'd see drive greater margin contribution.
Lance Vitanza
Thanks, guys.
Steven Gatoff
Thank you.
Operator
And our next question will come from Tore Svanberg with Stifel. Please go ahead.
Tore Svanberg
Yes, good afternoon, this is Jeremy calling for Tory from. I guess maybe the first question on in terms of your liquidity, it looks like you have $7.5 million in cash, $4.1 million drawn on your revolver. How much of that how much whenever you having a revolver? And now can you talk about cash burn in terms of free cash flow and adjusted EBITDA?
Steven Gatoff
Yes. So we feel good and better and better about where we are with our liquidity, both from a standpoint of having a small amount of really falling off 4.1 outstanding, the reduction also, Jeremy, you saw the fine print where our lender have worked with us and offered up a reduction in covenants that freed up another $2 million of liability, sorry, of revolver. And so being EBITDA positive this quarter, we guided obviously for positive. We yes, we're looking at continuing to grow EBITDA with a quarter over each quarter. And so we're looking to be in a cash generation mode going forward. And so and I think the past where you've seen cash burn, that's something that is behind us and we continue to look forward to generating modest amounts of cash decreasing going forward now with more liquidity available on the revolver. Having said that, our draws on the revolver are pretty low. And so we're drawing out $2 million to $3 million at a time and paying that down. That's kind of a working capital management between carrier payments, events and payroll and other expenses, but that becomes less and less significant for us as we move through the year.
Tore Svanberg
Great. That's good. And I guess maybe if we look at the US moving throughout the year. Can you talk about what kind of without I know you don't guide more than one quarter out, but is there anything that can give you some confidence in terms of business potentially bottoming or second half potentially being stronger than the first half? And are there any trends you can point to move in terms of bookings or reduce cancellations, things of that nature, that be great.
Steven Gatoff
Sure. And Phil, obviously feel free to chime in on any or all of it. We feel like there's a pronounced effort without Germany or appreciated caveat of not giving guidance for the for the year for the each quarter out both. But we are looking to meaningfully grow the business and the biggest driver of our growth is our WA. product and the business. And so that's something that we're investing in Harman and team meaningfully around channel, but then also optimizing our carrier slots and relationships and adding new carriers and other routes to market by large folks in the telecom space, if you will, kind of generally speaking. And so as we manage the business and particularly now that would be probably much more premature to say this, but and with full join and all of the work that we have starting to look at products and how we go to market with our slotted product and what our chipset designs are and how we look at everything.
As far as our go to market and our product, we're all pretty bullish on this. So coming short of offering guidance where we're looking favorably at the year.
Tore Svanberg
Great.
And if I could just squeeze one more question in on the gross margin side, can you help us maybe just characterize the differences between the three segments? And also, I guess within that fixed wireless, is there a difference between the channel margins and the carrier margin?
Steven Gatoff
Yes.
So the last question, yes, definitely that channel margins are think of as a higher full-stop uptake of those. It really adds enterprise mid-market. But enterprise sales where the carriers are selling through bars and other third parties to enterprises. And so there's a generally larger, higher dollar and sales that have higher margin contribution as well, whereas the stocked carrier business tends to be more competitive or price pressured different base-level functionality that customers that carriers buy and sell to their customers. So yes, there's definitely a different margin profile. So that such expansion of channel has a higher marginal contribution to gross margin.
And then I think on your first question, you were a little garbled, I apologize, but I think you were asking about what was the dynamic of the impact of the gross margin change? Was that for Q4?
For your asking? Tore?
Tore Svanberg
I'm meaning the relative contribution from each segment I guess, fixed wireless as a whole versus can you just ballpark it for us versus the mobile versus the software, I guess, services?
Steven Gatoff
Yes. So you can't I'm happy to say that is all in the supplemental information data and as well on the face of the statement because what we've done is we've broken out gross margin now you can count it's calculated for you by those delineation. So you can see product gross margin and you'll see services other. So you can understand the contribution of those two because the gross margin is meaningfully different between the product side of the business and also on a GAAP and non-GAAP basis.
Right then on those services and other services and others is a very high non-core but high gross margin business.
Tore Svanberg
I'm sorry. And then the on the margin differences of the three drivers of the margin for the current quarter, I think partially some of it was one-time benefits and some of it was on that fixed wireless access returning to mid 2020s. Is there a way to kind of maybe just rank order those?
Steven Gatoff
Yes, sure. So one of the larger kind of quarter over quarter, one of the largest changes, almost 200 basis points of change was the telematics business that I mentioned was a and an adjustment for a prior period inter-company revenue that needs to be eliminated. And so that was probably the largest, almost 290 basis points. Are they back up and then the next biggest bucket was around the fixed wireless, but you just said lack of fixed wireless margins kind of quote returning to the mid-20s. They were lower in Q3 because in Q3 there was an adjustment for prior periods that was taken of over $1 million. So that depressed that WA margins in Q3, which is why you saw a rise in Q4. So that was the number two item. And then the third driver of level, which is up there also of around 170 basis points was a product mix and just having less mobile solutions in the mix.
Tore Svanberg
Perfect.
Thank you very much.
Steven Gatoff
Yes, sure. Happy to.
Operator
And our next question will come from Scott Searle with Roth I'm Kim. Please go ahead.
Scott Searle
Very good afternoon. Thanks for taking my questions and nice to see stability in the business. Still very exciting to see you onboard and more deeply integrating day-to-day operations with the company. So congratulations and Steve, really appreciate the new financial categories, (multiple speakers)
And maybe just a follow-up on a couple of other questions from a gross margin standpoint on Steve, just wondering if there were any one-time benefits that you saw from previously written off inventory of anything of that nature? And then Phil, on fixed wireless access seems like it's becoming more of a centerpiece going forward. Just kind of wondering how you're thinking that in different channels go to market where that expansion occurs is that within the existing carrier relationships? Is that just some other channels? Are you starting to think about more expansion beyond North America?
Phil Brace
Yes, good question, Scott. I think that I think our initial focus and I think we have lots of opportunity primarily in North America to start with. So I would look to us to continue to train, build and expand our strong carrier relationships, but then frankly, glad to do a little bit more as he was talking about enterprise like sales via a more robust channel that has, I guess, higher-end solutions focuses on small businesses, medium enterprises, those kinds of things. So I would say expansion within our existing our carrier distribution channel, I guess, if you will, and then an expansion into more of the OEM channel side?
I think I would look at it that way, and I expect I expect we're going to get things go our way we're going to get the double growth rate because we'll have overall growth in the fixed wireless access market plus we'll kind of continue to work to expand our channels. So that's kind of how we're looking at it.
Scott Searle
Josh and Steve, any was there any benefit from previously written off inventory or we clean at this point in time?
Steven Gatoff
Yes, the question there was no benefit from the previous reserves. The large one, obviously we took last quarter, there are some older inventory that we would look to sell or if we can. But obviously, we think the value is zero and so there's no benefit.
Scott Searle
Josh.
And Steve, I just want to clarify some of what I heard positive cash flow generation in the first quarter, and it sounds like you're expecting that for calendar '24 as well as we start to hit the bottom and get even with getting a little bit into growth mode, you're expecting to be cash flow positive.
Is that correct?
Steven Gatoff
That's right.
Scott Searle
Okay.
And Phil, I know this is probably unfair, but since you are a wireless veteran, I'm wondering as you look at the business today, and you've talked about some of the things that you found exciting about the company, but there are a lot of dynamics that are ongoing. Mobile Hotspots have been basically in a sequential decline for an extended period of time. And I guess if you remove the pandemic, it's been over a decade where there's been headwinds related to mobile hotspots. Does that go away in terms of the business as you start to think about things strategically over the next two to three years. And as you look out over that time period, what is Inseego is you have two, three years from now is Inseego 70% of its sales from a recurring nature. You converting a lot of that fixed wireless access more to a recurring kind of Cradlepoint model, how you're kind of at a high level thinking about it with the understanding? I know it's day one, so my apologies.
Phil Brace
So yes, I guess I'm going to caveat my answer by saying that I reserve the right to change my answer. But I guess the way I think about it, Scott, is like when I kind of zoom out. And when I think about Inseego, I think at providing 5G wireless connectivity solutions for both mobile and fixed capabilities, certainly the fixed wireless access is the area of growth now because as you pointed out, the mobile or mobile hotspot, I would say it's going away. I'm not sure or at least declining. I'm not sure the way that we've thought about mobile hotspot before is I mean, maybe if you open your to a little bit and think about mobile solutions, I'm not entirely sure it's going to go to zero I do think, and I'm not sure we wanted to either because I think there is a market for connectivity for this nature that moves around, I think mobile workforce and things like that, but I'm not sure it's going to go to zero, but I do think the focus of the Company is going to be on fixed wireless access. I think it's just it's a higher-end solution that's more targeted enterprise. There's more opportunities to add some value there. And I think the other thing that we've frankly just barely started on is the idea to actually drive some software monetization and some software solutions above where we are now, whether it's just simple like device management and management are not a lot of the things you need to do to manage and operate the devices. And so we are definitely going to be moving in that direction. It's hard to say what that will look like in the outer years. But I mean, you're on the right track in that area.
Scott Searle
Got it. Very helpful. And if I could just quickly follow up on the recapitalization and sounds like you're in multiple dialogues on. I'm not sure if you could provide any additional color. It sounds like the timeline and the process here is going to take a bit. I think the convert doesn't go current until May, but it sounds like you guys are trying to get out ahead of it. Is there anything else you can kind of provide in terms of what you think is the optimal capital structure otherwise kind of going forward?
It's obviously a big impediment that's kind of hanging over the company. But once you were able to deal with that? It seems like there's a lot of opportunity for investors. You could come back and revisit the name. Just kind of wondering if there's any additional thoughts that you could provide on that front.
Steven Gatoff
And I think that's a great question. And it is a obviously a huge focus for all of us. But we are, as you said, you, Scott you hit all the right dates and kind of the highlights of what we're looking at and looking to figure out what the right construct is because we're obviously bullish on the enterprise value and then how that filters through on a go-forward basis, looking at recapitalizing the debt, how much debt rate book. But we look forward, we'll have some amount of debt if you think about conceptually would have the absolute amount of debt that you would presume would convert to equity some amount of debt that would continue on?
So when we look at our EBITDA profile, what cash and liquidity we have available to us to pay down certain amounts of debt. And so that would be the combination that we're talking with folks about now and figure out what that looks like and what are the trade-offs and how much of that enterprise value obviously accrues down to the equity holders, which is obviously an important focus of ours.
Scott Searle
Okay, great. Thanks so much for taking the questions. Congrats on the quarter and Phil, congrats on coming onboard. Nice, guys.
Phil Brace
Thank you.
Steven Gatoff
Thanks, Scott.
Operator
And it looks like.
We have a follow-up question from Tore Svanberg with Stifel. Please go ahead with the follow-up.
Tore Svanberg
Yes. On the third question on in terms of the OpEx on the Q4 run rate that $18.7 million, that's what we can expect going forward on.
And just thinking about your investments that you may need to make going after the channel market and then maybe how much you're reinvesting in terms of R & D on the mobile side, just balancing all that together. Can you give us some high-level view of OpEx?
Steven Gatoff
Yes, good. That's a good question, Jeremy. Thanks somewhat to go through them.
All right. So in the short answer is yes, that's probably not an unreasonable. Our benchmark to use, certainly for Q1 and so far is figuring out what the run rate could should would might be for the short term in the longer term?
Yes, for the kind of as we move through the year. It's a combination of increases in spend, but with a higher marginal contribution. So we expect to increase spend less than we generate revenue. So dollars might go up but at an increasing contribution. But for the near term, that is probably a good spend level and to use model.
Tore Svanberg
Great.
Thank you very much.
Steven Gatoff
Yes, likewise, thanks.
Operator
And this concludes our question and answer session, and we'll also conclude today's call. Thank you very much for attending the presentation today, and you may now disconnect your lines.
