Inseego Corp

NASDAQ:INSG

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to Inseego Corporation's Fourth Quarter 2023 Financial Results Conference Call. Please note that today's event is being recorded. [Operator Instructions]. After today's presentation, there will be an opportunity for analysts to ask questions. On the call today are Phil Brace, Executive Chairman of Inseego's 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, executive]

Thank you. Good afternoon, everyone. It's a pleasure to be with you today. My prepared remarks will cover 3 topics. First, I'd like to start by sharing a brief perspective on why I joined the Board of Directors of Inseego some 6 months ago. Second, I'd like to share some thoughts on the leadership change that was announced today and my focus going forward. And third, I'll provide some high-level view of the current quarter. I'll then turn the call over to Stephen, 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 the technology as having potential to change the way people and machines work. Second, from my time in Carra 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, with strong market relationships that existed and the investments in FWA to drive future growth. All of these things remain true today. By now, you have 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 have 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 front line 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 break out revenues in our business of mobile and fixed wireless access solutions. Stephen 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.

[Stephen Sek, executive]

Thanks, Phil. Good afternoon, everyone. I look forward to covering 3 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. Sennwill take you through our Q4 and 2020 financial results. And third, I'll provide some color on the business as we move into 2024 and our financial guidance for Q1. 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 2 categories of IoT and 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 2 categories of product revenue and services and other revenue. We're further breaking out product revenue into the 2 core product offerings of mobile hotspot revenue and fixed wireless access or 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 in focusing on driving FWA revenue growth, the overall profitability profile of our product business and the contribution from our SaaS offerings. -- and making them a 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 8 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 2 years and has grown from essentially nothing 3 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 there 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 2 years as our higher-margin FWA products gained 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. The 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 label 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 Bill noted, at $42.8 million and adjusted EBITDA came in at $4.1 million as cost savings initiatives, a favorable product mix and some onetime 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 revenue. This was due to the anticipated runoff of legacy 4G-based 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 intercompany revenue. Q4 DMS revenue came in about 2% sequentially lower, reflecting the runoff of prior year COVID-driven led subscriber increases at our carrier customer. And so far 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 3 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 in inventory and at our 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 onetime 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 noncash and did not impact any of our key metrics such as revenue, gross margin, adjusted EBITDA or cash. In 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 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 million, and we had a modest amount drawn on our credit facility of $4.1 million at year-end. I'll talk more about capital structure in a moment. Let's turn to the third topic and so far 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 spoke about, we have a small group of bondholders 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 hotspot. 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 onetime 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% 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 to $3 million. In closing, we're thrilled that Phil has 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. Operator?

[Operator]

we will take our first question, which will come from Lance Vitanza with Cowen.

[Lance Vitanza, analyst]

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, executive]

Yes, it's a good question. Look, one of the things that was just different. If you look at where Inseego's products are today, they really cover a different segment of the market than what Sierra is, right? And their channels are different. They have very good relationships with some of the big carriers, and they're really kind of at the more we'll call them value end of the spectrum. And I think that there's opportunities in Inseego to really start adding some more software content to broadening out the distribution channels. And I just think there -- I mean I have one that I use quite frequently, actually. They're great little products. And I think, particularly as some of the carriers and some of the technology providers try 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 Inseego's got a pretty good position on where it is and how to expand that from here. So that's what that I think about that.

[Lance Vitanza, analyst]

Okay, thanks. Maybe just in terms of the revenue it was a nice beat in the quarter. As we think about the first quarter, I'm just wondering if perhaps given that the guide is 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 beat and also maybe the guidance in the first quarter?

[Stephen Sek, executive]

Yes... Question. sorry, Techteam with Bill, or [Technical Difficulty]. Not meaningfully. We had a solid close to the quarter. There are always some deals that get pulled forward, but there was no meaningful large contracts or contracts and maths that pulled into the quarter.

[Lance Vitanza, analyst]

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.

[Stephen Sek, executive]

Yes. The -- again, we'll happily tell team on this -- so there's really 2 parts to that, if you will. There's the bucket that we now provide a category of services and others that have the telematics and DMS business as well as some in our product in there. But that's really the SaaS revenue. And then we have a growing software business also SaaS around Inseego Connect that is currently included up in the product revenue. It's not material candidly, to break out into its own category or have Doblo and services bucket. But as it does, we will break that out. But it's been on a kind of consistent trajectory. And so there's continued growth in that piece, albeit small dollar numbers.

[Lance Vitanza, analyst]

Okay. And then just last one for me. 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. But if we were to look more closely sort of on a product by product or service by service basis at gross margin, what would we see there? Or sort of -- is that the price cost relationship has that been sort of flat sequentially? And I'm really thinking more sequentially than I am kind of year-on-year. But 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?

[Stephen Sek, executive]

Yes, sure. There's probably 2 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 w ould be the traditional carrier slotted market versus a channel market. So let me just take those 2. Our whole focus on growth and profitability, as you heard from us a nausea kind of with a lot of vigor. -- is that the FWA product is just a higher margin, higher priced, greater contribution to the value creation. And so if you go back in time, and you'll see this in 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 that 5G becomes greater proliferated in suburban and rural markets, a more adoption as FWA as primary connection 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 growth. That's one dynamic that you're -- the more you scale that, there's a step function in cost, so you're able to extract higher marginal revenues from FWA getting added over time, and 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 as 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 Harman joining right when I did essentially, he's already made phenomenal progress in bringing over the, the team that he's worked with in the past, Phil has worked with and running channel, running sales operations. And so our presence in the channel, a is meaningfully improved and getting better; and b, is exactly what you asked about, which is a source of driving higher marginal revenue going forward that you'd see drive greater margin contribution.

[Operator]

And our next question will come from Tore Svanberg with Stifel.

[Jeremy Kwan, analyst]

This is Jeremy calling for Tore. 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 remote do you have in your revolver? And can you talk about cash burn in terms of free cash flow and adjusted EBITDA?

[Stephen Sek, executive]

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, relatively small now 4.1 outstanding. -- the reduction also, Jeremy, you saw the fine print where our lender worked with us and offered up a reduction in the covenant. So that freed up another $2 million of liability -- sorry, a revolver. And so being EBITDA positive this quarter, we guided obviously for positive. We're looking at continuing to grow EBITDA over the quarter -- over each quarter. And so we're looking to be in a cash generation mode going forward. And so 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 increasing going forward now with more liquidity available on the revolver. Having said that, our draws on the revolver are pretty low. And so if we're drawing $2 million to $3 million at a time, and paying that down, that's kind of a working capital management between carrier payments and men and payroll and other expenses, but that becomes less and less significant for us as we move through the year.

[Jeremy Kwan, analyst]

And I guess maybe if we look at -- yes, 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 maybe any trends you can point to maybe in terms of bookings or reduced cancellations, things of that nature, that would be great.

[Stephen Sek, executive]

Sure. And Phil, obviously, feel free to chime in on any or all of it. We feel like there is a pronounced effort without Germany or appreciated caveat of not giving guidance for the year, for each quarter out. But we are looking to meaningfully grow the business. And the biggest driver of our growth is the FWA product and business. And so that's something that we're investing in, Harmon and team meaningfully around channels, but then also optimizing our carrier, slots and relationships and adding new carriers and other routes to market by large, 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 premature to say this. But with full joining and all of the work that we have starting to look at products and how we go to market with our slotted products 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. And so coming short of offering guidance, we're looking favorably at the year.

[Jeremy Kwan, analyst]

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 3 segments? And also, I guess, within fixed wireless, is there a difference between the channel margins and the carrier margin?

[Stephen Sek, executive]

Yes. So the last question, yes, definitely. The channel margins are -- think of as higher for full stop. Think of those really as enterprise, mid-market, but enterprise sales, where the carriers are selling through VARs and other third parties to enterprises. And so there's a generally larger, higher dollar sales that have higher margin contribution as well. Whereas the stocked carrier business tends to be more competitive, more price pressure, different base level functionality that carriers bottles and their customers. So yes, there's definitely a different margin profile so that the 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, you were asking, Jeremy?

[Jeremy Kwan, analyst]

I'm just meaning the relative contribution from each segment, I guess, fixed wireless as a whole versus a pocket for us versus the mobile versus software, I guess, that services?

[Stephen Sek, executive]

Yes. So you can -- 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 -- it's calculated for you by those delineation. So you can see product gross margin, and you'll see services and others, so you can understand the contribution of those 2 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 the services and others. The services and others is a very high noncore but high gross margin business.

[Jeremy Kwan, analyst]

I'm sorry. I mean I met the margin differences with the 3 drivers of the margin for the current quarter. I think partially, some of this was onetime benefit. Some of it was the fixed wireless access by turning to mid-20s. Is there a way to kind of maybe just rank order those?

[Stephen Sek, executive]

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 an adjustment for prior period intercompany revenue that needed to be eliminated. And so that was probably the largest, almost 190 basis points of impact. And then the next biggest bucket was around the fixed wireless, but you just said last, the fixed wireless margins kind of returning to the mid-20s. They were lower in Q3 because in Q3, there was an adjustment for prior period that was taken of over $1 million. So that depressed the FWA margins in Q3, which is why you saw a rise in Q4. So that was the #2 item. And then the third driver of level, which was up there also around 170 basis points was the product mix and just having less mobile solutions in the mix.

[Operator]

And our next question will come from Scott Searle with Roth MKM.

[Scott Searle, analyst]

Nice to see the stability in the business, still very exciting to see you on board and more deeply integrate and day-to-day operations with the company. So congratulations. And Steve, really appreciate the new financial categories.

[Unknown Executive]

Right on. [indiscernible].

[Scott Searle, analyst]

And maybe just a follow-up on a couple of the other questions. From a gross margin standpoint, Steve, just wondering if there are any onetime benefits that you saw from previously written off inventory of anything of that nature? And then Phil, fixed wireless access seems like it's becoming more of a centerpiece going forward. Just kind of wondering how you're thinking about in different channels, go-to-market and where that expansion occurs. Is that within the existing carrier relationships? Is that to some other channels? Or are you starting to think about more expansion beyond North America?

[Phil Brace, executive]

Yes. Good question, Scott. I think that -- I think our initial focus, I think we have lots of opportunity primarily in North America to start with. So I would look to us to continue to try and build and expand our strong care relationships. But then frankly, go out and do a little bit more as you talked 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 the expansion into more of the channel side. I think I would look at it that way. And I expect we're going to get if things go our way, we're going to get the double growth, right, because we'll have overall growth in the fixed wireless fastest 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, analyst]

Got you. And Steve, any -- was there any benefit from previously written off inventory are we clean at this point in time?

[Unknown Executive]

Yes. That a good question. There was no benefit from the previous reserves, the large one, obviously, we took last quarter. There is some older inventory that we would look to sell or if we can. But obviously, we think the value is 0. And so there is no benefit.

[Scott Searle, analyst]

Got you. And Steve, I just want to clarify a whole I thought 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 started to hit the bottom and get even with getting a little bit into growth mode, you expect them to be cash flow positive. Is that correct?

[Unknown Executive]

That's right.

[Scott Searle, analyst]

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, you 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 2 to 3 years? And as you look out over that time period, what is Inseego? 2, 3 years from now is Inseego, 70% of its sales from a recurring nature? Are you converting a lot of that fixed oilless access more to a recurring kind of cradle plan model. How are you kind of at a high level thinking about it with the understanding, I know it's day 1. So my apologies.

[Phil Brace, executive]

So yes, I guess I'm going to caveat my answer but I'm sure 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 it's 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, is going away. I'm not sure or at least declining. I'm not sure. The way that we thought about mobile as spot before is -- I mean, maybe if you open your aperture a little bit and think about mobile solutions, I'm not entirely sure, it's going to go to 0. 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 0, but I do think the focus of the company is going to be on the fixed wireless access. I think it's just -- it's a higher-end solution, it's more targeted to enterprise. There's more opportunities to add some value there. And I think the other thing that we -- we 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 or network management or a lot of things you need to do to manage and operate the devices. And so we're 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, analyst]

Got you. Very helpful. And if I could, Steve, just to quickly follow up on the recapitalization. It sounds like you're in multiple dialogues. I'm not sure if you could provide any additional color. It sounds like the time line of 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 or 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 here to come back and revisit the name. Just kind of wondering if there's any additional thoughts that you could provide on that front.

[Unknown Executive]

Yes. That's a great question and it's obviously a huge focus for all of us. But we are -- as you said, 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 right when we look forward, we'll have some amount of debt. If you think about conceptually would have, you have some 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 combinations that we're talking with folks about now and figuring out what that looks like and what are the trade-offs. And then how much of that enterprise value obviously accrues down to the equity holders, which is obviously an important focus of ours.

[Scott Searle, analyst]

Okay. Great. Congrats on the quarter. And Phil, congrats on our coming on board.

[Operator]

And it looks like we have a follow-up question from Tore Svanberg Lin with Stifel.

[Jeremy Kwan, analyst]

Yes. Just a question on -- in terms of the OpEx. Is the Q4 run rate, that $18.7 million is that what we can expect going forward? And just thinking about your investments that you may need to make going after the channel market and 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?

[Unknown Executive]

Yes. a good question, Jeremy. Thanks. Someone's got to do the model, right. So the short answer is, yes, that's probably not an unreasonable benchmark to use certainly for Q1 and so far as figuring out what the run rate should -- would might be for the short term. In the longer term, for the kind of -- as we move through the year, it's a combination of increases in spend but with the higher marginal contribution. So we expect to increase spend less than we generate revenue. So dollars might go up, but an increasing contribution. But for the near term, that is probably a good spend level to use model with [Audio Gap]. Thanks Jeremy

[Operator]

And this concludes our question-and-answer session and will also conclude today's call. Thank you very much for attending the presentation today. And you may now disconnect your lines.