Certain amounts recorded in the prior period consolidated financial statements have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on previously reported operating results.
During the fourth quarter of 2023, and as noted in the Form 10-K, the Company reclassified revenue on its Consolidated Statement of Operations. Historically, the Company classified revenues from products and services into two categories, IoT & Mobile Solutions and Enterprise SaaS Solutions. The Company is now classifying revenues from products and services into the following two categories: Product Revenue, which consists of our Mobile Solutions and Fixed Wireless Access Solutions, and Services and Other. Additionally, during 2023 the Company reclassified all depreciation and amortization expense previously recorded in the operating expense line items of research and development, sales and marketing, and general and administrative expenses on the Consolidated Statement of Operations into a separate line labeled Depreciation and amortization. All prior periods have been reclassified to conform to the current period presentation for these changes.
Reverse Stock Split
On January 24, 2024, the Company completed a 1-for-10 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each share of common stock issued and outstanding immediately prior to January 24th was automatically converted into one-tenth (1/10) of a share of common stock. The Reverse Stock Split affected all common stockholders uniformly and did not alter any stockholder's percentage interest in the Company's equity, except to the extent that the Reverse Stock Split would result in a stockholder owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive a fractional share instead were entitled to receive cash in lieu of such fractional share.
The Reverse Stock Split did not change the par value of the common stock or the authorized number of shares of common stock. All outstanding convertible notes entitling their holders to purchase or obtain or convert into shares of our common stock were adjusted, as required by the terms of these securities.
All common share and per-share amounts in this Form 10-Q have been retroactively restated to reflect the effect of the Reverse Stock Split.
Liquidity
During 2024, the Company entered into a series of agreements, as part of its overall capital structure management, to reduce its total debt and restructure its outstanding 3.25% convertible notes due 2025 (the “2025 Convertible Notes”), as follows:
(1) Convertible Debt Repurchases and Exchanges Completed prior to September 30, 2024 (the “Completed Repurchases and Exchanges”):
10
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(a) the Company repurchased, for cash, all of the $45.9 million in principal amount of the 2025 Convertible Notes held by certain entities managed by Highbridge Capital Management, LLC (such entities, “Highbridge”), the second largest note holder as of the date of such purchase, at a discount of 30% to face value, plus accrued interest;
(b) the Company repurchased, for cash, $3.0 million of principal amount of the 2025 Convertible Notes from a separate single holder at discount of 45% to face value, plus accrued interest;
(c) the Company repurchased from a holder approximately $4.7 million of principal amount of the 2025 Convertible Notes in exchange for approximately 0.3 million shares of the Company’s Common Stock and warrants to purchase an aggregate of approximately 0.2 million shares of the Company’s Common Stock, plus accrued interest. See Note 8 – Stockholders' Equity (Deficit) for further details regarding these warrants;
(d) the Company repurchased from two related holders approximately $1.5 million in aggregate principal amount of the 2025 Convertible Notes in exchange for approximately 0.1 million shares of the Company’s common stock and warrants to purchase an aggregate of approximately 0.1 million shares of the Company’s common stock. See Note 8 – Stockholders' Equity (Deficit) for further details regarding these warrants;
(2) Short-Term Loan Agreement: to finance a portion of the Completed Repurchases and Exchanges, the Company agreed to a $19.5 million loan (“Short-Term Loan”) from (i) South Ocean Funding, LLC (“South Ocean”), which is an affiliate of Golden Harbor Ltd. (“Golden Harbor”), and Tavistock Financial, LLC, and (ii) certain participant lenders (the “Participating Lenders”). The Short-Term Loan was originally scheduled to mature on September 30, 2024 but maturity has subsequently been extended to November 30, 2024. Borrowings under the Short-Term Loan bear interest at 12.0% per annum. Upon any repayment or prepayment of the amounts borrowed under the Short-Term Loan (including at maturity), the Company will be required to pay an exit fee equal to 4.0% of the aggregate principal amount prepaid or repaid. See Note 5 – Debt below for further details regarding the Short-Term Loan; and
(3) Convertible Debt Repurchases and Exchanges Completed Subsequent to September 30, 2024 (the “Subsequently Completed Repurchases and Exchanges”): On November 6, 2024 the Company completed the previously-announced privately-negotiated exchanges of $91.5 million in aggregate principal amount of the 2025 Convertible Notes held by certain holders of the 2025 Convertible Notes pursuant to binding term sheets that were previously entered into with such holders, including the binding term sheets entered into on June 28, 2024 with North Sound Partners and Golden Harbor Ltd. In connection with the Subsequently Completed Repurchases and Exchanges, the Company issued to these noteholders in concurrent private placement transactions an aggregate of (i) approximately 2.4 million shares of the Company’s Common Stock, (ii) approximately $40.9 million in principal amount of new senior secured notes due in 2029 (the “New Senior Secured Notes”), and (iii) warrants to purchase an aggregate of approximately 2.1 million shares of the Company’s Common Stock. See Note 12 – Subsequent Events below for further details regarding the Subsequently Completed Repurchases and Exchanges, including information about the warrants and New Senior Secured Notes issued in relation to these transactions.
As of September 30, 2024, the Company had available cash and cash equivalents totaling $12.0 million. During the three-months ended September 30, 2024, the Company voluntarily prepaid $13.5 million of the outstanding principal balance under the Short-Term Loan Agreement, so that on September 30, 2024, the outstanding principal balance under the Short-Term Loan was $6.0 million.
The 2025 Convertible Notes had a principal balance of $106.8 million as of September 30, 2024 and mature on May 1, 2025. Taking into account the Completed Repurchases and Exchanges and the Subsequently Completed Repurchases and Exchanges, the Company has subsequently repurchased and/or exchanged approximately $146.9 million, or 90.8%, of the face value of the 2025 Convertible Notes that was outstanding as of December 31, 2023.
The Company generated positive cash flow from operations both for the year ended December 31, 2023 and in the nine months ended September 30, 2024. In April 2024, the Company received a $15.0 million upfront payment from a customer in connection with a two-year service contract. Based on the factors above, and to reduce financing costs, the Company voluntarily paid-off and terminated its Credit Facility (as defined below) effective April 18, 2024. These factors have had a positive impact on our liquidity.
While the Company’s liquidity and financial results have had several positive developments recently, as noted above, the Company has a history of operating and net losses and overall usage of cash from operating and investing activities. The Company’s ability to maintain profitable operations and continue to generate positive cash flows is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure. In order to effect the restructuring or refinancing of the Company’s obligations, or if events or circumstances occur such that the Company does not meet its operating plan as
11
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
expected, or if the Company becomes obligated to pay unforeseen expenditures, the Company may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses and capital expenditures, which could have an adverse impact on the Company’s ability to achieve its intended business objectives.
During the previous two quarters, the Company had disclosed that there was substantial doubt about its ability to continue as a going concern within one year of the issuance dates of the quarterly reports on Form 10-Q for those quarters, primarily as a result of the outstanding balance and due date of the 2025 Convertible Notes. In performing this assessment for the current quarter, taking into account the Company’s liquidity position as a whole, including the repurchases and exchanges of 2025 Convertible Notes noted above, the liquidity anticipated to be provided from the sale of the Telematics Business, and cash inflows expected to be provided by its continuing operations, the Company has concluded that there is no longer substantial doubt about the Company’s ability to continue as a going concern within one year of issuance of these financial statements.
12
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 2. Discontinued Operations and Held for Sale
As noted in Note 1 – Nature of Business and Significant Accounting Policies, on September 16, 2024, the Company entered into the Purchase Agreement to sell its Telematics Business. As a result, within these condensed consolidated financial statements, the assets and liabilities associated with the Telematics Business disposal group have been classified as held for sale within the Condensed Consolidated Balance Sheet and its operations have been classified as discontinued operations within the Condensed Consolidated Statements of Operations and Comprehensive Income.
The following table summarizes Income from discontinued operations, net of tax included in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Services and other revenues
$
7,862
$
7,226
$
22,895
$
21,567
Services and other cost of revenues
3,222
3,166
9,876
9,022
Gross profit from discontinued operations
4,640
4,060
13,019
12,545
Operating costs and expenses:
Research and development
293
473
967
1,345
Sales and marketing
1,289
1,255
3,625
3,698
General and administrative
1,884
1,146
4,799
3,404
Depreciation and amortization
360
392
1,060
1,112
Total operating costs and expenses
3,826
3,266
10,451
9,559
Operating income from discontinued operations
814
794
2,568
2,986
Other (expense) income:
Interest income, net
3
3
10
8
Other income (expense), net
875
(623)
1,128
824
Income from discontinued operations before income taxes
1,692
174
3,706
3,818
Income tax provision (benefit)
266
(46)
674
555
Income from discontinued operations, net of tax
$
1,426
$
220
$
3,032
$
3,263
13
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table summarizes the held for sale assets and liabilities included in the Condensed Consolidated Balance Sheet (in thousands):
September 30, 2024
December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
2,775
$
5,110
Accounts receivable, net
4,803
4,414
Inventories
2,092
2,325
Prepaid expenses and other
380
274
Current assets held for sale (*)
10,050
12,123
Non-current assets:
Property, plant and equipment, net
323
369
Rental assets, net
4,932
5,083
Intangible assets, net
990
1,422
Goodwill
17,973
17,973
Operating lease right-of-use assets
1,503
1,390
Non-current assets held for sale (*)
25,721
26,237
Total assets held for sale (*)
$
35,771
$
38,360
LIABILITIES
Current liabilities:
Accounts payable
$
1,650
$
1,387
Accrued expenses and other current liabilities
6,410
5,973
Current liabilities held for sale (*)
8,060
7,360
Long-term liabilities:
Operating lease liabilities
1,335
1,067
Deferred tax liabilities, net
600
568
Other long-term liabilities
5
9
Non-current liabilities held for sale (*)
1,940
1,644
Total liabilities held for sale (*)
$
10,000
$
9,004
(*)Assets and liabilities of the held for sale Telematics Business are presented as current in the Condensed Consolidated Balance Sheet at September 30, 2024, as the Company expects to complete the disposition within one year.
As permitted under ASC 205-20-50-5b(2), the Company has elected not to adjust the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 to exclude cash flows attributable to discontinued operations. The table below sets forth, for the periods presented, significant selected financial information related to discontinued activities included in the accompanying condensed consolidated financial statements (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Non-cash items included in net (loss) income:
Depreciation and amortization
$
969
$
1,032
$
2,921
$
2,867
Share-based compensation
$
35
$
144
$
101
$
390
Cash flows from investing activities:
Purchases of property, plant and equipment
$
(14)
$
(173)
$
(17)
$
(334)
Non-cash investing activities:
Transfer of inventories to rental assets
$
698
$
412
$
2,043
$
1,077
Right-of-use assets obtained in exchange for operating leases liabilities
$
362
$
93
$
508
$
1,030
14
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 3. Financial Statement Details
Inventories
Inventories consist of the following (in thousands):
September 30, 2024
December 31, 2023
Finished goods
$
17,796
$
18,939
Raw materials and components
322
1,616
Total inventories
$
18,118
$
20,555
Prepaid expenses and other
Prepaid expenses and other consists of the following (in thousands):
September 30, 2024
December 31, 2023
Rebate receivables
$
1,407
$
1,950
Receivables from contract manufacturers
716
1,823
Software licenses
770
504
Other
734
660
Total prepaid expenses and other
$
3,627
$
4,937
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
September 30, 2024
December 31, 2023
Royalties
$
968
$
845
Payroll and related expenses
7,778
3,608
Professional fees
—
—
Accrued interest
2,042
1,038
Deferred revenue
9,212
2,717
Operating lease liabilities
1,303
1,226
Accrued contract manufacturing liabilities
5,049
7,537
Other
4,795
4,078
Total accrued expenses and other current liabilities
$
31,147
$
21,049
Other long-term liabilities
Other long-term liabilities consist of the following (in thousands):
September 30, 2024
December 31, 2023
Long-term deferred revenue
$
6,352
$
1,704
Other
147
647
Total other long-term liabilities
$
6,499
$
2,351
As of September 30, 2024, of the $6.4 million long-term deferred revenue balance, $5.9 million relates to performance obligations expected to be satisfied between one and two years, and $0.5 million relates to performance obligations expected to be satisfied between two and three years from September 30, 2024.
15
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 4. Fair Value Measurements
The Company’s only financial instrument measured at fair value on a recurring basis is its interest make-whole payment derivative liability on its 2025 Convertible Notes (see Note 5 – Debt). The fair value of that liability was zero as of both September 30, 2024 and December 31, 2023.
The fair value of the interest make-whole payment derivative liability was determined using a Monte Carlo model using the following key assumptions:
September 30, 2024
December 31, 2023
Volatility
90.80
%
77.00
%
Stock price
$16.33 per share
$2.20 per share
Credit spread
17.08
%
92.20
%
Term
0.59 years
1.34 years
Dividend yield
—
%
—
%
Risk-free rate
4.31
%
4.60
%
There was no change in the fair value of the interest make-whole liability for the three and nine months ended September 30, 2024 or September 30, 2023.
Other Financial Instruments
The carrying values of the Company’s other financial assets and liabilities approximate their fair values because of their short-term nature, with the exception of the 2025 Convertible Notes. The 2025 Convertible Notes are carried at amortized cost, adjusted for changes in the fair value of the embedded derivative.
Note 5. Debt
Short-Term Loan
On June 28, 2024, the Company entered into a Loan and Security Agreement (the “Short-Term Loan Agreement”), among South Ocean, as lender (“Lender”), the Participating Lenders, the Company, as borrower, and two of the Company’s wholly-owned subsidiaries, Inseego Wireless, Inc. and Inseego North America LLC as guarantors (collectively, the “Guarantors,” and together with the Company, the “Loan Parties”). The Loan Agreement establishes the Short-Term Loan.
The Company’s obligations under the Short-Term Loan Agreement are guaranteed by the Guarantors. Subject to the requirements of the Short-Term Loan Agreement, certain of the Company’s other subsidiaries may become guarantors and Loan Parties of the Loan Agreement after closing. The Loan Parties’ obligations under the Loan Agreement are secured by a continuing security interest in substantially all property of each Loan Party, subject to certain excluded collateral, as defined in the Short-Term Loan Agreement.
The Short-Term Loan was originally scheduled to mature on September 30, 2024 but maturity has subsequently been extended to November 30, 2024. Borrowings under the Short-Term Loan bear interest at 12.0% per annum. Upon any repayment or prepayment of the amounts borrowed under the Short-Term Loan (including at maturity), the Company is required to pay an exit fee equal to 4.0% of the aggregate principal amount prepaid or repaid.
The Short-Term Loan Agreement contains certain customary covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments. The Short-Term Loan Agreement contains certain customary provisions with respect to the definition of, and remedies with respect to, events of default.
Also on June 28, 2024, as part of the Short-Term Loan Agreement, the Participating Lenders contributed an aggregate of $3.0 million of participation interests in the Short-Term Loan Agreement (the “Participation Interests”). The Participating Lenders consist of Philip Brace, the Company’s Executive Chairman, who acquired a $1.0 million Participation Interest, and North Sound Ventures, LP, which acquired a $2.0 million Participation Interest in the $19.5 million Loan. As of the date hereof, affiliates of each of the Lender and North Sound Ventures, LP may be deemed to beneficially own more than 5% of the Company’s outstanding Common Stock. James B. Avery, a member of the Company’s Board of Directors, currently serves as
16
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Senior Managing Director of Tavistock Group, an affiliate of the Lender. Accordingly, the Lender and the Participating Lenders are considered related parties of the Company.
In connection with entering into the Short-Term Loan Agreement, the Company paid an arrangement and administration fee of $0.2 million to the Lender (the “Loan Costs”). Additionally in connection with the Short-Term Loan Agreement, the Company issued to the Lender and the Participating Lenders warrants (the “Loan Warrants”) to purchase an aggregate of 550,000 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”). See Note 8 – Stockholders' Equity (Deficit) for further details regarding the Loan Warrants.
The gross proceeds received under the Short-Term Loan Agreement, along with the Loan Costs, were allocated between the Short-Term Loan and the Loan Warrants based on their relative fair values at issuance.
During the three-months ended September 30, 2024, the Company voluntarily prepaid $13.5 million of the outstanding principal balance under the Short-Term Loan Agreement, so that as of September 30, 2024, the outstanding principal balance under the Short-Term Loan Agreement was $6.0 million. The debt discount originally recorded as a result of the allocation of the net proceeds between the Short-Term Loan and the Loan Warrants of $3.3 million was fully amortized to interest expense during the months ended September 30, 2024. As a result, the amount recorded in the Condensed Consolidated Balance Sheets as of September 30, 2024 is solely comprised of the principal balance outstanding.
2025 Convertible Notes
In 2020, the Company completed both a registered public offering and a privately negotiated exchange agreement that resulted in the issuance of the 2025 Convertible Notes. After taking into account exchanges and redemptions occurring in prior periods, the outstanding principal balance of the 2025 Convertible Notes was $106.8 million and $161.9 million as of September 30, 2024 and December 31, 2023, respectively.
The 2025 Convertible Notes were issued under an indenture, dated May 12, 2020 (the “Base Indenture”), between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”), as supplemented by the first supplemental indenture, dated May 12, 2020 (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between the Company and the Trustee.
The 2025 Convertible Notes will mature on May 1, 2025, unless earlier repurchased, redeemed or converted. The 2025 Convertible Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 3.25%, payable semi-annually in arrears on May 1 and November 1 of each year.
Holders of the 2025 Convertible Notes may convert the 2025 Convertible Notes into shares of the Company’s common stock (together with cash in lieu of any fractional share), at their option, at any time until the close of business on the scheduled trading day immediately before the maturity date. Upon conversion of the 2025 Convertible Notes, the Company will deliver for each $1,000 principal amount of 2025 Convertible Notes converted a number of shares of the Company’s common stock (together with cash in lieu of any fractional share), equal to the conversion rate.
As of September 30, 2024, the conversion rate for the 2025 Convertible Notes is 7.92896 shares of common stock per $1,000 principal amount of 2025 Convertible Notes, which represents a conversion price of approximately $126.12 per share, and is subject to adjustment upon the occurrence of certain events, including, but not limited to, certain stock dividends, splits and combinations, the issuance of certain rights, options or warrants to holders of the common stock, certain distributions of assets, debt securities, capital stock or other property to holders of the common stock, cash dividends on the common stock and certain Company tender or exchange offers.
If a fundamental change (as defined in the Indenture) occurs at any time prior to the maturity date, then the noteholders may require the Company to repurchase their 2025 Convertible Notes at a cash repurchase price equal to the principal amount of the 2025 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.If a make-whole fundamental change (as defined in the Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time.
The 2025 Convertible Notes are be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after May 6, 2023 through the last scheduled trading day before the maturity date, at a cash redemption price equal to the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, as long as the last reported sale price per share of the common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice.
17
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Indenture contains customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee, by notice to the Company, or the holders of the 2025 Convertible Notes representing at least 25% in aggregate principal amount of the outstanding 2025 Convertible Notes, by notice to the Company and the Trustee, may declare 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 2025 Convertible Notes to be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 2025 Convertible Notes will automatically become immediately due and payable. Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will, for the first 360 days after such event of default, consist exclusively of the right to receive additional interest on the 2025 Convertible Notes.
Interest make-whole payment
The 2025 Convertible Notes also include an interest make-whole payment feature whereby if the last reported sale price of the Company’s common stock for each of the five trading days immediately preceding a conversion date is greater than or equal to $105.10, the Company will, in addition to the other consideration payable or deliverable in connection with such conversion, make an interest make-whole payment to the converting holder equal to the sum of the present values of the scheduled payments of interest that would have been made on the 2025 Convertible Notes to be converted had such notes remained outstanding from the conversion date through the earlier of (i) the date that is three years after the conversion date and (ii) the maturity date. The present values will be computed using a discount rate equal to 1%. The Company will satisfy its obligation to pay the interest make-whole payment, at its election, in cash or shares of common stock (together with cash in lieu of fractional shares).The Company has determined that this feature is an embedded derivative and has recognized the fair value of this derivative as a liability in the consolidated balance sheets, with subsequent changes to fair value to be recorded at each reporting period on the consolidated statement of operations in other income, net. See Note 4 – Fair Value Measurements, for more information on this derivative liability.
2025 Convertible Note Repurchases and Exchanges
On May 24, 2024, the Company entered into a repurchase agreement with a single holder of the 2025 Convertible Notes, resulting in the settlement of $3.0 million of outstanding principal at a purchase price of 55% of par. The repurchase price was equal to the aggregate principal amount at 55% of par, plus accrued and unpaid interest up to, but excluding, the repurchase date. The total repurchase payment was $1.7 million. The repurchase resulted in a gain of $1.3 million, net of costs incurred directly with executing the transaction, recorded within gain (loss) on debt restructurings, net in the nine months ended September 30, 2024 on the condensed consolidated statement of operations.
On June 28, 2024, the Company agreed to purchase, for cash, all of the $45.9 million in face value of the 2025 Convertible Notes held by Highbridge, then the second largest noteholder, at a discount of 30% to face value. This transaction closed in July 2024 and resulted in a gain of $13.4 million recorded within gain (loss) on debt restructurings, net in the nine months ended September 30, 2024 on the condensed consolidated statement of operations.
On July 18, 2024, the Company entered into an agreement with a holder of approximately $4.7 million in principal amount of the 2025 Convertible Notes, pursuant to which the Company repurchased the holder’s 2025 Convertible Notes in exchange for approximately 0.3 million shares of the Company’s Common Stock and warrants to purchase an aggregate of approximately 0.2 million shares of the Company’s Common Stock, plus accrued interest. See Note 8 – Stockholders' Equity (Deficit) for further details regarding these warrants.
On August 2, 2024, the Company entered into an agreement with two related holders of approximately $1.5 million in principal amount of the 2025 Convertible Notes, pursuant to which the Company repurchased the holders’ 2025 Convertible Notes in exchange for approximately 0.1 million shares of the Company’s common stock and warrants to purchase an aggregate of approximately 0.1 million shares of the Company’s common stock. See Note 8 – Stockholders' Equity (Deficit) for further details regarding these warrants.
As a result of the July 18 and August 2, 2024 repurchases, the Company recorded a loss of $1.0 million within gain (loss) on debt restructurings, net in the three and nine months ended September 30, 2024 on the condensed consolidated statement of operations
As of September 30, 2024 and December 31, 2023, $106.8 million and $161.9 million of principal amount of the 2025 Convertible Notes was outstanding, respectively, $80.4 million of which was held by related parties.
18
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The 2025 Convertible Notes consist of the following (in thousands):
September 30, 2024
December 31, 2023
Principal
$
106,824
$
161,898
Add: fair value of embedded derivative
—
$
—
Less: unamortized debt discount
(320)
$
(1,106)
Less: unamortized issuance costs
(254)
$
(880)
Net carrying amount
$
106,250
$
159,912
The effective interest rate of the liability component of the 2025 Convertible Notes was 4.17% and 4.23% for the three months ended September 30, 2024 and 2023, respectively, and 4.17% and 4.27% for the nine months ended September 30, 2024 and 2023, respectively.
The following table sets forth total interest expense recognized related to the 2025 Convertible Notes (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Contractual interest expense
$
879
$
1,315
$
3,499
$
3,946
Amortization of debt discount
$
138
$
207
550
621
Amortization of debt issuance costs
$
110
$
165
438
494
Total interest expense
$
1,127
$
1,687
$
4,487
$
5,061
The contractual interest expense on the 2025 Convertible Notes recorded within interest expense, net on the consolidated statements of operations attributable to related parties was $0.7 million in the three months ended September 30, 2024 and 2023 and $2.0 million in the nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, accrued interest due to related parties of $1.1 million and $0.4 million was included within accrued expenses and other current liabilities on the condensed consolidated balance sheets, respectively.
Asset-backed Revolving Credit Facility
In August 2022, the Company entered into a Loan and Security Agreement (as subsequently amended, the “Credit Agreement”), by and among Siena Lending Group LLC, as lender (“Lender”), Inseego Wireless, Inc., a Delaware corporation (“Inseego Wireless”), a subsidiary of the Company, and Inseego North America LLC, an Oregon limited liability company and indirect subsidiary of the Company, as borrowers (together with Inseego Wireless, the “Borrowers”), and the Company, as guarantor (together with the Borrowers, the “Credit Facility Parties”).
The Credit Agreement established a secured asset-backed revolving credit facility which was comprised of a maximum $50 million revolving credit facility (“Credit Facility”), with a minimum borrowing amount for interest calculations of $4.5 million upon execution of the Credit Agreement. Availability under the Credit Facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. Outstanding amounts exceeding the borrowing base were to be repaid immediately. The Borrowers’ obligations under the Credit Agreement were guaranteed by the Company. The Credit Facility Parties’ obligations under the Credit Agreement were secured by a continuing security interest in all property of each Credit Facility Party, subject to certain Excluded Collateral (as defined in the Credit Agreement).
19
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
On May 2, 2023, (1) two related parties, South Ocean Funding, LLC and North Sound Ventures, LP (collectively, the “Credit Facility Participants”) collectively purchased a $4.0 million last-out subordinated participation interest in the Credit Agreement (the “Credit Facility Participation Interest”) from the Lender, and (2) the Borrowers entered into an amendment to the Credit Agreement which increased the borrowing base under the Credit Facility by $4.0 million, increased the minimum borrowing amount for interest calculations to $8.5 million, and modified certain covenants. In connection with the purchase of the Credit Facility Participation Interest, we agreed to pay the Credit Facility Participants an aggregate exit fee (the “Exit Fee”) ranging from 7.5% to 12.5% of the amount of the Credit Facility Participation Interest, payable upon the earlier to occur of (a) the maturity date of the Credit Facility, (b) termination of the Lender’s commitment to make revolving loans prior to the scheduled maturity date of the Credit Facility, and (c) the early redemption of the Credit Facility Participation Interest, as applicable. Further, the purchase of the Credit Facility Participation Interest granted an option for the Credit Facility Participants to purchase the subject revolving loan or to redeem its Credit Facility Participation Interest under certain circumstances. The Credit Facility Participants are each affiliates of beneficial holders of greater than five percent of our outstanding common stock.
Effective April 18, 2024, the Company exercised its right to voluntarily pay-off and terminate the Credit Facility. As a result of the termination, the Company paid the outstanding balance and related termination fees on the Credit Facility of approximately $3.0 million. The Company also paid the Exit Fee in the aggregate amount of $0.4 million to the Credit Facility Participants. South Ocean Funding, LLC is an affiliate of Golden Harbor, Ltd. and North Sound Ventures, LP is an affiliate of North Sound Management, Inc. As of April 18, 2024, each of Golden Harbor, Ltd. and North Sound Management, Inc. were beneficial owners of in excess of 5% of the Company’s outstanding common stock. As a result of the voluntary pay-off, the Company recorded a loss on extinguishment of debt of $0.8 million within other (expense) income, net on the condensed consolidated statements of operations during the nine months ended September 30, 2024.
The effective interest rate of the average outstanding balance for the Credit Facility was 36.1%, which includes 8.3% related to amortization of original issuance costs, and 58.7%, which includes 27.3% related to amortization of original issuance costs, for the nine months ended September 30, 2024 and 2023, respectively. The following table sets forth total interest expense recognized related to the Credit Facility (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Contractual interest expense
$
—
$
587
$
312
$
810
Amortization of debt issuance costs
—
472
117
705
Total interest expense
$
—
$
1,059
$
429
$
1,515
Note 6. Share-based Compensation
During the three and nine months ended September 30, 2024 and 2023, the Company granted awards under the 2018 Omnibus Incentive Compensation Plan, previously named the Amended and Restated 2009 Omnibus Incentive Compensation Plan (the “2018 Plan”), and the 2015 Incentive Compensation Plan (the “2015 Plan”). The Compensation Committee of the Board of Directors administers the plans. Under the 2018 Plan, shares of common stock may be issued upon the exercise of stock options, in the form of restricted stock, or in settlement of restricted stock units (“RSUs”) or other awards, including awards with alternative vesting schedules such as performance-based criteria.
The following table presents total share-based compensation expense within each functional line item on the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Cost of revenues
$
23
$
213
$
75
$
580
Research and development
196
598
437
1,288
Sales and marketing
103
315
314
901
General and administrative
871
997
1,888
2,870
Income from discontinued operations, net of tax
36
144
101
391
Total
$
1,229
$
2,267
$
2,815
$
6,030
20
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Stock Options
The Compensation Committee of the Board of Directors determines eligibility, vesting schedules and exercise prices for stock options granted. The Company generally uses the Black-Scholes option pricing model to estimate the fair value of its stock options. For performance stock awards subject to market-based vesting conditions, fair values are determined using the Monte-Carlo simulation model. Stock options generally have a term of ten years and vest over a three to four-year period.
The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2024:
Outstanding — December 31, 2023
545,872
Granted
44,250
Exercised
(333)
Canceled
(271,438)
Outstanding — September 30, 2024
318,351
Exercisable — September 30, 2024
196,498
At September 30, 2024, total unrecognized compensation expense related to stock options was $0.5 million, which is expected to be recognized over a weighted-average period of 3.16 years.
Restricted Stock Units
Pursuant to the 2018 Plan and the 2015 Plan, the Company may issue RSUs that, upon satisfaction of vesting conditions, allow recipients to receive common stock. Issuances of such awards reduce common stock available under the 2018 Plan and 2015 Plan for stock incentive awards. The Company measures compensation cost associated with grants of RSUs at fair value, which is generally the closing price of the Company’s stock on the date of grant. RSUs generally vest over a three- to four-year period.
The following table summarizes the Company’s RSU activity for the nine months ended September 30, 2024:
Non-vested — December 31, 2023
203,008
Granted
1,105,362
Vested
(154,983)
Forfeited
(14,749)
Non-vested — September 30, 2024
1,138,638
At September 30, 2024, total unrecognized compensation expense related to RSUs was $7.8 million, which is expected to be recognized over a weighted-average period of 3.41 years.
Note 7. Earnings (Loss) per Share
Basic earnings (loss) per share (“EPS”) excludes dilution and is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Potentially dilutive securities (consisting primarily of the 2025 Convertible Notes calculated using the if-converted method and warrants, stock options and RSUs calculated using the treasury stock method) are excluded from the diluted EPS computation in loss periods and when their effect would be anti-dilutive.
21
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The calculation of basic and diluted earnings per share was as follows (in thousands, except per share data):
Income/(Loss) (Numerator)
Shares* (Denominator)
Per-Share Amount
For the three months ended September 30, 2024
Basic EPS
Income (Loss) from continuing operations
$
7,543
Less: preferred stock dividends
(827)
Income (loss) from continuing operations attributable to common stockholders
6,716
12,337
$
0.54
Income from discontinued operations, net of tax
1,426
12,337
$
0.12
Income (loss) attributable to common stockholders
$
8,142
12,337
$
0.66
Diluted EPS
Income (loss) from continuing operations attributable to common stockholders
$
6,716
12,337
Effect of dilutive 2025 Convertible Notes
(8,879)
882
Diluted EPS from continuing operations
$
(2,163)
13,218
$
(0.16)
Income from discontinued operations, net of tax
$
1,426
12,337
Effect of dilutive 2025 Convertible Notes
882
Diluted EPS from discontinued operations
$
1,426
13,218
$
0.11
Income (loss) attributable to common stockholders
$
8,142
12,337
Effect of dilutive 2025 Convertible Notes
(8,879)
882
Diluted EPS from net income
$
(737)
13,218
$
(0.06)
For the three months ended September 30, 2023
Basic and Diluted EPS
Income (Loss) from continuing operations
$
(22,025)
Less: preferred stock dividends
(756)
Income (loss) from continuing operations attributable to common stockholders
(22,781)
11,697
$
(1.95)
Income from discontinued operations, net of tax
220
11,697
$
0.02
Income (loss) attributable to common stockholders
$
(22,561)
11,697
$
(1.93)
For the nine months ended September 30, 2024
Basic and Diluted EPS
Income (Loss) from continuing operations
$
2,106
Less: preferred stock dividends
(2,425)
Income (loss) from continuing operations attributable to common stockholders
(319)
12,037
$
(0.03)
Income from discontinued operations, net of tax
3,032
12,037
$
0.25
Income (loss) attributable to common stockholders
$
2,713
12,037
$
0.23
For the nine months ended September 30, 2023
Basic and Diluted EPS
Income (Loss) from continuing operations
$
(35,109)
Less: preferred stock dividends
(2,218)
Income (loss) from continuing operations attributable to common stockholders
(37,327)
11,225
$
(3.33)
Income from discontinued operations, net of tax
3,263
11,225
$
0.29
Income (loss) attributable to common stockholders
$
(34,064)
11,225
$
(3.03)
(*) Adjusted retroactively for reverse stock split that occurred on January 24, 2024, see Note 1.Rounding may affect summation.
The following is a summary of outstanding anti-dilutive potential shares of common stock that have been excluded from diluted net loss per share attributable to common stockholders because their inclusion would have been anti-dilutive as of September 30, 2024 and 2023 (in thousands):
22
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of September 30,
2024
2023
2025 Convertible Notes*
847
1,409
Common stock warrants
875
—
Non-qualified stock options
318
732
Restricted stock units
1,139
433
Employee stock purchase plan
—
610
Total
3,179
3,184
(*) The impact of the 2025 Convertible Notes was included in the computation of diluted EPS for the three months ended September 30, 2024 as it was dilutive for the period.
Additional shares of the Company’s common stock, and warrants to purchase shares of the Company’s common stock, were issued after September 30, 2024. See Note 12. Subsequent Events for further details.
Note 8. Stockholders' Equity (Deficit)
Loan Warrants
As noted in Note 5 – Debt, on June 28, 2024 in connection with the Short-Term Loan Agreement, the Company agreed to issue to the Lender and the Participating Lenders Loan Warrants to purchase an aggregate of 550,000 shares of the Company’s Common Stock. The Loan Warrants have an exercise price of $12.12 per share of Common Stock, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions. The Loan Warrants will expire on June 28, 2028, are exercisable on a cash basis, and contain customary registration rights with respect to the shares of Common Stock issuable upon exercise of the Loan Warrants. As of September 30, 2024, none of the Loan Warrants have been exercised.
The proceeds from the Short-Term Loan Agreement, along with the related Loan Costs incurred, were allocated to the Loan Warrants and Short-Term Loan based on their relative fair values. This allocation resulted in the Warrants having a net value of $3.2 million that the Company recorded within Additional Paid-In Capital within the Company’s Condensed Consolidated Statements of Stockholders’ Deficit.
2025 Convertible Note Repurchases
As discussed in Note 5 – Debt, on July 18, 2024, the Company entered into an agreement with a holder of approximately $4.7 million in principal amount of the 2025 Convertible Notes, pursuant to which the Company repurchased the holder’s 2025 Convertible Notes in exchange for approximately 0.3 million shares of the Company’s common stock and warrants to purchase an aggregate of approximately 0.2 million shares of the Company’s common stock, plus accrued interest. The warrants have an exercise price of $13.37, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions.
As discussed in Note 5 – Debt, on August 2, 2024, the Company entered into an agreement with two related holders of approximately $1.5 million in principal amount of the 2025 Convertible Notes, pursuant to which the Company repurchased the holders’ 2025 Convertible Notes in exchange for approximately 0.1 million shares of the Company’s common stock and warrants to purchase an aggregate of approximately 0.1 million shares of the Company’s common stock, plus accrued interest. The warrants have an exercise price of $11.03, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions.
These warrants expire four years from their dates of issuance, are exercisable on a cash basis and are otherwise in substantially the same form as the Loan Warrants. The Company granted the holder customary registration rights with respect to the common shares and the shares of common stock issuable upon exercise of the warrants. As of September 30, 2024, none of these warrants have been exercised.
Public Equity Offering
In January 2021, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which the Company could offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of its common stock (the “ATM Offering”). The Company did not sell any shares under the ATM Offering during the three months ended September 30, 2023. During the nine months ended September 30, 2023 the Company sold 803,596shares of common stock, at an average price of $7.54 per share, for net proceeds of $6.1 million, after deducting underwriter fees and discounts. Effective as of November 2, 2023, the Equity Distribution Agreement was terminated by the Company, and there will be no further sales under the ATM Offering.
23
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Preferred Stock
The Company has a total of 2,000,000 shares of preferred stock authorized for issuance at a par value of $0.001 per share, 150,000 of which have been designated Series D Preferred Stock and 39,500 of which have been designated Series E Preferred Stock. As of September 30, 2024 and December 31, 2023, the Company had 25,000 shares of Series E preferred stock issued and outstanding.
Note 9. Geographic Information and Concentrations of Risk
Geographic Information
The following table details the Company’s revenues by geographic region based on shipping destination (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
United States and Canada
$
51,072
$
40,181
$
137,356
$
129,458
Europe (including United Kingdom)
$
2,866
$
1,172
4,243
1,242
Other
$
94
$
4
1,558
667
Total
$
54,032
$
41,357
$
143,157
$
131,367
Concentrations of Credit Risk
For the three months ended September 30, 2024, two customers accounted for 38.6% and 36.7% of revenues, respectively. For the three months ended September 30, 2023, two customers accounted for 41.3% and 34.8% of revenues, respectively.
For the nine months ended September 30, 2024, two customers accounted for 43.3% and 31.9% of revenues, respectively. For the nine months ended September 30, 2023, two customers accounted for 36.8% and 33.5%, respectively, of revenues.
As of September 30, 2024, three customers accounted for 42.4%, 24.0%, and 20.9% of accounts receivable, net, respectively. As of December 31, 2023, two customers accounted for 51.9% and 12.7% of accounts receivable, net, respectively.
Note 10. Commitments and Contingencies
Noncancellable Purchase Obligations
The Company typically enters into commitments with its contract manufacturers that require future purchases of goods or services in the three to four quarters following the balance sheet date. Such commitments are noncancellable (“noncancellable purchase obligations”). As of September 30, 2024, future payments under these noncancellable purchase obligations were approximately $64.3 million.
Legal
The Company is, from time to time, party to various legal proceedings arising in the ordinary course of business. The Company is regularly required to directly or indirectly participate in other U.S. patent infringement actions pursuant to its contractual indemnification obligations to certain customers. Based on an evaluation of these matters the Company currently believes that liabilities arising from, or sums paid in settlement of these existing matters, if any, would not have a material adverse effect on its consolidated results of operations or financial condition.
Indemnification
In the normal course of business, the Company periodically enters into agreements that require the Company to indemnify and defend its customers for, among other things, claims alleging that the Company’s products infringe upon third-party patents or other intellectual property rights. The Company’s maximum exposure under these indemnification provisions cannot be estimated but the Company does not believe that there are any matters individually or collectively that would have a material adverse effect on its consolidated results of operations or financial condition.
Note 11. Income Taxes
Income taxes for both periods consisted primarily of foreign income taxes at certain of the Company’s international entities and state taxes for its U.S.-based entities. The Company’s income tax expense differs from the expected expense based
24
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
on statutory rates primarily due to full valuation allowances at all of its U.S.-based entities. The increase in the Company’s income tax provision for the nine months ended September 30, 2024 compared to the same period in 2023, was driven primarily by U.S. state taxes in states which have either chosen to temporarily suspend the use of net operating losses or have franchise taxes calculated on modified gross profit.
Note 12.Subsequent Events
Subsequently Completed Repurchases and Exchanges
As discussed in Note 1 – Nature of Business and Significant Accounting Policies above, on November 6, 2024 the Company completed the previously-announced private exchanges of $91.5 million in aggregate principal amount of the 2025 Convertible Notes held by certain holders of the 2025 Convertible Notes pursuant to binding term sheets that were previously entered into with such holders, including the binding term sheets entered into on June 28, 2024 with North Sound Partners and Golden Harbor Ltd. In connection with the Subsequently Completed Repurchases and Exchanges, the Company issued to these noteholders in concurrent private placement transactions an aggregate of (i) approximately 2.4 million shares of the Company’s Common Stock, (ii) approximately $40.9 million in principal amount of New Senior Secured Notes, and (iii) warrants to purchase an aggregate of approximately 2.1 million shares of the Company’s Common Stock.
The New Senior Secured Notes bear interest at 9.0% per annum, to be paid in cash, in arrears, and on a semi-annual basis, and will have a maturity date of May 1, 2029. The New Notes are secured by a first priority lien on substantially all of Company’s assets.
The warrants have exercise prices ranging from $11.27 to $15.77 per share of Common Stock, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions. The warrants expire four years from the date of issuance and will be exercisable on a cash basis.
Affiliates of two of the noteholders involved in the Subsequently Completed Repurchases and Exchanges - Golden Harbor Ltd. and North Sound Partners - may be deemed to beneficially own more than 5% of the Company’s outstanding Common Stock. James B. Avery, a member of the Company’s Board of Directors, currently serves as Senior Managing Director of Tavistock Group, an affiliate of Golden Harbor Ltd.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements. These forward-looking statements include, without limitation, statements that reflect the views of our senior management with respect to our current expectations, assumptions, estimates and projections about Inseego Corp. (the “Company” or “Inseego”) and our industry. These forward-looking statements speak only as of the date of this report. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Statements that include the words “may,” “could,” “should,” “would,” “estimate,” “anticipate,” “believe,” “expect,” “preliminary,” “intend,” “plan,” “project,” “outlook,” “will” and similar words and phrases identify forward-looking statements (although not all forward-looking statements contain these words). Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified; therefore, our actual results may differ materially from those anticipated in these forward-looking statements as of the date of this report. We believe that these factors include those related to:
•our ability to make payments on or to refinance our indebtedness;
•the satisfaction of the conditions precedent to the sale of our fleet management and telematics solutions business (the “Telematics Business”);
•our dependence on a small number of customers for a substantial portion of our revenues;
•our ability to compete in the market for wireless broadband data access products, wireless modem products, and telematics products and services;
•our ability to successfully develop and introduce new products and services;
•the pace of 5G wireless network rollouts globally and their adoption by customers;
•our dependence on wireless telecommunication operators delivering acceptable wireless services
•our ability to meet the price and performance standards of the evolving 5G New Radio (“5G NR”) products and technologies;
•our ability to develop sales channels and to onboard channel partners;
•our relationships with and the performance of our channel partners;
•our ability to introduce and sell new products that comply with current and evolving industry standards and government regulations;
•our ability to develop and maintain strategic relationships to expand into new markets;
•our ability to properly manage the growth of our business to avoid significant strains on our management and operations and disruptions to our business;
•our reliance on third parties to manufacture our products;
•our contract manufacturers’ ability to secure necessary supply to build our devices;
•increases in costs, disruption of supply and/or the shortage of semiconductors or other key components of our products;
•our ability to accurately forecast customer demand and order the manufacture and timely delivery of sufficient product quantities;
•our reliance on sole source suppliers for some products and devices used in our solutions;
•our ability to be cost competitive while meeting time-to-market requirements for our customers;
•our ability to meet the product performance needs of our customers in mobile broadband and fixed wireless access markets;
•demand for fleet, vehicle and asset management software-as-a-service (“SaaS”) telematics solutions;
26
•our ability to make successful investments in research and development;
•the outcome of any pending or future litigation, including intellectual property litigation;
•infringement claims with respect to intellectual property contained in our solutions;
•our continued ability to license necessary third-party technology for the development and sale of our solutions;
•the introduction of new products that could contain errors or defects;
•conducting business abroad, including foreign currency risks;
•our ability to hire, retain and manage qualified personnel to maintain and expand our business.
•our ability to mitigate the impact of tariffs or other government-imposed sanctions;
•the impact of high rates of inflation and rising interest rates;
•the continuing impact of uncertain global economic conditions on the demand for our products; and
•the impact of geopolitical instability on our business.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A. Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. As used in this report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “Inseego” refer to Inseego Corp., a Delaware corporation, and its wholly-owned subsidiaries.
Trademarks
“Inseego”, “Inseego Subscribe”, “Inseego Manage”, “Inseego Secure”, “Inseego Vision”, the Inseego logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, ”Wavemaker”, “Clarity”, and “Skyus” are trademarks or registered trademarks of Inseego and its subsidiaries. Other trademarks, trade names or service marks used in this report are the property of their respective owners.
27
The following information should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this report, as well as the annual consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2023, contained in our Form 10-K.
Business Overview
Inseego Corp. is a leader in the design and development of cloud-managed wireless broadband and intelligent edge solutions. Our 4G and 5G wireless broadband portfolio is comprised of secure and high-performance mobile broadband and fixed wireless access (“FWA”) solutions with associated cloud solutions for real time WAN visibility, monitoring, automation and control with centralized orchestration of network functions. These solutions are specifically built for the enterprise and small and medium business (“SMB”) market segments with a focus on performance, scalability, quality and enterprise grade security. Our telematics solutions are designed to improve business outcomes for enterprise and SMB market segments (see “Recent Developments” below). We also provide a wireless subscriber management SaaS solution for carriers to manage their government and complex enterprise customer subscriptions.
Our 5G products and associated cloud solutions are designed and developed in the U.S. and are used in mission-critical applications requiring the highest levels of security and zero unscheduled downtime. These solutions support applications such as business broadband for both mobile and fixed use cases, enterprise networking and software-defined wide area network (“SD-WAN”) failover management.
Inseego is at the forefront of providing high speed broadband through state-of-the-art 4G and 5G solutions to keep enterprise and SMB customers seamlessly connected. With multiple first-to-market innovations through several generations of 4G and 5G technologies, Inseego has been advancing wireless WAN technology and driving industry transformations for over 30 years. Our products currently operate on all major cellular networks in the US. Our mobile hotspots, sold under the MiFi ™ brand, have been sold to millions of end users and provide secure and convenient high-speed broadband access to the Internet on the go.
Recent Developments
On September 16, 2024, the Company and its subsidiary Inseego SA (Pty) Ltd (“Seller”) entered into a Share Purchase Agreement (the “Purchase Agreement”) with Light Sabre SPV Limited (which subsequently novated its benefits and obligations under the Purchase Agreement to Ctrack Holdings (the “Purchaser”)), pursuant to which Inseego agreed to sell to the Purchaser the entire issued share capital of the Company’s Inseego International Holdings Limited subsidiary in exchange for approximately $52 million in cash, subject to certain adjustments. Upon completion of the sale (the “Completion Date”), the Purchaser will acquire the Telematics Business, which has operations in the United Kingdom, the European Union, Australia and New Zealand.
The Purchase Agreement is subject to closing conditions including, among others more fully described in the Purchase Agreement, Purchaser finalizing financing arrangements to fund the purchase price. Unless fulfilled or otherwise waived by the parties, if any of the closing conditions are not fulfilled by December 31, 2024, the Purchase Agreement shall be terminated and the Sale Transaction shall not be completed.
The Company’s decision to divest its Telematics Business was based on a review of the strategic fit of the business with the Company’s North American-centric 5G wireless solutions business and the Company’s previously stated goal to continue to significantly de-leverage its capital structure. The sale of the telematics operations further supports the Company’s streamlining of its focus and resources on the strongest growth opportunities around its core product offerings.
The assets and liabilities of the Telematics Business have been classified as held for sale within the Condensed Consolidated Balance Sheet and its operations have been classified as discontinued operations within the Condensed Consolidated Statements of Operations and Comprehensive Income for all periods presented herein. Refer to Note 2 – Discontinued Operations and Held for Sale included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion regarding the planned divestiture.
Our Sources of Revenue
We classify our revenues from the sale of our products and services into two categories: Product Revenue, which consists of our Mobile Solutions and Fixed Wireless Access Solutions, and Services and Other. A description of each of the revenue classifications is as follows:
Mobile solutions: Our mobile broadband solutions, sold under the MiFi brand, are actively used by millions of end users to provide secure and convenient high-speed access to corporate, public and personal information through the Internet and enterprise networks. Our Mobile Solutions portfolio also includes 4G VoLTE products and 4G USB modems. Our mobile portfolio is supported by our cloud offerings - Inseego Connect for device management, and 5G
28
SD EDGE for secure networking enabling corporate managed mobile remote workforce, whose revenues are included in Services and other below. Our Mobile Solutions customer base is primarily comprised of mobile operators. These mobile operators include Verizon Wireless, T-Mobile and U.S. Cellular in the United States, Rogers and Telus in Canada, Telstra in Australia, as well as other international wireless operators, distributors and various companies in other vertical markets and geographies.
Fixed wireless access solutions: Our fixed wireless access solutions are deployed by enterprise and SMB customers for their distributed sites and employees as a fully secure and corporate managed wireless WWAN solution. The portfolio consists of indoor, outdoor and industrial routers and gateways supported by our cloud offerings – Inseego Connect for device management and 5G SD Edge for secure cloud networking. Revenues related to our cloud offerings of Inseego Connect and SD Edge are included within Services and other below. These solutions, sold under the Wavemaker and Skyus brands, are sold by mobile operators such as T-Mobile, U.S. Cellular and Verizon Wireless along with distribution and channel partners.
Services and other: We sell certain other types of SaaS solutions. We provide a SaaS wireless subscriber management solution (Inseego Subscribe) for carrier’s management of their government and complex enterprise customer subscriptions. We also categorize non-recurring engineering services we provide to our customers as Service and other revenue.
Business Segment Reporting
We operate as one business segment. Our principal executive officer, who is also our Chief Operating Decision Maker, evaluates the business as a single entity and reviews financial information and makes business decisions based on the overall results of the business. As such, our operations constitute a single operating segment and one reportable segment.
Financial Statement Presentation
During the fourth quarter of 2023 the Company reclassified revenues in order to align with how management reviews revenue results. Historically, the Company classified revenues from products and services into two categories, IoT & Mobile Solutions and Enterprise SaaS Solutions. The Company is now classifying revenues into the following two categories: Product Revenue, which consists of our Mobile Solutions and Fixed Wireless Access Solutions, and Services and Other.
Additionally, during 2023 the Company reclassified all depreciation and amortization expense previously recorded in the operating expense line items of research and development, sales and marketing, and general and administrative expenses into a separate line labeled Depreciation and amortization. All prior periods have been reclassified to conform to the current period presentation for these changes.
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions.
There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates discussed in the Form 10-K.
29
Results of Operations
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Revenues. Revenues for the three months ended September 30, 2024 were $54.0 million, compared to $41.4 million for the same period in 2023.
The following table summarizes revenues by our two product categories (in thousands):
Three Months Ended September 30,
Change
Product Category
2024
2023
$
%
Mobile solutions
$
32,282
$
22,534
$
9,748
43.3
%
Fixed wireless access solutions
9,723
11,114
(1,391)
(12.5)
Product
42,005
33,648
8,357
24.8
Services and other
12,027
7,709
4,318
56.0
Total revenues
$
54,032
$
41,357
$
12,675
30.6
Mobile solutions. The $9.7 million increase in mobile solutions revenues is primarily due to increased sales of our higher margin premium 5G MiFi at multiple carriers, including a promotional offer at one of our carrier partners.
Fixed wireless access solutions. The $1.4 million decrease in fixed wireless access solutions revenues is primarily due to decreased sales with one of our carrier partners, partially offset by sales from our channel program, that began in 2024, as initiatives in that space are beginning to drive revenue.
Services and other The $4.3 million increase in services and other revenues is primarily due to increased Inseego Subscribe revenues related to the terms of a two-year service contract renewal with a major customer that was executed in April 2024.
Cost of revenues. Cost of revenues for the three months ended September 30, 2024 was $35.2 million, or 65.2% of revenues, compared to $43.5 million, or 105.2% of revenues, for the same period in 2023.
The following table summarizes cost of revenues by category (in thousands):
Three Months Ended September 30,
Change
Product Category
2024
2023
$
%
Product
$
33,592
$
42,788
$
(9,196)
(21.5)
%
Services and other
1,640
734
906
123.4
Total cost of revenues
$
35,232
$
43,522
$
(8,290)
(19.0)
Product. The $9.2 million decrease in product cost of revenues is primarily due to significant inventory reserves and related charges of $14.4 million recorded in the three months ended September 30, 2023, partially offset by the impact of increased product revenues.
Services and other. The $0.9 million increase in services and other cost of revenues is primarily due to increased Inseego Subscribe revenues and the related increase in costs incurred to provide these services.
Gross profit. Gross profit for the three months ended September 30, 2024 was $18.8 million, or a gross margin of 34.8%, compared to a loss of $2.2 million, or a gross margin of (5.2)%, for the same period in 2023. The increase in gross profit is primarily due to significant inventory reserves recorded in the three months ended September 30, 2023 and higher revenues in the three months ended September 30, 2024. The increase in gross profit margin is primarily due to the inventory reserves recorded in the three months ended September 30, 2023 and a larger proportion of higher margin service revenues as a percentage of total revenues and increased margins on the Company’s premium 5G MiFi offerings in the current year in comparison to the lower margin products offered in the prior year.
Operating costs and expenses. The following table summarizes operating costs and expenses (in thousands):
30
Three Months Ended September 30,
Change
Operating costs and expenses
2024
2023
$
%
Research and development
$
5,176
$
5,200
$
(24)
(0.5)
%
Sales and marketing
4,125
3,893
232
6.0
General and administrative
4,822
3,429
1,393
40.6
Depreciation and amortization
3,154
3,848
(694)
(18.0)
Impairment of capitalized software
507
611
(104)
(17.0)
Total
$
17,784
$
16,981
$
803
4.7
Research and development expenses. Research and development expenses for the three months ended September 30, 2024 were $5.2 million, or 9.6% of revenues, compared to $5.2 million, or 12.6% of revenues, for the same period in 2023. The decrease in research and development expenses was primarily due to lower research and development personnel-related costs as a result of a decrease in overall research and development headcount, partially offset by increased annual incentive bonus accruals for current year performance.
Sales and marketing expenses. Sales and marketing expenses for the three months ended September 30, 2024 were $4.1 million, or 7.6% of revenues, compared to $3.9 million, or 9.4% of revenues, for the same period in 2023. The increase in sales and marketing expenses was primarily due to increased sales commissions and higher advertising and marketing costs, partially offset by lower sales personnel-related costs as a result of a decrease in overall sales headcount and a decrease in consulting and outside services in relation to cost reduction efforts.
General and administrative expenses. General and administrative expenses for the three months ended September 30, 2024 were $4.8 million, or 8.9% of revenues, compared to $3.4 million, or 8.3% of revenues, for the same period in 2023. The increase in general and administrative expense was primarily due to an increase in legal and consulting expenses related to our capital structure management efforts and planned divestiture of our Telematics Business, as well as increased annual incentive bonus accruals for current year performance, partially offset by a decreased share-based compensation.
Depreciation and amortization expenses. Depreciation and amortization expenses for the three months ended September 30, 2024 were $3.2 million, or 5.8% of revenues, compared to $3.8 million, or 9.3% of revenues, for the same period in 2023. The decrease in depreciation and amortization expenses was primarily due to lower balances of capitalized software projects and property, plant and equipment during the three months ended September 30, 2024 compared to the same period in 2023.
Impairment of capitalized software. For the three months ended September 30, 2024 and 2023, we recorded impairments of $0.5 million and $0.6 million, respectively.
Other (expense) income. The following table summarizes other (expense) income (in thousands):
Three Months Ended September 30,
Change
Other (expense) income
2024
2023
$
%
Interest expense, net
$
(5,731)
$
(2,894)
$
(2,837)
98.0
%
Gain on debt restructurings, net
12,366
—
12,366
*
Other income (expense), net
(72)
45
(117)
*
Total
$
6,563
$
(2,849)
$
9,412
*
* Percentage not meaningful
Interest expense, net. The $2.8 million increase in interest expense, net for the three months ended September 30, 2024 over the same period in 2023 was primarily a result of amortization of the debt discount and coupon interest on the Short-Term Loan (as defined below) received in June 2024, partially offset by reductions in the principal balance of the 2025 Convertible Notes (as defined below) and termination of the Company’s Credit Facility (as defined in Note 5 – Debt in the accompanying condensed consolidated financial statements) in April 2024.
Gain on debt restructurings, net The $12.4 million net gain on debt restructurings for the three months ended September 30, 2024 is a result of the Company’s various 2025 Convertible Notes restructurings entered into during 2024 as part of our overall capital structure management efforts, as described below.
Other income (expense), net. Other income (expense), net for the three months ended September 30, 2024 and 2023 was $0.1 million and $0.0 million, respectively.
31
Income from discontinued operations, net of tax. Income from discontinued operations, net of tax for the three months ended September 30, 2024 and 2023 was $1.4 million and $0.2 million, respectively. The increase was primarily due to increased sales of telematics services.
Preferred stock dividends. During the three months ended September 30, 2024 and 2023, we recorded dividends of $0.8 million and $0.8 million, respectively, on our Preferred Stock.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Revenues. Revenues for the nine months ended September 30, 2024 were $143.2 million, compared to $131.4 million for the same period in 2023.
The following table summarizes revenues by our two product categories (in thousands):
Nine Months Ended September 30,
Change
Product Category
2024
2023
$
%
Mobile solutions
$
73,431
$
64,469
$
8,962
13.9
%
Fixed wireless access solutions
37,222
42,489
(5,267)
(12.4)
Product
110,653
106,958
3,695
3.5
Services and other
32,504
24,409
8,095
33.2
Total revenues
$
143,157
$
131,367
$
11,790
9.0
Mobile solutions. The $9.0 million increase in mobile solutions revenues is primarily due to increased sales of our premium 5G MiFis with one of our carrier partners.
Fixed wireless access solutions. The $5.3 million decrease in fixed wireless access solutions revenues is primarily due to higher sales in the nine months ended September 30, 2023 relating to pre-launch sales of our indoor FWA solution in preparation for the release that occurred in the third quarter of 2023 and reduced sales of our indoor router category during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
Services and other The $8.1 million increase in services and other revenues is primarily due to increased Inseego Subscribe revenues related to the terms of a two-year service contract renewal with a major customer that was executed in April 2024.
Cost of revenues. Cost of revenues for the nine months ended September 30, 2024 was $92.3 million, or 64.5% of revenues, compared to $104.9 million, or 79.9% of revenues, for the same period in 2023.
The following table summarizes cost of revenues by category (in thousands):
Nine Months Ended September 30,
Change
Product Category
2024
2023
$
%
Product
$
86,812
$
101,375
$
(14,563)
(14.4)
%
Services and other
5,492
3,559
1,933
54.3
Total cost of revenues
$
92,304
$
104,934
$
(12,630)
(12.0)
Product. The $14.6 million decrease in Product cost of revenues is primarily due to significant inventory reserves recorded in the nine months ended September 30, 2023, partially offset partially offset by the impact of increased product revenues.
Services and other. The $1.9 million increase in Services and other cost of revenues is primarily due to increased Inseego Subscribe revenues and the related increase in costs incurred to provide said services.
Gross profit. Gross profit for the nine months ended September 30, 2024 was $50.9 million, or a gross margin of 35.5%, compared to $26.4 million, or a gross margin of 20.1%, for the same period in 2023. The increase in gross profit is primarily due to the inventory reserves recorded in the nine months ended September 30, 2023 and higher revenues in the nine months ended September 30, 2024. The increase in gross profit margin is primarily due to the inventory reserves recorded in the three months ended September 30, 2023 and a larger proportion of higher margin service revenues as a percentage of total revenues
32
and increased margins on the Company’s premium 5G MiFi offerings in the current year in comparison to the lower margin products offered in the prior year.
Operating costs and expenses. The following table summarizes operating costs and expenses (in thousands):
Nine Months Ended September 30,
Change
Operating costs and expenses
2024
2023
$
%
Research and development
$
15,032
$
14,369
$
663
4.6
%
Sales and marketing
12,176
13,703
(1,527)
(11.1)
General and administrative
12,695
12,326
369
3.0
Depreciation and amortization
10,098
13,125
(3,027)
(23.1)
Impairment of capitalized software
927
1,115
(188)
(16.9)
Total
$
50,928
$
54,638
$
(3,710)
(6.8)
Research and development expenses. Research and development expenses for the nine months ended September 30, 2024 were $15.0 million, or 10.5% of revenues, compared to $14.4 million, or 10.9% of revenues, for the same period in 2023. The increase in research and development expenses was primarily due to fewer research and development projects that were capitalizable during the nine months ended September 30, 2024, which resulted in a higher percentage of research and development costs being recorded as operating expenses, and increased annual incentive bonus accruals for current year performance, partially offset by lower personnel-related costs as a result of a decrease in overall sales headcount and a decrease in consulting and outside services in relation to cost reduction efforts.
Sales and marketing expenses. Sales and marketing expenses for the nine months ended September 30, 2024 were $12.2 million, or 8.5% of revenues, compared to $13.7 million, or 10.4% of revenues, for the same period in 2023. The decrease in sales and marketing expenses was primarily due to lower sales personnel-related costs as a result of a decrease in overall sales headcount and a decrease in consulting and outside services in relation to cost reduction efforts.
General and administrative expenses. General and administrative expenses for the nine months ended September 30, 2024 were $12.7 million, or 8.9% of revenues, compared to $12.3 million, or 9.4% of revenues, for the same period in 2023. The increase in general and administrative expense was primarily due to an increase in legal and consulting expenses related to our capital structure management efforts and planned divestiture of our Telematics Business, as well as increased annual incentive bonus accruals for current year performance, partially offset by a decrease in share-based compensation expense and temporary employment costs as part of cost reduction efforts.
Depreciation and amortization expenses. Depreciation and amortization expenses for the nine months ended September 30, 2024 were $10.1 million, or 7.1% of revenues, compared to $13.1 million, or 10.0% of revenues, for the same period in 2023. The decrease in depreciation and amortization expenses was primarily due to lower balances of capitalized software projects and property, plant and equipment during the nine months ended September 30, 2024 compared to the same period in 2023.
Impairment of capitalized software. For the nine months ended September 30, 2024 and 2023, we recorded impairments of $0.9 million and $1.1 million, respectively.
Other (expense) income. The following table summarizes other (expense) income (in thousands):
Nine Months Ended September 30,
Change
Other (expense) income
2024
2023
$
%
Interest expense, net
$
(9,686)
$
(6,910)
$
(2,776)
40.2
Loss on extinguishment of revolving credit facility
(788)
—
(788)
*
Gain on debt restructurings, net
13,690
—
13,690
*
Other income (expense), net
(864)
50
(914)
*
Total
$
2,352
$
(6,860)
$
9,212
*
* Percentage not meaningful
Interest expense, net. The $2.8 million decrease in interest expense, net for the nine months ended September 30, 2024 over the same period in 2023 was primarily a result of amortization of the debt discount and coupon interest on the Short-Term Loan (as defined below) received in June 2024, partially offset by reductions in the principal balance of the 2025 Convertible
33
Notes (as defined below) and termination of the Company’s Credit Facility (as defined in Note 5 – Debt in the accompanying condensed consolidated financial statements) in April 2024.
Loss on extinguishment of revolving credit facility The $0.8 million loss on extinguishment of revolving credit facility for the nine months ended September 30, 2024 relates to the terminations of the Company’s Credit Facility in April 2024.
Gain on debt restructurings, net The $13.7 million net gain on troubled debt restructurings for the nine months ended September 30, 2024 is a result of the Company’s various 2025 Convertible Notes restructurings entered into during 2024 as part of our overall capital structure management efforts.
Other income (expense), net. Other income (expense), net for the nine months ended September 30, 2024 and 2023 was $(0.9) million and $0.1 million, respectively.
Income tax provision. Income tax provision for the nine months ended September 30, 2024 and 2023 was a provision of $0.2 million and $0.0 million, respectively.
Income from discontinued operations, net of tax. Income from discontinued operations, net of tax for the nine months ended September 30, 2024 and 2023 was $3.0 million and $3.3 million, respectively. The decrease was primarily due to increased sales of telematics services.
Preferred stock dividends. During the nine months ended September 30, 2024 and 2023, we recorded dividends of $2.4 million and $2.2 million, respectively, on our Preferred Stock.
Reverse Stock Split
On January 24, 2024, the Company completed a 1-for-10 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each share of common stock issued and outstanding immediately prior to January 24, 2024 were automatically converted into one-tenth (1/10) of a share of common stock. The Reverse Stock Split did not change the par value of the common stock or the authorized number of shares of common stock. All outstanding convertible notes, stock options and RSUs entitling their holders to purchase or obtain or convert into shares of our common stock were adjusted, as required by the terms of these securities. All applicable common share and per share amounts have been retrospectively restated to show the effect of the reverse split.
Liquidity and Capital Resources
During 2024, the Company entered into a series of agreements, as part of its overall capital structure management, to reduce its total debt and restructure its outstanding 3.25% convertible notes due 2025 (the “2025 Convertible Notes”), some of which are summarized in Note 5 – Debt in the accompanying unaudited financial statements, as follows:
(1) Convertible Debt Repurchases and Exchanges Completed prior to September 30, 2024 (the “Completed Repurchases and Exchanges”):
(a) the Company repurchased, for cash, all of the $45.9 million principal amount of the 2025 Convertible Notes held by certain entities managed by Highbridge Capital Management, LLC (such entities, “Highbridge”), the second largest note holder as of the date of such purchase, at a discount of 30% to face value, plus accrued interest;
(b) the Company repurchased, for cash, $3.0 million in principal amount of the 2025 Convertible Notes from a separate single holder at discount of 45% to face value, plus accrued interest;
(c) the Company repurchased from a holder approximately $4.7 million in principal amount of the 2025 Convertible Notes in exchange for 349,740 shares of the Company’s Common Stock and warrants to purchase an aggregate of 236,074 shares of the Company’s Common Stock, plus accrued interest. See Note 8 – Stockholders' Equity (Deficit) in the accompanying unaudited financial statements for further details regarding these warrants;
(d) the Company repurchased from two related holders approximately $1.5 million in aggregate principal amount of the 2025 Convertible Notes in exchange for 137,533 shares of the Company’s common stock and warrants to purchase an aggregate of 88,534 shares of the Company’s common stock, plus accrued interest. See Note 8 – Stockholders' Equity (Deficit) in the accompanying unaudited financial statements for further details regarding these warrants;
34
(2) Short-Term Loan Agreement: to finance a portion of the Completed Repurchases and Exchanges, the Company agreed to a $19.5 million loan (“Short-Term Loan”) from (i) South Ocean Funding, LLC (“South Ocean”), which is an affiliate of Golden Harbor Ltd. (“Golden Harbor”), and Tavistock Financial, LLC, and (ii) certain participant lenders (the “Participating Lenders”). The Short-Term Loan was originally scheduled to mature on September 30, 2024 but maturity has subsequently been extended to November 30, 2024. Borrowings under the Short-Term Loan bear interest at 12.0% per annum. Upon any repayment or prepayment of the amounts borrowed under the Short-Term Loan (including at maturity), the Company will be required to pay an exit fee equal to 4.0% of the aggregate principal amount prepaid or repaid. See Note 5 – Debt in the accompanying condensed consolidated financial statements for further details regarding the Short-Term Loan; and
(3) Convertible Debt Repurchases and Exchanges Completed Subsequent to September 30, 2024 (the “Subsequently Completed Repurchases and Exchanges”): On November 6, 2024 the Company completed the previously-announced privately-negotiated exchanges of $91.5 million in aggregate principal amount of the 2025 Convertible Notes held by certain holders of the 2025 Convertible Notes pursuant to binding term sheets that were previously entered into with such holders, including the binding term sheets entered into on June 28, 2024 with North Sound Partners and Golden Harbor Ltd.. In connection with the Subsequently Completed Repurchases and Exchanges, the Company issued to these noteholders in concurrent private placement transactions an aggregate of (i) approximately 2.4 million shares of the Company’s Common Stock, (ii) approximately $40.9 million in principal amount of new senior secured notes due in 2029 (the “New Senior Secured Notes”), and (iii) warrants to purchase an aggregate of approximately 2.1 million shares of the Company’s Common Stock. See Part 1 Item 1 Note 12 – Subsequent Events in this Quarterly Report on Form 10-Q for further details regarding the Subsequently Completed Repurchases and Exchanges, including information about the warrants and New Senior Secured Notes issued in relation to these transactions.
As of September 30, 2024, the Company had available cash and cash equivalents totaling $12.0 million. During the three-months ended September 30, 2024, the Company voluntarily prepaid $13.5 million of the outstanding principal under the Short-Term Loan Agreement, so that on September 30, 2024, the outstanding principal under the Short-Term Loan was $6.0 million.
The 2025 Convertible Notes had a principal balance of $106.8 million as of September 30, 2024 and mature on May 1, 2025. Taking into account the Completed Repurchases and Exchanges and the Subsequently Completed Repurchases and Exchanges, the Company has subsequently repurchased and/or exchanged approximately $146.9 million, or 90.8%, of the face value of the 2025 Convertible Notes that was outstanding as of December 31, 2023.
The Company generated positive cash flow from operations both for the year ended December 31, 2023 and in the nine months ended September 30, 2024. In April 2024, the Company received a $15.0 million upfront payment from a customer in connection with a two-year service contract. Based on the factors above, and to reduce financing costs, the Company voluntarily paid-off and terminated its Credit Facility effective April 18, 2024. These factors have had a positive impact on our liquidity.
While the Company’s liquidity and financial results have had several positive developments recently, as noted above, the Company has a history of operating and net losses and overall usage of cash from operating and investing activities. The Company’s ability to maintain profitable operations and continue to generate positive cash flows is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure. In order to effect the restructuring or refinancing of the Company’s obligations, or if events or circumstances occur such that the Company does not meet its operating plan as expected, or if the Company becomes obligated to pay unforeseen expenditures, the Company may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses and capital expenditures, which could have an adverse impact on the Company’s ability to achieve its intended business objectives.
Our liquidity could be compromised if there is any interruption in our business operations, a material failure to satisfy our contractual commitments or a failure to generate revenue from new or existing products. If additional funds are raised by the issuance of equity securities, or in connection with any restructuring or refinancing of the 2025 Convertible Notes, Company stockholders could experience significant dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock.
During the previous two quarters, the Company had disclosed that there was substantial doubt about its ability to continue as a going concern within one year of the issuance dates of the quarterly reports on Form 10-Q for those quarters, primarily as a result of the outstanding balance and due date of the 2025 Convertible Notes. In performing this assessment for the current quarter, taking into account the Company’s liquidity position as a whole, including the repurchases and exchanges of 2025 Convertible Notes noted above, the liquidity anticipated to be provided from the sale of the Telematics Business, and cash
35
inflows expected to be provided by its continuing operations, the Company has concluded that there is no longer substantial doubt about the Company’s ability to continue as a going concern within one year of issuance of these financial statements.
Contractual Obligations and Commitments
As of September 30, 2024, our material contractual obligations consisted of the following:
•To mitigate the risk of material shortages and price increases, we enter into non-cancellable purchase obligations with certain key contract manufacturers for the purchase of goods and services in the three to four quarters following the balance sheet date. Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of September 30, 2024, our future payments under these noncancellable purchase obligations were approximately $64.3 million.
•$106.8 million and $6.0 million in outstanding principal amount of 2025 Convertible Notes and Short-Term Loan, respectively, with required interest payments; see Note 5 – Debt in the accompanying condensed consolidated financial statements; and
•Operating lease liabilities that are included on our consolidated balance sheet.
There were no material changes in our other contractual obligations during the three or nine months ended September 30, 2024.
Historical Cash Flows
The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands):
Nine Months Ended September 30,
2024
2023
Net cash provided by operating activities
$
45,375
$
22,403
Net cash used in investing activities
(3,654)
(6,517)
Net cash used in financing activities
(32,811)
(2,026)
Effect of exchange rates on cash
(1,682)
(2,057)
Net increase in cash and cash equivalents
7,228
11,803
Cash, cash equivalents and restricted cash from continuing operations, beginning of period
2,409
3,241
Cash, cash equivalents and restricted cash from discontinued operations, beginning of period
5,110
3,902
Cash and cash equivalents, beginning of period
7,519
7,143
Cash, cash equivalents and restricted cash from continuing operations, end of period
$
11,972
$
14,424
Cash, cash equivalents and restricted cash from discontinued operations, end of period
$
2,775
$
4,522
Cash, cash equivalents, and restricted cash, end of period
$
14,747
$
18,946
Operating activities.
Net cash provided by operating activities for the nine months ended September 30, 2024 is primarily comprised of $5.1 million net income earned during the period, net cash provided by working capital of $31.0 million, and non-cash charges, including depreciation and amortization of $13.2 million, amortization of debt discount and debt issuance costs of $4.4 million, and share-based compensation expense of $2.8 million, partially offset by a non-cash gain on debt restructurings of $13.7 million.
Net cash provided by operating activities for nine months ended September 30, 2023 is comprised of a $31.8 million net loss incurred during the period, which was offset by and net cash provided by working capital of $20.6 million and non-cash charges, including depreciation and amortization of $16.3 million, share-based compensation expense of $6.0 million, and amortization of debt discount and debt issuance costs of $2.0 million.
Investing activities.
Net cash used in investing activities during the nine months ended September 30, 2024 is comprised of $3.6 million of cash outflows related to the development of software in support of our products and services.
36
Net cash used in investing activities for the nine months ended September 30, 2023 is primarily comprised of $6.1 million of cash outflows related to the development of software in support of our products and services and $0.4 million of property, plant and equipment purchases.
Financing activities.
Net cash used in financing activities during the nine months ended September 30, 2024 is comprised of cash outflows of $33.8 million from the repurchases of a portion of our convertible notes and $4.9 million from the termination and repayment of the Credit Facility, partially offset by net cash inflows of $5.9 million from the issuance and partial repayment of our short-term loan and common stock warrants.
Net cash used in financing activities for the nine months ended September 30, 2023 is primarily comprised of $7.9 million of cash outflow related to net repayments of the Credit Facility, partially offset by $6.1 million in proceeds from the ATM offering (as defined in Note 8 – Stockholders' Equity (Deficit) in the accompanying condensed consolidated financial statements).
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk in the ordinary course of our business. Our revenue, earnings, cash flows, receivables, and payables are subject to fluctuations due to changes in foreign currency exchange rates.
Interest Rate Risk
2025 Convertible Notes and Embedded Derivative
Our total fixed-rate borrowings under the 2025 Convertible Notes as of September 30, 2024 and December 31, 2023 were $106.8 million and $161.9 million, respectively. We record all of our fixed-rate borrowings at amortized cost and therefore, any changes in interest rates do not impact the values that we report for these senior notes on our consolidated financial statements. As of September 30, 2024 and December 31, 2023, we had no variable-rate borrowings related to the 2025 Convertible Notes.
The 2025 Convertible Notes include an embedded derivative which was marked to a fair value of zero at both September 30, 2024 and December 31, 2023. The fair value inputs to the derivative valuation include dividend yield, term, volatility, stock price, and risk-free rate. Consequently we may incur gains and losses on the derivative as changes occur in the stock price, volatility, and risk-free rate at each reporting period. Additional details regarding our 2025 Convertible Notes and the embedded derivative are included in Part 1 Item 1 Note 4 – Fair Value Measurements and Note 5 – Debt in this Quarterly Report on Form 10-Q.
Inflation Risk
Inflation has increased during the period covered by this Quarterly Report on Form 10-Q, and is expected to continue to increase for the near future. Inflationary factors, such as increases in the cost of our materials, supplies, and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience an effect if inflation rates continue to rise. Significant adverse changes in inflation and prices in the future could result in material losses.
Currency Risk
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. A majority of our revenue is denominated in U.S. Dollars. However, as we have operations in foreign countries, primarily in Europe, a stronger U.S. Dollar could make our products and services more expensive in foreign countries and therefore reduce demand. A weaker U.S. Dollar could have the opposite effect. Such economic exposure to currency fluctuations is difficult to measure or predict because our sales are also influenced by many other factors.
For the nine months ended September 30, 2024, sales denominated in foreign currencies were approximately 11.2% of total revenue. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. These foreign currencies primarily consist of the South African Rand, British Pound, Euro, and Australian Dollar. For the nine months ended September 30, 2024, a hypothetical 10% change in these foreign currencies would have increased or decreased our revenue by approximately $1.6 million. Actual gains and losses in the future may differ materially from the hypothetical gains and losses discussed above based on changes in the timing and amount of foreign currency exchange rate movements.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports to the SEC are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) promulgated under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1.Legal Proceedings.
We are, from time to time, party to various legal proceedings arising in the ordinary course of business. We are currently not party to any litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material and adverse effect on our business, financial position or results of operations.
Item 1A.Risk Factors.
Other than the amended and additional risk factors set forth below, there were no material changes to the risk factors disclosed in Part I, Item 1A, Risk Factors of the Form 10-K, which was filed with the Securities and Exchange Commission on February 21, 2024. Any of the risks discussed in such report, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations, financial condition or prospects.
The announcement and pendency of the Telematics Sale, whether or not consummated, may adversely affect our business.
The announcement and pendency of the Telematics Sale, whether or not consummated, may adversely affect the trading price of our common stock, our business or our relationships with customers, distributors, suppliers, and employees. In addition, pending the completion of the Telematics Sale, we may be unable to attract and retain key personnel and the focus and attention of our management and employee resources may be diverted from operational matters.
We cannot be sure if or when the Telematics Sale will be completed.
The consummation of the Telematics Sale is subject to the satisfaction or waiver of various conditions, including, among others more fully described in the Purchase Agreement, the Purchaser finalizing financing arrangements to fund the purchase price. We cannot guarantee that the closing conditions set forth in the Purchase Agreement will be satisfied. If we are unable to satisfy the closing conditions in the Purchaser’s favor or if other mutual closing conditions are not satisfied, the Purchaser will not be obligated to complete the Telematics Sale. In the event that the Telematics Sale is not completed, the announcement of the termination of the Purchase Agreement may adversely affect the trading price of our common stock, our business and operations or our relationships with customers, distributors, suppliers, and employees.
In addition, if the Telematics Sale is not completed, our board of directors, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to us as the Telematics Sale.
We will incur significant expenses in connection with the Telematics Sale, regardless of whether the Telematics Sale is completed.
We have incurred, and expect to continue to incur, significant expenses related to the Telematics Sale. These expenses include, but are not limited to, legal fees, financial advisory fees and accounting fees and expenses. Many of these expenses will be payable by us regardless of whether the Telematics Sale is completed.
Our debt service requirements are significant, and we may not have sufficient cash flow from our business to pay our substantial debt.
The outstanding principal amount of our 2025 Notes at September 30, 2024 was $106.8 million. The 2025 Convertible Notes have a maturity date of May 1, 2025. As disclosed elsewhere in this Report, subsequent to September 30, 2024 we completed the additional exchanges of $91.5 million in aggregate principal amount of the 2025 Convertible Notes for, among other things, approximately $40.9 million in principal amount of New Senior Secured Notes. In addition, we incurred $19.5 million in principal amount of indebtedness, $6.0 million of which was outstanding as of September 30, 2024, pursuant to the Short-Term Loan, which matures on November 30, 2024. The Company’s intention is to repay the Short-Term Loan using proceeds from the sale of the Telematics Business or to refinance the Short-Term Loan, however, there can be no assurance that the sale of the Telematics Business will be consummated or that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all.
Our ability to make scheduled payments on, or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and other fixed charges, fund working capital needs and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, refinancing or restructuring debt or obtaining additional equity capital on terms that may be onerous or dilutive. Our ability to refinance or restructure our indebtedness will depend on the condition of the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on
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favorable terms, which could result in a default on our debt obligations. Any default under such indebtedness could have a material adverse effect on our business, results of operations and financial condition.
We are required to comply with certain financial and other covenants under the terms of our New Senior Secured Notes and our Short-Term Loan Agreement and, if we fail to meet those covenants or otherwise suffer a default thereunder, our lenders may accelerate the payment of such obligations.
The Indenture that sets forth the terms of the New Senior Secured Notes (the “New Notes Indenture”) contains covenants which put certain restrictions on our ability to incur liens, sell or transfer assets, incur other indebtedness, pay dividends, make investments, enter into transactions with affiliates, make other distributions or payments on account of any redemption, retirement or purchase of any capital stock or pay certain other indebtedness. In addition, the Loan and Security Agreement entered into in connection with the establishment of the Short-Term Loan (the “Short-Term Loan Agreement”) contains various covenants, restrictions and events of default. Among other things, these provisions require us to maintain a certain level of consolidated liquidity and impose certain limits on our ability to engage in certain activities. The restrictions in the New Notes Indenture and the Short-Term Loan Agreement impose operating and financial restrictions on us and may limit our ability to compete effectively, take advantage of new business opportunities or take other actions that may be in our, or our shareholders’, best interests. Further, various risks and uncertainties may impact our ability to comply with our obligations under the New Notes Indenture and/or the Short-Term Loan Agreement. Our obligations under the New Senior Secured Notes and the Short-Term Loan Agreement are secured by a continuing security interest in all property (other than certain excluded collateral) of the Company and each of the borrower parties.
Our inability to comply with any of the provisions of the New Notes Indenture and/or the Short-Term Loan Agreement could result in a default under the applicable agreement. If such a default under the New Notes Indenture and/or the Short-Term Loan Agreement occurs, the lenders may elect to demand payment in full of all or any portion of our obligations under the New Senior Secured Notes and/or the Short-Term Loan Agreement and, among other remedies, foreclose on our assets. The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
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Filed herewith.
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Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.