What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-05 · 111 added, 122 removed, 233 unchanged (50% of the section changed)

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• the impact of geopolitical instability on our business;

• the emergence of global public health emergencies, such as the recent outbreak of the 2019 novel coronavirus (2019-nCoV), now known as “COVID-19”, which could extend lead times in our supply chain and lengthen sales cycles with our customers;

• the emergence of global public health emergencies, such as the recent outbreak of the 2019 novel coronavirus (2019-nCoV), known as “COVID-19”, which could extend lead times in our supply chain and lengthen sales cycles with our customers;

• direct and indirect effects of COVID-19 on our employees, customers and supply chain and the economy and financial markets;

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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.

“Inseego”, “Inseego Subscribe”, “Inseego Manage TM ”, the Inseego logo, “DigiCore”, “Novatel Wireless”, the Novatel Wireless logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, “Ctrack”, the Ctrack logo, “Inseego North America”, and “Skyus” are trademarks or registered trademarks of Inseego and its subsidiaries.

“Inseego”, “Inseego Subscribe”, “Inseego Manage TM ”, the Inseego logo, “Novatel Wireless”, the Novatel Wireless logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, “Inseego North America”, 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.

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It is this proven expertise, commitment to quality, obsession with innovation and a relentless focus on execution that makes us a preferred global partner of service providers, distributors, value-added resellers, system integrators, and enterprises worldwide.

On February 24, 2021, we entered into a Share Purchase Agreement (the “Purchase Agreement”) with an affiliate of Convergence Partners (“Convergence”), an investment management firm in South Africa, to sell our Ctrack business operations in Africa, Pakistan and the Middle East (together, “Ctrack South Africa”), in an all-cash transaction for 528.9 million South African Rand (“ZAR”) (approximately $36.6 million United States Dollars (“USD”)) based on an exchange rate on June 30, 2021 of 14.32 ZAR to 1 USD).

The Purchase Agreement provides for an adjustment to the purchase price based on a normalized level of net working capital.

The consummation of the sale was subject to a number of customary conditions precedent.

Additionally, the consummation of the sale was subject to Convergence closing an investment fund.

On July 30, 2021, we completed the sale of Ctrack South Africa.

Initial cash proceeds of approximately $36600000.0 million were received.

Final cash proceeds net of transaction cost are subject to foreign exchange rates as well as certain post-closing working capital adjustments that will be provided by Convergence and agreed upon by us no later than 35 business days after completion of the sale.

The estimated gain upon sale is approximately $4.4 million, calculated based on the foreign exchange rate as of July 30, 2021.

The actual gain may differ from this estimate, by up to $1 million to $2 million, as a result of post-closing working capital adjustments and related foreign exchange fluctuations.

Initial cash proceeds of $36.6 million were received.

Final cash proceeds were subject to certain post-closing working capital adjustments which totaled $2.6 million, $2.2 million of which was received on October 29, 2021, and the remaining $0.4 million was offset with our existing accounts payable balance to Convergence.

We recorded a receivable for such balance as of September 30, 2021.

Our Sources of Revenue

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Our MiFi customer base is comprised of wireless operators to whom we provide intelligent fixed and mobile wireless devices.

These wireless operators include Verizon Wireless, AT&T, T-Mobile and Sprint in the United States, Rogers in Canada, Telstra in Australia, as well as other international wireless operators, distributors and various companies in other vertical markets and geographies.

These wireless operators include Verizon Wireless, T-Mobile, and UScellular in the United States, Rogers in Canada, Swisscom in Switzerland, Telstra in Australia, as well as other international wireless operators, distributors and various companies in other vertical markets and geographies.

We sell our wireless routers for IIoT, integrated telematics and mobile tracking hardware devices through our direct sales force, value-added resellers and through distributors.

The customer base for our IIoT products is comprised of transportation companies, industrial enterprises, manufacturers, application service providers, system integrators and distributors in various

industries, including fleet and vehicle transportation, aviation ground service management, energy and industrial automation, security and safety, medical monitoring and government.

The customer base for our IIoT products is comprised of transportation companies, industrial enterprises, manufacturers, application service providers, system integrators and distributors in various industries, including fleet and vehicle transportation, aviation ground service management, energy and industrial automation, security and safety, medical monitoring and government.

Integrated telematics and asset tracking devices are also sold under our Ctrack brand and provided as part of our integrated SaaS solutions.

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Effective in the third quarter ended on September 30, 2020, our IoT & Mobile Solutions now also includes our Device Management System, rebranded as Inseego Subscribe TM , a hosted SaaS platform that helps organizations manage the selection, deployment and spend of their customer’s wireless assets, helping them save money on personnel and telecom expenses.

We reclassified our Inseego Subscribe revenue stream, from Enterprise SaaS solutions, to better reflect our end user delineation.

Our SaaS delivery platforms include our Ctrack platforms, which provide fleet, vehicle, aviation, asset and other telematics applications.

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Since then, the COVID-19 pandemic has spread worldwide, and has resulted in authorities implementing numerous measures to try to contain the disease or slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

The demand environment for our 5G products during the three months ended June 30, 2021 was consistent with our expectations, with continued demand for our products due to a dramatic increase around the world in remote or tele-work and

learning due to the COVID-19 pandemic.

The demand environment for our 5G products during the three months ended September 30, 2021 was consistent with our expectations, with continued demand for our products due to a dramatic increase around the world in remote or tele-work and learning due to the COVID-19 pandemic.

Recently, our IoT & Mobile Solutions have experienced lower sales of LTE gigabit hotspots as COVID-19 pandemic demand have eased.

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Cost of net revenues includes all costs associated with our contract manufacturers, distribution, fulfillment and repair services, delivery of SaaS services, warranty costs, amortization of intangible assets, royalties, operations overhead, costs associated with cancellation of purchase orders and costs related to outside services.

Also included in cost of net revenues are costs related to inventory adjustments, including acquisition-related amortization of the fair value of inventory, as well as any write downs for excess and obsolete inventory and abandoned product lines.

Also included in cost of net revenues are costs related to inventory adjustments, as well as any write downs for excess and obsolete inventory and abandoned product lines.

Inventory adjustments are impacted primarily by demand for our products, which is influenced by the factors discussed above.

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Although general and administrative expenses are not directly related to revenue levels, certain expenses, such as legal expenses and provisions for bad debts, may cause significant volatility in future general and administrative expenses, which may, in turn, impact net revenue levels.

We have undertaken certain restructuring activities and cost reduction initiatives in an effort to better align our organizational structure and costs with our strategy.

Restructuring charges consist primarily of severance costs incurred in connection with the reduction of our workforce and facility exit-related costs, as well as discontinued operations, if any.

As part of our business strategy, we may review acquisition or divestiture opportunities that we believe would be advantageous or complementary to the development of our business.

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Results of Operations

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Net revenues .

Net revenues for the three months ended June 30, 2021 were $65.7 million, compared to $80.7 million for the same period in 2020.

Net revenues for the three months ended September 30, 2021 were $66.2 million, compared to $90.2 million for the same period in 2020.

The following table summarizes net revenues by our two product categories (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Product Category 2021 2020 $ %

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Enterprise SaaS Solutions.

Enterprise SaaS Solutions net revenues increased year-over-year as we experienced COVID-19 related installation restrictions in fiscal 2020 and such imposed restrictions were lifted in fiscal 2021.

The effect of the weakening U.S.

Dollar to South Africa Rand foreign exchange rates on international sales also contributed to the increase in net revenues.

Enterprise SaaS Solutions net revenues decreased year-over-year as a result of the divestiture of Ctrack South Africa as of July 30, 2021.

SaaS revenue was no longer generated in South Africa beginning in August 2021.

We will continue to provide telematics solutions in the rest of the world, including in Europe and Australia.

Such impact was partially offset by an increase in Enterprise SaaS Solutions net revenue throughout the rest of the world, as a result of the lifting of COVID-19 related installation restrictions in fiscal 2021.

Cost of net revenues.

Cost of net revenues for the three months ended June 30, 2021 was $45.3 million, or 69.0% of net revenues, compared to $58.7 million, or 72.7% of net revenues, for the same period in 2020.

Cost of net revenues for the three months ended September 30, 2021 was $47.3 million, or 71.4% of net revenues, compared to $65.1 million, or 72.1% of net revenues, for the same period in 2020.

The following table summarizes cost of net revenues by our two product categories (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Product Category 2021 2020 $ %

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Enterprise SaaS Solutions.

Enterprise SaaS Solutions cost of net revenues increased by 26.0% compared to the same period in 2020 primarily due to increased sales, and the weakening U.S.

Dollar to South Africa Rand foreign exchange rates on international costs.

Enterprise SaaS Solutions cost of net revenues decreased by $1.3 million compared to the same period in 2020 primarily due to lower sales of Enterprise SaaS Solutions as a result of the divestiture of Ctrack South Africa on July 30, 2021.

Gross profit.

Gross profit for the three months ended June 30, 2021 was $20.3 million, or a gross margin of 31.0%, compared to $22.0 million, or a gross margin of 27.3%, for the same period in 2020.

The increase in gross margin was primarily attributable to the more favorable mix of our product offerings, as well as favorable margins on our Inseego Subscribe revenue.

Gross profit for the three months ended September 30, 2021 was $18.9 million, or a gross margin of 28.6%, compared to $25.2 million, or a gross margin of 27.9%, for the same period in 2020.

The increase in gross margin was primarily attributable to the more favorable mix of our product offerings, as well as favorable margins on our Inseego Subscribe revenue, partially offset by a decrease in Enterprise SaaS Solutions as a result of the sale of Ctrack South Africa, which has a higher gross profit.

Research and development expenses.

Research and development expenses for the three months ended June 30, 2021 were $11.8 million, or 17.9% of net revenues, compared to $10.5 million, or 13.1% of net revenues, for the same period in 2020.

The increase was primarily a result of staffing, test units, and other development spending related to our 5G product programs, partially offset by the timing and amount of bonus grants to eligible employees during the first quarter of fiscal 2021, compared to bonus grants awarded to employees during the second quarter of fiscal 2020.

Share-based Compensation in the accompanying unaudited condensed consolidated financial statements for further information.

Research and development expenses for the three months ended September 30, 2021 were $12.6 million, or 19.1% of net revenues, compared to $10.7 million, or 11.8% of net revenues, for the same period in 2020.

The increase was primarily a result of staffing, test units, and other development spending related to our 5G product programs.

Sales and marketing expenses.

Sales and marketing expenses for the three months ended June 30, 2021 were $9.8 million, or 14.9% of net revenues, compared to $8.6 million, or 10.7% of net revenues, for the same period in 2020.

The increase was primarily a result of higher spend on marketing 5G products, partially offset by the timing and amount of bonus grants to eligible employees during the first quarter of fiscal 2021, compared to bonus grants awarded to employees during the

second quarter of fiscal 2020.

Share-based Compensation in the accompanying unaudited condensed consolidated financial statements for further information.

Sales and marketing expenses for the three months ended September 30, 2021 were $9.2 million, or 13.9% of net revenues, compared to $8.4 million, or 9.4% of net revenues, for the same period in 2020.

The increase was primarily a result of higher spend on the marketing of our 5G products.

The increase in sales and marketing expenses was partially offset by the decrease of payroll costs for Ctrack South Africa employees, given the divestiture was completed on July 30, 2021.

Business Divestiture .

General and administrative expenses.

General and administrative expenses for the three months ended June 30, 2021 were $7.4 million, or 11.3% of net revenues, compared to $7.4 million, or 9.2% of net revenues, for the same period in 2020.

The increase was primarily a res ult of higher legal expenses, p artially offset by the timing and amount of bonus grants to eligible employees during the first quarter of 2021, compared to bonus grants awarded to employees during the second quarter of fiscal 2020.

General and administrative expenses for the three months ended September 30, 2021 were $6.6 million, or 10.0% of net revenues, compared to $8.7 million, or 9.6% of net revenues, for the same period in 2020.

The decrease was primarily due to the decrease in payroll costs for Ctrack South Africa employees, given the divestiture was completed on July 30, 2021.

Business Divestiture.

The decrease in general and administrative expenses was partially offset by the impact of bonus grants to employees who contributed to completion of the Ctrack South Africa sale.

Share-based Compensation in the accompanying unaudited condensed consolidated financial statements for further information.

Amortization of purchased intangible assets .

Amortization of purchased intangible assets for each of the three months ended June 30, 2021 and 2020 was $0.7 million and $0.8 million, respectively.

Amortization of purchased intangible assets for the three months ended September 30, 2021 and 2020 was $0.5 million and $0.8 million, respectively.

The decrease was primarily as a result of certain purchased intangible assets being fully amortized as of the fourth quarter of 2020.

Impairment of capitalized software .

During the three months ended June 30, 2021, we recorded a loss of $1.2 million on capitalized software development costs.

There was no such expense for the same period in 2020.

Gain on sale of Ctrack South Africa .

Gain on sale of Ctrack South Africa during the three months ended September 30, 2021 was $5.3 million, related to the gain recognized on sale of Ctrack South Africa, while there was no such gain for the same period in fiscal 2020.

Loss on debt conversion and extinguishment, net.

The loss on debt conversion and extinguishment, net of $67.2 million during the three months ended June 30, 2020 was primarily related to the extinguishment of the 2022 Notes, while there was no such expense for the same period in fiscal 2021.

The loss on debt conversion and extinguishment, net of $1.2 million during the three months ended September 30, 2020 was primarily related to the extinguishment of the 2022 Notes, while there was no such expense for the same period in fiscal 2021.

Interest expense, net.

Interest expense, net, for the three months ended June 30, 2021 and 2020 was $1.7 million and $3.2 million, respectively.

The decrease in interest expense was primarily due to the lower interest rate on the 2025 Notes, as compared to the 2022 Notes and our previous term loan , partially offset by the higher principal amount of 2025 Notes.

Interest expense, net, for the three months ended September 30, 2021 and 2020 was $1.7 million and $1.7 million, respectively.

Other income (expense), net.

Other expense, net, for the three months ended June 30, 2021 was $0.6 million, which primarily includes the fair value adjustment related to our interest make-whole arrangement, as well as transaction costs incurred related to the sale of Ctrack South Africa.

Other expense, net, for the three months ended September 30, 2021 was $0.8 million, which primarily includes the fair value adjustment related to our interest make-whole arrangement, as well as transaction costs incurred related to the sale of Ctrack South Africa.

For the same period in 2020, other income, net, was $1.1 million, which primarily includes the fair value adjustment related to our interest make-whole arrangement.

Income tax provision (benefit).

The income tax provision of $0.2 million for the three months ended June 30, 2021 and the income tax benefit of $0.1 million for the same period in 2020, respectively, primarily relate to provision in fiscal 2021 or benefits in fiscal 2020 from certain of our entities in foreign jurisdictions.

Net loss (income) attributable to noncontrolling interests.

Net income attributable to noncontrolling interests for the three months ended June 30, 2021 was nil, compared to a net loss attributable to noncontrolling interests of $6,000 for the same period in 2020.

Series E preferred stock dividends.

During the three months ended June 30, 2021 and 2020, we recorded dividends of $0.9 million and $0.8 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

The increase was primarily attributable to the additional shares of Series E Preferred Stock issued in March 2020.

Income tax (benefit) provision.

The income tax benefit of $4,000 for the three months ended September 30, 2021 and the income tax provision of $0.2 million for the same period in 2020, respectively, primarily relate to provision in fiscal 2021 or benefits in fiscal 2020 from certain of our entities in foreign jurisdictions.

Net income attributable to noncontrolling interests.

There was no net income or loss attributable to noncontrolling interests for the three months ended September 30, 2021, compared to a net income attributable to noncontrolling interests of $3,000 for the same period in 2020, due to the sale of the noncontrolling interests as part of the sale of Ctrack South Africa.

Series E preferred stock dividends and deemed dividends from the preferred stock exchange.

During the three months ended September 30, 2021 and 2020, we recorded dividends of $1.8 million and $0.8 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

The increase was primarily attributable to the impact of the deemed dividend of $1.1 million as part of the preferred stock exchange, offset by a decrease in the recurring preferred stock dividends as 10,000 shares of the original 35,000 shares of preferred stock were extinguished in September 2021, resulting in a lower preferred stock dividend accrued in September 2021.

Private Placements and Public Offering in the accompanying unaudited condensed consolidated financial statements for further information.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net revenues .

Net revenues for the six months ended June 30, 2021 were $123.3 million, compared to $137.5 million for the same period in 2020.

Net revenues for the nine months ended September 30, 2021 were $189.5 million, compared to $227.8 million for the same period in 2020.

The following table summarizes net revenues by our two product categories (in thousands):

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

Product Category 2021 2020 $ %

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IoT & Mobile Solutions.

The decrease in IoT & Mobile Solutions net revenues is primarily due to decreases in our enterprise and carrier offerings within IoT & Mobile Solutions, and lower sales of LTE gigabit hotspots as COVID-19 pandemic demand eased, partially offset by increased sales of our second-generation 5G hotspot related to our MiFi business and increased revenues in our Inseego Subscribe business due to subscriber growth.

The decrease in IoT & Mobile Solutions net revenues is primarily due to decreases in our enterprise and carrier offerings within IoT & Mobile Solutions, and lower sales of LTE gigabit hotspots as COVID-19 pandemic demand eased, partially offset by increased sales of our second-generation 5G hotspots related to our MiFi business and increased revenues in our Inseego Subscribe business due to subscriber growth.

Enterprise SaaS Solutions.

Enterprise SaaS Solutions net revenues increased year-over-year as we experienced COVID-19 related installation restrictions in fiscal 2020 and such imposed restrictions were lifted in fiscal 2021.

The effect of the weakening U.S.

Dollar to South Africa Rand foreign exchange rates on international sales also contributed to the increase in net revenues.

Enterprise SaaS Solutions net revenues decreased year-over-year due to divestiture of Ctrack South Africa as of July 30, 2021, SaaS revenue was no longer generated in Ctrack South Africa beginning in August 2021.

This decrease was partially offset by an increase in Enterprise SaaS Solutions net revenue throughout the rest of the world, as a result of the lifting of COVID-19 related installation restrictions in fiscal 2021.

Cost of net revenues.

Cost of net revenues for the six months ended June 30, 2021 was $84.5 million or 68.5% of net revenues, compared to $98.3 million or 71.5% of net revenues, for the six months ended June 30, 2020.

Cost of net revenues for the nine months ended September 30, 2021 was $131.7 million or 69.5% of net revenues, compared to $163.4 million or 71.7% of net revenues, for the nine months ended September 30, 2020.

The following table summarizes cost of net revenues by our two product categories (in thousands):

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

Product Category 2021 2020 $ %

5 unchanged sentences

Enterprise SaaS Solutions.

Enterprise SaaS Solutions cost of net revenues increased by 12.6% compared to the same period in 2020 primarily due to increased sales, and the weakening U.S.

Dollar to South Africa Rand foreign exchange rates on international costs.

Enterprise SaaS Solutions cost of net revenues was consistent compared to the same period in 2020, primarily due to an increase in Enterprise SaaS Solutions net revenue as a result of the lifting of COVID-19 related installation restrictions in fiscal 2021, which was partially offset by lower sales of Enterprise SaaS Solutions as a result of the divestiture of Ctrack South Africa on July 30, 2021.

Gross profit.

Gross profit for the six months ended June 30, 2021 was $38.8 million, or a gross margin of 31.5%, compared to $39.2 million, or a gross margin of 28.5%, for the same period in 2020.

Gross profit for the nine months ended September 30, 2021 was $57.8 million, or a gross margin of 30.5%, compared to $64.4 million, or a gross margin of 28.3%, for the same period in 2020.

The increase in gross margin was primarily attributable to the favorable mix of our product offerings, as well as favorable margins on our Inseego Subscribe revenue.

Research and development expenses.

Research and development expenses for the six months ended June 30, 2021 were $26.3 million, or 21.4% of net revenues, compared to $18.8 million, or 13.6% of net revenues, for the same period in 2020.

The increase was primarily a result of staffing, test units, other development spending related to 5G product programs, and the amount of bonus grants to eligible employees during the six months ended June 30, 2021 compared to the amount of bonus

grants awarded to eligible employees during the six months ended June 30, 2020.

Research and development expenses for the nine months ended September 30, 2021 were $39.0 million, or 20.6% of net revenues, compared to $29.4 million, or 12.9% of net revenues, for the same period in 2020.

The increase was primarily a result of staffing, test units, other development spending related to 5G product programs, and an increase in the amount of bonus grants awarded to eligible employees during the nine months ended September 30, 2021 compared to the amount of bonus grants awarded to eligible employees during the nine months ended September 30, 2020.

Share-based Compensation in the accompanying unaudited condensed consolidated financial statements for further information.

Sales and marketing expenses.

Sales and marketing expenses for the six months ended June 30, 2021 were $20.8 million, or 16.9% of net revenues, compared to $17.4 million, or 12.7% of net revenues, for the same period in 2020.

The increase was primarily a result of higher spend on marketing 5G products, and the amount of bonus grants to eligible employees during the six months ended June 30, 2021 compared to the amount of bonus grants awarded to eligible employees during the six months ended June 30, 2020.

Sales and marketing expenses for the nine months ended September 30, 2021 were $30.0 million, or 15.8% of net revenues, compared to $25.8 million, or 11.3% of net revenues, for the same period in 2020.

The increase was primarily a result of higher spend on marketing 5G products, and the amount of bonus grants to eligible employees during the nine months ended September 30, 2021 compared to the amount of bonus grants awarded to eligible employees during the nine months ended September 30, 2020.

Share-based Compensation in the accompanying unaudited condensed consolidated financial statements for further information.

The increase in sales and marketing expenses was partially offset by decrease of payroll costs for Ctrack South Africa employees, given the divestiture was completed on July 30, 2021.

General and administrative expenses.

General and administrative expenses for the six months ended June 30, 2021 were $16.1 million, or 13.0% of net revenues, compared to $14.6 million, or 10.6% of net revenues, for the same period in 2020.

The increase was primarily a result of the amount of bonus grants to eligible employees during the six months ended June 30, 2021 compared to the amount of bonus grants awarded to eligible employees during the six months ended June 30, 2020.

Share-based Compensation in the accompanying unaudited condensed consolidated financial statements for further information.

General and administrative expenses for the nine months ended September 30, 2021 were $22.7 million, or 12.0% of net revenues, compared to $23.3 million, or 10.2% of net revenues, for the same period in 2020.

The decrease was primarily a result of the decrease of payroll costs for Ctrack South Africa employees, given the divestiture was completed on July 30, 2021, offset by the impact of bonus grants awarded to employees who contributed to completion of the Ctrack South Africa sale.

Amortization of purchased intangible assets .

Amortization of purchased intangible assets for each of the six months ended June 30, 2021 and 2020 was $1.1 million and $1.6 million, respectively.

Amortization of purchased intangible assets for each of the nine months ended September 30, 2021 and 2020 was $1.6 million and $2.4 million, respectively.

The decrease was primarily as a result of certain purchased intangible assets being fully amortized as of the fourth quarter of 2020.

Impairment of capitalized software .

During the six months ended June 30, 2021, we recorded a loss of $1.2 million on capitalized software development costs.

During the nine months ended September 30, 2021, we recorded a loss of $1.2 million on capitalized software development costs.

There was no such expense for the same period in 2020.

Gain on sale of Ctrack South Africa .

Gain on sale of Ctrack South Africa during the nine months ended September 30, 2021 was $5.3 million, related to the gain recognized on sale of Ctrack South Africa, while there was no such gain for the same period in fiscal 2020.

Loss on debt conversion and extinguishment.

The loss on debt conversion and extinguishment, net for each of the six months ended June 30, 2021 and 2020 was $0.4 million and $75.2 million, respectively, and primarily represents the loss on debt conversion of the 2025 Notes and debt conversion and extinguishment of the 2022 Notes, respectively.

The loss on debt conversion and extinguishment, net for each of the nine months ended September 30, 2021 and 2020 was $0.4 million and $76.4 million, respectively, and primarily represents the loss on debt conversion of the 2025 Notes and debt conversion and extinguishment of the 2022 Notes, respectively.

Interest expense, net.

Interest expense, net for each of the six months ended June 30, 2021 and 2020 was $3.5 million and $6.5 million, respectively.

Interest expense, net for each of the nine months ended September 30, 2021 and 2020 was $5.2 million and $8.2 million, respectively.

The decrease in interest expense was primarily due to the lower interest rate on the 2025 Notes, as compared to the 2022 Notes and our previous term loan, partially offset by the higher principal amount of the 2025 Notes.

Other income (expense), net.

Other income, net, for each of the six months ended June 30, 2021 and 2020 was $1.1 million and $1.8 million, respectively, which primarily includes the fair value adjustment related to our interest make-whole arrangement as well as foreign currency transaction gains and losses.

Income tax provision (benefit).

The income tax provision of $0.4 million for the six months ended June 30, 2021 and the income tax benefit of $24,000 for the six months ended June 30, 2020, respectively, primarily relate to provision in fiscal 2021 or benefits in fiscal 2020 from certain of our entities in foreign jurisdictions.

Net loss (income) attributable to noncontrolling interests.

Net income attributable to noncontrolling interests for the six months ended June 30, 2021 was $0.2 million, compared to a net income attributable to noncontrolling interests of $26,000 for the same period in 2020.

Series E preferred stock dividends.

During the six months ended June 30, 2021, and 2020 we recorded dividends of $1.8 million and $1.2 million, respectively, on our Series E Preferred Stock.

The increase was primarily attributable to the additional shares of Series E Preferred Stock issued in March 2020.

Other income, net, for each of the nine months ended September 30, 2021 and 2020 was $0.3 million and $2.8 million, respectively, which primarily includes the fair value adjustment related to our interest make-whole arrangement, transaction costs related to the divestiture of Ctrack South Africa, and foreign currency transaction gains and losses.

Income tax (benefit) provision.

The income tax provision of $0.4 million for the nine months ended September 30, 2021 and the income tax provision of $0.2 million for the nine months ended September 30, 2020, respectively, primarily relate to certain of our entities in foreign jurisdictions.

Net income attributable to noncontrolling interests.

Net income attributable to noncontrolling interests for the nine months ended September 30, 2021 was $0.2 million, compared to a net income attributable to noncontrolling interests of $29,000 for the same period in 2020, due to the sale of the noncontrolling interests as part of the sale of Ctrack South Africa.

Series E preferred stock dividends and deemed dividends from the preferred stock exchange.

During the nine months ended September 30, 2021, and 2020 we recorded dividends of $3.6 million and $2.1 million, respectively, on our Series E Preferred Stock.

The increase was primarily attributable to the additional shares of Series E Preferred Stock issued in March 2020, and the impact of deemed dividend of $1.1 million as part of the preferred stock exchange.

Private Placements and Public Offering in the accompanying unaudited condensed consolidated financial statements for further information.

Liquidity and Capital Resources

As of June 30, 2021, the Company had available cash and cash equivalents totaling $36.7 million, including $5.8 million cash and cash equivalents classified as held-for-sale, and working capital of $32.4 million, excluding assets and liabilities classified as held-for-sale.

As of September 30, 2021, we had available cash and cash equivalents totaling $58.1 million, excluding restricted cash of $3.5 million, and working capital of $61.2 million.

On March 6, 2020, we issued and sold 25,000 shares of Series E Preferred Stock for an aggregate purchase price of $25.0 million.

In the first quarter of 2020, $59.9 million of our 5.5% convertible senior notes due 2022 (the “2022 Notes” formerly referred to as the “Inseego Notes”) were exchanged for common stock in private exchange transactions.

Additionally, in the second quarter of 2020, we restructured our outstanding debt by completing a $100.0 million registered public offering (the “Offering”) of 3.25% convertible senior notes due 2025 (the “2025 Notes”) and also entered into privately-negotiated Exchange Agreements, pursuant to which an aggregate of $45.0 million in principal amount of the 2022 Notes were exchanged for an aggregate of $32.0 million in cash and $80.4 million in principal amount of the 2025 Notes (the “Private Exchange

Transactions”).

Additionally, in the second quarter of 2020, we restructured our outstanding debt by completing a $100.0 million registered public offering (the “Offering”) of 3.25% convertible senior notes due 2025 (the “2025 Notes”) and also entered into privately-negotiated exchange agreements (the “May Exchange Agreements”), pursuant to which an aggregate of $45.0 million in principal amount of the 2022 Notes were exchanged for an aggregate of $32.0 million in cash and $80.4 million in principal amount of the 2025 Notes (the “May Private Exchange Transactions”).

We also used a portion of the proceeds from the Offering to repay in full our previous term loan.

In the third quarter of 2020, we redeemed the remaining $2,000 principal amount of the 2022 Notes.

As of June 30, 2021, our outstanding debt primarily consisted of $161.9 million in principal amount of 2025 Notes.

As of September 30, 2021, our outstanding debt primarily consisted of $161.9 million in principal amount of 2025 Notes.

On January 25, 2021, we entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which we may offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of our common stock (the “ATM Offering”).

In January 2021, we sold 1,516,073 shares of common stock, at an average price of $20.11 per share, for net proceeds of $29.4 million, after deducting underwriter fees and discounts of $0.9 million, and other offering fees, pursuant to the ATM Offering.

On July 30, 2021, the Company completed the sale of Ctrack South Africa.

Initial cash proceeds of approximately $36600000.0 million were received.

Final cash proceeds net of transaction cost will be subject to foreign exchange rates as well as certain post-closing working capital adjustments that will be provided by Convergence and agreed upon by the Company no later than 35 business days after completion of the sale.

On July 30, 2021, we completed the sale of Ctrack South Africa.

Initial cash proceeds of $36.6 million were received.

We recorded a receivable for such balance as of September 30, 2021.

We have a history of operating and net losses and overall usage of cash from operating and investing activities.

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Contractual Obligations and Commitments

There were no material changes in our contractual obligations in the second quarter of 2021.

There were no material changes in our contractual obligations in the third quarter of 2021.

Convertible Notes

On May 12, 2020, we completed a registered public Offering of $100.0 million aggregate principal amount of 2025 Notes.

On May 12, 2020, we also entered into separate privately-negotiated Exchange Agreements certain holders of the 2022 Notes.

Pursuant to the Exchange Agreements, each of these noteholders agreed to exchange the 2022 Notes that they held (representing an aggregate of $45.0 million principal amount of 2022 Notes with an estimated fair value of approximately $112.4 million as of the date of exchange) for an aggregate of $32.0 million in cash and $80.4 million principal amount of 2025 Notes in concurrent Private Exchange Transactions.

The 2025 Notes issued in the Private Exchange Transactions are part of the same series as the 2025 Notes issued in the Offering.

We issued the 2025 Notes 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 us and the Trustee.

On May 12, 2020, we also entered into the May Exchange Agreements with certain holders of the 2022 Notes.

Pursuant to the May Exchange Agreements, each of these noteholders agreed to exchange the 2022 Notes that they held (representing an aggregate of $45.0 million principal amount of 2022 Notes with an estimated fair value of approximately $112.4 million as of the date of exchange) for an aggregate of $32.0 million in cash and $80.4 million principal amount of 2025 Notes in the concurrent May Private Exchange Transactions.

The 2025 Notes issued in the May Private Exchange Transactions are part of the same series as the 2025 Notes issued in the Offering.

We issued the 2025 Notes under an indenture, dated May 12, 2020 (the “Base Indenture”), between Inseego Corp.

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 us and the Trustee.

The 2025 Notes will mature on May 1, 2025, unless earlier repurchased, redeemed or converted.

The 2025 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, beginning on November 1, 2020.

The 2025 Notes are senior unsecured obligations of Inseego Corp.

and bear interest at an annual rate of 3.25%, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2020.

Holders of the 2025 Notes may convert the 2025 Notes into shares of our 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 Notes, we will deliver for each $1,000 principal amount of 2025 Notes converted a number of shares of common stock (together with cash in lieu of any fractional share), equal to the conversion rate.

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.

Holders of the 2025 Notes who convert their 2025 Notes may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in, at the Company’s election, either cash or shares of the Common Stock (together with cash in lieu of any fractional share).

The initial conversion rate for the 2025 Notes is 79.2896 shares of common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversion price of approximately $12.61 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.

Holders of the 2025 Notes who convert their 2025 Notes may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in, at our election, either cash or shares of the Common Stock (together with cash in lieu of any fractional share).

If a fundamental change (as defined in the Indenture) occurs at any time prior to the maturity date, then the noteholders may require us to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

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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 Notes representing at least 25% in aggregate principal amount of the outstanding 2025 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 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 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 Notes.

If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving Inseego Corp.) occurs and is continuing, the Trustee, by notice to Inseego Corp., or the holders of the 2025 Notes representing at least 25% in aggregate principal amount of the outstanding 2025 Notes, by notice to Inseego Corp.

and the Trustee, may declare 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 2025 Notes to be due and payable immediately.

Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving Inseego Corp., 100% of the principal of, and all accrued and unpaid interest on, all of the then outstanding 2025 Notes will automatically become immediately due and payable.

Notwithstanding the foregoing, the Indenture provides that, to the extent we elect, the sole remedy for an event of default relating to certain failures by us 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 Notes.

Historical Cash Flows

The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Net cash (used in) provided by operating activities $ (14,757) $ 16,712

Net cash used in investing activities (17,434) (13,233)

Net cash provided by (used in) investing activities 7,665 (24,973)

Net cash provided by financing activities 28,979 40,754

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Cash, cash equivalents, and restricted cash, end of period $ 61,609 $ 41,994

$ 40,383 $ 42,100

1 Cash, cash equivalents and restricted cash balance includes cash, cash equivalents and restricted cash classified as held for sale as of June 30, 2021.

Operating activities.

Net cash used in operating activities was $12.0 million for the six months ended June 30, 2021, compared to net cash provided by operating activities of $4.7 million for the same period in 2020.

Net cash used in operating activities for the six months ended June 30, 2021 was primarily attributable to net loss incurred during the period, net cash used by working capital, and fair value adjustment on derivative instrument, partially offset by depreciation and amortization, share-based compensation expense, and the amortization of debt discount and debt issuance costs.

Net cash provided by operating activities for the six months ended June 30, 2020 was primarily attributable to net cash provided by working capital, non-cash charges for the debt conversion and extinguishment of the 2022 Notes, depreciation and amortization, including the

amortization of debt discount and debt issuance costs, and share-based compensation expense, partially offset by the net loss in the period.

Net cash used in operating activities was $14.8 million for the nine months ended September 30, 2021, compared to net cash provided by operating activities of $16.7 million for the same period in 2020.

Net cash used in operating activities for the nine months ended September 30, 2021 was primarily attributable to net loss incurred during the period, net cash used by working capital, gain on the sale of Ctrack South Africa, and fair value adjustment on derivative instrument, partially offset by depreciation and amortization, share-based compensation expense, impairment of capitalized software, and the amortization of debt discount and debt issuance costs.

Net cash provided by operating activities for the nine months ended September 30, 2020 was primarily attributable to net cash provided by working capital, non-cash loss on debt conversion and extinguishment, depreciation and amortization, including the amortization of debt discount and debt issuance costs, and share-based compensation expense, offset by net loss and a non-cash fair value adjustment on derivative instrument,

Investing activities.

Net cash used in investing activities during the six months ended June 30, 2021 was $17.4 million, compared to net cash used in investing activities of $13.2 million for the same period in 2020.

Cash used in investing activities during the six months ended June 30, 2021 was primarily related to the purchases of property, plant and equipment and capitalization of certain costs related to the research and development of software to be sold in our products, in large part due to the increase in development in support of 5G products and services.

Cash used in investing activities during the same period in 2020 was primarily related to the purchases of property, plant and equipment and capitalization of certain costs related to the research and development of software to be sold in our products, in large part due to the increase in development in support of 5G products and services.

Net cash provided by investing activities during the nine months ended September 30, 2021 was $7.7 million, compared to net cash used in investing activities of $25.0 million for the same period in 2020.

Cash provided by investing activities during the nine months ended September 30, 2021 was primarily related to the net proceeds from the sale of Ctrack South Africa, and proceeds from the sale of property, plant, and equipment, partially offset by purchases of property, plant and equipment and spending on certain costs related to the research and development of software to be sold in our products, in large part due to the increase in development in support of 5G products and services.

Cash used in investing activities during the same period in 2020 was primarily related to the purchases of property, plant and equipment and spending on certain costs related to the research and development of software to be sold in our products, in large part due to the increase in development in support of 5G products and services.

Financing activities.

Net cash provided by financing activities during the six months ended June 30, 2021 was $29.5 million, compared to net cash provided by financing activities of $41.1 million for the same period in 2020.

Net cash provided by financing activities during the six months ended June 30, 2021 was primarily related to net proceeds received from the ATM Offering, proceeds from stock option exercises and purchases through our employee stock purchase plan, partially offset by the principal payments under finance lease obligations and taxes paid on vested restricted stock units.

Net cash provided by financing activities for the same period in 2020 was primarily related to proceeds received from the registered Offering of 2025 Notes, the sale of Series E Preferred Stock, the exercise of warrants to purchase common stock, and stock option exercises, partially offset by payoff of the Term Loan and related expenses, cash paid to investors in the Private Exchange Transactions, payment of debt issuance costs, repurchase of Series E Preferred Stock, principal payments under finance lease obligations, and taxes paid on vested restricted stock units.

Net cash provided by financing activities during the nine months ended September 30, 2021 was $29.0 million, compared to net cash provided by financing activities of $40.8 million for the same period in 2020.

Net cash provided by financing activities during the nine months ended September 30, 2021 was primarily related to net proceeds received from the ATM Offering, proceeds from stock option exercises and purchases through our employee stock purchase plan, partially offset by the principal payments under finance lease obligations and taxes paid on vested restricted stock units.

Net cash provided by financing activities for the same period in 2020 was primarily related to net proceeds received from the Offering, the May Private Exchange Transactions, the issuance of Series E preferred stock, the exercise of warrants to purchase common stock and stock option exercises and purchases through our employee stock purchase plan, partially offset by the repurchase of Series E preferred stock, principal payments under finance lease obligations and taxes paid on vested restricted stock units, payoff of the Term Loan of $48.8 million and payment of $32.0 million in cash for the May Private Exchange Transactions.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis