What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-05 · 97 added, 153 removed, 191 unchanged (57% of the section changed)

26 unchanged sentences

• our reliance on sole source suppliers for some products and devices used in our solutions;

• the continuing impact of uncertain global economic conditions on the demand for our products;

• the continuing impact of uncertain global economic conditions, such as inflation, on the demand for our products;

• 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), 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;

• direct and indirect effects of COVID-19, including government efforts to reduce the spread of the disease, on our employees, customers and supply chain and the economy and financial markets;

• our ability to be cost competitive while meeting time-to-market requirements for our customers;

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• the introduction of new products that could contain errors or defects;

• conducting business abroad, including foreign currency risks;

• conducting business abroad, including international conflicts such as the Russia-Ukraine crisis, and foreign currency risks;

• the pace of 5G wireless network rollouts globally and their adoption by customers;

• our ability to be successful in divesting assets or businesses we wish to sell;

• our ability to make focused investments in research and development;

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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, “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.

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.

“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.

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, 2021, contained in our Form 10-K.

1 unchanged sentence

Inseego Corp.

is a leader in the design and development of fixed and mobile wireless solutions (advanced 4G and 5G NR), industrial IoT (“IIoT”) and cloud solutions for Fortune 500 enterprises, service providers, small and medium-sized businesses, governments, and consumers around the globe.

is a leader in the design and development of fixed and mobile wireless solutions (advanced 4G and 5G NR), IIoT and cloud solutions for Fortune 500 enterprises, service providers, small and medium-sized businesses, governments, and consumers around the globe.

Our product portfolio consists of fixed and mobile device-to-cloud solutions that provide compelling, intelligent, reliable and secure end-to-end IoT services with deep business intelligence.

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Our solutions are powered by our key wireless innovations in mobile and FWA technologies, including a suite of products employing the 5G NR standards, and purpose-built SaaS cloud platforms.

We have been at the forefront of the ways in which the world stays connected and accesses information, and protects, and derives intelligence from that information.

We have been at the forefront of the ways in which the world stays connected and accesses information, protects, and derives intelligence from that information.

With multiple first-to-market innovations across a number of wireless technologies, including 5G, and a strong and growing portfolio of hardware and software innovations for IIoT solutions, Inseego has been advancing technology and driving industry transformations for over 30 years.

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).

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

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 hardware products address multiple vertical markets including private LTE/5G networks, the First Responders Network Authority/Firstnet, SD-WAN, telematics, remote monitoring and surveillance, and fixed wireless access and mobile broadband devices.

Our broad range of products principally includes intelligent 4G and 5G fixed wireless routers and gateways, and mobile hotspots, and wireless gateways and routers for IIoT applications, Gb speed 4G LTE hotspots and USB modems, integrated telematics and mobile tracking hardware devices, which are supported by applications software and cloud services designed to enable customers to easily analyze data insights and configure/manage their hardware remotely.

Our broad range of products principally includes intelligent 4G and 5G fixed wireless routers and gateways, mobile hotspots, wireless gateways and routers for IIoT applications, Gb speed 4G LTE hotspots and USB modems, integrated telematics and mobile tracking hardware devices, which are supported by applications software and cloud services designed to enable customers to easily analyze data insights and configure/manage their hardware remotely.

Our products currently operate on most major global cellular wireless networks.

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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, 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.

These wireless operators include Verizon Wireless, T-Mobile and U.S.

Cellular in the United States, Rogers and Telus in Canada, Telstra in Australia, Swisscom in Switzerland, 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.

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We sell SaaS, software and services solutions across multiple mobile and IIoT vertical markets, including fleet management, vehicle telematics, stolen vehicle recovery, asset tracking, monitoring, business connectivity and subscription management.

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

Our SaaS platforms are device-agnostic and provide a standardized, scalable way to order, connect and manage remote assets and to improve business operations.

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Both IoT & Mobile Solutions and Enterprise SaaS Solutions revenues include any hardware and software required for the respective solution.

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.

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

11 unchanged sentences

• competition in the area of 5G technology;

• trade protection measures (such as tariffs and duties) and import or export licensing requirements;

• our contract manufacturer’s ability to secure necessary supply to of semiconductors and other key components to build our devices;

1 unchanged sentence

• the impact of the COVID-19 pandemic on our business;

• the sale of our Ctrack South Africa operations;

• changes in technologies.

Our revenues are also significantly dependent upon the availability of materials and components used in our hardware products.

We anticipate introducing additional products during the next twelve months, including SaaS telematics solutions and additional service offerings, IoT hardware and services, and other mobile and fixed wireless devices targeting the emerging 5G market.

We continue to develop and maintain strategic relationships with service providers and other wireless industry leaders such as Verizon Wireless, T-Mobile, Sprint, and Qualcomm.

We anticipate introducing additional products during the next twelve months, including SaaS and additional service offerings, industrial IoT hardware and services, and other mobile and fixed wireless devices targeting the emerging 5G market.

We continue to develop and maintain strategic relationships with service providers and other wireless industry leaders such as Verizon Wireless, T-Mobile, and Qualcomm.

Through strategic relationships, we have been able to maintain market penetration by leveraging the resources of our channel partners, including their access to distribution resources, increased sales opportunities and market opportunities.

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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 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.

The demand environment for our 5G products during the three months ended March 31, 2022 was consistent with our expectations.

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

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research and development;

sales and marketing;

and general and administrative costs.

sales and marketing, and general and administrative costs.

Research and development is at the core of our ability to produce innovative, leading-edge products.

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Results of Operations

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

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Net revenues .

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.

Net revenues for the three months ended March 31, 2022 were $61.4 million, compared to $57.6 million for the same period in 2021.

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

Three Months Ended

September 30, Change

March 31, Change

Product Category 2022 2021 $ %

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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 increase in IoT & Mobile Solutions net revenues is primarily due to increases in our enterprise and carrier offerings within IoT & Mobile Solutions, specifically increased sales of our second-generation 5G hotspot related to our MiFi business of $16.0 million and increased revenues in our Inseego Subscribe business due to subscriber growth of $0.7 million, partially offset by $4.6 million decrease in revenues from our 4G products and others.

Enterprise SaaS Solutions.

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

Enterprise SaaS Solutions revenues from the rest of the world stayed relatively flat.

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.

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

Cost of net revenues.

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.

Cost of net revenues for the three months ended March 31, 2022 was $46.1 million, or 75.2% of net revenues, compared to $39.1 million, or 67.9% of net revenues, for the same period in 2021.

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

Three Months Ended

September 30, Change

March 31, Change

Product Category 2022 2021 $ %

3 unchanged sentences

IoT & Mobile Solutions.

The decrease in IoT & Mobile Solutions cost of net revenues is primarily a result of lower sales of LTE gigabit hotspots.

The increase in IoT & Mobile Solutions cost of net revenues is primarily attributable to $12.7 million increase from higher sales of our second-generation 5G hotspot, and $1.1 million increase of freight charges, partially offset by $3.6 million decrease from lower sales of our 4G products.

Enterprise SaaS Solutions.

Enterprise SaaS Solutions cost of net revenues decreased by $2.4 million compared to the same period in 2021 primarily due to lower sales of Enterprise SaaS Solutions as a result of the divestiture of Ctrack South Africa on July 30, 2021.

Enterprise SaaS Solutions cost of net revenues from the rest of the world stayed relatively flat.

Gross profit.

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.

Gross profit for the three months ended March 31, 2022 was $15.2 million, or a gross margin of 24.8%, compared to $18.5 million, or a gross margin of 32.1%, for the same period in 2021.

The decrease in gross profit was primarily attributable to a decrease in Enterprise SaaS Solutions as a result of the sale of Ctrack South Africa, which had a higher gross profit.

This decrease was partially offset by an increase in gross profit from IoT & Mobile Solutions as our 5G revenue and Inseego Subscribe business continued to grow.

The following table summarizes operating costs and expenses (dollars in thousands):

Three Months Ended March 31, Change

Operating costs and expenses 2022 2021 $ %

Research and development $ 18,560 $ 14,555 $ 4,005 27.5 %

Sales and marketing 9,773 11,004 (1,231) (11.2) %

General and administrative 8,238 8,644 (406) (4.7) %

Amortization of purchased intangible assets 444 466 (22) (4.7) %

Total $ 37,015 $ 34,669 $ 2,346 6.8 %

Research and development expenses.

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.

Research and development expenses for the three months ended March 31, 2022 were $18.6 million, or 30.2% of net revenues, compared to $14.6 million, or 25.3% of net revenues, for the same period in 2021.

The increase was primarily a result of $0.9 million increase in payroll costs that were not capitalized due to timing of meeting technological feasibility milestone for capitalized software for various R&D projects, $2.3 million increase in amortization, and $0.8 million increase in share-based compensation expense.

Sales and marketing expenses.

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 .

Sales and marketing expenses for the three months ended March 31, 2022 were $9.8 million, or 15.9% of net revenues, compared to $11.0 million, or 19.1% of net revenues, for the same period in 2021.

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.

This decrease was partially offset by the increase in outbound freight charges, consulting expenses and commission to employees which is in line with the revenue increase from IoT & Mobile Solutions.

General and administrative expenses.

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.

General and administrative expenses for the three months ended March 31, 2022 were $8.2 million, or 13.4% of net revenues, compared to $8.6 million, or 15.0% of net revenues, for the same period in 2021.

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.

The decrease in general and administrative expenses was partially offset by a $1.4 million increase in share-based compensation expense attributed by the impact of higher fiscal 2021 bonus grants paid in the first quarter of 2022 in the form of RSUs.

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 the three months ended September 30, 2021 and 2020 was $0.5 million and $0.8 million, respectively.

Amortization of purchased intangible assets for the three months ended March 31, 2022 and 2021 was $0.4 million and $0.5 million, respectively.

The decrease was primarily as a result of certain purchased intangible assets being fully amortized as of the fourth quarter of 2021.

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.

The following table summarizes other income (expense) (dollars in thousands):

Three Months Ended March 31, Change

Other (expense) income 2022 2021 $ %

Loss on debt conversion and extinguishment, net (450) (432) (18) 4.2 %

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 (2,923) (1,845) (1,078) 58.4 %

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 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 (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.

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

Net revenues .

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):

Nine Months Ended

September 30, Change

Product Category 2021 2020 $ %

IoT & Mobile Solutions 151,770 $ 189,071 $ (37,301) (19.7) %

Enterprise SaaS Solutions 37,737 38,698 (961) (2.5) %

Total $ 189,507 $ 227,769 $ (38,262) (16.8) %

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 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 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 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):

Nine Months Ended

September 30, Change

Product Category 2021 2020 $ %

IoT & Mobile Solutions 116,777 148,414 (31,637) (21.3) %

Enterprise SaaS Solutions 14,965 14,958 7 0.0 %

Other (expense) income, net (405) 1,735 (2,140) (123.3) %

Total $ (3,778) $ (542) $ (3,236) 597.0 %

IoT & Mobile Solutions.

The decrease in IoT & Mobile Solutions cost of net revenues is primarily a result of the decreased sales in our LTE gigabit hotspots.

Enterprise SaaS Solutions.

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 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 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 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 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 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 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 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.

Loss on debt conversion and extinguishment, net.

The loss on debt conversion and extinguishment, net of $0.5 million during the three months ended March 31, 2022 was primarily a result of certain 2022 Notes debt extinguishments related adjustments in prior years recorded in the current period.

For the same period in 2021, loss on debt conversion and extinguishment, net was $0.4 million which was primarily related to the extinguishment of the 2022 Notes.

Interest expense, net.

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 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.

Interest expense, net, for the three months ended March 31, 2022 and 2021 was $2.9 million and $1.8 million, respectively.

The increase was primarily a result of certain 2022 Notes debt extinguishments related adjustments in prior years recorded in the current period.

Other (expense) income, net.

Other expense, net, for the three months ended March 31, 2022 was $0.4 million, which primarily includes $1.0 million of foreign currency exchange gains and losses partially offset by the $0.6 million fair value adjustment related to our interest make-whole arrangement.

For the same period in 2021, other income, net, was $1.7 million, which primarily includes the fair value adjustment related to our interest make-whole arrangement.

Fair value input changes between the periods are primarily related to increased interest rates and a lower stock price.

The following table summarizes income tax provision, net income attributable to noncontrolling interests, and Series E preferred stock dividends (dollars in thousands):

Three Months Ended March 31, Change

2022 2021 $ %

Income tax provision $ (322) $ 221 $ (543) (245.7) %

Net income attributable to noncontrolling interests — (214) 214 (100.0) %

Series E preferred stock dividends (661) (867) 206 (23.8) %

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.

The income tax benefit of $0.3 million for the three months ended March 31, 2022 and the income tax provision of $0.2 million for the same period in 2021, respectively, consisted primarily of foreign income taxes at certain of our international entities and minimum state taxes for our U.S.-based entities.

Our income tax expense is different than the expected expense based on statutory rates primarily due to full valuation allowances at all of our U.S.-based entities and several of our foreign subsidiaries.

The tax benefit for the first quarter of 2022 and the tax expense for the first quarter of 2021 were largely driven by foreign currency losses, and gains, respectively, at our foreign subsidiaries.

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.

There was no net income or loss attributable to noncontrolling interests for the three months ended March 31, 2022, compared to a net income attributable to noncontrolling interests of $0.2 million for the same period in 2021, due to the sale of the noncontrolling interests as part of the sale of Ctrack South Africa.

Series E preferred stock dividends.

During the three months ended March 31, 2022 and 2021, we recorded dividends of $0.7 million and $0.9 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

The decrease was primarily attributable to 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 for the period ended March 31, 2022.

Liquidity and Capital Resources

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 (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 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.

Our principal sources of liquidity are our existing cash and cash equivalents and cash generated from operations.

As of March 31, 2022, we had available cash and cash equivalents totaling $41.5 million, as well as $3.7 million of restricted cash that will become available in July 2022.

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.

As of March 31, 2022, our outstanding debt primarily consisted of $161.9 million in principal amount of 2025 Notes.

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

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If events or circumstances occur such that we do not meet its operating plan as expected, or if we become obligated to pay unforeseen expenditures as a result of ongoing litigation, we may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives.

Our liquidity could be impaired 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.

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.

There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to us, or at all.

Ultimately, our ability to attain profitability and to generate positive cash flow is dependent upon achieving a level of revenues adequate to support our evolving cost structure and increasing working capital needs.

If events or circumstances occur such that we do not meet our operating plan as expected, we may be required to raise additional capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives.

There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to us, or at all.

If additional funds are raised by the issuance of equity securities, Company stockholders could experience dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock.

If additional funds are raised by the issuance of debt securities, we may be subject to additional limitations on our operations.

Additionally, we are uncertain of the full extent to which the COVID-19 pandemic will impact our business, operations and financial results.

Contractual Obligations and Commitments

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 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.

There were no material changes in our contractual obligations in the first quarter of 2022.

On May 12, 2020, we completed a registered public offering of $100.0 million aggregate principal amount of 2025 Notes and issued $80.4 million principal amount of 2025 Notes in the privately-negotiated exchange agreements that closed concurrently in May 2020.

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

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

Nine Months Ended

September 30,

Three Months Ended

Net cash (used in) provided by operating activities $ (638) $ 973

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

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

Net cash used in investing activities (3,890) (9,396)

Net cash (used in) provided by financing activities (1,060) 29,547

Effect of exchange rates on cash 957 (1,589)

Net increase in cash, cash equivalents and restricted cash 21,594 29,920

Net (decrease) increase in cash, cash equivalents and restricted cash (4,631) 19,535

Cash, cash equivalents and restricted cash, beginning of period 49,812 40,015

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Operating activities.

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,

Net cash used in operating activities was $0.6 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $1.0 million for the same period in 2021.

Net cash used in operating activities for the three months ended March 31, 2022 was primarily attributable to $25.2 million net loss incurred during the period and a $0.6 million non-cash gain as a result of the fair value adjustment on derivative instruments, partially offset by net cash provided by working capital of $4.2 million, depreciation and amortization of $7.2 million, share-based compensation expense of $11.2 million, amortization of debt discount and debt issuance costs of $1.7 million, and loss on debt conversion of $0.5 million.

Net cash provided by operating activities for the three months ended March 31, 2021 was primarily attributable to net cash provided by working capital of $3.4 million, depreciation and amortization of $6.2 million, amortization of debt discount and debt issuance costs of $0.4 million, loss on debt conversion of $0.4 million, and share-based compensation expense of $9.1 million, offset by $17.0 million net loss incurred during the period, and a $2.0 million non-cash gain as a result of the fair value adjustment on derivative instruments.

Investing activities.

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.

Net cash used in investing activities during the three months ended March 31, 2022 was $3.9 million, compared to net cash used in investing activities of $9.4 million for the same period in 2021.

Cash used in investing activities during the three months ended March 31, 2022 was primarily related to $0.8 million purchases of property, plant and equipment and $3.1 million spending on certain costs related to the 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 2021 was primarily related to $1.3 million purchases of property, plant and equipment and $8.0 million 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 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.

Net cash used in financing activities during the three months ended March 31, 2022 was $1.1 million, compared to net cash provided by financing activities of $29.5 million for the same period in 2021.

Net cash used in financing activities during the three months ended March 31, 2022 was primarily related to $1.0 million principal payments for financed other assets.

Net cash provided by financing activities for the same period in 2021 was primarily related to $29.4 million net proceeds received from the ATM Offering, $1.1 million proceeds from stock option exercises and purchases through our employee stock purchase plan, partially offset by $1.2 million principal payments under finance lease obligations and taxes paid on vested restricted stock units.

Off-Balance Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis