INSEEGO CORP. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward Looking Statements This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the views of our senior management with respect to our current expectations, assumptions, estimates and projections about Inseego and our industry. These forward-looking statements speak only as of the date of this report. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Statements that include the words “may,” “could,” “should,” “would,” “estimate,” “anticipate,” “believe,” “expect,” “preliminary,” “intend,” “plan,” “project,” “outlook,” “will” and similar words and phrases identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements as of the date of this report. We believe that these factors include those related to: • our ability to compete in the market for wireless broadband data access products, wireless modem products, and asset management, monitoring, telematics, vehicle tracking and fleet management products; • our ability to develop and introduce new products and services successfully; • our ability to meet the price and performance standards of the evolving 5G New Radio (“5G NR”) products and technologies; • our ability to expand our customer reach/reduce customer concentration; • our ability to grow the Internet of Things (“IoT”) and mobile portfolio outside of North America; • our ability to grow our Ctrack/asset tracking solutions within North America; • our dependence on a small number of customers for a substantial portion of our revenues; • our ability to make scheduled payments on, or to refinance our indebtedness, including our convertible notes obligations; • our ability to introduce and sell new products that comply with current and evolving industry standards and government regulations; • our ability to develop and maintain strategic relationships to expand into new markets; • our ability to properly manage the growth of our business to avoid significant strains on our management and operations and disruptions to our business; • our reliance on third parties to manufacture our products; • our contract manufacturer’s ability to secure necessary supply to build our devices; • increases in costs, disruption of supply or the shortage of semiconductors or other key components of our products; • our ability to mitigate the impact of tariffs or other government-imposed sanctions; • our ability to accurately forecast customer demand and order the manufacture and timely delivery of sufficient product quantities; • our reliance on sole source suppliers for some products and devices used in our solutions; • 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, 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; • our ability to meet the product performance needs of our customers in wireless broadband data access in industrial IoT (“IIoT”) markets; 21 • demand for fleet, vehicle and asset management software-as-a-service (“SaaS”) telematics solutions; • our dependence on wireless telecommunication operators delivering acceptable wireless services; • the outcome of any pending or future litigation, including intellectual property litigation; • infringement claims with respect to intellectual property contained in our solutions; • our continued ability to license necessary third-party technology for the development and sale of our solutions; • the introduction of new products that could contain errors or defects; • conducting business abroad, including 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 make focused investments in research and development; and • our ability to hire, retain and manage additional qualified personnel to maintain and expand our business. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A. Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. As used in this report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “Inseego” refer to Inseego Corp., a Delaware corporation, and its wholly-owned subsidiaries. Trademarks “Inseego”, “Inseego Subscribe”, “Inseego Manage”, “Inseego Secure”, “Inseego Vision”, the Inseego logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, “Wavemaker”, “Clarity”, and “Skyus” are trademarks or registered trademarks of Inseego and its subsidiaries. Other trademarks, trade names or service marks used in this report are the property of their respective owners. 22 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. Business Overview Inseego Corp. 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. Inseego’s products and solutions, designed and developed in the U.S., power mission critical applications with a “zero unscheduled downtime” mandate, such as our 5G fixed wireless access (“FWA”) gateway solutions, 4G and 5G mobile broadband, IIoT applications such as SD WAN failover management, asset tracking and fleet management services. 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, 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. Our Sources of Revenue We provide intelligent wireless 4G and 5G hardware products for the worldwide mobile communications and IIoT markets. 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, 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. Our mobile hotspots sold under the MiFi brand have been sold to millions of end users, and provide subscribers with secure and convenient high-speed access to corporate, public and personal information through the Internet and enterprise networks. Our wireless standalone and USB modems and gateways allow us to address the rapidly growing and underpenetrated IoT market segments. Our telematics and mobile asset tracking hardware devices collect and control critical vehicle data and driver behaviors, and can reliably deliver that information to the cloud, all managed by our services enablement platforms. 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 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. 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. 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. The platforms are flexible and support both on-premise server or cloud-based deployments and are the basis for the delivery of a wide range of IoT services in multiple industries. 23 We classify our revenues from the sale of our products and services into two distinct groupings, specifically IoT & Mobile Solutions and Enterprise SaaS Solutions. Both IoT & Mobile Solutions and Enterprise SaaS Solutions revenues include any hardware and software required for the respective solution. Our SaaS delivery platforms include our Ctrack platforms, which provide fleet, vehicle, aviation, asset and other telematics applications. Since the sale of our Ctrack South Africa operations was completed on July 30, 2021, certain portions of our SaaS revenue will no longer be generated, but Inseego will continue to provide telematics solutions in the rest of the world, including in North America, Europe and Australia. Factors Which May Influence Future Results of Operations Net Revenues. We believe that our future net revenues may be influenced by a number of factors including: • economic environment and related market conditions; • increased competition from other fleet and vehicle telematics solutions, as well as suppliers of emerging devices that contain wireless data access or device management features; • acceptance of our products by new vertical markets; • growth in the aviation ground vertical; • rate of change to new products; • deployment of 5G infrastructure equipment; • adoption of 5G end point products; • competition in the area of 5G technology; • our contract manufacturer’s ability to secure necessary supply to of semiconductors and other key components to build our devices; • product pricing; • the impact of the COVID-19 pandemic on our business; and • 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 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. In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, resulting in shutdowns of manufacturing and commerce globally in the months that followed. 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 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. The macroeconomic environment remains uncertain and the demand for our products in the prior year may not be sustainable for the long term. We will continue to monitor the implications of the COVID-19 pandemic on our business, as well as our customers’ and suppliers’ businesses. Cost of Net Revenues. 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, 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. Operating Costs and Expenses. Our operating costs consist of three primary categories: research and development; sales and marketing, and general and administrative costs. Research and development is at the core of our ability to produce innovative, leading-edge products. These expenses consist primarily of engineers and technicians who design and test our highly complex products and the procurement of testing and certification services. 24 Sales and marketing expenses consist primarily of our sales force and product-marketing professionals. In order to maintain strong sales relationships, we provide co-marketing, trade show support and product training. We are also engaged in a wide variety of marketing activities, such as awareness and lead generation programs as well as product marketing. Other marketing initiatives include public relations, seminars and co-branding with partners. General and administrative expenses include primarily corporate functions such as accounting, human resources, legal, administrative support and professional fees. This category also includes the expenses needed to operate as a publicly-traded company, including compliance with the Sarbanes-Oxley Act of 2002, as amended, SEC filings, stock exchange fees and investor relations expense. 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. 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. Given our current cash position and recent losses, any additional acquisitions we make would likely involve issuing stock in order to provide the purchase consideration for the acquisitions. If we make any additional acquisitions, we may incur substantial expenditures in conjunction with the acquisition process and the subsequent assimilation of any acquired business, products, technologies or personnel. Critical Accounting Policies and Estimates In the notes to our consolidated financial statements and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Form 10-K. The accounting principles used in preparing our unaudited condensed consolidated financial statements conform in all material respects to accounting principles generally accepted in the U.S. Results of Operations Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 Net revenues . 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 March 31, Change Product Category 2022 2021 $ % IoT & Mobile Solutions $ 54,505 $ 42,959 $ 11,546 26.9 % Enterprise SaaS Solutions 6,879 14,638 (7,759) (53.0) % Total $ 61,384 $ 57,597 $ 3,787 6.6 % IoT & Mobile Solutions. 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 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 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. 25 The following table summarizes cost of net revenues by our two product categories (in thousands): Three Months Ended March 31, Change Product Category 2022 2021 $ % IoT & Mobile Solutions $ 42,903 $ 33,442 $ 9,461 28.3 % Enterprise SaaS Solutions 3,233 5,682 (2,449) (43.1) % Total $ 46,136 $ 39,124 $ 7,012 17.9 % IoT & Mobile Solutions. 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 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 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 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 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. 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. See Note 5. 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 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. 26 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 % Interest expense, net (2,923) (1,845) (1,078) 58.4 % Other (expense) income, net (405) 1,735 (2,140) (123.3) % Total $ (3,778) $ (542) $ (3,236) 597.0 % 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 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 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. 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. 27 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 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. 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 the buyer. 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. 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. Our management believes that our cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet our cash flow needs for the next twelve months from the filing date of this report. Our ability to attain more profitable operations and continue to generate positive cash flow is dependent upon achieving a level and mix of revenues adequate to support our evolving cost structure. 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 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 first quarter of 2022. 2025 Notes 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. 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. 28 The 2025 Notes will mature on May 1, 2025, unless earlier repurchased, redeemed or converted. 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. 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. If a make-whole fundamental change (as defined in the Indenture) occurs, then we will in certain circumstances increase the conversion rate for a specified period of time. The 2025 Notes will be redeemable, in whole or in part, at our option at any time, and from time to time, on or after May 6, 2023 and on or before the scheduled trading day before the maturity date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, as long as the last reported sale price per share of the common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. The Indenture contains customary events of default. 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. 29 Historical Cash Flows The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2022 2021 Net cash (used in) provided by operating activities $ (638) $ 973 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 (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 Cash, cash equivalents, and restricted cash, end of period $ 45,181 $ 59,550 Operating activities. 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 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 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 We do not engage in any off-balance sheet arrangements.