INSEEGO CORP. 10-Q

Item 1. Financial Statements. INSEEGO CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) September 30, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 18,063 $ 46,474 Restricted cash — 3,338 Accounts receivable, net of allowance for doubtful accounts of $ 371 and $ 408 , respectively 28,668 26,781 Inventories 42,406 37,402 Prepaid expenses and other 10,902 13,624 Total current assets 100,039 127,619 Property, plant and equipment, net of accumulated depreciation of $ 25,240 and $ 26,692 , respectively 6,157 8,102 Rental assets, net of accumulated depreciation of $ 5,919 and $ 5,392 , respectively 4,411 4,575 Intangible assets, net of accumulated amortization of $ 63,425 and $ 48,404 , respectively 44,406 46,995 Goodwill 21,922 20,336 Right-of-use assets, net 6,902 7,839 Other assets 563 377 Total assets $ 184,400 $ 215,843 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 39,537 $ 48,577 Accrued expenses and other current liabilities 31,476 26,253 Total current liabilities 71,013 74,830 Long-term liabilities: 2025 Notes, net 158,079 157,866 Revolving credit facility, net 3,451 — Deferred tax liabilities, net 816 852 Other long-term liabilities 6,841 7,149 Total liabilities 240,200 240,697 Commitments and contingencies Stockholders’ deficit: Preferred stock, par value $ 0.001 ; 2,000,000 shares authorized: Series E Preferred stock, par value $ 0.001 ; 39,500 shares designated, 25,000 shares issued and outstanding, liquidation preference of $ 1,000 per share (plus any accrued but unpaid dividends) — — Common stock, par value $ 0.001 ; 150,000,000 shares authorized, 107,846,082 and 105,380,533 shares issued and outstanding, respectively 108 105 Additional paid-in capital 790,460 770,619 Accumulated other comprehensive loss ( 3,950 ) ( 8,531 ) Accumulated deficit ( 842,418 ) ( 787,047 ) Total stockholders’ deficit ( 55,800 ) ( 24,854 ) Total liabilities and stockholders’ deficit $ 184,400 $ 215,843 See accompanying notes to condensed consolidated financial statements. INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net revenues: IoT & Mobile Solutions $ 62,633 $ 56,975 $ 172,129 $ 151,770 Enterprise SaaS Solutions 6,534 9,242 20,279 37,737 Total net revenues 69,167 66,217 192,408 189,507 Cost of net revenues: IoT & Mobile Solutions 48,209 43,595 131,805 116,777 Enterprise SaaS Solutions 3,002 3,679 9,505 14,965 Total cost of net revenues 51,211 47,274 141,310 131,742 Gross profit 17,956 18,943 51,098 57,765 Operating costs and expenses: Research and development 15,417 12,626 47,597 38,954 Sales and marketing 8,295 9,172 25,789 29,997 General and administrative 5,720 6,599 20,101 22,657 Amortization of purchased intangible assets 433 519 1,319 1,649 Impairment of capitalized software — — — 1,197 Total operating costs and expenses 29,865 28,916 94,806 94,454 Operating loss ( 11,909 ) ( 9,973 ) ( 43,708 ) ( 36,689 ) Other (expense) income: Gain on sale of Ctrack South Africa — 5,262 — 5,262 Loss on debt conversion and extinguishment, net — — ( 450 ) ( 432 ) Interest expense, net ( 2,034 ) ( 1,655 ) ( 6,621 ) ( 5,178 ) Other (expense) income, net ( 1,758 ) ( 828 ) ( 3,145 ) 291 Total other (expense) income ( 3,792 ) 2,779 ( 10,216 ) ( 57 ) Loss before income taxes ( 15,701 ) ( 7,194 ) ( 53,924 ) ( 36,746 ) Income tax provision (benefit) 42 ( 4 ) ( 582 ) 445 Net loss ( 15,743 ) ( 7,190 ) ( 53,342 ) ( 37,191 ) Less: Net income attributable to noncontrolling interests — — — ( 214 ) Net loss attributable to Inseego Corp. ( 15,743 ) ( 7,190 ) ( 53,342 ) ( 37,405 ) Series E preferred stock dividends ( 691 ) ( 1,843 ) ( 2,029 ) ( 3,596 ) Net loss attributable to common stockholders $ ( 16,434 ) $ ( 9,033 ) $ ( 55,371 ) $ ( 41,001 ) Per share data: Net loss per common share: Basic and diluted $ ( 0.15 ) $ ( 0.09 ) $ ( 0.52 ) $ ( 0.40 ) Weighted-average shares used in computation of net loss per common share: Basic and diluted 107,747,468 103,430,083 106,977,201 102,586,121 See accompanying notes to condensed consolidated financial statements. 4 INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net loss $ ( 15,743 ) $ ( 7,190 ) $ ( 53,342 ) $ ( 37,191 ) Foreign currency translation adjustment 1,147 ( 2,571 ) 4,581 ( 1,878 ) Release of cumulative foreign currency translation adjustments as a result of the sale of Ctrack South Africa — 1,608 — 1,608 Total comprehensive loss $ ( 14,596 ) $ ( 8,153 ) $ ( 48,761 ) $ ( 37,461 ) Comprehensive income attributable to noncontrolling interests — — — ( 214 ) Comprehensive loss attributable to Inseego Corp. $ ( 14,596 ) $ ( 8,153 ) $ ( 48,761 ) $ ( 37,675 ) See accompanying notes to condensed consolidated financial statements. 5 INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands) (Unaudited) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance, June 30, 2021 35 $ — 103,109 $ 103 $ 761,412 $ ( 764,150 ) ( 6,279 ) $ 8 $ ( 8,906 ) Net loss — — — — — ( 7,190 ) — — ( 7,190 ) Foreign currency translation adjustment — — — — — — ( 2,571 ) — ( 2,571 ) Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan — — 316 — 693 — — — 693 Taxes withheld on net settled vesting of restricted stock units — — — — ( 280 ) — — — ( 280 ) Release of cumulative foreign currency translation adjustments as a result of sale of Ctrack South Africa — — — — 8 ( 1,748 ) 1,608 ( 8 ) ( 140 ) Share-based compensation — — — — 3,062 — — — 3,062 Series E preferred stock dividends — — — — 739 ( 739 ) — — — Series E preferred stock exchange ( 10 ) 1,525 2 1,102 ( 1,104 ) — — — Balance, September 30, 2021 25 $ — 104,950 $ 105 $ 766,736 $ ( 774,931 ) $ ( 7,242 ) $ — $ ( 15,332 ) Balance, June 30, 2022 25 $ — 107,645 $ 108 $ 787,283 $ ( 825,984 ) $ ( 5,097 ) $ — $ ( 43,690 ) Net loss — — — — — $ ( 15,743 ) — — ( 15,743 ) Foreign currency translation adjustment — — — — — $ — 1,147 — 1,147 Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan — — 201 — 101 $ — — — 101 Taxes withheld on net settled vesting of restricted stock units — — — — ( 21 ) $ — — — ( 21 ) Share-based compensation — — — — 2,406 $ — — — 2,406 Series E preferred stock dividends — — — — 691 ( 691 ) — — — Balance, September 30, 2022 25 $ — 107,846 $ 108 $ 790,460 $ ( 842,418 ) $ ( 3,950 ) $ — $ ( 55,800 ) 6 INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands) (Unaudited) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests Total Stockholders’ Deficit Shares Amount Shares Amount Balance, December 31, 2020 35 $ — 99,399 $ 99 $ 711,487 $ ( 732,422 ) $ ( 6,972 ) $ ( 91 ) $ ( 27,899 ) Net loss — — — — — ( 37,405 ) — 214 ( 37,191 ) Foreign currency translation adjustment — — — — — — ( 1,878 ) — ( 1,878 ) Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan — — 2,081 2 3,535 — — — 3,537 Taxes withheld on net settled vesting of restricted stock units — — — — ( 1,105 ) — — — ( 1,105 ) Issuance of common shares in connection with the conversion of 2025 Notes — — 429 — 5,382 — — — 5,382 Issuance of common shares in connection with a public offering, net of issuance costs — — 1,516 2 29,368 — — — 29,370 Share-based compensation — — — — 14,467 — — — 14,467 Series E preferred stock dividends — — — — 2,492 ( 2,492 ) — — — Series E preferred stock exchange ( 10 ) — 1,525 2 1,102 ( 1,104 ) — — — Release of cumulative foreign currency translation adjustments as a result of sale of Ctrack South Africa — — — — 8 ( 1,748 ) 1,608 ( 8 ) ( 140 ) Net noncontrolling interest acquired — — — — — 240 — ( 115 ) 125 Balance, September 30, 2021 25 — 104,950 $ 105 $ 766,736 $ ( 774,931 ) $ ( 7,242 ) $ — $ ( 15,332 ) Balance, December 31, 2021 25 $ — 105,381 $ 105 $ 770,619 $ ( 787,047 ) $ ( 8,531 ) $ — $ ( 24,854 ) Net loss — — — — — ( 53,342 ) — — ( 53,342 ) Foreign currency translation adjustment — — — — — — 4,581 — 4,581 Adjustment relating to extinguishment of 2022 Notes 1,727 — — — 1,727 Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan — — 2,470 3 250 — — — 253 Taxes withheld on net settled vesting of restricted stock units — — ( 5 ) — ( 57 ) — — — ( 57 ) Share-based compensation — — — — 15,892 — — — 15,892 Series E preferred stock dividends — — — — 2,029 ( 2,029 ) — — — Balance, September 30, 2022 25 $ — 107,846 $ 108 $ 790,460 $ ( 842,418 ) $ ( 3,950 ) $ — $ ( 55,800 ) 7 INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 53,342 ) $ ( 37,191 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 20,936 19,131 Provision for bad debts 29 346 Impairment of capitalized software — 1,197 Provision for excess and obsolete inventory 1,330 587 Share-based compensation expense 15,892 14,467 Amortization of debt discount and debt issuance costs 2,472 1,117 Fair value adjustment on derivative instrument ( 902 ) ( 3,435 ) Loss on debt conversion and extinguishment, net 450 432 Gain on sale of Ctrack South Africa — ( 5,262 ) Deferred income taxes ( 223 ) 175 Right-of-use assets 1,057 1,364 Other — 572 Changes in assets and liabilities, net of effects of divestiture: Accounts receivable ( 561 ) 2,834 Inventories ( 5,926 ) ( 7,889 ) Prepaid expenses and other assets 2,723 1,429 Accounts payable ( 13,548 ) ( 7,206 ) Accrued expenses, income taxes, and other 6,276 4,797 Operating lease liabilities ( 1,366 ) ( 2,222 ) Net cash used in operating activities ( 24,703 ) ( 14,757 ) Cash flows from investing activities: Acquisition of noncontrolling interest — ( 116 ) Purchases of property, plant and equipment ( 1,203 ) ( 4,299 ) Proceeds from the sale of property, plant and equipment — 1,143 Proceeds from sale of Ctrack South Africa, net of cash divested — 31,526 Additions to capitalized software development costs ( 9,242 ) ( 20,589 ) Net cash (used in) provided by investing activities ( 10,445 ) 7,665 Cash flows from financing activities: Net (repayment) borrowing of bank and overdraft facilities ( 458 ) 315 Principal payments under finance lease obligations ( 62 ) ( 3,138 ) Proceeds from a public offering, net of issuance costs — 29,370 Principal payments on financed assets ( 1,567 ) — Borrowings on revolving credit facility 9,000 — Repayments on revolving credit facility ( 4,500 ) — Payment of debt issuance costs on revolving credit facility ( 1,126 ) — Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units 196 2,432 Net cash provided by financing activities 1,483 28,979 Effect of exchange rates on cash 1,916 ( 293 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 31,749 ) 21,594 Cash, cash equivalents and restricted cash, beginning of period 49,812 40,015 Cash, cash equivalents and restricted cash, end of period $ 18,063 $ 61,609 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 2,675 $ 2,782 Income taxes $ 96 $ 378 Supplemental disclosures of non-cash activities: Transfer of inventories to rental assets $ 297 $ 4,394 Capital expenditures financed through accounts payable or accrued liabilities $ 4,402 $ 2,643 Right-of-use assets obtained in exchange for operating leases liabilities $ 342 $ 544 Exchange of Series E Preferred Stock for common stock $ — $ 11,982 Issuance of common stock in exchange for Series E Preferred Stock $ — $ 13,086 Deemed dividend on exchange of Series E Preferred Stock for common stock $ — $ 1,104 2025 Notes conversion, including shares issued in satisfaction of interest make-whole payment $ — $ 5,383 See accompanying notes to condensed consolidated financial statements. 8 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The condensed consolidated financial statements contained herein have been prepared by Inseego Corp. (the “Company”) in accordance with the Securities and Exchange Commission (the “SEC”) rules for interim financial information. Accordingly, the condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for fair presentation of the results of interim periods and may not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”). The information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and September 30, 2021, is unaudited, whereas the condensed consolidated balance sheet as of December 31, 2021 is derived from the Company’s audited consolidated financial statements as of that date. These condensed consolidated financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”). Certain prior period amounts were reclassified to conform to the current period presentation. These reclassifications did not affect total revenues, costs and expenses, net loss, assets, liabilities or stockholders’ deficit. The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the year as a whole. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Segment Information Management has determined that the Company has one reportable segment. The Chief Executive Officer, who is also the Chief Operating Decision Maker, does not manage any part of the Company separately, and allocations of resources and assessments of performance are based solely on the Company’s consolidated operations and financial results. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ materially from these estimates. Estimates are assessed each period and updated to reflect current information. Significant estimates include revenue recognition, capitalized software costs, allowance for credit losses, provision for excess and obsolete inventory, valuation of intangible and long-lived assets, valuation of goodwill, valuation of derivatives, accruals relating to litigation, income taxes and share-based compensation expense. Risks and Uncertainties In March 2020, the World Health Organization declared a global pandemic caused by the novel coronavirus (“COVID-19”), resulting in shutdowns of manufacturing and commerce globally in the months that followed. The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments, including the duration, severity and spread of the outbreak, emergence of new variants of concern, and actions taken by the federal, state, local and foreign governments to contain the pandemic, all of which are uncertain and cannot be predicted. In addition, a global semiconductor supply shortage is causing wide-ranging impacts across the technology industry. While the shortage has not materially impacted the Company’s operations and financial results, it may negatively impact our customers and the supply of materials needed for our testing and production timeline. Our suppliers, contract manufacturers, and customers are all taking actions to reduce the impact of the semiconductor shortage; however, if the shortage persists, the impact on our operations and financial results could be material. The inflationary pressures impacting the global supply chain could potentially increase the cost of net revenues in the current and future years. The ongoing inflation challenges could adversely impact our future revenues, gross margins and financial results. 9 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) Sale of Ctrack South Africa On July 30, 2021, the Company completed the sale of its Ctrack business operations in Africa, Pakistan and the Middle East (together “Ctrack South Africa”) and recognized a pre-tax gain of $ 5.3 million. Total cash proceeds received from the sale were $ 31.5 million, net of cash divested of $ 5.0 million. Liquidity As of September 30, 2022, the Company had available unrestricted cash and cash equivalents totaling $ 18.1 million and $ 14.6 million of excess availability under its secured asset-backed revolving credit facility. See Note 4, Debt , for more information on this new credit facility. The Company has a history of operating and net losses and overall usage of cash from operating and investing activities. The Company’s management believes that its cash and cash equivalents on-hand, together with anticipated cash flows from operations, availability under its secured asset-backed revolving credit facility, and anticipated savings from ongoing cost reduction efforts, will be sufficient to meet its cash flow needs for the next twelve months from the filing date of this report. The Company’s 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 its evolving cost structure. If events or circumstances occur such that the Company does not meet its operating plans as expected, or if the Company becomes obligated to pay unforeseen expenditures as a result of ongoing litigation, the Company may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses and capital expenditures, which could have an adverse impact on its ability to achieve its intended business objectives. The Company’s liquidity could also be impaired by significant interruptions in its business operations, such as those described above under the heading Risks and Uncertainties , or, a material failure to satisfy its contractual commitments or a failure to generate revenues from new or existing products. In addition, there can be no assurance that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company’s cash and cash equivalents are generally held with large financial institutions worldwide to reduce the amount of exposure to credit risk. Cash, cash equivalents and restricted cash are recorded at market value, which approximates cost. Gains and losses associated with the Company’s foreign currency denominated demand deposits are recorded as a component of other income, net, in the consolidated statements of operations. Restricted cash held in escrow as of December 31, 2021 was released during the third quarter of 2022 and we no longer have any restricted cash on our balance sheet as of September 30, 2022. Recently Adopted Accounting Pronouncements In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity . The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The guidance is effective for annual and interim periods beginning after December 15, 2021. The Company adopted the ASU in the first quarter of fiscal 2022 and there was no impact to the condensed consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) . The ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. The ASU is effective for annual and interim periods beginning after December 15, 2021. The Company adopted the ASU in the first quarter of fiscal 2022 and there was no impact to the condensed consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) . The ASU requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. 10 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) The ASU does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU is effective for annual and interim periods beginning after December 15, 2022, except for the rollforward requirement, which is effective for annual periods beginning after December 15, 2023. The Company is currently evaluating the impact of this ASU on its consolidated financial statements. 2. Financial Statement Details Inventories Inventories consist of the following (in thousands): September 30, 2022 December 31, 2021 Finished goods $ 35,644 $ 33,112 Raw materials and components 6,762 4,290 Total inventories $ 42,406 $ 37,402 Prepaid expenses and other Prepaid expenses and other consists of the following (in thousands): September 30, 2022 December 31, 2021 Rebate receivables $ 4,015 $ 6,398 Receivables from contract manufacturers 3,239 2,626 Software licenses 1,062 1,261 Insurance 218 1,269 Deposits 870 1,023 Financed assets 295 323 Other 1,203 724 $ 10,902 $ 13,624 Accrued expenses and other current liabilities Accrued expenses and other current liabilities consist of the following (in thousands): September 30, 2022 December 31, 2021 Royalties $ 1,970 $ 2,243 Payroll and related expenses 10,106 9,326 Warranty obligations 458 473 Professional fees 586 502 Accrued interest 2,410 877 Customer contract liabilities 8,554 3,832 Operating lease liabilities 1,662 1,769 Accrued contract manufacturing liabilities 1,599 927 Value added tax payables 424 642 Other 3,707 5,662 Total accrued expenses and other current liabilities $ 31,476 $ 26,253 11 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 3. Fair Value Measurement of Assets and Liabilities Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Each fair value measurement is classified into one of the following levels based on the information used in the valuation: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 3: The fair market value for level 3 securities may be highly sensitive to the use of unobservable inputs and subjective assumptions. Generally, changes in significant unobservable inputs may result in significantly lower or higher fair value measurements. The following table summarizes the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 December 31, 2021 Total Fair Value Level 3 Level 1 Total Fair Value Level 3 Level 1 Assets Cash equivalents Money market funds $ — $ — $ — $ 126 $ — $ 126 Total assets $ — $ — $ — $ 126 $ — $ 126 Liabilities 2025 Notes Interest make-whole payment $ 24 $ 24 $ — $ 926 $ 926 $ — Total liabilities $ 24 $ 24 $ — $ 926 $ 926 $ — The fair value of the interest make-whole payment derivative liability was determined using a Monte Carlo model using the following key assumptions: September 30, 2022 December 31, 2021 Volatility 50 % 50 % Stock price $ 2.07 per share $ 5.83 per share Credit spread 30.78 % 15.93 % Term 2.59 years 3.34 years Dividend yield — % — % Risk-free rate 4.24 % 1.02 % No unrealized gain related to the interest make-whole payment derivative liability was recognized for the three months ended September 30, 2022, compared to a $ 1.6 million,unrealized gain for the three months ended September 30, 2021. The Company also recognized $ 0.9 million and $ 3.4 million of unrealized gains for the nine months ended September 30, 2022 and 2021, respectively. Unrealized gains and losses on the interest make-whole payment derivative are included within other income (expense), net, on the condensed consolidated statements of operations. The Company reviews the fair value hierarchy classification of its financial instruments measured at fair value on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. There have been no transfers of assets or liabilities between fair value measurement classifications during the nine months ended September 30, 2022 or 2021. 12 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) Other Financial Instruments The carrying values of the Company’s other financial assets and liabilities approximate their fair values because of their short-term nature, with the exception of the 3.25% convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes are carried at amortized cost, adjusted for changes in fair value of the embedded derivative. It is not practicable to determine the fair value of the 2025 Notes due to the lack of information available to calculate the fair value of such notes. As of September 30, 2022 and December 31, 2021, the carrying amount of the 2025 Notes was $ 158.1 million and $ 157.9 million, respectively. See Note 4. Debt for additional information on the 2025 Notes. 4. Debt Asset-backed Revolving Credit Facility On August 5, 2022, the Company entered into a Loan and Security Agreement (the “Credit Agreement”), by and among Siena Lending Group LLC, as lender (“Lender”), Inseego Wireless, Inc., a Delaware corporation (“Inseego Wireless”), and Inseego North America LLC, an Oregon limited liability company, as borrowers (together with Inseego Wireless, the “Borrowers”), and the Company, as guarantor (together with the Borrowers, the “Loan Parties”). The Credit Agreement establishes a secured asset-backed revolving credit facility which is comprised of a maximum $ 50 million revolving credit facility (“Credit Facility”), with a minimum draw of $ 4.5 million upon execution of the Credit Agreement. The Credit Facility matures on December 31, 2024. Availability under the Credit Facility is determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. Outstanding amounts exceeding the borrowing base must be repaid immediately. The Borrowers’ obligations under the Credit Agreement are guaranteed by the Company. The Loan Parties’ obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain Excluded Collateral (as defined in the Credit Agreement). Borrowings under the Credit Facility may take the form of base rate (“Base Rate”) loans or Secured Overnight Financing Rate (“SOFR”) loans. SOFR loans will bear interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement as the Term SOFR Reference Rate for a tenor of one month on the day) plus the Applicable Margin (as defined in the Credit Agreement), with a Term SOFR floor of 1 %. Base Rate loans will bear interest at a rate per annum equal to the Applicable Margin plus the greatest of (a) the per annum rate of interest which is identified as the “Prime Rate” and normally published in the Money Rates section of The Wall Street Journal, (b) the sum of the Federal Funds Rate (as defined in the Credit Agreement) plus 0.5 % and (c) 3.50 % per annum. The Applicable Margin varies depending on the average outstanding amount for a preceding month. If the average outstanding amount for a preceding month is less than $15 million, the Applicable Margin will be 2.50 % for Base Rate loans and 3.50 % for SOFR loans. If the average outstanding amount for a preceding month is between $15 million and $25 million, the Applicable Margin will be 3.00 % for Base Rate loans and 4.00 % for SOFR loans. If the average outstanding amount for a preceding month is greater than $25 million, the Applicable Margin will be 4.5 % for Base Rate loans and 5.50 % for SOFR loans. The Credit Agreement contains a financial covenant whereby the Loan Parties shall not permit the consolidated Liquidity (as defined in the Credit Agreement) to be less than $ 10 million at any time. The Credit Agreement also contains certain customary covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments. The Company was in compliance with all Credit Agreement covenants as of September 30, 2022. Upon execution of the Credit Agreement, the Company paid $ 1.1 million of debt issuance costs, which will be amortized to interest expense throughout the term of the agreement.. Through September 30, 2022, the Company borrowed an aggregate $ 9.0 million and repaid an aggregate $ 4.5 million under the Credit Facility. As of September 30, 2022, the Credit Facility had outstanding borrowings of $ 4.5 million and a borrowing base of $ 19.1 million. The Company’s policy is to classify outstanding borrowings as long-term so long as such borrowings are not expected to exceed the borrowing base over the 12 months subsequent to the balance sheet date, in which case, any excess borrowings would be classified as short-term. 2025 Notes On May 12, 2020, the Company completed its 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 with the registered offering in May 2020. During the nine months ended September 30, 2021, certain holders of the 2025 Notes converted an aggregate of approximately $ 5.0 million in principal amount of the 2025 Notes into 428,669 shares of the Company’s common stock, 13 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) including 32,221 shares of common stock issued in satisfaction of the interest make-whole payment. In connection therewith, the Company recorded a loss of $ 0.4 million on debt conversion, net in the condensed consolidated statement of operations. As of September 30, 2022 and December 31, 2021, $ 161.9 million in principal amount of the 2025 Notes were outstanding, $ 80.4 million of which were held by related parties, and $ 0.4 million of accrued interest due to related parties was included within accrued expenses and other current liabilities on the condensed consolidated balance sheets. Assuming no repurchases or conversions of the 2025 Notes prior to May 1, 2025, the entire principal balance of $ 161.9 million is due on May 1, 2025. 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. The 2025 Notes consist of the following (in thousands): September 30, 2022 December 31, 2021 Principal $ 161,898 $ 161,898 Add: fair value of embedded derivative 24 926 Less: unamortized debt discount ( 2,140 ) ( 2,761 ) Less: unamortized issuance costs ( 1,703 ) ( 2,197 ) Net carrying amount $ 158,079 $ 157,866 The effective interest rate on the liability component of the 2025 Notes was 4.13 % and 4.12 % for the three months ended September 30, 2022 and 2021, respectively, and 4.18 % and 4.15 % for the nine months ended September 30, 2022 and 2021, respectively. The following table sets forth total interest expense recog nized related to the 2025 Notes (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Contractual interest expense $ 1,315 $ 1,315 $ 3,946 $ 3,899 Amortization of debt discount 207 207 621 622 Amortization of debt issuance costs 165 165 494 495 Total interest expense $ 1,687 $ 1,687 $ 5,061 $ 5,016 5. Share-based Compensation During the nine months ended September 30, 2022, the Company granted awards under the 2018 Omnibus Incentive Compensation Plan, previously named the Amended and Restated 2009 Omnibus Incentive Compensation Plan (the “2018 Plan”), and the 2015 Incentive Compensation Plan (the “2015 Plan”). The Compensation Committee of the Board of Directors administers the plans. Under the 2018 Plan, a maximum of 8,897,084 shares of common stock may be issued upon the exercise of stock options, in the form of restricted stock, or in settlement of restricted stock units (“RSUs”) or other awards, including awards with alternative vesting schedules such as performance-based criteria. For the three and nine months end ed September 30, 2022 and 2021 the following table presents total share-based compensation expense within each functional line item on the condensed consolidated statements of operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenues $ 199 $ 416 $ 1,873 $ 2,228 Research and development 513 604 5,011 4,366 Sales and marketing 489 614 3,086 3,161 General and administrative 1,205 1,428 5,922 4,712 Total $ 2,406 $ 3,062 $ 15,892 $ 14,467 14 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) Stock Options The Compensation Committee of the Board of Directors determines eligibility, vesting schedules and exercise prices for stock options granted. The Company generally uses the Black-Scholes option pricing model to estimate the fair value of its stock options. For performance stock awards subject to market-based vesting conditions, fair values are determined using the Monte-Carlo simulation model. Stock options generally have a term of ten years and vest over a three - to four-year period. The following table summarizes the Company’s stock option activ ity for the nine months ended September 30, 2022 : Outstanding — December 31, 2021 8,085,793 Granted 1,422,500 Exercised ( 264,343 ) Canceled ( 831,400 ) Outstanding — September 30, 2022 8,412,550 Exercisable — September 30, 2022 5,391,541 At September 30, 2022, total unrecognized compensatio n expense related to stock options was $ 8.9 million , which is expected to be recognized over a weighted-average period of 2.76 years . Restricted Stock Units Pursuant to the 2018 Plan and the 2015 Plan, the Company may issue RSUs that, upon satisfaction of vesting conditions, allow recipients to receive common stock. Issuances of such awards reduce common stock available under the 2018 Plan and 2015 Plan for stock incentive awards. The Company measures compensation cost associated with grants of RSUs at fair value, which is generally the closing price of the Company’s stock on the date of grant. RSUs generally vest over a three - to four-year period. The following table summarizes the Company’s RSU activity for the nine months ended September 30, 2022 : Non-vested — December 31, 2021 1,247,723 Granted 2,516,362 Vested ( 2,051,578 ) Forfeited ( 220,883 ) Non-vested — September 30, 2022 1,491,624 At September 30, 2022, total unrecognized compensation expense related to RSUs was $ 5.0 million , which is expected to be recognized over a weighted-average period of 2.71 years . 6. Earnings Per Share Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Potentially dilutive securities (consisting primarily of the 2025 Notes calculated using the if-converted method and warrants, stock options and RSUs calculated using the treasury stock method) are excluded from the diluted EPS computation in loss periods and when the applicable exercise price is greater than the market price on the period end date as their effect would be anti-dilutive. 15 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) The calculation of basic and diluted earnings per share was as follows (in thousands, except share and per share data): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net loss attributable to common stockholders $ ( 16,434 ) $ ( 9,033 ) $ ( 55,371 ) $ ( 41,001 ) Weighted-average common shares outstanding 107,747,468 103,430,083 106,977,201 102,586,121 Basic and diluted net loss per share $ ( 0.15 ) $ ( 0.09 ) $ ( 0.52 ) $ ( 0.40 ) The following is a summary of outstanding anti-dilutive potential common stock that was excluded from diluted net loss per share attributable to stockholders: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 2022 2021 2025 Notes 14,341 14,341 14,341 14,341 Warrants — 2,500 — 2,500 Non-qualified stock options 8,557 8,169 8,787 8,169 Restricted stock units 1,438 487 1,441 487 Employee stock purchase plan 984 250 984 250 Total 25,320 25,747 25,553 25,747 7. Private Placements and Public Offering In March 2019, the Company issued warrants to purchase 2,500,000 shares of common stock (the “2019 Warrants”) to certain accredited investors. Each 2019 Warrant had an initial exercise price of $ 7.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, and became exercisable on September 28, 2019. The Company determined that the warrants did not require liability accounting and classified the warrants as equity. At June 30, 2022, the warrants expired unexercised. In January 2021, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, up to $ 40.0 million of shares of its common stock (the “ATM Offering”). In January 2021, the Company 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, and other offering fees, pursuant to the ATM Offering. 8. Geographic Information and Concentrations of Risk Geographic Information The following table details the Company’s net revenues by geographic region based on shipping destination (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 United States and Canada $ 53,924 $ 56,614 $ 159,393 $ 150,822 Europe 6,954 5,828 20,176 17,425 South Africa (a) — 2,435 — 17,333 Australia (b) 7,543 982 9,966 2,883 Other 746 358 2,873 1,044 Total $ 69,167 $ 66,217 $ 192,408 $ 189,507 (a) In July 2021, the Company sold its Ctrack South Africa business. (b) Separated Australia and Europe from Other for all prior year periods presented. 16 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) Concentrations of Credit Risk For the three months ended September 30, 2022, two customers accounted for 33.9 % and 29.3 % of net revenues, respectively. For the three months ende d September 30, 2021, two customers accounted for 40.4 % and 32.5 %, respectively, of net revenues. For the nine months ended September 30, 2022, two customers accounted for 50.8 % and 44.4 % of net revenues, respectively. For the nine months ended September 30, 2021, two customers accounted for 44.3 % and 23.5 %, respectively, of net revenues. As of September 30, 2022, three customers accoun ted for 33.5 %, 15.3 % and 13.3 % of accounts receivable, net, respectively. As of December 31, 2021, two customers accounted for 61.7 % and 12.6 % of accounts receivable, net, respectively. 9. Commitments and Contingencies Noncancellable Purchase Obligations The Company typically enters into commitments with its contract manufacturers that require future purchase of goods or services in the three to four quarters following the balance sheet date. Such commitments are noncancellable (“noncancellable purchase obligations”). As of September 30, 2022, future payments under these noncancellable purchase obligations were approximately $ 104.7 million. As of December 31, 2021, future payments under these noncancellable purchase obligations were approximately $ 165.8 million. Indemnification In the normal course of business, the Company periodically enters into agreements that require the Company to indemnify and defend its customers for, among other things, claims alleging that the Company’s products infringe third-party patents or other intellectual property rights. The Company’s maximum exposure under these indemnification provisions cannot be estimated but the Company does not believe that there are any matters individually or collectively that would have a material adverse effect on its results of operations or financial condition. 10. Leases The components of the right-of-use assets and lease liabilities were as follows (in thousands): Balance Sheet Classification September 30, 2022 December 31, 2021 Operating right-of-use assets, net Right-of-use assets, net $ 6,902 $ 7,839 Current operating lease liabilities Accrued expenses and other current liabilities $ 1,662 $ 1,769 Non-current operating lease liabilities Other long-term liabilities 6,056 7,112 Total operating lease liabilities $ 7,718 $ 8,881 Weighted-average remaining lease term (in years) 4.4 5.3 Weighted-average discount rate 9.0 % 9.1 % The components of lease cost were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating lease costs included in operating costs and expenses $ 589 $ 200 $ 1,789 $ 1,000 17 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) Supplemental cash flow information related to leases was as follows (in thousands): Nine Months Ended September 30, 2022 2021 Operating cash flows related to operating leases $ 1,857 $ 1,858 Operating right-of-use assets obtained in exchange for lease liabilities $ 342 $ 544 F uture minimum payments under operating leases were as follows as of September 30, 2022 (in thousands): 2022 (remainder) $ 783 2023 2,146 2024 1,959 2025 1,684 2026 1,687 2027 1,125 Thereafter — Total minimum operating lease payments $ 9,384 Less: amounts representing interest ( 1,666 ) Present value of net minimum operating lease payments 7,718 Less: current portion ( 1,662 ) Long-term portion of operating lease obligations $ 6,056 11. Income Taxes The Company’s income tax provision (benefit) was $ 42 thousand and $( 4 ) thousand for the three months ended September 30, 2022 and 2021, respectively, and $( 0.6 ) million and $ 0.4 million for the nine months ended September 30, 2022 and 2021, respectively. Income taxes for all periods consisted primarily of foreign income taxes at certain of the Company’s international entities and minimum state taxes for its U.S.-based entities. The Company’s income tax expense differs from the expected expense based on statutory rates primarily due to full valuation allowances at all of its U.S.-based entities and several of its foreign subsidiaries. The income tax (benefit) provision for the nine months ended September 30, 2022 and 2021, were largely driven by foreign currency losses and gains, respectively, at the Company’s foreign subsidiaries. On March 11, 2021, Congress passed, and the President signed into law, the American Rescue Plan Act, 2021 (the “ARP”), which includes certain business tax provisions. The Company does not expect the ARP to have a material impact on the Company’s effective tax rate or income tax expense for the year ending December 31, 2022. On August 16, 2022, Congress passed, and the President signed into law, the Inflation Reduction Act, 2022 (the “IRA”), which includes certain business tax provisions. The Company does not expect the IRA to have a material impact on the Company’s effective tax rate or income tax expense for the year ending December 31, 2022. 18