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 and our future revenues, gross margins and financial results; • the impact of geopolitical instability on our business; • the emergence of global public health emergencies, such as the outbreak of the 2019 novel coronavirus, 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; 19 • 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 (the “Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. As used in this report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “Inseego” refer to Inseego Corp., a Delaware corporation, and its wholly-owned subsidiaries. Trademarks “Inseego”, “Inseego Subscribe”, “Inseego Manage”, “Inseego Secure”, “Inseego Vision”, the Inseego logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, “Wavemaker”, “Clarity”, and “Skyus” are trademarks or registered trademarks of Inseego and its subsidiaries. Other trademarks, trade names or service marks used in this report are the property of their respective owners. 20 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 software-defined wide area network (“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, Gigabit-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. 21 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 are no longer be generated, but Inseego continues 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 such as inflation; • 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 have made significant investments in additional products and services, 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. The demand environment for our 5G products during the three and nine months ended September 30, 2022 was consistent with our expectations. However, we have recently experienced lower sales of LTE gigabit hotspots within IoT & Mobile Solutions as COVID-19 pandemic demand has eased. The macroeconomic environment continues to remain 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. The inflationary pressures impacting the global supply chain could potentially increase the cost of net revenues in the current and future years. 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. 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 22 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 or drawing on our revolving credit facility 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 September 30, 2022 Compared to Three Months Ended September 30, 2021 Net revenues . Net revenues for the three months ended September 30, 2022 were $69.2 million, compared to $66.2 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 Product Category 2022 2021 $ % IoT & Mobile Solutions $ 62,633 $ 56,975 $ 5,658 9.9 % Enterprise SaaS Solutions 6,534 9,242 (2,708) (29.3) % Total $ 69,167 $ 66,217 $ 2,950 4.5 % IoT & Mobile Solutions. The $5.7 million increase in IoT & Mobile Solutions net revenues over the same period in 2021 is primarily due to higher sales of our second-generation 5G hotspot related to our MiFi business and increases in our Enterprise FWA and Subscribe business, partially offset by a decrease in revenue from our 4G products. Enterprise SaaS Solutions. The $2.7 million decrease in Enterprise SaaS Solutions net revenues over the same period in 2021 is primarily due to lower sales attributable to the Ctrack South Africa divestiture and decrease in Enterprise SaaS solutions revenue from the rest of the world. Cost of net revenues. Cost of net revenues for the three months ended September 30, 2022 was $51.2 million, or 74.0% of net revenues, compared to $47.3 million, or 71.4% of net revenues, for the same period in 2021. 23 The following table summarizes cost of net revenues by our two product categories (in thousands): Three Months Ended September 30, Change Product Category 2022 2021 $ % IoT & Mobile Solutions $ 48,209 $ 43,595 $ 4,614 10.6 % Enterprise SaaS Solutions 3,002 3,679 (677) (18.4) % Total $ 51,211 $ 47,274 $ 3,937 8.3 % IoT & Mobile Solutions. The $4.6 million increase in IoT & Mobile Solutions cost of net revenues over the same period in 2021 is primarily due to higher sales and costs of production of our second-generation 5G hotspot. Enterprise SaaS Solutions. The $0.7 million decrease in Enterprise SaaS Solutions cost of net revenues over the same period in 2021 is primarily due to a decrease in costs attributable to the Ctrack South Africa divestiture. Gross profit. Gross profit for the three months ended September 30, 2022 was $18.0 million, or a gross margin of 26.0%, compared to $18.9 million, or a gross margin of 28.6%, for the same period in 2021. The decrease in gross profit is primarily due to a higher mix of lower-margin 5G product revenue, higher supply chain costs and a decrease in margin attributable to the Ctrack South Africa divestiture. The following table summarizes operating costs and expenses (in thousands): Three Months Ended September 30, Change Operating costs and expenses 2022 2021 $ % Research and development $ 15,417 $ 12,626 $ 2,791 22.1 % Sales and marketing 8,295 9,172 (877) (9.6) % General and administrative 5,720 6,599 (879) (13.3) % Amortization of purchased intangible assets 433 519 (86) (16.6) % Total $ 29,865 $ 28,916 $ 949 3.3 % Research and development expenses. Research and development expenses for the three months ended September 30, 2022 were $15.4 million, or 22.3% of net revenues, compared to $12.6 million, or 19.1% of net revenues, for the same period in 2021. The increase in expense is primarily due to additional certification costs incurred driven by the launch of major 5G products during the current period, an increase in amortization expense from recently launched projects, and a net decrease in capitalizable costs as fewer new projects were undertaken during the current period. Sales and marketing expenses. Sales and marketing expenses for the three months ended September 30, 2022 were $8.3 million, or 12.0% of net revenues, compared to $9.2 million, or 13.9% of net revenues, for the same period in 2021. The decrease in expense is primarily due to lower commission costs and other sales personnel-related costs as a result of the decrease in overall sales headcount compared to the prior year period. General and administrative expenses. General and administrative expenses for the three months ended September 30, 2022 were $5.7 million, or 8.3% of net revenues, compared to $6.6 million, or 10.0% of net revenues, for the same period in 2021. The decrease in expense is primarily due to lower costs attributable to the Ctrack South Africa divestiture, partially offset by increases in other general and administrative expenses. The following table summarizes other (expense) income (in thousands): Three Months Ended September 30, Change Other (expense) income 2022 2021 $ % Gain on sale of Ctrack South Africa $ — $ 5,262 $ (5,262) 100.0 % Interest expense, net $ (2,034) $ (1,655) $ (379) 22.9 % Other (expense) income, net (1,758) (828) (930) 112.3 % Total $ (3,792) $ 2,779 $ (6,571) (236.5) % Gain on sale of Ctrack South Africa. During the three months ended September 30, 2021, we recorded a gain of $5.3 million related to the sale of Ctrack South Africa. There was no such gain for the same period in 2022. 24 Interest expense, net. The $0.4 million increase in expense over the same period in 2021 is primarily due to incremental interest expense attributable to the Company’s new revolving credit facility. Other (expense) income, net. The $0.9 million increase in expense over the same period in 2021 is primarily due to higher foreign currency exchange losses. The following table summarizes income tax provision (benefit) and Series E preferred stock dividends (in thousands): Three Months Ended September 30, Change 2022 2021 $ % Income tax provision (benefit) $ 42 $ (4) $ 46 (1150.0)% Series E preferred stock dividends (691) (1,843) 1,152 (62.5) % Series E preferred stock dividends. During the three months ended September 30, 2022 and 2021, we recorded dividends of $0.7 million and $1.8 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”). The decrease was primarily attributable to a decrease in recurring preferred stock dividends as 10,000 shares of the original 35,000 shares of preferred stock were extinguished in September 2021, resulting in lower accrued preferred stock dividends for the period ended September 30, 2022. Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 Net revenues . Net revenues for the nine months ended September 30, 2022 were $192.4 million, compared to $189.5 million for the same period in 2021 The following table summarizes net revenues by our two product categories (in thousands): Nine Months Ended September 30, Change Product Category 2022 2021 $ % IoT & Mobile Solutions $ 172,129 $ 151,770 $ 20,359 13.4 % Enterprise SaaS Solutions 20,279 37,737 (17,458) (46.3) % Total $ 192,408 $ 189,507 $ 2,901 1.5 % IoT & Mobile Solutions. The $20.4 million increase in IoT & Mobile Solutions net revenues over the same period in 2021 is primarily due to higher sales of our second-generation 5G hotspot, strong performance of our Enterprise FWA business, and an increase in subscriber growth within our Inseego Subscribe business, partially offset by a decrease in revenues from our 4G products. Enterprise SaaS Solutions. The $17.5 million decrease in Enterprise SaaS Solutions net revenues over the same period in 2021 is primarily due to lower sales attributable to the Ctrack South Africa divestiture and decrease in Enterprise SaaS solutions revenue in the rest of the world. Cost of net revenues. Cost of net revenues for the nine months ended September 30, 2022 was $141.3 million or 73.4% of net revenues, compared to $131.7 million or 69.5% of net revenues, for the nine months ended September 30, 2021. The following table summarizes cost of net revenues by our two product categories (in thousands): Nine Months Ended September 30, Change Product Category 2022 2021 $ % IoT & Mobile Solutions $ 131,805 $ 116,777 $ 15,028 12.9 % Enterprise SaaS Solutions 9,505 14,965 (5,460) (36.5) % Total $ 141,310 $ 131,742 $ 9,568 7.3 % IoT & Mobile Solutions. The $15.0 million increase in IoT & Mobile Solutions cost of net revenues over the same period in 2021 is primarily due to higher sales of our second-generation 5G hotspot, and an increase in freight costs, partially offset by a decrease in costs attributable to lower sales of our 4G products. Enterprise SaaS Solutions. The $5.5 million decrease in Enterprise SaaS Solutions cost of net revenues over to the same period in 2021 is primarily due to a decrease in costs attributable to the Ctrack South Africa divestiture. 25 Gross profit. Gross profit for the nine months ended September 30, 2022 was $51.1 million, or a gross margin of 26.6%, compared to $57.8 million, or a gross margin of 30.5%, for the same period in 2021. The decrease in gross margin is primarily due to a higher mix of lower-margin 5G product revenue, higher supply chain costs (i.e. freight cost) and a decrease in margin attributable to the Ctrack South Africa divestiture. The following table summarizes operating costs and expenses (in thousands): Nine Months Ended September 30, Change Operating costs and expenses 2022 2021 $ % Research and development $ 47,597 $ 38,954 $ 8,643 22.2 % Sales and marketing 25,789 29,997 (4,208) (14.0) % General and administrative 20,101 22,657 (2,556) (11.3) % Amortization of purchased intangible assets 1,319 1,649 (330) (20.0) % Impairment of capitalized software — 1,197 (1,197) (100.0) % Total $ 94,806 $ 94,454 $ 352 0.4 % Research and development expenses. Research and development expenses for the nine months ended September 30, 2022 were $47.6 million, or 24.7% of net revenues, compared to $39.0 million, or 20.6% of net revenues, for the same period in 2021. The increase in expense is primarily due to a net decrease in capitalizable costs as fewer new projects undertaken during the current period, an increase in amortization expense from recently launched projects, and increases in other costs, including costs related to certification and launch of 5G product programs and share-based compensation. Sales and marketing expenses. Sales and marketing expenses for the nine months ended September 30, 2022 were $25.8 million, or 13.4% of net revenues, co mpared to $30.0 million, or 15.8% of net revenues, for the same period in 2021. The decrease in expense is primarily due to lower payroll costs resulting from the Ctrack South Africa divestiture and a decrease in commission and other sales personnel-related expenses due to headcount reduction, partially offset by an increase in costs related to the marketing of 5G products. General and administrative expenses. General and administrative expenses for the nine months ended September 30, 2022 were $20.1 million, or 10.4% of net revenues, compared to $22.7 million, or 12.0% of net revenues, for the same period in 2021. The decrease in expense is primarily due to lower payroll costs attributable to the Ctrack South Africa divestiture and decreases in other general and administrative expenses , partially offset by an increase in share-based compensation expense. Amortization of purchased intangible assets . Amortization of purchased intangible assets for each of the nine months ended September 30, 2022 and 2021 was $1.3 million and $1.6 million, respectively. The decrease in expense is primarily due to certain purchased intangible assets that became fully amortized in the prior year. 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 nine months ended September 30, 2022. The following table summarizes other (expense) income (in thousands): Nine Months Ended September 30, Change Other (expense) income 2022 2021 $ % Gain on sale of Ctrack South Africa $ — $ 5,262 $ (5,262) 100.0 % Loss on debt conversion and extinguishment, net (450) (432) (18) 4.2 % Interest expense, net (6,621) (5,178) (1,443) 27.9 % Other (expense) income, net (3,145) 291 (3,436) (1180.8) % Total $ (10,216) $ (57) $ (10,159) 17822.8 % Gain on sale of Ctrack South Africa. During the nine months ended September 30, 2021, we recorded a gain of $5.3 million related to the sale of Ctrack South Africa. There was no such gain for the same period in 2022. Interest expense, net. Interest expense, net for each of the nine months ended September 30, 2022 and 2021 was $6.6 million and $5.2 million, respectively. The increase is primarily due to certain debt extinguishment-related adjustments in prior years recorded in the current year period and incremental expense attributable to the Company’s new revolving credit facility. 26 Other (expense) income, net. Other income (expense), net, for each of the nine months ended September 30, 2022 and 2021 was $3.1 million of expense and $0.3 million of income, respectively. The increase in expense is primarily due to an increase in foreign exchange transaction losses, partially offset by unrealized gains attributable to fair value adjustments on our interest make-whole derivative liability. The following table summarizes income tax (benefit) provision, net income attributable to noncontrolling interests, and Series E preferred stock dividends (in thousands): Nine Months Ended September 30, Change 2022 2021 $ % Income tax (benefit) provision $ (582) $ 445 $ (1,027) (230.8) % Net income attributable to noncontrolling interests — (214) 214 (100.0) % Series E preferred stock dividends (2,029) (3,596) 1,567 (43.6) % Income tax (benefit) provision. The Company’s income tax (benefit) provision was $(0.6) million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively. The tax benefit in 2022 and the tax expense in 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 attributable to noncontrolling interests for the nine months ended September 30, 2022, due to the sale of noncontrolling interests as part of the Ctrack South Africa divestiture. Series E preferred stock dividends. During the nine months ended September 30, 2022, and 2021 we recorded dividends of $2.0 million and $3.6 million, respectively, on our Series E Preferred Stock. The decrease was primarily attributable to a decrease in recurring preferred stock dividends as 10,000 shares of the original 35,000 shares of preferred stock were extinguished in September 2021, resulting in lower accrued preferred stock dividends for the period ended September 30, 2022. Liquidity and Capital Resources Our principal sources of liquidity are our existing cash and cash equivalents and availability under our new revolving credit facility. As of September 30, 2022, we had available unrestricted cash and cash equivalents totaling $18.1 million and $14.6 million of excess availability under our revolving credit facility. 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, availability under our secured asset-backed revolving credit facility, and anticipated savings from ongoing cost reduction efforts, will be sufficient to meet our cash flow needs for the next twelve months from the filing date of this report. If events or circumstances occur such that we do not meet our 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. 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 and capital expenditures 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. 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 27 establishes a secured asset-backed revolving credit facility which is comprised of a maximum $50 million revolving credit facility (the “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 (as defined in the Credit Agreement) 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. 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. 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. As of September 30, 2022 and December 31, 2021, $161.9 million in principal amount of the 2025 Notes were outstanding. 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. Contractual Obligations and Commitments 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 considered noncancellable purchase obligations. As of September 30, 2022 and December 31, 2021, future payments under these noncancellable purchase obligations were approximately $104.7 million and $165.8 million, respectively. There were no material changes in our other contractual obligations during the three and nine months ended September 30, 2022. Historical Cash Flows 28 The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands): Nine Months Ended September 30, 2022 2021 Net cash used in operating activities $ (24,703) $ (14,757) Net cash (used in) provided by investing activities (10,445) 7,665 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 Operating activities. Net cash used in operating activities was $24.7 million for the nine months ended September 30, 2022, compared to net cash used in operating activities of $14.8 million for the same period in 2021. Net cash used in operating activities for the nine months ended September 30, 2022 is primarily comprised of a $53.3 million net loss incurred during the period, net cash used for working capital of $12.4 million, as adjusted for a $0.9 million non-cash gain attributable to the fair value adjustment on derivative instruments, partially offset by non-cash charges, including depreciation and amortization of $20.9 million, share-based compensation expense of $15.9 million, and amortization of debt discount and debt issuance costs of $2.5 million. Net cash used in operating activities for the same period in 2021 is primarily comprised of a $37.2 million net loss, net cash used for working capital of $8.3 million, as adjusted for a $3.4 million non-cash gain attributable to the fair value adjustment on derivative instruments, partially offset by non-cash charges, including depreciation and amortization of $19.1 million and share-based compensation expense of $14.5 million. Investing activities. Net cash used in investing activities during the nine months ended September 30, 2022 was $10.4 million, compared to net cash provided by investing activities of $7.7 million for the same period in 2021. Net cash used in investing activities during the nine months ended September 30, 2022 is primarily comprised of $9.2 million of c ash outflows related to the development of software in support of our 5G products and services and $1.2 million of property, plant and equipment purchases. Net cash provided by investing activities during the same period in 2021 is primarily comprised of a $31.5 million of cash inflows related to the sale of Ctrack South Africa, partially offset by $20.6 million of cash outflows related to the development of software in support of our 5G products and services and $4.3 million of property, plant and equipment purchases. Financing activities. Net cash provided by financing activities during the nine months ended September 30, 2022 was $1.5 million, c ompared to net cash provided by financing activities of $29.0 million for the same period in 2021. Net cash provided by financing activities during the nine months ended September 30, 2022 is primarily comprised of $3.4 million of cash inflows (consisting of net borrowings of $4.5 million, net of $1.1 million in debt issuance costs) related to our new revolving credit facility, partially offset by $1.6 million in principal payments for financed assets. Net cash provided by financing activities for the same period in 2021 is primarily comprised of $29.4 million of net proceeds received from the sale of approximately 1.5 million shares of common stock and $2.4 million of proceeds from stock option exercises and purchases through our employee stock purchase plan, partially offset by $3.1 million in principal payments under finance lease obligations.