INSEEGO CORP. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is exposed to market risk in the ordinary course of our business. Our revenue, earnings, cash flows, receivables, and payables are subject to fluctuations due to changes in foreign currency exchange rates. The ongoing COVID-19 pandemic has increased the volatility of global financial markets, which may increase our foreign currency exchange risk. Interest Rate Risk 29 2025 Notes and Embedded Derivative Our total fixed-rate borrowings under the 2025 Notes as of both September 30, 2022 and December 31, 2021 were $161.9 million. We record all of our fixed-rate borrowings at amortized cost and therefore, any changes in interest rates do not impact the carrying values that we report for these senior notes on our consolidated financial statements. The 2025 Notes include an embedded derivative which was marked to fair value at September 30, 2022 and December 31, 2021 of $0.02 million and $0.9 million, respectively. The fair value inputs to the derivative valuation include dividend yield, term, volatility, stock price, and risk-free rate. Consequently we may incur gains and losses on the derivative as changes occur in the stock price, volatility, and risk-free rate at each reporting period. Additional details regarding our 2025 Notes and the embedded derivative are included in Item I Part 1 Note 3. Fair Value Measurement of Assets and Liabilities and Note 4. Debt in this Quarterly Report on Form 10-Q. Revolving Credit Facility We are exposed to interest rate risk associated with fluctuations in interest rates on our revolving credit facility. As of September 30, 2022, assuming our revolving credit facility was fully drawn up to the $19.1 million borrowing base, a 1% increase in interest rates would result in a $0.2 million change in annualized interest expense. Currency Risk Foreign Currency Transaction Risk Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. A majority of our revenue is denominated in U.S. Dollars, and therefore, our revenue is not directly subject to foreign currency risk. However, as we have operations in foreign countries, primarily in Europe, a stronger U.S. Dollar could make our products and services more expensive in foreign countries and therefore reduce demand. A weaker U.S. Dollar could have the opposite effect. Such economic exposure to currency fluctuat ions is difficult to measure or predict because our sales are also influenced by many other factors. For the three and nine months ended September 30, 2022, sales denominated in foreign currencies were approximately 22.0% and 17.2% of total revenu e. Our expenses are generally denominated in the currencies in which our operations are located, which are primarily in the U.S. and to a lesser extent in E urope. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. These foreign functional currencies consist of the pound sterling, Euro, and Australian Dollar (collectively, the “Foreign Functional Cu rrencies”). For the three and nine months ended September 30, 2022, a hy pothetical 10% change in Foreign Functional Currency exchange rates would have increased or decreased our revenue by approxi mately $1.5 million and $3.3 million, respectively. Actual gains and losses in the future may differ materially from the hypothetical gains and losses discussed above based on changes in the timing and amount of foreign currency exchange rate movements. Foreign Currency Translation Risk Fluctuations in foreign currencies impact the amount of total assets, liabilities, earnings and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into U.S. Dollars for, and as of the end of, each reporting period. In particular, the strengthening of the U.S. Dollar generally will reduce the reported amount of our foreign-denominated cash, cash equivalents, marketable securities, total revenues and total expense that we translate into U.S. Dollars and report in our consolidated financial statements for, and as of the end of, each reporting period.