What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 119 added, 44 removed, 226 unchanged (42% of the section changed)

101 unchanged sentences

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 months ended March 31, 2023 was consistent with our expectations.

The demand environment for our 5G products during the three and six months ended June 30, 2023 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.

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Results of Operations

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net revenues .

Net revenues for the three months ended March 31, 2023 were $50.8 million, compared to $61.4 million for the same period in 2022.

Net revenues for the three months ended June 30, 2023 were $53.6 million, compared to $61.9 million for the same period in 2022.

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

Three Months Ended

March 31, Change

June 30, Change

Product Category 2023 2022 $ %

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IoT & Mobile Solutions.

The $10.9 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022) and subscriber growth in our Enterprise and Inseego Subscribe businesses.

The $8.6 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022).

Enterprise SaaS Solutions.

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Cost of net revenues.

Cost of net revenues for the three months ended March 31, 2023 was $32.6 million, or 64.2% of net revenues, compared to $46.1 million, or 75.2% of net revenues, for the same period in 2022.

Cost of net revenues for the three months ended June 30, 2023 was $34.7 million, or 64.7% of net revenues, compared to $44.0 million, or 71.1% of net revenues, for the same period in 2022.

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

Three Months Ended

March 31, Change

June 30, Change

Product Category 2023 2022 $ %

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IoT & Mobile Solutions.

The $8.9 million decrease in IoT & Mobile Solutions cost of net revenues over the same period in 2022 is primarily a result of lower sales of LTE gigabit hotspots.

Enterprise SaaS Solutions.

The $0.4 million decrease in Enterprise SaaS Solutions cost of net revenues over the same period in 2022 is primarily due to reduced costs associated with providing our recurring rental and subscription services.

Gross profit.

Gross profit for the three months ended June 30, 2023 was $18.9 million, or a gross margin of 35.3%, compared to $17.9 million, or a gross margin of 28.9%, for the same period in 2022.

The increase in gross profit is primarily

due to increase in revenue from Enterprise SaaS Solutions, reduced costs associated with providing our recurring rental and subscription services, and various initiatives to improve efficiencies in production.

Operating costs and expenses.

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

Three Months Ended June 30, Change

Operating costs and expenses 2023 2022 $ %

Research and development $ 10,022 $ 13,619 $ (3,597) (26.4) %

Sales and marketing 5,974 7,721 (1,747) (22.6)

General and administrative 5,752 6,142 (390) (6.3)

Amortization of purchased intangible assets 424 443 (19) (4.3)

Total $ 22,172 $ 27,925 $ (5,753) (20.6)

Research and development expenses.

Research and development expenses for the three months ended June 30, 2023 were $10.0 million, or 18.7% of net revenues, compared to $13.6 million, or 22.0% of net revenues, for the same period in 2022.

The decrease in research and development expenses was primarily due to fewer new projects undertaken during the current period.

Sales and marketing expenses.

Sales and marketing expenses for the three months ended June 30, 2023 were $6.0 million, or 11.2% of net revenues, compared to $7.7 million, or 12.5% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower consulting costs and reduction in sales headcount compared to the same period in 2022.

General and administrative expenses.

General and administrative expenses for the three months ended June 30, 2023 were $5.8 million, or 10.7% of net revenues, compared to $6.1 million, or 9.9% of net revenues, for the same period in 2022.

The decrease in general and administrative expense was primarily due to decrease in share-based expense due to lower RSU bonus released during the three months ended June 30, 2023 compared to the same period in 2022.

Amortization of purchased intangible assets.

Amortization of purchased intangible assets for each of the three months ended June 30, 2023 and 2022 was $0.4 million.

Other (expense) income.

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

Three Months Ended June 30, Change

Other (expense) income 2023 2022 $ %

Interest expense, net $ (2,014) $ (1,664) $ (350) 21.0

Other (expense) income, net 658 (982) 1,640 (167.0)

Total $ (1,356) $ (2,646) $ 1,290 (48.8)

Interest expense, net.

The $0.4 million increase in interest expense, net over the same period in 2022 was primarily due to the Credit Agreement (as defined below) which commenced in the second half of 2022.

Other (expense) income, net.

The $1.6 million increase in other income, net over the same period in 2022 is primarily due to foreign currency exchange gains in the current period.

Income tax provision (benefit).

Income tax provision for the three months ended June 30, 2023 and 2022 was a provision of $0.3 million and a benefit of $0.3 million, respectively.

This $0.6 million increase in income tax expense was driven by an increase in pre-tax profits at certain foreign subsidiaries for the current year period compared to a loss in the prior year period.

Series E preferred stock dividends.

During each of the three months ended June 30, 2023 and 2022, we recorded dividends of $0.7 million, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net revenues .

Net revenues for the six months ended June 30, 2023 were $104.4 million, compared to $123.2 million for the same period in 2022.

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

Six Months Ended

June 30, 2023 Change

Product Category 2023 2022 $ %

IoT & Mobile Solutions $ 90,010 $ 109,495 $ (19,485) (17.8) %

Enterprise SaaS Solutions 14,341 13,745 596 4.3

Total $ 104,351 $ 123,240 $ (18,889) (15.3)

IoT & Mobile Solutions.

The $19.5 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022), sales from our expanding Enterprise FWA business and subscriber growth in our Enterprise and Inseego Subscribe businesses.

Enterprise SaaS Solutions.

The $0.6 million increase in Enterprise SaaS Solutions net revenues over the same period in 2022 is primarily due to increase in Enterprise SaaS Solutions net revenue throughout the rest of the world as a result of the lifting of COVID-19 related installation restrictions in place during fiscal 2022 .

Cost of net revenues.

Cost of net revenues for the six months ended June 30, 2023 was $67.3 million, or 64.5% of net revenues, compared to $90.1 million, or 73.1% of net revenues, for the same period in 2022.

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

Six Months Ended

June 30, 2023 Change

Product Category 2023 2022 $ %

IoT & Mobile Solutions $ 61,451 $ 83,597 $ (22,146) (26.5) %

Enterprise SaaS Solutions 5,817 6,503 (686) (10.5)

Total $ 67,268 $ 90,100 $ (22,832) (25.3)

IoT & Mobile Solutions.

The $22.1 million decrease in IoT & Mobile Solutions cost of net revenues over the same period in 2022 is primarily is a result of lower sales of LTE gigabit hotspots.

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Gross profit.

Gross profit for the three months ended March 31, 2023 was $18.2 million, or a gross margin of 35.8%, compared to $15.2 million, or a gross margin of 24.8%, for the same period in 2022.

The increase in gross profit is primarily due an increase in revenue from Enterprise SaaS Solutions as well as various initiatives to improve efficiencies in production.

Gross profit for the six months ended June 30, 2023 was $37.1 million, or a gross margin of 35.5%, compared to $33.1 million, or a gross margin of 26.9%, for the same period in 2022.

The increase in gross profit is primarily due to increase in revenue from Enterprise SaaS Solutions, reduced costs associated with providing our recurring rental and subscription services, and various initiatives to improve efficiencies in production.

Operating costs and expenses.

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

Three Months Ended March 31, Change

Six Months Ended

June 30, 2023 Change

Operating costs and expenses 2023 2022 $ %

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Amortization of purchased intangible assets 853 887 (34) (3.8)

Impairment of capitalized software 504 — 504 100.0

Impairment of capitalized software 504 — 504 n/a

Total $ 43,950 $ 64,940 $ (20,990) (32.3)

Research and development expenses.

Research and development expenses for the three months ended March 31, 2023 were $8.2 million, or 16.1% of net revenues, compared to $18.6 million, or 30.2% of net revenues, for the same period in 2022.

The decrease in research and development expenses was primarily due to net decrease in research and development costs as fewer new projects were undertaken during the current period.

Research and development expenses for the six months ended June 30, 2023 were $18.2 million , or 17.4% of net revenues, compared to $32.2 million, or 26.1% of net revenues, for the same period in 2022.

The decrease in research and development expenses was primarily due to fewer new projects undertaken during the current period.

Sales and marketing expenses.

Sales and marketing expenses for the three months ended March 31, 2023 were $6.6 million, or 13.1% of net revenues, compared to $9.8 million, or 15.9% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower consulting costs and other sales personnel-related costs as a result of the decrease in overall sales headcount compared to the same period in 2022.

Sales and marketing expenses for the six months ended June 30, 2023 were $12.6 million , or 12.1% of net revenues, compared to $17.5 million , or 14.2% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower consulting costs and reduction in sales headcount compared to the same period in 2022.

General and administrative expenses.

General and administrative expenses for the three months ended March 31, 2023 were $6.0 million, or 11.9% of net revenues, compared to $8.2 million, or 13.4% of net revenues, for the same period in 2022.

The decrease in general and administrative expense was primarily due to decrease in share-based expense due to lower RSU bonus released during the three months ended March 31, 2023 compared to the same period in 2022.

General and administrative expenses for the six months ended June 30, 2023 were $11.8 million , or 11.3% of net revenues, compared to $14.4 million , or 11.7% of net revenues, for the same period in 2022.

The decrease in general and administrative expense was primarily due to decrease in share-based expense due to lower RSU bonus released during the six months ended June 30, 2023 compared to the same period in 2022.

Amortization of purchased intangible assets.

Amortization of purchased intangible assets for each of the six months ended June 30, 2023 and 2022 was $0.9 million.

Impairment of capitalized software.

Impairment of capitalized software for the six months ended June 30, 2023 and 2022 was $0.5 million and $0, respectively.

The impairment was primarily due to lower sales demand for one of our products.

Other (expense) income.

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

Three Months Ended March 31, Change

Six Months Ended

June 30, 2023 Change

Other (expense) income 2023 2022 $ %

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Loss on debt conversion and extinguishment, net.

The loss on debt conversion and extinguishment, net for the three months ended March 31, 2023 and 2022 was $0 and $0.5 million, respectively.

The loss on debt conversion and extinguishment, net for the six months ended June 30, 2023 and 2022 was $0 and $0.5 million, respectively.

This was a non-recurring event in 2022.

Interest expense, net.

The $0.9 million decrease in interest expense over the same period in 2022 was primarily a result of certain 2022 Notes debt extinguishments related adjustments recorded in the prior period.

The $0.6 million decrease in interest expense, net over the same period in 2022 was primarily a result of certain 2022 Notes debt extinguishments related adjustments, offset by loan interest incurred under the Credit Agreement (as defined below), recorded in the prior period.

Other (expense) income, net.

The $1.2 million increase in other income over the same period in 2022 is primarily due to foreign currency exchange gains in the current period.

The $2.8 million increase in other income, net over the same period in 2022 is primarily due to favorable changes in foreign exchange rates in the current period.

Income tax provision (benefit).

Income tax provision for the three months ended March 31, 2023 and 2022 was a provision of $0.3 million and a benefit of $0.3 million, respectively.

This $0.6 million increase in income tax expense was driven by a marked increase in pre-tax profits at Inseego SA (Pty) Ltd (previously, C-track Holdings) for the current year period compared to a loss in the prior year period.

Income tax provision for the six months ended June 30, 2023 and 2022 was a provision of $0.6 million and a benefit of $0.6 million, respectively.

This $1.2 million increase in income tax expense was driven by an increase in pre-tax profits at certain foreign subsidiaries for the current year period compared to a loss in the prior year period.

Series E preferred stock dividends.

During the three months ended March 31, 2023 and 2022, we recorded dividends of $0.7 million and $0.7 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

There was minimal increase in preferred stock dividends for the period ended March 31, 2023.

During the six months ended June 30, 2023 and 2022, we recorded dividends of $1.5 million and $1.3 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

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 March 31, 2023, we had available cash and cash equivalents totaling $8.7 million and $11.8 million of excess availability under our revolving credit facility.

We also have an equity distribution agreement through which we may sell shares of our common stock, and as of March 31, 2023, there was approximately $9 million of cash remaining before underwriter fees and discounts that we may generate from such issuance.

As of June 30, 2023, we had available cash and cash equivalents totaling $15.2 million and $14.2 million of excess availability under our revolving credit facility.

We also have an equity distribution agreement through which we may sell shares of our common stock, and as of June 30, 2023, there was approximately $3.5 million of cash remaining before underwriter fees and discounts that we may generate from such issuance.

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 restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives.

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.

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The Credit Agreement established a $50.0 million secured asset-backed revolving credit facility (“Credit Facility”) with a final maturity date of December 31, 2024.

On February 25, 2023, we entered into an amendment of the Credit Agreement (“Amended Credit Agreement”) with an effective date of December 15, 2022, which clarified certain terms within the Credit Agreement.

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.

On February 25, 2023, we entered into an amendment of the Credit Agreement with an effective date of December 15, 2022, which clarified certain terms within the Credit Agreement.

On May 2, 2023, we entered into a third amendment of the Credit Agreement which increased the borrowing base under the Credit Facility by $4.0 million, increased the minimum draw to $8.5 million, and modified certain covenants (as so amended, the “Amended Credit Agreement”).

Availability under the Credit Facility is determined monthly by a Borrowing Base (as defined in the Amended 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.

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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.

We were in compliance with the financial covenants contained in the Amended Credit Agreement as of March 31, 2023.

As of March 31, 2023, we had outstanding borrowings of $4.5 million, a gross borrowing base of $16.3 million and excess availability of $11.8 million.

We were in compliance with the financial covenants contained in the Amended Credit Agreement as of June 30, 2023.

As of June 30, 2023, we had outstanding borrowings of $3.3 million, a gross borrowing base of $17.5 million and excess availability of $14.2 million.

On May 12, 2020, we completed a registered public offering of $100.0 million aggregate principal amount of our 3.5% convertible senior notes due 2025 (the “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 March 31, 2023 and December 31, 2022, $161.9 million in principal amount of the 2025 Notes were outstanding.

As of June 30, 2023 and December 31, 2022, $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.

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333-238057), as filed with the SEC on May 7, 2020 and amended from time to time.

During the quarter ended March 31, 2023 the Company sold 858,098 shares of common stock, at an average price of $0.62 per share, for net proceeds of $0.5 million, after deducting underwriter fees and discounts.

As of March 31, 2023, there were approximately $9 million of shares remaining available for sale under the ATM Offering.

During the six months ended June 30, 2023 the Company sold 8,035,959 shares of common stock, at an average price of $0.75 per share, for net proceeds of $5.9 million, after deducting underwriter fees and discounts.

As of June 30, 2023, there were approximately $3.5 million of equivalent shares remaining available for sale under the ATM Offering.

Contractual Obligations and Commitments

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Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.

As of March 31, 2023, our future payments under these noncancellable purchase obligations were approximately $53.4 million.

As of June 30, 2023, our future payments under these noncancellable purchase obligations were approximately $49.7 million.

• $161,898 in outstanding principal amount of 2025 Notes with required interest payments;

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• Operating lease liabilities that are included on our consolidated balance sheet;

There were no material changes in our other contractual obligations during the three months ended March 31, 2023.

There were no material changes in our other contractual obligations during the three months ended June 30, 2023.

Historical Cash Flows

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

Three Months Ended

Six Months Ended

Net cash provided by (used in) operating activities $ 12,679 $ (17,598)

Net cash used in investing activities (4,602) (7,281)

Net cash used in financing activities (3,340) (1,060)

Net cash provided by (used in) financing activities 1,227 (1,317)

Effect of exchange rates on cash (1,282) 744

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Operating activities.

Net cash provided by operating activities for the three months ended March 31, 2023 is primarily comprised of a $5.1 million net loss incurred during the period, net cash used for working capital of $3.6 million, partially offset by non-cash charges, including depreciation and amortization of $5.4 million, share-based compensation expense of $1.8 million, and amortization of debt discount and debt issuance costs of $0.5 million.

Net cash used in operating activities for the same period in 2022 is primarily comprised of a $25.2 million net loss and a $0.6 million non-cash gain attributable to the fair value adjustment on derivative instruments.

which was offset by net cash provided from working capital of $3.9 million, and non-cash charges, including depreciation and amortization of $7.2 million share-based compensation expense of $11.2 million, $1.7 million of amortization of debt issuance and discount costs and other non-cash adjustments.

Net cash provided by operating activities for the six months ended June 30, 2023 is primarily comprised of a $10.0 million net loss incurred during the period, net cash used for working capital of $5.8 million, partially offset by non-cash charges, including depreciation and amortization of $10.8 million, share-based compensation expense of $3.8 million, and amortization of debt discount and debt issuance costs of $1.0 million.

Net cash used in operating activities for the same period in 2022 is primarily comprised of a $37.6 million net loss and a $0.9 million non-cash gain attributable to the fair value adjustment on derivative instruments, which was offset by net cash provided from working capital of $10.9 million, and non-cash charges, including depreciation and amortization of $14.0 million share-based compensation expense of $13.5 million, $2.0 million of amortization of debt issuance and discount costs and other non-cash adjustments.

Investing activities.

Net cash used in investing activities during the three months ended March 31, 2023 is primarily comprised of $2.4 million of c ash outflows related to the development of software in support of our 5G products and services and $0.1 million of property, plant and equipment purchases.

Net cash used in investing activities during the six months ended June 30, 2023 is primarily comprised of $4.4 million of c ash outflows related to the development of software in support of our 5G products and services and $0.2 million of property, plant and equipment purchases.

Net cash used in investing activities during the same period in 2022 is primarily comprised of $6.2 million of cash outflows related to the development of software in support of our 5G products and services and $1.1 million of property, plant and equipment purchases.

Financing activities.

Net cash used in financing activities during the three months ended March 31, 2023 is primarily comprised of $3.4 million of cash outflow related to repayments of our revolving credit facility, partially offset by $0.5 million in proceeds from public offering .

Net cash provided by financing activities during the six months ended June 30, 2023 is primarily comprised of $6.1 million in proceeds from public offering, partially offset by $4.6 million of cash outflow related to repayments of our revolving credit facility.

Net cash used in financing activities for the same period in 2022 is primarily comprised of $1.2 million in principal repayments of financed assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis