INSEEGO CORP. 10-Q

Item 1. Financial Statements. INSEEGO CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 18,946 $ 7,143 Accounts receivable, net of provision for credit losses of $ 1,101 and $ 541 , respectively 17,435 25,259 Inventories 21,916 37,976 Prepaid expenses and other 5,562 7,978 Total current assets 63,859 78,356 Property, plant and equipment, net of accumulated depreciation of $ 28,240 and $ 26,049 , respectively 3,597 5,390 Rental assets, net of accumulated depreciation of $ 5,037 and $ 5,484 , respectively 5,037 4,816 Intangible assets, net of accumulated amortization of $ 42,138 and $ 31,629 , respectively 35,057 41,383 Goodwill 21,922 21,922 Right-of-use assets 5,819 6,662 Other assets 1,464 488 Total assets $ 136,755 $ 159,017 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 30,980 $ 29,018 Accrued expenses and other current liabilities 28,917 27,945 Total current liabilities 59,897 56,963 Long-term liabilities: 2025 Notes, net 159,541 158,427 Revolving credit facility, net — 6,919 Deferred tax liabilities, net 278 323 Other long-term liabilities 7,822 6,503 Total liabilities 227,538 229,135 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, 117,024,709 and 108,468,150 shares issued and outstanding, respectively 117 108 Additional paid-in capital 808,203 793,855 Accumulated other comprehensive loss ( 7,288 ) ( 6,329 ) Accumulated deficit ( 891,815 ) ( 857,752 ) Total stockholders’ deficit ( 90,783 ) ( 70,118 ) Total liabilities and stockholders’ deficit $ 136,755 $ 159,017 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, 2023 2022 2023 2022 Net revenues: IoT & Mobile Solutions $ 41,357 $ 62,633 $ 131,367 $ 172,129 Enterprise SaaS Solutions 7,226 6,534 21,567 20,279 Total net revenues 48,583 69,167 152,934 192,408 Cost of net revenues: IoT & Mobile Solutions 43,560 48,209 105,011 131,805 Enterprise SaaS Solutions 3,128 3,002 8,945 9,505 Total cost of net revenues 46,688 51,211 113,956 141,310 Gross profit 1,895 17,956 38,978 51,098 Operating costs and expenses: Research and development 8,951 15,417 27,127 47,597 Sales and marketing 5,355 8,295 17,975 25,789 General and administrative 4,906 5,720 16,703 20,101 Amortization of purchased intangible assets 424 433 1,277 1,319 Write-down of capitalized software 611 — 1,115 — Total operating costs and expenses 20,247 29,865 64,197 94,806 Operating loss ( 18,352 ) ( 11,909 ) ( 25,219 ) ( 43,708 ) Other (expense) income: Loss on debt conversion and extinguishment, net — — — ( 450 ) Interest expense, net ( 2,891 ) ( 2,034 ) ( 6,902 ) ( 6,621 ) Other (expense) income, net ( 578 ) ( 1,758 ) 875 ( 3,145 ) Total other expense ( 3,469 ) ( 3,792 ) ( 6,027 ) ( 10,216 ) Loss before income taxes ( 21,821 ) ( 15,701 ) ( 31,246 ) ( 53,924 ) Income tax (benefit) provision ( 16 ) 42 600 ( 582 ) Net loss ( 21,805 ) ( 15,743 ) ( 31,846 ) ( 53,342 ) Series E preferred stock dividends ( 756 ) ( 691 ) ( 2,218 ) ( 2,029 ) Net loss attributable to common stockholders $ ( 22,561 ) $ ( 16,434 ) $ ( 34,064 ) $ ( 55,371 ) Per share data: Net loss per common share: Basic and diluted $ ( 0.19 ) $ ( 0.15 ) $ ( 0.30 ) $ ( 0.52 ) Weighted-average shares used in computation of net loss per common share: Basic and diluted 116,967,545 107,747,468 112,247,219 106,977,201 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, 2023 2022 2023 2022 Net loss $ ( 21,805 ) $ ( 15,743 ) $ ( 31,846 ) $ ( 53,342 ) Foreign currency translation adjustment ( 433 ) 1,147 ( 958 ) 4,581 Total comprehensive loss $ ( 22,238 ) $ ( 14,596 ) $ ( 32,804 ) $ ( 48,761 ) 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 1 Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity (Deficit) 1 Shares Amount Shares Amount 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, net of taxes withheld — — 201 — 80 — — 80 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 ) Balance, June 30, 2023 25 $ — 116,870 $ 117 $ 805,177 $ ( 869,254 ) $ ( 6,855 ) $ ( 70,815 ) Net loss — — — — — ( 21,805 ) — ( 21,805 ) Foreign currency translation adjustment — — — — — — ( 433 ) ( 433 ) Restricted stock units vested, net of taxes withheld — — 155 — 2 — — 2 Share-based compensation — — — — 2,267 — — 2,267 Series E preferred stock dividends — — — — 756 ( 756 ) — — Balance, September 30, 2023 25 $ — 117,025 $ 117 $ 808,203 $ ( 891,815 ) $ ( 7,288 ) $ ( 90,783 ) 1 Rounding may impact summation of amounts. See accompanying notes to condensed consolidated financial statements. 6 INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (In thousands) (Unaudited) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit 1 Accumulated Other Comprehensive Income (Loss) 1 Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount 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, net of taxes withheld — — 2465 3 193 — — 196 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 ) Balance, December 31, 2022 25 $ — 108,468 $ 108 $ 793,855 $ ( 857,752 ) $ ( 6,329 ) $ ( 70,118 ) Net loss — — — — — ( 31,846 ) — ( 31,846 ) Foreign currency translation adjustment — — — — — — ( 958 ) ( 958 ) Restricted stock units vested, net of taxes withheld — — 521 — 50 — — 50 Issuance of common shares in connection with a public offering — — 8,036 8 6,049 — — 6,057 Share-based compensation — — — — 6,030 — — 6,030 Series E preferred stock dividends — — — — 2,218 ( 2,218 ) — — Balance, September 30, 2023 25 $ — 117,025 $ 117 $ 808,203 $ ( 891,815 ) $ ( 7,288 ) $ ( 90,783 ) 1 Rounding may impact summation of amounts. See accompanying notes to condensed consolidated financial statements. 7 INSEEGO CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 31,846 ) $ ( 53,342 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 16,270 20,936 Provision for credit losses 612 29 Write-down of capitalized software 1,115 — Provision for excess and obsolete inventory 7,011 1,330 Share-based compensation expense 6,030 15,892 Amortization of debt discount and debt issuance costs 2,048 2,472 Fair value adjustment on derivative instrument — ( 902 ) Loss on debt conversion and extinguishment, net — 450 Deferred income taxes 177 ( 223 ) Right-of-use assets 437 1,057 Changes in assets and liabilities: Accounts receivable 7,703 ( 561 ) Inventories 7,685 ( 5,926 ) Prepaid expenses and other assets 1,479 2,723 Accounts payable 1,162 ( 13,548 ) Accrued expenses, income taxes, and other 2,561 6,276 Operating lease liabilities ( 41 ) ( 1,366 ) Net cash provided by (used in) operating activities 22,403 ( 24,703 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 403 ) ( 1,203 ) Additions to capitalized software development costs ( 6,114 ) ( 9,242 ) Net cash used in investing activities ( 6,517 ) ( 10,445 ) Cash flows from financing activities: Net borrowing (repayment) of bank and overdraft facilities 79 ( 458 ) Principal payments under finance lease obligations — ( 62 ) Proceeds from a public offering 6,057 — Principal payments on financed assets ( 360 ) ( 1,567 ) Borrowings (Repayments) on revolving credit facility ( 7,851 ) 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 49 196 Net cash (used in) provided by financing activities ( 2,026 ) 1,483 Effect of exchange rates on cash ( 2,057 ) 1,916 Net increase (decrease) in cash, cash equivalents and restricted cash 11,803 ( 31,749 ) Cash, cash equivalents and restricted cash, beginning of period 7,143 49,812 Cash, cash equivalents and restricted cash, end of period $ 18,946 $ 18,063 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,336 $ 2,675 Income taxes $ 217 $ 96 Supplemental disclosures of non-cash activities: Transfer of inventories to rental assets $ 1,077 $ 297 Capital expenditures financed through accounts payable or accrued liabilities $ 7,216 $ 4,402 Right-of-use assets obtained in exchange for operating leases liabilities $ 1,030 $ 342 See accompanying notes to condensed consolidated financial statements. 8 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The unaudited condensed consolidated financial statements contained herein have been prepared by Inseego Corp. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, the condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for a 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, 2023, and for the nine months ended September 30, 2023, and September 30, 2022, is unaudited, whereas the condensed consolidated balance sheet as of December 31, 2022, 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 consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022, as amended (“Form 10-K”). 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 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 the allocation of resources and assessment 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 tangible and intangible long-lived assets, valuation of goodwill, valuation of derivatives, accruals relating to litigation, income taxes and share-based compensation expense. Risks and Uncertainties We may be affected by various macroeconomic factors and the current and future conditions in the global financial markets. The global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, rising interest rates, inflation, increases in unemployment rates and uncertainty about economic stability. 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 future revenues, gross margins and financial results. Furthermore, a global semiconductor supply shortage continues to have 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 the Company’s customers and the supply of materials needed for testing and production timeline. The Company’s 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 operations and financial results could be material. The inflationary pressures impacting the global supply chain could potentially increase our future cost of net revenues. 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) Liquidity As of September 30, 2023, the Company had available cash and cash equivalents totaling $ 18.9 million and $ 5.2 million of availability to borrow under its secured asset-backed Credit Facility (as defined below). See Note 4, Debt , for more information on this 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 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 profitable operations and 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 plan as expected, or if the Company becomes obligated to pay unforeseen expenditures as a result of potential litigation or otherwise, 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 the Company’s 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 , 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 and Cash Equivalents 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 and cash equivalents 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 condensed consolidated statements of operations. There are no cash equivalents as of December 31, 2022 and as of September 30, 2023. 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, 2023 and December 31, 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 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 2022 and there was no impact to the condensed consolidated financial statements. 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. 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 adopted the ASU in the first quarter of 2023, and there was no impact to the consolidated financial statements. 10 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 2. Financial Statement Details Inventories Inventories consist of the following (in thousands): September 30, 2023 December 31, 2022 Finished goods $ 18,122 $ 31,153 Raw materials and components 3,794 6,823 Total inventories $ 21,916 $ 37,976 The Company recorded a write-down of $ 6.8 million to reflect inventories at net realizable value in addition to a $ 1.3 million write-off of capitalized inventory order fees. Further, management accrued an additional $ 6.3 million in contract manufacturing liabilities (included in Accrued Expenses and Other Current Liabilities section below ) related to excess materials at the contract manufacturers’ sites. All of these charges were recorded in cost of revenues during the three months ended September 30, 2023 . Prepaid expenses and other Prepaid expenses and other consists of the following (in thousands): September 30, 2023 December 31, 2022 Rebate receivables $ 1,363 $ 2,038 Receivables from contract manufacturers 1,441 3,561 Software licenses 816 772 Deposits 727 829 Financed assets 422 — Other 793 778 Total prepaid expenses and other $ 5,562 $ 7,978 1 Rounding may impact summation of amounts. Accrued expenses and other current liabilities Accrued expenses and other current liabilities consist of the following (in thousands): September 30, 2023 December 31, 2022 Royalties 902 992 Payroll and related expenses 5,440 8,873 Warranty obligations 480 480 Professional fees 176 738 Accrued interest 2,468 1,112 Deferred revenue 4,979 5,060 Customer advances — 2,828 Operating lease liabilities 2,036 1,759 Accrued contract manufacturing liabilities 6,990 1,416 Value added tax payables 510 449 Other 4,936 4,238 Total accrued expenses and other current liabilities $ 28,917 $ 27,945 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 Company’s financial instruments measured at fair value were $0 and less than $0.1 million as of September 30, 2023 and December 31, 2022 respectively. 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, 2023 December 31, 2022 Volatility 68 % 50 % Stock price $ 0.42 per share $ 0.84 per share Credit spread 41.61 % 56.52 % Term 1.59 years 2.34 years Dividend yield — % — % Risk-free rate 5.21 % 4.35 % There was no material change in the fair value of the interest make-whole liability for both the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, the Company recorded no gain or loss and a $ 0.9 million gain, respectively, as a result of the change in the fair value of the interest make-whole liability. The Company reviews the fair value hierarchy classification of its financial instruments measured at fair value each reporting period. 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, 2023 or 2022. 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”, see “Note 4, Debt” ). The 2025 Notes are carried at amortized cost, adjusted for changes in the fair value of the embedded derivative. 4. Debt 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 year ended 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, including 32,221 shares of common stock issued in satisfaction of the interest make-whole payment. 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. 12 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) As of September 30, 2023 and December 31, 2022, $ 161.9 million in principal amount of the 2025 Notes were outstanding, $ 80.4 million of which were held by related parties. As of both September 30, 2023 and December 31, 2022, accrued interest due of $ 2.2 million, 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 consist of the following (in thousands): September 30, 2023 December 31, 2022 Principal $ 161,898 $ 161,898 Add: fair value of embedded derivative $ — $ — Less: unamortized debt discount $ ( 1,313 ) $ ( 1,933 ) Less: unamortized issuance costs $ ( 1,045 ) $ ( 1,538 ) Net carrying amount $ 159,540 $ 158,427 The effective interest rate on the liability component of the 2025 Notes was 4.23 % and 4.13 % for the three months ended September 30, 2023 and 2022, respectively, and 4.27 % and 4.18 % for the nine months ended September 30, 2023 and 2022, respectively. 13 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 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, 2023 2022 2023 2022 Contractual interest expense $ 1,315 $ 1,315 $ 3,946 $ 3,946 Amortization of debt discount $ 207 $ 207 $ 621 $ 621 Amortization of debt issuance costs $ 165 $ 165 $ 494 $ 494 Total interest expense $ 1,687 $ 1,687 $ 5,061 $ 5,061 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 borrowing amount for interest calculations 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 term 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 determined that the term “Eligible Accounts”, as defined in the Credit Agreement would have excluded certain balances used in the determination of eligible collateral upon which the Company’s borrowing base is calculated and that exclusion would have resulted in a violation of the Liquidity Covenant as of December 31, 2022. Accordingly, to clarify this matter and others, the Loan Parties agreed to amend the Credit Agreement (as amended, the “Amended Credit Agreement”) to modify and clarify the definitions of “Eligible Accounts”, “Permitted Indebtedness” and also “Eligible Inventory”. The Amended Credit Agreement was entered into on February 25, 2023 with an effective date of December 15, 2022. The Company was in compliance with the financial covenants of the Amended Credit Agreement as of September 30, 2023 . The Company incurred $ 1.1 million of debt issuance and related costs, which is being amortized to interest expense on a pro rata basis over the term of the Credit Agreement. As of September 30, 2023, the Company had no outstanding borrowings, excess availability (collateral value less lender reserves) of $ 10.2 million and availability to borrow of approximately $ 5.2 million. The Company’s policy is to classify outstanding borrowings as long-term so long as such borrowings are not 14 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) 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. The following tables set forth the principal amount outstanding and interest expense for the periods (in thousands): September 30, 2023 December 31, 2022 Principal $ — $ 7,851 Less: unamortized issuance costs (a) $ — $ ( 932 ) Net carrying amount $ — $ 6,919 (a) Unamortized issuance costs of $958 were reclassified to other long term assets. The effective interest rate of the Credit Facility was 58.7 %, which includes 27.3 % related to amortization of original issuance costs, for the nine months ended September 30, 2023. The following table sets forth total interest expense recognized related to the Credit Facility (in thousands): Nine Months Ended September 30, 2023 Contractual interest expense $ 810 Amortization of debt issuance costs $ 705 Total interest expense $ 1,515 On May 2, 2023, (1) two related parties (the “Participants”) collectively purchased a $ 4.0 million last-out subordinated participation interest in the Amended Credit Agreement (the “Participation Interest”) from the Lender, and (2) the Borrowers entered into an amendment to the Amended Credit Agreement which increased the borrowing base under the Credit Facility by $ 4.0 million, increased the minimum borrowing amount for interest calculations to $ 8.5 million, and modified certain covenants. In connection with the purchase of the Participation Interest, we agreed to pay the Participants an aggregate exit fee ranging from 7.5 % to 12.5 % of the amount of the Participation Interest, payable upon the earlier to occur of (a) the maturity date of the Credit Facility, (b) termination of the Lender’s commitment to make revolving loans prior to the scheduled maturity date of the Credit Facility, and (c) the early redemption of the Participation Interest, as applicable. Further, the purchase of the Participation Interest granted an option for the Participants to purchase the subject revolving loan or to redeem its Participation Interest under certain circumstances. The Participants are each affiliates of beneficial holders of greater than five percent of our outstanding common stock. 5. Share-based Compensation During the nine months ended September 30, 2023 and 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 6,329,784 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. The following table presents total share-based compensation expense within each functional line item on the condensed consolidated statements of operations for the three and nine months end ed September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 1 2022 2023 1 2022 Cost of revenues $ 251 $ 199 657 $ 1,873 Research and development 599 513 1,291 5,011 Sales and marketing 373 489 1,093 3,086 General and administrative 1,044 1,205 2,989 5,922 Total $ 2,267 $ 2,406 $ 6,030 $ 15,892 1 Rounding may impact summation of amounts. 15 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, 2023 : Outstanding — December 31, 2022 8,132,959 Granted 378,250 Canceled ( 1,193,232 ) Outstanding — September 30, 2023 7,317,977 Exercisable — September 30, 2023 5,675,138 At September 30, 2023, total unrecognized compensatio n expense related to stock options was $ 4.0 million , which is expected to be recognized over a weighted-average per iod of 2.54 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. On April 28, 2023, the Company granted a total of approximately 2.2 million RSUs to certain employees to encourage retention and incentivize future performance (“Retention Awards”). All of the Retention Awards fully vested on November 1, 2023. The following table summarizes the Company’s RSU activity (including above retention RSUs) for the nine months ended September 30, 2023 : Non-vested — December 31, 2022 1,178,370 Granted 3,667,134 Vested ( 265,927 ) Forfeited ( 253,759 ) Non-vested — September 30, 2023 4,325,818 At September 30, 2023, total unrecognized compensation expense related to RSUs was $ 3.1 million, which is expected to be recognized over a weighted-average period of 0.89 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. 16 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, 2023 2022 2023 2022 Net loss attributable to common stockholders $ ( 22,561 ) $ ( 16,434 ) $ ( 34,064 ) $ ( 55,371 ) Weighted-average common shares outstanding 116,967,545 107,747,468 112,247,219 106,977,201 Basic and diluted net loss per share $ ( 0.19 ) $ ( 0.15 ) $ ( 0.30 ) $ ( 0.52 ) The following is a summary of outstanding anti-dilutive potential shares of common stock that have been excluded from diluted net loss per share attributable to common stockholders because their inclusion would have been anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2023 1 2022 2023 1 2022 2025 Notes 14,090 14,341 14,090 14,341 Non-qualified stock options 7,295 8,557 7,586 8,787 Restricted stock units 3,024 1,438 2,336 1,441 Employee stock purchase plan 6,103 984 6,103 984 Total 30,512 25,320 30,115 25,553 1 Rounding may impact summation of amounts. 7. Public Offering 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 sto ck (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. There were no ATM transactions in 2022. During the nine months ended September 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. There was no ATM transactions during the quarter ended September 30, 2023. Effective as of November 2, 2023 , the Equity Distribution Agreement was terminated by the Company, and there will be no further sales under 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, 2023 1 2022 2023 2022 United States and Canada $ 40,181 $ 53,924 $ 129,458 159,393 Europe 7,198 6,954 19,140 20,176 Australia 1,202 7,543 4,250 9,966 Other 3 746 86 2,873 Total $ 48,583 $ 69,167 $ 152,934 $ 192,408 1 Rounding may impact summation of amounts. Concentrations of Credit Risk For the three months ended September 30, 2023, two customers accounted for 29.6 % and 35.1 % of net revenues, respectively. For the three months ended September 30, 2022, two customers accounted for 33.9 % and 29.3 %, respectively, of net revenues. 17 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) For the nine months ended September 30, 2023, two customers accounted for 28.8 % and 31.6 % of net revenues, respectively. For the nine months ended September 30, 2022, two customers accounted for 50.8 % and 44.4 %, respectively, of net revenues. As of September 30, 2023, three customers accounted for 30.9 %, 24.8 % and 11 % of accounts receivable, net, respectively. As of December 31, 2022, two customers accounted for 37.4 % and 21.9 % 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 purchases 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, 2023, future payments under these noncancellable purchase obligations were approximately $ 28.4 million. Legal The Company is, from time to time, party to various legal proceedings arising in the ordinary course of business. The Company is regularly required to directly or indirectly participate in other U.S. patent infringement actions pursuant to its contractual indemnification obligations to certain customers. Based on an evaluation of these matters the Company currently believes that liabilities arising from, or sums paid in settlement of these existing matters, if any, would not have a material adverse effect on its consolidated results of operations or financial condition. 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 consolidated 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, 2023 December 31, 2022 Operating right-of-use assets, net Right-of-use assets $ 5,819 $ 6,662 Current operating lease liabilities Accrued expenses and other current liabilities $ 2,036 $ 1,759 Non-current operating lease liabilities Other long-term liabilities 5,149 5,903 Total operating lease liabilities $ 7,185 $ 7,662 Weighted-average remaining lease term (in years) 4.3 4.1 Weighted-average discount rate 9.0 % 9.0 % The components of lease cost were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease costs included in operating costs and expenses $ 591 $ 589 $ 1,765 $ 1,789 Supplemental cash flow information related to leases was as follows (in thousands): 18 INSEEGO CORP. Notes to Condensed Consolidated Financial Statements (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating cash flows related to operating leases $ 593 $ 618 $ 1,824 $ 1,857 Operating right-of-use assets obtained in exchange for lease liabilities $ 197 $ 184 $ 1,030 $ 342 Future minimum payments under operating leases were as follows as of September 30, 2023 (in thousands): 2023 (remainder) $ 579 2024 2,272 2025 1,909 2026 1,864 2027 1,270 2028 142 Thereafter 693 Total minimum operating lease payments $ 8,729 Less: amounts representing interest ( 1,544 ) Present value of net minimum operating lease payments 7,185 Less: current portion ( 2,036 ) Long-term portion of operating lease obligations $ 5,149 Sublease of operating lease The Company subleased one of its leased properties in San Diego effective June 2023 for total sublease rental payments of $ 1.2 million over 4.25 years, without a change to nor relief from current obligations under the original lease agreement which the Company continued accounting for as an operating lease. Sublease income earned on a straight-line basis amounted to less than $ 0.1 million for the three and nine months ended September 30, 2023 and is included under other income (expense) in the condensed consolidated statements of operations. Further, the associated lease cost for the term of the sublease, which is equal to the remaining term of the original lease, exceeded the anticipated sublease income for the same period. The Company treated this as an indicator that the carrying amount of the right-of-use asset associated with the original lease may not be recoverable. As a result, the Company tested the related right-of-use asset for recoverability and determined that the carrying amount of the lease was not recoverable as it exceeded its fair value. Accordingly, an impairment loss of approximately $ 0.5 million was determined as the difference between the $ 1.5 million carrying value of the right-of-use asset and the $ 1.0 million fair value. The fair value of the right-of-use asset for the original lease was determined based on the net present value of the total future cash flows from the related sublease agreement as of June 2, 2023 (sublease commencement date), using a 9 % marketable discount rate that considers the amount and term of the sublease. 11. Income Taxes The Company’s income tax provision was a tax benefit of less than $0.1 million and a tax expense of $0.6 million for the three and nine months ended September 30, 2023, respectively, compared to a tax expense of less than $0.1 million for the three ended September 30, 2022 and a tax benefit of $0.6 million for the nine months ended September 30, 2022. Income taxes for both 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 provisions for 2023 and tax benefits for 2022 were largely driven by the Company’s foreign subsidiaries which had unrealized foreign currency gains and improved profitability in 2023 compared to significant unrealized foreign currency losses in 2022. 19