What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-10 · 156 added, 113 removed, 161 unchanged (63% of the section changed)

11 unchanged sentences

We believe that these factors include those related to:

• our ability to make payments on or to refinance our indebtedness, including our 3.25% convertible senior notes due in May 2025;

• our ability to make payments on or to refinance our indebtedness;

• our dependence on a small number of customers for a substantial portion of our revenues;

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These solutions are specifically built for the enterprise and small and medium business (“SMB”) market segments with a focus on performance, scalability, quality and enterprise grade security.

Our intelligent edge telematics solutions are designed to improve business outcomes for enterprise and SMB market segments.

We also provide a wireless subscriber management solution for carriers to manage their government and complex enterprise customer subscriptions.

Our telematics solutions are designed to improve business outcomes for enterprise and SMB market segments.

We also provide a wireless subscriber management SaaS solution for carriers to manage their government and complex enterprise customer subscriptions.

Our 5G products and associated cloud solutions are designed and developed in the U.S.

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Our mobile broadband solutions, sold under the MiFi brand, are actively used by millions of end users to provide secure and convenient high-speed access to corporate, public and personal information through the Internet and enterprise networks.

Our mobile portfolio is supported by our cloud offerings - Inseego Connect for device management, and 5G SD EDGE for secure networking enabling corporate managed mobile remote workforce.

Our Mobile Solutions portfolio also includes 4G VoLTE products and 4G USB modems.

Our mobile portfolio is supported by our cloud offerings - Inseego Connect for device management, and 5G SD EDGE for secure networking enabling corporate managed mobile remote workforce, whose revenues are included in Services and other below.

Our Mobile Solutions customer base is primarily comprised of mobile operators.

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Our fixed wireless access solutions are deployed by enterprise and SMB customers for their distributed sites and employees as a fully secure and corporate managed wireless WWAN solution.

The portfolio consists of indoor, outdoor and industrial routers and gateways supported by our cloud solutions – Inseego Connect for device management and 5G SD Edge for secure cloud networking.

The portfolio consists of indoor, outdoor and industrial routers and gateways supported by our cloud offerings – Inseego Connect for device management and 5G SD Edge for secure cloud networking.

Revenues related to our cloud offerings of Inseego Connect and SD Edge are included within Services and other below.

These solutions, sold under the Wavemaker and Skyus brands, are sold by mobile operators such as T-Mobile, U.S.

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We sell certain other types of SaaS solutions.

First is our telematics and asset tracking solution that is deployed across multiple vertical markets in Europe, UK, Australia and New Zealand.

First is our telematics solution that is deployed across multiple vertical markets in Europe, UK, Australia and New Zealand.

This solution provides real time visibility to fleet managers on their deployed vehicles with live maps and data to improve driver safety and performance.

We have thousands of enterprise and SMB customers currently subscribed to this service.

Second, we provide a wireless subscriber management solution (Inseego Subscribe) for carrier’s management of their government and complex enterprise customer subscriptions.

Second, we provide a SaaS wireless subscriber management solution (Inseego Subscribe) for carrier’s management of their government and complex enterprise customer subscriptions.

We also categorize non-recurring engineering services we provide to our customers as Service and other revenue.

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Financial Statement Presentation

During the fourth quarter of 2023 the Company reclassified revenues on the in order to align with how management currently reviews revenue results.

During the fourth quarter of 2023 the Company reclassified revenues in order to align with how management reviews revenue results.

Historically, the Company classified revenues from products and services into two categories, IoT & Mobile Solutions and Enterprise SaaS Solutions.

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Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Revenues for the three months ended March 31, 2024 were $45.0 million, compared to $50.8 million for the same period in 2023.

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

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Revenues for the three months ended June 30, 2024 were $59.1 million, compared to $53.6 million for the same period in 2023.

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

Three Months Ended

March 31, Change

June 30, Change

Product Category 2024 2023 $ %

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Fixed wireless access solutions 13,317 19,505 (6,188) (31.7)

Product revenues 29,452 34,910 (5,458) (15.6)

Product 39,196 38,400 796 2.1

Services and other 19,953 15,157 4,796 31.6

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Mobile solutions.

The $7.8 million decrease in mobile solutions revenues is primarily a result of investing more of our resources in the premium 5G MiFi category as opposed to developing a low-end, lower margin 5G MiFi, which resulted in lower sales during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The $7.0 million increase in mobile solutions revenues is primarily due to product mix as a result of current period sales of our higher margin premium 5G MiFi category in comparison to sales of the predecessor, lower-cost, 4G MiFi category in the prior year.

Fixed wireless access solutions.

The $2.3 million increase in fixed wireless access solutions revenue s is primarily due to the increased adoption of fixed wireless access products by our customers, specifically sales of a 5G fixed wireless access device that we launched in the second quarter of 2023.

Services and other The $0.3 million decrease in services and other net revenues is primarily due to decreased Inseego Subscribe revenues, partially offset by increased telematics subscription revenues.

Based on the terms of a two-year service contract for Inseego Subscribe that was renewed in April 2024, we expect Inseego Subscribe revenues to increase in future periods.

The $6.2 million decrease in fixed wireless access solutions revenues is primarily due to higher sales in the three months ended June 30, 2023 relating to pre-launch sales of our indoor FWA solution in preparation for the release that occurred in the third quarter of 2023.

Services and other The $4.8 million increase in services and other revenues is primarily due to increased Inseego Subscribe revenues related to the terms of a two-year service contract renewal with a major customer that was effective in April 2024.

Cost of revenues.

Cost of revenues for the three months ended March 31, 2024 was $27.6 million, or 61.4% of revenues, compared to $32.6 million, or 64.2% of revenues, for the same period in 2023.

Cost of revenues for the three months ended June 30, 2024 was $36.1 million, or 61.0% of revenues, compared to $34.7 million, or 64.7% of revenues, for the same period in 2023.

The following table summarizes cost of revenues by category (in thousands):

Three Months Ended

March 31, Change

June 30, Change

Product Category 2024 2023 $ %

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Total cost of revenues $ 36,109 $ 34,661 $ 1,448 4.2

The $5.3 million decrease in Product cost of revenues is primarily is a result of lower sales of 4G hotspots, partially offset by increased sales of fixed wireless access solutions.

The $0.1 million decrease in product cost of revenues is primarily due to product mix as a result of current period sales of our higher margin premium 5G MiFi category in comparison to the predecessor, lower margin, 4G MiFi category that was sold during the prior year.

Services and other.

The $0.3 million increase in Services and other cost of revenues is primarily due to product mix as higher cost telematics services increased in comparison to the prior period, both in total and as a percentage of total Services and other revenues.

The $1.6 million increase in services and other cost of revenues is primarily due to increased Inseego Subscribe and telematics services revenues and the related increase in costs incurred to provide these services.

Gross profit.

Gross profit for the three months ended March 31, 2024 was $17.4 million, or a gross margin of 38.6%, compared to $18.2 million, or a gross margin of 35.8%, for the same period in 2023.

The decrease in gross profit is primarily due to lower reven ues.

The increase in gross profit margin is due to a larger proportion of higher margin service revenues as a percentage of total revenues.

Gross profit for the three months ended June 30, 2024 was $23.0 million, or a gross margin of 39.0%, compared to $18.9 million, or a gross margin of 35.3%, for the same period in 2023.

The increase in gross profit is primarily due to higher reven ues.

The increase in gross profit margin is primarily due to a larger proportion of higher margin service revenues as a percentage of total revenues and increased margins on the Company’s premium 5G MiFi offerings in the current year in comparison to the lower margin products offered in the prior year.

Operating costs and expenses.

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change

Operating costs and expenses 2024 2023 $ %

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Depreciation and amortization 4,009 4,688 (679) (14.5)

Total $ 20,691 $ 22,172 $ (1,481) (6.7)

Research and development expenses.

Research and development expenses for the three months ended June 30, 2024 were $5.5 million, or 9.3% of revenues, compared to $6.3 million , or 11.7% of revenues, for the same period in 2023.

The decrease in research and development expenses was primarily due to lower research and development personnel-related costs as a result of a decrease in overall research and development headcount, partially offset by increased annual incentive bonus accruals for current year performance.

Sales and marketing expenses.

Sales and marketing expenses for the three months ended June 30, 2024 were $5.4 million, or 9.1% of revenues, compared to $5.8 million, or 10.8% of revenues, for the same period in 2023.

The decrease in sales and marketing expenses was primarily due to lower sales personnel-related costs as a result of a decrease in overall sales headcount and a decrease in consulting and outside services in relation to cost reduction efforts.

General and administrative expenses.

General and administrative expenses for the three months ended June 30, 2024 were $5.8 million, or 9.8% of revenues, compared to $5.4 million, or 10.1% of revenues, for the same period in 2023.

The increase in general and administrative expense was primarily due to an increase in legal and consulting expenses from our overall capital structure management efforts and increased annual incentive bonus accruals for current year performance, partially offset by a decreased share-based compensation and contractor expenses.

Depreciation and amortization expenses .

Depreciation and amortization expenses for the three months ended June 30, 2024 were $4.0 million , or 6.8% of revenues, compared to $4.7 million , or 8.8% of revenues, for the same period in 2023 .

The decrease in depreciation and amortization expenses was primarily due to lower amortization related to capitalized software projects during the three months ended June 30, 2024 compared to the same period in 2023 .

Other (expense) income.

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

Three Months Ended June 30, Change

Other (expense) income 2024 2023 $ %

Interest expense, net $ (1,774) $ (2,014) $ 240 (11.9)

Other income (expense), net 355 658 (303) (46.0)

Total $ (1,419) $ (1,356) $ (63) 4.6

* Percentage not meaningful

Interest expense, net.

The $0.2 million decrease in interest expense, net for the three months ended June 30, 2024 over the same period in 2023 was primarily a result of the termination of the Company’s Credit Facility in April 2024.

Other income (expense), net.

The $0.3 million decrease in other income, net for the three months ended June 30, 2024 over the same period in 2023 is primarily due to foreign currency exchange losses in the current period compared to foreign currency exchange gains in the prior period, partially offset by net gains recorded on our debt restructuring transactions.

Income tax provision.

Income tax provision for the three months ended June 30, 2024 and 2023 was a provision of $0.3 million and $0.3 million, respectively.

Preferred stock dividends.

During the three months ended June 30, 2024 and 2023, we recorded dividends of $0.8 million and $0.7 million, respectively, on our Preferred Stock.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Revenues for the six months ended June 30, 2024 were $104.2 million, compared to $104.4 million for the same period in 2023.

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

Six Months Ended

June 30, Change

Product Category 2024 2023 $ %

Mobile solutions $ 41,149 $ 41,935 $ (786) (1.9) %

Fixed wireless access solutions 27,499 31,375 (3,876) (12.4)

Product 68,648 73,310 (4,662) (6.4)

Services and other 35,510 31,041 4,469 14.4

Total revenues $ 104,158 $ 104,351 $ (193) (0.2)

Mobile solutions.

The $0.8 million decrease in mobile solutions revenues is primarily a result of reduction of sales of phone line replacement products and investing more of our resources in the premium 5G MiFi category as opposed to developing a low-end, lower margin 5G MiFi, which resulted in lower unit sales during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Fixed wireless access solutions.

The $3.9 million decrease in fixed wireless access solutions revenues is primarily due to higher sales in the six months ended June 30, 2023 relating to pre-launch sales of our indoor FWA solution in preparation for the release that occurred in the third quarter of 2023 and reduced sales of our indoor router category during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Services and other The $4.5 million increase in services and other revenues is primarily due to increased Inseego Subscribe revenues related to the terms of a two-year service contract renewal with a major customer that was executed in April 2024.

Cost of revenues.

Cost of revenues for the six months ended June 30, 2024 was $63.7 million, or 61.2% of revenues, compared to $67.3 million, or 64.5% of revenues, for the same period in 2023.

The following table summarizes cost of revenues by category (in thousands):

Six Months Ended

June 30, Change

Product Category 2024 2023 $ %

Product $ 53,220 $ 58,587 $ (5,367) (9.2) %

Services and other 10,506 8,681 1,825 21.0

Total cost of revenues $ 63,726 $ 67,268 $ (3,542) (5.3)

The $5.4 million decrease in Product cost of revenues is primarily due to product mix as a result of current period sales of our higher margin premium 5G MiFi category in comparison to the predecessor, lower margin, 4G MiFi category that was sold during the prior year and overall decreased product sales in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Services and other.

The $1.8 million increase in Services and other cost of revenues is primarily due to increased Inseego Subscribe and telematics services revenues and the related increase in costs incurred to provide said services.

Gross profit.

Gross profit for the six months ended June 30, 2024 was $40.4 million, or a gross margin of 38.8%, compared to $37.1 million, or a gross margin of 35.5%, for the same period in 2023.

The increase in gross profit is primarily due to higher reven ues .

Operating costs and expenses.

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

Six Months Ended

June 30, Change

Operating costs and expenses 2024 2023 $ %

Research and development $ 10,529 $ 10,041 $ 488 4.9 %

Sales and marketing 10,386 12,253 (1,867) (15.2)

General and administrative 10,788 11,155 (367) (3.3)

Depreciation and amortization 7,644 9,997 (2,353) (23.5)

Impairment of capitalized software 420 504 (84) (16.7)

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Research and development expenses.

Research and development expenses for the three months ended March 31, 2024 were $5.0 million, or 11.2% of net revenues, compared to $3.8 million , or 7.4% of net revenues, for the same period in 2023.

The increase in research and development expenses was primarily due to fewer research and development projects that were capitalizable during the three months ended March 31, 2024, which resulted in a higher percentage of research and development costs being recorded as operating expenses, partially offset by lower personnel related costs.

Research and development expenses for the six months ended June 30, 2024 were $10.5 million, or 10.1% of revenues, compared to $10.0 million, or 9.6% of revenues, for the same period in 2023.

The increase in research and development expenses was primarily due to fewer research and development projects that were capitalizable during the six months ended June 30, 2024, which resulted in a higher percentage of research and development costs being recorded as operating expenses, and increased annual incentive bonus accruals for current year performance, partially offset by lower personnel-related costs as a result of a decrease in overall sales headcount and a decrease in consulting and outside services in relation to cost reduction efforts.

Sales and marketing expenses.

Sales and marketing expenses for the three months ended March 31, 2024 were $5.0 million, or 11.1% of net revenues, compared to $6.5 million, or 12.7% of net revenues, for the same period in 2023.

The decrease in sales and marketing expenses was primarily due to lower sales personnel-related costs as a result of the decrease in overall sales headcount compared to the same period in 2023.

Sales and marketing expenses for the six months ended June 30, 2024 were $10.4 million, or 10.0% of revenues, compared to $12.3 million, or 11.7% of revenues, for the same period in 2023.

General and administrative expenses.

General and administrative expenses for the three months ended March 31, 2024 were $5.0 million, or 11.1% of net revenues, compared to $5.7 million, or 11.3% of net revenues, for the same period in 2023.

The decrease in general and administrative expense was primarily due to a decrease in share-based compensation expense.

General and administrative expenses for the six months ended June 30, 2024 were $10.8 million, or 10.4% of revenues, compared to $11.2 million, or 10.7% of revenues, for the same period in 2023.

The decrease in general and administrative expense was primarily due to a decrease in share-based compensation expense and temporary employment costs as part of cost reduction efforts, partially offset by increase in legal and consulting expenses from our overall capital structure management efforts and increased annual incentive bonus accruals for current year performance.

Depreciation and amortization expenses .

Depreciation and amortization expenses for the three months ended March 31, 2024 were $3.6 million , or 8.1% of net revenues, compared to $5.3 million , or 10.5% of net revenues, for the same period in 2023 .

The decrease in depreciation and amortization expenses was primarily due to lower amortization related to capitalized software projects during the three months ended March 31, 2024 compared to the same period in 2023 .

Depreciation and amortization expenses for the six months ended June 30, 2024 were $7.6 million, or 7.3% of revenues, compared to $10.0 million, or 9.6% of revenues, for the same period in 2023.

The decrease in depreciation and amortization expenses was primarily due to lower amortization related to capitalized software projects during the six months ended June 30, 2024 compared to the same period in 2023.

Impairment of capitalized software.

For the three months ended March 31, 2024 and 2023, we recorded impairments of $0.4 million and $0.5 million, respectively.

For the six months ended June 30, 2024 and 2023, we recorded impairments of $0.4 million and $0.5 million, respectively.

Other (expense) income.

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

Three Months Ended March 31, Change

Six Months Ended

June 30, Change

Other (expense) income 2024 2023 $ %

Interest expense, net $ (3,948) $ (4,011) $ 63 (1.6)

Other (expense) income, net (360) 795 (1,155) (145.3)

Other income (expense), net (5) 1,453 (1,458) (100.3)

Total $ (3,953) $ (2,558) $ (1,395) 54.5

* Percentage not meaningful

Interest expense, net.

The $0.2 million increase in interest expense, net for the three months ended March 31, 2024 over the same period in 2023 was primarily a result of interest expense associated with the Company’s Credit Facility.

Other (expense) income, net.

The $1.2 million decrease in other (expense) income, net for the three months ended March 31, 2024 over the same period in 2023 is primarily due to foreign currency exchange gains in the prior period.

The $0.1 million decrease in interest expense, net for the six months ended June 30, 2024 over the same period in 2023 was primarily a result of the termination of the Company’s Credit Facility in April 2024 as primarily a result of interest expense associated with the Company’s Credit Facility.

Other income (expense), net.

The $1.5 million decrease in other income (expense), net for the six months ended June 30, 2024 over the same period in 2023 is primarily due to foreign currency exchange gains in the prior period, partially offset by net gains recorded on our debt restructuring transactions in the current period.

Income tax provision.

Income tax provision for the three months ended March 31, 2024 and 2023 was a provision of $0.2 million and $0.3 million, respectively.

Series E preferred stock dividends.

During the three months ended March 31, 2024 and 2023, we recorded dividends of $0.8 million and $0.7 million, respectively, on our Series E Preferred Stock.

Income tax provision for the six months ended June 30, 2024 and 2023 was a provision of $0.5 million and $0.6 million, respectively.

Preferred stock dividends.

During the six months ended June 30, 2024 and 2023, we recorded dividends of $1.6 million and $1.5 million, respectively, on our Preferred Stock.

Reverse Stock Split

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Liquidity and Capital Resources

As of March 31, 2024, the Company had available cash and cash equivalents totaling $12.3 million and working capital of $3.6 million.

The Company’s Credit Facility (as defined in Note 4 – Debt in the accompanying condensed consolidated financial statements), which had an outstanding balance of $4.7 million as of March 31, 2024, was voluntarily paid-off and terminated by the Company effective April 18, 2024.

The Company generated positive cash flow from operations both for the year ended December 31, 2023 and in the three months ended March 31, 2024.

On June 28, 2024, the Company entered into a series of agreements, as part of its overall capital structure management, to reduce its total debt and restructure its outstanding 2025 Convertible Notes.

Specifically, pursuant to agreements summarized in Note 4 – Debt in the accompanying unaudited financial statements, the Company executed three transactions that, together, involved the three largest noteholders of $125.9 million in face value, or 80%, of the 2025 Convertible Notes, as follows:

(1) Convertible Debt Repurchase:

the Company agreed to purchase for cash, all of the $45.9 million in face value of the 2025 Convertible Notes held by certain entities managed by Highbridge Capital Management, LLC (such entities, “Highbridge”), the second largest noteholder, at a discount of 30% to face value;

(2) Short-Term Loan Agreement:

to finance a portion of the Convertible Debt Repurchase, the Company agreed to a $19.5 million loan (“Short-Term Loan”) from (i) South Ocean Funding, LLC (“South Ocean”), which is an affiliate of Golden Harbor Ltd.

(“Golden Harbor”), and Tavistock Financial, LLC, and (ii) certain participant lenders (the “Participating Lenders”).

The Short-Term Loan matures on September 30, 2024, provided that the Company may request an extension of the maturity date of up to six months, to March 31, 2025, which the Lender and each Participating Lender may grant or deny with respect to each of their respective portions of the Short-Term Loan.

Borrowings under the Short-Term Loan will bear interest at 12.0% per annum.

Upon any repayment or prepayment of the amounts borrowed under the Short-Term Loan (including at maturity), the Company will be required to pay an exit fee equal to 4.0% of the aggregate principal amount prepaid or repaid.

See Note 4 – Debt in the accompanying condensed consolidated financial statements for further details regarding the Short-Term Loan;

(3) Convertible Debt Exchange:

the Company entered into binding term sheets (the “Exchange Agreements”) to exchange $80.0 million of face value that represents all of the 2025 Convertible Notes held by North Sound Partners and Golden Harbor (the “Noteholders”), the largest and third-largest bondholders, respectively, for the same 30% discount as the Highbridge Notes purchase, for a combination of new long-term debt and equity.

Specifically, the Noteholders will receive an aggregate of approximately 2.4 million shares of Common Stock and $31.8 million principal amount of new long-term senior secured notes.

In addition the Noteholders will receive warrants to purchase an aggregate of approximately 1.5 million shares of Common Stock.

As of June 30, 2024, the Company had available cash and cash equivalents totaling $49.0 million.

Under the Short-Term Loan Agreement, the Company received $16.5 million in cash on June 28, 2024.

Subsequent to June 30, 2024 (on July 1, 2024), the Company received the remaining $3.0 million under the Short-Term Loan Agreement and closed the Convertible Debt Repurchase, paying $32.1 million to Highbridge, plus accrued interest.

The 2025 Convertible Notes had a principal balance of $158.9 million as of June 30, 2024 and mature on May 1, 2025.

The closing of the Convertible Debt Repurchase on July 1, 2024 reduced the principal balance of the 2025 Convertible Notes by $45.9 million.

Taking into account the Convertible Debt Repurchase, the Convertible Debt Exchange, and certain other transactions with individual holders of the 2025 Convertible Notes through the date of issuance of this report, the Company has repurchased and/or entered into binding agreements to repurchase and/or exchange approximately $141.9 million, or 87.7%, of the face value of the outstanding 2025 Convertible Notes.

Consummation of the Convertible Debt Exchanges are subject to, among other things, the drafting, execution and delivery of one or more final agreements reflecting the terms contained in the Exchange Agreements and other customary and mutually acceptable terms and conditions, which agreements the Company and the Noteholders have agreed to negotiate in good faith.

There can be no assurance that the Convertible Debt Exchanges will be consummated on the terms set forth in the Exchange Agreements, or at all.

As the closing of the Convertible Debt Exchanges cannot be assured, accounting guidance requires disclosure that this raises substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance of these financial statements.

The Company generated positive cash flow from operations both for the year ended December 31, 2023 and in the three and six months ended June 30, 2024.

In April 2024, the Company received a $15.0 million upfront payment from a customer in connection with a two-year service contract.

Based on the factors above, and to reduce financing costs, the Company voluntarily paid-off and terminated the Credit Facility effective April 18, 2024.

Based on the factors above, and to reduce financing costs, the Company voluntarily paid-off and terminated its Credit Facility effective April 18, 2024.

These factors have had a positive impact on our liquidity.

The Company’s 2025 Notes have a principal balance of $161.9 million and mature on May 1, 2025.

The Company’s intention is to restructure or refinance the 2025 Notes, and the Company is in active negotiations to do so, however 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.

As the refinancing of the 2025 Notes cannot be assured, accounting guidance requires disclosure that this raises substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance of these financial statements.

While the Company’s liquidity has had several positive developments recently, as noted above, the Company has a history of operating and net losses and overall usage of cash from operating and investing activities.

The Company’s ability to attain profitable operations and continue to generate positive cash flows is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure.

In order to effect a restructuring or refinancing of the 2025 Notes, or 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.

While the Company’s liquidity and financial results have had several positive developments recently, as noted above, the Company has a history of operating and net losses and overall usage of cash from operating and investing activities.

The Company’s ability to maintain profitable operations and continue to generate positive cash flows is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure.

In order to effect the restructuring or refinancing of the Company’s obligations, or 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, 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.

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.

If additional funds are raised by the issuance of equity securities, or in connection with any restructuring or refinancing of the 2025 Notes, Company stockholders could experience significant dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock.

Revolving Credit Facility

On August 5, 2022, we entered into a Loan and Security Agreement (the “Credit Agreement”) with Siena Lending Group LLC, as lender (“Lender”).

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 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 borrowing amount for interest calculations to $8.5 million, and modified certain covenants (as so amended, the “Amended Credit Agreement”).

On February 20, 2024, we entered into a fourth amendment (the “Fourth Amendment”) of the Credit Agreement which relaxed the financial covenants under the Credit Agreement by decreasing the minimum liquidity level we are required to maintain from $10 million to $8 million.

Availability under the Credit Facility was 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.

Effective April 18, 2024, the Company exercised its right to voluntarily pay-off and terminate its Credit Facility with Siena Lending Group LLC.

As a result of the termination, the Company paid the outstanding balance and related termination fees on the Credit Facility of approximately $3.0 million.

The Company has also paid an exit fee in the aggregate amount of $0.4 million to South Ocean Funding, LLC and North Sound Ventures, LP (collectively, the “Participants”) as a result of the early redemption of the Participants’ $4.0 million last-out subordinated participation interest in the Loan and Security Agreement pursuant to a Participation Agreement between the Participants and Siena Lending Group.

South Ocean Funding, LLC is an affiliate of Golden Harbor, Ltd.

and North Sound Ventures, LP is an affiliate of North Sound Management, Inc.

As of April 18, 2024, each of Golden Harbor, Ltd.

and North Sound Management, Inc.

were beneficial owners of in excess of 5% of the Company’s outstanding common stock.

Borrowings under the Credit Facility could take the form of base rate (“Base Rate”) loans or Secured Overnight Financing Rate (“SOFR”) loans.

SOFR loans bore interest at a rate per annum equal to Term SOFR (as defined in the Amended 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 Amended Credit Agreement), with a Term SOFR floor of 1%.

Base Rate loans bore 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 Amended Credit Agreement) plus 0.5% and (c) 3.50% per annum.

The Applicable Margin varied depending on the average outstanding amount for a preceding month.

If the average outstanding amount for a preceding month was less than $15 million, the Applicable Margin would be 2.50% for Base Rate loans and 3.50% for SOFR loans.

If the average outstanding amount for a preceding month was between $15 million and $25 million, the Applicable Margin would be 3.00% for Base Rate loans and 4.00% for SOFR loans.

If the average outstanding amount for a preceding month was greater than $25 million, the Applicable Margin would be 4.5% for Base Rate loans and 5.50% for SOFR loans.

On May 2, 2023, in addition to the amendment to the Credit Agreement entered into as described above, South Ocean Funding, LLC and North Sound Ventures, LP (the “Participants”) collectively purchased a $4.0 million last-out subordinated participation interest in the Amended Credit Agreement (the “Participation Interest”) from the Lender pursuant to a Participation Agreement between the Participants and the Lender (the “Participation Agreement”).

In connection with the purchase of the Participation Interest, we agreed to pay the Participants an exit fee upon the earlier of (a) the scheduled maturity date of the Amended Credit Agreement, (b) the termination of the Lender’s commitment to make revolving loans prior to the scheduled maturity date of the Amended Credit Agreement, and (c) the early redemption of the Participants’ Participation Interest under the Participation Agreement (the earliest to occur of the foregoing, the “Exit Event”).

The aggregate exit fee payable to the Participants is equal to (i) 7.5% of the Participation Interest, if the Exit Event occurs on or before December 31, 2023, (ii) 10.0% of the Participation Interest, if the Exit Event occurs between January 1, 2024 and June 30, 2024 and (iii) 12.5% of the Participation Interest, if the Exit Events occurs after June 30, 2024.

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.

South Ocean Funding, LLC is an affiliate of Golden Harbor, Ltd.

and North Sound Ventures, LP is an affiliate of North Sound Management, Inc.

As of the date hereof, each of Golden Harbor, Ltd.

and North Sound Management,

hold in excess of 5% of the Company’s outstanding common stock.

James Avery, a member of our Board of Directors, currently serves as Senior Managing Director of Tavistock Group, an affiliate of South Ocean Funding, LLC.

The Amended Credit Agreement contained a financial covenant whereby the Loan Parties shall not permit the consolidated Liquidity (as defined in the Amended Credit Agreement) to be less than $8 million at any time.

The Amended Credit Agreement also contained certain customary covenants, including restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and placed limits on various other payments.

We were in compliance with the financial covenants contained in the Amended Credit Agreement as of March 31, 2024.

As of March 31, 2024, we had outstanding borrowings under the Credit Agreement of $4.7 million.

The Company voluntarily paid-off and terminated the Credit Facility effective April 18, 2024.

After taking into account exchanges and redemptions occurring in prior periods, the outstanding principal balance of the Company’s 3.5% convertible senior notes due in May 2025 (the “2025 Notes”) was $161.9 million as of both March 31, 2024 and December 31, 2023.

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.

Equity Distribution Agreement

On January 25, 2021, we entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which we could offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of our common stock (the “ATM Offering”) pursuant to the Company’s Registration Statement on Form S-3ASR (File No.

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

D uring the three months ended March 31, 2023, the Company sold 85,810 shares of common stock, at an average price of $6.17 per share, for net proceeds of $0.5 million, after deducting underwriter fees and discounts.

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 .

If additional funds are raised by the issuance of equity securities, or in connection with any restructuring or refinancing of the 2025 Convertible Notes, Company stockholders could experience significant dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock.

Contractual Obligations and Commitments

As of March 31, 2024, our material contractual obligations consisted of the following:

As of June 30, 2024, our material contractual obligations consisted of the following:

• To mitigate the risk of material shortages and price increases, we enter into non-cancellable purchase obligations with certain key contract manufacturers for the purchase of goods and services in the three to four quarters following the balance sheet date.

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

As of March 31, 2024, our future payments under these noncancellable purchase obligations were approximately $60.1 million.

• $161.9 million in outstanding principal amount of 2025 Notes with required interest payments;

see Note 5 – Debt in the accompanying condensed consolidated financial statements;

• $4.7 million in outstanding borrowings under the Credit Facility;

As of June 30, 2024, our future payments under these noncancellable purchase obligations were approximately $78.2 million.

• $158.9 million and $16.5 million in outstanding principal amount of 2025 Convertible Notes and Short-Term Loan, respectively, with required interest payments;

see Note 4 – Debt in the accompanying condensed consolidated financial statements;

• 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, 2024.

There were no material changes in our other contractual obligations during the three months ended June 30, 2024.

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 operating activities $ 33,301 $ 12,679

Net cash used in investing activities (2,376) (4,602)

Net cash provided by (used in) financing activities 583 (3,340)

Net cash provided by financing activities 10,758 1,227

Effect of exchange rates on cash (209) (1,282)

3 unchanged sentences

Operating activities.

Net cash provided by operating activities for the three months ended March 31, 2024 is comprised of a $4.5 million net loss incurred during the period, which was offset by net cash provided by working capital of $2.9 million and total non-cash charges, including depreciation and amortization of $4.4 million and share-based compensation expense of $0.7 million.

Net cash provided by operating activities for three months ended March 31, 2023 is comprised of a $5.1 million net loss incurred during the period, which was offset by cash provided by working capital of $4.2 million and total non-cash charges, including depreciation and amortization of $5.4 million and share-based compensation expense of $1.8 million.

Net cash provided by operating activities for the six months ended June 30, 2024 is comprised of a $3.8 million net loss incurred during the period and a non-cash gain on debt restructurings of $1.3 million, which was offset by net cash provided by working capital of $26.7 million and non-cash charges, including depreciation and amortization of $9.1 million, share-based compensation expense of $1.6 million, and amortization of debt discount and debt issuance costs of $0.9 million.

Net cash provided by operating activities for six months ended June 30, 2023 is comprised of a $10.0 million net loss incurred during the period, which was offset by and net cash provided by working capital of $5.6 million and 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.

Investing activities.

Net cash used in investing activities during the three months ended March 31, 2024 is comprised of $0.6 million of c ash outflows related to the development of software in support of our products and services.

Net cash used in investing activities during the same period in 2023 is primarily comprised of $2.4 million of c ash outflows related to the development of software in support of our 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, 2024 is comprised of $2.3 million of cash outflows related to the development of software in support of our products and services.

Net cash used in investing activities during the same period in 2023 is primarily comprised of $4.4 million of cash outflows related to the development of software in support of our products and services and $0.2 million of property, plant and equipment purchases.

Financing activities.

Net cash provided by financing activities during the three months ended March 31, 2024 is comprised of $0.6 million of cash inflow related to net borrowings on our revolving credit facility.

Net cash used in financing activities for the same period in 2023 is primarily comprised of $3.4 million of cash outflow related to net repayments of our revolving credit facility, partially offset by $0.5 million in proceeds from the ATM offering .

Net cash provided by financing activities during the six months ended June 30, 2024 is comprised of $16.5 million from the issuance of the short-term loan and common stock warrants, partially offset by $4.1 million of cash outflow from the termination and repayment of our revolving credit facility and $1.7 million of cash outflow from the repurchase of a portion of our convertible notes.

Net cash provided by financing activities for the same period in 2023 is primarily comprised of $6.1 million in proceeds from the ATM offering, partially offset by $4.6 million of cash outflow related to net repayments of our revolving credit facility.

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