INSEEGO CORP. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward Looking Statements This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these statements. These forward-looking statements include, without limitation, statements that reflect the views of our senior management with respect to our current expectations, assumptions, estimates and projections about Inseego Corp. (the “Company” or “Inseego”) and our industry. These forward-looking statements speak only as of the date of this report. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Statements that include the words “may,” “could,” “should,” “would,” “estimate,” “anticipate,” “believe,” “expect,” “preliminary,” “intend,” “plan,” “project,” “outlook,” “will” and similar words and phrases identify forward-looking statements (although not all forward-looking statements contain these words). Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified; therefore, our actual results may differ materially from those anticipated in these forward-looking statements as of the date of this report. We believe that these factors include those related to: • our ability to make payments on or to refinance our indebtedness; • our dependence on a small number of customers for a substantial portion of our revenues; • our ability to compete in the market for wireless broadband data access products, wireless modem products, and telematics products and services; • our ability to successfully develop and introduce new products and services; • the pace of 5G wireless network rollouts globally and their adoption by customers; • our dependence on wireless telecommunication operators delivering acceptable wireless services • our ability to meet the price and performance standards of the evolving 5G New Radio (“5G NR”) products and technologies; • our ability to develop sales channels and to onboard channel partners; • our relationships with and the performance of our channel partners; • our ability to introduce and sell new products that comply with current and evolving industry standards and government regulations; • our ability to develop and maintain strategic relationships to expand into new markets; • our ability to properly manage the growth of our business to avoid significant strains on our management and operations and disruptions to our business; • our reliance on third parties to manufacture our products; • our contract manufacturers’ ability to secure necessary supply to build our devices; • increases in costs, disruption of supply and/or the shortage of semiconductors or other key components of our products; • our ability to accurately forecast customer demand and order the manufacture and timely delivery of sufficient product quantities; • our reliance on sole source suppliers for some products and devices used in our solutions; • our ability to be cost competitive while meeting time-to-market requirements for our customers; • our ability to meet the product performance needs of our customers in mobile broadband and fixed wireless access markets; • demand for fleet, vehicle and asset management software-as-a-service (“SaaS”) telematics solutions; • our ability to make successful investments in research and development; • the outcome of any pending or future litigation, including intellectual property litigation; 20 • infringement claims with respect to intellectual property contained in our solutions; • our continued ability to license necessary third-party technology for the development and sale of our solutions; • the introduction of new products that could contain errors or defects; • conducting business abroad, including foreign currency risks; • our ability to hire, retain and manage qualified personnel to maintain and expand our business. • our ability to mitigate the impact of tariffs or other government-imposed sanctions; • the impact of high rates of inflation and rising interest rates; • the continuing impact of uncertain global economic conditions on the demand for our products; and • the impact of geopolitical instability on our business. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A. Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. As used in this report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “Inseego” refer to Inseego Corp., a Delaware corporation, and its wholly-owned subsidiaries. Trademarks “Inseego”, “Inseego Subscribe”, “Inseego Manage”, “Inseego Secure”, “Inseego Vision”, the Inseego logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, ”Wavemaker”, “Clarity”, and “Skyus” are trademarks or registered trademarks of Inseego and its subsidiaries. Other trademarks, trade names or service marks used in this report are the property of their respective owners. 21 The following information should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this report, as well as the annual consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2023, contained in our Form 10-K. Business Overview Inseego Corp. is a leader in the design and development of cloud-managed wireless broadband and intelligent edge solutions. Our 4G and 5G wireless broadband portfolio is comprised of secure and high-performance mobile broadband and fixed wireless access (“FWA”) solutions with associated cloud solutions for real time WAN visibility, monitoring, automation and control with centralized orchestration of network functions. 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 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. and are used in mission-critical applications requiring the highest levels of security and zero unscheduled downtime. These solutions support applications such as business broadband for both mobile and fixed use cases, enterprise networking and software-defined wide area network (“SD-WAN”) failover management. Inseego is at the forefront of providing high speed broadband through state-of-the-art 4G and 5G solutions to keep enterprise and SMB customers seamlessly connected. With multiple first-to-market innovations through several generations of 4G and 5G technologies, Inseego has been advancing wireless WAN technology and driving industry transformations for over 30 years. Our products currently operate on all major cellular networks in the US. Our mobile hotspots, sold under the MiFi ™ brand, have been sold to millions of end users and provide secure and convenient high-speed broadband access to the Internet on the go. Our Sources of Revenue We classify our revenues from the sale of our products and services into two categories: Product Revenue, which consists of our Mobile Solutions and Fixed Wireless Access Solutions, and Services and Other. A description of each of the revenue classifications is as follows: Mobile solutions : 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 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. These mobile operators include Verizon Wireless, T-Mobile and U.S. Cellular in the United States, Rogers and Telus in Canada, Telstra in Australia, as well as other international wireless operators, distributors and various companies in other vertical markets and geographies. Fixed wireless access solutions : 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 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. Cellular and Verizon Wireless along with distribution and channel partners. Services and other : We sell certain other types of SaaS solutions. 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 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. 22 Business Segment Reporting We operate as one business segment. Our principal executive officer, who is also our Chief Operating Decision Maker, evaluates the business as a single entity and reviews financial information and makes business decisions based on the overall results of the business. As such, our operations constitute a single operating segment and one reportable segment. Financial Statement Presentation 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. The Company is now classifying revenues into the following two categories: Product Revenue, which consists of our Mobile Solutions and Fixed Wireless Access Solutions, and Services and Other. Additionally, during 2023 the Company reclassified all depreciation and amortization expense previously recorded in the operating expense line items of research and development, sales and marketing, and general and administrative expenses into a separate line labeled Depreciation and amortization. All prior periods have been reclassified to conform to the current period presentation for these changes. Critical Accounting Estimates We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates discussed in the Form 10-K. Results of Operations Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Revenues . 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 June 30, Change Product Category 2024 2023 $ % Mobile solutions $ 25,879 $ 18,895 $ 6,984 37.0 % Fixed wireless access solutions 13,317 19,505 (6,188) (31.7) Product 39,196 38,400 796 2.1 Services and other 19,953 15,157 4,796 31.6 Total revenues $ 59,149 $ 53,557 $ 5,592 10.4 Mobile solutions. 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 $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 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. 23 The following table summarizes cost of revenues by category (in thousands): Three Months Ended June 30, Change Product Category 2024 2023 $ % Product $ 30,507 $ 30,620 $ (113) (0.4) % Services and other 5,602 4,041 1,561 38.6 Total cost of revenues $ 36,109 $ 34,661 $ 1,448 4.2 Product. 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 $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 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 June 30, Change Operating costs and expenses 2024 2023 $ % Research and development $ 5,486 $ 6,266 $ (780) (12.4) % Sales and marketing 5,391 5,787 (396) (6.8) General and administrative 5,805 5,431 374 6.9 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 . 24 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 . 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): 25 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) Product. 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 . 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): 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) Total $ 39,767 $ 43,950 $ (4,183) (9.5) Research and development expenses. 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 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. 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 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 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 six months ended June 30, 2024 and 2023, we recorded impairments of $0.4 million and $0.5 million, respectively. 26 Other (expense) income. The following table summarizes other (expense) income (in thousands): Six Months Ended June 30, Change Other (expense) income 2024 2023 $ % Interest expense, net $ (3,948) $ (4,011) $ 63 (1.6) 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 $0.1 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 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 On January 24, 2024, the Company completed a 1-for-10 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each share of common stock issued and outstanding immediately prior to January 24, 2024 were automatically converted into one-tenth (1/10) of a share of common stock. The Reverse Stock Split did not change the par value of the common stock or the authorized number of shares of common stock. All outstanding convertible notes, stock options and RSUs entitling their holders to purchase or obtain or convert into shares of our common stock were adjusted, as required by the terms of these securities. All applicable common share and per share amounts have been retrospectively restated to show the effect of the reverse split. Liquidity and Capital Resources 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; and (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. 27 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 its Credit Facility effective April 18, 2024. These factors have had a positive impact on our liquidity. 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 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 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 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; and • 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 June 30, 2024. 28 Historical Cash Flows The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands): Six Months Ended June 30, 2024 2023 Net cash provided by operating activities $ 33,301 $ 12,679 Net cash used in investing activities (2,376) (4,602) Net cash provided by financing activities 10,758 1,227 Effect of exchange rates on cash (209) (1,282) Net increase in cash and cash equivalents 41,474 8,022 Cash and cash equivalents, beginning of period 7,519 7,143 Cash, cash equivalents, and restricted cash, end of period $ 48,993 $ 15,165 Operating activities. 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 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 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.