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; • the satisfaction of the conditions precedent to the sale of our fleet management and telematics solutions business (the “Telematics Business”); • 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; 26 • our ability to make successful investments in research and development; • the outcome of any pending or future litigation, including intellectual property litigation; • 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. 27 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 (see “Recent Developments” below). 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. Recent Developments On September 16, 2024, the Company and its subsidiary Inseego SA (Pty) Ltd (“Seller”) entered into a Share Purchase Agreement (the “Purchase Agreement”) with Light Sabre SPV Limited (which subsequently novated its benefits and obligations under the Purchase Agreement to Ctrack Holdings (the “Purchaser”)), pursuant to which Inseego agreed to sell to the Purchaser the entire issued share capital of the Company’s Inseego International Holdings Limited subsidiary in exchange for approximately $52 million in cash, subject to certain adjustments. Upon completion of the sale (the “Completion Date”), the Purchaser will acquire the Telematics Business, which has operations in the United Kingdom, the European Union, Australia and New Zealand. The Purchase Agreement is subject to closing conditions including, among others more fully described in the Purchase Agreement, Purchaser finalizing financing arrangements to fund the purchase price. Unless fulfilled or otherwise waived by the parties, if any of the closing conditions are not fulfilled by December 31, 2024, the Purchase Agreement shall be terminated and the Sale Transaction shall not be completed. The Company’s decision to divest its Telematics Business was based on a review of the strategic fit of the business with the Company’s North American-centric 5G wireless solutions business and the Company’s previously stated goal to continue to significantly de-leverage its capital structure. The sale of the telematics operations further supports the Company’s streamlining of its focus and resources on the strongest growth opportunities around its core product offerings. The assets and liabilities of the Telematics Business have been classified as held for sale within the Condensed Consolidated Balance Sheet and its operations have been classified as discontinued operations within the Condensed Consolidated Statements of Operations and Comprehensive Income for all periods presented herein. Refer to Note 2 – Discontinued Operations and Held for Sale included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion regarding the planned divestiture. 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 28 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. 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. 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. 29 Results of Operations Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Revenues . Revenues for the three months ended September 30, 2024 were $54.0 million, compared to $41.4 million for the same period in 2023. The following table summarizes revenues by our two product categories (in thousands): Three Months Ended September 30, Change Product Category 2024 2023 $ % Mobile solutions $ 32,282 $ 22,534 $ 9,748 43.3 % Fixed wireless access solutions 9,723 11,114 (1,391) (12.5) Product 42,005 33,648 8,357 24.8 Services and other 12,027 7,709 4,318 56.0 Total revenues $ 54,032 $ 41,357 $ 12,675 30.6 Mobile solutions . The $9.7 million increase in mobile solutions revenues is primarily due to increased sales of our higher margin premium 5G MiFi at multiple carriers, including a promotional offer at one of our carrier partners. Fixed wireless access solutions. The $1.4 million decrease in fixed wireless access solutions revenues is primarily due to decreased sales with one of our carrier partners, partially offset by sales from our channel program, that began in 2024, as initiatives in that space are beginning to drive revenue. Services and other The $4.3 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 three months ended September 30, 2024 was $35.2 million, or 65.2% of revenues, compared to $43.5 million, or 105.2% of revenues, for the same period in 2023. The following table summarizes cost of revenues by category (in thousands): Three Months Ended September 30, Change Product Category 2024 2023 $ % Product $ 33,592 $ 42,788 $ (9,196) (21.5) % Services and other 1,640 734 906 123.4 Total cost of revenues $ 35,232 $ 43,522 $ (8,290) (19.0) Product. The $9.2 million decrease in product cost of revenues is primarily due to significant inventory reserves and related char ges of $14.4 million reco rded in the three months ended September 30, 2023, partially offset by the impact of increased product revenues. Services and other. The $0.9 million increase in services and other cost of revenues is primarily due to increased Inseego Subscribe revenues and the related increase in costs incurred to provide these services. Gross profit. Gross profit for the three months ended September 30, 2024 was $18.8 million, or a gross margin of 34.8%, compared to a loss of $2.2 million, or a gross margin of (5.2)%, for the same period in 2023. The increase in gross profit is primarily due to significant inventory reserves recorded in the three months ended September 30, 2023 and higher revenues in the three months ended September 30, 2024. The increase in gross profit margin is primarily due to the inventory reserves recorded in the three months ended September 30, 2023 and 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): 30 Three Months Ended September 30, Change Operating costs and expenses 2024 2023 $ % Research and development $ 5,176 $ 5,200 $ (24) (0.5) % Sales and marketing 4,125 3,893 232 6.0 General and administrative 4,822 3,429 1,393 40.6 Depreciation and amortization 3,154 3,848 (694) (18.0) Impairment of capitalized software 507 611 (104) (17.0) Total $ 17,784 $ 16,981 $ 803 4.7 Research and development expenses. Research and development expenses for the three months ended September 30, 2024 were $5.2 million, or 9.6% of revenues, compared to $5.2 million , or 12.6% 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 September 30, 2024 were $4.1 million, or 7.6% of revenues, compared to $3.9 million, or 9.4% of revenues, for the same period in 2023. The increase in sales and marketing expenses was primarily due to increased sales commissions and higher advertising and marketing costs, partially offset by 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 September 30, 2024 were $4.8 million, or 8.9% of revenues, compared to $3.4 million, or 8.3% 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 related to our capital structure management efforts and planned divestiture of our Telematics Business, as well as increased annual incentive bonus accruals for current year performance, partially offset by a decreased share-based compensation. Depreciation and amortization expenses . Depreciation and amortization expenses for the three months ended September 30, 2024 were $3.2 million , or 5.8% of revenues, compared to $3.8 million , or 9.3% of revenues, for the same period in 2023 . The decrease in depreciation and amortization expenses was primarily due to lower balances of capitalized software projects and property, plant and equipment during the three months ended September 30, 2024 compared to the same period in 2023 . Impairment of capitalized software. For the three months ended September 30, 2024 and 2023, w e recorded impairments of $0.5 million and $0.6 million, respectively. Other (expense) income. The following table summarizes other (expense) income (in thousands): Three Months Ended September 30, Change Other (expense) income 2024 2023 $ % Interest expense, net $ (5,731) $ (2,894) $ (2,837) 98.0 % Gain on debt restructurings, net 12,366 — 12,366 * Other income (expense), net (72) 45 (117) * Total $ 6,563 $ (2,849) $ 9,412 * * Percentage not meaningful Interest expense, net. The $2.8 million increase in interest expense, net for the three months ended September 30, 2024 over the same period in 2023 was primarily a result of amortization of the debt discount and coupon interest on the Short-Term Loan (as defined below) received in June 2024, partially offset by reductions in the principal balance of the 2025 Convertible Notes (as defined below) and termination of the Company’s Credit Facility (as defined in Note 5 – Debt in the accompanying condensed consolidated financial statements) in April 2024. Gain on debt restructurings, net The $12.4 million net gain on debt restructurings for the three months ended September 30, 2024 is a result of the Company’s various 2025 Convertible Notes restructurings entered into during 2024 as part of our overall capital structure management efforts, as described below. Other income (expense), net. Other income (expense), net for the three months ended September 30, 2024 and 2023 was $0.1 million and $0.0 million, respectively. 31 Income from discontinued operations, net of tax. Income from discontinued operations, net of tax for the three months ended September 30, 2024 and 2023 was $1.4 million and $0.2 million, respectively. The increase was primarily due to increased sales of telematics services. Preferred stock dividends. During the three months ended September 30, 2024 and 2023, we recorded dividends of $0.8 million and $0.8 million, respectively, on our Preferred Stock. Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Revenues . Revenues for the nine months ended September 30, 2024 were $143.2 million, compared to $131.4 million for the same period in 2023. The following table summarizes revenues by our two product categories (in thousands): Nine Months Ended September 30, Change Product Category 2024 2023 $ % Mobile solutions $ 73,431 $ 64,469 $ 8,962 13.9 % Fixed wireless access solutions 37,222 42,489 (5,267) (12.4) Product 110,653 106,958 3,695 3.5 Services and other 32,504 24,409 8,095 33.2 Total revenues $ 143,157 $ 131,367 $ 11,790 9.0 Mobile solutions. The $9.0 million increase in mobile solutions revenues is primarily due to increased sales of our premium 5G MiFis with one of our carrier partners. Fixed wireless access solutions. The $5.3 million decrease in fixed wireless access solutions revenues is primarily due to higher sales in the nine months ended September 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 nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Services and other The $8.1 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 nine months ended September 30, 2024 was $92.3 million, or 64.5% of revenues, compared to $104.9 million, or 79.9% of revenues, for the same period in 2023. The following table summarizes cost of revenues by category (in thousands): Nine Months Ended September 30, Change Product Category 2024 2023 $ % Product $ 86,812 $ 101,375 $ (14,563) (14.4) % Services and other 5,492 3,559 1,933 54.3 Total cost of revenues $ 92,304 $ 104,934 $ (12,630) (12.0) Product. The $14.6 million decrease in Product cost of revenues is primarily due to significant inventory reserves recorded in the nine months ended September 30, 2023, partially offset partially offset by the impact of increased product revenues. Services and other. The $1.9 million increase in Services and other cost of revenues is primarily due to increased Inseego Subscribe revenues and the related increase in costs incurred to provide said services. Gross profit. Gross profit for the nine months ended September 30, 2024 was $50.9 million, or a gross margin of 35.5%, compared to $26.4 million, or a gross margin of 20.1%, for the same period in 2023. The increase in gross profit is primarily due to the inventory reserves recorded in the nine months ended September 30, 2023 and higher revenues in the nine months ended September 30, 2024. The increase in gross profit margin is primarily due to the inventory reserves recorded in the three months ended September 30, 2023 and a larger proportion of higher margin service revenues as a percentage of total revenues 32 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): Nine Months Ended September 30, Change Operating costs and expenses 2024 2023 $ % Research and development $ 15,032 $ 14,369 $ 663 4.6 % Sales and marketing 12,176 13,703 (1,527) (11.1) General and administrative 12,695 12,326 369 3.0 Depreciation and amortization 10,098 13,125 (3,027) (23.1) Impairment of capitalized software 927 1,115 (188) (16.9) Total $ 50,928 $ 54,638 $ (3,710) (6.8) Research and development expenses. Research and development expenses for the nine months ended September 30, 2024 were $15.0 million, or 10.5% of revenues, compared to $14.4 million, or 10.9% 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 nine months ended September 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 nine months ended September 30, 2024 were $12.2 million, or 8.5% of revenues, compared to $13.7 million, or 10.4% 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 nine months ended September 30, 2024 were $12.7 million, or 8.9% of revenues, compared to $12.3 million, or 9.4% 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 related to our capital structure management efforts and planned divestiture of our Telematics Business, as well as increased annual incentive bonus accruals for current year performance, partially offset by a decrease in share-based compensation expense and temporary employment costs as part of cost reduction efforts. Depreciation and amortization expenses . Depreciation and amortization expenses for the nine months ended September 30, 2024 were $10.1 million, or 7.1% of revenues, compared to $13.1 million, or 10.0% of revenues, for the same period in 2023. The decrease in depreciation and amortization expenses was primarily due to lower balances of capitalized software projects and property, plant and equipment during the nine months ended September 30, 2024 compared to the same period in 2023 . Impairment of capitalized software. For the nine months ended September 30, 2024 and 2023, we recorded impairments of $0.9 million and $1.1 million, respectively. Other (expense) income. The following table summarizes other (expense) income (in thousands): Nine Months Ended September 30, Change Other (expense) income 2024 2023 $ % Interest expense, net $ (9,686) $ (6,910) $ (2,776) 40.2 Loss on extinguishment of revolving credit facility (788) — (788) * Gain on debt restructurings, net 13,690 — 13,690 * Other income (expense), net (864) 50 (914) * Total $ 2,352 $ (6,860) $ 9,212 * * Percentage not meaningful Interest expense, net. The $2.8 million decrease in interest expense, net for the nine months ended September 30, 2024 over the same period in 2023 was primarily a result of amortization of the debt discount and coupon interest on the Short-Term Loan (as defined below) received in June 2024, partially offset by reductions in the principal balance of the 2025 Convertible 33 Notes (as defined below) and termination of the Company’s Credit Facility (as defined in Note 5 – Debt in the accompanying condensed consolidated financial statements) in April 2024. Loss on extinguishment of revolving credit facility The $0.8 million loss on extinguishment of revolving credit facility for the nine months ended September 30, 2024 relates to the terminations of the Company’s Credit Facility in April 2024. Gain on debt restructurings, net The $13.7 million net gain on troubled debt restructurings for the nine months ended September 30, 2024 is a result of the Company’s various 2025 Convertible Notes restructurings entered into during 2024 as part of our overall capital structure management efforts. Other income (expense), net. Other income (expense), net for the nine months ended September 30, 2024 and 2023 was $(0.9) million and $0.1 million, respectively. Income tax provision. Income tax provision for the nine months ended September 30, 2024 and 2023 was a provision of $0.2 million and $0.0 million, respectively. Income from discontinued operations, net of tax. Income from discontinued operations, net of tax for the nine months ended September 30, 2024 and 2023 was $3.0 million and $3.3 million, respectively. The decrease was primarily due to increased sales of telematics services. Preferred stock dividends. During the nine months ended September 30, 2024 and 2023, we recorded dividends of $2.4 million and $2.2 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 During 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 3.25% convertible notes due 2025 (the “2025 Convertible Notes”), some of which are summarized in Note 5 – Debt in the accompanying unaudited financial statements, as follows: (1) Convertible Debt Repurchases and Exchanges Completed prior to September 30, 2024 (the “Completed Repurchases and Exchanges”): (a) the Company repurchased, for cash, all of the $45.9 million principal amount of the 2025 Convertible Notes held by certain entities managed by Highbridge Capital Management, LLC (such entities, “Highbridge”), the second largest note holder as of the date of such purchase, at a discount of 30% to face value, plus accrued interest; (b) the Company repurchased, for cash, $3.0 million in principal amount of the 2025 Convertible Notes from a separate single holder at discount of 45% to face value, plus accrued interest; (c) t he Company repurchased from a holder approximately $4.7 million in principal amount of the 2025 Convertible Notes in exchange for 349,740 shares of the Company’s Common Stock and warrants to purchase an aggregate of 236,074 shares of the Company’s Common Stock, plus accrued interest. See Note 8 – Stockholders' Equity (Deficit) in the accompanying unaudited financial statements for further details regarding these warrants; (d) the Company repurchased from two related holders approximately $1.5 million in aggregate principal amount of the 2025 Convertible Notes in exchange for 137,533 shares of the Company’s common stock and warrants to purchase an aggregate of 88,534 shares of the Company’s common stock, plus accrued interest. See Note 8 – Stockholders' Equity (Deficit) in the accompanying unaudited financial statements for further details regarding these warrants; 34 (2) Short-Term Loan Agreement: to finance a portion of the Completed Repurchases and Exchanges, 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 was originally scheduled to mature on September 30, 2024 but maturity has subsequently been extended to November 30, 2024. Borrowings under the Short-Term Loan 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 5 – Debt in the accompanying condensed consolidated financial statements for further details regarding the Short-Term Loan; and (3) Convertible Debt Repurchases and Exchanges Completed Subsequent to September 30, 2024 (the “Subsequently Completed Repurchases and Exchanges”): On November 6, 2024 the Company completed the previously-announced privately-negotiated exchanges of $91.5 million in aggregate principal amount of the 2025 Convertible Notes held by certain holders of the 2025 Convertible Notes pursuant to binding term sheets that were previously entered into with such holders, including the binding term sheets entered into on June 28, 2024 with North Sound Partners and Golden Harbor Ltd.. In connection with the Subsequently Completed Repurchases and Exchanges, the Company issued to these noteholders in concurrent private placement transactions an aggregate of (i) approximately 2.4 million shares of the Company’s Common Stock, (ii) approximately $40.9 million in principal amount of new senior secured notes due in 2029 (the “New Senior Secured Notes”), and (iii) warrants to purchase an aggregate of approximately 2.1 million shares of the Company’s Common Stock. See Part 1 Item 1 Note 12 – Subsequent Events in this Quarterly Report on Form 10-Q for further details regarding the Subsequently Completed Repurchases and Exchanges, including information about the warrants and New Senior Secured Notes issued in relation to these transactions. As of September 30, 2024, the Company had available cash and cash equivalents totaling $12.0 million. During the three-months ended September 30, 2024, the Company voluntarily prepaid $13.5 million of the outstanding principal under the Short-Term Loan Agreement, so that on September 30, 2024, the outstanding principal under the Short-Term Loan was $6.0 million. The 2025 Convertible Notes had a principal balance of $106.8 million as of September 30, 2024 and mature on May 1, 2025. Taking into account the Completed Repurchases and Exchanges and the Subsequently Completed Repurchases and Exchanges, the Company has subsequently repurchased and/or exchanged approximately $146.9 million, or 90.8%, of the face value of the 2025 Convertible Notes that was outstanding as of December 31, 2023. The Company generated positive cash flow from operations both for the year ended December 31, 2023 and in the nine months ended September 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. During the previous two quarters, the Company had disclosed that there was substantial doubt about its ability to continue as a going concern within one year of the issuance dates of the quarterly reports on Form 10-Q for those quarters, primarily as a result of the outstanding balance and due date of the 2025 Convertible Notes. In performing this assessment for the current quarter, taking into account the Company’s liquidity position as a whole, including the repurchases and exchanges of 2025 Convertible Notes noted above, the liquidity anticipated to be provided from the sale of the Telematics Business, and cash 35 inflows expected to be provided by its continuing operations, the Company has concluded that there is no longer substantial doubt about the Company’s ability to continue as a going concern within one year of issuance of these financial statements. Contractual Obligations and Commitments As of September 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 September 30, 2024, our future payments under these noncancellable purchase obligations were approximately $64.3 million. • $106.8 million and $6.0 million in outstanding principal amount of 2025 Convertible Notes and Short-Term Loan, respectively, with required interest payments; see Note 5 – 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 or nine months ended September 30, 2024. Historical Cash Flows The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands): Nine Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 45,375 $ 22,403 Net cash used in investing activities (3,654) (6,517) Net cash used in financing activities (32,811) (2,026) Effect of exchange rates on cash (1,682) (2,057) Net increase in cash and cash equivalents 7,228 11,803 Cash, cash equivalents and restricted cash from continuing operations, beginning of period 2,409 3,241 Cash, cash equivalents and restricted cash from discontinued operations, beginning of period 5,110 3,902 Cash and cash equivalents, beginning of period 7,519 7,143 Cash, cash equivalents and restricted cash from continuing operations, end of period $ 11,972 $ 14,424 Cash, cash equivalents and restricted cash from discontinued operations, end of period $ 2,775 $ 4,522 Cash, cash equivalents, and restricted cash, end of period $ 14,747 $ 18,946 Operating activities. Net cash provided by operating activities for the nine months ended September 30, 2024 is primarily comprised of $5.1 million net income earned during the period, net cash provided by working capital of $31.0 million, and non-cash charges, including depreciation and amortization of $13.2 million, amortization of debt discount and debt issuance costs of $4.4 million, and share-based compensation expense of $2.8 million, partially offset by a non-cash gain on debt restructurings of $13.7 million. Net cash provided by operating activities for nine months ended September 30, 2023 is comprised of a $31.8 million net loss incurred during the period, which was offset by and net cash provided by working capital of $20.6 million and non-cash charges, including depreciation and amortization of $16.3 million, share-based compensation expense of $6.0 million, and amortization of debt discount and debt issuance costs of $2.0 million. Investing activities. Net cash used in investing activities during the nine months ended September 30, 2024 is comprised of $3.6 million of cash outflows related to the development of software in support of our products and services. 36 Net cash used in investing activities for the nine months ended September 30, 2023 is primarily comprised of $6.1 million of cash outflows related to the development of software in support of our products and services and $0.4 million of property, plant and equipment purchases. Financing activities. Net cash used in financing activities during the nine months ended September 30, 2024 is comprised of cash outflows of $33.8 million from the repurchases of a portion of our convertible notes and $4.9 million from the termination and repayment of the Credit Facility, partially offset by net cash inflows of $5.9 million from the issuance and partial repayment of our short-term loan and common stock warrants. Net cash used in financing activities for the nine months ended September 30, 2023 is primarily comprised of $7.9 million of cash outflow related to net repayments of the Credit Facility, partially offset by $6.1 million in proceeds from the ATM offering (as defined in Note 8 – Stockholders' Equity (Deficit) in the accompanying condensed consolidated financial statements).