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 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 ability to attract new customers and retain existing 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 and execute successfully with 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 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 contract manufacturers and 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; • our ability to make successful investments in research and development; • our ability to mitigate the impact of tariffs or other government-imposed sanctions; • our ability to make payments on or to refinance our indebtedness; • the outcome of any pending or future litigation, including intellectual property litigation; 20 • 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; • our ability to hire, retain and manage qualified personnel to maintain and expand our business. • conducting business abroad, including foreign currency risks; • the impact of high rates of inflation and rising interest rates; • infringement claims with respect to intellectual property contained in our solutions; • the impact of potential tariffs or other trade restrictions; • 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, 2024 (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, 2024, contained in our Form 10-K. Business Overview Inseego is a leader in the design and development of cloud-managed wireless wide area network (“WAN”) and intelligent edge solutions. Our 5G WAN 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 devices are specifically built for the carrier, enterprise and small and medium business (“SMB”) market segments with a focus on performance, scalability, quality and enterprise grade security. We also provide a wireless subscriber management SaaS solution for carriers’ management of 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 products 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 5G products and services 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. 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, which occurred on November 27, 2024, the Purchaser acquired the Company’s telematics solutions business (the “Telematics Business”), which had operations in the United Kingdom, the European Union, Australia and New Zealand. 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 Business further supports the Company’s streamlining of its focus and resources on what it believes to be the strongest growth opportunities around its core product offerings. The results of operations and cash flows related to the divested Telematics Business have been classified as discontinued operations within the Condensed Consolidated Statements of Operations and Comprehensive Income and Condensed Consolidated Statements of Cash Flows for all periods presented within the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. All discussion below relates to the Company’s continuing operations only, which excludes any results related to the divested Telematics Business, unless noted otherwise. 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 devices, 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 offering, Inseego Connect for device management, 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, and various companies in other vertical markets. 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 offering – Inseego Connect – for device management. Revenues related to our cloud offerings of Inseego Connect are included within 22 Services and other below. These devices, sold under the Wavemaker 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 : A substantial majority of our Services and Other revenue comes from providing a SaaS wireless subscriber management solution (Inseego Subscribe) for carrier’s management of their government and complex enterprise customer subscriptions. Services and Other revenue also includes the Company’s above mentioned Inseego Connect offering. We also categorize non-recurring engineering services we provide to our customers as Service and other revenue. Business Segment Reporting The Company has one reportable segment. The Company’s Chief Executive Officer (“CEO”), who is also the Chief Operating Decision Maker, does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based solely on the Company’s consolidated operations and financial results. As such, our operations constitute a single operating segment and one reportable segment. 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 March 31, 2025 Compared to Three Months Ended March 31, 2024 Revenues . Revenues for the three months ended March 31, 2025 were $31.7 million, compared to $37.5 million for the same period in 2024. The following table summarizes revenues by our two categories (in thousands): Three Months Ended March 31, Change Product Category 2025 2024 $ % Mobile solutions $ 17,790 $ 15,270 $ 2,520 16.5 % Fixed wireless access solutions 1,903 14,182 (12,279) (86.6) Product 19,693 29,452 (9,759) (33.1) Services and other 11,980 8,053 3,927 48.8 Total revenues $ 31,673 $ 37,505 $ (5,832) (15.5) Mobile solutions. The $2.5 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 $12.3 million decrease in fixed wireless access solutions revenues is primarily due to decreased sales with one of our carrier partners as we transition to our next generation of fixed wireless access products and decreased sales in our channel program. Services and other The $3.9 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 March 31, 2025 was $16.7 million, or 52.7% of revenues, compared to $24.3 million, or 64.7% of revenues, for the same period in 2024. 23 The following table summarizes cost of revenues by category (in thousands): Three Months Ended March 31, Change Product Category 2025 2024 $ % Product $ 15,396 $ 22,713 $ (7,317) (32.2) % Services and other 1,294 1,548 (254) (16.4) Total cost of revenues $ 16,690 $ 24,261 $ (7,571) (31.2) Product. The $7.3 million decrease in product cost of revenues is primarily due to decreased product revenues. Services and other. The $0.3 million decrease in services and other cost of revenues is primarily due to decreased non-recurring engineering revenues and the related costs of performing those services, partially offset by increased Inseego Subscribe revenues and related costs. Gross profit. Gross profit for the three months ended March 31, 2025 was $15.0 million, or a gross margin of 47.3%, compared to $13.2 million, or a gross margin of 35.3% , for the same period in 2024. The increase in gross profit and 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 first quarter of 2025 in comparison to the lower margin products offered in the first quarter of the prior year. Operating costs and expenses. The following table summarizes operating costs and expenses (in thousands): Three Months Ended March 31, Change Operating costs and expenses 2025 2024 $ % Research and development $ 4,535 $ 4,683 $ (148) (3.2) % Sales and marketing 3,934 3,839 95 2.5 General and administrative 4,490 3,955 535 13.5 Depreciation and amortization 2,064 3,292 (1,228) (37.3) Impairment of capitalized software 384 420 (36) (8.6) Total $ 15,407 $ 16,189 $ (782) (4.8) Research and development expenses. Research and development expenses for the three months ended March 31, 2025 were $4.5 million, or 14.3% of revenues, compared to $4.7 million, or 12.5% of revenues, for the same period in 2024. The decrease in research and development expenses was primarily due to more research and development projects that were capitalizable during the three months ended March 31, 2025, which resulted in a lower percentage of research and development costs being recorded as operating expenses, partially offset by increased prototype builds, testing and certification costs, and outside services costs related to the Company’s increased development efforts for its next line of products. Sales and marketing expenses. Sales and marketing expenses for the three months ended March 31, 2025 were $3.9 million, or 12.4% of revenues, compared to $3.8 million, or 10.2% of revenues, for the same period in 2024. The increase in sales and marketing expenses was primarily due to higher trade show related costs, partially offset by decreased sales commissions and outbound freight costs as a result of lower sales. General and administrative expenses. General and administrative expenses for the three months ended March 31, 2025 were $4.5 million, or 14.2% of revenues, compared to $4.0 million, or 10.5% of revenues, for the same period in 2024. The increase in general and administrative expense was primarily due to an increase in share-based compensation expense related to awards issued to the Company’s CEO that was hired in January 2025. Depreciation and amortization expenses . Depreciation and amortization expenses for the three months ended March 31, 2025 were $2.1 million, or 6.5% of revenues, compared to $3.3 million, or 8.8% of revenues, for the same period in 2024. The decrease in depreciation and amortization expenses was primarily due to the capitalized costs on the Company’s next generation of software intended for sale being capitalized but not amortizable until future quarters. Impairment of capitalized software. For each of the three months ended March 31, 2025 and 2024, w e recorded impairments of $0.4 million. 24 Other (expense) income. The following table summarizes other (expense) income (in thousands): Three Months Ended March 31, Change Other (expense) income 2025 2024 $ % Interest expense $ (1,026) $ (2,179) $ 1,153 (52.9) % Other income (expense), net 303 (375) 678 * Total $ (723) $ (2,554) $ 1,831 (71.7) % * Percentage not meaningful Interest expense. The $1.2 million decrease in interest expense for the three months ended March 31, 2025 over the same period in 2024 was primarily a result the Company’s various repurchases and exchanges of the 2025 Convertible Notes (as defined below) that occurred during 2024, resulting in lower coupon interest, partially offset by interest expense on the Company’s 2029 Senior Secured Notes (as defined below) that were issued in the fourth quarter of 2024. Other income (expense), net. Other income (expense), net for the three months ended March 31, 2025 and 2024 was $0.3 million and $(0.4) million, respectively. The increase in other income, net was primarily due to interest income earned on money market fund accounts that the Company began investing in during the first quarter of 2025. Income (Loss) from discontinued operations, net of tax. Income (loss) from discontinued operations, net of tax for the three months ended March 31, 2025 and 2024 was $(0.4) million and $1.1 million, respectively. Preferred stock dividends. During the three months ended March 31, 2025 and 2024, we recorded dividends of $0.9 million and $0.8 million, respectively, on our Preferred Stock. 25 Liquidity and Capital Resources As of March 31, 2025, the Company had available cash and cash equivalents totaling $35.1 million and maintained positive working capital of $7.1 million. The Company had negative cash outflows from operations of $3.5 million for the three months ended March 31, 2025, which was largely due to the payout of the Company’s annual bonuses that was fully accrued for at December 31, 2024. The Company’s 3.25% convertible notes due in 2025 (the “2025 Convertible Notes”) had a principal balance of $14.9 million as of March 31, 2025 and matured on May 1, 2025. The Company’s 9.0% senior secured notes due in 2029 (the “2029 Senior Secured Notes”) had a principal balance of $40.9 million as of March 31, 2025 and mature on May 1, 2029. While the Company’s liquidity and financial results had several positive developments in 2024, 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, a failure to retain our key existing customers 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 additional debt restructurings or refinancing, Company’s 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, 2025, 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, 2025, our future payments under these noncancellable purchase obligations were approximately $44.1 million. • $14.9 million in outstanding principal amount of 2025 Convertible Notes with required interest payments; the entire principal balance and all accrued interest amounts thereon were due and paid in cash on May 1, 2025; see Part I, Item 1 Note 5 – Debt ; • $40.9 million in outstanding borrowings under the 2029 Senior Secured Notes; see Part I Item 1, Note 5 – Debt ; 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 three months ended March 31, 2025. 26 Historical Cash Flows The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2025 2024 Operating cash flows from continuing operations $ (3,467) $ 3,942 Operating cash flows from discontinued operations — 1,298 Net cash used in (provided by) operating activities (3,467) 5,240 Investing cash flows from continuing operations (1,725) (577) Investing cash flows from discontinued operations 710 — Net cash used in investing activities (1,015) (577) Financing cash flows from continuing operations 42 583 Financing cash flows from discontinued operations — — Net cash provided by financing activities 42 583 Effect of exchange rates on cash (7) 226 Net decrease (increase) in cash and cash equivalents (4,447) 5,472 Cash and cash equivalents, beginning of period 39,596 2,409 Cash and cash equivalents, end of period $ 35,149 $ 7,881 Operating activities. Net cash used in operating activities for the three months ended March 31, 2025 is primarily comprised of a $1.2 million net loss from continuing operations during the period and net cash used for working capital of $7.0 million, which was largely due to the payout of the annual bonus that was accrued for at December 31, 2024, partially offset by non-cash charges, including depreciation and amortization of $2.1 million, share-based compensation expense of $1.6 million, and provision for excess and obsolete inventory of $0.7 million. Net cash provided by operating activities for three months ended March 31, 2024 is comprised of cash flows from continuing operations of $3.9 million and cash flows from discontinued operations of $1.3 million. The cash inflows from continuing operations were primarily related to net cash used for working capital of $4.5 million, partially offset by a net loss from continuing operations of $5.5 million that was offset by non-cash charges, including depreciating and amortization of $3.3 million, share-based compensation expense of $0.7 million, amortization of debt discount and debt issuance costs of $0.5 million, and capitalized software impairments of $0.4 million. Investing activities. Net cash used in investing activities during the three months ended March 31, 2025 is comprised of $1.7 million of cash outflows related to the development of software in support of our products and services, partially offset by $0.7 million received during the period related to a working capital adjustment payment from the purchaser of the Company’s Telematics Business that was sold in 2024. Net cash used in investing activities for the three months ended March 31, 2024 is comprised of $0.6 million of cash outflows related to the development of software in support of our products and services. Financing activities. Net cash provided by financing activities during the three months ended March 31, 2025 is comprised of less than $0.1 million of cash received from exercises of stock options. Net cash provided by financing activities for the three months ended March 31, 2024 is comprised of $0.6 million of cash outflow related to net borrowings of the Credit Facility (as defined in Part I, Item 1 Note 5 – Debt ). 27