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Form 8-K

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________

FORM 8-K
____________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 9, 2017
____________________
INSEEGO CORP.
(Exact Name of Registrant as Specified in its Charter)
____________________

Delaware
000-31659
81-3377646
(State or other jurisdiction
of incorporation)
(Commission file number)
(I.R.S. Employer
identification number)
9605 Scranton Road, Suite 300
San Diego, California 92121
(Address of principal executive offices) (Zip Code)

(858) 812-3400
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 






Item 2.02.    Results of Operations and Financial Condition.
The information in this report on Form 8-K is furnished under “Item 2.02 Results of Operations and Financial Condition” and Exhibit 99.1, attached hereto, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. It may be incorporated by reference in a filing under the Exchange Act or the Securities Act of 1933, as amended, only if such subsequent filing specifically references such disclosure in this Form 8-K.
On March 9, 2017, Inseego Corp. issued a press release containing preliminary financial results for the fourth quarter and the full year ended December 31, 2016.
Item 9.01.     Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is furnished with this report:
99.1
 
Press release, dated March 9, 2017, containing Inseego Corp. preliminary financial results for the fourth quarter and full year ended December 31, 2016.








SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Inseego Corp.
 
 
By:
/s/ Michael Newman
 
Michael Newman
 
Executive Vice President and Chief Financial Officer

Date: March 9, 2017

 



Exhibit
Exhibit 99.1
https://cdn.kscope.io/8977851aaebe17f269022a34f289c708-inseegologo.jpg


Inseego Reports Fourth Quarter 2016 Financial Results
SaaS, Software and Services Revenues Increased by 18.3% Year-Over-Year for the Fourth Quarter
Subscribers for Ctrack™ IoT Telematics Solutions Grew by 20.7% Year-Over-Year for the Fourth Quarter
Inseego Awaits Regulatory Approval from CFIUS to Close Pending Sale of MiFi® Mobile Broadband Business
SAN DIEGO—March 9, 2017—Inseego Corp. (Nasdaq: INSG) (the “Company”), a leading provider of solutions for the Internet of Things (“IoT”), including software-as-a-service (“SaaS”) solutions, announced financial results for the fourth quarter ended December 31, 2016.
“Our fourth quarter business performance once again demonstrates the financial and market strength of our portfolio of SaaS, software and services solutions for the Internet of Things. Our overall subscriber base for our comprehensive IoT solutions increased to 620,000 total subscribers, driven by 20.7% year-over-year growth in subscribers of our Ctrack telematics offerings,” said Sue Swenson, Chair and CEO of Inseego. “We continue to set company records for our high-margin SaaS, software and services revenues, with 18.3% year-over-year growth in these recurring revenues in the fourth quarter. I am pleased that we are already achieving so many of our strategic goals, while we await regulatory approval from CFIUS to close the pending sale of our MiFi mobile broadband business, which will complete our transformation into a pure-play IoT solutions provider.”
Fourth Quarter 2016 Financial Highlights
The Company announced the following U.S. GAAP (“GAAP”) financial results for the fourth quarter of 2016:
Revenue decreased by 14.0% to $52.9 million in the fourth quarter of 2016, compared to $61.5 million in the fourth quarter of 2015. Revenue from the Company’s Ctrack™ products, which include a mix of hardware and SaaS, software and services sold as a bundled telematics solution, were greater than the midpoint of the Company’s fourth quarter guidance range, growing by 1.8% to $16.9 million in the fourth quarter of 2016, from $16.6 million in the fourth quarter of 2015. The Company’s overall revenue decrease was driven by reduced standalone hardware sales, particularly from the Company’s MiFi mobile broadband business, which is subject to a pending divestiture transaction to T.C.L. Industries Holdings (H.K.) Limited and Jade Ocean Global Limited.
Revenue from SaaS, software and services increased by 18.3% to $14.9 million in the fourth quarter of 2016, from $12.6 million in the fourth quarter of 2015, as the Company continued its focus on IoT SaaS, software and services solutions, including its Ctrack telematics solutions. Revenue from SaaS, software and services increased to a record 28.2% of the Company’s total revenue in the fourth quarter of 2016, compared to 20.5% of total revenue in the fourth quarter of 2015.
Revenue from hardware products was $38.0 million in the fourth quarter of 2016, a decrease of 22.3% from $48.9 million in the fourth quarter of 2015. Sales of the Company’s MiFi mobile broadband products in the fourth quarter of 2016 were lower than the Company expected, primarily as a result of the delayed launch of the Company’s new Verizon Jetpack® Mobile Hotspot MiFi 7730L, which occurred in January 2017 rather than in the fourth quarter of 2016 as had been planned. In addition, the Company continues to strategically de-emphasize lower margin hardware-only sales in favor of bundled solutions that include higher-margin SaaS, software and services offerings.
Net loss was ($27.4 million), or ($0.50) per share, in the fourth quarter of 2016, compared to a net loss of ($14.4 million), or ($0.26) per share, in the fourth quarter of 2015. Net loss in the fourth quarter of 2016 includes a $11.5 million impairment charge related to the Company’s Enfora® hardware product line as the Company exits its Enfora standalone hardware business while focusing on the divestiture of its MiFi mobile broadband business, and $8.5 million of charges related to the Company’s 2015 acquisition activities and its current divestiture activities.
As of December 31, 2016, the Company had cash and cash equivalents of $9.9 million, declining from $17.2 million at September 30, 2016.

1



The Company also announced the following non-GAAP financial results for the fourth quarter of 2016. A reconciliation of these non-GAAP financial measures to the Company’s GAAP financial results is included in the tables accompanying this news release:
The Company’s overall non-GAAP gross margin increased to a record 39.9% in the fourth quarter of 2016, compared to 33.4% in the fourth quarter of 2015, as the Company continued its transition toward an improved mix of higher-margin IoT solutions with significant SaaS and recurring revenue components. Non-GAAP gross profit was $21.1 million in the fourth quarter of 2016, an increase of 2.4% compared to $20.6 million in the fourth quarter of 2015, as the Company’s transition to higher margin SaaS, software and services solutions enabled the Company to generate an increased non-GAAP gross profit despite a $10.9 million decline in hardware revenue.
Non-GAAP gross margin on SaaS, software and services increased to 69.5% in the fourth quarter of 2016, compared to 63.6% in the fourth quarter of 2015, primarily driven by revenues from high-margin SaaS and software solutions delivered by Ctrack as well as Inseego’s North American sales from its Eugene, Oregon operations.
Non-GAAP gross margin on hardware products increased to 28.2% in the fourth quarter of 2016, compared to 25.7% in the fourth quarter of 2015, primarily as a result of reduced sales of lower-margin legacy hardware products in the fourth quarter of 2016.
The Company’s Ctrack telematics solutions which include a mix of hardware, SaaS, software and services, generated non-GAAP gross margins of 64.5% in the fourth quarter of 2016, compared to 60.5% in the fourth quarter of 2015, continuing to drive the Company’s overall gross margin expansion.
Non-GAAP operating expenses decreased by 11.8% to $20.2 million in the fourth quarter of 2016, compared to $22.9 million in the fourth quarter of 2015, primarily due to restructuring initiatives undertaken during 2016 to improve the Company’s strategic focus on its most profitable business lines while de-prioritizing certain hardware-only product lines to non-carrier customers.
Adjusted EBITDA increased to $2.6 million in the fourth quarter of 2016, compared to ($0.1 million) in the fourth quarter of 2015, primarily due to the Company’s emphasis on growing SaaS, software and services revenue, while also rationalizing the costs associated with its hardware business in an effort to generate improved performance across multiple areas of the Company. Adjusted EBITDA contributed by Ctrack’s telematics solutions was $2.4 million in the fourth quarter of 2016 compared to $2.5 million in the fourth quarter of 2015.
Non-GAAP net loss for the fourth quarter of 2016 was ($2.8 million), or ($0.05) per share, compared to ($2.3 million), or ($0.04) per share, in the fourth quarter of 2015.
Other Key Metrics
 
 
Q4-2016
 
Q3-2016
 
Q4-2015
Revenue
 
 
 
 
 
 
SaaS, Software and Services Revenue
 
$14.9 million

 
$14.8 million

 
$12.6 million

Non-GAAP Gross Margin
 
69.5%

 
67.3%

 
63.6%

Hardware Revenue
 
$38.0 million

 
$46.1 million

 
$48.9 million

Non-GAAP Gross Margin
 
28.2%

 
29.5%

 
25.7%

IoT Revenue(1)
 
$24.2 million

 
$23.1 million

 
$31.8 million

Non-GAAP Gross Margin
 
60.4%

 
58.5%

 
44.2%

MiFi Revenue(1)
 
$28.7 million

 
$37.8 million

 
$29.7 million

Non-GAAP Gross Margin
 
22.7%

 
26.5%

 
21.9%

Subscribers
 
 
 
 
 
 
Ctrack Fleet Subscribers
 
187,000

 
182,000

 
157,850

Ctrack Non-Fleet Subscribers
 
245,000

 
229,000

 
200,200

Inseego North America Subscribers (f/k/a FW Subscribers)
 
188,000

 
179,000

 
162,170

Total Consolidated Subscribers
 
620,000

 
590,000

 
520,220

_____________________________________________________
(1)
The Company currently places primary emphasis on its mix of SaaS, software and services revenues as compared to its hardware revenues. However, since the Company has historically reported its mix of MiFi (or mobile computing) revenues

2



as compared to its IoT (or M2M) revenues, these metrics are presented as well. Commencing with the first quarter of 2017, the Company will no longer report its IoT and MiFi revenue metrics.
Divestiture of MiFi Mobile Broadband Business
On February 3, 2017, the Company announced that in connection with the proposed sale of its MiFi mobile broadband business, with its subsidiary, Novatel Wireless, Inc. (“Novatel Wireless”), to T.C.L. Industries Holdings (H.K.) Limited and Jade Ocean Global Limited (“Purchasers”, and together with the Company and Novatel Wireless, the “Parties”), the Parties voluntarily withdrew and re-filed the Joint Voluntary Notice (“JVN”) that they had previously submitted to the Committee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950 in order to provide additional time for CFIUS to evaluate possible terms of mitigation which would allow the transaction to be approved. Any proposed mitigation terms would also need to be approved by the Parties before CFIUS would approve the transaction.
On March 8, 2017, CFIUS informed the Parties that, with the conclusion of the 30-day period for reviewing the re-filed JVN, CFIUS is undertaking an investigation of the proposed transaction, to be completed no later than April 24, 2017. In the interim, the Company will continue to work cooperatively and diligently with CFIUS and the Purchasers in an effort to obtain approval.
First Quarter Outlook
The following statements are forward-looking and actual results may differ materially. Please see the section titled “Cautionary Note Regarding Forward-Looking Statements” at the end of this news release. A more detailed description of risks related to our business is included in the reports filed by the Company with the Securities and Exchange Commission (the “SEC”). Our guidance for the first quarter of 2017 reflects current business indicators and expectations as of the date of this news release, including current exchange rates for foreign currencies.
Given the pending divestiture of the Company’s MiFi mobile broadband business, the Company will not provide overall corporate guidance for the first quarter of 2017. However, in order to provide visibility into one of the Company’s key post-divestiture businesses, the Company is providing guidance as to Ctrack’s anticipated contribution the Company’s overall results for the first quarter of 2017, as follows:
 
Ctrack First Quarter 2017 Outlook
Revenue
$15.5 million - $17.5 million
Non-GAAP Gross Margin
60% - 65%
Adjusted EBITDA
$2.0 million - $3.0 million
Conference Call Information
Inseego will host a conference call and live webcast for analysts and investors today at 5:00 p.m. ET. To access the conference call:
In the United States, call 1-844-881-0135
International parties can access the call at 1-412-317-6727
Inseego will offer a live audio webcast of the conference call, which will be accessible from the “Investors” section of the Company’s website at investor.inseego.com. The webcast will be archived for a period of 90 days. An audio replay of the conference call will also be available beginning one hour after the call, through March 23, 2017. To hear the replay, parties in the United States may call 1-877-344-7529 and enter access code 10097513#. International parties may call 1-412-317-0088 and enter the same code.
About Inseego Corp.
Inseego Corp. (Nasdaq: INSG) is a leading global provider of software-as-a-service (SaaS) and solutions for the Internet of Things (IoT). The Company sells its telematics solutions under the Ctrack brand, including its fleet management, asset tracking and monitoring, stolen vehicle recovery, and usage-based insurance platforms. Inseego Corp. also sells business connectivity solutions and device management services. Inseego Corp. has over 30 years of experience providing customers with secure and insightful solutions and analytics, with approximately 620,000 global subscribers, including 187,000 fleet management subscribers. The Company is headquartered in San Diego, California. www.inseego.com Twitter @inseego

3



Cautionary Note Regarding Forward-Looking Statements
Some of the information presented in this news release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In this context, forward-looking statements often address expected future business and financial performance and often contain words such as “may,” “estimate,” “anticipate,” “believe,” “expect,” “intend,” “plan,” “project,” “will” and similar words and phrases indicating future results. The information presented in this news release related to our outlook for the first quarter ending March 31, 2017 and our future business outlook, the future demand for our products, the expected timing and impact of anticipated divestiture and restructuring activities, prospects for CFIUS approval and satisfaction of other closing conditions related to the sale of the MiFi mobile broadband business, statements made by Sue Swenson, as well as other statements that are not purely statements of historical fact, are forward-looking in nature. These forward-looking statements are made on the basis of management's current expectations, assumptions, estimates and projections and are subject to significant risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. We therefore cannot guarantee future results, performance or achievements. Actual results could differ materially from our expectations.
Factors that could cause actual results to differ materially from the Company’s expectations include (1) failure to obtain CFIUS approval, satisfy other closing conditions and complete the sale of the Company’s MiFi mobile broadband business in a timely manner on the terms previously approved by the Company’s stockholders, (2) the future demand for wireless broadband access to data and fleet management software and services, (3) the growth of wireless wide-area networking and fleet management software and services, (4) customer and end-user acceptance of the Company's current product and service offerings and market demand for the Company’s anticipated new product and service offerings, (5) increased competition and pricing pressure from participants in the markets in which the Company is engaged, (6) dependence on third party manufacturers and key component suppliers worldwide, (7) the success of the Company’s corporate development activities, including divestitures of lines of business that are not essential to the Company’s strategy, (8) unexpected liabilities or expenses, (9) the Company’s ability to introduce new products and services in a timely manner, (10) litigation, regulatory and IP developments related to our products or components of our products, (11) dependence on a small number of customers for a significant portion of the Company’s revenues and (12) the Company’s plans and expectations relating to acquisitions, divestitures, strategic relationships, international expansion, software and hardware developments, personnel matters and cost containment initiatives, including restructuring activities.
These factors, as well as other factors set forth as risk factors or otherwise described in the reports filed by the Company with the SEC (available at www.sec.gov), could cause actual results to differ materially from those expressed in the Company’s forward-looking statements. The Company assumes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as otherwise required pursuant to applicable law and our on-going reporting obligations under the Securities Exchange Act of 1934, as amended.
Non-GAAP Financial Measures
Inseego Corp. has provided financial information in this news release that has not been prepared in accordance with GAAP. Non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share exclude restructuring charges, share-based compensation expense, amortization of the debt discount and debt issuance costs associated with the Company’s convertible notes, an impairment charge related to the Company’s abandoned Enfora hardware product line as the Company exits its Enfora standalone hardware business, a legal settlement in September 2016 related to the Company’s hardware products, and charges related to the Company’s acquisition and divestiture activities. Adjusted EBITDA also excludes interest, taxes, depreciation and amortization (unrelated to acquisitions and the convertible notes), and foreign currency transaction gains and losses.
Non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. These non-GAAP financial measures have limitations as an analytical tool and are not intended to be used in isolation or as a substitute for gross profit, gross margin, operating expenses, net loss, net loss per share or any other performance measure determined in accordance with GAAP. We present non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share because we consider each to be an important supplemental measure of our performance.
Management uses these non-GAAP financial measures to make operational decisions, evaluate the Company's performance, prepare forecasts and determine compensation. Further, management believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company’s performance when planning, forecasting and analyzing future periods. Share-based compensation expenses are expected to vary depending on the number of new grants issued to both current and new employees, the number of grants forfeited by former employees, and changes in the Company’s

4



stock price, stock market volatility, expected option term and risk-free interest rates, all of which are difficult to estimate. In calculating non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share, management excludes certain non-cash and one-time items in order to facilitate comparability of the Company’s operating performance on a period-to-period basis because such expenses are not, in management's view, related to the Company's ongoing operating performance. Management uses this view of the Company’s operating performance for purposes of comparison with its business plan and individual operating budgets and in the allocation of resources.
The Company further believes that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision-making. The Company believes that the use of non-GAAP gross profit, gross margin, operating expenses, adjusted EBITDA, net loss and net loss per share also facilitates a comparison of our underlying operating performance with that of other companies in our industry, which use similar non-GAAP financial measures to supplement their GAAP results.
In the future, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. The limitations of relying on non-GAAP financial measures include, but are not limited to, the fact that other companies, including other companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting their usefulness as a comparative tool.
Investors and potential investors are encouraged to review the reconciliation of our non-GAAP financial measures contained within this news release with our GAAP financial results.

(C) 2017 Inseego Corp. All rights reserved. The Inseego, Ctrack, FW, Novatel Wireless and Enfora names and logos are trademarks of Inseego Corp.

###

Inseego Corp.
Media Relations Contact:
 
Diana Hoogbruin
(858) 812-0659
diana.hoogbruin@inseego.com

Investor Relations Contact:

Michael Sklansky
(858) 431-0792
michael.sklansky@inseego.com



5



INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2016
 
2015
 
2016
 
2015
Net revenues:
 
 
 
 
 
 
 
Hardware
$
37,973

 
$
48,949

 
$
187,375

 
$
203,281

SaaS, software and services
14,946

 
12,564

 
56,180

 
17,661

Total net revenues
52,919

 
61,513

 
243,555

 
220,942

Cost of net revenues:
 
 
 
 
 
 
 
Hardware
27,541

 
38,062

 
136,936

 
153,815

SaaS, software and services
4,855

 
6,923

 
18,751

 
8,174

Impairment of abandoned product line
11,540

 

 
11,540

 

Total cost of net revenues
43,936

 
44,985

 
167,227

 
161,989

Gross profit
8,983

 
16,528

 
76,328

 
58,953

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development
6,407

 
7,311

 
30,655

 
35,446

Sales and marketing
5,720

 
8,496

 
29,782

 
20,899

General and administrative
17,643

 
10,990

 
52,387

 
34,452

Amortization of purchased intangible assets
1,015

 
1,030

 
3,927

 
2,126

Impairment of purchased intangible assets

 

 
2,594

 

Restructuring charges, net of recoveries
302

 
3,032

 
1,987

 
3,821

Total operating costs and expenses
31,087

 
30,859

 
121,332

 
96,744

Operating loss
(22,104
)
 
(14,331
)
 
(45,004
)
 
(37,791
)
Other income (expense):
 
 
 
 
 
 
 
Non-cash change in acquisition-related escrow

 
2,031

 

 
(8,286
)
Interest expense, net
(3,885
)
 
(3,845
)
 
(15,597
)
 
(7,164
)
Other income (expense), net
(572
)
 
1,786

 
414

 
1,128

Loss before income taxes
(26,561
)
 
(14,359
)
 
(60,187
)
 
(52,113
)
Income tax provision
859

 
42

 
381

 
181

Net loss
(27,420
)
 
(14,401
)
 
(60,568
)
 
(52,294
)
Less: Net loss (income) attributable to noncontrolling interests
19

 
8

 
(5
)
 
8

Net loss attributable to Inseego Corp.
$
(27,401
)
 
$
(14,393
)
 
$
(60,573
)
 
$
(52,286
)
 
 
 
 
 
 
 
 
Per share data:
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.50
)
 
$
(0.26
)
 
$
(1.12
)
 
$
(0.99
)
Weighted-average shares used in computation of net loss per share:
 
 
 
 
 
 
 
Basic and diluted
54,919,806

 
56,088,511

 
53,911,270

 
52,767,230


6



INSEEGO CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
December 31,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
9,894

 
$
12,570

Accounts receivable, net
22,203

 
35,263

Short-term investments

 
1,267

Inventories, net
31,142

 
55,837

Prepaid expenses and other
5,208

 
6,039

Total current assets
68,447

 
110,976

Property, plant and equipment, net
8,392

 
8,812

Rental assets, net
7,003

 
6,155

Intangible assets, net
40,283

 
43,089

Goodwill
34,428

 
29,520

Other assets
163

 
201

Total assets
$
158,716

 
$
198,753

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
31,242

 
$
35,286

Accrued expenses and other current liabilities
27,897

 
25,613

DigiCore bank facilities
3,238

 
3,313

Total current liabilities
62,377

 
64,212

Long-term liabilities:
 
 
 
Convertible senior notes, net
90,908

 
82,461

Revolving credit facility

 

Deferred tax liabilities, net
4,439

 
3,475

Other long-term liabilities
18,719

 
18,142

Total liabilities
176,443

 
168,290

Stockholders’ equity (deficit):
 
 
 
Common stock
54

 
53

Additional paid-in capital
507,616

 
502,337

Accumulated other comprehensive loss
(1,409
)
 
(8,507
)
Accumulated deficit
(524,024
)
 
(463,451
)
Total stockholders’ equity (deficit) attributable to Inseego Corp.
(17,763
)
 
30,432

Noncontrolling interests
36

 
31

Total stockholders’ equity (deficit)
(17,727
)
 
30,463

Total liabilities and stockholders’ equity (deficit)
$
158,716

 
$
198,753



7



INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2016
 
2015
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
 
 
 
Net loss
$
(27,420
)
 
$
(14,401
)
 
$
(60,568
)
 
$
(52,294
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
3,217

 
3,839

 
14,053

 
8,323

Amortization of acquisition-related inventory step-up

 
3,332

 
1,829

 
4,097

Loss on impairment of purchased intangible assets

 

 
2,594

 

Provision for bad debts, net of recoveries
1,040

 
360

 
1,136

 
422

Loss on impairment of abandoned product line
11,540

 

 
11,540

 

Provision for excess and obsolete inventory
677

 
233

 
3,257

 
1,043

Share-based compensation expense
1,151

 
3,123

 
4,588

 
6,350

Amortization of debt discount and debt issuance costs
2,112

 
2,111

 
8,447

 
4,692

Gain on divestiture and sale of other assets, net of loss on disposal of assets
(452
)
 
(50
)
 
(4,742
)
 
(50
)
Non-cash change in acquisition-related escrow

 
(2,031
)
 

 
8,286

Deferred income taxes
931

 
106

 
196

 
106

Non-cash equity earn-out compensation expense
5,804

 

 
7,913

 

Unrealized foreign currency transaction loss (gain), net
475

 
(1,298
)
 
3,513

 
(1,298
)
Other
(2,022
)
 
225

 
(1,839
)
 
225

Changes in assets and liabilities, net of effects from acquisitions and divestiture:
 
 
 
 
 
 
 
Accounts receivable
1,735

 
11,424

 
11,616

 
4,760

Inventories
(6,916
)
 
(9,999
)
 
(3,159
)
 
(3,960
)
Prepaid expenses and other assets
7,055

 
3,257

 
869

 
2,683

Accounts payable
(748
)
 
2,681

 
(7,825
)
 
(11,187
)
Accrued expenses, income taxes, and other
(4,809
)
 
(3,551
)
 
3

 
866

Net cash used in operating activities
(6,630
)
 
(639
)
 
(6,579
)
 
(26,936
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Acquisition-related escrow

 
79,999

 

 
(8,275
)
Acquisitions, net of cash acquired

 
(76,928
)
 
(3,750
)
 
(85,991
)
Purchases of property, plant and equipment
(564
)
 
(979
)
 
(1,439
)
 
(1,975
)
Proceeds from the sale of property, plant and equipment
237

 
46

 
629

 
46

Proceeds from the sale of divested assets

 

 
11,300

 

Purchases of intangible assets and additions to capitalized software development costs
(823
)
 
(933
)
 
(2,915
)
 
(1,157
)
Proceeds from the sale of short-term investments

 
265

 
1,210

 
265

Net cash provided by (used in) investing activities
(1,150
)
 
1,470

 
5,035

 
(97,087
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Gross proceeds from the issuance of convertible senior notes

 

 

 
120,000

Payment of issuance costs related to convertible senior notes

 
(387
)
 

 
(3,927
)
Proceeds from the exercise of warrant to purchase common stock

 

 

 
8,644

Net borrowings from (repayments of) DigiCore bank facilities
125

 
1,581

 
(840
)
 
1,581

Net repayments of revolving credit facility

 

 

 
(5,158
)
Payoff of acquisition-related assumed liabilities

 

 

 
(2,633
)
Principal payments under capital lease obligations
(181
)
 
(288
)
 
(903
)
 
(288
)
Principal payments on mortgage bond
(65
)
 
(59
)
 
(240
)
 
(59
)
Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units
324

 
750

 
692

 
1,007

Net cash provided by (used in) financing activities
203

 
1,597

 
(1,291
)
 
119,167

Effect of exchange rates on cash and cash equivalents
306

 
(77
)
 
159

 
(427
)
Net increase (decrease) in cash and cash equivalents
(7,271
)
 
2,351

 
(2,676
)
 
(5,283
)
Cash and cash equivalents, beginning of period
17,165

 
10,219

 
12,570

 
17,853

Cash and cash equivalents, end of period
$
9,894

 
$
12,570

 
$
9,894

 
$
12,570


8



INSEEGO CORP.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
December 31, 2016
 
Year Ended
December 31, 2016
 
Net Income (Loss)
 
Income (Loss) Per Share
 
Net Income (Loss)
 
Income (Loss) Per Share
GAAP net loss
$
(27,420
)
 
$
(0.50
)
 
$
(60,568
)
 
$
(1.12
)
Adjustments:
 
 
 
 
 
 
 
Share-based compensation expense(a)
1,151

 
0.02

 
4,588

 
0.09

Purchased intangibles amortization(b)
1,533

 
0.03

 
6,049

 
0.11

Acquisition- and divestiture-related charges(c)
8,467

 
0.15

 
17,870

 
0.33

Convertible senior notes discount and issuance costs amortization
2,112

 
0.04

 
8,447

 
0.15

Restructuring charges
302

 
0.01

 
1,987

 
0.04

Legal settlement(d)

 

 
2,800

 
0.05

Impairment on abandoned product line(e)
11,540

 
0.21

 
11,540

 
0.21

Gain on divestiture of certain hardware modules and related assets
(488
)
 
(0.01
)
 
(4,988
)
 
(0.09
)
Non-GAAP net loss
$
(2,803
)
 
$
(0.05
)
 
$
(12,275
)
 
$
(0.23
)
(a)
Includes share-based compensation expense recorded under ASC Topic 718.
(b)
Includes amortization of intangible assets purchased through acquisitions.
(c)
Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as the amortization of the step-up to fair value of finished goods acquired through acquisitions, non-cash equity earn-out compensation and impairment charges primarily related to certain developed technologies acquired with FW.
(d)
Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products.
(e)
Includes an impairment charge for the Company’s abandoned Enfora hardware product line.




See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.





9



INSEEGO CORP.
Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses
Three Months Ended December 31, 2016
(In thousands)
(Unaudited)

 
GAAP
 
Share-based compensation expense
(a)
 
 
Purchased intangibles amortization
(b)
 
 
Restructuring charges
 
Impairment of abandoned product line
(c)
 
 
Acquisition- and divestiture-related charges
(d)
 
 
Non-GAAP
Cost of net revenues
$
43,936

 
$
79

 
$
518

 
$

 
$
11,540

 
$

 
$
31,799

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
6,407

 
206

 

 

 

 

 
6,201

Sales and marketing
5,720

 
114

 

 

 

 

 
5,606

General and administrative
17,643

 
752

 

 

 

 
8,467

 
8,424

Amortization of purchased intangible assets
1,015

 

 
1,015

 

 

 

 

Restructuring charges
302

 

 

 
302

 

 

 

Total operating costs and expenses
$
31,087

 
1,072

 
1,015

 
302

 

 
8,467

 
$
20,231

Total
 
 
$
1,151

 
$
1,533

 
$
302

 
$
11,540

 
$
8,467

 
 
(a)
Includes share-based compensation expense recorded under ASC Topic 718.
(b)
Includes amortization of intangible assets purchased through acquisitions.
(c)
Includes an impairment charge for the Company’s abandoned Enfora hardware product line.
(d)
Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as non-cash equity earn-out compensation.



See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.

10



INSEEGO CORP.
Reconciliation of GAAP Operating Costs and Expenses to Non-GAAP Operating Costs and Expenses
Year Ended December 31, 2016
(In thousands)
(Unaudited)

 
GAAP
 
Share-based compensation expense
(a)
 
 
Purchased intangibles amortization
(b)
 
 
Restructuring charges
 
Legal settlement
(c)
 
 
Impairment of abandoned product line
(d)
 
 
Acquisition- and divestiture-related charges
(e)
 
 
Non-GAAP
Cost of net revenues
$
167,227

 
$
235

 
$
2,122

 
$

 
$

 
$
11,540

 
$
1,829

 
$
151,501

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
30,655

 
868

 

 

 

 

 

 
29,787

Sales and marketing
29,782

 
707

 

 

 

 

 

 
29,075

General and administrative
52,387

 
2,778

 

 

 
2,800

 

 
13,447

 
33,362

Amortization of purchased intangible assets
3,927

 

 
3,927

 

 

 

 

 

Impairment of purchased intangible assets
2,594

 

 

 

 

 

 
2,594

 

Restructuring charges
1,987

 

 

 
1,987

 

 

 

 

Total operating costs and expenses
$
121,332

 
4,353

 
3,927

 
1,987

 
2,800

 

 
16,041

 
$
92,224

Total
 
 
$
4,588

 
$
6,049

 
$
1,987

 
$
2,800

 
$
11,540

 
$
17,870

 
 
(a)
Includes share-based compensation expense recorded under ASC Topic 718.
(b)
Includes amortization of intangible assets purchased through acquisitions.
(c)
Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products.
(d)
Includes an impairment charge for the Company’s abandoned Enfora hardware product line.
(e)
Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as the amortization of the step-up to fair value of finished goods acquired through acquisitions, non-cash equity earn-out compensation and impairment charges primarily related to certain developed technologies acquired with FW.



See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.


11



INSEEGO CORP.
Reconciliation of GAAP Loss before Income Taxes to Adjusted EBITDA
(In thousands)
(Unaudited)

 
Three Months Ended
December 31, 2016
 
Year Ended
December 31, 2016
Loss before income taxes
$
(26,561
)
 
$
(60,187
)
Depreciation and amortization(a)
3,217

 
14,053

Share-based compensation expense(b)
1,151

 
4,588

Restructuring charges
302

 
1,987

Legal settlement(c)

 
2,800

Impairment of abandoned product line(d)
11,540

 
11,540

Acquisition- and divestiture-related charges(e)
8,467

 
17,870

Interest expense, net(f)
3,885

 
15,597

Other expense (income), net(g)
572

 
(414
)
Adjusted EBITDA
$
2,573

 
$
7,834

(a)
Includes depreciation and amortization charges, including amortization of intangible assets purchased through acquisitions.
(b)
Includes share-based compensation expense recorded under ASC Topic 718.
(c)
Includes a legal settlement entered into by the Company in September 2016 in connection with a breach of contract claim related to its hardware products.
(d)
Includes an impairment charge for the Company’s abandoned Enfora hardware product line.
(e)
Includes professional fees, including legal, due diligence and other related charges for acquisitions and divestitures, as well as the amortization of the step-up to fair value of finished goods acquired through acquisitions, non-cash equity earn-out compensation and impairment charges primarily related to certain developed technologies acquired with FW.
(f)
Includes the amortization of the convertible senior notes discount and issuance costs.
(g)
Primarily includes the gain on the Company’s sale of certain hardware modules and related assets and unrealized foreign currency losses on outstanding intercompany loans between Ctrack and certain of its wholly-owned foreign subsidiaries, which are re-measured at each reporting period.



See “Non-GAAP Financial Measures” for information regarding our use of Non-GAAP financial measures.








12