SEC Filing | Inseego Corp.

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insg-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM						10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-38358


			INSEEGO CORP.
			(Exact name of registrant as specified in its charter)


Delaware		81-3377646
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

12600 Deerfield Parkway, Suite 100
Alpharetta,	Georgia	30004
(Address of Principal Executive Offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	INSG	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of August 2, 2021 was 103,180,708.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets (Unaudited)	2

	Condensed Consolidated Statements of Operations (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows (Unaudited)	9

	Notes to Condensed Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

SIGNATURES		40

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share data)


	June 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	30,841	$	40,015
Accounts receivable, net of allowance for doubtful accounts of $296 and $1,384, respectively	19,983		29,940

Inventories	27,544		33,952
Assets held for sale1	42,450		—
Prepaid expenses and other	8,088		10,201


Total current assets	128,906		114,108
Restricted cash	3,693		—
Property, plant and equipment, net of accumulated depreciation of $19,758 and $21,715, respectively	9,330		13,699
Rental assets, net of accumulated depreciation of $15,055 and $15,754, respectively	4,761		6,109
Intangible assets, net of accumulated amortization of $ 35,579 and $63,020, respectively	47,192		51,487

Goodwill	22,175		32,511
Right-of-use assets, net	8,294		9,092
Other assets	389		388
Total assets	$	224,740	$	227,394
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	31,182	$	52,339
Accrued expenses and other current liabilities	22,874		23,373



Liabilities related to assets held for sale1	11,132		—

Total current liabilities	65,188		75,712
Long-term liabilities:

2025 Notes, net	159,120		165,147



Deferred tax liabilities, net	888		4,505
Other long-term liabilities	8,450		9,929
Total liabilities	233,646		255,293
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, par value $0.001; 2,000,000 shares authorized:
Series E Preferred stock, par value $0.001; 39,500 shares designated, 35,000 shares issued and outstanding, liquidation preference of $1,000 per share (plus any accrued but unpaid dividends)	—		—
Common stock, par value $0.001; 150,000,000 shares authorized, 103,109,346 and 99,399,029 shares issued and outstanding, respectively	103		99
Additional paid-in capital	761,412		711,487
Accumulated other comprehensive loss	(6,279)		(6,972)
Accumulated deficit	(764,150)		(732,422)

Total stockholders’ deficit attributable to Inseego Corp.	(8,914)		(27,808)
Noncontrolling interests	8		(91)
Total stockholders’ deficit	(8,906)		(27,899)
Total liabilities and stockholders’ deficit	$	224,740	$	227,394

1Assets and liabilities held for sale relate to the expected sale of our Ctrack South Africa operations. Refer to Note 4. Business Divestiture for details.

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net revenues:
IoT & Mobile Solutions	$	51,836	$	69,314	$	94,795	$	111,729
Enterprise SaaS Solutions	13,857		11,375		28,495		25,800
Total net revenues	65,693		80,689		123,290		137,529
Cost of net revenues:
IoT & Mobile Solutions	39,740		54,240		73,178		88,279
Enterprise SaaS Solutions	5,604		4,449		11,288		10,023

Total cost of net revenues	45,344		58,689		84,466		98,302
Gross profit	20,349		22,000		38,824		39,227
Operating costs and expenses:
Research and development	11,773		10,540		26,328		18,764
Sales and marketing	9,821		8,648		20,825		17,403
General and administrative	7,414		7,396		16,058		14,558
Amortization of purchased intangible assets	664		753		1,130		1,579
Impairment of capitalized software	1,197		—		1,197		—


Total operating costs and expenses	30,869		27,337		65,538		52,304
Operating loss	(10,520)		(5,337)		(26,714)		(13,077)
Other income (expense):


Loss on debt conversion and extinguishment, net	—		(67,241)		(432)		(75,174)
Interest expense, net	(1,678)		(3,160)		(3,523)		(6,540)
Other income (expense), net	(617)		787		1,117		1,765
Loss before income taxes	(12,815)		(74,951)		(29,552)		(93,026)
Income tax provision (benefit)	228		(115)		449		(24)


Net loss	(13,043)		(74,836)		(30,001)		(93,002)
Less: Net loss (income) attributable to noncontrolling interests	—		6		(214)		(26)
Net loss attributable to Inseego Corp.	(13,043)		(74,830)		(30,215)		(93,028)
Series E preferred stock dividends	(886)		(835)		(1,753)		(1,227)
Net loss attributable to common stockholders	$	(13,929)	$	(75,665)	$	(31,968)	$	(94,255)
Per share data:
Net loss per common share:


Basic and diluted	$	(0.14)	$	(0.78)	$	(0.31)	$	(1.01)


Weighted-average shares used in computation of net loss per common share:
Basic and diluted	102,935,213		96,487,344		102,157,146		93,680,846

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net loss	$	(13,043)	$	(74,836)	$	(30,001)	$	(93,002)
Foreign currency translation adjustment	2,425		1,576		693		(11,904)

Total comprehensive loss	$	(10,618)	$	(73,260)	$	(29,308)	$	(104,906)
Comprehensive income attributable to noncontrolling interests	—		6		(214)		(26)
Comprehensive loss attributable to Inseego Corp.	$	(10,618)	$	(73,254)	$	(29,522)	$	(104,932)

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Noncontrolling Interests		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance, March 31, 2020	37	$	—	96,180	$	96	$	682,047	$	(17,359)	$	(636,893)	$	(88)	$	27,803
Net loss	—	—		—	—		—		—		(74,830)		(6)		(74,836)
Foreign currency translation adjustment	—	—		—	—		—		1,576		—		—		1,576
Exercise of stock options and vesting of restricted stock units	—	—		838	1		1,662		—		—		—		1,663
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(208)		—		—		—		(208)
Repurchase of Series E preferred stock	(2)	—		—	—		(2,354)		—		—		—		(2,354)


Share-based compensation	—	—		—	—		4,428		—		—		—		4,428
Series E preferred stock dividends	—	—		—	—		835		—		(835)		—		—

Balance, June 30, 2020	35	$	—	97,018	$	97	$	686,410	$	(15,783)	$	(712,558)	$	(94)	$	(41,928)

Balance, March 31, 2021	35	$	—	102,773	$	103	$	757,352	$	(8,704)	$	(750,221)	$	7	$	(1,463)
Net loss	—	—		—	—		—		—		(13,043)		—		(13,043)
Foreign currency translation adjustment	—	—		—	—		—		2,425		—		—		2,425
Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		336	—		1,282		—		—		—		1,282
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(356)		—		—		—		(356)








Issuance of common shares in connection with a public offering, net of issuance costs	—	—		—	—		(59)		—		—		—		(59)






Share-based compensation	—	—		—	—		2,307		—		—		—		2,307
Net noncontrolling interest acquired	—	—		—	—		—		—		—		1		1
Series E preferred stock dividends	—	—		—	—		886		—		(886)		—		—



Balance, June 30, 2021	35	$	—	103,109	$	103	$	761,412	$	(6,279)	$	(764,150)	$	8	$	(8,906)

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Noncontrolling Interests		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount



















Balance, December 31, 2019	10	$	—	81,974	$	82	$	584,862	$	(3,879)	$	(618,303)	$	(120)	$	(37,358)
Net loss	—	—		—	—		—		—		(93,028)		26		(93,002)
Foreign currency translation adjustment	—	—		—	—		—		(11,904)		—		—		(11,904)

Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		967	1		1,711		—		—		—		1,712
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(281)		—		—		—		(281)
Issuance of Series E preferred stock	25	—		—	—		25,000		—		—		—		25,000
Issuance of Series E preferred stock in lieu of interest	2	—		—	—		2,330		—		—		—		2,330
Repurchase of Series E preferred stock	(2)	—		—	—		(2,354)		—		—		—		(2,354)
Issuance of common shares in connection with private exchanges of 2022 Notes	—	—		13,739	14		66,073		—		—		—		66,087





Exercise of warrants	—	—		338	—		1,861		—		—		—		1,861
Share-based compensation	—	—		—	—		5,981		—		—		—		5,981
Series E preferred stock dividends	—	—		—	—		1,227		—		(1,227)		—		—

Balance, June 30, 2020	35	$	—	97,018	$	97	$	686,410	$	(15,783)	$	(712,558)	$	(94)	$	(41,928)



Balance, December 31, 2020	35	$	—	99,399	$	99	$	711,487	$	(6,972)	$	(732,422)	$	(91)	(27,899)
Net loss	—	—		—	—		—				(30,215)		214		(30,001)
Foreign currency translation adjustment	—	—		—	—		—		693		—		—		693

Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		1,765	2		2,842		—		—		—		2,844
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(825)		—		—		—		(825)





Issuance of common shares in connection with the conversion of 2025 Notes	—	—		429	1		5,382		—		—		—		5,383


Issuance of common shares in connection with a public offering, net of issuance costs	—	—		1,516	1		29,368		—		—		—		29,369

Share-based compensation	—	—		—	—		11,405		—		—		—		11,405
Series E preferred stock dividends	—	—		—	—		1,753		—		(1,753)		—		—

Net noncontrolling interest acquired	—	—		—	—		—		—		240		(115)		125
Balance, June 30, 2021	35	$	—	103,109	$	103	$	761,412	$	(6,279)	$	(764,150)	$	8	$	(8,906)

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(30,001)	$	(93,002)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	13,051		9,692

Provision for bad debts, net of recoveries	266		74
Impairment of capitalized software	1,197		—
Provision for excess and obsolete inventory	496		180
Share-based compensation expense	11,405		5,981

Amortization of debt discount and debt issuance costs	746		3,245
Fair value adjustment on derivative instrument	(1,823)		(826)
Loss on debt conversion and extinguishment, net	432		75,174




Deferred income taxes	38		10



Other	553		158
Changes in assets and liabilities1:

Accounts receivable	6,483		(21,498)
Inventories	(834)		2,725
Prepaid expenses and other assets	1,158		(5,298)
Accounts payable	(16,015)		22,334
Accrued expenses, income taxes, and other	818		5,713
Net cash (used in) provided by operating activities	(12,030)		4,662
Cash flows from investing activities:
Acquisition of noncontrolling interest	(116)		—

Purchases of property, plant and equipment	(2,455)		(2,831)
Proceeds from the sale of property, plant and equipment	506		235


Additions to capitalized software development costs and purchases of intangible assets	(15,369)		(10,637)


Net cash used in investing activities	(17,434)		(13,233)
Cash flows from financing activities:
Gross proceeds from the issuance of 2025 Notes	—		100,000
Payment of issuance costs related to 2025 Notes	—		(2,544)
Cash paid to investors in private exchange transactions	—		(32,062)
Payoff of term loan and related extinguishment costs	—		(48,830)
Gross proceeds received from issuance of Series E preferred stock	—		25,000
Repurchase of Series E preferred stock	—		(2,354)









Proceeds from the exercise of warrants to purchase common stock	—		1,861
Net borrowing of bank and overdraft facilities	295		104


Principal payments under finance lease obligations	(2,173)		(1,462)

Proceeds from a public offering, net of issuance costs	29,369		—

Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units	2,020		1,431
Net cash provided by financing activities	29,511		41,144
Effect of exchange rates on cash	321		(2,547)





Net increase in cash, cash equivalents and restricted cash	368		30,026
Cash, cash equivalents and restricted cash, beginning of period	40,015		12,074
Cash, cash equivalents and restricted cash, end of period2	$	40,383	$	42,100
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	2,782	$	532
Income taxes	$	252	$	9


Supplemental disclosures of non-cash activities:
Transfer of inventories to rental assets	$	3,403	$	1,511
Capital expenditures financed through accounts payable or accrued liabilities	$	3,641	$	3,393
Right-of-use assets obtained in exchange for operating leases liabilities	$	148	$	4,229





Preferred stock issued in extinguishment of term loan accrued interest	$	—	$	2,330
Debt discount and issuance costs extinguished in notes conversion	$	—	$	1,728
2022 Notes conversion to equity	$	—	$	59,907
Novatel Wireless Notes conversion to equity	$	—	$	250
2025 Notes issued to extinguish the 2022 Notes	$	—	$	80,375
2025 Notes conversion, including shares issued in satisfaction of interest make-whole payment	$	5,383	$	—

1Operating assets and liabilities balances include assets and liabilities classified as held for sale as of June 30, 2021 (see Note 4. Business Divestiture).

2Cash, cash equivalents and restricted cash balance includes restricted cash of $3,693, and cash and cash equivalents of $5,849 classified as held for sale as of June 30, 2021 (see Note 4. Business Divestiture).

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The information contained herein has been prepared by Inseego Corp. (the “Company”) in accordance with the rules of the Securities and Exchange Commission (the “SEC”). The information at June 30, 2021 and the results of the Company’s operations for the three and six months ended June 30, 2021 and 2020 are unaudited. The condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, except otherwise disclosed herein, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods presented. These unaudited condensed consolidated financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The year-end condensed consolidated balance sheet data as of December 31, 2020 was derived from the Company’s audited consolidated financial statements and may not include all disclosures required by accounting principles generally accepted in the United States. Certain prior period amounts were reclassified to conform to the current period presentation. These reclassifications did not affect total revenues, costs and expenses, net loss, assets, liabilities or stockholders’ deficit. Except as set forth below, the accounting policies used in preparing these unaudited condensed consolidated financial statements are the same as those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the year as a whole.

Risks and Uncertainties

In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, resulting in shutdowns of manufacturing and commerce globally in the months that followed. Since then, the COVID-19 pandemic has spread worldwide, and has resulted in authorities implementing numerous measures to try to contain the disease or slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent the spread of the disease, all of which are uncertain and cannot be predicted.

In addition, a global semiconductor supply shortage is having wide-ranging effects across the technology industry. This semiconductor shortage has not materially impacted the Company but may impact the Company’s customers, and may negatively impact the supply of materials needed for our testing and production timeline. Our suppliers, contract manufacturers, and our customers are all taking actions to reduce the impact of the semiconductor shortage; however, if the shortage persists, the impact on our business could be material.

Liquidity

As of June 30, 2021, the Company had (i) available cash and cash equivalents totaling $36.7 million, including $5.8 million cash and cash equivalents classified as held-for-sale, and excluding restricted cash of $3.7 million, and (ii) working capital of $32.4 million, excluding assets and liabilities classified as held-for-sale.

On March 6, 2020, the Company issued and sold 25,000 shares of Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”), for an aggregate purchase price of $25.0 million.

In the first quarter of 2020, $59.9 million of the Company’s 5.5% convertible senior notes due 2022 (the “2022 Notes” formerly referred to as the “Inseego Notes”) were exchanged for common stock in private exchange transactions. Additionally, in the second quarter of 2020, the Company restructured its outstanding debt by completing a $100.0 million registered public offering (the “Offering”) of 3.25% convertible senior notes due 2025 (the “2025 Notes”) and also entered in privately-negotiated Exchange Agreements, pursuant to which an aggregate of $45.0 million in principal amount of the 2022 Notes were exchanged for an aggregate of $32 million in cash and $80.4 million in principal amount of the 2025 Notes (the “Private Exchange Transactions”). The Company also used a portion of the proceeds from the Offering to repay in full its previous term loan. In the third quarter of 2020, the Company redeemed the remaining $2,000 principal amount of the 2022 Notes.

During the quarter ended September 30, 2020, certain holders of the 2025 Notes converted approximately $13.5 million in principal amount of the 2025 Notes into 1,177,156 shares of the Company’s common stock in accordance with the terms of such notes. As of June 30, 2021, the Company’s outstanding debt primarily consisted of $161.9 million in principal amount of 2025 Notes.

On January 25, 2021, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of its common stock (the “ATM Offering”). In January 2021, the Company sold 1,516,073 shares of common stock, at an average price of $20.11 per share, for net proceeds of $29.4 million, after deducting underwriter fees and discounts of $0.9 million, and other offering fees, pursuant to the ATM Offering.

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

On July 30, 2021, the Company completed the sale of Ctrack South Africa. Initial cash proceeds of approximately $36.6 million were received.

The Company has a history of operating and net losses and overall usage of cash from operating and investing activities. The Company’s management believes that its cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet its cash flow needs for the next twelve months from the filing date of this report. The Company’s ability to attain more profitable operations and continue to generate positive cash flow is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure. If events or circumstances occur such that the Company does not meet its operating plan as expected, or if the Company becomes obligated to pay unforeseen expenditures as a result of ongoing litigation, the Company may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on its ability to achieve its intended business objectives.

The Company’s liquidity could be impaired if there is any interruption in its business operations, a material failure to satisfy its contractual commitments or a failure to generate revenue from new or existing products. There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all. Additionally, the Company is uncertain of the full extent to which the COVID-19 pandemic will impact the Company’s business, operations and financial results.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly- and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Segment Information

Management has determined that the Company has one reportable segment. The Chief Executive Officer, 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 is based solely on the Company’s consolidated operations and operating results.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ materially from these estimates. Significant estimates include revenue recognition, capitalized software costs, allowance for doubtful accounts receivable, provision for excess and obsolete inventory, valuation of intangible and long-lived assets, valuation of goodwill, valuation of derivatives, accruals relating to litigation, income taxes and share-based compensation expense. The inputs related to certain estimates include consideration of the economic impact of the COVID-19 pandemic. As the impact of the COVID-19 pandemic continues to develop, these estimates could carry a higher degree of variability and volatility, and may change materially in future periods.

Sources of Revenue

The Company generates revenue from a broad range of product sales including intelligent wireless hardware products for the worldwide mobile communications, and industrial Internet of Things (“IIoT”) markets, Inseego SubscribeTM, a hosted SaaS platform that helps organizations manage the selection, deployment and spend of wireless assets, and various Software as a Service (“SaaS”) products. The Company’s products principally include intelligent mobile hotspots, wireless routers for IoT applications, USB modems, integrated telematics and mobile tracking hardware devices, which are supported by applications software and cloud software services designed to enable customers to easily analyze data insights and configure and manage their hardware.

The Company classifies its revenues from the sale of its products and services into two distinct groupings, specifically IoT & Mobile Solutions and Enterprise SaaS Solutions. Both IoT & Mobile Solutions and Enterprise SaaS Solutions revenues include any hardware and software required for the respective solution.

IoT & Mobile Solutions. The IoT & Mobile Solutions portfolio is comprised of end-to-end edge to cloud solutions including 4G LTE mobile broadband gateways, routers, modems, hotspots, HD quality VoLTE based wireless home phones, cloud management software and an advanced portfolio of 5G products. The solutions are offered under the MiFi™ brand for consumer and enterprise markets, and under the Skyus brand for IIoT markets. Effective in the third quarter ended on

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 30, 2020, IoT & Mobile Solutions also includes the Company’s Device Management System (“DMS”), rebranded as Inseego SubscribeTM, that helps organizations manage the selection, deployment and spend of their customer’s wireless assets, helping them save money on personnel and telecom expenses. The Company reclassified its Inseego Subscribe revenue stream from Enterprise SaaS Solutions to better reflect the Company's end user delineation. This reclassification had no impact on previously reported total net revenue, gross profit, or net loss.

Enterprise SaaS Solutions. The Enterprise SaaS Solutions portfolio consists of various subscription offerings to gain access to the Company’s Ctrack telematics platforms, which provide fleet vehicle, aviation ground vehicle and asset tracking and performance information, and other telematics applications.

Reclassification

Certain reclassifications have been made to the prior period condensed consolidated statement of operations to conform to the current period presentation.

2. Financial Statement Details

Inventories

Inventories, net, consist of the following (in thousands):


	June 30, 2021		December 31, 2020
Finished goods	$	24,881	$	27,009
Raw materials and components	2,663		6,943
Total inventories1	$	27,544	$	33,952

1Amounts exclude balances classified as held for sale. See Note 4. Business Divestiture.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	June 30, 2021		December 31, 2020
Royalties	$	1,932	$	2,410
Payroll and related expenses	9,063		6,006


Professional fees	766		921

Accrued interest	852		888
Deferred revenue	3,398		2,853

Operating lease liabilities	1,637		1,619


Accrued production costs	901		938
Liabilities related to financed assets	490		1,198
Other	3,835		6,540
Total accrued expenses and other current liabilities1	$	22,874	$	23,373

1Amounts exclude balances classified as held for sale. See Note 4. Business Divestiture.

3. Fair Value Measurement of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model.

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company classifies inputs to measure fair value using a three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) and is defined as follows:

Level 1: Pricing inputs are based on quoted market prices for identical assets or liabilities in active markets (e.g., NYSE or NASDAQ). Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Pricing inputs include benchmark yields, trade data, reported trades and broker dealer quotes, two-sided markets and industry and economic events, yield to maturity, Municipal Securities Rule Making Board reported trades and vendor trading platform data. Level 2 includes those financial instruments that are valued using various pricing services and broker pricing information including Electronic Communication Networks and broker feeds.

Level 3: Pricing inputs include significant inputs that are generally less observable from objective sources, including the Company’s own assumptions. The fair market value for level 3 securities may be highly sensitive to the use of unobservable inputs and subjective assumptions. Generally, changes in significant unobservable inputs may result in significantly lower or higher fair value measurements.

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. There have been no transfers of assets or liabilities between fair value measurement classifications during the six months ended June 30, 2021.

The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis in accordance with the authoritative guidance for fair value measurements as of June 30, 2021 and December 31, 2020 (in thousands):