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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
| | | | | |
| ☐ | 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.) |
| | |
| 9710 Scranton Road, Suite 200 | | |
| San Diego, | California | | 92121 |
| (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 October 31, 2022 was 107,849,965.
TABLE OF CONTENTS
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| Item 1. | | |
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| Condensed Consolidated Statements of Cash Flows (Unaudited) | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 5. | | |
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| Item 6. | | |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
INSEEGO CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
| | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| (Unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 18,063 | | | $ | 46,474 | |
| Restricted cash | — | | | 3,338 | |
Accounts receivable, net of allowance for doubtful accounts of $371 and $408, respectively | 28,668 | | | 26,781 | |
| | | |
| Inventories | 42,406 | | | 37,402 | |
| | | |
| Prepaid expenses and other | 10,902 | | | 13,624 | |
| | | |
| | | |
| Total current assets | 100,039 | | | 127,619 | |
Property, plant and equipment, net of accumulated depreciation of $25,240 and $26,692, respectively | 6,157 | | | 8,102 | |
Rental assets, net of accumulated depreciation of $5,919 and $5,392, respectively | 4,411 | | | 4,575 | |
Intangible assets, net of accumulated amortization of $63,425 and $48,404, respectively | 44,406 | | | 46,995 | |
| | | |
| Goodwill | 21,922 | | | 20,336 | |
| Right-of-use assets, net | 6,902 | | | 7,839 | |
| Other assets | 563 | | | 377 | |
| Total assets | $ | 184,400 | | | $ | 215,843 | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 39,537 | | | $ | 48,577 | |
| Accrued expenses and other current liabilities | 31,476 | | | 26,253 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total current liabilities | 71,013 | | | 74,830 | |
| Long-term liabilities: | | | |
| | | |
| 2025 Notes, net | 158,079 | | | 157,866 | |
| | | |
| Revolving credit facility, net | 3,451 | | | — | |
| | | |
| Deferred tax liabilities, net | 816 | | | 852 | |
| Other long-term liabilities | 6,841 | | | 7,149 | |
| Total liabilities | 240,200 | | | 240,697 | |
| 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, 25,000 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, 107,846,082 and 105,380,533 shares issued and outstanding, respectively | 108 | | | 105 | |
| Additional paid-in capital | 790,460 | | | 770,619 | |
| Accumulated other comprehensive loss | (3,950) | | | (8,531) | |
| Accumulated deficit | (842,418) | | | (787,047) | |
| Total stockholders’ deficit | (55,800) | | | (24,854) | |
| Total liabilities and stockholders’ deficit | $ | 184,400 | | | $ | 215,843 | |
See accompanying notes to condensed consolidated financial statements.
INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | | | 2022 | | 2021 |
| Net revenues: | | | | | | | | | |
| IoT & Mobile Solutions | $ | 62,633 | | | $ | 56,975 | | | | | $ | 172,129 | | | $ | 151,770 | |
| Enterprise SaaS Solutions | 6,534 | | | 9,242 | | | | | 20,279 | | | 37,737 | |
| Total net revenues | 69,167 | | | 66,217 | | | | | 192,408 | | | 189,507 | |
| Cost of net revenues: | | | | | | | | | |
| IoT & Mobile Solutions | 48,209 | | | 43,595 | | | | | 131,805 | | | 116,777 | |
| Enterprise SaaS Solutions | 3,002 | | | 3,679 | | | | | 9,505 | | | 14,965 | |
| Total cost of net revenues | 51,211 | | | 47,274 | | | | | 141,310 | | | 131,742 | |
| Gross profit | 17,956 | | | 18,943 | | | | | 51,098 | | | 57,765 | |
| Operating costs and expenses: | | | | | | | | | |
| Research and development | 15,417 | | | 12,626 | | | | | 47,597 | | | 38,954 | |
| Sales and marketing | 8,295 | | | 9,172 | | | | | 25,789 | | | 29,997 | |
| General and administrative | 5,720 | | | 6,599 | | | | | 20,101 | | | 22,657 | |
| Amortization of purchased intangible assets | 433 | | | 519 | | | | | 1,319 | | | 1,649 | |
| Impairment of capitalized software | — | | | — | | | | | — | | | 1,197 | |
| Total operating costs and expenses | 29,865 | | | 28,916 | | | | | 94,806 | | | 94,454 | |
| Operating loss | (11,909) | | | (9,973) | | | | | (43,708) | | | (36,689) | |
| Other (expense) income: | | | | | | | | | |
| Gain on sale of Ctrack South Africa | — | | | 5,262 | | | | | — | | | 5,262 | |
| Loss on debt conversion and extinguishment, net | — | | | — | | | | | (450) | | | (432) | |
| Interest expense, net | (2,034) | | | (1,655) | | | | | (6,621) | | | (5,178) | |
| Other (expense) income, net | (1,758) | | | (828) | | | | | (3,145) | | | 291 | |
| Total other (expense) income | (3,792) | | | 2,779 | | | | | (10,216) | | | (57) | |
| Loss before income taxes | (15,701) | | | (7,194) | | | | | (53,924) | | | (36,746) | |
| Income tax provision (benefit) | 42 | | | (4) | | | | | (582) | | | 445 | |
| Net loss | (15,743) | | | (7,190) | | | | | (53,342) | | | (37,191) | |
| Less: Net income attributable to noncontrolling interests | — | | | — | | | | | — | | | (214) | |
| Net loss attributable to Inseego Corp. | (15,743) | | | (7,190) | | | | | (53,342) | | | (37,405) | |
| Series E preferred stock dividends | (691) | | | (1,843) | | | | | (2,029) | | | (3,596) | |
| Net loss attributable to common stockholders | $ | (16,434) | | | $ | (9,033) | | | | | $ | (55,371) | | | $ | (41,001) | |
| Per share data: | | | | | | | | | |
| Net loss per common share: | | | | | | | | | |
| Basic and diluted | $ | (0.15) | | | $ | (0.09) | | | | | $ | (0.52) | | | $ | (0.40) | |
| Weighted-average shares used in computation of net loss per common share: | | | | | | | | | |
| Basic and diluted | 107,747,468 | | | 103,430,083 | | | | | 106,977,201 | | | 102,586,121 | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | | | 2022 | | 2021 |
| Net loss | $ | (15,743) | | | $ | (7,190) | | | | | $ | (53,342) | | | $ | (37,191) | |
| Foreign currency translation adjustment | 1,147 | | | (2,571) | | | | | 4,581 | | | (1,878) | |
| Release of cumulative foreign currency translation adjustments as a result of the sale of Ctrack South Africa | — | | | 1,608 | | | | | — | | | 1,608 | |
| Total comprehensive loss | $ | (14,596) | | | $ | (8,153) | | | | | $ | (48,761) | | | $ | (37,461) | |
| Comprehensive income attributable to noncontrolling interests | — | | | — | | | | | — | | | (214) | |
| Comprehensive loss attributable to Inseego Corp. | $ | (14,596) | | | $ | (8,153) | | | | | $ | (48,761) | | | $ | (37,675) | |
See accompanying notes to condensed consolidated financial statements.
INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional
Paid-in Capital | | | | Accumulated Deficit | | Accumulated
Other
Comprehensive Income (Loss) | | Noncontrolling Interests | | Total
Stockholders’ Equity (Deficit) |
| Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance, June 30, 2021 | 35 | | | $ | — | | | 103,109 | | | $ | 103 | | | $ | 761,412 | | | | | $ | (764,150) | | | (6,279) | | | $ | 8 | | | $ | (8,906) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | | | (7,190) | | | — | | | — | | | (7,190) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | | | — | | | (2,571) | | | — | | | (2,571) | |
| Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan | — | | | — | | | 316 | | | — | | | 693 | | | | | — | | | — | | | — | | | 693 | |
| Taxes withheld on net settled vesting of restricted stock units | — | | | — | | | — | | | — | | | (280) | | | | | — | | | — | | | — | | | (280) | |
| | | | | | | | | | | | | | | | | | | |
| Release of cumulative foreign currency translation adjustments as a result of sale of Ctrack South Africa | — | | | — | | | — | | | — | | | 8 | | | | | (1,748) | | | 1,608 | | | (8) | | | (140) | |
| Share-based compensation | — | | | — | | | — | | | — | | | 3,062 | | | | | — | | | — | | | — | | | 3,062 | |
| | | | | | | | | | | | | | | | | | | |
| Series E preferred stock dividends | — | | | — | | | — | | | — | | | 739 | | | | | (739) | | | — | | | — | | | — | |
| Series E preferred stock exchange | (10) | | | | 1,525 | | | 2 | | | 1,102 | | | | | (1,104) | | | — | | | — | | | — | |
| Balance, September 30, 2021 | 25 | | | $ | — | | | 104,950 | | | $ | 105 | | | $ | 766,736 | | | | | $ | (774,931) | | | $ | (7,242) | | | $ | — | | | $ | (15,332) | |
| | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2022 | 25 | | | $ | — | | | 107,645 | | | $ | 108 | | | $ | 787,283 | | | | | $ | (825,984) | | | $ | (5,097) | | | $ | — | | | $ | (43,690) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | | | $ | (15,743) | | | — | | | — | | | (15,743) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | | | $ | — | | | 1,147 | | | — | | | 1,147 | |
| | | | | | | | | | | | | | | | | | | |
| Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan | — | | | — | | | 201 | | | — | | | 101 | | | | | $ | — | | | — | | | — | | | 101 | |
| Taxes withheld on net settled vesting of restricted stock units | — | | | — | | | — | | | — | | | (21) | | | | | $ | — | | | — | | | — | | | (21) | |
Share-based compensation | — | | | — | | | — | | | — | | | 2,406 | | | | | $ | — | | | — | | | — | | | 2,406 | |
| Series E preferred stock dividends | — | | | — | | | — | | | — | | | 691 | | | | | (691) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2022 | 25 | | | $ | — | | | 107,846 | | | $ | 108 | | | $ | 790,460 | | | | | $ | (842,418) | | | $ | (3,950) | | | $ | — | | | $ | (55,800) | |
INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional
Paid-in Capital | | | | Accumulated Deficit | | Accumulated
Other
Comprehensive Income (Loss) | | Noncontrolling Interests | | Total
Stockholders’ Deficit |
| Shares | | Amount | | Shares | | Amount | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, December 31, 2020 | 35 | | | $ | — | | | 99,399 | | | $ | 99 | | | $ | 711,487 | | | | | $ | (732,422) | | | $ | (6,972) | | | $ | (91) | | | $ | (27,899) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | | | (37,405) | | | — | | | 214 | | | (37,191) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | | | — | | | (1,878) | | | — | | | (1,878) | |
| | | | | | | | | | | | | | | | | | | |
| Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan | — | | | — | | | 2,081 | | | 2 | | | 3,535 | | | | | — | | | — | | | — | | | 3,537 | |
| Taxes withheld on net settled vesting of restricted stock units | — | | | — | | | — | | | — | | | (1,105) | | | | | — | | | — | | | — | | | (1,105) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Issuance of common shares in connection with the conversion of 2025 Notes | — | | | — | | | 429 | | | — | | | 5,382 | | | | | — | | | — | | | — | | | 5,382 | |
| Issuance of common shares in connection with a public offering, net of issuance costs | — | | | — | | | 1,516 | | | 2 | | | 29,368 | | | | | — | | | — | | | — | | | 29,370 | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | — | | | — | | | 14,467 | | | | | — | | | — | | | — | | | 14,467 | |
| Series E preferred stock dividends | — | | | — | | | — | | | — | | | 2,492 | | | | | (2,492) | | | — | | | — | | | — | |
| Series E preferred stock exchange | (10) | | | — | | | 1,525 | | | 2 | | | 1,102 | | | | | (1,104) | | | — | | | — | | | — | |
| Release of cumulative foreign currency translation adjustments as a result of sale of Ctrack South Africa | — | | | — | | | — | | | — | | | 8 | | | | | (1,748) | | | 1,608 | | | (8) | | | (140) | |
| Net noncontrolling interest acquired | — | | | — | | | — | | | — | | | — | | | | | 240 | | | — | | | (115) | | | 125 | |
| Balance, September 30, 2021 | 25 | | | — | | | 104,950 | | | $ | 105 | | | $ | 766,736 | | | | | $ | (774,931) | | | $ | (7,242) | | | $ | — | | | $ | (15,332) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2021 | 25 | | | $ | — | | | 105,381 | | | $ | 105 | | | $ | 770,619 | | | | | $ | (787,047) | | | $ | (8,531) | | | $ | — | | | $ | (24,854) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | | | (53,342) | | | — | | | — | | | (53,342) | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | | | — | | | 4,581 | | | — | | | 4,581 | |
| Adjustment relating to extinguishment of 2022 Notes | | | | | | | | | 1,727 | | | | | — | | | — | | | — | | | 1,727 | |
| Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan | — | | | — | | | 2,470 | | | 3 | | | 250 | | | | | — | | | — | | | — | | | 253 | |
| Taxes withheld on net settled vesting of restricted stock units | — | | | — | | | (5) | | | — | | | (57) | | | | | — | | | — | | | — | | | (57) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | — | | | — | | | 15,892 | | | | | — | | | — | | | — | | | 15,892 | |
| Series E preferred stock dividends | — | | | — | | | — | | | — | | | 2,029 | | | | | (2,029) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2022 | 25 | | | $ | — | | | 107,846 | | | $ | 108 | | | $ | 790,460 | | | | | $ | (842,418) | | | $ | (3,950) | | | $ | — | | | $ | (55,800) | |
INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | | | | | | | | | |
| Nine Months Ended
September 30, |
| | 2022 | | 2021 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (53,342) | | | $ | (37,191) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | |
| Depreciation and amortization | 20,936 | | | 19,131 | |
| Provision for bad debts | 29 | | | 346 | |
| Impairment of capitalized software | — | | | 1,197 | |
| Provision for excess and obsolete inventory | 1,330 | | | 587 | |
| Share-based compensation expense | 15,892 | | | 14,467 | |
| Amortization of debt discount and debt issuance costs | 2,472 | | | 1,117 | |
| Fair value adjustment on derivative instrument | (902) | | | (3,435) | |
| Loss on debt conversion and extinguishment, net | 450 | | | 432 | |
| Gain on sale of Ctrack South Africa | — | | | (5,262) | |
| Deferred income taxes | (223) | | | 175 | |
| Right-of-use assets | 1,057 | | | 1,364 | |
| Other | — | | | 572 | |
| Changes in assets and liabilities, net of effects of divestiture: | | | |
| Accounts receivable | (561) | | | 2,834 | |
| Inventories | (5,926) | | | (7,889) | |
| Prepaid expenses and other assets | 2,723 | | | 1,429 | |
| Accounts payable | (13,548) | | | (7,206) | |
| Accrued expenses, income taxes, and other | 6,276 | | | 4,797 | |
| Operating lease liabilities | (1,366) | | | (2,222) | |
| Net cash used in operating activities | (24,703) | | | (14,757) | |
| Cash flows from investing activities: | | | |
| Acquisition of noncontrolling interest | — | | | (116) | |
| Purchases of property, plant and equipment | (1,203) | | | (4,299) | |
| Proceeds from the sale of property, plant and equipment | — | | | 1,143 | |
| Proceeds from sale of Ctrack South Africa, net of cash divested | — | | | 31,526 | |
| Additions to capitalized software development costs | (9,242) | | | (20,589) | |
| Net cash (used in) provided by investing activities | (10,445) | | | 7,665 | |
| Cash flows from financing activities: | | | |
| Net (repayment) borrowing of bank and overdraft facilities | (458) | | | 315 | |
| Principal payments under finance lease obligations | (62) | | | (3,138) | |
| Proceeds from a public offering, net of issuance costs | — | | | 29,370 | |
| Principal payments on financed assets | (1,567) | | | — | |
| Borrowings on revolving credit facility | 9,000 | | | — | |
| Repayments on revolving credit facility | (4,500) | | | — | |
| Payment of debt issuance costs on revolving credit facility | (1,126) | | | — | |
| Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units | 196 | | | 2,432 | |
| Net cash provided by financing activities | 1,483 | | | 28,979 | |
| Effect of exchange rates on cash | 1,916 | | | (293) | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (31,749) | | | 21,594 | |
| Cash, cash equivalents and restricted cash, beginning of period | 49,812 | | | 40,015 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 18,063 | | | $ | 61,609 | |
| Supplemental disclosures of cash flow information: | | | |
| Cash paid during the year for: | | | |
| Interest | $ | 2,675 | | | $ | 2,782 | |
| Income taxes | $ | 96 | | | $ | 378 | |
| | | |
| Supplemental disclosures of non-cash activities: | | | |
| Transfer of inventories to rental assets | $ | 297 | | | $ | 4,394 | |
| Capital expenditures financed through accounts payable or accrued liabilities | $ | 4,402 | | | $ | 2,643 | |
| Right-of-use assets obtained in exchange for operating leases liabilities | $ | 342 | | | $ | 544 | |
| Exchange of Series E Preferred Stock for common stock | $ | — | | | $ | 11,982 | |
| Issuance of common stock in exchange for Series E Preferred Stock | $ | — | | | $ | 13,086 | |
| Deemed dividend on exchange of Series E Preferred Stock for common stock | $ | — | | | $ | 1,104 | |
2025 Notes conversion, including shares issued in satisfaction of interest make-whole payment | $ | — | | | $ | 5,383 | |
See accompanying notes to condensed consolidated financial statements.
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements contained herein have been prepared by Inseego Corp. (the “Company”) in accordance with the Securities and Exchange Commission (the “SEC”) rules for interim financial information. Accordingly, the condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for fair presentation of the results of interim periods and may not include all disclosures required by accounting principles generally accepted in the United States (“GAAP”). The information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and September 30, 2021, is unaudited, whereas the condensed consolidated balance sheet as of December 31, 2021 is derived from the Company’s audited consolidated financial statements as of that date. These 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, 2021 (the “Form 10-K”).
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.
The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the Form 10-K. 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.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-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 allocations of resources and assessments of performance are based solely on the Company’s consolidated operations and financial results.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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. Estimates are assessed each period and updated to reflect current information. Significant estimates include revenue recognition, capitalized software costs, allowance for credit losses, 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.
Risks and Uncertainties
In March 2020, the World Health Organization declared a global pandemic caused by the novel coronavirus (“COVID-19”), resulting in shutdowns of manufacturing and commerce globally in the months that followed. 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, severity and spread of the outbreak, emergence of new variants of concern, and actions taken by the federal, state, local and foreign governments to contain the pandemic, all of which are uncertain and cannot be predicted.
In addition, a global semiconductor supply shortage is causing wide-ranging impacts across the technology industry. While the shortage has not materially impacted the Company’s operations and financial results, it may negatively impact our customers and the supply of materials needed for our testing and production timeline. Our suppliers, contract manufacturers, and customers are all taking actions to reduce the impact of the semiconductor shortage; however, if the shortage persists, the impact on our operations and financial results could be material.
The inflationary pressures impacting the global supply chain could potentially increase the cost of net revenues in the current and future years. The ongoing inflation challenges could adversely impact our future revenues, gross margins and financial results.
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Sale of Ctrack South Africa
On July 30, 2021, the Company completed the sale of its Ctrack business operations in Africa, Pakistan and the Middle East (together “Ctrack South Africa”) and recognized a pre-tax gain of $5.3 million. Total cash proceeds received from the sale were $31.5 million, net of cash divested of $5.0 million.
Liquidity
As of September 30, 2022, the Company had available unrestricted cash and cash equivalents totaling $18.1 million and $14.6 million of excess availability under its secured asset-backed revolving credit facility. See Note 4, Debt, for more information on this new credit facility.
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 on-hand, together with anticipated cash flows from operations, availability under its secured asset-backed revolving credit facility, and anticipated savings from ongoing cost reduction efforts, 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 plans 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 and capital expenditures, which could have an adverse impact on its ability to achieve its intended business objectives.
The Company’s liquidity could also be impaired by significant interruptions in its business operations, such as those described above under the heading Risks and Uncertainties, or, a material failure to satisfy its contractual commitments or a failure to generate revenues from new or existing products. In addition, 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.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company’s cash and cash equivalents are generally held with large financial institutions worldwide to reduce the amount of exposure to credit risk. Cash, cash equivalents and restricted cash are recorded at market value, which approximates cost. Gains and losses associated with the Company’s foreign currency denominated demand deposits are recorded as a component of other income, net, in the consolidated statements of operations. Restricted cash held in escrow as of December 31, 2021 was released during the third quarter of 2022 and we no longer have any restricted cash on our balance sheet as of September 30, 2022.
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The guidance is effective for annual and interim periods beginning after December 15, 2021. The Company adopted the ASU in the first quarter of fiscal 2022 and there was no impact to the condensed consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. The ASU is effective for annual and interim periods beginning after December 15, 2021. The Company adopted the ASU in the first quarter of fiscal 2022 and there was no impact to the condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50). The ASU requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations.
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The ASU does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU is effective for annual and interim periods beginning after December 15, 2022, except for the rollforward requirement, which is effective for annual periods beginning after December 15, 2023. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
2. Financial Statement Details
Inventories
Inventories consist of the following (in thousands):
| | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| Finished goods | $ | 35,644 | | | $ | 33,112 | |
| Raw materials and components | 6,762 | | | 4,290 | |
| Total inventories | $ | 42,406 | | | $ | 37,402 | |
Prepaid expenses and other
Prepaid expenses and other consists of the following (in thousands):
| | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
|
| Rebate receivables | $ | 4,015 | | | $ | 6,398 | |
| Receivables from contract manufacturers | 3,239 | | | 2,626 | |
| Software licenses | 1,062 | | | 1,261 | |
| Insurance | 218 | | | 1,269 | |
| Deposits | 870 | | | 1,023 | |
| Financed assets | 295 | | | 323 | |
| Other | 1,203 | | | 724 | |
| $ | 10,902 | | | $ | 13,624 | |
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| Royalties | $ | 1,970 | | | $ | 2,243 | |
| Payroll and related expenses | 10,106 | | | 9,326 | |
| Warranty obligations | 458 | | | 473 | |
| Professional fees | 586 | | | 502 | |
| | | |
| Accrued interest | 2,410 | | | 877 | |
| | | |
| | | |
| Customer contract liabilities | 8,554 | | | 3,832 | |
| Operating lease liabilities | 1,662 | | | 1,769 | |
| Accrued contract manufacturing liabilities | 1,599 | | | 927 | |
| | | |
| Value added tax payables | 424 | | | 642 | |
| Other | 3,707 | | | 5,662 | |
| Total accrued expenses and other current liabilities | $ | 31,476 | | | $ | 26,253 | |
INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
3. Fair Value Measurement of Assets and Liabilities
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Each fair value measurement is classified into one of the following levels based on the information used in the valuation:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3: 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 following table summarizes the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Total Fair Value | | Level 3 | | Level 1 | | Total Fair Value | | Level 3 | | Level 1 |
| Assets | | | | | | | | | | | |
| Cash equivalents | | | | | | | | | | | |
| Money market funds | $ | — | | | $ | — | | | $ | — | | | $ | 126 | | | $ | — | | | $ | 126 | |
| Total assets | $ | |
