Inseego (INSG) - 2019 Q4 - Annual Report

Forward-Looking Statements This section details forward-looking statements, their inherent risks, and the company's disclaimer on updating them Forward-Looking Statements Overview This overview highlights forward-looking statements, their reliance on current expectations, and the various risks that could cause actual results to differ - Forward-looking statements are based on current expectations, assumptions, estimates, and projections, and are subject to risks and uncertainties that could cause actual results to differ materially[12] - Key risk factors include the ability to compete in wireless broadband and IoT markets, successfully develop and introduce new products (especially 5G NR), expand customer reach, manage debt, and mitigate impacts of global economic conditions and health emergencies[12][16] - The company disclaims any undertaking to publicly update or revise any forward-looking statements[12] Trademarks This section identifies trademarks and registered trademarks owned by Inseego Corp. and its subsidiaries Trademarks Overview This section identifies trademarks and registered trademarks owned by Inseego Corp. and its subsidiaries - Inseego owns several trademarks and registered trademarks, including "Inseego", "DigiCore", "Novatel Wireless", "MiFi", "MiFi Intelligent Mobile Hotspot", "Ctrack", "Inseego North America", and "Skyus"[15] - Other trademarks, trade names, or service marks mentioned in the report are the property of their respective owners[15] PART I This part covers Inseego's business operations, strategic initiatives, competitive landscape, and associated risk factors Item 1. Business Inseego Corp. leads in 4G/5G wireless, IIoT, and cloud solutions, focusing on mission-critical enterprise applications and strategic growth - Inseego Corp. is a leader in designing and developing fixed and mobile wireless solutions (advanced 4G and 5G NR), Industrial IoT (IIoT), and cloud solutions globally[18] - The company's product portfolio offers intelligent, reliable, and secure end-to-end IoT services with deep business intelligence, powering mission-critical applications like 5G FWA gateways, 4G/5G mobile broadband, SD WAN failover, asset tracking, and fleet management[18] - Inseego's strategy includes capitalizing on direct relationships with wireless operators, expanding its IoT solutions portfolio, aggressively expanding go-to-market offerings, improving SaaS solution penetration, and increasing the value of its offerings through advanced technologies like 5G NR, predictive analytics, machine learning, and edge intelligence[29][30] Overview Inseego Corp., formed in 2016, is a global leader in 4G/5G wireless, IIoT, and cloud solutions for mission-critical applications - Inseego Corp. is a Delaware corporation formed in 2016, succeeding Novatel Wireless, Inc. (formed in 1996)[17] - The company is a leader in fixed and mobile wireless solutions (advanced 4G and 5G NR), Industrial IoT (IIoT), and cloud solutions for various business sizes globally[18] - Inseego's solutions provide intelligent, reliable, and secure end-to-end IoT services with deep business intelligence, powering mission-critical applications like 5G FWA gateways, 4G/5G mobile broadband, SD WAN failover, asset tracking, and fleet management[18] Industry Trends The mobile industry is rapidly advancing with 5G NR, enabling diverse use cases and significant growth in IoT connections - The mobile industry has seen tremendous advancements and growth, with 5G NR (the 4th industrial revolution) expected to bring multi-gigabit data rates, sub-millisecond latency, and wider spectrum bandwidths[20][21] - 5G is designed for diverse use cases, including autonomous vehicles, telemedicine, ultra-HD video streaming, cloud gaming, edge computing, augmented reality, and robotics for smart manufacturing[21] - IoT connections are projected to grow to 25.2 billion by 2025, with 5G enabling massive numbers of fixed and mobile wireless devices and supporting 'wireless edge technologies' for various industrial applications[26] Our Strategy Inseego aims to lead in high-performance 5G fixed, mobile, and IIoT device-to-cloud solutions through strategic partnerships and advanced technology - Inseego aims to be a leader in high-performance 5G fixed, mobile, and IIoT device-to-cloud solutions for enterprises and service providers[29] - Key strategic elements include capitalizing on direct relationships with wireless operators and suppliers, expanding the IoT solutions portfolio, aggressively expanding go-to-market offerings, improving SaaS solution penetration, and increasing the value of offerings through cutting-edge IoT, mobile, and cloud solutions with a focus on predictive analytics, machine learning, and edge intelligence[30] Our Sources of Revenue Revenue is generated from intelligent wireless hardware products and SaaS solutions across mobile and industrial IoT markets - Revenue is generated from intelligent wireless 3G, 4G, and 5G hardware products for mobile communications and industrial IoT markets, including fixed wireless routers, mobile hotspots (MiFi brand), and integrated telematics devices (Ctrack brand)[31] - The company also sells SaaS, software, and services solutions across multiple mobile and industrial IoT vertical markets, such as fleet management, vehicle telematics, asset tracking, and device management (Ctrack platforms and Device Management Solutions)[34][35] Total Net Revenues (2019 vs 2018) | Year Ended December 31, | 2019 (Millions USD) | 2018 (Millions USD) | | :---------------------- | :------------------ | :------------------ | | Total Net Revenues | $219.5 | $202.5 | Our Business Inseego's business segments include IoT for enterprise, mobile for consumer/enterprise, and telematics/asset tracking globally - The IoT business focuses on applications for large enterprise verticals and industrial IoT markets, including smart city infrastructure, remote monitoring, SD WAN failover, and enterprise connectivity, with Skyus-branded solutions[36] - The mobile business drives advanced mobile technologies for consumer and enterprise applications, offering intelligent mobile broadband solutions (MiFi brand), HD quality VoLTE products, and an advanced 5G portfolio[37][39] - The Telematics and Asset Tracking business, primarily through Ctrack, provides advanced fleet management telematics and asset tracking solutions using GPS, cellular communications, and sensory technologies, operating in over 50 countries[40][41] Sales and Marketing The company employs diverse sales and marketing strategies to drive market leadership and global demand - The company engages in diverse sales and marketing activities, including product marketing, corporate communications, brand marketing, and demand generation, to drive market leadership and global demand[43] Competition Inseego operates in a rapidly evolving and highly competitive market, facing diverse competitors across its mobile, IoT, and telematics segments - The market for Inseego's mobile, IoT, and asset tracking/telematics services is rapidly evolving and highly competitive, influenced by new product introductions and industry participants[44] - Principal competitive factors include features, functionality, performance, quality, and brand. The company aims to expand its customer base, invest in R&D, grow distribution, and leverage strategic relationships to maintain its competitive position[45] - Competitors include Fleetmatics, Masternaut, TomTom (fleet management), Netgear, Franklin Wireless, WNC, Sierra Wireless, Nokia, TCL, ZTE, Huawei (mobile hotspots), Cradlepoint, Sierra Wireless (IoT solutions), and Amdocs (customer experience software)[46][47] Research and Development R&D focuses on developing innovative 4G LTE and 5G mobile, IoT, and telematics solutions, emphasizing quality and time-to-market - R&D efforts focus on developing innovative mobile devices, including IoT and advanced gateway solutions in 4G LTE and 5G markets, and telematics solutions, while improving existing products[47] - The company aims to introduce new SaaS, IoT, and mobile solutions, with an emphasis on next-generation wireless product platforms targeting high-growth verticals and technologies like 5G NR[48] - Product development follows a structured life-cycle process, emphasizing quality, reliability, performance, time-to-market, industry standards, cost reduction, and manufacturability[49] Intellectual Property Inseego's solutions are protected by a portfolio of 79 owned patents and various trademarks - Inseego's solutions are supported by a portfolio of intellectual property, including 79 owned patents (expiring between 2020 and 2035) and 3 pending patent applications[50] - The company and its subsidiaries hold various trademarks or registered trademarks, such as "Inseego", "Ctrack", "Skyus", and "MiFi"[51] Key Partners and Customers Inseego maintains strategic relationships with leading OEMs, wireless service providers, and serves diverse industries, with significant customer concentration - Inseego maintains strategic technology, development, and marketing relationships with leading OEMs, wireless telecom service providers (e.g., Verizon Wireless, AT&T, Sprint, Rogers, Telstra), network infrastructure providers (Ericsson, Nokia), value-added resellers, and distributors[52] - Customers span various industries, including transportation, industrial, government, manufacturing, and medical monitoring[53] - Verizon Wireless accounted for approximately 53% of total revenues in 2019, highlighting a significant customer concentration that the company intends to diversify[55][106] Manufacturing and Operations Hardware manufacturing is outsourced to contract manufacturers outside mainland China, focusing on core competencies and supply chain management - Hardware manufacturing is outsourced to contract manufacturers like Hon Hai Precision Industry Co., Ltd. (Foxconn) and Inventec Appliance Corporation (IAC), located outside mainland China[56][179] - Outsourcing aims to focus on core competencies, minimize capital expenditures, achieve economies of scale, ensure production scalability, and access best-in-class component procurement[57] - The operations team manages relationships with contract manufacturers and suppliers, focusing on supply chain, logistics, product quality, inventory, cost optimization, customer fulfillment, and new product introduction[58] Employees As of December 31, 2019, Inseego had 938 employees, with good employee relations - As of December 31, 2019, Inseego had 938 employees, with a small number in South Africa represented by collective bargaining units. The company considers its employee relations to be good[59] Website Access to SEC Filings The company provides free online access to its SEC filings on its website - The company provides free access to its SEC filings (10-K, 10-Q, 8-K) on its website, www.inseego.com, as soon as practicable after electronic filing[60] Item 1A. Risk Factors This section outlines various risks, including operational fluctuations, profitability challenges, market competition, customer concentration, international operations, regulatory compliance, and stock ownership - The company's quarterly operating results have fluctuated and may continue to do so due to factors like customer attraction/retention, forecasting accuracy, competition, and global economic conditions, including the COVID-19 outbreak[62][63][64][67] - Inseego has reported net losses for the last four fiscal years and may not achieve or sustain profitability, requiring significant expenditures for business development[65] - Dependence on Verizon Wireless for a substantial portion of revenues (53% in 2019) poses a significant risk, as any adverse change in this relationship could negatively impact the business[106] - The company faces risks related to its substantial debt service requirements, potential increases in interest rates (LIBOR), and compliance with restrictive covenants in its credit agreements[81][82][83][84][85][86] - International operations, particularly in South Africa, expose the company to political and economic instability, foreign currency exchange rate fluctuations (South African Rand), and compliance with diverse international laws and regulations (e.g., anti-corruption, data privacy, labor laws)[142][149][151][152][154][160][161][163][165] General Risk Factors Relating to Our Business Business risks include fluctuating operating results, inability to achieve profitability, challenges in integrating acquisitions, and delays in 5G market materialization - Quarterly operating results are subject to fluctuations due to factors like customer acquisition/retention, demand forecasting, competition, new product introductions, and global economic conditions (including COVID-19)[62][63][64][67] - The company has an accumulated deficit and may not achieve or sustain profitability, requiring significant future expenditures[65] - Failure to successfully integrate acquired companies (Feeney Wireless, Ctrack) could adversely affect business and operations due to system integration challenges and changes in business nature[66][68] - The 5G market may take longer to materialize or, if rapid, the company may struggle to meet development schedules and customer demands, impacting financial condition[67] Risks Related to Corporate Development Activities Improper business development, acquisitions, and divestitures can strain operations, incur debt, dilute stockholders, and introduce undisclosed liabilities - Improper management of business development can strain management and operations, leading to disruptions and challenges in meeting customer demand[92] - Acquisitions and divestitures, part of the growth strategy, carry risks such as using substantial cash, incurring debt, diluting existing stockholders, assuming contingent liabilities, and facing integration difficulties[93][94][95] - Acquired businesses may have undisclosed liabilities or adverse operating issues, and the reorganized business may not perform as expected, impacting stock price and operating results[94][95] Risks Related to Competition The company faces intense competition in rapidly evolving markets, with competitors often having greater resources and more aggressive strategies - The market for Inseego's products and services is rapidly evolving and highly competitive, with many competitors possessing greater financial, technical, operational, and marketing resources[96] - Competitors may respond faster to new technologies, changes in customer requirements, or market shifts, and may offer more aggressive pricing or bundled products[96][97] - Specific competitive challenges exist in the mobile hotspot business (low margins, high costs, competition from larger players like Huawei, ZTE, Samsung) and the 5G fixed wireless access gateway business (competition from Samsung, Ericsson, Nokia)[80][100] - The asset management and fleet management solutions markets are highly fragmented with low barriers to entry, facing competition from mobile service providers, GPS device makers, wireless carriers, and vehicle OEMs[101] Risks Related to Our Customers and Demand for Our Solutions Risks include inability to adapt to technological changes, failure to maintain strategic relationships, high dependence on Verizon Wireless, and challenges in customer retention - Inability to adapt to rapid technological change in markets (aviation, automotive, telematics, wireless telemetry, GPS navigation) could impair competitiveness and adversely affect results[103][104] - Failure to develop and maintain strategic relationships is a risk, as market penetration depends on these partnerships[105] - Verizon Wireless accounted for 53% of consolidated net revenues in 2019, making the company highly dependent on this customer. Any adverse change in this relationship or product sell-through could significantly impact revenue and cash position[106] - Inability to retain existing customers or increase sales of new features and solutions could negatively impact financial results, as customers are not obligated to renew multi-year agreements[107][108][109] - Adverse economic conditions or reduced spending on IT solutions could impact revenue and profitability, and the marketability of products depends on wireless telecommunications operators delivering acceptable services[112][113] Risks Related to Developing, Manufacturing and Delivering Our Solutions Risks include reliance on third-party manufacturers and sole-source suppliers, supply chain disruptions, product defects, software errors, network reliance, and cybersecurity threats - Reliance on third-party manufacturers (e.g., Foxconn, AsiaTelco, Telit) for products exposes the company to risks like delays, disruptions, capacity constraints, quality control issues, and price increases[116][117][118] - Dependence on sole source suppliers for critical components (e.g., Telit for modules, Qualcomm for chipsets) means shortages or interruptions could harm service availability and sales[120][121] - Natural disasters, public health crises (like COVID-19), political crises, or cyberattacks could damage facilities, disrupt business operations, impact consumer spending, and affect the supply chain[122][123][124][125] - Product liability, replacement, or recall costs could adversely affect business and financial performance if products are defective, potentially leading to significant adverse publicity or litigation[126] - Reliance on third-party software and intellectual property means increased licensing costs or defects could harm the business, and incompatibility with third-party technologies could lead to loss of functionality and customers[127][128][129] - Software may contain undetected errors or defects, and failure to correct them could damage reputation or operating results. "Over-the-air" firmware updates also pose a risk of third-party interference or malware[130][131] - Solutions rely on cellular and GPS networks; any disruption, failure, or cost increase could impede profitability. Mobile carriers discontinuing older radio frequency technologies (e.g., 3G) could limit future prospects if solutions aren't designed for new technologies like 4G, 4G LTE, and 5G[132][133] - Significant service disruptions on websites or computer systems could damage reputation and lead to customer loss. Failure to maintain security of information and technology networks, including customer and employee data, could result in security breaches, litigation, regulatory actions, and reputational harm[134][135][138][140][141] Risks Related to International Operations Global operations expose the company to political, economic, and currency risks, along with challenges in managing international sales and compliance - Global operations, with a significant subsidiary (Ctrack) in South Africa and employees outside the U.S., expose the company to political and economic risks[142] - Risks include difficulties managing international sales and logistics, limitations on local enterprise ownership, unfamiliarity with foreign laws (employment, product liability, privacy), increased compliance costs (FCPA, OFAC), and adverse tax consequences[142][145] - Fluctuations in foreign currency exchange rates, especially the South African Rand against the U.S. Dollar, could adversely affect operating results, as a significant portion of revenues and costs are denominated in foreign currencies[149] - Unionization efforts in countries like South Africa could increase costs or limit operational flexibility[151] Risks Related to Regulations, Taxation and Accounting Matters International operations increase exposure to anti-corruption laws, trade protection, foreign tax regulations, data privacy laws, and accounting estimate risks - International operations increase exposure to potential liability under anti-corruption laws (FCPA), trade protection measures, and foreign tax regulations, which can be unclear and subject to sudden change[152][153][154] - Governmental challenges to transfer pricing policies could impose significant costs, and failure to achieve Black Economic Empowerment (BBBEE) objectives in South Africa could result in loss of government contracts and revenue[156][157][158][159] - Evolving data privacy regulations (e.g., CCPA, GDPR, POPI Act in South Africa) may increase compliance expenditures or limit solution offerings, potentially leading to litigation, regulatory investigations, or civil/criminal penalties[165][167][169][170][171][172] - Failure to maintain effective internal controls over financial reporting could delay timely and accurate financial reporting, adversely affecting investor confidence and stock price[173][174] - Inaccurate accounting estimates and assumptions, or changes to accounting pronouncements and taxation rules, may adversely affect reported financial results[175][177] - Enhanced U.S. fiscal, tax, and trade restrictions (e.g., tariffs on Chinese imports) could increase operating costs and reduce margins. Removal of such restrictions could also reduce business from U.S. carriers that diverted business to Inseego[178][179][180][181] Risks Related to Owning Our Securities Risks include stock price volatility, uncertain future capital needs, potential dilution from equity issuances, and concentrated common stock ownership - The company's share price has been and could remain highly volatile due to various factors, including analyst comments, operating results, personnel changes, acquisitions, technological innovations, and market fluctuations[182] - Future capital needs are uncertain, and the company may need to raise additional funds through equity or debt, potentially leading to stockholder dilution or restrictive covenants[184][185] - Future issuances of common stock from warrants (2,838,454 shares outstanding as of Dec 31, 2019) or conversions of Convertible Notes (40,649,225 shares reserved) may cause dilution to existing stockholders and adversely affect stock price[187][188][190][562] - Ownership of common stock is concentrated, with North Sound Trading, L.P. and Golden Harbor Ltd. (Investors) and their affiliates owning approximately 32.1% of outstanding shares (39.7% assuming full conversion/exercise), giving them significant influence over company matters and potentially delaying takeovers[192][193][194][195] - Outstanding Series E Preferred Stock or future equity offerings could adversely affect common stockholders due to senior dividend and liquidation preferences[196][197] Item 1B. Unresolved Staff Comments This section confirms the absence of unresolved staff comments from the SEC - There are no unresolved staff comments[198] Item 2. Properties Inseego's principal offices are in Alpharetta, Georgia, and San Diego, California, with adequate global facilities - Principal executive office is in Alpharetta, Georgia; corporate offices in San Diego, California (leasing 25,000 sq ft until July 2027 and 12,000 sq ft until June 2020)[199] - Other properties include leased space in Eugene, Oregon (14,000 sq ft until Jan 2023) and owned property in Centurion, South Africa (28,000 sq ft), plus various international sales and engineering offices[199] - Existing facilities are considered adequate for current needs, with options for renewal or alternative space on commercially reasonable terms[199] Item 3. Legal Proceedings The company is involved in ordinary course legal actions, not expected to materially impact its financial condition - Inseego is engaged in legal actions that arise in the ordinary course of business[200] - The company believes the ultimate outcome of these legal actions will not have a material adverse effect on its business, results of operations, financial condition, or cash flows[200] - Further discussion of legal proceedings is incorporated by reference from Note 10, Commitments and Contingencies, in the consolidated financial statements[201] Item 4. Mine Safety Disclosures This section confirms the absence of mine safety disclosures for the company - There are no mine safety disclosures[202] PART II This part details the market for common equity, financial data, management's discussion and analysis, and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Inseego's common stock trades on Nasdaq, with approximately 31 record holders, no cash dividends, and recent warrant exercises - Inseego's common stock is quoted and traded on The Nasdaq Global Select Market under the symbol "INSG"[205] - As of March 9, 2020, there were approximately 31 holders of record of common stock[206] - The company has never declared or paid cash dividends and intends to retain all available funds for business operations and development, with future dividend policy at the discretion of the Board of Directors and subject to restrictions from the Credit Agreement and Inseego Indenture[207] Unregistered Sales of Common Stock upon Warrant Exercise (December 2019) | Date | Shares of Common Stock Issued upon Exercise of Outstanding Warrants | Consideration Received | | :--------------- | :---------------------------------------------------------------- | :--------------------- | | December 9, 2019 | 190,100 | $1,045,550 | | December 10, 2019| 102,000 | $561,000 | | December 11, 2019| 351,483 | $1,880,434 | | December 12, 2019| 478,300 | $2,558,905 | | December 13, 2019| 25,000 | $133,750 | | December 18, 2019| 11,700 | $62,595 | | December 19, 2019| 8,200 | $43,870 | | December 20, 2019| 7,500 | $40,125 | | December 23, 2019| 80,846 | $432,526 | Item 6. Selected Financial Data This section indicates that selected financial data is not applicable to this report - Selected Financial Data is not applicable[209] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Inseego's financial condition and operations, detailing revenue drivers, cost structures, and liquidity challenges amidst a net loss in 2019 - Inseego Corp. is a leader in the design and development of fixed and mobile wireless solutions (advanced 4G and 5G NR), IIoT, and cloud solutions, powering mission-critical applications[213] - Future net revenues will be influenced by economic conditions, competition, acceptance of products in new markets, 5G infrastructure deployment and adoption, and product pricing[216][218] Key Financial Performance (2019 vs 2018) | Metric | 2019 (Millions USD) | 2018 (Millions USD) | Change ($M) | Change (%) | | :-------------------------------------- | :------------------ | :------------------ | :---------- | :--------- | | Total Net Revenues | $219.5 | $202.5 | $17.0 | 8.4% | | Cost of Net Revenues | $155.5 | $131.9 | $23.6 | 17.9% | | Gross Profit | $64.0 | $70.6 | $(6.6) | (9.3%) | | Gross Margin | 29.2% | 34.9% | (5.7 pp) | | | Operating Income (Loss) | $(19.5) | $14.0 | $(33.5) | (239.3%) | | Net Loss attributable to Inseego Corp. | $(40.1) | $(8.1) | $(32.0) | (395.1%) | | Basic and Diluted Net Loss Per Share | $(0.52) | $(0.12) | $(0.40) | (333.3%) | - As of December 31, 2019, cash and cash equivalents were $12.1 million, down from $31.0 million in 2018. Working capital was $19.6 million[247][280] - The company's liquidity could be compromised by business interruptions, failure to meet contractual commitments, or inability to generate revenue from new or existing products, potentially requiring additional capital or reduced R&D[282] Business Overview and Background Inseego Corp., formed in 2016, is a global leader in 4G/5G wireless, IIoT, and cloud solutions for mission-critical applications, operating as a single segment - Inseego Corp. was formed in 2016 as the successor to Novatel Wireless, Inc., a Delaware corporation formed in 1996[212] - The company is a leader in designing and developing fixed and mobile wireless solutions (advanced 4G and 5G NR), Industrial IoT (IIoT), and cloud solutions globally[213] - Inseego's products and solutions power mission-critical applications with a "zero unscheduled downtime" mandate, including 5G FWA gateway solutions, 4G/5G mobile broadband, IIoT applications, asset tracking, and fleet management services[213] - The Chief Executive Officer, as Chief Operating Decision Maker, evaluates the business as a single entity, resulting in one reportable segment[215] Factors Which May Influence Future Results of Operations Future results are influenced by economic conditions, competition, market acceptance, 5G adoption, product pricing, and strategic R&D investments - Future net revenues are influenced by economic environment, competition (especially in 5G), acceptance of products in new vertical markets, growth in aviation ground vertical, rate of change to new products, phase-out of older wireless technologies (3G), deployment of 5G infrastructure, adoption of 5G endpoint products, and product pricing[216][218] - The company plans to introduce additional products, including SaaS telematics solutions, industrial IoT hardware/services, and mobile/fixed wireless devices targeting the 5G market, while maintaining strategic relationships with service providers like Verizon Wireless, T-Mobile, Sprint, and Qualcomm[219] - Cost of net revenues includes manufacturing, distribution, SaaS delivery, warranty, amortization of intangibles, royalties, and inventory adjustments (influenced by demand)[220] - Operating costs include R&D (engineers, testing, certification), sales and marketing (sales force, co-marketing, demand generation), and general and administrative (corporate functions, public company compliance)[221][222][223] - Restructuring charges primarily consist of severance and facility exit costs. Future acquisitions may involve issuing stock and incurring substantial expenditures[224][225] Results of Operations In 2019, total net revenues increased, but gross profit and margin declined, leading to a significant increase in net loss due to higher operating expenses Consolidated Statements of Operations (as a percentage of net revenues) | Metric | 2019 (%) | 2018 (%) | | :---------------------------------------- | :------- | :------- | | IoT & Mobile Solutions Net Revenues | 70.2 | 66.9 | | Enterprise SaaS Solutions Net Revenues | 29.8 | 33.1 | | Total Net Revenues | 100.0 | 100.0 | | IoT & Mobile Solutions Cost of Revenues | 59.2 | 52.0 | | Enterprise SaaS Solutions Cost of Revenues| 11.6 | 12.9 | | Total Cost of Net Revenues | 70.8 | 65.1 | | Gross Profit | 29.2 | 34.9 | | Research and Development | 10.9 | 10.2 | | Sales and Marketing | 13.2 | 11.4 | | General and Administrative | 12.4 | 12.5 | | Amortization of Purchased Intangible Assets| 1.6 | 1.8 | | Extinguishment of Acquisition-Related Liabilities| — | (8.5) | | Restructuring Charges, net of recoveries | — | 0.6 | | Total Operating Costs and Expenses | 38.1 | 27.9 | | Operating Income (Loss) | (8.9) | 6.9 | | Interest Expense, Net | (9.3) | (10.1) | | Other Income (Expense), Net | 0.2 | (0.4) | | Loss Before Income Taxes | (18.0) | (3.6) | | Income Tax Provision | 0.2 | 0.4 | | Net Loss | (18.2) | (4.0) | | Net Loss Attributable to Common Shareholders| (18.4) | (4.0) | Net Revenues by Product Category (2019 vs 2018) | Product Category | 2019 (Thousands USD) | 2018 (Thousands USD) | Change ($K) | Change (%) | | :-------------------- | :------------------- | :------------------- | :---------- | :--------- | | IoT & Mobile Solutions| $154,167 | $135,349 | $18,818 | 13.9% | | Enterprise SaaS Solutions| $65,329 | $67,114 | $(1,785) | (2.7%) | | Total | $219,496 | $202,463 | $17,033 | 8.4% | - IoT & Mobile Solutions revenue increased by 13.9% due to higher sales of LTE gigabit hotspots and the introduction of 5G hotspots, partially offset by reduced IoT sales[230] - Enterprise SaaS Solutions revenue decreased slightly by 2.7% due to strengthening U.S. Dollar foreign exchange rates on international sales, partially offset by increased subscription revenues[231] Cost of Net Revenues by Product Category (2019 vs 2018) | Product Category | 2019 (Thousands USD) | 2018 (Thousands USD) | Change ($K) | Change (%) | | :-------------------- | :------------------- | :------------------- | :---------- | :--------- | | IoT & Mobile Solutions| $129,957 | $105,344 | $24,613 | 23.4% | | Enterprise SaaS Solutions| $25,568 | $26,167 | $(599) | (2.3%) | | Impairment of abandoned product line, net of recoveries| $— | $355 | $(355) | (100.0%) | | Total | $155,525 | $131,866 | $23,659 | 17.9% | - Gross profit decreased by $6.6 million (9.3%) to $64.0 million in 2019, with gross margin declining from 34.9% to 29.2%, primarily due to a decline in MiFi gross margins and higher cost per unit for 5G hotspots[235][232] - R&D expenses increased by $3.3 million (16.0%) to $23.9 million, mainly due to increased spending on 5G product programs and additional headcount, partially offset by capitalization of certain R&D costs[236] - Sales and marketing expenses increased by $5.9 million (25.6%) to $28.9 million, driven by higher employment costs and share-based compensation[237] - General and administrative expenses increased by $2.0 million (7.9%) to $27.3 million, primarily due to increased headcount, non-recurring legal fees, and share-based compensation[238][240] - The company recorded a $17.2 million gain from extinguishment of acquisition-related liabilities in 2018, with no such gain in 2019[241] - Net loss attributable to common stockholders increased significantly from $8.1 million in 2018 to $40.5 million in 2019, partly due to Series E preferred stock dividends ($0.4 million in 2019)[246][370] Liquidity and Capital Resources Cash and equivalents decreased in 2019, with liquidity supported by recent private placements and warrant exercises, but debt obligations remain significant Cash and Cash Equivalents (2019 vs 2018) | Metric | December 31, 2019 (Millions USD) | December 31, 2018 (Millions USD) | | :---------------------- | :------------------------------- | :------------------------------- | | Cash and Cash Equivalents | $12.1 | $31.0 | - Working capital as of December 31, 2019, was $19.6 million[280] - In August 2019, the company completed a private placement of 10,000 shares of Series E Preferred Stock for $10.0 million. An additional 25,000 shares were sold for $25.0 million in March 2020[249][252] - In December 2019, the company received $6.9 million in net cash proceeds from the exercise of 1,255,129 common stock purchase warrants[250] - The Term Loan (principal $48.0 million, maturity Aug 23, 2020) bears interest at LIBOR + 7.625% (9.535% at Dec 31, 2019). Related parties hold 100% of the principal amount. An amendment in March 2020 permits Series E Preferred Stock for interest payments, and the maturity date may be extended to March 15, 2021[253][254][255][256][258] - Convertible Senior Notes (Inseego Notes, $119.8 million aggregate principal, due June 15, 2022) bear 5.50% interest. As of March 6, 2020, holders waived their right to require repurchase on June 15, 2020. In Q1 2020, $59.9 million of Inseego Notes were exchanged for 13,688,876 common shares, resulting in an expected $7.9 million induced conversion expense[260][261][263][265][267][268] Historical Cash Flows (2019 vs 2018) | Cash Flow Activity | 2019 (Thousands USD) | 2018 (Thousands USD) | | :------------------------------ | :------------------- | :------------------- | | Net cash used in operating activities | $(17,999) | $(1,765) | | Net cash used in investing activities | $(28,213) | $(4,234) | | Net cash provided by financing activities | $27,469 | $17,667 | | Effect of exchange rates on cash| $(259) | $(1,851) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(19,002) | $9,817 | | Cash, cash equivalents and restricted cash, end of period | $12,074 | $31,076 | - Net cash used in operating activities increased significantly in 2019 to $18.0 million (from $1.8 million in 2018) due to net loss and working capital usage. Net cash used in investing activities increased to $28.2 million (from $4.2 million) primarily due to purchases of property, plant, and equipment and capitalization of software development costs for 5G products[277][278] Off-Balance Sheet Arrangements The company does not have any off-balance sheet arrangements - The company does not have any off-balance sheet arrangements[283] Critical Accounting Policies and Estimates Financial statement preparation involves critical estimates for revenue recognition, capitalized software, inventory, asset valuation, debt, and share-based compensation - Preparation of financial statements requires management to make estimates and assumptions, which affect reported amounts and disclosures. Key estimates include revenue recognition, capitalized software costs, allowance for doubtful accounts, inventory provisions, valuation of intangible/long-lived assets, goodwill, royalty costs, litigation accruals, income taxes, share-based compensation, and going concern assessment[284][394] - Revenue is recognized upon transfer of control of products or services to customers, based on a five-step model (ASC 606). Hardware revenue is recognized at delivery/shipment, while SaaS subscription revenue is recognized ratably over the contract term[290][295][296][297] - The company capitalizes sales commissions as contract assets if incremental and recoverable, amortizing them over the period of benefit. Incremental costs with an amortization period of one year or less are expensed as incurred[305][306][441][442] - Inventories are valued at the lower of cost (FIFO) or net realizable value, with regular reviews for excess and obsolescence based on estimated future usage and sales[310][398] - Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, or more frequently if triggering events occur, by comparing fair value to carrying amount[318][409] - Convertible debt instruments are accounted for by separating liability and equity components, with the liability component measured at the fair value of similar nonconvertible debt and amortized as non-cash interest expense[319][320][414][415] - Share-based compensation for stock options and stock purchase rights is estimated using the Black-Scholes model, while restricted stock units are measured at the closing price on the grant date. Expense is recognized over the vesting period[322][323][324][456][461][462] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section indicates that market risk disclosures are not applicable to this report - Quantitative and Qualitative Disclosures About Market Risk is not applicable[325] Item 8. Financial Statements and Supplementary Data Consolidated financial statements and auditor reports are included in Part IV of this report - Consolidated financial statements and reports of Independent Registered Public Accounting Firms are included in Part IV of this report[326] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This section confirms no changes or disagreements with accountants on financial disclosure - There have been no changes in and disagreements with accountants on accounting and financial disclosure[327] Item 9A. Controls and Procedures Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - As of December 31, 2019, Inseego's disclosure controls and procedures were evaluated and deemed effective by management, including the principal executive and financial officers[329] - Management concluded that the internal control over financial reporting was effective as of December 31, 2019, based on the COSO (2013 framework)[331] - The independent registered public accounting firm, Marcum LLP, also audited and expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[332][337] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[333] Item 9B. Other Information This section confirms no other information to report - There is no other information to report[334] PART III This part incorporates by reference information on directors, executive compensation, security ownership, and related party transactions Items 10, 11, 12, 13 and 14. Information for these items is incorporated by reference from the 2020 Annual Meeting of Stockholders proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders[345] PART IV This part includes exhibits, financial statement schedules, signatures, and the index to consolidated financial statements Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits, including consolidated financial statements, auditor reports, corporate documents, and debt agreements - The company's consolidated financial statements and the report of Marcum LLP, Independent Registered Public Accounting Firm, are included in Section IV of this report[347] - Schedules have been omitted as they are not applicable, not required, or the information is included in the consolidated financial statements or related notes[347] - A comprehensive list of exhibits is provided, including corporate governance documents (e.g., Certificate of Incorporation, Bylaws, Certificates of Designation for Preferred Stock), debt instruments (Indentures for Convertible Senior Notes, Credit Agreement amendments), equity-related agreements (Rights Agreement, Warrant agreements, Securities Purchase Agreements), and compensation plans[347][348][349][350] Item 16. Form 10-K Summary This section confirms the absence of a Form 10-K Summary - There is no Form 10-K Summary[351] SIGNATURES This section contains the required signatures for the Annual Report on Form 10-K, dated March 13, 2020 - The report is signed by Dan Mondor (Chief Executive Officer and Principal Executive Officer) and Stephen Smith (Chief Financial Officer and Principal Financial and Accounting Officer), along with other directors[355][358] - The signing date for the report is March 13, 2020[354][358] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS This section provides an index to the consolidated financial statements, including auditor reports and detailed notes - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss, Consolidated Statements of Stockholders' Deficit, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[360] Report of Independent Registered Public Accounting Firm Marcum LLP issued unqualified opinions on Inseego's consolidated financial statements and internal control over financial reporting as of December 31, 2019 - Marcum LLP, the independent registered public accounting firm, issued an unqualified opinion on Inseego Corp.'s consolidated financial statements as of December 31, 2019 and 2018, and for the two years ended December 31, 2019[362] - They also expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019, based on the COSO (2013) framework[363] - Marcum LLP has served as the company's auditor since 2018[366] Consolidated Balance Sheets Total assets slightly decreased, while total liabilities remained stable, and stockholders' deficit increased from 2018 to 2019 Consolidated Balance Sheet Highlights (Thousands USD) | Metric | December 31, 2019 | December 31, 2018 | | :---------------------------- | :---------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $12,074 | $31,015 | | Total current assets | $64,137 | $84,352 | | Property, plant and equipment, net | $10,756 | $6,698 | | Intangible assets, net | $44,392 | $31,985 | | Goodwill | $33,659 | $32,942 | | Total assets | $161,373 | $162,256 | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Total current liabilities | $44,530 | $53,681 | | Convertible senior notes, net | $101,334 | $93,054 | | Term loan, net | $46,538 | $45,046 | | Total liabilities | $198,731 | $198,781 | | Total stockholders' deficit | $(37,358) | $(36,525) | - Total assets slightly decreased from $162.3 million in 2018 to $161.4 million in 2019, while total liabilities remained relatively stable at $198.8 million[368] - Stockholders' deficit increased from $(36.5) million in 2018 to $(37.4) million in 2019[368] Consolidated Statements of Operations Total net revenues increased in 2019, but gross profit declined, leading to a significant increase in net loss attributable to common stockholders Consolidated Statements of Operations (Thousands USD, except per share data) | Metric | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :-------------------------------------- | :---------------------- | :---------------------- | | Total net revenues | $219,496 | $202,463 | | Total cost of net revenues | $155,525 | $131,866 | | Gross profit | $63,971 | $70,597 | | Total operating costs and expenses | $83,515 | $56,586 | | Operating income (loss) | $(19,544) | $14,011 | | Interest expense, net | $(20,381) | $(20,444) | | Loss before income taxes | $(39,574) | $(7,328) | | Income tax provision | $536 | $815 | | Net loss | $(40,110) | $(8,143) | | Net loss attributable to common stockholders | $(40,486) | $(8,058) | | Basic and diluted net loss per share | $(0.52) | $(0.12) | - Total net revenues increased by 8.4% from $202.5 million in 2018 to $219.5 million in 2019[370] - Gross profit decreased by 9.3% from $70.6 million in 2018 to $64.0 million in 2019[370] - The company reported a net loss attributable to common stockholders of $(40.5) million in 2019, significantly higher than $(8.1) million in 2018[370] Consolidated Statements of Comprehensive Loss Total comprehensive loss increased in 2019, with a foreign currency translation adjustment gain reversing the prior year's loss Consolidated Statements of Comprehensive Loss (Thousands USD) | Metric | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :------------------------------ | :---------------------- | :---------------------- | | Net loss | $(40,110) | $(8,143) | | Foreign currency translation adjustment | $998 | $(9,481) | | Total comprehensive loss | $(39,112) | $(17,624) | - Total comprehensive loss for 2019 was $(39.1) million, compared to $(17.6) million in 2018[372] - Foreign currency translation adjustment resulted in a gain of $998 thousand in 2019, a reversal from a loss of $(9,481) thousand in 2018[372] Consolidated Statements of Stockholders' Deficit Additional paid-in capital increased, while accumulated deficit grew, resulting in a slightly higher total stockholders' deficit in 2019 Consolidated Statements of Stockholders' Deficit Highlights (Thousands USD) | Metric | Balance, Dec 31, 2017 | Balance, Dec 31, 2018 | Balance, Dec 31, 2019 | | :-------------------------------------- | :-------------------- | :-------------------- | :-------------------- | | Common Stock (Shares) | 58,645 | 73,980 | 81,974 | | Common Stock (Amount) | $59 | $74 | $82 | | Additional Paid-in Capital | $519,531 | $546,230 | $584,862 | | Accumulated Deficit | $(569,759) | $(577,817) | $(618,303) | | Total Stockholders' Deficit attributable to Inseego Corp. | $(45,615) | $(36,525) | $(37,358) | - Additional paid-in capital increased from $546.2 million in 2018 to $584.9 million in 2019, driven by issuance of Series E preferred shares, common shares, and exercise of warrants[376] - Accumulated deficit increased from $(577.8) million in 2018 to $(618.3) million in 2019, reflecting the net losses[376] - Total stockholders' deficit attributable to Inseego Corp. was $(37.4) million at December 31, 2019[376] Consolidated Statements of Cash Flows Net cash used in operating and investing activities significantly increased in 2019, while financing activities provided more cash Consolidated Statements of Cash Flows (Thousands USD) | Cash Flow Activity | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :------------------------------ | :---------------------- | :---------------------- | | Net cash used in operating activities | $(17,999) | $(1,765) | | Net cash used in investing activities | $(28,213) | $(4,234) | | Net cash provided by financing activities | $27,469 | $17,667 | | Effect of exchange rates on cash| $(259) | $(1,851) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(19,002) | $9,817 | | Cash, cash equivalents and restricted cash, end of period | $12,074 | $31,076 | - Net cash used in operating activities increased significantly to $(18.0) million in 2019 from $(1.8) million in 2018, primarily due to net loss and working capital changes[379][277] - Net cash used in investing activities increased to $(28.2) million in 2019 from $(4.2) million in 2018, mainly due to increased purchases of property, plant, and equipment and capitalized software development costs for 5G products[379][278] - Net cash provided by financing activities increased to $27.5 million in 2019 from $17.7 million in 2018, driven by proceeds from Series E preferred stock issuance and warrant exercises[379][279] Notes to Consolidated Financial Statements These notes provide detailed information on the company's business, significant accounting policies, financial statement components, debt, equity, and other commitments 1. Nature of Business and Significant Accounting Policies This note details Inseego's business as a 4G/5G wireless and IoT leader, its financial performance, recent financing, and key accounting policies - Inseego Corp. is a leader in 4G/5G wireless, IoT, and cloud solutions, formed in 2016 as successor to Novatel Wireless, Inc.[382][383] - The company had a net loss of $40.5 million in 2019, with $12.1 million in cash and $19.6 million in working capital as of Decembe