Inseego (INSG) - 2020 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited financial statements and management's discussion for Inseego Corp. for Q1 2020 Item 1. Financial Statements This section presents Inseego Corp.'s unaudited condensed consolidated financial statements for Q1 2020, including balance sheets, operations, comprehensive loss, equity, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets (Unaudited) This table presents the unaudited condensed consolidated balance sheets for Inseego Corp. as of March 31, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $30,541 | $12,074 | | Total current assets | $79,840 | $64,137 | | Total assets | $173,341 | $161,373 | | Total current liabilities | $92,201 | $44,530 | | Convertible senior notes, net | $44,230 | $101,334 | | Total liabilities | $145,538 | $198,731 | | Total stockholders' equity (deficit) | $27,803 | $(37,358) | Condensed Consolidated Statements of Operations (Unaudited) This table presents the unaudited condensed consolidated statements of operations for Inseego Corp. for the three months ended March 31, 2020 and 2019 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net revenues: | | | | IoT & Mobile Solutions | $40,381 | $32,781 | | Enterprise SaaS Solutions | $16,459 | $15,775 | | Total net revenues | $56,840 | $48,556 | | Gross profit | $17,227 | $14,760 | | Operating loss | $(7,740) | $(2,461) | | Net loss attributable to common shareholders | $(18,590) | $(7,485) | | Basic and diluted net loss per common share | $(0.20) | $(0.10) | Condensed Consolidated Statements of Comprehensive Loss (Unaudited) This table presents the unaudited condensed consolidated statements of comprehensive loss for Inseego Corp. for the three months ended March 31, 2020 and 2019 Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net loss | $(18,166) | $(7,471) | | Foreign currency translation adjustment | $(13,480) | $(583) | | Total comprehensive loss | $(31,646) | $(8,054) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) This table presents the unaudited condensed consolidated statements of stockholders' equity (deficit) for Inseego Corp. for the period ended March 31, 2020 Changes in Stockholders' Equity (Deficit) (in thousands) | Metric | Balance, December 31, 2019 | Net income (loss) | Foreign currency translation adjustment | Issuance of Series E preferred shares | Issuance of common shares in connection with Notes Exchange | Balance, March 31, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock Amount | $82 | — | — | — | $14 | $96 | | Additional Paid-in Capital | $584,862 | — | — | $27,330 | $66,073 | $682,047 | | Accumulated Other Comprehensive Income (Loss) | $(3,879) | — | $(13,480) | — | — | $(17,359) | | Accumulated Deficit | $(618,303) | $(18,198) | — | $(392) | — | $(636,893) | | Total Stockholders' Equity (Deficit) | $(37,358) | $(18,166) | $(13,480) | $27,330 | $66,087 | $27,803 | Condensed Consolidated Statements of Cash Flows (Unaudited) This table presents the unaudited condensed consolidated statements of cash flows for Inseego Corp. for the three months ended March 31, 2020 and 2019 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $328 | $(5,033) | | Net cash used in investing activities | $(4,857) | $(4,320) | | Net cash provided by financing activities | $26,314 | $10,623 | | Effect of exchange rates on cash | $(3,318) | $(407) | | Net increase in cash, cash equivalents and restricted cash | $18,467 | $863 | | Cash, cash equivalents and restricted cash, end of period | $30,541 | $31,939 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies and financial details 1. Basis of Presentation This note outlines the fundamental principles and assumptions underlying the preparation of the financial statements Liquidity This section discusses the Company's cash position, working capital, and ability to meet short-term obligations, highlighting going concern risks - As of March 31, 2020, the Company had $30.5 million in cash and cash equivalents but a working capital deficit of $12.4 million, raising substantial doubt about its ability to continue as a going concern without additional financing or debt restructuring[21][26][28] - The Company issued 25,000 shares of Series E Preferred Stock for $25.0 million and exchanged $59.9 million of Inseego Notes for common stock in Q1 2020 to support its growth plan and improve liquidity[21][22] - Substantially all remaining Inseego Note holders waived their right to require repurchase on June 15, 2020, and the Term Loan maturity date may be extended to after March 15, 2021, subject to agreement[23][25] - The global COVID-19 pandemic has negatively impacted the economy and supply chains, creating uncertainty regarding its future impact on the Company's operational and financial performance[20] Principles of Consolidation This section describes the consolidation policy for Inseego Corp. and its subsidiaries, including the elimination of intercompany transactions - The financial statements consolidate the accounts of Inseego Corp. and its wholly- and majority-owned subsidiaries, eliminating all intercompany transactions and balances[30] Segment Information This section clarifies that the Company operates as a single reportable segment, with performance assessed on a consolidated basis - Management has determined that the Company operates as a single reportable segment, with resource allocation and performance assessment based solely on consolidated operations[31] Use of Estimates This section highlights the significant management estimates and assumptions required for financial statement preparation, including revenue recognition and going concern - The preparation of financial statements requires management to make significant estimates and assumptions, including those related to revenue recognition, capitalized software costs, inventory valuation, intangible assets, goodwill, and the Company's ability to continue as a going concern[32] Revenue Recognition This section details the Company's policies for recognizing revenue from its IoT & Mobile Solutions and Enterprise SaaS Solutions segments - The Company generates revenue from two distinct groupings: IoT & Mobile Solutions (4G LTE/5G mobile broadband gateways, routers, modems, hotspots, cloud management software) and Enterprise SaaS Solutions (Ctrack telematics platforms and Device Management System subscriptions)[33][34][35][36][39] - Revenue for hardware sales is recognized at a point in time when control is transferred to the customer (typically at delivery/shipment/installation), while SaaS subscription revenue is recognized over time on a ratable basis over the contract term (majority 1-3 years)[44][47][59] - The Company applies a five-step process for revenue recognition, identifying contracts, performance obligations, transaction price, allocation, and recognition upon satisfaction of obligations[41][45] New Accounting Pronouncements This section discusses the adoption of recent accounting pronouncements and their impact on the Company's financial statements - The Company early adopted ASU 2019-12, Income Taxes, in Q4 2019 with no material impact. ASU 2016-13, Financial Instruments—Credit Losses, adopted January 1, 2020, also had no impact. ASC 842, Leases, adopted January 1, 2019, resulted in recording right-of-use assets and lease liabilities[62][63][64] 2. Financial Statement Details This note provides disaggregated details for specific line items within the financial statements, including inventories and accrued expenses Inventories, net This table details the composition of inventories, net, as of March 31, 2020, and December 31, 2019 Inventories, net (in thousands) | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Finished goods | $9,602 | $21,229 | | Raw materials and components | $4,657 | $4,061 | | Total inventories, net | $14,259 | $25,290 | Accrued Expenses and Other Current Liabilities This table details the components of accrued expenses and other current liabilities as of March 31, 2020, and December 31, 2019 Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Royalties | $1,646 | $1,415 | | Payroll and related expenses | $3,572 | $2,716 | | Accrued interest | $713 | $1,543 | | Deferred revenue | $2,317 | $2,235 | | Operating lease liabilities | $1,121 | $1,101 | | Acquisition-related liabilities | $1,000 | $1,000 | | Other | $6,969 | $7,368 | | Total | $17,618 | $17,861 | Cash, Cash Equivalents and Restricted Cash This table details the components of cash, cash equivalents, and restricted cash as of March 31, 2020, and December 31, 2019 Cash, Cash Equivalents and Restricted Cash (in thousands) | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $30,541 | $12,074 | | Restricted cash | — | — | | Total | $30,541 | $12,074 | 3. Fair Value Measurement of Assets and Liabilities This note describes the Company's fair value measurement hierarchy for assets and liabilities and presents relevant financial instruments - The Company classifies fair value measurements using a three-level hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than quoted prices; Level 3: unobservable inputs)[73][77] - The Company's Convertible Notes are carried at amortized cost, with a carrying value of $44.2 million as of March 31, 2020, and $101.3 million as of December 31, 2019. Fair value is not practicable to determine due to lack of information[76] Financial Instruments Measured at Fair Value (in thousands) | Asset Category | March 31, 2020 (Level 1) | December 31, 2019 (Level 1) | | :--- | :--- | :--- | | Money market funds | $126 | $126 | | Total cash equivalents | $126 | $126 | 4. Debt This note provides detailed information on the Company's debt instruments, including the Term Loan and Convertible Senior Notes Term Loan This section details the Term Loan's principal, interest rate, maturity, and related party holdings, along with recent amendments - The Term Loan has a principal amount of $47.5 million, bears interest at three-month LIBOR plus 7.625% (9.238% at March 31, 2020), and matures on August 23, 2020. Related parties hold 100% of the principal[80][83][86] - In March 2020, the Company issued 2,330 shares of Series E Preferred Stock to satisfy accrued interest on the Term Loan and entered an agreement to extend the maturity date to no earlier than March 15, 2021[84][85] Term Loan Interest Expense (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Contractual interest expense | $1,151 | $1,180 | | Amortization of debt discount | $333 | $333 | | Amortization of debt issuance costs | $40 | $40 | | Total interest expense | $1,524 | $1,553 | Convertible Senior Notes This section details the Company's Convertible Senior Notes, including conversions, exchanges, and outstanding principal amounts - In February 2020, the remaining $250,000 Novatel Wireless Notes were converted into 50,000 shares of common stock, resulting in no outstanding Novatel Wireless Notes as of March 31, 2020[89] - During Q1 2020, $59.9 million of Inseego Notes were exchanged for 13,688,876 shares of common stock, leading to a $7.9 million non-cash inducement expense due to shares issued in excess of original conversion terms[104][105] - The Inseego Notes, with a principal of $44.968 million outstanding as of March 31, 2020, are convertible under specific conditions (e.g., stock price exceeding 130% of conversion price) and holders waived their optional repurchase right on June 15, 2020[106][92][100] Convertible Notes Interest Expense (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Contractual interest expense | $618 | $1,446 | | Amortization of debt discount | $1,252 | $1,956 | | Amortization of debt issuance costs | $72 | $114 | | Total interest expense | $1,942 | $3,516 | 5. Share-based Compensation This note details the Company's share-based compensation expense and unrecognized compensation for stock options and RSUs Share-based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Cost of revenues | $228 | $123 | | Research and development | $292 | $175 | | Sales and marketing | $463 | $214 | | General and administrative | $570 | $545 | | Total | $1,553 | $1,057 | - As of March 31, 2020, total unrecognized compensation expense for stock options was $11.7 million (expected to be recognized over 2.87 years) and for Restricted Stock Units (RSUs) was $0.7 million (over 1.33 years)[110][111] 6. Earnings Per Share This note explains the calculation of basic and diluted earnings per share, including the treatment of potentially dilutive securities - Basic EPS excludes dilution, while diluted EPS reflects potential dilution from securities like Convertible Notes, warrants, stock options, and RSUs. These potentially dilutive securities are excluded in loss periods or when anti-dilutive[112][113][115] - For Q1 2020, 22,028,548 shares related to Convertible Notes, warrants, stock options, and RSUs were excluded from diluted EPS computation as their effect would have been anti-dilutive[116] 7. Private Placements This note details the Company's private placements of common and preferred stock, including warrant exercises and Series E Preferred Stock issuance Common Stock This section describes the issuance of common stock through warrant exercises during the reported period - In Q1 2020, the Company received $1.9 million in net cash proceeds from the exercise of 338,454 common stock purchase warrants issued in 2015[118] - The 2018 Warrants were exercised in March 2019 for $10.6 million, leading to the issuance of 2,500,000 new 2019 Warrants with an exercise price of $7.00 per share, exercisable from September 28, 2019, to June 30, 2022[117] Preferred Stock This section details the issuance of Series E Preferred Stock, including its terms and use for interest obligations - On March 6, 2020, the Company issued an additional 25,000 shares of Series E Preferred Stock for $25.0 million. These shares carry a 9.00% cumulative cash dividend, payable quarterly, and have no voting rights unless required by law[120][119] - On March 31, 2020, 2,330 shares of Series E Preferred Stock were issued to South Ocean to satisfy deferred interest obligations under the Credit Agreement[121] 8. Geographic Information and Concentrations of Risk This note provides a breakdown of net revenues by geographic region and highlights significant customer concentration risks Net Revenues by Geographic Region (in thousands) | Region | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | United States and Canada | $42,350 | $33,494 | | South Africa | $8,238 | $8,369 | | Other | $6,252 | $6,693 | | Total | $56,840 | $48,556 | - One customer accounted for 53.4% of net revenues for Q1 2020 and 42.0% of accounts receivable as of March 31, 2020, indicating significant customer concentration[124] 9. Commitments and Contingencies This note outlines the Company's legal proceedings, settlement liabilities, and indemnification agreements - The Company is involved in various legal proceedings, including patent infringement lawsuits, but believes that liabilities from these matters will not have a material adverse effect on its financial condition[125] - The Company has a remaining liability of approximately $1.0 million in current liabilities under a July 2018 settlement agreement related to the RER acquisition[126] - The Company periodically enters into indemnification agreements with customers for intellectual property claims, with maximum exposure not estimable but not expected to have a material adverse effect[127] 10. Leases This note details the Company's lease arrangements, both as a lessee for office space and equipment, and as a lessor for monitoring devices Lessee This section details the Company's operating lease obligations as a lessee, including right-of-use assets and lease liabilities - As of March 31, 2020, the Company, as a lessee, had right-of-use assets of $6.5 million and lease liabilities of $6.7 million related to operating leases for office space, automobiles, and equipment[131] - Operating lease costs were approximately $0.3 million for Q1 2020, and the weighted-average remaining lease term was 5.7 years with a weighted-average discount rate of 9.1%[131][132] Future Minimum Operating Lease Payments (in thousands) | Year | Amount | | :--- | :--- | | 2020 (remainder) | $1,073 | | 2021 | $1,718 | | 2022 | $1,463 | | 2023 | $1,145 | | 2024 | $1,015 | | Thereafter | $2,425 | | Total minimum operating lease payments | $8,839 | | Less: amounts representing interest | $(2,115) | | Present value of net minimum operating lease payments | $6,724 | Lessor This section describes the Company's role as a lessor for monitoring device operating leases and related revenue recognition - The Company, as a lessor, classifies monitoring device leases as operating leases, carrying rental devices at historical cost less depreciation. Revenue from these combined lease and non-lease components is recognized as a single performance obligation under ASC 606[137][138] 11. Income Taxes This note discusses the Company's income tax provision, the impact of valuation allowances, and the assessment of the CARES Act - The income tax provision for Q1 2020 was $0.1 million, primarily due to foreign income taxes and minimum state taxes, with an income tax expense rather than a benefit due to full valuation allowances at most entities[140] - The Company is assessing the impact of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) on its tax position[139] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Inseego Corp.'s financial condition and operating results for Q1 2020, covering business overview, revenue, influencing factors, accounting policies, and liquidity Forward Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements regarding future expectations, assumptions, estimates, and projections, which involve risks and uncertainties that could cause actual results to differ materially[142] - Key risk factors include competition, ability to develop new products (especially 5G NR), customer concentration, debt refinancing, supply chain reliance, tariffs, geopolitical instability, and the impact of global public health emergencies like COVID-19[142][147] Business Overview This section describes Inseego Corp.'s core business as a leader in 4G/5G wireless, IIoT, and cloud solutions for global markets - Inseego Corp. is a leader in designing and developing fixed and mobile wireless solutions (4G and 5G NR), Industrial IoT (IIoT), and cloud solutions for various markets globally, including service providers, enterprises, and governments[149] - The Company's product portfolio includes device-to-cloud solutions that offer intelligent, reliable, and secure end-to-end IoT services with deep business intelligence, powering mission-critical applications like 5G fixed wireless access and fleet management[149] Our Sources of Revenue This section outlines the Company's revenue streams from intelligent wireless hardware products and SaaS solutions across mobile and IIoT markets - Revenue is generated from intelligent wireless 3G, 4G, and 5G hardware products for mobile communications and IIoT markets, including mobile hotspots (MiFi™ brand), wireless routers for IIoT, USB modems, and integrated telematics devices[151] - The Company also sells SaaS, software, and services solutions across mobile and IIoT vertical markets, such as fleet management, vehicle telematics, and asset tracking, through its Ctrack platforms and Device Management Solutions[154][155] - Key customers include wireless operators like Verizon Wireless, AT&T, and Sprint for MiFi products, and transportation companies, industrial enterprises, and system integrators for IIoT products[152][153] Factors Which May Influence Future Results of Operations This section discusses various internal and external factors that could impact the Company's future financial performance, including economic conditions and 5G adoption - Future net revenues are influenced by economic conditions, competition, product acceptance in new markets, 5G deployment and adoption, pricing, supply chain stability, and changes in technology[156][162] - Cost of net revenues includes manufacturing, distribution, warranty, amortization, royalties, and inventory adjustments, which are impacted by product demand[158] - Operating costs (R&D, sales & marketing, G&A) are driven by staffing, product development (especially 5G), marketing initiatives, and corporate functions, with potential volatility from legal fees and bad debts[159][160][161][163] Critical Accounting Policies and Estimates This section confirms that there have been no material changes to the Company's critical accounting policies and estimates since the prior annual report - There have been no material changes to the Company's critical accounting policies and estimates since the filing of its Annual Report on Form 10-K for the year ended December 31, 2019[166] Results of Operations This section provides a detailed analysis of the Company's operating results for the three months ended March 31, 2020, compared to the prior year Net revenues This section analyzes the changes in net revenues by product category for Q1 2020 compared to Q1 2019 Net Revenues by Product Category (in thousands) | Product Category | March 31, 2020 | March 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | IoT & Mobile Solutions | $40,381 | $32,781 | $7,600 | 23.2% | | Enterprise SaaS Solutions | $16,459 | $15,775 | $684 | 4.3% | | Total | $56,840 | $48,556 | $8,284 | 17.1% | - The 23.2% increase in IoT & Mobile Solutions net revenues was primarily driven by increased sales of LTE gigabit hotspots, USB modems, the introduction of 5G hotspots, and higher IoT sales[168] - Enterprise SaaS Solutions net revenues increased by 4.3% due to higher Device Management System and Ctrack system revenues, partially offset by the strengthening U.S. Dollar's effect on international sales[169] Cost of net revenues This section analyzes the changes in the cost of net revenues by product category for Q1 2020 compared to Q1 2019 Cost of Net Revenues by Product Category (in thousands) | Product Category | March 31, 2020 | March 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | IoT & Mobile Solutions | $32,864 | $27,600 | $5,264 | 19.1% | | Enterprise SaaS Solutions | $6,749 | $6,196 | $553 | 8.9% | | Total | $39,613 | $33,796 | $5,817 | 17.2% | - IoT & Mobile Solutions cost of net revenues increased by 19.1% primarily due to higher sales volume of LTE gigabit hotspots, USB modems, 5G hotspots, and IoT products, along with associated freight and royalties[170] - Enterprise SaaS Solutions cost of net revenues rose by 8.9% due to increased costs to service Device Management System and Ctrack system revenues, partially offset by favorable foreign exchange rates[171] Gross profit This section analyzes the changes in gross profit and gross margin for Q1 2020 compared to Q1 2019 Gross Profit and Margin (in thousands) | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Gross profit | $17,227 | $14,760 | | Gross margin | 30.3% | 30.4% | - Gross profit increased by $2.4 million, primarily attributable to the increase in IoT & Mobile Solutions revenues and improvements in MiFi gross margins, despite a slight decrease in gross margin percentage[172] Research and development expenses This section analyzes the changes in research and development expenses for Q1 2020 compared to Q1 2019 Research and Development Expenses (in thousands) | Metric | March 31, 2020 | March 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | R&D Expenses | $8,224 | $3,485 | $4,739 | 135.9% | | % of Net Revenues | 14.5% | 7.2% | | | - Research and development expenses more than doubled (135.9% increase) due to increased staffing, test units, and other development spending related to 5G product programs[173] Sales and marketing expenses This section analyzes the changes in sales and marketing expenses for Q1 2020 compared to Q1 2019 Sales and Marketing Expenses (in thousands) | Metric | March 31, 2020 | March 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | S&M Expenses | $8,755 | $6,391 | $2,364 | 37.0% | | % of Net Revenues | 15.4% | 13.2% | | | - Sales and marketing expenses increased by 37.0% primarily as a result of an increase in employment costs attributable to an increase in headcount[174] General and administrative expenses This section analyzes the changes in general and administrative expenses for Q1 2020 compared to Q1 2019 General and Administrative Expenses (in thousands) | Metric | March 31, 2020 | March 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | G&A Expenses | $7,162 | $6,474 | $688 | 10.6% | | % of Net Revenues | 12.6% | 13.3% | | | - General and administrative expenses increased by 10.6% primarily due to an increase in employment costs attributable to an increase in headcount and non-recurring legal fees[175] Amortization of purchased intangible assets This section presents the amortization expense for purchased intangible assets for Q1 2020 and Q1 2019 Amortization of Purchased Intangible Assets (in thousands) | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Amortization | $826 | $871 | Inducement expense This section discusses the inducement expense recorded for Q1 2020 related to privately-negotiated debt-to-equity exchanges - An inducement expense of $7.9 million was recorded for Q1 2020, representing the fair value of inducement shares issued in privately-negotiated exchange transactions with certain Inseego Notes holders[176] Interest expense, net This section analyzes the changes in net interest expense for Q1 2020 compared to Q1 2019 Interest Expense, Net (in thousands) | Metric | March 31, 2020 | March 31, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest Expense, net | $3,380 | $5,075 | $(1,695) | -33.4% | - Net interest expense decreased by 33.4% due to the reduction in debt associated with the conversion of debt into equity during Q1 2020[177] Other income, net This section presents other income, net, primarily consisting of foreign currency transaction gains and losses Other Income, Net (in thousands) | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Other income, net | $978 | $313 | - Other income, net, primarily consisted of foreign currency transaction gains and losses[178] Income tax provision This section presents the income tax provision for Q1 2020 and Q1 2019, primarily related to foreign jurisdictions Income Tax Provision (in thousands) | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Income tax provision | $91 | $248 | - The income tax provision primarily related to profitable entities in foreign jurisdictions[178] Net income attributable to noncontrolling interests This section presents the net income attributable to noncontrolling interests for Q1 2020 and Q1 2019 Net Income Attributable to Noncontrolling Interests (in thousands) | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Net income attributable to noncontrolling interests | $32 | $14 | Series E preferred stock dividends This section presents the Series E preferred stock dividends for Q1 2020 and Q1 2019 Series E Preferred Stock Dividends (in thousands) | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Series E preferred stock dividends | $392 | — | Liquidity and Capital Resources This section discusses the Company's liquidity position, capital resources, debt obligations, financing activities, and the impact of COVID-19 Term Loan This section details the Term Loan's principal, maturity, and compliance with covenants, along with efforts to extend its maturity - The Term Loan has a principal amount of $48.0 million, with a maturity date of August 23, 2020. The Company is working to amend or refinance it to extend maturity beyond March 15, 2021[187][191] - In Q1 2020, the Company issued 2,330 shares of Series E Preferred Stock to satisfy accrued interest on the Term Loan, and related parties hold 100% of the principal amount[190][193] - The Company obtained a waiver of the capital expenditure restriction and was in compliance with all financial covenants under the Credit Agreement as of March 31, 2020[189] Convertible Senior Notes This section details the conversion and exchange of Convertible Senior Notes, including the elimination of Novatel Wireless Notes - In February 2020, the remaining $250,000 Novatel Wireless Notes were converted into 50,000 shares of common stock, eliminating all outstanding Novatel Wireless Notes[194] - During Q1 2020, $59.9 million of Inseego Notes were exchanged for 13,688,876 shares of common stock, resulting in a $7.9 million non-cash inducement expense[207][208] - Holders of substantially all outstanding Inseego Notes waived their optional right to require the Company to repurchase the notes on June 15, 2020[202] Settlement Agreement This section outlines the remaining liability under a July 2018 settlement agreement related to the RER acquisition - The Company has a remaining liability of approximately $1.0 million in current liabilities under a July 2018 settlement agreement related to the RER acquisition[210] Rights Agreement This section describes the Company's preferred share purchase rights agreement and its amendment regarding 'Acquiring Person' definition - The Company issued preferred share purchase rights in January 2018, exercisable under certain circumstances, which expire on January 22, 2021[211][212] - An amendment in March 2019 modified the 'Acquiring Person' definition to allow certain investors (North Sound Trading, L.P. and Golden Harbor Ltd.) to remain Grandfathered Stockholders, provided they do not acquire more than 0.50% of outstanding common stock[214][215] Historical Cash Flows This section provides a summary and analysis of the Company's cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Operating Activities | $328 | $(5,033) | | Investing Activities | $(4,857) | $(4,320) | | Financing Activities | $26,314 | $10,623 | | Net Increase in Cash | $18,467 | $863 | | End of Period Cash | $30,541 | $31,939 | - Net cash provided by operating activities improved significantly to $0.3 million in Q1 2020 from a $5.0 million outflow in Q1 2019, primarily due to non-cash charges for inducement shares and improved working capital[216] - Net cash provided by financing activities increased to $26.3 million in Q1 2020, driven by proceeds from Series E Preferred Stock issuance and warrant exercises[218] Other Liquidity Needs This section discusses the Company's future liquidity needs, going concern risks, mitigation plans, and the potential impact of the COVID-19 pandemic - Management believes current cash and anticipated operating cash flows are insufficient to meet working capital needs, including Term Loan repayment, without additional financing, raising substantial doubt about the Company's ability to continue as a going concern[222] - The Company's plan to mitigate going concern doubt involves debt restructuring or issuing additional debt or equity securities, with no assurance of favorable terms or availability[222][223] - The COVID-19 pandemic introduces significant uncertainty, potentially impacting liquidity through supply chain disruptions, extended sales cycles, payment delays, and slower 5G network rollouts[224] Off-Balance Sheet Arrangements This section confirms that the Company does not engage in any off-balance sheet arrangements - The Company does not engage in any off-balance sheet arrangements[226] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material quantitative or qualitative disclosures about market risk are applicable for the reported period - The Company has no applicable quantitative and qualitative disclosures about market risk for the period[227] Item 4. Controls and Procedures This section details the Company's evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2020[229] - There were no changes in the Company's internal control over financial reporting during the three months ended March 31, 2020, that materially affected or are reasonably likely to materially affect internal control over financial reporting[230] PART II—OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings This section incorporates legal proceedings from Note 9 and states that other legal actions are not expected to have a material adverse effect - The disclosure regarding legal proceedings from Note 9, Commitments and Contingencies, is incorporated by reference[232] - The Company believes the ultimate outcome of other legal actions arising in the ordinary course of business will not have a material adverse effect on its business, results of operations, financial condition, or cash flows[233] Item 1A. Risk Factors This section updates risk factors, emphasizing the uncertain and potentially adverse effects of the COVID-19 pandemic on the Company's business and financial performance - The global COVID-19 pandemic is a new material risk factor, negatively impacting the U.S. and global economy, disrupting supply chains, and creating significant financial market disruption[235] - COVID-19 could lead to delays or disruptions in product supply from third-party manufacturers, impact the ability to meet customer demand, and potentially result in adverse effects on sales and financial results if mitigation efforts are unsuccessful[237] - The pandemic's prolonged impact could cause customer payment delays, slow regulatory approvals for new products, and delay 5G network rollouts, further affecting operating results and longer-term demand[238] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered equity sales, including privately-negotiated exchanges of Inseego Notes for common stock and warrant exercises Unregistered Sales of Equity Securities (Q1 2020) | Date of Exchange Agreement | Number of Exchange Shares | Principal Amount of Exchanged Notes | | :--- | :--- | :--- | | February 5, 2020 | 233,730 | $1,000,000 | | February 11, 2020 | 57,250 | $250,000 | | March 5, 2020 | 626,531 | $2,769,000 | - These exchange shares were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act[241] - Common stock was also issued upon the exercise of outstanding warrants, totaling 338,454 shares for $1,861,947 in consideration during Q1 2020, exempt under Section 4(a)(2) of the Securities Act[242] Item 3. Defaults Upon Senior Securities This section confirms no defaults on senior securities occurred during the reported period - The Company reported no defaults upon senior securities[243] Item 4. Mine Safety Disclosures This section confirms that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[244] Item 5. Other Information This section indicates no other information is required to be reported for the period - The Company reported no other information[245] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and certifications - The report includes a comprehensive list of exhibits, such as Amended and Restated Certificate of Incorporation, Bylaws, Certificates of Designation for Preferred Stock, Supplemental Indentures, Securities Purchase Agreements, and various certifications[247] SIGNATURES This section contains the required signatures of the Company's principal executive and financial officers - The report is duly signed on May 7, 2020, by Dan Mondor, Chief Executive Officer, and Stephen Smith, Chief Financial Officer, pursuant to the requirements of the Securities Exchange Act of 1934[250][251]