Inseego (INSG) - 2021 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements In Q1 2021, Inseego Corp. reported slightly increased net revenues, a narrowed net loss, and strengthened cash, with assets held for sale Condensed Consolidated Balance Sheets Total assets increased to $251.4 million by March 31, 2021, driven by assets held for sale, while stockholders' deficit significantly improved Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $54,030 | $40,015 | | Assets held for sale | $41,696 | $— | | Total current assets | $162,416 | $114,108 | | Total assets | $251,389 | $227,394 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $84,712 | $75,712 | | 2025 Notes, net | $158,620 | $165,147 | | Total liabilities | $252,852 | $255,293 | | Total stockholders' deficit | ($1,463) | ($27,899) | - Assets and liabilities held for sale, valued at $41.7 million and $10.1 million respectively, relate to the expected sale of the Ctrack South Africa operations[9] Condensed Consolidated Statements of Operations Q1 2021 net revenues increased slightly, gross profit improved, but operating loss widened due to higher R&D and S&M expenses Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total net revenues | $57,597 | $56,840 | | Gross profit | $18,473 | $17,227 | | Operating loss | ($16,196) | ($7,740) | | Net loss attributable to Inseego Corp. | ($17,173) | ($18,198) | | Net loss per common share (Basic and diluted) | ($0.18) | ($0.20) | Revenue by Segment (in thousands) | Segment | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | IoT & Mobile Solutions | $42,959 | $42,415 | | Enterprise SaaS Solutions | $14,638 | $14,425 | - Operating expenses increased significantly year-over-year, with Research and development up 77% to $14.6 million and Sales and marketing up 26% to $11.0 million[11] Condensed Consolidated Statements of Cash Flows Q1 2021 saw positive operating cash flow, significant cash used in investing, and substantial cash provided by financing activities Summary of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $973 | $328 | | Net cash used in investing activities | ($9,396) | ($4,857) | | Net cash provided by financing activities | $29,547 | $26,314 | | Net increase in cash | $19,535 | $18,467 | - Financing activities in Q1 2021 were primarily driven by $29.4 million in net proceeds from a public offering, contrasting with Q1 2020 financing mainly from a $25.0 million issuance of Series E preferred stock[17] Notes to Condensed Consolidated Financial Statements Notes detail COVID-19 and semiconductor risks, the pending Ctrack South Africa sale, debt structure, increased share-based compensation, and high customer revenue concentration - The company is exposed to risks from the COVID-19 pandemic and a global semiconductor supply shortage, which could impact customers and material supply[20][21] - On February 24, 2021, the company agreed to sell its Ctrack South Africa operations for approximately $35.4 million (528.9 million ZAR), with $41.7 million in assets and $10.1 million in liabilities related to this business classified as held for sale as of March 31, 2021[52][55] - As of March 31, 2021, the company's outstanding debt primarily consisted of $161.9 million in principal amount of 3.25% convertible senior notes due 2025[25] - Share-based compensation expense increased to $9.1 million in Q1 2021, up from $1.6 million in Q1 2020, largely due to $7.0 million in immediately vested RSUs granted as fiscal 2020 annual bonuses[84] - In Q1 2021, two customers accounted for 60.8% of net revenues, and 51.2% of net accounts receivable[96][98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 revenue growth driven by 5G products, improved gross margin, increased operating expenses, and strengthened liquidity Business Overview and Strategy Inseego focuses on 4G/5G wireless, IIoT, and cloud solutions, strategically divesting Ctrack operations to streamline its core business - The company designs and develops fixed and mobile wireless solutions (4G and 5G NR), industrial IoT (IIoT), and cloud solutions for a global customer base[118] - A definitive agreement was signed on February 24, 2021, to sell the Ctrack South Africa operations in an all-cash transaction for 528.9 million ZAR (approx. $35.4 million USD), with the sale expected to close in the second quarter of fiscal 2021[120] Results of Operations Q1 2021 net revenues increased slightly, gross margin improved, while operating expenses rose significantly due to 5G development and bonus timing Net Revenues by Product Category (in thousands) | Product Category | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | IoT & Mobile Solutions | $42,959 | $42,415 | $544 | 1.3% | | Enterprise SaaS Solutions | $14,638 | $14,425 | $213 | 1.5% | | Total | $57,597 | $56,840 | $757 | 1.3% | - Gross margin increased to 32.1% in Q1 2021 from 30.3% in Q1 2020, primarily due to a favorable mix of Inseego Subscribe revenue[142] - Research and development expenses increased to $14.6 million (25.3% of net revenues) from $8.2 million (14.5% of net revenues) YoY, due to 5G product program spending and the timing of bonus grants[143] - Sales, marketing, and general & administrative expenses also increased year-over-year, largely due to the timing of bonus grant payouts to employees[144][145] Liquidity and Capital Resources The company's liquidity was strengthened by an ATM offering, with management confident in sufficient cash for the next twelve months - The company ended Q1 2021 with $59.6 million in cash and cash equivalents, including $5.5 million classified as held-for-sale[152] - In January 2021, the company sold 1.5 million shares of common stock through an ATM offering, raising net proceeds of $29.4 million[157] - Management believes that cash and cash equivalents, along with anticipated cash flows from operations, will be sufficient to meet cash flow needs for the next twelve months[158] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exchange rate fluctuations, expected to decrease after the Ctrack South Africa divestiture - The company's primary market risk is foreign currency exchange risk, with sales in foreign currencies accounting for approximately 25.2% of total revenue in Q1 2021[179] - A hypothetical 10% change in foreign currency exchange rates would have impacted revenue by approximately $1.5 million for the quarter ended March 31, 2021[179] - Foreign exchange risk is expected to decrease after the divestiture of the Ctrack South Africa operations is completed[179] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls in Q1 2021 - Management, including the CEO and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[181] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[182] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but management does not expect a material adverse effect on its financials - The company is party to various legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect on its financial condition or results[184][185] Item 1A. Risk Factors A key risk factor is the global semiconductor supply shortage, potentially impacting costs, component supply, and production timelines - A key risk factor is the global semiconductor supply shortage, which could increase costs and disrupt the supply of components for the company's 5G and 4G products[187] - If the company cannot mitigate the impact of the semiconductor shortage, supply chain disruptions may have a material adverse impact on its financial condition, results of operations, and cash flows[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None[190] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - None[191] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[192] Item 5. Other Information No other information is reported for the period - None[193] Item 6. Exhibits This section lists all exhibits filed, including agreements for the Ctrack divestiture and ATM offering - Key exhibits filed include the Share Purchase Agreement for the Ctrack divestiture, various service and license agreements related to the sale, and the Equity Distribution Agreement with Canaccord Genuity LLC[194]