Inseego (INSG) - 2022 Q4 - Annual Report

Forward-Looking Statements - The report contains forward-looking statements regarding Inseego Corp.'s expectations, assumptions, estimates, and projections, which are subject to various risks and uncertainties that could cause actual results to differ materially[13] - Key risk factors include the ability to compete in wireless broadband and asset management markets, successfully develop new products (especially 5G NR), expand customer reach, manage debt, and navigate global economic conditions and supply chain disruptions[13][16] Trademarks - Inseego Corp. owns several trademarks and registered trademarks, including "Inseego," "MiFi," "Wavemaker," "Clarity," and "Skyus," which are used in its products and services[15] PART I Item 1. Business Inseego Corp. provides cloud-managed 5G WWAN and intelligent edge solutions for mission-critical enterprise applications Overview - Inseego Corp. specializes in cloud-managed 5G wireless wide area network (WWAN) and intelligent edge solutions, including secure, high-performance modems, routers, gateways, and enterprise networking SD EDGE solutions with built-in AI technology[18] - The company's products are designed and developed in the U.S. for mission-critical applications requiring high security and zero unscheduled downtime, such as SD-WAN failover management, asset tracking, and fleet management[18] Industry Trends - The mobile industry has seen significant advancements, with 5G technology enabling multi-gigabit speeds, ultra-reliable low latency, and expanding use cases across various vertical markets like manufacturing, agriculture, and healthcare[21][22][23][24] - 4G LTE is expected to coexist with 5G for many years, supporting a significant share of data traffic and evolving to meet ultra-low-power and low-cost IoT application needs[25][26] - IoT connections are projected to grow to 27 billion by 2025, with cellular-based IoT reaching 4 billion, and 5G subscriptions are forecast to exceed five billion by the end of 2028, outpacing 4G adoption[27] Our Strategy - Inseego aims to be a leader in high-performance 5G fixed, mobile, and IIoT device-to-cloud solutions globally, driven by innovations in IIoT, fixed, mobile, and SaaS technologies[30] - Key strategic elements include capitalizing on relationships with wireless operators and OEMs, expanding the 5G WWAN solutions portfolio, aggressively growing go-to-market offerings, improving SaaS solution penetration, and increasing the value of offerings through predictive analytics and machine learning[31][32] Our Sources of Revenue - Revenue is generated from intelligent, cloud-managed wireless 4G and 5G hardware products for mobile communications and IIoT markets, including fixed wireless routers, mobile hotspots (MiFi), and integrated telematics devices[33] - The company also sells SaaS, software, and services solutions across fleet management, vehicle telematics, asset tracking, and business connectivity, delivered through device-agnostic platforms[36] Net Revenues by Product Category (2020-2022) | Product Category | 2022 ($M) | 2021 ($M) | 2020 ($M) | | :----------------- | :-------- | :-------- | :-------- | | IoT & Mobile Solutions | 218.4 | 218.0 | 261.2 | | Enterprise SaaS Solutions | 26.9 | 44.4 | 52.7 | | Total Net Revenues | 245.3 | 262.4 | 313.8 | Our Business - The IoT and Mobile Solutions business focuses on 4G and 5G WWAN applications for enterprise verticals, with products like Skyus gateways and MiFi mobile hotspots, including the launch of its fourth-generation 5G mobile hotspot in 2022[38][39][40][41] - The Enterprise SaaS Solutions business, operating under the Inseego brand (following the divestiture of Ctrack South Africa in 2021), provides advanced fleet management telematics and asset tracking solutions globally, leveraging GPS and cellular communications[42][43][44] Sales and Marketing - Inseego engages in integrated sales and marketing activities, including product marketing, corporate communications, brand marketing, and demand generation, to drive market leadership and global demand[46] Competition - The market for Inseego's mobile, 5G WWAN, and asset tracking/telematics services is rapidly evolving and highly competitive, with new product introductions and industry participants[47] - Key competitive factors include features, functionality, performance, quality, and brand, requiring continuous investment in R&D, customer base expansion, and distribution network growth[48] - Competitors include fleet management SaaS providers (e.g., Lytx, Samsara), fixed wireless/mobile hotspot providers (e.g., NETGEAR, Nokia), and IoT solution providers (e.g., Cradlepoint, Cisco)[58] Research and Development - R&D efforts focus on developing innovative fixed and mobile devices, including IoT and advanced gateway solutions for 4G LTE and 5G markets, and device management, cloud enterprise networking, edge computing, and telematics solutions[50] - The company aims to introduce new SaaS, 5G WWAN, and mobile solutions that meet market and customer needs, with an emphasis on next-generation wireless product platforms and user-friendly business systems[51] Intellectual Property - Inseego holds a portfolio of 44 patents (expiring between 2023 and 2041) and 18 pending patent applications, along with trademarks like "Inseego" and "MiFi," to protect its intellectual property[53][54] Key Partners and Customers - Inseego maintains strategic technology, development, and marketing relationships with OEMs, wireless telecom service providers (e.g., Verizon, T-Mobile, Vodafone, Telstra), and value-added resellers[55][57] - A significant portion of 2022 revenue (67.3%) came from two customers, Verizon and T-Mobile, highlighting customer concentration, which the company intends to diversify[58] Manufacturing and Operations - Hardware manufacturing is outsourced to contract manufacturers like Foxconn and Inventec Appliance Corporation in Asia, focusing on core competencies, minimizing capital expenditures, and achieving production scalability[59][60] Employees - As of December 31, 2022, Inseego had 411 employees, with 391 being full-time, and employee relations are considered good with no collective bargaining units[61] Cybersecurity - The company implements cybersecurity policies including monitoring, network security, data encryption, and vendor assessments, led by a Director of Information Security and Privacy, with regular updates to the Board of Directors[62][63] - Despite measures, a significant cyberattack remains a risk, potentially leading to business disruption and financial consequences[64] Human Capital Resources - Inseego's culture is driven by values of Accountability, Urgency, Market Driven Innovation, Customer Focus, and Integrity, aiming to create a world-class employee experience through leadership development, career planning, and open communication[65] - The company emphasizes diversity and inclusion to fuel innovation, is committed to talent acquisition and retention, and promotes work-life balance through flexible time-off policies and remote/hybrid work options[66][67][68] - Employee health and wellness are supported through convenient health programs and initiatives, offering choice in benefits to meet diverse needs[69] Governmental Regulations - Inseego's products and manufacturing are subject to environmental laws and other complex U.S. and foreign regulations, including trade, anti-bribery, antitrust, and data privacy laws (e.g., GDPR)[70][71] - Compliance efforts have not materially impacted financial condition to date, but future changes in regulations could increase costs or affect business[71] Website Access to SEC Filings - The company makes its SEC filings, including Annual Reports on Form 10-K, available free of charge on its website (www.inseego.com) as soon as practicable after electronic filing[72] Item 1A. Risk Factors This section outlines significant risks that could materially harm Inseego's business, financial condition, and operating results SUMMARY OF RISK FACTORS - The summary highlights key risk categories: Risks Related to Our Business, Corporate Development Activities, Competition, Customers and Demand, Developing, Manufacturing and Delivering Solutions, International Operations, Regulations, Taxation and Accounting, and Owning Our Securities[74][75][76][77] RISKS RELATED TO OUR BUSINESS - Quarterly operating results have fluctuated and may continue to do so due to factors like customer attraction/retention, forecasting accuracy, new product introductions, competition, and macroeconomic conditions, potentially causing stock price volatility[79][80][81] - Inseego has an accumulated deficit and may not achieve or sustain profitability, requiring significant expenditures for business expansion[81][82] - Challenges in the 5G market include slower-than-expected materialization or difficulties in meeting rapid development schedules and customer demands, impacting financial condition[83] - The strategy to become a leading industrial IoT provider may incur increased costs, product liability, and competitive challenges[84] - Failure to timely introduce new products or successfully enter new markets could harm revenue targets and customer relationships[85][86][87] - Intellectual property infringement claims could lead to costly litigation or expensive licenses, and inability to protect its IP could harm its competitive position[88][89][90][91][92] - The company's success depends on hiring and retaining qualified personnel, and failure to do so could impede business expansion[93][94] - The mobile hotspot business faces challenges due to low gross margins, intense competition, and higher costs compared to larger competitors[95] - Future capital needs are uncertain, and inability to raise additional funds on acceptable terms could delay product development or force asset liquidation[96][97] - Significant debt service requirements, including $161.9 million in 2025 Notes and a $50 million revolving credit facility, pose a risk if cash flow is insufficient for payments or refinancing[98][99][100][101] - Recent management team turnover creates uncertainties, potentially leading to operational inefficiencies and adverse impacts on results and stock price[102] RISKS RELATED TO CORPORATE DEVELOPMENT ACTIVITIES - Rapid business or industry growth could strain management and operations, leading to delays in meeting customer demand or unanticipated product requirements[103] - Acquisitions and divestitures, part of the growth strategy, carry risks such as substantial cash use, debt incurrence, equity dilution, contingent liabilities, and integration difficulties, potentially harming financial condition[104][105][106][107] - Impairment of goodwill and acquired intangible assets could result in significant charges to earnings, impacting operating results[108][109] RISKS RELATED TO COMPETITION - The markets for Inseego's products and services are highly competitive and rapidly evolving, with many competitors possessing greater resources, potentially leading to reduced sales, increased price competition, or product obsolescence[110][111][112][113] - The 5G fixed wireless access gateway business faces intense competition from mature companies like Samsung, Ericsson, and Nokia[114] - The asset management, fleet management, and telemetry markets are fragmented with low barriers to entry, leading to competition from mobile service providers, GPS device makers, and wireless carriers, potentially harming operating results[115] - Industry consolidation could intensify competition, resulting in customer loss or revenue reduction[116] RISKS RELATED TO OUR CUSTOMERS AND DEMAND FOR OUR SOLUTIONS - Inability to adapt to rapid technological changes in its markets, including aviation, automotive, and telematics, could impair Inseego's competitiveness and adversely affect operating results[117] - Failure to develop and maintain strategic relationships is a risk to penetrating new markets and developing new service offerings[118] - High dependence on Verizon Wireless and T-Mobile for a substantial portion of revenues (67% in 2022) makes the business vulnerable to adverse changes in these customer relationships[119] - Inability to retain existing customers or increase sales of additional features and subscriptions could negatively impact financial results and growth[120][121][122][123] - Loss of, or significant reduction in business from, large enterprise or government customers could materially decrease revenue and profitability[124] - Adverse economic conditions or reduced spending on information technology solutions may negatively impact revenue and profitability[125] - Marketability of products depends on wireless telecommunications operators delivering acceptable wireless services; disruptions or failures could harm the business[126] - Changes in insurance company practices or reductions in regulation in certain markets could adversely affect demand for Inseego's products and services[127][128][129] RISKS RELATED TO DEVELOPING, MANUFACTURING AND DELIVERING OUR SOLUTIONS - Reliance on third-party manufacturers (e.g., Foxconn, AsiaTelco) exposes Inseego to risks like delays, disruptions, capacity constraints, quality control issues, and price increases, which could negatively impact revenues and reputation[130][131] - Dependence on sole source suppliers for critical components (e.g., Qualcomm chipsets for MiFi) means shortages or interruptions could harm product availability and sales[132][133] - Natural disasters, public health crises (like COVID-19), political crises, or other catastrophic events could damage facilities, disrupt business operations, and impact consumer spending[134][137][138][139][140][141][142] - Unfavorable macroeconomic conditions, including volatility in global financial markets, rising interest rates, and inflation, could adversely affect demand, supply chains, and financing[135][136] - Disruptions in transportation networks or substantial increases in shipping costs could delay product delivery and increase operating expenses[143][144] - Inability to control costs or maintain adequate supply of components and raw materials, particularly semiconductor chips, could increase product costs and negatively impact financial results[145][146][147] - Ineffective management of sales channel inventory and product mix could lead to excess inventory costs or lost sales[148][149] - Product liability, replacement, or recall costs due to defective products could adversely affect business and financial performance[150] - Reliance on third-party software and intellectual property means increased licensing costs or defects could harm the business[151] - Incompatibility with third-party technologies could lead to loss of functionality and negatively impact customer acquisition and retention[152] - Software may contain undetected errors or defects, potentially leading to customer loss, significant costs, and damage to reputation[153] - Over-the-air firmware updates pose a risk of third-party interference, potentially disabling devices or introducing malware, leading to widespread service loss and customer claims[154][155] - Reliance on cellular and GPS networks means disruptions, failures, or cost increases could impede profitability[156][157] - Significant disruptions in website or computer systems could damage reputation and result in customer loss[158][159] - Failure to meet minimum service level commitments to customers could require issuing credits or paying penalties, harming operating results[160] - Failure to maintain security of information and technology networks, including customer and employee data, could adversely affect the company, leading to reputational harm, litigation, and increased costs[161][162][163] RISKS RELATED TO INTERNATIONAL OPERATIONS - Global operations expose Inseego to political and economic risks, including managing sales across continents, limitations on local enterprises, unfamiliar foreign laws, increased compliance expenses (e.g., FCPA), currency fluctuations, and political instability[164][165][167][168] - Weakness in global economic or political conditions, particularly in jurisdictions with significant foreign operations, could lead to lower demand for products and adverse impacts on results[166] - Fluctuations in foreign currency exchange rates could adversely affect operating results, especially as a significant portion of revenues are denominated in foreign currencies[169][170] - Unionization efforts in certain countries could increase costs or limit operational flexibility[171] RISKS RELATED TO REGULATIONS, TAXATION AND ACCOUNTING MATTERS - International operations increase exposure to potential liability under anti-corruption, trade protection, and tax laws, with non-compliance potentially leading to significant fines, sanctions, and reputational damage[172][173][174] - Software encryption technologies are subject to U.S. and foreign export control regulations, and non-compliance could result in financial penalties or restrictions on future export activities[175][176] - Governmental challenges to transfer pricing policies could impose significant costs[177][178] - Evolving data privacy regulations (e.g., GDPR, CCPA) may increase compliance costs or limit solution offerings, potentially harming business and financial condition[179][180][181][182][183][184] - Enhanced U.S. fiscal, tax, and trade restrictions, particularly with China (e.g., tariffs), could increase operating costs, reduce margins, and impact competitiveness[185][186][187] - The Inflation Reduction Act of 2022, effective January 1, 2023, includes provisions for minimum tax on corporate book income and excise tax on stock repurchases, with uncertain future impacts[188] - Increasing focus on environmental sustainability and social initiatives could raise costs, harm reputation, and adversely impact financial results if not effectively addressed[189][190] RISKS RELATED TO OWNING OUR SECURITIES - The company's share price has been highly volatile and could remain so due to various factors, including analyst comments, operating results, new product introductions, and overall market fluctuations[191][192] - Failure to meet NASDAQ Global Select Market listing requirements (e.g., minimum bid price) could result in delisting, negatively affecting stock price and trading liquidity[193][194][195] - The ability to use net operating loss carryforwards (NOLs) and other tax attributes may be limited by future ownership changes under IRC Sections 382 and 383, potentially increasing future tax obligations[196][197] - The stock price may be vulnerable to manipulation, including short selling activity and the publication of negative information, which could cause price declines and volatility[198][199] - Future settlements of 2025 Notes conversion obligations could result in dilution to existing stockholders, lower market prices, or require significant cash outlays[200][201][202] - Concentrated ownership (e.g., North Sound Trading, L.P. and Golden Harbor Ltd. owning ~31.1% of common stock) allows certain stockholders to significantly influence corporate matters, potentially delaying takeovers or creating conflicts of interest[203][204][205] - Outstanding Series E Preferred Stock or future equity offerings could adversely affect common stockholders due to senior rights in dividends and liquidation[206] - The company does not intend to pay common stock dividends, meaning returns depend solely on stock price appreciation[207] - Restated certificate of incorporation, bylaws, and Delaware law provisions could prevent favorable takeovers and reduce stock market price[208][209] GENERAL RISK FACTORS - Lack of research or negative evaluations by financial analysts could cause stock price and trading volume to decline[210] - Failure to maintain effective internal controls over financial reporting could lead to delayed or inaccurate financial reporting, adversely affecting investor confidence and stock price[211][212][214][215] - Inaccurate accounting estimates and assumptions could adversely affect actual financial results[213] - Changes to existing accounting pronouncements or taxation rules could cause adverse fluctuations in reported results or affect business operations[216] - Exposure to litigation and administrative proceedings (labor, regulatory, tax, etc.) could materially and adversely affect business, results of operations, and financial condition[217] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[218] Item 2. Properties Inseego's principal offices are in San Diego, with additional leased space internationally, deemed adequate for current needs - The principal executive and corporate offices are located in San Diego, California, with approximately 25,000 square feet leased until July 2027, and an additional 13,000 square feet under a lease expiring in July 2027[219] - The company also leases about 14,000 square feet in Eugene, Oregon (lease expired January 2023) and other international spaces for sales, support, and R&D[219] - Existing facilities are considered adequate for current needs, with options to renew leases or obtain alternative space without material financial impact[219] Item 3. Legal Proceedings Inseego is involved in various legal actions, but management believes outcomes will not materially affect financial condition - The company is engaged in legal actions arising in the ordinary course of business[220] - Management 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[220] Item 4. Mine Safety Disclosures The company has no disclosures regarding mine safety - There are no mine safety disclosures[221] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Inseego's common stock trades on Nasdaq under 'INSG,' with no cash dividends anticipated as earnings are retained for business development - Inseego's common stock is quoted and traded on The Nasdaq Global Select Market under the symbol "INSG"[223] - As of February 24, 2023, there were approximately 29 holders of record of the common stock[224] - The company has never declared or paid cash dividends on its common stock and intends to retain future earnings for business development, not anticipating cash dividends in the foreseeable future[225] - There were no unregistered sales of equity securities or issuer purchases of equity securities during the reported period[226][227] Item 6. Reserved This item is reserved and contains no information - This item is reserved[228] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net revenue decreased 6.5% to $245.3 million in 2022, with net loss increasing to $68.0 million, and liquidity significantly reduced Overview - Inseego Corp. is a leader in designing and developing fixed and mobile wireless solutions (4G and 5G NR), IIoT, and cloud solutions for various enterprises, service providers, and governments globally[231] - The company's portfolio includes device-to-cloud solutions for mission-critical applications like 5G FWA gateways, 4G/5G mobile broadband, and IIoT applications, powered by wireless innovations and SaaS cloud platforms[231] - On July 30, 2021, Inseego completed the sale of its Ctrack South Africa business for initial cash proceeds of $36.6 million[233] Business Segment Reporting - Inseego operates as a single business segment, with the CEO (Chief Operating Decision Maker) evaluating the business based on overall consolidated results[234] Factors Which May Influence Future Results of Operations - Future net revenues will be influenced by economic environment, competition, acceptance of products in new markets, 5G infrastructure deployment and adoption, product pricing, and technological changes[235][236] - The company plans to drive revenue in 2023 through products launched in 2021-2022 and strategic additions to its hardware and SaaS offerings for the emerging 5G market, maintaining relationships with service providers like Verizon Wireless and T-Mobile[237] - Cost of net revenues includes manufacturing, distribution, SaaS delivery, warranty, and inventory-related costs, which are impacted by product demand[238] - Operating costs include R&D (personnel, testing), sales and marketing (sales force, campaigns), and general and administrative (corporate functions, public company compliance)[239][240][241] - Macroeconomic factors like inflation and rising interest rates affect operating results by increasing costs (labor, capital) and potentially reducing customer spending on IT solutions[242] - The business strategy may involve acquisitions or divestitures, with potential for substantial expenditures and stock issuance for acquisitions[243] Results of Operations Consolidated Statements of Operations (2020-2022, in thousands) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :------------------------------------------ | :----- | :----- | :----- | | Net revenues: | | | | | IoT & Mobile Solutions | $218,401 | $217,984 | $261,169 | | Enterprise SaaS Solutions | $26,922 | $44,415 | $52,663 | | Total net revenues | $245,323 | $262,399 | $313,832 | | Gross profit | $66,909 | $75,925 | $90,843 | | Gross margin | 27.3% | 28.9% | 28.9% | | Operating loss | $(57,918) | $(46,521) | $(25,134) | | Net loss attributable to common stockholders | $(70,705) | $(52,368) | $(114,119) | | Basic and diluted EPS | $(0.66) | $(0.51) | $(1.19) | - Net Revenues (2022 vs. 2021): Total net revenues decreased by $17.1 million (6.5%) to $245.3 million. Enterprise SaaS Solutions revenue decreased by $17.5 million (39.4%) due to the Ctrack South Africa divestiture, partially offset by a slight increase in IoT & Mobile Solutions ($0.4 million, 0.2%) driven by 5G hotspot sales and Inseego Subscribe growth[246][247] - Cost of Net Revenues (2022 vs. 2021): Total cost of net revenues decreased by $8.1 million (4.3%) to $178.4 million, primarily due to lower Enterprise SaaS Solutions costs from the Ctrack South Africa divestiture and lower LTE gigabit hotspot sales[248][249] - Gross Profit (2022 vs. 2021): Gross profit decreased by $9.0 million to $66.9 million, with gross margin slightly decreasing from 28.9% to 27.3% due to unfavorable product mix and the divestiture of higher-margin Enterprise SaaS Solutions, partially offset by higher Inseego Subscribe revenue[250] - Operating Costs and Expenses (2022 vs. 2021): Total operating costs increased by $2.4 million (1.9%) to $124.8 million. R&D expenses increased by $6.6 million (12.5%) due to capitalized project amortization. Sales and marketing, and general and administrative expenses decreased due to the Ctrack South Africa divestiture[251][252][253][254] - Other Income (Expense) (2022 vs. 2021): Total other expense increased significantly from $(1.2) million to $(10.5) million, primarily due to the absence of a $5.3 million gain on the sale of Ctrack South Africa in 2022 and an increase in net interest expense[256][257][258] - Net Loss (2022 vs. 2021): Net loss attributable to common stockholders increased from $(52.4) million in 2021 to $(70.7) million in 2022[245] - Net Revenues (2021 vs. 2020): Total net revenues decreased by $51.4 million (16.4%) to $262.4 million. IoT & Mobile Solutions decreased by $43.2 million (16.5%) due to lower enterprise/carrier offerings and easing COVID-19 demand for LTE hotspots, partially offset by 5G hotspot sales. Enterprise SaaS Solutions decreased by $8.2 million (15.7%) due to the Ctrack South Africa divestiture[263][264] - Cost of Net Revenues (2021 vs. 2020): Total cost of net revenues decreased by $36.5 million (16.4%) to $186.5 million, primarily from lower IoT & Mobile Solutions sales and the Ctrack South Africa divestiture[265][266] - Gross Profit (2021 vs. 2020): Gross profit decreased by $14.9 million to $75.9 million, with gross margin remaining stable at 28.9%[266] - Operating Costs and Expenses (2021 vs. 2020): Total operating costs increased by $6.5 million (5.6%) to $122.4 million. R&D expenses increased by $7.7 million (17.2%) due to 5G product programs. Sales and marketing expenses increased due to 5G product marketing, partially offset by Ctrack South Africa employee divestiture. G&A expenses decreased due to Ctrack South Africa divestiture, partially offset by bonus grants[267][268][269] - Other Income (Expense) (2021 vs. 2020): Total other expense decreased significantly from $(85.3) million to $(1.2) million, primarily due to a $75.9 million reduction in loss on debt conversion and extinguishment in 2021, and a $5.3 million gain on sale of Ctrack South Africa[271][272][273][274][275] - Net Loss (2021 vs. 2020): Net loss attributable to common stockholders decreased from $(114.1) million in 2020 to $(52.4) million in 2021[245] Liquidity and Capital Resources - As of December 31, 2022, unrestricted cash and cash equivalents totaled $7.1 million, a significant decrease from $46.5 million in 2021. Working capital also decreased from $52.8 million to $21.4 million[279] - The sale of Ctrack South Africa in July 2021 generated $31.5 million in net cash proceeds[280] - In January 2021, the company sold 1.5 million common shares through an ATM Offering, generating $29.4 million in net proceeds. Approximately $9.5 million remains available under this offering[281] - Despite a history of operating and net losses, management believes current cash, anticipated cash flows, and the revolving credit facility will meet cash flow needs for the next 12 months[282] - A secured asset-backed revolving credit facility of up to $50 million was established in August 2022, maturing December 31, 2024. As of December 31, 2022, $7.9 million was outstanding, with $7.8 million availability[283][288] - The credit facility includes a liquidity covenant requiring consolidated liquidity to be no less than $10 million, which was clarified and amended on February 25, 2023, with an effective date of December 15, 2022[286][287] - The 2025 Notes have a principal amount of $161.9 million outstanding as of December 31, 2022, bearing 3.25% annual interest and maturing May 1, 2025[289][290] Historical Cash Flows (2020-2022, in thousands) | Cash Flow Activity | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :--------------------------------------- | :------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(33,289) | $(25,212) | $20,050 | | Net cash (used in) provided by investing activities | $(13,319) | $6,078 | $(34,713) | | Net cash provided by financing activities | $5,427 | $29,921 | $42,081 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(42,669) | $9,797 | $27,941 | | Cash, cash equivalents and restricted cash, end of period | $7,143 | $49,812 | $40,015 | - Operating activities used $33.3 million in cash in 2022 (vs. $25.2 million in 2021), primarily due to net loss and changes in working capital. Investing activities used $13.3 million in 2022, mainly for capitalized software development and property, plant, and equipment purchases. Financing activities provided $5.4 million in 2022, primarily from the Credit Facility[292][293][294][296][297][298][299][300][301] Contractual Obligations and Commitments - As of December 31, 2022, material contractual obligations included $161.9 million in 2025 Notes, $7.9 million in outstanding borrowings under the Credit Facility, operating lease liabilities, and approximately $77.6 million in other non-cancellable purchase obligations[302][303] Critical Accounting Policies and Estimates - The preparation of financial statements requires management to make estimates and assumptions, including those for software development costs for external use, which are capitalized after technological feasibility is established and amortized over their economic life[304][305][306] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Inseego faces market risks from interest rates, inflation, and foreign currency fluctuations, with the Ctrack South Africa divestiture reducing foreign currency exposure Interest Rate Risk - The 2025 Notes (fixed-rate, $161.9 million outstanding) do not impact reported values due to interest rate changes, but an embedded derivative is marked to fair value, leading to potential gains/losses from changes in stock price, volatility, and risk-free rates[307][308] - The revolving credit facility has variable interest rates (Base Rate or SOFR loans), exposing the company to interest rate risk; a 1% increase would result in a $0.1 million change in annualized interest expense if fully drawn[309] Inflation Risk - Increased inflation has raised costs for materials, supplies, and overhead, potentially affecting operating results, though it has not had a material impact on financial position or results of operations to date[310] Currency Risk - Foreign currency transaction risk arises from revenues and expenses denominated in foreign currencies (e.g., British Pound Sterling, Euro, Australian Dollar), with 17.7% of total revenue in foreign currencies in 2022[311][312] - A hypothetical 10% change in foreign functional currency exchange rates would have increased or decreased 2022 revenue by approximately $4.3 million[313] - Foreign currency translation risk impacts reported assets, liabilities, earnings, and cash flows of foreign subsidiaries when translated into U.S. Dollars[314] - The completion of the Ctrack South Africa divestiture in July 2021 is expected to decrease both foreign currency transaction and translation risks[313][314] Item 8. Financial Statements and Supplementary Data This item refers to the consolidated financial statements and independent auditor reports included in Part IV - The consolidated financial statements and reports of Independent Registered Public Accounting Firms are presented in Part IV of this report[315] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[316] Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022, affirmed by Marcum LLP Evaluation of Disclosure Controls and Procedures - As of December 31, 2022, Inseego's principal executive officer and principal financial and accounting officer concluded that the company's disclosure controls and procedures were effective[318] Management's Annual Report on Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate internal control over financial reporting and concluded that it was effective as of December 31, 2022, based on the COSO (2013 framework)[319][320] - Marcum LLP, the independent registered public accounting firm, also audited and affirmed the effectiveness of the company's internal control over financial reporting as of December 31, 2022[321][324] Changes in Internal Control over Financial Reporting - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[322] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING - Marcum LLP issued an unqualified opinion on Inseego Corp.'s internal control over financial reporting as of December 31, 2022, based on the COSO (2013) framework[324] Item 9B. Other Information The company reported no other information - There is no other information to report[330] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable[331] PART III Items 10, 11, 12, 13 and 14. Information for these items is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[334] PART IV Item 15. Exhibit and Financial Statement Schedules This section lists exhibits and financial statement schedules filed or incorporated by reference into the report - This item details the company's consolidated financial statements and the report of Marcum LLP, Independent Registered Public Accounting Firm, included in Section IV[337] - It also lists numerous exhibits, including share purchase agreements, certificates of incorporation, indentures for convertible notes, incentive compensation plans, and certifications required by the Sarbanes-Oxley Act[337][338][339] Item 16. Form 10-K Summary The company does not provide a Form 10-K Summary - There is no Form 10-K Summary[341] SIGNATURES - The report is signed by Ashish Sharma (Chief Executive Officer and Principal Executive Officer) and Robert G. Barbieri (Chief Financial Officer and Principal Financial and Accounting Officer), along with other directors, on March 2, 2023[345][346] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 688) Marcum LLP issued an unqualified opinion on Inseego's consolidated financial statements and internal control over financial reporting - Marcum LLP provided an unqualified opinion on Inseego Corp.'s consolidated financial statements as of December 31, 2022 and 2021, and for the three years ended December 31, 2022[351] - They also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022, based on the COSO (2013) framework[352] - The audit identified no critical audit matters[355] Consolidated Balance Sheets Total assets decreased to $159.0 million in 2022, with total liabilities at $229.1 million and stockholders' deficit widening to $(70.1) million Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Cash and cash equivalents | $7,143 | $46,474 | | Total current assets | $78,356 | $127,619 | | Total assets | $159,017 | $215,843 | | Total current liabilities | $56,963 | $74,830 | | 2025 Notes, net | $158,427 | $157,866 | | Revolving credit facility, net | $6,919 | $0 | | Total liabilities | $229,135 | $240,697 | | Total stockholders' deficit | $(70,118) | $(24,854) | Consolidated Statements of Operations Net loss attributable to common stockholders increased to $70.7 million in 2022, with total net revenues decreasing to $245.3 million Consolidated Statements of Operations (in thousands) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :------------------------------------------ | :------- | :------- | :------- | | Total net revenues | $245,323 | $262,399 | $313,832 | | Gross profit | $66,909 | $75,925 | $90,843 | | Operating loss | $(57,918) | $(46,521) | $(25,134) | | Loss before income taxes | $(68,434) | $(47,720) | $(110,438) | | Net loss attributable to Inseego Corp. | $(67,969) | $(48,125) | $(111,215) | | Net loss attributable to common stockholders | $(70,705) | $(52,368) | $(114,119) | | Basic and diluted net loss per common share | $(0.66) | $(0.51) | $(1.19) | Consolidated Statements of Comprehensive Loss Total comprehensive loss attributable to Inseego Corp. was $65.8 million in 2022, including a positive foreign currency translation adjustment Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :------------------------------------------ | :------- | :------- | :------- | | Net loss | $(67,969) | $(47,911) | $(111,186) | | Foreign currency translation adjustment | $2,202 | $(3,167) | $(3,093) | | Release of cumulative foreign currency translation adjustments as a result of the sale of Ctrack South Africa | $0 | $1,608 | $0 | | Total comprehensive loss | $(65,767) | $(49,470) | $(114,279) | | Comprehensive loss attributable to Inseego Corp. | $(65,767) | $(49,684) | $(114,308) | Consolidated Statements of Stockholders' Deficit Accumulated deficit increased to $(857.8) million in 2022, while additional paid-in capital rose to $793.9 million Consolidated Statements of Stockholders' Deficit Highlights (in thousands) | Metric | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Common Stock (shares) | 108,468 | 105,381 | 99,399 | | Common Stock (amount) | $108 | $105 | $99 | | Additional paid-in capital | $793,855 | $770,619 | $711,487 | | Accumulated deficit | $(857,752) | $(787,047) | $(732,422) | | Accumulated other comprehensive loss | $(6,329) | $(8,531) | $(6,972) | | Total stockholders' deficit | $(70,118) | $(24,854) | $(27,899) | Consolidated Statements of Cash Flows Net decrease in cash was $42.7 million in 2022, driven by operating and investing activities, resulting in $7.1 million cash balance Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :--------------------------------------- | :------- | :------- | :------- | | Net cash (used in) provided by operating activities | $(33,289) | $(25,212) | $20,050 | | Net cash (used in) provided by investing activities | $(13,319) | $6,078 | $(34,713) | | Net cash provided by financing activities | $5,427 | $29,921 | $42,081 | | Effect of exchange rates on cash | $(1,488) | $(990) | $523 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(42,669) | $9,797 | $27,941 | | Cash, cash equivalents and restricted cash, end of period | $7,143 | $49,812 | $40,015 | - Cash used in operating activities increased to $33.3 million in 2022 from $25.2 million in 2021, reflecting the net loss and working capital changes[369] - Cash used in investing activities was $13.3 million in 2022, primarily for capitalized software development and property, plant, and equipment purchases, contrasting with $6.1 million provided in 2021 due to the Ctrack South Africa sale[369] - Cash provided by financing activities was $5.4 million in 2022, mainly from borrowings on the asset-backed revolving credit facility, compared to $29.9 million in 2021 from the ATM Offering[369] Notes to Consolidated Financial Statements Notes detail Inseego's business, accounting policies, financial components, liquidity, debt, and market risks 1. Nature of Business and Significant Accounting Policies - Inseego Corp. designs and develops fixed and mobile wireless solutions (4G and 5G NR), Industrial IoT (IIoT), and cloud solutions, with products and solutions developed in the U.S. for mission-critical applications[373] - The company operates as a single reportable segment, with financial statements prepared in accordance with U.S. GAAP[376][378] - Significant estimates include revenue recognition, capitalized software costs, allowance for credit losses, inventory valuation, and goodwill impairment[379] - Risks and uncertainties include the ongoing impact of the COVID-19 pandemic, global semiconductor supply shortages, and inflationary pressures, which could affect operations and financial results[380][381][382][383][384] - The sale of Ctrack South Africa on July 30, 2021, generated $31.5 million in net cash proceeds and a pre-tax gain of $5.3 million[385] - As of December 31, 2022, liquidity included $7.1 million in cash and cash equivalents, $21.4 million in working capital, and $6.1 million available under its credit facility. Management believes these resources are sufficient for the next 12 months[386][387] - Revenue is classified into IoT & Mobile Solutions and Enterprise SaaS Solutions. IoT & Mobile Solutions include MiFi and Skyus brands, and Inseego Subscribe. Enterprise SaaS Solutions include Ctrack telematics platforms[393][394] - Revenue recognition follows ASC 606, identifying performance obligations (hardware delivery, SaaS subscriptions, maintenance, professional services) and recognizing revenue upon transfer of control[395][396][397][398][400][401][402][403][404][405][406][407][408][409][410][411][412] - Contract liabilities (deferred revenue) were $5.1 million in 2022 and $3.8 million in 2021, representing advance payments for subscription services[414] - Accounts receivable, net of allowances, was $25.3 million in 2022 and $26.8 million in 2021[421] - Software development costs for external use are capitalized after technological feasibility and amortized over their economic life, while internal-use software costs are capitalized during the development stage[424][425] - The company performs annual impairment reviews for indefinite-lived intangible assets and goodwill, with no impairment losses recorded for these in 2020-2022[428][429][430] - Convertible debt instruments and embedded derivatives are evaluated under ASC 815, with derivatives marked to fair value[436][437][438] - Lease accounting follows ASC 842, recognizing right-of-use (ROU) assets and lease liabilities for operating leases[440][441][443][444] - Foreign currency transactions and translations are recognized, with translation adjustments included in accumulated other comprehensive loss[445][446] - Income taxes are recognized based on estimates of current and deferred tax liabilities/assets, with valuation allowances applied when realization is not more likely than not[447][448] - The company adopted ASU 2020-06 and ASU 2021-04 in Q1 2022 with no material impact on financial statements[467][468] 2. Financial Statement Details Inventories (in thousands) | Category | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------ | :------------------ | :------------------ | | Finished goods | $31,153 | $33,112 | | Raw materials and components | $6,823 | $4,290 | | Total inventories | $37,976 | $37,402 | Prepaid Expenses and Other (in thousands) | Category | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :-------------------------------- | :------------------ | :------------------ | | Rebate receivables | $2,038 | $6,398 | | Receivables from contract manufacturers | $3,561 | $2,626 | | Software licenses | $772 | $1,261 | | Insurance | $12 | $1,269 | | Deposits | $829 | $1,023 | | Financed assets | $0 | $323 | | Other | $766 | $724 | | Total prepaid expenses and other | $7,978 | $13,624 | Property, Plant and Equipment, Net (in thousands) | Category | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Test equipment | $19,724 | $19,095 | | Computer equipment and purchased software | $4,603 | $7,618 | | Product tooling | $5,007 | $4,350 | | Furniture and fixtures | $1,214 | $1,214 | | Vehicles | $119 | $1,654 | | Leasehold improvements | $772 | $863 | | Total property, plant and equipment, gross | $31,439 | $34,794 | | Less—accumulated depreciation and amortization | $(26,049) | $(26,692) | | Total property, plant and equipment, net | $5,390 | $8,102 | Rental Assets, Net (in thousands) | Category | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------ | :------------------ | :------------------ | | Rental assets | $10,300 | $9,967 | | Less—accumulated depreciation | $(5,484) | $(5,392) | | Total rental assets | $4,816 | $4,575 | - Depreciation and amortization expense for property, plant, and equipment (including rental assets and finance leases) was $7.1 million in 2022, $9.8 million in 2021, and $10.0 million in 2020[477] Accrued Expenses and Other Current Liabilities (in thousands) | Category | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Royalties | $992 | $2,243 | | Payroll and related expenses | $8,873 | $9,326 | | Warranty obligations | $480 | $473 | | Professional fees | $738 | $502 | | Bank overdrafts | $0 | $370 | | Accrued interest | $1,112 | $877 | | Deferred revenue | $5,060 | $3,832 | | Customer advances | $2,828 | $0 | | Operating lease liabilities | $1,759 | $1,769 | | Accrued contract manufacturing liabilities | $1,416 | $927 | | Liabilities related to financed assets | $0 | $1,593 | | Value added tax payables | $449 | $642 | | Other | $4,238 | $3,699 | | Total accrued expenses and other current liabilities | $27,945 | $26,253 | 3. Goodwill and Other Intangible Assets Goodwill Activity (in thousands) | Metric | Amount ($ thousands) | | :-------------------------------- | :------- | | Balance at December 31, 2020 | $32,511 | | Effect of Ctrack South Africa divestiture | $(10,734) | | Effect of change in foreign currency exchange rates | $(1,441) | | Balance at December 31, 2021 | $20,336 | | Effect of change in foreign currency exchange rates | $1,586 | | Balance at December 31, 2022 | $21,922 | Intangible Assets (in thousands) | Category | December 31, 2022 Net Carrying Value ($ thousands) | December 31, 2021 Net Carrying Value ($ thousands) | | :------------------------------------------ | :----------------------------------- | :----------------------------------- | | Developed technologies | $518 | $1,205 | | Trademarks and trade names | $2,408 | $3,168 | | Customer relationships | $1,903 | $2,753 | | Capitalized software development costs | $29,081 | $29,977 | | Other finite-lived intangible assets | $659 | $1,347 | | In-process capitalized software development costs (indefinite-lived) | $6,814 | $8,545 | | Total intangible assets | $41,383 | $46,995 | - Amortization expense for intangible assets was $20.1 million in 2022, $15.5 million in 2021, and $18.0 million in 2020[480] - Impairment losses on internal use capitalized software were $3.0 million in 2022, $1.2 million in 2021, and $1.4 million in 2020[481] [4. Fair Value Measurement of Assets and Liabilities](index=85&type=section&id=4.%20Fair%20Value%20Measurement%20of%20