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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Inseego Corp    INSG

INSEEGO CORP

(INSG)
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INSEEGO : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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08/09/2019 | 04:11pm EDT

Forward Looking Statements This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the views of our senior management with respect to our current expectations, assumptions, estimates and projections about Inseego and our industry. These forward-looking statements speak only as of the date of this report. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Statements that include the words "may," "could," "should," "would," "estimate," "anticipate," "believe," "expect," "preliminary," "intend," "plan," "project," "outlook," "will" and similar words and phrases identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements as of the date of this report. We believe that these factors include those related to: • our ability to compete in the market for wireless broadband data access

      products, wireless modem products, and asset management, monitoring,
      telematics, vehicle tracking and fleet management products;


• our ability to develop and introduce new products and services successfully;


•     our ability to meet the price and performance standards of the evolving 5G
      New Radio ("5G NR") products and technologies;

• our ability to expand our customer reach/reduce customer concentration;


•     our ability to grow the Internet of Things ("IoT") and mobile portfolio
      outside of North America;

• our ability to grow our Ctrack/asset tracking solutions within North America;


•     our dependence on a small number of customers for a substantial portion of
      our revenues;


•     our ability to realize the benefits of recent restructuring activities and
      cost-reduction initiatives including reductions-in-force, reorganization of
      executive level management and the consolidation of certain of our
      facilities;


•     our ability to make scheduled payments of the principal of, to pay interest
      on, or to refinance our indebtedness, including our term loan and
      convertible notes obligations;


•     our ability to introduce and sell new products that comply with current and
      evolving industry standards and government regulations;


•     our ability to develop and maintain strategic relationships to expand into
      new markets;


•     our ability to properly manage the growth of our business to avoid
      significant strains on our management and operations and disruptions to our
      business;

• our reliance on third parties to manufacture our products;


•     our contract manufacturer's ability to secure necessary supply to build our
      devices;


•     our ability to mitigate the impact of tariffs or other government-imposed
      sanctions;


•     our ability to accurately forecast customer demand and order the
      manufacture and timely delivery of sufficient product quantities;


•     our reliance on sole source suppliers for some products and devices used in
      our solutions;


•     the continuing impact of uncertain global economic conditions on the demand
      for our products;

• the impact of geopolitical instability on our business;


•     the impact that new or adjusted tariffs may have on the costs of components
      or our products, and our ability to sell products internationally;


•     our ability to be cost competitive while meeting time-to-market
      requirements for our customers;


•     our ability to meet the product performance needs of our customers in
      wireless broadband data access in industrial IoT markets;



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•     demand for fleet, vehicle and asset management software-as-a-service
      ("SaaS") telematics solutions;


•     our dependence on wireless telecommunication operators delivering
      acceptable wireless services;


•     the outcome of any pending or future litigation, including intellectual
      property litigation;


•     infringement claims with respect to intellectual property contained in our
      solutions;


•     our continued ability to license necessary third-party technology for the
      development and sale of our solutions;

• the introduction of new products that could contain errors or defects;

• conducting business abroad, including foreign currency risks;


•     the pace of 5G wireless network rollouts globally and their adoption by
      customers;

• our ability to make focused investments in research and development; and


•     our ability to hire, retain and manage additional qualified personnel to
      maintain and expand our business.


The foregoing factors should not be construed as exhaustive and should be read
together with the other cautionary statements included in this and other reports
we file with or furnish to the Securities and Exchange Commission ("SEC"),
including the information in "Item 1A. Risk Factors" included in Part I of our
Annual Report on Form 10-K for the year ended December 31, 2018 ("Form 10-K").
If one or more events related to these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be incorrect, actual
results may differ materially from what we anticipate.
Trademarks
"Inseego", the Inseego logo, "Novatel Wireless", the Novatel Wireless logo,
"MiFi", "MiFiiQ", "MiFi Intelligent Mobile Hotspot", "MiFi Freedom. My Way.",
"Ctrack", the Ctrack logo, "Inseego North America", "Skyus" and "Crossroads" are
trademarks or registered trademarks of Inseego and its subsidiaries. Other
trademarks, trade names or service marks used in this report are the property of
their respective owners.
As used in this report on Form 10-Q, unless the context otherwise requires, the
terms "we," "us," "our," the "Company" and "Inseego" refer to Inseego Corp., a
Delaware corporation, and its wholly owned subsidiaries.


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The following information should be read in conjunction with the condensed
consolidated financial statements and the accompanying notes included in Part I,
Item 1 of this report, as well as the annual consolidated financial statements
and accompanying notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 2018,
contained in our Form 10-K.
Business Overview
Inseego Corp. is a leader in the design and development of mobile (advanced 4G
and 5G NR), IoT and cloud solutions for large enterprise verticals, service
providers and small and medium-sized businesses around the globe. Our product
portfolio consists of fixed and mobile device-to-cloud solutions that provide
compelling, intelligent, reliable and secure end-to-end IoT services with deep
business intelligence. Inseego's products and solutions power mission critical
applications with a "zero unscheduled downtime" mandate, such as 5G fixed
wireless access gateway solutions, 4G and 5G mobile broadband, industrial IoT,
SD WAN failover management, asset tracking and fleet management services. Our
solutions are powered by our key innovations in purpose-built SaaS cloud
platforms, IoT and mobile technologies, including a suite of products employing
the 5G NR standards.
We have invented and reinvented ways in which the world stays connected,
accesses information and derives intelligence from that information. With
multiple first-to-market innovations and a strong and growing portfolio of
hardware and software innovations for IoT, Inseego has been advancing technology
and driving industry transformation for over 30 years. It is this proven
expertise, commitment to quality and obsession with innovation and relentless
execution that makes us a preferred global partner of service providers,
distributors, value-added resellers, system integrators, enterprises and small
and medium-sized businesses.
Our Sources of Revenue
We provide intelligent wireless 3G, 4G and 5G hardware products for the
worldwide mobile communications and industrial IoT markets. Our hardware
products address multiple vertical markets including fleet and commercial
telematics, aftermarket telematics, smart city infrastructure management, remote
monitoring and control, wireless surveillance systems, security and connected
home and fixed wireless access and mobile broadband devices. Our broad range of
products principally includes intelligent 4G and 5G mobile hotspots, wireless
gateways and routers for IoT applications, 1Gigabit ("Gb") speed 4G LTE hotspots
and USB modems, integrated telematics and mobile tracking hardware devices,
which are supported by applications software and cloud services designed to
enable customers to easily analyze data insights and configure/manage their
hardware remotely. Our products currently operate on most major cellular
wireless technology platforms. Our mobile hotspots, sold under the MiFi and
MiFiiQ brands, have been sold to millions of customers to provide subscribers
with secure and convenient high-speed access to corporate, public and personal
information through the Internet and enterprise networks. Our wireless
standalone and USB modems and gateways allow us to address the rapidly growing
and underpenetrated IoT market segments. Our telematics and mobile asset
tracking hardware devices collect and control critical vehicle data and driver
behaviors, and can reliably deliver that information to the cloud, all managed
by our services enablement platforms.
We provide intelligent mobile 4G and 5G devices primarily to wireless operators
either directly or through strategic relationships. Our MiFi customer base is
comprised of wireless operators, including Verizon Wireless in the United
States, Rogers in Canada and Telstra in Australia, as well as distributors and
various companies in other vertical markets and geographies.
We sell our wireless routers for industrial IoT, integrated telematics and
mobile tracking hardware devices through our direct sales force, value-added
resellers and through distributors. The customer base for our wireless products
is comprised of transportation companies, industrial enterprises, manufacturers,
application service providers, system integrators and distributors in various
industries, including fleet and vehicle transportation, ground aviation, energy
and industrial automation, security and safety, medical monitoring and
government. Integrated telematics and asset tracking devices are also sold under
our Ctrack brand and provided as part of our integrated SaaS solutions.
We sell SaaS, software and services solutions across multiple mobile and
industrial IoT vertical markets, including fleet management, vehicle telematics,
aviation (ground service) telematics, usage-based insurance, stolen vehicle
recovery, asset tracking, monitoring, business connectivity and subscription
management. Our SaaS platforms are device-agnostic and provide a standardized,
scalable way to order, connect and manage remote assets and to improve business
operations. The platforms are flexible and support both on-premise server or
cloud-based deployments and are the basis for the delivery of a wide range of
IoT services in multiple industries.
Our SaaS delivery platforms include our Ctrack platforms, which provide fleet,
vehicle, aviation, asset and other telematics applications, and our Device
Management System, a hosted SaaS platform that helps organizations manage the
selection, deployment and spend of their wireless assets by helping them to save
money on personnel and telecom expenses.

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Factors Which May Influence Future Results of Operations Net Revenues. We believe that our future net revenues will be influenced by a number of factors including: • economic environment and related market conditions;


•         increased competition from other fleet and vehicle telematics
          solutions, as well as suppliers of emerging devices that contain
          wireless data access or device management features;

• acceptance of our products by new vertical markets;

• growth in the aviation ground vertical;

• rate of change to new products;

• phase-out of earlier generation wireless technologies (such as 3G);

• deployment of 5G infrastructure equipment;

• adoption of 5G end point products;

• competition in the area of 5G technology;

• application of any tariffs;


• product pricing; and


• changes in technologies.


Our revenues are also significantly dependent upon the availability of materials
and components used in our hardware products.
We anticipate introducing additional products during the next twelve months,
including SaaS telematics solutions and additional service offerings, industrial
IoT hardware and services, and other mobile and fixed wireless devices targeting
the emerging 5G market. We continue to develop and maintain strategic
relationships with service providers and other wireless industry leaders such as
Verizon Wireless, T-Mobile, Sprint, and Qualcomm. Through strategic
relationships, we have been able to maintain market penetration by leveraging
the resources of our channel partners, including their access to distribution
resources, increased sales opportunities and market opportunities.
Cost of Net Revenues. Cost of net revenues includes all costs associated with
our contract manufacturers, distribution, fulfillment and repair services,
delivery of SaaS services, warranty costs, amortization of intangible assets,
royalties, operations overhead, costs associated with cancellation of purchase
orders, tariffs and costs related to outside services. Also included in cost of
net revenues are costs related to inventory adjustments, as well as any write
downs for excess and obsolete inventory and abandoned product lines. Inventory
adjustments are impacted primarily by demand for our products, which is
influenced by the factors discussed above.
Operating Costs and Expenses. Our operating costs consist of three primary
categories: research and development; sales and marketing; and general and
administrative costs.
Research and development is at the core of our ability to produce innovative,
leading-edge products. These expenses consist primarily of engineers and
technicians who design and test our highly complex products and the procurement
of testing and certification services.
Sales and marketing expenses consist primarily of our sales force and
product-marketing professionals. In order to maintain strong sales
relationships, we provide co-marketing, trade show support and product training.
We are also engaged in a wide variety of marketing activities, such as awareness
and lead generation programs as well as product marketing. Other marketing
initiatives include public relations, seminars and co-branding with partners.
General and administrative expenses include primarily corporate functions such
as accounting, human resources, legal, administrative support and professional
fees. This category also includes the expenses needed to operate as a
publicly-traded company, including compliance with the Sarbanes-Oxley Act of
2002, as amended, SEC filings, stock exchange fees and investor relations
expense. Although general and administrative expenses are not directly related
to revenue levels, certain expenses, such as legal expenses and provisions for
bad debts, may cause significant volatility in future general and administrative
expenses which may, in turn, impact net revenue levels.
We have undertaken certain restructuring activities and cost reduction
initiatives in an effort to better align our organizational structure and costs
with our strategy. Restructuring charges consist primarily of severance costs
incurred in connection with the reduction of our workforce and facility
exit-related costs.

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As part of our business strategy, we may review acquisition or divestiture
opportunities that we believe would be advantageous or complementary to the
development of our business. Given our current cash position and recent losses,
any additional acquisitions we make would likely involve issuing stock in order
to provide the purchase consideration for the acquisitions. If we make any
additional acquisitions, we may incur substantial expenditures in conjunction
with the acquisition process and the subsequent assimilation of any acquired
business, products, technologies or personnel.
Critical Accounting Policies and Estimates
In the notes to our consolidated financial statements and in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Form 10-K, we have disclosed those accounting
policies that we consider to be significant in determining our results of
operations and financial condition. Except as disclosed below, there have been
no material changes to those policies that we consider to be significant since
the filing of our Form 10-K. The accounting principles used in preparing our
unaudited condensed consolidated financial statements conform in all material
respects to accounting principles generally accepted in the U.S.
Leases
Lessee
We serve as lessee in lease agreements for office space, automobiles and certain
equipment. Certain of our leases contain provisions that provide for one or more
options to renew at our sole discretion. The majority of our leases are
comprised of fixed lease payments, with a small percentage of our real estate
leases including lease payments subject to a rate or index which may be
variable. Certain real estate leases also include executory costs such as common
area maintenance (non-lease component). As a practical expedient permitted under
the Financial Accounting Standards Board Accounting Standards Codification
("ASC") 842, Leases ("ASC 842"), we have elected to account for the lease and
non-lease components as a single lease component. Lease payments, which may
include lease components and non-lease components, are included in the
measurement of our lease liabilities to the extent that such payments are either
fixed amounts or variable amounts based on a rate or index (fixed in substance)
as stipulated in the lease contract.
None of our lease agreements contain any material residual value guarantees or
material restrictive covenants. As a result of our election of the package of
practical expedients permitted within ASC 842, which among other things, allows
for the carryforward of historical lease classification, all of our lease
agreements in existence at the date of adoption that were classified as
operating leases under ASC 840, Leases, have been classified as operating leases
under ASC 842. Lease expense for payments related to our operating leases is
recognized on a straight-line basis over the related lease term, which includes
options to extend or terminate the lease when it is reasonably certain that we
will exercise that option.
Right-of-use assets represent our right to use an underlying asset during the
lease term and lease liabilities represent our obligation to make lease payments
as specified in the lease. Right-of-use assets and lease liabilities related to
our operating leases are recognized at the lease commencement date based on the
present value of the remaining lease payments over the lease term. When our
leases do not provide an implicit rate, we use our incremental borrowing rate
based on the information available surrounding our borrowing rates at the lease
commencement date in determining the present value of lease payments. The
right-of-use asset also includes any lease payments made at or before lease
commencement less any lease incentives.
Lessor
Prior to January 1, 2019, and as previously disclosed in our Form 10-K for the
year ended December 31, 2018, we derived revenue from customers who lease our
monitoring devices. We recorded such revenue in accordance with the previous
lease accounting guidance ASC 840, Leases, and determined that the leases
qualify as operating leases.
Monitoring device leases in which we serve as lessor are classified as operating
leases. Accordingly, rental devices are carried at historical cost less
accumulated depreciation and impairment, if any, and are included in rental
assets, net, on the condensed consolidated balance sheets.
Since the lease components meet the criteria for an operating lease under ASC
842, we have elected the practical expedient to combine the lease and the
non-lease components because the service is the predominant element in the eyes
of the customer and the pattern of service delivery is the same for both
elements. We will account for the combined component as a single performance
obligation under ASC 606, Revenue from Contracts with Customers.

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Results of Operations
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Net revenues. Net revenues for the three months ended June 30, 2019 were
$55.9 million, compared to $49.1 million for the same period in 2018.
The following table summarizes net revenues by our two product categories (in
thousands):
                               Three Months Ended
                                    June 30,                 Change
Product Category                2019         2018          $          %
IoT & Mobile Solutions      $    39,983$ 31,741$ 8,242     26.0  %
Enterprise SaaS Solutions        15,908      17,316     (1,408 )   (8.1 )%
Total                       $    55,891$ 49,057$ 6,834     13.9  %

IoT & Mobile Solutions. The increase in IoT & Mobile Solutions net revenues is primarily a result of increased sales in our LTE gigabit hotspots related to our MiFi business, partially offset by a reduction in IoT sales. Enterprise SaaS Solutions. The decrease in Enterprise SaaS Solutions net revenues is primarily a result of the movement in the South African Rand to U.S. Dollar foreign exchange rate, partially offset by increased Device Management System revenues. Cost of net revenues. Cost of net revenues for the three months ended June 30, 2019 was $40.3 million, or 72.2% of net revenues, compared to $31.4 million, or 64.0% of net revenues, for the same period in 2018. The following table summarizes cost of net revenues by our two product categories (in thousands):

                                                    Three Months Ended
                                                         June 30,                   Change
Product Category                                     2019          2018          $           %
IoT & Mobile                                     $   33,986$ 24,623$ 9,363       38.0  %
Solutions
Enterprise SaaS                                       6,350        6,998        (648 )     (9.3 )%
Solutions
Impairment of abandoned product line, net of              -         (221 )       221     (100.0 )%

recoveries

Total                                            $   40,336$ 31,400$ 8,936       28.5  %


IoT & Mobile Solutions. The increase in IoT & Mobile Solutions cost of net
revenues is primarily a result of the increased sales in our LTE gigabit
hotspot, as well as associated expenses such as freight and royalties. In
addition, the cost per unit is higher on the LTE gigabit hotspot as compared to
the older generation of hotspot.
Enterprise SaaS Solutions. Enterprise SaaS Solutions cost of net revenues
decreased as a result of the movement in the South African Rand to U.S. Dollar
foreign exchange rate, partially offset by an increase resulting from the
increase in related Device Management System revenues.
Impairment of abandoned product line, net of recoveries. The impairment of
abandoned product line, net of recoveries, in 2018 reflects additional write
downs of the value of certain inventory related to product lines that were
abandoned during the fourth quarter of 2016, net of recoveries related to the
subsequent sale of such abandoned products.
Gross profit. Gross profit for the three months ended June 30, 2019 was
$15.6 million, or a gross margin of 27.8%, compared to $17.7 million, or a gross
margin of 36.0% for the same period in 2018. The decrease in gross profit was
primarily attributable to the decline in MiFi gross margins, the decline in IoT
volumes, and the movement in the South African Rand to U.S. Dollar foreign
exchange rate.
Research and development expenses. Research and development expenses for the
three months ended June 30, 2019 were $5.2 million, or 9.3% of net revenues,
compared to $5.0 million, or 10.1% of net revenues, for the same period in 2018.
The increase was primarily a result of an increase in employment costs
attributable to an increase in headcount and an increase in share-based
compensation related to an equity bonus, partially offset by the Company
starting to capitalize certain additional research and development costs
beginning in 2019.

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Sales and marketing expenses. Sales and marketing expenses for the three months
ended June 30, 2019 were $7.2 million, or 12.9% of net revenues, compared to
$5.6 million, or 11.5% of net revenues, for the same period in 2018. The
increase was primarily a result of an increase in employment costs attributable
to an increase in headcount, as well as an increase in share-based compensation
related to an equity bonus.
General and administrative expenses. General and administrative expenses for the
three months ended June 30, 2019 were $7.4 million, or 13.3% of net revenues,
compared to $6.3 million, or 12.8% of net revenues, for the same period in 2018.
The increase was primarily a result of an increase in share-based compensation
related to an equity bonus.
Amortization of purchased intangible assets. Amortization of purchased
intangible assets for the three months ended June 30, 2019 and 2018 was
$0.9 million and $0.9 million, respectively.
Restructuring charges, net of recoveries. Restructuring charges, net of
recoveries, for the three months ended June 30, 2019 and 2018 were $15,000 and
$0.6 million, respectively, and primarily consisted of severance costs incurred
in connection with the reduction of our workforce, as well as facility exit
related costs.
Interest expense, net. Interest expense, net, for the three months ended
June 30, 2019 and 2018 was $5.1 million and $5.1 million, respectively.
Other income (expense), net. Other expense, net, for the three months ended
June 30, 2019 was $0.1 million, which primarily consisted of gains on the sale
of certain fixed assets, partially offset by foreign currency transaction gains
and losses. Other expense, net, for the three months ended June 30, 2018 was
$0.4 million, which primarily consisted of foreign currency transaction gains
and losses.
Income tax provision. Income tax provision for the three months ended June 30,
2019 and 2018 was $0.3 million and $0.3 million, respectively, which primarily
related to certain of our profitable entities in foreign jurisdictions.
Net loss (income) attributable to noncontrolling interests. Net income
attributable to noncontrolling interests for the three months ended June 30,
2019 was $0.1 million, compared to a net loss attributable to noncontrolling
interests of $19,000 for the same period in 2018.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Net revenues. Net revenues for the six months ended June 30, 2019 were $104.4
million, compared to $95.8 million for the same period in 2018.
The following table details net revenues by product grouping (in thousands):
                               Six Months Ended
                                   June 30,                 Change
                               2019        2018          $           %
IoT & Mobile Solutions      $  72,764$ 60,621$ 12,143     20.0  %
Enterprise SaaS Solutions      31,683      35,169      (3,486 )   (9.9 )%
Total                       $ 104,447$ 95,790$  8,657      9.0  %

IoT & Mobile Solutions. The increase in IoT & Mobile Solutions net revenues is primarily a result of increased sales in our LTE gigabit hotspots related to our MiFi business, partially offset by a reduction in IoT sales. Enterprise SaaS Solutions. The decrease in Enterprise SaaS Solutions net revenues is primarily a result of the movement in the South African Rand to U.S. Dollar foreign exchange rate, partially offset by increased Device Management System revenues.


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Cost of net revenues. Cost of net revenues for the six months ended June 30,
2019 was $74.1 million, or 71.0% of net revenues, compared to $62.6 million, or
65.3% of net revenues, for the same period in 2018.
The following table details cost of net revenues by product grouping (in
thousands):
                                                     Six Months Ended
                                                         June 30,                   Change
                                                    2019          2018          $            %
IoT & Mobile                                     $  61,586$ 48,375$ 13,211       27.3  %
Solutions
Enterprise SaaS                                     12,546       13,860       (1,314 )     (9.5 )%
Solutions
Impairment of abandoned product line, net of             -          355         (355 )   (100.0 )%

recoveries

Total                                            $  74,132$ 62,590$ 11,542       18.4  %


IoT & Mobile Solutions. The increase in IoT & Mobile Solutions cost of net
revenues is primarily a result of the increase in related net revenues.
Enterprise SaaS Solutions. The decrease in Enterprise SaaS Solutions cost of net
revenues is primarily a result of the movement in the South African Rand to U.S.
Dollar foreign exchange rate, partially offset by an increase resulting from the
increase in related Device Management System revenues.
Impairment of abandoned product line, net of recoveries. The impairment of
abandoned product line in 2018 reflects the additional write down of certain
inventory related to product lines which were abandoned during the fourth
quarter of 2016, net of recoveries related to the subsequent sale of such
abandoned products.
Gross profit. Gross profit for the six months ended June 30, 2019 was $30.3
million, or a gross margin of 29.0%, compared to $33.2 million, or a gross
margin of 34.7%, for the same period in 2018. The decrease in gross profit was
primarily attributable to an increase in sales of lower-margin products.
Research and development expenses. Research and development expenses for the six
months ended June 30, 2019 were $8.7 million, or 8.3% of net revenues, compared
to $9.9 million, or 10.4% of net revenues, for the same period in 2018. The
decrease was primarily a result of the Company starting to capitalize certain
additional research and development costs beginning in 2019, partially offset by
an increase in employment costs attributable to an increase in headcount and an
increase in share-based compensation related to an equity bonus.
Sales and marketing expenses. Sales and marketing expenses for the six months
ended June 30, 2019 were $13.6 million, or 13.0% of net revenues, compared to
$11.1 million, or 11.5% of net revenues, for the same period in 2018. The
increase was primarily a result of an increase in employment costs attributable
to an increase in headcount and an increase in share-based compensation related
to an equity bonus.
General and administrative expenses. General and administrative expenses for the
six months ended June 30, 2019 were $13.9 million, or 13.3% of net revenues,
compared to $12.8 million, or 13.4% of net revenues, for the same period in
2018. The increase was primarily a result of an increase in employment costs
attributable to an increase in headcount and an increase in share-based
compensation related to an equity bonus.
Amortization of purchased intangible assets. The amortization of purchased
intangible assets for the six months ended June 30, 2019 and 2018 was $1.7
million and $1.9 million, respectively.
Restructuring charges, net of recoveries. Restructuring charges, net of
recoveries, for the six months ended June 30, 2019 and 2018 were $37,000 and
$0.9 million, respectively, and predominantly consisted of severance costs
incurred in connection with the reduction of our workforce, as well as facility
exit related costs.
Interest expense, net. Interest expense, net, for the six months ended June 30,
2019 and 2018 was $10.2 million and $10.2 million, respectively.
Other income (expense), net. Other income, net, for the six months ended
June 30, 2019 was $0.2 million, which primarily consisted of gains on the sale
of certain fixed assets, partially offset by foreign currency transaction gains
and losses. Other expense, net, for the six months ended June 30, 2018 was
$0.4 million, which primarily consisted of foreign currency transaction gains
and losses.
Income tax provision. Income tax provision for the six months ended June 30,
2019 and 2018 was $0.6 million and $0.7 million, respectively, which primarily
related to certain of our profitable entities in foreign jurisdictions.

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Net loss (income) attributable to noncontrolling interests. Net income
attributable to noncontrolling interests was $0.1 million for the six months
ended June 30, 2019, compared to net loss attributable to noncontrolling
interests of $29,000 for the same period in 2018.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents
and cash generated from operations. As of June 30, 2019, we had cash and cash
equivalents of $20.3 million compared with cash and cash equivalents of
$31.0 million as of December 31, 2018.
On August 9, 2019, we completed a private placement of 10,000 shares of
Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per
share (the "Series E Preferred Stock"), for an aggregate purchase price of
$10.0 million in accordance with the terms and provisions of a Securities
Purchase Agreement, dated August 9, 2019, by and among the Company and certain
accredited investors. Each share of Series E Preferred Stock entitles the holder
thereof to receive, when, as and if declared by the Company out of assets
legally available therefor, cumulative cash dividends at an annual rate of 9.00%
payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each
year, beginning on October 1, 2019. If dividends are not declared and paid in
any quarter, or if such dividends are declared but holders of the Series E
Preferred Stock elect not to receive them in cash, the quarterly dividend will
be deemed to accrue and will be added to the Series E Base Amount. The Series E
Preferred Stock has no voting rights unless otherwise required by law. The
Series E Preferred Stock is perpetual and has no maturity date. However, we may,
at our option, redeem shares of the Series E Preferred Stock, in whole or in
part, on or after July 1, 2022, at a price equal to 110% of the Series E Base
Amount plus (without duplication) any accrued and unpaid dividends. The "Series
E Base Amount" means $1,000 per share, plus any accrued but unpaid dividends,
whether or not declared by our board of directors, subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the Series E Preferred Stock. In the
event of a liquidation, dissolution or winding up of the Company, the holders of
the Series E Preferred Stock will be entitled to receive, after satisfaction of
liabilities to creditors and subject to the rights of holders of any senior
securities, but before any distribution of assets is made to holder of common
stock or any other junior securities, the Series E Base Amount plus (without
duplication) any accrued and unpaid dividends.
Term Loan
On August 23, 2017, we, and certain of our direct and indirect subsidiaries (the
"Guarantors"), entered into a credit agreement (the "Credit Agreement") with
Cantor Fitzgerald Securities, as administrative agent and collateral agent, and
certain funds managed by Highbridge Capital Management, LLC, as lenders (the
"Lenders"). Pursuant to the Credit Agreement, the Lenders provided us with a
term loan in the principal amount of $48.0 million (the "Term Loan") with a
maturity date of August 23, 2020 (the "Maturity Date"). In conjunction with the
closing of the Term Loan, we received proceeds of $46.9 million, $35.0 million
of which was funded to us in cash on the closing date, net of approximately
$1.1 million related to an original issue discount and commitment fee, and the
remaining $11.9 million of which was funded through our repurchase and
cancellation of approximately $14.9 million of our outstanding Inseego Notes (as
defined below) pursuant to the terms of the Note Purchase Agreement (as defined
below).
The Term Loan bears interest at a rate per annum equal to the three-month LIBOR,
but in no event less than 1.00%, plus 7.625%. Interest on the Term Loan is
payable on the last business day of each calendar month and on the Maturity
Date. Principal on the Term Loan is payable on the Maturity Date.
As required by the terms of the Credit Agreement, during the year ended
December 31, 2018, the Company repaid $0.5 million of principal on the Term Loan
in connection with the Settlement Agreement, as defined below.
At June 30, 2019, approximately $10.3 million of the Term Loan was held by
related parties. On July 10, 2019, subsequent to the balance sheet date, such
related parties acquired an additional $29.2 million of the Term Loan.
The Term Loan is reflected as a current liability on the Company's balance sheet
because the payment obligations described below with respect to the Convertible
Notes will trigger acceleration of the amounts due pursuant to the Credit
Agreement.
Convertible Senior Notes
On June 10, 2015, Novatel Wireless issued $120.0 million of 5.50% convertible
senior notes due 2020 (the "Novatel Wireless Notes") which are governed by the
terms of an indenture, dated June 10, 2015, between Novatel Wireless, as issuer,
Inseego and Wilmington Trust, National Association, as trustee, as amended by
certain supplemental indentures. The Novatel Wireless Notes are senior unsecured
obligations of Novatel Wireless and bear interest at a rate of 5.50% per year,
payable semi-annually in arrears on June 15 and December 15 of each year,
beginning on December 15, 2015. The Novatel Wireless Notes

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will mature on June 15, 2020, unless earlier repurchased or converted. The
Novatel Wireless Notes will be convertible into cash, shares of our common
stock, or a combination thereof, at our election, at an initial conversion price
of $5.00 per share of our common stock.
On January 9, 2017, in connection with the settlement of an exchange offer and
consent solicitation with respect to the Novatel Wireless Notes, the Company
issued approximately $119.8 million aggregate principal amount of the 5.50%
convertible senior notes due 2022 (the "Inseego Notes" and collectively with the
Novatel Wireless Notes, the "Convertible Notes"). The Inseego Notes were issued
in exchange for approximately $119.8 million aggregate principal amount of
outstanding Novatel Wireless Notes that were validly tendered and accepted for
exchange and subsequently canceled. The Inseego Notes are governed by the terms
of an indenture, dated January 9, 2017 (the "Inseego Indenture"), between the
Company, as issuer, and Wilmington Trust, National Association, as trustee. The
Inseego Notes are senior unsecured obligations of the Company and bear interest
at a rate of 5.50% per year, payable semi-annually in arrears on June 15 and
December 15 of each year, beginning on June 15, 2017. The Inseego Notes permit
the Company to have a senior credit facility up to a maximum amount of
$48.0 million.
Under certain limited circumstances which are described in the Inseego
Indenture, the Company may redeem all or a portion of the Inseego Notes at its
option at a redemption price equal to 100% of the principal amount of the
Inseego Notes to be redeemed, plus any accrued and unpaid interest on such
Inseego Notes. The Inseego Notes are subject to repurchase by the Company at the
option of the holders on June 15, 2020 (the "Optional Repurchase Date") at a
repurchase price in cash equal to 100% of the principal amount of the Inseego
Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the
Optional Repurchase Date.
The Inseego Notes will mature on June 15, 2022, unless earlier converted,
redeemed or repurchased. The Inseego Notes will be convertible into cash, shares
of our common stock, or a combination thereof, at our election, at an initial
conversion price of $4.70 per share of our common stock.
As previously discussed, the Novatel Wireless Notes mature on June 15, 2020 and
the Inseego Notes mature on June 15, 2022. The Inseego Notes are subject to
repurchase by the Company at the option of the holders on the Optional
Repurchase Date. Because management intends to restructure the Company's debt
prior to the Optional Repurchase Date, management does not believe that the
repurchase option will ultimately be exercised.
At June 30, 2019, approximately $19.4 million of the Inseego Notes were held by
related parties. On July 23, 2019, subsequent to the balance sheet date, such
related parties acquired an additional $25.4 million of the Inseego Notes.
Because the Novatel Wireless Notes will mature within the next twelve months and
the Optional Repurchase Date will occur within the next twelve months, the
Company has included the Convertible Notes indebtedness as a current liability
on its balance sheet.
Note Purchase Agreement
On August 23, 2017, in connection with the Credit Agreement described above, we
entered into a Note Purchase Agreement (the "Note Purchase Agreement") with the
Lenders pursuant to which we repurchased approximately $14.9 million of
outstanding Inseego Notes from such Lenders in exchange for $11.9 million deemed
to have been loaned to us pursuant to the Credit Agreement and the accrued and
unpaid interest on such notes.
Settlement Agreement
Pursuant to the amended merger agreement with respect to our acquisition of
R.E.R. Enterprises, Inc. ("RER") and its wholly-owned subsidiary and principal
operating asset, Feeney Wireless, LLC (which has been renamed Inseego North
America, LLC) ("FW"), the Company agreed to pay a total of $15.0 million in
deferred purchase price in five cash installments over a four-year period,
beginning in March 2016. The Company also agreed to provide earn-out
consideration to the former stockholders of RER in the form of $6.1 million in
cash over a four-year period, beginning in March 2016, and issuance of up to
2,920,000 shares of the Company's common stock in three equal annual
installments, beginning in March 2016, contingent upon retention of certain key
personnel of RER.
On May 11, 2017, the Company initiated a lawsuit against the former stockholders
of RER in the Court of Chancery of the State of Delaware seeking recovery of
damages for civil conspiracy, fraud in the inducement, unjust enrichment and
breach of fiduciary duty. On January 16, 2018, the former stockholders of RER
filed an answer and counterclaim in the matter seeking recovery of certain
deferred and earn-out payments allegedly owed to them by the Company in
connection with the Company's acquisition of RER. On July 26, 2018, the Company
and the former stockholders of RER entered into a mutual general release and
settlement agreement (the "Settlement Agreement") pursuant to which the parties
agreed to release all claims against each other and the Company agreed to (i)
pay the former stockholders of RER $1.0 million in cash by August 17, 2018,

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(ii) immediately instruct its transfer agent to permit the transfer or sale of
973,333 shares of the Company's common stock that the Company had issued to the
former stockholders of RER in March 2017, (iii) immediately issue 500,000 shares
of the Company's common stock to the former stockholders of RER, (iv) within
12 months following the execution of the Settlement Agreement, deliver to the
former stockholders of RER an additional $1.0 million in cash, common stock, or
a combination thereof, at the Company's option, (v) within 24 months following
the execution of the Settlement Agreement deliver to the former stockholders of
RER an additional $1.0 million in cash, common stock, or a combination thereof,
at the Company's option, and (vi) file one or more registration statements with
respect to the resale of the shares of the Company's common stock issued to the
former stockholders of RER pursuant to the Settlement Agreement. The Company's
remaining liability under the Settlement Agreement at June 30, 2019 consists of
approximately $1.0 million in current liabilities and $1.0 million in long-term
liabilities.
Historical Cash Flows
The following table summarizes our unaudited condensed consolidated statements
of cash flows for the periods indicated (in thousands):
                                                                    Six Months Ended
                                                                        June 30,
                                                                   2019          2018
Net cash provided by (used in) operating activities             $ (10,055 )$     903
Net cash used in investing activities                             (11,320 )      (1,722 )
Net cash provided by (used in) financing activities                10,311          (175 )
Effect of exchange rates on cash                                      317        (1,368 )

Net decrease in cash, cash equivalents and restricted cash (10,747 ) (2,362 ) Cash, cash equivalents and restricted cash, beginning of period 31,076 21,259 Cash, cash equivalents and restricted cash, end of period $ 20,329$ 18,897



Operating activities. Net cash used in operating activities was $10.1 million
for the six months ended June 30, 2019, compared to net cash provided by
operating activities of $0.9 million for the same period in 2018. Net cash used
in operating activities for the six months ended June 30, 2019 was primarily
attributable to the net loss in the period and net cash used in working capital,
partially offset by non-cash charges for depreciation and amortization,
including the amortization of debt discount and debt issuance costs, and
share-based compensation expense. Net cash provided by operating activities for
the six months ended June 30, 2018 was primarily attributable to non-cash
charges for depreciation and amortization, including the amortization of debt
discount and debt issuance costs, provision for excess and obsolete inventory
and share-based compensation expense, partially offset by the net loss in the
period and net cash used in working capital.
Investing activities. Net cash used in investing activities during the six
months ended June 30, 2019 was $11.3 million, compared to net cash used in
investing activities of $1.7 million for the same period in 2018. Cash used in
investing activities during the six months ended June 30, 2019 and 2018 was
primarily related to the purchases of property, plant and equipment and
capitalization of certain costs related to the research and development of
software to be sold in our solutions.
Financing activities. Net cash provided by financing activities during the six
months ended June 30, 2019 was $10.3 million, compared to net cash used in
financing activities of $0.2 million for the same period in 2018. Net cash
provided by financing activities during the six months ended June 30, 2019 was
primarily related to proceeds received from the exercise of warrants to purchase
common stock and proceeds received from stock option exercises and the employee
stock purchase plan, partially offset by net repayments of DigiCore bank and
overdraft facilities, principal payments under finance lease obligations and
taxes paid on vested restricted stock units. Net cash used in financing
activities for the same period in 2018 was primarily related to repayments of
DigiCore bank and overdraft facilities, principal payments under finance lease
obligations, principal payments on a mortgage bond and taxes paid on vested
restricted stock units, partially offset by proceeds received from stock option
exercises and the employee stock purchase plan.
Other Liquidity Needs
As of June 30, 2019, we had available cash and cash equivalents totaling $20.3
million and a working capital deficit of $117.3 million. On August 9, 2019, the
Company issued and sold 10,000 shares of Series E Preferred Stock for an
aggregate purchase price of $10.0 million.
Under the terms of the indenture governing the Inseego Notes, each holder of the
notes has the right to require the Company to repurchase its notes for cash on
the Optional Repurchase Date. Should noteholders exercise this right, in
addition

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to the Company's obligation to repurchase the notes, such repurchase would
constitute a default under the Company's Credit Agreement. In addition, the
Novatel Wireless Notes (as defined below) are scheduled to mature on June 15,
2020. While the Company's management acknowledges that its current cash and cash
equivalents, together with anticipated cash flows from operations, will not be
sufficient to meet its working capital needs, including any required repurchase
of the Inseego Notes and repayment of the Credit Agreement and Novatel Wireless
Notes, without additional sources of cash, management does not believe that the
repurchase option will ultimately be exercised. The Company plans to address its
liquidity concerns through a recapitalization or restructuring transaction prior
to the Optional Repurchase Date, whereby the Company's debt obligations are
reduced and/or the repurchase and maturity dates are extended, and/or a capital
raising transaction involving the issuance of additional debt or equity
securities.
The Company's liquidity could be further compromised if there is any
interruption in its business operations, a material failure to satisfy its
contractual commitments or a failure to generate revenue from new or existing
products. Ultimately, the Company's ability to attain profitability and to
generate positive cash flow is dependent upon achieving a level of revenues
adequate to support its evolving cost structure and increasing working capital
needs. If events or circumstances occur such that the Company does not meet its
operating plan as expected, the Company may be required to raise additional
capital, reduce planned research and development activities, incur additional
restructuring charges or reduce other operating expenses which could have an
adverse impact on the Company's ability to achieve its intended business
objectives. There can be no assurance that any required or desired restructuring
or financing will be available on terms favorable to the Company, or at all. In
addition, in order to obtain additional borrowings, the Company must comply with
certain requirements under the Credit Agreement and the Inseego Indenture. If
additional funds are raised by the issuance of equity securities, Company
stockholders could experience dilution of their ownership interests and
securities issued may have rights senior to those of the holders of the
Company's common stock. If additional funds are raised by the issuance of debt
securities, the Company may be subject to additional limitations on its
operations.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.


Not applicable.

© Edgar Online, source Glimpses

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