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 make scheduled payments on, or to refinance our indebtedness,
including our 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;
•increases in costs, disruption of supply or the shortage of semiconductors or
other key components of our products;
•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 emergence of global public health emergencies, such as the recent outbreak
of the 2019 novel coronavirus (2019-nCoV), now known as "COVID-19", which could
extend lead times in our supply chain and lengthen sales cycles with our
customers;
•direct and indirect effects of COVID-19 on our employees, customers and supply
chain and the economy and financial markets;
•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 ("IIoT") 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 be successful in divesting assets or businesses we wish to sell;
•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, 2020 ("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", "Inseego Subscribe", "Inseego ManageTM ", the Inseego logo,
"DigiCore", "Novatel Wireless", the Novatel Wireless logo, "MiFi", "MiFi
Intelligent Mobile Hotspot", "Ctrack", the Ctrack logo, "Inseego North America",
and "Skyus" 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 and majority-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, 2020,
contained in our Form 10-K.
Business Overview
Inseego Corp. is a leader in the design and development of fixed and mobile
wireless solutions (advanced 4G and 5G NR), industrial IoT ("IIoT") and cloud
solutions for Fortune 500 enterprises, service providers, small and medium-sized
businesses, governments, and consumers 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, designed and developed in the
U.S., power mission critical applications with a "zero unscheduled downtime"
mandate, such as our 5G fixed wireless access ("FWA") gateway solutions, 4G and
5G mobile broadband, IIoT applications such as SD WAN failover management, asset
tracking and fleet management services. Our solutions are powered by our key
wireless innovations in mobile and FWA technologies, including a suite of
products employing the 5G NR standards, and purpose-built SaaS cloud platforms.
We have been at the forefront of the ways in which the world stays connected and
accesses information, and protects, and derives intelligence from that
information. With multiple first-to-market innovations across a number of
wireless technologies, including 5G, and a strong and growing portfolio of
hardware and software innovations for IIoT solutions, Inseego has been advancing
technology and driving industry transformations for over 30 years. It is this
proven expertise, commitment to quality, obsession with innovation and a
relentless focus on execution that makes us a preferred global partner of
service providers, distributors, value-added resellers, system integrators, and
enterprises worldwide.
On February 24, 2021, we entered into a Share Purchase Agreement (the "Purchase
Agreement") with an affiliate of Convergence Partners ("Convergence"), an
investment management firm in South Africa, to sell our Ctrack business
operations in Africa, Pakistan and the Middle East (together, "Ctrack South
Africa"), in an all-cash transaction for 528.9 million South African Rand
("ZAR") (approximately $36.6 million United States Dollars ("USD")) based on an
exchange rate on June 30, 2021 of 14.32 ZAR to 1 USD). The Purchase Agreement
provides for an adjustment to the purchase price based on a normalized level of
net working capital. The consummation of the sale was subject to a number of
customary conditions precedent. Additionally, the consummation of the sale was
subject to Convergence closing an investment fund.
On July 30, 2021, we completed the sale of Ctrack South Africa. Initial cash
proceeds of approximately $36600000.0 million were received. Final cash proceeds
net of transaction cost are subject to foreign exchange rates as well as certain
post-closing working capital adjustments that will be provided by Convergence
and agreed upon by us no later than 35 business days after completion of the
sale. The estimated gain upon sale is approximately $4.4 million, calculated
based on the foreign exchange rate as of July 30, 2021. The actual gain may
differ from this estimate, by up to $1 million to $2 million, as a result of
post-closing working capital adjustments and related foreign exchange
fluctuations.
Our Sources of Revenue
We provide intelligent wireless 4G and 5G hardware products for the worldwide
mobile communications and IIoT markets. Our hardware products address multiple
vertical markets including private LTE/5G networks, the First Responders Network
Authority/Firstnet, SD-WAN, telematics, remote monitoring and surveillance, and
fixed wireless access and mobile broadband devices. Our broad range of products
principally includes intelligent 4G and 5G fixed wireless routers and gateways,
and mobile hotspots, and wireless gateways and routers for IIoT applications, 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 global cellular wireless networks. Our mobile hotspots sold under the MiFi
brand have been sold to millions of end users, and 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.
Our MiFi customer base is comprised of wireless operators to whom we provide
intelligent fixed and mobile wireless devices. These wireless operators include
Verizon Wireless, AT&T, T-Mobile and Sprint in the United States, Rogers in
Canada, Telstra in Australia, as well as other international wireless operators,
distributors and various companies in other vertical markets and geographies.
We sell our wireless routers for IIoT, integrated telematics and mobile tracking
hardware devices through our direct sales force, value-added resellers and
through distributors. The customer base for our IIoT products is comprised of
transportation companies, industrial enterprises, manufacturers, application
service providers, system integrators and distributors in various
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industries, including fleet and vehicle transportation, aviation ground service
management, 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 IIoT
vertical markets, including fleet management, vehicle telematics, 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.
We classify our revenues from the sale of our products and services into two
distinct groupings, specifically IoT & Mobile Solutions and Enterprise SaaS
Solutions. Both IoT & Mobile Solutions and Enterprise SaaS Solutions revenues
include any hardware and software required for the respective solution.
Effective in the third quarter ended on September 30, 2020, our IoT & Mobile
Solutions now also includes our Device Management System, rebranded as Inseego
SubscribeTM, a hosted SaaS platform that helps organizations manage the
selection, deployment and spend of their customer's wireless assets, helping
them save money on personnel and telecom expenses. We reclassified our Inseego
Subscribe revenue stream, from Enterprise SaaS solutions, to better reflect our
end user delineation.
Our SaaS delivery platforms include our Ctrack platforms, which provide fleet,
vehicle, aviation, asset and other telematics applications. Since the sale of
our Ctrack South Africa operations was completed on July 30, 2021, certain
portions of our SaaS revenue will no longer be generated, but Inseego will
continue to provide telematics solutions in the rest of the world, including in
North America, Europe and Australia.
Factors Which May Influence Future Results of Operations
Net Revenues. We believe that our future net revenues may 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;
•deployment of 5G infrastructure equipment;
•adoption of 5G end point products;
•competition in the area of 5G technology;
•trade protection measures (such as tariffs and duties) and import or export
licensing requirements;
•our contract manufacturer's ability to secure necessary supply to of
semiconductors and other key components to build our devices;
•product pricing;
•the impact of the COVID-19 pandemic on our business; and
•the sale of our Ctrack South Africa operations;
•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, 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.
In December 2019, COVID-19 was reported to have surfaced in Wuhan, China,
resulting in shutdowns of manufacturing and commerce globally in the months that
followed. Since then, the COVID-19 pandemic has spread worldwide, and has
resulted in authorities implementing numerous measures to try to contain the
disease or slow its spread, such as travel bans and restrictions, quarantines,
shelter-in-place orders and shutdowns.

The demand environment for our 5G products during the three months ended
June 30, 2021 was consistent with our expectations, with continued demand for
our products due to a dramatic increase around the world in remote or tele-work
and
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learning due to the COVID-19 pandemic. Recently, our IoT & Mobile Solutions have
experienced lower sales of LTE gigabit hotspots as COVID-19 pandemic demand have
eased. The macroeconomic environment remains uncertain and the demand for our
products in the prior year may not be sustainable for the long term. We will
continue to monitor the implications of the COVID-19 pandemic on our business,
as well as our customers' and suppliers' businesses.
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 and costs related to outside services. Also included in cost of net
revenues are costs related to inventory adjustments, including
acquisition-related amortization of the fair value of inventory, 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, as well as discontinued operations, if any.
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. 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.
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Results of Operations
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Net revenues. Net revenues for the three months ended June 30, 2021 were
$65.7 million, compared to $80.7 million for the same period in 2020.
The following table summarizes net revenues by our two product categories (in
thousands):
                                    Three Months Ended
                                         June 30,                      Change
Product Category                    2021           2020            $             %
IoT & Mobile Solutions          $   51,836      $ 69,314      $ (17,478)      (25.2) %
Enterprise SaaS Solutions           13,857        11,375          2,482        21.8  %
Total                           $   65,693      $ 80,689      $ (14,996)      (18.6) %



IoT & Mobile Solutions. The decrease in IoT & Mobile Solutions net revenues is
primarily due to decreases in our enterprise and carrier offerings within IoT &
Mobile Solutions, and lower sales of LTE gigabit hotspots as COVID-19 pandemic
demand eased, partially offset by increased sales of our second-generation 5G
hotspot related to our MiFi business and increased revenues in our Inseego
Subscribe business due to subscriber growth.

Enterprise SaaS Solutions. Enterprise SaaS Solutions net revenues increased
year-over-year as we experienced COVID-19 related installation restrictions in
fiscal 2020 and such imposed restrictions were lifted in fiscal 2021. The effect
of the weakening U.S. Dollar to South Africa Rand foreign exchange rates on
international sales also contributed to the increase in net revenues.
Cost of net revenues. Cost of net revenues for the three months ended June 30,
2021 was $45.3 million, or 69.0% of net revenues, compared to $58.7 million, or
72.7% of net revenues, for the same period in 2020.
The following table summarizes cost of net revenues by our two product
categories (in thousands):
                                    Three Months Ended
                                         June 30,                      Change
Product Category                    2021           2020            $             %
IoT & Mobile Solutions          $   39,740      $ 54,240      $ (14,500)      (26.7) %
Enterprise SaaS Solutions            5,604         4,449          1,155        26.0  %

Total                           $   45,344      $ 58,689      $ (13,345)      (22.7) %


IoT & Mobile Solutions. The decrease in IoT & Mobile Solutions cost of net
revenues is primarily a result of lower sales of LTE gigabit hotspots.
Enterprise SaaS Solutions. Enterprise SaaS Solutions cost of net revenues
increased by 26.0% compared to the same period in 2020 primarily due to
increased sales, and the weakening U.S. Dollar to South Africa Rand foreign
exchange rates on international costs.
Gross profit. Gross profit for the three months ended June 30, 2021 was
$20.3 million, or a gross margin of 31.0%, compared to $22.0 million, or a gross
margin of 27.3%, for the same period in 2020. The increase in gross margin was
primarily attributable to the more favorable mix of our product offerings, as
well as favorable margins on our Inseego Subscribe revenue.
Research and development expenses. Research and development expenses for the
three months ended June 30, 2021 were $11.8 million, or 17.9% of net revenues,
compared to $10.5 million, or 13.1% of net revenues, for the same period in
2020. The increase was primarily a result of staffing, test units, and other
development spending related to our 5G product programs, partially offset by the
timing and amount of bonus grants to eligible employees during the first quarter
of fiscal 2021, compared to bonus grants awarded to employees during the second
quarter of fiscal 2020. See Note 6. Share-based Compensation in the accompanying
unaudited condensed consolidated financial statements for further information.
Sales and marketing expenses. Sales and marketing expenses for the three months
ended June 30, 2021 were $9.8 million, or 14.9% of net revenues, compared to
$8.6 million, or 10.7% of net revenues, for the same period in 2020. The
increase was primarily a result of higher spend on marketing 5G products,
partially offset by the timing and amount of bonus grants to eligible employees
during the first quarter of fiscal 2021, compared to bonus grants awarded to
employees during the
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second quarter of fiscal 2020. See Note 6. Share-based Compensation in the
accompanying unaudited condensed consolidated financial statements for further
information.
General and administrative expenses. General and administrative expenses for the
three months ended June 30, 2021 were $7.4 million, or 11.3% of net revenues,
compared to $7.4 million, or 9.2% of net revenues, for the same period in 2020.
The increase was primarily a result of higher legal expenses, partially offset
by the timing and amount of bonus grants to eligible employees during the first
quarter of 2021, compared to bonus grants awarded to employees during the second
quarter of fiscal 2020. See Note 6. Share-based Compensation in the accompanying
unaudited condensed consolidated financial statements for further information.
Amortization of purchased intangible assets. Amortization of purchased
intangible assets for each of the three months ended June 30, 2021 and 2020 was
$0.7 million and $0.8 million, respectively. The decrease was primarily as a
result of certain purchased intangible assets being fully amortized as of the
fourth quarter of 2020.
Impairment of capitalized software. During the three months ended June 30, 2021,
we recorded a loss of $1.2 million on capitalized software development costs.
There was no such expense for the same period in 2020.
Loss on debt conversion and extinguishment, net. The loss on debt conversion and
extinguishment, net of $67.2 million during the three months ended June 30, 2020
was primarily related to the extinguishment of the 2022 Notes, while there was
no such expense for the same period in fiscal 2021.
Interest expense, net. Interest expense, net, for the three months ended
June 30, 2021 and 2020 was $1.7 million and $3.2 million, respectively. The
decrease in interest expense was primarily due to the lower interest rate on the
2025 Notes, as compared to the 2022 Notes and our previous term loan, partially
offset by the higher principal amount of 2025 Notes.
Other income (expense), net. Other expense, net, for the three months ended
June 30, 2021 was $0.6 million, which primarily includes the fair value
adjustment related to our interest make-whole arrangement, as well as
transaction costs incurred related to the sale of Ctrack South Africa. For the
same period in 2020, other income, net, was $0.8 million, which primarily
includes the fair value adjustment related to our interest make-whole
arrangement.
Income tax provision (benefit). The income tax provision of $0.2 million for the
three months ended June 30, 2021 and the income tax benefit of $0.1 million for
the same period in 2020, respectively, primarily relate to provision in fiscal
2021 or benefits in fiscal 2020 from certain of our entities in foreign
jurisdictions.
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Net loss (income) attributable to noncontrolling interests. Net income
attributable to noncontrolling interests for the three months ended June 30,
2021 was nil, compared to a net loss attributable to noncontrolling interests of
$6,000 for the same period in 2020.
Series E preferred stock dividends. During the three months ended June 30, 2021
and 2020, we recorded dividends of $0.9 million and $0.8 million, respectively,
on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value
$0.001 per share (the "Series E Preferred Stock"). The increase was primarily
attributable to the additional shares of Series E Preferred Stock issued in
March 2020. See Note 8. Private Placements and Public Offering in the
accompanying unaudited condensed consolidated financial statements for further
information.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net revenues. Net revenues for the six months ended June 30, 2021 were $123.3
million, compared to $137.5 million for the same period in 2020.
The following table summarizes net revenues by our two product categories (in
thousands):
                                     Six Months Ended
                                         June 30,                      Change
Product Category                   2021           2020             $             %
IoT & Mobile Solutions             94,795      $ 111,729      $ (16,934)      (15.2) %
Enterprise SaaS Solutions          28,495         25,800          2,695        10.4  %
Total                           $ 123,290      $ 137,529      $ (14,239)      (10.4) %


IoT & Mobile Solutions. The decrease in IoT & Mobile Solutions net revenues is
primarily due to decreases in our enterprise and carrier offerings within IoT &
Mobile Solutions, and lower sales of LTE gigabit hotspots as COVID-19 pandemic
demand eased, partially offset by increased sales of our second-generation 5G
hotspot related to our MiFi business and increased revenues in our Inseego
Subscribe business due to subscriber growth.

Enterprise SaaS Solutions. Enterprise SaaS Solutions net revenues increased
year-over-year as we experienced COVID-19 related installation restrictions in
fiscal 2020 and such imposed restrictions were lifted in fiscal 2021. The effect
of the weakening U.S. Dollar to South Africa Rand foreign exchange rates on
international sales also contributed to the increase in net revenues.
Cost of net revenues. Cost of net revenues for the six months ended June 30,
2021 was $84.5 million or 68.5% of net revenues, compared to $98.3 million or
71.5% of net revenues, for the six months ended June 30, 2020.
The following table summarizes cost of net revenues by our two product
categories (in thousands):
                                    Six Months Ended
                                        June 30,                     Change
Product Category                   2021          2020            $             %
IoT & Mobile Solutions            73,178        88,279        (15,101)      (17.1) %
Enterprise SaaS Solutions         11,288        10,023          1,265        12.6  %
Total                           $ 84,466      $ 98,302      $ (13,836)      (14.1) %

IoT & Mobile Solutions. The decrease in IoT & Mobile Solutions cost of net revenues is primarily a result of the decreased sales in our LTE gigabit hotspots.



Enterprise SaaS Solutions. Enterprise SaaS Solutions cost of net revenues
increased by 12.6% compared to the same period in 2020 primarily due to
increased sales, and the weakening U.S. Dollar to South Africa Rand foreign
exchange rates on international costs.
Gross profit. Gross profit for the six months ended June 30, 2021 was $38.8
million, or a gross margin of 31.5%, compared to $39.2 million, or a gross
margin of 28.5%, for the same period in 2020. The increase in gross margin was
primarily attributable to the favorable mix of our product offerings, as well as
favorable margins on our Inseego Subscribe revenue.
Research and development expenses. Research and development expenses for the six
months ended June 30, 2021 were $26.3 million, or 21.4% of net revenues,
compared to $18.8 million, or 13.6% of net revenues, for the same period in
2020. The increase was primarily a result of staffing, test units, other
development spending related to 5G product programs, and the amount of bonus
grants to eligible employees during the six months ended June 30, 2021 compared
to the amount of bonus
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grants awarded to eligible employees during the six months ended June 30, 2020.
See Note 6. Share-based Compensation in the accompanying unaudited condensed
consolidated financial statements for further information.
Sales and marketing expenses. Sales and marketing expenses for the six months
ended June 30, 2021 were $20.8 million, or 16.9% of net revenues, compared to
$17.4 million, or 12.7% of net revenues, for the same period in 2020. The
increase was primarily a result of higher spend on marketing 5G products, and
the amount of bonus grants to eligible employees during the six months ended
June 30, 2021 compared to the amount of bonus grants awarded to eligible
employees during the six months ended June 30, 2020. See Note 6. Share-based
Compensation in the accompanying unaudited condensed consolidated financial
statements for further information.
General and administrative expenses. General and administrative expenses for the
six months ended June 30, 2021 were $16.1 million, or 13.0% of net revenues,
compared to $14.6 million, or 10.6% of net revenues, for the same period in
2020. The increase was primarily a result of the amount of bonus grants to
eligible employees during the six months ended June 30, 2021 compared to the
amount of bonus grants awarded to eligible employees during the six months ended
June 30, 2020. See Note 6. Share-based Compensation in the accompanying
unaudited condensed consolidated financial statements for further information.
Amortization of purchased intangible assets. Amortization of purchased
intangible assets for each of the six months ended June 30, 2021 and 2020 was
$1.1 million and $1.6 million, respectively. The decrease was primarily as a
result of certain purchased intangible assets being fully amortized as of the
fourth quarter of 2020.
Impairment of capitalized software. During the six months ended June 30, 2021,
we recorded a loss of $1.2 million on capitalized software development costs.
There was no such expense for the same period in 2020.
Loss on debt conversion and extinguishment. The loss on debt conversion and
extinguishment, net for each of the six months ended June 30, 2021 and 2020 was
$0.4 million and $75.2 million, respectively, and primarily represents the loss
on debt conversion of the 2025 Notes and debt conversion and extinguishment of
the 2022 Notes, respectively.
Interest expense, net. Interest expense, net for each of the six months ended
June 30, 2021 and 2020 was $3.5 million and $6.5 million, respectively. The
decrease in interest expense was primarily due to the lower interest rate on the
2025 Notes, as compared to the 2022 Notes and our previous term loan, partially
offset by the higher principal amount of the 2025 Notes.
Other income (expense), net. Other income, net, for each of the six months ended
June 30, 2021 and 2020 was $1.1 million and $1.8 million, respectively, which
primarily includes the fair value adjustment related to our interest make-whole
arrangement as well as foreign currency transaction gains and losses.
Income tax provision (benefit). The income tax provision of $0.4 million for the
six months ended June 30, 2021 and the income tax benefit of $24,000 for the six
months ended June 30, 2020, respectively, primarily relate to provision in
fiscal 2021 or benefits in fiscal 2020 from certain of our entities in foreign
jurisdictions.
Net loss (income) attributable to noncontrolling interests. Net income
attributable to noncontrolling interests for the six months ended June 30, 2021
was $0.2 million, compared to a net income attributable to noncontrolling
interests of $26,000 for the same period in 2020.
Series E preferred stock dividends. During the six months ended June 30, 2021,
and 2020 we recorded dividends of $1.8 million and $1.2 million, respectively,
on our Series E Preferred Stock. The increase was primarily attributable to the
additional shares of Series E Preferred Stock issued in March 2020. See Note 8.
Private Placements and Public Offering in the accompanying unaudited condensed
consolidated financial statements for further information.
Liquidity and Capital Resources
As of June 30, 2021, the Company had available cash and cash equivalents
totaling $36.7 million, including $5.8 million cash and cash equivalents
classified as held-for-sale, and working capital of $32.4 million, excluding
assets and liabilities classified as held-for-sale.
On March 6, 2020, we issued and sold 25,000 shares of Series E Preferred Stock
for an aggregate purchase price of $25.0 million.
In the first quarter of 2020, $59.9 million of our 5.5% convertible senior notes
due 2022 (the "2022 Notes" formerly referred to as the "Inseego Notes") were
exchanged for common stock in private exchange transactions. Additionally, in
the second quarter of 2020, we restructured our outstanding debt by completing a
$100.0 million registered public offering (the "Offering") of 3.25% convertible
senior notes due 2025 (the "2025 Notes") and also entered into
privately-negotiated Exchange Agreements, pursuant to which an aggregate of
$45.0 million in principal amount of the 2022 Notes were exchanged for an
aggregate of $32.0 million in cash and $80.4 million in principal amount of the
2025 Notes (the "Private Exchange
                                       33
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Transactions"). We also used a portion of the proceeds from the Offering to
repay in full our previous term loan. In the third quarter of 2020, we redeemed
the remaining $2,000 principal amount of the 2022 Notes.
As of June 30, 2021, our outstanding debt primarily consisted of $161.9 million
in principal amount of 2025 Notes.
On January 25, 2021, we entered into an Equity Distribution Agreement with
Canaccord Genuity LLC (the "Agent"), pursuant to which we may offer and sell,
from time to time, through or to the Agent, up to $40.0 million of shares of our
common stock (the "ATM Offering"). In January 2021, we sold 1,516,073 shares of
common stock, at an average price of $20.11 per share, for net proceeds of
$29.4 million, after deducting underwriter fees and discounts of $0.9 million,
and other offering fees, pursuant to the ATM Offering.
On July 30, 2021, the Company completed the sale of Ctrack South Africa. Initial
cash proceeds of approximately $36600000.0 million were received. Final cash
proceeds net of transaction cost will be subject to foreign exchange rates as
well as certain post-closing working capital adjustments that will be provided
by Convergence and agreed upon by the Company no later than 35 business days
after completion of the sale.
We have a history of operating and net losses and overall usage of cash from
operating and investing activities. Our management believes that our cash and
cash equivalents, together with anticipated cash flows from operations, will be
sufficient to meet our cash flow needs for the next twelve months from the
filing date of this report. Our ability to attain more profitable operations and
continue to generate positive cash flow is dependent upon achieving a level and
mix of revenues adequate to support our evolving cost structure. If events or
circumstances occur such that we do not meet its operating plan as expected, or
if we become obligated to pay unforeseen expenditures as a result of ongoing
litigation, we may be required to raise capital, reduce planned research and
development activities, incur additional restructuring charges or reduce other
operating expenses which could have an adverse impact on our ability to achieve
our intended business objectives.
Our liquidity could be impaired if there is any interruption in our business
operations, a material failure to satisfy our contractual commitments or a
failure to generate revenue from new or existing products. There can be no
assurance that any required or desired restructuring or financing will be
available on terms favorable to us, or at all. Additionally, we are uncertain of
the full extent to which the COVID-19 pandemic will impact our business,
operations and financial results.
Contractual Obligations and Commitments

There were no material changes in our contractual obligations in the second quarter of 2021.



Convertible Notes

2025 Notes

On May 12, 2020, we completed a registered public Offering of $100.0 million aggregate principal amount of 2025 Notes.



On May 12, 2020, we also entered into separate privately-negotiated Exchange
Agreements certain holders of the 2022 Notes. Pursuant to the Exchange
Agreements, each of these noteholders agreed to exchange the 2022 Notes that
they held (representing an aggregate of $45.0 million principal amount of 2022
Notes with an estimated fair value of approximately $112.4 million as of the
date of exchange) for an aggregate of $32.0 million in cash and $80.4 million
principal amount of 2025 Notes in concurrent Private Exchange Transactions. The
2025 Notes issued in the Private Exchange Transactions are part of the same
series as the 2025 Notes issued in the Offering.

We issued the 2025 Notes under an indenture, dated May 12, 2020 (the "Base
Indenture"), between the Company and Wilmington Trust, National Association, as
trustee (the "Trustee"), as supplemented by the first supplemental indenture,
dated May 12, 2020 (the "Supplemental Indenture" and, together with the Base
Indenture, the "Indenture"), between us and the Trustee.

The 2025 Notes will mature on May 1, 2025, unless earlier repurchased, redeemed
or converted. The 2025 Notes are senior unsecured obligations of the Company and
bear interest at an annual rate of 3.25%, payable semi-annually in arrears on
May 1 and November 1 of each year, beginning on November 1, 2020.

Holders of the 2025 Notes may convert the 2025 Notes into shares of our common
stock (together with cash in lieu of any fractional share), at their option, at
any time until the close of business on the scheduled trading day immediately
before the maturity date. Upon conversion of the 2025 Notes, we will deliver for
each $1,000 principal amount of 2025 Notes converted a number of shares of
common stock (together with cash in lieu of any fractional share), equal to the
conversion rate.

The initial conversion rate for the 2025 Notes is 79.2896 shares of common stock
per $1,000 principal amount of 2025 Notes, which represents an initial
conversion price of approximately $12.61 per share, and is subject to adjustment
upon the occurrence of certain events, including, but not limited to, certain
stock dividends, splits and combinations, the issuance of
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certain rights, options or warrants to holders of the common stock, certain distributions of assets, debt securities, capital stock or other property to holders of the common stock, cash dividends on the common stock and certain Company tender or exchange offers.



Holders of the 2025 Notes who convert their 2025 Notes may also be entitled to
receive, under certain circumstances, an interest make-whole payment payable in,
at the Company's election, either cash or shares of the Common Stock (together
with cash in lieu of any fractional share).

If a fundamental change (as defined in the Indenture) occurs at any time prior
to the maturity date, then the noteholders may require us to repurchase their
2025 Notes at a cash repurchase price equal to the principal amount of the 2025
Notes to be repurchased, plus accrued and unpaid interest, if any, to, but
excluding, the fundamental change repurchase date. If a
make-whole fundamental change (as defined in the Indenture) occurs, then we will
in certain circumstances increase the conversion rate for a specified period of
time.

The 2025 Notes will be redeemable, in whole or in part, at our option at any
time, and from time to time, on or after May 6, 2023 and on or before the
scheduled trading day before the maturity date, at a cash redemption price equal
to the principal amount of the 2025 Notes to be redeemed, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date, as long as the
last reported sale price per share of the common stock exceeds 130% of the
conversion price on (i) each of at least 20 trading days, whether or not
consecutive, during the 30 consecutive trading days ending on, and including,
the trading day immediately before the date we send the related redemption
notice; and (ii) the trading day immediately before the date we send such
notice.

The Indenture contains customary events of default. If an event of default
(other than certain events of bankruptcy, insolvency or reorganization involving
the Company) occurs and is continuing, the Trustee, by notice to the Company, or
the holders of the 2025 Notes representing at least 25% in aggregate principal
amount of the outstanding 2025 Notes, by notice to the Company and the Trustee,
may declare 100% of the principal of, and all accrued and unpaid interest on,
all of the then outstanding 2025 Notes to be due and payable immediately. Upon
the occurrence of certain events of bankruptcy, insolvency or reorganization
involving the Company, 100% of the principal of, and all accrued and unpaid
interest on, all of the then outstanding 2025 Notes will automatically become
immediately due and payable. Notwithstanding the foregoing, the Indenture
provides that, to the extent the Company elects, the sole remedy for an event of
default relating to certain failures by the Company to comply with certain
reporting covenants in the Indenture will, for the first 360 days after such
event of default, consist exclusively of the right to receive additional
interest on the 2025 Notes.

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,
                                                                            2021               2020
Net cash (used in) provided by operating activities                     $ (12,030)         $   4,662
Net cash used in investing activities                                     (17,434)           (13,233)
Net cash provided by financing activities                                  29,511             41,144
Effect of exchange rates on cash                                              321             (2,547)
Net increase in cash, cash equivalents and restricted cash                    368             30,026
Cash, cash equivalents and restricted cash, beginning of period            40,015             12,074
Cash, cash equivalents, and restricted cash, end of period1             $

40,383 $ 42,100




1Cash, cash equivalents and restricted cash balance includes cash, cash
equivalents and restricted cash classified as held for sale as of June 30, 2021.
Operating activities. Net cash used in operating activities was $12.0 million
for the six months ended June 30, 2021, compared to net cash provided by
operating activities of $4.7 million for the same period in 2020. Net cash used
in operating activities for the six months ended June 30, 2021 was primarily
attributable to net loss incurred during the period, net cash used by working
capital, and fair value adjustment on derivative instrument, partially offset by
depreciation and amortization, share-based compensation expense, and the
amortization of debt discount and debt issuance costs. Net cash provided by
operating activities for the six months ended June 30, 2020 was primarily
attributable to net cash provided by working capital, non-cash charges for the
debt conversion and extinguishment of the 2022 Notes, depreciation and
amortization, including the
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amortization of debt discount and debt issuance costs, and share-based
compensation expense, partially offset by the net loss in the period.
Investing activities. Net cash used in investing activities during the six
months ended June 30, 2021 was $17.4 million, compared to net cash used in
investing activities of $13.2 million for the same period in 2020. Cash used in
investing activities during the six months ended June 30, 2021 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 products, in large part due to the increase in development in support of 5G
products and services. Cash used in investing activities during the same period
in 2020 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 products, in large part due to the increase in
development in support of 5G products and services.
Financing activities. Net cash provided by financing activities during the six
months ended June 30, 2021 was $29.5 million, compared to net cash provided by
financing activities of $41.1 million for the same period in 2020. Net cash
provided by financing activities during the six months ended June 30, 2021 was
primarily related to net proceeds received from the ATM Offering, proceeds from
stock option exercises and purchases through our employee stock purchase plan,
partially offset by the principal payments under finance lease obligations and
taxes paid on vested restricted stock units. Net cash provided by financing
activities for the same period in 2020 was primarily related to proceeds
received from the registered Offering of 2025 Notes, the sale of Series E
Preferred Stock, the exercise of warrants to purchase common stock, and stock
option exercises, partially offset by payoff of the Term Loan and related
expenses, cash paid to investors in the Private Exchange Transactions, payment
of debt issuance costs, repurchase of Series E Preferred Stock, principal
payments under finance lease obligations, and taxes paid on vested restricted
stock units.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet arrangements.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk in the ordinary course of our business.
Our revenue, earnings, cash flows, receivables, and payables are subject to
fluctuations due to changes in foreign currency exchange rates. The ongoing
COVID-19 pandemic has increased the volatility of global financial markets,
which may increase our foreign currency exchange risk.
Foreign Currency Exchange Risk

The Company's results of operations and cash flows are subject to fluctuations
due to changes in foreign currency exchange rates. A majority of the Company's
revenue is denominated in U.S. dollars, and therefore, our revenue is not
directly subject to foreign currency risk. However, as we have operations in
foreign countries, including South Africa and Europe, a stronger U.S. dollar
could make our products and services more expensive in foreign countries and
therefore reduce demand. A weaker U.S. dollar could have the opposite effect.
Such economic exposure to currency fluctuations is difficult to measure or
predict because our sales are also influenced by many other factors.
For the six months ended June 30, 2021, sales denominated in foreign currencies
were approximately 23.6% of total revenue. The Company's expenses are generally
denominated in the currencies in which our operations are located, which is
primarily in the U.S. and to a lesser extent in South Africa and Europe. The
Company's results of operations and cash flows are, therefore, subject to
fluctuations due to changes in foreign currency exchange rates and may be
adversely affected in the future due to changes in foreign exchange rates. These
foreign functional currencies consist of the South African Rand, pound sterling,
Euro, and Australian Dollar (collectively, the "Foreign Functional Currencies").
For the six months ended June 30, 2021, a hypothetical 10% change in foreign
functional currency exchange rates would have increased or decreased our revenue
by approximately $2.8 million. Actual gains and losses in the future may differ
materially from the hypothetical gains and losses discussed above based on
changes in the timing and amount of foreign currency exchange rate movements.
Additionally, with the completion of Ctrack South Africa operations divestiture,
our foreign exchange risk is expected to decrease. Net foreign currency
translation losses of $0.7 million were recorded for the six months ended
June 30, 2021.
Item 4.   Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rule
13a-15(e) and 15d-15(e) promulgated under the Exchange Act, that are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's
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management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.
As required by Rule 13a-15(b) promulgated under the Exchange Act, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of June 30,
2021, the end of the period covered by this report. Based on the foregoing, our
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective as of June 30, 2021.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act, during the three months ended June 30, 2021, that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
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