INSEEGO CORP. (INSG) FY 2022 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This report contains certain forward-looking statements relating to future events or our future financial performance. These statements are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in this report. You are cautioned not to place undue reliance on this information which speaks only as of the date of this report. Except as required by law, we assume no responsibility for updating any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of the important risks related to our business and future operating performance, see the discussion under the caption “Item 1A. Risk Factors” and under the caption “Factors Which May Influence Future Results of Operations” below.

Overview

Inseego Corp. is a leader in the design and development of fixed and mobile wireless solutions (advanced 4G and 5G NR), 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 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 July 30, 2021, we completed the sale of Ctrack South Africa to an affiliate of Convergence. Initial cash proceeds of $36.6 million were received. Final cash proceeds were subject to certain post-closing working capital adjustments which totaled $2.6 million, $2.2 million of which was received on October 29, 2021, and the remaining $0.4 million was offset with our existing accounts payable balance to Convergence.

Business Segment Reporting

We operate as one business segment. Our Chief Executive Officer, who is also our Chief Operating Decision Maker, evaluates the business as a single entity and reviews financial information and makes business decisions based on the overall results of the business. As such, our operations constitute a single operating segment and one reportable segment.

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;

•deployment of 5G infrastructure equipment;

•adoption of 5G end point products;

•competition in the area of 5G technology;

•product pricing; and

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•changes in technologies.

Our revenues are also significantly dependent upon the availability of materials and components used in our hardware products.

A number of the products that we invested in and launched in 2021 and 2022 will continue to drive revenue in 2023 as the 5G markets grow. We will supplement our portfolio with strategic additions of both hardware and SaaS offerings 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 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 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.

Operating Results. Our results are affected by numerous macroeconomic factors including inflation, consumer spending confidence and global supply chains. The existence of inflation in the U.S. and global economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased costs of labor, fluctuating exchange rates and other similar effects. If the inflation rate continues to increase, it could affect our expenses, especially employee compensation expense. Inflation and related increases in interest rates could also increase our customers' operating costs, which could result in reduced operating budgets. To the extent our products are perceived by customers and potential customers as discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Such delays or reductions in technology spending are often associated with enhanced budget scrutiny by our customers including additional levels of approvals, cloud optimization efforts and additional time to evaluate and test our products, which can lead to long and unpredictable sales cycles. Such increases have, and may continue to have, a negative impact on the Company’s revenue and profit margins, if the selling prices of products do not increase with the increased costs.

Business Strategy. 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.

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Results of Operations

The following table sets forth our consolidated statements of operations in dollars (in thousands) and expressed as a percentage of net revenues, derived from the accompanying consolidated financial statements for the periods indicated.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net revenues. Net revenues for the year ended December 31, 2022 were $245.3 million, a decrease of $17.1 million, or 6.5%, compared to the same period in 2021.

The following table summarizes net revenues by our two product categories (dollars in thousands):

IoT & Mobile Solutions. The $0.4 million increase in IoT & Mobile Solutions net revenues is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased. Sales of our second-generation and fourth generation (launched in later part of 2022) 5G hotspot related to our MiFi business also increased as well as revenues in our Enterprise and Inseego Subscribe businesses due to subscriber growth.

Enterprise SaaS Solutions. Enterprise SaaS Solutions net revenues decreased year-over-year as a result of the divestiture of Ctrack South Africa on July 30, 2021. SaaS revenue was no longer generated in Africa, Pakistan or the Middle East beginning in August 2021. See Part IV Item 15 Note 5. Business Divestiture. Following the divestiture of Ctrack South Africa, we continue to provide telematics solutions in the rest of the world, including in Europe and Australia. The resulting decrease was partially offset by an increase in Enterprise SaaS Solutions net revenue throughout the rest of the world as a result of the lifting of COVID-19 related installation restrictions in place during fiscal 2021.

Cost of net revenues. Cost of net revenues for the year ended December 31, 2022 was $178.4 million, or 72.7% of net revenues, compared to $186.5 million, or 71.1% of net revenues, for the same period in 2021.

The following table summarizes cost of net revenues by our two product categories (dollars in thousands):

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 decreased as a result of the divestiture of Ctrack South Africa on July 30, 2021. See Part IV Item 15 Note 5. Business Divestiture.

Gross profit. Gross profit for the year ended December 31, 2022 was $66.9 million, or a gross margin of 27.3%, compared to $75.9 million, or a gross margin of 28.9%, for the same period in 2021. The gross margin percentage slightly decreased due to an unfavorable product mix and a decrease in Enterprise SaaS Solutions as a result of the divestiture of Ctrack South Africa which had a higher gross margin, offset by higher Inseego Subscribe revenue and gross margin.

Operating costs and expenses. The following table summarizes operating costs and expenses (dollars in thousands):

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Research and development expenses. Research and development expenses for the year ended December 31, 2022 were $59.2 million, or 24.1% of net revenues, compared to $52.7 million, or 20.1% of net revenues, for the same period in 2021. The increase was primarily driven by an increase in capitalized project amortization, partially offset by a decrease in consulting services for 2021 efforts towards internal SaaS use projects.

Sales and marketing expenses. Sales and marketing expenses for the year ended December 31, 2022 were $33.5 million, or 13.7% of net revenues, compared to $38.2 million, or 14.6% of net revenues, for the same period in 2021. The decrease in sales and marketing expenses was due to the divestiture of Ctrack South Africa employees on July 30, 2021. See Part IV Item 15. Note 5. Business Divestiture.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2022 were $27.3 million, or 11.1% of net revenues, compared to $28.3 million, or 10.8% of net revenues, for the same period in 2021. The decrease was primarily due to the divestiture of Ctrack South Africa on July 30, 2021. See Part IV Item 15. Note 5. Business Divestiture for more information on the sale of Ctrack South Africa. This decrease was partially offset by the impact of bonus stock award grants and a full year of licenses for our enterprise resource planning (“ERP”) system. See Part IV Item 15. Note 9. Share-based Compensation in the accompanying consolidated financial statements for further information.

Amortization of purchased intangible assets. The amortization of purchased intangible assets for the years ended December 31, 2022 and 2021 was $1.7 million and $2.1 million, respectively. The change was related to the divestiture of Ctrack South Africa for the year ended December 31, 2021.

Impairment of capitalized software. For the years ended December 31, 2022 and 2021, we recorded losses of $3.0 million and $1.2 million, respectively, on capitalized software development costs related to decreases in sales and dormant projects.

Other income (expense). The following table summarizes other income (expense) (dollars in thousands):

Gain on sale of Ctrack South Africa. Gain on sale of Ctrack South Africa during the year ended December 31, 2021 was $5.3 million, related to the gain recognized on sale of Ctrack South Africa, while there was no such gain for the same period in fiscal 2022.

Loss on debt conversion and extinguishment, net. The loss on debt conversion and extinguishment, net for each of the years ended December 31, 2022 and 2021 was $0.5 million and $0.4 million, respectively.

Interest expense, net. Interest expense, net, for the years ended December 31, 2022 and 2021 was $8.6 million and $6.9 million, respectively. The increase in interest expense was primarily due to an adjustment made to the 2022 Notes.

Other (expense) income, net. Other expense, net, for the year ended December 31, 2022 was $1.5 million, which primarily included the fair value adjustment related to our interest make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses. Other income, net for the same period in 2021 was $0.8 million, which primarily consisted of the fair value adjustment related to our interest make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses.

Income tax provision, net income attributable to noncontrolling interests, and Series E preferred stock dividends and deemed dividends from the preferred stock exchange (dollars in thousands):

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Income tax (benefit) provision. Income tax provision for the years ended December 31, 2022 and 2021 was a benefit of $0.5 million and a provision of $0.2 million, respectively, which, in each case, primarily related to certain of our profitable subsidiaries in foreign jurisdictions. The effective tax rate for the year ended December 31, 2022 is different than the U.S. statutory rate primarily due to a valuation allowance recorded against additional tax assets generated during the year and certain profitable foreign subsidiaries.

Net income attributable to noncontrolling interests. For the years ended December 31, 2022 and 2021 there was $0 and $0.2 million, respectively, of net income attributable to noncontrolling interests. Due to the sale of Ctrack South Africa in 2021, no such non-controlling interest existed in 2022.

Series E Preferred Stock dividends and deemed dividend from the preferred stock exchange. During the years ended December 31, 2022 and 2021, we recorded dividends of $2.7 million and $4.2 million, respectively, on our Series E Preferred Stock. The decrease was primarily attributable to the impact of the deemed dividend of $1.1 million as part of the preferred stock exchange in September 2021, resulting in a lower preferred stock dividends accrued through the end of 2022. See Part IV Item 15. Note 8. Preferred Stock and Common Stock in the accompanying consolidated financial statements for further information.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Net revenues. Net revenues for the year ended December 31, 2021 were $262.4 million, a decrease of $51.4 million, or 16.4%, compared to the same period in 2020.

The following table summarizes net revenues by our two product categories (dollars in thousands):

IoT & Mobile Solutions. The decrease in IoT & Mobile Solutions net revenues is primarily due to decreases in our enterprise and carrier offerings, and lower sales of LTE gigabit hotspots as the 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 decreased year-over-year as a result of the divestiture of Ctrack South Africa as of July 30, 2021. SaaS revenue was no longer generated in Africa, Pakistan or the Middle East beginning in August 2021. See Part IV Item 15 Note 5. Business Divestiture. Following the divestiture of Ctrack South Africa, we continue to provide telematics solutions in the rest of the world, including in Europe and Australia. The impact of the divestiture was partially offset by an increase in Enterprise SaaS Solutions net revenue throughout the rest of the world as a result of the lifting of COVID-19 related installation restrictions in place during fiscal 2021.

Cost of net revenues. Cost of net revenues for the year ended December 31, 2021 was $186.5 million, or 71.1% of net revenues, compared to $223.0 million, or 71.1% of net revenues, for the same period in 2020.

The following table summarizes cost of net revenues by our two product categories (dollars in thousands):

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 decreased as a result of the divestiture of Ctrack South Africa on July 30, 2021. See Part IV Item 15 Note 5. Business Divestiture.

Gross profit. Gross profit for the year ended December 31, 2021 was $75.9 million, or a gross margin of 28.9%, compared to $90.8 million, or a gross margin of 28.9%, for the same period in 2020. The gross margin percentage remained

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stable due to an unfavorable product mix and a decrease in Enterprise SaaS Solutions as a result of the divestiture of Ctrack South Africa which has a higher gross margin, offset by higher Inseego Subscribe revenue.

Operating costs and expenses. The following table summarizes operating costs and expenses (dollars in thousands):

Research and development expenses. Research and development expenses for the year ended December 31, 2021 were $52.7 million, or 20.1% of net revenues, compared to $45.0 million, or 14.3% of net revenues, for the same period in 2020. The increase was primarily a result of increased staffing, test units, and other development spending related to 5G product programs.

Sales and marketing expenses. Sales and marketing expenses for the year ended December 31, 2021 were $38.2 million, or 14.6% of net revenues, compared to $35.8 million, or 11.4% of net revenues, for the same period in 2020. The increase was primarily a result of higher spend on the marketing of our 5G products. The increase in sales and marketing expenses was partially offset by a decrease in payroll costs for Ctrack South Africa employees, given the divestiture that was completed on July 30, 2021. See Part IV Item 15. Note 5. Business Divestiture.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2021 were $28.3 million, or 10.8% of net revenues, compared to $30.7 million, or 9.8% of net revenues, for the same period in 2020. The decrease was primarily due to the decrease in payroll costs for Ctrack South Africa employees, given the divestiture that was completed on July 30, 2021. See Part IV Item 15. Note 5. Business Divestiture. The decrease in general and administrative expenses was partially offset by the impact of bonus grants to employees who contributed to the completion of the Ctrack South Africa sale. See Part IV Item 15. Note 9. Share-based Compensation in the accompanying consolidated financial statements for further information.

Amortization of purchased intangible assets. The amortization of purchased intangible assets for the years ended December 31, 2021 and 2020 was $2.1 million and $3.2 million, respectively. The decrease was related to the divestiture of Ctrack South Africa as well as certain purchased intangibles becoming fully amortized for the year ended December 31, 2021.

Impairment of capitalized software. For the years ended December 31, 2021 and 2020, we recorded losses of $1.2 million and $1.4 million, respectively, on capitalized software development costs related to an internal enterprise resource planning project.

Other income (expense). The following table summarizes other income (expense) (dollars in thousands):

Gain on sale of Ctrack South Africa. Gain on sale of Ctrack South Africa during the year ended December 31, 2021 was $5.3 million, related to the gain recognized on sale of Ctrack South Africa, while there was no such gain for the same period in fiscal 2020.

Loss on debt conversion and extinguishment, net. The loss on debt conversion and extinguishment, net for each of the years ended December 31, 2021 and 2020 was $0.4 million and $76.4 million, respectively. These amounts represent the loss

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on debt conversion of the 2025 Notes during fiscal 2021 and the debt conversion and extinguishment of the 2022 Notes during fiscal 2020, respectively.

Interest expense, net. Interest expense, net, for the years ended December 31, 2021 and 2020 was $6.9 million and $9.9 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, net. Other income, net, for the year ended December 31, 2021 was $0.8 million, which primarily included the fair value adjustment related to our interest make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses. Other income, net for the same period in 2020 was $1.0 million, which primarily consisted of the fair value adjustment related to our interest make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses.

Income tax provision, net income attributable to noncontrolling interests, and Series E preferred stock dividends and deemed dividends from the preferred stock exchange, The following table summarizes our income tax provision, net income attributable to noncontrolling interests, and Series E preferred stock dividends and deemed dividends from the preferred stock exchange (dollars in thousands):

Income tax provision. Income tax provision for the years ended December 31, 2021 and 2020 was $0.2 million and $0.7 million, respectively, which, in each case, primarily related to certain of our profitable subsidiaries in foreign jurisdictions. The effective tax rate for the year ended December 31, 2021 is different than the U.S. statutory rate primarily due to a valuation allowance recorded against additional tax assets generated during the year and certain profitable foreign subsidiaries.

Net income attributable to noncontrolling interests. For the years ended December 31, 2021 and 2020 there was $0.2 million and $29 thousand, respectively, of net income attributable to noncontrolling interests.

Series E Preferred Stock dividends and deemed dividend from the preferred stock exchange. During the years ended December 31, 2021 and 2020, we recorded dividends of $4.2 million and $2.9 million, respectively, on our Series E Preferred Stock. The increase was primarily attributable to the impact of the deemed dividend of $1.1 million as part of the preferred stock exchange, offset by a decrease in the recurring preferred stock dividends as 10,000 shares of Series E Preferred Stock were extinguished in September 2021, resulting in a lower preferred stock dividends accrued through the end of 2021. See Part IV Item 15. Note 8. Preferred Stock and Common Stock in the accompanying consolidated financial statements for further information.

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Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from operations and a revolving credit facility as discussed further below. As of December 31, 2022, we had available unrestricted cash and cash equivalents totaling $7.1 million and $6.1 million of availability under the Credit Facility compared with cash and cash equivalents of $46.5 million as of December 31, 2021. As of December 31, 2022, we had working capital of $21.4 million compared to working capital as of December 31, 2021 of $52.8 million.

On July 30, 2021, we completed the sale of our Ctrack South Africa operations in Africa, Pakistan and the Middle East to an affiliate of Convergence. Initial cash proceeds of $36.6 million were received. Net cash proceeds received were $31.5 million, net of cash divested of $5.0 million. Final cash proceeds were subject to certain post-closing working capital adjustments which totaled $2.6 million, out of which $2.2 million was received on October 29, 2021, and the remaining $0.4 million was offset with our existing accounts payable balance to an affiliate of Convergence, an investment management firm in South Africa.

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”) pursuant to the Company’s Registration Statement on Form S-3ASR (File No. 333-238057), as filed with the SEC on May 7, 2020 and amended from time to time. 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. As of December 31, 2022, there was approximately $9.5 million of cash, before underwriter fees and discounts, that we may generate from the issuance of shares of our common stock pursuant to the ATM Offering.

We have a history of operating and net losses and overall usage of cash from operating and investing activities. We believe that our cash and cash equivalents, anticipated cash flows from operations, and our revolving credit facility will be sufficient to meet our cash flow needs for the next twelve months from the filing date of this report. Our ability to achieve profitable operations and generate positive cash flow is dependent upon achieving a level and mix of revenues adequate to support our evolving cost structure and increasing working capital needs. Our liquidity could be compromised 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. If events or circumstances occur such that we do not meet our operating plan as expected, we 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 our ability to achieve our intended business objectives. 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. Additionally, we are uncertain of the full extent to which the COVID-19 pandemic may impact our business, operations and financial results.

Revolving Credit Facility

On August 5, 2022, we entered into a Loan and Security Agreement (the “Credit Agreement”), by and among Siena Lending Group LLC, as lender (“Lender”), Inseego Wireless, Inc., a Delaware corporation (“Inseego Wireless”), and Inseego North America LLC, an Oregon limited liability company, as borrowers (together with Inseego Wireless, the “Borrowers”), and the Company, as guarantor (together with the Borrowers, the “Loan Parties”), as subsequently amended on February 25, 2023. The Credit Agreement establishes a secured asset-backed revolving credit facility which is comprised of a maximum $50 million revolving credit facility (the “Credit Facility”), with a minimum draw of $4.5 million upon execution of the Credit Agreement. The Credit Facility matures on December 31, 2024. Availability under the Credit Facility is determined monthly by a Borrowing Base (as defined in the Credit Agreement) comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. Outstanding amounts exceeding the borrowing base must be repaid immediately. The Borrowers’ obligations under the Credit Agreement are guaranteed by us. Our obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain Excluded Collateral (as defined in the Credit Agreement).

Borrowings under the Credit Facility may take the form of base rate (“Base Rate”) loans or Secured Overnight Financing Rate (“SOFR”) loans. SOFR loans will bear interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement as the Term SOFR Reference Rate for a term of one month on the day) plus the Applicable Margin (as defined in the Credit Agreement), with a Term SOFR floor of 1%. Base Rate loans will bear interest at a rate per annum equal to the Applicable Margin plus the greatest of (a) the per annum rate of interest which is identified as the “Prime Rate” and normally published in the Money Rates section of The Wall Street Journal, (b) the sum of the Federal Funds Rate (as defined in the Credit Agreement) plus 0.5% and (c) 3.50% per annum.

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The Applicable Margin varies depending on the average outstanding amount for a preceding month. If the average outstanding amount for a preceding month is less than $15 million, the Applicable Margin will be 2.50% for Base Rate loans and 3.50% for SOFR loans. If the average outstanding amount for a preceding month is between $15 million and $25 million, the Applicable Margin will be 3.00% for Base Rate loans and 4.00% for SOFR loans. If the average outstanding amount for a preceding month is greater than $25 million, the Applicable Margin will be 4.5% for Base Rate loans and 5.50% for SOFR loans. We pay monthly fees of 0.4% per annum on the unused portion of the Credit Facility.

The Credit Agreement contains a financial covenant whereby the Loan Parties shall not permit the consolidated Liquidity (as defined in the Credit Agreement) to be less than $10 million at any time (the “Liquidity Covenant”). The Credit Agreement also contains certain customary covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments.

We determined that the term “Eligible Accounts”, as defined in the Credit Agreement would have excluded certain balances used in the determination of eligible collateral upon which our borrowing base is calculated and that exclusion would have resulted in a violation of the liquidity covenant as of December 31, 2022. Accordingly, to clarify this matter and others, the Loan Parties agreed to amend the Credit Agreement, (the “Amended Credit Agreement”) to modify and clarify the definitions of “Eligible Accounts”, “Permitted Indebtedness” and “Eligible Inventory”. The Amended Credit Agreement was entered into on February 25, 2023 with an effective date of December 15, 2022. We were in compliance with the financial covenants in the Amended Credit Agreement as of December 31, 2022.

Upon execution of the Credit Agreement, we paid $1.1 million of debt issuance costs. As of December 31, 2022, we had outstanding borrowings of $7.9 million, gross borrowing base of $15.7 million and availability of $7.8 million.

2025 Notes

On May 12, 2020, we completed a registered public offering of $100.0 million aggregate principal amount of 2025 Notes and issued $80.4 million principal amount of 2025 Notes in privately negotiated exchange agreements that closed concurrently with the registered offering in May 2020.

As of December 31, 2022 and December 31, 2021, $161.9 million in principal amount of the 2025 Notes were outstanding. Assuming no repurchases or conversions of the 2025 Notes prior to May 1, 2025, the entire principal balance of $161.9 million is due on May 1, 2025. 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.

Historical Cash Flows

The following table summarizes our consolidated statements of cash flows for the periods indicated (in thousands):

Operating activities.

Net cash used in operating activities for the year ended December 31, 2022 was $33.3 million and reflected a net loss of $68.0 million due to changes in working capital and non-cash fair value adjustment on our derivative instruments, offset by non-cash charges for share-based compensation expense, depreciation and amortization, including the amortization of debt discount and debt issuance costs and capitalized software impairment.

Net cash used in operating activities for the year ended December 31, 2021 was $25.2 million and reflected a net loss of $47.9 million due to changes in working capital, the gain on sale of Ctrack South Africa and a non-cash fair value adjustment on our derivative instruments, offset by non-cash charges for share-based compensation expense, depreciation and amortization, including the amortization of debt discount and debt issuance costs.

Net cash provided by operating activities for the year ended December 31, 2020 was primarily attributable to non-cash charges for loss on debt extinguishment, depreciation and amortization, including the amortization of debt discount and debt

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issuance costs, and share-based compensation expense, offset by the net loss of $111.2 million incurred during the period and changes in working capital.

Investing activities.

Net cash used in investing activities during the year ended December 31, 2022 was $13.3 million compared to $6.1 million provided by investing activities for the year ended December 31, 2021.

Net cash used in investing activities during the year ended December 31, 2022 was primarily from capitalization of certain costs related to the development of software to be sold in our products, as well as purchases of property, plant and equipment.

Net cash provided by investing activities during the year ended December 31, 2021 was primarily from the proceeds from sale of Ctrack South Africa, partially offset by purchases of intangible assets and capitalization of certain costs related to the development of software to be sold in our products, as well as purchases of property, plant and equipment.

Net cash used in investing activities during the year ended December 31, 2020 was primarily related to the purchases of property, plant and equipment and capitalization of certain costs related to the 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 as well as certain internally developed software projects.

Financing activities.

Net cash provided by financing activities during the year ended December 31, 2022 was primarily comprised of $6.8 million of cash inflows (consisting of borrowings of $12.4 million, net of $4.5 million in repayments and $1.1 million in debt issuance costs) related to our Credit Facility, partially offset by $1.6 million in principal payments for finance assets.

Net cash provided by financing activities during the year ended December 31, 2021 was primarily related to net proceeds received from the ATM Offering, stock option exercises and purchases through our employee stock purchase plan, partially offset by principal payments under finance lease arrangements.

Net cash provided by financing activities during the year ended December 31, 2020 was primarily attributable to the proceeds received from the issuance of our 2025 Notes, net of issuance costs, the issuance and sale of Series E Preferred Stock and the exercise of warrants to purchase common stock, as well as proceeds received from stock option exercises and purchases made under the employee stock purchase plan, partially offset by net repayments of bank and overdraft facilities, repurchase of Series E preferred stock, principal payments under our previous term loan, principal payments under finance lease obligations and taxes paid on vested restricted stock units.

Contractual Obligations and Commitments

In order to mitigate the risk of material shortages and price increases, we enter into non-cancellable purchase obligations with certain key contract manufacturers for the purchase of goods and services in the three to four quarters following the balance sheet date. Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. As of December 31, 2022, our material contractual obligations consisted of the following:

•$161.9 million in outstanding principal amount of 2025 Notes with required interest payments; see Part IV Item 15 Note 6. Debt;

•$7.9 million in outstanding borrowings under the Credit Facility; see Part IV Item 15 Note 6. Debt;

•Operating lease liabilities that are included on our consolidated balance sheet; see Part IV Item 15 Note 12. Leases; and

•other non-cancellable unconditional purchase obligations totaling approximating $77.6 million; see Part IV Item 15 Note 11. Commitments and Contingencies.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. Actual results could differ from these estimates.

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Software Development Costs for External Use

Software development costs for external use are expensed as incurred until technological feasibility has been established, at which time those costs are capitalized as intangible assets until the software is available for general release to customers.

The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs requires considerable judgment by us with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries, other direct payroll-related costs and payments to third party vendors.

Capitalized software development costs are amortized on a straight-line basis over the estimated economic life. Costs incurred to enhance existing software or after the software is available for general release to customers are expensed in the period they are incurred and included in research and development expense in our consolidated statements of operations. The straight-line recognition method approximates the manner in which the expected benefit will be derived. At each balance sheet date, the unamortized capitalized software development costs for external use is compared to the net realizable value of that product by analyzing critical inputs such as expected future lifetime revenue. The amount by which unamortized software costs exceed the net realizable value, if any, is recognized as a charge to amortization expense in the period it is determined.