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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________.

Commission File Number: 001-38324

 

Casa Systems, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

75-3108867

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

100 Old River Road

Andover, Massachusetts

 

01810

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (978) 688-6706

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

CASA

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

  

Accelerated filer

Non-accelerated filer

☐  

  

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 23, 2020, the registrant had 83,524,202 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

3

Item 1.

Financial Statements

 

3

 

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

 

3

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine months ended September 30, 2020 and 2019

 

4

 

Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine months ended September 30, 2020 and 2019

 

5

 

Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2020 and 2019

 

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

40

Item 4.

Controls and Procedures

 

42

PART II.

OTHER INFORMATION

 

43

Item 1.

Legal Proceedings

 

43

Item 1A.

Risk Factors

 

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

Item 6.

Exhibits

 

46

Signatures

 

47

 

i


Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “should,” “expects,” “plans,” “anticipates,” “would,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

 

our ability to anticipate technological shifts;

 

our ability to generate positive returns on our research and development;

 

changes in the rate of broadband service providers’ deployment of, and investment in, ultra-broadband network capabilities;

 

the lack of predictability of revenue due to lengthy sales cycles and the volatility in capital expenditure budgets of broadband service providers;

 

our ability to maintain and expand gross profit and net income;

 

the sufficiency of our cash resources and needs for additional financing;

 

our ability to further penetrate our existing customer base and obtain new customers;

 

changes in our pricing policies, whether initiated by us or as a result of competition;

 

the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business;

 

the extent of the effects of the COVID-19 pandemic on the Company, which is highly uncertain and will depend on future developments;

 

the potential impact of the COVID-19 pandemic on our suppliers, our business operations and our customers;

 

the actual or rumored timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or customers;

 

our ability to successfully expand our business domestically and internationally, including our ability to integrate and generate potential synergies from our acquisition of NetComm Wireless Limited;

 

insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, which could disrupt our supply chain;

 

our inability to fulfill our customers’ orders due to supply chain delays, access to key commodities or technologies or events that impact our manufacturers or their suppliers;

 

future accounting pronouncements or changes in our accounting policies;

 

stock-based compensation expense;

1


 

our overall effective tax rate, including impacts caused by the relative proportion of foreign to U.S. income, the amount and timing of certain employee stock-based compensation transactions, changes in the valuation of our deferred tax assets and any new legislation or regulatory developments;

 

increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates;

 

the costs and possible outcomes of any legal actions or proceedings against us, including those described under “Part II, Item 1—Legal Proceedings”;

 

general economic conditions, both domestically and in foreign markets;

 

our ability to obtain and maintain intellectual property protection for our products; and

 

our use of proceeds from our initial public offering.

Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

2


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

156,191

 

 

$

113,638

 

Accounts receivable, net of provision for doubtful accounts of $38 and $20 as of

   September 30, 2020 and December 31, 2019, respectively

 

 

65,968

 

 

 

93,100

 

Inventory

 

 

98,482

 

 

 

93,604

 

Prepaid expenses and other current assets

 

 

3,738

 

 

 

4,884

 

Prepaid income taxes

 

 

12,980

 

 

 

3,217

 

Total current assets

 

 

337,359

 

 

 

308,443

 

Property and equipment, net

 

 

31,081

 

 

 

35,910

 

Accounts receivable, net of current portion

 

 

156

 

 

 

575

 

Deferred tax assets

 

 

1,168

 

 

 

69

 

Goodwill

 

 

50,177

 

 

 

50,347

 

Intangible assets, net

 

 

36,869

 

 

 

41,148

 

Other assets

 

 

5,954

 

 

 

7,820

 

Total assets

 

$

462,764

 

 

$

444,312

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

38,763

 

 

$

25,890

 

Accrued expenses and other current liabilities

 

 

34,368

 

 

 

34,567

 

Accrued income taxes

 

 

5,158

 

 

 

 

Deferred revenue

 

 

22,771

 

 

 

25,485

 

Current portion of long-term debt, net of unamortized debt issuance costs

 

 

1,893

 

 

 

8,524

 

Total current liabilities

 

 

102,953

 

 

 

94,466

 

Accrued income taxes, net of current portion

 

 

9,683

 

 

 

12,381

 

Deferred tax liabilities

 

 

8,259

 

 

 

8,993

 

Deferred revenue, net of current portion

 

 

3,326

 

 

 

4,583

 

Long-term debt, net of current portion and unamortized debt issuance costs

 

 

289,831

 

 

 

284,756

 

Other liabilities, net of current portion

 

 

834

 

 

 

569

 

Total liabilities

 

 

414,886

 

 

 

405,748

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized as of September 30, 2020

   and December 31, 2019; no shares issued and outstanding as of

   September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value; 500,000 shares authorized as of September 30, 2020

   and December 31, 2019; 85,246 and 84,828 shares issued as of September 30, 2020

   and December 31, 2019, respectively; 83,524 and 84,333 shares outstanding as of

   September 30, 2020 and December 31, 2019, respectively

 

 

85

 

 

 

84

 

Treasury stock, at cost; 1,722 and 495 shares at September 30, 2020 and December 31, 2019, respectively

 

 

(4,826

)

 

 

(1,795

)

Additional paid-in capital

 

 

179,382

 

 

 

169,561

 

Accumulated other comprehensive loss

 

 

(1,306

)

 

 

(2,222

)

Accumulated deficit

 

 

(125,457

)

 

 

(127,064

)

Total stockholders’ equity

 

 

47,878

 

 

 

38,564

 

Total liabilities and stockholders’ equity

 

$

462,764

 

 

$

444,312

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

93,741

 

 

$

71,319

 

 

$

239,627

 

 

$

140,196

 

Service

 

 

12,006

 

 

 

10,497

 

 

 

33,093

 

 

 

29,208

 

Total revenue

 

 

105,747

 

 

 

81,816

 

 

 

272,720

 

 

 

169,404

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

51,947

 

 

 

40,578

 

 

 

130,602

 

 

 

60,983

 

Service

 

 

1,206

 

 

 

2,024

 

 

 

3,741

 

 

 

5,404

 

Total cost of revenue

 

 

53,153

 

 

 

42,602

 

 

 

134,343

 

 

 

66,387

 

Gross profit

 

 

52,594

 

 

 

39,214

 

 

 

138,377

 

 

 

103,017

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

21,823

 

 

 

24,158

 

 

 

63,722

 

 

 

60,823

 

Selling, general and administrative

 

 

21,630

 

 

 

23,823

 

 

 

67,731

 

 

 

61,318

 

Total operating expenses

 

 

43,453

 

 

 

47,981

 

 

 

131,453

 

 

 

122,141

 

Income (loss) from operations

 

 

9,141

 

 

 

(8,767

)

 

 

6,924

 

 

 

(19,124

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

170

 

 

 

660

 

 

 

847

 

 

 

3,882

 

Interest expense

 

 

(3,771

)

 

 

(5,240

)

 

 

(12,706

)

 

 

(15,662

)

(Loss) gain on foreign currency, net

 

 

(6

)

 

 

(869

)

 

 

674

 

 

 

(458

)

Other income, net

 

 

338

 

 

 

106

 

 

 

435

 

 

 

477

 

Total other income (expense), net

 

 

(3,269

)

 

 

(5,343

)

 

 

(10,750

)

 

 

(11,761

)

Income (loss) before provision for (benefit from) income taxes

 

 

5,872

 

 

 

(14,110

)

 

 

(3,826

)

 

 

(30,885

)

Provision for (benefit from) income taxes

 

 

2,399

 

 

 

(5,612

)

 

 

(5,433

)

 

 

(8,339

)

Net income (loss)

 

 

3,473

 

 

 

(8,498

)

 

 

1,607

 

 

 

(22,546

)

Other comprehensive income (loss)—foreign currency translation

   adjustment, net of tax

 

 

1,334

 

 

 

(1,180

)

 

 

916

 

 

 

(1,113

)

Other comprehensive income (loss)—gain on foreign currency hedge, net of tax

 

 

(527

)

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

4,280

 

 

$

(9,678

)

 

$

2,523

 

 

$

(23,659

)

Net income (loss) attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

3,473

 

 

$

(8,498

)

 

$

1,607

 

 

$

(22,546

)

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

 

$

(0.10

)

 

$

0.02

 

 

$

(0.27

)

Diluted

 

$

0.04

 

 

$

(0.10

)

 

$

0.02

 

 

$

(0.27

)

Weighted-average shares used to compute net income (loss) per

   share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

83,302

 

 

 

84,068

 

 

 

83,437

 

 

 

83,761

 

Diluted

 

 

85,466

 

 

 

84,068

 

 

 

85,370

 

 

 

83,761

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at June 30, 2020

 

 

84,856

 

 

$

85

 

 

 

1,722

 

 

$

(4,826

)

 

$

175,496

 

 

$

(2,113

)

 

$

(128,930

)

 

$

39,712

 

Exercise of stock options and common stock issued upon

   vesting of equity awards, net of shares withheld for

   employee taxes

 

 

389

 

 

 

 

 

 

 

 

 

 

 

 

390

 

 

 

 

 

 

 

 

 

390

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(527

)

 

 

 

 

 

(527

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,334

 

 

 

 

 

 

1,334

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,496

 

 

 

 

 

 

 

 

 

3,496

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,473

 

 

 

3,473

 

Balances at September 30, 2020

 

 

85,245

 

 

$

85

 

 

 

1,722

 

 

$

(4,826

)

 

$

179,382

 

 

$

(1,306

)

 

$

(125,457

)

 

$

47,878

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2020

 

 

84,333

 

 

$

84

 

 

 

495

 

 

$

(1,795

)

 

$

169,561

 

 

$

(2,222

)

 

$

(127,064

)

 

$

38,564

 

Exercise of stock options and common stock issued upon

   vesting of equity awards, net of shares withheld for

   employee taxes

 

 

912

 

 

 

1

 

 

 

 

 

 

 

 

 

316

 

 

 

 

 

 

 

 

 

317

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

916

 

 

 

 

 

 

916

 

Repurchases of treasury shares

 

 

 

 

 

 

 

 

1,227

 

 

 

(3,031

)

 

 

 

 

 

 

 

 

 

 

 

(3,031

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,505

 

 

 

 

 

 

 

 

 

9,505

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,607

 

 

 

1,607

 

Balances at September 30, 2020

 

 

85,245

 

 

$

85

 

 

 

1,722

 

 

$

(4,826

)

 

$

179,382

 

 

$