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casa-10q_20200630.htm

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 June 30, 2020

☐	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 July 24, 2020, the registrant had 83,134,818 shares of common stock, $0.001 par value per share, issued and 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 June 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six months ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six months ended June 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the Six months ended June 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	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.	Exhibits	47
Signatures		48

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;

•

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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)

	June 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	149,148		$	113,638
Accounts receivable, net of provision for doubtful accounts of $44 and $20 as of June 30, 2020 and December 31, 2019, respectively		52,867			93,100
Inventory		85,965			93,604
Prepaid expenses and other current assets		5,772			4,884
Prepaid income taxes		10,843			3,217
Total current assets		304,595			308,443
Property and equipment, net		32,303			35,910
Accounts receivable, net of current portion		324			575
Deferred tax assets		665			69
Goodwill		50,347			50,347
Intangible assets, net		38,295			41,148
Other assets		6,007			7,820
Total assets	$	432,536		$	444,312
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	26,488		$	25,890
Accrued expenses and other current liabilities		31,324			34,567
Accrued income taxes		486			—
Deferred revenue		18,061			25,485
Current portion of long-term debt, net of unamortized debt issuance costs		8,374			8,524
Total current liabilities		84,733			94,466
Accrued income taxes, net of current portion		10,887			12,381
Deferred tax liabilities		9,166			8,993
Deferred revenue, net of current portion		3,546			4,583
Long-term debt, net of current portion and unamortized debt issuance costs		283,805			284,756
Other liabilities, net of current portion		687			569
Total liabilities		392,824			405,748
Commitments and contingencies (Note 18)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized as of June 30, 2020 and December 31, 2019; no shares issued and outstanding as of June 30, 2020 and December 31, 2019		—			—
Common stock, $0.001 par value; 500,000 shares authorized as of June 30, 2020 and December 31, 2019; 84,856 and 84,333 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively		85			84
Treasury stock, at cost; 1,722 and 495 shares at June 30, 2020 and December 31, 2019, respectively		(4,826	)		(1,795	)
Additional paid-in capital		175,496			169,561
Accumulated other comprehensive loss		(2,113	)		(2,222	)
Accumulated deficit		(128,930	)		(127,064	)
Total stockholders’ equity		39,712			38,564
Total liabilities and stockholders’ equity	$	432,536		$	444,312

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue:
Product	$	72,128		$	42,223		$	145,886		$	68,876
Service		11,222			9,878			21,087			18,711
Total revenue		83,350			52,101			166,973			87,587
Cost of revenue:
Product		39,011			10,976			78,655			20,405
Service		1,209			1,820			2,535			3,380
Total cost of revenue		40,220			12,796			81,190			23,785
Gross profit		43,130			39,305			85,783			63,802
Operating expenses:
Research and development		20,688			18,260			41,899			36,665
Selling, general and administrative		21,110			17,302			46,101			37,495
Total operating expenses		41,798			35,562			88,000			74,160
Income (loss) from operations		1,332			3,743			(2,217	)		(10,358	)
Other income (expense):
Interest income		271			1,570			677			3,222
Interest expense		(4,307	)		(5,225	)		(8,935	)		(10,422	)
Gain (loss) on foreign currency, net		528			503			680			411
Other income, net		35			142			97			371
Total other income (expense), net		(3,473	)		(3,010	)		(7,481	)		(6,418	)
(Loss) income before provision for (benefit from) income taxes		(2,141	)		733			(9,698	)		(16,776	)
Provision for (benefit from) income taxes		887			(558	)		(7,832	)		(2,728	)
Net (loss) income		(3,028	)		1,291			(1,866	)		(14,048	)
Other comprehensive (loss) income—foreign currency translation adjustment, net of tax		99			(646	)		(418	)		67
Other comprehensive (loss) income—gain on foreign currency hedge, net of tax		171			—			527			—
Comprehensive (loss) income	$	(2,758	)	$	645		$	(1,757	)	$	(13,981	)
Net (loss) income attributable to common stockholders:
Basic and diluted	$	(3,028	)	$	1,291		$	(1,866	)	$	(14,048	)
Net (loss) income per share attributable to common stockholders:
Basic	$	(0.04	)	$	0.02		$	(0.02	)	$	(0.17	)
Diluted	$	(0.04	)	$	0.01		$	(0.02	)	$	(0.17	)
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
Basic		83,068			83,884			83,505			83,605
Diluted		83,068			86,369			83,505			83,605

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

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 March 31, 2020		84,726	$	85		1,711	$	(4,793	)	$	171,914	$	(2,383	)	$	(125,902	)	$	38,921
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes		130		—		—		—			75		—			—			75
Cash flow hedges		—		—		—		—			—		171			—			171
Foreign currency translation adjustment, net of tax of $0		—		—		—		—			—		99			—			99
Repurchases of treasury shares		—		—		11		(33	)		—		—			—			(33	)
Stock-based compensation		—		—		—		—			3,507		—			—			3,507
Net loss		—		—		—		—			—		—			(3,028	)		(3,028	)
Balances at June 30, 2020		84,856	$	85		1,722	$	(4,826	)	$	175,496	$	(2,113	)	$	(128,930	)	$	39,712

	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		523		1		—		—			(73	)		—			—			(72	)
Cash flow hedges		—				—		—						527						527
Foreign currency translation adjustment, net of tax of $0		—		—		—		—			—			(418	)