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casa-10q_20200930.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 September 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 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

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)

	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.

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.

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		—		—		—		—			—