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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 March 31, 2021

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 April 23, 2021, the registrant had 84,916,932 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 March 31, 2021 and December 31, 2020

 

3

 

Condensed Consolidated Statements of Income and Comprehensive Income for the Three months ended March 31, 2021 and 2020

 

4

 

Condensed Consolidated Statements of Stockholders' Equity for the Three months ended March 31, 2021 and 2020

 

5

 

Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2021 and 2020

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

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

 

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

33

Item 4.

Controls and Procedures

 

34

PART II.

OTHER INFORMATION

 

35

Item 1.

Legal Proceedings

 

35

Item 1A.

Risk Factors

 

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

Item 5.

Other Information

 

37

Item 6.

Exhibits

 

38

Signatures

 

39

 

 

 

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 communication service providers’, or CSPs’, 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 CSPs;

 

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 potential impact of the COVID-19 pandemic, which is highly uncertain and will depend on future developments on our business, our suppliers 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 maintain the synergies we have realized from our acquisition of NetComm Wireless Limited, or NetComm;

 

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)

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

144,961

 

 

$

157,455

 

Accounts receivable, net of provision for doubtful accounts of $150 and $58 as of

   March 31, 2021 and December 31, 2020, respectively

 

 

92,342

 

 

 

94,124

 

Inventory

 

 

96,510

 

 

 

101,204

 

Prepaid expenses and other current assets

 

 

9,598

 

 

 

3,864

 

Prepaid income taxes

 

 

14,764

 

 

 

14,087

 

Total current assets

 

 

358,175

 

 

 

370,734

 

Property and equipment, net

 

 

27,239

 

 

 

28,880

 

Accounts receivable, net of current portion

 

 

65

 

 

 

143

 

Deferred tax assets

 

 

1,088

 

 

 

1,150

 

Goodwill

 

 

50,177

 

 

 

50,177

 

Intangible assets, net

 

 

35,697

 

 

 

35,844

 

Other assets

 

 

6,165

 

 

 

6,038

 

Total assets

 

$

478,606

 

 

$

492,966

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

25,513

 

 

$

41,203

 

Accrued expenses and other current liabilities

 

 

28,620

 

 

 

39,793

 

Accrued income taxes

 

 

9,491

 

 

 

7,463

 

Deferred revenue

 

 

21,987

 

 

 

15,531

 

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

 

 

15,207

 

 

 

15,171

 

Total current liabilities

 

 

100,818

 

 

 

119,161

 

Accrued income taxes, net of current portion

 

 

9,716

 

 

 

9,520

 

Deferred tax liabilities

 

 

7,362

 

 

 

7,282

 

Deferred revenue, net of current portion

 

 

3,134

 

 

 

3,520

 

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

 

 

275,575

 

 

 

276,085

 

Other liabilities, net of current portion

 

 

1,166

 

 

 

1,024

 

Total liabilities

 

 

397,771

 

 

 

416,592

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized as of March 31, 2021

   and December 31, 2020; no shares issued and outstanding as of

   March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value; 500,000 shares authorized; 86,502 and 85,329 shares

  issued as of March 31, 2021 and December 31, 2020, respectively; 84,780 and 83,607

  shares outstanding as of March 31, 2021 and December 31, 2020, respectively

 

 

86

 

 

 

85

 

Treasury stock, at cost; 1,722 shares

 

 

(4,826

)

 

 

(4,826

)

Additional paid-in capital

 

 

182,088

 

 

 

183,041

 

Accumulated other comprehensive income

 

 

1

 

 

 

337

 

Accumulated deficit

 

 

(96,514

)

 

 

(102,263

)

Total stockholders’ equity

 

 

80,835

 

 

 

76,374

 

Total liabilities and stockholders’ equity

 

$

478,606

 

 

$

492,966

 

 

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

3


CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

93,798

 

 

$

73,758

 

Service

 

 

10,479

 

 

 

9,865

 

Total revenue

 

 

104,277

 

 

 

83,623

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

47,026

 

 

 

39,644

 

Service

 

 

1,211

 

 

 

1,326

 

Total cost of revenue

 

 

48,237

 

 

 

40,970

 

Gross profit

 

 

56,040

 

 

 

42,653

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

21,606

 

 

 

21,211

 

Selling, general and administrative

 

 

21,880

 

 

 

24,991

 

Total operating expenses

 

 

43,486

 

 

 

46,202

 

Income (loss) from operations

 

 

12,554

 

 

 

(3,549

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

114

 

 

 

406

 

Interest expense

 

 

(3,918

)

 

 

(4,628

)

(Loss) gain on foreign currency, net

 

 

(747

)

 

 

152

 

Other income, net

 

 

72

 

 

 

62

 

Total other income (expense), net

 

 

(4,479

)

 

 

(4,008

)

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

 

 

8,075

 

 

 

(7,557

)

Provision for (benefit from) income taxes

 

 

2,326

 

 

 

(8,719

)

Net income

 

 

5,749

 

 

 

1,162

 

Other comprehensive income (loss)—foreign currency translation

   adjustment, net of tax

 

 

(336

)

 

 

(516

)

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

 

 

 

 

 

356

 

Comprehensive income

 

$

5,413

 

 

$

1,002

 

Net income attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

5,749

 

 

$

1,162

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

0.01

 

Diluted

 

$

0.06

 

 

$

0.01

 

Weighted-average shares used to compute net income per

   share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

 

84,242

 

 

 

83,990

 

Diluted

 

 

88,568

 

 

 

85,009

 

 

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

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2021

 

 

85,329

 

 

$

85

 

 

 

1,722

 

 

$

(4,826

)

 

$

183,041

 

 

$

337

 

 

$

(102,263

)

 

$

76,374

 

Exercise of stock options and common stock issued upon

   vesting of equity awards, net of shares withheld for

   employee taxes

 

 

1,173

 

 

 

1

 

 

 

 

 

 

 

 

 

(4,058

)

 

 

 

 

 

 

 

 

(4,057

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(336

)

 

 

 

 

 

(336

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,105

 

 

 

 

 

 

 

 

 

3,105

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,749

 

 

 

5,749

 

Balances at March 31, 2021

 

 

86,502

 

 

$

86

 

 

 

1,722

 

 

$

(4,826

)

 

$

182,088

 

 

$

1

 

 

$

(96,514

)

 

$

80,835

 

 

 

 

 

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

 

 

393

 

 

 

1

 

 

 

 

 

 

 

 

 

(148

)

 

 

 

 

 

 

 

 

(147

)

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356

 

 

 

 

 

 

356

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(517

)

 

 

 

 

 

(517

)

Repurchases of treasury shares

 

 

 

 

 

 

 

 

1,216

 

 

 

(2,998

)

 

 

 

 

 

 

 

 

 

 

 

(2,998

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,501

 

 

 

 

 

 

 

 

 

2,501

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,162

 

 

 

1,162

 

Balances at March 31, 2020

 

 

84,726

 

 

$

85

 

 

 

1,711

 

 

$

(4,793

)

 

$

171,914

 

 

$

(2,383

)

 

$

(125,902

)

 

$

38,921

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

5


 

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

5,749

 

 

$

1,162

 

Adjustments to reconcile net income to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,209

 

 

 

4,768

 

Stock-based compensation

 

 

3,453

 

 

 

2,437

 

Deferred income taxes

 

 

138

 

 

 

(75

)

Increase in provision for doubtful accounts

 

 

91

 

 

 

2

 

Change in provision for excess and obsolete inventory

 

 

113

 

 

 

519

 

Gain on disposal of assets

 

 

 

 

 

10

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

469

 

 

 

38,021

 

Inventory

 

 

4,558

 

 

 

11,873

 

Prepaid expenses and other assets

 

 

(5,834

)

 

 

(231

)

Prepaid income taxes

 

 

(680

)

 

 

(6,446

)

Accounts payable

 

 

(15,607

)

 

 

(9,128

)

Accrued expenses and other current liabilities

 

 

(10,118

)

 

 

(8,204

)

Accrued income taxes

 

 

2,225

 

 

 

(1,609

)

Deferred revenue

 

 

6,079

 

 

 

(7,030

)

Net cash (used in) provided by operating activities

 

 

(5,155

)

 

 

26,069

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(852

)

 

 

(390

)

Purchases of software licenses

 

 

(1,400

)

 

 

 

Net cash used in investing activities

 

 

(2,252

)

 

 

(390

)

Cash flows used in financing activities:

 

 

 

 

 

 

 

 

Principal repayments of debt

 

 

(750

)

 

 

(830

)

Proceeds from exercise of stock options

 

 

574

 

 

 

312

 

Employee taxes paid related to net share settlement of equity awards

 

 

(4,630

)

 

 

(459

)

Payments of dividends and equitable adjustments

 

 

(13

)

 

 

(176

)

Repurchases of treasury stock

 

 

 

 

 

(2,998

)

Net cash used in financing activities

 

 

(4,819

)

 

 

(4,151

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(266

)

 

 

(408

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(12,492

)

 

 

21,120

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

158,461

 

 

 

114,657

 

Cash, cash equivalents and restricted cash at end of period (1)

 

$

145,969

 

 

$

135,777

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,682

 

 

$

4,194

 

Cash paid for income taxes

 

$

290

 

 

$

189

 

Supplemental disclosures of non-cash operating, investing

   and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

325

 

 

$

1,879

 

Unpaid equitable adjustments included in accrued expenses and other current liabilities

 

$

50

 

 

$

555

 

Release of customer incentives included in accounts receivable and accrued expenses

   and other current liabilities

 

$

1,076

 

 

$

 

 

(1)

See Note 2 of the accompanying notes for a reconciliation of the ending balance of cash, cash equivalents and restricted cash shown in these unaudited condensed consolidated statements of cash flows.

 

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

 

 

6


 

 

CASA SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(Unaudited)

1. Nature of Business and Basis of Presentation

Casa Systems, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on February 28, 2003. The Company is a global communications technology company headquartered in Andover, Massachusetts and has wholly owned subsidiaries in China, France, Canada, Ireland, Spain, Colombia, the Netherlands, Hong Kong, Australia, Germany, the United Kingdom and New Zealand.

The Company offers physical, virtual and cloud-native 5G infrastructure and customer premise networking equipment for public and private high-speed data and multi-service communications networks. The Company’s core and edge infrastructure technology enables communications service providers and enterprises to cost-effectively and dynamically increase data network speed, add bandwidth capacity and new services, reduce network complexity, and reduce operating and capital expenditures.  

The Company is subject to a number of risks similar to other companies of comparable size and other companies selling and providing services to the communications service provider (“CSP”) industry. These risks include, but are not limited to, the level of capital spending by the CSPs, a lengthy sales cycle, dependence on the development of new products and services, unfavorable economic and market conditions, competition from larger and more established companies, limited management resources, dependence on a limited number of contract manufacturers and suppliers, the rapidly changing nature of the technology used by the CSPs and reliance on resellers and sales agents. Failure by the Company to anticipate or to respond adequately to technological developments in its industry, changes in customer or supplier requirements, changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of products could have a material adverse effect on the Company’s operating results, financial condition and cash flows.

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the Company’s initial public offering, subject to specified conditions.  The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised, and it has different application dates for public or private companies, the Company is required to adopt the new or revised standard at or prior to the time private companies are required to adopt the new or revised standard, provided that the Company continues to be an emerging growth company. The JOBS Act provides that the decision to take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

The accompanying condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 and the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2021 and 2020 are unaudited. The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are also unaudited. The accompanying condensed consolidated balance sheet as of December 31, 2020 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021 (the “Annual Report on Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K. There have been no changes to the Company’s accounting policies from those disclosed in the Annual Report on Form 10-K that would have a material impact on the Company’s condensed consolidated financial statements.

7


 

The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in the opinion of management, include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations and cash flows to be anticipated for the full year ending December 31, 2021 or any future period.

The accompanying condensed consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and judgments relied upon by management in preparing these condensed consolidated financial statements include revenue recognition, provision for doubtful accounts, reserves for excess and obsolete inventory, valuation of inventory and deferred inventory costs, the expensing and capitalization of software-related research and development costs, amortization and depreciation periods, the recoverability of net deferred tax assets, valuations of uncertain tax positions, warranty allowances, the valuation of equity instruments and stock-based compensation expense.

Although the Company regularly reassesses the assumptions underlying these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances existing at the time such estimates are made.

The emergence of COVID-19 around the world, and particularly in the United States and China, presents various risks to the Company, not all of which the Company is able to fully evaluate or even to foresee at the current time, and could have a material effect upon the estimates and judgments relied upon by management in preparing these condensed consolidated financial statements. While the COVID-19 pandemic did not significantly adversely affect the Company’s financial results and business operations in the quarter ended March 31, 2021, economic and health conditions in the United States and across most of the globe changed rapidly, and are continuing to change after the end of the quarter.  Globally, all aspects of the Company’s business remain fully operational.  However, increasing demand for certain of the Company’s products has increased pressure on its supply chain which could impact continued availability of inventory requirements.  The Company will continue to monitor its business very closely for any effects of COVID-19 for as long as necessary on an ongoing basis.  

 

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all highly liquid investments maturing within three months from the date of purchase. As of March 31, 2021 and December 31, 2020, the Company’s cash and cash equivalents consisted of investments in certificates of deposit and money market mutual funds.

Restricted cash as of March 31, 2021 and December 31, 2020 consisted of a certificate of deposit of $1,008 and $1,006, respectively, pledged as collateral for a stand-by letter of credit required to support a contractual obligation.

The following table is a reconciliation of cash, cash equivalents and restricted cash included in the accompanying condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash included in the accompanying condensed consolidated statements of cash flows:

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Cash and cash equivalents

 

$

144,961

 

 

$

134,752

 

Restricted cash included in other assets

 

 

1,008

 

 

 

1,025

 

 

 

$

145,969