0001564590-21-039334 | 10-Q | XBRL Viewer

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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 30, 2021	Jul. 23, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Trading Symbol	CASA
Entity Registrant Name	Casa Systems, Inc.
Entity Central Index Key	0001333835
Current Fiscal Year End Date	--12-31
Document Quarterly Report	true
Document Transition Report	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Shell Company	false
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity File Number	001-38324
Entity Tax Identification Number	75-3108867
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	100 Old River Road
Entity Address, City or Town	Andover
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	01810
City Area Code	978
Local Phone Number	688-6706
Entity Common Stock, Shares Outstanding		85,528,136
Title of 12(b) Security	Common Stock, $0.001 par value per share
Security Exchange Name	NASDAQ

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 168,654	$ 157,455
Accounts receivable, net of provision for doubtful accounts of $147 and $58 as of June 30, 2021 and December 31, 2020, respectively	65,570	94,124
Inventory	95,782	101,204
Prepaid expenses and other current assets	7,531	3,864
Prepaid income taxes	14,526	14,087
Total current assets	352,063	370,734
Property and equipment, net	25,471	28,880
Accounts receivable, net of current portion	65	143
Deferred tax assets	1,060	1,150
Goodwill	50,177	50,177
Intangible assets, net	34,171	35,844
Other assets	6,196	6,038
Total assets	469,203	492,966
Current liabilities:
Accounts payable	26,299	41,203
Accrued expenses and other current liabilities	29,417	39,793
Accrued income taxes	3,821	7,463
Deferred revenue	20,224	15,531
Current portion of long-term debt, net of unamortized debt issuance costs	8,418	15,171
Total current liabilities	88,179	119,161
Accrued income taxes, net of current portion	9,921	9,520
Deferred tax liabilities	7,359	7,282
Deferred revenue, net of current portion	5,328	3,520
Long-term debt, net of current portion and unamortized debt issuance costs	275,153	276,085
Other liabilities, net of current portion	1,306	1,024
Total liabilities	387,246	416,592
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized as of June 30, 2021 and December 31, 2020; no shares issued and outstanding as of June 30, 2021 and December 31, 2020
Common stock, $0.001 par value; 500,000 shares authorized; 87,116 and 85,329 shares issued as of June 30, 2021 and December 31, 2020, respectively; 85,394 and 83,607 shares outstanding as of June 30, 2021 and December 31, 2020, respectively	87	85
Treasury stock, at cost; 1,722 shares	(4,826)	(4,826)
Additional paid-in capital	185,809	183,041
Accumulated other comprehensive income	594	337
Accumulated deficit	(99,707)	(102,263)
Total stockholders’ equity	81,957	76,374
Total liabilities and stockholders’ equity	$ 469,203	$ 492,966

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Statement Of Financial Position [Abstract]
Provision for doubtful accounts	$ 147	$ 58
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares, outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	87,116,000	85,329,000
Common stock, shares outstanding	85,394,000	83,607,000
Treasury stock, shares	1,722,000	1,722,000

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenue:
Total revenue	$ 92,730	$ 83,350	$ 197,007	$ 166,973
Cost of revenue:
Total cost of revenue	47,215	40,220	95,452	81,190
Gross profit	45,515	43,130	101,555	85,783
Operating expenses:
Research and development	20,295	20,688	41,901	41,899
Selling, general and administrative	21,583	21,110	43,463	46,101
Total operating expenses	41,878	41,798	85,364	88,000
Income (loss) from operations	3,637	1,332	16,191	(2,217)
Other income (expense):
Interest income	103	271	217	677
Interest expense	(3,999)	(4,307)	(7,917)	(8,935)
(Loss) gain on foreign currency, net	(231)	528	(978)	680
Other income, net	479	35	551	97
Total other income (expense), net	(3,648)	(3,473)	(8,127)	(7,481)
(Loss) income before provision for (benefit from) income taxes	(11)	(2,141)	8,064	(9,698)
Provision for (benefit from) income taxes	3,182	887	5,508	(7,832)
Net (loss) income	(3,193)	(3,028)	2,556	(1,866)
Other comprehensive (loss) income—foreign currency translation adjustment, net of tax	593	99	257	(418)
Other comprehensive (loss) income—gain on foreign currency hedge, net of tax		171		527
Comprehensive (loss) income	(2,600)	(2,758)	2,813	(1,757)
Net (loss) income attributable to common stockholders:
Basic and diluted	$ (3,193)	$ (3,028)	$ 2,556	$ (1,866)
Net (loss) income per share attributable to common stockholders:
Basic	$ (0.04)	$ (0.04)	$ 0.03	$ (0.02)
Diluted	$ (0.04)	$ (0.04)	$ 0.03	$ (0.02)
Weighted-average shares used to compute net (loss) income per share attributable to common stockholders:
Basic	85,036	83,068	84,641	83,505
Diluted	85,036	83,068	89,013	83,505
Product
Revenue:
Total revenue	$ 80,469	$ 72,128	$ 174,267	$ 145,886
Cost of revenue:
Total cost of revenue	46,117	39,011	93,143	78,655
Service
Revenue:
Total revenue	12,261	11,222	22,740	21,087
Cost of revenue:
Total cost of revenue	$ 1,098	$ 1,209	$ 2,309	$ 2,535

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit
Balances at Dec. 31, 2019	$ 38,564	$ 84		$ 169,561	$ (2,222)	$ (127,064)
Balances, shares at Dec. 31, 2019		84,333
Balance Treasury, shares at Dec. 31, 2019			495
Balance Treasury at Dec. 31, 2019			$ (1,795)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes	(72)	$ 1		(73)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes, shares		523
Cash flow hedges	527				527
Foreign currency translation adjustment, net of tax	(418)				(418)
Repurchases of treasury shares	(3,031)		$ (3,031)
Repurchases of treasury shares, shares			1,227
Stock-based compensation	6,008			6,008
Net income (loss)	(1,866)					(1,866)
Balances at Jun. 30, 2020	39,712	$ 85		175,496	(2,113)	(128,930)
Balances, shares at Jun. 30, 2020		84,856
Balance Treasury, shares at Jun. 30, 2020			1,722
Balance Treasury at Jun. 30, 2020			$ (4,826)
Balances at Mar. 31, 2020	38,921	$ 85		171,914	(2,383)	(125,902)
Balances, shares at Mar. 31, 2020		84,726
Balance Treasury, shares at Mar. 31, 2020			1,711
Balance Treasury at Mar. 31, 2020			$ (4,793)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes	75			75
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes, shares		130
Cash flow hedges	171				171
Foreign currency translation adjustment, net of tax	99				99
Repurchases of treasury shares	(33)		$ (33)
Repurchases of treasury shares, shares			11
Stock-based compensation	3,507			3,507
Net income (loss)	(3,028)					(3,028)
Balances at Jun. 30, 2020	39,712	$ 85		175,496	(2,113)	(128,930)
Balances, shares at Jun. 30, 2020		84,856
Balance Treasury, shares at Jun. 30, 2020			1,722
Balance Treasury at Jun. 30, 2020			$ (4,826)
Balances at Dec. 31, 2020	$ 76,374	$ 85		183,041	337	(102,263)
Balances, shares at Dec. 31, 2020		85,329
Balance Treasury, shares at Dec. 31, 2020	1,722		1,722
Balance Treasury at Dec. 31, 2020	$ 4,826		$ (4,826)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes	(4,488)	$ 2		(4,490)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes, shares		1,787
Foreign currency translation adjustment, net of tax	257				257
Stock-based compensation	7,258			7,258
Net income (loss)	2,556					2,556
Balances at Jun. 30, 2021	$ 81,957	$ 87		185,809	594	(99,707)
Balances, shares at Jun. 30, 2021		87,116
Balance Treasury, shares at Jun. 30, 2021	1,722		1,722
Balance Treasury at Jun. 30, 2021	$ 4,826		$ (4,826)
Balances at Mar. 31, 2021	80,835	$ 86		182,088	1	(96,514)
Balances, shares at Mar. 31, 2021		86,502
Balance Treasury, shares at Mar. 31, 2021			1,722
Balance Treasury at Mar. 31, 2021			$ (4,826)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes	(431)	$ 1		(432)
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes, shares		614
Foreign currency translation adjustment, net of tax	593				593
Stock-based compensation	4,153			4,153
Net income (loss)	(3,193)					(3,193)
Balances at Jun. 30, 2021	$ 81,957	$ 87		$ 185,809	$ 594	$ (99,707)
Balances, shares at Jun. 30, 2021		87,116
Balance Treasury, shares at Jun. 30, 2021	1,722		1,722
Balance Treasury at Jun. 30, 2021	$ 4,826		$ (4,826)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands

6 Months Ended

Jun. 30, 2021

Jun. 30, 2020

Cash flows provided by operating activities:

Net income (loss)

$ 2,556

$ (1,866)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

8,197

9,255

Stock-based compensation

7,547

6,016

Deferred income taxes

173

(420)

Increase in provision for doubtful accounts

Change in provision for excess and obsolete inventory

(6)

1,118

Gain on disposal of assets

Changes in operating assets and liabilities:

Accounts receivable

28,433

40,377

Inventory

5,372

6,217

Prepaid expenses and other assets

(3,792)

1,419

Prepaid income taxes

(441)

(7,624)

Accounts payable

(14,456)

1,331

Accrued expenses and other current liabilities

(10,210)

(2,480)

Accrued income taxes

(3,240)

(1,016)

Deferred revenue

6,489

(8,424)

Net cash provided by operating activities

26,715

43,936

Cash flows used in investing activities:

Purchases of property and equipment

(1,514)

(2,717)

Purchases of software licenses

(1,400)

Net cash used in investing activities

(2,914)

(2,717)

Cash flows used in financing activities:

Principal repayments of debt

(8,275)

(1,660)

Proceeds from exercise of stock options

1,187

414

Employee taxes paid related to net share settlement of equity awards

(5,675)

(487)

Payments of dividends and equitable adjustments

(59)

(622)

Repurchases of treasury stock

(3,031)

Net cash used in financing activities

(12,822)

(5,386)

Effect of exchange rate changes on cash and cash equivalents

214

(340)

Net increase in cash, cash equivalents and restricted cash

11,193

35,493

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]

169,654

150,150

Supplemental disclosures of cash flow information:

Cash paid for interest

7,358

5,502

Cash paid for income taxes

7,564

1,889

Supplemental disclosures of non-cash operating, investing and financing activities:

Purchases of property and equipment included in accounts payable

265

564

Unpaid equitable adjustments included in accrued expenses and other current liabilities

$ 4

124

Fair value of cash flow hedges

$ 527

[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.

Nature of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of Business and Basis of Presentation

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 broadband and customer premise networking equipment for public and private high-speed data and multi-service communications networks. The Company’s core and edge broadband 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 June 30, 2021, the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 and the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020 are unaudited. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 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.

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.

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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 COVID-19 pandemic 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 three and six months ended June 30, 2021, economic and health conditions in the United States and across most of the globe changed rapidly during the period and are continuing to change after the end of the quarter. Globally, all aspects of the Company’s business remain fully operational. The pandemic has led to increased demand for certain of the Company’s products, resulting in increased order volumes that have created additional pressure on the Company’s supply chain. In addition, certain of the Company’s products utilize components, for which there has been increased global demand. As a result, we have begun to see shortages of supply that have increased the likelihood of an adverse impact on the Company’s future revenue and gross margins and ability to fill orders for customers in a timely manner. The Company continues to work with its supply chain and contract manufacturers, as well as its customers, to minimize the possible extent of such impacts. However, at this time the Company is neither able to estimate the extent of these impacts nor predict whether its efforts to minimize or contain them will be successful. The Company intends to continue to monitor its business very closely for any effects of COVID-19 for as long as necessary.

Subsequent Event Considerations

The Company evaluates events or transactions that occur after the balance sheet date, but prior to the issuance of the financial statements, in order to provide additional evidence for certain estimates or to identify matters that require additional disclosure. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure.

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 June 30, 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 June 30, 2021 and December 31, 2020 consisted of a certificate of deposit of $1,000 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:

	June 30, 2021		June 30, 2020
Cash and cash equivalents	$	168,654	$	149,148
Restricted cash included in other assets		1,000		1,002
	$	169,654	$	150,150

Accounts Receivable

Accounts receivable are presented net of a provision for doubtful accounts, which is an estimate of amounts that may not be collectible. Accounts receivable for customer contracts with customary payment terms, which are one year or less, are recorded at invoiced amounts and do not bear interest. The Company may, in limited circumstances, grant payment terms longer than one year. Payments due beyond 12 months from the balance sheet date are recorded as non-current assets. The Company generally does not require collateral, but the Company may, in certain instances based on its credit assessment, require full or partial prepayment prior to shipment.

Accounts receivable as of June 30, 2021 and December 31, 2020 consisted of the following:

	June 30, 2021		December 31, 2020
Current portion of accounts receivable, net:
Accounts receivable, net	$	65,497	$	93,480
Accounts receivable, extended payment terms		73		644
		65,570		94,124
Accounts receivable, net of current portion:
Accounts receivable, extended payment terms		65		143
	$	65,635	$	94,267

The Company performs ongoing credit evaluations of its customers and, if necessary, provides a provision for doubtful accounts and expected losses. When assessing and recording its provision for doubtful accounts, the Company evaluates the age of its accounts receivable, current economic trends, creditworthiness of the customer, customer payment history, and other specific customer and transaction information. The Company writes off accounts receivable against the provision when it determines a balance is uncollectible and no longer actively pursues collection of the receivable. Adjustments to the provision for doubtful accounts are recorded as selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive (loss) income.

As of June 30, 2021 and December 31, 2020, the Company concluded that all amounts due under extended payment terms were collectible and no reserve for credit losses was recorded. During the six months ended June 30, 2021 and 2020, the Company did not provide a reserve for credit losses and did not write off any uncollectible receivables due under extended payment terms.

Concentration of Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents consist of demand deposits, savings accounts, money market mutual funds, and certificates of deposit with financial institutions, which may exceed Federal Deposit Insurance Corporation limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Significant customers are those that represent 10% or more of revenue or accounts receivable and are set forth in the following tables:

	Revenue						Revenue
	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Customer A		13	%	*				16	%	*
Customer B	*				22	%	*				21	%
Customer C		15	%	*				17	%	*
Customer D	*				13	%	*			*
Customer E		11	%	*			*			*

	Accounts Receivable, Net
	June 30, 2021			December 31, 2020
Customer A		24	%	*
Customer C		10	%	*
Customer F	*				17	%

*	Less than 10% of total

Certain of the components and subassemblies included in the Company’s products are obtained from a single source or a limited group of suppliers. Although the Company seeks to reduce dependence on those limited sources of suppliers and manufacturers, the partial or complete loss of certain of these sources could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.

Stock-Based Compensation

The Company measures stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues stock options with only service-based vesting conditions and records the expense for these awards using the straight-line method.

The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive (loss) income in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

The Company estimates the fair value of each stock option grant on the date of grant using the Black-Scholes option pricing model. The Company was a private company until December 14, 2017 and lacks sufficient company-specific historical and implied volatility information for its stock. Therefore, for all options granted in 2020 or before, the Company estimated its expected stock volatility based on the historical volatility of publicly traded peer companies. Beginning with options granted in 2021, the Company estimates its expected stock volatility using a weighted-average calculation based on the historical volatility of the Company and publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company does not have a history of declaring or paying cash dividends, except for the special cash dividends declared in November 2014, June 2016, December 2016, May 2017 and November 2017 and in those circumstances the board of directors approved cash dividends to be paid to holders of the Company’s stock options, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) upon vesting as an equitable adjustment to the holders of such instruments.

The Company has also granted SARs to certain employees, which require the Company to pay in cash upon exercise an amount equal to the product of the excess of the per share fair market value of the Company’s common stock on the date of exercise over the exercise price, multiplied by the number of shares of common stock with respect to which the SAR is exercised. Because these awards may require the Company to settle the awards in cash, the Company accounts for them as a liability in the Company’s consolidated balance sheets. The Company recognizes the liability related to these awards, as well as related compensation expense over the period during which services are rendered until completed. As all SARs are now fully vested, the Company continues to remeasure the fair market value of the liability until the award is either exercised or canceled, with changes in the fair value of the liability recorded in the consolidated statements of operations and comprehensive (loss) income.

Impact of Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the guidance on certain financial instruments with characteristics of liability and equity, including convertible debt instruments. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. The ASU also simplifies the diluted earnings per share calculation in certain areas. The guidance will become effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and the accompanying notes thereto.

Impact of Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): Amendments to FASB Accounting Standards Codification (“ASU 2016-02”), which replaces the existing guidance for leases. ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, the arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. This guidance will become effective for private companies, and emerging growth companies that choose to take advantage of the extended transition periods, for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company has begun planning for adoption by implementing a new lease accounting software and by working to establish additional changes to internal processes to comply with all requirements upon adoption. The standard allows for, and the Company plans on using, a modified retrospective approach with comparatives under ASC 840, where entities would recognize a cumulative effect to retained earnings at the date of adoption without restating prior period balances or disclosure. Management is continuing to assess the impact of ASU 2016-02 on the Company’s condensed consolidated financial statements and the accompanying notes thereto.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The main provisions include presenting financial assets measured at amortized cost at the amount expected to be collected, which is net of an allowance for expected credit losses, and recording credit losses related to available-for-sale securities through an allowance for credit losses. The effective dates for the amendments in ASU 2016-13 were updated in ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and as such ASU 2016-13 will become effective for private companies, and emerging growth companies that choose to take advantage of the extended transition periods, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods, and must be applied using a modified retrospective approach. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

Other

Other than the disclosures above, there have been no changes to the significant accounting policies disclosed in Note 2 “Summary of Significant Accounting Policies” to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2021

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

3. Goodwill and Intangible Assets

Intangible assets, net consisted of the following at June 30, 2021 and December 31, 2020:

	Cost		Accumulated Amortization			Net Balance
Developed Technology	$	25,000	$	(7,144	)	$	17,856
Customer Relationships		18,000		(3,600	)		14,400
Trade Name		1,000		(664	)		336
Purchased software		1,796		(217	)		1,579
Totals as of June 30, 2021	$	45,796	$	(11,625	)	$	34,171

	Cost		Accumulated Amortization			Net Balance
Developed Technology	$	25,000	$	(5,358	)	$	19,642
Customer Relationships		18,000		(2,700	)		15,300
Trade Name		1,000		(498	)		502
Purchased software		432		(32	)		400
Totals as of December 31, 2020	$	44,432	$	(8,588	)	$	35,844

As of June 30, 2021, amortization expense on existing intangible assets for the next five years and beyond is as follows:

Year Ending December 31,
2021	$	3,060
2022		5,951
2023		5,753
2024		5,651
2025		5,651
Thereafter		8,105
	$	34,171

A summary of amortization expense recorded during the three and six months ended June 30, 2021 and 2020 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Product cost of revenue	$	893	$	893	$	1,786	$	1,786
Research and development		103		—		185		—
Selling, general and administrative		533		533		1,066		1,067
Totals	$	1,529	$	1,426	$	3,037	$	2,853

The Company’s goodwill is the result of its acquisition of NetComm on July 1, 2019 and represents the excess of purchase price over the estimated fair value of net assets acquired. There has been no change to the $50,177 carrying amount of goodwill since December 31, 2020.

Inventory

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

Inventory

4. Inventory

Inventory as of June 30, 2021 and December 31, 2020 consisted of the following:

	June 30, 2021		December 31, 2020
Raw materials	$	43,597	$	50,904
Work in process		1		19
Finished goods:
Manufactured finished goods		51,243		49,764
Deferred inventory costs		941		517
	$	95,782	$	101,204

Property and Equipment

6 Months Ended

Jun. 30, 2021

Property Plant And Equipment [Abstract]

Property and Equipment

5. Property and Equipment

Property and equipment as of June 30, 2021 and December 31, 2020 consisted of the following:

	June 30, 2021			December 31, 2020
Computers and purchased software	$	24,878		$	24,865
Leasehold improvements		4,182			4,148
Furniture and fixtures		2,660			2,644
Machinery and equipment		37,161			36,701
Land		3,091			3,091
Building		4,765			4,765
Building improvements		7,255			7,244
Trial systems at customers’ sites		4,383			5,300
		88,375			88,758
Less: Accumulated depreciation and amortization		(62,904	)		(59,878	)
	$	25,471		$	28,880

During the six months ended June 30, 2021 and 2020, the Company transferred trial systems into inventory from property and equipment with values of $918 and $574, respectively, net of transfers of trial systems to cost of revenue. In addition, the Company transferred $17 and $328 of equipment into inventory from property and equipment during the six months ended June 30, 2021 and 2020, respectively.

Depreciation and amortization expense on property and equipment totaled $2,459 and $3,055 for the three months ended June 30, 2021 and 2020, respectively and $5,160 and $6,402 for the six months ended June 30, 2021 and 2020, respectively.

Accrued Expenses and Other Current Liabilities

6 Months Ended

Jun. 30, 2021

Payables And Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of June 30, 2021 and December 31, 2020 consisted of the following:

	June 30, 2021		December 31, 2020
Accrued compensation and related taxes	$	15,505	$	22,785
Accrued warranty		2,597		2,354
Other accrued expenses		11,315		14,654
	$	29,417	$	39,793

Accrued Warranty

Substantially all of the Company’s products are covered by warranties for software and hardware for periods ranging from 90 days to one year. In addition, in conjunction with customers’ renewals of maintenance and support contracts, the Company offers an extended warranty for periods typically of one to three years for agreed-upon fees. In the event of a failure of a hardware product or software covered by these warranties, the Company must repair or replace the software or hardware or, if those remedies are insufficient, and at the discretion of the Company, provide a refund. The Company’s warranty reserve, which is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets, reflects estimated material, labor and other costs related to potential or actual software and hardware warranty claims for which the Company expects to incur an obligation. The Company’s estimates of anticipated rates of warranty claims and the costs associated therewith are primarily based on historical information and future forecasts. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. If the historical data used to calculate the adequacy of the warranty reserve are not indicative of future requirements, additional or reduced warranty reserves may be required.

A summary of changes in the amount reserved for warranty costs for the six months ended June 30, 2021 and 2020 is as follows:

	Six Months Ended June 30,
	2021			2020
Warranty reserve at beginning of period	$	2,354		$	2,448
Provisions		1,566			993
Charges		(1,323	)		(1,329	)
Warranty reserve at end of period	$	2,597		$	2,112

Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

7. Fair Value Measurements

The following tables present information about the fair value of the Company’s financial assets and liabilities as of June 30, 2021 and December 31, 2020 and indicate the level of the fair value hierarchy utilized to determine such fair values:

	Fair Value Measurements as of June 30, 2021 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit—restricted cash	$	—	$	1,000	$	—	$	1,000
Money market mutual funds		135,021		—		—		135,021
Foreign currency forward contracts		—		8		—		8
	$	135,021	$	1,008	$	—	$	136,029
Liabilities:
SARs	$	—	$	—	$	646	$	646
	$	—	$	—	$	646	$	646

	Fair Value Measurements as of December 31, 2020 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit—restricted cash	$	—	$	1,006	$	—	$	1,006
Money market mutual funds		114,404		—		—		114,404
	$	114,404	$	1,006	$	—	$	115,410
Liabilities:
SARs	$	—	$	—	$	493	$	493
	$	—	$	—	$	493	$	493

During the six months ended June 30, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3.

There were no changes to the valuation techniques used to measure asset and liability fair values on a recurring basis during the six months ended June 30, 2021 from those included in the Company’s consolidated financial statements for the year ended December 31, 2020. The following table provides a summary of changes in the fair values of the Company’s stock appreciation rights (“SARs”) liability, for which fair value is determined by Level 3 inputs:

	Six Months Ended June 30,
	2021			2020
Fair value at beginning of period	$	493		$	264
Change in fair value		288			7
Exercises		(135	)		—
Fair value at end of period	$	646		$	271

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Derivative Instruments

6 Months Ended

Jun. 30, 2021

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments

8. Derivative Instruments

The Company has certain international customers that are billed in foreign currencies. To mitigate the volatility related to fluctuations in the foreign exchange rates for accounts receivable denominated in foreign currencies, the Company enters into foreign currency forward contracts. As of June 30, 2021, the Company had a foreign currency forward contract outstanding with a notional amount totaling 1,129 Euros maturing in the third quarter of 2021. As of December 31, 2020, no foreign currency forward contracts were outstanding.

The Company’s foreign currency forward contracts described above economically hedged certain risks but were not designated as hedges for financial reporting purposes, and accordingly, all changes in the fair value of the derivative instruments were recorded as unrealized foreign currency transaction gains or losses and were included in the condensed consolidated statements of operations and comprehensive (loss) income as a component of other income (expense). The Company records derivative instruments in the condensed consolidated balance sheet at their fair values. As of June 30, 2021, the Company recorded an asset of $8 relating to outstanding foreign currency forward contracts. As of December 31, 2020 the Company recorded no asset relating to outstanding foreign currency forward contracts. As of June 30, 2021 and December 31, 2020, the Company recorded no liability relating to outstanding foreign currency forward contracts.

The Company also faces exposure to foreign currency exchange rate fluctuations, as a certain portion of its expenses are denominated in currencies other than U.S. dollars. In certain instances, the Company utilizes forward contracts to hedge against foreign currency fluctuations. These contracts are used to minimize foreign gains or losses, as the gains or losses on the derivative are intended to offset the losses or gains on the underlying exposure. The Company does not engage in foreign currency speculation.

The Company designed its foreign currency risk management strategy principally to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. The Company may enter into cash flow hedges that utilize foreign currency forward contracts to hedge specific forecasted transactions of its foreign subsidiaries with the goal of protecting its budgeted expenses against foreign currency exchange rate changes compared to its budgeted rates.

During the six months ended June 30, 2020, the Company entered into a cash flow hedge with a notional amount of 8,500 AUD to hedge certain Australian dollar cash flows incurred during the second quarter of 2020. During the three months ended June 30, 2020, the Company settled this cash flow hedge, reclassifying a gain from other comprehensive (loss) income of $225. The full amount of the fair value of this derivative on the settlement date of $888 was recognized as $67 cost of goods sold, $537 research and development expense and $284 selling, general and administrative expense in the condensed consolidated statement of comprehensive (loss) income.

At June 30, 2020, the Company had one outstanding cash flow hedge with a notional amount of 5,000 AUD to hedge certain Australian dollar cash flows incurred during the third quarter of 2020. As the cash flows which were hedged had not yet occurred, the Company recognized the change in fair value of $396 for the three months ended June 30, 2020 and the full fair value of $527 for the six months ended June 30, 2020 as accumulated other comprehensive income in the accompanying condensed consolidated statement of stockholders’ equity. The Company did not have any cash flow hedges outstanding as of June 30, 2021 and December 31, 2020.

Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The Company’s provision for (benefit from) income taxes was $3,182 and $887 for the three months ended June 30, 2021 and 2020, respectively. The change in the provision for (benefit from) income taxes was primarily due to changes in the jurisdictional mix of earnings period over period.

The Company’s effective income tax rate was 68.3% and 80.8% for the six months ended June 30, 2021 and 2020, respectively. The provision for (benefit from) income taxes was $5,508 and $(7,832) for the six months ended June 30, 2021 and 2020, respectively. The change in the provision for (benefit from) income taxes was primarily due to a discrete tax benefit of $9,310 recorded during the six months ended June 30, 2021 associated with the enactment of the CARES Act. The change in the provision for (benefit from) income taxes was also impacted by changes in the jurisdictional mix of earnings period over period.

The provision for (benefit from) income taxes for the three and six months ended June 30, 2021 and 2020 differed from the federal statutory rate primarily due to the geographical mix of earnings and related foreign tax rate differential, permanent differences, research and development tax credits, foreign tax credits, the valuation allowance maintained against certain deferred tax assets and withholding taxes.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

Debt

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Debt

10. Debt

The aggregate principal amount of debt outstanding as of June 30, 2021 and December 31, 2020 consisted of the following:

	June 30,		December 31,
	2021		2020
Term loan	$	279,725	$	288,000
Revolving credit facility		6,500		6,500
Total principal amount of debt outstanding	$	286,225	$	294,500

Current and non-current debt obligations reflected in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 consisted of the following:

	June 30,			December 31,
	2021			2020
Current liabilities:
Term loan	$	3,000		$	9,775
Revolving credit facility		6,500			6,500
Current portion of principal payment obligations		9,500			16,275
Unamortized debt issuance costs, current portion		(1,082	)