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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, 2022

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(s)

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 22, 2022, the registrant had 94,180,160 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, 2022 and December 31, 2021

 

3

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three months ended March 31, 2022 and 2021

 

4

 

Condensed Consolidated Statements of Stockholders' Equity for the Three months ended March 31, 2022 and 2021

 

5

 

Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2022 and 2021

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

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

 

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

Controls and Procedures

 

30

PART II.

OTHER INFORMATION

 

31

Item 1.

Legal Proceedings

 

31

Item 1A.

Risk Factors

 

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 6.

Exhibits

 

33

Signatures

 

34

 

 

 

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 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;

 

our ability to anticipate technological shifts;

 

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

 

changes in the rate of communications service providers’ (“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 operating 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 ongoing COVID-19 pandemic, which is highly uncertain and will depend on future developments on our business, our suppliers, our logistics 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;

 

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 United States (“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,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

168,580

 

 

$

154,703

 

Accounts receivable, net of provision for doubtful accounts of $370 and $117 as of

   March 31, 2022 and December 31, 2021, respectively

 

 

48,106

 

 

 

85,774

 

Inventory

 

 

85,284

 

 

 

84,828

 

Prepaid expenses and other current assets

 

 

6,052

 

 

 

5,746

 

Prepaid income taxes

 

 

2,627

 

 

 

23,963

 

Total current assets

 

 

310,649

 

 

 

355,014

 

Property and equipment, net

 

 

22,360

 

 

 

23,508

 

Accounts receivable, net of current portion

 

 

57

 

 

 

115

 

Deferred tax assets

 

 

108

 

 

 

101

 

Goodwill

 

 

50,177

 

 

 

50,177

 

Intangible assets, net

 

 

29,615

 

 

 

31,144

 

Other assets

 

 

8,552

 

 

 

8,648

 

Total assets

 

$

421,518

 

 

$

468,707

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,031

 

 

$

28,087

 

Accrued expenses and other current liabilities

 

 

27,507

 

 

 

41,382

 

Accrued income taxes

 

 

11,320

 

 

 

4,991

 

Deferred revenue

 

 

19,139

 

 

 

14,473

 

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

 

 

1,927

 

 

 

1,924

 

Total current liabilities

 

 

73,924

 

 

 

90,857

 

Accrued income taxes, net of current portion

 

 

10,389

 

 

 

7,732

 

Deferred tax liabilities

 

 

5,666

 

 

 

5,293

 

Deferred revenue, net of current portion

 

 

6,474

 

 

 

7,012

 

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

 

 

273,710

 

 

 

274,193

 

Other liabilities, net of current portion

 

 

1,774

 

 

 

1,701

 

Total liabilities

 

 

371,937

 

 

 

386,788

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000 shares authorized as of March 31, 2022

   and December 31, 2021; no shares issued and outstanding as of

   March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 500,000 shares authorized; 88,452 and 87,815 shares

  issued as of March 31, 2022 and December 31, 2021, respectively; 84,855 and

  84,422 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

88

 

 

 

88

 

Treasury stock, at cost; 3,597 and 3,393 shares as of March 31, 2022 and December 31,

   2021, respectively

 

 

(14,837

)

 

 

(13,645

)

Additional paid-in capital

 

 

194,973

 

 

 

193,654

 

Accumulated other comprehensive income

 

 

997

 

 

 

878

 

Accumulated deficit

 

 

(131,640

)

 

 

(99,056

)

Total stockholders’ equity

 

 

49,581

 

 

 

81,919

 

Total liabilities and stockholders’ equity

 

$

421,518

 

 

$

468,707

 

 

 

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

3


CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

52,545

 

 

$

93,798

 

Service

 

 

11,854

 

 

 

10,479

 

Total revenue

 

 

64,399

 

 

 

104,277

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

36,228

 

 

 

47,026

 

Service

 

 

1,492

 

 

 

1,211

 

Total cost of revenue

 

 

37,720

 

 

 

48,237

 

Gross profit

 

 

26,679

 

 

 

56,040

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

22,673

 

 

 

21,606

 

Selling, general and administrative

 

 

22,329

 

 

 

21,880

 

Total operating expenses

 

 

45,002

 

 

 

43,486

 

(Loss) income from operations

 

 

(18,323

)

 

 

12,554

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

34

 

 

 

114

 

Interest expense

 

 

(3,688

)

 

 

(3,918

)

Loss on foreign currency, net

 

 

(273

)

 

 

(747

)

Other income, net

 

 

18

 

 

 

72

 

Total other income (expense), net

 

 

(3,909

)

 

 

(4,479

)

(Loss) income before provision for income taxes

 

 

(22,232

)

 

 

8,075

 

Provision for income taxes

 

 

10,352

 

 

 

2,326

 

Net (loss) income

 

 

(32,584

)

 

 

5,749

 

Other comprehensive income (loss) —foreign currency translation

   adjustment, net of tax

 

 

119

 

 

 

(336

)

Comprehensive (loss) income

 

$

(32,465

)

 

$

5,413

 

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

 

 

 

 

 

 

 

 

Basic

 

$

(0.39

)

 

$

0.07

 

Diluted

 

$

(0.39

)

 

$

0.06

 

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

   share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

 

84,583

 

 

 

84,242

 

Diluted

 

 

84,583

 

 

 

88,568

 

 

 

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, 2022

 

 

87,815

 

 

$

88

 

 

 

3,393

 

 

$

(13,645

)

 

$

193,654

 

 

$

878

 

 

$

(99,056

)

 

$

81,919

 

Exercise of stock options and common stock

   issued upon vesting of equity awards, net

   of shares withheld for employee taxes

 

 

637

 

 

 

 

 

 

 

 

 

 

 

 

(1,412

)

 

 

 

 

 

 

 

 

(1,412

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

119

 

 

 

 

 

 

119

 

Repurchases of treasury shares

 

 

 

 

 

 

 

 

204

 

 

 

(1,192

)

 

 

 

 

 

 

 

 

 

 

 

(1,192

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,731

 

 

 

 

 

 

 

 

 

2,731

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,584

)

 

 

(32,584

)

Balances at March 31, 2022

 

 

88,452

 

 

$

88

 

 

 

3,597

 

 

$

(14,837

)

 

$

194,973

 

 

$

997

 

 

$

(131,640

)

 

$

49,581

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

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,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(32,584

)

 

$

5,749

 

Adjustments to reconcile net (loss) income to net cash provided by

   (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,615

 

 

 

4,209

 

Stock-based compensation

 

 

2,628

 

 

 

3,453

 

Deferred income taxes

 

 

369

 

 

 

138

 

Increase in provision for doubtful accounts

 

 

253

 

 

 

91

 

Change in provision for excess and obsolete inventory

 

 

(27

)

 

 

113

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

37,487

 

 

 

469

 

Inventory

 

 

(514

)

 

 

4,558

 

Prepaid expenses and other assets

 

 

(205

)

 

 

(5,834

)

Prepaid income taxes

 

 

21,333

 

 

 

(680

)

Accounts payable

 

 

(13,661

)

 

 

(15,607

)

Accrued expenses and other current liabilities

 

 

(13,707

)

 

 

(10,118

)

Accrued income taxes

 

 

8,985

 

 

 

2,225

 

Deferred revenue

 

 

4,125

 

 

 

6,079

 

Net cash provided by (used in) operating activities

 

 

18,097

 

 

 

(5,155

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(962

)

 

 

(852

)

Purchases of software licenses

 

 

(4

)

 

 

(1,400

)

Net cash used in investing activities

 

 

(966

)

 

 

(2,252

)

Financing activities:

 

 

 

 

 

 

 

 

Principal repayments of debt

 

 

(750

)

 

 

(750

)

Proceeds from exercise of stock options

 

 

79

 

 

 

574

 

Employee taxes paid related to net share settlement of equity awards

 

 

(1,490

)

 

 

(4,630

)

Payments of dividends and equitable adjustments

 

 

(1

)

 

 

(13

)

Repurchases of common stock

 

 

(1,192

)

 

 

 

Net cash used in financing activities

 

 

(3,354

)

 

 

(4,819

)

Effect of exchange rate changes on cash and cash equivalents

 

 

100

 

 

 

(266

)

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

 

 

13,877

 

 

 

(12,492

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

157,804

 

 

 

158,461

 

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

 

$

171,681

 

 

$

145,969

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,478

 

 

$

3,682

 

Cash paid for income taxes

 

$

1,806

 

 

$

290

 

Supplemental disclosures of non-cash operating, investing

   and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

60

 

 

$

325

 

Unpaid equitable adjustments included in accrued expenses and other current liabilities

 

$

 

 

$

50

 

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 solutions to help CSPs transform and expand their public and private high-speed data and multi-service communications networks so they can meet the growing demand for bandwidth and new services. The Company’s core and edge broadband technology enables CSPs 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 regardless of access technology.

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 CSP industry. These risks include, but are not limited to, the level of capital spending by 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 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, 2022, the condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021 are unaudited. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are also unaudited. The accompanying condensed consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022 (the “Annual Report on Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2022 or any future period.

7


 

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, 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, which could continue to have a material effect upon the estimates and judgments relied upon by management in preparing these condensed consolidated financial statements. While the Company remains fully operational, during the three months ended March 31, 2022, the effects of the COVID-19 pandemic on the global supply chain had a significant adverse effect on the Company’s financial results.  In particular, certain of the Company’s products utilize components, whose availability was significantly exceeded by global demand.  As a result, during the three months ended March 31, 2022, the Company continued to see shortages of supply that resulted in the Company’s inability to fulfill certain customer orders within normal lead times.  This adversely impacted the Company’s revenue and operating results for the three months ended March 31, 2022. Additionally, shipping bottlenecks and delays negatively affected the Company’s ability to timely fulfill customer orders, thereby delaying its ability to consummate sales and recognize revenue. The Company also experienced, in some cases, significant increases in shipping costs. While the Company continues to work with its supply chain, contract manufacturers, logistics partners, and customers to minimize the extent of such impacts, the Company expects the effects of global supply chain issues to continue and cannot predict when such effects will subside.  This may prevent the Company from being able to fulfill its customers’ orders in a timely manner or at all, which could lead to one or more of its customers cancelling their orders.  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 considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. Other than the agreement with Verizon Ventures LLC, as discussed in Note 17, Subsequent Events, the Company has evaluated all subsequent events and determined that there are no additional material recognized or unrecognized subsequent events requiring disclosure in these condensed consolidated financial statements.

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, 2022 and December 31, 2021, the Company’s cash and cash equivalents consisted of investments in money market mutual funds.

Restricted cash as of March 31, 2022 and December 31, 2021 consisted of a certificate of deposit of $1,001, pledged as collateral for a stand-by letter of credit required to support a contractual obligation. Restricted cash also included cash of $2,100 pledged as collateral in connection with five and two letters of credit to support contractual obligations at March 31, 2022 and December 31, 2021, respectively.

8


 

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, 2022

 

 

March 31, 2021

 

Cash and cash equivalents

 

$

168,580

 

 

$

144,961

 

Restricted cash included in other assets

 

 

3,101

 

 

 

1,008

 

 

 

$

171,681

 

 

$

145,969

 

 

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 March 31, 2022 and December 31, 2021 consisted of the following:

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Current portion of accounts receivable, net:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

48,029

 

 

$

85,689

 

Accounts receivable, extended payment terms

 

 

77

 

 

 

85

 

 

 

 

48,106

 

 

 

85,774

 

Accounts receivable, net of current portion:

 

 

 

 

 

 

 

 

Accounts receivable, extended payment terms

 

 

57

 

 

 

115

 

 

 

$

48,163

 

 

$

85,889

 

 

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 March 31, 2022 and December 31, 2021, the Company concluded that all amounts due under extended payment terms were collectible and no reserve for credit losses was recorded. During the three months ended March 31, 2022 and 2021, 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.

The Company grants credit to customers in the ordinary course of business. Credit evaluations are performed on an ongoing basis to reduce credit risk, and no collateral is required from the Company’s customers. An allowance for uncollectible accounts is provided for those accounts receivable considered to be uncollectible based upon historical experience and credit evaluation. Due to these factors, no additional losses beyond the amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable.

9


 

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

 

 

 

Revenue

 

 

Accounts Receivable, Net

 

 

 

Three Months Ended March 31,

 

 

As of

 

As of

 

 

 

2022

 

 

2021

 

 

March 31, 2022

 

December 31, 2021

 

Customer A

 

 

14

%

 

*

 

 

*

 

*

 

Customer B