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10-Q

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, 2023


☐	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 May 2, 2023, the registrant had 96,716,206 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, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	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 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	38
	Signatures	39

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 successfully refinance our term loan at reasonable rates and customary economics prior to its contractual maturity date of December 20, 2023 and therefore continue as a going concern;

•

the sufficiency of our cash resources and needs for additional financing;

•

our ability 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 at which communications service providers or CSPs, deploy and invest 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 return to operating profitability in the future;

•

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 execution of restructuring plans, including expected or contemplated associated timing, benefits, and costs;

•

the ongoing effects of the COVID-19 pandemic on our supply chain;

•

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 our key suppliers, which could disrupt our supply chain;

•

future accounting pronouncements or changes in our accounting policies;

•

stock-based compensation expense;

•

our overall effective tax rate, including impacts caused by the relative proportion of foreign to U.S. income, the amount and timing of certain employee stock-based compensation transactions, changes in the valuation of our deferred tax assets and any new legislation or regulatory developments;

•

increases or decreases in our expenses caused by fluctuations in interest rates and foreign currency exchange rates;

•

impact of inflation and actions taken by central banks to counter inflation;

•

the costs and possible outcomes of any contingent liabilities, as well as 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, including new macro-economic recession concerns, a potential economic downturn, banking industry liquidity concerns, or inflationary conditions;

•

our ability to obtain and maintain intellectual property protection for our products; and

•

our use of proceeds from our initial public offering.

Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	112,495		$	126,312
Accounts receivable, net of provision for doubtful accounts of $167 and $636 as of March 31, 2023 and December 31, 2022, respectively(1)		47,463			74,484
Inventory		83,339			81,795
Prepaid expenses and other current assets		4,914			2,836
Prepaid income taxes		2,918			6,352
Total current assets		251,129			291,779
Property and equipment, net		18,695			19,518
Right-of-use assets		4,756			5,199
Goodwill		50,177			50,177
Intangible assets, net		24,252			25,759
Other assets		7,120			5,862
Total assets	$	356,129		$	398,294
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,106		$	29,283
Accrued expenses and other current liabilities		34,525			31,825
Accrued income taxes		896			4,298
Deferred revenue(2)		36,372			31,305
Lease liability		1,909			2,040
Current portion of long-term debt, net of unamortized debt issuance costs		223,256			225,161
Total current liabilities		312,064			323,912
Accrued income taxes, net of current portion		7,408			6,640
Deferred tax liabilities		1,493			1,490
Deferred revenue, net of current portion		5,195			5,529
Lease liability, long-term		3,087			3,416
Other liabilities, net of current portion		7,646			7,906
Total liabilities		336,893			348,893
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022		—			—
Common stock, $0.001 par value; 500,000 shares authorized; 100,314 and 98,262 shares issued as of March 31, 2023 and December 31, 2022, respectively; 96,717 and 94,665 shares outstanding as of March 31, 2023 and December 31, 2022, respectively		100			98
Treasury stock, at cost; 3,597 shares as of March 31, 2023 and December 31, 2022		(14,837	)		(14,837	)
Additional paid-in capital		245,858			244,675
Accumulated other comprehensive loss		(1,997	)		(2,305	)
Accumulated deficit		(209,888	)		(178,230	)
Total stockholders’ equity		19,236			49,401
Total liabilities and stockholders’ equity	$	356,129		$	398,294

(1) Includes accounts receivable due from a related party of $4,648 and $6,044 at March 31, 2023 and December 31, 2022, respectively (see Note 15)

(2) Includes deferred revenue associated with a related party of $19,630 and $18,094 at March 31, 2023 and December 31, 2022, respectively (see Note 15)

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Revenue:
Product	$	35,249		$	52,545
Service		10,048			11,854
Total revenue(1)		45,297			64,399
Cost of revenue:
Product		26,015			36,228
Service		1,127			1,492
Total cost of revenue		27,142			37,720
Gross profit		18,155			26,679
Operating expenses:
Research and development		20,840			22,673
Selling, general and administrative		24,457			22,329
Total operating expenses		45,297			45,002
Loss from operations		(27,142	)		(18,323	)
Other income (expense):
Interest income		966			34
Interest expense		(5,208	)		(3,688	)
Gain on extinguishment of debt		133			—
Loss on foreign currency, net		(292	)		(273	)
Other income, net		33			18
Total other expense, net		(4,368	)		(3,909	)
Loss before provision for income taxes		(31,510	)		(22,232	)
Provision for income taxes		148			10,352
Net loss		(31,658	)		(32,584	)
Other comprehensive income —foreign currency translation adjustment, net of tax		308			119
Comprehensive loss	$	(31,350	)	$	(32,465	)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.33	)	$	(0.39	)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
Basic and diluted		95,793			84,583

(1) Includes revenue during which a related party relationship existed of $2,997 during the three months ended March 31, 2023 (see Note 15)

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	Common Stock				Treasury Stock					Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount			Capital			(Loss) Income			Deficit			Equity
Balances at January 1, 2023		98,262	$	98		3,597	$	(14,837	)	$	244,675		$	(2,305	)	$	(178,230	)	$	49,401
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes		2,052		2		—		—			(2,939	)		—			—			(2,937	)
Foreign currency translation adjustment		—		—		—		—			—			308			—			308
Stock-based compensation		—		—		—		—			4,122			—			—			4,122
Net loss		—		—		—		—			—			—			(31,658	)		(31,658	)
Balances at March 31, 2023		100,314	$	100		3,597	$	(14,837	)	$	245,858		$	(1,997	)	$	(209,888	)	$	19,236


	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
Repurchase 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

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Operating activities:
Net loss	$	(31,658	)	$	(32,584	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,886			3,615
Stock-based compensation		4,122			2,628
Deferred income taxes		3			369
Change in provision for doubtful accounts		(470	)		253
Change in provision for excess and obsolete inventory		(244	)		(27	)
Gain on disposal of assets		4			—
Non-cash operating lease expense		571			—
Gain on extinguishment of debt		(133	)		—
Changes in operating assets and liabilities:
Accounts receivable		27,655			37,487
Inventory		(1,222	)		(514	)
Prepaid expenses and other assets		(3,326	)		(205	)
Prepaid income taxes		3,444			21,333
Accounts payable		(13,895	)		(13,661	)
Accrued expenses and other current liabilities		2,345			(13,707	)
Operating lease liabilities		(530	)		—
Accrued income taxes		(2,630	)		8,985
Deferred revenue		4,728			4,125
Net cash (used in) provided by operating activities		(8,350	)		18,097
Investing activities:
Purchases of property and equipment		(679	)		(962	)
Purchases of software licenses		—			(4	)
Net cash used in investing activities		(679	)		(966	)
Financing activities:
Principal repayments of debt		(1,988	)		(750	)
Proceeds from exercise of stock options		2			79
Employee taxes paid related to net share settlement of equity awards		(2,938	)		(1,490	)
Payments of dividends and equitable adjustments		—			(1	)
Repurchases of common stock		—			(1,192	)
Net cash used in financing activities		(4,924	)		(3,354	)
Effect of exchange rate changes on cash and cash equivalents		140			100
Net (decrease) increase in cash, cash equivalents and restricted cash		(13,813	)		13,877
Cash, cash equivalents and restricted cash at beginning of period		129,425			157,804
Cash, cash equivalents and restricted cash at end of period (1)	$	115,612		$	171,681
Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,849		$	3,478
Cash paid for income taxes	$	3,132		$	1,806
Supplemental disclosures of non-cash operating, investing and financing activities:
Purchases of property and equipment included in accounts payable	$	20		$	60

(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.

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, the Netherlands, Hong Kong, Australia, Germany, the United Kingdom, the United States and New Zealand.

The Company offers physical, virtual and cloud-native 5G infrastructure and customer premise networking equipment solutions to help communications service providers, or 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. Through the development of cloud, access devices and cable products, the Company’s core and edge convergence technology enables CSPs and enterprises to cost-effectively and dynamically increase network speed, add bandwidth capacity and new services, reduce network complexity and reduce operating and capital expenditures regardless of access technology. As technology has changed, the Company is now viewing offerings across three major product lines, cloud, access devices and cable, as opposed to our historical view of cable, wireless and fixed telco. Our revenue disclosures have been updated accordingly.

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.

Prior to December 31, 2022, the Company was an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act provided 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 elected not to “opt out” of such extended transition period, which means that when a standard was issued or revised and it had different application dates for public or private companies, the Company was required to adopt the new or revised standard at or prior to the time private companies were required to adopt the new or revised standard. As of December 31, 2022, the Company no longer qualifies as an emerging growth company and will now be required to adopt new or revised standards at the same time as other public companies.

The accompanying condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022, and the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2023 and 2022 are unaudited. The financial data and other information disclosed in these notes related to the three months ended March 31, 2023 and 2022 are also unaudited. The accompanying condensed consolidated balance sheet as of December 31, 2022 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2022, which was included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 15, 2023 (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, 2023 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. Certain prior period amounts have been reclassified to conform to the current period presentation.

Going Concern

In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition and liquidity sources including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months.