cmbm-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number: 001-38952

 

CAMBIUM NETWORKS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Cayman Islands

 

Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3800 Golf Road, Suite 360

Rolling Meadows, Illinois 60008

 

(345) 943-3100

(Address of principal executive offices, including zip code)

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Ordinary shares, $0.0001 par value

 

CMBM

 

Nasdaq Global Market

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, 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 November 8, 2019 the registrant had 25,634,417 shares of ordinary shares, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Comprehensive Income (Loss)

3

 

Consolidated Statements of Shareholders’ (Deficit) Equity

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 4.

Controls and Procedures

44

PART II.

OTHER INFORMATION

45

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

67

Signatures

68

 


i


 

Note regarding forward-looking statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. 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,” “should,” “expects,” “plans,” “anticipates,” “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 prospectus 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:

 

 

the unpredictability of our operating results;

 

our inability to predict and respond to emerging technological trends and network operators’ changing needs;

 

our reliance on third-party manufacturers, which subjects us to risks of product delivery delays and reduced control over product costs and quality;

 

our reliance on distributors and value-added resellers for the substantial majority of our sales;

 

the inability of our third-party logistics and warehousing providers to deliver products to our channel partners and network operators in a timely manner;

 

the quality of our support and services offerings;

 

our expectations regarding outstanding litigation;

 

our or our distributors’ and channel partners’ inability to attract new network operators or sell additional products to network operators that currently use our products;

 

the difficulty of comparing or forecasting our financial results on a quarter-by-quarter basis due to the seasonality of our business;

 

our limited or sole source suppliers’ inability to produce third-party components to build our products;

 

the technological complexity of our products, which may contain undetected hardware defects or software bugs;

 

our channel partners’ inability to effectively manage inventory of our products, timely resell our products or estimate expected future demand;

 

credit risk of our channel partners, which could adversely affect their ability to purchase or pay for our products;

 

our inability to manage our growth and expand our operations;

 

unpredictability of sales and revenues due to lengthy sales cycles;

 

our inability to maintain an effective system of internal controls, remediate our material weakness, produce timely and accurate financial statements or comply with applicable regulations;

 

our reliance on the availability of third-party licenses;

 

risks associated with international sales and operations;

 

current or future unfavorable economic conditions, both domestically and in foreign markets; and

 

our inability to obtain intellectual property protections for our products

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

 

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.

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Cambium Networks Corporation

Consolidated Balance Sheets

(in thousands, except for share and per share data)

 

 

 

December 31,

 

 

September 30,

 

 

 

2018

 

 

2019

 

ASSETS

 

 

 

 

 

(unaudited)

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

4,441

 

 

$

18,950

 

Receivables, net of allowances

 

 

60,389

 

 

 

59,824

 

Inventories, net

 

 

30,710

 

 

 

41,933

 

Recoverable income taxes

 

 

679

 

 

 

527

 

Prepaid expenses

 

 

3,465

 

 

 

6,301

 

Other current assets

 

 

5,889

 

 

 

4,516

 

Total current assets

 

 

105,573

 

 

 

132,051

 

Noncurrent assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,965

 

 

 

8,257

 

Software, net

 

 

3,944

 

 

 

4,084

 

Operating lease assets

 

 

 

 

 

6,957

 

Intangible assets, net

 

 

8,493

 

 

 

15,693

 

Goodwill

 

 

8,060

 

 

 

8,963

 

Deferred tax assets, net

 

 

8,022

 

 

 

496

 

TOTAL ASSETS

 

$

142,057

 

 

$

176,501

 

LIABILITIES AND (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

23,710

 

 

$

20,894

 

Accrued liabilities

 

 

18,263

 

 

 

20,425

 

Employee compensation

 

 

4,377

 

 

 

4,961

 

Current portion of long-term external debt

 

 

8,836

 

 

 

9,329

 

Payable to Sponsor

 

 

5,582

 

 

 

 

Deferred revenues

 

 

2,770

 

 

 

7,557

 

Other current liabilities

 

 

2,761

 

 

 

5,870

 

Total current liabilities

 

 

66,299

 

 

 

69,036

 

Noncurrent liabilities

 

 

 

 

 

 

 

 

Long-term external debt

 

 

94,183

 

 

 

56,522

 

Deferred revenues

 

 

1,541

 

 

 

5,184

 

Noncurrent operating lease liabilities

 

 

 

 

 

5,544

 

Other noncurrent liabilities

 

 

605

 

 

 

 

Total liabilities

 

 

162,628

 

 

 

136,286

 

Shareholders' (deficit) equity

 

 

 

 

 

 

 

 

Share capital; $0.0001 par value; 500,000,000 shares authorized at December 31, 2018 and

   September 30, 2019; 77,179 shares issued and outstanding at December 31, 2018 and

   25,725,542 issued and 25,634,417 outstanding at September 30, 2019

 

 

 

 

 

3

 

Additional paid in capital

 

 

772

 

 

 

103,992

 

Capital contribution

 

 

24,651

 

 

 

 

Treasury shares, at cost, 0 shares at December 31, 2018 and 91,125 shares at September 30,

   2019

 

 

 

 

 

(1,094

)

Accumulated deficit

 

 

(45,773

)

 

 

(62,325

)

Accumulated other comprehensive loss

 

 

(221

)

 

 

(361

)

Total shareholders’ (deficit) equity

 

 

(20,571

)

 

 

40,215

 

TOTAL LIABILITIES AND (DEFICIT) EQUITY

 

$

142,057

 

 

$

176,501

 

 

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

1


Cambium Networks Corporation

Consolidated Statements of Operations

(in thousands, except for share and per share data)

(unaudited)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Revenues

 

$

58,981

 

 

$

65,703

 

 

$

178,453

 

 

$

202,966

 

Cost of revenues

 

 

31,469

 

 

 

33,871

 

 

 

93,429

 

 

 

105,032

 

Gross profit

 

 

27,512

 

 

 

31,832

 

 

 

85,024

 

 

 

97,934

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

9,810

 

 

 

9,895

 

 

 

28,883

 

 

 

35,566

 

Sales and marketing

 

 

10,805

 

 

 

10,363

 

 

 

31,290

 

 

 

34,808

 

General and administrative

 

 

5,520

 

 

 

5,996

 

 

 

14,164

 

 

 

24,189

 

Depreciation and amortization

 

 

2,448

 

 

 

1,449

 

 

 

7,156

 

 

 

3,957

 

Total operating expenses

 

 

28,583

 

 

 

27,703

 

 

 

81,493

 

 

 

98,520

 

Operating (loss) income

 

 

(1,071

)

 

 

4,129

 

 

 

3,531

 

 

 

(586

)

Interest expense

 

 

2,033

 

 

 

2,105

 

 

 

5,879

 

 

 

6,674

 

Other expense

 

 

116

 

 

 

61

 

 

 

457

 

 

 

251

 

(Loss) income before income taxes

 

 

(3,220

)

 

 

1,963

 

 

 

(2,805

)

 

 

(7,511

)

(Benefit) provision for income taxes

 

 

(665

)

 

 

3

 

 

 

(548

)

 

 

9,041

 

Net (loss) income

 

$

(2,555

)

 

$

1,960

 

 

$

(2,257

)

 

$

(16,552

)

(Loss) earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.19

)

 

$

0.08

 

 

$

(0.17

)

 

$

(0.93

)

Weighted-average number of shares outstanding to compute

   net (loss) income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

13,600,411

 

 

 

25,634,417

 

 

 

13,600,411

 

 

 

17,743,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

$

 

 

$

14

 

 

$

 

 

$

196

 

Research and development

 

 

 

 

 

199

 

 

 

 

 

 

5,062

 

Sales and marketing

 

 

 

 

 

374

 

 

 

 

 

 

3,981

 

General and administrative

 

 

 

 

 

241

 

 

 

 

 

 

7,667

 

 

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

2


Cambium Networks Corporation

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net (loss) income

 

$

(2,555

)

 

$

1,960

 

 

$

(2,257

)

 

$

(16,552

)

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(186

)

 

 

(166

)

 

 

(494

)

 

 

(140

)

Comprehensive (loss) income

 

$

(2,741

)

 

$

1,794

 

 

$

(2,751

)

 

$

(16,692

)

 

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

3


Cambium Networks Corporation

Consolidated Statements of Shareholders’ (Deficit) Equity

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30, 2018

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

paid in

capital

 

 

Capital

contribution

 

 

Treasury

shares

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Total

shareholders'

(deficit)

equity

 

Balance at June 30, 2018

 

 

77

 

 

$

 

 

$

772

 

 

$

24,651

 

 

$

 

 

$

(43,962

)

 

$

(157

)

 

$

(18,696

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,555

)

 

 

 

 

 

(2,555

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(186

)

 

 

(186

)

Balance at September 30, 2018

 

 

77

 

 

$

 

 

$

772

 

 

$

24,651

 

 

$

 

 

$

(46,517

)

 

$

(343

)

 

$

(21,437

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

paid in

capital

 

 

Capital

contribution

 

 

Treasury

shares

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Total

shareholders'

(deficit)

equity

 

Balance at December 31, 2017

 

 

77

 

 

$

 

 

$

772

 

 

$

24,651

 

 

$

 

 

$

(43,400

)

 

$

151

 

 

$

(17,826

)

Adjustment for adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(860

)

 

 

 

 

 

(860

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,257

)

 

 

 

 

 

(2,257

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(494

)

 

 

(494

)

Balance at September 30, 2018

 

 

77

 

 

$

 

 

$

772

 

 

$

24,651

 

 

$

 

 

$

(46,517

)

 

$

(343

)

 

$

(21,437

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

paid in

capital

 

 

Capital

contribution

 

 

Treasury

shares

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Total

shareholders'

(deficit)

equity

 

Balance at June 30, 2019

 

 

25,632

 

 

$

3

 

 

$

103,543

 

 

$

 

 

$

(1,133

)

 

$

(64,285

)

 

$

(195

)

 

$

37,933

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,960

 

 

 

 

 

 

1,960

 

Share-based compensation

 

 

 

 

 

 

 

 

828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

828

 

Additional issuance costs in initial public

   offering

 

 

 

 

 

 

 

 

(361

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(361

)

Treasury shares withheld for net settlement

   in Recapitalization

 

 

2

 

 

 

 

 

 

(18

)

 

 

 

 

 

39

 

 

 

 

 

 

 

 

 

21

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(166

)

 

 

(166

)

Balance at September 30, 2019

 

 

25,634

 

 

$

3

 

 

$

103,992

 

 

$

 

 

$

(1,094

)

 

$

(62,325

)

 

$

(361

)

 

$

40,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

paid in

capital

 

 

Capital

contribution

 

 

Treasury

shares

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Total

shareholders'

(deficit)

equity

 

Balance at December 31, 2018

 

 

77

 

 

$

 

 

$

772

 

 

$

24,651

 

 

$

 

 

$

(45,773

)

 

$

(221

)

 

$

(20,571

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,552

)

 

 

 

 

 

(16,552

)

Share-based compensation

 

 

 

 

 

 

 

 

16,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,906

 

Issuance of shares in Recapitalization and

   related reclassification

 

 

19,848

 

 

 

2

 

 

 

24,651

 

 

 

(24,651

)

 

 

 

 

 

 

 

 

 

 

 

2

 

Issuance of shares in initial public offering,

   net of issuance costs of $8,226

 

 

5,800

 

 

 

1

 

 

 

61,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61,374

 

Treasury shares withheld for net settlement

   in Recapitalization

 

 

(91

)

 

 

 

 

 

290

 

 

 

 

 

 

(1,094

)

 

 

 

 

 

 

 

 

(804

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

(140

)

Balance at September 30, 2019

 

 

25,634

 

 

$

3

 

 

$

103,992

 

 

$

 

 

$

(1,094

)

 

$

(62,325

)

 

$

(361

)

 

$

40,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


Cambium Networks Corporation

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2019

 

Cash flows from operating activities:

 

 

Net loss

 

$

(2,257

)

 

$

(16,552

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,075

 

 

 

2,633

 

Amortization of software and intangible assets

 

 

5,255

 

 

 

1,688

 

Amortization of debt issuance costs

 

 

425

 

 

 

1,005

 

Share-based compensation

 

 

 

 

 

16,906

 

Deferred income taxes

 

 

(1,064

)

 

 

7,499

 

Other

 

 

890

 

 

 

406

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(3,892

)

 

 

653

 

Inventories

 

 

(9,453

)

 

 

(8,662

)

Accounts payable

 

 

6,066

 

 

 

(1,657

)

Accrued employee compensation

 

 

(3,947

)

 

 

343

 

Accrued liabilities

 

 

2,977

 

 

 

164

 

Accrued Sponsor interest and payables

 

 

430

 

 

 

(5,457

)

Other assets and liabilities

 

 

(2,244

)

 

 

(1,561

)

Net cash used in operating activities

 

 

(4,739

)

 

 

(2,592

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,810

)

 

 

(2,535

)

Purchase of software

 

 

(1,242

)

 

 

(872

)

Cash paid for acquisitions

 

 

 

 

 

(2,000

)

Net cash used in investing activities

 

 

(5,052

)

 

 

(5,407

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of revolver debt

 

 

9,962

 

 

 

 

Repayment of term loan

 

 

(3,375

)

 

 

(27,837

)

Repayment of revolver debt

 

 

 

 

 

(10,000

)

Payment of debt issuance costs

 

 

 

 

 

(336

)

Proceeds from initial public offering, net of underwriters commission and fees

 

 

 

 

 

65,988

 

Payment of deferred offering costs

 

 

 

 

 

(4,435

)

Taxes paid related to net share settlement of equity awards

 

 

 

 

 

(802

)

Net cash provided by financing activities

 

 

6,587