cmbm-10q_20210331.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 March 31, 2021

OR

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

For the transition period from

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.)

 

 

 

c/o Cambium Networks, Inc.

 

 

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 May 3, 2021 the registrant had 26,310,821 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

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

 

Condensed Consolidated Statements of Shareholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

 


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, forward-looking statements may be identified 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 quarterly report and are subject to a number of risks, uncertainties and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, they should not be relied upon 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 ability to respond to increased competition from current competitors as well as emerging  companies and established companies that may enter our markets;

 

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 impact of actual or threatened health epidemics and other outbreaks;

 

our ability to achieve similar growth rates of our earlier years in future periods;

 

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 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 variation or decline in our gross margin from period-to-period;

 

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;

 

our inability to effectively forecast demand or manage our inventory;

 

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

 

our ability to effectively deploy and train our direct sales force;

 

our ability to manage and enhance our brand;

 

unpredictability of sales and revenues due to lengthy sales cycles;

 

any delay in sales or decrease in demand for our products by government agencies;

 

risks associated with international sales and operations;

 

the uncertainty of any economic, financial, trade and legal implications of the withdrawal of the United Kingdom from the European Union;

 

the loss of key personnel or an inability to attract, retain and motivate qualified personnel;

ii


 

 

the availability of unlicensed RF spectrum and the possibility that such spectrum becomes unavailable through overuse or licensing;

 

the impact of any acquisition of, or investments in, other businesses;

 

the impact of new regulations or standards, or changes in existing regulations or standards, in the U.S. or internationally, related to our products;

 

our reliance on the availability of third-party licenses;

 

risks associated with international sales and operations;

 

our inability to obtain intellectual property protections for our products;

 

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

 

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

 

our ability to manage our growth and expand our operations.

 

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.

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Cambium Networks Corporation

Condensed Consolidated Balance Sheets

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

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2021

 

 

 

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash

 

$

62,472

 

 

$

51,182

 

Receivables, net of allowances of $919 and $874

 

 

58,114

 

 

 

69,027

 

Inventories, net

 

 

33,962

 

 

 

31,435

 

Recoverable income taxes

 

 

1,420

 

 

 

2,637

 

Prepaid expenses

 

 

4,143

 

 

 

7,238

 

Other current assets

 

 

5,024

 

 

 

3,827

 

Total current assets

 

 

165,135

 

 

 

165,346

 

Noncurrent assets

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,535

 

 

 

7,891

 

Software, net

 

 

3,438

 

 

 

3,932

 

Operating lease assets

 

 

5,083

 

 

 

4,625

 

Intangible assets, net

 

 

12,895

 

 

 

12,343

 

Goodwill

 

 

9,842

 

 

 

9,842

 

Deferred tax assets, net

 

 

1,537

 

 

 

7,904

 

Other noncurrent assets

 

 

288

 

 

 

336

 

TOTAL ASSETS

 

$

205,753

 

 

$

212,219

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,859

 

 

$

24,487

 

Accrued liabilities

 

 

20,160

 

 

 

20,803

 

Employee compensation

 

 

14,911

 

 

 

9,418

 

Current portion of long-term external debt, net

 

 

29,201

 

 

 

29,026

 

Deferred revenues

 

 

6,471

 

 

 

6,237

 

Other current liabilities

 

 

6,009

 

 

 

5,493

 

Total current liabilities

 

 

107,611

 

 

 

95,464

 

Noncurrent liabilities

 

 

 

 

 

 

 

 

Long-term external debt, net

 

 

24,957

 

 

 

22,769

 

Deferred revenues

 

 

4,448

 

 

 

4,553

 

Noncurrent operating lease liabilities

 

 

3,332

 

 

 

3,042

 

Deferred tax liabilities, net

 

 

9

 

 

 

9

 

Other noncurrent liabilities

 

 

2,009

 

 

 

1,981

 

Total liabilities

 

 

142,366

 

 

 

127,818

 

Shareholders' equity

 

 

 

 

 

 

 

 

Share capital; $0.0001 par value; 500,000,000 shares authorized at December 31, 2020 and

   March 31, 2021; 26,126,775 shares issued and 26,034,526 outstanding at December 31, 2020

   and 26,431,525 shares issued and 26,298,501 outstanding at March 31, 2021

 

 

3

 

 

 

3

 

Additional paid in capital

 

 

109,837

 

 

 

113,067

 

Treasury shares, at cost, 92,146 shares at December 31, 2020 and 133,024 shares at

  March 31, 2021

 

 

(1,090

)

 

 

(3,101

)

Accumulated deficit

 

 

(44,799

)

 

 

(24,939

)

Accumulated other comprehensive loss

 

 

(564

)

 

 

(629

)

Total shareholders' equity

 

 

63,387

 

 

 

84,401

 

TOTAL LIABILITIES AND EQUITY

 

$

205,753

 

 

$

212,219

 

 

 

 

 

 

 

 

 

 

 

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

1


Cambium Networks Corporation

Condensed Consolidated Statements of Operations

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

(unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Revenues

 

$

60,429

 

 

$

88,515

 

Cost of revenues

 

 

29,797

 

 

 

44,345

 

Gross profit

 

 

30,632

 

 

 

44,170

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

11,814

 

 

 

11,603

 

Sales and marketing

 

 

10,304

 

 

 

10,040

 

General and administrative

 

 

6,446

 

 

 

7,529

 

Depreciation and amortization

 

 

1,695

 

 

 

1,595

 

Total operating expenses

 

 

30,259

 

 

 

30,767

 

Operating income

 

 

373

 

 

 

13,403

 

Interest expense, net

 

 

1,345

 

 

 

1,140

 

Other (income) expense, net

 

 

(216

)

 

 

42

 

(Loss) income before income taxes

 

 

(756

)

 

 

12,221

 

Provision (benefit) for income taxes

 

 

82

 

 

 

(7,639

)

Net (loss) income

 

$

(838

)

 

$

19,860

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

 

$

0.76

 

Diluted

 

$

(0.03

)

 

$

0.70

 

Weighted-average number of shares outstanding to compute

   net (loss) earnings per share

 

 

 

 

 

 

 

 

Basic

 

 

25,677,179

 

 

 

26,115,615

 

Diluted

 

 

25,677,179

 

 

 

28,517,713

 

 

 

 

 

 

 

 

 

 

Share-based compensation included in costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenues

 

$

17

 

 

$

19

 

Research and development

 

 

368

 

 

 

517

 

Sales and marketing

 

 

232

 

 

 

295

 

General and administrative

 

 

194

 

 

 

579

 

Total share-based compensation

 

$

811

 

 

$

1,410

 

 

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

2


Cambium Networks Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2021

 

Net (loss) income

 

$

(838

)

 

$

19,860

 

Other comprehensive loss

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(388

)

 

 

(65

)

Comprehensive (loss) income

 

$

(1,226

)

 

$

19,795

 

 

 

 

 

 

 

 

 

 

 

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

3


Cambium Networks Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31, 2020

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

paid in

capital

 

 

Treasury

shares

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

loss

 

 

Total

shareholders'

equity

 

Balance at December 31, 2019

 

 

25,673

 

 

$

3

 

 

$

104,773

 

 

$

(1,094

)

 

$

(63,374

)

 

$

(379

)

 

$

39,929

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(838

)

 

 

 

 

 

(838

)

Share-based compensation

 

 

 

 

 

 

 

 

811

 

 

 

 

 

 

 

 

 

 

 

 

811

 

Issuance of vested shares

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares withheld for net

   settlement

 

 

(8

)

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(388

)

 

 

(388

)

Balance at March 31, 2020

 

 

25,680

 

 

$

3

 

 

$

105,584

 

 

$

(1,041

)

 

$

(64,212

)

 

$

(767

)

 

$

39,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

paid in

capital

 

 

Treasury

shares

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

loss

 

 

Total

shareholders'

equity

 

Balance at December 31, 2020

 

 

26,035

 

 

$

3

 

 

$

109,837

 

 

$

(1,090

)

 

$

(44,799

)

 

$

(564

)

 

$

63,387

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,860

 

 

 

 

 

 

19,860

 

Share-based compensation

 

 

 

 

 

 

 

 

1,259

 

 

 

 

 

 

 

 

 

 

 

 

1,259

 

Issuance of vested shares

 

 

121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares withheld for net

   settlement

 

 

(41

)

 

 

 

 

 

 

 

 

(2,011

)

 

 

 

 

 

 

 

 

(2,011

)

Share options exercised

 

 

184

 

 

 

 

 

 

1,971

 

 

 

 

 

 

 

 

 

 

 

 

1,971

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

(65

)

Balance at March 31, 2021

 

 

26,299

 

 

$

3

 

 

$

113,067

 

 

$

(3,101

)

 

$

(24,939

)

 

$

(629

)

 

$

84,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


Cambium Networks Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months ended March 31,

 

 

 

2020

 

 

2021

 

Cash flows from operating activities:

 

 

Net (loss) income

 

$

(838

)

 

$

19,860

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

955

 

 

 

863

 

Amortization of software and intangible assets

 

 

890

 

 

 

857

 

Amortization of debt issuance costs

 

 

137

 

 

 

137

 

Share-based compensation

 

 

811

 

 

 

1,410

 

Deferred income taxes

 

 

(162

)

 

 

(6,367

)

Provision for inventory excess and obsolescence

 

 

357

 

 

 

(709

)

Other

 

 

165

 

 

 

(31

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(2,172

)

 

 

(11,700

)

Inventories

 

 

8,698

 

 

 

3,236

 

Prepaid expenses

 

 

1,217

 

 

 

(3,099

)

Accounts payable

 

 

(8,546

)

 

 

(6,777

)

Accrued employee compensation

 

 

547

 

 

 

(6,003

)

Accrued liabilities

 

 

(585

)

 

 

2,221

 

Other assets and liabilities

 

 

(2,265

)

 

 

(1,460

)

Net cash used in operating activities

 

 

(791

)

 

 

(7,562

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,053

)

 

 

(814

)

Purchase of software

 

 

(157

)

 

 

(798

)

Cash paid for acquisition

 

 

(334

)

 

 

 

Net cash used in investing activities

 

 

(1,544

)

 

 

(1,612

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of revolver debt

 

 

10,000

 

 

 

 

Repayment of term loan

 

 

(2,500

)

 

 

(2,500

)

Taxes paid from shares withheld

 

 

52

 

 

 

(1,563

)

Proceeds from share option exercises

 

 

 

 

 

1,971

 

Net cash provided by (used in) financing activities

 

 

7,552

 

 

 

(2,092

)

Effect of exchange rate on cash

 

 

(70

)

 

 

(24

)

Net increase (decrease) in cash

 

 

5,147

 

 

 

(11,290

)

Cash, beginning of period

 

 

19,346

 

 

 

62,472

 

Cash, end of period

 

$

24,493

 

 

$

51,182

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

149

 

 

$

92

 

Interest paid

 

$

1,117

 

 

$

773

 

 

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

 

 

 

 

5


 

 

Cambium Networks Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Business and significant accounting policies

Business

Cambium Networks Corporation (“Cambium” or the “Company”), incorporated under the laws of the Cayman Islands, is a holding company whose principal operating entities are Cambium Networks, Ltd. (UK), Cambium Networks, Inc. (USA), and Cambium Networks Private Limited (India).  On October 28, 2011, Cambium acquired the point-to-point (“PTP”) and point-to-multi-point (“PMP”) businesses from Motorola Solutions, Inc. in an acquisition funded by investment funds affiliated with Vector Capital. Cambium Networks became the renamed entity subsequent to the acquisition.  

Cambium Networks Corporation and its wholly owned subsidiaries provide fixed wireless broadband and Wi-Fi networking infrastructure solutions that work for businesses, communities and cities worldwide. Cambium Networks’ radios are deployed to connect people, places and things with a unified wireless fabric that spans multiple standards and frequencies of fixed wireless and Wi-Fi, all managed centrally via the cloud. The Company’s solutions are deployed in networks by service providers, enterprise, industrial and government connectivity solutions in urban, suburban and rural environments.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Cambium Networks Corporation and its wholly-owned subsidiaries.  All intercompany balances and transactions have been eliminated.  The condensed consolidated financial statements as of March 31, 2021, and for the three-month periods ended March 31, 2020 and 2021, and the related notes are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements, and, in the opinion of management, reflect all adjustments, which comprise only normal recurring adjustments necessary to state fairly the Company’s financial position as of March 31, 2021 and results of operations and cash flows for the three-month periods ended March 31, 2020 and 2021. The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principals generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted.  The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2020 included in the Company’s annual report on Form 10-K and filed with the SEC on March 1, 2021.  The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the operating results to be expected for the full year.

The Company has reclassified certain prior period amounts in the condensed consolidated statement of cash flows to conform to the current period’s presentation. Specifically, within the condensed consolidated statements of cash flows, the provision for inventory excess and obsolescence has been reclassified from “Other” to “Provision for inventory excess and obsolescence” and prepaid expenss has been reclassified from “Other assets and liabilities” to “Prepaid expenses”. This change in classification does not affect previously reported cash flows from operating activities in the condensed consolidated statements of cash flows.

Update to Significant Accounting Policies

There have been no material changes to the Company’s signifiant accounting policies disclosed in the 2020 Form 10-K, Part II, Item 8.

Recently adopted accounting pronouncements

  In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modification and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022, when the reference rate replacement activity is expected to be completed. The adoption of ASU 2020-04 will not have an impact on the condensed consolidated financial statements until the debt agreement is modified to no longer reference LIBOR.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to

6


 

help simplify and promote consistent application of GAAP. The Company adopted this ASU effective January 1, 2021 on a prospective basis. The adoption of ASU 2019-12 did not have a material impact on the condensed consolidated financial statements.

Note 2. Fair value

The fair value of the Company’s external debt under its Credit Agreement approximates its carrying value because the terms and conditions approximate the terms and conditions of current market debt available to the Company. Due to the floating interest rate the debt is classified as Level 2 of the fair value hierarchy. The external debt was estimated based on the current rates offered to the Company for debt with the same remaining maturities. The fair value of the Company’s Credit Agreement was $55.3 million and $52.8 million as of December 31, 2020 and March 31, 2021, respectively.

The fair value of cash approximates its carrying value (Level 1 of the fair value hierarchy)

Note 3. Balance sheet components

Inventories, net

Inventories, net consisted of the following (in thousands):

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2021

 

 

 

 

 

 

 

(unaudited)

 

Finished goods

 

$

35,241

 

 

$

32,717

 

Raw materials

 

 

4,576

 

 

 

3,864

 

Gross inventory

 

 

39,817

 

 

 

36,581

 

Less: Excess and obsolete provision

 

 

(5,855

)

 

 

(5,146

)

Inventories, net

 

$

33,962

 

 

$

31,435

 

 

Accrued liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

December 31,

 

 

March 31,

 

 

 

2020

 

 

2021

 

 

 

 

 

 

 

(unaudited)

 

Accrued goods and services

 

$

7,937

 

 

$

6,795

 

Accrued inventory purchases

 

 

4,830

 

 

 

8,139

 

Accrued customer rebates

 

 

7,380

 

 

 

5,855

 

Other

 

 

13

 

 

 

14

 

Accrued liabilities

 

$

20,160

 

 

$

20,803

 

 

Accrued warranty

 

Provisions for warranty claims are primarily related to our hardware products and are recorded at the time products are sold. The change to accrued warranty was as follows (unaudited and in thousands):

 

 

 

Three months ended

March 31,

 

 

 

2021

 

 

 

 

 

 

Beginning balance

 

$

540

 

Fulfillment of assumed acquisition warranty

 

 

(73

)

Provision increase, net

 

 

86

 

Ending balance

 

$

553

 

 

At March 31, 2021, $1.1 million is included in Other current liabilities and $0.6 million is included in Other noncurrent liabilities on the Company’s condensed consolidated balance sheet.

 

7


 

 

Note 4. Property and equipment

Property and equipment, net consisted of the following (in thousands):

 

 

 

 

 

December 31,

 

 

March 31,

 

 

 

Useful Life

 

2020

 

 

2021

 

 

 

 

 

 

 

 

 

(unaudited)

 

Equipment and tooling

 

3 to 5 years

 

$

24,367

 

 

$

25,500

 

Computer equipment

 

3 to 5 years

 

 

3,137

 

 

 

3,211

 

Furniture and fixtures

 

10 years

 

 

745

 

 

 

751

 

Leasehold improvements

 

2 to 3 years

 

 

282

 

 

 

282

 

Total cost

 

 

 

 

28,531

 

 

 

29,744

 

Less: Accumulated depreciation

 

 

 

 

(20,996

)

 

 

(21,853

)

Property and equipment, net

 

 

 

$

7,535

 

 

$

7,891

 

 

 

 

 

 

 

 

 

 

 

 

Total depreciation expense was $1.0 million and $0.9 million for the three-month periods ended March 31, 2020 and 2021, respectively.

Note 5. Software

Software consisted of the following (in thousands):

 

 

 

 

 

December 31, 2020

 

 

March 31, 2021

 

 

 

Useful

Life

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net balance

 

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Acquired and Software

   for internal use

 

3 to 7 years

 

$

15,680

 

 

$

(14,214

)

 

$

1,466

 

 

$

15,695

 

 

$

(14,392

)

 

$

1,303

 

Software marketed for

   external sale

 

3 years

 

 

3,411

 

 

 

(1,439

)

 

 

1,972

 

 

 

4,193

 

 

 

(1,564

)

 

 

2,629

 

Total

 

 

 

$

19,091

 

 

$

(15,653

)

 

$

3,438

 

 

$

19,888

 

 

$

(15,956

)

 

$

3,932

 

 

Amortization of acquired and internal use software is computed using the straight-line method over an estimated useful life of generally three to seven years.  Amortization expense recognized on acquired and internal use software is reflected in depreciation and amortization in the condensed consolidated statements of operations.  Amortization expense was $0.2 million and $0.2 million for the three-month periods ended March 31, 2020 and 2021, respectively.

Amortization expense recognized on software to be sold or marketed externally was $0.2 million and $0.1 million for the three-month periods ended March 31, 2020 and 2021, respectively, and is included in cost of revenues on the condensed consolidated statements of operations.

Based on capitalized software assets at March 31, 2021, estimated amortization expense in future fiscal years is as follows (unaudited and in thousands):

 

Year ending December 31,

 

Acquired and internal use software

 

 

Software

marketed for

external use

 

 

Total

 

2021 (April - December)

 

$

509

 

 

$

629

 

 

$

1,138

 

2022

 

 

416

 

 

 

891

 

 

 

1,307

 

2023

 

 

168

 

 

 

765

 

 

 

933

 

2024

 

 

68

 

 

 

335

 

 

 

403

 

2025

 

 

68

 

 

 

9

 

 

 

77

 

Thereafter

 

 

74

 

 

 

 

 

 

74

 

Total amortization

 

$

1,303

 

 

$

2,629

 

 

$

3,932

 

8


 

 

 

Note 6. Goodwill and Intangible Assets

When the Company acquired the trade assets of Motorola Solutions, Inc.’s wireless point-to-point and point-to-multi-point businesses, the transaction generated goodwill and certain intangible assets.  The goodwill associated with this transaction was recorded by Cambium Networks Corporation and allocated to Cambium Networks, Ltd. and Cambium Networks, Inc. using a revenue and asset allocation method. Although goodwill has been allocated to two operating subsidiaries, as noted in Note 15 – Segment information, the Company operates as one operating segment and one reporting unit and therefore, goodwill is reported, and impairment testing performed, at the Cambium Networks Corporation consolidated level.

There was no change in the carrying amount of goodwill during the three-month period ended March 31, 2021 (unaudited).

 

The Company tests goodwill and intangible assets for impairment annually on December 31 and more frequently if impairment indicators exist. Accordingly, the Company performs quarterly qualitative assessments of significant events and circumstances such as a reporting unit’s historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors, including the impact of the current global outbreak of the coronavirus (or COVID-19) and macro-economic developments, to determine the existence of potential indicators of impairment and assess if it is more likely than not that the fair value of the reporting unit or intangible asset is less than their carrying value. If indicators of impairment are identified, a quantitative impairment test is performed.

Qualitative assessments for the quarter did not indicate the existence of impairment indicators. Based on the operating results for the three-month period ended March 31, 2021 and other considerations, the Company believes that it is more likely than not that the enterprise value for its one reporting unit and the fair value of intangibles is still greater than their carrying values. Accordingly, no goodwill impairment indicators were present at March 31, 2021 that would necessitate an interim impairment assessment.  

The useful life, gross carrying value, accumulated amortization, and net balance for each major class of definite-lived intangible assets at each balance sheet date were as follows (in thousands):

 

 

 

 

 

December 31, 2020

 

 

March 31, 2021

 

 

 

Useful Life

 

Gross

carrying

amount

 

 

Accumulated

amortization

 

 

Net balance

 

 

Gross

carrying

amount

 

 

Accumulated

amortization

 

 

Net balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)