UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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c/o Cambium Networks, Inc. |
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(Address of principal executive offices, including zip code) |
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(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 October 30, 2023, the registrant had
Table of Contents
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Page |
PART I. |
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Item 1. |
1 |
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1 |
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2 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
3 |
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4 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
34 |
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Item 4. |
34 |
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PART II. |
35 |
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Item 1. |
35 |
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Item 1A. |
35 |
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Item 2. |
35 |
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Item 3. |
35 |
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Item 4. |
35 |
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Item 5. |
35 |
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Item 6. |
36 |
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37 |
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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:
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
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share data)
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December 31, |
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September 30, |
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2022 |
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2023 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash |
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$ |
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$ |
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Receivables, net of allowances of $ |
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Inventories, net |
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Recoverable income taxes |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Noncurrent assets |
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Property and equipment, net |
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Software, net |
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Operating lease assets |
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Intangible assets, net |
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Goodwill |
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Deferred tax assets, net |
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Other noncurrent assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Employee compensation |
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Current portion of long-term external debt, net |
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Deferred revenues |
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Other current liabilities |
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Total current liabilities |
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Noncurrent liabilities |
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Long-term external debt, net |
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Deferred revenues |
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Noncurrent operating lease liabilities |
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Other noncurrent liabilities |
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Total liabilities |
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Shareholders' equity |
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Share capital; $ |
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Additional paid in capital |
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Treasury shares, at cost, |
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( |
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( |
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Accumulated earnings (deficit) |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total shareholders' equity |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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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)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2023 |
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2022 |
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2023 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses |
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Research and development |
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Sales and marketing |
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General and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating income (loss) |
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( |
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Interest expense, net |
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Other expense (income), net |
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Income (loss) before income taxes |
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( |
) |
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( |
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(Benefit) provision for income taxes |
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( |
) |
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( |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Earnings (loss) per share |
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Basic |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Weighted-average number of shares outstanding to compute net earnings (loss) per share |
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Basic |
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Diluted |
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Share-based compensation included in costs and expenses: |
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Cost of revenues |
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$ |
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$ |
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$ |
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$ |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total share-based compensation |
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$ |
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$ |
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$ |
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$ |
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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)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2023 |
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2022 |
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2023 |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Other comprehensive income (loss) |
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Foreign currency translation adjustment |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Comprehensive income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Cambium Networks Corporation
(in thousands)
(unaudited)
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Three Months Ended September 30, 2022 |
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Share Capital |
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Shares |
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Amount |
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Additional |
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Treasury |
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Accumulated deficit |
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Accumulated |
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Total |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Issuance of vested shares |
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— |
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— |
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— |
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— |
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— |
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— |
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Treasury shares withheld for net settlement |
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( |
) |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Proceeds from exercise of share options |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Nine Months Ended September 30, 2022 |
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Share Capital |
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Shares |
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Amount |
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Additional |
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Treasury |
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Accumulated deficit |
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Accumulated |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Issuance of ordinary shares under ESPP |
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— |
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— |
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— |
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— |
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|||
Issuance of vested shares |
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— |
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— |
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— |
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— |
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— |
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— |
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Treasury shares withheld for net settlement |
|
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( |
) |
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|
— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Proceeds from exercise of share options |
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— |
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— |
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— |
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|
— |
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|||
Foreign currency translation |
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— |
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— |
|
|
|
— |
|
|
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— |
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|
|
— |
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|
|
( |
) |
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|
( |
) |
Balance at September 30, 2022 |
|
|
|
|
$ |
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$ |
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$ |
( |
) |
|
$ |
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$ |
( |
) |
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$ |
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|||||
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|||||||
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Three Months Ended September 30, 2023 |
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Share Capital |
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||||||||||
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Shares |
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Amount |
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Additional |
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Treasury |
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Accumulated equity |
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Accumulated |
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Total |
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|||||||
Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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|||||
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Issuance of vested shares |
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— |
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— |
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— |
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— |
|
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— |
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— |
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|
Treasury shares withheld for net settlement |
|
|
( |
) |
|
|
— |
|
|
|
— |
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( |
) |
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— |
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— |
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( |
) |
Proceeds from exercise of share options |
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— |
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— |
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— |
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— |
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|||
Foreign currency translation |
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— |
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— |
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— |
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— |
|
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|
— |
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( |
) |
|
|
( |
) |
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||
|
|
Share Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Shares |
|
|
Amount |
|
|
Additional |
|
|
Treasury |
|
|
Accumulated equity |
|
|
Accumulated |
|
|
Total |
|
|||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of ordinary shares under ESPP |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of vested shares |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Treasury shares withheld for net settlement |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Proceeds from exercise of share options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
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)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
||||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization of software and intangible assets |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Provision for inventory excess and obsolescence |
|
|
|
|
|
|
||
Other |
|
|
( |
) |
|
|
( |
) |
Change in assets and liabilities: |
|
|
|
|
|
|
||
Receivables |
|
|
( |
) |
|
|
|
|
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses |
|
|
|
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Accrued employee compensation |
|
|
( |
) |
|
|
( |
) |
Accrued liabilities |
|
|
|
|
|
( |
) |
|
Other assets and liabilities |
|
|
|
|
|
|
||
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Purchase of software |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repayment of term loan |
|
|
( |
) |
|
|
( |
) |
Issuance of ordinary shares under ESPP |
|
|
|
|
|
|
||
Taxes paid from shares withheld |
|
|
( |
) |
|
|
( |
) |
Proceeds from share option exercises |
|
|
|
|
|
|
||
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate on cash |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash |
|
|
( |
) |
|
|
( |
) |
Cash, beginning of period |
|
|
|
|
|
|
||
Cash, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
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 “Cambium Networks” 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 June 26, 2019, the Company completed an Initial Public Offering and the Company's ordinary shares began trading on the Nasdaq Global Markets.
Cambium Networks Corporation and its wholly owned subsidiaries design, develop, and manufacture wireless and fiber broadband and enterprise networking infrastructure solutions that are used by businesses, governments, and service providers in urban, suburban and rural environments. Cambium's products simplify and automate the design, deployment, optimization, and management of broadband and Wi-Fi access networks through intelligent automation.
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 September 30, 2023, and for the three-month and nine-month periods ended September 30, 2022 and 2023, 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 September 30, 2023 and results of operations for the three-month and nine-month periods ended September 30, 2022 and 2023 and cash flows for the nine-month periods ended September 30, 2022 and 2023. The condensed consolidated balance sheet as of December 31, 2022 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 principles 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, 2022 included in the Company’s annual report on Form 10-K and filed with the SEC on February 27, 2023. The results of operations for the three-month and nine-month periods ended September 30, 2023 are not necessarily indicative of the operating results to be expected for the full year.
In 2022, management determined that certain costs previously included as general and administrative expenses related to other functions of the business. Prior periods have been revised to reflect the allocation of these costs to their respective functions. These costs primarily include facility costs such as leased space and shared IT costs. Revisions were made to increase research and development expense by $
Update to Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies disclosed in the 2022 Form 10-K, Part II, Item 8.
6
Note 2. Balance sheet components
Inventories, net
Inventories, net consisted of the following (in thousands):
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2023 |
|
||
|
|
|
|
|
(unaudited) |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Raw materials |
|
|
|
|
|
|
||
Gross inventory |
|
|
|
|
|
|
||
Less: Excess and obsolete provision |
|
|
( |
) |
|
|
( |
) |
Inventories, net |
|
$ |
|
|
$ |
|
||
The increase in inventory is primarily due to lower demand for our PMP products and a slowdown in Enterprise product orders due to higher channel inventory. Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory based on historical usage, known trends, and market conditions and judgment about the anticipated consumption and our ability to sell the inventory. At December 31, 2022 and September 30, 2023, inventory reserves were $
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2023 |
|
||
|
|
|
|
|
(unaudited) |
|
||
Accrued goods and services |
|
$ |
|
|
$ |
|
||
Accrued inventory purchases |
|
|
|
|
|
|
||
Accrued customer rebates |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
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 (in thousands):
|
|
Year ended |
|
|
Nine Months ended September 30, |
|
||
|
|
2022 |
|
|
2023 |
|
||
|
|
|
|
|
(unaudited) |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Fulfillment of assumed acquisition warranty |
|
|
( |
) |
|
|
( |
) |
Provision increase (decrease), net |
|
|
|
|
|
( |
) |
|
Ending balance |
|
$ |
|
|
$ |
|
||
At September 30, 2023, $
7
Note 3. Property and equipment
Property and equipment, net consisted of the following (in thousands):
|
|
|
|
December 31, |
|
|
September 30, |
|
||
|
|
Useful Life |
|
2022 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
(unaudited) |
|
||
Equipment and tooling |
|
|
$ |
|
|
$ |
|
|||
Computer equipment |
|
|
|
|
|
|
|
|||
Furniture and fixtures |
|
|
|
|
|
|
|
|||
Leasehold improvements |
|
|
|
|
|
|
|
|||
Total cost |
|
|
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Total depreciation expense was $
Note 4. Software
Software consisted of the following (in thousands):
|
|
|
|
December 31, 2022 |
|
|
September 30, 2023 |
|
||||||||||||||||||
|
|
|
|
|
|
|
(unaudited) |
|
||||||||||||||||||
|
|
Useful Life |
|
Gross carrying amount |
|
|
Accumulated amortization |
|
|
Net balance |
|
|
Gross carrying amount |
|
|
Accumulated amortization |
|
|
Net balance |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Acquired and Software for internal use |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Software marketed for external sale |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Amortization of acquired and internal use software is computed using the straight-line method over an estimated useful life of generally to
Amortization expense recognized on software to be sold or marketed externally was $
Based on capitalized software assets at September 30, 2023, estimated amortization expense in future fiscal years is as follows (unaudited and in thousands):
Year ending December 31, |
|
Acquired and internal use software |
|
|
Software |
|
|
Total |
|
|||
2023 (October - December) |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
2027 |
|
|
|
|
|
|
|
|
|
|||
Thereafter |
|
|
— |
|
|
|
|
|
|
|
||
Total amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|||
8
Note 5. Goodwill and Intangible Assets
There was
The Company tests goodwill for impairment annually on December 31 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset group below its carrying amount and tests intangible assets if an indicator suggests that the carrying amount may not be recoverable. Accordingly, the Company completes a quarterly qualitative triggering events assessment which considers significant events and circumstances such as a reporting unit’s historical and current results, assumptions regarding future performance, operating income or cash flows, strategic initiatives and overall economic factors, including significant negative industry or economic trends and macro-economic developments, and sustained declines in the Company's share price or market capitalization, considered in both absolute terms and relative to peers, to determine whether any of these may indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value. If an impairment trigger is identified, a quantitative impairment test is performed.
The qualitative assessment performed for the three-month period ended September 30, 2023 did not indicate the existence of an impairment trigger that would more likely than not reduce the fair value of our reporting unit below its carrying amount nor indicators suggesting that the carrying amount of intangible assets may not be recoverable. The Company continues to monitor potential events and changes in circumstances that can be reasonably expected to constitute an impairment triggering event.
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, 2022 |
|
|
September 30, 2023 |
|
||||||||||||||||||
|
|
|
|
|
|
|
(unaudited) |
|
||||||||||||||||||
|
|
Useful Life |
|
Gross |
|
|
Accumulated |
|
|
Net balance |
|
|
Gross |
|
|
Accumulated |
|
|
Net balance |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Intangible assets are amortized over their expected useful life and none are expected to have a significant residual value at the end of their useful life. Intangible assets amortization expense was $
Based on capitalized intangible assets as of September 30, 2023, estimated amortization expense amounts in future fiscal years are as follows (unaudited and in thousands):
Year ending December 31, |
|
Amortization |
|
|
2023 (October - December) |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization |
|
$ |
|
|
9
Note 6. Debt
As of September 30, 2023, the Company had $
The following table reflects the current and noncurrent portions of the external debt facilities at December 31, 2022 and September 30, 2023 (in thousands):
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2022 |
|
|
2023 |
|
||
|
|
|
|
|
(unaudited) |
|
||
Term loan facility |
|
$ |
|
|
$ |
|
||
Less debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total debt |
|
|
|
|
|
|
||
Less current portion of term facility |
|
|
( |
) |
|
|
( |
) |
Current portion of debt issuance costs |
|
|
|
|
|
|
||
Total long-term external debt, net |
|
$ |
|
|
$ |
|
||
Secured credit agreement
On June 9, 2023, the Company entered into the first amendment to its BofA Agreement ("First Amendment") which amended the original Bank of America Agreement ("BofA Agreement") to replace the benchmark used for the interest rate on Eurodollar Rate Loans from US Dollar LIBOR to the Term Secured Overnight Financing Rate ("SOFR"). Our outstanding debt under the BofA Agreement are now known as Term SOFR Loans, with the term selected by the Company. The new benchmark became effective on June 17, 2023, when the current interest period on the Eurodollar Rate Loan using the US Dollar LIBOR benchmark ended. With respect to the First Amendment, the Company elected the practical expedient included in ASC 848, Reference Rate Reform, and it accounted for the First Amendment as if the modification were not significant. The First Amendment did not create a material impact on the consolidated financial statements.
Based on the terms of the First Amendment,
The Company is still required to make
Maturities on the external debt outstanding at September 30, 2023 is as follows (unaudited and in thousands):
Year ending December 31, |
|
|
|
|
2023 (October- December) |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total |
|
$ |
|
|
As of September 30, 2023, the Company was in compliance with all affirmative and negative covenants (unaudited).
Net interest expense, including bank charges and amortization of debt issuance costs on the external debt, was $
10
Note 7. Employee benefit plans
The Company’s employee benefit plans currently consist of a retirement plan in the United States and a separate defined contribution plan in the UK. The Company does not offer any other postretirement benefit plans, such as retiree medical and dental benefits or deferred compensation agreements to its employees or officers.
U.S. plan
U.S. employees that satisfy certain eligibility requirements, including requirements related to age and length of service, are eligible to participate in the Cambium Networks, Inc. 401(k) Plan. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee as directed by participants. Under the Cambium Networks, Inc. 401(k) Plan, the Company matches
UK plan
UK employees who satisfy certain eligibility requirements are eligible to participate in the Cambium Networks Ltd. Stakeholder Pension Scheme, which is a qualified defined contribution plan. Employees are eligible to participate on the first of the month following receipt of their enrollment form, and eligible employees are automatically enrolled in the plan at a default employee contribution rate of
Note 8. Other (income) expense, net
Net other (income) expense changed from expense of $
Note 9. Share-based compensation
2019 Share incentive plan
In June 2019, the Company’s Board of Directors adopted, and its shareholders approved, the 2019 Share Incentive Plan (“2019 Plan”). The 2019 Plan provides for the grant of incentive share options, nonqualified share options, share appreciation rights, restricted share awards (“RSAs”), restricted share units (“RSUs”), other share-based awards and performance awards. The share reserve under the 2019 Plan is automatically increased on the first day of each fiscal year, beginning with the fiscal year ended December 31, 2020 and continuing until, and including, the fiscal year ending December 31, 2029. The number of shares added annually is equal to the lowest of
The Company’s employees, officers, directors, consultants, and advisors are eligible to receive awards under the 2019 Plan. Incentive share options, however, may only be granted to the Company's employees.
For the three-month periods ended September 30, 2022 and 2023, the Company recorded corresponding income tax benefits of $
11
Share options
The Company's time-based share options typically have a contractual term of
The following is a summary of option activity for the Company’s share incentive plans for the nine-month period ended September 30, 2023 (unaudited):
|
|
Options |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options granted1 |
|
|
|
|
$ |
|
|
|
— |
|
|
$ |
— |
|
||
Options exercised |
|
|
( |
) |
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
Options expired |
|
|
( |
) |
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
Options forfeited |
|
|
( |
) |
|
$ |
|
|
|
— |
|
|
$ |
— |
|
|
Outstanding at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
1 Options granted includes the time-based share options and the performance-based share options for which a grant date has been established, as described below.
The Company uses the Black-Scholes option pricing model to estimate the fair value of share options. The Company utilized a forfeiture rate of
The fair value of share options is estimated using the following weighted-average assumptions (unaudited):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Expected dividend yield |
|
|
— |
|
|
|
— |
|
Risk-free interest rate |
|
|
% |
|
|
% |
||
Weighted-average expected volatility |
|
|
% |
|
|
% |
||
Expected term (in years) |
|
|
|
|
|
|
||
Weighted average grant-date fair value per share of options granted |
|
$ |
|
|
$ |
|
||
At September 30, 2023, there was $
Restricted shares
The Company's time-based RSUs typically vest over a
The following is a summary of restricted shares activity for the Company’s share incentive plan for the nine-month period ended September 30, 2023 (unaudited):
|
|
Units |
|
|
Weighted |
|
||
RSU balance at December 31, 2022 |
|
|
|
|
$ |
|
||
RSUs granted1 |
|
|
|
|
$ |
|
||
RSUs vested |
|
|
( |
) |
|
$ |
|
|
RSUs forfeited |
|
|
( |
) |
|
$ |
|
|
RSU balance at September 30, 2023 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
1 RSUs granted includes the time-based RSUs and the performance-based RSUs for which a grant date has been established, as described below.
12
The fair value of the RSUs is based on the fair value of the Company's ordinary shares on the grant date. The Company utilized a forfeiture rate of
As of September 30, 2023, there was $
Performance-based share awards
In May 2023, performance-based share awards were awarded to select executive officers of the Company. The awards contain a performance-based vesting criteria and included
For performance-based awards that vest during the First Performance Period, the Company's Compensation Committee retains the ability to modify the applicable adjusted earnings per share metric. Due to this discretion, the Company has determined that the grantee does not have a mutual understanding of the key terms and conditions of the performance-based awards in the First Performance Period, and a grant date will not exist until the Compensation Committee approves the adjusted earnings per share metric for the First Performance Period. As of September 30, 2023, based on the total potential shares that could be earned, there were
Unlike the performance-based awards in the First Performance Period, the Compensation Committee does not have the discretion to modify the applicable adjusted earnings per share metric for performance-based awards that vest during the Second Performance Period. As such, a mutual understanding of the key terms and conditions, and thus a grant date, exists on the date that the performance-based awards are issued by the Company. As of September 30, 2023, based on the total potential shares that could be earned, there were
Employee share purchase plan
In June 2019, the Company’s Board of Directors adopted, and its shareholders approved, the Employee Share Purchase Plan (“ESPP”). The ESPP was effective on June 25, 2019, and the initial offering period of six-months commenced on January 1, 2021. The current offering period of six months commenced on July 1, 2023 and runs through December 31, 2023. The purchase price of the shares is
For the three-month periods ended September 30, 2022 and 2023, the Company recognized $
13
Note 10. Share capital - shares
The following table reflects the share capital activity (unaudited):
|
|
Number of |
|
|
Par value |
|
||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
||
Issuance of ordinary shares under employee share purchase plan |
|
|
|
|
|
— |
|
|
Issuance of vested shares |
|
|
|
|
|
— |
|
|
Share options exercised |
|
|
|
|
|
— |
|
|
Shares withheld for net settlement of shares issued |
|
|
( |
) |
|
|
— |
|
Balance at September 30, 2023 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
As of September 30, 2023,
Note 11. Earnings (loss) per share
Basic net earnings (loss) per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net earnings per share is computed by giving effect to all potentially dilutive ordinary share equivalents outstanding for the period. For purposes of this calculation, share options, RSUs, and ESPP awards are considered to be ordinary share equivalents but are excluded from the calculation of diluted earnings per share when including them would have an anti-dilutive effect.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of share option awards |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Dilutive effect of RSUs |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Dilutive effect of employee share purchase plan |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Diluted weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) earnings per share, basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Net (loss) earnings per share, diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
In the computation of diluted earnings per share for the three-month and nine-month periods ended September 30, 2022, the Company did not include any share equivalents because their inclusion would have been antidilutive. In the computation of diluted earnings per share for the three-month and nine-month periods ended September 30, 2023,
14
Note 12. Income taxes
The Company’s provision for income taxes is based upon the estimated annual tax rate for the year applied to federal, state and foreign income. The Company recorded a benefit for income taxes of $
In the nine-month periods ended September 30, 2022 and 2023, the Company recorded a tax benefit of $
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. A significant piece of objective evidence evaluated is the cumulative income or loss incurred over the three-year period ended September 30, 2023 and whether the Company projects a loss for the current year ending December 31, 2023. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets before they otherwise expire. The Company considers projected future taxable income, reversing taxable temporary differences, carryback opportunities, and prudent tax-planning strategies in making this assessment. However, cumulative losses in recent periods are a significant piece of objective negative evidence that limits the Company's ability to consider certain criteria of subjective positive evidence such as projections for future growth. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences are deductible. The amount of the deferred tax asset considered realizable will be adjusted in future period as necessary based on the reversal pattern of deferreds and the actual taxable income during the carryforward period as well as any relevant new facts to be considered.
In applying the statutory tax rate in the effective income tax rate reconciliation, the Company used the statutory U.S. federal income tax rate of
15
Note 13. Commitments and contingencies
In accordance with ASC 460, Guarantees, the Company recognizes the fair value for guarantee and indemnification arrangements it issues or modifies, if these arrangements are within the scope of the interpretation. In addition, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications in order to identify if a loss has incurred. If the Company determines it is probable that a loss has occurred, then any such estimated loss would be recognized under those guarantees and indemnifications and would be recognized in the Company’s condensed consolidated statements of operations and corresponding condensed consolidated balance sheets during that period.
Indemnification
The Company generally indemnifies its customers against claims brought by a third party to the extent any such claim alleges that the Company’s product infringes a patent, copyright or trademark or violates any other proprietary rights of that third party. The maximum potential amount of future payments the Company may be required to make under these indemnification agreements is not estimable.
The Company indemnifies its directors and officers and select key employees, including key employees serving as directors or officers of the Company’s subsidiaries, for certain events or occurrences, subject to certain limits, while the director or officer is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the director’s or officer’s term of service. The Company may terminate the indemnification agreements with its directors, officers or key employees upon the termination of their services as directors or officers of the Company or its subsidiaries, or the termination of activities for which indemnification has been provided, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that limits its exposure. The Company believes the fair value of these indemnification agreements is minimal.
Purchase commitments with contract manufacturers and suppliers
We purchase components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory and components based upon criteria as defined by us, such as forecasted demand. Certain of our inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain components for multiple periods. We record a liability for firm, noncancelable, and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. The Company may be liable to purchase excess product or aged material or components from our suppliers following reasonable mitigation efforts.
Warranties
The Company offers a standard warranty on its products, with the term depending on the product, and records a liability for the estimated future costs associated with potential warranty claims. The Company’s responsibility under its standard warranty is the repair or replacement of in-warranty defective product, or to credit the purchase price of the defective product, at its discretion, without charge to the customer. The Company’s estimate of future warranty costs is largely based on historical experience factors including product failure rates, material usage, and service delivery cost incurred in correcting product failures. The standard warranty is included in either Other current liabilities or Other noncurrent liabilities on its condensed consolidated balance sheets, depending on the time period covered by the warranty. The Company also offers an extended warranty for purchase that represents a future performance obligation for the Company. The extended warranty is included in deferred revenues (both current and noncurrent) on the condensed consolidated balance sheets and recognized on a straight-line basis over the term of the extended warranty. The warranty costs are reflected in the Company’s condensed consolidated statements of operations within cost of revenues.
Legal proceedings
Third parties may from time to time assert legal claims against the Company. The Company records accruals for loss contingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates, on a regular basis, developments in legal proceedings and other matters that could cause a change in amounts recorded. Due to the inherent uncertainty involving legal matters, the ultimate resolution could differ from amounts recorded. There is no pending or threatened legal proceedings to which the Company is a party, that in the Company’s opinion, is likely to have a material adverse effect on its financial condition or results of operations.
16
Note 14. Segment information
The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The Company’s CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company determined that it operates as
Note 15. Revenues from contracts with customers
Revenues consist primarily of revenues from the sale of hardware products with essential embedded software. Revenues also include amounts for software products, extended warranty on hardware products and subscription services. Substantially all products are sold through distributors and other channel partners, such as resellers, managed service providers and systems integrators.
The Company recognizes revenue to reflect the transfer of control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for products or services.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The Company identifies its distinct performance obligations under each contract. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. Hardware products with essential embedded software, software products, and purchased extended warranty on hardware products have been identified as separate and distinct performance obligations.
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring products or services to a customer. An adjustment to revenue is made to adjust the transaction price to exclude the consideration related to products expected to be returned. The Company records an asset at the carrying amount of the estimated stock returns and a liability for the estimated amount expected to be refunded to the customer. The transaction price also excludes other forms of consideration provided to the customer, such as volume-based rebates and co-operative marketing allowances.
The Company recognizes revenue when, or as, it satisfies a performance obligation by transferring control of a promised product or service to a customer. Revenue from hardware products with essential embedded software is recognized when control of the asset is transferred, which is typically at the time of shipment. Revenue from perpetual license software is recognized at the point in time that the customer is able to use or benefit from the software. Extended warranty on hardware products is a performance obligation that is satisfied over time, beginning on the effective date of the warranty period and ending on the expiration of the warranty period. The Company recognizes revenue on extended warranties on a straight-line basis over the warranty period. Revenue from software subscriptions is recognized ratably over the term in which the services are provided and the performance obligation is satisfied.
The Company enters into revenue arrangements that may consist of multiple performance obligations, such as hardware products and extended warranty. The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis for each distinct product or service in the contract. The best evidence of standalone selling price is the observable price of a product or service when the Company sells that product or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, the Company estimates the transaction price allocated to each performance obligation using the expected costs plus a margin approach.
Disaggregation of revenues
Revenues by product category were as follows (unaudited and in thousands, except percentages):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
||||||||||||||||||||
Point-to-Multi-Point |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Point-to-Point |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Enterprise |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Other |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Total Revenues |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
17
The Company’s products are predominately sold through third-party distributors and distributed through a third-party logistics provider with facilities in the United States, Netherlands and China. The Company has determined the geographical distribution of product revenues based upon the ship-to destinations specified by its distributor customers.
Revenues by geography were as follows (unaudited and in thousands, except percentages):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
||||||||||||||||||||
North America |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Europe, Middle East and Africa |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Caribbean and Latin America |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Asia Pacific |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Total Revenues |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Contract balances
The following table summarizes contract balances as of December 31, 2022 and September 30, 2023 (in thousands):
|
|
December 31, 2022 |
|
|
September 30, 2023 |
|
||
|
|
|
|
|
(unaudited) |
|
||
Trade accounts receivable, net of allowance for credit losses |
|
$ |
|
|
$ |
|
||
Deferred revenue - current |
|
|
|
|
|
|
||
Deferred revenue - noncurrent |
|
|
|
|
|
|
||
Refund liability |
|
$ |
|
|
$ |
|
||
Deferred revenue consists of amounts due or received from customers in advance of the Company satisfying performance obligations under contractual arrangements. Deferred revenue is classified as current or noncurrent based on the timing of when revenue will be recognized. The changes in deferred revenue were due to normal timing differences between the Company’s performance and the customers’ payment.
The refund liability is the estimated amount expected to be refunded to customers in relation to product exchanges made as part of the Company’s stock rotation program and returns that have been authorized, but not yet received by the Company. The increase in the refund liability is driven by the higher expected stock rotations of enterprise products as the channel aligns its inventory position with market demand. It is included within Other current liabilities in the condensed consolidated balance sheets.
Receivables and concentration of credit risk
Trade accounts receivable represent amounts for which the Company has an unconditional right to payment. Amounts are in accordance with contractual terms and are recorded at face amount less an allowance for credit losses. The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivables. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity indicators for individual customers.
The Company considers the credit risk of all customers and regularly monitors credit risk exposure in its trade receivables. The Company’s standard credit terms with its customers are generally net
18
Remaining performance obligations
Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations included in a contract that are unsatisfied, or partially satisfied, as of the end of a period. As of December 31, 2022, deferred revenue (current and noncurrent) of $
Revenue recognized during the three-month and nine-month periods ended September 30, 2023 which was previously included in deferred revenues as of December 31, 2022 was $
Cost to obtain a contract
Sales commissions are incremental costs of obtaining a contract. The Company has
Note 16. Leases
The Company has operating leases for offices, vehicles and equipment. Leases with a term of 12 months or less are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term.
Right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s lease payments are typically fixed or contain fixed escalators. The Company’s leases typically include certain lock-in periods and renewal options to extend the lease but does not consider options to extend the lease it is not reasonably certain to exercise. The Company elected the practical expedient to not separate the lease and non-lease components of its leases and currently has no leases with options to purchase the leased property.
The components of lease expense were as follows and are included in general and administrative expense (unaudited and in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplemental balance sheet information related to leases were as follows (in thousands, except lease term and discount rate):
|
|
Balance Sheet Caption |
|
December 31, 2022 |
|
|
September 30, 2023 |
|
||
|
|
|
|
|
|
|
(unaudited) |
|
||
Operating leases: |
|
|
|
|
|
|
|
|
||
Operating lease assets |
|
Operating lease assets |
|
$ |
|
|
$ |
|
||
Current lease liabilities |
|
|
$ |
|
|
$ |
|
|||
Noncurrent lease liabilities |
|
Noncurrent operating lease liabilities |
|
$ |
|
|
$ |
|
||
Weighted average remaining lease term (years): |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
|
|
||
Weighted average discount rate: |
|
|
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
% |
|
|
% |
||
19
Supplemental cash flow information related to leases were as follows (unaudited and in thousands):
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
|
|
$ |
|
||
The Company’s current lease terms range from to
Remaining maturities on lease liabilities as of September 30, 2023 is as follows (unaudited and in thousands):
|
|
Operating leases |
|
|
2023 (October - December) |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less: interest |
|
|
|
|
Present value of lease liabilities |
|
$ |
|
|
Note 17. Related party transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal.
For the three-month and nine-month periods ended September 30, 2022, the Company did
Note 18. Restructuring
On August 1, 2023, the Company announced and initiated a corporate cost reduction to better align Cambium's cost structure with current economic conditions and position the Company to achieve near-term and long-term targets to maintain profitability, improve cash flow and maintain a strong balance sheet.
During the three-month period ended September 30, 2023, the Company incurred restructuring charges of approximately $
20
Note 19. Subsequent Events
On October 16, 2023, the Company executed an amendment to the lease agreement entered into on June 9, 2023 for its new corporate headquarters in Illinois. The amendment defined the exact space of the office and lab space to be leased, the square footage to be occupied, and the value of the leasehold improvement allowance to be received. The Company expects to recognize a right-of-use asset and lease liability in the fourth quarter of 2023 upon commencement of the lease.
On November 2, 2023, the Company announced it was engaging in additional restructuring to further reduce costs. The Company expects to incur an additional approximately $
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes thereto of Cambium Networks Corporation (“Cambium”, “we”, “our”, or “us”) included elsewhere in this Quarterly Report on Form 10-Q and with the financial statements and related notes and Management’s Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed February 27, 2023. Results for the three-month and nine-month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Cambium Networks is a global technology company that designs, develops, and manufactures wireless and fiber broadband and enterprise networking infrastructure solutions for a wide range of applications, including broadband access, wireless backhaul, Industrial Internet of Things (IIoT), public safety communications, and Wi-Fi access. Our products are used by businesses, governments, and service providers to build, expand and upgrade broadband networks. Our product lines fall into three broad, interrelated categories: Fixed Wireless & fiber Broadband (FWB), Enterprise networking, and Subscription and Services. The FWB portfolio spans point-to-point (PTP) and point-to-multi-point (PMP) architectures over multiple standards, including IEEE 802.11 and 3GPP (Third Generation Partnership Program) and frequency bands, including licensed, unlicensed, and lightly licensed spectrum, and fiber products. In the second quarter of 2023, we introduced and had our first commercial shipments of a passive optical networking (PON) solution, supporting Gigabit PON (GPON) and XGS-PON (also known as 10G-PON or G987). The Enterprise portfolio includes Wi-Fi access points, and other networking devices.
The Subscription and Services portfolio includes network planning and design as well as cloud or on-premises network management and control solutions. The latter capability, delivered through subscription to cnMaestro™ X, forms the foundation of our ONE Network, a cloud-based network management architecture that allows users to remotely configure, monitor, and manage their wireless network. It provides a single, centralized view of all network devices, including wired and wireless broadband and Enterprise, as well as real-time performance and usage data, and allows users to make changes to the network configuration and settings. Advanced services offered in conjunction with this platform include application visibility and control, which is used to optimize end-user experiences; integrated security gateway and software defined wide area network (SD-WAN) for small and medium businesses; and automated and intelligent network optimization.
Trends impacting our business
Starting in the second quarter and continuing into the third quarter of 2023, revenue from our Enterprise products declined, partly resulting from increased competition as a result of readily available component supply reducing our prior advantage in supply and order fulfillment, aggressive pricing by our competitors and poor macroeconomic conditions in our primary markets resulting in lower order volumes from our distributors. Additionally, revenues decreased due to a delay in government defense orders due to U.S. Federal budgetary timing issues impacting the PTP business; sluggish revenues in the PMP business, which is expected until the FCC's approval and subsequent ramp of sales of Cambium's 6 GHz products; a decrease in orders and an increase in stock rotations from distributors in the Enterprise business; and continued economic headwinds, particularly in EMEA.
Our increase in inventory is primarily due to the slowdown in Enterprise orders due to higher channel inventory from fulfillment of orders placed by distributors as a result of the prior extended lead times, shortages and supply chain disruptions. The post-COVID recovery of component and product lead times impacted new order volumes placed by distributors and previous supply orders placed by third-party manufacturers to vendors, leading to higher inventory balances. We are taking actions to address these issues, including actions to reduce inventory of our Enterprise products as well as to reduce our operating costs to improve profitability and cash flow. We also continue to work closely with our contract manufacturers and supply chain partners to balance production to market demand.
We continue to see inflation pressure in our supply chain, and scarcity of some materials needed to build our products. While we have increased our inventory of key components, technology shifts could result in this increased inventory becoming excess or obsolete before it is deployed, as new product development relies on different components.
We continue to monitor the impact of macroeconomic factors, including a potential global recession, inflationary pressures, and growing political tensions as a result of the Russia-Ukraine conflict, as well as the escalating tensions between China and Taiwan, the recent and rapidly accelerating conflict in Israel and Gaza, and associated tensions between the U.S. and China. We also believe that our customers continue to grapple with the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders. In addition, any prolonged economic disruptions or further deterioration in the global economy could have a negative impact on demand from our customers in future periods.
22
The impact of reverse globalization, including a more nationalistic trend globally leading to increasing government requirements for domestically produced products or limiting the sourcing of components and other products from China and elsewhere, has led us to limit our reliance on third-party manufacturers in China and begin moving manufacturing to other locations, which could cause disruptions in our supply operations.
Financial results for the three-month period ended September 30, 2023
Basis of presentation
Revenues
Our revenues are generated primarily from the sale of our products, which consist of hardware with essential embedded software. Our revenues also include amounts for software products, extended warranty on hardware products and subscription services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met. Revenues are recognized net of estimated stock returns, volume-based rebates and cooperative marketing allowances that we provide to distributors. We recognize subscription services revenue ratably over the term in which services are provided and our performance obligation is satisfied. We provide a standard warranty on our hardware products, with the term depending on the product, and record a liability for the estimated future costs associated with potential warranty claims. In addition, we also offer extended warranties for purchase and represents a future performance obligation for us. The extended warranty is included in deferred revenues and is recognized on a straight-line basis over the term of the extended warranty.
Cost of revenues and gross profit
Our cost of revenues is comprised primarily of the costs of procuring finished goods from our third-party manufacturers, third-party logistics and warehousing provider costs, freight costs and warranty costs. We outsource our manufacturing to third-party manufacturers located primarily in Mexico, China, Israel and Taiwan. Cost of revenues also includes costs associated with supply operations, including personnel related costs and allocated overhead costs, provision for excess and obsolete inventory, third-party license costs and third-party costs related to services we provide. Cost of revenues also includes amortization of capitalized software development costs associated with products marketed to be sold.
Gross profit has been and will continue to be affected by various factors, including changes in product mix. The margin profile of products within each of our core product categories can vary significantly depending on the operating performance, features and manufacturer of the product. Gross margin will also vary as a function of changes in pricing due to competitive pressure, our third-party manufacturing and other production costs, cost of shipping and logistics, provision for excess and obsolete inventory and other factors. We expect our gross margins will fluctuate from period to period depending on the interplay of these various factors.
Operating expenses
We classify our operating expense as research and development, sales and marketing, and general and administrative expense. Personnel costs are the primary component of each of these operating expense categories, which consist of personnel costs, such as salaries, sales commissions, benefits, bonuses and share-based compensation expense. In addition, we separate depreciation and amortization in their own category.
Research and development
In addition to personnel-related costs, research and development expenses consist of costs associated with design and development of our products, product certification, travel, recruiting and shared facilities and shared IT costs. We generally recognize research and development expense as incurred. We capitalize certain software project costs under development during the period between determining technological feasibility of the product and commercial release. We amortize the capitalized development cost upon commercial release, generally over three years, and is included in cost of revenues. We typically do not capitalize costs related to
23
the development of first-generation product offerings as technological feasibility generally coincides with general availability of the software.
Sales and marketing
In addition to personnel-related costs for sales, marketing, service and product line management personnel, sales and marketing expenses consist of our training programs, trade shows, marketing programs, promotional materials, demonstration equipment, national and local regulatory approval on our products, travel and entertainment, recruiting, digital marketing platforms, third-party marketing services and shared facilities and shared IT costs.
General and administrative
In addition to personnel-related costs, general and administrative expenses consist of professional fees, such as legal, audit, accounting, information technology and consulting costs, insurance, shared facilities and shared IT costs, and other supporting overhead costs.
Depreciation and amortization
Depreciation and amortization expenses consist of depreciation related to fixed assets such as computer equipment, furniture and fixtures, and testing equipment, as well as amortization related to acquired and internal use software and definite lived intangibles.
Provision for income taxes
Our provision for income taxes consists primarily of income taxes in the jurisdictions in which we conduct business. Management assesses our deferred tax assets in each reporting period, and if it is determined that it is not more likely than not to be realized, we will record a valuation allowance in that period.
24
Results of operations
The following table presents the consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our consolidated statements of operations (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
||||
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
$ |
81,200 |
|
|
$ |
43,046 |
|
|
$ |
212,392 |
|
|
$ |
179,989 |
|
Cost of revenues |
|
|
40,034 |
|
|
|
32,087 |
|
|
|
108,621 |
|
|
|
100,128 |
|
Gross profit |
|
|
41,166 |
|
|
|
10,959 |
|
|
|
103,771 |
|
|
|
79,861 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
12,609 |
|
|
|
13,151 |
|
|
|
36,991 |
|
|
|
40,421 |
|
Sales and marketing |
|
|
11,033 |
|
|
|
9,675 |
|
|
|
32,304 |
|
|
|
32,873 |
|
General and administrative |
|
|
6,058 |
|
|
|
8,688 |
|
|
|
19,560 |
|
|
|
21,191 |
|
Depreciation and amortization |
|
|
1,506 |
|
|
|
1,545 |
|
|
|
4,486 |
|
|
|
4,614 |
|
Total operating expenses |
|
|
31,206 |
|
|
|
33,059 |
|
|
|
93,341 |
|
|
|
99,099 |
|
Operating income (loss) |
|
|
9,960 |
|
|
|
(22,100 |
) |
|
|
10,430 |
|
|
|
(19,238 |
) |
Interest expense, net |
|
|
514 |
|
|
|
620 |
|
|
|
1,418 |
|
|
|
1,796 |
|
Other expense (income), net |
|
|
165 |
|
|
|
63 |
|
|
|
(129 |
) |
|
|
281 |
|
Income (loss) before income taxes |
|
|
9,281 |
|
|
|
(22,783 |
) |
|
|
9,141 |
|
|
|
(21,315 |
) |
(Benefit) provision for income taxes |
|
|
(154 |
) |
|
|
3,417 |
|
|
|
(1,048 |
) |
|
|
3,251 |
|
Net income (loss) |
|
$ |
9,435 |
|
|
$ |
(26,200 |
) |
|
$ |
10,189 |
|
|
$ |
(24,566 |
) |
|
|
Three Months Ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
||||
Percentage of Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
49.3 |
% |
|
|
74.5 |
% |
|
|
51.1 |
% |
|
|
55.6 |
% |
Gross margin |
|
|
50.7 |
% |
|
|
25.5 |
% |
|
|
48.9 |
% |
|
|
44.4 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
15.5 |
% |
|
|
30.6 |
% |
|
|
17.4 |
% |
|
|
22.5 |
% |
Sales and marketing |
|
|
13.6 |
% |
|
|
22.5 |
% |
|
|
15.2 |
% |
|
|
18.3 |
% |
General and administrative |
|
|
7.5 |
% |
|
|
20.2 |
% |
|
|
9.2 |
% |
|
|
11.8 |
% |
Depreciation and amortization |
|
|
1.8 |
% |
|
|
3.6 |
% |
|
|
2.2 |
% |
|
|
2.5 |
% |
Total operating expenses |
|
|
38.4 |
% |
|
|
76.9 |
% |
|
|
44.0 |
% |
|
|
55.1 |
% |
Operating income (loss) |
|
|
12.3 |
% |
|
|
(51.3 |
)% |
|
|
4.9 |
% |
|
|
-10.7 |
% |
Interest expense, net |
|
|
0.6 |
% |
|
|
1.4 |
% |
|
|
0.7 |
% |
|
|
1.0 |
% |
Other expense (income), net |
|
|
0.3 |
% |
|
|
0.2 |
% |
|
|
(0.1 |
)% |
|
|
0.2 |
% |
Income (loss) before income taxes |
|
|
11.4 |
% |
|
|
(52.9 |
)% |
|
|
4.3 |
% |
|
|
(11.8 |
)% |
(Benefit) provision for income taxes |
|
|
(0.2 |
)% |
|
|
7.9 |
% |
|
|
(0.5 |
)% |
|
|
1.8 |
% |
Net income (loss) |
|
|
11.6 |
% |
|
|
(60.9 |
)% |
|
|
4.8 |
% |
|
|
(13.6 |
)% |
Comparison of three-month period ended September 30, 2022 to the three-month period ended September 30, 2023
Revenues
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
$ |
81,200 |
|
|
$ |
43,046 |
|
|
$ |
(38,154 |
) |
|
|
(47.0 |
)% |
Revenues decreased $38.2 million, or 47.0%, to $43.0 million for the three-month period ended September 30, 2023, from $81.2 million for the three-month period ended September 30, 2022, with the largest decrease in our enterprise product category driven by lower order volumes from distributors due to a recovery in the supply chain and higher channel inventories, aggressive pricing from competitors, slowing economies and an increase in stock rotations. Revenues also decreased in our point-to-multi-point product category ahead of a product transition to new gigabit solutions in our product portfolio. These decreases were partially offset by increased revenues in our point-to-point product category driven by increased demand for defense products.
25
Revenues by product category
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Point-to-Multi-Point |
|
$ |
26,090 |
|
|
$ |
23,596 |
|
|
$ |
(2,494 |
) |
|
|
(9.6 |
)% |
Point-to-Point |
|
|
15,409 |
|
|
|
15,809 |
|
|
|
400 |
|
|
|
2.6 |
% |
Enterprise |
|
|
38,330 |
|
|
|
2,499 |
|
|
|
(35,831 |
) |
|
|
(93.5 |
)% |
Other |
|
|
1,371 |
|
|
|
1,142 |
|
|
|
(229 |
) |
|
|
(16.7 |
)% |
Total revenues by product category |
|
$ |
81,200 |
|
|
$ |
43,046 |
|
|
$ |
(38,154 |
) |
|
|
(47.0 |
)% |
Point-to-Multi-Point
Our PMP revenues decreased $2.5 million, or 9.6%, from the three-month period ended September 30, 2022 to 2023. Our decrease in point-to-multi-point revenues were due to lower demand from service providers as they await the addition of 6 GHz spectrum, but benefited from increased demand for our 28 GHz Fixed 5G in Europe, Middle East, Africa.
Point-to-Point
PTP revenues increased $0.4 million, or 2.6%, from the three-month period ended September 30, 2022 to 2023 mostly driven by increased revenues in Europe, Middle East, Africa and Caribbean and Latin America as a result of increased demand for defense products partially offset by lower demand for PTP products in all other regions.
Enterprise
Enterprise revenues decreased $35.8 million, or 93.5%, from the three-month period ended September 30, 2022 to 2023. Enterprise revenues decreased in all regions, with the largest decrease in Europe, Middle East, Africa, driven mostly by lower order volumes from distributors. In addition, enterprise product revenues were impacted by the recovery of the product supply chain reducing our prior advantage in supply and order fulfillment and therefore, increased competition, coupled with aggressive pricing by our competitors, as well as higher inventory levels in the channel and increased stock rotations.
Revenues by geography
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
North America |
|
$ |
30,086 |
|
|
$ |
17,768 |
|
|
$ |
(12,318 |
) |
|
|
(40.9 |
)% |
Europe, Middle East, Africa |
|
|
29,263 |
|
|
|
14,274 |
|
|
|
(14,989 |
) |
|
|
(51.2 |
)% |
Caribbean and Latin America |
|
|
8,935 |
|
|
|
5,726 |
|
|
|
(3,209 |
) |
|
|
(35.9 |
)% |
Asia Pacific |
|
|
12,916 |
|
|
|
5,278 |
|
|
|
(7,638 |
) |
|
|
(59.1 |
)% |
Total revenues by geography |
|
$ |
81,200 |
|
|
$ |
43,046 |
|
|
$ |
(38,154 |
) |
|
|
(47.0 |
)% |
Revenues decreased in all regions from the three-month period ended September 30, 2022 to September 30, 2023. North America revenues decreased $12.3 million, or 40.9%, with the largest decrease in enterprise revenues due to decreased demand from high levels of channel inventory, along with lower PTP and PMP revenues due to decreased demand. Europe, Middle East, Africa revenues decreased by $15.0 million, or 51.2%, mostly driven by lower enterprise revenues due to decreased demand resulting from high channel inventory partially offset by higher PMP revenues due to increased demand for 28 GHz Fixed 5G and higher PTP revenues due to increase demand from defense. Caribbean and Latin America revenues decreased $3.2 million, or 35.9%, mostly driven by lower enterprise revenues and lower PMP revenues partially offset by higher PTP revenues. Asia Pacific revenues decreased $7.6 million, or 59.1%, mostly driven by lower enterprise revenues and lower PMP revenues both due to decreased demand.
26
Cost of revenues and gross margin
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Cost of revenues |
|
$ |
40,034 |
|
|
$ |
32,087 |
|
|
$ |
(7,947 |
) |
|
|
(19.9 |
)% |
Gross margin |
|
|
50.7 |
% |
|
|
25.5 |
% |
|
|
|
|
(2520) bps |
|
||
Cost of revenues decreased $7.9 million, or 19.9%, to $32.1 million for the three-month period ended September 30, 2023 from $40.0 million for the three-month period ended September 30, 2022. The decrease in cost of revenues was primarily due to decreased revenues but was negatively impacted by a $4.6 million increase in our excess and obsolescence reserve, lower capitalized freight, and higher material fixed costs. The higher excess and obsolescence reserve was impacted by a combination of lower demand due to higher channel inventory, shorter product lead times due to recovery post-COVID and product cycles driven by the anticipated introduction of the new 6 GHz PMP products.
Gross margin decreased to 25.5% for the three-month period ended September 30, 2023 from 50.7% for the three-month period ended September 30, 2022. The decrease primarily reflects the impact from an increase in our excess and obsolescence reserve, higher freight costs and decreased revenues from higher margin products.
Operating expenses
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Research and development |
|
$ |
12,609 |
|
|
$ |
13,151 |
|
|
$ |
542 |
|
|
|
4.3 |
% |
Sales and marketing |
|
|
11,033 |
|
|
|
9,675 |
|
|
|
(1,358 |
) |
|
|
(12.3 |
)% |
General and administrative |
|
|
6,058 |
|
|
|
8,688 |
|
|
|
2,630 |
|
|
|
43.4 |
% |
Depreciation and amortization |
|
|
1,506 |
|
|
|
1,545 |
|
|
|
39 |
|
|
|
2.6 |
% |
Total operating expenses |
|
$ |
31,206 |
|
|
$ |
33,059 |
|
|
$ |
1,853 |
|
|
|
5.9 |
% |
Research and development
Research and development expense increased $0.5 million, or 4.3%, to $13.2 million for the three-month period ended September 30, 2023 from $12.6 million for the three-month period ended September 30, 2022. As a percentage of revenues, research and development expenses increased to 30.6% in 2023 from 15.5% in 2022 over the same period. The increase in research and development expense was primarily due to $1.1 million higher staff-related costs due to increased headcount, $0.6 million in restructuring expenses related to the cost reductions announced in August 2023, partially offset by $0.6 million higher capitalized software costs due to an increase in projects eligible for capitalization and $0.6 million lower homologation and regulatory fees due to the timing of projects.
Sales and marketing
Sales and marketing expense decreased $1.4 million, or 12.3%, to $9.7 million for the three-month period ended September 30, 2023 from $11.0 million for the three-month period ended September 30, 2022. As a percentage of revenues, sales and marketing expense increased to 22.5% in 2023 from 13.6% in 2022 over the same period. The decrease in sales and marketing expense was primarily due to $1.6 million lower variable compensation expense due to lower revenues and $0.2 million lower marketing-related spend, partially offset by $0.4 million of restructuring expenses associated with the cost reductions announced in August 2023.
General and administrative
General and administrative expense increased $2.6 million, or 43.4%, to $8.7 million for the three-month period ended September 30, 2023 from $6.1 million for the three-month period ended September 30, 2022. As a percentage of revenues, general and administrative expense increased to 20.2% in 2023 from 7.5% in 2022 over the same period. The increase in general and administrative expense was primarily due to $1.0 million in expenses incurred as part of the Chief Executive Officer transition, $0.7 million higher legal fees, including estimated litigation expenses, $0.5 million higher professional fees, $0.3 million higher share-based compensation expense and $0.2 million higher staff-related costs, mostly due to increased headcount partially offset by $0.1 million reduction of nonrecurring expenses related to various strategic initiatives.
27
Depreciation and amortization
Depreciation and amortization expense remained flat from the three-month period ended September 30, 2022 to the three-month period ended September 30, 2023.
Interest expense, net
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Interest expense, net |
|
$ |
514 |
|
|
$ |
620 |
|
|
$ |
106 |
|
|
|
20.6 |
% |
Interest expense increased $0.1 million, or 20.6%, to $0.6 million for the three-month period ended September 30, 2023 from $0.5 million for the three-month period ended September 30, 2022. The increase was primarily due to an increase in the interest rate on the term loan partially offset by an increase in interest income earned.
Other expense, net
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Other expense, net |
|
$ |
165 |
|
|
$ |
63 |
|
|
$ |
(102 |
) |
|
|
(61.8 |
)% |
Other expense, net changed from expense of $0.2 million for the three-month period ended September 30, 2022 to $0.1 million for the three-month period ended September 30, 2023, primarily due to foreign currency fluctuations.
(Benefit) provision for income taxes
|
|
Three Months Ended September 30, |
|
|
Change |
|||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|||
(Benefit) provision for income taxes |
|
$ |
(154 |
) |
|
$ |
3,417 |
|
|
$ |
3,571 |
|
|
nm |
Effective income tax rate |
|
|
(1.7 |
)% |
|
|
(15.0 |
)% |
|
|
|
|
|
|
Our provision for income taxes was $3.4 million for the three-month period ended September 30, 2023 versus a benefit for income taxes of $0.2 million for the three-month period ended September 30, 2022. The effective income tax rates were (15.0)% and (1.7)% over the same periods, respectively, and reflect the application of our expected annual tax rate to pre-tax results for each of the periods as well as discrete tax impacts that arise during the periods. In the three-month period ended September 30, 2022, the effective income tax rate of (1.7)% was different from the statutory rate of 21.0% primarily due to tax benefits arising on Research and Development tax credits, Foreign Derived Intangible Income, and revaluing of UK deferred tax assets at a higher future tax rate. In the three-month period ended September 30, 2023, our effective income tax rate of (15.0)% was different from the statutory rate of 21.0% primarily due to establishment of a valuation allowance on the net deferred tax assets on the UK company, net of tax benefit on Foreign Derived Intangible Income, tax benefit arising on US Research and Development tax credits, and changes to the excess tax benefits on share-based compensation. The Company established a valuation allowance based on the analysis of cumulative income and loss positions, future income projections, and operating plans. The UK net deferred tax assets are comprised primarily of NOL carryforwards, corporate interest restriction carryforwards and acquired intangibles that existed at December 31, 2022, amounting to $5.3 million. The movement in the net deferred tax assets during the period amounted to $5.6 million, for a total valuation allowance of $10.9 million.
Comparison of nine-month period ended September 30, 2022 to the nine-month period ended September 30, 2023
Revenues
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
$ |
212,392 |
|
|
$ |
179,989 |
|
|
$ |
(32,403 |
) |
|
|
(15.3 |
)% |
Revenues decreased $32.4 million, or 15.3%, to $180.0 million for the nine-month period ended September 30, 2023 from $212.4 million for the nine-month period ended September 30, 2022, with the largest decrease in our enterprise product category driven by lower demand due to high channel inventories and slowing economies along with increased stock rotations. Revenues decreased in our point-to-multi-point product category primarily driven by lower demand from service providers awaiting the addition
28
of 6 GHz spectrum. Revenues increased in our point-to-point product category, mostly in North America, as a result of increased demand for defense products with the federal government.
Revenues by product category
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Point-to-Multi-Point |
|
$ |
85,285 |
|
|
$ |
72,622 |
|
|
$ |
(12,663 |
) |
|
|
(14.8 |
)% |
Point-to-Point |
|
|
45,807 |
|
|
|
58,891 |
|
|
|
13,084 |
|
|
|
28.6 |
% |
Enterprise |
|
|
77,852 |
|
|
|
44,575 |
|
|
|
(33,277 |
) |
|
|
(42.7 |
)% |
Other |
|
|
3,448 |
|
|
|
3,901 |
|
|
|
453 |
|
|
|
13.1 |
% |
Total revenues by product category |
|
$ |
212,392 |
|
|
$ |
179,989 |
|
|
$ |
(32,403 |
) |
|
|
(15.3 |
)% |
Point-to-Multi-Point
Our PMP revenues decreased $12.7 million, or 14.8%, from the nine-month period ended September 30, 2022 to 2023, and represented 40% of our total revenues in both periods. Our decrease in point-to-multi-point revenues was due mostly to lower demand from service providers ahead of a product transition to 6 GHz technology, with declines in all regions except North America. Revenues increased in North America primarily from higher demand from service providers for our 60 GHz, ePMP and fiber products.
Point-to-Point
PTP revenues increased $13.1 million, or 28.6%, from the nine-month period ended September 30, 2022 to 2023 mostly driven by increased revenues in North America as a result of increased demand for defense products.
Enterprise
Enterprise revenues decreased $33.3 million, or 42.7%, from the nine-month period ended September 30, 2022 to 2023. Enterprise revenues decreased in all regions except North America, with the largest decrease in Europe, Middle East, Africa. Although there is recovery of the product supply chain, enterprise revenues have decreased as our prior advantage in supply and order fulfillment has diminished and has been impacted by increased competition, aggressive pricing by our competitors and high inventory levels in the channel.
Revenues by geography
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
North America |
|
$ |
89,547 |
|
|
$ |
104,887 |
|
|
$ |
15,340 |
|
|
|
17.1 |
% |
Europe, Middle East, Africa |
|
|
70,876 |
|
|
|
40,751 |
|
|
|
(30,125 |
) |
|
|
(42.5 |
)% |
Caribbean and Latin America |
|
|
21,979 |
|
|
|
15,426 |
|
|
|
(6,553 |
) |
|
|
(29.8 |
)% |
Asia Pacific |
|
|
29,990 |
|
|
|
18,925 |
|
|
|
(11,065 |
) |
|
|
(36.9 |
)% |
Total revenues by geography |
|
$ |
212,392 |
|
|
$ |
179,989 |
|
|
$ |
(32,403 |
) |
|
|
(15.3 |
)% |
Revenues increased in North America and decreased in all other regions from the nine-month period ended September 30, 2022 to September 30, 2023. North America revenues increased $15.3 million, or 17.1%, with increases in all product lines, mostly driven by increased PTP revenues as a result of higher demand for defense products along with increased PMP revenues due primarily to higher demand from service providers. Europe, Middle East, Africa revenues decreased by $30.1 million, or 42.5%, mostly related to decreased enterprise revenues due to high level of channel inventory and decreased PMP revenues partially offset by increased PTP revenues. Asia Pacific revenues decreased $11.1 million, or 36.9%, mostly driven by decreased PMP and enterprise revenues due to lower demand throughout the region. Caribbean and Latin America revenues decreased $6.6 million, or 29.8%, mostly due to lower demand across all products and fewer government projects.
29
Cost of revenues and gross margin
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Cost of revenues |
|
$ |
108,621 |
|
|
$ |
100,128 |
|
|
$ |
(8,493 |
) |
|
|
(7.8 |
)% |
Gross margin |
|
|
48.9 |
% |
|
|
44.4 |
% |
|
|
|
|
(450) bps |
|
||
Cost of revenues decreased $8.5 million, or 7.8%, to $100.1 million for the nine-month period ended September 30, 2023 from $108.6 million for the nine-month period ended September 30, 2022. The decrease in cost of revenues was primarily due to decreased revenues, but benefited from lower production costs due to decreases in component charges as a result of increased availability of components partially offset by the increase in our excess and obsolescence reserve and supply operations costs.
Gross margin decreased to 44.4% for the nine-month period ended September 30, 2023 from 48.9% for the nine-month period ended September 30, 2022. The decrease reflects decreased revenues from higher margin products, increased freight and supply operations costs as a percentage of revenue and the increase in our excess and obsolescence reserve. Gross margin benefited from lower production costs due to decreases in component charges as a result of increased availability of components.
Operating expenses
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Research and development |
|
$ |
36,991 |
|
|
$ |
40,421 |
|
|
$ |
3,430 |
|
|
|
9.3 |
% |
Sales and marketing |
|
|
32,304 |
|
|
|
32,873 |
|
|
|
569 |
|
|
|
1.8 |
% |
General and administrative |
|
|
19,560 |
|
|
|
21,191 |
|
|
|
1,631 |
|
|
|
8.3 |
% |
Depreciation and amortization |
|
|
4,486 |
|
|
|
4,614 |
|
|
|
128 |
|
|
|
2.9 |
% |
Total operating expenses |
|
$ |
93,341 |
|
|
$ |
99,099 |
|
|
$ |
5,758 |
|
|
|
6.2 |
% |
Research and development
Research and development expense increased $3.4 million, or 9.3%, to $40.4 million for the nine-month period ended September 30, 2023 from $37.0 million for the nine-month period ended September 30, 2022. As a percentage of revenues, research and development expenses increased to 22.5% in 2023 from 17.4% in 2022 over the same period. The increase in research and development expense was primarily due to $3.3 million higher staff-related costs due to increased headcount, $0.9 million of restructuring expenses, with $0.6 million associated with the cost reductions announced in August 2023, $0.8 million higher contractor costs driven by increase in projects, $0.4 million higher share-based compensation expense and $0.2 million higher travel partially offset by $1.8 million higher capitalized software cost due to an increase in projects eligible for capitalization and $0.5 million lower homologation and regulatory expense due to the timing of projects.
Sales and marketing
Sales and marketing expense increased $0.6 million, or 1.8%, to $32.9 million for the nine-month period ended September 30, 2023 from $32.3 million for the nine-month period ended September 30, 2022. As a percentage of revenues, sales and marketing expense increased to 18.3% in 2023 from 15.2% in 2022 over the same period. The increase in sales and marketing expense was primarily due to $1.4 million higher staff-related costs due to increased headcount, $0.5 million higher professional fees, $0.5 million higher travel-related spend, $0.2 million increase in restructuring expenses and $0.1 million higher share-based compensation expense mostly offset by $2.1 million lower variable compensation expense due to lower revenues.
General and administrative
General and administrative expense increased $1.6 million, or 8.3%, to $21.2 million for the nine-month period ended September 30, 2023 from $19.6 million for the nine-month period ended September 30, 2022. As a percentage of revenues, general and administrative expense increased to 11.8% in 2023 from 9.2% in 2022 over the same period. The increase in general and administrative expense was primarily due to $1.0 million in expenses incurred as part of the Chief Executive Officer transition, $0.6 million higher legal fees, including estimated litigation expenses, $0.5 million higher share-based compensation expense due to grants issued, $0.3 million higher staff-related costs, mostly due to increased headcount and $0.2 million higher professional fees, partially offset by $0.7 million lower insurance expense due to lower negotiated fees and $0.3 million professional services fees incurred in 2022 related to strategic initiatives.
30
Depreciation and amortization
Depreciation and amortization expense remained flat from the nine-month period ended September 30, 2022 to the nine-month period ended September 30, 2023.
Interest expense, net
|
|
Nine months ended September 30, |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Interest expense, net |
|
$ |
1,418 |
|
|
$ |
1,796 |
|
|
$ |
378 |
|
|
|
26.7 |
% |
Interest expense, net increased $0.4 million, or 26.7%, to $1.8 million for the nine-month period ended September 30, 2023 from $1.4 million for the nine-month period ended September 30, 2022. The increase was primarily due to an increase in the interest rate on the term loan partially offset by increase in interest income earned.
Other (income) expense, net
|
|
Nine months ended September 30, |
|
|
Change |
|||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|||
Other (income) expense, net |
|
$ |
(129 |
) |
|
$ |
281 |
|
|
$ |
410 |
|
|
nm |
Other (income) expense, net changed from income of $0.1 million for the nine-month period ended September 30, 2022 to expense of $0.3 million for the nine-month period ended September 30, 2023, primarily due to foreign currency fluctuations.
(Benefit) provision for income taxes
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine months ended September 30, |
|
|
Change |
|||||||||
(dollars in thousands) |
|
2022 |
|
|
2023 |
|
|
$ |
|
|
% |
|||
(Benefit) provision for income taxes |
|
$ |
(1,048 |
) |
|
$ |
3,251 |
|
|
$ |
4,299 |
|
|
nm |
Effective income tax rate |
|
|
(11.5 |
)% |
|
|
(15.3 |
)% |
|
|
|
|
|
|
Our provision for income taxes was $3.3 million for the nine-month period ended September 30, 2023 and a benefit for income taxes of $1.0 million for the nine-month period ended September 30, 2022. The effective income tax rates were (15.3)% and (11.5)% over the same periods, respectively, and reflect the application of our expected annual tax rate to pre-tax results for each of the periods as well as discrete tax impacts that arise during the periods. In the nine-month period ended September 30, 2022, the effective income tax rate of (11.5)% was different from the statutory rate of 21.0% primarily due to tax benefits arising on Research and Development tax credits, Foreign Derived Intangible Income, and revaluing of UK deferred tax assets at a higher future tax rate. In the nine-month period ended September 30, 2023, our effective income tax rate of (15.3)% was different from the statutory rate of 21.0% primarily due to establishment of a valuation allowance on the deferred tax assets of the UK company, net of tax benefits on Foreign Derived Intangible Income, tax benefit arising on US Research and Development tax credits, and changes to the excess tax benefits on share-based compensation. The Company established the valuation allowance based on the analysis of cumulative income and loss positions, future income projections, and operating plans. The UK net deferred tax assets are comprised primarily of NOL carryforwards, corporate interest restriction carryforwards and acquired intangibles that existed at December 31, 2022, amounting to $5.3 million. The movement in the net deferred tax assets during the period amount to $6.8 million for a total valuation allowance of $12.1 million.
Liquidity and Capital Resources
As of September 30, 2023, we had a cash balance of $27.5 million. Our primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet interest and principal requirements of our outstanding indebtedness; and (iii) to fund capital expenditures. We believe these needs will be satisfied over at least the next 12 months using existing cash and using cash flow generated by our operations. We continue to focus on cost management, operating efficiency and efficient discretionary spending. In addition, if necessary, we may leverage our revolving credit facility to manage our working capital needs in the near future. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support development efforts, the timing of new product introductions, market acceptance of our products and overall economic conditions. We regularly assess our liquidity needs and market conditions and may take measures, including raising additional equity or incurring additional debt if and when our board of directors determines that doing so is in our best interest.
31
Cash Flows
The following table sets forth summarized cash flow data for the periods indicated (in thousands):
Cash flows from operating activities
|
|
Nine months ended September 30, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Cash used in operating activities |
|
$ |
(7,080 |
) |
|
$ |
(10,726 |
) |
Cash used in investing activities |
|
$ |
(6,683 |
) |
|
$ |
(8,879 |
) |
Cash used in financing activities |
|
$ |
(583 |
) |
|
$ |
(1,021 |
) |
Net cash used in operating activities for the nine-month period ended September 30, 2022 of $7.1 million consisted primarily of net income of $10.6 million, share-based compensation expense of $7.8 million and adjustments for depreciation and amortization and other non-cash impacts of $7.5 million, an increase in deferred tax assets of $2.0 million and changes in operating assets and liabilities that resulted in net cash outflows of $31.0 million. The changes in operating assets and liabilities consisted primarily of a $16.8 million decrease in inventories due to management's plan to build inventory in response to supply chain constraints and higher revenue expectations in the fourth quarter of 2022, a $10.2 million decrease in accrued employee compensation primarily due to the payment of the 2021 corporate bonus net of the 2022 corporate bonus accrual and $9.4 million increase in accounts receivable reflecting the impact of higher sales and timing of collections. These uses of cash were partially offset by $4.0 million lower prepaid expenses, mostly as a result of decrease in vendor prepayments to procure inventory and $3.5 million increase in cash provided by all other assets and liabilities, mostly driven by the increase in deferred revenues.
Net cash used in operating activities for the nine-month period ended September 30, 2023 of $10.7 million consisted of net loss of $24.6 million, share-based compensation expense of $8.8 million and adjustments for depreciation and amortization and other non-cash impacts of $12.5 million, an increase in deferred tax assets of $0.3 million and changes in operating assets and liabilities that resulted in net cash outflows of $7.7 million. The changes in operating assets and liabilities consisted primarily of a $28.3 million increase in inventories due to lower demand for our products and higher channel inventory, a $6.5 million decrease in accounts payable due to timing of invoices and payments, a $2.0 million decrease in accrued employee compensation due to lower corporate bonus accrual and $1.3 million lower accrued liabilities primarily related to lower inventory in transit. The uses of cash were partially offset by a $22.4 million decrease in accounts receivable reflecting the impact of lower sales and the timing of collections, $4.8 million increase in cash provided by all other assets and liabilities, mostly driven by the increase in accrued sales returns along with collection of the UK RDEC tax credit and $3.0 million reduction in prepaid expenses, mostly due to lower vendor prepayments.
Cash flows from investing activities
Our investing activities for all periods presented consisted of capital expenditures for property, equipment and software in support of the growth of our business. The increase in 2023 is driven by an increase in the number of projects eligible for capitalization.
Cash flows from financing activities
During the nine-month period ended September 30, 2022, net cash used of $0.6 million was primarily due to $1.3 million repayment of principal due under the term loan facility with Bank of America and $0.8 million for taxes paid from shares withheld in net settlement of taxes due on vesting of restricted shares issued to our employees partially offset by proceeds received of $1.1 million for the issuance of ordinary shares under our Employee Share Purchase Program and proceeds received of $0.4 million from the exercise of share options.
During the nine-month period ended September 30, 2023, net cash used of $1.0 million was primarily due to $2.0 million repayment of principal due under the term loan facility with Bank of America and $0.7 million for taxes paid from shares withheld in net settlement of taxes due on vesting of restricted shares issued to our employees partially offset by proceeds received of $1.1 million from the issuance of ordinary shares under our ESPP and $0.5 million from the exercise of share options.
32
Debt
As of September 30, 2023, we had $26.1 million outstanding on our term credit facility and had $45.0 million available under our revolving credit facility with Bank of America. The effective interest rate on the term credit facility at September 30, 2023 was 7.69%. The Company is required to make scheduled quarterly principal payments of $0.7 million under the term credit facility. With the cessation of all tenors of US Dollar LIBOR as an available benchmark on June 30, 2023, we entered into an amendment to our credit facilities on June 9, 2023 to amend the original BofA Credit Agreement to replace the benchmark used for the interest rate on EuroDollar Rate Loans from US Dollar LIBOR to Term SOFR. Effective June 17, 2023, our term credit facility interest rate is indexed to the Term SOFR rate based on the period selected by management. Our term credit facility matures on November 17, 2026, at which time the outstanding principal will be due. Refer to Note 6 – Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Contractual Obligations and Commercial Commitments
For the three-month period ended September 30, 2023, the only material change to the contractual obligations and commercial commitments from what was disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 is the addition of approximately $11.8 million in minimum lease payments due over the next 13 years for the new corporate headquarters lease in Illinois. This amount increased from the $7.7 million disclosed for this item in the Form 10-Q for the three-month period ended June 30, 2023 as a result of the amendment signed on October 16, 2023 which increased the square footage to be leased. The lease contains multiple rent holidays with a current rent commencement date of April 1, 2024 and the next lease payment due on November 1, 2024. The Company paid the April 2024 rent upon signing the amendment. There are no lease payments due within the next year, with $1.9 million due in the following one to three years, $2.9 million due in following three to five years, and $7.0 million due thereafter.
Off-balance sheet arrangements
We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as variable interest entities, structured finance, or special purpose entities, as part of our ongoing business. Accordingly, our operating results, financial condition and cash flows are not subject to off-balance sheet risks.
Significant Accounting Estimates
Our consolidated financial statements and the related notes thereto are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expense and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
During the three-month period ended September 30, 2023, there were no significant changes to our critical accounting policies and estimates. During the three months ended September 30, 2023, our share price experienced declines and in the days subsequent to quarter end, decreased to a historic low for the year. As indicated in Note 5 of the condensed consolidated financial statements, we evaluated whether there were goodwill triggering events that occurred as of September 30, 2023, and determined there were not. The Company will continue to assess potential goodwill impairment triggering events, including continued impact of slower demand, higher channel inventory and sustained decreases in our share price. If triggering events occur, we will perform a goodwill impairment assessment that may indicate impairment in a future period. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2022, filed on February 27, 2023, for a more complete discussion of our critical accounting policies and estimates.
33
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Excluding the impact of changes in interest rates and the uncertainty in the global financial markets, there have been no material changes to our market risk for the three-month period ended September 30, 2023. We conduct business in all parts of the world and are thereby exposed to market risks related to fluctuations in foreign currency exchange rates. The U.S. dollar is the single largest currency in which our revenue contracts are denominated. Any decline in the value of local foreign currencies against the U.S. dollar results in our products and services being more expensive to a potential foreign customer. In those instances where our goods and services have already been sold, receivables may be more difficult to collect. Additionally, in jurisdictions where the revenue contracts are denominated in U.S. dollars and operating expenses are incurred in the local currency, any decline in the value of the U.S. dollar will have an unfavorable impact to operating margins. We have not entered into any foreign currency hedging transactions. We do not purchase or hold any derivative financial instruments for speculation or arbitrage.
We do not hold any cash in any investment accounts and all cash is deposited with financial institutions that management believes are of high credit quality. The Company's cash consists primarily of U.S. dollar denominated demand accounts.
We had $26.1 million of debt outstanding on our term loan facility and $0.0 million of debt outstanding on our revolving credit facility as of September 30, 2023 under our BofA Credit Agreement. With the cessation of all tenors of US Dollar LIBOR on June 30, 2023, we entered into an amendment of our BofA Credit Agreement on June 9, 2023 to replace the Eurodollar Rate (the rate equal to US Dollar LIBOR) with Term Secured Overnight Financing Rate, or SOFR. The Company is exposed to interest rate risk from fluctuations in the Term SOFR that is a component of the interest rate used to calculate interest expense on the debt. Interest accrues on the outstanding principal amount of the term loan on a quarterly basis and is equal to the selected rate per annum determined by reference to the 1-month, 3-month or 6-month Term SOFR rate as selected by the Company, plus a SOFR adjustment of 0.10%, plus an applicable margin between 1.75% and 2.25% as determined by our financial performance as measured by the consolidated leverage ratio. At September 30, 2023, the applicable margin was 1.75% and the effective interest rate on the term loan was 7.69%. A hypothetical 100-basis point increase in interest rates, and assuming a constant applicable margin, would result in an additional $0.3 million in interest expense related to the external debt per year.
There have been no other material changes in our market risk since December 31, 2022.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the Exchange Act), as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective at a reasonable assurance level.
Changes in internal control
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on effectiveness of controls and procedures
None.
34
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Third parties may from time to time assert legal claims against us. Our industry is characterized by vigorous protection and pursuit of intellectual property rights. A number of companies hold a large number of patents that may cover technology necessary to our products. We have in the past received and expect to continue to receive claims by third parties that we infringe their intellectual property rights. In the opinion of management, we believe we have established adequate accruals pursuant to U.S. generally accepted accounting principles for any expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based on presently available information. However, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial conditions, or cash flows.
For additional information, see Note 13 – Commitments and contingencies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Part I, Item 3. Legal Proceedings in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 except as discussed below. Additional risk and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.
The Company has reduced and may continue to reduce the overall size of its organization and is likely to experience voluntary attrition, which may present challenges in managing its business.
During and since the third quarter of 2023, the Company has implemented reductions in its workforce and may consider further reductions in the future. These workforce reductions have resulted and may result in the loss of some longer-term employees and expertise leading to reallocation and combination of certain roles and responsibilities across the organization, all of which could adversely affect the Company's operations. Given the complexity and nature of the Company's business, it must continue to implement and improve its managerial, operational and financial systems and continue to recruit and retain qualified personnel. This could be made more challenging by the workforce reductions and additional measures the Company may take to reduce costs. Workforce reductions and additional cost containment measure may have unintended consequences, such as attrition beyond the Company's intended workforce reductions, reduced employee morale and employment-related litigation. Employees who are not affected by the workforce reductions may seek alternate employment, which could require the Company to obtain additional support at an unplanned additional expense.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three-month period ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities and Exchange Act of 1934)
35
Item 6. Exhibits.
We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference.
EXHIBIT INDEX
Exhibit Number |
|
Description |
10.44* |
|
|
10.45*+ |
|
Employment agreement, dated as of August 1, 2023 between Cambium Networks, Inc. and Morgan Kurk |
10.46*+ |
|
Separation Agreement, dated as of August 1, 2023, between Cambium Networks, Inc. and Atul Bhatnagar |
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase |
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith.
+ Indicates management contract or compensatory plan
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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|
CAMBIUM NETWORKS CORPORATION |
|
|
|
|
|
Date: November 3, 2023 |
|
By: |
/s/ Morgan C. Kurk |
|
|
|
Morgan C. Kurk |
|
|
|
President and Chief Executive Officer |
|
|
|
|
Date: November 3, 2023 |
|
By: |
/s/ Andrew P Bronstein |
|
|
|
Andrew P. Bronstein |
|
|
|
Chief Financial Officer |
37
Exhibit 10.44
FIRST AMENDMENT TO OFFICE LEASE AGREEMENT
THIS FIRST AMENDMENT TO OFFICE LEASE AGREEMENT (this “First Amendment”) is entered into as of October 16, 2023 (the “Amendment Effective Date”) by and between Hoffman Estates Acquisitions LLC, a Delaware limited liability company and Hoffman Estates Acquisitions II LLC, a Delaware limited liability company (collectively, the “Landlord”), and Cambium Networks, Inc., a Delaware corporation (the “Tenant”). Landlord and Tenant may individually be referred to as a “Party” and collectively, the “Parties”.
RECITALS
WHEREAS, Landlord and Tenant have entered into that certain Office Lease Agreement dated as of June 1, 2023 (the “Lease”) with respect to certain premises commonly known as Suite A401 (Office Space) and Suite B105 (Warehouse Space) at Bell Works Chicagoland, 2000 Center Drive, Hoffman Estates, Illinois 60192 (a/k/a Bell Works Chicagoland 2000 AT&T Center Drive, Hoffman Estates, Illinois 60192), as more particularly described and depicted in the Lease;
WHEREAS, all capitalized terms not otherwise defined herein shall have the meanings ascribed to them under the Lease;
WHEREAS, the Final Floor Plan has been mutually approved by Landlord and Tenant, and the Parties desire to enter into this First Amendment to document the Final Space Plan Addendum, and to further modify the Lease, as provided herein.
NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
AGREEMENT
“ (j) Premises”: The area consisting of the (i) Fourth (4th) floor of the East Wing of the Building, deemed to consist of 26,140 square feet of Rentable Area and indicated on Exhibit A-1 (“Office Space”), and (ii) First (1st) Floor of the East Wing of the Building, deemed to consist of 10,866 square feet of Rentable Area and indicated on Exhibit A-2, and known as “Suite B110” (“Warehouse Space”).”
FOURTH (4TH) FLOOR OFFICE SPACE – SUITE A401
LEASE YEAR |
MONTHLY RENT |
ANNUAL RENT |
ANNUAL RENT PER SQUARE FOOT |
Lease Year 1 |
$55,002.92 |
$660,035.00 |
$25.25 |
Lease Year 2 |
$56,201.00 |
$674,412.00 |
$25.80 |
Lease Year 3 |
$57,399.08 |
$688,789.00 |
$26.35 |
Lease Year 4 |
$58,597.17 |
$703,166.00 |
$26.90 |
Lease Year 5 |
$59,795.25 |
$717,543.00 |
$27.45 |
Lease Year 6 |
$60,993.33 |
$731,920.00 |
$28.00 |
Lease Year 7 |
$62,191.42 |
$746,297.00 |
$28.55 |
Lease Year 8 |
$63,389.50 |
$760,674.00 |
$29.10 |
Lease Year 9 |
$64,587.58 |
$775,051.00 |
$29.65 |
Lease Year 10 |
$65,785.67 |
$789,428.00 |
$30.20 |
Lease Year 11 |
$66,983.75 |
$803,805.00 |
$30.75 |
Lease Year 12 |
$68,181.83 |
$818,182.00 |
$31.30 |
Lease Year 13 |
$69,379.92 |
$832,559.00 |
$31.85 |
FIRST (1ST) FLOOR WAREHOUSE SPACE – SUITE B110
LEASE YEAR |
MONTHLY RENT |
ANNUAL RENT |
ANNUAL RENT PER SQUARE FOOT |
Lease Year 1 |
$19,426.38 |
$233,116.50 |
$21.45 |
Lease Year 2 |
$19,861.90 |
$238,342.80 |
$21.93 |
Lease Year 3 |
$20,297.43 |
$243,569.10 |
$22.42 |
Lease Year 4 |
$20,732.95 |
$248,795.40 |
$22.90 |
Lease Year 5 |
$21,168.48 |
$254,021.70 |
$23.38 |
Lease Year 6 |
$21,604.00 |
$259,248.00 |
$23.86 |
Lease Year 7 |
$22,039.53 |
$264,474.30 |
$24.34 |
Lease Year 8 |
$22,475.05 |
$269,700.60 |
$24.82 |
Lease Year 9 |
$22,910.58 |
$274,926.90 |
$25.30 |
Lease Year 10 |
$23,346.10 |
$280,153.20 |
$25.78 |
Lease Year 11 |
$23,781.63 |
$285,379.50 |
$26.26 |
Lease Year 12 |
$24,217.15 |
$290,605.80 |
$26.74 |
Lease Year 13 |
$24,652.68 |
$295,832.10 |
$27.23 |
2
“Tenant shall be entitled to four (4) parking spots in the executive parking garage at the Project (i.e., with each parking permit relating to the right to park one automobile) free of charge for the duration of the Term. Tenant will be entitled to use up to one hundred forty-nine (149) non-exclusive parking spaces (4 spaces per 1,000 square feet of Rentable Area of the Premises) in areas of the Project designated for non-reserved parking.”
3
4
[Signature page to follow]
5
IN WITNESS WHEREOF, the Parties hereto executed this First Amendment to Office Lease Agreement as of the date first written above.
LANDLORD:
HOFFMAN ESTATES ACQUISITIONS LLC, a Delaware limited liability company
By: /s/ Raphael Zucker Name: Raphael Zucker Its: President
HOFFMAN ESTATES ACQUISITIONS II LLC, a Delaware limited liability company
By: /s/ Raphael Zucker Name: Raphael Zucker Its: President
|
|
TENANT:
CAMBIUM NETWORKS, INC., a Delaware corporation
By: /s/ Sally Rau Name: Sally Rau Its: General Counsel
|
6
Exhibit 10.45
CAMBIUM NETWORKS, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this “Agreement”) dated as of August 1, 2023, between Cambium Networks, Inc., a Delaware corporation (the “Company”), and Morgan Kurk (the “Employee”).
Recitals:
The Company desires to employ the Employee as the Chief Executive Officer of the Company.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
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B-1 |
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B-2 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-3 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-4 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
For purposes of this Section 7(c), no act, or failure to act, on the part of the Employee shall be considered “willful” unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon (A) authority given pursuant to a resolution duly adopted by the Board, or (B) the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. Any determination of Cause by the Company will be made by a resolution approved by a majority of the members of the Board (excluding the Employee, if the Employee is then a Board member), provided that no such determination may be made until the Employee has been given written notice detailing the specific Cause event and a period of thirty (30) days following receipt of such notice to cure such event (if susceptible to cure) to the satisfaction of the Board. Notwithstanding anything to the contrary contained herein, the Employee’s right to cure as set forth in the preceding sentence shall not apply if there are habitual or repeated breaches by the Employee.
The Employee shall provide the Company with a written notice detailing the specific circumstances alleged to constitute Good Reason within ninety (90) days after the first occurrence of such circumstances, and actually terminate employment within thirty (30) days following the expiration of the Company’s thirty (30)-day cure period described above unless the Company
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B-5 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
waives this requirement in writing. Otherwise, any claim of such circumstances as “Good Reason” shall be deemed irrevocably waived by the Employee.
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B-6 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-7 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
Payments and benefits provided in this Section 8(d) shall be in lieu of any termination or severance payments or benefits for which the Employee may be eligible under any of the plans, policies or programs of the Company or under the Worker Adjustment Retraining Notification Act of 1988 or any similar state statute or regulation.
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B-8 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-9 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-10 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-11 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-12 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-13 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-14 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-15 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-16 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-17 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
If to the Employee:
At the address (or to the facsimile number) shown
If to the Company: Cambium Networks, Inc. 3800 Golf Road, Suite 360 Rolling Meadows, Illinois 60008 Attention: General Counsel |
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
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B-18 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-19 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-20 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-21 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
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B-22 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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B-23 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
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COMPANY
By: /s/Rob Amen Name: Rob Amen
Title: Chairman of the Board, Cambium Networks Corporation
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EMPLOYEE
/s/ Morgan Kurk Morgan Kurk |
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B-24 |
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IF " DOCVARIABLE "SWDocIDLocation" 1" = "1" " DOCPROPERTY "SWDocID" ACTIVE 266199073" "" ACTIVE 266199073
Exhibit 10.46
SEPARATION AND GENERAL RELEASE AGREEMENT
This Separation and General Release Agreement (the “Agreement”) is made by and between Atul Bhatnagar (the “Employee”) and Cambium Networks, Inc. (“Cambium” or the “Company”) (collectively, the “Parties”).
WHEREAS, the Company and Employee have agreed to terminate Employee’s employment with the Company Group (as defined below) and, in accordance with the terms of the Employee’s Employment Agreement, dated February 15, 2013, by and between the Employee and the Company (the “Employment Agreement”), the Company desires to provide the Employee with certain separation benefits and to resolve any claims that Employee has or may have against the Company and its affiliated persons and entities; and
WHEREAS, the Company desires to confirm certain post-employment obligations that Employee has to the Company and/or Cambium Networks Corporation (“Parent”) or any of their affiliates (collectively the “Company Group”), including with respect to confidential information and inventions, pursuant to his Employment Agreement and his Confidentiality, Invention Assignment, Non-Competition, and Non-Solicitation Agreement, signed by Employee on March 8, 2023 (the “Confidentiality Agreement”); and
WHEREAS, the Parties desire to resolve any and all issues between them with respect to the Employee’s employment at the Company Group and his termination from such employment.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is acknowledged hereby, and in consideration of the mutual covenants and undertakings set forth herein, the Parties agree as follows:
(a) In exchange for and in consideration of the covenants and promises contained herein, including the Employee’s release of all claims against Cambium and the Released Parties as set forth in this Agreement, and in accordance with the terms and conditions of the Employment Agreement and subject to Paragraph 8 below, Cambium will provide the Employee with (i) an amount equal to the Employee’s monthly Base Salary (as in the amount paid as of the Termination Date) less applicable withholdings and deductions, for a period of twelve (12) months following the Termination Date, payable in accordance with the Company’s standard payroll practices and with the first payment to occur within 30 days following the Termination Date and such first payment to include the installment payments from the Termination Date to the date of such first payment, and (ii) a pro-rata portion of the Employee’s Annual Bonus (as defined in the Employment Agreement) for fiscal year 2023 based on actual results (determined by multiplying the amount of such bonus which would be due for the full fiscal year by a fraction, the numerator of which is the number of days during fiscal year 2023 that the Employee was employed by the Company and the denominator of which is 365) payable at the same time as bonuses for such year are paid to other senior executives of the Company.
(b) In the event that Employee timely elects to obtain continued group health insurance coverage in accordance with federal law (COBRA), the Company will reimburse Employee, on a monthly basis, for the cost of the premiums for such coverage following the Termination Date, through the earlier of twelve (12) months or the date on which Employee first becomes eligible to obtain other group health insurance coverage; thereafter, Employee may continue to receive such continued group health insurance coverage at his own expense in accordance with COBRA. Employee must notify the Company promptly in the event he is offered equivalent health care coverage.
(c) For the avoidance of doubt, the Employee’s outstanding equity awards granted to the Employee under the Cambium Networks Corporation 2019 Share Incentive Plan (the “Plan”) shall continue to vest in accordance with the terms of the applicable award agreements during the Employee’s continued service as a non-employee member of the Board, provided that the parties agree that the performance-based equity award granted to Employee on May 16, 2023 shall terminate and be cancelled as of the Termination Date without any payment due to Employee.
(d) The Employee acknowledges and agrees that unless the Employee enters into this Agreement, the Employee would not otherwise be entitled to receive the consideration set forth in Paragraph 3(a) and (b) above.
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(e) The Employee further acknowledges and agrees that: (i) the Employee shall not receive, and is not entitled to receive, any other payments, benefits or remuneration of any kind from the Company Group or the Released Parties, except as set forth in this Agreement, and (ii) the consideration set forth in Paragraphs 2, 3 and 4 of this Agreement constitute full accord and satisfaction for all amounts due and owing to the Employee, including all salary, wages, incentive compensation, commissions, paid time off, reimbursements or other payments, benefits or remuneration of any kind which may have been due and owing to the Employee.
(f) All payments made by the Company shall be subject to any mandatory deductions and withholdings.
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(a) Exceptions. Notwithstanding anything in this Agreement to the contrary, nothing in this Agreement prohibits Employee (or his attorney) from confidentially or otherwise communicating or filing a charge or complaint with a governmental or regulatory entity, participating in a governmental or regulatory entity investigation, or giving other disclosures to a governmental or regulatory entity concerning suspected violations of the law, in each case without receiving prior authorization from or having to disclose any such conduct to the Company, or from responding if properly subpoenaed or otherwise required to do so under applicable law. Nothing in this Agreement shall be construed to affect the Equal Employment Opportunity Commission’s (“Commission”), National Labor Relations Board’s, the Occupational Safety and Health Administration’s, and the Securities and Exchange Commission’s, or any federal, state, or local governmental agency or commission’s (“Governmental Agencies”) or any state agency’s independent right and responsibility to enforce the law, nor does this Agreement affect Employee’s right to file a charge or participate in an investigation or proceeding conducted by either the Commission or any such Governmental Agency, although this Agreement does bar any claim that Employee might have to receive monetary damages in connection with any Commission or Governmental Agency proceeding concerning matters covered by this Agreement. This Agreement does not limit Employee’s right to receive an award or bounty for information provided to any Governmental Agencies, including under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). Further, nothing in this Agreement prohibits Employee from testifying in an administrative, legislative or judicial proceeding regarding alleged criminal conduct or harassment, when Employee has been required or requested to attend a proceeding pursuant to court order, subpoena, or written request from an administrative agency or the legislature. Moreover, nothing in this Agreement prevents the disclosure of factual information relating to claims of sexual assault, harassment, discrimination, failure to prevent harassment or discrimination, or retaliation against a person for reporting an act of
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harassment or discrimination, as those claims are defined under the California Fair Employment and Housing Act, to the extent the claims are filed in a civil or administrative action, and to the extent such disclosures are protected by law.
(b) Execution of this Agreement does not bar any claim that arises hereafter, including (without limitation) a claim for breach of this Agreement, any claim to indemnity under section 2802 of the California Labor Code, any rights Employee may have under COBRA, any rights Employee may have under any ERISA-covered employee benefit plan, and does not release Employee’s eligibility for indemnification in accordance with applicable laws, the articles, charter and bylaws of the Company.
(c) Employee acknowledges that he has been advised or has had an opportunity to seek advice by legal counsel and he is, by this Agreement, waiving claims pursuant to California Civil Code Section 1542 or the laws of other states similar hereto, and he expressly waives such rights as quoted below:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”
Employee hereby expressly waives any rights he may have under any other statute or common law principles of similar effect.
(d) Release of Claims Under the Age Discrimination in Employment Act. The Employee specifically releases the Released Parties from any and all claims, actions, causes of action, obligations for damages (including but not limited to compensatory, exemplary and punitive damages), losses, expenses, attorneys' fees or costs, back pay, loss of earnings, debts, reinstatement, for causes of action that he may have as of the date on which this Agreement is executed (the “Execution Date”) arising under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. 621, et seq. and its state or local equivalent (“ADEA”). The Employee further agrees that:
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(e) The Employee hereby waives any right that the Employee may have to seek or to share in any relief, monetary or otherwise, relating to any claim released herein, whether such claim was initiated by the Employee or not other than claims that by law may not be released.
(a) Board Duties. Employee expressly acknowledges that while Employee continues to serve on the Board, the Employee shall be subject to fiduciary duties with respect to the Company Group, including Employee’s duty of loyalty to the Company Group.
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(b) Confidential Information. Subject to the exceptions set forth above, the Employee hereby acknowledges and agrees to adhere to his continuing contractual and legal obligations to the Company Group with respect to the nondisclosure, nonuse and protection of the Company Group’s confidential information, including as expressly set forth in Paragraph 1 of the Confidentiality Agreement and Section 10(a) of the Employment Agreement.
(c) Inventions. The Employee hereby acknowledges and agrees to adhere to his continuing contractual and legal obligations to the Company Group with respect to inventions and work product, including as expressly set forth in Paragraph 2 of the Confidentiality Agreement and Section 10(e) of the Employment Agreement.
(d) Non-Solicitation/Noncompetition. Employee acknowledges that as a member of the Board, he has fiduciary duties not to engage in activities which would constitute a conflict of interest with the Company such as competing with it or soliciting its current employees. The Employee hereby acknowledges and agrees to adhere to his continuing legal obligations to the Company Group with respect to non-solicitation, including as expressly set forth in Paragraph 3 of the Confidentiality Agreement. Employee acknowledges and agrees that even after his Board service ends, he may not use confidential or proprietary information to compete with the Company or to solicit its employees.
(e) Return of Property. The Employee agrees and acknowledges that all written materials, records, documents, electronic files and any other tangible items made by the Employee or coming into his possession during his employment by the Company Group concerning the business or affairs of the Company Group are the sole property of Cambium. The Employee represents and warrants that, as of the Termination Date: (i) he has returned to the Company all such Company Group property (and any copies thereof), including, but not limited to, all identification cards, keys, credit cards, documents, computers, cell phones, and disks, as well as all materials containing confidential information, in any form, other than as needed in connection with his service to the Company as a member of the Board of Directors; and (ii) he has destroyed (and not retained) any of the Company Group’s confidential information on his personal computer (or any other personal electronic device in his possession, custody or control); provided, however, that the Employee shall be entitled to retain the mobile telephone and laptop issued to him by the Company, following disconnection by the Company’s IT staff of all Company Group property on such laptop and mobile telephone. Employee shall be entitled to port the mobile telephone number to his own service. Notwithstanding anything in this paragraph to the contrary, Employee is not required to return Company Group Property that is essential to his performance of his duties as a Board member until after his service ends at which time he must comply with this paragraph in all respects as to any Company Group Property retained for purposes of his Board service.
(f) Blue-Penciling. If, at the time of enforcement of any of the provisions of Paragraph 7 of this Agreement (or the provisions of the Employment Agreement or the Confidentiality Agreement), it shall be adjudged that the obligations, duration, scope,
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geographic area or other restrictions stated therein are unreasonable under circumstances then existing, the Employee and the Company agree that the maximum duration, scope, geographic area or other restrictions deemed reasonable under such circumstances by such court shall be substituted for the stated duration, scope, geographic area or other restrictions.
(g) Survival; Reasonableness. The Employee acknowledges and agrees that the provisions of Paragraph 7 of this Agreement (the Confidentiality Agreement) survive the termination of his employment and remain binding. The Employee further acknowledges and agrees that the provisions of Paragraph 7 of this Agreement (and the provisions of the Employment Agreement and the Confidentiality Agreement) are reasonable and necessary to protect the legitimate business interests of the Company Group.
(h) Transition Cooperation. In consideration for the payments and agreements set forth herein, Employee will cooperate in the transition of his work related to the business issues and projects Employee was involved in while employed by the Company Group and Employee will be available to provide such transitional assistance as may be requested by the Company, provided there is no interference with any other employment Employee may then have.
(j) Severability. If any term of this Agreement is to any extent invalid, illegal, or incapable of being enforced, such term shall be excluded to the extent of such invalidity, illegality, or unenforceability; all other terms hereof shall remain in full force and effect.
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THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT, UNDERSTANDS IT, AND IS VOLUNTARILY ENTERING INTO IT OF HIS OWN FREE WILL, WITHOUT DURESS OR COERCION, AFTER DUE CONSIDERATION OF ITS TERMS AND CONDITIONS.
CAMBIUM NETWORKS, INC.
By: _Robert S. Amen_______________ Name: Robert S. Amen_______________ Title: Chairman of the Board__________ Date: August 8, 2023_________________ |
ATUL BHATNAGAR
By: /s/ Atul Bhatnagar___________ Date: August 6, 2023____________________________ |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Morgan Kurk, certify that:
Date: November 3, 2023 |
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By: |
/s/ Morgan Kurk |
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Morgan Kurk |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew Bronstein, certify that:
Date: November 3, 2023 |
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By: |
/s/ Andrew P. Bronstein |
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Andrew P. Bronstein |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cambium Networks Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
Date: November 3, 2023 |
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By: |
/s/ Morgan Kurk |
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Morgan Kurk |
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Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cambium Networks Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
Date: November 3, 2023 |
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By: |
/s/ Andrew P. Bronstein |
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Andrew P. Bronstein |
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Chief Financial Officer |