10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from

Commission File Number: 001-38952

 

CAMBIUM NETWORKS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Cayman Islands

 

Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

c/o Cambium Networks, Inc.

 

 

2000 Center Drive, Suite East A401

Hoffman Estates, Illinois 60192

 

(345) 814-7600

(Address of principal executive offices, including zip code)

 

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Ordinary shares, $0.0001 par value

 

CMBM

 

Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 6, 2024 , the registrant had 27,895,741 shares of ordinary shares, $0.0001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

Condensed Consolidated Statements of Shareholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

Signatures

34

 

 

i


 

Note regarding forward-looking statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, forward-looking statements may be identified by terms such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, they should not be relied upon as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

the unpredictability of our operating results;
our ability to successfully comply with or obtain a waiver of compliance with the financial covenants under our secured credit facilities;
the sufficiency of our cash resources and needs for additional financing;
our ability to predict and respond to emerging technological trends and network operators' changing needs;
our ability to forecast future demand or the level of inventory in our channel, which could adversely affect our commitments to our suppliers and our channel partners' ability to effectively manage inventory of our products, timely resell our products or estimate expected future demand;
our ability to manage inventory and the risk of excess or obsolete inventory in our channel;
the impact of competitive pressures on the development of new products;
risks caused by political tensions around the world including the current war in Ukraine as well as tensions between the United States and China and events in Israel and Gaza;
the strength of the United States dollar and the impact on the cost of our products globally;
current or future unfavorable economic conditions, both domestically and in our foreign markets, including the risk of a global or localized recessions;
our limited or sole source suppliers' inability to acquire or produce third-party components to build our products and the impact of supply shortages, extended lead times or changes in supply of components and other parts required to manufacture our products;
our reliance on third-party manufacturers, which subjects us to risks of product delivery delays and reduced control over product costs and quality;
our reliance on distributors and value-added resellers for the substantial majority of our sales;
the inability of our third-party logistics and warehousing providers to deliver products to our channel partners and network operators in a timely manner;
our distributors' and channel partners' inability to attract new network operators or sell additional products to network operators that currently use our products;
the technological complexity of our products, which may contain undetected hardware defects or software bugs or subject our products to the risks of ransomware or malware or other cyber attacks;
our channel partners' inability to effectively manage inventory of our products, timely resell our products or estimate expected future demand;
credit risk of our channel partners, which could adversely affect their ability to purchase or pay for our products;
the impact of any material weaknesses in and our ability to maintain an effective system of internal controls, produce timely and accurate financial statements or comply with applicable regulations;
the impact of actual or threatened health epidemics and other outbreaks;
our reliance on the availability of third-party licenses; and

ii


 

our inability to obtain intellectual property protections for our products.

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

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

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Cambium Networks Corporation

Condensed Consolidated Balance Sheets

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

 

 

 

December 31,

 

 

March 31,

 

 

 

 

2023

 

 

2024

 

 

 

 

 

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash

 

$

18,710

 

 

$

38,711

 

 

Receivables, net of credit losses of $283 and $860

 

 

64,103

 

 

58,157

 

 

Inventories, net

 

 

66,878

 

 

55,593

 

 

Income taxes receivable

 

 

222

 

 

300

 

 

Prepaid expenses

 

 

6,589

 

 

 

12,752

 

 

Other current assets

 

 

6,069

 

 

 

6,334

 

 

Total current assets

 

 

162,571

 

 

171,847

 

 

Noncurrent assets

 

 

 

 

 

 

 

Property and equipment, net

 

 

12,879

 

 

13,741

 

 

Software, net

 

 

11,985

 

 

 

12,220

 

 

Operating lease assets

 

 

7,894

 

 

 

7,327

 

 

Intangible assets, net

 

 

7,675

 

 

 

7,300

 

 

Goodwill

 

 

9,842

 

 

 

9,842

 

 

Deferred tax assets, net

 

 

3,694

 

 

 

 

Other noncurrent assets

 

 

1,335

 

 

 

1,280

 

 

TOTAL ASSETS

 

$

217,875

 

 

$

223,557

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

19,120

 

 

$

15,783

 

 

Accrued liabilities

 

 

47,069

 

 

42,511

 

 

Employee compensation

 

 

5,071

 

 

 

4,229

 

 

Current portion of long-term debt, net

 

 

3,186

 

 

 

2,514

 

 

Deferred revenues

 

 

8,765

 

 

8,510

 

 

Other current liabilities

 

 

13,117

 

 

13,734

 

 

Total current liabilities

 

 

96,328

 

 

 

87,281

 

 

Noncurrent liabilities

 

 

 

 

 

 

 

Long-term debt, net

 

 

21,926

 

 

61,315

 

 

Deferred revenues

 

 

10,473

 

 

10,074

 

 

Noncurrent operating lease liabilities

 

 

6,595

 

 

 

6,409

 

 

Other noncurrent liabilities

 

 

1,619

 

 

 

1,688

 

 

Total liabilities

 

 

136,941

 

 

166,767

 

 

Shareholders' equity

 

 

 

 

 

 

 

Share capital; $0.0001 par value; 500,000,000 shares authorized at December 31, 2023 and March 31, 2024; 28,095,144 shares issued and 27,834,908 outstanding at December 31, 2023 and 28,158,001 shares issued and 27,892,848 outstanding at March 31, 2024

 

 

3

 

 

 

3

 

 

Additional paid in capital

 

 

152,768

 

 

 

155,137

 

 

Treasury shares, at cost, 260,236 shares at December 31, 2023 and 265,153 shares at March 31, 2024

 

 

(5,624

)

 

 

(5,646

)

 

Accumulated deficit

 

 

(64,598

)

 

 

(91,045

)

 

Accumulated other comprehensive loss

 

 

(1,615

)

 

 

(1,659

)

 

Total shareholders' equity

 

 

80,934

 

 

 

56,790

 

 

TOTAL LIABILITIES AND EQUITY

 

$

217,875

 

 

$

223,557

 

 

 

 

 

 

 

 

 

 

 

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

1


 

Cambium Networks Corporation

Condensed Consolidated Statements of Operations

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

(unaudited)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Revenues

 

$

77,401

 

$

42,337

 

Cost of revenues

 

 

37,741

 

 

33,652

 

Gross profit

 

 

39,660

 

 

8,685

 

Operating expenses

 

 

 

 

 

 

Research and development

 

 

14,262

 

 

10,799

 

Sales and marketing

 

 

11,670

 

 

 

9,721

 

General and administrative

 

 

6,667

 

 

 

7,510

 

Depreciation and amortization

 

 

1,496

 

 

 

1,633

 

Total operating expenses

 

 

34,095

 

 

29,663

 

Operating income (loss)

 

 

5,565

 

 

(20,978

)

Interest expense, net

 

 

597

 

 

 

881

 

Other expense, net

 

 

154

 

 

 

59

 

Income (loss) before income taxes

 

 

4,814

 

 

(21,918

)

Provision for income taxes

 

 

538

 

 

4,529

 

Net income (loss)

 

$

4,276

 

 

$

(26,447

)

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

(0.95

)

Diluted

 

$

0.15

 

 

$

(0.95

)

Weighted-average number of shares outstanding to compute net earnings (loss) per share

 

 

 

 

 

 

Basic

 

 

27,341,013

 

 

 

27,849,604

 

Diluted

 

 

28,452,855

 

 

 

27,849,604

 

 

 

 

 

 

 

 

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

2


 

Cambium Networks Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Net income (loss)

 

$

4,276

 

 

$

(26,447

)

Other comprehensive loss

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

86

 

 

 

(44

)

Comprehensive income (loss)

 

$

4,362

 

 

$

(26,491

)

 

 

 

 

 

 

 

 

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

3


 

Cambium Networks Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31, 2023

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
paid in
capital

 

 

Treasury
shares

 

 

Accumulated equity

 

 

Accumulated
other
comprehensive
loss

 

 

Total
shareholders'
equity

 

Balance at December 31, 2022

 

 

27,313

 

 

$

3

 

 

$

138,997

 

 

$

(4,922

)

 

$

12,822

 

 

$

(1,527

)

 

$

145,373

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,276

 

 

 

 

 

 

4,276

 

Share-based compensation

 

 

 

 

 

 

 

 

2,625

 

 

 

 

 

 

 

 

 

 

 

 

2,625

 

Issuance of vested shares

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares withheld for net settlement

 

 

(12

)

 

 

 

 

 

 

 

 

(211

)

 

 

 

 

 

 

 

 

(211

)

Proceeds from exercise of share options

 

 

51

 

 

 

 

 

 

387

 

 

 

 

 

 

 

 

 

 

 

 

387

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86

 

 

 

86

 

Balance at March 31, 2023

 

 

27,397

 

 

$

3

 

 

$

142,009

 

 

$

(5,133

)

 

$

17,098

 

 

$

(1,441

)

 

$

152,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2024

 

 

 

Share Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
paid in
capital

 

 

Treasury
shares

 

 

Accumulated deficit

 

 

Accumulated
other
comprehensive
loss

 

 

Total
shareholders'
equity

 

Balance at December 31, 2023

 

 

27,835

 

 

$

3

 

 

$

152,768

 

 

$

(5,624

)

 

$

(64,598

)

 

$

(1,615

)

 

$

80,934

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,447

)

 

 

 

 

 

(26,447

)

Share-based compensation

 

 

 

 

 

 

 

 

2,369

 

 

 

 

 

 

 

 

 

 

 

 

2,369

 

Issuance of vested shares

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury shares withheld for net settlement

 

 

(5

)

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

 

 

 

(22

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

(44

)

Balance at March 31, 2024

 

 

27,893

 

 

$

3

 

 

$

155,137

 

 

$

(5,646

)

 

$

(91,045

)

 

$

(1,659

)

 

$

56,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


 

Cambium Networks Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

4,276

 

 

$

(26,447

)

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

 

 

 

 

 

 

Depreciation

 

 

1,058

 

 

 

1,149

 

Amortization of software and intangible assets

 

 

1,037

 

 

 

1,387

 

Amortization of debt issuance costs

 

 

75

 

 

 

77

 

Share-based compensation

 

 

2,875

 

 

 

2,586

 

Deferred income taxes

 

 

(1,519

)

 

 

3,694

 

Provision for inventory excess and obsolescence

 

 

1,336

 

 

 

6,175

 

Other

 

 

(231

)

 

 

687

 

Change in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(8,973

)

 

 

2,385

 

Inventories

 

 

(12,601

)

 

 

5,110

 

Prepaid expenses

 

 

1,069

 

 

 

(6,161

)

Accounts payable

 

 

(1,474

)

 

 

(3,581

)

Accrued employee compensation

 

 

(584

)

 

 

(1,018

)

Accrued liabilities

 

 

3,738

 

 

 

(1,571

)

Other assets and liabilities

 

 

3,959

 

 

 

(119

)

Net cash used in operating activities

 

 

(5,959

)

 

 

(15,647

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,569

)

 

 

(1,767

)

Purchases of software

 

 

(1,537

)

 

 

(1,250

)

Net cash used in investing activities

 

 

(3,106

)

 

 

(3,017

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of revolver debt

 

 

 

 

 

40,000

 

Repayment of term loan

 

 

(656

)

 

 

(1,313

)

Taxes paid from shares withheld

 

 

(148

)

 

 

(15

)

Proceeds from share option exercises

 

 

387

 

 

 

 

Net cash (used in) provided by financing activities

 

 

(417

)

 

 

38,672

 

Effect of exchange rate on cash

 

 

16

 

 

 

(7

)

Net (decrease) increase in cash

 

 

(9,466

)

 

 

20,001

 

Cash, beginning of period

 

 

48,162

 

 

 

18,710

 

Cash, end of period

 

$

38,696

 

 

$

38,711

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid

 

$

204

 

 

$

116

 

Interest paid

 

$

412

 

 

$

1,030

 

 

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 Market.

Cambium Networks Corporation and its wholly owned subsidiaries design, develop, and manufacture fixed 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 March 31, 2024, and for the three-month periods ended March 31, 2023 and 2024, and the related notes are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements, and, in the opinion of management, reflect all adjustments, which comprise only normal recurring adjustments necessary to state fairly the Company’s financial position as of March 31, 2024 and results of operations for the three-month periods ended March 31, 2023 and 2024 and cash flows for the three-month periods ended March 31, 2023 and 2024. The condensed consolidated balance sheet as of December 31, 2023 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, 2023 included in the Company’s annual report on Form 10-K and filed with the SEC on March 15, 2024. The results of operations for the three-month period ended March 31, 2024 are not necessarily indicative of the operating results to be expected for the full year.

Going Concern

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

As of March 31, 2024 and through the date of filing this Quarterly Report, the Company was in compliance with all of its payment obligations and the financial covenants under its Amended Credit Agreement. The Company’s obligations under the Amended Credit Agreement do not mature and become due and payable until November 17, 2026. Please refer to Note 6. Debt, regarding the Company’s debt outstanding under its credit facilities with Bank of America.

The Company is actively taking actions to improve its profitability and ensure future compliance with applicable financial covenants, including acceleration of collection of receivables, deferral of expenditures, cost reductions to align the Company’s cost structure with current revenue levels and sales of excess inventory. In addition, the Company continues to focus on operating efficiency and reducing discretionary spending. The Company believes these actions, together with its existing cash balances, provide it with the financial flexibility needed to meet its obligations as they come due over the next twelve months. However, this conclusion depends in part on the Company’s expectations regarding macro-conditions in the markets in which it competes, customer acceptance and purchases of the Company’s products, buying decisions by the Company’s distributors and other factors that are not within the Company’s control. Based on the Company’s current forecasts, the Company is projecting future noncompliance with its financial covenants within the next twelve months, which would result in a non-payment event of default under the Amended Credit Agreement. Such a default would afford the lenders thereunder the right to declare the amounts outstanding thereunder immediately due and payable, and the Company may not be able to obtain a waiver of such a default or otherwise refinance such indebtedness. Due to these uncertainties, management concluded that substantial doubt exists with respect to the Company's ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued.

6


 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Update to Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies disclosed in the 2023 Form 10-K, Part II, Item 8.

Recently issued accounting standards not yet adopted

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required in an entity's income tax rate reconciliation table and requires disclosure of income taxes paid in both U.S. and foreign jurisdictions. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendment requires disclosures of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit of loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The new guidance also requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, this guidance should be applied retrospectively to all prior periods presented. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission's ("SEC") Disclosure Update and Simplification Initiative. The amendments in this update require modification of certain disclosure and presentation requirements for a variety of ASU topics in response to the SEC's Release No. 33-10532. The effective date for each amended topic in the ASC is the date on which the SEC's removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendment will be removed from the Codification and not become effective. Early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.

7


 

Note 2. Balance sheet components

Inventories, net

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

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2024

 

 

 

 

 

 

(unaudited)

 

Finished goods

 

$

69,428

 

 

$

64,312

 

Raw materials

 

 

21,271

 

 

 

21,141

 

Gross inventory

 

 

90,699

 

 

 

85,453

 

Less: Excess and obsolescence reserve

 

 

(23,821

)

 

 

(29,860

)

Inventories, net

 

$

66,878

 

 

$

55,593

 

 

The decrease in gross inventory was primarily in our PMP and Enterprise products. 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, 2023 and March 31, 2024, excess and obsolescence reserves were $23.8 million and $29.9 million, respectively. The increase in the reserve in the first quarter of 2024 was mostly driven by lower demand, mostly for PMP products.

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2024

 

 

 

 

 

 

(unaudited)

 

Accrued goods and services

 

$

7,787

 

 

$

6,479

 

Accrued loss on supplier commitments

 

 

12,949

 

 

 

13,667

 

Accrued inventory purchases

 

 

2,768

 

 

 

3,385

 

Accrued customer rebates

 

 

23,052

 

 

 

18,784

 

Other

 

 

513

 

 

 

196

 

Accrued liabilities

 

$

47,069

 

 

$

42,511

 

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
December 31,

 

 

Three Months ended March 31,

 

 

 

2023

 

 

2024

 

 

 

 

 

 

(unaudited)

 

Beginning balance

 

$

1,651

 

 

$

1,484

 

Fulfillment of assumed acquisition warranty

 

 

(178

)

 

 

(3

)

Provision increase, net

 

 

11

 

 

 

113

 

Ending balance

 

$

1,484

 

 

$

1,594

 

At March 31, 2024, $1.3 million is included in Other current liabilities and $0.3 million is included in Other noncurrent liabilities on the Company’s condensed consolidated balance sheet.

8


 

Note 3. Property and equipment

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

 

 

 

 

December 31,

 

 

March 31,

 

 

 

Useful Life

 

2023

 

 

2024

 

 

 

 

 

 

 

 

(unaudited)

 

Equipment and tooling

 

3 to 5 years

 

$

37,678

 

 

$

39,554

 

Computer equipment

 

3 to 5 years

 

 

5,546

 

 

 

5,671

 

Furniture and fixtures

 

5 to 10 years

 

 

853

 

 

 

856

 

Leasehold improvements

 

2 to 3 years

 

 

518

 

 

 

518

 

Total cost

 

 

 

 

44,595

 

 

 

46,599

 

Less: Accumulated depreciation

 

 

 

 

(31,716

)

 

 

(32,858

)

Property and equipment, net

 

 

 

$

12,879

 

 

$

13,741

 

 

 

 

 

 

 

 

 

 

Total depreciation expense was $1.1 million and $1.1 million for the three-month periods ended March 31, 2023 and 2024, respectively.

Note 4. Software

Software consisted of the following (in thousands):

 

 

 

 

December 31, 2023

 

 

March 31, 2024

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Useful Life

 

Gross carrying amount

 

 

Accumulated amortization

 

 

Net balance

 

 

Gross carrying amount

 

 

Accumulated amortization

 

 

Net balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired and Software for internal use

 

3 to 7 years

 

$

16,814

 

 

$

(15,696

)

 

$

1,118

 

 

$

16,886

 

 

$

(15,804

)

 

$

1,082

 

Software marketed for external sale

 

3 years

 

 

17,563

 

 

 

(6,696

)

 

 

10,867

 

 

 

18,737

 

 

 

(7,599

)

 

 

11,138

 

Total

 

 

 

$

34,377

 

 

$

(22,392

)

 

$

11,985

 

 

$

35,623

 

 

$

(23,403

)

 

$

12,220

 

Amortization of acquired and software for internal use is computed using the straight-line method over an estimated useful life of generally three to seven years. Amortization expense recognized on acquired and software for internal use is reflected in depreciation and amortization in the condensed consolidated statements of operations. Amortization expense was $0.1 million and $0.1 million for the three-month periods ended March 31, 2023 and 2024, respectively.

Amortization expense recognized on software to be sold or marketed externally was $0.6 million and $0.9 million for the three-month periods ended March 31, 2023 and 2024, respectively, and is included in cost of revenues on the condensed consolidated statements of operations.

Based on capitalized software assets at March 31, 2024, estimated amortization expense in future fiscal years is as follows (unaudited and in thousands):

Year ending December 31,

 

Acquired and internal use software

 

 

Software
marketed for
external use

 

 

Total

 

2024 (April - December)

 

$

348

 

 

$

2,914

 

 

$

3,262

 

2025

 

 

416

 

 

 

3,795

 

 

 

4,211

 

2026

 

 

301

 

 

 

2,797

 

 

 

3,098

 

2027

 

 

17

 

 

 

1,314

 

 

 

1,331

 

2028

 

 

 

 

 

318

 

 

 

318

 

Thereafter

 

 

 

 

 

 

 

 

 

Total amortization

 

$

1,082

 

 

$

11,138

 

 

$

12,220

 

 

9


 

 

Note 5. Goodwill and Intangible Assets

There was no change in the carrying amount of goodwill or intangible assets during the three-month period ended March 31, 2024 (unaudited).

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 March 31, 2024 included an assessment of excess inventories, supply chain constraints, and macroeconomic conditions and 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. As of December 31, 2023 and March 31, 2024, the Company's market capitalization exceeded its net assets by 106% and 112%, respectively. The Company continues to monitor market capitalization and assess potential goodwill impairment triggering events, including continued impact of slower demand, higher channel inventory and sustained decrease in its share price. If triggering events occur, the Company will perform a goodwill impairment assessment that may indicate impairment in a future period.

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, 2023

 

 

March 31, 2024

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Useful Life

 

Gross
carrying
 amount

 

 

Accumulated
amortization

 

 

Net balance

 

 

Gross
carrying
 amount

 

 

Accumulated
amortization

 

 

Net balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

5 to 18 years

 

$

19,300

 

 

$

(11,625

)

 

$

7,675

 

 

$

19,300

 

 

$

(12,000

)

 

$

7,300

 

Total

 

 

 

$

19,300

 

 

$

(11,625

)

 

$

7,675

 

 

$

19,300

 

 

$

(12,000

)

 

$

7,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 $0.4 million and $0.4 million for the three-month periods ended March 31, 2023 and 2024, respectively.

Based on capitalized intangible assets as of March 31, 2024, estimated amortization expense amounts in future fiscal years are as follows (unaudited and in thousands):

Year ending December 31,

 

Amortization

 

2024 (April - December)

 

$

1,123

 

2025

 

 

1,498

 

2026

 

 

1,498

 

2027

 

 

1,498

 

2028

 

 

1,498

 

Thereafter

 

 

185

 

Total amortization

 

$

7,300

 

 

10


 

Note 6. Debt

As of March 31, 2024, the Company had $24.1 million outstanding under its term loan facility and $40.0 million outstanding under its revolving credit facility. As of March 31, 2024, the Company had available $5.0 million under its revolving credit facility (unaudited).

The following table reflects the current and noncurrent portions of the term loan and revolving credit facilities at December 31, 2023 and March 31, 2024 (in thousands):

 

 

December 31,

 

 

March 31,

 

 

 

2023

 

 

2024

 

 

 

 

 

 

(unaudited)

 

Term loan facility

 

$

25,406

 

 

$

24,094

 

Revolving credit facility

 

 

 

 

 

40,000

 

Less debt issuance costs

 

 

(294

)

 

 

(265

)

Total debt

 

 

25,112

 

 

 

63,829

 

Less: current portion of term facility

 

 

(3,281

)

 

 

(2,625

)

Current portion of debt issuance costs

 

 

95

 

 

 

111

 

Total long-term debt, net

 

$

21,926

 

 

$

61,315

 

As of December 31, 2023, the effective interest rate on the term loan facility was 7.69%. As of March 31, 2024, the effective interest rate on the term loan facility was 9.15% (unaudited). The increase in the interest rate is being driven by the higher applicable margin as a result of the amendment completed on December 29, 2023.

The Company borrowed $40.0 million against its revolving credit facility during the first quarter of 2024. The funds will be used for working capital and normal operations. As of March 31, 2024, the weighted-average interest rate for borrowings outstanding under the revolving credit facility was 8.67% (unaudited).

Both the term loan facility and revolving credit facility mature on November 17, 2026. Maturities on the debt, which includes both the term loan facility and the revolver credit facility, outstanding at March 31, 2024 is as follows (unaudited and in thousands):

Year ending December 31,

 

 

 

2024 (April - December)

 

$

1,969

 

2025

 

 

2,625

 

2026

 

 

59,500

 

Total

 

$

64,094

 

As of March 31, 2024, the Company was in compliance with all affirmative and negative covenants, which included its monthly liquidity covenant at each liquidity measurement date and its quarterly Consolidated EBITDA covenant (unaudited).

Net interest expense, including bank charges and amortization of debt issuance costs on the debt, was $0.6 million and $0.9 million for the three-month periods ended March 31, 2023 and 2024, respectively (unaudited). The increase in interest expense is mostly due to the increase in interest rate on the term loan facility and the addition of interest expense on the revolving credit facility.

11


 

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 100% of employee contributions to the 401(k) plan up to a maximum amount of 4% of eligible wages, which matching contributions are subject to vesting in equal annual increments over two years of service. All contributions, including the Company match, are made in cash. Contributions made by the Company under the Cambium Networks, Inc. 401(k) Plan were $0.4 million and $0.2 million for the three-month periods ended March 31, 2023 and 2024, respectively.

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 3% of eligible compensation and a company contribution rate of 5% of the employee’s basic salary. The Company contribution rate increases by 1% for each additional 1% that the employee contributes up to a maximum of 7%. Company matching contributions vest immediately and employees are always vested in their own contributions. All contributions, including the Company match, are made in cash and deposited in the participant’s account each pay period. The total contributed by the Company under this plan was $0.1 million and $0.1 million for the three-month periods ended March 31, 2023 and 2024, respectively.

Note 8. Shareholders' equity

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 1,320,000 shares, 5% of the number of the Company’s shares outstanding on the first day of such fiscal year, or an amount determined by the Board of Directors. On March 18, 2024, the Company registered 1,320,000 additional shares that may be issued under the 2019 Plan.

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 March 31, 2023 and 2024, the Company recorded corresponding income tax benefits of $0.1 million and $0.0 million, respectively.

Share-based compensation

The following table shows total share-based compensation expense for the three-month periods ended March 31, 2023 and 2024 (unaudited and in thousands):

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2024

 

Cost of revenues

 

$

56

 

 

$

33

 

Research and development

 

 

1,269

 

 

 

945

 

Sales and marketing

 

 

700

 

 

 

508

 

General and administrative

 

 

850

 

 

 

1,100

 

Total share-based compensation expense

 

$

2,875

 

 

$

2,586

 

 

12


 

Share options

The Company's time-based share options typically have a contractual term of ten years from grant date and typically vest over a four-year period. The Company recognized compensation expense associated with its time-based share options on a straight-line basis over the requisite service period.

The following is a summary of option activity for the Company’s share incentive plans for the three-month period ended March 31, 2024 (unaudited):

 

 

Options

 

 

Weighted
average
exercise
price

 

 

Weighted
Average
remaining
contractual
term (years)

 

 

Aggregate
intrinsic
value

 

Outstanding at December 31, 2023

 

 

4,689,916

 

 

$

11.98

 

 

 

7.5

 

 

$

617,623

 

Options granted

 

 

775,625

 

 

$