Casa Systems(CASA) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited Q1 2020 financial statements reflect substantial revenue growth and a return to profitability Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $134,752 | $113,638 | | Accounts receivable, net | $55,013 | $93,100 | | Inventory | $81,014 | $93,604 | | Total current assets | $287,681 | $308,443 | | Total assets | $418,858 | $444,312 | | Liabilities & Equity | | | | Total current liabilities | $71,151 | $94,466 | | Long-term debt, net | $284,282 | $284,756 | | Total liabilities | $379,937 | $405,748 | | Total Stockholders' Equity | $38,921 | $38,564 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total revenue | $83,623 | $35,486 | | Gross profit | $42,653 | $24,497 | | Loss from operations | $(3,549) | $(14,101) | | Net income (loss) | $1,162 | $(15,339) | | Basic EPS | $0.01 | $(0.18) | | Diluted EPS | $0.01 | $(0.18) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $26,069 | $(13,849) | | Net cash used in investing activities | $(390) | $(1,835) | | Net cash used in financing activities | $(4,151) | $(1,095) | | Net increase (decrease) in cash | $21,120 | $(16,170) | Notes to Unaudited Condensed Consolidated Financial Statements Notes provide details on the NetComm acquisition, revenue disaggregation, tax benefits, debt, and ongoing litigation - On July 1, 2019, the Company acquired 100% of NetComm Wireless Limited for AUD $162.0 million (USD $112.7 million), expanding its portfolio into fixed wireless and distribution point broadband solutions[30][60] - The company recognized a tax benefit of approximately $9.3 million in Q1 2020 due to the CARES Act, which allows for the carryback of Net Operating Losses (NOLs) incurred in 2019[90] - As of March 31, 2020, the company had total outstanding debt of $296.8 million, primarily consisting of $290.3 million in term loans and a $6.6 million mortgage loan[92] Revenue by Geographic Region (in thousands) | Region | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | North America | $33,952 | $18,431 | | Europe, Middle East and Africa | $14,098 | $7,366 | | Asia-Pacific | $33,188 | $4,724 | | Latin America | $2,385 | $4,965 | | Total Revenue | $83,623 | $35,486 | Revenue by Product Line (in thousands) | Product Line | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Wireless | $20,657 | $228 | | Fixed telecom | $17,932 | $44 | | Cable | $35,169 | $26,381 | | Total product revenue | $73,758 | $26,653 | | Service revenue | $9,865 | $8,833 | | Total revenue | $83,623 | $35,486 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q1 2020 revenue growth from the NetComm acquisition, impacting margins and expenses, and strong liquidity - The COVID-19 pandemic did not materially adversely affect financial results or operations in Q1 2020, but management acknowledges significant uncertainty for future periods regarding potential impacts on sales channels, supply chain, and customer spending[156][157] - The acquisition of NetComm on July 1, 2019, was the primary driver of financial performance changes in Q1 2020, contributing $29.5 million in revenue and leading to shifts in product mix and gross margin[154][163] Results of Operations Q1 2020 revenue grew significantly due to the NetComm acquisition, impacting gross margin, with net income improving from a tax benefit - The product gross margin percentage decreased from 64.6% to 46.3% year-over-year, primarily due to the acquisition of NetComm, which sells hardware-based products with lower gross margins than the company's historical offerings[165] - Research and development expenses increased by 15.2% to $21.2 million, mainly due to a $2.4 million increase in personnel-related costs from the NetComm acquisition[167] - Selling, general and administrative expenses increased by 23.8% to $25.0 million, driven by higher professional services fees, partner commissions, and personnel costs related to the NetComm acquisition[169] Revenue Comparison (in thousands) | Revenue Type | Q1 2020 | Q1 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product | $73,758 | $26,653 | $47,105 | 176.7% | | Service | $9,865 | $8,833 | $1,032 | 11.7% | | Total | $83,623 | $35,486 | $48,137 | 135.7% | Liquidity and Capital Resources The company maintained strong liquidity with $134.8 million cash and $216.5 million working capital, supported by positive operating cash flow - Of the $134.8 million in cash and cash equivalents, $93.7 million was held by foreign subsidiaries as of March 31, 2020[176] - Net cash provided by operating activities was $26.1 million in Q1 2020, primarily due to a $38.0 million decrease in accounts receivable from collections[180] - Net cash used in financing activities was $4.2 million, which included $3.0 million for common stock repurchases and $0.8 million for debt principal repayments[184] Key Liquidity Metrics (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $134,752 | $113,638 | | Working capital | $216,530 | $213,977 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages foreign currency and interest rate risks through hedging, with term loan interest rates currently at their floor - The company manages foreign currency risk through derivative instruments. As of March 31, 2020, it had two cash flow hedge contracts to hedge operating cash flows denominated in Australian dollars[205][207] - The company is exposed to interest rate risk on its $290.3 million outstanding term loan. The interest rate is based on a floating Eurodollar rate with a 1.00% floor. As the rate was at the floor on March 31, 2020, further rate decreases would not impact earnings, but rate increases would[210][212] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material changes to internal controls - Based on an evaluation as of the end of the period, the Chief Executive Officer and Interim Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[215] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[216] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is defending four class action lawsuits related to its 2017 IPO and 2018 offering, with no material loss accrued - The company is facing four putative class action lawsuits related to its 2017 IPO and 2018 follow-on offering, alleging violations of the Securities Act[220][221][222] - As of March 31, 2020, no amounts have been accrued for these lawsuits as the company does not believe the likelihood of a material loss is probable[223] Item 1A. Risk Factors This section updates risk factors, including COVID-19 impacts and exclusive forum provisions for Securities Act claims - A new risk factor was added regarding the COVID-19 pandemic, which could negatively impact operations, sales channels, supply chain, and customer spending, potentially having a material adverse effect on financial results[226][227] - The risk factor concerning the exclusive forum provision was updated to reflect a March 2020 Delaware Supreme Court ruling that upheld the facial validity of federal forum selection provisions for Securities Act claims[228][230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company had not used its $79.3 million IPO proceeds and repurchased 1.2 million shares for $3.0 million in Q1 2020 - As of March 31, 2020, the company had not used any of the $79.3 million in net proceeds from its 2017 initial public offering[232] - As of March 31, 2020, approximately $70.2 million remained available for repurchase under the company's stock repurchase program[198][233] Stock Repurchases in Q1 2020 | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2020 | — | — | | Feb 2020 | — | — | | Mar 2020 | 1,216 | $2.45 | Item 6. Exhibits This section indexes exhibits filed with the Form 10-Q, including corporate governance documents and SOX certifications - Lists all exhibits filed with the quarterly report, including certifications pursuant to the Sarbanes-Oxley Act of 2002 and XBRL data files[238]