Casa Systems(US:CASA)2020-07-31 12:39PART I. FINANCIAL INFORMATION Financial Statements The unaudited financial statements show significant revenue growth driven by the NetComm acquisition, alongside a narrowed net loss for the six-month period Condensed Consolidated Balance Sheets Total assets decreased slightly to $432.5 million as of June 30, 2020, driven by lower receivables and inventory, while liabilities also saw a reduction Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $149,148 | $113,638 | | Accounts receivable, net | $52,867 | $93,100 | | Inventory | $85,965 | $93,604 | | Total current assets | $304,595 | $308,443 | | Goodwill | $50,347 | $50,347 | | Total assets | $432,536 | $444,312 | | Liabilities & Equity | | | | Total current liabilities | $84,733 | $94,466 | | Long-term debt, net | $283,805 | $284,756 | | Total liabilities | $392,824 | $405,748 | | Total Stockholders' Equity | $39,712 | $38,564 | Condensed Consolidated Statements of Operations Revenue grew significantly for the three and six-month periods ended June 30, 2020, while the net loss narrowed for the six-month period Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | 6 Months 2020 | 6 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $83,350 | $52,101 | $166,973 | $87,587 | | Gross profit | $43,130 | $39,305 | $85,783 | $63,802 | | Income (loss) from operations | $1,332 | $3,743 | $(2,217) | $(10,358) | | Net (loss) income | $(3,028) | $1,291 | $(1,866) | $(14,048) | | Diluted EPS | $(0.04) | $0.01 | $(0.02) | $(0.17) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities improved substantially to $43.9 million for the first six months of 2020, driven by a decrease in accounts receivable Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $43,936 | $(31,120) | | Net cash used in investing activities | $(2,717) | $(3,764) | | Net cash used in financing activities | $(5,386) | $(2,582) | | Net increase (decrease) in cash | $35,493 | $(37,416) | Notes to Financial Statements Notes detail the NetComm acquisition, a significant tax benefit from the CARES Act, revenue disaggregation, and outstanding debt obligations - On July 1, 2019, the Company acquired NetComm Wireless Limited for $112.7 million USD, adding fixed wireless and distribution point broadband solutions to its portfolio, which resulted in goodwill of $50.3 million336468 - The CARES Act, enacted in March 2020, allowed the company to carry back Net Operating Losses (NOLs) from 2019, resulting in a recognized tax benefit of approximately $9.3 million in the first quarter of 202096 Revenue by Product Line (Six Months Ended June 30, in thousands) | Product Line | 2020 | 2019 | | :--- | :--- | :--- | | Wireless | $36,167 | $1,654 | | Fixed telecom | $41,751 | $45 | | Cable | $67,968 | $67,177 | | Total product revenue | $145,886 | $68,876 | | Service revenue | $21,087 | $18,711 | | Total revenue | $166,973 | $87,587 | - As of June 30, 2020, the company had total outstanding debt principal of $296.0 million, primarily consisting of $289.5 million in term loans and a $6.5 million mortgage loan98102112 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 60% Q2 revenue growth to the NetComm acquisition, which also lowered gross margins and increased operating expenses - The COVID-19 pandemic has resulted in increased demand for certain products, creating pressure on the supply chain, but did not significantly adversely affect financial results in the quarter167 - The acquisition of NetComm on July 1, 2019, was the primary driver of increased revenue and operating expenses, contributing $37.4 million of revenue for the three months ended June 30, 2020166175 Q2 2020 vs Q2 2019 Performance | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $83.4M | $52.1M | +60.0% | | Gross Profit | $43.1M | $39.3M | +9.8% | | Gross Margin | 51.7% | 75.4% | -23.7 p.p. | | R&D Expense | $20.7M | $18.3M | +13.3% | | SG&A Expense | $21.1M | $17.3M | +22.0% | - The company's cash and cash equivalents increased to $149.1 million as of June 30, 2020, from $113.6 million at the end of 2019, supported by strong operating cash flow of $43.9 million for the first six months of 2020200205 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates on its floating-rate debt - The company is exposed to foreign currency risk from operations outside the U.S. and uses cash flow hedges and forward contracts to mitigate the impact of currency fluctuations232233 - The company has significant floating-rate debt under its term loan facility with an outstanding balance of $289.5 million; a 10% increase in the Eurodollar rate would result in an estimated $0.3 million annual decrease in pre-tax earnings236238 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes - 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 effective242 - No changes in internal control over financial reporting occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls243 PART II. OTHER INFORMATION Legal Proceedings The company is defending four putative class action lawsuits related to its 2017 IPO and 2018 Follow-on Offering - The company is facing four putative class action lawsuits related to its December 2017 IPO and April 2018 Follow-on Offering247248249 - The complaints allege violations of the Securities Act, claiming offering documents were materially misleading; motions to dismiss are pending247248249 - As of June 30, 2020, no amounts have been accrued for these lawsuits as the company does not believe a material loss is probable250 Risk Factors New and revised risk factors address the potential impact of the COVID-19 pandemic and update the exclusive forum provisions - A new risk factor was added concerning the COVID-19 pandemic, which could negatively impact operations, supply chain, and customer demand253254 - The risk factor related to choice of forum provisions was updated following a Delaware Supreme Court ruling that upheld the validity of selecting federal district courts as the exclusive forum for Securities Act claims255257 Unregistered Sales of Equity Securities and Use of Proceeds The company has not used its 2017 IPO proceeds and repurchased 11,000 shares for approximately $33,000 in Q2 2020 - As of June 30, 2020, the company has not used any of the net proceeds from its 2017 initial public offering259 Stock Repurchases for Q2 2020 | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | Dollar Value Remaining for Purchase ($ thousands) | | :--- | :--- | :--- | :--- | | April 2020 | 11 | $3.00 | $70,208 | | May 2020 | 0 | N/A | $70,208 | | June 2020 | 0 | N/A | $70,208 | Exhibits This section indexes the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes standard exhibits such as officer certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files265266