Airspan Networks (MIMO) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's Q1 2022 financials show a widened net loss, decreased assets, and negative operating cash flow Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $133,625 | $157,152 | | Total Assets | $170,942 | $195,499 | | Total Current Liabilities | $71,933 | $73,617 | | Total Liabilities | $210,368 | $211,751 | | Total Stockholders' Deficit | $(39,426) | $(16,252) | Condensed Consolidated Statements of Operations (in thousands) | Account | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total Revenues | $37,564 | $45,935 | | Gross Profit | $12,069 | $20,944 | | Loss from Operations | $(25,224) | $(5,544) | | Net Loss | $(29,738) | $(13,549) | | Loss per Share | $(0.41) | $(0.23) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(14,880) | $12,914 | | Net cash used in investing activities | $(807) | $(1,390) | | Net cash (used in) provided by financing activities | $(1,320) | $647 | | Net (decrease) increase in cash | $(17,007) | $12,171 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail liquidity risks, significant customer concentration, debt amendments, and a tenfold increase in share-based compensation - The company designs and produces wireless network equipment for 4G and 5G networks, serving public telecommunications providers and private networks[18][19][20] - Management has identified liquidity risks, as the company is heavily investing in 5G R&D and expects to continue using cash from operations[25][26] - The company has significant customer and supplier concentration, with the top three customers accounting for 73.1% of revenue and five suppliers providing 88.1% of goods for resale in Q1 2022[29][30] - In March 2022, the conversion price of Senior Secured Convertible Notes was amended, decreasing from $12.50 to $8.00 per share[68][69] - As of March 31, 2022, the company had $66.9 million in commitments with its main subcontract manufacturers, with most deliveries expected in 2022[78] - The company is in a legal dispute with Sprint over a $3.87 million indemnity demand related to a patent infringement case[80] - Share-based compensation expense increased significantly to $6.6 million in Q1 2022, compared to $0.7 million in Q1 2021[95] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2022 saw an 18.2% revenue decline and a widened net loss, driven by lower sales and higher operating expenses - The August 2021 Business Combination resulted in net proceeds of approximately $115.5 million and an increase in indebtedness of $40.7 million from new convertible notes[116][121][122] - The COVID-19 pandemic continues to disrupt supply chains, causing delayed production, extended component lead times, and increased costs[127] Geographic Revenue Breakdown | Geographic Area | Q1 2022 % of Revenue | Q1 2021 % of Revenue | | :--- | :--- | :--- | | North America | 34% | 32% | | Asia | 58% | 58% | | Europe | 2% | 3% | | Africa and the Middle East | 3% | 2% | | Latin America and the Caribbean | 3% | 5% | Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Loss | $ (29,738) | $ (13,549) | | Adjustments | | | | Interest expense, net | 4,568 | 2,438 | | Income tax (benefit) expense | (103) | 75 | | Depreciation and amortization | 1,121 | 1,053 | | Share-based compensation | 6,564 | 661 | | Change in fair value of warrants | (457) | 3,972 | | Adjusted EBITDA | $ (18,045) | $ (5,350) | Results of Operations Q1 2022 revenue fell 18.2% to $37.6 million due to lower product and service sales, while operating expenses rose sharply - Revenue from products and software licenses decreased by $5.1 million YoY, primarily due to lower sales in Asia Pacific and Latin America[151] - Maintenance, warranty, and services revenue decreased by $3.2 million YoY, mainly due to a terminated contract with a North American customer[152] - General and administrative expenses increased by $6.7 million YoY, driven by higher share-based compensation, insurance, and legal fees[157] - Net loss increased by $16.2 million to $29.7 million in Q1 2022 from $13.5 million in Q1 2021[162] Liquidity and Capital Resources The company used $14.9 million in cash from operations and expects this trend to continue due to heavy 5G R&D investment - The company used $14.9 million in cash from operating activities in Q1 2022 and expects to continue using cash due to heavy 5G R&D investment[167] - Management is taking steps to satisfy obligations and continue as a going concern, including increasing sales and implementing cost reductions[168] - Days Sales Outstanding (DSO) increased to 122 days as of March 31, 2022, from 103 days at year-end 2021[168] - As of March 31, 2022, the company had purchase commitments of $66.9 million with its subcontract manufacturers[173] Quantitative and Qualitative Disclosures About Market Risk The company is exempt from this disclosure requirement as a smaller reporting company - The company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and is not required to provide this information[186] Controls and Procedures A material weakness in revenue recognition controls rendered disclosure controls ineffective, with a remediation plan underway - A material weakness was identified in internal control over financial reporting related to the cutoff of revenue recognition[187] - Due to the material weakness, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2022[190] - Management is implementing a remediation plan, which includes new process-level and management review controls to ensure revenue cutoff accuracy[188] PART II. OTHER INFORMATION Legal Proceedings The company is in a legal dispute with Sprint over a $3.87 million indemnification demand, which it is contesting - The company is involved in a legal dispute with Sprint, which demanded $3,870,000 for indemnification, a claim the company contests[80][194] Risk Factors No material changes to risk factors have occurred since the last Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10–K for the year ended December 31, 2021[195] Other Items (Unregistered Sales, Defaults, Mine Safety, Other Info) Items concerning unregistered sales, defaults, mine safety, and other information are not applicable for this period - Items 2, 3, 4, and 5 of Part II are not applicable for this reporting period[196][197][198][199] Exhibits This section lists filed exhibits, including key amendments to debt agreements and required officer certifications - The report includes several exhibits, most notably the amendments to the company's credit agreement and convertible note agreement with Fortress[202]