Casa Systems Inc - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 September 30, 2020

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

For the transition period from __________ to _________.

Commission File Number: 001-38324

Casa Systems, Inc.

(Exact name of registrant as specified in its charter)

Delaware		75-3108867
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
100 Old River Road Andover, Massachusetts		01810
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (978) 688-6706

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	CASA	The Nasdaq Stock Market LLC

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, a 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 October 23, 2020, the registrant had 83,524,202 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine months ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine months ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2020 and 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
Signatures		47

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, you can identify forward-looking statements by terms such as “may,” “might,” “should,” “expects,” “plans,” “anticipates,” “would,” “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 on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements 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:

•

our ability to anticipate technological shifts;

•

our ability to generate positive returns on our research and development;

•

changes in the rate of broadband service providers’ deployment of, and investment in, ultra-broadband network capabilities;

•

the lack of predictability of revenue due to lengthy sales cycles and the volatility in capital expenditure budgets of broadband service providers;

•

our ability to maintain and expand gross profit and net income;

•

the sufficiency of our cash resources and needs for additional financing;

•

our ability to further penetrate our existing customer base and obtain new customers;

•

changes in our pricing policies, whether initiated by us or as a result of competition;

•

the amount and timing of operating costs and capital expenditures related to the operation and expansion of our business;

•

the extent of the effects of the COVID-19 pandemic on the Company, which is highly uncertain and will depend on future developments;

•

the potential impact of the COVID-19 pandemic on our suppliers, our business operations and our customers;

•

the actual or rumored timing and success of new product and service introductions by us or our competitors or any other change in the competitive landscape of our industry, including consolidation among our competitors or customers;

•

our ability to successfully expand our business domestically and internationally, including our ability to integrate and generate potential synergies from our acquisition of NetComm Wireless Limited;

•

insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, which could disrupt our supply chain;

•

our inability to fulfill our customers’ orders due to supply chain delays, access to key commodities or technologies or events that impact our manufacturers or their suppliers;

•

future accounting pronouncements or changes in our accounting policies;

•

stock-based compensation expense;

•

our overall effective tax rate, including impacts caused by the relative proportion of foreign to U.S. income, the amount and timing of certain employee stock-based compensation transactions, changes in the valuation of our deferred tax assets and any new legislation or regulatory developments;

•

increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates;

•

the costs and possible outcomes of any legal actions or proceedings against us, including those described under “Part II, Item 1—Legal Proceedings”;

•

general economic conditions, both domestically and in foreign markets;

•

our ability to obtain and maintain intellectual property protection for our products; and

•

our use of proceeds from our initial public offering.

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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)

	September 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	156,191		$	113,638
Accounts receivable, net of provision for doubtful accounts of $38 and $20 as of September 30, 2020 and December 31, 2019, respectively		65,968			93,100
Inventory		98,482			93,604
Prepaid expenses and other current assets		3,738			4,884
Prepaid income taxes		12,980			3,217
Total current assets		337,359			308,443
Property and equipment, net		31,081			35,910
Accounts receivable, net of current portion		156			575
Deferred tax assets		1,168			69
Goodwill		50,177			50,347
Intangible assets, net		36,869			41,148
Other assets		5,954			7,820
Total assets	$	462,764		$	444,312
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	38,763		$	25,890
Accrued expenses and other current liabilities		34,368			34,567
Accrued income taxes		5,158			—
Deferred revenue		22,771			25,485
Current portion of long-term debt, net of unamortized debt issuance costs		1,893			8,524
Total current liabilities		102,953			94,466
Accrued income taxes, net of current portion		9,683			12,381
Deferred tax liabilities		8,259			8,993
Deferred revenue, net of current portion		3,326			4,583
Long-term debt, net of current portion and unamortized debt issuance costs		289,831			284,756
Other liabilities, net of current portion		834			569
Total liabilities		414,886			405,748
Commitments and contingencies (Note 18)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized as of September 30, 2020 and December 31, 2019; no shares issued and outstanding as of September 30, 2020 and December 31, 2019		—			—
Common stock, $0.001 par value; 500,000 shares authorized as of September 30, 2020 and December 31, 2019; 85,246 and 84,828 shares issued as of September 30, 2020 and December 31, 2019, respectively; 83,524 and 84,333 shares outstanding as of September 30, 2020 and December 31, 2019, respectively		85			84
Treasury stock, at cost; 1,722 and 495 shares at September 30, 2020 and December 31, 2019, respectively		(4,826	)		(1,795	)
Additional paid-in capital		179,382			169,561
Accumulated other comprehensive loss		(1,306	)		(2,222	)
Accumulated deficit		(125,457	)		(127,064	)
Total stockholders’ equity		47,878			38,564
Total liabilities and stockholders’ equity	$	462,764		$	444,312

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue:
Product	$	93,741		$	71,319		$	239,627		$	140,196
Service		12,006			10,497			33,093			29,208
Total revenue		105,747			81,816			272,720			169,404
Cost of revenue:
Product		51,947			40,578			130,602			60,983
Service		1,206			2,024			3,741			5,404
Total cost of revenue		53,153			42,602			134,343			66,387
Gross profit		52,594			39,214			138,377			103,017
Operating expenses:
Research and development		21,823			24,158			63,722			60,823
Selling, general and administrative		21,630			23,823			67,731			61,318
Total operating expenses		43,453			47,981			131,453			122,141
Income (loss) from operations		9,141			(8,767	)		6,924			(19,124	)
Other income (expense):
Interest income		170			660			847			3,882
Interest expense		(3,771	)		(5,240	)		(12,706	)		(15,662	)
(Loss) gain on foreign currency, net		(6	)		(869	)		674			(458	)
Other income, net		338			106			435			477
Total other income (expense), net		(3,269	)		(5,343	)		(10,750	)		(11,761	)
Income (loss) before provision for (benefit from) income taxes		5,872			(14,110	)		(3,826	)		(30,885	)
Provision for (benefit from) income taxes		2,399			(5,612	)		(5,433	)		(8,339	)
Net income (loss)		3,473			(8,498	)		1,607			(22,546	)
Other comprehensive income (loss)—foreign currency translation adjustment, net of tax		1,334			(1,180	)		916			(1,113	)
Other comprehensive income (loss)—gain on foreign currency hedge, net of tax		(527	)		—			—			—
Comprehensive income (loss)	$	4,280		$	(9,678	)	$	2,523		$	(23,659	)
Net income (loss) attributable to common stockholders:
Basic and diluted	$	3,473		$	(8,498	)	$	1,607		$	(22,546	)
Net income (loss) per share attributable to common stockholders:
Basic	$	0.04		$	(0.10	)	$	0.02		$	(0.27	)
Diluted	$	0.04		$	(0.10	)	$	0.02		$	(0.27	)
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic		83,302			84,068			83,437			83,761
Diluted		85,466			84,068			85,370			83,761

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

	Common Stock				Treasury Stock					Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount			Capital		Loss			Deficit			Equity
Balances at June 30, 2020		84,856	$	85		1,722	$	(4,826	)	$	175,496	$	(2,113	)	$	(128,930	)	$	39,712
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes		389		—		—		—			390		—			—			390
Cash flow hedges		—		—		—		—			—		(527	)		—			(527	)
Foreign currency translation adjustment		—		—		—		—			—		1,334			—			1,334
Stock-based compensation		—		—		—		—			3,496		—			—			3,496
Net income		—		—		—		—			—		—			3,473			3,473
Balances at September 30, 2020		85,245	$	85		1,722	$	(4,826	)	$	179,382	$	(1,306	)	$	(125,457	)	$	47,878

	Common Stock				Treasury Stock					Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount			Capital		Loss			Deficit			Equity
Balances at January 1, 2020		84,333	$	84		495	$	(1,795	)	$	169,561	$	(2,222	)	$	(127,064	)	$	38,564
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes		912		1		—		—			316		—			—			317
Foreign currency translation adjustment		—		—		—		—			—		916			—			916
Repurchases of treasury shares		—		—		1,227		(3,031	)		—		—			—			(3,031	)
Stock-based compensation		—		—		—		—			9,505		—			—			9,505
Net income		—		—		—		—			—		—			1,607			1,607
Balances at September 30, 2020		85,245	$	85		1,722	$	(4,826	)	$	179,382	$	(1,306	)	$	(125,457	)	$	47,878

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(in thousands)

(Unaudited)

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balances at June 30, 2019		84,028	$	84	$	163,526	$	(1,091	)	$	(92,906	)	$	69,613
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes		176		—		304		—			—			304
Foreign currency translation adjustment, net of tax of $0		—		—		—		(1,180	)		—			(1,180	)
Stock-based compensation		—		—		2,735		—			—			2,735
Net loss		—		—		—		—			(8,498	)		(8,498	)
Balances at September 30, 2019		84,204	$	84	$	166,565	$	(2,271	)	$	(101,404	)	$	62,974

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balances at January 1, 2019		82,961	$	83	$	156,939	$	(1,158	)	$	(81,008	)	$	74,856
Exercise of stock options and common stock issued upon vesting of equity awards, net of shares withheld for employee taxes		1,243		1		1,467		—			—			1,468
Foreign currency translation adjustment, net of tax of $0		—		—		—		(1,113	)		—			(1,113	)
Effect of adopted accounting standards		—		—		—		—			2,150			2,150
Stock-based compensation		—		—		8,159		—			—			8,159
Net loss		—		—		—		—			(22,546	)		(22,546	)
Balances at September 30, 2019		84,204	$	84	$	166,565	$	(2,271	)	$	(101,404	)	$	62,974

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

CASA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
Cash flows provided by (used in) operating activities:
Net income (loss)	$	1,607		$	(22,546	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		13,660			9,903
Stock-based compensation		9,498			7,450
Deferred income taxes		(1,834	)		(14,894	)
Increase in provision for doubtful accounts		18			510
Change in provision for excess and obsolete inventory		1,290			(826	)
Gain on disposal of assets		11			—
Changes in operating assets and liabilities:
Accounts receivable		27,537			33,533
Inventory		(6,617	)		(25,427	)
Prepaid expenses and other assets		3,004			(1,505	)
Prepaid income taxes		(9,763	)		—
Accounts payable		13,764			(5,557	)
Accrued expenses and other current liabilities		973			(10,346	)
Accrued income taxes		2,467			2,518
Deferred revenue		(3,971	)		(5,883	)
Net cash provided by (used in) operating activities		51,644			(33,070	)
Cash flows used in investing activities:
Purchases of property and equipment		(4,102	)		(6,725	)
Acquisition of a business, net of cash acquired		—			(109,431	)
Net cash used in investing activities		(4,102	)		(116,156	)
Cash flows used in financing activities:
Principal repayments of debt		(8,893	)		(5,992	)
Borrowings on revolving credit facility		6,500			—
Proceeds from exercise of stock options		957			2,478
Employee taxes paid related to net share settlement of equity awards		(639	)		(1,009	)
Payments of dividends and equitable adjustments		(661	)		(2,375	)
Repurchases of treasury stock		(3,031	)		—
Net cash used in financing activities		(5,767	)		(6,898	)
Effect of exchange rate changes on cash and cash equivalents		763			(900	)
Net increase (decrease) in cash, cash equivalents and restricted cash		42,538			(157,024	)
Cash, cash equivalents and restricted cash at beginning of period		114,657			281,606
Cash, cash equivalents and restricted cash at end of period ⁽¹⁾	$	157,195		$	124,582
Supplemental disclosures of cash flow information:
Cash paid for interest	$	9,226		$	14,467
Cash paid for income taxes	$	2,306		$	3,044
Supplemental disclosures of non-cash operating, investing and financing activities:
Purchases of property and equipment included in accounts payable	$	673		$	511
Unpaid equitable adjustments included in accrued expenses and other current liabilities	$	85		$	961
Release of customer incentives included in accounts receivable and accrued expenses and other current liabilities	$	132		$	5,604

(1)	See Note 2 of the accompanying notes for a reconciliation of the ending balance of cash, cash equivalents and restricted cash shown in these condensed consolidated statements of cash flows.

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

CASA SYSTEMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(Unaudited)

1. Nature of Business and Basis of Presentation

Casa Systems, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on February 28, 2003. The Company is a global communications technology company headquartered in Andover, Massachusetts and has wholly owned subsidiaries in China, France, Canada, Ireland, Spain, Colombia, the Netherlands, Hong Kong, Australia, Germany, the United Kingdom and New Zealand.

The Company offers physical, virtual and cloud-native 5G infrastructure and customer premise networking equipment for public and private high-speed data and multi-service communications networks. The Company’s core and edge convergence technology enables communications service providers and enterprises to cost-effectively and dynamically increase network speed, add bandwidth capacity and new services, reduce network complexity, and reduce operating and capital expenditures.

The Company is subject to a number of risks similar to other companies of comparable size and other companies selling and providing services to the communications service provider industry. These risks include, but are not limited to, the level of capital spending by the communications service providers, a lengthy sales cycle, dependence on the development of new products and services, unfavorable economic and market conditions, risks associated with coronavirus (COVID-19), competition from larger and more established companies, limited management resources, dependence on a limited number of contract manufacturers and suppliers, the rapidly changing nature of the technology used by the communications service providers and reliance on resellers and sales agents. Failure by the Company to anticipate or to respond adequately to technological developments in its industry, changes in customer or supplier requirements, changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of products could have a material adverse effect on the Company’s operating results, financial condition and cash flows.

On July 1, 2019, the Company acquired 100% of the equity interests in NetComm Wireless Limited (“NetComm”) for cash consideration of $161,963 Australian dollars (“AUD”) ($112,674 United States dollars (“USD”)), based on an exchange rate of USD $0.700 per AUD $1.00 on July 1, 2019) and NetComm became a wholly-owned subsidiary of the Company (the “Acquisition”). NetComm is a global leader in the development of fixed wireless and fiber-to-the-distribution-point broadband solutions, and with the Acquisition, the combined Company now offers a broad, highly competitive product portfolio for new 4G and 5G core, edge and customer premise equipment for public and private service provider and enterprise networks.

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the initial public offering, subject to specified conditions. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised, and it has different application dates for public or private companies, the Company is required to adopt the new or revised standard at or prior to the time private companies are required to adopt the new or revised standard, provided that the Company continues to be an emerging growth company. The JOBS Act provides that the decision to take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable.

The accompanying condensed consolidated balance sheet as of September 30, 2020, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 are unaudited. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are also unaudited. The accompanying condensed consolidated balance sheet as of December 31, 2019 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020 (the “Annual Report on Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K. There have been no changes to the Company’s accounting policies from those disclosed in the Annual Report on Form 10-K that would have a material impact on the Company’s condensed consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in the opinion of management, include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations and cash flows to be anticipated for the full year ending December 31, 2020 or any future period.

The accompanying condensed consolidated financial statements include the accounts and results of operations of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and judgments relied upon by management in preparing these condensed consolidated financial statements include revenue recognition, provision for doubtful accounts, reserves for excess and obsolete inventory, valuation of inventory and deferred inventory costs, the expensing and capitalization of software-related research and development costs, amortization and depreciation periods, the recoverability of net deferred tax assets, valuations of uncertain tax positions, warranty allowances, the valuation of equity instruments and stock-based compensation expense.

Although the Company regularly reassesses the assumptions underlying these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances existing at the time such estimates are made.

The emergence of COVID-19 around the world, and particularly in the United States and China, presents various risks to the Company, not all of which the Company is able to fully evaluate or even to foresee at the current time, and could have a material effect upon the estimates and judgments relied upon by management in preparing these condensed consolidated financial statements. While the COVID-19 pandemic did not significantly adversely affect the Company’s financial results and business operations in the quarter ended September 30, 2020, economic and health conditions in the United States and across most of the globe changed rapidly during, and are continuing to change after the end of the quarter. Globally, all aspects of the Company’s business remain fully operational. However, increasing demand for certain of the Company’s products has increased pressure on its supply chain which could impact continued availability of inventory requirements. The Company will continue to monitor its business very closely for any effects of COVID-19 for as long as necessary on an ongoing basis.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include all highly liquid investments maturing within three months from the date of purchase. As of September 30, 2020 and December 31, 2019, the Company’s cash and cash equivalents consisted of investments in certificates of deposit and money market mutual funds.

Restricted cash as of September 30, 2020 and December 31, 2019 consisted of a certificate of deposit of $1,004 and $1,019, respectively, pledged as collateral for a stand-by letter of credit required to support a contractual obligation.

The following table is a reconciliation of cash, cash equivalents and restricted cash included in the accompanying condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash included in the accompanying condensed consolidated statements of cash flows:

	September 30, 2020		September 30, 2019
Cash and cash equivalents	$	156,191	$	123,570
Restricted cash included in other assets		1,004		1,012
	$	157,195	$	124,582

Accounts Receivable

Accounts receivable are presented net of a provision for doubtful accounts, which is an estimate of amounts that may not be collectible. Accounts receivable for customer contracts with customary payment terms, which are one year or less, are recorded at invoiced amounts and do not bear interest. The Company generally does not require collateral, but the Company may, in certain instances based on its credit assessment, require full or partial prepayment prior to shipment.

In limited instances, for certain customers and/or for certain transactions, the Company provides extended payment terms that are considered significant financing components. These extended payment terms allow the customer to pay for the purchased equipment in monthly, other periodic or lump-sum payments over a period of one to five years. In certain circumstances, the receivables may be collateralized by the underlying assets over the payment period. Payments due beyond 12 months from the balance sheet date are recorded as non-current assets.

Accounts receivable as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
Current portion of accounts receivable, net:
Accounts receivable, net	$	64,972	$	91,273
Accounts receivable, extended payment terms		996		1,827
		65,968		93,100
Accounts receivable, net of current portion:
Accounts receivable, extended payment terms		156		575
	$	66,124	$	93,675

The Company performs ongoing credit evaluations of its customers and, if necessary, provides a provision for doubtful accounts and expected losses. When assessing and recording its provision for doubtful accounts, the Company evaluates the age of its accounts receivable, current economic trends, creditworthiness of the customers, customer payment history, and other specific customer and transaction information. The Company writes off accounts receivable against the provision when it determines a balance is uncollectible and no longer actively pursues collection of the receivable. Adjustments to the provision for doubtful accounts are recorded as selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss).

As of September 30, 2020 and December 31, 2019, the Company concluded that all amounts due under extended payment terms were collectible and no reserve for credit losses was recorded. During the nine months ended September 30, 2020 and 2019, the Company did not provide a reserve for credit losses and did not write off any uncollectible receivables due under extended payment terms.

Concentration of Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Cash and cash equivalents consist of demand deposits, savings accounts, money market mutual funds, and certificates of deposit with financial institutions, which may exceed Federal Deposit Insurance Corporation limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Significant customers are those that represent 10% or more of revenue or accounts receivable and are set forth in the following tables:

	Revenue						Revenue
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Customer A	*			*			*				15	%
Customer B		13	%		11	%	*			*
Customer D	*				13	%	*				12	%
Customer E		32	%		20	%		27	%	*

	Accounts Receivable, Net
	September 30, 2020			December 31, 2019
Customer A	*				11	%
Customer B		20	%	*
Customer C	*				14	%
Customer E		14	%	*
Customer F	*				19	%
Customer G		14	%	*

*	Less than 10% of total

Certain of the components and subassemblies included in the Company’s products are obtained from a single source or a limited group of suppliers. In addition, the Company primarily relies on a limited number of third parties to manufacture certain components of its products. Although the Company seeks to reduce dependence on those limited sources of suppliers and manufacturers, the partial or complete loss of certain of these sources could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.

Goodwill and Acquired Intangible Assets

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired as of the acquisition date. Goodwill has been recorded in connection with the acquisition of NetComm on July 1, 2019 (refer to Note 3). The Company tests goodwill for impairment on an annual basis and between annual tests when impairment indicators are identified, and goodwill is written down when impaired. As of September 30, 2020, the Company considered potential impairment indicators of goodwill and noted no indicators of impairment.

The Company performs its annual goodwill impairment test during its fourth quarter. For its annual goodwill impairment test, the Company operates under one reporting unit and the fair value of its reporting unit has been determined based on the Company’s enterprise value. As part of the annual goodwill impairment test, the Company has the option to perform a qualitative assessment to determine whether further impairment testing is necessary. Examples of events and circumstances that might indicate that the reporting unit’s fair value is less than its carrying amount include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as a sustained decrease in the stock price on either an absolute basis or relative to peers. If, as a result of its qualitative assessment, it is more likely than not (i.e., greater than 50% chance) that the fair value of the Company’s reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required.

The Company's intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives, ranging from three to ten years. The Company evaluates the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. The Company considered potential impairment indicators of acquired intangible assets at September 30, 2020 and noted no indicators of impairment.

Derivative Instruments

The Company has transactions and balances denominated in currencies other than the U.S. dollar. Most of these transactions or balances are denominated in Euros and Australian dollars. The Company has historically entered into foreign exchange contracts to reduce its exposure to currency fluctuations. Historically, these transactions have not qualified for hedge accounting. However, in March 2020, the Company entered into two forward contracts, both of which were settled prior to September 30, 2020, to hedge against the impact of foreign currency fluctuations on certain forecasted operating expenses. These instruments qualified for hedge accounting as cash flow hedges, and were appropriately designated as such, thus permitting the application of special hedge accounting under ASC 815, Derivatives and Hedging, which states that changes in the market value of the hedging instrument are accounted for within stockholder’s equity as accumulated other comprehensive loss, until such time as the hedged cash flows take place. Upon utilization of the hedge instrument for the designated cash flows, the appropriate amounts are reclassified from accumulated other comprehensive loss to the relevant line items within the Statement of Operations for the period. For further information, please refer to Note 9, “Derivative Instruments”.

Impact of Recently Adopted Accounting Standards

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted ASU 2018-07 as of January 1, 2020 and such adoption did not have a material effect on its condensed consolidated financial statements.

Impact of Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): Amendments to FASB Accounting Standards Codification (“ASU 2016-02”), which replaces the existing guidance for leases. ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, the arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. This guidance will become effective for private companies, and emerging growth companies that choose to take advantage of the extended transition periods, for annual reporting periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company has begun planning for adoption by implementing a new lease accounting software and by working to establish additional changes to internal processes to comply with all requirements upon adoption. The standard allows for, and the Company plans on using, a modified retrospective approach with comparatives under ASC 840, where entities would recognize a cumulative effect to retained earnings at the date of adoption without restating prior period balances or disclosure. Management is continuing to assess the impact of ASU 2016-02 on the Company’s condensed consolidated financial statements and the accompanying notes thereto.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance is intended to provide more decision-useful information about expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The main provisions include presenting financial assets measured at amortized cost at the amount expected to be collected, which is net of an allowance for expected credit losses, and recording credit losses related to available-for-sale securities through an allowance for credit losses. The effective dates for the amendments in ASU 2016-13 were updated in ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and as such ASU 2016-13 will become effective for private companies, and emerging growth companies that choose to take advantage of the extended transition periods, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods, and must be applied using a modified retrospective approach. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

Other

Other than the disclosures above, there have been no changes to the significant accounting policies disclosed in Note 2 “Summary of Significant Accounting Policies” to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

3. Business Acquisition

On July 1, 2019, the Company acquired 100% of the equity interests in NetComm for cash consideration of $161,963 AUD ($112,674 USD, based on an exchange rate of USD $0.700 per AUD $1.00 on July 1, 2019) and NetComm became a wholly-owned subsidiary of the Company. The Acquisition was accounted for under the acquisition method. The total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. The fair value assigned to the tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions provided by management. Goodwill is not amortized but instead is tested for impairment at least annually.

NetComm is a global leader in the development of fixed wireless and fiber-to-the-distribution-point broadband solutions. With the Acquisition, the combined Company now offers a broad, highly competitive product portfolio for new 4G and 5G fixed wireless access products and customer premise equipment for public and private service provider and enterprise networks. This factor contributed to a purchase price in excess of fair value of NetComm’s net tangible and intangible assets, leading to the recognition of goodwill.

The total purchase price was allocated to NetComm’s net tangible and intangible assets based upon their estimated fair values as of the date of Acquisition. NetComm’s cash and cash equivalents balance at the Acquisition date was $3,243; as such, total consideration net of cash acquired is $109,431. NetComm’s existing debt of approximately $3,507 as of the Acquisition date has been accounted for as an assumed liability. All contractual accounts receivable as of July 1, 2019, which totaled $18,142, have been collected as of September 30, 2020. Based upon the purchase price and the valuation, the allocation of the total purchase price is as follows:

	Purchase Price Allocation
Assets acquired
Fair value of tangible assets:
Accounts receivable	$	18,142
Inventory		24,138
Prepaid expenses and other current assets		2,240
Property and equipment		8,010
Deferred tax assets		365
Other assets		13
Goodwill		50,177
Identifiable intangible assets		44,000
Total assets acquired	$	147,085
Liabilities assumed
Accounts payable	$	(9,719	)
Accrued expenses		(13,178	)
Accrued income taxes		(140	)
Deferred tax liabilities		(10,621	)
Current portion of long-term debt		(3,507	)
Other liabilities		(489	)
Total liabilities assumed	$	(37,654	)
Net assets acquired	$	109,431

The allocation of the purchase price and the estimated useful lives associated with certain assets is as follows:

	Amount		Estimated Useful Life
Net tangible assets	$	15,254		—
Identifiable intangible assets:
Developed technology		25,000	7 years
Customer relationships		18,000	10 years
Trade name		1,000	3 years
Goodwill		50,177		—
Total purchase price	$	109,431

Intangible assets of $44,000 have been allocated to identifiable intangible assets consisting of developed technology, amortized over seven years using a straight-line amortization method; customer relationships, amortized over ten years using a straight-line amortization method; and a trade name, amortized over three years using a straight-line amortization method. The weighted–average life of the identifiable intangible assets recognized from the Acquisition was 8.2 years.

The Acquisition accounting has resulted in goodwill of $50,177. Various factors contributed to the establishment of the goodwill, including: the strategic benefit of expanding the breadth of the Company’s product offerings; the value of NetComm’s highly trained work force; the expected revenue growth over time that is attributable to increased market penetration from future products and customers, and cross-selling by the sales force; and the synergies expected to result from reducing redundant infrastructure such as corporate costs and field operations. The goodwill acquired in the Acquisition is not deductible for tax purposes.

4. Goodwill and Intangible Assets

Intangible assets, net consisted of the following at September 30, 2020 and December 31, 2019:

	Cost		Accumulated Amortization			Net Balance
Developed Technology	$	25,000	$	(4,464	)	$	20,536
Customer Relationships		18,000		(2,250	)		15,750
Trade Name		1,000		(417	)		583
Totals as of September 30, 2020	$	44,000	$	(7,131	)	$	36,869

	Cost		Accumulated Amortization			Net Balance
Developed Technology	$	25,000	$	(1,786	)	$	23,214
Customer Relationships		18,000		(900	)		17,100
Trade Name		1,000		(166	)		834
Totals as of December 31, 2019	$	44,000	$	(2,852	)	$	41,148

As of September 30, 2020, amortization expense on existing intangible assets for the next five years and beyond is as follows:

Year Ending December 31,
2020	$	1,426
2021		5,704
2022		5,538
2023		5,371
2024		5,371
Thereafter		13,459
	$	36,869

A summary of amortization expense recorded during the three and nine months ended September 30, 2020 and 2019 is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Product cost of revenue	$	893	$	893	$	2,679	$	893
Selling, general and administrative		533		533		1,600		533
Totals	$	1,426	$	1,426	$	4,279	$	1,426

5. Inventory

Inventory as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
Raw materials	$	43,269	$	19,821
Work in process		—		17
Finished goods:
Manufactured finished goods		47,658		69,503
Deferred inventory costs		7,555		4,263
	$	98,482	$	93,604

6. Property and Equipment

Property and equipment as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020			December 31, 2019
Computers and purchased software	$	23,654		$	22,294
Leasehold improvements		4,444			4,380
Furniture and fixtures		2,976			2,794
Machinery and equipment		41,121			40,002
Land		3,091			3,091
Building		4,765			4,765
Building improvements		7,243			6,776
Trial systems at customers’ sites		5,836			6,039
		93,130			90,141
Less: Accumulated depreciation and amortization		(62,049	)		(54,231	)
	$	31,081		$	35,910

During the nine months ended September 30, 2020 and 2019, the Company transferred trial systems into inventory from property and equipment with values of $690 and $191, respectively, net of transfers of trial systems to cost of revenue. In addition, the Company transferred $766 and $650 of equipment into inventory from property and equipment during the nine months ended September 30, 2020 and 2019, respectively.

Depreciation and amortization expense on property and equipment totaled $2,968 and $2,369 for the three months ended September 30, 2020 and 2019, respectively, and $9,370 and $8,477 for the nine months ended September 30, 2020 and 2019, respectively.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
Accrued compensation and related taxes	$	17,486	$	18,540
Accrued warranty		2,399		2,448
Dividends and equitable adjustments payable (see Note 12)		85		750
Accrued customer incentives		30		233
Other accrued expenses		14,368		12,596
	$	34,368	$	34,567

Accrued Warranty

Substantially all of the Company’s products are covered by warranties for software and hardware for periods ranging from 90 days to one year. In addition, in conjunction with customers’ renewals of maintenance and support contracts, the Company offers an extended warranty for periods typically of one to three years for agreed-upon fees. In the event of a failure of a hardware product or software covered by these warranties, the Company must repair or replace the software or hardware or, if those remedies are insufficient, and at the discretion of the Company, provide a refund. The Company’s warranty reserve, which is included in accrued expenses and other current liabilities in the condensed consolidated balance sheets, reflects estimated material, labor and other costs related to potential or actual software and hardware warranty claims for which the Company expects to incur an obligation. The Company’s estimates of anticipated rates of warranty claims and the costs associated therewith are primarily based on historical information and future forecasts. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. If the historical data used to calculate the adequacy of the warranty reserve are not indicative of future requirements, additional or reduced warranty reserves may be required.

A summary of changes in the amount reserved for warranty costs for the nine months ended September 30, 2020 and 2019 is as follows:

	Nine Months Ended September 30,
	2020			2019
Warranty reserve at beginning of period	$	2,448		$	926
Provisions		2,054			2,286
Acquired warranty reserve		—			1,867
Charges		(2,103	)		(2,510	)
Warranty reserve at end of period	$	2,399		$	2,569

8. Fair Value Measurements

The following tables present information about the fair value of the Company’s financial assets and liabilities as of September 30, 2020 and December 31, 2019 and indicate the level of the fair value hierarchy utilized to determine such fair values:

	Fair Value Measurements as of September 30, 2020 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit—restricted cash	$	—	$	1,004	$	—	$	1,004
Money market mutual funds		107,587		—		—		107,587
	$	107,587	$	1,004	$	—	$	108,591
Liabilities:
SARs	$	—	$	—	$	257	$	257
	$	—	$	—	$	257	$	257

	Fair Value Measurements as of December 31, 2019 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Certificates of deposit	$	—	$	10,933	$	—	$	10,933
Certificates of deposit—restricted cash		—		1,019		—		1,019
Money market mutual funds		53,763		—		—		53,763
Foreign currency forward contracts		—		23		—		23
	$	53,763	$	11,975	$	—	$	65,738
Liabilities:
SARs	$	—	$	—	$	264	$	264
Foreign currency forward contracts		—		50		—		50
	$	—	$	50	$	264	$	314

During the nine months ended September 30, 2020 and 2019, there were no transfers between Level 1, Level 2 and Level 3.

There were no changes to the valuation techniques used to measure asset and liability fair values on a recurring basis during the nine months ended September 30, 2020 from those included in the Company’s consolidated financial statements for the year ended December 31, 2019. The following table provides a summary of changes in the fair values of the Company’s stock appreciation rights (“SARs”) liability, for which fair value is determined by Level 3 inputs:

	Nine Months Ended September 30,
	2020			2019
Fair value at beginning of period	$	264		$	1,387
Change in fair value		(7	)		(709	)
Exercises		—			—
Fair value at end of period	$	257		$	678

9. Derivative Instruments

The Company has certain international customers that are billed in foreign currencies. To mitigate the volatility related to fluctuations in the foreign exchange rates for accounts receivable denominated in foreign currencies, the Company enters into foreign currency forward contracts. As of September 30, 2020, no foreign currency forward contracts were outstanding. As of December 31, 2019, the Company had foreign currency forward contracts outstanding with notional amounts totaling 500 Euros and 900 USD related to the Company’s Australian subsidiary which matured during the first quarter of 2020.

The Company’s foreign currency forward contracts described above economically hedged certain risks but were not designated as hedges for financial reporting purposes, and accordingly, all changes in the fair value of the derivative instruments were recorded as unrealized foreign currency transaction gains or losses and were included in the condensed consolidated statements of operations and comprehensive income (loss) as a component of other income (expense). The Company records derivative instruments in the condensed consolidated balance sheet at their fair values. As of September 30, 2020, the Company recorded no asset relating to outstanding foreign currency forward contracts and as of December 31, 2019, had recorded an asset of $23 which was included in prepaid expenses and other current assets in the condensed consolidated balance sheets. As of September 30, 2020, the Company recorded no liability relating to outstanding foreign currency forward contracts and as of December 31, 2019, had recorded a liability of $50, related to outstanding foreign currency forward contracts, which was included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.

The Company also faces exposure to foreign currency exchange rate fluctuations, as a certain portion of its expenses are denominated in currencies other than U.S. Dollars. In certain instances, we utilize forward contracts to hedge against foreign currency fluctuations. These contracts are used to minimize foreign gains or losses, as the gains or losses on the derivative are intended to offset the losses or gains on the underlying exposure. We do not engage in foreign currency speculation.

The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. The Company may enter into cash flow hedges which utilize foreign currency forward contracts to hedge specific forecasted transactions of the Company's foreign subsidiaries with the goal of protecting our budgeted expenses against foreign currency exchange rate changes compared to our budgeted rates.

During the three months ended September 30, 2020, the Company settled one cash flow hedge with notional amounts of 5,000 AUD to hedge certain Australian Dollar cash flows incurred during the period. The amount of gain reclassified from other comprehensive income (loss) for the three months ended September 30, 2020 was $527. The full amount of the fair value of the derivative on the settlement date of $725 has been recognized proportionately as $57 cost of goods sold, $353 research and development expense and $315 selling, general and administrative expense in the condensed consolidated statement of comprehensive income for the three months ended September 30, 2020.

During the nine months ended September 30, 2020, the Company settled two cash flow hedges with notional amounts of 8,500 AUD and 5,000 AUD to hedge certain Australian Dollar cash flows incurred during the period. The amount of gain reclassified from other comprehensive income (loss) for the nine months ended September 30, 2020 was $752. The full amount of the fair value of the derivatives on the settlement date of $1,613 has been recognized proportionately as $124 cost of goods sold, $890 research and development expense and $599 selling, general and administrative expense in the condensed consolidated statement of comprehensive income for the nine months ended September 30, 2020. The Company did not have any cash flow hedges outstanding as of September 30, 2020 and December 31, 2019.

10. Income Taxes

The Company’s effective income tax rate was 40.9% and 39.8% for the three months ended September 30, 2020 and 2019, respectively, and was 142.0% and 27.0% for the nine months ended September 30, 2020 and 2019, respectively. The provision for (benefit from) income taxes was $2,399 and $(5,612) for the three months ended September 30, 2020 and 2019, respectively, and was $(5,433) and $(8,339) for the nine months ended September 30, 2020 and 2019, respectively. The change in the provision for (benefit from) income taxes for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the recognition of the benefit from the CARES Act, the recognition of a benefit from the final Regulations under IRC for Section 163(j) and the full valuation allowance against the deferred tax assets in the United States. The change to the income tax provision for the three months ended September 30, 2020 compared to the income tax benefit for the three months ended September 30, 2019 is primarily due to geographical mix of profits, the recognition of a benefit from the final regulations under IRC Section 163(j), as well as a full valuation allowance against the deferred tax assets in the United States.

The Company determines its estimated annual effective tax rate at the end of each interim period based on estimated pre-tax income (loss) and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income (loss) at the end of each interim period with certain adjustments. The tax effects of significant unusual or extraordinary items are reflected as discrete adjustments in the periods in which they occur. The Company’s estimated annual effective tax rate can change based on the mix of jurisdictional pre-tax income (loss) and other factors. However, if the Company is unable to make a reliable estimate of its annual effective tax rate, then the actual effective tax rate for the year to date period may be the best estimate. For each of the three and nine months ended September 30, 2020 and 2019, the Company determined that its annual effective tax rate approach would provide for a reliable estimate and therefore used this method to calculate its tax provision.

The effective income tax rate for the three and nine months ended September 30, 2020 and 2019 differed from the federal statutory rate primarily due to the benefit related to the carryback of taxable losses in the United States as well as geographical mix of earnings and related foreign tax rate differential, permanent differences, research and development tax credits, foreign tax credits, valuation allowance and withholding taxes. Permanent differences primarily included global intangible low-taxed income, Australian research and development expenditures claim and excess tax benefit from stock-based transactions.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Accordingly, applicable provisions of the CARES Act were reflected in the tax provision for the three months ended March 31, 2020. The CARES Act, among other provisions, permits net operating losses (“NOLs”) incurred in the years ended December 31, 2020, 2019 and 2018 to be carried back to reduce 100% of taxable income in the five preceding taxable years. The Company continues to evaluate certain aspects of these provisions but has determined that its NOL incurred in 2019 may be carried back to 2014, and accordingly recognized an estimated benefit of approximately $9,310 in the three months ended March 31, 2020, which was included in prepaid income taxes in the condensed consolidated balance sheet as of March 31, 2020 . On July 28, 2020, the U.S. Treasury Department and IRS collectively, released final regulation for Section 163(j). The Company has applied these final regulations under the Internal Revenue Code (“IRC”) related to its 2019 tax year in its tax provision for the quarter ended September 30, 2020 and has recognized a benefit of approximately $1,240 in the three months ended September 30, 2020.

11. Debt

The aggregate principal amount of debt outstanding as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,		December 31,
	2020		2019
Term loan	$	288,750	$	291,000
Revolving credit facility		6,500		—
Mortgage loan		—		6,644
Total principal amount of debt outstanding	$	295,250	$	297,644

Current and non-current debt obligations reflected in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,			December 31,
	2020			2019
Current liabilities:
Term loan	$	3,000		$	3,000
Mortgage loan		—			6,644
Current portion of principal payment obligations		3,000			9,644
Unamortized debt issuance costs, current portion		(1,107	)		(1,120	)
Current portion of long-term debt, net of unamortized debt issuance costs	$	1,893		$	8,524
Non-current liabilities:
Term loan	$	285,750		$	288,000
Revolving credit facility		6,500			—
Non-current portion of principal payment obligations		292,250			288,000
Unamortized debt issuance costs, non-current portion		(2,419	)		(3,244	)
Long-term debt, net of current portion and unamortized debt issuance costs	$	289,831		$	284,756

As of September 30, 2020, aggregate minimum future principal payments of the Company’s debt are summarized as follows:

Year Ending December 31,
2020	$	750
2021		9,500
2022		3,000
2023		282,000
Thereafter		—
	$	295,250

Term Loan and Revolving Credit Facilities

On December 20, 2016, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, various lenders and JPMorgan Chase Bank, N.A. and Barclays Bank PLC providing for (i) a term loan facility of $300,000 and (ii) a revolving credit facility of up to $25,000 in revolving credit loans and letters of credit.

As of September 30, 2020 and December 31, 2019, $288,750 and $291,000 in principal amount, respectively, were outstanding under the term loan facility (the “Term Loans”). As of September 30, 2020, the Company had outstanding borrowings under the revolving credit facility of $6,500 that were drawn down during the three months ended September 30, 2020. As of December 31, 2019, the Company had no outstanding borrowings under the revolving credit facility. As of September 30, 2020 and December 31, 2019, the Company had also used $1,461 and $1,343 of availability under the revolving credit facility for two stand-by letters of credit, one which serves as collateral to one of the Company’s customers pursuant to a contractual performance guarantee and one which serves as collateral for operating leases in Australia. In addition, the Company may, subject to certain conditions, including the consent of the administrative agent and the institutions providing such increases, increase the facilities by an unlimited amount so long as the Company is in compliance with specified leverage ratios, or otherwise by up to $70,000.

Borrowings under the facilities bear interest at a floating rate, which can be either a Eurodollar rate plus an applicable margin or, at the Company’s option, a base rate (defined as the highest of (x) the JPMorgan Chase, N.A. prime rate, (y) the federal funds effective rate, plus one-half percent (0.50%) per annum and (z) a one-month Eurodollar rate plus 1.00% per annum) plus an applicable margin. The applicable margin for borrowings under the term loan facility is 4.00% per annum for Eurodollar rate loans (subject to a 1.00% per annum interest rate floor) and 3.00% per annum for base rate loans. The applicable margin for borrowings under the revolving credit facility is 1.75% per annum for Eurodollar rate loans and 0.75% per annum for base rate loans, subject to reduction based on the Company’s maintaining of specified net leverage ratios. The interest rates payable under the facilities are subject to an increase of 2.00% per annum during the continuance of any payment default.

For Eurodollar rate loans, the Company may select interest periods of one, three or six months or, with the consent of all relevant affected lenders, twelve months. Interest will be payable at the end of the selected interest period, but no less frequently than every three months within the selected interest period. Interest on any base rate loan is not set for any specified period and is payable quarterly. The Company has the right to convert Eurodollar rate loans into base rate loans and the right to convert base rate loans into Eurodollar rate loans at its option, subject, in the case of Eurodollar rate loans, to breakage costs if the conversion is effected prior to the end of the applicable interest period. As of September 30, 2020, the interest rate on the Term Loans was 5.00% per annum, which was based on a six-month Eurodollar rate at the applicable floor of 1.00% per annum plus the applicable margin of 4.00% per annum for Eurodollar rate loans. As of December 31, 2019, the interest rate on the Term Loans was 5.80% per annum, which was based on a one-month Eurodollar rate of 1.80% per annum plus the applicable margin of 4.00% per annum for Eurodollar rate loans. As of September 30, 2020, the interest rate on the revolving credit facility was 2.12% per annum, which was based on a one-month Eurodollar rate of 0.37% per annum plus the applicable margin of 1.75% per annum for Eurodollar rate loans.

Upon entering into the term loan facility, the Company incurred debt issuance costs of $7,811, which were initially recorded as a reduction of the debt liability and are amortized to interest expense using the effective interest method from the issuance date of the Term Loan until the maturity date. Principal payments of $750 were made under the term loan facility during each of the three months ended September 30, 2020 and 2019, and principal payments of $2,250 were made under the term loan facility during each of the nine months ended September 30, 2020 and 2019. Interest expense, including the amortization of debt issuance costs, totaled $3,892 and $5,010 for the three months ended September 30, 2020 and 2019, respectively, and totaled $12,366 and $15,090 for the nine months ended September 30, 2020 and 2019, respectively.

The revolving credit facility also requires payment of quarterly commitment fees at a rate of 0.25% per annum on the difference between committed amounts and amounts actually borrowed under the facility and customary letter of credit fees. For the three months ended September 30, 2020 and 2019, interest expense related to the fee for the unused amount of the revolving credit facility totaled $11 and $13, respectively, and for the nine months ended September 30, 2020 and 2019, interest expense related to the fee for the unused amount of the revolving credit facility totaled $41 and $45, respectively.

The Term Loans mature on December 20, 2023, and the revolving credit facility matures on December 20, 2021. The Term Loans are subject to amortization in equal quarterly installments, which commenced on March 31, 2017, of principal in an annual aggregate amount equal to 1.0% of the original principal amount of the Term Loans of $300,000, with the remaining outstanding balance payable at the date of maturity.

Voluntary prepayments of principal amounts outstanding under the term loan facility are permitted at any time; however, if a prepayment of principal is made with respect to a Eurodollar loan on a date other than the last day of the applicable interest period, the Company is required to compensate the lenders for any funding losses and expenses incurred as a result of the prepayment. Prior to the revolving credit facility maturity date, funds borrowed under the revolving credit facility may be borrowed, repaid and reborrowed, without premium or penalty.

In addition, the Company is required to make mandatory prepayments under the facilities with respect to (i) 100% of the net cash proceeds from certain asset dispositions (including casualty and condemnation events) by the Company or certain of its subsidiaries, subject to certain exceptions and reinvestment provisions, (ii) 100% of the net cash proceeds from the issuance or incurrence of any additional debt by the Company or certain of its subsidiaries, subject to certain exceptions, and (iii) 50% of the Company’s excess cash flow, as defined in the credit agreement, subject to reduction upon its achievement of specified performance targets.

The facilities are secured by, among other things, a first priority security interest, subject to permitted liens, in substantially all of the Company’s assets and all of the assets of certain of its subsidiaries and a pledge of certain of the stock of certain of its subsidiaries, in each case subject to specified exceptions. The facilities contain customary affirmative and negative covenants, including certain restrictions on the Company’s ability to pay dividends, and, with respect to the revolving credit facility, a financial covenant requiring the Company to maintain a specified total net leverage ratio in the event that on the last day of any fiscal quarter the Company has utilized more than 30% of its borrowing capacity under the facility. The Company was in compliance with all covenants as of September 30, 2020. As of December 31, 2019, the Company’s net leverage ratio exceeded the maximum; however, as the Company’s utilization of the revolving credit facility did not exceed the 30% testing threshold on December 31, 2019, the Company was not in default of the revolving credit facility as a result of the Company’s net leverage ratio exceeding the maximum permitted amount. The Company was in compliance with all other applicable covenants of the facilities as of December 31, 2019.

Commercial Mortgage Loan

On July 1, 2015, the Company entered into a commercial mortgage loan agreement in the amount of $7,950 (the “Mortgage Loan”). Borrowings under the Mortgage Loan bore interest at a rate of 3.5% per annum and were repayable in 60 monthly installments of $46, consisting of principal and interest based on a 20-year amortization schedule. The remaining amount of unpaid principal under the Mortgage Loan was paid on the maturity date of July 1, 2020 utilizing the Company’s revolving credit facility. Upon entering into the Mortgage Loan, the Company incurred debt issuance cost of $45, which was initially recorded as a direct deduction from the debt liability and was being amortized to interest expense using the effective interest method from issuance date of the loan until the maturity date.

The Company made principal payments under the Mortgage Loan of $6,483 and $78 during the three months ended September 30, 2020 and 2019, respectively, and $6,644 and $234 during the nine months ended September 30, 2020 and 2019, respectively. No interest expense was incurred during the three months ended September 30, 2020. Interest expense, including the amortization of debt issuance costs, totaled $62 during the three months ended September 30, 2019 and $120 and $188 during the nine months ended September 30, 2020 and 2019, respectively.

12. Stockholders’ Equity

Special Dividends to Holders of Common and Preferred Stock

The board of directors, on five separate occasions, declared a special dividend to the holders of common stock and preferred stock of record at that time. The below table details the cash dividends declared to stockholders of each share type for each of the five special dividends, as well as the amount of dividends the Company paid in each of the nine months ended September 30, 2020 and 2019, respectively:

	Cash Dividend Declared				Dividends Paid
	per Share Type				Nine Months Ended
Dividend Declaration Date	Common		Series B and Series C Convertible Preferred		September 30, 2020		September 30, 2019
November 30, 2017	$	0.5802	$	5.8020	$	—	$	865
May 10, 2017		1.1774		11.7744		—		—
December 27, 2016		2.3306		23.3058		—		—
June 17, 2016		0.5891		5.8910		—		—
November 30, 2014		0.3835		3.8346		—		—
Total dividends paid					$	—	$	865

No dividend payments were payable as of September 30, 2020 and December 31, 2019.

In connection with these special dividends, the board of directors also approved cash payments to be made to holders of the Company’s stock options, SARs and restricted stock units (“RSUs”) as equitable adjustments to the holders of such instruments in accordance with the provisions of the Company’s equity incentive plans. These equitable adjustment payments are equal to an amount per share multiplied by the net number of shares subject to outstanding equity awards after applying the treasury stock method. The below table provides details of these equitable adjustment payments:

				Equitable Adjustment Payments
				Nine Months Ended				Equitable Adjustment Liability(1)
Dividend Declaration Dates	Equitable Adjustment per share		Year of Final Vesting	September 30, 2020		September 30, 2019		As of September 30, 2020		As of December 31, 2019
November 30, 2017	$	0.5802	2021	$	136	$	380	$	41	$	177
May 10, 2017		1.1774	2021		176		577		6		182
December 27, 2016		2.3306	2020		295		1,175		38		335
June 17, 2016		0.5891	2020		54		243		—		37
November 30, 2014		0.3835	2018		—		1		—		—
Total				$	661	$	2,376	$	85	$	731

(1)	Net of estimated forfeitures. Amounts are included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

Stock Repurchase Program

On February 21, 2019, the Company announced a stock repurchase program authorizing it to repurchase up to $75,000 of the Company’s common stock. During the nine months ended September 30, 2020, the Company repurchased 1,227 shares, for a cost of $3,031, including commissions. There were no repurchases made during the three months ended September 30, 2020 or the three and nine months ended September 30, 2019. As of September 30, 2020, $70,208 remained authorized for repurchases of the Company’s common stock under the stock repurchase program. The stock repurchase program has no expiration date and does not require us to purchase a minimum number of shares, and the Company may suspend, modify or discontinue the stock repurchase program at any time without prior notice.

13. Stock-based Compensation

2017 Stock Incentive Plan

The Company’s 2017 Stock Incentive Plan (the “2017 Plan”) provides for the Company to sell or issue common stock or restricted common stock, or to grant qualified incentive stock options, nonqualified stock options, SARs, performance-based stock units (“PSUs”), RSUs or other stock-based awards to the Company’s employees, officers, directors, advisers and outside consultants. The total number of shares authorized for issuance under the 2017 Plan was 17,177 shares as of September 30, 2020, of which 10,810 shares remained available for future grant.

Stock Options

The following table summarizes the outstanding stock option activity and a summary of information related to stock options as of and for the nine months ended September 30, 2020:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)
Outstanding at January 1, 2020		8,250		$	7.73		5.65	$	4,235
Granted		131			3.99
Exercised		(514	)		1.86
Forfeited		(649	)		8.89
Outstanding at September 30, 2020		7,218		$	7.98		5.11	$	3,028
Options exercisable at September 30, 2020		6,440		$	7.43		4.77	$	2,985
Vested or expected to vest at September 30, 2020		7,180		$	7.97		5.10	$	3,025

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Risk-free interest rate	0.4%	1.6%	0.4%–0.7%	1.6%–2.5%
Expected term (in years)	6.1	6.1	6.1	6.1–6.2
Expected volatility	31.8%	29.0%	29.3%–31.8%	29.0%–30.6%
Expected dividend yield	0.0%	0.0%	0.0%	0.0%

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2020 and 2019 was $0.98 and $2.38 per share, respectively. Cash proceeds received upon the exercise of options were $955 and $2,478 during the nine months ended September 30, 2020 and 2019, respectively. The intrinsic value of stock options exercised during the nine months ended September 30, 2020 and 2019 was $1,480 and $6,719, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

Restricted Stock Units and Performance-Based Stock Units

A summary of RSU and PSU activity under the Company’s 2011 Stock Incentive Plan (the “2011 Plan”) and the 2017 Plan for the nine months ended September 30, 2020 is as follows:

	Number of Shares			Weighted- Average Grant Date Fair Value		Aggregate Fair Value
Unvested balance at January 1, 2020		1,653		$	11.38
Granted		4,055			3.41
Vested		(548	)		11.01	$	2,279
Forfeited		(124	)		9.92
Unvested balance at September 30, 2020		5,036		$	5.03

The Company withheld 150 and 77 shares of common stock in settlement of employee tax withholding obligations due upon the vesting of RSUs during the nine months ended September 30, 2020 and 2019, respectively.

The Company granted 983 PSUs in February 2020 to certain employees that vest over a three-year period based on the achievement of performance goals and continued performance of services. The performance goals consist solely of market-based vesting conditions, determined by the Company’s level of achievement of pre-established parameters relating to the performance of the Company’s stock price as set by the Board of Directors. Vesting may occur at any time during the three-year period.

Compensation expense is based on the estimated value of the awards on the grant date, and is recognized over the period from the grant date through the expected vest dates of each vesting condition, both of which were estimated based on a Monte Carlo simulation model applying the following key assumptions:

		Grant Date Assumptions
Risk-free interest rate		1.2%
Volatility		70.0%
Dividend yield		0.0%
Cost of equity		11.0%

The actual number of shares earned upon vesting will range up to a maximum of 983 shares if all targets are achieved. For the nine months ended September 30, 2020, no shares vested.

Stock Appreciation Rights

Over time, the Company has granted SARs that allow the holder the right, upon exercise, to receive in cash the amount of the difference between the fair value of the Company’s common stock at the date of exercise and the price of the underlying common stock at the date of grant of each SAR. The SARs vest over a four-year period from the date of grant and expire ten years from the date of grant. As of September 30, 2020, 220 outstanding and fully vested SARs were exercisable with a weighted-average fair value of $1.17 per SAR. The fair value of the SAR liability as of September 30, 2020 and December 31, 2019 was $257 and $264, respectively, (see Note 8) and was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

Stock-Based Compensation Expense

Stock-based compensation expense related to stock options, RSUs, SARs and PSUs for the three and nine months ended September 30, 2020 and 2019 was classified in the condensed consolidated statements of operations and comprehensive income (loss) as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Cost of revenue	$	45	$	47	$	115	$	171
Research and development expenses		592		673		1,679		1,316
Selling, general and administrative expenses		2,845		2,171		7,704		5,963
Total stock-based compensation	$	3,482	$	2,891	$	9,498	$	7,450

During the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation of $(14) and $156, respectively, as a change in fair value of the outstanding SAR liability and recognized $3,496 and $2,735, respectively, as additional paid-in capital. During the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $(7) and $(709), respectively, as a change in the fair value of the outstanding SAR liability and recognized $9,505 and $8,159, respectively, as additional paid-in capital.

As of September 30, 2020, there was $23,774 of unrecognized compensation cost related to outstanding stock options, RSUs, SARs and PSUs, which is expected to be recognized over a weighted-average period of 2.54 years.

14. Net Income (Loss) per Share

Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020		2019			2020		2019
Numerator:
Net income (loss) attributable to common stockholders, basic and diluted	$	3,473	$	(8,498	)	$	1,607	$	(22,546	)
Denominator:
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, basic		83,302		84,068			83,437		83,761
Dilutive effect of stock options		1,125		—			1,207		—
Dilutive effect of restricted stock units		1,039		—			726		—
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders, diluted		85,466		84,068			85,370		83,761
Net income (loss) per share attributable to common stockholders:
Basic	$	0.04	$	(0.10	)	$	0.02	$	(0.27	)
Diluted	$	0.04	$	(0.10	)	$	0.02	$	(0.27	)

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the computation of diluted net income (loss) per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Options to purchase common stock		4,156		8,475		4,156		8,475
Unvested restricted stock units		1,001		1,676		1,001		1,676
Unvested performance-based stock units		983		—		983		—

15. Revenue from Contracts with Customers

Disaggregation of revenue

The Company disaggregates its revenue by product and service in the condensed consolidated statements of operations and comprehensive income (loss). Performance obligations related to product revenue are recognized at a point in time, while performance obligations related to service revenue are recognized over time. The Company also disaggregates its revenue based on geographic locations of its customers, as determined by the customer’s shipping address, summarized as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
North America:
United States	$	32,036	$	26,761	$	90,825	$	56,749
Canada		6,428		6,480		15,170		18,391
Total North America		38,464		33,241		105,995		75,140
Europe, Middle East and Africa:		6,047		8,315		27,493		28,991
Asia-Pacific:
Australia		38,889		19,280		86,848		19,280
Japan		6,565		10,664		17,765		20,531
Other		3,449		4,186		14,119		6,882
Total Asia-Pacific		48,903		34,130		118,732		46,693
Latin America		12,333		6,130		20,500		18,580
Total revenue⁽¹⁾	$	105,747	$	81,816	$	272,720	$	169,404

(1)	Other than the United States, Canada, Japan and Australia, no individual countries represented 10% or more of the Company’s total revenue for any of the periods presented.

The Company also disaggregates its revenue based on product line summarized as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Product revenue:
Wireless	$	26,825	$	20,698	$	62,992	$	22,353
Fixed telecom		34,005		17,459		75,756		17,504
Cable		32,911		33,162		100,879		100,339
Total product revenue		93,741		71,319		239,627		140,196
Service revenue		12,006		10,497		33,093		29,208
Total revenue	$	105,747	$	81,816	$	272,720	$	169,404

Costs to Obtain or Fulfill a Contract

As of September 30, 2020 and December 31, 2019, the Company had short-term capitalized contract costs of $112 and $585, respectively, which are included in prepaid expenses and other current assets and had long-term capitalized contract costs of $77 and $70, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets. During the three months ended September 30, 2020 and 2019, amortization expense associated with capitalized contract costs was $76 and $286, respectively, and during the nine months ended September 30, 2020 and 2019 was $524 and $407, respectively, all of which were recorded to selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

Contract Balances

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue when the Company satisfies its performance obligations, consistent with the above methodology. For the three and nine months ended September 30, 2020, the Company recognized $9,857 and $20,194, respectively, of revenue that was included in deferred revenue as of December 31, 2019. For the three and nine months ended September 30, 2019, the Company recognized $4,252 and $17,440, respectively, of revenue that was included in deferred revenue as of January 1, 2019.

The Company receives payments from customers based upon contractual billing terms. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. As of September 30, 2020 and December 31, 2019, the Company included contract assets of $432 and $50, respectively, which is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets.

Transaction price allocated to the remaining performance obligations

As of September 30, 2020, the aggregate remaining amount of revenue expected to be recognized related to unsatisfied or partially unsatisfied performance obligations is $26,098, which consists of deferred revenue. The Company expects approximately 87.3% of this amount to be recognized in the next twelve months with the remaining amounts to be recognized over the next two to five years.

Other Revenue Recognition Policies

The Company’s customary payment terms are generally one year or less. If the Company provides extended payment terms that represent a significant financing component, the Company adjusts the amount of promised consideration for the time value of money using its discounted rate and recognizes interest income separate from the revenue recognized on contracts with customers. During the three months ended September 30, 2020, the Company recorded interest income of $10 and during the nine months ended September 30, 2020 and 2019, the Company recorded interest income of $57 and $76, respectively, all of which were recorded in the condensed consolidated statements of operations and comprehensive income (loss). No amounts were recorded in interest income during the three months ended September 30, 2019.

When a customer contract includes future trade-in rights, which are distinct performance obligations, the Company accounts for the customer contract by recognizing the revenue on the products transferred, deferring revenue allocated to the future product based on a relative standalone selling price, and recording an asset for the value of the trade-in product to be recovered from the customer upon delivery of the future product. The Company assesses and updates these estimates each reporting period, and updates to these estimates may result in either an increase or decrease in the amount of the future product liability and product return asset. The Company recognizes revenue allocated to the future product when the product has shipped or been delivered and control has transferred. As of September 30, 2020 and December 31, 2019, there were no future product liabilities or product return assets.

16. Segment Information

The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the Company’s chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. The Company has determined that its chief operating decision maker is its President and Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and assessing financial performance. Since the Company operates as one operating segment, all required financial segment information can be found in these condensed consolidated financial statements.

The Company’s property and equipment, net by location was as follows:

	September 30, 2020		December 31, 2019
United States	$	22,714	$	25,583
China		3,044		3,277
Australia		3,096		4,041
Other		2,227		3,009
Total property and equipment, net	$	31,081	$	35,910

17. Related Parties

Employment of Rongke Xie

Rongke Xie, who serves as Deputy General Manager of Guangzhou Casa Communication Technology LTD (“Casa China”), a subsidiary of the Company, is the sister of Lucy Xie, the Company’s Senior Vice President of Operations and a member of the Company’s board of directors. Casa China paid Rongke Xie $153 and $96 in total compensation in the nine months ended September 30, 2020 and 2019, respectively, for her services as an employee.

In March 2020, February 2019 and June 2018, the Company granted to Rongke Xie 90, 8 and 5 RSUs, respectively, which vest over four annual periods. The grant-date fair value of the awards totaled $400, which will be recorded as stock-based compensation expense over the vesting period of the awards. During the three months ended September 30, 2020 and 2019, the Company recognized selling, general and administrative expenses of $25 and $12 related to these awards, and during the nine months ended September 30, 2020 and 2019, the Company recognized selling, general and administrative expenses of $62 and $34 related to these awards.

18. Commitments and Contingencies

Indemnification

The Company has, in the ordinary course of business, agreed to defend and indemnify certain customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets.

As permitted under Delaware law, the Company indemnifies its officers, directors and employees for certain events or occurrences that happen by reason of their relationship with or position held at the Company.

As of September 30, 2020 and December 31, 2019, the Company had not experienced any losses related to these indemnification obligations and no material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related liabilities were recorded in its condensed consolidated financial statements.

Litigation

On May 29, 2019 and July 3, 2019, two putative class action lawsuits, Shen v. Chen et al. and Baig v. Chen et al., were filed in the Massachusetts Superior Court against the Company, certain of its current and former executive officers and directors, Summit Partners, the Company’s largest investor, and the underwriters from the Company’s December 15, 2017 initial public offering (the “IPO”) (collectively, the “defendants”). These complaints purport to be brought on behalf of all purchasers of the Company’s common stock in and/or traceable to the IPO. The complaints generally allege that (i) each of the defendants violated Section 11 and/or Section 12(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”), because documents related to the Company’s IPO including its registration statement and prospectus were materially misleading by containing untrue statements of material fact and/or omitting to state material facts necessary to make such statements not misleading and (ii) the individual defendants and Summit Partners acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act. On August 13, 2019, the Court consolidated these actions and referred the consolidated actions to the Business Litigation Session of the Massachusetts Superior Court (the “BLS”). On September 3, 2019, the BLS accepted the consolidated action into its session for further proceedings. On November 12, 2019, the plaintiffs filed an amended shareholder class action complaint, purportedly on behalf of all purchasers of the Company’s common stock in and/or traceable to the IPO, which contains substantially similar allegations and asserts the same claims as the two initial complaints, described above. Plaintiffs seek compensatory damages, costs and expenses, including counsel and expert fees, rescission or a rescissory measure of damages, and equitable and injunctive relief. On January 14, 2020, the defendants served motions to dismiss the amended complaint, which remain pending.

On August 9, 2019, a third putative class action lawsuit, Donald Hook v. Casa Systems, Inc. et al., was filed in the Supreme Court of New York, New York County, against the Company, certain of its current and former executive officers and directors, Summit Partners, and the underwriters from the IPO. The complaint purports to be brought on behalf of all purchasers of the Company’s common stock in and/or traceable to the IPO and generally alleges that (i) each of the defendants violated Section 11 and/or Section 12(a)(2) of the Securities Act of 1933, as amended, or the Securities Act, because documents related to the IPO including its registration statement and prospectus were materially misleading by containing untrue statements of material fact and/or omitting to state material facts necessary to make such statements not misleading and (ii) the individual defendants and Summit Partners acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act. On November 22, 2019, the plaintiff filed an amended complaint, purportedly on behalf of all purchasers of the Company’s common stock in and/or traceable to the IPO, which contains substantially similar allegations as the initial complaint, described above, and asserts claims for violations of Sections 11 and 15 of the Securities Act. The plaintiff seeks compensatory damages, costs and expenses, including counsel and expert fees, rescission or a rescissory measure of damages, disgorgement, and equitable and injunctive relief. On January 21, 2020, the defendants served motions to dismiss the amended complaint, which remain pending.

On August 13, 2019, a fourth putative class action lawsuit, Panther Partners, Inc. v. Guo et al., was filed in the Supreme Court of New York, New York County, against the Company, certain of its current and former executive officers and directors, and the underwriters from the Company’s April 30, 2018 follow-on offering of common stock, (the “Follow-on Offering”). The complaint purports to be brought on behalf of all purchasers of the Company’s common stock in the Follow-on Offering and generally alleges that (i) each of the defendants, other than Abraham Pucheril, violated Section 11 of the Securities Act, and each of the defendants violated Section 12(a)(2) of the Securities Act, because documents related to the Company’s Follow-on Offering, including its registration statement and prospectus, were materially misleading by containing untrue statements of material fact and/or omitting to state material facts necessary to make such statements not misleading and (ii) the individual defendants acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act. On November 22, 2019, the plaintiff filed an amended class action complaint, purportedly on behalf of all purchasers of the Company’s common stock in the Follow-on Offering, which contains substantially similar allegations and asserts the same claims as the initial complaint, described above. The plaintiff seeks compensatory damages, costs and expenses, including counsel and expert fees, rescission or a rescissory measure of damages, and equitable and injunctive relief. On January 21, 2020, the defendants served motions to dismiss the amended complaint, which remain pending.

No amounts have been accrued for any of the putative class action lawsuits referenced above as of September 30, 2020 as the Company does not believe the likelihood of a material loss is probable. Although the ultimate outcome of these matters cannot be predicted with certainty, the resolution of any of these matters could have a material impact on the Company’s results of operations if a material loss becomes probable and estimable in a future period.

19. Subsequent Events

Facility Lease Renewal

On October 29, 2020, the Company exercised its option to extend its leased space in Lane Cove, New South Wales, Australia by renegotiating the lease (the “new Lease”) with ESR Investment Nominees 3 (Australia) Pty Limited ACN 146 630 239. The leased space will continue to be used as office and research and development space. The term of the new Lease is 36 months and will commence upon expiration of the Company’s current lease in the same building, which is scheduled to expire on January 31, 2021. Under the terms of the new Lease, the base rent, subject to certain adjustments, for all of the leased space covered by the new Lease will be approximately $86 AUD per month, (or $61 USD based on the exchange rate in effect on September 30, 2020), plus certain operating expenses and taxes, and shall increase on an annual basis as provided in the new Lease.

Related to the new Lease, the Company was required to execute a new bank guarantee in the amount of $549 AUD (or $387 USD based on the exchange rate in effect on September 30, 2020) to provide security by the Company of its obligations under the new Lease. The Company had previously executed a bank guarantee for the leased space at the beginning of the original lease in the amount of $892 AUD (or $629 USD based on the exchange rate in effect on September 30, 2020), which has now been terminated upon execution of the new Lease. The guarantees were executed utilizing availability on the Company’s revolving credit facility, leaving $17,281 of availability upon execution of the new Lease.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors.”

Overview

Our solutions are conceived, designed, and built to enable our broadband service provider customers to offer high bandwidth data services to their subscribers, and help them as they transform their networks to meet the growing demand for bandwidth and the introduction of new services. We offer physical, virtual and cloud-native 5G infrastructure and customer premise networking equipment for public and private high-speed data and multi-service communications networks. Our core and edge convergence technology enables communications service providers and enterprises to cost-effectively and dynamically increase network speed, add bandwidth capacity and new services, reduce network complexity, and reduce operating and capital expenditures.

We offer scalable solutions that can meet the evolving bandwidth needs of our customers and their subscribers. Our first installation in a service provider’s network frequently involves deploying our broadband products in only a portion of the provider’s network and, for our cable products, with only a fraction of the capacity of our products enabled at the time of initial installation. Over time, our customers have generally expanded the use of our solutions to other areas of their networks to increase network capacity. Capacity expansions are accomplished either by deploying additional systems, line cards, or the sale of additional channels through the use of software. Sales of software-based capacity expansions generate higher gross margins than hardware-based deployments.

On July 1, 2019, we completed the acquisition of NetComm Wireless Limited, or NetComm, a global leader in the development of fixed wireless and fiber-to-the-distribution-point broadband solutions. The combined company now offers a broad, highly competitive product portfolio of 4G and 5G core, edge and customer premise equipment for public and private services provider and enterprise networks.

COVID-19 Pandemic

The emergence of the coronavirus disease in 2019, or COVID-19, around the world, and particularly in the United States and China, and the accompanying responses of governments and businesses to the pandemic present various risks to us, not all of which we are able to fully evaluate or even to foresee at the current time. While the COVID-19 pandemic did not significantly adversely affect our financial results, business operations or liquidity in the quarter ended September 30, 2020, economic and health conditions in the United States and across most of the globe changed rapidly during, and are continuing to change after the end of the quarter. Globally to date, all aspects of our business remain fully operational, our work from home contingency plans have been implemented and are operating successfully. The pandemic has resulted in increased demand for certain of our products, and resulting order volumes have created additional pressure on our supply chain. To date, while the increased demand has not resulted in any material delays to our production cycle, we continue to work with our supply chain and contract manufacturers in an effort to ensure continued availability of all anticipated inventory requirements. However, we cannot at this time predict whether, or to what extent, our efforts will be successful. Additionally, we saw decreases in certain operating expenses, such as travel and trade show expense, during the three months ended September 30, 2020 due to the COVID-19 pandemic that we cannot ensure will be maintained. We intend to continue to monitor our business very closely for any effects of COVID-19 for as long as necessary on an ongoing basis.

Due to the above circumstances and as described generally in this Quarterly Report on Form 10-Q, our results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. Management cannot predict the full impact of the COVID-19 pandemic on our sales channels, supply chain, manufacturing and distribution, or on economic conditions generally, including the effects on our current and potential customers, who may curtail spending on investments in current and/or new technologies, delay new equipment evaluations and trials, and possibly delay payments based on liquidity concerns, all of which could have a material impact on our business in the future. Similarly, our supply chain and our contract manufacturers could be affected, which could cause disruptions to our ability to meet customer demand. Although we have not been materially impacted to date, we cannot predict the extent to which this may impact the future results of our operations. If COVID-19 were to cause such impacts in the future, there would likely be a material adverse impact on our financial results, liquidity and capital resource needs. Thus, the ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and dependent upon future developments, and such effects could exist for an extended period of time even after the pandemic might end.

Results of Operations

The following tables set forth our consolidated results of operations in dollar amounts and as percentage of total revenue for the periods shown:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands)						(in thousands)
Revenue:
Product	$	93,741		$	71,319		$	239,627		$	140,196
Service		12,006			10,497			33,093			29,208
Total revenue		105,747			81,816			272,720			169,404
Cost of revenue⁽¹⁾:
Product		51,947			40,578			130,602			60,983
Service		1,206			2,024			3,741			5,404
Total cost of revenue		53,153			42,602			134,343			66,387
Gross profit		52,594			39,214			138,377			103,017
Operating expenses:
Research and development⁽¹⁾		21,823			24,158			63,722			60,823
Selling, general and administrative⁽¹⁾		21,630			23,823			67,731			61,318
Total operating expenses		43,453			47,981			131,453			122,141
Income (loss) from operations		9,141			(8,767	)		6,924			(19,124	)
Other income (expense), net		(3,269	)		(5,343	)		(10,750	)		(11,761	)
Income (loss) before provision for (benefit from) income taxes		5,872			(14,110	)		(3,826	)		(30,885	)
Provision for (benefit from) income taxes		2,399			(5,612	)		(5,433	)		(8,339	)
Net income (loss)	$	3,473		$	(8,498	)	$	1,607		$	(22,546	)

(1)	Includes stock-based compensation expense related to stock options, stock appreciation rights, restricted stock units and performance-based stock units granted to employees, directors and non-employee consultants as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Cost of revenue	$	45	$	47	$	115	$	171
Research and development expense		592		673		1,679		1,316
Selling, general and administrative expense		2,845		2,171		7,704		5,963
Total stock-based compensation expense	$	3,482	$	2,891	$	9,498	$	7,450

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(as a percentage of total revenue)
Revenue:
Product		88.6	%		87.2	%		87.9	%		82.8	%
Service		11.4			12.8			12.1			17.2
Total revenue		100.0			100.0			100.0			100.0
Cost of revenue:
Product		49.1			49.6			47.9			36.0
Service		1.1			2.5			1.4			3.2
Total cost of revenue		50.3			52.1			49.3			39.2
Gross profit		49.7			47.9			50.7			60.8
Operating expenses:
Research and development		20.6			29.5			23.4			35.9
Selling, general and administrative		20.5			29.1			24.8			36.2
Total operating expenses		41.1			58.6			48.2			72.1
Income (loss) from operations		8.6			(10.7	)		2.5			(11.3	)
Other income (expense), net		(3.1	)		(6.5	)		(3.9	)		(6.9	)
Income (loss) before provision for (benefit from) income taxes		5.6			(17.2	)		(1.4	)		(18.2	)
Provision for (benefit from) income taxes		2.3			(6.9	)		(2.0	)		(4.9	)
Net income (loss)		3.3	%		(10.4	)%		0.6	%		(13.3	)%

Percentages in the table above are based on actual values. As a result, some totals may not sum due to rounding.

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

	Three Months Ended September 30,
	2020					2019					Change
	Amount		% of Total			Amount		% of Total			Amount			%
	(dollars in thousands)
Revenue:
Product	$	93,741		88.6	%	$	71,319		87.2	%	$	22,422			31.4	%
Service		12,006		11.4	%		10,497		12.8	%		1,509			14.4	%
Total revenue	$	105,747		100.0	%	$	81,816		100.0	%	$	23,931			29.2	%
Revenue by geographic region:
North America	$	38,464		36.4	%	$	33,241		40.6	%	$	5,223			15.7	%
Europe, Middle East and Africa		6,047		5.7	%		8,315		10.2	%		(2,268	)		(27.3	)%
Asia-Pacific		48,903		46.2	%		34,130		41.7	%		14,773			43.3	%
Latin America		12,333		11.7	%		6,130		7.5	%		6,203			101.2	%
Total revenue	$	105,747		100.0	%	$	81,816		100.0	%	$	23,931			29.2	%

	Three Months Ended September 30,				Change
	2020		2019		Amount			%
Product revenue:
Wireless	$	26,825	$	20,698	$	6,127			29.6	%
Fixed telecom		34,005		17,459		16,546			94.8	%
Cable		32,911		33,162		(251	)		-0.8	%
Total product revenue		93,741		71,319		22,422			31.4	%
Service revenue		12,006		10,497		1,509			14.4	%
Total revenue	$	105,747	$	81,816	$	23,931			29.2	%

For the three months ended September 30, 2020, our Wireless and Fixed telecom product revenues increased by $6,127 and $16,546, respectively. The increase in product revenue was due, in part, to the COVID-19 pandemic and the ensuing shift in demand for bandwidth which generated increased demand for our Wireless and Fixed telecom access devices. Additional increases resulted from sales of new products and sales to new customers.

The increase in service revenue was primarily due to an increase in support renewal attach rates as well as lower discounts.

The increase in revenue in the Asia-Pacific region is driven by the aforementioned increase in Wireless and Fixed telecom revenues, and our high concentration of customers in that region. Regarding Latin America, the increase in revenue is due to revenue from a significant cable system upgrade by one of our largest customers in that region.

Cost of Revenue and Gross Profit

	Three Months Ended September 30,				Change
	2020		2019		Amount			%
	(dollars in thousands)
Cost of revenue:
Product	$	51,947	$	40,578	$	11,369			28.0	%
Service		1,206		2,024		(818	)		(40.4	)%
Total cost of revenue	$	53,153	$	42,602	$	10,551			24.8	%

	Three Months Ended September 30,
	2020					2019					Change
	Amount		Gross Margin			Amount		Gross Margin			Amount		Gross Margin (bps)
	(dollars in thousands)
Gross profit:
Product	$	41,794		44.6	%	$	30,741		43.1	%	$	11,053		150
Service		10,800		90.0	%		8,473		80.7	%		2,327		930
Total gross profit	$	52,594		49.7	%	$	39,214		47.9	%	$	13,380		180

The increase in gross margin resulted from the combined net impact of product mix changes and the impact of purchase accounting adjustments in the three months ended September 30, 2019 associated with our acquisition of NetComm on July 1, 2019. Our Wireless and Fixed telecom products, which are more hardware based, generally provide lower gross margins than our cable products. Wireless and Fixed telecom comprised approximately 65% of our total product revenue for the three months ended September 30, 2020, as compared to approximately 54% for the three months ended September 30, 2019. In addition, gross margin for the three months ended September 30, 2019 was adversely impacted by the requirement to recognize inventory acquired at its fair value at the date of the acquisition, rather than at its historical cost. The result was that a one-time charge for an additional $3.2 million in costs of revenue was recognized.

The increase in service gross margin was due to a decrease in incurred professional services fees in addition to lower headcount in the three months ended September 30, 2020 as compared with the three months ended September 30, 2019.

Research and Development

	Three Months Ended September 30,						Change
	2020			2019			Amount			%
	(dollars in thousands)
Research and development	$	21,823		$	24,158		$	(2,335	)		(9.7	)%
Percentage of revenue		20.6	%		29.5	%

The decrease in research and development expense was primarily due to a $1.5 million decrease in personnel costs driven by a reduction in headcount, combined with lower employee travel in 2020 due to COVID-19, a $0.3 million decrease in purchases of research and development materials and a $0.2 million decrease in deprecation as some older assets fully depreciated.

Selling, General and Administrative

	Three Months Ended September 30,						Change
	2020			2019			Amount			%
	(dollars in thousands)
Selling, general and administrative	$	21,630		$	23,823		$	(2,193	)		(9.2	)%
Percentage of revenue		20.5	%		29.1	%

The decrease in selling, general and administrative expense was primarily driven by a decrease in acquisition costs of $1.8 million related to the acquisition of NetComm on July 1, 2019, a decrease in employee travel of $1.7 million due to COVID-19 and a $0.6 million decrease in depreciation as some older assets fully depreciated. These decreases were partially offset by a $1.5 million increase in commissions due to increased revenues in the three months ended September 30, 2020 and a bad debt recovery of $0.7 million recognized in the three months ended September 30, 2019.

Other Income (Expense), Net

	Three Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Other income (expense), net	$	(3,269	)	$	(5,343	)	$	2,074		(38.8	)%
Percentage of revenue		(3.1	)%		(6.5	)%

The change in other income (expense), net was primarily due to a $1.5 million decrease in interest expense due to decreases in both the outstanding principal balance and the interest rate on our term loan facility and a $0.9 million decrease in foreign exchange losses due to fluctuations in the Australian dollar and the China Renminbi exchange rates, partially offset by a $0.5 million decrease in interest income due to lower interest rates.

Provision for (benefit from) Income Taxes

	Three Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Provision for (benefit from) income taxes	$	2,399		$	(5,612	)	$	8,011		(142.7	)%
Effective tax rate		40.9	%		39.8	%

The change to the income tax provision for the three months ended September 30, 2020 compared to the income tax benefit for the three months ended September 30, 2019 is primarily due to geographical mix of profits, the recognition of a benefit from final regulations under IRC Section 163(j), as well as a full valuation allowance against the deferred tax assets in the United States in the three months ended September 30, 2020.

Nine months Ended September 30, 2020 Compared to the Nine months Ended September 30, 2019

	Nine Months Ended September 30,
	2020					2019					Change
	Amount		% of Total			Amount		% of Total			Amount			%
	(dollars in thousands)
Revenue:
Product	$	239,627		87.9	%	$	140,196		82.8	%	$	99,431			70.9	%
Service		33,093		12.1	%		29,208		17.2	%		3,885			13.3	%
Total revenue	$	272,720		100.0	%	$	169,404		100.0	%	$	103,316			61.0	%
Revenue by geographic region:
North America	$	105,995		38.9	%	$	75,140		44.3	%	$	30,855			41.1	%
Europe, Middle East and Africa		27,493		10.1	%		28,991		17.1	%		(1,498	)		(5.2	)%
Asia-Pacific		118,732		43.5	%		46,693		27.6	%		72,039			154.3	%
Latin America		20,500		7.5	%		18,580		11.0	%		1,920			10.3	%
Total revenue	$	272,720		100.0	%	$	169,404		100.0	%	$	103,316			61.0	%

	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
Product revenue:
Wireless	$	62,992	$	22,353	$	40,639		181.8	%
Fixed telecom		75,756		17,504		58,252		332.8	%
Cable		100,879		100,339		540		0.5	%
Total product revenue		239,627		140,196		99,431		70.9	%
Service revenue		33,093		29,208		3,885		13.3	%
Total revenue	$	272,720	$	169,404	$	103,316		61.0	%

The increase in product revenue for the nine months ended September 30, 2020, as compared with the nine months ended September 30, 2019, was primarily due to the completion of the NetComm acquisition effective July 1, 2019. Thus, revenue for the nine months ended September 30, 2020 includes revenue for the six months ended June 30, 2020 of $66.6 million, comprised of $24.8 million and $41.8 million of Wireless and Fixed telecom revenue, respectively, while the prior year period includes no NetComm revenue for the same six month period. In addition, the COVID-19 pandemic and the ensuing shift in demand for bandwidth has generated increased demand for our Wireless and Fixed telecom access devices. Further, the nine months ended September 30, 2020 included higher revenues from new products and increased sales to both new and existing customers across our Cable, Fixed telecom and Wireless products.

The increase in service revenue for the nine months ended September 30, 2020, as compared with the nine months ended September 30, 2019, was primarily due to an increase in support renewal attach rates as well as lower discounts.

The increase in revenue in the Asia-Pacific region is primarily due to the NetComm acquisition on July 1, 2019, which has a high concentration of customers in that region, as well as increased demand for our Wireless and Fixed telecom products.

Cost of Revenue and Gross Profit

	Nine Months Ended September 30,				Change
	2020		2019		Amount			%
	(dollars in thousands)
Cost of revenue:
Product	$	130,602	$	60,983	$	69,619			114.2	%
Service		3,741		5,404		(1,663	)		(30.8	)%
Total cost of revenue	$	134,343	$	66,387	$	67,956			102.4	%

	Nine Months Ended September 30,
	2020					2019					Change
	Amount		Gross Margin			Amount		Gross Margin			Amount		Gross Margin (bps)
	(dollars in thousands)
Gross profit:
Product	$	109,025		45.5	%	$	79,213		56.5	%	$	29,812		(1,100	)
Service		29,352		88.7	%		23,804		81.5	%		5,548		720
Total gross profit	$	138,377		50.7	%	$	103,017		60.8	%	$	35,360		(1,010	)

The decrease in product gross margin percentage was primarily due to the acquisition of NetComm, which sells hardware-based products that provide lower gross margins than our historical product offerings. In addition, this decrease is partially offset by the one-time charge described above of $3.2 million recognized in the nine months ended September 30, 2019 associated with accounting for the acquisition of NetComm on July 1, 2019.

The increase in service gross margin was due to a decrease of incurred professional services fees in addition to lower headcount.

Research and Development

	Nine Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Research and development	$	63,722		$	60,823		$	2,899		4.8	%
Percentage of revenue		23.4	%		35.9	%

The increase in research and development expense was primarily due to the acquisition of NetComm, including a $2.2 million increase in personnel-related costs, net of the impact of headcount reductions made in the three months ended December 31, 2019 and reduced travel in 2020 due to COVID-19. In addition, there was a $0.5 million increase in purchases of research and development materials also due to the acquisition of NetComm.

Selling, General and Administrative

	Nine Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Selling, general and administrative	$	67,731		$	61,318		$	6,413		10.5	%
Percentage of revenue		24.8	%		36.2	%

The increase in selling, general and administrative expense was primarily due to increased personnel-related costs of $5.1 million primarily due to the acquisition of NetComm and increased commissions resulting from increased revenues during the nine months ended September 30, 2020, offset by a reduction in travel expenses due to COVID-19. Other increases primarily related to our acquisition of NetComm including $2.9 million for professional services and $3.4 million for facilities and depreciation and amortization expenses. These increases were partially offset by a reduction of $3.3 million in acquisition costs related to the NetComm acquisition on July 1, 2019, a reduction of $1.0 million in trade show expenses in 2020 as a result of COVID-19 and a $0.5 million reduction in bad debt expense.

Other Income (Expense), Net

	Nine Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Other income (expense), net	$	(10,750	)	$	(11,761	)	$	1,011		(8.6	)%
Percentage of revenue		(3.9	)%		(6.9	)%

The change in other income (expense), net was primarily due to a $3.0 million decrease in interest income due to a decrease in our portfolio of cash equivalents balances following our acquisition of NetComm on July 1, 2019, offset by a $3.0 million decrease in interest expense due to decreases in both the outstanding principal balance and the interest rate on our term loan facility. Foreign currency exchange loss (gain) resulted in an increase to other income of $1.1 million primarily due to fluctuations in the Australian dollar and the China Renminbi exchange rates.

Benefit from Income Taxes

	Nine Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Benefit from income taxes	$	(5,433	)	$	(8,339	)	$	2,906		(34.8	)%
Effective tax rate		142.0	%		27.0	%

The change in the benefit from income taxes for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the recognition of the benefit from the CARES Act, the recognition of a benefit from final regulations under IRC Section 163(j), as well as the full valuation allowance against the deferred tax assets in the United States in the three months ended September 30, 2020.

Liquidity and Capital Resources

Since our inception, we have primarily funded our operations through issuances of shares of our convertible preferred stock, our credit agreement from our term loan facility, our initial public offering and cash flows from operations.

On February 21, 2019, we entered into a definitive agreement to acquire 100% of the equity interests in NetComm. On July 1, 2019, we closed the acquisition of NetComm for cash consideration of $162.0 million Australian dollars, or AUD ($112.7 million United States dollars, or USD, based on an exchange rate of USD $0.700 per AUD $1.00 on July 1, 2019), using amounts included in restricted cash as of June 30, 2019. In addition, we recognized advisory fee expenses of $1.5 million which became due and payable upon the closing of the acquisition.

The following tables set forth our cash and cash equivalents and working capital as of September 30, 2020 and December 31, 2019 and our cash flows for the nine months ended September 30, 2020 and 2019:

	September 30, 2020		December 31, 2019
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	156,191	$	113,638
Working capital		234,406		213,977

	Nine Months Ended September 30,
	2020			2019
	(in thousands)
Consolidated Cash Flow Data:
Net cash provided by (used in) operating activities	$	51,644		$	(33,070	)
Net cash used in investing activities		(4,102	)		(116,156	)
Net cash used in financing activities		(5,767	)		(6,898	)

As of September 30, 2020, we had cash and cash equivalents of $156.2 million and net accounts receivable of $66.1 million. We maintain a $25.0 million revolving credit facility, under which we have drawn $6.5 million and $1.5 million of availability was used as collateral for two stand-by letters of credit, leaving availability of $17.0 million as of September 30, 2020.

Of our total cash and cash equivalents of $156.2 million as of September 30, 2020, $130.7 million was held by our foreign subsidiaries. The Tax Cuts and Jobs Act, or TCJA, established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. As of September 30, 2020, we had $18.2 million of

undistributed earnings in China that are not indefinitely reinvested. The remaining unremitted earnings of our foreign subsidiaries are either indefinitely reinvested or could be remitted with an immaterial tax cost.

We believe our existing cash and cash equivalents, anticipated cash flows from future operations and liquidity available from our revolving credit facility will be sufficient to meet our working capital and capital expenditure needs and debt service obligations for at least the next 12 months. 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 on research and development efforts and other business initiatives, purchases of capital equipment to support our growth, the expansion of sales and marketing activities, expansion of our business through acquisitions or our investments in complementary products, technologies or businesses, the use of working capital to purchase additional inventory, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

Cash Flows

Operating Activities

Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections and by purchases and shipments of inventory. Our primary uses of cash from operating activities have been for personnel costs and investment in our selling, general and administrative departments and research and development. Future cash outflows from operating activities may increase as a result of further investment in research and development and selling, general and administrative requirements, and increases in personnel costs as we continue to enhance our products and introduce new products in an effort to continue to expand our business.

During the nine months ended September 30, 2020, cash provided by operating activities was $51.6 million, primarily resulting from our net income of $1.6 million, net cash provided by changes in our operating assets and liabilities of $27.4 million and net non-cash adjustments of $22.6 million. The net cash provided by changes in our operating assets and liabilities during the nine months ended September 30, 2020 was primarily due to a $27.5 million decrease in accounts receivable due to collections during the period; an increase in accounts payable of $13.8 million due to timing of vendor payments; a $2.5 million increase in accrued income taxes; and a $3.0 million decrease in prepaid expenses and other assets. These sources of cash were partially offset by a $9.8 million increase in prepaid income taxes due primarily to a tax refund receivable from carryback of net operating losses that became permitted upon the enactment of the CARES Act during the nine months ended September 30, 2020; a $4.0 million decrease in deferred revenue due to the timing of revenue recognition; and a $6.6 million increase in inventory to meet future expected demand.

During the nine months ended September 30, 2019, cash used in operating activities was $33.1 million, primarily resulting from our net loss of $22.5 million, net cash used in changes in our operating assets and liabilities of $12.7 million and net non-cash adjustments of $2.1 million. The net cash used in changes in our operating assets and liabilities during the nine months ended September 30, 2019 was primarily due to a $25.4 million increase in inventory due to anticipated growth in our business; a $5.9 million decrease in deferred revenue due to the timing of revenue recognition; a $5.6 million decrease in accounts payable due to the timing of vendor payments; a $10.3 million decrease in accrued expenses primarily attributable to the timing of personnel-related bonus payments; and a $1.5 million increase in prepaid expenses and other assets mainly related to renewals of insurance contracts. These sources of cash were partially offset by a $33.5 million decrease in accounts receivable due to collections during the period and a $2.5 million increase in accrued income taxes.

Investing Activities

Our investing activities have consisted primarily of expenditures for lab and computer equipment and software to support the development of new products and increase our manufacturing capacity to meet customer demand for our products. In addition, our investing activities include expansion of and improvements to our facilities. As our business expands, we expect that we will continue to invest in these areas.

Net cash used in investing activities during the nine months ended September 30, 2020 was $4.1 million, consisting of purchases of property and equipment.

Net cash used in investing activities during the nine months ended September 30, 2019 was $116.2 million and consisted of the NetComm acquisition, net of cash acquired of $109.4 million and purchases of property and equipment of $6.7 million.

Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2020 was $5.8 million, consisting of repurchases of common stock of $3.0 million; employee taxes paid related to net share settlement of equity awards of $0.6 million; dividend and equitable adjustment payments of $0.7 million; and debt principal repayments of $8.9 million. These payments were partially offset by proceeds from the exercise of stock options of $1.0 million, and borrowings under our revolving credit facility of $6.5 million.

Net cash used in financing activities during the nine months ended September 30, 2019 was $6.9 million and consisted of employee taxes paid related to net share settlement of equity awards of $1.0 million, dividend and equitable adjustment payments of $2.4 million and debt principal repayments of $6.0 million, which included payments of $3.5 million to satisfy debt acquired in the acquisition of NetComm. These payments were partially offset by proceeds from the exercise of stock options of $2.5 million.

Commercial Mortgage Loan

In July 2015, we entered into an $8.0 million commercial mortgage loan agreement, which matured on July 1, 2020. On July 1, 2020, we paid in full the remaining $6.5 million in unpaid principal and accrued interest under the mortgage loan with funds drawn upon our revolving credit facility. The annual interest rate on the loan was 3.5%, and the loan was repayable in 60 monthly installments of principal and interest based on a 20-year amortization schedule. The loan was secured by the land and building, which are our corporate offices, purchased in March 2015, and contained annual affirmative, negative and financial covenants, including maintenance of a minimum debt service ratio. The covenants were measured annually and we were in compliance with all the covenants of the mortgage loan as of December 31, 2019. As of December 31, 2019, the outstanding principal amount under the mortgage loan was $6.6 million.

Term Loan and Revolving Credit Facilities

On December 20, 2016, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, various lenders and JPMorgan Chase Bank, N.A. and Barclays Bank PLC, as joint lead arrangers and joint bookrunners, providing for:

•

a term loan facility of $300.0 million; and

•

a revolving credit facility of up to $25.0 million in revolving credit loans and letters of credit.

As of September 30, 2020 and December 31, 2019, we had borrowings of $288.8 million and $291.0 million, respectively, outstanding under the term loan facility. As of September 30, 2020 we had borrowings of $6.5 million under the revolving credit facility, which were drawn down to fund the repayment of our commercial mortgage loan. We had no outstanding borrowings under the revolving credit facility at December 31, 2019. As of September 30, 2020 and December 31, 2019, we had also used $1.5 million and $1.3 million under the revolving credit facility for two stand-by letters of credit, one which serves as collateral to one of our customers pursuant to a contractual obligations and one which is used as collateral for operating leases in Australia. In addition, we may, subject to certain conditions, including the consent of the administrative agent and the institutions providing such increases, increase the facilities by an unlimited amount so long as we are in compliance with specified leverage ratios, or otherwise by up to $70.0 million.

Borrowings under the facilities bear interest at a floating rate, which can be either a Eurodollar rate plus an applicable margin or, at our option, a base rate (defined as the highest of (x) the JPMorgan Chase, N.A. prime rate, (y) the federal funds effective rate, plus one-half percent (0.50%) per annum and (z) a one-month Eurodollar rate plus 1.00% per annum) plus an applicable margin. The applicable margin for borrowings under the term loan facility is 4.00% per annum for Eurodollar rate loans (subject to a 1.00% per annum interest rate floor) and 3.00% per annum for base rate loans. The applicable margin for borrowings under the revolving credit facility is 1.75% per annum for Eurodollar rate loans and 0.75% per annum for base rate loans, subject to reduction based on our maintaining of specified net leverage ratios. The interest rates payable under the facilities are subject to an increase of 2.00% per annum during the continuance of any payment default.

For Eurodollar rate loans, we may select interest periods of one, three or six months or, with the consent of all relevant affected lenders, twelve months. Interest will be payable at the end of the selected interest period, but no less frequently than every three months within the selected interest period. Interest on any base rate loan is not set for any specified period and is payable quarterly. We have the right to convert Eurodollar rate loans into base rate loans and the right to convert base rate loans into Eurodollar rate loans at our option, subject, in the case of Eurodollar rate loans, to breakage costs if the conversion is effected prior to the end of the applicable interest period. As of September 30, 2020, the interest rate on the term loans was 5.00% per annum, which was based on a six-month Eurodollar rate at the applicable floor of 1.00% per annum plus the applicable margin of 4.00% per annum for Eurodollar rate loans. As of December 31, 2019, the interest rate on our borrowings under the term loan facility was 5.80% per annum, which was based on a one-month Eurodollar rate of 1.80% per annum plus the applicable margin of 4.00% per annum for Eurodollar rate loans. As of September 30, 2020, the interest rate on the revolving credit facility was 2.12% per annum, which was based on a one-month Eurodollar rate of 0.37% per annum plus the applicable margin of 1.75% per annum for Eurodollar rate loans.

The term loan facility matures on December 20, 2023 and the revolving credit facility matures on December 20, 2021. The term loan facility is subject to amortization in equal quarterly installments, which commenced on March 31, 2017, of principal in an annual aggregate amount equal to 1.0% of the original principal amount of the term loans of $300.0 million, with the remaining outstanding balance payable at the date of maturity.

Voluntary prepayments of principal amounts outstanding under the term loan facility are permitted at any time; however, if a prepayment of principal is made with respect to a Eurodollar loan on a date other than the last day of the applicable interest period, we are required to compensate the lenders for any funding losses and expenses incurred as a result of the prepayment. Prior to the revolving credit facility maturity date, funds borrowed under the revolving credit facility may be borrowed, repaid and reborrowed, without premium or penalty.

In addition, we are required to make mandatory prepayments under the facilities with respect to (i) 100% of the net cash proceeds from certain asset dispositions (including casualty and condemnation events) by us or certain of our subsidiaries, subject to certain exceptions and reinvestment provisions, (ii) 100% of the net cash proceeds from the issuance or incurrence of any additional debt by us or certain of our subsidiaries, subject to certain exceptions, and (iii) 50% of our excess cash flow, as defined in the credit agreement, subject to reduction upon our achievement of specified performance targets.

The facilities are secured by, among other things, a first priority security interest, subject to permitted liens, in substantially all of our assets and all of the assets of certain of our subsidiaries and a pledge of certain of the stock of certain of our subsidiaries, in each case subject to specified exceptions. The facilities contain customary affirmative and negative covenants, including certain restrictions on our ability to pay dividends, and, with respect only to the revolving credit facility, a financial covenant requiring us to maintain a specified total net leverage ratio, in the event that on the last day of any fiscal quarter, we have utilized more than 30% of our borrowing capacity under the revolving credit facility (subject to certain exceptions). The term loan facility contains a cross-default provision, whereby, if repayment of borrowings under the revolving credit facility are accelerated due to a default of the net leverage ratio covenant, repayment of the outstanding term loan balance could also be accelerated. Because the financial covenant under the revolving credit facility only applies if outstanding utilization thereunder exceeds 30% of the total borrowing capacity on the last day of each fiscal quarter, this cross-default provision has the effect of limiting our ability to utilize more than 30% of our total borrowing capacity under the revolving credit facility of $25.0 million if both our net leverage ratio exceeds the maximum permitted by the agreement and we would not otherwise be able to reduce our outstanding utilization of the revolving credit facility to below the 30% testing threshold prior to the last day of any quarter. As of September 30, 2020, our net leverage ratio did not exceed the maximum. As of December 31, 2019, our net leverage ratio exceeded the maximum; however, as our utilization of the revolving credit facility did not exceed the 30% testing threshold on December 31, 2019, we were not in default of the revolving credit facility as a result of our net leverage ratio exceeding the maximum permitted amount. We were in compliance with all other applicable covenants of the facilities as of September 30, 2020 and December 31, 2019. We do not expect to require the use of the revolving credit facility to fund operations during the next 12 months.

Stock Repurchase Program

On February 21, 2019, we announced a stock repurchase program under which we were authorized to repurchase up to $75.0 million of our common stock. During the nine months ended September 30, 2020, we repurchased approximately 1.2 million shares for a total cost of approximately $3.0 million. During the three months ended September 30, 2020 and three and nine months ended September 30, 2019, we did not repurchase any shares. As of September 30, 2020, approximately $70.2 million remained authorized for repurchases of our common stock under the stock repurchase program. The stock repurchase program has no expiration date and does not require us to purchase a minimum number of shares, and we may suspend, modify or discontinue the stock repurchase program at any time without prior notice.

Contractual Obligations and Commitments

Our material contractual obligations include our term loan facility, revolving credit facility, operating leases and purchase agreements with our contract manufacturers and suppliers. Except as discussed above regarding our repayment of the commercial mortgage loan and related draw down under our revolving credit facility and our new lease in Australia signed subsequent to September 30, 2020, there have been no material changes to our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Critical Accounting Policies and Significant Judgments and Estimates

We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management.

Other than our policies related to Derivative Instruments and Stock Compensation, as described in Note 2 of the above notes to the condensed consolidated financial statements, there have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Off-Balance Sheet Arrangements

As of September 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

Recent Accounting Pronouncements

Refer to the “Summary of Significant Accounting Policies” footnote within our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for our analysis of recent accounting pronouncements that are applicable to our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We are exposed to market risk related to changes in foreign currency exchange rates and interest rates. We currently mitigate certain foreign currency exchange rate risks with derivative instruments and enter into exchange rate hedging arrangements to manage certain of the risks described below. We do not engage in foreign currency speculation.

Foreign Currency Exchange Risk

We have accounts receivables denominated in foreign currencies, and our operations outside of the United States incur their operating expenses in foreign currencies. To date, the majority of our product sales and inventory purchases have been denominated in U.S. dollars. For our subsidiaries in Ireland and Australia, the U.S. dollar is the functional currency. For each of our other foreign subsidiaries, the functional currency is the local currency. During the nine months ended September 30, 2020 and 2019, we incurred foreign currency transaction gains of $0.7 million and $0.5 million, respectively, primarily related to unrealized and realized foreign currency gains for accounts receivable denominated in foreign currencies and operating expenses that are denominated in local currencies. These foreign currency transaction losses were recorded as a component of other income (expense), net in our condensed consolidated statements of operations and comprehensive income (loss). We believe that a 10% change in the exchange rate between either the U.S. dollar and Euro or the U.S. dollar and Australian dollar would not materially impact our operating results or financial position.

Our foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. We enter into cash flow hedges, which utilize foreign currency forward contracts to hedge specific forecasted transactions of our foreign subsidiaries with the goal of protecting our budgeted revenues and expenses against foreign currency exchange rate changes compared to our budgeted rates. During the nine months ended September 30, 2020, we settled two cash flow hedges which were used to hedge specific operating cash flows denominated in Australian dollars. No cash flow hedges were outstanding as of September 30, 2020.

The success of our foreign currency risk management program depends upon forecasts of transaction activity denominated in various currencies. To the extent that these forecasts are overstated or understated during periods of currency volatility, we could experience unanticipated foreign currency gains or losses that could have a material impact on our results of operations. Furthermore, our failure to identify new exposures and hedge them in an effective manner may result in material foreign currency gains or losses.

Interest Rate Sensitivity

Our cash and cash equivalents as of September 30, 2020 and December 31, 2019 consisted of cash maintained in FDIC-insured operating accounts as well as investments in money market mutual funds and certificates of deposit. We also have policies requiring us to invest in high-quality issuers, limit our exposure to any individual issuer, and ensure adequate liquidity. Our primary exposure to market risk for our cash equivalents is interest income sensitivity, which is primarily affected by changes in the general level of U.S. interest rates. However, we do not believe a sudden change in the interest rates for our cash equivalents would have a material impact on our financial condition, results of operations or cash flows.

We have a credit agreement that provides us with a term loan facility of $300.0 million and a revolving credit facility of up to $25.0 million in revolving credit loans and letters of credit. Borrowings under the facilities bear interest at a floating rate, which can be either a Eurodollar rate plus an applicable margin or, at our option, a base rate (defined as the highest of (x) the JPMorgan Chase, N.A. prime rate, (y) the federal funds effective rate, plus one-half percent (0.50%) per annum and (z) a one-month Eurodollar rate plus 1.00% per annum) plus an applicable margin. The applicable margin for borrowings under the term loan facility is 4.00% per annum for Eurodollar rate loans (subject to a 1.00% per annum interest rate floor) and 3.00% per annum for base rate loans. The applicable margin for borrowings under the revolving credit facility is 1.75% per annum for Eurodollar rate loans and 0.75% per annum for base rate loans, subject to reduction based on our maintaining of specified net leverage ratios.

As of September 30, 2020, we had borrowings of $288.8 million outstanding under the term loan facility, bearing interest at a rate of 5.00% per annum, which was based on a six-month Eurodollar rate at the applicable floor of 1.00% per annum plus the applicable margin of 4.00% per annum for Eurodollar rate loans. Changes in interest rates could cause interest charges on our term loan facility to fluctuate. Based on the amount of borrowings outstanding as of September 30, 2020, an increase of 10% in the one-month Eurodollar rate as of September 30, 2020 would cause pre-tax decreases to our earnings and cash flows of approximately $0.3 million per year, assuming that such rate was to remain in effect for a year. A decrease in the one-month Eurodollar rate as of September 30, 2020 would have no impact on our earnings and cash flows, as the interest rate in effect at September 30, 2020 on the term loan facility was at the applicable floor of 1.00% per annum.

On July 1, 2020, we drew down on our revolving credit facility under our term loan agreement in the amount of $6.5 million. As noted in Note 11, Debt, borrowings under the revolving credit facility mature on December 21, 2021 and the applicable margin for borrowings under the revolving credit facility is 1.75% per annum for Eurodollar rate loans. The interest rate on the outstanding borrowings as of September 30, 2020, was 2.12%, which was based on a six-month Eurodollar rate of 0.37% per annum plus the applicable margin of 1.75% per annum for Eurodollar rate loans. An increase of 10% in the one-month Eurodollar rate would result in a pre-tax decrease to our earnings and cash flows of less than $0.1 million per year, assuming that such rate was to remain in effect for a year. A decrease of 10% in the one-month Eurodollar rate would result in a pre-tax increase to our earnings and cash flows of less than $0.1 million per year, assuming that such rate was to remain in effect for a year.

Inflation Risk

We do not believe that inflation has had a material effect on our business. However, if global demand for the base materials utilized in our suppliers’ components were to significantly increase for the components we purchase from our suppliers to manufacture our products, our costs could become subject to significant inflationary pressures, and we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are a party to various litigation matters and subject to claims that arise in the ordinary course of business including, for example, patent infringement lawsuits by non-practicing entities. In addition, third parties may from time to time assert claims against us in the form of letters and other communications.

On May 29, 2019 and July 3, 2019, two putative class action lawsuits, Shen v. Chen et al. and Baig v. Chen et al., were filed in the Massachusetts Superior Court against us, certain of our current and former executive officers and directors, Summit Partners, our largest investor, and the underwriters from our December 15, 2017 initial public offering, which we refer to as our IPO. We collectively refer to these parties as the defendants. These complaints purport to be brought on behalf of all purchasers of our common stock in and/or traceable to our IPO. The complaints generally allege that (i) each of the defendants violated Section 11 and/or Section 12(a)(2) of the Securities Act of 1933, as amended, or the “Securities Act”, because documents related to our IPO including its registration statement and prospectus were materially misleading by containing untrue statements of material fact and/or omitting to state material facts necessary to make such statements not misleading and (ii) the individual defendants and Summit Partners acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act. On August 13, 2019, the Court consolidated these actions and referred the consolidated actions to the Business Litigation Session of the Massachusetts Superior Court or the “BLS”. On September 3, 2019, the BLS accepted the consolidated action into its session for further proceedings. On November 12, 2019, Plaintiffs filed an Amended shareholder class action complaint, purportedly on behalf of all purchasers of our common stock in and/or traceable to our IPO, which contains substantially similar allegations and asserts the same claims as the two initial complaints, described above. Plaintiffs seek compensatory damages, costs and expenses, including counsel and expert fees, rescission or a rescissory measure of damages, and equitable and injunctive relief. On January 14, 2020, the defendants served motions to dismiss the amended complaint, which remain pending.

On August 9, 2019, a third putative class action lawsuit, Donald Hook v. Casa Systems, Inc. et al., was filed in the Supreme Court of New York, New York County, against us, certain of our current and former executive officers and directors, Summit Partners, and the underwriters from our IPO. The complaint purports to be brought on behalf of all purchasers of our common stock in and/or traceable to our IPO and generally alleges that (i) each of the defendants violated Section 11 and/or Section 12(a)(2) of the Securities Act because documents related to our IPO including its registration statement and prospectus were materially misleading by containing untrue statements of material fact and/or omitting to state material facts necessary to make such statements not misleading and (ii) the individual defendants and Summit Partners acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act. On November 22, 2019, Plaintiff filed an Amended Complaint, purportedly on behalf of all purchasers of our common stock in and/or traceable to our IPO, which contains substantially similar allegations as the initial complaint, described above, and asserts claims for violations of Sections 11 and 15 of the Securities Act. Plaintiff seeks compensatory damages, costs and expenses, including counsel and expert fees, rescission or a rescissory measure of damages, disgorgement, and equitable and injunctive relief. On January 21, 2020, the defendants served motions to dismiss the amended complaint, which remains pending to date.

On August 13, 2019, a fourth putative class action lawsuit, Panther Partners, Inc. v. Guo et al., was filed in the Supreme Court of New York, New York County, against us, certain of our current and former executive officers and directors, and the underwriters from our April 30, 2018 follow-on offering of common stock, which we refer to as our Follow-on Offering. The complaint purports to be brought on behalf of all purchasers of our common stock in our Follow-on Offering and generally alleges that (i) each of the defendants, other than Abraham Pucheril, violated Section 11 of the Securities Act, and each of the defendants violated Section 12(a)(2) of the Securities Act, because documents related to our Follow-on Offering, including our registration statement and prospectus, were materially misleading by containing untrue statements of material fact and/or omitting to state material facts necessary to make such statements not misleading and (ii) the individual defendants acted as controlling persons within the meaning and in violation of Section 15 of the Securities Act. On November 22, 2019, Plaintiff filed an amended class action complaint, purportedly on behalf of all purchasers of our common stock in our Follow-on Offering, which contains substantially similar allegations and asserts the same claims as the initial complaint, described above. Plaintiff seeks compensatory damages, costs and expenses, including counsel and expert fees, rescission or a rescissory measure of damages, and equitable and injunctive relief. On January 21, 2020, the defendants served motions to dismiss the amended complaint, which remain pending.

No amounts have been accrued for any of the putative class action lawsuits referenced above as of September 30, 2020, as we do not believe the likelihood of a material loss is probable. Although the ultimate outcome of these matters cannot be predicted with certainty, the resolution of any of these matters could have a material impact on our results of operations if a material loss becomes probable and estimable in a future period.

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Part I, Item 1A Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or the 2019 10-K, which could materially affect our business, financial condition or future results. As a supplement to the risk factors identified in the 2019 10-K, below we have revised one of our risk factors (regarding a recent decision of the Delaware Supreme Court affecting the provision in our restated certificate of incorporation that provides that the federal district courts of the United States are the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act) and set forth a new risk factor (regarding the COVID-19 pandemic). The COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks we normally face in operating our business, including those disclosed in the 2019 10-K, and the risk factor disclosure in the 2019 10-K is qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q, including the new risk factor set forth below. Other than as provided below, there have been no material changes from the risk factors previously disclosed in the 2019 10-K..

Risks Related to Our Business and Our Industry

The coronavirus outbreak could negatively impact our operations and have an adverse effect on our revenues and/or results of operations.

Due to the above circumstances and as described generally in this Quarterly Report on Form 10-Q, our results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. Management cannot predict the full impact of the COVID-19 pandemic on our sales channels, supply chain, manufacturing and distribution, or on economic conditions generally, including the effects on our current and potential customers, who may curtail spending on investments in current and/or new technologies, delay new equipment evaluations and trials, and possibly delay payments based on liquidity concerns, all of which could have a material impact on our business in the future. Similarly, our supply chain and our contract manufacturers could be affected, which could cause disruptions to our ability to meet customer demand. For example, while we experienced increased order volumes for certain of our products during the three months ended June 30, 2020, we are continuing to see potential delays in the supply chain that may impact future delivery schedules. If COVID-19 were to cause such impacts in the future, there could likely be a material adverse impact on our financial results, liquidity and capital resource needs. This uncertainty makes it challenging for management to estimate the future performance of our businesses, particularly over the near to medium term. However, the impact of COVID-19 could have a material adverse impact on our results of operations over the near to medium term.

Risks Related to Our Common Stock

Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders. Our restated certificate of incorporation further provides that the federal district courts of the United States are the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These choice of forum provisions could limit our stockholders’ ability to obtain a more favorable judicial forum for disputes with us or our directors, officers or employees.

Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. We do not intend to have this choice of forum provision apply to, and this choice of forum provision will not apply to, actions arising under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Our restated certificate of incorporation further provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, or the Securities Act. On December 19, 2018, the Delaware Court of Chancery, in Sciabacucchi v. Salzberg, et al., C.A. No. 2017-0931-JTL (Del. Ch. Dec. 19, 2018), held that such federal forum selection provisions are invalid under Delaware law. Upon appeal, on March 18, 2020, the Delaware Supreme Court reversed the Court of Chancery’s judgment in all respects, upholding the facial validity of such federal forum selection provisions.

These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, results of operations and prospects.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Use of Proceeds

On December 14, 2017, the Securities and Exchange Commission, or the SEC, declared our registration statement on Form S-1 (File No. 333-221658) for our initial public offering effective. The net offering proceeds to us from the offering, after deducting underwriting discounts of $6.3 million and offering expenses payable by us totaling $4.1 million, were approximately $79.3 million. No offering discounts, commissions or expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on December 15, 2017 pursuant to Rule 424(b)(4). As of September 30, 2020, we had not used any of the net offering proceeds and we have invested the proceeds into an investment portfolio with the primary objective of preserving principal and providing liquidity without significantly increasing risk.

Stock Repurchase Program

The following table sets forth information with respect to repurchases of shares of our common stock during the three-month period ended September 30, 2020:

Casa Systems, Inc. Purchase of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
	(In thousands)				(In thousands)		(In thousands)
July 1 - July 31, 2020		—	$	—		—	$	70,208
August 1 - August 31, 2020		—	$	—		—	$	70,208
September 1 - September 30, 2020		—	$	—		—	$	70,208

(1)	The calculation of average price included above excludes the cost of commissions.

(2)

On February 21, 2019, we announced that our board of directors authorized the repurchase of up to $75.0 million of our common stock under a stock repurchase program. From inception through September 30, 2020, we repurchased approximately 1.7 million shares under the program. The stock repurchase program has no expiration date and does not require us to purchase a minimum number of shares. We may suspend, modify or discontinue the stock repurchase program at any time without prior notice.

Item 5. Other Information.

The information set forth under the caption “Facility Lease Renewal” within Note 19 to the Company’s condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 6. Exhibits.

Exhibit Index

Exhibit Number		Description

3.1		Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38324) filed on December 19, 2017)

3.2		By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38324) filed on December 19, 2017)

10.1		Lease Annexure “A”, dated October 29, 2020, between ESR Investment Nominees 3 (Australia) Pty Limited and NetComm Wireless Pty Ltd

31.1		Certification of Principal Executive Officer 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

31.2		Certification of Principal Financial Officer 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

32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

*	Furnished herewith.

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.

	CASA SYSTEMS, INC.

Date: October 29, 2020	By:	/s/ Jerry Guo
		Jerry Guo
		President, Chief Executive Officer and Chairman (Principal Executive Officer)

Date: October 29, 2020	By:	/s/ Scott Bruckner
		Scott Bruckner
		Chief Financial Officer (Principal Financial Officer)