Cambium Networks Corp
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000950170-24-094742
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0000950170-24-125400
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 101 previous paragraphs and 110 current paragraphs.
47 unchanged; 40 reworded; 23 added; 13 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 19 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (23)
Current report
As of September 30, 2024, we have made all required principal and interest payment obligations under our Amended Credit Agreement with Bank of America. We were in compliance with our monthly liquidity covenant for all measurement periods through September 30, 2024. However, as of September 30, 2024, we were not in compliance with our quarterly EBITDA covenant under our Amended Credit Agreement, and we were not in compliance with our monthly liquidity covenant as of October 31, 2024. Such defaults would afford the lenders thereunder the right to declare the amounts outstanding thereunder immediately due and payable, and we may not be able to obtain a forbearance or waiver of the defaults or otherwise refinance such indebtedness, if required. If Bank of America were to accelerate the maturity of our indebtedness under the Amended Credit Agreement, there is substantial uncertainty we would be able to secure capital resources to repay the amounts due. We are seeking a forbearance from the bank and are working with the bank to address our noncompliance with the covenant. Refer to Note 6. Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Current report
We are actively taking actions to improve our profitability and continue to focus on operating efficiency and reducing discretionary spending, deferring capital expenditures and implementing cost reductions to align our cost structure with current and expected revenue levels and sales of excess inventory. We believe these actions, together with our existing cash balances, provide us with the financial flexibility needed to meet our obligations as they come due over the next twelve months, so long as our lenders under the Amended Credit Agreement do not accelerate the maturity of our indebtedness under the Amended Credit Agreement. However, this conclusion depends in part on the bank not accelerating the maturity of our debt, our expectations regarding macro-conditions in the markets in which we compete, customer acceptance and purchases of our products, buying decisions by our distributors and other factors that are not within our control. Should Bank of America declare the amounts outstanding under the Amended Credit Agreement to be immediately due and payable, we may not be able to refinance such indebtedness. If Bank of America were to accelerate the maturity of our indebtedness under the Amended Credit Agreement, there is substantial uncertainty we will be able to secure capital resources to repay the amounts due.
Current report
Gross margin was 39.9%
Current report
Operating loss was $8.1 million
Current report
Net loss was $9.7 million
Current report
Revenues increased $0.7 million, or 1.6%, to $43.7 million for the three-month period ended September 30, 2024, from $43.0 million for the three-month period ended September 30, 2023, with the largest increase in our Enterprise product category driven by higher Wi-Fi and switching product revenues. This increase was offset by decreased revenues in our point-to-point and point-to-multi-point product categories, mostly driven by lower demand.
Current report
Our PMP product revenues decreased $5.6 million, or 23.7%, from the three-month period ended September 30, 2023 to 2024. The decrease in point-to-multi-point revenues was driven by lower revenues in Europe, Middle East, Africa, mostly due to lower demand, partially offset by higher revenues in North America, mostly due to higher demand.
Current report
PTP product revenues decreased $6.5 million, or 40.9%, from the three-month period ended September 30, 2023 to 2024 mostly driven by lower demand for defense products across all regions.
Current report
Cost of revenues decreased $5.8 million, or 18.1%, to $26.3 million for the three-month period ended September 30, 2024 from $32.1 million for the three-month period ended September 30, 2023. The decrease in cost of revenues was primarily driven by a $3.9 million decrease in excess and obsolescence reserve and $0.2 million decrease in loss on supplier commitment recorded in the three-month period ended September 30, 2024. Cost of revenues also decreased due to lower freight-in costs and lower production costs.
Current report
General and administrative expense decreased $2.5 million, or 29.2%, to $6.1 million for the three-month period ended September 30, 2024 from $8.7 million for the three-month period ended September 30, 2023. The decrease in general and administrative expense was primarily due to $1.5 million of nonrecurring expenses incurred in the third quarter of 2023 related to the Chief Executive Officer transition that did not repeat in 2024, $0.3 lower staff-related costs due to lower headcount, $0.3 million lower professional fees, $0.2 million lower audit and tax fees and $0.2 million reduction of bad debt expense.
Current report
Comparison of nine-month period ended September 30, 2023 to the nine-month period ended September 30, 2024
Current report
General and administrative expense decreased $1.5 million, or 7.3%, to $19.6 million for the nine-month period ended September 30, 2024 from $21.2 million for the nine-month period ended September 30, 2023. The decrease in general and administrative expense was primarily due to $1.5 million of nonrecurring expenses incurred in the third quarter of 2023 related to the Chief Executive Officer that did not repeat in 2024 and $0.3 million lower corporate bonus expense as 2023 included amounts for guaranteed bonuses, partially offset by $0.3 million higher legal fees.
Current report
For the third quarter of 2024, all quarterly principal and interest payments have been made in accordance with the terms of our credit facility with Bank of America. As of September 30, 2024, we were in compliance with our monthly liquidity covenant for all measurement periods, but were not in compliance with our quarterly EBITDA covenant under the credit agreement. In addition, we were not in compliance with our monthly liquidity covenant as of October 31, 2024. Such defaults would afford Bank of America the right to declare the amounts outstanding thereunder immediately due and payable. We are seeking a forbearance from the bank and are working with the bank to address our noncompliance with the covenant. If we are not able to obtain a forbearance or waiver of the defaults or otherwise refinance such indebtedness, and if Bank of America were to accelerate the maturity of our indebtedness under the Amended Credit Agreement, there is substantial uncertainty we would be able to secure capital resources to repay the amounts due. Please refer to Note 6. Debt in the Notes to the Unaudited Condensed Consolidated Financial Statements, regarding our debt outstanding under our credit facilities.
Current report
As of September 30, 2024, we were in compliance with our monthly liquidity covenant for all measurement periods, but were not in compliance with our quarterly EBITDA covenant under this credit agreement. In addition, we were not in compliance with our monthly liquidity covenant as of October 31, 2024. Such defaults would afford Bank of America the right to declare the amounts outstanding thereunder immediately due and payable. We are seeking a forbearance from the bank and are working with the bank to address our noncompliance with the covenant. If we are not able to obtain a forbearance or waiver of the defaults or otherwise refinance such indebtedness, and if Bank of America were to accelerate the maturity of our indebtedness under the Amended Credit Agreement, there is substantial uncertainty we would be able to secure capital resources to repay the amounts due. Absent acceleration of payment, our term loan facility and revolving credit facility matures on November 17, 2026, at which time the outstanding principal will be due. Refer to Note 6. Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Current report
During the third quarter of 2024, we concluded that a goodwill impairment triggering event had occurred primarily due to a debt covenant breach and a sustained decline in the trading price of our shares. Additional factors that contributed to this conclusion included current macroeconomic trends and uncertainty surrounding inflation and high interest rates, which negatively impact disposable income, spending and overall consumer confidence, all of which have and may continue to adversely impact our sales, results of operations and cash flows. These factors are applicable to our one reporting unit which resulted in us performing quantitative goodwill impairment testing of that reporting unit. We considered whether these events and circumstances would affect any other assets and concluded to perform quantitative impairment testing on our long-lived assets, which included our definite-lived customer relationships.
Current report
Goodwill impairment assessment
Current report
We test goodwill for impairment on an annual basis on December 31 of each year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.
Current report
As indicated in Note 5. Goodwill and intangible assets, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q, during the three-month period ended September 30, 2024, we concluded that a goodwill impairment triggering event had occurred, and our qualitative assessment resulted in us performing quantitative impairment testing on our one reporting unit.
Current report
For the assessment of goodwill impairment, management determined it operates as one reporting unit and compared the fair value of its one reporting unit to its carrying value. In determining the fair value of its one reporting unit, we used both an income and market approach. The income approach, or discounted cash flow method, utilized our current forecast based on management's estimates of revenue, expenses, capital expenditures and working capital projections. Our internal forecasts and strategic long-range plans take into consideration historical and recent business results, industry trends and macroeconomic factors that impact the markets we serve. The residual value was captured utilizing the Gordon Growth method and the discount rate was determined based on the Company's weighted average cost of capital utilizing market data of our peer group companies. The market approach used was the Guideline Public Company ("GPC") method which valued the Company based on trading multiples derived from publicly traded companies that are similar to the Company. The trailing-twelve-month, 2024 estimate and 2025 estimate enterprise value-to-revenue multiples were used to value the Company. Multiples were selected based on a review of the multiple indications derived from the GPCs and the comparable company multiples were reviewed for differences in growth prospects, profitability and risk profiles between the Company and the GPCs.
Current report
Based on the results of the quantitative assessments, the fair value of the Company's one reporting unit was higher than its carrying value and the Company's goodwill was not impaired as of September 30, 2024.
Current report
Considerable management judgment is necessary to estimate expected future cash flows, including evaluating the impact of operational and economic factors on our future cash flows, all of which are subject to uncertainty. The assumptions and estimates used in determining the fair value of our reporting unit involves significant elements of subjective judgment and analysis by management. Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected demand, among others, could result in changes to these assumptions and judgments. A revision of these estimates and assumptions could cause the fair value of our one reporting unit to fall below its carrying value, which could result in a material non-cash impairment to our goodwill in a future period.
Current report
Long-lived assets recoverability assessment
Current report
We also performed a recoverability test of our long-lived assets in conjunction with the goodwill impairment analysis as of September 30, 2024 which did not result in any impairment charges. Changes in market conditions, operating performance and other similar circumstances could affect the assumptions used in this test, which could result in impairment charges that could be material in a future period. For additional information, see Note 5. Goodwill and intangible assets, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q
Removed paragraphs (13)
Previous report
Gross margin was 31.4%
Previous report
Operating loss was $12.1 million
Previous report
Net loss was $9.1 million
Previous report
Provision for income taxes
Previous report
Revenues decreased $13.6 million, or 22.8%, to $45.9 million for the three-month period ended June 30, 2024, from $59.5 million for the three-month period ended June 30, 2023, with the largest decrease in our point-to-point product category driven by lower defense order volumes. Revenues also decreased in our point-to-multi-point product category driven by lower demand. These decreases are offset by an increase in revenues of our enterprise product category as channel inventory levels decline.
Previous report
Cost of revenues increased $1.2 million, or 4.1%, to $31.5 million for the three-month period ended June 30, 2024 from $30.3 million for the three-month period ended June 30, 2023. The increase in cost of revenues was primarily due to a $4.6 million loss on supplier commitment charge recorded in the three-month period ended June 30, 2024, a $3.9 million increase from the three-month period ended June 30, 2023, and a $2.4 million provision for excess and obsolescence recorded in the three-month period ended June 30, 2024, a $2.2 million increase from the three-month period ended June 30, 2023. The increase in the loss on supplier commitment expense was mostly due to decreased demand for switching and fiber components and the increase in the excess and obsolescence reserve was mostly due to a decrease in lifetime demand. These costs were offset by lower material costs and lower production costs.
Previous report
General and administrative expense increased $0.2 million, or 2.6%, to $6.0 million for the three-month period ended June 30, 2024 from $5.8 million for the three-month period ended June 30, 2023. The increase in general and administrative expense was primarily due to $0.2 million higher share-based compensation expense, mostly due to new grants awarded in 2023 and 2024.
Previous report
Benefit for income taxes
Previous report
Comparison of six-month period ended June 30, 2023 to the six-month period ended June 30, 2024
Previous report
Our PMP revenues decreased $10.0 million, or 20.3%, from the six-month period ended June 30, 2023 to 2024. Our decrease in point-to-multi-point revenues were driven by lower demand from service providers in North America as they start to transition to our 6 GHz products.
Previous report
PTP revenues decreased $15.0 million, or 34.9%, from the sis-month period ended June 30, 2023 to 2024 mostly driven by lower demand for defense products in North America due to timing of funding partially offset by increased demand for defense products in Europe, Middle East, Africa.
Previous report
General and administrative expense increased $1.0 million, or 8.0%, to $13.5 million for the six-month period ended June 30, 2024 from $12.5 million for the six-month period ended June 30, 2023. The increase in general and administrative expense was primarily due to $0.5 million increase in share-based compensation expense, mostly due to new grants awarded in 2023 and 2024, $0.3 million increase in bad debt expense and $0.2 million higher legal expense.
Previous report
(Benefit) provision for income taxes
Reworded paragraphs (40)
Previous wording
The following discussion and analysis of financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes thereto of Cambium Networks Corporation (“Cambium”, “we”, “our”, or “us”) included elsewhere in this Quarterly Report on Form 10-Q and with the financial statements and related notes and Management’s Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed March 15, 2024. Results for the three-month and six-month periods ended June 30, 2024 are not necessarily indicative of the results that may be expected for any period in the future.
Current wording
The following discussion and analysis of financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes thereto of Cambium Networks Corporation (“Cambium”, “we”, “our”, or “us”) included elsewhere in this Quarterly Report on Form 10-Q and with the financial statements and related notes and Management’s Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed March 15, 2024. Results for the three-month and nine-month periods ended September 30, 2024 are not necessarily indicative of the results that may be expected for any period in the future.
Previous wording
Cambium Networks is a global technology company that designs, develops, and manufactures fixed wireless and fiber broadband, enterprise Wi-Fi access and local area networking (LAN) infrastructure solutions for a wide range of applications, including broadband access, wireless backhaul, Internet of Things (IoT), public safety communications, and Wi-Fi access for commercial use cases. Our products enable service providers, enterprises, industrial organizations, and governments to deliver exceptional digital experiences and device connectivity, with compelling economics. Our ONE network platform simplifies the management of Cambium Networks' wired and wireless broadband and network edge technologies. Our product lines fall into three broad, interrelated categories: Fixed Wireless & fiber Broadband (FWB), Enterprise networking, and Subscription and Services. The FWB portfolio spans point-to-point (PTP) and point-to-multi-point (PMP) architectures over multiple standards, including IEEE 802.11 and 3GPP (Third Generation Partnership Program) and frequency bands, including licensed, unlicensed, and lightly licensed spectrum, and fiber products. In the second quarter of 2024, both our ePMP4600 and PMP 450v platforms received FCC approval to operate in the recently released 6 GHz band in conjunction with our approved Automated Frequency Coordination (AFC) service.
Current wording
Cambium Networks is a global technology company that designs, develops, and manufactures fixed wireless and PON/XGSPON based broadband, Wi-Fi, and local area networking (LAN) switching infrastructure, and security gateway solutions for a wide range of applications, including broadband access, wireless backhaul, Internet of Things (IoT), public safety communications, and Wi-Fi access for commercial use cases. Our products enable service providers, enterprises, industrial organizations, and governments to deliver exceptional digital experiences and device connectivity, with compelling economics. Our ONE network platform simplifies the management of Cambium Networks' wired and wireless technologies. Our product lines fall into three broad, interrelated categories: Fixed Wireless & fiber Broadband (FWB), Enterprise networking, and Subscription and Services. The FWB portfolio spans point-to-point (PTP) and point-to-multi-point (PMP) architectures over multiple standards, and frequency bands, including licensed, unlicensed, and lightly licensed spectrum, and fiber products. During 2024, both our ePMP4600 and PMP 450v platforms received FCC approval to operate in the recently released 6 GHz band in conjunction with our approved Automated Frequency Coordination (AFC) service.
Previous wording
The Enterprise portfolio includes a complete range of indoor and outdoor Wi-Fi access points, indoor and hardened copper and optical based ethernet switches, and integrated security gateway and software-defined wide area network (SD-WAN) devices. In the second quarter of 2024, we introduced our first Wi-Fi 7 access point, the XV7-35X, which will be complemented with a broad range of indoor and outdoor Wi-Fi 7 solutions in the coming months as the industry transition occurs.
Current wording
The Enterprise portfolio includes a complete range of indoor and outdoor Wi-Fi access points, indoor and hardened copper and optical based ethernet switches, and security gateway and software-defined wide area network (SD-WAN) devices. During 2024, we introduced our first Wi-Fi 7 access point, the XV7-35X, which will be complemented with a broad range of indoor and outdoor Wi-Fi 7 solutions in the coming months as the industry transition occurs.
Previous wording
The Subscription and Services portfolio includes network planning and design, and cloud or on-premises network management and control solutions. The latter capability, delivered through subscription to cnMaestro™ X, forms the foundation of our ONE Network, a cloud-based network management architecture that allows users to remotely configure, monitor, and manage their wired and wireless network. It provides a single, centralized view of all Cambium Network devices, and real-time performance and usage data, allowing users to control and optimize network configuration and settings. Advanced services offered in conjunction with this platform include application visibility and control, which is used to optimize end-user experiences; and "Assurance" which allows network administrators the ability to rapidly troubleshoot network issues using AI-powered root cause analysis with proactive resolution, ensuring service level agreements are met and preventing client impact. The integrated security gateway and SD-WAN for small and medium businesses is also associated with a subscription for network security services.
Current wording
The Subscription and Services portfolio includes network planning and design, and cloud or on-premises network management and control solutions. The latter capability, delivered through subscription to cnMaestro™ X, forms the foundation of our ONE Network, a cloud-based network management architecture that allows users to remotely configure, monitor, and manage their wired and wireless network. It provides a single, centralized view of all Cambium Network devices, and real-time performance and usage data, allowing users to control and optimize network configuration and settings. Advanced services offered in conjunction with this platform include application visibility and control, which is used to optimize end-user experiences; and "Assurance" which allows network administrators the ability to rapidly troubleshoot network issues using AI-powered root cause analysis with proactive resolution, ensuring service level agreements are met and preventing client impact. The integrated security gateway and SD-WAN for small and medium businesses may also be associated with a subscription for network security services.
Previous wording
In the first and second quarters of 2024 distributors endeavored to right-size their inventories. Inventory levels at our distributors and other channel partners have improved globally. However, distributors may maintain lower levels of inventory than historically has been the case which could delay purchases and accordingly, delay our revenue recovery. The level of inventory across the industry along with macroeconomic factors such as higher interest rates, which impact private sector capital investment, and concerns about a global economic slowdown have resulted in softened demand for our products and services. We continue to see a high level of competition in our industry due to slower demand and aggressive pricing. We believe that this will continue to negatively impact revenues in the second half of 2024. We may continue to have ongoing risks of technology shifts that could result in any increased inventory becoming obsolete before it is deployed.
Current wording
The level of inventory across the industry along with macroeconomic factors such as higher interest rates, which impact private sector capital investment, and concerns about a global economic slowdown have resulted in softened demand for our products and services. We continue to see a high level of competition in our industry due to slower demand and aggressive pricing. We believe that this will continue to negatively impact revenues for the remainder of 2024. We may continue to have ongoing risks of technology shifts that could result in any increased inventory becoming obsolete before it is deployed. We also continue to work closely with our contract manufacturers and supply chain partners to balance production to market demand.
Previous wording
Revenues from our Enterprise products are beginning to rebound over 2023 and we expect improvement during the second half of 2024. Revenues in our PTP business declined due to fewer defense projects in North America. Revenues in our PMP business remained relatively flat from the first quarter of 2024, which is expected to continue as sales of Cambium's 6 GHz products slowly ramp, a decrease in back-log from distributors and continued economic headwinds.
Current wording
Revenues from our Enterprise products are beginning to rebound over 2023 and we expect continued improvement during the remainder of 2024. Revenues in our PTP business declined due to fewer defense projects coming to fruition in North America. Revenues in our PMP business remained relatively flat from the second quarter of 2024, which is expected to continue as sales of Cambium's 6 GHz products slowly ramp, a decrease in back-log from distributors and continued economic headwinds.
Previous wording
Total revenue was $45.9 million, a decrease of 23% year-over-year
Current wording
Total revenue was $43.7 million, an increase of 1.6% year-over-year
Previous wording
Total costs of revenues and operating expenses were $58.0 million
Current wording
Total costs of revenues and operating expenses were $51.8 million
Previous wording
Our cost of revenues is comprised primarily of the costs of procuring finished goods from our third-party manufacturers, third-party logistics and warehousing provider costs, freight costs and warranty costs. We outsource our manufacturing to third-party manufacturers located primarily in Mexico, China, Israel and Taiwan. Cost of revenues also includes costs associated with supply operations, including personnel related costs and allocated overhead costs, provision for excess and obsolete inventory and loss on supplier commitment expense, third-party license costs and third-party costs related to services we provide. Cost of revenues also includes amortization of capitalized software development costs associated with products marketed to be sold.
Current wording
Our cost of revenues is comprised primarily of the costs of procuring finished goods from our third-party manufacturers, third-party logistics and warehousing provider costs, freight costs and warranty costs. We outsource our manufacturing to third-party manufacturers located primarily in Mexico, Thailand, Israel and Taiwan. Cost of revenues also includes costs associated with supply operations, including personnel related costs and allocated overhead costs, provision for excess and obsolete inventory and loss on supplier commitment expense, third-party license costs and third-party costs related to services we provide. Cost of revenues also includes amortization of capitalized software development costs associated with products marketed to be sold.
Previous wording
Enterprise revenues increased $4.9 million, or 76.2%, from the three-month period ended June 30, 2023 to 2024. Enterprise revenues increased in all regions except Asia Pacific, with the largest increase in Europe, Middle East, Africa. Enterprise product revenues are continuing to improve as channel inventory levels are decreasing, and distributors are restocking.
Current wording
Enterprise product revenues increased $12.7 million, or 506.6%, from the three-month period ended September 30, 2023 to 2024. Enterprise revenues increased in all regions except Asia Pacific, with the largest increase in Europe, Middle East, Africa. Enterprise product revenues increased mostly for Wi-Fi 6 and switching products as channel inventory levels are decreasing and distributors are restocking.
Previous wording
Revenues decreased in all regions except Europe, Middle East, Africa from the three-month period ended June 30, 2023 to June 30, 2024. North America revenues decreased $18.9 million, or 47.8%, with the largest decrease in PTP revenues due to lower demand for defense products and lower PMP revenues also due to decreased demand. Europe, Middle East, Africa revenues increased by $8.2 million, or 121.6%, mostly driven by higher enterprise product revenues and higher PTP revenues due to higher demand from defense. Caribbean and Latin America revenues decreased $0.7 million, or 11.8%, mostly driven by lower enterprise and PMP product revenues. Asia Pacific revenues decreased $2.2 million, or 31.0%, mostly driven by lower PMP and PTP revenues both due to decreased demand.
Current wording
Revenues increased in North America and Caribbean and Latin America with decreases in Europe, Middle East, Africa and Asia Pacific from the three-month period ended September 30, 2023 to September 30, 2024. North America revenues increased $3.5 million, or 19.9%, with the largest increase in enterprise revenues on higher demand for Wi-Fi 6 products along with increased PMP revenues on higher demand for 60 GHz products, partially offset by lower PTP product revenues due to lower demand for defense products. Europe, Middle East, Africa revenues decreased by $2.1 million, or 14.5%, mostly driven by decreased PMP product revenues due to lower demand for 28 GHz products and decreased PTP product revenues due lower demand for defense products, partially offset by increased enterprise product revenues due to higher demand for Wi-Fi 6 and switching products. Caribbean and Latin America revenues increased $0.2 million, or 3.1%, mostly driven by higher enterprise product revenues, offset by lower PTP and PMP product revenues. Asia Pacific revenues decreased $1.0 million, or 18.1%, mostly driven by decreased PTP and PMP product revenues, both due to lower demand.
Previous wording
Gross margin decreased to 31.4% for the three-month period ended June 30, 2024 from 49.1% for the three-month period ended June 30, 2023. The decrease primarily reflects the impact from an increase in our excess and obsolescence reserve and loss on supplier commitment expense.
Current wording
Gross margin increased to 39.9% for the three-month period ended September 30, 2024 from 25.5% for the three-month period ended September 30, 2023. The increase primarily reflects the impact from the decrease in our excess and obsolescence reserve and loss on supplier commitment expense, along with the lower freight-in and production costs.
Previous wording
Research and development expense decreased $3.9 million, or 29.7% to $9.1 million for the three-month period ended June 30, 2024 from $13.0 million for the three-month period ended June 30, 2023. The decrease in research and development expense was primarily due to $1.7 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities, $0.9 million lower outside contractor spend due to the restructuring actions implemented in 2023 and streamlining projects, $0.5 million lower share-based compensation due to lower headcount, $0.3 million lower engineering project materials cost, $0.2 million lower homologation and regulatory fees due to the timing of projects and $0.2 million higher capitalized software development costs due to more projects eligible for capitalization.
Current wording
Research and development expense decreased $3.9 million, or 29.5% to $9.3 million for the three-month period ended September 30, 2024 from $13.2 million for the three-month period ended September 30, 2023. The decrease in research and development expense was primarily due to $1.6 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities, $1.0 million lower engineering materials spend and $0.8 million lower outside contractor spend due to the restructuring actions implemented in 2023 and streamlining projects and $0.6 million lower restructuring and nonrecurring fees due to restructuring activities undertaken in the third quarter of 2023 that did not repeat.
Previous wording
Sales and marketing expense decreased $1.8 million, or 15.8%, to $9.7 million for the three-month period ended June 30, 2024 from $11.5 million for the three-month period ended June 30, 2023. The decrease in sales and marketing expense was primarily due to $0.7 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities in 2023 offset by new hires in 2024, $0.3 million lower marketing-related spend, mostly due to lower spend on trade shows, $0.3 million lower travel-related costs, $0.2 million lower variable compensation expense and $0.2 million lower share-based compensation expense.
Current wording
Sales and marketing expense decreased $1.3 million, or 13.2%, to $8.4 million for the three-month period ended September 30, 2024 from $9.7 million for the three-month period ended September 30, 2023. The decrease in sales and marketing expense was primarily due to $0.6 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities in 2023 offset by new hires in 2024, $0.2 million lower share-based compensation expense, $0.2 million lower outside contractor spend, $0.2 million lower other outside services and $0.1 million lower restructuring expenses due to restructuring activities undertaken in the third quarter of 2023 that did not repeat in 2024.
Previous wording
Depreciation and amortization expense increased slightly by $0.1 million from the three-month period ended June 30, 2023 to the three-month period ended June 30, 2024.
Current wording
Depreciation and amortization expense increased slightly by $0.1 million from the three-month period ended September 30, 2023 to the three-month period ended September 30, 2024. This increase is mostly driven by the amortization of leasehold improvements related to the new Hoffman Estates office.
Previous wording
Interest expense increased $0.7 million, or 125.2%, to $1.3 million for the three-month period ended June 30, 2024 from $0.6 million for the three-month period ended June 30, 2023. The increase was primarily due to an increase in the interest rate on the term loan and the addition of interest on the revolving credit facility.
Current wording
Interest expense increased $0.8 million, or 126.3%, to $1.4 million for the three-month period ended September 30, 2024 from $0.6 million for the three-month period ended September 30, 2023. The increase was primarily due to an increase in the interest rate on the term loan and the addition of interest on the revolving credit facility, partially offset by an increase in interest income.
Previous wording
Our provision for income taxes at June 30, 2023 was based upon the estimated annual tax rate for the year, applied to federal, state and foreign income. Due to forecasting uncertainty for 2024, our provision for income taxes at June 30, 2024 is based on 6-month year-to-date actual results. Our benefit for income taxes was $4.3 million for the three-month period ended June 30, 2024 versus a benefit for income taxes of $0.7 million for the three-month period ended June 30, 2023. The effective income tax rates were 31.8% and 21.0% over the same periods, respectively. In the three-month period ended June 30, 2023, the effective tax rate of 21.0% was not materially different from the statutory rate of 21.0%. For the three-month period ended June 30, 2024, our effective tax rate of 31.8% was different from the statutory rate of 21.0%, primarily due to the implementation of a tax method change in the U.S. related to the tax capitalization of our research and development expenditures, resulting in a provision-to-return impact, reduction in the required U.S. valuation allowance and a decrease in the Foreign Derived Intangible benefit, while also including in the period an increase in the valuation allowance on the net deferred tax assets of the UK company, maintaining a full valuation allowance on the net UK deferred tax assets.
Current wording
Our provision for income taxes at September 30, 2023 was based upon the estimated annual tax rate for the year, applied to federal, state and foreign income. Due to forecasting uncertainty for 2024, our provision for income taxes at September 30, 2024 is based on 9-month year-to-date actual results. Our provision for income taxes was $0.2 million for the three-month period ended September 30, 2024 versus a provision for income taxes of $3.4 million for the three-month period ended September 30, 2023. The effective income tax rates were (2.2)% and (15.0)% over the same periods, respectively. In the three-month period ended September 30, 2023, the effective tax rate of (15.0)% was different from the statutory rate of 21.0% primarily due to the establishment of a valuation allowance on the net deferred tax assets on the UK company, net of tax benefits on Foreign Derived Intangible Income, tax benefit arising on U.S. Research and Development tax credits, and changes to the excess tax benefits on share-based compensation. For the three-month period ended September 30, 2024, our effective tax rate of (2.2)% was different from the statutory rate of 21.0%, primarily due to an increase in the valuation allowance on the net deferred tax assets of the UK company, maintaining a full valuation allowance on the net UK deferred tax assets.
Previous wording
Revenues decreased $48.7 million, or 35.5%, to $88.3 million for the six-month period ended June 30, 2024, from $136.9 million for the six-month period ended June 30, 2023, with the largest decrease in our enterprise product category driven by lower order volumes from distributors. Revenues also decreased in our point-to-point product category driven by decreased defense orders due to timing of funding in North America and our point-to-multi-point product category as service providers transition to 6 GHz technology.
Current wording
Revenues decreased $48.0 million, or 26.7%, to $132.0 million for the nine-month period ended September 30, 2024, from $180.0 million for the nine-month period ended September 30, 2023, with the largest decrease in our point-to-point product category driven by decreased defense orders. Revenues also decreased in our point-to-multi-point product category driven by lower demand from service providers and in our enterprise product category due to lower order volumes from distributors.
Previous wording
Our PMP revenues decreased $7.1 million, or 26.5%, from the three-month period ended June 30, 2023 to 2024. The decrease in point-to-multi-point revenues was driven by lower demand in all regions from service providers as they begin to adopt and deploy our 6 GHz products.
Current wording
Our PMP product revenues decreased $15.6 million, or 21.4%, from the nine-month period ended September 30, 2023 to 2024. The decrease in our point-to-multi-point product revenues was driven by lower demand from service providers mostly in North America and Europe, Middle East, Asia.
Previous wording
PTP revenues decreased $11.4 million, or 45.5%, from the three-month period ended June 30, 2023 to 2024 mostly driven by lower demand for defense products in North America partially offset by increased demand for defense products in Europe, Middle East, Africa.
Current wording
PTP product revenues decreased $21.5 million, or 36.5%, from the nine-month period ended September 30, 2023 to 2024 mostly driven by lower demand for defense products in North America and for PTP backhaul in Asia Pacific.
Previous wording
Enterprise revenues decreased $23.6 million, or 56.1%, from the six-month period ended June 30, 2023 to 2024. Enterprise revenues decreased in all regions except Caribbean and Latin America, with the largest decrease in North America and Europe, Middle East, Africa, driven mostly by lower order volumes from distributors. Enterprise product revenues are improving, but remain impacted by the recovery of the product supply chain during 2023 which reduced our prior advantage in supply and order fulfillment and therefore, increased competition and aggressive pricing by our competitors.
Current wording
Enterprise product revenues decreased $10.9 million, or 24.5%, from the nine-month period ended September 30, 2023 to 2024. Enterprise revenues decreased in North America and Asia Pacific and increased in Europe, Middle East, Africa, and Caribbean and Latin America. Enterprise product revenues are improving, but the first half of 2024 was impacted by higher channel inventories.
Previous wording
Revenues decreased in all regions except Caribbean and Latin America from the six-month period ended June 30, 2024 to June 30, 2024. North America revenues decreased $41.4 million, or 47.5%, with the largest decrease in PTP product revenues due to lower demand for defense and licensed microwave products, lower enterprise product revenues due to decreased demand for Wi-Fi 6 products and lower PMP revenues due to decreased demand from service providers. Europe, Middle East, Africa revenues decreased by $3.1 million, or 11.6%, mostly driven by lower enterprise product revenues due to decreased Wi-Fi 6 demand and high channel inventory, partially offset by higher PTP revenues due to increased demand from defense. Caribbean and Latin America revenues increased $0.5 million, or 5.1%, mostly driven by higher PMP. Asia Pacific revenues decreased $4.7 million, or 34.2%, mostly driven by lower enterprise product revenues and lower PTP revenues, both due to decreased demand.
Current wording
Revenues decreased in all regions except Caribbean and Latin America from the nine-month period ended September 30, 2023 to September 30, 2024. North America revenues decreased $37.9 million, or 36.1%, with the largest decrease in PTP product revenues due to lower demand for defense, decreased enterprise product revenues during the first half of 2024 due to lower demand for Wi-Fi 6 and switching products and decreased PMP product revenues due to lower demand from service providers. Europe, Middle East, Africa revenues decreased by $5.1 million, or 12.6%, mostly driven by decreased PMP and PTP product revenues driven by lower demand, partially offset by increased enterprise product revenues. Caribbean and Latin America revenues increased $0.7 million, or 4.4%, mostly driven by increased enterprise and PMP product revenues, partially offset by lower PTP product revenues. Asia Pacific revenues decreased $5.6 million, or 29.7%, mostly driven by decreased revenues across all product lines, mostly due to lower demand.
Previous wording
Cost of revenues decreased $2.8 million, or 4.2% to $65.2 million for the six-month period ended June 30, 2024 from $68.0 million for the six-month period ended June 30, 2023. The decrease in cost of revenues was primarily due to decreased revenues but was mostly offset by $8.6 million provision for excess and obsolescence recorded in the six-month period ended June 30, 2024, a $7.1 million increase from the six-month period ended June 30, 2023 and $5.3 million loss on supplier commitment recorded in the six-months ended June 30, 2024, a $4.5 million increase from the six-month period ended June 30, 2023, and higher amortization of capitalized software costs. The increase in the excess and obsolescence reserve was mostly due to a decrease in lifetime demand and increase in the loss on supplier commitment expense was mostly due to decreased demand for fiber and switching components.
Current wording
Cost of revenues decreased $8.7 million, or 8.6% to $91.5 million for the nine-month period ended September 30, 2024 from $100.1 million for the nine-month period ended September 30, 2023. The decrease in cost of revenues was primarily due to decreased revenues, but was offset by $9.3 million provision for excess and obsolescence recorded in the nine-month period ended September 30, 2024, a $3.2 million increase from the nine-month period ended September 30, 2023 and $6.4 million loss on supplier commitment recorded in the nine-month period ended September 30, 2024, a $4.3 million increase from the nine-month period ended September 30, 2023, and higher amortization of capitalized software costs. The increase in the excess and obsolescence reserve was mostly due to a decrease in lifetime demand of certain products, and the increase in the loss on supplier commitment expense was mostly due to decreased demand for fiber and switching components.
Previous wording
Gross margin decreased to 26.2% for the six-month period ended June 30, 2024 from 50.3% for the six-month period ended June 30, 2023. The decrease primarily reflects the impact from an increase in our excess and obsolescence reserve, increase in loss on supplier commitments, lower revenues from higher margin products and fixed services and subscription costs.
Current wording
Gross margin decreased to 30.7% for the nine-month period ended September 30, 2024 from 44.4% for the nine-month period ended September 30, 2023. The decrease primarily reflects the impact from an increase in our excess and obsolescence reserve, increase in loss on supplier commitments, lower revenues from higher margin products and fixed services and subscription costs.
Previous wording
Research and development expense decreased $7.3 million, or 26.9% to $20.0 million for the six-month period ended June 30, 2024 from $27.3 million for the six-month period ended June 30, 2023. The decrease in research and development expense was primarily due to $3.4 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities completed in 2023, $1.4 million lower outside contractor spend due to the restructuring actions implemented in 2023 and streamlining projects, $0.8 million lower share-based compensation expense due to headcount reductions, $0.4 million lower engineering project materials spend, $0.4 million lower corporate bonus expense as we failed to meet bonus targets, $0.3 million lower homologation and regulatory fees due to the timing of projects, $0.2 million lower travel-related spend and $0.2 million lower equipment repairs and maintenance expense.
Current wording
Research and development expense decreased $11.2 million, or 27.7% to $20.0 million for the nine-month period ended September 30, 2024 from $40.4 million for the nine-month period ended September 30, 2023. The decrease in research and development expense was primarily due to $5.0 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities completed in 2023 and the first half of 2024, $2.2 million lower outside contractor spend, $1.3 million lower engineering project material spend, $0.9 million lower share-based compensation expense due to headcount reductions, $0.5 million lower restructuring expenses, $0.3 million higher UK research and development credit, $0.3 million lower corporate bonus expense as we failed to meet bonus targets, $0.3 million lower external software subscription spend, $0.2 million lower travel-related spend, $0.2 million lower homologation and regulatory fees due to the timing of projects.
Previous wording
Sales and marketing expense decreased $3.8 million, or 16.3%, to $19.4 million for the six-month period ended June 30, 2024 from $23.2 million for the six-month period ended June 30, 2023. The decrease in sales and marketing expense was primarily due to $1.3 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities in 2023 offset by new hires in 2024, $0.7 million lower severance expense related to reductions in 2023, $0.7 million lower marketing-related spend, mostly due to lower spend on trade shows, $0.4 million lower travel-related spend, $0.4 million lower share-based compensation expense due to lower headcount and $0.3 million lower outside contractor spend.
Current wording
Sales and marketing expense decreased $5.0 million, or 15.4%, to $19.4 million for the nine-month period ended September 30, 2024 from $32.9 million for the nine-month period ended September 30, 2023. The decrease in sales and marketing expense was primarily due to $2.0 million lower staff-related costs, mostly due to a reduction in headcount from restructuring activities in 2023 offset by new hires in 2024, $0.7 million lower severance expense related to reductions in 2023, $0.7 million lower marketing-related spend, mostly due to lower spend on trade shows, $0.6 million lower share-based compensation expense, $0.6 million lower outside contractor spend and $0.4 million lower travel-related spend.
Previous wording
Depreciation and amortization expense increased slightly by $0.2 million from the six-month period ended June 30, 2023 to the six-month period ended June 30, 2024.
Current wording
Depreciation and amortization expense increased slightly by $0.4 million from the nine-month period ended September 30, 2023 to the nine-month period ended September 30, 2024. This increase is mostly driven by the addition of amortization of leasehold improvements for the new Hoffman Estates office.
Previous wording
Interest expense increased $1.0 million, or 85.8%, to $2.2 million for the six-month period ended June 30, 2024 from $1.2 million for the six-month period ended June 30, 2023. The increase was primarily due to an increase in the interest rate on the term loan and the addition of interest on the revolving credit facility beginning in the first quarter of 2024.
Current wording
Interest expense increased $1.8 million, or 99.8%, to $3.6 million for the nine-month period ended September 30, 2024 from $1.8 million for the nine-month period ended September 30, 2023. The increase was primarily due to an increase in the interest rate on the term loan and the addition of interest on the revolving credit facility beginning in the first quarter of 2024, partially offset by higher interest income and lower bank charges.
Previous wording
Other expense, net decreased from expense of $0.2 million for the six-month period ended June 30, 2023 to $0.1 million for the six-month period ended June 30, 2024, primarily due to foreign currency fluctuations.
Current wording
Other expense, net decreased from expense of $0.3 million for the nine-month period ended September 30, 2023 to $0.1 million for the six-month period ended September 30, 2024, primarily due to foreign currency fluctuations.
Previous wording
Our provision for income taxes at June 30, 2023 was based upon the estimated annual tax rate for the year, applied to federal, state and foreign income. Due to forecasting uncertainty for 2024, our provision for income taxes at June 30, 2024 is based on 6-month year-to-date actual results. Our provision for income taxes was $0.3 million for the six-month period ended June 30, 2024 versus a benefit for income taxes of $0.2 million for the six-month period ended June 30, 2023. The effective income tax rates were (0.7)% and (11.3)% over the same periods, respectively. In the six-month period ended June 30, 2023, the effective tax rate of (11.3)% was different from the statutory rate of 21.0%, primarily due to Foreign Derived Intangible Income, tax benefits arising on Research and Development tax credits, and revaluing of UK deferred tax assets at a higher future tax rate. For the six-month period ended June 30, 2024, our effective tax rate of (0.7)% was different from the statutory rate of 21.0%, primarily due to the implementation of a tax method change in the U.S. related to the tax capitalization of our research and development expenditures, resulting in a provision-to-return impact, and a reduction in the U.S. valuation allowance, while also including in the period an increase in the valuation allowance on the net deferred tax assets of the UK company, maintaining a full valuation allowance on the net UK deferred tax assets.
Current wording
Our provision for income taxes at September 30, 2023 was based upon the estimated annual tax rate for the year, applied to federal, state and foreign income. Due to forecasting uncertainty for 2024, our provision for income taxes at September 30, 2024 is based on nine-month year-to-date actual results. Our provision for income taxes was $0.5 million for the nine-month period ended September 30, 2024 versus a provision for income taxes of $3.3 million for the nine-month period ended September 30, 2023. The effective income tax rates were (1.0)% and (15.3)% over the same periods, respectively. In the nine-month period ended September 30, 2023, the effective tax rate of (15.3)% was different from the statutory rate of 21.0%, primarily due to the establishment of a valuation allowance on the deferred tax assets of the UK company, net of tax benefits on Foreign Derived Intangible Income, tax benefit arising on U.S. Research and Development tax credits, and changes to the excess tax benefits on share-based compensation. For the nine-month period ended September 30, 2024, our effective tax rate of (1.0)% was different from the statutory rate of 21.0%, primarily due to the implementation of a tax method change in the U.S. related to the tax capitalization of our research and development expenditures, resulting in a provision-to-return impact, and a corresponding reduction in the required U.S. valuation allowance, while also including in the period an increase in the valuation allowance on the net deferred tax assets of the UK company, maintaining a full valuation allowance on the net UK deferred tax assets.
Previous wording
As of June 30, 2024, we had a cash balance of $42.6 million, an increase of $23.9 million from December 31, 2023. We drew $40.0 million on our revolving credit facility in the first quarter of 2024 and an additional $5.0 million in the second quarter of 2024 to help manage our working capital needs for the near future, mainly to: (i) fund normal operating expenses; (ii) meet interest and principal requirements of our outstanding indebtedness; and (iii) fund capital expenditures. 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 to support development efforts, the timing of new product introductions, market acceptance of our products and overall economic conditions. We continue to focus on cost management, operating efficiency and efficient discretionary spending. We expect to regularly assess our liquidity needs and market conditions and may raise additional equity or incur additional debt if and when our board of directors determines that doing so is in our best interest. For the second quarter of 2024, all quarterly principal and interest payments have been made in accordance with the terms of our credit facility with Bank of America. As of June 30, 2024, we were in compliance with all affirmative and negative covenants under this credit agreement.
Current wording
As of September 30, 2024, we had a cash balance of $46.5 million, an increase of $27.8 million from December 31, 2023. We drew $45.0 million on our revolving credit facility in the first half of 2024 for working capital needs for the near future, mainly to: (i) fund normal operating expenses; (ii) meet interest and principal requirements of our outstanding indebtedness; and (iii) fund capital expenditures. 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 to support development efforts, the timing of new product introductions, market acceptance of our products and overall economic conditions. We continue to focus on cost management, operating efficiency and efficient discretionary spending. We expect to regularly assess our liquidity needs and market conditions and may raise additional equity or incur additional debt if and when our board of directors determines that doing so is in our best interest.
Previous wording
Net cash used in operating activities for the six-month period ended June 30, 2023 of $10.5 million consisted of net income of $1.6 million, share-based compensation expense of $5.9 million and adjustments for depreciation and amortization and other non-cash impacts of $5.4 million, an increase in deferred tax assets of $3.3 million and changes in operating assets and liabilities that resulted in net cash outflows of $20.1 million. The changes in operating assets and liabilities consisted primarily of a $26.3 million increase in inventories due to lower sales along with management's plan to build inventory to manage component shortages, a $1.5 million decrease in accrued employee compensation due to lower corporate bonus accrual and $1.3 million decrease in accounts payable due to timing of invoices and payments. The uses of cash were partially offset by $4.5 million increase in cash provided by all other assets and liabilities, mostly driven by the increase in accrued sales returns along with collection of the UK RDEC tax credit, $3.8 million reduction in prepaid expenses, mostly due to lower vendor prepayments, $0.6 million higher accrued liabilities primarily related to inventory in transit and $0.2 million decrease in accounts receivable reflecting the impact of lower sales and the timing of collections.
Current wording
Net cash used in operating activities for the nine-month period ended September 30, 2023 of $10.7 million consisted of net loss of $24.6 million, share-based compensation expense of $8.8 million and adjustments for depreciation and amortization and other non-cash impacts of $12.5 million, an increase in deferred tax assets of $0.3 million and changes in operating assets and liabilities that resulted in net cash outflows of $7.71 million. The changes in operating assets and liabilities consisted primarily of a $28.3 million increase in inventories due to lower demand for our products and higher channel inventory, a $6.5 million decrease in accounts payable due to timing of invoices and payments, a $2.0 million decrease in accrued employee compensation due to lower corporate bonus accrual and $1.3 million lower accrued liabilities primarily related to lower inventory in transit. The uses of cash were partially offset by a $22.4 million decrease in accounts receivable reflecting the impact of lower sales and the timing of collections, $4.8 million increase in cash provided by all other assets and liabilities, mostly driven by the increase in accrued sales returns along with collection of the UK RDEC tax credit and $3.0 million reduction in prepaid expenses, mostly due to lower vendor prepayments.
Previous wording
Net cash used in operating activities for the six-month period ended June 30, 2024 of $13.2 million consisted primarily of net loss of $35.6 million, offset by an increase in our provision for inventory excess and obsolescence of $8.6 million, share-based compensation expense of $5.1 million and adjustments for depreciation and amortization and other non-cash impacts of $5.7 million, a decrease in deferred tax assets of $3.7 million and changes in operating assets and liabilities that resulted in net cash outflows of $0.8 million. The changes in operating assets and liabilities consisted primarily of a $4.4 million net increase in income taxes receivable, mostly as a result of an expected income tax refund of $3.6 million, $5.5 million higher prepaid expenses, mostly as a result of an increase in supplier prepayments, $2.7 million lower accounts payable due to decreased purchases and $0.6 million lower accrued employee compensation, partially offset by $8.4 million lower inventory and $4.1 million lower accounts receivable due to improved cash collections.
Current wording
Net cash used in operating activities for the nine-month period ended September 30, 2024 of $4.3 million consisted primarily of net loss of $45.3 million, offset by an increase in our provision for inventory excess and obsolescence of $9.3 million, share-based compensation expense of $7.6 million and adjustments for depreciation and amortization and other non-cash impacts of $8.4 million, a decrease in deferred tax assets of $3.7 million and changes in operating assets and liabilities that resulted in net cash inflows of $11.9 million. The changes in operating assets and liabilities consisted primarily of a $14.6 million decrease in inventories, $3.8 million decrease in accounts receivable due to lower sales and improved cash collection, $2.1 million decrease in accrued liabilities and $1.7 million decrease in accounts payable due to decreased purchases. These inflows were partially offset by $9.3 million increase in prepaid expenses, mostly as a result of an increase in supplier prepayments and a $1.1 million decrease in employee compensation.
Previous wording
Our investing activities for all periods presented consisted of capital expenditures for property, equipment, internal use software and capitalized labor costs for software to be marketed for sale in support of the growth of our business. The increase in cash used in investing activities for the six-month period ended June 30, 2023 to the six-month period ended June 30, 2024 is mostly due to leasehold improvements completed on the new Hoffman Estates headquarters.
Current wording
Our investing activities for all periods presented consisted of capital expenditures for property, equipment, internal use software and capitalized labor costs for software to be marketed for sale in support of the growth of our business. The increase in cash used in investing activities for the nine-month period ended September 30, 2023 to the nine-month period ended September 30, 2024 is mostly due to leasehold improvements completed on the new Hoffman Estates headquarters.
Previous wording
During the six-month period ended June 30, 2023, net cash used in financing activities of $0.2 million was primarily due to $1.3 million repayment of principal due under the term loan facility with Bank of America and $0.4 million for taxes paid from shares withheld in net settlement of taxes due on vesting of restricted shares issued to our employees partially offset by proceeds received of $1.1 million from the issuance of ordinary shares under our ESPP and $0.4 million from the exercise of share options.
Current wording
During the nine-month period ended September 30, 2023, net cash used in financing activities of $1.0 million was primarily due to $2.0 million repayment of principal due under the term loan facility with Bank of America and $0.7 million for taxes paid from shares withheld in net settlement of taxes due on vesting of restricted shares issued to our employees partially offset by proceeds received of $1.1 million from the issuance of ordinary shares under our ESPP and $0.5 million from the exercise of share options.
Previous wording
During the six-month period ended June 30, 2024, net cash provided by financing activities of $44.3 million was primarily due to $45.0 million drawn down on the revolving credit facility and proceeds received of $0.7 million from the issuance of ordinary shares under our ESPP partially offset by $1.3 million repayment of principal due under the term loan facility with Bank of America.
Current wording
During the nine-month period ended September 30, 2024, net cash provided by financing activities of $43.0 million was primarily due to $45.0 million drawn down on the revolving credit facility and proceeds received of $0.7 million from the issuance of ordinary shares under our ESPP partially offset by $2.6 million repayment of principal due under the term loan facility with Bank of America.
Previous wording
As of June 30, 2024, we had $24.1 million outstanding on our term loan facility and $45.0 million outstanding on our revolving credit facility with Bank of America. The effective interest rate on the term credit facility at June 30, 2024 was 9.17% and the weighted-average interest rate on our revolving credit facility was 8.67%. The Company is required to make quarterly principal payments of $0.7 million under the term credit facility and quarterly interest payments under both the term loan facility and the revolving credit facility. Our term loan facility and revolving credit facility matures on November 17, 2026, at which time the outstanding principal will be due. Refer to Note 6 – Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.
Current wording
As of September 30, 2024, we had $22.8 million outstanding on our term loan facility and $45.0 million outstanding on our revolving credit facility with Bank of America. The effective interest rate on the term credit facility at September 30, 2024 was 8.85% and the weighted-average interest rate on our revolving credit facility was 8.66%. The Company is required to make quarterly principal payments of $0.7 million under the term credit facility and quarterly interest payments under both the term loan facility and the revolving credit facility. For the third quarter of 2024, all quarterly principal and interest payments have been made in accordance with the terms of our credit agreement with Bank of America.
Previous wording
For the six-month period ended June 30, 2024, the only material change to the contractual obligations and commercial commitments from what was disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 is the addition of $45.0 million in long-term debt related to the drawdown of funds against our revolving credit facility. This amount increased from the $40.0 million disclosed for this item in the Form 10-Q for the three-month period ended March 31, 2024 as a result of an additional drawdown of $5.0 million in April 2024. The $45.0 million was drawn down in three draws, the first draw of $10.0 million in February 2024, the second draw of $30.0 million in March 2024 and the third draw of $5.0 million in April 2024. As of June 30, 2024, the weighted average interest rate on the revolving credit facility is 8.67%. Interest is due and payable quarterly. The revolving credit facility matures on November 17, 2026, at which time the outstanding principal will be due. Based on the interest rate at the time of the draw and assuming no repayment of principal until maturity, this increases our obligations by $3.1 million for interest in 2024, $4.0 million for interest in 2025 and $45.0 million for principal and $3.5 million for interest in 2026.
Current wording
For the nine-month period ended September 30, 2024, the only material change to the contractual obligations and commercial commitments from what was disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 is the addition of $45.0 million in long-term debt related to the drawdown of funds against our revolving credit facility. The $45.0 million was drawn down in three draws, the first draw of $10.0 million in February 2024, the second draw of $30.0 million in March 2024 and the third draw of $5.0 million in April 2024. As of September 30, 2024, the weighted average interest rate on the revolving credit facility is 8.66%. Interest is due and payable quarterly. The revolving credit facility matures on November 17, 2026, absent acceleration, at which time the outstanding principal will be due. Based on the interest rate at the time of the draw and assuming no acceleration of the repayment of principal until maturity, this increases our obligations by $3.1 million for interest in 2024, $4.0 million for interest in 2025 and $45.0 million for principal and $3.5 million for interest in 2026.
Previous wording
Our consolidated financial statements and the related notes thereto are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expense and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Current wording
Our consolidated financial statements and the related notes thereto are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expense and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.
Previous wording
During the three-month period ended June 30, 2024, there were no significant changes to our critical accounting policies and estimates. During the three-month period ended June 30, 2024, our share price experienced additional declines and in the month subsequent to quarter end, decreased to a historic low. As indicated in Note 5 of the condensed consolidated financial statements, we evaluated whether there were goodwill triggering events that occurred as of June 30, 2024, and determined there were not. The Company will continue to assess potential goodwill impairment triggering events, including continued impact of slower demand and sustained decreases in our share price. If triggering events occur, we will perform a goodwill impairment assessment that may indicate impairment in a future period. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2023, filed on March 15, 2024, for a more complete discussion of our critical accounting policies and estimates.
Current wording
Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2023, filed on March 15, 2024, for a more complete discussion of our critical accounting policies and estimates. Since the filing of our Form 10-K, there have been no material changes in our significant accounting estimates from those disclosed therein, except as described below:
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
We continue to take action to manage our operating costs to improve profitability and cash flow. We also continue to work closely with our contract manufacturers and supply chain partners to balance production to market demand.