Cambium Networks Corp

Note 1. Business and significant accounting policies

Business

Cambium Networks Corporation (“Cambium” or “Cambium Networks” or the “Company”), incorporated under the laws of the Cayman Islands, is a holding company whose principal operating entities are Cambium Networks, Ltd. (UK), Cambium Networks, Inc. (USA), and Cambium Networks Private Limited (India). On June 26, 2019, the Company completed an Initial Public Offering and the Company's ordinary shares began trading on the Nasdaq Global Market.

Cambium Networks Corporation and its wholly owned subsidiaries design, develop, and manufacture fixed wireless and fiber broadband and enterprise networking infrastructure solutions that are used by businesses, governments, and service providers in urban, suburban and rural environments. Cambium's products simplify and automate the design, deployment, optimization, and management of broadband and Wi-Fi access networks through intelligent automation.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Cambium Networks Corporation and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements as of September 30, 2024, and for the three-month and nine-month periods ended September 30, 2023 and 2024, and the related notes are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements, and, in the opinion of management, reflect all adjustments, which comprise only normal recurring adjustments necessary to state fairly the Company’s financial position as of September 30, 2024 and results of operations for the three-month and nine-month periods ended September 30, 2023 and 2024 and cash flows for the nine-month periods ended September 30, 2023 and 2024. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and related notes thereto for the year ended December 31, 2023 included in the Company’s annual report on Form 10-K and filed with the SEC on March 15, 2024. The results of operations for the three-month and nine-month periods ended September 30, 2024 are not necessarily indicative of the operating results to be expected for the full year.

The Company has reclassified certain prior period amounts in the condensed consolidated statements of cash flows to conform to the current period's presentation. Specifically, within the condensed consolidated statements of cash flows, changes in Income taxes receivable have been reclassified from “Other assets and liabilities” to “Income taxes receivable”. The reclassifications do not affect previously reported cash flows from operating activities in the condensed consolidated statements of cash flows.

Going Concern

In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months, as well as other factors including the markets in which the Company competes and the current customer demand for the Company’s products.

As of September 30, 2024, the Company has made all required principal and interest payment obligations under its Amended Credit Agreement with Bank of America. The Company was in compliance with its monthly liquidity covenant for all measurement periods through September 30, 2024. However, as of September 30, 2024, the Company was not in compliance with its quarterly EBITDA covenant under its Amended Credit Agreement. And, as of October 31, 2024, the Company was not in compliance with its monthly liquidity covenant. The Company is seeking a forbearance from Bank of America, as lender under the Amended Credit Agreement, and is working with the bank to address the Company's noncompliance with the covenants. The Company’s obligations under the Amended Credit Agreement do not mature and become due and payable until November 17, 2026, absent acceleration by the bank. The covenant violations affords the lenders the right to declare the amounts outstanding immediately due and payable, and as such, the term loan facility and the associated deferred debt issuance costs and the revolving credit facility have all been classified as a current liability and the deferred debt issuance costs associated with the revolving credit facility have been classified as a current asset in the accompanying condensed consolidated balance sheet as of September 30, 2024. Please refer to Note 6. Debt, regarding the Company’s debt outstanding under its credit facilities with Bank of America.

The Company is actively taking actions to improve its profitability and ensure future compliance with applicable financial covenants, including acceleration of collection of receivables, deferral of expenditures, cost reductions to align the Company’s cost structure with current and expected revenue levels and sales of excess inventory. In addition, the Company continues to focus on operating efficiency and reducing discretionary spending. Absent any acceleration of debt by the Company's lenders as a result of the covenant noncompliance described above, the Company believes these actions, together with its existing cash balances, provide it with the financial flexibility needed to meet its obligations as they come due over the next twelve months. However, this conclusion depends in part on the Company’s expectations regarding macro-conditions in the markets in which it competes, customer acceptance and purchases of the Company’s products, buying decisions by the Company’s distributors and other factors that are not within the Company’s control.

Based on the Company’s current forecast, it is projecting future noncompliance with its financial covenants within the next twelve months in addition to the covenant noncompliance described above. The Company is in discussions with the bank, but 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 the Company's indebtedness under the Amended Credit Agreement, there is substantial uncertainty the Company would be able to secure capital resources to repay the amounts due. Due to these uncertainties, management concluded that substantial doubt exists with respect to the Company's ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Update to Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies disclosed in the 2023 Form 10-K, Part II, Item 8.

Recently issued accounting standards not yet adopted

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), to improve the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The increased disclosures will enable investors to better understand the major components of an entity's income statement. ASU 2024-03 will be effective for the Company for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact adopting this standard will have on its financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required in an entity's income tax rate reconciliation table and requires disclosure of income taxes paid in both U.S. and foreign jurisdictions. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted. ASU 2023-09 will be effective for the Company for annual reporting periods beginning January 1, 2025. Adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements, but will require increased income tax disclosures. The Company is currently assessing the impact adopting this standard will have on its income tax disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendment requires disclosures of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit of loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment's profit or loss and assets. The new guidance also requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, this guidance should be applied retrospectively to all prior periods presented. The Company is currently evaluating the impact adopting this standard will have on its segment reporting disclosure.

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission's ("SEC") Disclosure Update and Simplification Initiative. The amendments in this update require modification of certain disclosure and presentation requirements for a variety of ASU topics in response to the SEC's Release No. 33-10532. The effective date for each amended topic in the ASC is the date on which the SEC's removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendment will be removed from the Codification and not become effective. Early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.

Note 2. Balance sheet components

Inventories, net

Inventories, net consisted of the following (in thousands):

The decrease in finished goods inventory was primarily in our PMP and Enterprise products. Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory based on historical usage, known trends, and market conditions and judgment about the anticipated future consumption and our ability to sell the inventory. At December 31, 2023 and September 30, 2024, excess and obsolescence reserves were $23.8 million and $32.7 million, respectively. The increase in the reserve in 2024 was mostly driven bylower demand, mostly for PMP products.

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):

Accrued warranty

Provisions for warranty claims are primarily related to our hardware products and are recorded at the time products are sold. The change to accrued warranty was as follows (in thousands):

At December 31, 2023, $1.2 million is included in Other current liabilities and $0.3 million is included in Other noncurrent liabilities on the Company's consolidated balance sheet. At September 30, 2024, $1.3 million is included in Other current liabilities and $0.3 million is included in Other noncurrent liabilities on the Company’s condensed consolidated balance sheet.

Note 3. Property and equipment

Property and equipment, net consisted of the following (in thousands):

Total depreciation expense was $1.1 million and$1.2 million for the three-month periods ended September 30, 2023 and 2024, respectively and $3.2 million and $3.5 million for the nine-month periods ended September 30, 2023 and 2024, respectively.

During the three-month period ended September 30, 2024, the qualitative assessment completed on the Company's long-lived assets indicated the existence of impairment triggers such that the Company would need to assess the undiscounted cash flows at the asset group level for recoverability. Based on the quantitative assessment performed, management concluded the assets were recoverable andno impairment charge was recorded. Refer to Note 5 - Goodwill and intangible assets for additional information.

Note 4. Software

Software consisted of the following (in thousands):

Amortization of acquired and software for internal use is computed using the straight-line method over an estimated useful life of generally three toseven years. Amortization expense recognized on acquired and software for internal use is reflected in depreciation and amortization in the condensed consolidated statements of operations. Amortization expense was $0.1 million and$0.1 million for the three-month periods ended September 30, 2023 and 2024, respectively. Amortization expense was $0.3 million and $0.3 million for the nine-month periods ended September 30, 2023 and 2024, respectively.

Amortization expense recognized on software to be sold or marketed externally was $0.8 million and$1.0 million for the three-month periods ended September 30, 2023 and 2024, respectively, and $2.0 million and $2.8 million for the nine-month periods ended September 30, 2023 and 2024, respectively, and is included in cost of revenues on the condensed consolidated statements of operations.

During the three-month period ended September 30, 2024, the qualitative assessment completed on the Company's long-lived assets indicated the existence of impairment triggers such that the Company would need to assess the undiscounted cash flows at the asset group level for recoverability. Based on the quantitative assessment performed, management concluded the assets were recoverable andno impairment charge was recorded. Refer to Note 5 - Goodwill and intangible assets for additional information.

Based on capitalized software assets at September 30, 2024, estimated amortization expense in future fiscal years is as follows (unaudited and in thousands):

Note 5. Goodwill and intangible assets

There wasno change in the carrying amount of goodwill or intangible assets during the three-month and nine-month periods ended September 30, 2024 (unaudited).

The Company tests goodwill for impairment annually on December 31 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset group below its carrying amount and tests intangible assets if an indicator suggests that the carrying amount may not be recoverable.

Accordingly, the Company completes a quarterly qualitative triggering events assessment which considers significant events and circumstances such as a reporting unit’s historical and current results, assumptions regarding future performance, operating income or cash flows, strategic initiatives and overall economic factors, including significant negative industry or economic trends and macro-economic developments, and sustained declines in the Company's share price or market capitalization, considered in both absolute terms and relative to peers, to determine whether any of these may indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value.

During the three months ended September 30, 2024, the Company experienced a debt covenant breach and a decline in its market capitalization as a result of a sustained decrease in the trading price of the Company's shares, each which represented triggering events requiring management to perform a quantitative goodwill impairment test as of September 30, 2024. The Company engaged a third party valuation firm to assist in preparing the interim goodwill impairment valuations as of September 30, 2024.

For the assessment of goodwill, management determined it operates asone reporting unit and compared the fair value of itsone reporting unit to its carrying value. Both an income and market approach were used in determining the fair value of its one reporting unit. The income approach, or discounted cash flow method, utilized the Company's current forecast based on management's estimates of revenue, expenses, capital expenditures and working capital projections. 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. 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. Based on the results of the quantitative assessments, the fair value of the Company's one reporting unit was marginally in excess of its carrying value and the Company's goodwill was not impaired as of September 30, 2024. When estimating the future cash flows of the Company's one reporting unit, the Company generally assumed revenue in future years would increase with a return to normalized consumption levels across all product lines in the short-term, and future growth rates in line with the expected industry growth rate, and increased operating margins in future years would improve as a result of improved gross margins, mostly due to managing product costs and a reduction of excess and obsolete charges, along with reduced operating expenses as a result of the corporate restructurings and a continued emphasis on controlling discretionary spending. However, if overall market conditions deteriorate, the Company is unable to achieve its forecasted results, or the trading price of its shares continue to decline, future non-cash impairment charges may result which could be material.

The Company also considered its long-lived assets (including intangible assets with definite useful lives), which are amortized over their estimated useful lives. The Company engaged the same third party valuation firm used for the goodwill impairment assessment to assist with the interim long-lived asset recoverability test at September 30, 2024. These assets are reviewed for impairment only when facts or circumstances indicate that the carrying values may not be recoverable. The debt covenant breach as well as the decline in the Company's market capitalization driven by a sustained decrease in the trading price of the Company's shares each were considered to represent triggering events and the Company's long-lived assets were reviewed for impairment. Management concluded the asset group is at the same level as the Company's reporting unit, the primary asset of the asset group was determined to be the Company's customer relationships, with the remaining useful life of the customer relationships estimated to be approximately 61 months. The undiscounted cash flows of the asset group was estimated on a pre-tax basis over the life of the primary asset. Since the asset group constitutes a reporting unit or a business, a residual value was included to capture the approximate proceeds from the eventual disposition of the business. A terminal value approach was used to determine the residual value of the business. The carrying value of the asset group was determined to be the Company's invested capital less debt plus equity. The asset group's recoverability was determined by comparing the carrying value of the asset group to the sum of the undiscounted cash flows of the asset group. Based on the results of the quantitative assessment, the undiscounted cash flows were greater than the carrying value of the asset group, and the asset group was recoverable at September 30, 2024.

The Company will continue to monitor for potential impairment should these impairment indicators continue or new impairment indicators arise.

The useful life, gross carrying value, accumulated amortization, and net balance for each major class of definite-lived intangible assets at each balance sheet date were as follows (in thousands):

Intangible assets are amortized over their expected useful life and none are expected to have a significant residual value at the end of their useful life. Intangible assets amortization expense was $0.4 million and $0.4 million for the three-month periods ended September 30, 2023 and 2024, respectively and $1.1 million and $1.1 million for the nine-month periods ended September 30, 2023 and 2024, respectively.

Based on capitalized intangible assets as of September 30, 2024, estimated amortization expense amounts in future fiscal years are as follows (unaudited and in thousands):

Note 6. Debt

As of September 30, 2024, the Company had$22.8 million outstanding under its term loan facility and$45.0 million outstanding under its revolving credit facility. As of September 30, 2024, the Company hasno availability left under its revolving credit facility (unaudited).

The following table reflects the current and noncurrent portions of the term loan and revolving credit facilities at December 31, 2023 and September 30, 2024 (in thousands):

As of December 31, 2023, the effective interest rate on the term loan facility was 7.69%. As of September 30, 2024, the effective interest rate on the term loan facility was 8.85% (unaudited). The increase in the effective interest rate is being driven mostly by the higher applicable margin as a result of the amendment completed on December 29, 2023.

The Company borrowed $45.0 million against its revolving credit facility during the first half of 2024 for working capital and normal operations. As of September 30, 2024, the weighted-average interest rate for borrowings outstanding under the revolving credit facility was 8.66% (unaudited).

As of September 30, 2024, the Company has made all required quarterly principal and interest payments.

Loan covenants and violations

The Company's credit agreement is subject to financial covenants, including covenants which require the Company to meet key financial ratios and customary affirmative and negative covenants. As of September 30, 2024, the Company was in compliance with its monthly liquidity covenant at each measurement date during the quarter. However, as of September 30, 2024, the Company was not in compliance with its quarterly consolidated EBITDA covenant. This non-payment event of default affords the bank the right to declare the amounts immediately due and payable on the outstanding term loan principal amount of $22.8 million and the outstanding revolving credit facility amount of $45.0 million. The Company is seeking a forbearance from Bank of America, as lender under the Amended Credit Agreement, and is working with the bank to address its noncompliance with the covenant. There can be no assurances that the bank will provide such an agreement and may declare a default and require immediate payment.

The term loan facility and revolving credit facility mature on November 17, 2026, however, the covenant violation gives the bank the right to require immediate payment of the outstanding amounts. Accordingly, the entire $22.8 million outstanding on the term loan facility and the $45.0 million outstanding under the revolving credit facility have been classified as current and included in Current portion of long-term debt, net on the condensed consolidated balance sheets as of September 30, 2024. Further, the $0.2 million of unamortized debt issuance costs associated with the term loan facility are classified as current and included in Current portion of long-term debt, net and $0.4 million of unamortized debt issuance costs associated with the revolving credit facility are classified as current and included in Other current assets on the condensed consolidated balance sheets as of September 30, 2024. If the bank requires immediate repayment of the outstanding term loan facility and revolving credit facility, the Company would be required to write-off these unamortized debt issuance costs upon extinguishment of the debt (unaudited).

Refer to Note 16. Subsequent events for disclosure of the Company's noncompliance with its monthly liquidity covenant as of October 31, 2024.

Interest expense

Net interest expense, including bank charges and amortization of debt issuance costs on the debt, was $0.6 million and$1.4 million for the three-month periods ended September 30, 2023 and 2024, respectively, and $1.8 million and $3.6 million for the nine-month periods ended September 30, 2023 and 2024, respectively (unaudited). The increase in interest expense is mostly due to the increase in the interest rate and applicable margin on the term loan facility and the addition of interest expense on the revolving credit facility.

Note 7. Employee benefit plans

The Company’s employee benefit plans currently consist of a retirement plan in the United States and a separate defined contribution plan in the UK. The Company does not offer any other postretirement benefit plans, such as retiree medical and dental benefits or deferred compensation agreements to its employees or officers.

U.S. plan

U.S. employees that satisfy certain eligibility requirements, including requirements related to age and length of service, are eligible to participate in the Cambium Networks, Inc. 401(k) Plan. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee as directed by participants. Under the Cambium Networks, Inc. 401(k) Plan, the Company matches 100% of employee contributions to the 401(k) plan up to a maximum amount of 4% of eligible wages, which matching contributions are subject to vesting in equal annual increments overtwo years of service. All contributions, including the Company match, are made in cash. Contributions made by the Company under the Cambium Networks, Inc. 401(k) Plan were $0.3 million and $0.3 million for the three-month periods ended September 30, 2023 and 2024, respectively, and $1.2 million and $0.6 million for the nine-month periods ended September 30, 2023 and 2024, respectively (unaudited).

UK plan

UK employees who satisfy certain eligibility requirements are eligible to participate in the Cambium Networks Ltd. Stakeholder Pension Scheme, which is a qualified defined contribution plan. Employees are eligible to participate on the first of the month following receipt of their enrollment form, and eligible employees are automatically enrolled in the plan at a default employee contribution rate of 3% of eligible compensation and a company contribution rate of 5% of the employee’s basic salary. The Company contribution rate increases by 1% for each additional 1% that the employee contributes up to a maximum of 7%. Company matching contributions vest immediately and employees are always vested in their own contributions. All contributions, including the Company match, are made in cash and deposited in the participant’s account each pay period. The total contributed by the Company under this plan was $0.1 million and $0.1 million for the three-month periods ended September 30, 2023 and 2024, respectively, and $0.3 million and $0.3 million for the nine-month periods ended September 30, 2023 and 2024, respectively (unaudited).

Note 8. Shareholders' equity

2019 Share incentive plan

In June 2019, the Company’s Board of Directors adopted, and its shareholders approved, the 2019 Share Incentive Plan (“2019 Plan”). The 2019 Plan provides for the grant of incentive share options, nonqualified share options, share appreciation rights, restricted share awards (“RSAs”), restricted share units (“RSUs”), other share-based awards and performance awards. The share reserve under the 2019 Plan is automatically increased on the first day of each fiscal year, beginning with the fiscal year ended December 31, 2020 and continuing until, and including, the fiscal year ending December 31, 2029. The number of shares added annually is equal to the lowest of 1,320,000 shares,5% of the number of the Company’s shares outstanding on the first day of such fiscal year, or an amount determined by the Board of Directors. On March 18, 2024, the Company registered 1,320,000 additional shares that may be issued under the 2019 Plan.

The Company’s employees, officers, directors, consultants, and advisors are eligible to receive awards under the 2019 Plan. Incentive share options, however, may only be granted to the Company's employees.

For the three-month periods ended September 30, 2023 and 2024, the Company recorded corresponding income tax benefits of $0.0 million and $0.0 million, respectively, and for the nine-month periods ended September 30, 2023 and 2024, the Company recorded corresponding income tax benefits of $0.1 million and $0.0 million, respectively (unaudited).

Share-based compensation

The following table shows total share-based compensation expense for the three-month and nine-month periods ended September 30, 2023 and 2024 (unaudited and in thousands):

Share options

The Company's time-based share options typically have a contractual term often years from grant date and typically vest over afour-year period. The Company recognizes compensation expense associated with its time-based share options on a straight-line basis over the requisite service period.

The following is a summary of option activity for the Company’s share incentive plans for the nine-month period ended September 30, 2024 (unaudited):

The Company uses the Black-Scholes option pricing model to estimate the fair value of share options. The Company utilized a forfeiture rateof 8.2%during the nine-month period ended September 30, 2024 for estimating the forfeitures of share options granted.

The fair value of share options is estimated using the following weighted-average assumptions (unaudited):

At September 30, 2024, there was $10.2 million in unrecognized pre-tax share-based compensation expense, net of estimated forfeitures, related to unvested time-based share option awards. The unrecognized share-based compensation expense is expected to be recognized through the second quarter of 2028 (unaudited).

Restricted shares

The Company's time-based RSUs typically vest over afour-year period. The Company recognizes compensation expense associated with its time-based RSUs on a straight-line basis over thefour-year requisite service period.

The following is a summary of restricted shares activity for the Company’s share incentive plan for the nine-month period ended September 30, 2024 (unaudited):

1 Includes time-based RSUs and the performance-based RSUs for which a grant date has been established, as described below.

Of the 138,803 RSUs vested, the Company withheld 11,551 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

The fair value of the RSUs is based on the fair value of the Company's ordinary shares on the grant date. The Company utilized a forfeiture rateof 8.2% during the nine-month period ended September 30, 2024 for estimating the forfeitures of RSUs granted.

As of September 30, 2024, therewas $6.0 million in unrecognized pre-tax compensation expense, net of estimated forfeitures, related to unvested time-based restricted share units. The unrecognized compensation expense is expected to be recognized through the third quarter of 2028 (unaudited).

Performance-based share awards

In May 2023, performance-based share awards were awarded to select executive officers of the Company. The awards contain a performance-based vesting criteria and included 60,000 share options and 135,000 restricted share units. The performance-based awards have two separate annual performance periods, with 50% of the performance-based awards vesting over each of the annual performance periods ending on December 31, 2023 ("First Performance Period") and December 31, 2024 ("Second Performance Period") if the performance goal is met. If the performance goal for that performance period is not met, the performance-based awards do not vest and are forfeited. The performance goal is based on the Company's adjusted earnings per share, as publicly reported by the Company, for each performance period. The method used to measure the fair value of the performance-based awards is consistent with the methods used to measure the fair value of time-based share options and RSUs, as described above. During 2023, the 60,000 share options were forfeited prior to the end of the performance periods due to employee termination.

For performance-based awards that vest during the First Performance Period, the Company's Compensation Committee retained the ability to modify the applicable adjusted earnings per share metric. Due to this discretion, the Company determined that the grantee does not have a mutual understanding of the key terms and conditions of the performance-based awards in the First Performance Period, and a grant date will not exist until the Compensation Committee approves the adjusted earnings per share metric for the First Performance Period. On January 29, 2024, the Compensation Committee determined the performance goals for the First Performance Period were not achieved and the total potential shares of 62,500 RSUs were forfeited (unaudited).

Unlike the performance-based awards in the First Performance Period, the Compensation Committee does not have the discretion to modify the applicable adjusted earnings per share metric for performance-based awards that vest during the Second Performance Period. As such, a mutual understanding of the key terms and conditions, and thus a grant date, exists on the date that the performance-based awards are issued by the Company. As of September 30, 2024, based on the total potential shares that could be earned, there were 37,500 RSUs granted. A grant date fair value was established, and the weighted average grant date fair values calculated in the above tables include these performance-based RSUs. The Company has not recognized any compensation expense on these performance-based awards since the achievement of the performance goal is not probable. As of September 30, 2024, there was $0.5 million in unrecognized pre-tax compensation expense, net of estimated forfeitures, related to these unvested performance-based share awards for the Second Performance Period, which will be recognized over the requisite service period from January 1, 2024 through the first quarter of 2025 if it is probable that the adjusted earnings per share metric will be achieved (unaudited).

Employee share purchase plan

In June 2019, the Company’s Board of Directors adopted, and its shareholders approved, the Employee Share Purchase Plan (“ESPP”). The ESPP was effective on June 25, 2019, and the initial offering period of six months commenced on January 1, 2021. The current offering period of six months commenced on July 1, 2024 and runs through December 31, 2024. The purchase price of the shares is 85%of the lower of the fair market value of the Company’s ordinary shares on the first trading day of the offering period and the purchase date. The ESPP includes an annual increase to the shares available for sale on the first day of each fiscal year beginning in 2020, equal to the lesser of 275,000 shares,1% of the outstanding shares as of the last day of the immediately preceding fiscal year, or such other amount as the administrator may determine. The Company registered 275,000 additional shares on March 18, 2024.

For the three-month periods ended September 30, 2023 and 2024, the Company recognized $0.2 million and $0.1 million, respectively, of share-based compensation expense related to the ESPP. For the nine-month periods ended September 30, 2023 and 2024, the Company recognized $0.7 million and $0.5 million, respectively, of share-based compensation expense related to the ESPP. There were 88,290 shares issued under the ESPP during the three-month and nine-month periods ended September 30, 2023. There were 279,403 shares issued under the ESPP during the three-month and nine-month periods ended September 30, 2024 (unaudited).

Note 9. Loss per share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding during the period. Diluted net earnings per share is computed using the treasury method by giving effect to all potentially dilutive ordinary share equivalents outstanding for the period. For purposes of this calculation, share options, RSUs, and ESPP awards are considered to be ordinary share equivalents but are excluded from the calculation of diluted earnings per share when including them would have an anti-dilutive effect. Performance-based share awards are only included in the calculation of diluted earnings per share if the performance metric would have been achieved as of September 30, 2024 if that had been the end of the contingency period. The following table sets forth the computation of basic and diluted net earnings per share (unaudited and in thousands, except for share and per share data):

In the computation of diluted earnings per share for the three-month and nine-month periods ended September 30, 2023,3,641,637 ordinary share equivalents and 1,753,142 ordinary share equivalents, respectively, were excluded because their inclusion would have been antidilutive. In the computation of diluted earnings per share for the three-month and nine-month periods ended September 30, 2024, the Company did not include any share equivalents because their inclusion would have been antidilutive(unaudited).

Note 10. Income taxes

The Company’s provision for income taxes at September 30, 2023 is based upon the estimated annual tax rate for the year applied to federal, state and foreign income. Due to forecasting uncertainty for 2024, the Company's provision for income taxes at September 30, 2024 is based on the 9-month year-to-date actual results. The Company recorded a provision for income taxes of $3.4 million for the three-month period ended September 30, 2023 and a provision for income taxes of $0.2 million for the three-month period ended September 30, 2024, with an effective tax rate of (15.0)% and (2.2)%, respectively. In the three-month period ended September 30, 2023, the Company's effective tax rate of (15.0)% was different from the statutory rate of 21.0%, primarily due to establishment of a valuation allowance on the net deferred tax assets of the UK company, net of tax benefit on Foreign Derived Intangible Income, tax benefit arising on US 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, the Company’s 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.

In the nine-month periods ended September 30, 2023 and 2024, the Company recorded a tax provision of $3.3 million and tax provision of $0.5 million, respectively, with an effective income tax rate of (15.3)% and (1.0)%, respectively. For the nine-month period ended September 30, 2023, the effective income 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 net deferred tax assets on the UK company, net of tax benefit on Foreign Derived Intangible Income, tax benefits arising on US 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, the effective income 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 the Company's 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.

The Company increased the valuation allowance based on the analysis of cumulative income and loss positions, future income projections, and operating plans. The UK net deferred tax assets at December 31, 2023 were comprised primarily of NOL carryforwards, corporate interest restriction carryforwards and acquired intangibles, amounting to $23.6 million, fully reserving the UK net deferred tax assets. The UK valuation allowance increased during the three-month and nine-month periods ended September 30, 2024 by $2.8 million and $12.2 million, respectively, for a total valuation allowance at September 30, 2024 of $35.8 million, fully reserving the UK net deferred tax assets.

The U.S. net deferred tax assets at December 31, 2023 were comprised primarily of capitalized research costs and share-based compensation, amounting to $15.8 million. The U.S. net deferred tax assets decreased during the three-month and nine-month periods ended September 30, 2024 by $0.5 million and $3.7 million, respectively, as a result of the tax method change referenced above, the Company began deducting a significant portion of its previously capitalized research and development expenditures for tax purposes, which reduced the total U.S. net deferred tax assets at September 30, 2024 of $8.4 million. The U.S. partial valuation allowance at December 31, 2023 was $12.1 million. The U.S. valuation allowance decreased during the three-month and nine-month periods ended September 30, 2024 by $0.5 million and $7.4 million, respectively, for a total valuation allowance at September 30, 2024 of $8.4 million, fully reserving the U.S. net deferred tax assets.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized or not. A significant piece of objective evidence evaluated is the cumulative income or loss incurred over the three-year period ended September 30, 2024 and whether the Company projects a loss for the current year ending December 31, 2024. Management assesses all the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets before they otherwise expire. The Company considers projected future taxable income, reversing taxable temporary differences, carryback opportunities, and prudent tax-planning strategies in making this assessment. The Company is in a cumulative loss position on a consolidated basis, and therefore, the Company considered this as negative evidence in evaluating the realizability of deferred tax assets of the U.S., even if the U.S. is not in a cumulative loss position. However, because the cumulative losses in the UK in recent periods are a significant piece of objective negative evidence that limits the Company's ability to consider certain criteria of subjective positive evidence such as projections for future growth. The ultimate realization of deferred tax assets of the U.S. company is dependent upon the generation of future taxable income in the UK during the period in which those temporary differences are deductible. The amount of the deferred tax asset considered realizable will be adjusted in future periods as necessary based on the reversal pattern of deferred balances and the actual taxable income in the UK and U.S. during the carryforward period, as well as any relevant new facts to be considered.

In applying the statutory tax rate in the effective income tax rate reconciliation, the Company used the statutory U.S. federal income tax rate of 21% rather than the Cayman Islands zero percent rate.

Note 11. Commitments and contingencies

In accordance with ASC 460, Guarantees, the Company recognizes the fair value for guarantee and indemnification arrangements it issues or modifies, if these arrangements are within the scope of the interpretation. In addition, the Company must continue to monitor the conditions that are subject to the guarantees and indemnifications in order to identify if a loss has been incurred. If the Company determines it is probable that a loss has occurred, then any such estimated loss would be recognized under those guarantees and indemnifications and would be recognized in the Company’s condensed consolidated statements of operations and corresponding condensed consolidated balance sheets during that period.

Amended credit agreement

Our Amended Credit Agreement contains customary provisions with respect to the consequences of a “Default” or “Event of Default” as defined therein, including a restriction on the ability to access further borrowings as well as other customary rights and remedies available to the lender upon a Default or Event of Default. These include the ability to impose a default rate interest rate, prohibiting us from reinvesting asset sale proceeds, limiting repayment of intercompany debt and investment in non-loan party subsidiaries, limiting acquisitions, certain asset sales and assumption of indebtedness, and acceleration of the outstanding obligations and exercise of other remedies under the Amended Credit Agreement, among other customary restrictions.

Purchase commitments with contract manufacturers and suppliers

We purchase components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory and components based upon criteria as defined by us, such as forecasted demand. Certain of our inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain components for multiple periods. We record a liability for firm, noncancelable, and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. The Company may be liable to purchase excess product or aged material or components from our suppliers following reasonable mitigation efforts.

Warranties

The Company offers a standard warranty on its products, with the term depending on the product, and records a liability for the estimated future costs associated with potential warranty claims. The Company’s responsibility under its standard warranty is the repair or replacement of in-warranty defective product, or to credit the purchase price of the defective product, at its discretion, without charge to the customer. The Company’s estimate of future warranty costs is largely based on historical experience factors including product failure rates, material usage, and service delivery cost incurred in correcting product failures. The standard warranty is included in either Other current liabilities or Other noncurrent liabilities on its condensed consolidated balance sheets, depending on the time period covered by the warranty. The Company also offers an extended warranty for purchase that represents a future performance obligation for the Company. The extended warranty is included in deferred revenues (both current and noncurrent) on the condensed consolidated balance sheets and recognized on a straight-line basis over the term of the extended warranty. The warranty costs are reflected in the Company’s condensed consolidated statements of operations within cost of revenues.

Indemnification

The Company generally indemnifies its customers against claims brought by a third party to the extent any such claim alleges that the Company’s product infringes a patent, copyright or trademark or violates any other proprietary rights of that third party. The maximum potential amount of future payments the Company may be required to make under these indemnification agreements is not estimable.

The Company indemnifies its directors and officers and select key employees, including key employees serving as directors or officers of the Company’s subsidiaries, for certain events or occurrences, subject to certain limits, while the director or officer is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the director’s or officer’s term of service. The Company may terminate the indemnification agreements with its directors, officers or key employees upon the termination of their services as directors or officers of the Company or its subsidiaries, or the termination of activities for which indemnification has been provided, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that limits its exposure. The Company believes the fair value of these indemnification agreements is minimal.

Legal proceedings

Third parties may from time to time assert legal claims against the Company. The Company records accruals for loss contingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates, on a regular basis, developments in legal proceedings and other matters that could cause a change in amounts recorded. Due to the inherent uncertainty involving legal matters, the ultimate resolution could differ from amounts recorded. There is no pending or threatened legal proceedings to which the Company is a party, that in the Company’s opinion, is likely to have a material adverse effect on its financial condition or results of operations.

Shareholder lawsuit

On May 22, 2024, a putative shareholder class action complaint was filed in the United States District Court for the Northern District of Illinois (Hamby v. Cambium Networks Corporation et al, Case No. 1:24-cv-04240) against us and three of our current or former officers. The complaint purports to assert claims under Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 20(a) of the Exchange Act, on behalf of persons and entities who acquired our ordinary shares between May 8, 2023 and January 18, 2024, or the Class Period. The complaint alleges that, during the Class Period, the Company and certain of its executive officers made false and misleading statements and failed to disclose material adverse facts about its business, operations, and prospects in violation of Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a) of the Exchange Act. The plaintiffs seek damages in an unspecified amount. On July 22, 2024, motions were filed on behalf of purported class member shareholders seeking to serve as lead plaintiff. On October 21, 2024, the court approved the appointment of a lead plaintiff, an amended complaint is expected to be filed by December 4, 2024. This litigation is in its early stages and the Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this claim.

Note 12. Segment information

The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The Company’s CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company determined that it operates asone operating segment andone reporting unit.

Note 13. Revenues from contracts with customers

Revenues consist primarily of revenues from the sale of hardware products with essential embedded software. Revenues also include amounts for software products, extended warranty on hardware products and subscription services. Substantially all products are sold through distributors and other channel partners, such as resellers, managed service providers and systems integrators.

The Company recognizes revenue to reflect the transfer of control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for products or services.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company identifies its distinct performance obligations under each contract. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. Hardware products with essential embedded software, software products, and purchased extended warranty on hardware products have been identified as separate and distinct performance obligations.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring products or services to a customer. An adjustment to revenue is made to adjust the transaction price to exclude the consideration related to products expected to be returned. The Company records an asset at the carrying amount of the estimated stock returns and a liability for the estimated amount expected to be refunded to the customer. The transaction price also excludes other forms of consideration provided to the customer, such as incentives and co-operative marketing allowances.

The Company recognizes revenue when, or as, it satisfies a performance obligation by transferring control of a promised product or service to a customer. Revenue from hardware products with essential embedded software is recognized when control of the asset is transferred, which is typically at the time of shipment. Revenue from perpetual license software is recognized at the point in time that the customer is able to use or benefit from the software. Extended warranty on hardware products is a performance obligation that is satisfied over time, beginning on the effective date of the warranty period and ending on the expiration of the warranty period. The Company recognizes revenue on extended warranties on a straight-line basis over the warranty period. Revenue from software subscriptions is recognized ratably over the term in which the services are provided and the performance obligation is satisfied.

The Company enters into revenue arrangements that may consist of multiple performance obligations, such as hardware products and extended warranty. The Company allocates the transaction price to each performance obligation on a relative standalone selling price basis for each distinct product or service in the contract. The best evidence of standalone selling price is the observable price of a product or service when the Company sells that product or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, the Company estimates the transaction price allocated to each performance obligation using the expected costs plus a margin approach.

Disaggregation of revenues

Revenues by product category were as follows (unaudited and in thousands, except percentages):

The Company’s products are predominately sold through third-party distributors and distributed through a third-party logistics provider with facilities in the United States, Netherlands and Vietnam. The Company has determined the geographical distribution of product revenues based upon the ship-to destinations specified by its distributor customers.

Revenues by geography were as follows (unaudited and in thousands, except percentages):

Contract balances

The following table summarizes contract balances as of December 31, 2023 and September 30, 2024 (in thousands):

Deferred revenue consists of amounts due or received from customers in advance of the Company satisfying performance obligations under contractual arrangements. Deferred revenue is classified as current or noncurrent based on the timing of when revenue will be recognized. The changes in deferred revenue were due to normal timing differences between the Company’s performance and the customers’ payment.

The refund liability is the estimated amount expected to be refunded to customers in relation to product exchanges made as part of the Company’s stock rotation program and returns that have been authorized, but not yet received by the Company. It is included within Other current liabilities in the condensed consolidated balance sheets.

Receivables and concentration of credit risk

Trade accounts receivable represent amounts for which the Company has an unconditional right to payment. Amounts are in accordance with contractual terms and are recorded at face amount less an allowance for credit losses. The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivables. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity indicators for individual customers.

The Company considers the credit risk of all customers and regularly monitors credit risk exposure in its trade receivables. The Company’s standard credit terms with its customers are generally net 30 to 60 days. The Company hadone customer representing more than 10% of trade receivables at December 31, 2023 andone customer representing more than 10% of trade receivables at September 30, 2024.

Remaining performance obligations

Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations included in a contract that are unsatisfied, or partially satisfied, as of the end of a period. As of December 31, 2023, deferred revenue (current and noncurrent) of $19.2 million represents the Company’s remaining performance obligations, of which $8.8 million is expected to be recognized withinone year, with the remainder to be recognized thereafter. As of September 30, 2024, deferred revenue (current and noncurrent) of $20.7 million represents the Company’s remaining performance obligations, of which $9.0 million is expected to be recognized withinone year, with the remainder to be recognized thereafter (unaudited).

Revenue recognized during the three-month period ended September 30, 2024 which was previously included in deferred revenues as of December 31, 2023 was$1.9 million, compared to $1.8 million of revenue recognized during the three-month period ended September 30, 2023, which was previously included in deferred revenues as of December 31, 2022. Revenue recognized during the nine-month period ended September 30, 2024 which was previously included in deferred revenues as of December 31, 2023 was $7.0 million, compared to $7.3 million of revenue recognized during the nine-month period ended September 30, 2023, which was previously included in deferred revenues as of December 31, 2022 (unaudited).

Cost to obtain a contract

Sales commissions are incremental costs of obtaining a contract. The Company haselected to recognize these expenses as incurred, as the amortization period of these costs is one year or less.

Note 14. Related party transactions

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal.

For the three-month and nine-month periods ended September 30, 2023, the Company incurred $0.5 million and $0.6 million, respectively, of related party transactions with its majority shareholder, Vector Capital Management, for reimbursement of expenses and management advisory fees, of which $0.5 million is outstanding at September 30, 2023. Of the amount outstanding at September 30, 2023, $0.3 million is included in Accounts payable and $0.2 million is included in Accrued liabilities in the Company's condensed consolidated balance sheets. For the three-month and nine-month periods ended September 30, 2024, the Company didnot have any material related party transactions to disclose. Transactions with Vector Capital Management are included in general and administrative expenses in the condensed consolidated statements of operations, Accounts payable or Accrued liabilities in the condensed consolidated balance sheets and payments made to Vector Capital are included in Accounts payable in the condensed consolidated statements of cash flows (unaudited).

Note 15. Restructuring

In 2023, the Company announced and initiated two corporate cost reductions plans, the first in August 2023 and the second in November 2023, to better align Cambium's cost structure with current economic conditions and position the Company to achieve near-term and long-term targets to maintain profitability, improve cash flow and maintain a strong balance sheet.

Under the August 2023 restructuring plan, the Company expected and incurred $1.0 million of costs in the three-month period ended September 30, 2023. These costs were all paid by December 31, 2023, and the restructuring plan was completed.

Under the November 2023 restructuring plan, the Company expects to incur between $1.5 - $2.5 million of costs, consisting mostly of one-time involuntary employee termination costs. Cost reductions under the November 2023 plan began in the fourth quarter of 2023 and are expected to be complete and all costs incurred by the end of 2024. For the three month-period ended December 31, 2023, the Company incurred $1.2 million of costs, of which $0.8 million was paid by December 31, 2023. As of December 31, 2023, the Company had a restructuring liability of $0.4 million which was included in Accrued liabilities on the Company's consolidated balance sheet.

During the three-month and nine-month periods ended September 30, 2024, the Company incurred additional restructuring charges under the November 2023 plan of approximately$0.6 million and $1.1 million, respectively, and is included in cost of revenues and all operating expense lines in the Company's condensed consolidated statements of operations. Through September 30, 2024, the Company paid $1.1 million, which consists of the $0.4 million outstanding at December 31, 2023 plus an additional $0.7 million of the costs incurred during the nine month period ended September 30, 2024. As of September 30, 2024, the Company has a restructuring liability of$0.3 million, which is included in Accrued liabilities in the Company's condensed consolidated balance sheet and is expected to be paid by the fourth quarter of 2024 (unaudited).

The following table reflects the restructuring liability activity for the nine-month period ended September 30, 2024 under the November 2023 restructuring plan (unaudited and in thousands):

Note 16. Subsequent events

As of October 31, 2024, the Company was not in compliance with its monthly liquidity covenant under its Amended Credit Agreement with Bank of America. As disclosed in Note 1. Business and significant accounting policies, the Company is currently seeking a forbearance from Bank of America and is working with the bank to address its noncompliance with the covenant.