Cambium Networks Corp
For the period ended Dec 31, 2024. Filed Apr 7, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Apr 7, 2026
CMBMFStored price and day change unavailable
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-15.
0000950170-24-032168
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2026-04-07.
0001193125-26-144057
Item 7. 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 114 current paragraphs.
38 unchanged; 26 reworded; 48 added; 36 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 12 previous and 11 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 (48)
Current report
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 X7-35X, which will be complemented with a broad range of indoor and outdoor Wi-Fi 7 solutions as the industry transition to Wi-Fi 7 occurs.
Current report
Our financial statements as of December 31, 2024 reflect the impact of nonrecurring events, including the following:
Current report
Costs of moving two of our offices in the United States, including our headquarters, as well as costs incurred in moving manufacturing of some of our product lines from Mexico to Thailand; and
Current report
Impairment costs associated with the impairment of our goodwill, customer relationships, intangibles, and long-lived assets.
Current report
The sell-down of inventory across the industry after pandemic-level highs has resulted in a reduction in customer lead times, coupled with a reduction in the prior global supply chain disruptions, and has led to a reduction in customer demand over the period from 2023 through 2024. Macroeconomic factors such as higher interest rates and inflationary pressures, which impact private sector capital investment, and concerns about a global economic slowdown and geopolitical conditions have also added to the softened demand for our products and services and increased our cost of revenues and impacted, and may continue to impact, our gross margin. We continue to see a high level of competition in our industry due to slower demand and aggressive pricing. We also see increased competition and pricing pressure from new competitors such as Starlink significantly driving down global connectivity prices, with satellite bandwidth costs dropping roughly 77% over the last five years due to its rapid constellation deployment and lower manufacturer costs. We have also seen increased competition from mobile network operators who are buttressing their networks to include fixed wireless broadband, and from original design manufacturers who are trying to increase their market share by selling directly to major telecommunications providers. We believe that these market pressures will continue to negatively impact revenues for the foreseeable future. We may continue to face risks of technology shifts that could result in inventory becoming obsolete before it is deployed, including as the industry continues its shift to Wi-Fi 7.
Current report
We are also impacted by the increases in the prices of memory chips from our semiconductor suppliers. Prices for memory chips are increasing faster for newer generations, with components for Wi-Fi 7 considerably more expensive than the price increases for Wi-Fi 6 components relative to components needed for Wi-Fi 5.
Current report
Credit Agreement Default
Current report
We continue to be out of compliance with financial and other covenants under our Amended Credit Agreement with Bank of America, and such defaults continued through 2025 and are expected to continue into 2026. In addition, we ceased payment of required quarterly principal and periodic interest on the term loan facility and of quarterly interest on the revolving credit facility as of June 2025. Such defaults afford the lender the right to declare the amounts outstanding immediately due and payable. We continue to have regular discussions with the lender, we have not been able to obtain a waiver of the defaults from the lender, or otherwise refinance the indebtedness. If the lender were to accelerate the maturity and declare the full outstanding principal and interest immediately due and payable, we would not be able to repay the debt, and therefore, there is substantial uncertainty we would be able to continue as a going concern. Absent acceleration, our Amended Credit Agreement mature on November 17, 2026. Absent an infusion of capital from financing or divestiture, we will be unable to repay this indebtedness when it comes due. Refer to Note 7. Debt, to our consolidated financial statements of this Comprehensive Form 10-K for additional information.
Current report
We continue to take actions to improve our profitability, 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. We are actively seeking additional capital through possible divestitures and/or capital raising transactions and working on accommodation with our lenders to provide us with the financial flexibility needed to meet our obligations as they come due over the next twelve months. Our ability to achieve these objectives depends in part on our expectations regarding macro-conditions in the markets in which we compete, customer acceptance and purchases of our products, buying decisions by our distributors, improvements in our manufacturing challenges with transition to new manufacturers, and other factors that are not all within our control.
Current report
Restatement
Current report
During the course of preparing our financial statements for the fiscal year ended December 31, 2024, we identified material weaknesses in our internal control over financial reporting that led to errors in financial statements previously filed for the Non-Reliance Periods, and accordingly, we determined that a Restatement of the Non-Reliance Periods was required as discussed in the Explanatory Note to this Comprehensive Form 10-K and Note 2. Restatement of consolidated annual financial statements included in the Notes to the consolidated financial statements included in the Comprehensive Form 10-K. The discussion of financial results presented herein is reflective of the restatement adjustments.
Current report
The Restatement was primarily driven by and impacted the following:
Current report
Estimate of variable consideration for customer incentives - We determined that the model that was used to estimate variable consideration arising from customer incentives was not designed to sufficiently include information that was readily available at each reporting date, including historical rebate experience, current channel inventory levels, macroeconomic indicators and observable changes in customer demand. Further, we concluded that retrospective analysis of our variable consideration estimates was not appropriately assessed such that it was probable that a significant reversal of revenue would not occur.
Current report
Estimate of variable consideration for sales returns - We determined that the model that was used to estimate variable consideration arising from sales returns were not designed to sufficiently include information that was readily available at each reporting date, such as the level of inventory held by our distributors, historical returns experience and fluctuations in ending channel inventory balance and actual returns being processed in both historical and subsequent periods. Further, we concluded that retrospective analysis was not sufficiently considered to evaluate the relative precision of the estimated variable consideration and that such retrospective analysis would have revealed opportunities to improve the estimates produced by the model.
Current report
Estimate of inventory excess and obsolescence reserves - We determined that the model that was used to estimate excess and obsolete inventory reserves over finished goods and component inventory did not appropriately evaluate remaining lifetime demand, product life cycles, customer requirements, and technological changes and did not use reasonable and supportable assumptions, including historical sales or usage and remaining lifetime demand.
Current report
Improper revenue recognition on a non-standard contract - We determined that we had incorrectly recognized revenue on a non-standard contract. Under the specific arrangement, control did not transfer to the distributor and consequently revenue should not have been recognized.
Current report
Timely recognition of an impairment on goodwill and long-lived assets- We determined that although we had timely and correctly recognized a triggering event that had occurred related to both long-lived assets and goodwill, the appropriate quantitative impairment analyses that were performed and any resulting impairment charges were inaccurately measured resulting in an impairment charge not being recorded in the correct reporting period.
Current report
Timely recognition of a valuation allowance on deferred tax assets -We determined that all positive and negative evidence relevant to the realizability of deferred tax assets was not appropriately identified, evaluated and monitored on a timely basis. We did not timely consider changes in facts and circumstances affecting the need for, and the amount of, a valuation allowance, or that the resulting deferred tax balances were recorded in the appropriate reporting period.
Current report
Classification of supplier prepayments and loss on supplier liabilities - We determined that certain supplier prepayments and loss on supplier commitment liabilities were incorrectly classified as current on the consolidated balance sheet. Relevant, available and knowable information was not adequately used to determine the appropriate non-current portion of the supplier prepayments and loss on supplier commitment liabilities.
Current report
Estimate of the allowance for credit losses - We determined that certain adjustments to accounts receivable were not recorded on a timely basis driven by poor collection efforts and ineffective dispute resolution. These circumstances delayed the recognition of bad debt expense.
Current report
Impairment
Current report
Impairment expense consists of amounts recorded to impair our goodwill, customer relationship intangible, software and long-lived assets.
Current report
Subscriptions and services revenues increased $0.8 million, or 4.6% from $18.6 million in 2023 to $19.5 million in 2024. The increase was primarily due to increased volume of software subscriptions on fixed wireless broadband products.
Current report
PMP revenues decreased $22.3 million, or 23.3%, from 2023 to 2024. PMP revenues decreased in all regions except the Caribbean and Latin America regions, driven by decreased demand from our service providers for our 28 GHz, PMP 450 and ePMP products.
Current report
Enterprise revenues increased $5.9 million, or 13.3% from 2023 to 2024, with the largest increase in Europe, Middle East, and Africa due to increased demand for Wi-Fi 6 and switching products partially offset by decreased demand for Wi-Fi 5 products. Enterprise revenues decreased in North America, mostly driven by decreased demand for Wi-Fi 6 and switching products.
Current report
Revenues decreased in 2024 compared to 2023, with the largest decrease in North America. The decrease in revenues in North America was driven mostly by decreased PTP revenues driven by lower demand for defense products for the U.S. Government, decreased PMP product revenues driven mostly by lower demand for ePMP and PMP 450 products and decreased enterprise product revenues driven by decreased demand for switching and Wi-Fi 6 products. Revenues in Europe, Middle East, Africa increased year-over-year, mostly from increased enterprise product revenues by increased demand for Wi-Fi 6 and switching products, partially offset by decreased PTP product category revenues driven by decreased demand for defense products. Revenues in Caribbean and Latin America remained relatively flat year-over year, with decreased PTP product revenues mostly offset by increased enterprise and PMP product revenues. The decrease in revenues in Asia Pacific was driven by decreased revenues across all product categories.
Current report
Cost of revenues for products decreased $35.2 million, or 24.9%, from $141.3 million for 2023 to $106.1 million for 2024. The decrease in cost of revenues was primarily due to $8.0 million lower excess and obsolescence and $5.8 million lower loss on supplier commitment expense, along with decreased revenues resulting in lower direct materials costs and lower freight costs.
Current report
Cost of revenues for subscriptions and services decreased $0.4 million, or 4.7%, from $8.6 million for 2023 to $8.2 million for 2024. The decrease in cost of revenues was primarily due to decreased direct services costs.
Current report
Gross margin for products increased from 32.1% in 2023 to 32.7% in 2024. The increase mostly reflects the impact of the above mentioned decreases in excess and obsolescence reserve and loss on supplier commitments offset by lower revenue from higher margin products.
Current report
Gross margin for subscriptions and services increased from 53.8% in 2023 to 57.9% in 2024. The increase mostly reflects the higher subscriptions and services revenue impact on certain fixed costs along with decreased variable costs.
Current report
Research and development expense decreased $14.2 million, or 26.5%, from $53.5 million in 2023 to $39.3 million in 2024. Research and development expense decreased mainly due to $6.3 million lower employee-related expense, mostly due to decreased headcount from the reductions completed in 2023, $2.5 million lower outside contractor spend and $1.4 million lower engineering material spend due to fewer projects, $1.5 million lower restructuring expense as most restructuring occurred in 2023, $0.9 million lower share-based compensation expense due to the lower headcount, $0.5 million higher research and development tax credit, $0.4 million lower homologation and regulatory spend due to the timing and number of projects and $0.4 million lower lease expense and $0.3 million lower travel-related expense due to restrictions place on business travel in 2024.
Current report
Sales and marketing expense decreased $6.2 million, or 14.4%, from $42.9 million in 2023 to $36.7 million in 2024. The decrease in sales and marketing expense was primarily due to $3.6 million lower employee-related expense, mostly due to decreased headcount from the reductions completed in 2023, $1.0 million lower outside contractor spend, $0.9 million lower trade show and marketing-related spend, and $0.8 million lower share-based compensation expense due to lower headcount.
Current report
General and administrative expense decreased $2.1 million, or 7.3%, from $28.1 million in 2023 to $26.0 million in 2024. The decrease in general and administrative expense was primarily due to $1.3 million reduction in nonrecurring costs, mostly related to expenses incurred in 2023 related to the Chief Executive Officer transition that did not repeat in 2024, $0.3 million lower employee-related expense, mostly due to decreased headcount, $0.3 million lower professional fees, $0.2 million lower travel-related expenses and $0.2 million lower insurance expense, partially offset by $0.2 million higher outside contractor spend to backfill due to employee attrition.
Current report
Depreciation and amortization expense decreased $0.7 million, or 11.7%, from $6.2 million in 2023 to $5.4 million in 2024. The decrease in depreciation and amortization was mostly driven by a reduction of depreciation and amortization recorded in the fourth quarter of 2024 as a result of the impairment on property and equipment and customer relationships intangible recorded during the third quarter of 2024, partially offset by higher amortization on the leasehold improvement on the new Hoffman Estates headquarters office.
Current report
Impairment
Current report
We incurred a $25.5 million impairment charge in 2024, with no comparable charge in 2023, associated with the impairment of our property and equipment, goodwill, customer relationships intangible, internal use software, and software marketed for external sale. Refer to the Note 6. Goodwill and intangible assets in our consolidated financial statements included in this Comprehensive Form 10-K for details regarding the impairments recorded.
Current report
Interest expense increased $3.3 million, or 131.8% from $2.5 million in 2023 to $5.8 million in 2024. The increase was primarily due to interest expense incurred in 2024 as a result of drawing $45.0 million against the revolving credit facility in the first quarter of 2024, and an increase in the interest rate on the term loan due to the covenant default in the third quarter of 2024. In addition, the Company expensed $0.6 million of fees in 2024 related to an aborted amendment to our secured credit agreement.
Current report
Other expense, net
Current report
Provision for income taxes
Current report
We were not in compliance with our monthly liquidity covenant as of October 31, 2024 and November 30, 2024 nor our fixed charge coverage ratio or consolidated leverage ratio covenants as of December 31, 2024. These defaults continued throughout all of 2025, and in June 2025, we ceased paying interest on the term loan and revolving credit facility, resulting in a payment default which is also continuing. Such defaults afford Bank of America the right to declare the amounts outstanding under our Amended Credit Agreement immediately due and payable. To provide us with the financing flexibility needed to meet our obligations as they come due over the next twelve months, we are actively seeking additional capital through possible divestitures and/or capital raising transactions and working with Bank of America to address our covenant non-compliance. 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 and interest will be due. For a detailed discussion of our current credit facilities, refer to Note 7. Debt in Notes to Consolidated Financial Statements in Item 8 of Part II of this Comprehensive Form 10-K. For updated disclosure on the Credit Agreement, refer to "Credit Agreement Defaults, above.
Showing the first 40 of 48 passages. Open the source sections for the rest.
Removed paragraphs (36)
Previous report
During 2023, although we experienced an overall improvement in the supply constraints that had persisted industry-wide for multiple periods prior to 2023, we identified an increase in channel inventories, particularly of our Enterprise products, as channel partners had increased purchases in prior periods in order to meet the supply constraints. As a result, we experienced a reduction in customer purchases during 2023 as customers reduced purchases to right-size their inventories or reduce capital spending, as well as an increase in stock rotations. We also experienced softened demand in part due to macroeconomic factors such as higher interest rates, inflation and concerns about a global economic slow-down. This has negatively impacted our net revenues during 2023 and may continue to negatively impact net revenues into the first half of 2024. To reduce excess channel inventories, during the fourth quarter of 2023 we provided additional discounts and other incentives to our customers, which reduced our revenue in the quarter by $11.0 million. In addition, in 2023, we have increased our provision for inventory excess and obsolescence by $16.6 million and increased our loss on supplier commitments by $12.8 million due to a decrease in demand to offset the risk that technology shifts could result in this increased inventory becoming obsolete before it is deployed.
Previous report
Starting in the second quarter and continuing through the fourth quarter of 2023, revenue from our Enterprise products declined, partly resulting from increased competition as a result of readily available component supply reducing our prior advantage in supply and order fulfillment, aggressive pricing by our competitors and poor macroeconomic conditions in our primary markets resulting in lower order volumes from our distributors. Additionally, revenues decreased due to a delay in government defense orders due to U.S. Federal budgetary timing issues impacting the PTP business; sluggish revenues in the PMP business, which is expected to continue until the FCC's approval and subsequent ramp of sales of Cambium's 6 GHz products; a decrease in orders due to excess channel inventory and an increase in stock rotations from distributors in the Enterprise business; and continued economic headwinds, particularly in EMEA.
Previous report
We have taken and continue to take actions to address these issues, including actions to reduce inventory of our Enterprise products as well as to reduce 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.
Previous report
The following is the discussion and analysis of changes in the financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. The discussion and analysis of 2022 and changes in the financial condition and results of operations for the year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Part II, Item 7 of our Annual report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (SEC) on February 27, 2023, which is incorporated by reference to this Part II, Item 7 of this Annual Report on Form 10-K.
Previous report
Our PMP product line comprised 39% of total revenues for 2022 and 43% of total revenues for 2023. The decline in PMP revenue was driven by slower network buildouts in North America ahead of an expected product transition to 6 GHz technology and lower demand in Europe, Middle East, Africa slightly offset by higher demand from our service providers for our 28 GHz fixed 5G, 60 GHz and fiber products.
Previous report
Enterprise revenues decreased $70.7 million, or 64.4% from 2022 to 2023. Enterprise revenues decreased in all regions, with the largest decrease in Europe, Middle East, Africa. Although the constraints in our product supply chain have eased, enterprise revenues have decreased as our prior advantage in supply and order fulfillment has diminished and revenues have been negatively impacted by high levels of inventory in the channel, increased competition and aggressive pricing by our competitors. Revenues were also impacted, especially in the third and fourth quarter of 2023, by higher stock rotations and additional discounts offered to our distributors to reduce channel inventory.
Previous report
Revenues decreased in 2023 compared to 2022 in all regions, with the largest decrease in Europe, Middle East, Africa. The decrease in revenues in North America was driven mostly by decreased enterprise revenues due to lower demand as a result of high levels of inventory in the channels, higher levels of stock rotation and increased discounting, mostly offset by higher PTP revenues as a result of higher demand for defense products. The decrease in revenues in Europe, Middle East, Africa was driven mostly by decreased enterprise revenues due to high levels of channel inventory and decreased PMP revenues as technology is expected to move to new gigabit technologies within our product portfolio, partially offset by increased PTP revenues due to higher demand from defense business. The decrease in revenues in Caribbean and Latin America revenues was driven mostly by decreased PMP revenues due to lower demand and decreased enterprise revenues as a result of lower demand due to high levels of inventory in the channels and increased incentives provided to distributors to reduce channel inventory. The decrease in revenues in Asia Pacific was driven mostly by decreased enterprise revenues as a result of lower demand due to high levels of inventory in the channels and decreased PMP revenues.
Previous report
Cost of revenues decreased $0.4 million, or 0.3%, from $151.8 million for 2022 to $151.4 million for 2023. The decrease in cost of revenues was primarily due to decreased revenues and lower productions costs due to decreases in component charges as a result of improved availability of components, mostly offset by an increase in excess and obsolescence mostly as a result of high levels of enterprise inventories industry wide and in our channel and increase in loss on supplier commitments as a result of our obligations relating to overestimates in forecast demand. For 2023, we recorded $16.6 million for excess and obsolescence, a $12.8 million increase from 2022, and $12.8 million for loss on supplier commitments, a $12.3 million increase from 2022.
Previous report
Gross margin decreased from 48.9% in 2022 to 31.3% in 2023. The decrease reflects decreased revenues from higher margin products, the impact from the above mentioned increases in excess and obsolescence and loss on supplier commitments, $11.0 million of additional incentives provided to distributors, and increased freight and supply operations costs as a percentage of revenue. Gross margin benefited from lower production costs due to decreases in component charges as a result of increased availability of components.
Previous report
Research and development expense increased $3.6 million, or 7.2%, from $49.9 million in 2022 to $53.5 million in 2023. As a percentage of revenues, research and development expenses increased from 16.8% in 2022 to 24.3% in 2023. Research and development expense increased mainly due to $3.4 million higher employee-related expense due to increased headcount, $2.0 million of restructuring expenses incurred in 2023, $0.7 million higher outside contractor spend, $0.5 million higher shared lease and IT expenses due to increase in leased space and headcount and $0.2 million higher travel-related expense. These increases were partially offset by $1.8 million higher capitalized software costs due to an increase in projects eligible for capitalization, $0.8 million lower engineering material spend based on timing of projects and $0.7 million decrease in corporate bonus expense as we failed to meet bonus targets.
Previous report
Sales and marketing expense decreased $1.9 million, or 4.2%, from $44.5 million in 2022 to $42.6 million in 2023. As a percentage of revenues, sales and marketing expense increased from 15.0% in 2022 to 19.3% in 2023. The decrease in sales and marketing expense was primarily due to $3.4 million lower variable compensation expense due to lower revenues along with $0.2 million lower homologation and regulatory testing expense and $0.2 million lower trade show and marketing-related spend. These decreases were partially offset by $1.0 million higher employee-related expense, $0.5 million higher outside contractor spend, $0.4 million of restructuring expenses incurred in 2023, $0.3 million higher travel-related spend and $0.2 million lower corporate bonus expense as we failed to meet bonus targets.
Previous report
General and administrative expense increased $2.4 million, or 9.7%, from $25.0 million in 2022 to $27.4 million in 2023. As a percentage of revenues, general and administrative expense increased from 8.4% in 2022 to 12.5% in 2023. The increase in general and administrative expense was primarily due to $1.0 million of expenses incurred in 2023 as part of the Chief Executive Officer transition, $0.8 million higher share-based compensation expense due to new employee equity grants issued, $0.5 million higher employee-related expense due to increased headcount, $0.4 million higher audit and tax fees, $0.3 million higher software and subscription purchases and $0.2 million higher legal expenses. These increases were offset by $0.9 million lower insurance expense in 2023.
Previous report
Depreciation and amortization expense increased $0.2 million, or 4.2%, from $6.0 million in 2022 to $6.2 million in 2023. The slight increase in depreciation and amortization was mostly driven by the increase in depreciation on new assets placed in service offset by a decrease in amortization of finite-lived intangibles and purchased software.
Previous report
Interest expense increased $0.5 million, or 27.5% from $2.0 million in 2022 to $2.5 million in 2023. The increase was primarily due to an increase in the interest rate on the term loan partially offset by higher interest received.
Previous report
Other (income) expense, net
Previous report
(Benefit) provision for income taxes
Previous report
As of December 31, 2023, we had $25.4 million outstanding principal debt on our term loan, including the current portion of $3.3 million. As of December 31, 2023, we had $45.0 million available under our revolving credit facility, with no amounts drawn thereunder. For 2022 and 2023, in accordance with the terms of our credit facility with Bank of America, all quarterly principal and interest payments have been made.
Previous report
The maturity date of the Revolving Facility and Term Facility remains unchanged, with both the Revolving Facility and the Term Facility terminating (as applicable), and all amounts outstanding thereunder becoming due and payable in full, on November 17, 2026 (the “Maturity Date”).
Previous report
As was the case in the Existing Credit Agreement, the Amended Credit Agreement provides that we have the option to borrow Revolving Loans under the Revolving Facility in the form of either Base Rate Loans or Term SOFR Loans. Any outstanding principal amounts of Term SOFR Loans that may be borrowed under the Revolving Facility will bear interest at the same rates as described above.
Previous report
We were in compliance with all financial covenants under the Amended Credit Agreement at December 31, 2022 and 2023.
Previous report
Net cash used in operating activities for 2022 of $3.1 million consisted primarily of net income of $20.2 million, adjustments for depreciation and amortization of $7.9 million, share-based compensation expense of $10.7 million and increase in provision for inventory excess and obsolescence of $3.7 million offset by a $5.2 million increase in deferred income taxes along with changes in operating assets and liabilities that resulted in net cash outflows of $40.3 million. The changes in operating assets and liabilities consisted primarily of a $27.0 million increase in inventories due to management's plan to build inventory in response to supply chain constraints, $12.9 million increase in accounts receivable reflecting higher sales and the timing of collections, and $8.9 million decrease in accrued employee compensation primarily due to the payment of the 2021 corporate bonus net of the 2022 corporate bonus accrual offset by $8.5 million increase in cash provided by all other assets and liabilities, mostly driven by the $5.3 million increase in deferred revenues and $2.8 million increase in accounts payable due to the timing of purchases and payments.
Previous report
The maturity date of the Revolving Facility and Term Facility remains unchanged, with both the Revolving Facility and the Term Facility terminating (as applicable), and all amounts outstanding thereunder, becoming due and payable in full, on November 17, 2026 (the “Maturity Date”). For a detailed discussion of our current credit facilities, refer to Note 6, Debt in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Previous report
Summary of contractual obligations
Previous report
We lease office space and equipment under operating leases that run through 2037. Additionally, our BofA Credit Agreement matures and becomes due and payable in November 2026.
Previous report
A summary of our contractual obligations at December 31, 2023 are as follows (in thousands):
Previous report
These amounts represent the undiscounted remaining lease payments. For a detailed discussion on our operating leases, refer to Note 14, Leases, in Notes to Consolidated Financial Statements in Item 8 of part II of this Annual Report on Form 10-K.
Previous report
These amounts represent the scheduled principal payments based on their contractual maturities related to our term loan with Bank of America and interest payments based on the all-in interest rate in effect on December 31, 2023 of 8.7227% through February 2025 and then reduced to 7.2277% when the applicable rate is reduced from 3.25% to 1.75%. For a detailed discussion of our credit facilities, refer to Note 6, Debt, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
Previous report
These amounts represents purchases included on open purchase orders for goods or services that have not yet been received and supplier commitments based on demand plans at December 31, 2023, primarily for inventory-related and component purchases with our suppliers. This also includes the $12.9 million loss on commitments which is included in Accrued liabilities on our consolidated balance sheet.
Previous report
In addition to the contractual obligations noted above, we expect our spend for capital expenditures will remain consistent with 2023. We believe that cash generated from operations, together with existing sources of liquidity, will satisfy the cash requirements for these contractual obligations.
Previous report
Critical accounting policies and estimates
Previous report
Inventory and inventory valuation
Previous report
Inventories are stated at the lower of cost or net realizable value. In determining the cost of raw materials, consumables and goods purchased for resale, the weighted average purchase price is used. For finished goods, cost is computed as production cost including capitalized inbound freight costs.
Previous report
Goodwill
Previous report
We performed a qualitative assessment for 2023 and evaluated whether there were goodwill triggering events that occurred and determined there were not. In particular, we considered our share price declines that resulted in a historic low for the year. We continue to monitor market capitalization and assess potential goodwill impairment triggering events, including the continued impact of slower demand, higher channel inventory 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.
Previous report
JOBS Act accounting election
Previous report
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Reworded paragraphs (26)
Previous wording
The following discussion and analysis of financial condition and results of operations was prepared to provide the reader with a view and perspective of our business through the eyes of management and 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 Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materiality from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly those discussed under Part I, Item 1A. “Risk Factors.” Our historical results 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 operations was prepared to provide the reader with a view and perspective of our business through the eyes of management and 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 Comprehensive Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Comprehensive Form 10-K, particularly those discussed under Part I, Item 1A. “Risk Factors.” Our historical results 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 wireless and fiber broadband and enterprise networking infrastructure solutions for a wide range of applications, including broadband access, wireless backhaul, IoT, public safety communications, and Wi-Fi access. Our products are used by businesses, governments, and service providers to build, expand and upgrade broadband networks. 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 third quarter of 2023, we introduced and had our first commercial shipments of a passive optical networking (PON) solution, supporting Gigabit PON (GPON) and XGS-PON (also known as 10G-PON or G987). The Enterprise portfolio includes Wi-Fi access points, and other networking devices.
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. 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 and fiber Broadband ("FWB"), Enterprise networking, and Subscription and Services.
Previous wording
The Subscription and Services portfolio includes network planning and design as well as 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 wireless network. It provides a single, centralized view of all network devices, including wired and wireless broadband and Enterprise, as well as real-time performance and usage data, and allows users to make changes to the 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; integrated security gateway and software defined wide area network (SD-WAN) for small and medium businesses; and automated and intelligent network optimization.
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 networks. 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 Network Service Edge ("NSE"), an integrated security gateway and SD-WAN service for small and medium businesses may also be associated with a subscription for network security services.
Previous wording
We continue to monitor the impact of macroeconomic factors, including a potential global recession, inflationary pressures, and growing political tensions as a result of the Russia-Ukraine conflict, the recent rapidly accelerating conflict in Israel and Gaza, and escalating tensions between China and Taiwan, and associated tensions between the U.S. and China. We also believe that our customers continue to grapple with the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders. Any prolonged economic disruptions, further deterioration in the global economy or outbreaks of international hostilities could have a negative impact on demand from our customers in future periods.
Current wording
We continue to monitor the impact of macroeconomic factors, including a potential global recession, inflationary pressures, monetary policy shifts, trade wars and growing political tensions globally that continue to impact our industry and our business. We also believe that our customers continue to grapple with the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders, resulting in a decrease in visibility to customer demand. Any prolonged economic disruptions, continued uncertainty over global trade wars, as well as further deterioration in the global economy or outbreaks of international hostilities could have a negative impact on demand from our customers in future periods.
Previous wording
The impact of reverse globalization, including a more nationalistic trend globally leading to increasing government requirements for domestically produced products or limiting the sourcing of components and other products from China and elsewhere, has led us to limit our reliance on third-party manufacturers in China and have moved manufacturing to other locations, which could cause disruptions in our supply operations.
Current wording
The impact of reverse globalization, including a more nationalistic trend globally leading to increasing government requirements for domestically produced products or limiting the sourcing of components and other products from China and elsewhere, has led us to limit our reliance on third-party manufacturers in China and move manufacturing to other locations, particularly Thailand, which has caused some disruptions in our supply operations, together with the impact of moving manufacture of some products to suppliers who have no recent experience building similar products. Nationalistic trends are occurring in various geographies, which may make it impractical for us to do business in some countries.
Previous wording
Our revenues are generated primarily from the sale of hardware products with essential embedded software. Our revenues also include amounts for software products, extended warranty on hardware products and subscription services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met and is measured based on the consideration to which we expect to be entitled based on customer contracts. Revenues are adjusted for variable consideration amounts, including but not limited to estimated stock returns, discounts, rebates and cooperative marketing allowances that we provide to distributors. Our revenue was impacted in the fourth quarter of 2024 by $11.0 million of incentives, mostly related to enterprise products, offered to distributors to help reduce channel inventories. The largest decrease in revenues was in our enterprise product category driven by lower demand due to high channel inventories and slowing economies along with increased stock rotations and the aforementioned incentives. We recognize subscription services revenue ratably over the term in which the services are provided and our performance obligation is satisfied. We provide a standard warranty on our hardware products, with the term depending on the product, and record a liability for the estimated future costs associated with potential warranty claims. In addition, we also offer extended warranties for purchase and represents a future performance obligation for us. The extended warranty is included in deferred revenues and is recognized on a straight-line basis over the term of the extended warranty.
Current wording
Our revenues are generated primarily from the sale of hardware products with essential embedded software. Our revenues also include amounts for software products, extended warranty on hardware products and subscription services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met and we measure revenue based on the consideration to which we expect to be entitled to based on customer contracts. We recognize subscription services revenue ratably over the term in which the services are provided and our performance obligation is satisfied. Revenues are adjusted for variable consideration amounts, including but not limited to estimated stock returns, customer incentives, and cooperative marketing allowances that we provide to distributors. We provide a standard warranty on our hardware products, with the term depending on the product, and record a liability for the estimated future costs associated with potential warranty claims. In addition, we also offer extended warranties for purchase that represents a future performance obligation for us. The extended warranty is included in deferred revenues and is recognized on a straight-line basis over the term of the extended warranty.
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, Vietnam, Israel and Taiwan. Cost of revenues also includes costs associated with supply operations, including personnel related and allocated overhead costs, provision for excess and obsolete inventory, third-party license costs and third-party costs related to services we provide. Cost of revenues also includes amortization of capitalized software 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 Thailand, Vietnam, Philippines, and Taiwan. Cost of revenues also includes costs associated with supply operations, including personnel and related allocated overhead costs, provision for excess and obsolete inventory, 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 costs associated with products to be sold, and charges for excess and obsolescence and losses on supplier commitments.
Previous wording
Gross profit has been and will continue to be affected by various factors, including changes in product mix. The margin profile of products within each of our core product categories can vary significantly depending on the operating performance, features and manufacturer of the product. Generally, our gross margins on backhaul and fixed wireless access point products are greater than those on our CPE products. Because the ratio of CPE to PTP and PMP access points typically increases as network operators build out the density of their networks, increases in follow-on sales to network operators as a percentage of our total sales typically have a downward effect on our overall gross margins. Finally, gross margin will also vary as a function of changes in pricing due to competitive pressure, our third-party manufacturing and other production costs, cost of shipping and logistics, provision for excess and obsolete inventory and other factors. We expect our gross margins will fluctuate from period to period depending on the interplay of these various factors. In 2023, we recorded $16.6 million for excess and obsolescence, a $12.8 million increase from 2022, and $12.8 million loss on supplier commitments, a $12.3 million increase from 2022.
Current wording
Gross profit has been and will continue to be affected by various factors, including changes in product mix. The margin profile of products within each of our core product categories can vary significantly depending on the operating performance, features and manufacturer of the product. Generally, our gross margins on backhaul and fixed wireless access point products are greater than those on our CPE products. Because the ratio of CPE to PTP and PMP access points typically increases as network operators build out the density of their networks, increases in follow-on sales to network operators as a percentage of our total sales generally have a downward effect on our overall gross margins. Finally, gross margin will also vary as a function of changes in pricing due to competitive pressure, our third-party manufacturing and other production costs, cost of shipping and logistics, provision for excess and obsolete inventory, loss on supplier commitments, and other factors. We expect our gross margins will fluctuate from period to period depending on the interplay of these various factors.
Previous wording
We classify our operating expense as research and development, sales and marketing, and general and administrative expense. Personnel costs are the primary component of each of these operating expense categories, which consist of personnel costs such as salaries, sales commissions, benefits, and bonuses, as well as share-based compensation expense. Depreciation and amortization of long-lived assets is separately disclosed in the statements of operations.
Current wording
We classify our operating expense as research and development, sales and marketing, and general and administrative expense. Personnel costs are the primary component of each of these operating expense categories, which consist of costs such as salaries, sales commissions, benefits, and bonuses, as well as share-based compensation expense. Depreciation and amortization of long-lived assets is separately disclosed in the statements of operations. In 2024, we recorded impairment of goodwill, intangibles and long-lived assets and this is separately disclosed in the statements of operations.
Previous wording
In addition to personnel-related costs, research and development expense consists of costs associated with design and development of our products, product certification, travel, recruiting and shared facility and shared IT costs. We generally recognize research and development expense as incurred. For certain of our software projects under development, we capitalize the development cost during the period between determining technological feasibility of the product and commercial release. We amortize the capitalized development cost upon commercial release, generally over three years and is included in cost of revenues. We typically do not capitalize costs related to the development of first-generation product offerings as technological feasibility generally coincides with general availability of the software.
Current wording
In addition to personnel costs, research and development expense consists of costs associated with the design and development of our products, product certification, travel, recruiting, shared facility and shared IT costs. We generally recognize research and development expense as incurred. For certain of our software projects under development, we capitalize the development cost during the period between determining technological feasibility of the product and commercial release. We amortize the capitalized development cost upon commercial release, generally over three years, and include the amortization costs in cost of revenues on our statements of operations. We typically do not capitalize costs related to the development of first-generation product offerings as technological feasibility generally coincides with general availability of the software.
Previous wording
Revenues decreased $76.7 million, or 25.8% from $296.9 million in 2022 to $220.2 million in 2023, and were impacted in the fourth quarter of 2023 by $11.0 million of incentives, mostly related to enterprise products, provided to distributors to help reduce channel inventories. The largest decrease in revenues was in our enterprise product category driven by lower demand due to high channel inventories and slowing economies along with increased stock rotations and the aforementioned incentives. Revenues also decreased in our point-to-multi-point product category primarily driven by lower demand from service providers awaiting the addition of 6 GHz spectrum. Revenues increased in our point-to-point product category, mostly in North America, as a result of increased demand for defense products for federal governments.
Current wording
Product revenues decreased $50.3 million, or 24.2% from $208.1 million in 2023 to $157.8 million in 2024. The decrease was primarily due to our point-to-point product category, mostly in North America, partially as a result of decreased demand for defense products for the U.S. federal government. Revenues also decreased in our point-to-multi-point product category primarily driven by decreased demand for our 28 GHz products. Revenues increased in our enterprise product category driven by increased demand for our Wi-Fi 6 products.
Previous wording
PTP revenues increased across all regions, mostly driven by increased revenues in North America and Europe, Middle East, Africa as a result of increased demand for defense products for federal governments.
Current wording
PTP revenues decreased $33.3 million, or 40.8%, from 2023 to 2024. PTP revenues decreased across all regions, mostly driven by decreased revenues in North America as a result of decreased demand for defense products for federal governments.
Previous wording
Other (income) expense, net changed from income of $0.1 million in 2022 to expense of $0.3 million in 2023. The change is primarily associated with foreign currency fluctuations.
Current wording
Other expense, net decreased from expense of $0.3 million in 2023 to expense of $0.1 million in 2024. The change is primarily associated with foreign currency fluctuations.
Previous wording
Our tax provision changed from a tax benefit of ($2.2) million in 2022 to a tax provision of $13.8 million for 2023. The effective tax rates for the years ended December 31, 2022 and 2023 were (12.1)% and (21.6)%, respectively. For the year ended December 31, 2023, our income tax (benefit) provision changed by $16.0 million from the year ended December 31, 2022 primarily due to a change to our income tax benefit at the U.S. statutory tax rate of $13.4 million in 2023 versus a tax expense of $3.8 million in 2022, a tax expense due to an increase in the valuation allowance of $34.5 million primarily as a result of the recognition of a valuation allowance on the UK loss and a tax benefit of $1.9 million on revaluation of UK deferred tax assets at a higher rate. For the year ended December 31, 2022, the Company’s effective tax rate of (12.1)% differed from the U.S. statutory rate of 21.0% primarily due to research and development tax credits of $2.8 million, a benefit on Foreign Derived Intangible Income of $2.3 million, and a tax benefit of $0.9 million on revaluation of the UK deferred tax assets at a higher tax rate. For the year ended December 31, 2023, the Company’s effective tax rate of (21.6)%. The effective tax rate differed from the U.S. statutory rate of 21.0% primarily due to a tax expense on the valuation allowance in 2023 of $35.4 million. See Note 11 - Income taxes in the Notes to the Consolidated Financial Statements for more information related to income taxes.
Current wording
For the year ended December 31, 2023, the Company's effective tax rate was (30.9)%. The effective tax rate differed from the U.S. statutory rate of 21.0% primarily due to a pretax loss, the net increase in the valuation allowance of $37.3 million, a tax benefit on Foreign Derived Intangible Income of $2.9 million, and a benefit on research and development credits of $2.4 million. For the year ended December 31, 2024, the Company's effective tax rate was 2.4%. The effective tax rate differed from the U.S. statutory rate of 21.0% primarily due to a pretax loss, the net increase in the valuation allowance of $12.3 million, a foreign tax rate differential of $(2.5) million, $2.7 million return to provision adjustment primarily due to a tax method change in the U.S. 2023 tax return related to the tax capitalization of our research and development expenditures, $1.5 million for establishment of a deferred tax liability for withholding tax on non-permanent investment in subsidiaries, a $1.2 million tax expense related to share-based compensation, and a benefit on research and development credits of $(0.3) million. See Note 13. Income taxes in the Notes to the consolidated financial statements for more information related to income taxes.
Previous wording
As of December 31, 2023, we had a cash balance of $18.7 million. Our primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet interest and principal requirements of our outstanding indebtedness; and (iii) to fund capital expenditures. We believe our existing cash, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to meet these needs over at least the next 12 months. We continue to focus on cost management, operating efficiency and efficient discretionary spending. In addition, if necessary, we expect to leverage our revolving credit facility to manage our working capital needs in the near future. 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 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.
Current wording
As of December 31, 2024, we had a cash balance of $34.9 million, an increase of $16.2 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 mainly to: (i) fund normal operating expenses; (ii) meet interest and principal requirements of our outstanding indebtedness; and (iii) fund capital expenditures. Following this draw down, we have no remaining available liquidity under our revolving credit facility. 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 seek alternative sources of financing if and when our board of directors determines that doing so is in our best interest.
Previous wording
On November 17, 2021, we established a new credit facility with Bank of America ("BofA Credit Agreement"). The BofA Credit Agreement allows for total borrowings of $75.0 million, which includes a $30.0 million term loan and a revolving loan of $45.0 million. On November 17, 2021, we borrowed the entire $30.0 million term loan. As of December 31, 2023, we had $25.4 million outstanding principal debt on our term loan, including the current portion of $3.3 million. As of December 31, 2023, the Company had $45.0 million available under the revolving commitments, with no amounts drawn thereunder.
Current wording
On November 17, 2021, we established a new credit facility (the "Credit Agreement") with Bank of America N.A., as Administrative Agent, a Lender, Swingline Lender and an L/C Issuer and the other Lenders party thereto from time to time ("Bank of America"). The Credit Agreement allows for total borrowings of $75.0 million, which includes a $30.0 million term credit facility and a revolving credit facility of $45.0 million. On November 17, 2021, we borrowed the entire $30.0 million term loan.
Previous wording
On December 29, 2023, we entered into the Second Amendment to our Credit Agreement (the "Second Amendment"), which amends the BofA Credit Agreement (the BofA Credit Agreement as amended prior to the date of the Second Amendment, the "Existing Credit Agreement", and the Existing Credit Agreement, as amended by the Second Amendment, the "Amended Credit Agreement") with Bank of America, N.A., as Administrative Agent, a Lender, Swingline Lender and an L/C Issuer and the other Lenders party thereto from time to time. The Second Amendment amends the Existing Credit Agreement by, among other things, establishing a covenant relief period which begins on December 31, 2023 and ends on November 30, 2024 ("Covenant Relief Period") during which time we are (a) required to maintain certain Liquidity as provided in the Amended Credit Agreement, (b) required to maintain certain levels of Consolidated EBITDA as provided in the Amended Credit Agreement, (c) required to provide certain additional financial reporting to the Administrative Agent and (d) not required to meet (or, during such period, test) our Consolidated Leverage Ratio or Consolidated Fixed Charge Coverage Ratio. Additionally, the Second Amendment provides that, during the Covenant Relief Period, (x) the Applicable Rate of interest being incurred on any outstanding Loans is increased to 3.25% per annum for Term SOFR Loans and 2.25% per annum for Base Rate Loans, (y) the commitment fee for undrawn commitments is increased to 0.35% and (z) the ability of the Loan Parties to make certain Investments, Dispositions and Restricted Payments, in each case, is limited as more fully set forth in the Amended Credit Agreement.
Current wording
On December 29, 2023, we entered into the Second Amendment to our Credit Agreement (the "Second Amendment"), which amended the Credit Agreement (the Credit Agreement as amended prior to the date of the Second Amendment, the "Existing Credit Agreement", and the Existing Credit Agreement, as amended by the Second Amendment, the "Amended Credit Agreement"). The Second Amendment amended the Existing Credit Agreement by, among other things, establishing a covenant relief period which began on December 31, 2023 and ended on November 30, 2024 ("Covenant Relief Period") during which time we were required to (a) maintain certain Liquidity as provided in the Amended Credit Agreement, (b) maintain certain levels of Consolidated EBITDA as provided in the Amended Credit Agreement, and (c) provide certain additional financial reporting. In addition, we were no longer required to meet (or, during such period, test) our Consolidated Leverage Ratio or Consolidated Fixed Charge Coverage Ratio. The Second Amendment also provided that, during the Covenant Relief Period, (x) the Applicable Rate of interest being incurred on any outstanding Loans is increased to 3.25% per annum for Term SOFR Loans and 2.25% per annum for Base Rate Loans, (y) the commitment fee for undrawn commitments is increased to 0.35% and (z) the ability of the Loan Parties to make certain Investments, Dispositions and Restricted Payments, in each case, is limited as more fully set forth in the Amended Credit Agreement.
Previous wording
In accordance with the terms of the BofA Credit Agreement, commencing with the quarter ended March 31, 2022, we began paying quarterly principal payments of approximately $0.7 million on our term loan.
Current wording
As of December 31, 2024, we had $22.8 million outstanding principal debt under our term loan facility and $45.0 million outstanding on our revolving credit facility. There is no availability remaining on the revolving credit facility. The effective interest rate on the term credit facility at December 31, 2024 was 10.24% and the weighted-average interest rate on our revolving credit facility was 8.73%. These rates do not include an additional 2% default rate penalty that was added on both the term credit facility and revolving credit facilities as a result of the events of default that first occurred during the third quarter of 2024. We are 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 year ended December 31, 2024, all quarterly principal and interest payments were made in accordance with the terms of the Amended Credit Agreement. Beginning with the quarter ended June 30, 2025, we ceased making principal and interest payments on the term loan and interest payments on the revolving credit facility.
Previous wording
Net cash used in operating activities for 2023 of $17.0 million consisted primarily of net loss of $77.4 million, adjustments for depreciation and amortization of $9.4 million, share-based compensation expense of $11.6 million and increase in provision for inventory excess and obsolescence of $16.6 million and a $9.1 million decrease in deferred income taxes along with changes in operating assets and liabilities that resulted in net cash inflows of $14.3 million. The changes in operating assets and liabilities consisted primarily of a $32.0 million decrease in accounts receivable due to lower revenues, along with $12.5 million increase in accrued liabilities, mostly related to the increase in customer reserves and liability associated with the loss on supplier commitment, $6.7 million increase in other assets and liabilities, mostly driven by an increase in deferred revenues and $5.3 million decrease in prepaid expenses due to lower prepayments made to suppliers to procure inventory offset by a $26.4 million increase in inventories, mostly due to lower enterprise revenues due to high channel inventories, $13.6 million decrease in accounts payable due to timing of purchases and payments, and $2.2 million decrease in accrued employee compensation mostly due to lower accruals for our corporate bonus and sales incentive programs as a result of failure to meet metrics underlying our incentive compensation payable to employees.
Current wording
Net cash used in operating activities for 2023 of $16.7 million consisted primarily of net loss of $74.1 million, adjustments for non-cash charges for depreciation and amortization of $9.4 million, share-based compensation expense of $11.6 million and increase in provision for inventory excess and obsolescence of $14.1 million, $12.8 million decrease in deferred income taxes and $0.5 million increase in allowance for credit losses offset by $0.1 million reduction in warranty reserve, along with changes in operating assets and liabilities that resulted in net cash inflows of $9.2 million. The changes in operating assets and liabilities consisted primarily of a $37.4 million decrease in accounts receivable due to lower revenues, $13.2 million increase in other assets and liabilities, mostly due to an increase in noncurrent loss on supplier commitment liability and $2.0 million decrease in prepaid expenses, offset by a $27.8 million increase in inventories, mostly due to lower revenue, $13.0 million decrease in accounts payable due to timing of purchases and payments, and $2.0 million decrease in accrued employee compensation mostly due to lower accruals for our corporate bonus and sales incentive programs as a result of failure to meet metrics underlying our incentive compensation payable to employees.
Previous wording
Our investing activities for both periods presented consisted of capital expenditures for property, equipment and software in support of the growth of our business.
Current wording
Our investing activities for both 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.
Previous wording
Net cash used in financing activities of $1.3 million for 2023 was primarily due to principal payments of $2.6 million on our term loan and $0.7 million of taxes paid on net share settlement of equity awards and a $0.1 million payment of debt issuance costs incurred with our entry into the Amended Credit Agreement. These outflows are partially offset by $1.7 million in proceeds from the issuance of ordinary shares under our employee share purchase program and $0.5 million of proceeds received from the exercise of share options.
Current wording
Net cash used in financing activities of $1.3 million for 2023 was primarily due to principal payments of $2.6 million on our term loan and $0.7 million of taxes paid on net share settlement of equity awards and a $0.1 million payment of debt issuance costs incurred with our entry into the Amended Credit Agreement. These outflows are partially offset by $1.7 million in proceeds from the issuance of ordinary shares under our employee share purchase plan and $0.5 million of proceeds received from the exercise of share options.
Previous wording
Net cash provided by financing activities of $1.2 million for 2022 was primarily due to $2.2 million in proceeds received from the exercise of share options and $2.0 million in proceeds received from the issuance of ordinary shares under our employee share purchase program offset by $2.0 million repayment of principal due under the term loan facility and $1.0 million for taxes paid from shares withheld in net settlement of taxes due on vesting of restricted shares issued to our employees.
Current wording
Net cash provided by financing activities of $43.2 million for 2024 was primarily due to $45.0 million drawn down on the revolving credit facility and proceeds received of $0.9 million from the issuance of ordinary shares under our Employee Share Purchase Plan partially offset by $2.6 million repayment of principal due under the term loan facility with Bank of America.
Previous wording
Our consolidated financial statements 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. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1, Description of Business and Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.
Current wording
Our consolidated financial statements 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. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1. Description of Business and Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Comprehensive Form 10-K.
Previous wording
Our revenues are generated primarily from the sale of hardware products, with essential embedded software. Our revenues also include limited amounts for software products, extended warranty on hardware products and subscription services. Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met. Revenues are recognized net of estimated stock returns, volume-based rebates, cooperative marketing allowances, and other incentives that we provide to distributors. Estimated stock rotations, volume-based rebates and cooperative marketing allowances are based on historical experience together with any known future business trends. In determining estimates, variable consideration is estimated at the expected value based on management's analysis of historical data, channel inventory levels, current economic trends and changes in customer demand. Variable consideration estimates are continuously assessed such that is probable that a significant reversal of revenue will not occur. We recognize revenues on extended warranty on a straight-line basis over the term of the extended warranty. We recognize subscription services revenue ratably over the term in which the services are provided and our performance obligation is satisfied. We determine the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of each contract or arrangement. Certain of our contracts have multiple performance obligations for which we allocate the transaction price to each performance obligation based on the standalone selling price of each distinct product or service in the contract. The standalone selling price is the price at which we expect to be entitled to in exchange for transferring the promised good or service to the customer. 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. In certain cases, the standalone sales price is not directly observable, and we estimate the transaction price allocated to each performance obligation using the expected cost plus margin approach. When, or as, a performance obligation is satisfied, we recognize as revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price recognized excludes an estimate for the consideration related to products we expect to be returned or amounts we expect to refund.
Current wording
Our revenues are generated primarily from the sale of hardware products, with essential embedded software. Our revenues also include amounts for software products, extended warranty on hardware products and subscription services. Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met. We recognize revenues on extended warranty on a straight-line basis over the term of the extended warranty. We recognize subscription services revenue ratably over the term in which the services are provided and our performance obligation is satisfied. We determine the appropriate revenue recognition for our contracts with customers by analyzing the type, terms and conditions of each contract or arrangement.
Previous wording
The valuation of inventory requires us to estimate excess or obsolete inventory. The determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to our forecast of customer demand, and in consideration of historical usage and requires significant management judgment. We also consider the rate at which new products will be accepted in the marketplace and how quickly customers will transition from older products to newer products. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which would have a negative impact on our gross margin. The actual amount of inventory written off in future periods will likely differ from the inventory excess and obsolete provisions reflected in our consolidated balance sheets due to difference between estimated and actual future demand, which could have a material effect on our net inventory as reported in our consolidated financial statements. Any adjustments to the valuation of inventory are included in cost of revenues. We record a liability for firm, noncancelable, and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. We regularly evaluate our exposure for inventory write-downs, and the adequacy of our liability for purchase commitments.
Current wording
The valuation of inventory requires us to estimate excess or obsolete inventory. The determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to our forecast of remaining lifetime demand, consideration of historical sales or usage and requires significant management judgment. We also consider the rate at which new products will be accepted in the marketplace and how quickly customers will transition from older products to newer products. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which would have a negative impact on our gross margin. The actual amount of inventory written off in future periods will likely differ from the inventory excess and obsolete provisions reflected in our consolidated balance sheets due to difference between estimated and actual future demand, which could have a material effect on our net inventory as reported in our consolidated financial statements. Any adjustments to the valuation of inventory are included in cost of revenues.
Previous wording
Goodwill is tested 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 our one reporting unit below its carrying amount. We first perform a qualitative triggering event assessment which considers significant events and circumstances including the excess of prior year estimates of fair value compared to carrying amount, historical trends and current results, assumptions regarding future performance, operating income or cash flows, strategic initiatives and overall economic factors, including significant negative market or industry trends and macro-economic developments, and sustained declines in our 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. If we determine that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further goodwill impairment testing is required. If indicators of impairment are identified, a quantitative impairment test is performed.
Current wording
Goodwill is tested 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 our one reporting unit below its carrying amount. Long-lived assets are tested for recoverability if a triggering event is identified in the period and may indicate the carrying amount of these assets may not be recoverable. We consider significant events and circumstances including the excess of prior estimates of fair value compared to carrying amount, historical trends and current results, assumptions regarding future performance, operating income or cash flows, strategic initiatives and overall economic factors, including significant negative market or industry trends and macroeconomic developments, and sustained declines in our share price or market capitalization, considered in both absolute terms and relative to peers. If we determine that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further goodwill impairment testing is required. If indicators of impairment are identified, a quantitative impairment test is performed.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
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 ePMP 4600 and PMP 450v platforms received Federal Communications Commission ("FCC") approval to operate in the recently released 6 GHz band in conjunction with our approved Automated Frequency Coordination ("AFC") service.
Current report — wording carried from elsewhere
Our tax provision changed from a tax provision of $17.5 million in 2023 to a tax benefit of $1.9 million for 2024. The effective tax rates for the years ended December 31, 2023 and 2024 were (30.9%) and 2.4%, respectively. For the year ended December 31, 2024, our income tax provision decreased by $19.3 million.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
On December 29, 2023, we entered into the Second Amendment to our Credit Agreement (the "Second Amendment"), which amends the credit agreement, dated as of November 17, 2021 (the "BofA Credit Agreement", the BofA Credit Agreement as amended prior to the date of the Second Amendment, the "Existing Credit Agreement", and the Existing Credit Agreement, as amended by the Second Amendment, the "Amended Credit Agreement") with Bank of America, N.A., as Administrative Agent, a Lender, Swingline Lender and and L/C Issuer and the other Lenders party thereto from time to time. The Second Amendment amends the Existing Credit Agreement by, among other things, establishing a covenant relief period, which began on December 31, 2023 and ends on November 30, 2024, ("Covenant Relief Period") during which time we are (a) required to maintain certain Liquidity as provided in the Amended Credit Agreement, (b) required to maintain certain levels of Consolidated EBITDA as provided in the Amended Credit Agreement, (c) required to provide certain additional financial reporting to the Administrative Agent and (d) not required to meet (or, during such period, test) our Consolidated Leverage Ratio or Consolidated Fixed Charge Coverage Ratio. Additionally, the Second Amendment provides that, during the Covenant Relief Period, (x) the Applicable Rate of interest being incurred on any outstanding Loans is increased to 3.25% per annum for Term SOFR Loans and 2.25% per annum for Base Rate Loans, (y) the commitment fee for undrawn commitments is increased to 0.35% and (z) the ability of the Loan Parties to make certain Investments, Dispositions and Restricted Payments, in each case, is limited as more fully set forth in the Amended Credit Agreement.