CAMBIUM NETWORKS CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)
The following discussion and analysis of financial condition and results of operation should be read in conjunction with the consolidated financial statements and related notes thereto ofCambium Networks Corporation ("Cambium", "we", "our", or "us") included elsewhere in this Quarterly Report on Form 10-Q and with the financial statements and related notes and Management's Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filedMarch 23, 2020 . Results for the three months endedMarch 31, 2020 are not necessarily indicative of the results that may be expected for any period in the future.
Overview
We provide wireless broadband networking infrastructure solutions for network operators, including medium-sized wireless Internet service providers, enterprises, and government agencies. Our scalable, reliable and high-performance solutions create a purpose-built wireless fabric that connects people, places and things across distances ranging from two meters to more than 100 kilometers, indoors and outdoors, using licensed and unlicensed spectrum at attractive economics. Our embedded proprietary RF technology and software enables automated optimization of data flow at the outermost points in the network, which we refer to as the "intelligent edge." We were formed in 2011 whenCambium Networks acquired the PTP and PMP businesses from Motorola Solutions. Prior to the acquisition byCambium Networks , Motorola Solutions had invested over a decade in developing the technology and intellectual property assets that formed the foundation for our business, having launched the Canopy PMP business in 1999 and having acquired the Orthogon Systems PTP business in 2006. Following the acquisition, we renamed the businessCambium Networks Corporation and leveraged the technology to continue to develop and offer an extensive portfolio of reliable, scalable and secure enterprise-grade fixed wireless broadband and PTP and PMP platforms, Wi-Fi and IIoT solutions.
We offer our wireless broadband solutions in three categories:
• PTP: Our PTP backhaul portfolio is comprised of products operating in
unlicensed spectrum below 6 GHz, and those operating in licensed spectrum
between 6 and 38 GHz. The mainstay of our backhaul offering is the PTP 670
for commercial applications and PTP 700 for defense and national security
applications. In addition, our PTP 820 series offers carrier-grade
microwave backhaul in licensed spectrum, and our PTP 550 offers
price-performance leadership in spectral efficiency in sub-6GHz unlicensed
spectrum.
• PMP: Our PMP portfolio ranges from our top-of-the-line PMP 450 series to
our ePMP solutions for network operators that need to optimize for both
price and performance to our cnReach family of narrow-bandwidth
connectivity products for industrial communications. The PMP 450 series is
optimized for performance in high-density and demanding physical
environments, and includes the PMP 450m with integrated cnMedusa massive
multi-user multiple input/ multiple output, or MU-MIMO, technology. For
less demanding environments, ePMP provides a high-quality platform at a
more affordable price. The ePMP 3000 supports 4x4 MU-MIMO and is
complemented by a broad portfolio of ePMP Force 300 subscriber radios.
cnReach products enables IIoT applications, such as supervisory control and
data acquisition, or SCADA, processes in the oil and gas, electric utility,
water, railroad and other industrial settings.
• Wi-Fi: Our Wi-Fi portfolio includes our cnPilot cloud-managed Wi-Fi
solutions, our cnMatrix cloud-managed wireless-aware switching solution,
and our Xirrus Wi-Fi solutions. cnPilot is for indoor and outdoor
enterprise, small business and home applications and offers a range of
access points and RF technology that enable network optimization based on
desired geographic coverage and user density. cnMatrix provides the
intelligent interface between wireless and wired networks. cnMatrix’s
policy-based configuration accelerates network deployment, mitigates human
error, increases security, and improves reliability.
of high performance enterprise Wi-Fi access points and cloud based
subscription services.
We generate a substantial majority of our sales through our global channel distribution network, including, as ofMarch 31, 2020 , approximately 160 distributors that we sell to directly, together with over 7,200 value added resellers and system integrators supplied by these distributors, for further sales to end users. Our channel partners provide lead generation, pre-sales support and product fulfillment, along with professional services for network design, installation, commissioning and on-going field support. Although we fulfill sales almost exclusively through our channel partners, through our global sales team we engage directly with network operators in our key vertical markets including service providers, enterprises, industrials, defense and national security entities, and state and local governments. Our sales team responds to bids or requests for quotes, typically in collaboration with a channel partner. Our distributors carry inventory of our products for resale, and generally have stock rotation rights only if they simultaneously place an off-setting order for product. As such, we generally recognize revenue from sales to distributors on a sell-in basis, and manage our finished goods inventory efficiently to plan for distributor demand. 24 -------------------------------------------------------------------------------- We outsource production to third-party manufacturers, which are responsible for purchasing and maintaining inventory of components and raw materials and, in certain cases, we resell third-party products on a white-label basis. We believe that this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production, managing inventory levels and providing a comprehensive solution to meet network operator demand. The majority of our products are delivered to us at one of three distribution hubs, where we have outsourced the warehousing and delivery of our products to a third-party logistics provider and from which we manage worldwide fulfillment.
Impact of COVID-19
The recent outbreak of COVID-19 has resulted and is likely to continue to result in disruption to Cambium's business and operations as well as the operations of our customers and suppliers. We have experienced and are likely to continue to experience reductions in customer demand in several of our markets. We expect that social distancing measures, shutdowns globally that impact the ability of our end user customers to deploy our products, nearly complete cessation in travel impacting our sales activities, reductions in production due to mandated closures of or labor restrictions at our third-party manufacturers inMexico ,China , andIsrael , as well as the reduced operational capacity of our suppliers will more meaningfully impact our operations in the second quarter, and general business uncertainty will continue to negatively impact demand in several of our markets in the second quarter, and possibly beyond. We expect to experience a reduction in revenues and an increase in certain costs, particularly transportation and logistics expenses. The pandemic could lead to an extended disruption of economic activity and the impact on our condensed consolidated results of operations, financial position and cash flows could be material. We are focused on making sure our employees are safe and have largely transitioned our workforce to work from home. The third parties that perform our manufacturing, assembly, packaging and shipping have generally remained operational. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, related restrictions on travel and transportation and other actions that may be taken by governmental authorities and the impact to the business of our suppliers or customers, all of which are uncertain and cannot be predicted.
With respect to liquidity, we believe our balance sheet will provide us the
necessary capital to navigate the COVID-19 pandemic. In addition, we took the
following actions to bolster our financial condition and reduce costs while
supporting business operations through the COVID-19 pandemic:
• Fully drew down
proactive measure to increase our cash position and preserve financial
flexibility;
• Implemented several initiatives to conserve cash and optimize
profitability, including limiting discretionary spending, reducing
personnel costs, eliminating non-essential travel, delaying or reducing
hiring activities, deferring certain discretionary capital expenditures;
and
• Initiated conversations with our landlords for reductions or deferrals of
future lease payments.
2020 Outlook in Consideration of the COVID-19 Pandemic
Due to the speed with which the COVID-19 pandemic is developing and the uncertainties created, including the depth and duration of any disruptions to customers and suppliers, its future effect to our business, results of operations, and financial condition cannot be predicted. While we are unable to accurately foresee these future impacts, we believe that our financial resources and liquidity levels, along with various plans to reduce costs are sufficient to manage the impact currently anticipated from the COVID-19 pandemic, which may include reduced sales, earnings and operating cash flows. Because the COVID-19 pandemic is a rapidly evolving situation, we will continue to evaluate market conditions and its impact to determine if further steps are necessary.
Financial results for the three-month period ended
• Total revenue was$60.4 million , a decrease of 11.3% year-over-year • Wi-Fi revenues increased 106% year-over-year
• Gross margin increased to 50.7%, an increase of 400 bps year-over-year
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• Total costs of revenues and operating expenses were$60.1 million • Operating income was$0.4 million
InAugust 2019 , we acquired select assets and assumed select liabilities of the Xirrus Wi-Fi products and cloud services business fromRiverbed Technology, Inc. Xirrus has a portfolio of high performance enterprise Wi-Fi access points and subscription services. We paid$2.0 million upon closing and paid the full$3.0 million of contingent consideration throughFebruary 2020 . This acquisition enhances and accelerates our existing network service application capabilities. We account for business combinations in accordance with ASC 805, Business Combinations. We recorded the acquisition using the acquisition method of accounting and recognized assets and liabilities at their fair value as of the date of acquisition. We based the preliminary allocation of the puchase price on estimates and assumptions that are subject to change within the purchase price allocation period, which is generally one year from the acquisition date. During the three-month period endedMarch 31, 2020 , we made adjustments to the preliminary purchase price allocation for inventory and accrued warranty. The purchase accounting is not yet complete and as such the final allocation may be subject to future adjustments, including, but not limited to, inventory, intangibles, accrued warranty, deferred revenue, and certain income tax matters. We determined the estimated fair value of identifiable intangible assets acquired primarily using an income approach.
Basis of presentation
Revenues
Our revenues are generated primarily from the sale of our products, which consist of hardware with essential embedded software. Our revenues also include limited amounts for software products and extended warranty on hardware 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 and cooperative marketing allowances that we provide to distributors. We provide a standard warranty on our 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. We provide our cnMaestro, LINKPlanner and cnArcher applications as supplemental tools to help network operators design, install, and manage their networks, and as a means of driving sales of our hardware products. We presently offer these applications without additional charge to the customer and these applications are not essential to the operation of our products.
Cost of revenues and gross profit
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 inMexico ,China andIsrael . Cost of revenues also includes costs associated with supply operations, including personnel related costs, provision for excess and obsolete inventory, third-party license costs and third-party costs related to services we provide. 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 access point products are greater than those on our customer premise equipment ("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.
Operating expenses
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 cash-based personnel costs, such as salaries, sales commissions, benefits and
bonuses. After our IPO, operating expenses also include share-based compensation
expense. In addition, we separate depreciation and amortization in their own
category.
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Research and development
In addition to personnel-related costs, research and development expense consists of costs associated with design and development of our products, product certification, travel and recruiting. 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. 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. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services.
Sales and marketing
In addition to personnel costs for sales, marketing, service and product line management personnel, sales and marketing expense consists of our training programs, trade shows, marketing programs, promotional materials, demonstration equipment, national and local regulatory approval on our products, travel and entertainment, and recruiting. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales, marketing, service, and product line management organization in support of our investment in our growth opportunities, and, in particular, as we continue to expand our global distribution network. General and administrative In addition to personnel costs, general and administrative expense consists of professional fees, such as legal, audit, accounting, information technology and consulting costs, facilities and other supporting overhead costs. We expect general and administrative expense to increase in absolute dollars as we continue to incur additional costs associated with being a public company, partially offset by the absence of management fees previously paid toVector Capital .
Depreciation and amortization
Depreciation and amortization expense consist of depreciation related to fixed assets such as computer equipment, furniture and fixtures, and testing equipment, as well as amortization related to acquired and internal use software and definite lived intangibles.
Provision for income taxes
Our provision for income taxes consists primarily of income taxes in the
jurisdictions in which we conduct business. As we have expanded our
international operations, we have incurred additional foreign tax expense, and
we expect this to continue. Management assesses our deferred tax assets in each
reporting period, and if it is determined that it is not more likely than not to
be realized, we will record a change in our valuation allowance in that period.
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Results of operations
The following table presents the consolidated statements of operations, as well
as the percentage relationship to total revenues for items included in our
consolidated statements of operations (in thousands):
Three months ended March 31,
(in thousands) 2019 2020
Statements of Operations Data:
Revenues $ 68,112 $ 60,429
Cost of revenues 36,322 29,797
Gross profit 31,790 30,632
Operating expenses
Research and development 10,482 11,814
Sales and marketing 10,218 10,304
General and administrative 5,130 6,446
Depreciation and amortization 1,281 1,695
Total operating expenses 27,111 30,259
Operating income 4,679 373
Interest expense 2,268 1,345
Other expense (income) 134 (216 )
Income (loss) before income taxes 2,277 (756 )
Provision for income taxes 415 82
Net income (loss) $ 1,862 $ (838 )
Three months ended March 31,
2019 2020
Percentage of Revenues:
Revenues 100.0 % 100.0 %
Cost of revenues 53.3 % 49.3 %
Gross margin 46.7 % 50.7 %
Operating expenses
Research and development 15.4 % 19.6 %
Sales and marketing 15.0 % 17.1 %
General and administrative 7.5 % 10.7 %
Depreciation and amortization 1.9 % 2.8 %
Total operating expenses 39.8 % 50.2 %
Operating income 6.9 % 0.5 %
Interest expense 3.3 % 2.2 %
Other expense (income) 0.2 % (0.4 )%
Income (loss) before income taxes 3.4 % (1.3 )%
Provision for income taxes 0.6 % 0.2 %
Net income (loss) 2.8 % (1.5 )%
Comparison of three-month period ended March 31, 2019 to the three-month period
ended March 31, 2020
Revenues
Three months ended March 31, Change
(dollars in thousands) 2019 2020 $ %
Revenues $ 68,112 $ 60,429 $ (7,683 ) (11.3 )%
Revenues decreased $7.7 million , or 11.3%, to $60.4 million for the three-month
period ended March 31, 2020 from $68.1 million for the three-month period ended
March 31, 2019 , which was attributable to lower demand for our
point-to-multi-point products due to a technology transition and softer demand
in the defense sector which impacted point-to-point revenues, offset by growth
in our wi-fi products.
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Revenues by product category
Three months ended March 31, Change
(dollars in thousands) 2019 2020 $ %
Point-to-Multi-Point $ 42,327 $ 34,867 $ (7,460 ) (17.6 )%
Point-to-Point 19,634 13,110 (6,524 ) (33.2 )%
Wi-Fi 5,586 11,481 5,895 105.5 %
Other 565 971 406 71.9 %
Total revenues by product category
Point-to-Multi-Point Our PMP product line comprised 58% of total revenues for the three-month period endedMarch 31, 2020 and 62% of total revenues for the three-month period endedMarch 31, 2019 . PMP revenue decline was attributable to lower sales to a larger European customer.Point-to-Point
PTP revenue for the three-month period ended
lower sales in the defense sector.
Wi-Fi
Wi-Fi revenue increased to 19% of total revenues for the three-month period endedMarch 31, 2020 from 8% of revenues for the three-month period endedMarch 31, 2019 . Wi-Fi growth is primarily as a result of recent new product introductions, including cnMatrix, a switch product included within our Wi-Fi category, and the addition of Xirrus Wi-Fi revenues in 2020. Revenues by geography Three months ended March 31, Change (dollars in thousands) 2019 2020 $ % North America$ 34,364 $ 31,035 $ (3,329 ) (9.7 )% Europe, Middle East, Africa 21,970 18,744 (3,226 ) (14.7 )% Caribbean and Latin America 7,099 5,230 (1,869 ) (26.3 )% Asia Pacific 4,679 5,420 741 15.8 % Total revenues by geography$ 68,112 $ 60,429 $ (7,683 ) (11.3 )% Revenues decreased in all but one region withNorth America andEurope ,Middle East ,Africa contributing 83% and 82% of total revenues for the three-month periods endedMarch 31, 2019 and 2020, respectively.North America sales decrease was affected by decreased sales to the defense industry.Europe ,Middle East ,Africa sales decreased due to lower sales to a larger European customer, partially offset by Xirrus Wi-Fi revenues.Caribbean andLatin America sales decreased due to lower PMP revenues as a result of economic and currency headwinds, whileAsia Pacific sales benefitted from increased PMP product sales.
Cost of revenues and gross margin
Three months ended March 31, Change
(dollars in thousands) 2019 2020 $ %
Cost of revenues $ 36,322 $ 29,797 $ (6,525 ) (18.0 )%
Gross margin 46.7 % 50.7 % 400 bps
Cost of revenues decreased $6.5 million , or 18.0%, to $29.8 million for the
three-month period ended March 31, 2020 from $36.3 million for the three-month
period ended March 31, 2019 . The decrease in cost of revenues was primarily due
to decreased revenues.
Gross margin increased to 50.7% for the three-month period ended March 31, 2020
from 46.7% for the three-month period ended March 31, 2019 . The increase
reflects the impact of a higher-margin product mix along with key initiatives
put in place focused on cost reductions, price management, and supply chain
efficiency.
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Operating expenses
Three months ended March 31, Change
(dollars in thousands) 2019 2020 $ %
Research and development $ 10,482 $ 11,814 $ 1,332 12.7 %
Sales and marketing 10,218 10,304 86 0.8 %
General and administrative 5,130 6,446 1,316 25.7 %
Depreciation and amortization 1,281 1,695 414 32.3 %
Total operating expenses $ 27,111 $ 30,259 $ 3,148 11.6 %
Research and development
Research and development expense increased $1.3 million , or 12.7%, to $11.8
million for the three-month period ended March 31, 2020 from $10.5 million for
the three-month period ended March 31, 2019 . As a percentage of revenues,
research and development expenses increased to 19.6% in 2020 from 15.4% in 2019
over the same periods. In absolute dollars, research and development costs
increased due to $0.4 million of share-based compensation expense as well as a
$1.1 million increase in headcount costs due to our continued investment in
product development to grow our business, employee-related restructuring costs
of $0.6 million for actions taken in Q1 2020, higher engineering materials
expense of $0.2 million due to timing of projects, partially offset by $0.9
million in lower contractor and outside sourced product development services
costs.
Sales and marketing
Sales and marketing expense increased $0.1 million , or 0.8%, to $10.3 million
for the three-month period ended March 31, 2020 from $10.2 million for the
three-month period ended March 31, 2019 . As a percentage of revenues, sales and
marketing expense increased to 17.1% in 2020 from 15.0% in 2019 over the same
period. Sales and marketing expense increased due to $0.5 million of
employee-related restructuring costs for actions taken in Q1 2020, $0.2 million
of share-based compensation expense, and $0.1 million of higher outside
contractor spend, offset by lower travel spend of $0.4 million , lower ongoing
payroll related costs of $0.2 million , and lower marketing related spend of $0.1
million .
General and administrative
General and administrative expense increased $1.3 million , or 25.7%, to $6.4
million for the three-month period ended March 31, 2020 from $5.1 million for
the three-month period ended March 31, 2019 . As a percentage of revenues,
general and administrative expense increased to 10.7% in 2020 from 7.5% in 2019
over the same period. General and administrative expense increased in absolute
dollars due to an increase in costs due to becoming a public company in June
2019 . These include $0.8 million of directors and officers insurance premiums
and Board fees, $0.2 million of share-based compensation expense, higher
accounting and tax fees of $0.3 million , higher legal fees of $0.2 million , and
higher outside contractor fees of $0.1 million , partially offset by lower
headcount costs of $0.2 million and the absence of Vector management fees of
$0.1 million .
Depreciation and amortization
Depreciation and amortization expense increased$0.4 million , or 32.3%, to$1.7 million for the three-month period endedMarch 31, 2020 from$1.3 million for the three-month period endedMarch 31, 2019 . The increase in depreciation and amortization was driven by increases related to theXirrus acquisition completed inAugust 2019 composed of$0.3 million of intangible asset amortization related to the intangibles recognized, and$0.1 million of higher depreciation related to the assets acquired. Interest expense Three months ended March 31, Change (dollars in thousands) 2019 2020 $ % Interest expense$ 2,268 $ 1,345 $ (923 ) (40.7 )% Interest expense decreased$0.9 million , or (40.7)%, to$1.3 million for the three-month period endedMarch 31, 2020 from$2.3 million for the three-month period endedMarch 31, 2019 . The decrease was primarily due to interest being computed on a lower principle balance as a result of paying down$20.7 million on the term loan and$10.0 million on the revolver inJuly 2019 from the proceeds from the IPO, along with a lower interest rate as a result of a reduction in LIBOR. 30 --------------------------------------------------------------------------------
Other expense(income)
Three months ended March 31, Change
(dollars in thousands) 2019 2020 $ %
Other expense (income) $ 134 $ (216 ) $ (350 ) nm
Other expense (income) changed from an expense of
three-month period ended
three-month period ended
foreign currency fluctuations.
Provision for income taxes
Three months ended March 31, Change
(dollars in thousands) 2019 2020 $ %
Provision for income taxes $ 415 $ 82 $ (333 ) (80.2 )%
Effective income tax rate 18.2 % (10.8 )%
Our provision for income taxes decreased $0.3 million to $0.1 million for the
three-month period ended March 31, 2020 from $0.4 million for the three-month
period ended March 31, 2019 . The effective tax rates were (10.8)% and 18.2% over
the same periods, respectively, and reflect the application of our expected
annual tax rate to pre-tax results for each of the periods as well as discrete
tax impacts that arise during the periods. Tax expense was lower for the
three-month period ended March 31, 2020 compared to March 31, 2019 primarily due
to lower earnings resulting from lower revenues. For the three-month period
ended March 31, 2020 , our effective tax rate of (10.8)% was different from the
statutory rate of 21.0% primarily due to expected losses in a foreign
jurisdiction for which no tax benefit will be recognized.
Liquidity and Capital Resources
As ofMarch 31, 2020 , we had a cash balance of$24.5 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 these needs will be satisfied over at least the next 12 months using cash flow generated by our operations. 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. In addition, as a result of an expected decrease in revenues, delays in payment by customers, and an increase in certain costs, including transportation and logistics costs as a result of the impact of the COVID-19 pandemic, we have taken steps to reduce costs, including personnel and occupancy costs, and travel and entertainment costs, and have fully drawn down our revolving credit facility, to ensure continued sufficient liquidity. We expect to regularly assess market conditions and may take additional measures, including raising additional equity or incur additional debt if and when our board of directors determines that doing so is in our best interest.
Cash Flows
The following table sets forth summarized cash flow data for the periods
indicated (in thousands):
Three months ended March 31,
2019 2020
Cash provided by (used in) operating activities
$ (791 ) Cash used in investing activities$ (1,511 ) $ (1,544 ) Cash (used in ) provided by financing activities$ (2,375 ) $ 7,552
Cash flows from operating activities
Net cash provided by operating activities for the three-month period endedMarch 31, 2019 of$3.3 million consisted primarily of net income of$1.9 million , adjustments for depreciation and amortization and other impacts of$2.7 million and changes in operating assts and liabilities that resulted in net cash outflows of$1.3 million . The changes in operating assets and liabilities consisted primarily of a$2.7 million increase in inventories as we procured additional inventory of new products introduced toward the end of 2018 in anticipation of increased sales and a$3.5 million increase in accounts receivable due to increased sales in the quarter, partially offset by increased payables and liabilities including$1.8 million increase in accounts payable,$1.5 million increase in accrued liabilities and$1.4 million of increased in accrued employee compensation. 31 -------------------------------------------------------------------------------- Net cash used in operating activities for the three-month period endedMarch 31, 2020 of$0.8 million consisted primarily of net loss of$0.8 million , adjustments for depreciation and amortization and other impacts of$2.3 million , share-based compensation of$0.8 million , and changes in operating assets and liabilities that resulted in net cash outflows of$3.1 million . The changes in operating assets and liabilities consisted primarily of a$8.7 million decrease in inventories as we procured additional inventory towards the end of 2019 which was sold in Q1 2020 offset by a$2.2 million increase in accounts receivable as a result of lower collections offset by lower sales in Q1 2020, an$8.5 million decrease in accounts payable related to Q1 2020 payments of inventory purchases made in Q4 2019 and a$1.0 million reduction in other assets and liabilities, mostly driven by a reduction in deferred revenue.
Cash flows from investing activities
Our investing activities for all periods presented consisted of capital expenditures for property, equipment and software in support of the growth of our business. For the three-month period endedMarch 31, 2020 , our investing activities also included$0.3 million of cash paid for the final payment of contingent consideration related to the acquisition of the Xirrus Wi-Fi business.
Cash flows from financing activities
During the three-month period ended
million
During the three-month period endedMarch 31, 2020 , net cash provided of$7.6 million was primarily due to$10.0 million in proceeds received from borrowing under our revolving credit facility, partially offset by$2.5 million to repay principal due under our term loan facility.
Debt
As ofMarch 31, 2020 , we had$62.8 million outstanding on our term credit facility and$10.0 million outstanding under our revolving credit facility. The interest rate in effect as ofMarch 31, 2020 was 6.0% on the term credit facility and 6.0% on the revolving credit facility. Refer to Note 8 - Debt, to our unaudited consolidated financial statements in Part I of this Form 10-Q for additional information. .
Contractual Obligations and Commercial Commitments
For the three-month period endedMarch 31, 2020 , there has been a material change to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year endedDecember 31, 2019 as a result of us drawing down$10.0 million on our revolving credit facility onMarch 31, 2020 . There are no other material changes to the other items previously disclosed and these have not been updated. Below is the updated contractual obligations and commitments table to reflect the addition of the$10.0 million along with the associated interest: Payments due by period Less than More than 1 year 1 to 3 years 3 to 5 years 5 years Total Operating lease obligations$ 2,781 $ 3,881 $ 1,859 $ 468 $ 8,989 Term credit facility (1) 10,000 55,250 - - 65,250 Term credit facility interest (1) 3,960 5,977 - - 9,937 Revolving credit facility - 10,000 - - 10,000 Revolving credit facility interest (2) 450 600 - - 1,050 Purchase obligations 32,724 - - - 32,724 Total$ 49,915 $ 75,708 $ 1,859 $ 468 $ 127,950
(1) Based upon the term loan debt outstanding and interest rate in effect on
(2) Based upon the revolving credit facility outstanding and interest rate in
effect onMarch 31, 2020 of 6.0%. 32
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Off-balance sheet arrangements
We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as variable interest entities, structured finance, or special purpose entities, as part of our ongoing business. Accordingly, our operating results, financial condition and cash flows are not subject to off-balance sheet risks.
Recent accounting pronouncements
We have reviewed all recently issued accounting standards and have disclosed in
Note 1 in this Quarterly Report on Form 10-Q the results of our review and
assessment of the impact on the standards on our consolidated financial
statements.
Significant Accounting Estimates
Our consolidated financial statements and the related notes thereto are prepared in accordance withU.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. During the three-month period endedMarch 31, 2020 , there were no significant changes to our critical accounting policies and estimates. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year endedDecember 31, 2019 , filed onMarch 23, 2020 , for a more complete discussion of our critical accounting policies and estimates.
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