UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol: | Name of Each Exchange on Which Registered: | ||
| American, LLC | ||||
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| American, LLC | ||||
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| American, LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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As of November 4, 2022, shares of the registrant’s common stock, par value $0.0001 per share, were issued and outstanding.
AIRSPAN NETWORKS HOLDINGS INC.
Quarterly Report on Form 10-Q
Table of Contents
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated BALANCE SHEETS
(in thousands, except for share data)
| September 30, 2022 |
December 31, 2021 |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance of $ |
||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets, net | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Senior term loan, current portion | ||||||||
| Subordinated debt | ||||||||
| Subordinated term loan – related party | ||||||||
| Convertible debt | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Subordinated term loan - related party | ||||||||
| Senior term loan | ||||||||
| Convertible debt | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ deficit | ( |
) | ( |
) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF OPERATIONS
(in thousands, except for share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Products and software licenses | $ | $ | $ | $ | ||||||||||||
| Maintenance, warranty and services | 6,822 | |||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues: | ||||||||||||||||
| Products and software licenses | ||||||||||||||||
| Maintenance, warranty and services | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangibles | ||||||||||||||||
| Restructuring costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Other (expense) income, net | ( |
) | ( |
) | ||||||||||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax (expense) benefit, net | ( |
) | ( |
) | ( |
) | ||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss per share - basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in thousands, except for share data)
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Common Stock | Additional Paid-In |
Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Issuance of restricted shares, net of shares withheld for taxes | ( |
) | ( |
) | ||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Common Stock | Additional Paid-In |
Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Proceeds from sale of Series H preferred stock and warrants, net of issuance costs | - | |||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Exercise of common stock options | ||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Exercise of common stock options | ||||||||||||||||||||
| Extinguishment of pre-combination warrant liability in connection with the Reverse Recapitalization | - | |||||||||||||||||||
| Business Combination and PIPE financing, net of redemptions and equity issuance costs of $26.2 million | ||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF CASH FLOWS
(in thousands, except for share data)
|
Nine Months Ended |
||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Foreign exchange gain on long-term debt | ( |
) | ( |
) | ||||
| Bad debt expense | ||||||||
| Gain on extinguishment of debt | ( |
) | ||||||
| Change in fair value of warrants and derivatives | ( |
) | ( |
) | ||||
| Non-cash debt amendment fee | ||||||||
| Share-based compensation | ||||||||
| Total adjustments | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | ||||||||
| Decrease (increase) in inventory | ( |
) | ||||||
| Decrease (increase) in prepaid expenses and other current assets | ( |
) | ||||||
| Decrease in other non-current assets | ||||||||
| Decrease in accounts payable | ( |
) | ( |
) | ||||
| Increase (decrease) in deferred revenue | ( |
) | ||||||
| Increase in accrued expenses and other current liabilities | ||||||||
| (Decrease) increase in other long-term liabilities | ( |
) | ||||||
| Increase in accrued interest on long-term debt | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from the Business Combination, issuance of convertible debt and PIPE financing, net of issuance costs paid | ||||||||
| Repayments of senior term loan | ( |
) | ||||||
| Proceeds from the exercise of stock options | ||||||||
| Payment for taxes withheld on stock awards | ( |
) | ||||||
| Proceeds from the sale of Series H stock, net | ||||||||
| Proceeds from the issuance of Series H warrants | ||||||||
| Net cash (used in) provided by financing activities | ( |
) | ||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
AIRSPAN NETWORKS HOLDINGS INC.
UNAUDITED CONDENSED consolidated STATEMENTS OF CASH FLOWS
(CONTINUED)
(in thousands, except for share data)
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Reclassification of redeemable convertible preferred stock warrants to common stock | $ | $ | ||||||
| Non-cash net liabilities assumed from Business Combination | $ | $ | ||||||
| Non-cash debt amendment fee | $ | $ | ||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows:
| Nine Months Ended September 30, |
||||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | $ | $ | ||||||
| Total cash, cash equivalents and restricted cash shown in the unaudited condensed consolidated statement of cash flows | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
AIRSPAN NETWORKS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED Consolidated FINANCIAL STATEMENTS
| 1. | BUSINESS |
On August 13, 2021 (the “Closing”), Airspan Networks Holdings Inc. (formerly New Beginnings Acquisition Corp.) (the “Company”) consummated a business combination transaction (the “Business Combination”) pursuant to a business combination agreement (the “Business Combination Agreement”), dated March 8, 2021, by and among the Company, Artemis Merger Sub Corp., a Delaware corporation and wholly-owned direct subsidiary of the Company (“Merger Sub”), and Airspan Networks Inc., a Delaware corporation (“Legacy Airspan”). In connection with the Closing of the Business Combination, the Company changed its name to Airspan Networks Holdings Inc. Unless the context otherwise requires, references to “Airspan”, the “Company”, “us”, “we”, “our” and any related terms prior to the Closing of the Business Combination are intended to mean Legacy Airspan and its consolidated subsidiaries, and after the Closing of the Business Combination, Airspan Networks Holdings Inc. and its consolidated subsidiaries. In addition, unless the context otherwise requires, references to “New Beginnings” and “NBA” are references to New Beginnings Acquisition Corp., the Company’s name prior to the Closing.
The Company designs and produces wireless network equipment for 4G and 5G networks for both mainstream public telecommunications service providers and private network implementations. Airspan provides Radio Access Network (“RAN”) products based on Open Virtualized Cloud Native Architectures that support technologies including 5G new radio and Long-Term Evolution, and Fixed Wireless standards, operating in licensed, lightly-licensed and unlicensed frequencies.
The market for the Company’s wireless systems includes mobile carriers, other public network operators and private and government network operators for command and control in industrial and public safety applications such as smart utilities, defense, transportation, mining and oil and gas. The Company’s strategy applies the same network technology across all addressable sectors.
The Company’s main operations are in Slough, United Kingdom; Mumbai and Bangalore, India; Tokyo, Japan; Airport City, Israel; Santa Clara, California; and the Company’s corporate headquarters are in the United States (“U.S.”) in Boca Raton, Florida.
6
| 2. | BASIS OF PRESENTATION AND ACCOUNTING POLICIES |
Basis of Presentation, Principles of Consolidation and Use of Estimates
The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and Airspan IP Holdco LLC (“Holdco”) – 99.8% owned by Airspan. Non-controlling interest in the results of operations of consolidated subsidiaries represents the minority stockholders’ share of the profit or loss of Holdco. The non-controlling interest in net assets of this subsidiary, and the net income or loss attributable to the non-controlling interest, were not recorded by the Company as they are considered immaterial. All significant inter-company balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
The Company’s interim condensed consolidated financial statements and related notes are unaudited. In the opinion of management, all adjustments (including normal recurring adjustments) and disclosures necessary for a fair presentation of these interim financial statements have been included. The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. Certain information and footnote disclosures required by GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2021.
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Liquidity
The Company has historically incurred losses from operations. In the past, these losses have been financed through cash on hand or capital raising activities including borrowings or the sale of newly issued shares.
The Company had $
The Company was not in compliance with the minimum last twelve-month Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the September 30, 2022 quarterly measurement date. In addition, during certain periods subsequent to September 30, 2022, the Company has not been in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes. See further discussion below and in Note 10.
7
Going concern
The accompanying condensed consolidated financial statements have been prepared and are presented assuming the Company’s ability to continue as a going concern. As discussed in Note 10 to the condensed consolidated financial statements, the Company’s senior term loan and convertible debt require certain financial covenants to be met. The Company was not in compliance with the minimum last twelve-month EBITDA covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the September 30, 2022 quarterly measurement date, which is an event of default under those agreements. In addition, during certain periods subsequent to September 30, 2022, the Company has not been in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes, which is also an event of default under those agreements. The Company is seeking a waiver with respect to such breaches. However, there can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive the existing covenant breaches. Even if the Company receives a waiver with respect to such breaches, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective financial covenants under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company intends to seek waivers from compliance with the applicable covenants in connection with such anticipated breaches, or amendments of existing financial covenants included in the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes, the Company is also pursuing alternative sources of capital so that it will be able to satisfy its prospective minimum liquidity obligations under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes. There can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive any breaches thereunder that may arise in the future or that we will otherwise be able to remedy such breaches. In the absence of waivers or remedies of existing covenant breaches or any additional breaches that may arise in the future, the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, and institute foreclosure proceedings against the Company’s assets, such lenders could elect to apply the default interest rate thereunder, the lenders under the Fortress Credit Agreement could elect to terminate their delayed draw commitments thereunder and cease making further loans, and the Company could be forced into bankruptcy or liquidation. In addition, the Company’s subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated or required to be paid due to provisions contained within those instruments. As a result, the Company has classified its debt as current.
In order to address the need to satisfy the Company’s continuing obligations and realize its long-term strategy, management has taken several steps and is considering additional actions to improve its operating and financial results, including the following:
| ● | focusing the Company’s efforts to increase sales in additional geographic markets; |
| ● | continuing to develop 5G product offerings that will expand the market for the Company’s products; |
| ● | focusing the Company’s efforts to improve days sales outstanding to provide additional liquidity; and | |
| ● | continuing to implement cost reduction initiatives to reduce non-strategic costs in operations and expand the Company’s labor force in lower cost geographies, with headcount reductions in higher cost geographies. |
There can be no assurance that the above actions will be successful. Without additional financing or capital, the Company’s current cash balance would be insufficient to satisfy repayment demands from its lenders if the lenders elect to declare the senior term loan and the senior secured convertible notes due prior to the maturity date. There is no assurance that the new or renegotiated financing will be available, or that if available, will have satisfactory terms. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
8
COVID-19 Update
The coronavirus (“COVID-19”) pandemic, that started in 2020, has and continues to alter the behavior of business and people in a manner that is having negative effects on local, regional and global economies. The COVID-19 pandemic continues to have an impact with disruptions on our supply chains, as governments take robust actions to minimize the spread of localized COVID-19 outbreaks. The continued impact on our supply chains has caused delayed production and fulfilment of customer orders, disruptions and delays of logistics and increased logistic costs. As a further consequence of the COVID-19 pandemic, component lead times have extended as demand outstrips supply on certain components, including semiconductors, and have caused the costs of components to increase. These extended lead times have caused us to extend our forecast horizon with our contract manufacturing partners and have increased the risk of supply delays. The Company cannot at this time accurately predict what effects, or their extent, the coronavirus outbreak will have on the remainder of its 2022 operating results, due to uncertainties relating to the geographic spread of the virus, the severity of the disease, the duration of the outbreak, component shortages and increased component costs, the length of voluntary business closures, and governmental actions taken in response to the outbreak. More generally, the widespread health crisis has and may continue to adversely affect the global economy, resulting in an economic downturn that could affect demand for our products and therefore impact the Company’s results.
Significant Concentrations
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents, restricted cash and accounts receivable. The Company places its cash and cash equivalents in highly rated financial instruments. The Company maintains certain of its cash balances in various U.S. banks, which at times, may exceed federally insured limits. The Company has not experienced any losses on such accounts.
The Company’s accounts receivable are derived from sales of its products and approximately
The Company received
9
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users. The new standard was adopted by the Company on January 1, 2022, and it did not have a material impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. The new standard was adopted by the Company on January 1, 2022, and it did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the LIBOR, regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This new standard must be adopted by the Company no later than December 1, 2022, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 (amended by ASU 2019-10), “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, regarding the measurement of credit losses for certain financial instruments.” which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company is required to adopt the new standard on January 1, 2023. The Company is currently evaluating the impact this standard will have on the Company’s condensed consolidated financial statements.
Reclassifications
Certain reclassifications have been made to prior-year amounts to conform with current-year presentation. These reclassifications had no effect on the Company’s net loss or cash flows from operations.
10
| 3. | THE BUSINESS COMBINATION |
On August 13, 2021, the Company and Legacy Airspan completed the Business Combination, with Legacy Airspan surviving the Business Combination as a wholly-owned subsidiary of the Company, and the Company was renamed Airspan Networks Holdings Inc. Cash proceeds from the Business Combination totaled approximately $115.5 million, which included funds held in NBA’s trust account and the completion of the concurrent private placement (the “PIPE” or “PIPE Financing”) of shares of the Company’s common stock (the “Common Stock”) and sale of the Company’s senior secured convertible notes (the “Convertible Notes Financing”).
In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the effective time of the Business Combination, each share of Legacy Airspan capital stock issued and outstanding immediately prior to the Closing automatically converted into and became the right to receive a specified number of shares of the Company’s Common Stock, warrants exercisable to purchase one share of the Company’s Common Stock at a price of $
Prior to the Business Combination, New Beginnings issued
Prior to the consummation of the Business Combination, holders of an aggregate of 9,997,049 shares of Common Stock sold in NBA’s initial public offering exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from NBA’s initial public offering, calculated as of two business days prior to the consummation of the Business Combination, which was approximately $10.10 per share, or $101.0 million in the aggregate.
At Closing, the Company filed a second amended and restated certificate of incorporation (the “Restated Certificate of Incorporation”). Among other things, the Restated Certificate of Incorporation increased the number of shares of (a) Common Stock the Company is authorized to issue from 100,000,000 shares to 250,000,000 shares and (b) preferred stock the Company is authorized to issue from 1,000,000 shares to 10,000,000 shares.
11
In connection with the Closing of the Business Combination, certain former stockholders of Legacy Airspan (the “Legacy Airspan Holders”) and certain NBA stockholders (the “Sponsor Holders”) entered into a registration rights and lock-up agreement (the “Registration Rights and Lock-Up Agreement”). Subject to certain exceptions, the Registration Rights and Lock-Up Agreement provided that 44,951,960 shares of Common Stock, as well as 2,271,026 Post-Combination $12.50 Warrants, 2,271,026 Post-Combination $15.00 Warrants and 2,271,026 Post-Combination $17.50 Warrants (and the shares of Common Stock issuable upon exercise of such Post-Combination Warrants), in each case, held by the Legacy Airspan Holders were locked-up for a period of six months following the Closing, and 2,750,000 shares of Common Stock held by the Sponsor Holders were locked-up for a period of one year following the Closing, in each case subject to earlier release upon (i) the date on which the last reported sale price of the Common Stock equals or exceeds $12.50 per share for any 20 trading days within any 30-day trading period or (ii) the date on which we complete a liquidation, merger, capital stock exchange or other similar transaction after the Closing that results in all of our stockholders having the right to exchange their shares of our Common Stock for cash, securities or other property. The Registration Rights and Lock-Up Agreement also provided that the Private Placement Warrants and shares of Common Stock underlying the units sold by NBA in a private placement concurrent with its initial public offering (the “Private Placement Units”), along with any shares of Common Stock underlying the Private Placement Warrants, were locked-up for a period of 30 days following the Closing so long as such securities were held by the initial purchasers of the Private Placement Units or their permitted transferees.
The Company accounted for the Business Combination as a reverse recapitalization, which is the equivalent of Legacy Airspan issuing stock for the net assets of New Beginnings, accompanied by a recapitalization, with New Beginnings treated as the acquired company for accounting purposes. The determination of New Beginnings as the “acquired” company for accounting purposes was primarily based on the fact that subsequent to the Business Combination, Legacy Airspan comprised all of the ongoing operations of the combined entity, a majority of the governing body of the combined company and Legacy Airspan’s senior management comprised all of the senior management of the combined company. The net assets of New Beginnings were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Legacy Airspan. The shares and corresponding capital amounts and loss per share related to Legacy Airspan’s outstanding convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the conversion ratio established pursuant to the Business Combination Agreement.
In connection with the Business Combination, the Company incurred underwriting fees and other costs considered direct and incremental to the transaction totaling $
PIPE Financing
Concurrent with the execution of the Business Combination Agreement, the Company entered into subscription agreements with certain investors (the “PIPE Investors”) pursuant to which the PIPE Investors subscribed for and purchased an aggregate of shares of Common Stock for an aggregate purchase price of $million.
Convertible Notes Financing
Concurrent with the Closing of the Business Combination, the Company issued $
At Closing, each Convertible Note, together with all accrued but unpaid interest, was convertible, in whole or in part, at the option of the holder, at any time prior to the payment in full of the principal amount (together with all accrued but unpaid interest thereon), into shares of Common Stock at a conversion price equal to $
12
Summary of Net Proceeds
The following table summarizes the elements of the net proceeds from the Business Combination as of December 31, 2021:
| Cash—Trust Account (net of redemptions of $101 million) | $ | |||
| Cash—Convertible Notes financing | ||||
| Cash—PIPE Financing | ||||
| Less: Underwriting fees and other issuance costs paid at Closing | ( |
) | ||
| Cash proceeds from the Business Combination | $ | |||
| Less: Non-cash net liabilities assumed from New Beginnings | ( |
) | ||
| Add: Non-cash net assets assumed from New Beginnings | ||||
| Less: Non-cash fair value of Common Stock Warrants | ( |
) | ||
| Less: Non-cash fair value of Post-Combination Warrants | ( |
) | ||
| Less: Non-cash fair value of Convertible Notes issued | ( |
) | ||
| Less: Other issuance costs included in accounts payable and accrued liabilities | ( |
) | ||
| Additional paid-in-capital from Business Combination, net of issuance costs paid | $ |
Summary of Shares Issued
The following table summarizes the number of shares of Common Stock outstanding immediately following the consummation of the Business Combination:
| New Beginnings shares of Common Stock outstanding prior to the Business Combination | ||||
| Less: redemption of New Beginnings shares of Common Stock | ( |
) | ||
| Shares of Common Stock issued pursuant to the PIPE | ||||
| Outstanding New Beginnings shares of Common Stock prior to the Business Combination, plus shares of Common Stock issued in PIPE Financing | ||||
| Conversion of Legacy Airspan preferred stock | ||||
| Conversion of Legacy Airspan common stock | ||||
| Conversion of Legacy Airspan restricted common stock | ||||
| Conversion of Legacy Airspan Class B common stock | ||||
| Conversion of Legacy Airspan restricted Class B common stock | ||||
| Total shares of Company Common Stock outstanding immediately following the Business Combination |
The
13
| 4. | REVENUE RECOGNITION |
The following is a summary of revenue by category (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Non-recurring engineering (“NRE”) | ||||||||||||||||
| Product maintenance contracts | ||||||||||||||||
| Professional service contracts | ||||||||||||||||
| Software licenses | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
There was $
The opening and closing balances of our contract asset and liability balances from contracts with customers as of September 30, 2022 and December 31, 2021 were as follows (in thousands):
| Contracts Assets |
Contracts Liabilities |
|||||||
| Balance as of December 31, 2021 | $ | $ | ||||||
| Balance as of September 30, 2022 | ||||||||
| Change | $ | $ | ||||||
14
Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations included in a contract that are unsatisfied, or partially satisfied, as of the end of a period. As of September 30, 2022 and December 31, 2021, deferred revenue (both current and noncurrent) of $
Revenues for the three and nine months ended September 30, 2022 and 2021, include the following (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Amounts included in the beginning of year contract liability balance | $ | $ | $ | $ | ||||||||||||
Warranty Liabilities
Information regarding the changes in the Company’s product warranty liabilities for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Accruals | ||||||||||||||||
| Settlements | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
15
| 5. | GOODWILL AND INTANGIBLE ASSETS, NET |
The Company had goodwill of $
Intangible assets, net consists of the following (in thousands):
| Weighted | September 30, 2022 | ||||||||||||||
| Average Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
| Internally developed technology | $ | $ | ( |
) | $ | ||||||||||
| Customer relationships | ( |
) | |||||||||||||
| Trademarks | ( |
) | |||||||||||||
| Non-compete | ( |
) | |||||||||||||
| Total acquired intangible assets | $ | $ | ( |
) | $ | ||||||||||
| Weighted | December 31, 2021 | ||||||||||||||
| Average Useful Life (in years) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||
| Internally developed technology | $ | $ | ( |
) | $ | ||||||||||
| Customer relationships | ( |
) | |||||||||||||
| Trademarks | ( |
) | |||||||||||||
| Non-compete | ( |
) | |||||||||||||
| Total acquired intangible assets | $ | $ | ( |
) | $ | ||||||||||
Amortization expense related to the Company’s intangible assets amounted to $
Estimated amortization expense for the remainder of 2022 and thereafter related to the Company’s intangible assets is as follows (in thousands):
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
16
| 6. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consist of the following (in thousands):
| September 30, 2022 |
December 31, 2021 |
|||||||
| Payroll and related benefits and taxes | $ | $ | ||||||
| Fair value of embedded derivatives related to Convertible Debt | ||||||||
| Royalties | ||||||||
| Agent and sales commissions | ||||||||
| Right-of-use lease liability, current portion | ||||||||
| Tax liabilities | ||||||||
| Product warranty liabilities | ||||||||
| Product marketing | ||||||||
| Manufacturing subcontractor costs | ||||||||
| Legal and professional services | ||||||||
| Other | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
17
| 7. | RESTRUCTURING ACTIVITIES |
In June 2022, as part of a strategic review of our operations, the Company announced a cost reduction and restructuring program (the “2022 restructuring program”). The 2022 restructuring program was primarily comprised of entering into severance and termination agreements with employees. Formal announcements to the relevant employees were made in June and July 2022 and activities were ongoing throughout the three months ended September 30, 2022 and are expected to be complete by December 31, 2022.
Restructuring costs are presented separately on the condensed consolidated statements of operations.
The following table presents the restructuring costs recognized by the Company under the 2022 restructuring program during both the three and nine months ended September 30, 2022. The Company did not incur any costs under the 2022 restructuring program during the three and nine months ended September 30, 2021.
| 2022 | ||||
| Severance costs | $ | |||
| Other | ||||
| Total restructuring costs | $ | |||
The following table represents the restructuring liabilities, which are presented within accrued expenses and other current liabilities in the condensed consolidated balance sheet:
| 2022 | ||||
| Balance, December 31, 2021 | $ | |||
| Current period charges | ||||
| Payments | ||||
| Balance, September 30, 2022 | $ | |||
18
| 8. | SUBORDINATED DEBT |
On August 6, 2015, Legacy Airspan issued Golden Wayford Limited a $
The principal and accrued interest under the Golden Wayford Note would have been automatically converted into common shares at the time of the next equity financing and consummated prior to, on or after the maturity date (June 30, 2020). Such conversion right expired in accordance with its term. Interest accrues at
The Golden Wayford Note is subordinate to the obligations under the Fortress Credit Agreement (see Note 10). A limited waiver under the Fortress Credit Agreement waives each actual and prospective default and event of default existing under the Fortress Credit Agreement directly as a result of the non-payment of the Golden Wayford Note. The Company had subordinated debt outstanding of $
See Note 10 for a discussion of financial covenant breaches under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes which have caused the subordinated debt to be classified as a current liability.
19
| 9. | SUBORDINATED TERM LOAN – RELATED PARTY |
On February 9, 2016, Legacy Airspan entered into a $
Prior to May 23, 2019, interest accrued at 2.475% per annum and was payable quarterly. In accordance with the amendments below, the interest rate changed as follows:
| (a) | Amendment No. 3, on May 23, 2019, the interest rate changed to 9.0% per annum to be accrued; |
| (b) | Amendment No. 4, on March 30, 2020, the interest rate changed to 9.0% per annum through December 31, 2020 and from and after January 1, 2021, at a rate of 12.0% per annum to be accrued; and |
| (c) | Amendment No. 5, on December 30, 2020, the interest rate from January 1, 2021 and thereafter changed to 9.0% per annum to be accrued, subject to reversion to 12.0% if a condition subsequent is not satisfied. The subsequent condition was satisfied. |
The principal and accrued interest may be repaid early without penalty.
The Company had a subordinated term loan outstanding of $
See Note 10 for a discussion of financial covenant breaches under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes which have caused the subordinated term loan to be classified as a current liability.
20
| 10. | SENIOR TERM LOAN |
On December 30, 2020, Legacy Airspan, together with Holdco, Airspan Networks (SG) Inc., Mimosa Networks, Inc., Mimosa Networks International, LLC, Airspan Communications Limited, Airspan Networks LTD, and Airspan Japan K.K., as guarantors, together with the other parties thereto, entered into an assignment agreement, whereby Pacific Western Bank (“PWB”) and Ally Bank assigned their interests in a loan facility under the Second Amended and Restated Loan and Security Agreement with Legacy Airspan (the “PWB Facility”) to certain new lenders (the “Assignment Agreement”), and PWB entered into a resignation and assignment agreement (the “Agent Resignation Agreement”) pursuant to which PWB resigned in its capacity as agent under all of the transaction documents and Fortress became the successor agent (as defined in the Agent Resignation Agreement), replacing PWB in such capacity under the PWB Facility. The Assignment Agreement and the Agent Resignation Agreement, along with a Reaffirmation and Omnibus Amendment, resulted in the amendment and restatement of the terms of the PWB Facility and the Fortress Credit Agreement with the new lenders as the lenders thereunder. Fortress became the administrative agent, collateral agent and trustee for the lenders and other secured parties. At Closing, on August 13, 2021, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Waiver and Consent, Second Amendment, Restatement, Joinder and Omnibus Amendment to Credit Agreement and Other Loan Documents relating to the Fortress Credit Agreement with Fortress (the “August 2021 Fortress Amendment”) to, among other things, add the Company as a guarantor, recognize and account for the Business Combination, recognize and account for the Convertible Notes (see Note 11) and provide updated procedures for replacement of LIBOR. On March 29, 2022, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Third Amendment and Waiver to Credit Agreement and Other Loan Documents relating to the Fortress Credit Agreement with Fortress (the “March 2022 Fortress Amendment”) to, among other things, amend the financial covenants included in the Fortress Credit Agreement.
The Fortress Credit Agreement initial term loan total commitment of $
Under the terms of the Fortress
Credit Agreement and the Fortress Convertible Note Agreement, as of the last day of any fiscal quarter, the Company’s EBITDA
for the preceding twelve months may not be less than the applicable minimum established in the Fortress Credit Agreement and the
Fortress Convertible Note Agreement. The Company was not in compliance with the minimum last twelve-month EBITDA covenant under the
Fortress Credit Agreement and the Fortress Convertible Note Agreement (as defined in Note 11) as of the September 30, 2022
quarterly measurement date. For the last day of the next four fiscal quarters, commencing with the fiscal quarter ending
December 31, 2022, the applicable minimum twelve-month EBITDA under the Fortress Credit Agreement or the Fortress Convertible
Note Agreement ranges from a loss of $
21
In
addition, under the terms of the Fortress Credit Agreement and the Fortress Convertible Note Agreement, the Company is required at
all times to maintain minimum liquidity of between $
The Company is seeking a waiver with respect to the applicable breached covenants referenced above. However, there can be no assurance that the lenders under the Fortress Credit Agreement and the Fortress Convertible Note Agreement will agree to waive such existing covenant breaches. Even if the Company receives a waiver with respect to such breaches, based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it is probable that the Company will not be in compliance with certain of the prospective financial covenants under the Fortress Credit Agreement and the Fortress Convertible Note Agreement during certain periods of the next twelve months. Accordingly, while the Company intends to seek waivers from compliance with the applicable covenants in connection with such anticipated breaches, or amendments of existing financial covenants included in the Fortress Credit Agreement and the Fortress Convertible Note Agreement, the Company is also pursuing alternative sources of capital so that it will be able to satisfy its prospective minimum liquidity obligations under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. There can be no assurance that the lenders under the Fortress Credit Agreement and the Fortress Convertible Note Agreement will agree to waive any breaches thereunder that may arise in the future or that the Company will otherwise be able to remedy such breaches. In the absence of waivers or remedies of existing covenant breaches or any additional breaches that may arise in the future, the lenders under the Fortress Credit Agreement and the Fortress Convertible Note Agreement could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, and institute foreclosure proceedings against the Company’s assets, could elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement, could elect to terminate their delayed draw commitments under the Fortress Credit Agreement and cease making further loans, and the Company could be forced into bankruptcy or liquidation. In addition, the Company’s subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated or required to be paid due to provisions contained within those instruments. Accordingly, the Company has classified its senior term loan, convertible debt, subordinated term loan and subordinated debt as current liabilities on its condensed consolidated balance sheet as of September 30, 2022.
The Company’s senior term loan balance was $
22
| 11. | CONVERTIBLE DEBT |
On August 13, 2021, the Company, together with Legacy Airspan, Holdco, Airspan Networks (SG) Inc., Mimosa Networks, Inc., Mimosa Networks International, LLC, Airspan Communications Limited, Airspan Networks LTD, and Airspan Japan K.K., as guarantors, and Fortress, entered into a Senior Secured Convertible Note Purchase and Guarantee Agreement (the “Fortress Convertible Note Agreement”), in order to meet the available cash requirement of the reverse recapitalization described in Note 3. Pursuant to the Fortress Convertible Note Agreement, $
On March 29, 2022, the Company and certain of its subsidiaries who are party to the Fortress Convertible Note Agreement entered into a First Amendment and Waiver to Senior Secured Convertible Note Purchase and Guarantee Agreement and Other Note Documents relating to the Fortress Convertible Note Agreement and the Convertible Notes (the “Fortress Convertible Note Agreement Amendment”) to, among other things, amend the financial covenants included in the Fortress Convertible Note Agreement, amend the conversion price of the Convertible Notes and amend the optional redemption provisions of the Convertible Notes.
Prior to the Fortress Convertible Note Agreement Amendment, the Convertible Notes, together with all accrued but unpaid interest thereon, were convertible, in whole or in part, at any time prior to the payment in full of the principal amount thereof (together with all accrued but unpaid interest thereon), into shares of Common Stock at a conversion price equal to $12.50 per share. Pursuant to the Fortress Convertible Note Agreement Amendment, the conversion price with respect to the Convertible Notes was decreased to $8.00 per share. The conversion price with respect to the Convertible Notes is subject to adjustment to reflect stock splits and subdivisions, stock and other dividends and distributions, recapitalizations, reclassifications, combinations and other similar changes in capital structure. The conversion price with respect to the Convertible Notes is also subject to a broad-based weighted average anti-dilution adjustment in the event the Company issues, or is deemed to have issued, shares of Common Stock, other than certain excepted issuances, at a price below the conversion price then in effect. In addition, pursuant to the Fortress Convertible Note Agreement Amendment, if, during the period commencing on and including the date of the Fortress Convertible Note Agreement Amendment and ending on and including the 15-month anniversary of the date of the Fortress Convertible Note Agreement Amendment, there is no 30 consecutive trading day-period during which the average of the daily volume weighted average price of the Common Stock (“Daily VWAP”) for such 30 consecutive trading day-period (after excluding the three highest and the three lowest Daily VWAPs during such period) equals or exceeds $10.00 (as adjusted for stock splits, stock combinations, dividends, distributions, reorganizations, recapitalizations and the like), the conversion price with respect to the Convertible Notes will be reduced to the amount that such conversion price would otherwise have been had the conversion price with respect to the Convertible Notes been $6.00 on the date of the Fortress Convertible Note Agreement Amendment.
23
The following is the allocation among the freestanding instruments (in thousands) at the issuance date:
| Convertible Notes | $ | |||
| Conversion option derivative | ||||
| Call and contingent put derivative | ||||
| Total Convertible Notes | $ |
As of September 30, 2022, the Company had convertible debt outstanding as shown below (in thousands):
| September 30, 2022 |
||||
| Convertible Notes | $ | |||
| Accrued interest(a) | ||||
| Subtotal | ||||
| Loan discount costs | ( |
) | ||
| Total Convertible Notes | $ | |||
| (a) |
See Note 10 for further information related to the Fortress Convertible Note Agreement.
24
| 12. | FAIR VALUE MEASUREMENTS |
The Company’s assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value.
The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. These assets include property, plant and equipment, goodwill and intangible assets, net. The Company did not record impairment to any non-financial assets in the three and nine months ended September 30, 2022 and 2021. The Company does not have any non-financial liabilities measured and recorded at fair value on a non-recurring basis.
Financial Disclosures about Fair Value of Financial Instruments
The table below sets forth information related to the Company’s condensed consolidated financial instruments (in thousands):
| Level in | September 30, 2022 |
December 31, 2021 |
|||||||||||||||||
| Fair Value | Carrying | Fair | Carrying | Fair | |||||||||||||||
| Hierarchy | Amount | Value | Amount | Value | |||||||||||||||
| Assets: | |||||||||||||||||||
| Cash and cash equivalents | 1 | $ | $ | $ | $ | ||||||||||||||
| Restricted cash | 1 | ||||||||||||||||||
| Cash and investment in severance benefit accounts | 1 | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||
| Subordinated term loan(a) | 2 | $ | $ | $ | $ | ||||||||||||||
| Subordinated debt(a) | 2 | ||||||||||||||||||
| Senior term loan(a) | 2 | ||||||||||||||||||
| Convertible debt | 2 | ||||||||||||||||||
| Public Warrants | 1 | ||||||||||||||||||
| Warrants(b) | 3 | ||||||||||||||||||
| (a) |
| (b) |
| Post- Combination Warrants |
Private Placement Warrants |
|||||||
| Assumptions: | ||||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | – | $ | |||||
| Risk free rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
25
The conversion option derivative and call and contingent put derivative are considered a Level 3 measurement due to the utilization of significant unobservable inputs in the valuation. The Company utilized a binomial model to estimate the fair value of the embedded derivative features requiring bifurcation associated with the Convertible Notes payable at the issuance date and as of the September 30, 2022 reporting date. The key inputs to the valuation models that were utilized to estimate the fair value of the convertible debt derivative liabilities include:
| September 30, 2022 |
Issuance Date |
|||||||
| Assumptions: | ||||||||
| Stock price | $ | $ | ||||||
| Conversion strike price | $ | $ | ||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
| Risk free rate | % | % | ||||||
| Debt discount rate | % | % | ||||||
| Coupon interest rate | % | % | ||||||
| Face amount (in thousands) | $ | $ | ||||||
| Contingent put inputs and assumptions: | ||||||||
| Probability of fundamental change | % | % | ||||||
The following table presents a roll-forward of the Level 3 instruments:
| (in thousands) | Warrants | Conversion option derivative |
Call and contingent put derivative |
|||||||||
| Beginning balance, December 31, 2021 | $ | $ | $ | |||||||||
| Change in fair value | ( |
) | ||||||||||
| Ending balance, September 30, 2022 | $ | $ | $ | |||||||||
The fair value of the Company’s cash and cash equivalents and restricted cash approximate the carrying value because of the short-term nature of these accounts.
26
| 13. | COMMITMENTS AND CONTINGENCIES |
The Company had commitments with its main subcontract manufacturers under various purchase orders and forecast arrangements of $
Contingencies and Legal Proceedings
From time to time, the Company receives and reviews correspondence from third parties with respect to licensing their patents and other intellectual property in connection with the sale of the Company’s products. Disputes may arise with such third parties if an agreement cannot be reached regarding the licensing of such patents or intellectual property.
On October 14, 2019, Barkan Wireless IP Holdings, L.P. (“Barkan”) filed a suit against Sprint Corporation and related entities (“Sprint”) in the United States District Court for the Eastern District of Texas alleging patent infringement based in part on two of the Company’s products, Airave 4 and Magic Box Gold. See Barkan Wireless IP Holdings, L.P. v. Sprint Corporation et al, Case No. 2:19-cv-00336-JRG (E.D. Tex.). On March 26, 2021, after a settlement between Barkan and Sprint, the court granted an agreed motion to dismiss and the case was closed. Sprint has demanded that the Company indemnify Sprint $3,870,000 for a portion of the amounts Sprint paid to defend and settle the case. On April 27, 2021, Sprint gave notice that it intends to set-off amounts it owes the Company until Sprint’s indemnity demand is satisfied. The Company disputes Sprint’s indemnity demand and, on March 15, 2022, filed a complaint for breach of contract in the United States District Court for the District of Kansas. See Airspan Networks, Inc. v. Sprint/United Management Company, Case No. 2:22-cv-02104-JAR-ADM (D. Kan.). That complaint was subsequently voluntarily dismissed by the Company and the underlying breach of contract claim is now a counterclaim in the matter captioned Sprint Communications Company, L.P et al. vs. Casa Systems, Inc. et al., No. 22CV02327 Div.7 pending in the District Court of Johnson County Kansas.
Except as set forth above, the Company is not currently subject to any other material legal proceedings. The Company may from time to time become a party to various other legal proceedings arising in the ordinary course of its business. While the results of such claims and litigation cannot be predicted with certainty, the Company currently believes that it is not a party to any litigation the final outcome of which is likely to have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.
27
| 14. | COMMON STOCK AND WARRANTS |
Common Stock
As of September 30, 2022, 260,000,000 shares, $ par value per share are authorized, of which, shares are designated as Common Stock and shares are designated as preferred stock. As of September 30, 2022, there were shares of Common Stock issued and outstanding and shares of preferred stock issued or outstanding.
Holders of our Common Stock are entitled to receive dividends when, as and if declared by the board of directors of the Company (the “Board”), payable either in cash, in property or in shares of capital stock. As of September 30, 2022, the Company had not declared any dividends.
Legacy Airspan Warrants
The Company accounted for Legacy Airspan convertible preferred stock warrants that have been earned and are exercisable into shares of Legacy Airspan’s convertible preferred stock as liabilities pursuant to Accounting Standards Codification 480, “Distinguishing Liabilities from Equity” as the warrants were exercisable into shares of Legacy Airspan convertible preferred stock that were contingently redeemable upon events outside the control of Legacy Airspan. The warrant liability is included in other long-term liabilities on the accompanying condensed consolidated balance sheets. The warrants are remeasured and recognized at fair value at each balance sheet date. At the end of each reporting period, changes in fair value during the period are recognized as a component of other expense, net on the accompanying condensed consolidated statements of operations.
In January 2021 and February 2021, Legacy Airspan issued warrants for the purchase of
In October 2015, Legacy Airspan issued warrants to purchase
The Series D Warrants expired unexercised in January 2021 and the Series D-1 Warrants and Series H warrants were converted as part of the Closing of the Business Combination (Note 3) and ceased to exist after the Business Combination.
28
Common Stock Warrants
As of September 30, 2022, there are
As part of NBA’s initial public offering,
The Company may redeem the Public Warrants when exercisable, in whole and not in part, at a price of $0.01 per warrant, so long as the Company provides not less than 30 days’ prior written notice of redemption to each warrant holder, and if, and only if, the reported last sale price of the Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders.
Simultaneously with NBA’s initial public offering, NBA consummated a private placement of
Post-Combination Warrants
As of September 30, 2022, there are 9,000,000 Post-Combination Warrants outstanding.
At Closing, the Company issued Post-Combination Warrants exercisable for 9,000,000 shares of Company Common Stock. The Post-Combination Warrants include: (i) 3,000,000 Post-Combination $12.50 Warrants; (ii) 3,000,000 Post-Combination $15.00 Warrants; and (iii) 3,000,000 Post-Combination $17.50 Warrants. As of September 30, 2022, there were 3,000,000 Post-Combination $12.50 Warrants, 3,000,000 Post-Combination $15.00 Warrants, and 3,000,000 Post-Combination $17.50 Warrants outstanding. The Post-Combination Warrants may only be exercised during the period commencing on the Closing and terminating on the earlier of (i) two years following the date of the Closing and (ii) the redemption date, for a price of $12.50 per Post-Combination $12.50 Warrant, $15.00 per Post-Combination $15.00 Warrant and $17.50 per Post-Combination $17.50 Warrant.
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| 15. | SHARE-BASED COMPENSATION |
2021 Stock Incentive Plan
Prior to the Business Combination, the Company maintained its 2009 Omnibus Equity Compensation Plan (the “2009 Plan” and together with the 2021 Plan, the “Plans”). Upon Closing of the Business Combination, awards under the 2009 Plan were converted at the exchange ratio calculated in accordance with the Business Combination Agreement and the 2021 Plan became effective. On June 21, 2022, the 2021 Plan was amended and restated to, among other things, increase the number of shares of Common Stock authorized for issuance under the 2021 Plan by shares. As of September 30, 2022, there were shares of Common Stock authorized for issuance under the amended and restated 2021 Plan, plus any shares of Common Stock subject to awards under the 2009 Plan that are forfeited or reacquired by the Company due to termination or cancellation. As of September 30, 2022, there were
The following table summarizes share-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Total share-based compensation | $ | $ | $ | $ | ||||||||||||
Common Stock Options
The following table sets forth the activity for all Common Stock options:
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (Years) |
Weighted-Average Grant Date Fair Value |
|||||||||||||
| Outstanding, December 31, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ( |
) | ||||||||||||||
| Expired | ( |
) | ||||||||||||||
| Outstanding, September 30, 2022(a) | $ | $ | ||||||||||||||
| Exercisable, September 30, 2022(b) | $ | $ | ||||||||||||||
| (a) |
| (b) |
As of September 30, 2022, there was $ million of unrecognized compensation expense related to stock options to be recognized over a weighted average period of years.
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Restricted Stock Awards (“RSAs”)
The following table sets forth the activity for all RSAs:
| Number of Shares |
Weighted Average Grant Date Fair Value |
|||||||
| Outstanding (nonvested), December 31, 2021 | $ | |||||||
| Vested | ( |
) | ||||||
| Cancelled | ( |
) | ||||||
| Outstanding (nonvested), September 30, 2022 | $ | |||||||
As of September 30, 2022, there was unrecognized compensation expense related to RSAs to be recognized.
Restricted Stock Units
As part of the consideration in the Business Combination, RSUs with respect to shares of Common Stock were granted to the participants in Legacy Airspan’s MIP. For the RSUs granted to MIP Participants, the weighted average grant date fair value was $ per RSU. The RSUs granted in connection with the MIP vested one year after the date of the grant.
The following table sets forth the activity for all RSUs:
| Number of RSUs |
Weighted Average Grant Date Fair Value |
|||||||
| Outstanding (nonvested), December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( |
) | ||||||
| Forfeited | ( |
) | ||||||
| Outstanding (nonvested), September 30, 2022 | $ | |||||||
Because the Company maintained a full valuation allowance on its U.S. deferred tax assets, it did not recognize any tax benefit related to share-based compensation expense for the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, there was $ million of unrecognized compensation expense related to RSUs to be recognized over a weighted average period of years.
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| 16. | NET LOSS PER SHARE |
Net loss per share is computed using the weighted average number of shares of Common Stock outstanding less the number of shares subject to repurchase.
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except share data):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Denominator - basic and diluted: | ||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The following table sets forth the amounts excluded from the computation of diluted net loss per share as of September 30, 2022 and 2021 because their effect was anti-dilutive.
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options outstanding | ||||||||
| Non-vested shares of restricted stock | ||||||||
| Warrants(a) | ||||||||
| Convertible notes(a) | ||||||||
| (a) |
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| 17. | RELATED PARTY TRANSACTIONS |
As disclosed in Note 9, as of September 30, 2022 and December 31, 2021, Legacy Airspan had a subordinated term loan with a related party. This related party has an indirect, non-controlling beneficial interest in Fortress, which is the agent and principal lender under the Fortress Credit Agreement and the collateral agent and trustee under the Fortress Convertible Note Agreement and the Convertible Notes. This related party also has an indirect, non-controlling beneficial interest in each holder of Convertible Notes. The Company derived approximately $
The Company has an outstanding receivable from and payable to a related party, a stockholder, amounting to $
In addition, the Company has an outstanding accounts receivable from a separate related party, also a stockholder, amounting to $
The Company derived revenues from sales of products and services to Dense Air Ltd. (“Dense Air”) amounting to approximately $
| 18. | EQUITY METHOD INVESTMENT |
The Company previously accounted for its investment in Dense Air, which prior to March 7, 2022, was a wholly-owned subsidiary of the Company, as an equity method investment. On March 7, 2022, the outstanding amount of Dense Air’s loan was converted into shares equating to 95% of the share capital of Dense Air. This conversion did not have a significant effect on the Company’s condensed consolidated balance sheets, statements of operations or cash flows.
The investment had
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to “we,” “us,” “our” or the “Company” after the Closing of the Business Combination are to Airspan Networks Holdings Inc. and its consolidated subsidiaries, and prior to the Closing of the Business Combination are to Legacy Airspan and its consolidated subsidiaries, in each case, except where the context requires otherwise. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy, and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, which may include, among other things: the risk of downturns and the possibility of rapid change in the highly competitive industry in which we operate; changes in laws and regulations affecting our business; the risk that we and our current and future collaborators are unable to successfully develop and commercialize our products or services, or experience significant delays in doing so; the risk that we do not achieve or sustain profitability; the risk that we will need to raise additional capital to execute our business plan, which may not be available on acceptable terms or at all; our ability to remain in compliance with the financial and other covenants under our debt agreements; our ability to continue as a going concern; the risk that we experience difficulties in managing our growth and expanding operations; the risk that third-party suppliers and manufacturers are not able to fully and timely meet their obligations; the risk of product liability or regulatory lawsuits or proceedings relating to our products and services; and the risk that we are unable to secure our intellectual property. For further information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 8, 2022. Our securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable law or regulation, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We offer a complete range of 4G and 5G network build and network densification products with an expansive portfolio of software and hardware tools for indoor and outdoor, compact femto, pico, micro and macro base stations, as well as an industry-leading 802.11ac and 802.11ax fixed wireless access and backhaul solution portfolio for point-to-point and point-to-multipoint applications. Our solutions help network operators monetize the potential of 4G and 5G technologies and use cases and, in addition, allow enterprises to establish their own private networks especially in 5G, where dedicated spectrum has been allocated. We have developed differentiated RAN software and hardware products to help operators get the maximum capacity and coverage in the following ways:
| ● | Very high-performance wireless network technology for both access and backhaul components of the network. |
| ● | Energy efficient and integrated form factors, enabling cost effective deployment of RAN technology that are able to avoid zoning and site acquisition constraints, which translate into a quicker time-to-market for our customers. |
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| ● |
Easy to use, affordable and comprehensive core network elements to support 4G, 5G and fixed wireless services. | |
|
|
● | Sophisticated provisioning and orchestration software for both backhaul and RAN for 4G and 5G access and the core network that can also integrate a wide range of access. |
| ● | Fully virtualized cloud native modular software and hardware solutions that adhere to open standards allowing our operator customers to fundamentally shift the dynamics of the value and supply chains of the wireless industry. This decreases vendor lock-in and as a result lowers total cost of ownership typical of traditional incumbent competitors. |
The market for our wireless systems includes leading mobile communications service providers, large enterprises, military communications integrators and internet service providers. Our strategy applies the same network technology across all addressable sectors.
Our main operations are in: Slough, United Kingdom; Mumbai and Bangalore, India; Tokyo, Japan; Airport City, Israel; and Santa Clara, California, and our corporate headquarters is in Boca Raton, Florida.
Recent Developments
Restructuring Activities
In June 2022, as part of a strategic review of our operations, we announced a cost reduction and restructuring program. This program was primarily comprised of entering into severance and termination agreements with employees. Formal announcements to the relevant employees were made in June and July 2022 and activities were ongoing throughout the three months ended September 30, 2022 and are expected to be complete by December 31, 2022.
We incurred $0.9 million of restructuring costs during both the three and nine months ended September 30, 2022, which are presented separately on the condensed consolidated statements of operations. During both the three and nine months ended September 30, 2022, we paid $0.8 million of restructuring costs and have recorded a liability amounting to $0.1 million as of September 30, 2022 which is presented within accrued expenses and other current liabilities in the condensed consolidated balance sheet.
COVID-19 Update
The COVID-19 pandemic, that started in 2020, has and continues to alter the behavior of business and people in a manner that is having negative effects on local, regional and global economies. The COVID-19 pandemic continues to have an impact with disruptions on our supply chains, as governments take robust actions to minimize the spread of localized COVID-19 outbreaks. The continued impact on our supply chains has caused delayed production and fulfilment of customer orders, disruptions and delays of logistics and increased logistic costs. As a further consequence of the COVID-19 pandemic, component lead times have extended as demand outstrips supply on certain components, including semiconductors, and have caused the costs of components to increase. These extended lead times have caused us to extend our forecast horizon with our contract manufacturing partners and have increased the risk of supply delays. We cannot at this time accurately predict what effects, or their extent, the coronavirus outbreak will have on the remainder of our 2022 operating results, due to uncertainties relating to the geographic spread of the virus, the severity of the disease, the duration of the outbreak, component shortages and increased component costs, the length of voluntary business closures, and governmental actions taken in response to the outbreak. More generally, the widespread health crisis has and may continue to adversely affect the global economy, resulting in an economic downturn that could affect demand for our products and therefore impact our results of operations and financial condition.
Further quantification of these pandemic effects, to the extent relevant and material, are included in the discussion of results of operations below.
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How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenue, cost of revenue, research and development, sales and marketing, general and administrative, interest expense, income taxes and net income. To further help us assess our performance with these key indicators, we use Adjusted EBITDA as a non-GAAP financial measure. We believe Adjusted EBITDA provides useful information to investors and expanded insight to measure our revenue and cost performance as a supplement to our GAAP consolidated financial statements. See the “—Results of Operations—Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021—Adjusted EBITDA” and “—Results of Operations—Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021—Adjusted EBITDA” sections below for reconciliations to net loss, the most directly comparable GAAP measure.
Revenues
We derive the majority of our revenues from sales of our networking products, with the remaining revenue generated from software licenses and service fees relating to non-recurring engineering, product maintenance contracts and professional services for our products. We sell our products and services to end customers, distributors and resellers. Products and services may be sold separately or in bundled packages.
Our top three customers accounted for 50.8% and 60.4% of revenue for the three months ended September 30, 2022 and 2021, respectively. For both the nine months ended September 30, 2022 and 2021, the Company had three customers whose revenue was greater than 10% of the period’s total revenue.
Our sales outside the U.S. and North America accounted for 54.7% and 73.2% of our total revenue in the three months ended September 30, 2022 and 2021, respectively, and 55.4% and 70.3% of our total revenue in the nine months ended September 30, 2022 and 2021, respectively. The following table identifies the percentage of our revenue by customer geographic region in the periods identified.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| Geographic Area | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| United States | 42.7 | % | 26.2 | % | 42.3 | % | 29.2 | % | ||||||||
| Other North America | 2.6 | % | 0.6 | % | 2.3 | % | 0.5 | % | ||||||||
| North America | 45.3 | % | 26.8 | % | 44.6 | % | 29.7 | % | ||||||||
| India | 23.8 | % | 32.4 | % | 18.0 | % | 20.4 | % | ||||||||
| Japan | 11.2 | % | 22.0 | % | 26.5 | % | 34.0 | % | ||||||||
| Other Asia | 1.1 | % | 2.7 | % | 0.9 | % | 2.4 | % | ||||||||
| Asia | 36.1 | % | 57.1 | % | 45.4 | % | 56.8 | % | ||||||||
| Europe | 8.3 | % | 1.2 | % | 4.7 | % | 3.8 | % | ||||||||
| Africa and the Middle East | 5.8 | % | 11.6 | % | 3.3 | % | 5.8 | % | ||||||||
| Latin America and the Caribbean | 4.5 | % | 3.3 | % | 2.0 | % | 3.9 | % | ||||||||
| Total revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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Cost of Revenues
Cost of revenues consists of component and material costs, direct labor costs, warranty costs, royalties, overhead related to manufacture of our products and customer support costs. Our gross margin is affected by changes in our product mix both because our gross margin on software and services is higher than the gross margin on base station related equipment, and because our different product lines generate different margins. In addition, our gross margin is affected by changes in the average selling price of our systems and volume discounts granted to significant customers. The COVID-19 pandemic continues to have an impact with disruptions to our supply chains, which have caused extended component lead times, increased component costs, as well as disruption and increased expenses in logistics. We expect the average selling prices of our existing products to continue to decline and we intend to continue to implement product cost reductions and develop and introduce new products or product enhancements in an effort to maintain or increase our gross margins. Further, we may derive an increasing proportion of our revenue from the sale of our integrated systems through distribution channels. Revenue derived from these sales channels typically carries a lower gross margin than direct sales.
Operating Expenses
Research and Development
Research and development expenses consist primarily of salaries and related costs for personnel and expenses for design, development, testing facilities and equipment depreciation. These expenses also include costs associated with product development efforts, including consulting fees and prototyping costs from initial product concept to manufacture and production as well as sub-contracted development work. We expect to continue to make substantial investments in research and development.
Sales and Marketing
Sales and marketing expenses consist of salaries and related costs for personnel, sales commissions, consulting and agent’s fees and expenses for advertising, travel, technical assistance, trade shows, and promotional and demonstration materials. We expect to continue to incur substantial expenditures related to sales and marketing activities.
General and Administrative
General and administrative expenses consist primarily of salaries and related expenses for our personnel, audit, professional and consulting fees and facilities costs.
Restructuring costs
Restructuring costs consist primarily of employee termination benefits.
Non-Operating Expenses
Interest Expense, Net
Interest expense consists primarily of interest associated with the Convertible Notes, two subordinated loan facilities and our senior secured credit facility, which consists of a term loan and delayed draw commitment. Interest on the term loan was determined based on the highest of a LIBOR rate, the commercial lending rate of the collateral agent and the federal funds rate, plus an applicable margin. Interest on the delayed draw commitment is based on the LIBOR rate plus an applicable margin.
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Income Tax (Expense) Benefit, Net
Our provision for income tax (expense) benefit, net includes the expected benefit of all deferred tax assets, including our net operating loss carryforwards. Some of our net operating loss carryforwards will begin to expire in 2022 and continue to expire through 2037, while others will be carried forward indefinitely until fully utilized. Our tax (expense) benefit has been impacted by non-deductible expenses, including equity compensation, research and development amortization, and research and development benefits.
Net Loss
Net loss is determined by subtracting operating and non-operating expenses from revenues.
Adjusted EBITDA
Adjusted EBITDA is defined as net income before depreciation and amortization, interest expense and income taxes, and also adjusted to add back share-based compensation costs, changes in the fair value of the warrant liability and embedded derivatives and one-time costs related to the Business Combination, as these costs are not considered a part of our core business operations and are not an indicator of ongoing, future company performance. We use Adjusted EBITDA to evaluate our performance, both internally and as compared to our peers, because these measures exclude certain items that may not be indicative of our core operating results, as well as items that can vary widely among companies within our industry. For example, share-based compensation costs can be subject to volatility from changes in the market price per share of our Common Stock or variations in the value and number of shares granted.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business because it excludes, among other things, the effects of certain transactions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the jurisdictions in which we operate and capital investments.
We present this non-GAAP financial measure because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results by focusing on our core operating results and is useful to evaluate our performance in conjunction with our GAAP financial measures. Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income, net income or earnings per share, as a measure of operating performance, cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP measures.
In particular, Adjusted EBITDA is subject to certain limitations, including the following:
| ● | Adjusted EBITDA does not reflect interest expense, or the amounts necessary to service interest or principal payments under the Fortress Credit Agreement; |
| ● | Adjusted EBITDA does not reflect income tax provision (benefit), and because the payment of taxes is part of our operations, tax provision is a necessary element of our costs and ability to operate; |
| ● | Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any costs of such replacements; |
| ● | Adjusted EBITDA does not reflect the non-cash component of share-based compensation; |
| ● | Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations; and |
| ● | Other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure. |
We adjust for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information.
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Segments
Our business is organized around one reportable segment, the development and supply of broadband wireless products and technologies. This is based on the objectives of the business and how our chief operating decision maker, the Chief Executive Officer, monitors operating performance and allocates resources.
Results of Operations
The following table summarizes key components of our results of operations for the periods indicated:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenues | $ | 41,094 | $ | 38,923 | $ | 125,603 | $ | 126,906 | ||||||||
| Cost of revenues | 24,758 | 21,815 | 78,370 | 69,626 | ||||||||||||
| Gross profit | 16,336 | 17,108 | 47,233 | |||||||||||||