Restatement of Consolidated Annual Financial Statements

12 Months Ended

Dec. 31, 2024

Accounting Changes and Error Corrections [Abstract]

Restatement of Consolidated Annual Financial Statements

Note 2. Restatement of consolidated annual financial statements

In connection with the preparation of its consolidated financial statements for the year ended December 31, 2024, the Company determined that its previously issued audited consolidated financial statements for the year ended December 31, 2023 contained errors in the application of GAAP as summarized below.

In accordance with SEC Staff Accounting Bulletin No. 99, "Materiality", and SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements", the Company evaluated the corrections and has determined that the related impact was material to the previously filed consolidated statements that contained the errors as of and for the year ended December 31, 2023. Therefore, the Company, in consultation with the Audit Committee of the Company's Board of Directors, concluded that the previously filed financial statements as of and for the year ended December 31, 2023 should be restated to present the identified adjustments discussed below. The Company has not filed, and does not intend to file, an amendment to the previously filed Annual Report on Form 10-K for the fiscal year ended December 31, 2023, but instead is restating the previously filed financial statements in this Comprehensive Form 10-K.

Background of Restatement

In connection with the preparation of the Company's financial statements for the fiscal year ended December 31, 2024, management identified material errors in its previously issued annual consolidated financial statements as a result of material weaknesses in its internal control over financial reporting as of December 31, 2024. Specifically, the Company did not appropriately (i) estimate variable consideration for customer incentives, (ii) estimate variable consideration for sales returns, (iii) estimate the allowance for credit losses, (iv) estimate excess and obsolete inventory, (v) recognize revenue on a non-standard contract, (vi) timely recognize an impairment of its long-lived assets and goodwill, (vii) timely recognize a valuation allowance on deferred tax assets and (viii) classify certain supplier prepayments made and loss on supplier commitments liability as current or non-current.

Additionally, as part of the Restatement, the Company corrected for (b) previously identified uncorrected misstatements related to out-of-period adjustments, (c) previously recorded amounts reclassifying accounts receivable credit balances and (d) classification of property and equipment transactions on the statement of cash flows.

The financial statement line items impacted by the respective adjustments are labeled in the tables below based on the identifiers from the paragraphs above.

The effects of the restatement on the Company's previously filed consolidated balance sheet for the year ended December 31, 2023 are as follows:


CAMBIUM NETWORKS CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)

	As of December 31, 2023
	As Reported			Adjustment			As Restated

ASSETS
Current assets
Cash	$	18,710		$	—		$	18,710
Receivables, net of allowance for credit losses of $2,551 (iii) (b) (c)		64,103			(7,850	)		56,253
Inventories, net (ii) (iv) (b)		66,878			1,200			68,078
Income taxes receivable		222			—			222
Prepaid expenses (viii)		6,589			(2,128	)		4,461
Other current assets (ii) (b)		6,069			1,613			7,682
Total current assets		162,571			(7,165	)		155,406
Noncurrent assets
Property and equipment, net		12,879			—			12,879
Software, net		11,985			—			11,985
Operating lease right-of-use assets		7,894			—			7,894
Intangible assets, net		7,675			—			7,675
Goodwill		9,842			—			9,842
Deferred tax assets, net (vii)		3,694			(3,694	)		—
Other noncurrent assets (viii)		1,335			2,128			3,463
TOTAL ASSETS	$	217,875		$	(8,731	)	$	209,144
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	19,120		$	—		$	19,120
Accrued liabilities (i) (b) (c)		47,069			(7,481	)		39,588
Employee compensation (b)		5,071			(83	)		4,988
Current portion of long-term debt, net		3,186			—			3,186
Deferred revenues		8,765			—			8,765
Other current liabilities (ii) (viii) (b)		13,117			6,721			19,838
Total current liabilities		96,328			(843	)		95,485
Noncurrent liabilities
Long-term debt, net		21,926			—			21,926
Deferred revenues		10,473			—			10,473
Noncurrent operating lease liabilities		6,595			—			6,595
Other noncurrent liabilities (viii) (b)		1,619			11,917			13,536
Total liabilities		136,941			11,074			148,015
Commitments and contingencies (Note 14)
Shareholders' equity
Share capital; $0.0001 par value; 500,000,000 shares authorized; 28,095,144 shares issued and 27,834,908 outstanding		3			—			3
Additional paid in capital		152,768			—			152,768
Treasury shares, at cost, 260,236 shares		(5,624	)		—			(5,624	)
Accumulated deficit (i) (ii) (iii) (iv) (v) (vii) (b)		(64,598	)		(19,805	)		(84,403	)
Accumulated other comprehensive loss		(1,615	)		—			(1,615	)
Total shareholders' equity		80,934			(19,805	)		61,129
TOTAL LIABILITIES AND EQUITY	$	217,875		$	(8,731	)	$	209,144

The effects of the adjustments made to the Company's previously filed consolidated statements of operations for the year ended December 31, 2023 as a result of these matters are shown in the table below.


CAMBIUM NETWORKS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)

	Year ended December 31, 2023
	As Reported			Adjustment			As Restated

Revenues (i) (ii) (iii) (v) (b)
Product	$	201,567		$	6,572		$	208,139
Subscriptions and services		18,628			—			18,628
Total revenues		220,195			6,572			226,767
Cost of revenues (i) (ii) (iv)
Product		142,751			(1,436	)		141,315
Subscriptions and services		8,613			—			8,613
Total cost of revenues		151,364			(1,436	)		149,928
Gross profit:
Product		58,816			8,008			66,824
Subscriptions and services		10,015			—			10,015
Total Gross profit		68,831			8,008			76,839
Operating expenses
Research and development		53,478			—			53,478
Sales and marketing (b)		42,599			307			42,906
General and administrative (iii) (b)		27,398			667			28,065
Depreciation and amortization		6,210			—			6,210
Impairment		—			—			—
Total operating expenses		129,685			974			130,659
Operating loss		(60,854	)		7,034			(53,820	)
Interest expense, net		2,521			—			2,521
Other expense, net		271			—			271
Loss before income taxes		(63,646	)		7,034			(56,612	)
Provision for income taxes (vii)		13,774			3,694			17,468
Net loss (i) (ii) (iii) (iv) (v) (vii) (b)	$	(77,420	)	$	3,340		$	(74,080	)

Loss per share
Basic	$	(2.81	)	$	0.12		$	(2.69	)
Diluted	$	(2.81	)	$	0.12		$	(2.69	)
Weighted-average number of shares outstanding to compute net loss per share
Basic		27,519,476			—			27,519,476
Diluted		27,519,476			—			27,519,476
Comprehensive income (loss)
Net loss	$	(77,420	)	$	3,340		$	(74,080	)
Foreign currency translation adjustment		(88	)		—			(88	)
Comprehensive income (loss)	$	(77,508	)	$	3,340		$	(74,168	)

The effects of the restatements on the Company's consolidated statement of shareholders' equity for the year ended December 31, 2023 were only to the amounts recorded for accumulated equity (deficit) due to the change in net loss for the period and is noted in the consolidated statement of operations and consolidated balance sheet shown above.

The effects of the restatements on the Company's consolidated statement of cash flows for the year ended December 31, 2023 is as follows:


CAMBIUM NETWORKS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)

	Year ended December 31, 2023
	As Reported			Adjustment			As Restated

Cash flows from operating activities:
Net loss (i) (ii) (iii) (iv) (v) (vii) (b)	$	(77,420	)	$	3,340		$	(74,080	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		4,341			—			4,341
Amortization of software and intangible assets		4,684			—			4,684
Amortization of deferred debt issuance costs		334			—			334
Share-based compensation		11,593			—			11,593
Deferred income taxes (vi)		9,088			3,694			12,782
Provision for inventory excess and obsolescence (iv) (b)		16,595			(2,525	)		14,070
Provision for estimated credit losses (iii)		(294	)		750			456
Other		(144	)		—			(144	)
Change in assets and liabilities:
Receivables (i) (iii) (v)		32,048			5,369			37,417
Inventories (ii)		(26,405	)		(1,427	)		(27,832	)
Prepaid expenses (viii)		5,255			(3,205	)		2,050
Income taxes receivable		(97	)		—			(97	)
Accounts payable (b) (d)		(13,637	)		671			(12,966	)
Accrued employee compensation (b)		(2,187	)		217			(1,970	)
Accrued liabilities (i) (vii) (b)		12,509			(13,064	)		(555	)
Other assets and liabilities (iv) (v) (viii)		6,785			6,436			13,221
Net cash used in operating activities		(16,952	)		256			(16,696	)
Cash flows from investing activities:
Purchases of property and equipment (d)		(4,589	)		(256	)		(4,845	)
Purchases of software		(6,636	)		—			(6,636	)
Net cash used in investing activities		(11,225	)		(256	)		(11,481	)
Cash flows from financing activities:
Repayment of term loan		(2,625	)		—			(2,625	)
Payment of debt issuance costs		(122	)		—			(122	)
Issuance of ordinary shares under ESPP		1,680			—			1,680
Taxes paid from shares withheld		(700	)		—			(700	)
Proceeds from share option exercises		498			—			498
Net cash used in financing activities		(1,269	)		—			(1,269	)
Effect of exchange rate on cash		(6	)		—			(6	)
Net decrease in cash		(29,452	)		—			(29,452	)
Cash, beginning of period		48,162			—			48,162
Cash, end of period	$	18,710		$	—		$	18,710

Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds received	$	4,923		$	—		$	4,923
Interest paid	$	1,840		$	—		$	1,840

Non-cash investing and financing activities:
Increase in property, equipment and software unpaid or accrued in liabilities (d)	$	1,466		$	(256	)	$	1,210
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	6,027		$	—		$	6,027

The following table sets forth the effects of the restatement adjustments on revenues, (loss) income before income taxes and net (loss) income in the consolidated statements of operations for the year ended December 31, 2023.


		For the year ended December 31, 2023
(in thousands)	Identifier in statement	Revenues			Loss before income taxes			Net Loss
Previously reported		$	220,195		$	(63,646	)	$	(77,420	)
Restatement adjustments:
Revenue adjustment - customer incentives	(i)		289			289			289
Revenue adjustment - sales returns	(ii)		10,444			8,218			8,218
Estimate for allowance for credit losses	(iii)		(102	)		(852	)		(852	)
Estimate for excess and obsolete inventory	(iv)		—			2,556			2,556
Revenue adjustment - non-standard contract	(v)		(3,792	)		(2,395	)		(2,395	)
Deferred tax adjustments	(vii)		—			—			(3,694	)
Prior period uncorrected misstatements and out of period adjustments	(b)		(267	)		(782	)		(782	)
Net restatement adjustments			6,572			7,034			3,340
Restated		$	226,767		$	(56,612	)	$	(74,080	)

The following include descriptions of the significant adjustments to the Company's financial position and results of operations from the previously reported annual consolidated financial statements for the year ended December 31, 2023.

•

Estimate of variable consideration for customer incentives - We determined that the model that was used to estimate variable consideration arising from customer incentives was not designed to sufficiently include information that was readily available at each reporting date, such as rebate programs, pricing arrangements, sales trends and other relevant inputs, were timely incorporated into the estimation of variable consideration. Further, we concluded that retrospective analysis was not sufficiently applied to evaluate the relative precision of the estimated variable consideration and that such retrospective analysis would have revealed opportunities to improve the estimates produced by the model. The Company recorded adjustments to increase revenues by $0.3 million and reduce accrued liabilities by $0.3 million in 2023.

•

Estimate of variable consideration for sales returns - We determined that the model that was used to estimate variable consideration arising from sales returns were not designed to sufficiently include information that was readily available at each reporting date, such as the level of inventory held by our distributors, the current trend of returns relative to the inventory held by our distributors, the frequency of granting customer exceptions to our stock rotation policy, and the historical lag time between the original sales transaction and the related subsequent return transaction. Further we concluded that retrospective analysis was not sufficiently considered to evaluate the relative precision of the estimated variable consideration and that such retrospective analysis would have revealed opportunities to improve the estimates produced by the model. The Company recorded adjustments to increase revenues by $10.4 million in 2023 and an increase to cost of revenues by $2.2 million, with a net increase to gross profit of $8.2 million. The impact on the consolidated balance sheets was a decrease to other current assets of $2.2 million and decrease to accrued liabilities of $10.4 million.

•

Estimate of inventory excess and obsolescence reserves - We determined that the model that was used to estimate excess and obsolete inventory for finished goods and component inventory did not appropriately evaluate current demand forecasts, product life cycles, customer requirements, and technological changes and did not use reasonable and supportable assumptions, including consideration of historical sales or usage and remaining lifetime demand. As a result, the Company recognized a charge to cost of revenues of $2.6 million to increase the Company's excess and obsolete inventory reserves resulting in a decrease of $2.6 million to inventories, net.

•

Improper revenue recognition on a non-standard contract - We determined that we had incorrectly recognized revenue on a non-standard contract prior to the customer obtaining control of the product. Under the specific arrangement, control did not transfer to the distributor and consequently revenue should not have been recognized. The Company recorded an adjustment to reduce revenues by $3.8 million in 2023 and cost of revenues by $1.4 million. The adjustments resulted in

decrease to gross profit of $2.4 million. The impact on the consolidated balance sheet was a decrease to accounts receivable, net of $3.8 million and increase to inventories, net of $1.4 million.

•

Timely recognition of a valuation allowance on deferred tax assets - We determined that all positive and negative evidence relevant to the realizability of deferred tax assets was not appropriately identified, evaluated and monitored on a timely basis. We did not timely consider changes in facts and circumstances affecting the need for and the amount of, a valuation allowance, or that resulting deferred tax balances were recorded in the appropriate reporting period. As a result, the Company did not recognize a valuation allowance against its deferred tax assets in the appropriate reporting period and recognized a valuation allowance by an increase of deferred tax expense of $3.7 million and reduced its deferred tax assets, net by $3.7 million.

•

Classification of supplier prepayments and loss on supplier liability - We determined that certain supplier prepayments and loss on supplier commitment liabilities were incorrectly classified on the consolidated balance sheet. As a result, the Company increased current prepaid expenses by $3.2 million and decreased noncurrent assets by $3.2 million related to the supplier prepayments and decreased current accrued liabilities by $11.4 million and increased other noncurrent liabilities by $11.4 million for the loss on supplier commitment liability.

•

Estimate of the allowance for credit losses - We determined that certain adjustments to accounts receivable were not recorded on a timely basis driven by poor collection efforts and ineffective dispute resolution. These circumstances delayed the recognition of bad debt expense. As a result, the Company recognized a charge of $0.7 million to increase the Company's bad debt expense in 2023 and $0.1 million to reduce revenue, resulting in a $0.8 million reduction to receivables, net.

In addition to the above, the Company identified other errors that have been corrected in conjunction with the Restatement, as follows:

•

Correction for previously identified uncorrected misstatements associated with out-of-period adjustments or reclassification adjustments related to:

Correction of loss on supplier commitment increased expense by $0.3 million and increased accrued loss on supplier commitment by $0.3 million

Variable incentive compensation increased sales and marketing expenses by $0.3 million and increased employee compensation accrual of $0.3 million

Derecognition of revenue on hardware for network as a service (NaaS) decreased revenue by $0.1 million and decreased accounts receivable, net by $0.1 million

Over accrual of 401(K) employer contribution true-up decreased general and administrative expenses by $0.1 million and decreased employee compensation accrual by $0.1 million

Under accrual of other manufacturing costs increased cost of revenues by $0.1 million and increased accrued liabilities by $0.1 million

Reverse freight charged to customers decreased revenues by $0.1 million and decreased cost of revenues by $0.1 million

•

Correct cash flow presentation for (a) property and equipment accruals previously reported in accounts payable to accrued liabilities, (b) property and equipment payments previously reported as unpaid and included in accounts payable and (c) movement in excess and obsolete reserve previously reported as inventory

Pre-2023 restatement adjustments

Retained earnings as of December 31, 2022 were decreased by $23.1 million to correct for the cumulative effect of errors in 2022. The errors primarily related to the same errors identified above and resulted in the following charges:

•

Estimate of variable consideration for customer incentives decreased revenues by $5.9 million

•

Estimate of variable consideration for sales returns decreased revenues by $17.2 million and decreased cost of revenues by $3.8 million

•

Estimate of excess and obsolete inventory increased cost of revenues by $2.7 million

•

Estimate of allowance for credit losses decreased revenue by $0.1 million and increased general and administrative expenses by $1.5 million

•

Over accrual of variable incentive compensation decreased selling and marketing expenses by $0.3 million

•

Recognition of revenue on hardware for NaaS increased revenues by $0.1 million

•

Reclassification of prepaid supplier payments and accrual for loss on supplier commitments between current and noncurrent (no impact on retained earnings)