What changed in this filing

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Item 1. Financial Statements

2020-10-20 compared with 2020-07-21 · 202 added, 145 removed, 356 unchanged (49% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 26,

2020 December 31,

3 unchanged sentences

Restricted cash 628 628

Marketable securities 39,986 —

Accounts receivable, net 69,131 46,509

22 unchanged sentences

5,000 shares authorized;

no shares issued and outstanding as of June 27, 2020 and December 31, 2019

no shares issued and outstanding as of September 26, 2020 and December 31, 2019

Common stock, $ 0.025 par value;

100,000 shares authorized;

63,473 shares issued and 58,143 shares outstanding as of June 27, 2020, and 61,778 shares issued and 56,448 shares outstanding as of December 31, 2019

61,770 shares issued and outstanding as of September 26, 2020, and 61,778 shares issued and 56,448 shares outstanding as of December 31, 2019

Additional paid-in capital 939,874 895,899

1 unchanged sentence

Accumulated deficit ( 693,194 ) ( 702,576 )

Treasury stock, 5,330 shares as of June 27, 2020 and December 31, 2019

( 39,986 ) ( 39,986 )

Treasury stock, zero shares as of September 26, 2020 and 5,330 shares as of December 31, 2019

Total stockholders’ equity 247,531 154,028

1 unchanged sentence

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Systems $ 142,294 $ 106,060 $ 347,644 $ 281,253

7 unchanged sentences

Operating expenses:

Research and development 20,921 20,700 41,592 40,030

Sales and marketing 23,079 20,123 65,046 59,196

Research and development 20,378 20,890 61,970 60,920

General and administrative 10,768 9,566 32,630 27,518

Restructuring charges — — 6,286 —

Loss on asset retirement — 2,474 — 2,474

Total operating expenses 54,225 53,053 165,932 150,108

Loss from operations ( 3,338 ) ( 4,931 ) ( 9,678 ) ( 14,044 )

Interest and other expense, net:

Income (loss) from operations 21,750 ( 2,851 ) 12,072 ( 16,895 )

Interest and other income (expense), net:

Interest expense, net ( 356 ) ( 271 ) ( 1,263 ) ( 521 )

Other income (expense), net ( 707 ) 353 ( 801 ) 85

Total interest and other expense, net ( 726 ) ( 19 ) ( 1,001 ) ( 518 )

Loss before provision for income taxes ( 4,064 ) ( 4,950 ) ( 10,679 ) ( 14,562 )

Total interest and other income (expense), net ( 1,063 ) 82 ( 2,064 ) ( 436 )

Income (loss) before provision for income taxes 20,687 ( 2,769 ) 10,008 ( 17,331 )

Provision for income taxes 149 610 626 860

Net loss $ ( 4,212 ) $ ( 5,045 ) $ ( 11,156 ) $ ( 14,812 )

Net loss per common share:

Basic and diluted $ ( 0.07 ) $ ( 0.09 ) $ ( 0.20 ) $ ( 0.27 )

Net income (loss) $ 20,538 $ ( 3,379 ) $ 9,382 $ ( 18,191 )

Net income (loss) per common share:

Basic $ 0.34 $ ( 0.06 ) $ 0.16 $ ( 0.33 )

Diluted $ 0.32 $ ( 0.06 ) $ 0.16 $ ( 0.33 )

Weighted-average number of shares used to compute

net loss per common share:

net income (loss) per common share:

Basic 60,307 55,466 58,053 54,718

Diluted 63,449 55,466 60,331 54,718

Net loss $ ( 4,212 ) $ ( 5,045 ) $ ( 11,156 ) $ ( 14,812 )

Net income (loss) $ 20,538 $ ( 3,379 ) $ 9,382 $ ( 18,191 )

Other comprehensive income (loss), net of tax -

1 unchanged sentence

410 ( 430 ) 161 ( 387 )

Comprehensive loss $ ( 4,209 ) $ ( 5,268 ) $ ( 10,907 ) $ ( 14,769 )

Comprehensive income (loss) $ 20,948 $ ( 3,809 ) $ 9,543 $ ( 18,578 )

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Shares Amount

Balance at March 28, 2020 56,628 $ 1,549 $ 899,978 $ ( 1,106 ) $ ( 709,520 ) $ ( 39,986 ) $ 150,915

Balance at June 27, 2020 58,143 $ 1,587 $ 912,402 $ ( 1,103 ) $ ( 713,732 ) $ ( 39,986 ) $ 159,168

Stock-based compensation

6 unchanged sentences

170 4 1,641 — — — 1,645

— — — — ( 4,212 ) — ( 4,212 )

Issuance of common stock in connection with public offering 3,220 82 59,981 — — — 60,063

Treasury stock retirement — ( 134 ) ( 39,852 ) — — 39,986 —

Net income — — — — 20,538 — 20,538

Other comprehensive income

— — — 410 — — 410

Balance at June 27, 2020 58,143 $ 1,587 $ 912,402 $ ( 1,103 ) $ ( 713,732 ) $ ( 39,986 ) $ 159,168

Balance at September 26, 2020 61,770 $ 1,544 $ 939,874 $ ( 693 ) $ ( 693,194 ) $ — $ 247,531

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

Shares Amount

Balance at March 30, 2019 54,164 $ 1,488 $ 879,475 $ ( 487 ) $ ( 694,649 ) $ ( 39,986 ) $ 145,841

Balance at June 29, 2019 55,443 $ 1,520 $ 886,076 $ ( 710 ) $ ( 699,694 ) $ ( 39,986 ) $ 147,206

Stock-based compensation

— — 2,762 — — — 2,762

Exercise of stock options

6 — 35 — — — 35

Issuance of vested restricted stock units, net of taxes withheld

59 1 ( 11 ) — — — ( 10 )

Stock issued under employee stock purchase plans 939 24 4,135 — — — 4,159

Stock forfeited under employee stock purchase plans prior to vesting ( 8 ) — 1 — — — 1

— — — — ( 3,379 ) — ( 3,379 )

Other comprehensive loss — — — ( 430 ) — — ( 430 )

— — — ( 223 ) — — ( 223 )

Balance at June 29, 2019 55,443 $ 1,520 $ 886,076 $ ( 710 ) $ ( 699,694 ) $ ( 39,986 ) $ 147,206

Balance at September 28, 2019 55,494 $ 1,521 $ 888,828 $ ( 1,140 ) $ ( 703,073 ) $ ( 39,986 ) $ 146,150

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

8 unchanged sentences

Stock issued under employee stock purchase plans 836 20 6,336 — — — 6,356

667 16 4,696 — — — 4,712

— — — — ( 11,156 ) — ( 11,156 )

Other comprehensive loss

— — — ( 249 ) — — ( 249 )

Balance at June 27, 2020 58,143 $ 1,587 $ 912,402 $ ( 1,103 ) $ ( 713,732 ) $ ( 39,986 ) $ 159,168

Issuance of common stock in connection with public offering 3,220 82 59,981 — — — 60,063

Treasury stock retirement — ( 134 ) ( 39,852 ) — — 39,986 —

Net income — — — — 9,382 — 9,382

Other comprehensive income — — — 161 — — 161

Balance at September 26, 2020 61,770 $ 1,544 $ 939,874 $ ( 693 ) $ ( 693,194 ) $ — $ 247,531

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

2 unchanged sentences

Stock-based compensation — — 8,476 — — — 8,476

— — 5,714 — — — 5,714

Exercise of stock options 55 2 324 — — — 326

55 2 324 — — — 326

Issuance of vested performance restricted stock units and restricted stock units, net of taxes withheld 560 14 ( 179 ) — — — ( 165 )

501 13 ( 169 ) — — — ( 156 )

Stock issued under employee stock purchase plans 924 23 4,134 — — — 4,157

— — — — ( 14,812 ) — ( 14,812 )

Other comprehensive income

— — — 43 — — 43

Balance at June 29, 2019 55,443 $ 1,520 $ 886,076 $ ( 710 ) $ ( 699,694 ) $ ( 39,986 ) $ 147,206

Net loss — — — — ( 18,191 ) — ( 18,191 )

Other comprehensive loss — — — ( 387 ) — — ( 387 )

Balance at September 28, 2019 55,494 $ 1,521 $ 888,828 $ ( 1,140 ) $ ( 703,073 ) $ ( 39,986 ) $ 146,150

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands, unaudited)

Six Months Ended

2020 June 29,

Nine Months Ended

September 26,

2020 September 28,

Operating activities:

Net loss $ ( 11,156 ) $ ( 14,812 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income (loss) $ 9,382 $ ( 18,191 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Stock-based compensation 9,800 8,476

9 unchanged sentences

Other long-term liabilities ( 1,038 ) ( 2,776 )

Net cash provided by (used in) operating activities 3,935 ( 3,251 )

Investing activity –

Net cash provided by operating activities 20,936 4,034

Investing activities

Purchases of property and equipment ( 5,617 ) ( 12,384 )

Purchases of marketable securities ( 39,986 ) —

Net cash used in investing activities ( 45,603 ) ( 12,384 )

Financing activities:

3 unchanged sentences

Payments related to financing arrangements ( 2,342 ) ( 2,002 )

Proceeds from the sale of common stock in connection with public offering, net of expense 60,063 —

Proceeds from line of credit 30,000 113,300

27 unchanged sentences

The Company’s fiscal year begins on January 1st and ends on December 31st.

Quarterly periods are based on a 4-4-5 calendar with the first, second and third quarters ending on the 13th Saturday of each fiscal period.

As a result, the Company had one less day in the six months ended June 27, 2020 than for the six months ended June 29, 2019.

Quarterly periods are based on a 4-4-5 calendar with the first quarter ending on the Saturday closest to March 31 st .

As a result, the Company had one less day in the nine months ended September 26, 2020 than for the nine months ended September 28, 2019.

The preparation of financial statements in conformity with GAAP for interim financial reporting requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

3 unchanged sentences

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict.

The Company has instituted office closures, travel restrictions and instituted a mandatory work-from-home policy for substantially all of its employees.

Since March 2020, the Company has instituted and continued to maintain office closures, travel restrictions and instituted a mandatory work-from-home policy for substantially all of its employees.

The spread of COVID-19 has impacted the Company's supply chain operations through restrictions and shutdown of business activities by suppliers whom the Company relies on for sourcing components and materials and third-party partners whom the Company relies on for manufacturing, warehousing and logistics services.

Although demand for the Company's products may remain strong in the short-term as subscribers seek more bandwidth and better WiFi, customers’ purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact the Company's revenue and results of operations.

Although demand for the Company's products may remain strong in the short-term as subscribers seek more bandwidth and better WiFi, customers’ purchasing decisions over the longer-term may be impacted by the pandemic and its impact on the economy, which could in turn impact the Company's revenue and results of operations.

Furthermore, the Company’s supply chain continues to face challenges in sourcing components and materials to manufacture its products, and future outbreaks could cause further supply chain disruptions.

2 unchanged sentences

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019.

The Company’s significant accounting policies did not change during the six months ended June 27, 2020.

The Company’s significant accounting policies did not change during the nine months ended September 26, 2020.

Newly Adopted Accounting Standard

The Company did not adopt any new accounting standards during the six months ended June 27, 2020 that were significant to the Company.

The Company did not adopt any new accounting standards during the nine months ended September 26, 2020 that were significant to the Company.

Recent Accounting Pronouncements Not Yet Adopted

There have been no additional accounting pronouncements or changes in accounting pronouncements during the six months ended June 27, 2020, as compared to the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, that are significant or potentially significant to the Company.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the following (in thousands):

There have been no additional accounting pronouncements or changes in accounting pronouncements during the nine months ended September 26, 2020, as compared to the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, that are significant or potentially significant to the Company.

Cash, Cash Equivalents, Restricted Cash and Marketable Securities

The Company has invested its excess cash primarily in money market funds and highly liquid marketable securities such as corporate debt instruments, commercial paper and U.S.

government securities.

The Company considers all investments with maturities of three months or less when purchased to be cash equivalents.

Marketable securities represent highly liquid corporate debt instruments, commercial paper and U.S.

government securities with maturities greater than 90 days at date of purchase.

Marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations.

Cash equivalents are stated at amounts that approximate fair value based on quoted market prices.

Marketable securities are recorded at their fair values.

The Company’s investments have been classified and accounted for as available-for-sale.

Such investments are recorded at fair value and unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive loss in the stockholders’ equity until realized.

Realized gains and losses on sales of marketable securities, if any, are determined on the specific identification method and are reclassified from accumulated other comprehensive income (loss) to results of operations as other income (expense), net.

Cash, cash equivalents, restricted cash and marketable securities consisted of the following (in thousands):

September 26,

2020 December 31,

1 unchanged sentence

Cash $ 23,807 $ 46,815

government securities 29,997 —

Money market funds 10,022 14

1 unchanged sentence

Restricted cash 628 628

Total cash, cash equivalents and restricted cash 64,454 47,457

Marketable securities:

government securities 39,986 —

$ 104,440 $ 47,457

The carrying amounts of the Company’s money market funds approximate their fair values due to their nature, duration and short maturities.

As of September 26, 2020, all marketable securities were due in one year or less;

and the amortized cost and fair value of marketable securities were as follows (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

government securities 39,985 1 — 39,986

Fair Value Measurements

The Company measures its cash equivalents and marketable securities at fair value on a recurring basis.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The Company utilizes the following three-tier value hierarchy which prioritizes the inputs used in measuring fair value:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following tables sets forth the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

As of September 26, 2020 Level 1

Money market funds $ 10,022

government securities 69,983

As of December 31, 2019 Level 1

Money market funds $ 14

Balance Sheet Details

Accounts receivable, net consisted of the following (in thousands):

September 26,

2020 December 31,

3 unchanged sentences

Inventory consisted of the following (in thousands):

September 26,

2020 December 31,

3 unchanged sentences

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

September 26,

2020 December 31,

8 unchanged sentences

Other long-term assets consisted of the following (in thousands):

September 26,

2020 December 31,

7 unchanged sentences

The Company had its first sale in August 2019, and as a result, the Company capitalized an intangible asset with a value of $ 13.2 million in the third quarter of 2019.

The Company also recognized a liability, of which $ 11.5 million is included in other long-term liabilities and $ 2.5 million in accrued liabilities in the accompanying Condensed Consolidated Balance Sheet as of September 26, 2020.

The intangible asset has an estimated five -year useful life and is being amortized using the greater of the ratio of current gross revenue for the products to the total of current and anticipated future gross revenue for the products or the straight-line method.

3 unchanged sentences

This amount is being amortized over a period of 29 months, representing the remaining contractual term.

The amortization expense for the three and six months ended June 27, 2020 was $ 0.8 million and $ 1.6 million, respectively.

The amortization expense for the three and nine months ended September 26, 2020 was $ 0.7 million and $ 2.3 million, respectively.

Accrued liabilities consisted of the following (in thousands):

September 26,

2020 December 31,

1 unchanged sentence

Warranty and retrofit 8,556 7,294

Customer advances or rebates 6,948 7,252

Component inventory held by suppliers 5,723 1,925

Current portion of financing arrangements 5,160 4,044

Component inventory held by suppliers 5,136 1,925

Customer advances or rebates 5,047 7,252

Professional and consulting fees 3,584 4,996

Operating leases 2,718 2,663

Taxes payable 3,142 2,021

Restructuring charges 1,383 —

Operations 1,248 1,053

Operating leases 2,756 2,663

Product returns 1,500 919

Operations 1,200 1,053

Freight 1,070 808

9 unchanged sentences

Changes in the Company’s warranty and retrofit accrual are as follows (in thousands):

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Balance at beginning of period $ 7,732 $ 7,910 $ 7,294 $ 8,547

4 unchanged sentences

Responding to trends caused by the COVID-19 pandemic, the Company initiated a restructuring plan in June 2020 to accelerate the Company’s all platform future and to align with a work-from-anywhere culture.

The Company incurred restructuring charges of approximately $ 6.3 million, consisting of facilities-related charges and severance and other termination related benefits for the three and six months ended June 27, 2020.

As part of its work-from-anywhere culture, many of the Company’s employees elected to work remotely on a permanent basis.

In light of this shift, the Company evaluated its space needs and determined that a portion of the Company's leased office spaces in Richardson, Texas and San Jose, California would no longer be utilized.

As a result, the right-of-use assets related to these leases were written down, resulting in a charge of $ 3.5 million for the three and six months ended June 27, 2020.

In addition, the Company wrote off assets with net book value of $ 0.3 million and accrued common areas maintenance fees and property taxes related to the unused office space totaling $ 1.4 million for three and six months ended June 27, 2020.

As a result, the right-of-use assets related to these leases were written down, resulting in a charge of $ 3.5 million during the nine months ended September 26, 2020.

The following table summarizes the activities pursuant to the above restructuring plan (in thousands):

4 unchanged sentences

Cash payments ( 60 ) ( 936 ) ( 996 )

Balance at June 27, 2020 $ 1,365 $ 1,109 $ 2,474

Balance at September 26, 2020 $ 1,304 $ 238 $ 1,542

Credit Agreements

7 unchanged sentences

The availability of borrowings under the BofA Loan Agreement is subject to certain conditions and requirements, including among others, if at any time the Company’s availability is less than $ 5.0 million, the Company must maintain a minimum fixed charge coverage ratio (“FCCR”) of 1.0 to 1.0.

As of June 27, 2020, the Company was in compliance with these requirements, had borrowings

outstanding of $ 26.0 million, availability of $ 9.0 million and an FCCR of 4.1 to 1.0.

The Company's interest rate on the line of credit was 4.5 % as of June 27, 2020 and decreased to 3.75 % on July 1, 2020.

As of September 26, 2020, the Company was in compliance with these requirements, had no

outstanding borrowings and had full availability of $ 35.0 million.

The Company's interest rate on the line of credit was 3.75 % as of September 26, 2020.

Financing Arrangements

1 unchanged sentence

Each agreement is to be paid over 36 months with a weighted average interest rate of 6.2 %.

As of June 27, 2020, there was $ 2.1 million outstanding under these financing arrangements, which is included in accrued liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

As of September 26, 2020, there was $ 1.7 million outstanding under these financing arrangements, which is included in accrued liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

From 2017 to 2020, t he Company entered into financing arrangements for consulting services of $ 5.5 million in connection with the Company’s ERP implementation.

The current amounts due under this agreement are to be paid over a weighted average term of 2.4 years with a weighted average interest rate of 6.3 %.

As of June 27, 2020, there was $ 1.9 million outstanding under these arrangements, which is included in accrued liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

As of September 26, 2020, there was $ 1.6 million outstanding under these arrangements, which is included in accrued liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

Commitments and Contingencies

2 unchanged sentences

Certain of the Company’s operating leases contain renewal options and rent acceleration clauses.

Future minimum payments under the non-cancelable operating leases consisted of the following as of June 27, 2020 (in thousands):

Future minimum payments under the non-cancelable operating leases consisted of the following as of September 26, 2020 (in thousands):

Period Minimum Future Lease Payments

4 unchanged sentences

Operating lease liability consisted of the following (in thousands):

September 26,

Accrued liabilities - current portion of operating leases $ 2,756

2 unchanged sentences

The future minimum lease payments under the lease are $ 12.4 million and are included in the table above.

The weighted average discount rate for the Company's operating leases as of June 27, 2020 was 7.0 %.

The weighted average remaining lease term as of June 27, 2020 was 4.6 years.

For the three and six months ended June 27, 2020, total rent expense of the Company was $ 1.1 million and $ 2.2 million, respectively.

For the three and six months ended June 29, 2019, total rent expense of the Company was $ 1.3 million and $ 2.5 million, respectively.

Cash paid within operating cash flows for operating leases was $ 1.7 million and $ 2.0 million for six months ended June 27, 2020 and June 29, 2019, respectively.

The weighted average discount rate for the Company's operating leases as of September 26, 2020 was 7.0 %.

The weighted average remaining lease term as of September 26, 2020 was 4.4 years.

For the three and nine months ended September 26, 2020, total rent expense of the Company was $ 0.9 million and $ 3.1 million, respectively.

For the three and nine months ended September 28, 2019, total rent expense of the Company was $ 1.1 million and $ 3.6 million, respectively.

Cash paid within operating cash flows for operating leases was $ 2.5 million and $ 2.8 million for nine months ended September 26, 2020 and September 28, 2019, respectively.

Purchase Commitments

5 unchanged sentences

In the event of termination of services with a manufacturing partner, the Company has purchased, and may be required to purchase in the future, certain of the remaining components inventory held by the CM or ODM as well as any outstanding orders pursuant to the contractual provisions with such CM or ODM.

As of June 27, 2020, the Company had approximately $ 104.8 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one year.

As of September 26, 2020, the Company had approximately $ 119.9 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one year.

The Company has from time to time, and subject to certain conditions, reimbursed certain suppliers for component inventory purchases when this inventory has been rendered excess or obsolete, for example due to manufacturing and engineering change orders resulting from design changes, manufacturing discontinuation of products by its suppliers, or in cases where the Company has committed inventory levels that greatly exceed projected demand.

The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $ 5.7 million and $ 1.9 million as of June 27, 2020 and December 31, 2019, respectively.

The Company records the related charges in cost of systems revenue in its Condensed Consolidated Statements of Comprehensive Loss.

The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $ 5.1 million and $ 1.9 million as of September 26, 2020 and December 31, 2019, respectively.

The Company records the related charges in cost of systems revenue in its Condensed Consolidated Statements of Comprehensive Income (Loss).

From time to time, the Company is involved in various legal proceedings arising from the normal course of business activities.

1 unchanged sentence

Stockholders’ Equity

Stock Offering

In August 2020, the Company completed an underwritten public offering of 3,220,000 shares of its common stock, $ 20.00 per share, including a full exercise by the underwriters of their option to purchase an additional 420,000 shares of Common Stock, resulting in net proceeds of $ 60.1 million, after deducting the underwriting discount and estimated expenses payable by the Company.

Treasury Stock Retirement

In August 2020, the Company’s Board of Directors authorized the retirement of the 5,329,817 shares of common stock held as treasury stock.

Under Delaware law these shares return to the authorized but unissued common stock pool.

As a result, the Company eliminated the $ 40.0 million treasury stock balance, offsetting this against common stock by $ 0.1 million and additional paid-in capital by $ 39.9 million.

2019 Equity Incentive Award Plan

1 unchanged sentence

The 2019 Plan supersedes and replaces the 2010 Equity Incentive Award Plan (the “2010 Plan”) and preceding plans.

No further awards will be granted under the 2010 Plan;

No further awards will be granted under the 2010 Plan following the effectiveness of the 2019 Plan;

however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards granted under the 2010 Plan.

1 unchanged sentence

The 2019 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), other stock or cash-based awards and dividend equivalents to eligible individuals.

The number of shares available for issuance under the 2019 Plan includes an initial reserve of 1.7 million shares of common stock, any shares of common stock that are available for issuance under the 2010 Plan as of the effective date of the 2019 Plan and any shares of common stock subject to issued and outstanding awards under the 2010 Plan that expire, are cancelled or otherwise terminate following the effective date of the 2019 Plan.

At the Company’s 2020 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable by 3.5 million shares.

As of June 27, 2020, there were 5.0 million shares available for issuance under the 2019 Plan.

The number of shares available for issuance under the 2019 Plan included an initial reserve of 1.7 million shares of common stock, any shares of common stock that are available for issuance under the 2010 Plan as of the effective date of the 2019 Plan and any shares of common stock subject to issued and outstanding awards under the 2010 Plan that expire, are cancelled or otherwise terminate following the effective date of the 2019 Plan.

At the Company’s 2020 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 3.5 million shares.

As of September 26, 2020, there were 4.9 million shares available for issuance under the 2019 Plan.

Stock Options

During the three months ended June 27, 2020, stock option awards exercisable for up to an aggregate of 0.9 million shares of common stock were granted with a grant date fair value of $ 12.63 per share.

During the six months ended June 27, 2020, stock option awards exercisable for up to an aggregate of 0.9 million shares of common stock were granted with a grant date fair value of $ 12.44 per share.

During the three months ended September 26, 2020, stock option awards exercisable for up to an aggregate of 0.1 million shares of common stock were granted with a grant date fair value of $ 21.09 per share.

During the nine months ended September 26, 2020, stock option awards exercisable for up to an aggregate of 1.0 million shares of common stock were granted with a grant date fair value of $ 13.27 per share.

During the three months ended March 28, 2020, performance-based stock option awards exercisable for up to an aggregate of 0.8 million shares of common stock were granted to certain Company executives with a grant date fair value of $ 9.16 per share.

3 unchanged sentences

From this base, shares are awarded on a 50 % weighting for both non-GAAP net income and bookings up to 100 % for each 2020 Performance Target using a sliding scale.

The probability of

meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of June 27, 2020, and stock-based compensation expense of $ 0.5 million was recognized for the three months ended June 27, 2020.

For the six months ended June 27, 2020 stock-based compensation expense of $ 0.7 million was recognized.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of September 26, 2020, and stock-based compensation expense of $ 0.4 million was recognized for the three months ended September 26, 2020.

For the nine months ended September 26, 2020 stock-based compensation expense of $ 1.2 million was recognized.

During the three months ended March 30, 2019, performance-based stock option awards exercisable for up to an aggregate of 2.0 million shares of common stock were granted to Company executives with a grant date fair value of $ 8.03 per share.

3 unchanged sentences

One quarter of these performance-based stock option awards vested on this date, and the remaining 75 % of the shares of common stock earned will vest in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

During the three months ended June 27, 2020, 0.6 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 7.63 per share.

During the six months ended June 27, 2020, 0.7 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 7.50 per share.

As of June 27, 2020, unrecognized stock-based compensation expense of $ 11.4 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 3.0 years.

During the three months ended September 26, 2020, 0.2 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 9.72 per share.

During the nine months ended September 26, 2020, 1.0 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 8.00 per share.

As of September 26, 2020, unrecognized stock-based compensation expense of $ 11.0 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Units

During the three and six months ended June 27, 2020, RSUs of 0.1 million were granted with a grant date fair value of $ 11.22 per share.

During the three months ended June 27, 2020, RSUs for 0.2 million shares of common stock vested.

During the six months ended June 27, 2020, RSUs for 0.3 million shares of common stock vested.

As of June 27, 2020, unrecognized stock-based compensation expense of $ 1.4 million related to RSUs, net of estimated forfeitures, was expected to be recognized over a weighted-average period of 0.8 years.

During the nine months ended September 26, 2020, RSUs of 0.1 million were granted with a grant date fair value of $ 11.22 per share.

During the three months ended September 26, 2020, RSUs for 18 thousand shares of common stock vested.

During the nine months ended September 26, 2020, RSUs for 0.3 million shares of common stock vested.

As of September 26, 2020, unrecognized stock-based compensation expense of $ 0.9 million related to RSUs, net of estimated forfeitures, was expected to be recognized over a weighted-average period of 0.6 years.

Employee Stock Purchase Plans

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In addition, no participant may purchase more than 2,000 shares of common stock in each offering period.

Beginning in the third quarter of 2020, the ESPP will provide two six -month offering periods from August 15 th through February 14 th and February 15 th through August 14 th of each year.

A transition period began on May 15 th and will end on August 14, 2020.

During this quarter, the Company revised the ESPP’s two six -month offering periods to August 15 th through February 14 th and February 15 th through August 14 th of each year, with an initial transition period that began on May 15 th and ended on August 14, 2020.

The price of common stock purchased under the ESPP is 85 % of the lower of the fair market value of the common stock on the commencement date and the end date of each six -month offering period.

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The total shares authorized for issuance under the ESPP increased from 7.3 million shares to 9.8 million shares.

As of June 27, 2020, there were 2.8 million shares available for issuance under the ESPP.

During the three and six months ended June 27, 2020, 0.4 million shares were purchased under the ESPP.

As of June 27, 2020, unrecognized stock-based compensation expense of $ 0.3 million related to the ESPP is expected to be recognized over a remaining service period of 0.1 years.

As of September 26, 2020, there were 2.6 million shares available for issuance under the ESPP.

During the three and nine months ended September 26, 2020, 0.2 million and 0.6 million shares were purchased under the ESPP, respectively.

As of September 26, 2020, unrecognized stock-based compensation expense of $ 1.1 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.

The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25 % of their annual compensation.

Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date.

Beginning in the fourth quarter of 2020, the NQ ESPP will provide two six -month offering periods, from November 15 th through May 14 th and May 15 th through November 14 th of each year.

A transition period began on June 21 st and will end on November 14, 2020.

Beginning in the fourth quarter of 2020, the NQ ESPP’s two six -month offering periods will be changed to November 15 th through May 14 th and May 15 th through November 14 th of each year, with a transition period that began on June 21 st and will end on November 14, 2020.

In May 2020, the stockholders approved an amendment of certain terms and an increase in the number of shares of common stock issuable under the NQ ESPP by 1.2 million shares.

The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 4.7 million shares, with a maximum of 0.5 million shares allocated per purchase period.

As of June 27, 2020, there were 2.5 million shares available for issuance under the NQ ESPP, including the stockholder-approved 1.2 million share increase.

During the three and six months ended June 27, 2020, 0.3 million shares were purchased and issued.

As of June 27, 2020, unrecognized stock-based compensation expense of $ 3.8 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 1.1 years.

As of September 26, 2020, there were 2.5 million shares available for issuance under the NQ ESPP, including the stockholder-approved 1.2 million share increase.

During the nine months ended September 26, 2020, 0.3 million shares were purchased and issued.

As of September 26, 2020, unrecognized stock-based compensation expense of $ 3.5 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 years.

Stock-Based Compensation

The following table summarizes stock-based compensation expense (in thousands):

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Cost of revenue:

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Three Months Ended Nine Months Ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

United States $ 128,189 $ 101,025 $ 324,437 $ 262,647

Europe 9,183 2,883 13,665 7,793

Canada 5,230 3,581 12,219 10,313

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Caribbean 1,625 1,186 7,498 3,952

Europe 2,110 2,471 4,482 4,910

Other 1,744 2,657 4,226 6,581

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Amounts are billed in accordance with the agreed-upon contractual terms.

The balance at December 31, 2019 was $ 5.0 million of which $ 1.6 million remained in the Company's Condensed Consolidated Balance Sheet at June 27, 2020.

The closing balance at June 27, 2020 was $ 4.0 million of which the Company expects to bill 52 % of the balance during the remainder of 2020.

The decrease in the contract asset was driven by billings for past services as well as the timing and volume of professional services contracts during the six months ended June 27, 2020.

The balance at December 31, 2019 was $ 5.0 million of which $ 0.8 million remained in the Company's Condensed Consolidated Balance Sheet at September 26, 2020.

The closing balance at September 26, 2020 was $ 3.8 million of which the Company expects to bill 28 % of the balance during the remainder of 2020.

The decrease in the

contract asset was driven by billings for past services as well as the timing and volume of professional services contracts during the nine months ended September 26, 2020.

Contract Liability

Deferred revenue consisted of the following (in thousands):

September 26,

2020 December 31,

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$ 35,155 $ 35,498

The decrease in the deferred revenue balance for the three and six months ended June 27, 2020 is primarily driven by $ 7.4 million and $ 13.4 million of revenue recognized that was included in the deferred revenue balance at the beginning of each period, respectively, offset by cash payments received or due in advance of satisfying the Company's performance obligations.

Revenue allocated to remaining performance obligations represent contract revenue that has not yet been recognized for contracts greater than one year, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

This amount was $ 62.3 million as of June 27, 2020, and the Company expects to recognize 45 % of such revenue over the next 12 months and the remainder thereafter.

The increase in the deferred revenue balance for the three months ended September 26, 2020 is primarily driven by cash payments received or due in advance of satisfying the Company's performance obligation offset by $ 7.6 million of revenue recognized that was included in the deferred revenue balance at the beginning of that period.

The decrease in the deferred revenue balance for the nine months ended September 26, 2020 is primarily driven by $ 16.9 million of revenue recognized that was included in the deferred revenue balance at the beginning of that period offset by cash payments received or due in advance of satisfying the Company's performance obligations.

Revenue allocated to remaining performance obligations represent contract revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

This amount was $ 69.0 million as of September 26, 2020, and the Company expects to recognize 43 % of such revenue over the next 12 months and the remainder thereafter.

Contract Costs

The Company capitalizes certain sales commissions related primarily to extended warranty support for which the expected amortization period is greater than one year.

As of June 27, 2020, the unamortized balance of deferred commissions was $ 0.7 million.

For the three and six months ended June 27, 2020, the amount of amortization was less than $ 0.1 million, and there was no impairment loss in relation to the costs capitalized.

As of September 26, 2020, the unamortized balance of deferred commissions was $ 0.7 million.

For the three and nine months ended September 26, 2020, the amount of amortization was $ 46,000 and $ 0.1 million, respectively, and there was no impairment loss in relation to the costs capitalized.

Concentration of Customer Risk

CenturyLink, Inc.

represented 15 % of total revenue for each of the three and six months ended June 27, 2020, and 17 % and 15 % for the three and six months ended June 29, 2019, respectively.

Lumen Technologies, Inc.

(formerly CenturyLink, Inc.) represented 12 % and 14 % of total revenue for the three and nine months ended September 26, 2020, respectively, and 16 % and 15 % for the three and nine months ended September 28, 2019, respectively.

Verizon accounted for 10% of total revenue for the three months ended September 28, 2019.

No other customers accounted for more than 10% of the Company’s total revenue for these periods.

CenturyLink, Inc.

accounted for 19 % of the Company's accounts receivable as of June 27, 2020 and 17 % as of December 31, 2019.

Lumen Technologies, Inc.

accounted for 13 % of the Company's accounts receivable as of September 26, 2020 and 17 % as of December 31, 2019.

The following table presents the provision for income taxes from operations and the effective tax rates for the periods indicated (in thousands, except percentages):

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Provision for income taxes $ 149 $ 610 $ 626 $ 860

Effective tax rate 0.7 % ( 22.0 ) % 6.3 % ( 5.0 ) %

The effective tax rate for the three months ended June 27, 2020 was determined using an estimated annual effective tax rate adjusted for discrete items, if any, that occurred during the respective periods.

The effective tax rate for the three months ended September 26, 2020 was determined using an estimated annual effective tax rate adjusted for discrete items, if any, that occurred during the respective periods.

Deferred tax assets are recognized if realization of such assets is more likely than not.

The Company has established and continues to maintain a full valuation allowance against its net deferred tax assets, with the exception of certain foreign deferred tax assets, as the Company does not believe that realization of those assets is more likely than not.

The Company’s effective tax rate may be subject to fluctuation during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of forecasted pre-tax earnings in the various jurisdictions in which it operates, valuation allowances against deferred tax assets, the recognition or de-

recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where it conducts business.

Net Loss Per Common Share

The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated (in thousands, except per share data):

Three Months Ended Six Months Ended

2020 June 29,

2019 June 27,

2020 June 29,

Net loss $ ( 4,212 ) $ ( 5,045 ) $ ( 11,156 ) $ ( 14,812 )

Weighted-average common shares outstanding used to compute basic net loss per share 57,261 54,624 56,906 54,339

Basic and diluted net loss per common share $ ( 0.07 ) $ ( 0.09 ) $ ( 0.20 ) $ ( 0.27 )

Net Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods indicated (in thousands, except per share data):

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Net income (loss) $ 20,538 $ ( 3,379 ) $ 9,382 $ ( 18,191 )

Weighted-average common shares outstanding used to compute basic net income (loss) per share 60,307 55,466 58,053 54,718

Effect of dilutive common stock equivalents 3,142 — 2,278 —

Weighted-average common shares outstanding used to compute diluted net income (loss) per share 63,449 55,466 60,331 54,718

Net income (loss) per common share:

Basic net income (loss) per common share $ 0.34 $ ( 0.06 ) $ 0.16 $ ( 0.33 )

Diluted net income (loss) per common share $ 0.32 $ ( 0.06 ) $ 0.16 $ ( 0.33 )

Potentially dilutive shares, weighted average 169 6,611 579 6,500

Potentially dilutive shares have been excluded from the computation of diluted net loss per common share when their effect is antidilutive.

Potentially dilutive shares have been excluded from the computation of diluted net income (loss) per common share when their effect is antidilutive.

These antidilutive shares were primarily from stock options, restricted stock units and performance restricted stock units.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements