What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-04-27 compared with 2020-10-20 · 141 added, 252 removed, 306 unchanged (56% of the section changed)

2 unchanged sentences

(In thousands, except par value)

September 26,

2021 December 31,

2 unchanged sentences

Cash and cash equivalents $ 85,854 $ 80,807

Restricted cash 628 628

Marketable securities 64,174 52,982

13 unchanged sentences

Deferred revenue 24,127 19,189

Line of credit — 30,000

Total current liabilities 109,382 101,040

7 unchanged sentences

5,000 shares authorized;

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

no shares issued and outstanding as of April 3, 2021 and December 31, 2020

Common stock, $ 0.025 par value;

100,000 shares authorized;

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

62,851 shares issued and outstanding as of April 3, 2021, and 62,122 shares issued and outstanding as of December 31, 2020

Additional paid-in capital 961,846 948,055

1 unchanged sentence

Accumulated deficit ( 648,477 ) ( 669,092 )

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

Total stockholders’ equity 314,715 280,325

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Systems $ 153,302 $ 94,509

10 unchanged sentences

General and administrative 13,025 10,669

Restructuring charges — — 6,286 —

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

Total operating expenses 65,440 51,964

Income (loss) from operations 20,802 ( 6,340 )

Interest and other income (expense), net:

Interest and other income, net:

Interest expense, net ( 125 ) ( 290 )

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

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

Other income, net 88 15

Total interest and other income, net ( 37 ) ( 275 )

Income (loss) before provision for income taxes 20,765 ( 6,615 )

9 unchanged sentences

Net income (loss) $ 20,615 $ ( 6,944 )

Other comprehensive income (loss), net of tax -

Other comprehensive loss, net of tax -

foreign currency translation adjustments, net

6 unchanged sentences

Shares Amount

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

Balance at December 31, 2020 62,122 $ 1,553 $ 948,055 $ ( 191 ) $ ( 669,092 ) $ — $ 280,325

Stock-based compensation

— — 5,171 — — — 5,171

Exercise of stock options

219 5 2,128 — — — 2,133

Issuance of vested restricted stock units

18 — — — — — —

Stock issued under employee stock purchase plans

170 4 1,641 — — — 1,645

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

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

Issuance of common stock under equity incentive plans, net of forfeitures 729 19 8,620 — — — 8,639

Net income — — — — 20,615 — 20,615

Other comprehensive income

— — — 410 — — 410

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

Stock-based compensation

— — 2,762 — — — 2,762

Issuance of vested restricted stock units, net of taxes withheld

59 1 ( 11 ) — — — ( 10 )

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

— — — — ( 3,379 ) — ( 3,379 )

Other comprehensive loss — — — ( 35 ) — — ( 35 )

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

Balance at April 3, 2021 62,851 $ 1,572 $ 961,846 $ ( 226 ) $ ( 648,477 ) $ — $ 314,715

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

3 unchanged sentences

— — 2,984 — — — 2,984

Exercise of stock options

967 24 7,717 — — — 7,741

Issuance of vested restricted stock units

Issuance of common stock under equity incentive plans, net of forfeitures 180 4 1,095 — — — 1,099

— — — — ( 6,944 ) — ( 6,944 )

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

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

Shares Amount

Balance at December 31, 2018 53,955 $ 1,482 $ 876,073 $ ( 753 ) $ ( 684,882 ) $ ( 39,986 ) $ 151,934

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

Exercise of stock options 55 2 324 — — — 326

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

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

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

Other comprehensive loss — — — ( 252 ) — — ( 252 )

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

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands, unaudited)

Nine Months Ended

September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Operating activities:

3 unchanged sentences

Depreciation and amortization 4,077 3,544

Asset retirements and write-downs 3,749 2,624

Changes in operating assets and liabilities:

10 unchanged sentences

Purchases of marketable securities ( 54,192 ) —

Maturities of marketable securities 43,000 —

Net cash used in investing activities ( 13,466 ) ( 1,729 )

Financing activities:

Proceeds from exercise of stock options 7,741 326

Proceeds from employee stock purchase plans 6,356 4,157

Taxes paid for awards vested under equity incentive plan — ( 166 )

Proceeds from common stock issuances related to employee benefit plans 8,639 1,099

Payments related to financing arrangements — ( 842 )

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

Proceeds from line of credit — 30,000

1 unchanged sentence

Payments to originate the line of credit — ( 177 )

Net cash provided by (used in) financing activities 41,533 ( 3,385 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 131 ( 353 )

Net cash provided by financing activities 8,639 80

Effect of exchange rate changes on cash and cash equivalents ( 24 ) ( 240 )

Net increase (decrease) in cash, cash equivalents and restricted cash 5,047 ( 640 )

5 unchanged sentences

(together with its subsidiaries, “Calix” or the “Company”) was incorporated in August 1999 and is a Delaware corporation.

The Company is a leading global provider of cloud and software platforms, systems and services required to deliver the unified access network and smart home and business services of tomorrow.

The Company’s platforms and services help its customers build next generation networks by embracing a DevOps operating model, optimizing the subscriber experience by leveraging big data analytics and turn the complexity of the smart home and business into new revenue streams.

The Company's cloud and software platforms, systems and services enable communication service providers (“CSPs”) to provide a wide range of revenue-generating services, from basic voice and data to advanced broadband services, over legacy and next-generation access networks.

The Company focuses on CSP access networks, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers.

The Company is the leading global provider of cloud and software platforms, systems and services that focus on the access network, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers.

These cloud and software platforms enable communications service providers (“CSPs”) of all types and sizes to innovate and transform their businesses.

The Company’s CSP customers are empowered to utilize real-time data and insights from Calix platforms to simplify their businesses and deliver experiences that excite their subscribers.

These insights enable CSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue, thereby increasing the value of their businesses and contributions to their communities.

Basis of Presentation

12 unchanged sentences

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.

As a result, the Company had five more days in the three months ended April 3, 2021 than for the three months ended March 28, 2020.

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.

1 unchanged sentence

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the recent COVID-19 pandemic.

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

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 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.

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict as coronavirus continues to spread around the world.

Although the availability of vaccines has increased, there are no assurances as to when the pandemic will be fully contained.

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

The spread of COVID-19 has had a prolonged impact on the Company’s supply chain operations due to restrictions, reduced capacity and limited availability from suppliers whom the Company relies on for sourcing components and materials and from third-party partners whom the Company relies on for manufacturing, warehousing and logistics services.

Although demand for the Company’s products has been strong in the short-term as subscribers seek more bandwidth and better Wi-Fi, 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.

Furthermore, the Company’s supply chain continues to face constraints primarily due to challenges in sourcing components and materials for the Company’s products.

The prolonged impact of COVID-19 could exacerbate these constraints or cause further supply chain disruptions.

As of the issuance date of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

1 unchanged sentence

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020.

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

The Company’s significant accounting policies did not change during the three months ended April 3, 2021.

Newly Adopted Accounting Standard

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

The Company did not adopt any new accounting standards during the three months ended April 3, 2021 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 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.

There have been no additional accounting pronouncements or changes in accounting pronouncements during the three months ended April 3, 2021 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, that are significant or potentially significant to the Company.

Cash, Cash Equivalents and Marketable Securities

The Company has invested its excess cash primarily in money market funds and highly liquid marketable securities such as 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.

Marketable securities represent highly liquid 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.

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

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,

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 loss to results of operations as other income (expense), net.

Realized and unrealized gains and losses were de minimis for the period ended April 3, 2021.

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

2021 December 31,

3 unchanged sentences

Money market funds 33,904 10,068

Commercial paper 29,988 —

Total cash and cash equivalents 85,854 80,807

Restricted cash 628 628

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

Marketable securities:

government securities 39,998 52,982

Commercial paper 24,176 —

Total marketable securities 64,174 52,982

$ 150,028 $ 133,789

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

6 unchanged sentences

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 fair value hierarchy also requires the Company to maximize the use of observable inputs, when available, and to minimize the use of unobservable inputs when determining inputs and determining fair value.

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

As of April 3, 2021 Level 1 Level 2 Total

Money market funds $ 33,904 $ — $ 33,904

government securities 39,998 — 39,998

Commercial paper — 54,164 54,164

$ 73,902 $ 54,164 $ 128,066

As of December 31, 2020 Level 1

Money market funds $ 10,068

government securities 92,976

Balance Sheet Details

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

September 26,

2021 December 31,

3 unchanged sentences

Inventory consisted of the following (in thousands):

September 26,

2021 December 31,

3 unchanged sentences

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

September 26,

2021 December 31,

8 unchanged sentences

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

September 26,

2021 December 31,

Intangible asset $ 8,859 $ 9,517

Capitalized cloud implementation costs 2,068 6,089

Other long-term assets 2,214 2,648

$ 11,073 $ 12,165

Intangible Asset

In March 2018, the Company entered into an agreement with a vendor to develop certain software product and related enhancements pursuant to which the Company may be obligated to make minimum revenue-share payments under the program of up to $ 15.8 million over the three years following availability for sale.

Intangible Asset Acquisition

In March 2018, the Company entered into an agreement with a vendor to develop certain software product and related enhancements pursuant to which the Company is obligated to make revenue-share payments under the program, subject to aggregate minimum revenue-share payments of $ 15.8 million over the three years following availability for sale.

The payments are based on a revenue-share rate applied to revenue from the developed-product and the corresponding hardware sales subject to a minimum and a maximum aggregate amount over the three-year sales period.

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 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 and also recognized a liability of $ 13.2 million (a non-cash investing activity).

The net present value of the liability is $ 14.0 million of which $ 3.4 million is included in accrued liabilities and $ 10.6 million in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet as of April 3, 2021.

As of December 31, 2020, the net present value of the liability was $ 13.9 million of which $ 2.9 million was included in accrued liabilities and $ 11.0 million in other long-term liabilities.

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.

Capitalized Cloud Implementation Costs

I n January 2020, the Company went live with its cloud-based enterprise resource planning (“ERP”) system.

As a result, the Company capitalized $ 7.5 million of implementation costs in both prepaid expenses and other current assets and other long-term assets in the Company's Condensed Consolidated Balance Sheet.

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

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

In December 2020, the agreement was amended to increase the revenue-share rate, limit the total revenue-share payments to $ 15.8 million and extend the revenue-share period until March 2024.

Accrued liabilities consisted of the following (in thousands):

September 26,

2021 December 31,

1 unchanged sentence

Warranty and retrofit 9,650 9,208

Current portion of financing arrangements 5,160 4,044

Taxes payable 4,220 3,476

Component inventory held by suppliers 4,213 3,992

Customer advances or rebates 5,047 7,252

Professional and consulting fees 3,713 4,497

Taxes payable 3,142 2,021

Customer advances or rebates 3,704 8,374

Current portion of revenue share obligations 3,409 2,925

Operating leases 3,019 2,994

Product returns 2,244 1,888

Operations 1,200 1,053

Freight 1,892 1,955

Restructuring 323 408

Other 4,613 5,279

$ 56,031 $ 68,736

Warranty and Retrofit

The Company provides a standard warranty for its hardware products.

Hardware generally has a one - or five -year standard warranty from the date of shipment.

Under certain circumstances, the Company also provides fixes on specifically identified performance failures for products that are outside of the standard warranty period and recognizes estimated costs related to retrofit activities upon identification of such product failures.

The Company accrues for potential warranty and retrofit claims based on the Company’s historical product failure rates and historical costs incurred in correcting product failures along with other relevant information related to any specifically identified product failures.

The Company’s warranty and retrofit accruals are based on estimates of losses that are probable based on information available.

The adequacy of the accrual is reviewed on a periodic basis and adjusted, if necessary, based on additional information as it becomes available.

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

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Changes in the Company’s accrued warranty and retrofit liability were as follows (in thousands):

Three Months Ended

2021 March 28,

Balance at beginning of period $ 9,208 $ 7,294

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 nine months ended September 26, 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 during the nine months ended September 26, 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 during nine months ended September 26, 2020.

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

The Company incurred restructuring charges of approximately $ 6.3 million, consisting of facilities-related charges and severance and other termination-related benefits during 2020.

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

In light of this change, 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 during 2020.

The following table summarizes restructuring activities (in thousands):

Facilities Severance and Related Benefits Total

Balance at March 28, 2020 $ — $ — $ —

Restructuring charges 5,112 1,174 6,286

Asset write-down ( 3,748 ) — ( 3,748 )

Balance as of December 31, 2020 $ 1,244 $ 132 $ 1,376

Cash payments ( 62 ) ( 84 ) ( 146 )

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

Balance as of April 3, 2021 $ 1,182 $ 48 $ 1,230

Credit Agreements

Line of Credit

In January 2020, the Company terminated its loan and security agreement with Silicon Valley Bank and entered into a new loan and security agreement with Bank of America, N.A.

The Company has a loan and security agreement with Bank of America, N.A.

(“BofA Loan Agreement”).

1 unchanged sentence

The BofA Loan Agreement matures, and all outstanding amounts become due and payable, in January 2023.

The BofA Loan Agreement is secured by substantially all of the Company’s assets, including the Company’s intellectual property.

Effective July 1, 2020, loans under the credit facility will bear interest at a rate per annum equal to either LIBOR (customarily defined) plus an applicable margin between 1.5 % to 2.0 % or Prime Rate (customarily defined) plus an applicable margin between 0.5 % to 1.0 %, in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter.

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 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

During 2018, the Company entered into financing arrangements to purchase lab and test equipment for approximately $ 5.1 million.

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

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 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.

The BofA Loan Agreement is secured by substantially all of the Company’s assets, including its intellectual property.

Loans under the credit facility bear interest at a rate per annum equal to either LIBOR (customarily defined) plus an applicable margin between 1.5 % to 2.0 % or Prime Rate (customarily defined) plus an applicable margin between 0.5 % to 1.0 % ( 3.75 % as of April 3, 2021), in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter.

As of April 3, 2021, the Company had no outstanding borrowings and had full availability of borrowings up to $ 35.0 million.

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 September 26, 2020 (in thousands):

Period Minimum Future Lease Payments

Future minimum payments under the non-cancelable operating leases consisted of the following as of April 3, 2021 (in thousands):

Period Future Minimum Lease Payments

Remainder of 2021 $ 2,903

2 unchanged sentences

Less imputed interest ( 2,426 )

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

September 26,

As of April 3, 2021, the operating lease liability consisted of the following (in thousands):

Accrued liabilities - current portion of operating leases $ 3,019

2 unchanged sentences

The future minimum lease payments under the lease are $ 11.3 million and are included in the table above.

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.

The weighted average discount rate for the Company's operating leases as of April 3, 2021 was 6.7 %.

The weighted average remaining lease term as of April 3, 2021 was 4.0 years.

Total rent expense of the Company was $ 1.1 million for the three months ended April 3, 2021 and March 28, 2020 for each respective period.

Cash paid within operating cash flows for operating leases was $ 1.0 million for the three months ended April 3, 2021 and March 28, 2020 for each respective period.

Purchase Commitments

The Company’s contract manufacturers (“CMs”) and original design manufacturers (“ODMs”) place orders for certain component inventory in advance based upon the Company’s build forecasts in order to reduce manufacturing lead times and ensure adequate component supply.

The Company’s suppliers, including contract manufacturers (“CMs”) and original design manufacturers (“ODMs”), place orders for certain component inventory in advance based upon the Company’s build forecasts in order to reduce manufacturing lead times and ensure adequate component supply.

The components are used by the CMs and ODMs to build the products included in the build forecasts.

1 unchanged sentence

The Company places purchase orders with its CMs and ODMs in order to fulfill its monthly finished product inventory requirements.

incurs a liability when the CMs and ODMs convert the component inventory to a finished product and takes ownership of the finished goods inventory.

The Company incurs a liability when the CMs and ODMs convert the component inventory to a finished product and takes ownership of the finished goods inventory.

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 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.

As of April 3, 2021, the Company had approximately $ 107.8 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 $ 5.1 million and $ 1.9 million as of September 26, 2020 and December 31, 2019, respectively.

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 $ 4.2 million and $ 4.0 million as of April 3, 2021 and December 31, 2020, respectively.

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

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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

At the Company’s 2019 annual meeting of stockholders, the stockholders approved the 2019 Equity Incentive Award Plan (the “2019 Plan”).

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 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.

Employees and consultants of the Company, its subsidiaries and affiliates, as well as members of the Company's Board of Directors, are eligible to receive awards under the 2019 Plan.

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 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.

Employees and consultants of the Company, its subsidiaries and affiliates, as well as members of the Company’s Board of Directors, are eligible to receive awards under the 2019 Equity Incentive Award Plan (“the 2019 Plan”).

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, other stock or cash-based awards and dividend equivalents to eligible individuals.

As of April 3, 2021, there were 3.6 million shares available for issuance under the 2019 Plan.

Stock Options

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.

During the three months ended April 3, 2021, stock option awards exercisable for up to an aggregate of 0.1 million shares of common stock were granted with a grant date exercise price of $ 33.20 per share.

These stock option awards vest 25 % on the first anniversary of the vesting commencement date and on a quarterly basis thereafter over an additional three years .

In February 2021, performance-based stock option awards exercisable for up to an aggregate of 0.7 million shares of common stock were granted to certain Company executives with a grant date exercise price of $ 36.74 per share.

The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net income for 2021 (collectively, the “2021 Performance Targets”) during the one-year performance period.

These performance-based stock option awards will vest, subject to certification by the Compensation Committee of the Company’s Board of Directors upon the achievement of the 2020 Performance Targets, as to 25 % of the shares of common stock earned on the date of such certification, and as to the remaining 75 % of the shares of common stock earned, 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.

Under the 2020 Performance Targets, if non-GAAP net income is below 80 % of target and bookings are below 90 % of target, no shares are awarded.

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 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.

These performance-based stock option awards contained a one -year performance period and a subsequent three -year service period.

The actual number of shares earned was contingent upon achievement of both annual and quarterly corporate financial targets for revenue, non-GAAP gross margin and non-GAAP net income per share for 2019 (collectively, the “2019 Performance Targets”) during the one -year performance period.

In February 2020, following the review of the Company’s financial performance for 2019, the Compensation Committee of the Company’s Board of Directors certified that the 2019 Performance Targets (as modified) for the 2019 performance-based stock options were partially met, resulting in an award to each Company executive of 30 % of their target shares.

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 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 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.

These performance-based stock option awards will vest, subject to certification by the Compensation Committee of the Company’s Board of Directors upon the achievement of the 2021 Performance Targets, as to 25 % of the shares of common stock earned on the one year anniversary of the date of grant, and as to the remaining 75 % of the shares of common stock earned, 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.

If the non-GAAP net income target is achieved below 80 % of target or the bookings target is achieved below 90 % of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full.

If both targets are achieved at the minimum threshold of 80 % of target for non-GAAP net income and 90 % of target for bookings, then the shares are awarded at 50 % of the granted shares, with an increasing percentage of shares awarded above the minimum

thresholds up to 100 % of the granted shares if both targets are achieved at 100 % or more of target.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of April 3, 2021, and stock-based compensation expense of $ 1.0 million was recognized for the three months ended April 3, 2021.

During the three months ended April 3, 2021, 0.5 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 9.36 per share.

As of April 3, 2021, unrecognized stock-based compensation expense of $ 26.1 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.5 years.

Employee Stock Purchase Plans

The Company maintains two employee stock purchase plans - the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”).

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their annual compensation subject to certain Internal Revenue Code limitations.

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their eligible compensation subject to certain Internal Revenue Code limitations.

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

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 offering periods under the ESPP are two six-month offering periods from August 15 th through February 14 th and February 15 th through August 14 th of each year.

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.

In May 2019, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 2.5 million shares.

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

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.

As of April 3, 2021, there were 2.4 million shares available for issuance under the ESPP.

During the three months ended April 3, 2021, 0.2 million shares were purchased under the ESPP.

As of April 3, 2021, unrecognized stock-based compensation expense of $ 0.8 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 eligible 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’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 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.

The NQ ESPP provides two six-month offering periods from November 15 th through May 14 th and May 15 th through November 14 th of each year.

As of April 3, 2021, there were 2.3 million shares available for issuance under the NQ ESPP with a maximum of 0.5 million shares allocated per purchase period.

As of April 3, 2021, unrecognized stock-based compensation expense of $ 4.3 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 1.0 year.

Stock-Based Compensation

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

Three Months Ended Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Cost of revenue:

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Services 150 115

Research and development 1,237 1,033 3,344 2,922

Sales and marketing 1,447 956

Research and development 1,583 1,010

General and administrative 1,829 796

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The following is a summary of revenue disaggregated by geographic region based upon the location of the customers (in thousands):

Three Months Ended Nine Months Ended

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

Three Months Ended

April 3, 2021 March 28, 2020

United States $ 134,705 $ 88,050

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

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

Middle East 7,089 2,301

Canada 6,506 3,563

Caribbean 4,763 2,372

Europe 3,414 4,121

Other 5,597 1,275

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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 $ 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.

The balance at December 31, 2020 was $ 2.3 million of which $ 1.0 million remained in the Company's Condensed Consolidated Balance Sheet at April 3, 2021.

The closing balance at April 3, 2021 was $ 1.9 million of which the Company expects to bill 73 % of the balance during the remainder of 2020.

The decrease in the contract asset was driven by billings for past services and a reduction in expected cash collections on ongoing projects partially offset by additional unbilled work performed during the three months ended April 3, 2021.

Contract Liability

Deferred revenue consisted of the following (in thousands):

September 26,

2021 December 31,

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$ 44,456 $ 39,093

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.

The increase in the deferred revenue balance for the three months ended April 3, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligation offset by $ 8.3 million of revenue recognized that was included in the deferred revenue balance at the beginning of that period.

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.

This amount was $ 75.1 million as of April 3, 2021, and the Company expects to recognize 39 % 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 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.

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

As of April 3, 2021, the unamortized balance of deferred commissions was $ 1.4 million.

For the three months ended April 3, 2021, the amount of amortization was $ 0.1 million and there was no impairment loss in relation to the costs capitalized.

Concentration of Customer Risk

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.

No company accounted for more than 10% of the Company's total revenue for the three months ended April 3, 2021.

Lumen Technologies, Inc.

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

(formerly CenturyLink, Inc.) represented 15 % of total revenue for three months ended March 28, 2020.

No other customers accounted for more than 10% of the Company’s total revenue for three months ended March 28, 2020.

No customer represented more than 10% of the Company’s accounts receivable for the periods ended April 3, 2021 or December 31, 2020.

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 Nine Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended

2021 March 28,

Provision for income taxes $ 150 $ 329

Effective tax rate 0.7 % ( 5.0 ) %

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.

The effective tax rate for the three months ended April 3, 2021 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.

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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.

While the Company has reported U.S.

pre-tax income in the first quarter of 2021, the Company has not yet been able to establish a sustained level of profitability in the U.S.

or other sufficient significant positive evidence to conclude that its U.S.

deferred tax assets are more likely than not to be realized.

Therefore, the Company continues to maintain a valuation allowance against most of its U.S.

deferred tax assets.

At some point, if the Company establishes a sustained level of profitability and projects continued profitability, the Company may reverse a significant portion of its valuation allowance recorded against U.S.

deferred tax assets, resulting in a non-recurring non-cash income tax benefit.

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,

Three Months Ended

2021 March 28,

Net income (loss) $ 20,615 $ ( 6,944 )

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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.

These antidilutive shares were primarily from stock options.

For each of the periods presented where the Company reported a net loss, the effect of all potentially dilutive securities would be antidilutive, and as a result diluted net loss per common share is the same as basic net loss per common share.

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