What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-27 compared with 2021-04-27 · 123 added, 78 removed, 146 unchanged (58% of the section changed)

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We are 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, or CSPs, of all types and sizes to innovate and transform their businesses.

Our 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.

We market our cloud and software platforms, systems and services to CSPs globally through our direct sales force as well as select resellers.

Our customers range from smaller, regional CSPs to some of the world’s largest CSPs.

We have enabled approximately 1,600 CSP customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.

These cloud and software platforms enable broadband service providers, or BSPs, of all types and sizes to innovate and transform their businesses.

Our BSP 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 BSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue, thereby increasing the value of their businesses and contributions to their communities.

We market our cloud and software platforms, systems and services to BSPs globally through our direct sales force as well as select resellers.

Our customers range from smaller, regional BSPs to some of the world’s largest BSPs.

We have enabled approximately 1,600 BSP customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.

Our revenue and potential revenue growth will depend on our ability to sell and license our cloud and software platforms, systems and services to strategically aligned customers of all types such as wireless internet service providers, fiber overbuilders, cable MSOs, municipalities and electric cooperatives in the United States and internationally.

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Revenue fluctuations result from many factors, including, but not limited to:

increases or decreases in customer orders for our products and services, market, financial or other factors that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including disruptions as a result of the COVID-19 pandemic, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers.

increases or decreases in customer orders for our products and services, market, financial or other factors that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component shortages and increasing lead times as well as disruptions as a result of the COVID-19 pandemic, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers.

More specifically, our customers tend to spend less in the first quarter as they are finalizing their annual budgets, and in certain regions, customers are challenged by winter weather conditions that inhibit fiber deployment in outside infrastructure.

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Cost of revenue is strongly correlated to revenue and tends to fluctuate due to all of the above factors that may cause revenue fluctuations.

Factors that impacted our cost of revenue for the three months ended April 3, 2021, and that we expect will impact cost of revenue in future periods, also include:

changes in the mix of products delivered, customer location and regional mix, changes in the cost of our inventory, including higher costs due to materials shortages including components, supply constraints or unfavorable changes in trade policies, investments to support expansion of cloud and customer support offerings, changes in product warranty and incurrence of retrofit costs, tariffs and associated costs to mitigate the impact of tariffs, amortization of intangibles, asset write-offs, support fees for silicon-related development work for our products and inventory write-downs.

In particular, given the recent supply chain disruptions due to the COVID-19 pandemic, we have seen increases in our global freight charges as we have elected to ship by air in order to meet delivery commitments to our customers as well as air freight

rates have increased from prior year levels.

Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if there are declines in revenue.

Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory) and have in the past been negatively impacted by increases in mix of revenue towards deployment services, increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive pressure or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.

Factors that impacted our cost of revenue for the three and six months ended July 3, 2021, and that we expect will impact cost of revenue in future periods, also include:

changes in the mix of products delivered, customer location and regional mix, changes in the cost of our inventory, including higher costs due to materials shortages including components, supply constraints or unfavorable changes in trade policies, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty and incurrence of retrofit costs, tariffs and associated costs to mitigate the impact of tariffs, amortization of intangibles, asset write-offs, support fees for silicon-related development work for our products and inventory write-downs.

Given the recent supply chain disruptions related to component shortages and longer lead times as a result of increased global demand for certain components and related to the COVID-19 pandemic, we have seen more challenges in supply chain logistics due to greater global demand for transport services as well as increases in

our global freight charges as we have elected to ship by air in order to meet delivery commitments to our customers and as air freight rates have increased from prior year levels.

Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if our revenue declines.

Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory) and have in the past been negatively impacted by increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive pressure or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.

Our operating expenses fluctuate based on the following factors among others:

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timing of research and development expenses, including investments in innovative solutions and new customer segments, prototype builds and outsourced development resources;

investments in marketing programs;

asset write-offs;

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and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting.

While we more recently had net income of $33.5 million in 2020 and $20.6 million for the first three months of 2021, we have incurred significant losses since our inception, and as of April 3, 2021, we had an accumulated deficit of $648.5 million.

While we had net income of $33.5 million in 2020 and $41.1 million for the first half of 2021, we have incurred significant losses since our inception, and as of July 3, 2021, we had an accumulated deficit of $628.0 million.

Further, as a result of factors contributing to the fluctuations described above among other factors, many of which are outside our control, our quarterly operating results fluctuate from period to period.

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We are subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on our business remains highly uncertain and difficult to predict as coronavirus continues to spread around the world including through new variants.

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

Since March 2020, we have instituted office closures, travel restrictions and a mandatory work-from-home policy for substantially all of our employees.

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

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, particularly as variants of the coronavirus continue 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.

In March 2020, we instituted office closures, travel restrictions and a work-from-anywhere policy for substantially all our employees due to shelter-in-place mandates.

In July 2021, we reopened our U.S.

offices to fully-vaccinated employees who choose to work in the office and visitors and lifted certain travel restrictions.

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

Although demand for our 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 our revenue and results of operations.

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Our critical accounting policies and estimates, which are revenue recognition and inventory valuation, are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

For the three months ended April 3, 2021, there have been no significant changes in our critical accounting policies and estimates.

For the six months ended July 3, 2021, there have been no significant changes in our critical accounting policies and estimates.

Recent Accounting Pronouncements

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 our Annual Report on Form 10-K for the year ended December 31, 2020 that are significant or potentially significant to us.

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

Results of Operations

Comparison of the Three Months Ended April 3, 2021 and March 28, 2020

Comparison of the Three and Six Months Ended July 3, 2021 and June 27, 2020

The following table sets forth our revenue (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

Systems $ 159,553 $ 110,841 $ 48,712 44 % $ 312,855 $ 205,350 $ 107,505 52 %

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Services 5 % 7 % 5 % 7 %

Our revenue increased by $60.4 million for the three months ended April 3, 2021 as compared to the corresponding period in 2020 due to higher systems revenue of $58.8 million.

Services revenue increased by $1.6 million compared to the corresponding period in 2020.

The increase in systems revenue was primarily due to higher revenue from our small, regional customers and, to a lesser extent, our large-sized customers, as service providers accelerated some deployments to respond to demand for network capacity and relieve network capacity constraints as well as provide a better Wi-Fi experience.

The increase in services revenue was due to the continued ramp in our service offerings aligned with cloud and software products offset by lower professional services related to CAF deployments.

For the three months ended April 3, 2021, revenue generated in the United States was $134.7 million, or 83% of our total revenue compared to $88.1 million, or 87% of our total revenue for the same period in 2020.

International revenue was $27.4 million, or 17% of our total revenue, for the three months ended April 3, 2021, as compared to $13.6 million, or 13% of our total revenue, for the same period in 2020.

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

For the three months ended March 28, 2020, only Lumen Technologies, Inc.

100 % 100 % 100 % 100 %

Our revenue increased by $49.6 million and $110.0 million for the three and six months ended July 3, 2021, respectively, as compared to the corresponding periods in 2020 mostly due to higher systems revenue of $48.7 million and $107.5 million.

Services revenue increased by $0.9 million and $2.5 million compared to the corresponding periods in 2020.

The increase in systems revenue was primarily due to higher revenue from our small, regional customers and, to a lesser extent, our medium-sized customers, as service providers adopt our All Platform offerings and seek to provide a better Wi-Fi experience.

The increase in services revenue was due to the continued ramp in our service offerings aligned with cloud and software products for their customers.

For the three and six months ended July 3, 2021, revenue generated in the United States was $133.6 million and $268.3 million, or 79% and 81% of our total revenue, respectively, compared to $108.2 million and $196.2 million, or 91% and 89% of our total revenue, respectively, for the same periods in 2020.

International revenue was $35.1 million and $62.4 million, or 21% and 19% of our total revenue, respectively, for the three and six months ended July 3, 2021, as compared to $10.8 million and $24.5 million, or 9% and 11% of our total revenue, respectively, for the same periods in 2020.

No customer accounted for more than 10% of our total revenue for the three and six months ended July 3, 2021.

For both the three and six months ended June 27, 2020, only Lumen Technologies, Inc.

(formerly CenturyLink, Inc.), or Lumen, accounted for more than 10% of our total revenue, representing 15% of our total revenue.

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The following table sets forth our cost of revenue (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

Cost of revenue:

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$ 79,051 $ 62,618 $ 16,433 26 % $ 154,883 $ 118,676 $ 36,207 31 %

Our cost of revenue increased by $19.8 million for the three months ended April 3, 2021 as compared with the corresponding period in 2020.

The $19.0 million increase in our systems cost of revenue was less than the percentage increase in revenue compared with the corresponding period in 2020 and was due to the increasing spread between fixed costs in relation to revenue growth and continued growth in our All Platform offerings along with favorable customer and product mix.

Our cost of revenue increased by $16.4 million and $36.2 million for the three and six months ended July 3, 2021, respectively, as compared with the corresponding periods in 2020.

The $16.0 million and $34.9 million increases in our systems cost of revenue were less than the percentage increase in revenue compared with the corresponding periods in 2020 and were due to continued growth in our All Platform offerings along with favorable customer and product mix, the increasing spread between fixed costs in relation to revenue growth and a refund for previously paid U.S.

import tariffs due to the subsequent export of tariffed products.

This was partially offset by increased freight costs due to higher prices for transportation as well as a mix towards more air shipments to meet delivery commitments.

The increase in services cost of revenue for the three months ended April 3, 2021 compared with the corresponding period in 2020 was mainly due to increased personnel costs as we made further investments in our customer success organization.

The increase in services cost of revenue for the three and six months ended July 3, 2021 compared with the corresponding periods in 2020 was mainly due to increased personnel costs as we made further investments in our customer success organization.

The following table sets forth our gross profit and gross margin (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

Gross profit:

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Overall 53.1 % 47.4 % 53.2 % 46.2 %

Gross profit increased to $86.2 million for the three months ended April 3, 2021 from $45.6 million during the corresponding period in 2020 due to higher systems gross margin.

The increase in systems gross margin for the three months ended April 3, 2021 compared the corresponding period in 2020 was mainly due to continued growth in our All Platform offerings along with favorable product and customer mix.

Services gross margin increased for the three months ended April 3, 2021 compared to the corresponding period in 2020 as our service revenue mix shifted away from low gross margin deployment services to higher gross margin software maintenance and services aligned with our platform offerings.

Gross profit increased to $89.6 million and $175.9 million for the three and six months ended July 3, 2021, respectively, from $56.4 million and $102.0 million during the corresponding periods in 2020 due to higher gross margin for both systems and services.

The increase in systems gross margin for the three and six months ended July 3, 2021 compared to the corresponding periods in 2020 was mainly due to continued growth in our All Platform offerings along with favorable product and customer mix as well as a credit for previously paid tariffs due to product re-export.

Services gross margin increased for the three and six months ended July 3, 2021 compared to the corresponding periods in 2020 as our service revenue mix shifted away from low gross margin deployment services to higher gross margin software maintenance and services aligned with our platform offerings.

Operating Expenses

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The following table sets forth our sales and marketing expenses (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

Sales and marketing expenses $ 29,710 $ 21,343 $ 8,367 39 % $ 57,761 $ 41,967 $ 15,794 38 %

Percent of total revenue 18 % 18 % 17 % 19 %

Sales and marketing expenses for the three months ended April 3, 2021 increased by $7.4 million compared with the corresponding period in 2020 primarily due to increases in personnel expenses of $6.8 million, mainly related to investments in sales headcount and higher sales incentive compensation expense, marketing expenses of $0.5 million, stock-based compensation of $0.5 million and outside services expenses of $0.5 million.

Sales and marketing expenses for the three months ended July 3, 2021 increased by $8.4 million compared with the corresponding period in 2020 primarily due to increases in personnel expenses of $5.1 million, mainly related to investments in sales headcount and higher sales incentive compensation, marketing expenses of $1.3 million and stock-based compensation of $0.7 million.

Sales and marketing expenses for the six months ended July 3, 2021 increased by $15.8 million compared with the corresponding period in 2020 primarily due to increases in personnel expenses of $11.9 million, mainly related to investments in sales headcount and higher sales incentive compensation, marketing expenses of $1.8 million, stock-based compensation of $1.2 million and outside services expenses of $0.8 million.

These increases were partially offset by a decrease in travel expenses of $1.1 million.

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The following table sets forth our research and development expenses (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

Research and development expenses $ 25,716 $ 20,921 $ 4,795 23 % $ 50,080 $ 41,592 $ 8,488 20 %

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Percentage of systems gross profit 30 % 39 % 29 % 42 %

Research and development expenses for the three months ended April 3, 2021 increased by $3.7 million as compared with the corresponding period in 2020 mainly due to increases in personnel expenses of $2.0 million, outside services of $1.7 million, stock-based compensation of $0.6 million and depreciation and amortization of $0.4 million.

Research and development expenses for the three months ended July 3, 2021 increased by $4.8 million as compared with the corresponding period in 2020 mainly due to increases in outside services of $3.1 million, personnel expenses of $1.6 million and stock-based compensation of $0.5 million.

These increases were partially offset by lower facilities expenses of $0.7 million.

Research and development expenses for the six months ended July 3, 2021 increased by $8.5 million as compared with the corresponding period in 2020 mainly due to increases in outside services of $4.8 million, personnel expenses of $3.5 million, stock-based compensation of $1.1 million and depreciation and amortization of $0.7 million.

These increases were partially offset by lower facilities expenses of $1.6 million.

We expect to slightly increase our investments in research and development as a percentage of systems gross profit to expand the functionality and capabilities of our platforms.

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The following table sets forth our general and administrative expenses (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

General and administrative expenses $ 13,664 $ 11,193 $ 2,471 22 % $ 26,689 $ 21,862 $ 4,827 22 %

Percent of total revenue 8 % 9 % 8 % 10 %

General and administrative expenses for the three months ended April 3, 2021 increased by $2.4 million as compared with the corresponding period in 2020 mainly due to increases in unallocated-facilities expenses of $1.2 million, stock-based compensation of $1.0 million and personnel expenses of $0.7 million.

Beginning in the third quarter of 2020, we changed our facility allocation to align with our work-from-home initiative, and consequently, most of facilities expenses are retained in general and administrative expenses.

These increases were partially offset by decreases in professional services fees of $0.3 million.

We expect to slightly increase our investments in general and administrative expenses as a percentage of revenue to enhance and automate our internal information systems, databases and processes.

General and administrative expenses for the three months ended July 3, 2021 increased by $2.5 million as compared with the corresponding period in 2020 mainly due to increases in stock-based compensation of $1.6 million, unallocated-facilities expenses of $0.8 million, and personnel expenses of $0.7 million.

Beginning in the third quarter of 2020, we changed our facility allocation to align with our work-from-anywhere initiative, and consequently, most of our facilities expenses are retained in general and administrative expenses.

These increases were partially offset by a decrease in our bad debt expense of $0.9 million.

General and administrative expenses for the six months ended July 3, 2021 increased by $4.8 million as compared with the corresponding period in 2020 mainly due to increases in stock-based compensation of $2.6 million, unallocated-facilities expenses of $2.1 million, and personnel expenses of $1.4 million.

These increases were partially offset by a decrease in our bad debt expense of $1.1 million.

We expect our general and administrative expenses to decline as a percentage of revenue over time as revenue continues to grow.

Restructuring Charges

Responding to changes and trends caused by the COVID-19 pandemic, we initiated a restructuring plan in June 2020 to accelerate our All Platform future and to align with a work-from-anywhere culture.

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

See Note 5, “Balance Sheet Details” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

Provision for Income Taxes

The following table sets forth our provision for income taxes (dollars in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 Variance

Dollars Variance

Percent July 3,

2021 June 27,

2020 Variance

Dollars Variance

Provision for income taxes $ 207 $ 148 $ 59 40 % $ 357 $ 477 $ (120) (25) %

Effective tax rate 1.0 % (3.6) % 0.9 % (4.5) %

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.

The effective tax rate for the three and six months ended July 3, 2021 was determined using an estimated annual effective tax rate adjusted for discrete items, if any, that occurred during the respective periods.

While we have recently reported profitability, we have not yet been able to establish a sustained level of profitability in the U.S.

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Liquidity and Capital Resources

We have funded our operations and investing activities primarily through sales of our common stock, including an underwritten public offering in August 2020, cash flow generated from operations and a financing arrangement for consulting services.

As of April 3, 2021, we had cash, cash equivalents and marketable securities of $150.0 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

government securities and commercial paper.

As of July 3, 2021, we had cash, cash equivalents and marketable securities of $175.8 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

government agency securities and commercial paper.

Operating Activities

Net cash provided by operating activities was $9.9 million for the three months ended April 3, 2021 and consisted of net income of $20.6 million and non-cash charges of $9.2 million, consisting of stock-based compensation of $5.2 million and depreciation and amortization of $4.1 million.

Net cash provided by operating activities was $33.4 million for the six months ended July 3, 2021 and consisted of net income of $41.1 million and non-cash charges of $19.1 million, consisting of stock-based compensation of $11.4 million and depreciation and amortization of $7.7 million.

This was partially offset by cash flow decreases of $26.8 million reflected in the net change in assets and liabilities.

Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in inventory of $24.9 million to support revenue growth and to mitigate supply chain shortages and disruptions and a decrease in total accrued liabilities of $12.9 million, mainly related to incentive compensation payouts, rebate redemptions and a reduction of customer advance payments.

In addition, there was an increase in accounts receivable of $5.0 million, due to product shipment timing, and an increase in prepaid expenses and other assets of $1.3 million mainly due to prepaid software licenses.

These changes were partially offset by an increase in accounts payable of $16.2 million due to increased inventory purchases and an increase in deferred revenue of $5.4 million due to support contracts, extended warranties and Calix Cloud subscriptions.

During the three months ended March 28, 2020, net cash provided by operating activities was $1.2 million and consisted of $6.5 million of non-cash charges and $1.7 million of cash flow increases reflected in the net change in assets and liabilities, partially offset by a net loss of $6.9 million.

Cash flow increases resulting from the net change in assets and liabilities primarily consisted of an increase in accounts payable of $9.5 million, primarily due to timing of payments to our contract manufacturers, or CMs, a decrease in inventory of $9.6 million due to lower deliveries due to the supply disruption during of the quarter, an increase in deferred revenue of $2.1 million mainly due to increased Calix Cloud subscriptions and an increase in accrued liabilities of $1.4 million due to an increase in inventory held by suppliers.

This was partially offset by an increase in accounts receivable of $20.6 million, mainly due to timing of shipments and delays in processing invoices due to the ERP migration.

Non-cash charges primarily consisted of stock-based compensation of $3.0 million and depreciation and amortization of $3.5 million.

In addition, there was an increase in accounts receivable of $10.7 million, due to product shipment timing, and an increase in prepaid expenses and other assets of $6.4 million mainly due to advance payments to our supply chain partners for deposits, expedite fees and component surcharges.

These changes were partially offset by an increase in accounts payable of $21.9 million due to increased inventory purchases and an increase in deferred revenue of $6.2 million due to Calix Cloud subscriptions, support contracts and extended warranties.

During the six months ended June 27, 2020, net cash provided by operating activities was $3.9 million and consisted of $17.0 million of non-cash charges and $1.9 million of cash flow decreases reflected in the net change in assets and liabilities, partially offset by a net loss of $11.2 million.

Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in accounts receivable of $12.1 million, due to the timing of product shipments.

In addition, there was a decrease in deferred revenue of $0.9 million due to the invoice timing of our customer support and subscription offerings and a decrease in accounts payable of $0.7 million, primarily due to timing of payments to our suppliers.

These changes were partially offset by an increase in accrued liabilities of $7.9 million, due to an increase in accruals related to our restructuring activities and an increase our liability for components at certain suppliers.

In addition, there was a decrease in inventory of $3.5 million due to lower deliveries as a result of the supply disruption during 2020 and an increase in prepaid expenses and other assets of $1.2 million, due to an increase in our VAT receivable and employee receivables related to income tax obligations associated with our NQ ESPP.

Non-cash charges primarily consisted of depreciation and amortization of $7.0 million, stock-based compensation of $6.2 million and lease restructuring charges of $3.7 million.

Investing Activity

For the three months ended April 3, 2021, cash used in investing activities of $13.5 million consisted of net purchases of marketable securities of $11.2 million and capital expenditures of $2.3 million, consisting primarily of purchases of test equipment and computer equipment.

Net cash used in investing activities of $1.7 million for the three months ended March 28, 2020 consisted of capital expenditures primarily for purchases of test equipment, computer equipment and software.

For the six months ended July 3, 2021, cash used in investing activities of $68.2 million consisted of net purchases of marketable securities of $64.3 million and capital expenditures of $3.9 million, consisting primarily of purchases of test equipment and computer equipment.

Net cash used in investing activities of $4.5 million for the six months ended June 27, 2020 consisted of capital expenditures primarily for purchases of test equipment and computer equipment.

Financing Activities

Net cash provided by financing activities of $8.6 million for the three months ended April 3, 2021 consisted of proceeds from the issuance of common stock related to our employee equity plans.

Net cash provided by financing activities of $0.1 million for the three months ended March 28, 2020 mainly consisted of proceeds from the issuance of common stock related to our employee equity plans of $1.1 million offset by payments related to financing arrangements of $0.8 million and payments to originate our loan and security agreement with Bank of America, or BofA Loan Agreement, of $0.2 million.

Net cash provided by financing activities of $12.6 million for the six months ended July 3, 2021 consisted of proceeds from the issuance of common stock related to our employee equity plans.

Net cash provided by financing activities of $4.5 million for the six months ended June 27, 2020 mainly consisted of proceeds from the issuance of common stock related to our employee equity plans of $10.3 million.

These inflows were partially offset by the partial re-payment of our line of credit of $4.0 million, payments related to financing arrangements of $1.5 million and payments to originate the credit line of $0.3 million.

Working Capital and Capital Expenditure Needs

Our material cash commitments include non-cancelable firm purchase commitments, contractual obligations under our BofA Loan Agreement, normal recurring trade payables, compensation-related and expense accruals, operating leases and revenue-share obligations.

Our material cash commitments include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals, operating leases and revenue-share obligations.

We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory.

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The BofA Loan Agreement is secured by substantially all of our assets, including our 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, we had no outstanding borrowings and had full availability of $35.0 million.

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 July 3, 2021), in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter.

As of July 3, 2021, we had no outstanding borrowings and had full availability of $35.0 million.

In March 2018, we entered into an agreement with a vendor to develop software products pursuant to which we would become obligated, if the vendor delivered software that meets our technical requirements for commercial sale, to make minimum revenue-share payments of $15.8 million over the subsequent three years.

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We believe, based on our current operating plan and expected operating cash flows, that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months.

If we are unable to execute on our current operating plan or continue to generate operating income and positive cash flows, our liquidity, results of operations and financial condition will be adversely affected, and we may need to seek other sources of liquidity, including the sale of additional equity or incremental borrowings, to support our working capital needs.

In addition, we may choose to seek other sources of liquidity even if we believe we have generated sufficient cash flows to support our operational needs.

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Contractual Obligations and Commitments

Our principal commitments as of April 3, 2021 consisted of our contractual obligations under non-cancelable outstanding purchase obligations, operating lease obligations for office space and a revenue share obligation.

The following table summarizes our contractual obligations as of April 3, 2021 (in thousands):

Our principal commitments as of July 3, 2021 consisted of our contractual obligations under non-cancelable outstanding purchase obligations, operating lease obligations for office space and a revenue share obligation.

The following table summarizes our contractual obligations as of July 3, 2021 (in thousands):

Payments Due by Period

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See Note 7, “ Commitments and Contingencies ” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our outstanding purchase commitments.

(2) Future minimum operating lease obligations in the table above include primarily payments for our office locations, which expire at various dates through 2026.

(2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2026.

See Note 7 “ Commitments and Contingencies ” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our operating leases.

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Off-Balance Sheet Arrangements

As of April 3, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements.

As of July 3, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements.

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 2. Management’s Discussion and Analysis