What changed in this filing

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Item 1. Financial Statements

2021-10-26 compared with 2021-07-27 · 159 added, 137 removed, 351 unchanged (46% of the section changed)

13 unchanged sentences

Right-of-use operating leases 10,841 11,741

Deferred tax assets 161,968 —

Goodwill 116,175 116,175

15 unchanged sentences

5,000 shares authorized;

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

no shares issued and outstanding as of October 2, 2021 and December 31, 2020

Common stock, $ 0.025 par value;

100,000 shares authorized;

63,200 shares issued and outstanding as of July 3, 2021, and 62,122 shares issued and outstanding as of December 31, 2020

63,732 shares issued and outstanding as of October 2, 2021, and 62,122 shares issued and outstanding as of December 31, 2020

Additional paid-in capital 984,833 948,055

4 unchanged sentences

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

Three Months Ended Six Months Ended

2021 June 27,

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Systems $ 163,076 $ 142,294 $ 475,931 $ 347,644

12 unchanged sentences

Total operating expenses 71,502 54,225 206,032 165,932

Income (loss) from operations 20,529 ( 3,338 ) 41,331 ( 9,678 )

Interest and other income (expense), net:

Income from operations 17,991 21,750 59,322 12,072

Interest and other expense, net:

Interest expense, net ( 86 ) ( 356 ) ( 330 ) ( 1,263 )

Other income (expense), net 255 ( 109 ) 343 ( 94 )

Total interest and other income (expense), net 136 ( 726 ) 99 ( 1,001 )

Income (loss) before provision for income taxes 20,665 ( 4,064 ) 41,430 ( 10,679 )

Provision for income taxes 207 148 357 477

Net income (loss) $ 20,458 $ ( 4,212 ) $ 41,073 $ ( 11,156 )

Net income (loss) per common share:

Other expense, net ( 463 ) ( 707 ) ( 120 ) ( 801 )

Total interest and other expense, net ( 549 ) ( 1,063 ) ( 450 ) ( 2,064 )

Income before income taxes 17,442 20,687 58,872 10,008

Income taxes ( 159,982 ) 149 ( 159,625 ) 626

Net income $ 177,424 $ 20,538 $ 218,497 $ 9,382

Net income per common share:

Basic $ 2.79 $ 0.34 $ 3.47 $ 0.16

1 unchanged sentence

Weighted-average number of shares used to compute

net income (loss) per common share:

net income per common share:

Basic 63,588 60,307 63,057 58,053

Diluted 67,907 63,449 67,537 60,331

Net income (loss) $ 20,458 $ ( 4,212 ) $ 41,073 $ ( 11,156 )

Other comprehensive loss, net of tax -

Net income $ 177,424 $ 20,538 $ 218,497 $ 9,382

Other comprehensive income (loss), net of tax -

foreign currency translation adjustments, net

Comprehensive income (loss) $ 20,502 $ ( 4,209 ) $ 41,082 $ ( 10,907 )

( 24 ) 410 ( 15 ) 161

Comprehensive income $ 177,400 $ 20,948 $ 218,482 $ 9,543

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Shares Amount

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

Balance at July 3, 2021 63,200 $ 1,580 $ 972,259 $ ( 182 ) $ ( 628,019 ) $ — $ 345,638

Stock-based compensation

2 unchanged sentences

Net income — — — — 177,424 — 177,424

Other comprehensive income — — — 44 — — 44

Balance at July 3, 2021 63,200 $ 1,580 $ 972,259 $ ( 182 ) $ ( 628,019 ) $ — $ 345,638

Other comprehensive loss — — — ( 24 ) — — ( 24 )

Balance at October 2, 2021 63,732 $ 1,594 $ 984,833 $ ( 206 ) $ ( 450,595 ) $ — $ 535,626

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

Shares Amount

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

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

Stock-based compensation

1 unchanged sentence

Issuance of common stock under equity incentive plans, net of forfeitures 407 9 3,769 — — — 3,778

— — — — ( 4,212 ) — ( 4,212 )

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

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

Net income — — — — 20,538 — 20,538

Other comprehensive income — — — 410 — — 410

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

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

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

5 unchanged sentences

Net income — — — — 218,497 — 218,497

Other comprehensive income — — — 9 — — 9

Balance at July 3, 2021 63,200 $ 1,580 $ 972,259 $ ( 182 ) $ ( 628,019 ) $ — $ 345,638

Other comprehensive loss — — — ( 15 ) — — ( 15 )

Balance at October 2, 2021 63,732 $ 1,594 $ 984,833 $ ( 206 ) $ ( 450,595 ) $ — $ 535,626

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

4 unchanged sentences

Issuance of common stock under equity incentive plans, net of forfeitures 2,102 51 14,046 — — — 14,097

— — — — ( 11,156 ) — ( 11,156 )

Other comprehensive loss — — — ( 249 ) — — ( 249 )

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

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

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

Net income — — — — 9,382 — 9,382

Other comprehensive income — — — 161 — — 161

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands, unaudited)

Six Months Ended

2021 June 27,

Nine Months Ended

2021 September 26,

Operating activities:

Net income (loss) $ 41,073 $ ( 11,156 )

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

Net income $ 218,497 $ 9,382

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation 18,055 9,800

Depreciation and amortization 11,351 10,311

Reversal of valuation allowance on deferred tax assets ( 161,995 ) —

Asset retirements and write-downs — 3,749

16 unchanged sentences

Payments related to financing arrangements ( 723 ) ( 2,342 )

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

Proceeds from line of credit — 30,000

28 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 five more days in the six months ended July 3, 2021 than for the six months ended June 27, 2020.

As a result, the Company had five more days in the nine months ended October 2, 2021 than for the nine months ended September 26, 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.

14 unchanged sentences

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 six months ended July 3, 2021.

The Company’s significant accounting policies did not change during the nine months ended October 2, 2021.

Newly Adopted Accounting Standard

The Company did not adopt any new accounting standards during the six months ended July 3, 2021 that were significant to the Company.

The Company did not adopt any new accounting standards during the nine months ended October 2, 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 six months ended July 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.

There have been no additional accounting pronouncements or changes in accounting pronouncements during the nine months ended October 2, 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, corporate debt securities and U.S.

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

government securities.

1 unchanged sentence

Marketable securities represent highly liquid commercial paper, U.S.

government agency securities and U.S.

government agency securities, corporate debt securities, municipal securities and U.S.

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

4 unchanged sentences

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

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

Realized and unrealized gains and losses were de minimis for the period ended October 2, 2021.

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

4 unchanged sentences

Money market funds 6,007 10,068

Corporate debt securities 1,151 —

Municipal securities 150 —

government securities — 39,994

3 unchanged sentences

government agency securities 3,891 —

Corporate debt securities 3,772 —

government securities 1,520 52,982

Municipal securities 1,325 —

Total marketable securities 128,492 52,982

4 unchanged sentences

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

As such, fair value is a market-based measurement that should be determined based on

assumptions that market participants would use in pricing an asset or liability.

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

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

4 unchanged sentences

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 July 3, 2021 Level 1 Level 2 Total

As of October 2, 2021 Level 1 Level 2 Total

Money market funds $ 6,007 $ — $ 6,007

government securities 1,520 — 1,520

Commercial paper — 141,433 141,433

1 unchanged sentence

Corporate debt securities — 3,772 3,772

Municipal securities — 1,475 1,475

$ 7,527 $ 150,571 $ 158,098

29 unchanged sentences

Intangible Asset Acquisition

In March 2018, and as amended in December 2020, 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 fixed revenue-share payments of $ 15.8 million.

In March 2018, and as amended in December 2020, the Company entered into an agreement with a vendor to develop a certain software product and related enhancements pursuant to which the Company is obligated to make revenue-share payments under the program, subject to aggregate fixed revenue-share payments of $ 15.8 million.

The payments are based on a revenue-share rate applied to revenue from the developed-product and the corresponding hardware sales through March 2024.

2 unchanged sentences

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.

As of July 3, 2021, the liability, including accrued interest, was $ 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 October 2, 2021, the liability, including accrued interest, was $ 13.6 million of which $ 4.4 million is included in accrued liabilities and $ 9.2 million in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.

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

3 unchanged sentences

Warranty and retrofit 10,126 9,208

Taxes payable 4,459 3,476

Professional and consulting fees 4,347 4,497

Component inventory held by suppliers 4,606 3,992

Professional and consulting fees 4,595 4,497

Taxes payable 4,482 3,476

Current portion of revenue share obligations 4,397 2,925

1 unchanged sentence

Operating leases 3,151 2,994

Freight 2,587 1,955

Product returns 1,749 1,888

Operations 1,286 950

Freight 1,543 1,955

Other 5,846 4,737

1 unchanged sentence

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

Three Months Ended Six Months Ended

2021 June 27,

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Balance at beginning of period $ 9,911 $ 7,732 $ 9,208 $ 7,294

13 unchanged sentences

Cash payments ( 193 ) ( 132 ) ( 325 )

Balance as of July 3, 2021 $ 1,111 $ — $ 1,111

Credit Agreements

Line of Credit

Balance as of October 2, 2021 $ 1,051 $ — $ 1,051

Credit Agreement

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

1 unchanged sentence

The BofA Loan Agreement provides for a revolving facility up to a principal amount of $ 35.0 million, including a $ 10.0 million sublimit for letters of credit.

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

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

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 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, the Company had no outstanding borrowings and had full availability of borrowings up to $ 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 October 2, 2021), in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter.

As of October 2, 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 July 3, 2021 (in thousands):

Future minimum payments under the non-cancelable operating leases consisted of the following as of October 2, 2021 (in thousands):

Period Future Minimum Lease Payments

3 unchanged sentences

Less imputed interest ( 2,099 )

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

As of October 2, 2021, the operating lease liability consisted of the following (in thousands):

Accrued liabilities - current portion of operating leases $ 3,151

2 unchanged sentences

The future minimum lease payments under the lease are $ 10.2 million and are included in the table above.

The weighted average discount rate for the Company's operating leases as of July 3, 2021 was 6.6 %.

The weighted average remaining lease term as of July 3, 2021 was 4.3 years.

For the three and six months ended July 3, 2021, total rent expense of the Company was $ 0.9 million and $ 2.1 million, respectively.

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

Cash paid within operating cash flows for operating leases was $ 2.0 million and $ 1.7 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

The weighted average discount rate for the Company’s operating leases as of October 2, 2021 was 6.5 %.

The weighted average remaining lease term as of October 2, 2021 was 4.1 years.

For the three and nine months ended October 2, 2021, total rent expense of the Company was $ 1.0 million and $ 3.1 million, respectively.

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.

Cash paid within operating cash flows for operating leases was $ 2.9 million and $ 2.5 million for the nine months ended October 2, 2021 and September 26, 2020, respectively.

Purchase Commitments

5 unchanged sentences

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

As of July 3, 2021, the Company had approximately $ 140.9 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one year.

As of October 2, 2021, the Company had approximately $ 184.1 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, was $ 4.0 million for both of the periods ending July 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).

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 $ 4.6 million and $ 4.0 million as of October 2, 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.

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

5 unchanged sentences

At the Company’s 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 3.8 million shares.

As of July 3, 2021, there were 7.0 million shares available for issuance under the 2019 Plan.

As of October 2, 2021, there were 7.0 million shares available for issuance under the 2019 Plan.

Stock Options

During the three months ended July 3, 2021, stock option awards exercisable for up to an aggregate of 0.5 million shares of common stock were granted with a grant date weighted-average exercise price of $ 40.82 per share.

During the six months ended July 3, 2021, stock option awards exercisable for up to an aggregate of 0.6 million shares of common stock were granted with a grant date weighted-average exercise price of $ 39.38 per share.

During the three months ended October 2, 2021, no stock option awards were granted.

During the nine months ended October 2, 2021, stock option awards exercisable for up to an aggregate of 0.6 million shares of common stock were granted with a grant date weighted-average exercise price of $ 39.38 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 .

4 unchanged sentences

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 July 3, 2021, and stock-based compensation expense of $ 1.9 million was recognized for the three months ended July 3, 2021.

For the six months ended July 3, 2021, stock-based compensation expense of $ 2.9 million was recognized.

During the three months ended July 3, 2021, 0.1 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 7.38 per share.

During the six months ended July 3, 2021, 0.6 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 9.17 per share.

As of July 3, 2021, unrecognized stock-based compensation expense of $ 31.7 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.4 years.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of October 2, 2021, and stock-based compensation expense of $ 1.9 million was recognized for the three months ended October 2, 2021.

For the nine months ended October 2, 2021, stock-based compensation expense of $ 4.8 million was recognized.

During the three months ended October 2, 2021, 0.4 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 6.98 per share.

During the nine months ended October 2, 2021, 1.0 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 8.20 per share.

As of October 2, 2021, unrecognized stock-based compensation expense of $ 27.6 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.

Employee Stock Purchase Plans

6 unchanged sentences

The total shares authorized for issuance under the ESPP increased from 9.8 million shares to 11.1 million shares.

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

During the six months ended July 3, 2021, 0.2 million shares were purchased under the ESPP.

As of July 3, 2021, unrecognized stock-based compensation expense of $ 0.3 million related to the ESPP is expected to be recognized over a remaining service period of 0.1 years.

As of October 2, 2021, there were 3.6 million shares available for issuance under the ESPP.

During the nine months ended October 2, 2021, 0.3 million shares were purchased under the ESPP.

As of October 2, 2021, 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 eligible compensation.

3 unchanged sentences

The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 5.5 million shares, with a maximum of 0.5 million shares allocated per purchase period.

As of July 3, 2021, there were 2.9 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase.

During the three and six months ended July 3, 2021, 0.2 million shares were purchased and issued.

As of July 3, 2021, unrecognized stock-based compensation expense of $ 6.0 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 1.1 year.

As of October 2, 2021, there were 2.9 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase.

During the nine months ended October 2, 2021, 0.2 million shares were purchased and issued.

As of October 2, 2021, unrecognized stock-based compensation expense of $ 4.8 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 year.

Stock-Based Compensation

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

Three Months Ended Six Months Ended

2021 June 27,

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Cost of revenue:

8 unchanged sentences

• Systems include revenue from the sale of access and premises systems, software platform licenses and cloud-based software subscriptions;

• Services include revenue from professional services, customer support, software- and cloud-based maintenance, extended warranty subscriptions, training and managed services.

• Services include revenue from customer support, software- and cloud-based maintenance, extended warranty subscriptions, professional services, training and managed services.

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

Three Months Ended Six Months Ended

July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Three Months Ended Nine Months Ended

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

United States $ 136,312 $ 129,205 $ 414,246 $ 326,063

Canada 7,444 2,868 13,950 6,431

Americas ex U.S.

11,800 7,032 37,660 18,969

Europe 19,443 9,183 32,701 15,414

Middle East 5,172 2,330 12,260 4,631

Caribbean 6,954 2,310 11,717 4,682

Other 5,638 1,207 11,234 2,482

Middle East & Africa 3,905 4,537 16,165 9,171

Asia Pacific 771 551 2,203 1,596

$ 172,231 $ 150,508 $ 502,975 $ 371,213

2 unchanged sentences

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

The balance as of December 31, 2020 was $ 2.3 million of which $ 0.7 million remained in the Company's Condensed Consolidated Balance Sheet as of July 3, 2021.

The closing balance as of July 3, 2021 was $ 1.4 million of which the Company expects to bill 66 % 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 July 3, 2021.

The balance as of December 31, 2020 was $ 2.3 million of which $ 0.3 million remained in the Company’s Condensed Consolidated Balance Sheet as of October 2, 2021.

The closing balance as of October 2, 2021 was $ 1.2 million of which the Company expects to bill 55 % of the balance during the remainder of 2020.

Contract Liability

8 unchanged sentences

$ 45,785 $ 39,093

The increase in the deferred revenue balance for the three and six months ended July 3, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 6.8 million and $ 11.1 million of revenue recognized that was included in the deferred revenue balance at the beginning of each period, respectively.

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 $ 92.0 million as of July 3, 2021, and the Company expects to recognize 36 % of such revenue over the next 12 months and the remainder thereafter.

The increase in the deferred revenue balance for the three and nine months ended October 2, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 8.6 million and $ 17.1 million of revenue recognized that was included in the deferred revenue balance at the beginning of each period, respectively.

Revenue allocated to remaining performance obligations represents 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 $ 105.0 million as of October 2, 2021, and the Company expects to recognize 34 % of such revenue over the next 12 months and the remainder thereafter.

Contract Costs

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 July 3, 2021, the unamortized balance of deferred commissions was $ 2.3 million.

For the three and six months ended July 3, 2021, the amount of amortization was $ 0.2 million and $ 0.3 million, respectively.

As of October 2, 2021, the unamortized balance of deferred commissions was $ 4.0 million.

For the three and nine months ended October 2, 2021, the amount of amortization was $ 0.4 million and $ 0.7 million, respectively.

There was no impairment loss in relation to the costs capitalized.

Concentration of Customer Risk

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

Lumen Technologies, Inc.

(formerly CenturyLink, Inc.) represented 15 % of total revenue for three and six months ended June 27, 2020.

No other customers accounted for more than 10% of the Company’s total revenue for three and six months ended June 27, 2020.

No customer represented more than 10% of the Company’s accounts receivable as of July 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 Six Months Ended

2021 June 27,

Provision for income taxes $ 207 $ 148 $ 357 $ 477

One customer, our only greater-than-10%-of-revenue customer, represented 10 % of the Company’s total revenue for the three months ended October 2, 2021.

No customer accounted for more than 10% of the Company’s total revenue for the nine months ended October 2, 2021.

Another customer, Lumen Technologies, Inc.

(formerly CenturyLink, Inc.), our only greater-than-10%-of-revenue customer, represented 12 % and 14 % of total revenue for three and nine months ended September 26, 2020, respectively.

No customer represented more than 10% of the Company’s accounts receivable as of October 2, 2021 or December 31, 2020.

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

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Income taxes $ ( 159,982 ) $ 149 $ ( 159,625 ) $ 626

Effective tax rate ( 917.2 ) % 0.7 % ( 271.1 ) % 6.3 %

The effective tax rate for the three 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.

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

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

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

While the Company has reported U.S.

pre-tax income for the first half 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 Six Months Ended

2021 June 27,

Net income (loss) $ 20,458 $ ( 4,212 ) $ 41,073 $ ( 11,156 )

Weighted-average common shares outstanding used to compute basic net income (loss) per share 63,042 57,261 62,795 56,906

The Company’s income taxes for the nine months ended October 2, 2021 and September 26, 2020 was determined using an estimated effective tax rate adjusted for discrete items that occurred during the respective periods.

The income tax benefit for the nine months ended October 2, 2021 was primarily due to the release of the valuation allowance on certain U.S.

federal and state deferred tax assets and, to a lesser degree, benefits related to stock-based compensation and income taxes related to various states and profitable subsidiaries.

For the nine months ended September 26, 2020, the tax expense was primarily related to the foreign tax provision.

The Company has net deferred tax assets that have arisen primarily as a result of temporary differences, net operating loss carryforwards and tax credits.

The Company’s ability to realize a deferred tax asset is based on its ability to generate sufficient future taxable income within the applicable carryforward period and subject to any applicable limitations.

A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

At each reporting period, the Company assesses the estimated future realizability of the gross carrying value of its deferred tax assets.

The Company’s periodic assessments take into consideration both positive evidence (future profitability projections for example and recent financial performance) and negative evidence (historical financial performance for example) as it relates to evaluating the future recoverability of its deferred tax assets.

During the third quarter of 2021, the Company recognized an income tax benefit of $ 162.0 million offset by current income taxes, based on management’s reassessment of the amount of its U.S.

federal and other state deferred tax assets that are more likely than not to be realized, primarily as a result of actual and projected increases in U.S.

profitability in the current and future periods.

In performing its analysis, the Company used the most updated plans and estimates that it currently uses to manage the underlying business and calculated the ability to utilize its deferred tax assets.

The Company continues to maintain a valuation allowance of $ 28.7 million on certain U.S.

federal and state deferred tax assets that the Company believes are not more likely than not to be realized in future periods.

The Company considers scheduled reversals of deferred tax liabilities, projected future taxable income, ongoing tax planning strategies and other matters, including the period over which its deferred tax assets will be recoverable, in assessing the need for and the amount of the valuation allowance.

In the event that actual results differ from these estimates, or if the Company decides to adjust these estimates in the future periods, further adjustments to its valuation allowance may be recorded, which could materially impact the Company’s financial position and net income in the period of the adjustment.

As of September 26, 2020, the total expense was primarily related to foreign activity.

In 2020, based on a review of the positive and negative evidence, management concluded that the deferred tax assets were not more likely to be realized which resulted in an immaterial domestic provision as the deferred tax assets were fully offset with the valuation allowance.

The Company’s income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate including factors as actual results differing from its estimates of pre-tax earnings in the various jurisdictions in which the Company operates, which could impact the recognition of its 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 the Company conducts business.

Net Income Per Common Share

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

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Net income $ 177,424 $ 20,538 $ 218,497 $ 9,382

Weighted-average common shares outstanding used to compute basic net income per share 63,588 60,307 63,057 58,053

Effect of dilutive common stock equivalents 4,319 3,142 4,480 2,278

Weighted-average common shares outstanding used to compute diluted net income (loss) per share 67,634 57,261 67,347 56,906

Net income (loss) per common share:

Basic net income (loss) per common share $ 0.32 $ ( 0.07 ) $ 0.65 $ ( 0.20 )

Diluted net income (loss) per common share $ 0.30 $ ( 0.07 ) $ 0.61 $ ( 0.20 )

Weighted-average common shares outstanding used to compute diluted net income per share 67,907 63,449 67,537 60,331

Net income per common share:

Basic net income per common share $ 2.79 $ 0.34 $ 3.47 $ 0.16

Diluted net income per common share $ 2.61 $ 0.32 $ 3.24 $ 0.16

Potentially dilutive shares, weighted average 1,224 169 908 579

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.

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.

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

These antidilutive shares were from stock options.

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