What changed in this filing

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Item 1. Financial Statements

2022-10-25 compared with 2022-07-26 · 107 added, 92 removed, 381 unchanged (34% of the section changed)

31 unchanged sentences

5,000 shares authorized;

no shares issued and outstanding as of July 2, 2022 and December 31, 2021

no shares issued and outstanding as of October 1, 2022 and December 31, 2021

Common stock, $ 0.025 par value;

100,000 shares authorized;

65,241 shares issued and outstanding as of July 2, 2022, and 64,274 shares issued and outstanding as of December 31, 2021

65,442 shares issued and outstanding as of October 1, 2022, and 64,274 shares issued and outstanding as of December 31, 2021

Additional paid-in capital 1,050,826 997,855

6 unchanged sentences

(In thousands, except per share data)

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Systems $ 225,845 $ 163,076 $ 591,466 $ 475,931

27 unchanged sentences

Net income $ 13,443 $ 177,424 $ 29,083 $ 218,497

Other comprehensive income (loss), net of tax:

Other comprehensive loss, net of tax:

Unrealized loss on available-for-sale marketable securities, net ( 488 ) — ( 1,956 ) —

Foreign currency translation adjustments, net ( 335 ) ( 24 ) ( 808 ) ( 15 )

Total other comprehensive income (loss), net of tax ( 709 ) 44 ( 1,941 ) 9

Total other comprehensive loss, net of tax ( 823 ) ( 24 ) ( 2,764 ) ( 15 )

Comprehensive income $ 12,620 $ 177,400 $ 26,319 $ 218,482

4 unchanged sentences

Shares Amount

Balance as of April 2, 2022 64,612 $ 1,616 $ 1,014,336 $ ( 1,552 ) $ ( 422,595 ) $ 591,805

Balance as of July 2, 2022 65,241 $ 1,631 $ 1,032,833 $ ( 2,261 ) $ ( 415,074 ) $ 617,129

Stock-based compensation

3 unchanged sentences

Other comprehensive loss — — — ( 823 ) — ( 823 )

Balance as of July 2, 2022 65,241 $ 1,631 $ 1,032,833 $ ( 2,261 ) $ ( 415,074 ) $ 617,129

Balance as of October 1, 2022 65,442 $ 1,636 $ 1,050,826 $ ( 3,084 ) $ ( 401,631 ) $ 647,747

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

Shares Amount

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

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

Stock-based compensation

3 unchanged sentences

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

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

Balance as of 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 Total Stockholders’ Equity

6 unchanged sentences

Other comprehensive loss — — — ( 2,764 ) — ( 2,764 )

Balance as of July 2, 2022 65,241 $ 1,631 $ 1,032,833 $ ( 2,261 ) $ ( 415,074 ) $ 617,129

Balance as of October 1, 2022 65,442 $ 1,636 $ 1,050,826 $ ( 3,084 ) $ ( 401,631 ) $ 647,747

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

6 unchanged sentences

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

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

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands, unaudited)

Six Months Ended

Nine Months Ended

2022 October 2,

Operating activities:

4 unchanged sentences

Deferred income taxes 5,225 ( 161,995 )

Net accretion of available-for-sale securities ( 533 ) —

Changes in operating assets and liabilities:

24 unchanged sentences

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

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.

The Company is the leading global provider of cloud and software platforms, systems and services that focus on the subscriber-facing 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 broadband service providers (“BSPs”) of all types and sizes to innovate and transform their businesses.

15 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 six months ended July 2, 2022 than for the six months ended July 3, 2021.

As a result, the Company had one less day in the nine months ended October 1, 2022 than for the nine months ended October 2, 2021.

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

3 unchanged sentences

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

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

The Company’s supply chain continues to face constraints primarily due to closures affecting suppliers and manufacturers in China that have led to challenges in sourcing components and materials.

Shortages and delays relating to the Company’s components and materials have also caused, and may continue to cause, difficulties in managing global logistics, and transport and warehousing services for the Company’s products.

2 unchanged sentences

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021.

The Company’s significant accounting policies did not change during the six months ended July 2, 2022.

The Company’s significant accounting policies did not change during the nine months ended October 1, 2022.

Newly Adopted Accounting Standard

The Company did not adopt any new accounting standards during the six months ended July 2, 2022 that were significant to the Company.

The Company did not adopt any new accounting standards during the nine months ended October 1, 2022 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 2, 2022 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, 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 1, 2022 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that are significant or potentially significant to the Company.

Cash, Cash Equivalents and Marketable Securities

11 unchanged sentences

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 expense, net.

There were no realized gains and losses for the three and six months ended July 2, 2022 and July 3, 2021, respectively.

There were no realized gains and losses for the three and nine months ended October 1, 2022 and October 2, 2021, respectively.

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

3 unchanged sentences

Commercial paper 34,377 21,582

government securities 6,966 —

Money market funds 22 2,320

10 unchanged sentences

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

The amortized cost and fair value of marketable securities as of July 2, 2022 were as follows (in thousands):

The amortized cost and fair value of marketable securities as of October 1, 2022 were as follows (in thousands):

Amortized Cost Gross Unrealized Losses Fair Value

2 unchanged sentences

government agency securities 20,763 ( 230 ) 20,533

Corporate debt securities 803 ( 4 ) 799

Municipal securities 252 ( 1 ) 251

Corporate debt securities 251 ( 2 ) 249

Total marketable securities $ 203,011 $ ( 2,134 ) $ 200,877

10 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 2, 2022 Level 1 Level 2 Total

As of October 1, 2022 Level 1 Level 2 Total

Money market funds $ 22 $ — $ 22

2 unchanged sentences

government agency securities — 20,533 20,533

Corporate debt securities — 799 799

Municipal securities — 251 251

Corporate debt securities — 249 249

$ 116,536 $ 84,363 $ 200,899

28 unchanged sentences

$ 24,348 $ 21,783

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

2022 December 31,

Intangible asset, net $ 5,569 $ 6,885

Other long-term assets 9,307 6,800

$ 14,876 $ 13,685

Intangible Asset Acquisition

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.

If the minimum revenue-share payments are not achieved by the end of that period, a true-up payment will be due.

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 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 2, 2022, the liability, including accrued interest, was $ 12.9 million, of which $ 5.7 million is included in “Accrued liabilities” and $ 7.2 million in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheet.

As of December 31, 2021, the liability, including accrued interest, was $ 13.2 million, of which $ 4.7 million was included in “Accrued liabilities” and $ 8.5 million in other “Other long-term liabilities.”

Accrued liabilities consisted of the following (in thousands):

2 unchanged sentences

Component inventory held by suppliers 10,290 7,611

Current portion of warranty and retrofit 6,777 7,076

Current portion of revenue share payments 10,284 4,731

Professional and consulting fees 6,993 4,819

Freight 5,201 3,997

Current portion of warranty and retrofit 6,559 7,076

Customer advances or rebates 6,220 4,742

Operating leases 3,822 3,596

Taxes payable 6,154 4,251

Freight 3,952 3,997

Operating leases 3,853 3,596

Product returns 2,722 1,836

2 unchanged sentences

$ 80,573 $ 71,597

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

If the minimum revenue-share payments are not achieved by the end of that period, a true-up payment will be due.

As of October 1, 2022, the liability, including accrued interest, was $ 12.7 million, of which $ 10.3 million is included in “Accrued liabilities” and $ 2.4 million in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheet.

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Balance at beginning of period $ 8,654 $ 9,911 $ 9,594 $ 9,208

8 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 2, 2022 (in thousands):

Future minimum payments under the non-cancelable operating leases consisted of the following as of October 1, 2022 (in thousands):

Period Future Minimum Lease Payments

Remainder of 2022 $ 1,136

2026 and thereafter 530

Total future minimum lease payments 14,678

Less imputed interest ( 1,382 )

As of July 2, 2022, the operating lease liability consisted of the following (in thousands):

As of October 1, 2022, the operating lease liability consisted of the following (in thousands):

Accrued liabilities - current portion of operating leases $ 3,853

2 unchanged sentences

The future minimum lease payments under the lease are $ 7.9 million and are included in the table above.

The weighted average discount rate for the Company’s operating leases as of July 2, 2022 was 6.1 %.

The weighted average remaining lease term as of July 2, 2022 was 3.5 years.

For the three and six months ended July 2, 2022, total rent expense of the Company was $ 1.1 million and $ 2.2 million, respectively.

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.

Cash paid within operating cash flows for operating leases was $ 2.3 million and $ 2.0 million for the six months ended July 2, 2022 and July 3, 2021, respectively.

The weighted average discount rate for the Company’s operating leases as of October 1, 2022 was 6.1 %.

The weighted average remaining lease term as of October 1, 2022 was 3.2 years.

For the three and nine months ended October 1, 2022, total rent expense of the Company was $ 1.0 million and $ 3.2 million, respectively.

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.

Cash paid within operating cash flows for operating leases was $ 3.4 million and $ 2.9 million for the nine months ended October 1, 2022 and October 2, 2021, respectively.

Purchase Commitments

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.

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.

3 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 2, 2022 and December 31, 2021, the Company had approximately $ 324.2 million and $ 247.3 million, respectively, of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within two years .

As of October 1, 2022 and December 31, 2021, the Company had approximately $ 398.8 million and $ 247.3 million, respectively, of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs.

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 $ 9.3 million and $ 7.6 million as of July 2, 2022 and December 31, 2021, 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 $ 10.3 million and $ 7.6 million as of October 1, 2022 and December 31, 2021, respectively.

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

6 unchanged sentences

At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 1.5 million shares.

As of July 2, 2022, there were 7.0 million shares available for issuance under the 2019 Plan.

As of October 1, 2022, there were 6.7 million shares available for issuance under the 2019 Plan.

Stock Options

During the three months ended July 2, 2022, stock option awards exercisable for up to an aggregate of 0.4 million shares of common stock were granted with a grant date weighted-average exercise price of $ 33.46 per share.

During the six months ended July 2, 2022, stock option awards exercisable for up to an aggregate of 0.8 million shares of common stock were granted with a grant date weighted-average exercise price of $ 43.15 per share.

During the three months ended October 1, 2022, stock option awards exercisable for up to an aggregate of 0.3 million shares of common stock were granted with a grant date weighted-average exercise price of $ 56.21 per share.

During the nine months ended October 1, 2022, stock option awards exercisable for up to an aggregate of 1.1 million shares of common stock were granted with a grant date weighted-average exercise price of $ 46.83 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 .

1 unchanged sentence

The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net operating income for 2022 (collectively, the “2022 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 2022 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 operating 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 operating 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 2, 2022, and stock-based compensation expense of $ 2.9 million was recognized for the three months ended July 2, 2022.

For the six months ended July 2, 2022, stock-based compensation expense of $ 4.5 million was recognized.

During the three months ended July 2, 2022, 0.3 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 7.51 per share.

During the six months ended July 2, 2022, 0.5 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 7.56 per share.

As of July 2, 2022, unrecognized stock-based compensation expense of $ 55.3 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of October 1, 2022, and stock-based compensation expense of $ 2.9 million was recognized for the

three months ended October 1, 2022.

For the nine months ended October 1, 2022, stock-based compensation expense of $ 7.4 million was recognized.

During the three months ended October 1, 2022, 46,000 shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 23.18 per share.

During the nine months ended October 1, 2022, 0.6 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 8.86 per share.

As of October 1, 2022, unrecognized stock-based compensation expense of $ 55.7 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

4 unchanged sentences

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.

At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 1.3 million shares, which will go into effect for the six-month purchase period commencing August 15, 2022 and ending on February 14, 2023.

At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 1.3 million shares.

The total shares authorized for issuance under the ESPP increased from 11.1 million shares to 12.4 million shares.

As of July 2, 2022, there were 3.5 million shares available for issuance under the ESPP.

During the six months ended July 2, 2022, 0.1 million shares were purchased under the ESPP.

As of July 2, 2022, 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 1, 2022, there were 4.7 million shares available for issuance under the ESPP.

During the nine months ended October 1, 2022, 0.2 million shares were purchased under the ESPP.

As of October 1, 2022, unrecognized stock-based compensation expense of $ 1.3 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.

1 unchanged sentence

Beginning in the second quarter of 2022, the NQ ESPP provides quarterly offering periods from February 8 th through May 7 th , May 8 th through August 7 th , August 8 th through November 7 th and November 8 th through February 7 th of each year.

A transition period began on May 15 th and will end on August 7 th .

A transition period began on May 15 th and ended on August 7 th .

At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the NQ ESPP by 0.8 million shares.

The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 6.3 million shares, with a maximum of 0.5 million shares allocated per purchase period.

As of July 2, 2022, there were 3.3 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 2, 2022, 0.4 million shares were purchased and issued.

As of July 2, 2022, unrecognized stock-based compensation expense of $ 6.9 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 years.

As of October 1, 2022, there were 3.2 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase.

During the nine months ended October 1, 2022, 0.5 million shares were purchased and issued.

As of October 1, 2022, unrecognized stock-based compensation expense of $ 8.2 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 years.

Stock-Based Compensation

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Cost of revenue:

5 unchanged sentences

$ 11,027 $ 6,661 $ 31,502 $ 18,055

Stock Repurchase Program

In July 2022, the Company’s Board of Directors authorized a one-year stock repurchase program for up to $ 100 million of the Company’s common stock.

Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements.

The specific timing, price and size of the purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations consistent with the Company’s capital allocation strategy.

The repurchase program does not obligate the Company to acquire a particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

During the three months ended October 1, 2022, no repurchases were made under the program.

Revenue from Contracts with Customers

3 unchanged sentences

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 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Three Months Ended Nine Months Ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

United States $ 215,857 $ 136,312 $ 565,420 $ 414,246

8 unchanged sentences

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

The balance as of December 31, 2021 was $ 1.7 million of which $ 0.4 million remained in the Company’s Condensed Consolidated Balance Sheet as of July 2, 2022.

The closing balance as of July 2, 2022 was $ 1.7 million of which the Company expects to bill 60 % of the balance during the remainder of 2022.

The balance as of December 31, 2021 was $ 1.7 million of which $ 0.3 million remained in the Company’s Condensed Consolidated Balance Sheet as of October 1, 2022.

The closing balance as of October 1, 2022 was $ 2.0 million of which the Company expects to bill 26 % of the balance during the remainder of 2022.

The contract asset balance may fluctuate depending on the timing of professional services contracts with the Company's customers.

9 unchanged sentences

$ 58,606 $ 49,494

The increase in the deferred revenue balance for the three and six months ended July 2, 2022 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 12.9 million of revenue recognized that was included in the deferred revenue balance at the beginning of the period.

The increase in the deferred revenue balance for the three and nine months ended October 1, 2022 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 13.0 million and $ 23.2 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 (“RPOs”) 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 but excludes variable consideration where the monthly invoicing is based on usage or where actual usage exceeds the minimum commitment.

RPOs were $ 162.8 million as of July 2, 2022, and the Company expects to recognize as revenue 34 % of this amount over the next 12 months and the remainder thereafter.

RPOs were $ 173.1 million as of October 1, 2022, and the Company expects to recognize as revenue 35 % of this amount 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 2, 2022 and December 31, 2021, the unamortized balance of deferred commissions was $ 7.7 million and $ 7.4 million, respectively.

For the three and six months ended July 2, 2022, the amount of amortization was $ 0.9 million and $ 1.6 million, respectively, compared to $ 0.2 million and $ 0.3 million for the three and six months ended July 3, 2021, respectively.

As of October 1, 2022 and December 31, 2021, the unamortized balance of deferred commissions was $ 8.5 million and $ 7.4 million, respectively.

For the three and nine months ended October 1, 2022, the amount of amortization was $ 1.0 million and $ 2.6 million, respectively, compared to $ 0.4 million and $ 0.7 million for the three and nine months ended October 2, 2021, respectively.

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

Concentration of Customer Risk

No customer accounted for more than 10% of the Company’s total revenue for the three or six months ended July 2, 2022 or July 3, 2021.

No customer represented more than 10% of the Company’s accounts receivable as of July 2, 2022.

No customer accounted for more than 10% of the Company’s total revenue for the three or nine months ended October 1, 2022.

One 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.

No customer represented more than 10% of the Company’s accounts receivable as of October 1, 2022.

One customer represented 12 % of the Company’s accounts receivable as of December 31, 2021.

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Income before income taxes $ 20,466 $ 17,442 $ 39,955 $ 58,872

1 unchanged sentence

Effective tax rate 34.3 % ( 917.2 ) % 27.2 % ( 271.1 ) %

The Company’s income taxes for the three months ended July 2, 2022 and July 3, 2021 were determined using an estimated effective tax rate adjusted for discrete items that occurred during the respective periods.

The Company's effective tax rate for the three and six months ended July 2, 2022 differs from the statutory federal corporate tax rate of 21% primarily due to U.S.

federal research tax credits and excess tax benefits from stock-based compensation partially offset by state taxes, the inclusion of income from certain foreign operations and the effect of non-deductible stock-based compensation for executive officers.

The Company's effective tax rate for the three and six months ended July 3, 2021 was significantly lower than 2022 as the Company maintained a full valuation allowance until the third quarter of 2021.

The Company’s income taxes for the three months ended October 1, 2022 and October 2, 2021 were determined using an estimated effective tax rate adjusted for discrete items that occurred during the respective periods.

The Company’s effective tax rate for the three and nine months ended October 1, 2022 differs from the statutory federal corporate tax rate of 21% primarily due to state taxes, the inclusion of income from certain foreign operations and the effect of non-deductible stock-based compensation for executive officers partially offset by U.S.

federal research tax credits and excess tax benefits from stock-based compensation.

The Company’s effective tax rate for the three and nine months ended October 2, 2021 was significantly lower than 2022 as the Company reversed a significant portion of its valuation allowance associated with the Company’s U.S.

federal and certain state deferred tax assets in the third quarter of 2021.

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

4 unchanged sentences

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.

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.

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, benefits from stock option exercises, further investments in the Company’s foreign operations, 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.

1 unchanged sentence

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 Six Months Ended

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Net income $ 13,443 $ 177,424 $ 29,083 $ 218,497

8 unchanged sentences

These antidilutive shares were from stock options.

Subsequent Event

In July 2022, the Company’s Board of Directors authorized a one-year stock repurchase program for up to $ 100 million of the Company’s common stock.

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