What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-22 · 75 added, 110 removed, 156 unchanged (54% of the section changed)

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All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

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 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 brand through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, 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 1,700 BSP customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.

Our revenue increased to $679.4 million in 2021 from $541.2 million in 2020 and $424.3 million in 2019.

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.

Our growth is also highly dependent on the speed and willingness of customers to adopt these platforms.

We are the leading global provider of a broadband delivery platform (cloud, software and systems) and managed services that enable service providers of all types and sizes to innovate and transform their businesses.

For our customers to successfully transform their businesses into the innovative BSPs of the future, they require actionable data for critical business functions such as network operations, customer support and marketing.

However, this data is often trapped in disparate systems or departmental silos.

Our Calix platform, which includes Calix Cloud, Revenue EDGE and Intelligent Access EDGE, gathers, analyzes and applies machine learning to deliver real-time insights seamlessly to each key business function.

Our customers utilize these data and insights to simplify network operations, marketing and customer support and deliver experiences that excite their subscribers.

This enables BSPs to grow their brand through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, creating value for their businesses and the communities they serve.

We market our Calix platform and managed services to communication service providers globally through our direct sales force as well as select resellers.

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

We have enabled approximately 1,900 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 develop, market and sell our platform and managed services to strategically aligned customers of all types such as WISPs, fiber overbuilders, cable MSOs, municipalities and electric cooperatives in the United States and internationally.

Our growth is also highly dependent on the speed and willingness of customers to adopt the Calix platform and managed services.

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 component and labor 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.

Our revenue is also dependent upon our customers’ timing of purchases, capital expenditure plans and decisions to upgrade their network or adopt new technologies, including adoption of our software and cloud platform solutions, as well as our ability to grow our customer base.

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 and labor shortages and increasing lead times as well as disruptions as a result of COVID-19 outbreaks, 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 have in the past spent 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.

Our revenue is also dependent upon our customers’ timing of purchases, capital expenditure plans and decisions to upgrade their networks or adopt new technologies, including adoption of our software and cloud platform solutions, as well as our ability to grow our customer base.

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 have impacted our cost of revenue, 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, amortization of intangibles, asset write-offs, support fees for silicon-related development work for our products, allowances for obligations to our suppliers and inventory write-downs.

Given the ongoing supply chain disruptions related to component shortages, longer lead times as a result of increased

global demand for certain components and disruptions related to the COVID-19 pandemic, we have experienced and are continuing to experience product supply delays and related challenges, and we expect these delays and related challenges to persist in the foreseeable future.

Similarly, challenges in supply chain logistics have persisted due to greater global demand for transport services as well as labor shortages and resulted in increases in our global freight charges.

In addition, we periodically elect to ship by air in order to meet delivery commitments to our customers, and air freight rates have increased from prior year levels.

Given the ongoing supply-chain disruptions related to component shortages, longer lead times as a result of increased global demand for certain components and disruptions related to the COVID-19 pandemic, we have experienced and are continuing to experience product supply delays and related challenges, and we expect these delays and related challenges to persist in the foreseeable future.

Similarly, while on-going challenges in supply-chain logistics have improved to an extent, delivery timelines remain elongated.

In addition, we periodically elect to ship by air versus by ocean in order to meet delivery commitments to our customers, which is more costly.

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

During the third quarter of 2021, we recognized a discrete tax benefit of $162.0 million based on our reassessment of the amount of our U.S.

federal and 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.

We had net income of $238.4 million in 2021 and $33.5 million in 2020 and a net loss of $17.7 million in 2019.

As of December 31, 2021, we had an accumulated deficit of $430.7 million as a result of losses in previous years.

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.

Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.

COVID-19 Pandemic

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 is highly uncertain and difficult to predict, particularly as variants of the coronavirus continue to spread around the world.

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 we lifted certain travel restrictions.

The COVID-19 pandemic 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.

Furthermore, our supply chain continues to face constraints primarily due to challenges in sourcing components and materials and managing global logistics and transport services for our products due to shortages and delays.

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

Critical Accounting Policies and Estimates

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generally accepted accounting principles.

These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented.

We base our estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances.

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Revenue Recognition

We derive revenue from contracts with customers primarily from the following and categorize our revenue as follows:

• 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.

Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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Our hardware products contain both software and non-software components that function together to deliver the products’ essential functionality and therefore constitutes a single performance obligation as the promise to transfer the individual software and non-software components is not separately identifiable and, therefore, not distinct.

Cloud-based software subscriptions can include multi-year agreements with a fixed annual fee for a minimum committed usage level.

To the extent that minimum committed usage level each year varies, we have concluded that each year represents a distinct stand-ready performance obligation and the transaction price allocated to each performance obligation is recognized as revenue ratably over each annual period.

Our contracts may include multiple performance obligations.

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We generally determine stand-alone selling prices based on the prices charged to customers or our best estimate of stand-alone selling price.

Our estimate of stand-alone selling price is established considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, characteristics of targeted customers and pricing practices.

Our estimate of stand-alone selling price is established

considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, characteristics of targeted customers and pricing practices.

The determination of estimated stand-alone selling price is made through consultation with and formal approval by management, taking into consideration the go-to-market strategy.

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Inbound shipping costs and tariffs are included in the cost of inventory.

In addition, we, from time to time, procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers.

In addition, from time to time, we procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers.

We regularly monitor inventory quantities on-hand and record write-downs for excess and obsolete inventory based on our estimate of demand for our products, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds our estimated selling price.

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These differences result in deferred tax assets and liabilities on our Consolidated Balance Sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our Consolidated Statements of Comprehensive Income (Loss) become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our Consolidated Statements of Comprehensive Income become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

Accordingly, realization of our deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

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Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

Prior to the third quarter of 2021, we maintained a full valuation allowance against all deferred tax assets, because there was insufficient positive evidence to overcome the existing negative evidence, primarily consisting of

several years of consecutive reported pre-tax losses, such that it was not more likely than not that the deferred tax assets were realizable.

In the third quarter of 2021, we reported positive operating performance for five consecutive quarters and continued to maintain a cumulative three-year pre-tax profit.

In addition, we expect continued positive operating performance into the foreseeable future to allow for utilization of all operating losses and substantially all tax credit carryforwards prior to their expiration.

After considering these factors, we determined that the positive evidence overcame the negative evidence and concluded that it was more likely than not that a substantial portion of our U.S.

federal and certain other state deferred tax assets were realizable.

In the third quarter of 2021, we reversed the majority of our valuation allowance and recorded on our balance sheet U.S.

federal and certain state deferred tax assets of $162 million.

As of December 31, 2022, we determined that positive evidence continues to outweigh negative evidence and concluded that it was more likely than not that our U.S.

federal and state (with the exception of California) deferred tax assets are realizable.

We currently maintain a valuation allowance of $29.9 million for certain U.S.

federal and California state deferred tax assets.

federal and California deferred tax assets.

Recent Accounting Pronouncements Not Yet Adopted

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2022 2021 $ %

Systems $ 642,577 $ 508,552 $ 134,025 26 %

Services 36,817 32,687 4,130 13 %

$ 679,394 $ 541,239 $ 138,155 26 %

Percent of total revenue:

Systems 95 % 94 %

Services 5 % 6 %

Revenue $ 867,827 $ 679,394 $ 188,433 28 %

Our revenue increased by $188.4 million, or 28%, during 2022 compared to 2021.

The increase in revenue was primarily due to higher revenue from our growing base of small and medium BSP customers and the continuation of BSPs seeking to provide their subscribers a better experience by adopting our platform and managed services.

In particular, we added a new medium-sized customer that began to receive significant shipments during the second half of 2022.

Our revenue is principally derived in the United States.

Revenue generated in the United States represented approximately 83% of our total revenue in 2021 and 88% in 2020.

Our revenue increased by $138.2 million, or 26%, during 2021 compared with 2020 mostly due to higher systems revenue of $134.0 million.

Services revenue increased $4.1 million in 2021 compared with 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 adopted our All Platform offerings and sought to provide a better Wi-Fi experience, partially offset by a decrease in revenue to large customers.

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

No customer accounted for more than 10% of our total revenue for 2021.

Lumen accounted for more than 10% of our total revenue in 2020.

See Note 12 “Revenue from Contracts with Customers” to the Consolidated Financial Statements set forth in this report for more details on concentration of revenue for the years presented.

Revenue generated in the United States represented 91% of revenue in 2022 and 83% in 2021.

Our primary focus has been and in the near term will continue to be the United States and Canada given our large, direct sales and marketing presence and the amount of government stimulus being invested into underserved and not-

served areas of these countries.

In 2022, we introduced our platform to the United Kingdom.

Over time, we expect to move to additional high average-revenue-per-user markets with our platform.

No customer accounted for more than 10% of our revenue for 2022 or 2021.

See Note 11 “Revenue from Contracts with Customers” to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more details on concentration of revenue for the years presented.

Gross Profit and Gross Margin

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Gross profit $ 435,428 $ 356,587 $ 78,841 22 %

Systems $ 345,474 $ 256,914 $ 88,560 34 %

Services 11,113 10,105 1,008 10 %

$ 356,587 $ 267,019 $ 89,568 34 %

Gross margin 50.2 % 52.5 %

Systems 53.8 % 50.5 %

Services 30.2 % 30.9 %

52.5 % 49.3 %

Gross profit increased by $78.8 million to $435.4 million during 2022 from $356.6 million during 2021.

Gross margin increased to 52.5% during 2021 from 49.3% during 2020.

The increase in systems gross margin in 2021 compared to the 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 of $4.3 million, or 70 basis points.

This was partially offset by increased costs due to higher component costs and global freight charges due to the global supply-chain disruption and shortages.

Services gross margin decreased in 2021 due to continued investments in our customer success organization.

This was partially offset by better service revenue mix as we shifted away from low gross margin deployment services to higher gross margin services aligned with our platform offerings.

Gross margin decreased to 50.2% during 2022 from 52.5% during 2021.

The decrease in gross margin of 230 basis points was mainly due to higher component and logistics costs from the COVID-19-pandemic-induced, supply-chain disruption, which more than offset the increase in gross margin due to increased software and subscription contributions.

Going forward, we expect that the effects of the global supply-chain disruption will continue to normalize in 2023, and we expect the software and subscription contributions will grow, resulting in potential gross margin expansion.

Operating Expenses

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Sales and marketing $ 174,549 $ 125,909 $ 48,640 39 %

Percent of total revenue 19 % 17 %

Sales and marketing expenses increased by $31.7 million during 2021 compared with 2020 primarily due to increases in personnel expenses of $19.7 million, mainly related to investments in sales headcount and higher sales incentive compensation, marketing expenses of $4.9 million, stock-based compensation of $2.5 million, software costs of $1.8 million, travel expenses of $1.1 million and outside services expenses of $0.9 million.

We expect our investments in sales and marketing will increase in absolute dollars, but be relatively consistent as a percentage of revenue, as we extend our market reach and grow our business in support of our key strategic initiatives.

Percent of revenue 20 % 19 %

Sales and marketing expenses increased by $48.6 million during 2022 compared to 2021 primarily due to increases in personnel expenses of $33.6 million related to investments in sales headcount and higher sales incentive compensation, travel expenses of $5.7 million, stock-based compensation of $5.3 million and marketing expenses of $1.9 million.

We expect our investments in sales and marketing will increase in absolute dollars, but be relatively consistent as a percentage of revenue, as we attempt to capitalize on Calix’s ability to enable new platform capabilities and managed services for our BSP customers.

Research and Development Expenses

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Research and development $ 131,994 $ 101,747 $ 30,247 30 %

Percent of total revenue 15 % 16 %

The increase in research and development expenses of $16.5 million during 2021 compared with 2020 was mainly due to increases in outside services expenses of $7.7 million, personnel expenses of $6.7 million, stock-based compensation of $2.0 million and depreciation and amortization of $1.2 million.

These increases were partially offset by lower facilities expenses of $1.2 million.

We expect our investments in research and development to increase in absolute dollars, but remain relatively consistent as a percentage of systems gross profit, as we expand the functionality and capabilities of our platforms.

Percent of revenue 15 % 15 %

Percent of gross profit 30 % 29 %

The increase in research and development expenses of $30.2 million during 2022 compared with 2021 was mainly due to increases in personnel expenses of $15.5 million, stock-based compensation of $5.4 million, outside services of $4.5 million and depreciation and amortization of $1.5 million.

We expect our investments in research and development to increase in absolute dollars, but remain relatively consistent as a percentage of gross profit, as we plan to expand the functionality and capabilities of our platform and deliver new managed services.

General and Administrative Expenses

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General and administrative $ 76,275 $ 55,779 $ 20,496 37 %

Percent of total revenue 8 % 8 %

The increase in general and administrative expenses of $11.3 million during 2021 compared with 2020 was mainly due to increases in stock-based compensation of $5.3 million, personnel expenses of $3.1 million, outside services expenses of $1.6 million and unallocated-facilities expenses of $1.4 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 $1.0 million.

We expect our general and administrative investments to increase in absolute dollars but decline slightly as a percentage of revenue over time as revenue continues to grow.

Restructuring Charges (Benefit)

Responding to changes 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.

Percent of revenue 9 % 8 %

The increase in general and administrative expenses of $20.5 million in 2022 compared to 2021 was mainly due to increases in personnel expenses of $8.7 million, stock-based compensation of $8.7 million and outside services of $2.5 million.

We made continued investments in our information technology infrastructure in 2022.

We expect our general and administrative investments to increase in absolute dollars but decline slightly as a percentage of revenue over time as we expect revenue to grow.

Restructuring Benefit

We initiated a restructuring plan in June 2020 to accelerate our platform future and to align with a work-from-anywhere culture.

We incurred restructuring charges of $6.3 million in 2020, consisting of facilities-related charges and severance and other termination related benefits.

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See Note 4 “Balance Sheet Details” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Interest and Other Expense, Net

Interest and Other Income (Expense), Net

The following table sets forth our interest and other expense, net (dollars in thousands):

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2022 2021 $ %

Interest and other expense, net $ (1,284) $ (2,562) $ 1,278 (50) %

Interest and other expense, net increased by $1.3 million in 2021 compared with 2020 mainly due to lower interest expenses and lower foreign currency losses.

Interest and other income (expense), net $ 1,432 $ (1,284) $ 2,716 212 %

Interest and other income (expense), net increased by $2.7 million in 2022 compared with 2021 mainly due to income from marketable securities.

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

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Effective tax rate 24 % (228) %

During 2022, our current tax expense was $11.1 million, and our deferred tax expense was $1.9 million.

Our effective tax rate was higher than the federal statutory rate of 21% due to state taxes, Base Erosion and Anti-Abuse Tax and the impact of stock-based compensation, partially offset by research and development tax credits and stock option windfall deductions.

During 2021, we recognized an income tax benefit of $162.0 million offset by current income taxes, based on our reassessment of the amount of our U.S.

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profitability in the current and future periods.

In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the ability to utilize our deferred tax assets.

We continue to maintain a valuation allowance of $29.9 million on certain U.S.

federal and California state deferred tax assets that we believe are not more likely than not to be realized in future periods.

As of December 31, 2020, the total expense was primarily related to foreign activity.

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

Our 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 such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our 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 we conduct business.

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Liquidity and Capital Resources

We have funded our operations and investing activities primarily through cash flow generated from operations, sales of our common stock, including an underwritten public offering in August 2020, and various borrowing arrangements.

Historically, we have funded our operations and investing activities primarily through cash flow generated from operations, sales of our common stock and various borrowing arrangements.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $241.7 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

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This includes $2.7 million of cash primarily held by our foreign subsidiaries.

As of December 31, 2021, our liability for taxes that would be payable as a result of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significant and limited to withholding taxes considering our existing net operating loss carryovers.

As of December 31, 2022, our liability for taxes that would be payable because of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significant and limited to withholding taxes considering our existing net operating loss carryovers.

The following table presents the cash inflows and outflows by activity during 2022 and 2021 (in thousands):

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Our operating activities provided cash of $27.2 million in 2022 and $56.8 million in 2021.

The increase in net cash provided by operating activities during 2021 as compared to 2020 was due primarily to a favorable change in our net operating results of $44.1 million after adjustment of non-cash charges partially offset by a $38.7 million net cash outflow resulting from changes in operating assets and liabilities.

We had a non-cash benefit from deferred income taxes of $168.4 million offset by non-cash charges of stock-based compensation of $24.2 million and depreciation and amortization of $15.0 million.

In 2021, cash outflows from changes in operating assets and liabilities primarily consisted of increases in inventory of $36.6 million to support revenue growth and to mitigate supply chain shortages and disruptions;

in prepaid expenses and other assets of $27.1 million mainly due to advance payments to our supply chain partners and capitalized sales commissions;

The decrease in net cash provided by operating activities during 2022 as compared to 2021 was due primarily to unfavorable charges of $8.3 million in our net operating results after adjustment of non-cash charges and $21.4 million in our net cash outflow resulting from changes in operating assets and liabilities.

Non-cash charges consisted of stock-based compensation of $44.8 million, depreciation and amortization of $14.3 million and deferred income taxes of $1.9 million partially offset by net accretion of available-for-sale securities of $1.1 million.

In 2022, cash outflows from changes in operating assets and liabilities primarily consisted of increases in inventory of $60.3 million to improve our responsiveness to our BSPs’ subscriber demand;

in prepaid expenses and other assets of $38.4 million mainly due to an inventory deposit to a CM partner;

and in accounts receivable of $8.6 million due to increased revenue.

These changes were partially offset by increases in accounts payable of $12.1 million due to increased inventory purchases;

in deferred revenue of $10.4 million due to Calix Cloud subscriptions, support contracts and extended warranties;

and in total accrued liabilities of $0.7 million, mainly related to component inventory held at suppliers and accrued freight.

in accrued liabilities of $12.2 million, mainly related to accrued compensation and accruals for our Calix ConneXions 2022 Customer Success and Innovation conference;

and in deferred revenue of $9.1 million due to our platform subscriptions.

Investing Activities

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Working Capital and Capital Expenditure Needs

We generated positive operating cash flow for three consecutive years and ended fiscal 2021 with $204.3 million in cash, cash equivalents and marketable securities.

In January 2022, we terminated our loan and security agreement with Bank of America, N.A.

The BofA Loan Agreement provided for a revolving facility up to a principal amount of up to $35.0 million and would have expired in January 2023.

As of December 31, 2021 and 2020, we had no outstanding borrowings.

In the third quarter of fiscal 2020, we completed an underwritten public offering of 3,220,000 shares of our common stock at $20.00 per share, including a full exercise by the Underwriters of their option to purchase an additional 420,000 shares of Common Stock, for net proceeds of $60.1 million after deducting the underwriting discount and expenses paid by us.

We used the net proceeds to repay the line of credit and increase our capital available to invest in our future growth, especially during uncertain times.

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.

In the event that our revenue plan does not meet our expectations, we may be required to curtail or eliminate expenditures to mitigate the impact on our working capital.

Furthermore, in July 2022, our Board of Directors authorized a one-year stock repurchase program for up to $100 million of our common stock.

During the year ended December 31, 2022, no repurchases were made under the program.

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 borrowing, to support our working capital needs.

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 may be adversely affected, and we may need to cease our repurchase program or seek other sources of liquidity, including the sale of additional equity or borrowing, 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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Payments Due by Period

Total Less Than 1 Year 1-3 Years 3-5 Years

Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years

Non-cancelable purchase commitments (1)

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

What changed 10-K

Item 7. Management’s Discussion and Analysis