What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-22 · 161 added, 220 removed, 658 unchanged (37% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets, As of December 31, 202 2 and 202 1

Consolidated Statements of Comprehensive Income ( Loss ) , Years Ended December 31, 20 2 1 , 20 20 and 20 1 9

Consolidated Statements of Comprehensive Income , Years Ended December 31, 202 2 , 202 1 and 20 20

Consolidated Statements of Stockholders’ Equity, Years Ended December 31, 202 2 , 202 1 and 20 20

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We have audited the accompanying consolidated balance sheets of Calix, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the recognition and realizability of deferred tax assets

As discussed in Note 10 to the consolidated financial statements, the Company assesses the estimated future realizability of the gross carrying value of its deferred tax assets at each reporting period.

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.

In addition, the Company recognizes the financial statement effects of uncertain tax positions when it is more likely than not that such positions will be sustained upon audit.

During 2021, the Company recognized an income tax benefit of $165.7 million 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.

The Company’s deferred tax assets include U.S.

federal net operating loss and research and development carryforwards (hereinafter, collectively referred to as “carryforward assets”) of $388.2 million and $37.1 million as of December 31, 2021, respectively.

The Company had unrecognized tax benefits of $26.0 million as of December 31, 2021, primarily related to the carryforward assets.

We identified the evaluation of the realizability of the carryforward assets, and the related unrecognized tax positions associated with these carryforward assets, as a critical audit matter.

Subjective and challenging auditor judgment was required to:

(i) evaluate the realizability of the carryforward assets based on the projected future taxable income over the periods in which those carryforward assets will be utilized, and (ii) assess the application of tax laws to utilize the carryforward assets, which have begun to expire.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s evaluation of the realizability of the carryforward assets, and the related unrecognized tax positions, including controls related to the application of tax laws and the projections of future taxable income.

We evaluated positive and negative evidence used in assessing whether the carryforward assets were more likely than not to be realized in the future, including evaluating the nature, frequency, and severity of current and cumulative taxable income or losses, as well as future projections of taxable income.

We evaluated the reasonableness of management’s projections of future taxable income considering (i) recent financial profitability trends of the Company, (ii) consistency with industry data and economic trends, (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit, and (iv) the Company’s ability to project future earnings based on comparisons of the Company’s previous annual projections to actual results.

We performed a sensitivity analysis over the amount and timing of future taxable income to assess the impact on utilization of the carryforward assets.

We read historical financial information to evaluate the more likely than not tax position associated with the U.S.

federal net operating loss carryforwards.

We involved income tax professionals with specialized skills and knowledge, who assisted in assessing the Company’s application of tax laws to utilize the carryforward assets, which have begun to expire, and evaluating the recognition and realizability of the carryforward assets.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of net realizable value of inventory and excess and obsolete inventory liabilities

As discussed in Notes 1, 4 and 6 to the consolidated financial statements, the Company has finished goods inventories with a carrying value of $88.9 million and excess and obsolete inventory liabilities of $7.6 million as of December 31, 2021.

As discussed in Notes 1, 4 and 5 to the consolidated financial statements, the Company has inventories with a carrying value of $149.2 million and excess and obsolete inventory liabilities of $10.3 million as of December 31, 2022.

The Company adjusts the inventory carrying value for excess or obsolete inventory based on assumptions about future demand for products, potential obsolescence of technology, product life cycle, and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds the estimated selling price.

These factors are impacted by market and economic conditions, technology changes and new product introductions and require significant estimates that may include elements that are uncertain.

The Company also records a liability and a charge to cost of systems revenue for estimated losses on inventory the Company is obligated to purchase from its manufacturers when the inventory has been rendered excess and obsolete 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 Company also records a liability and a charge to cost of revenue for estimated losses on inventory the Company is obligated to purchase from its manufacturers when the inventory has been rendered excess and obsolete 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.

We identified the evaluation of net realizable value of inventory and excess and obsolete inventory liabilities as a critical audit matter.

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We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s inventory process.

This included controls over the forecasted demand and the Company’s determination of the effect of market and economic conditions, technology and design changes, new product introductions, and discontinuation of products.

We evaluated the Company’s forecasted demand for a selection of products by assessing historical sales trends and customer order backlog.

This included controls over the reviews of the estimates of the net realizable value of excess or obsolete inventory and liabilities for losses on inventory the Company is obligated to purchase from its manufacturers.

For a selection of inventory items, we (1) reperformed the analysis provided by the Company to assess the accuracy of the net realizable value of inventory by comparing historical sales activity, customer order backlog, or demand forecasts to the inventory on hand quantities, and (2) performed inquiries of Company’s personnel and inspected documents regarding market and economic conditions, technology and design changes, and new product introductions.

We evaluated the reasonableness of management’s assumptions used to estimate the excess and obsolete inventory liabilities considering (1) inquiries of Company’s personnel regarding market and economic conditions, technology and design changes, or supplier discontinuations, (2) historical reimbursements to suppliers for excess and obsolete component inventory, (3) the excess and obsolete liabilities and purchase commitment trends, and (4) the sensitivity of the assumptions to the impact of the excess and obsolete liabilities.

We evaluated the reasonableness of management’s assumptions used to estimate the excess and obsolete inventory liabilities considering (1) inquiries of Company’s personnel and inspection of documents regarding market and economic conditions, technology and design changes, or supplier discontinuations, (2) historical reimbursements to suppliers for excess and obsolete component inventory, and (3) the excess and obsolete liabilities and purchase commitment trends.

We have served as the Company’s auditor since 2015.

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See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)

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2022 2021 2020

Systems $ 642,577 $ 508,552 $ 393,231

Services 36,817 32,687 31,099

Total revenue 679,394 541,239 424,330

Revenue $ 867,827 $ 679,394 $ 541,239

Cost of revenue 432,399 322,807 274,220

Systems 297,103 251,638 211,309

Services 25,704 22,582 25,096

Total cost of revenue 322,807 274,220 236,405

Gross profit 435,428 356,587 267,019

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Restructuring charges (benefit) — ( 786 ) 6,286

Loss on asset retirement — — 2,474

Total operating expenses 382,818 282,649 230,173

Operating income (loss) 73,938 36,846 ( 15,401 )

Interest and other expense, net:

Interest expense, net ( 402 ) ( 1,585 ) ( 958 )

Operating income 52,610 73,938 36,846

Interest and other income (expense), net:

Interest income (expense), net 2,009 ( 402 ) ( 1,585 )

Other expense, net ( 577 ) ( 882 ) ( 977 )

Total interest and other expense, net ( 1,284 ) ( 2,562 ) ( 1,131 )

Income (loss) before income taxes 72,654 34,284 ( 16,532 )

Total interest and other income (expense), net 1,432 ( 1,284 ) ( 2,562 )

Income before income taxes 54,042 72,654 34,284

Income taxes 13,032 ( 165,724 ) 800

Net income (loss) $ 238,378 $ 33,484 $ ( 17,694 )

Net income (loss) per common share:

Net income $ 41,010 $ 238,378 $ 33,484

Net income per common share:

Basic $ 0.63 $ 3.77 $ 0.57

Diluted $ 0.60 $ 3.51 $ 0.54

Weighted-average number of shares used to compute net income (loss) per common share:

Weighted-average number of shares used to compute net income per common share:

Basic 65,058 63,277 59,074

Diluted 68,911 67,856 61,998

Net income (loss) $ 238,378 $ 33,484 $ ( 17,694 )

Net income $ 41,010 $ 238,378 $ 33,484

Other comprehensive income (loss), net of tax:

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Total other comprehensive income (loss), net of tax ( 2,153 ) ( 129 ) 663

Comprehensive income (loss) $ 238,249 $ 34,147 $ ( 17,795 )

Comprehensive income $ 38,857 $ 238,249 $ 34,147

See accompanying notes to consolidated financial statements.

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Issuance of common stock under equity incentive plans, net of forfeitures 2,454 60 18,067 — — — 18,127

Net loss — — — — ( 17,694 ) — ( 17,694 )

Other comprehensive loss — — — ( 101 ) — — ( 101 )

Balance as of December 31, 2019 56,448 1,545 895,899 ( 854 ) ( 702,576 ) ( 39,986 ) 154,028

Stock-based compensation — — 13,960 — — — 13,960

Issuance of common stock under equity incentive plans, net of forfeitures 2,454 60 18,067 — — — 18,127

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

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Balance as of December 31, 2021 64,274 1,607 997,855 ( 320 ) ( 430,714 ) — 568,428

Stock-based compensation — — 44,826 — — — 44,826

Issuance of common stock under equity incentive plans, net of forfeitures 1,461 37 27,419 — — — 27,456

Net income — — — — 41,010 — 41,010

Other comprehensive loss — — — ( 2,153 ) — — ( 2,153 )

Balance as of December 31, 2022 65,735 1,644 1,070,100 ( 2,473 ) ( 389,704 ) — 679,567

See accompanying notes to consolidated financial statements.

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Operating activities:

Net income (loss) $ 238,378 $ 33,484 $ ( 17,694 )

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

Net income $ 41,010 $ 238,378 $ 33,484

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

Stock-based compensation 44,826 24,230 13,960

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Deferred income taxes 1,932 ( 168,426 ) —

Net accretion of available-for-sale securities ( 1,146 ) — —

Asset retirements and write-downs — — 3,914

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(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.

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

The Company’s 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.

The Company is the leading global provider of a platform (cloud, software and systems) and managed 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.

This platform and managed services enable broadband service providers (“BSPs”) of all sizes to innovate and transform their businesses.

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

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

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GAAP as found in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

Risks and Uncertainties

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

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

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

In July 2021, the Company reopened its U.S.

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

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.

Although demand for the Company’s products has been strong in the short-term as subscribers seek more bandwidth and better Wi-Fi, customers’ purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact the Company’s revenue and results of operations.

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

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

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

Use of Estimates

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Revenue Recognition

The Company derives revenue from contracts with customers primarily from the following and categorizes its 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 customer support, software- and cloud-based maintenance, extended warranty subscriptions, professional services, 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 the Company expects to be entitled to in exchange for those goods or services.

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The Company’s 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, the Company has 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.

The Company’s contracts may include multiple performance obligations.

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Stock-Based Compensation

Stock-based compensation expense associated with stock options, performance stock options (“PSOs”), restricted stock units (“RSUs”) and purchase rights under the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”) is measured at the grant date based on the fair value of the award, and is recognized, net of forfeitures, as expense over the remaining requisite service period (generally the vesting period) on a straight-line basis.

Stock-based compensation expense associated with stock options and purchase rights under the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”) is measured at the grant date based on the fair value of the award and is recognized, net of forfeitures, as expense over the remaining requisite service period (generally the vesting period) on a straight-line basis.

The fair value of stock option and employee stock purchase right under the ESPP is estimated at the grant date using the Black-Scholes option valuation model.

The fair value of RSUs and employee stock purchase right under the NQ ESPP is based on closing market price of the Company’s common stock on the date of grant.

Stock-based compensation expense associated with PSOs with graded vesting features and which contain both a performance and a service condition is measured based on fair value of stock options estimated at the grant date using the Black-Scholes option valuation model, and is recognized, net of forfeitures, as expense over the requisite service period using the graded vesting attribution method.

The fair value of the employee stock purchase right under the NQ ESPP is based on closing market price of the Company’s common stock on the date of grant.

Stock-based compensation expense associated with performance stock options (“PSOs”) with graded vesting features and which contain both a performance and a service condition is measured based on fair value of stock options estimated at the grant date using the Black-Scholes option valuation model, and is recognized, net of forfeitures, as expense over the requisite service period using the graded vesting attribution method.

Compensation expense is only recognized if the Company has determined that it is probable that the performance condition will be met.

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The Company has not experienced any losses in such accounts.

The Company also has approximately $ 3.6 million of cash held by its foreign subsidiaries in Brazil, China and the United Kingdom.

The Company also has approximately $ 2.7 million of cash held by its foreign subsidiaries in India, China and the United Kingdom.

Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to these cash and cash equivalents.

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

treasury bonds, corporate debt instruments, commercial paper and U.S.

treasury securities, corporate debt instruments, commercial paper and U.S.

government securities.

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Marketable securities represent highly liquid U.S.

treasury bonds, corporate debt instruments, commercial paper and U.S.

treasury securities, corporate debt instruments, commercial paper and U.S.

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

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Such investments are recorded at fair value and unrealized holding gains and losses are reported as a separate component of 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 loss was de minimis for 2021.

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 gains and losses were not significant for the years ended December 31, 2022 and 2021, respectively.

For the Company’s available-for-sale debt securities in an unrealized loss position, the Company determines whether a credit loss exists.

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tariffs are included in cost of inventory.

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

addition, from time to time, the Company procures component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers.

The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based on the Company’s estimate of demand for its products, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds its estimated selling price.

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The Company records goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired.

Goodwill is not amortized but instead is subject

to an annual impairment test or more frequently if events or changes in circumstances indicate that it may be impaired.

Goodwill is not amortized but instead is subject to an annual impairment test or more frequently if events or changes in circumstances indicate that it may be impaired.

The Company evaluates goodwill on an annual basis as of the end of the second quarter of each fiscal year.

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At the end of the second quarter of 2022, the Company completed its annual goodwill impairment test.

Based on its assessment of certain qualitative factors such as market capitalization, management concluded that the fair value of the Company was more likely than not greater than its carrying amount as of June 27, 2021.

As such, it was not necessary to perform the two-step quantitative goodwill impairment test at the time.

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The Company evaluates its tax positions and estimates its current tax exposure along with assessing temporary differences that result from different book to tax treatment of items not currently deductible for tax purposes.

These differences result in deferred tax assets and liabilities on the Company’s 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 the Company’s Consolidated Statements of Comprehensive Income (Loss) become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

These differences result in deferred tax assets and liabilities on the Company’s 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 the Company’s Consolidated Statements of Comprehensive Income become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

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

The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not more likely than not, it must establish a valuation allowance.

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

Prior to the third quarter of 2021, the Company maintained a 100% 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, the Company had reported positive operating performance for five consecutive quarters and continued to maintain a cumulative three-year pre-tax profit.

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

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

federal and certain other state deferred tax assets were realizable.

The Company must assess the likelihood that deferred tax assets will be recovered from future taxable income, and if the Company determines that recovery is not more likely than not, the Company must establish a valuation allowance.

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

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

federal and certain state deferred tax assets of $ 162.0 million.

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

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

The Company currently maintains a valuation allowance of $ 29.9 million for certain U.S.

federal and California state deferred tax assets.

federal and California deferred tax assets.

Newly Adopted Accounting Standards

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Commercial paper 33,199 21,582

government securities 5,990 —

Money market funds 555 2,320

Corporate debt securities 140 989

government securities — 39,994

Total cash and cash equivalents 79,073 51,333

Marketable securities:

Commercial paper 80,812 —

government securities 106,750 60,279

Commercial paper 28,992 80,812

government agency securities 23,632 5,527

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

The above amounts in 2021 are net of $ 0.2 million in unrealized losses.

Unrealized losses in 2020 were de minimis.

As of December 31, 2022, all marketable securities were due in two years or less.

The amortized cost and fair value of marketable securities as of December 31, 2022 were as follows (in thousands):

Amortized Cost Gross Unrealized Losses Fair Value

government securities $ 114,119 $ ( 1,379 ) $ 112,740

Commercial paper 62,262 ( 71 ) 62,191

government agency securities 23,876 ( 244 ) 23,632

Corporate debt securities 3,312 ( 4 ) 3,308

Municipal securities 101 ( 1 ) 100

Total marketable securities $ 203,670 $ ( 1,699 ) $ 201,971

Unrealized gains and losses were not significant as of December 31, 2021.

Fair Value Measurements

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$ 113,295 $ 89,231 $ 202,526

As of December 31, 2020 Level 1

As of December 31, 2021 Level 1 Level 2 Total

Money market funds $ 2,320 $ — $ 2,320

government securities 60,279 — 60,279

Commercial paper — 102,394 102,394

government agency securities — 5,527 5,527

Corporate debt securities — 4,565 4,565

Municipal securities — 2,808 2,808

$ 62,599 $ 115,294 $ 177,893

Balance Sheet Details

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$ 149,160 $ 88,880

Prepaid expenses and other current assets consisted of the following (in thousands):

Supplier deposits $ 39,064 $ 6,191

Prepaid expenses and other current assets 23,627 24,620

$ 62,691 $ 30,811

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

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Software 10,389 9,013

Furniture and fixtures 1,812 2,069

Leasehold improvements 1,730 1,351

Furniture and fixtures 1,153 1,812

70,774 62,808

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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 December 31, 2022, the liability, including accrued interest, was $ 11.4 million, of which $ 7.2 million is included in “Accrued liabilities” and $ 4.2 million in “Other long-term liabilities” in the accompanying 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.

Capitalized Cloud Implementation Costs

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

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

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

The amortization expense for the years ended December 31, 2021 and 2020 was $ 3.1 million.

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):

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Component inventory held by suppliers 10,280 7,611

Current portion of warranty and retrofit 7,076 9,208

Professional and consulting fees 7,307 4,819

Customer advances or rebates 4,742 8,374

Current portion of revenue-share payments 7,210 4,731

Current portion of warranty and retrofit 6,377 7,076

Customer advances or rebates 5,653 4,742

Taxes payable 4,581 4,251

Freight 3,997 1,955

Operating leases 3,949 3,596

Freight 3,649 3,997

Business events 3,167 —

Product returns 2,961 1,836

Operations 1,400 950

Other 7,527 5,773

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Accrued Restructuring Charges

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

The Company initiated a restructuring plan in 2020 to accelerate the Company’s platform future and to align with a work-from-anywhere culture.

The Company incurred restructuring charges of approximately $ 6.3 million, consisting of facilities-related charges and severance and other termination related benefits for the year ended December 31, 2020.

In the fourth quarter of 2021, as a result of subleasing the abandoned portion of the Company’s San Jose headquarters, the Company reversed $ 0.8 million in facilities-related charges due to the expected recovery of accrued common areas maintenance fees.

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

Facilities Severance and Related Benefits Total

Restructuring charges $ 5,112 $ 1,174 $ 6,286

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

Cash payments ( 120 ) ( 1,042 ) ( 1,162 )

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

Restructuring benefit ( 786 ) — ( 786 )

Cash payments ( 277 ) ( 132 ) ( 409 )

Balance as of December 31, 2021 $ 181 $ — $ 181

Credit Agreements

Line of Credit

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

(“BofA Loan Agreement”).

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

As of December 31, 2021, the Company had no outstanding borrowings.

Financing Arrangements

During 2018, the Company entered into financing arrangements to purchase lab and test equipment for approximately $ 5.1 million, which were non-cash investing activities.

In the fourth quarter of 2020, the Company paid $ 1.4 million to settle the remainder of the balance.

The weighted average interest rate was 6.2 %.

The Company entered into financing arrangements for consulting services of $ 2.0 million in 2019 and $ 1.8 million in 2018 in connection with the Company’s ERP implementation, which were non-cash investing activities.

In the fourth quarter of 2020, the Company paid $ 1.4 million to settle the remainder of the balance.

The weighted average interest rate was 6.3 %.

As of December 31, 2022, the Company had no accrued restructuring charges in the accompanying Consolidated Balance Sheet.

Commitments and Contingencies

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Year Ending December 31, Future Minimum Lease Payments

2026 and thereafter 531

Total future minimum lease payments 13,573

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The future minimum lease payments under the lease are $ 7.3 million and are included in the table for the year ended December 31, 2022 above.

In October 2021, the Company entered into a lease for a facility in Bangalore, India.

The lease commenced in October 2021 for a term of 60 months.

The future minimum lease payments of $ 2.2 million are included in the table for the year ended December 31, 2021 above.

The Company recorded a right-of-use operating lease asset and operating lease liability of $ 2.0 million in the fourth quarter of 2021.

The above tables also include future minimum lease payments for the Company's office facilities in Petaluma, California;

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Richardson, Texas;

Bangalore, India;

Nanjing, China;

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In November 2021, the Company entered into a sublease for a portion of the San Jose headquarters office space that was previously abandoned.

The sublease commences in August 2022 for a term of 39 months.

The sublease commenced in August 2022 for a term of 39 months.

The Company received $ 0.3 million in sublease income in 2022.

Future minimum payments consisted of the following as of December 31, 2022 (in thousands):

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For the years ended December 31, 2022, 2021 and 2020, total rent expense of the Company was $ 4.6 million, $ 4.1 million and $ 4.0 million, respectively.

Cash paid within operating cash flows for operating leases was $ 3.9 million for year ended December 31, 2021.

Cash paid within operating cash flows for operating leases was $ 4.5 million, $ 3.9 million and $ 3.8 million for years ended December 31, 2022, 2021 and 2020, respectively.

Purchase Commitments

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

The Company incurs a liability when the CMs and ODMs convert the

component inventory to a finished product and takes ownership of the finished goods inventory.

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

As of December 31, 2021 and 2020, the Company had approximately $ 247.3 million and $ 123.7 million, respectively, of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one to two years.

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

In the event of termination of services with a manufacturing partner, the Company has purchased, and may be required to purchase in the future, certain of the

remaining components inventory held by the CM or ODM as well as any outstanding orders pursuant to the contractual provisions with such CM or ODM.

As of December 31, 2022 and 2021, the Company had approximately $ 340.6 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 Consolidated Balance Sheets, were $ 10.3 million and $ 7.6 million as of December 31, 2022 and 2021, respectively.

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

The Company records the related charges in cost of systems revenue in its 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.

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No dividends have been declared or paid as of December 31, 2022.

In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

In August 2020, the Company completed an underwritten public offering of 3,220,000 shares of its 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, resulting in net proceeds of $ 60.1 million, after deducting the underwriting discount and expenses paid by the Company.

Treasury Stock Retirement

In August 2020, the Company’s Board of Directors authorized the retirement of the 5,329,817 shares of common stock held as treasury stock.

Under Delaware law these shares return to the authorized but unissued common stock pool.

As a result, the Company eliminated the $ 40.0 million treasury stock balance, offsetting this against common stock by $ 0.1 million and additional paid-in capital by $ 39.9 million.

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

Equity Incentive Plans

2019 Equity Incentive Award Plan

Stock Options

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

The 2019 Plan supersedes and replaces the 2010 Equity Incentive Award Plan (the “2010 Plan”) and preceding plans.

No further awards will be granted under the 2010 Plan following the effectiveness of the 2019 Plan;

however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards granted under the 2010 Plan.

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

The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs or other stock or cash-based awards and dividend equivalents to eligible individuals.

The number of shares available for issuance under the 2019 Plan included an initial reserve of 1.7 million shares of common stock, any shares of common stock that are available for issuance under the 2010 Plan as of the effective date of the 2019 Plan and any shares of common stock subject to issued and outstanding awards under the 2010 Plan that expire, are cancelled or otherwise terminate following the effective date of the 2019 Plan.

The terms and conditions of the 2010 Plan will continue to govern any outstanding awards granted under the 2010 Plan.

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

The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units or other stock or cash-based awards and dividend equivalents to eligible individuals.

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.

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The options have a maximum term of ten years .

In February 2020, PSOs exercisable for up to an aggregate of 0.8 million shares of common stock were granted to certain Company executives with a grant date fair value of $ 9.16 per share.

The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net income for 2020 (collectively, the “2020 Performance Targets”) during the one-year performance period.

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

From this base, shares are awarded on a 50 % weighting for both non-GAAP net income and bookings up to 100 % for each 2020 Performance Target using a sliding scale.

In February 2021, the Compensation Committee of the Company’s Board of Directors certified the full achievement of the 2020 Performance Targets subject to the four-year services condition.

As such, 25 % of the shares of the PSOs were vested on that date, and the remaining 75 % of the shares of common stock will vest substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

Stock-based compensation expense of $ 0.8 million and $ 1.6 million was recognized for the years ended December 31, 2021 and 2020, respectively, related to these awards.

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

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In February 2022, the Compensation Committee of the Company’s Board of Directors certified the results against the 2021 Performance Targets and awarded 97 % of PSOs subject to the four-year services condition.

As such, 25 % of the awarded shares of the PSOs were vested on that date, and the remaining 75 % of the shares of common stock will vest substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

As such, 25 % of the awarded shares of the PSOs were vested on that date, and the remaining 75 % of the shares of common stock will vest in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

Stock-based compensation expense of $ 3.6 million and $ 6.3 million was recognized for the years ended December 31, 2022 and 2021, respectively, related to these awards.

Also, in February 2022, the Compensation Committee granted PSOs exercisable for up to an aggregate of 0.7 million shares of common stock to certain Company executives with a grant date exercise price of $ 55.96 per share, using the same plan design as 2021 but with 2022 annual corporate financial targets for bookings and non-GAAP net operating income (collectively, the “2022 Performance Targets”).

In February 2023, the Compensation Committee of the Company’s Board of Directors certified the results against the 2022 Performance Targets and awarded 100 % of PSOs subject to the four-year service condition.

Stock-based compensation expense of $ 10.1 million was recognized for the year ended December 31, 2022 related to these awards.

Stock Options

The following table summarizes the activity of stock options under the Company’s equity incentive plans (in thousands, except per share data):

The following table summarizes the stock option activity under the Company’s equity incentive plans (in thousands, except per share data):

Weighted- Remaining

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During the years ended December 31, 2022, 2021 and 2020, total intrinsic value of stock options exercised was $ 31.0 million, $ 59.6 million and $ 6.7 million, respectively.

Total cash received from employees as a result of stock option exercises in 2021, 2020 and 2019 was $ 11.2 million, $ 0.9 million and $ 0.4 million, respectively.

Cash received from employee stock option exercises in 2022, 2021 and 2020 was $ 6.7 million, $ 11.2 million and $ 0.9 million, respectively.

Employee Stock Purchase Plans

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

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

In addition, participants may purchase up to 2,000 shares of common stock in each offering period.

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

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Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date.

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

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

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.

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$ 44,826 $ 24,230 $ 13,960

Income tax benefits recognized $ 11,501 $ 16,929 $ —

The following table summarizes the weighted-average grant date fair values of the Company’s stock-based awards granted in the periods indicated:

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Stock options $ 31.86 $ 26.55 $ 8.55

RSUs $ — $ 11.22 $ 6.62

ESPP $ 18.51 $ 12.93 $ 5.52

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The mid-point between the vesting date and the expiration date is used as the expected term under this method.

(iii) Expected dividend yield – Assumption is based on the Company’s history of not paying dividends and no future expectations of dividend payouts.

(iii) Expected dividend yield – The assumption is zero based on the Company’s history of not paying dividends and no future expectations of dividend payouts.

(iv) Risk-free interest rate – Based on the U.S.

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Expected life (years) 6.1 6.0 6.1

Expected dividend yield — — —

Risk-free interest rate 3.15 % 1.11 % 0.48 %

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Expected life (years) 0.5 0.5 0.4

Expected dividend yield — — —

Risk-free interest rate 2.16 % 0.05 % 0.12 %

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Balance as of December 31, 2020 $ — $ ( 191 ) $ ( 191 )

Other comprehensive income — 663 663

Balance as of December 31, 2020 — ( 191 ) ( 191 )

Other comprehensive income (loss) ( 179 ) 50 ( 129 )

Balance as of December 31, 2021 ( 179 ) ( 141 ) ( 320 )

Other comprehensive loss ( 1,521 ) ( 632 ) ( 2,153 )

Balance as of December 31, 2022 $ ( 1,700 ) $ ( 773 ) $ ( 2,473 )

Assets and liabilities of the Company’s wholly owned foreign subsidiaries are translated from their respective functional currencies at exchange rates in effect at the balance sheet date, and revenue and expenses are translated at the monthly average exchanges rates.

These translations result in differences called foreign currency translation adjustments.

Realized foreign currency transaction gains or losses were not significant during the years ended December 31, 2021, 2020 and 2019 and are recorded in “Other income (expense), net” in the Company's Consolidated Statements of Comprehensive Income (Loss).

The domestic and foreign components of income (loss) before incomes taxes were as follows (in thousands):

Realized foreign currency transaction gains or losses were not significant during the years ended December 31, 2022, 2021 and 2020 and are recorded in “Other income (expense), net” in the Company's Consolidated Statements of Comprehensive Income.

Realized gains and losses on sales of available-for-sale marketable securities, if any, are reclassified from accumulated other comprehensive loss to “Other income (expense), net” in our Consolidated Statements of Comprehensive Income.

The domestic and foreign components of income before incomes taxes were as follows (in thousands):

Years Ended December 31,

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$ 54,042 $ 72,654 $ 34,284

I ncome taxes consisted of the following (in thousands):

Income taxes consisted of the following (in thousands):

Years Ended December 31,

2022 2021 2020

Federal $ 3,671 $ — $ —

State 6,555 2,818 285

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$ 13,032 $ ( 165,724 ) $ 800

The differences between the statutory and effective tax rates, expressed as a percentage of net income (loss) before income taxes, were as follows:

The differences between the statutory and effective tax rates, expressed as a percentage of net income before income taxes, were as follows:

Years Ended December 31,

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Valuation allowance ( 4.0 ) ( 208.3 ) ( 48.1 )

Net operating loss expiration ( 13.1 ) 37.4 —

Net operating loss expiration / attribute expiration 5.5 ( 13.1 ) 37.4

Base erosion anti-abuse tax 6.8 — —

24.1 % ( 228.1 ) % 2.3 %

The significant components of the Company’s deferred tax assets were as follows (in thousands):

Deferred tax assets (liabilities):

Deferred tax assets:

Net operating loss carryforwards $ 44,189 $ 82,672

Tax credit carryforwards 56,717 52,538

Depreciation and amortization ( 1,511 ) 681

Accruals and reserves 11,679 10,302

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Stock-based compensation 7,417 4,921

Intangible assets 37,692 ( 568 )

Other 233 ( 18 )

Capitalized R&D 67,932 38,842

Gross deferred tax assets 201,090 200,626

Valuation allowance ( 29,914 ) ( 29,236 )

Total deferred tax assets 171,176 171,390

Deferred tax liabilities:

Fixed assets ( 2,648 ) ( 1,511 )

Intangible assets ( 1,497 ) ( 917 )

Total deferred tax liabilities ( 4,145 ) ( 2,428 )

$ 167,031 $ 168,962

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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 2021, the Company recognized an income tax benefit of $ 165.7 million, 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.

During 2021, the Company released its valuation allowance for federal and state (with the exception of California) 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 valuation allowance increased by $ 0.7 million from 2021 to 2022.

The Company continues to maintain a valuation allowance of $ 29.9 million on certain U.S.

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federal and state net operating losses of approximately $ 205.2 million and $ 24.0 million, respectively.

federal net operating loss carryforwards have begun to expire and will continue to expire at various dates through 2039 if not utilized.

The state net operating loss carryforwards have begun to expire and will continue to expire at various dates through 2039 if not utilized.

federal net operating loss carryforwards will expire at various dates through 2039 if not utilized.

The state net operating loss carryforwards will expire at various dates through 2039 if not utilized.

Additionally, the Company has U.S.

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states research and development credits of approximately $ 40.7 million, $ 47.0 million and $ 2.7 million as of December 31, 2022, respectively.

federal research and development credits have begun to expire in 2021, and the California research and development credits have no expiration date.

federal research and development credits have begun to expire in 2022 and will continue to expire at various dates through 2042.

The California research and development credits have no expiration date.

The credits related to other various U.S.

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The standard requires the Company to recognize the financial statement effects of an uncertain tax position when it is more likely than not that such position will be sustained upon audit.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively, in its Consolidated Statements of Comprehensive Income (Loss).

The following table reconciles the Company’s unrecognized tax benefits (in thousands):

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There were no accrued interest or penalties for uncertain income tax as of December 31, 2022.

The Company files tax returns in the United States and various state jurisdictions, the United Kingdom, China and Brazil.

The Company files tax returns in the United States and various state jurisdictions, China, India and the United Kingdom.

The tax years 2000 through 2021 remain open and subject to examination by the appropriate governmental agencies due to tax attribute carryforwards.

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):

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):

Years Ended December 31,

2022 2021 2020

Net income (loss) $ 238,378 $ 33,484 $ ( 17,694 )

Net income $ 41,010 $ 238,378 $ 33,484

Weighted-average common shares — basic 65,058 63,277 59,074

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Weighted-average common shares — diluted 68,911 67,856 61,998

Basic net income (loss) per common share $ 3.77 $ 0.57 $ ( 0.32 )

Diluted net income (loss) per common share $ 3.51 $ 0.54 $ ( 0.32 )

Basic net income per common share $ 0.63 $ 3.77 $ 0.57

Diluted net income per common share $ 0.60 $ 3.51 $ 0.54

Potentially dilutive shares excluded, weighted-average 1,758 1,006 753

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however, the impact was immaterial.

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 and RSUs.

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 primarily from stock options.

Revenue from Contracts with Customers

The Company develops, markets and sells communications access systems and software, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the Company unit level.

The Company develops, markets and sells a broadband platform and managed services, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the Company unit level.

Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.

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United States $ 786,802 $ 565,964 $ 473,779

Europe 45,879 22,925 11,464

Americas excluding U.S.

41,892 45,719 27,802

Europe 26,916 45,879 22,925

Middle East & Africa 10,885 19,018 14,075

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Contract Asset

The primary contract asset is revenue recognized on professional services contracts where the services are transferred to the customer over time, which has yet to be billed, and is classified within accounts receivable.

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

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

The decrease in the contract asset was driven by billings for past services as well as the timing and volume of professional services contracts.

The increase in the contract asset was driven by the timing and volume of professional services contracts.

Contract Liability

Deferred revenue consisted of the following (in thousands):

Products and services $ 22,586 $ 14,651

Extended warranty 4,892 4,538

27,478 19,189

Products and services 3,137 1,879

Extended warranty 18,879 18,025

22,016 19,904

$ 49,494 $ 39,093

The increase in the deferred revenue balance for the year ended December 31, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company's performance obligations, offset by $ 19.2 million of revenue recognized that was included in the deferred revenue balance at the beginning of the year.

Deferred revenue was $ 58.6 million and $ 49.5 million as of December 31, 2022 and 2021, respectively.

The increase in deferred revenue of $ 9.1 million is primarily driven by cash payments received or due in advance of satisfying the Company's performance obligations during the year being greater than the $ 26.8 million of revenue recognized that was included in the deferred revenue balance at the beginning of the year.

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.

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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 December 31, 2021, the unamortized balance of deferred commissions was $ 7.4 million.

For the year ended December 31, 2021 the amount of amortization was $ 1.4 million, and there was no impairment loss in relation to the costs capitalized.

As of December 31, 2022 and 2021, the unamortized balance of deferred commissions was $ 11.2 million and $ 7.4 million, respectively.

For the year ended December 31, 2022 the amount of amortization was $ 4.0 million, compared to $ 1.4 million for the year ended December 31, 2021.

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 year ended December 31, 2021.

No customer accounted for more than 10% of the Company’s revenue for the years ended December 31, 2022 and 2021.

Lumen Technologies, Inc.

(formerly CenturyLink, Inc.), the Company’s only greater-than-10%-of-revenue customer, represented 11 % and 15 % of total revenue for the years ended December 31, 2020 and 2019, respectively.

(formerly CenturyLink, Inc.), the Company’s only greater-than-10%-of-revenue customer, represented 11 % of revenue for the year ended December 31, 2020.

One customer represented 11 % of the Company’s accounts receivable as of December 31, 2022.

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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 8. Financial Statements and Supplementary Data