What changed in this filing

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Item 1. Financial Statements

2023-04-24 compared with 2022-10-25 · 122 added, 174 removed, 314 unchanged (49% of the section changed)

31 unchanged sentences

5,000 shares authorized;

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

no shares issued and outstanding as of April 1, 2023 and December 31, 2022

Common stock, $ 0.025 par value;

100,000 shares authorized;

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

66,244 shares issued and outstanding as of April 1, 2023, and 65,735 shares issued and outstanding as of December 31, 2022

Additional paid-in capital 1,097,596 1,070,100

6 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

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

Services 10,489 9,155 31,858 27,044

Total revenue 236,334 172,231 623,324 502,975

Three Months Ended

2023 April 2,

Revenue $ 250,008 $ 184,948

Cost of revenue 121,957 93,156

Systems 110,573 76,339 290,934 218,675

Services 7,189 6,399 21,846 18,946

Total cost of revenue 117,762 82,738 312,780 237,621

Gross profit 128,051 91,792

5 unchanged sentences

Operating income 9,936 9,853

Interest and other income (expense), net:

Interest income (expense), net 595 ( 86 ) 870 ( 330 )

Other income (expense), net ( 134 ) ( 463 ) ( 474 ) ( 120 )

Total interest and other income (expense), net 461 ( 549 ) 396 ( 450 )

Interest income and other expense, net:

Interest income, net 1,640 35

Other expense, net ( 167 ) ( 68 )

Total interest income and other expense, net 1,473 ( 33 )

Income before income taxes 11,409 9,820

9 unchanged sentences

Net income $ 9,598 $ 8,119

Other comprehensive loss, net of tax:

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

Other comprehensive income, net of tax:

Unrealized gain (loss) on available-for-sale marketable securities, net 1,064 ( 1,161 )

Foreign currency translation adjustments, net 102 ( 71 )

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

Total other comprehensive income, net of tax 1,166 ( 1,232 )

Comprehensive income $ 10,764 $ 6,887

4 unchanged sentences

Shares Amount

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

Stock-based compensation

— — 11,027 — — 11,027

Issuance of common stock under equity incentive plans, net of forfeitures 201 5 6,966 — — 6,971

Net income — — — — 13,443 13,443

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

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

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

Shares Amount

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

Stock-based compensation

— — 6,661 — — 6,661

Issuance of common stock under equity incentive plans, net of forfeitures 532 14 5,913 — — 5,927

Net income — — — — 177,424 177,424

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

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

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

Shares Amount

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

2 unchanged sentences

Issuance of common stock under equity incentive plans, net of forfeitures 534 13 12,458 — — 12,471

Repurchases of common stock ( 25 ) ( 1 ) ( 1,182 ) — — ( 1,183 )

Net income — — — — 9,598 9,598

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

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

Other comprehensive income — — — 1,166 — 1,166

Balance as of April 1, 2023 66,244 $ 1,656 $ 1,097,596 $ ( 1,307 ) $ ( 380,106 ) $ 717,839

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

6 unchanged sentences

Other comprehensive loss — — — ( 1,232 ) — ( 1,232 )

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

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

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands, unaudited)

Nine Months Ended

2022 October 2,

Three Months Ended

2023 April 2,

Operating activities:

21 unchanged sentences

Proceeds from common stock issuances related to employee benefit plans 12,471 6,023

Repurchases of common stock ( 1,183 ) —

Payments related to financing arrangements ( 1,066 ) ( 137 )

8 unchanged sentences

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

The Company is the leading global provider of cloud and software platforms, systems and services that focus on the subscriber-facing network, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers.

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

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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Quarterly periods are based on a 4-4-5 calendar with the first quarter ending on the Saturday closest to March 31 st .

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

As a result, the Company had one less day in the three months ended April 1, 2023 than for the three months ended April 2, 2022.

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

Actual results could differ from those estimates.

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.

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.

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

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

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022.

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

The Company’s significant accounting policies did not change during the three months ended April 1, 2023.

Newly Adopted Accounting Standard

The Company did not adopt any new accounting standards during the nine months ended October 1, 2022 that were significant to the Company.

The Company did not adopt any new accounting standards during the three months ended April 1, 2023 that were significant to the Company.

Recent Accounting Pronouncements Not Yet Adopted

There have been no additional accounting pronouncements or changes in accounting pronouncements during the nine months ended October 1, 2022 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that are significant or potentially significant to the Company.

There have been no additional accounting pronouncements or changes in accounting pronouncements during the three months ended April 1, 2023 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, that are significant or potentially significant to the Company.

Cash, Cash Equivalents and Marketable Securities

11 unchanged sentences

Realized gains and losses on sales of marketable securities, if any, are determined on the specific identification method and are reclassified from accumulated other comprehensive loss to results of operations as other expense, net.

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

There were no realized gains and losses for the three months ended April 1, 2023 and April 2, 2022, respectively.

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

3 unchanged sentences

Commercial paper 31,482 33,199

government securities 6,966 —

Money market funds 6,249 555

government agency securities 5,072 —

Corporate debt securities 249 140

government securities — 5,990

Total cash and cash equivalents 94,186 79,073

1 unchanged sentence

government securities 96,545 106,750

Commercial paper 28,953 80,812

government agency securities 31,727 23,632

Commercial paper 31,404 28,992

Corporate debt securities 3,188 3,168

3 unchanged sentences

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

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

Amortized Cost Gross Unrealized Losses Fair Value

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

As of April 1, 2023 Amortized Cost Gross Unrealized Gains/(Losses) Fair Value

government securities $ 97,240 $ ( 695 ) $ 96,545

1 unchanged sentence

government agency securities 36,914 ( 115 ) 36,799

Municipal securities 252 ( 1 ) 251

Corporate debt securities 3,423 14 3,437

Total marketable securities $ 200,510 $ ( 843 ) $ 199,667

Unrealized gains and losses were de minimis as of December 31, 2021.

As of December 31, 2022 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

Fair Value Measurements

8 unchanged sentences

The following tables sets forth the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

As of October 1, 2022 Level 1 Level 2 Total

As of April 1, 2023 Level 1 Level 2 Total

Money market funds $ 6,249 $ — $ 6,249

2 unchanged sentences

government agency securities — 36,799 36,799

Municipal securities — 251 251

Corporate debt securities — 3,437 3,437

19 unchanged sentences

$ 156,513 $ 149,160

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

2023 December 31,

Supplier deposits $ 35,422 $ 39,064

Prepaid expenses and other current assets 34,880 23,627

$ 70,302 $ 62,691

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

12 unchanged sentences

Component inventory held by suppliers 11,360 10,280

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

Revenue share payments 10,490 7,210

Professional and consulting fees 8,889 7,307

Taxes payable 6,451 4,581

Current portion of warranty and retrofit 6,216 6,377

Customer advances or rebates 4,515 5,653

Taxes payable 6,154 4,251

Freight 3,952 3,997

Operating leases 4,131 3,949

Product returns 2,554 2,961

Operations 1,577 1,400

Insurance 2,139 1,785

Freight 1,442 3,649

Business events — 3,167

Other 5,830 5,742

$ 80,838 $ 90,474

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

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

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

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

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.”

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

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

Balance at beginning of period $ 8,386 $ 9,594

Accruals for product warranty and retrofit

219 769 396 2,974

Cost of warranty and retrofit claims

1 unchanged sentence

Balance at end of period $ 8,445 $ 9,570

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

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

As of April 1, 2023, the liability, including accrued interest, was $ 10.5 million, which is included in “Accrued liabilities” in the accompanying Condensed Consolidated Balance Sheet.

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

Commitments and Contingencies

2 unchanged sentences

Certain of the Company’s operating leases contain renewal options and rent acceleration clauses.

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

Future minimum payments under the non-cancelable operating leases consisted of the following as of April 1, 2023 (in thousands):

Period Future Minimum Lease Payments

3 unchanged sentences

Less imputed interest ( 1,199 )

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

As of April 1, 2023, the operating lease liability consisted of the following (in thousands):

Accrued liabilities - current portion of operating leases $ 4,131

2 unchanged sentences

The future minimum lease payments under the lease are $ 6.7 million and are included in the table above.

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

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

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

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

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

The weighted average discount rate for the Company’s operating leases as of April 1, 2023 was 5.8 %.

The weighted average remaining lease term as of April 1, 2023 was 3.2 years.

Total rent expense of the Company was $ 1.2 million and $ 1.1 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

Cash paid within operating cash flows for operating leases was $ 1.2 million and $ 1.1 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

Purchase Commitments

The Company’s suppliers, including contract manufacturers (“CMs”) and original design manufacturers (“ODMs”), place orders for certain component inventory in advance based upon the Company’s build forecasts in order to reduce manufacturing

lead times and ensure adequate component supply.

The components are used by the CMs and ODMs to build the products included in the build forecasts.

3 unchanged sentences

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

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

As of April 1, 2023 and December 31, 2022, the Company had approximately $ 305.7 million and $ 340.6 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 has from time to time, and subject to certain conditions, reimbursed certain suppliers for component inventory purchases when this inventory has been rendered excess or obsolete, for example due to manufacturing and engineering change orders resulting from design changes, manufacturing discontinuation of products by its suppliers, or in cases where the Company has committed inventory levels that greatly exceed projected demand.

The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $ 10.3 million and $ 7.6 million as of October 1, 2022 and December 31, 2021, respectively.

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

The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $ 11.4 million and $ 10.3 million as of April 1, 2023 and December 31, 2022, respectively.

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

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

The Company is not currently a party to any legal proceedings that, if determined adversely to the Company, in management’s opinion, are currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole.

The Company is not currently a party to any legal proceeding that, if determined adversely to the Company, in management’s opinion, is currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole.

Stockholders’ Equity

2 unchanged sentences

The 2019 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, 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.

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

Stock Options

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

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

As of April 1, 2023, there were 4.4 million shares available for issuance under the 2019 Plan.

During the three months ended April 1, 2023, stock option awards exercisable for up to an aggregate of 0.4 million shares of common stock were granted with a grant date weighted-average exercise price of $ 51.77 per share.

These stock option awards vest 25 % on the first anniversary of the vesting commencement date and on a quarterly basis thereafter over an additional three years .

2 unchanged sentences

These performance-based stock option awards will vest, subject to certification by the Compensation Committee of the Company’s Board of Directors upon the achievement of the 2023 Performance Targets, as to 25 % of the shares of common stock earned on the one year anniversary of the date of grant, and as to the remaining 75 % of the shares of common stock earned, in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

If the non-GAAP net operating income target is achieved below 80 % of target or the bookings target is achieved below 90 % of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full.

If both targets are achieved at the minimum threshold of 80 % of target for non-GAAP net operating income and 90 % of target for bookings, then the shares are awarded at 50 % of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 100 % of the granted shares if both targets are achieved at 100 % or more of target.

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

three months ended October 1, 2022.

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

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

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

As of October 1, 2022, unrecognized stock-based compensation expense of $ 55.7 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.

If the non-GAAP net operating income target and the bookings target are each achieved below 80 % of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full.

If either target is achieved at the minimum threshold of 80 % of target, then the shares are awarded at 50 % of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 125 % of the granted shares for each target.

Each target result is then weighted by 50 % and the combined total determines the percent of target shares.

The maximum combined award is 100 %.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of April 1, 2023, and stock-based compensation expense of $ 2.5 million was recognized for the three months ended April 1, 2023.

During the three months ended April 1, 2023, shares of common stock of 0.2 million were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 12.09 per share.

As of April 1, 2023, unrecognized stock-based compensation expense of $ 105.1 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.3 years.

Employee Stock Purchase Plans

1 unchanged sentence

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, participants may purchase up to 2,000 shares of common stock during 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.

The price of common stock purchased under the ESPP is 85 % of the lower of the fair market value of the common stock on the commencement date and the end date of each six-month offering period.

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

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

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

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

As of October 1, 2022, unrecognized stock-based compensation expense of $ 1.3 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.

The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25 % of their eligible compensation.

As of April 1, 2023, there were 4.6 million shares available for issuance under the ESPP.

During the three months ended April 1, 2023, 0.1 million shares were purchased under the ESPP.

As of April 1, 2023, unrecognized stock-based compensation expense of $ 1.0 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.

The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25 % of their eligible recurring compensation.

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.

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

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

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

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

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

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

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

The NQ ESPP provides quarterly offering periods from February 8 th through May 7 th , May 8 th through August 7 th , August 8 th through November 7 th and November 8 th through February 7 th of each year, with a maximum of 0.25 million shares allocated per purchase period.

As of April 1, 2023, there were 2.9 million shares available for issuance under the NQ ESPP.

During the three months ended April 1, 2023, 0.2 million shares were purchased and issued.

As of April 1, 2023, unrecognized stock-based compensation expense of $ 10.9 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.8 years.

Stock-Based Compensation

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

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

Cost of revenue $ 800 $ 615

Products $ 432 $ 211 $ 1,225 $ 559

Services 266 177 739 483

Sales and marketing 4,432 2,482

2 unchanged sentences

$ 16,220 $ 10,467

Income tax benefit recognized $ 4,153 $ 3,581

Stock Repurchase Program

1 unchanged sentence

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

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

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

As of April 1, 2023, the remaining authorized amount for stock repurchases under this program was $ 98.8 million.

A summary of the stock repurchase activity under the repurchase program for the three months ended April 1, 2023 is as follows (in thousands, except per share amounts):

Aggregate purchase price $ 1,183

Shares repurchased 25

Average price paid per share $ 48.05

Revenue from Contracts with Customers

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.

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 a single reporting segment and operating unit structure.

The Company’s chief operating decision maker is the Company’s Chief Executive Officer, who reviews financial information presented on a Company-wide basis, for purposes of allocating resources and evaluating financial performance.

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

Three Months Ended Nine Months Ended

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

Three Months Ended

April 1, 2023 April 2, 2022

United States $ 227,939 $ 165,631

Americas ex U.S.

11,557 11,800 31,236 37,660

Europe 12,368 6,573

Americas ex U.S.

Middle East & Africa 1,773 3,617

2 unchanged sentences

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.

Contract assets include amounts recognized as revenue prior to the Company’s contractual right to bill the customer.

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

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

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

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

The closing balance as of April 1, 2023 was $ 5.5 million of which the Company expects to bill 77 % of the balance during the remainder of 2023.

The contract asset balance may fluctuate depending on the timing of fulfilling the related performance obligations with the Company's customers.

Contract Liability

Deferred revenue consisted of the following (in thousands):

2022 December 31,

Products and services $ 28,713 $ 22,586

Extended warranty 4,974 4,892

33,687 27,478

Products and services 6,477 3,137

Extended warranty 18,442 18,879

24,919 22,016

$ 58,606 $ 49,494

The increase in the deferred revenue balance for the three and nine months ended October 1, 2022 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 13.0 million and $ 23.2 million of revenue recognized that was included in the deferred revenue balance at the beginning of each period, respectively.

Deferred revenue was $ 69.6 million and $ 58.6 million as of April 1, 2023 and December 31, 2022, respectively.

The increase in the deferred revenue balance for the three months ended April 1, 2023 is driven by cash payments received or due in advance of satisfying the Company’s performance obligations and balances reclassified to contract asset during the period offset by $ 13.0 million of revenue recognized that was included in the deferred revenue balance at the beginning of the period.

Revenue allocated to remaining performance obligations (“RPOs”) represents contract revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods but excludes variable consideration where the monthly invoicing is based on usage or where actual usage exceeds the minimum commitment.

RPOs were $ 173.1 million as of October 1, 2022, and the Company expects to recognize as revenue 35 % of this amount over the next 12 months and the remainder thereafter.

RPOs were $ 206.2 million as of April 1, 2023, and the Company expects to recognize as revenue 37 % of this amount over the next 12 months and the remainder thereafter.

Contract Costs

The Company capitalizes certain sales commissions related primarily to multi-year subscriptions and extended warranty support for which the expected amortization period is greater than one year.

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

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

As of April 1, 2023 and December 31, 2022, the unamortized balance of deferred commissions was $ 10.3 million and $ 11.2 million, respectively.

For the three months ended April 1, 2023 and April 2, 2022, the amount of amortization was $ 1.3 million and $ 0.8 million, respectively.

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

Concentration of Customer Risk

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

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

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

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

No customer accounted for more than 10% of the Company’s revenue for the three months ended April 1, 2023 and April 2, 2022.

Two customers represented more than 10% of the Company’s accounts receivable as of April 1, 2023, and were 12 % and 11 %, respectively.

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

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

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

Income before income taxes $ 11,409 $ 9,820

1 unchanged sentence

Effective tax rate 15.9 % 17.3 %

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

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

The Company’s income taxes for the three months ended April 1, 2023 and April 2, 2022 were determined using an estimated effective tax rate adjusted for discrete items that occurred during the respective periods.

The Company’s effective tax rate for the three months ended April 1, 2023 and April 2, 2022 differed from the statutory federal corporate tax rate of 21% primarily due to state taxes, the inclusion of income from certain foreign operations and the effect of non-deductible stock-based compensation for executive officers offset by U.S.

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

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

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

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

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

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

Management continues to believe that it is more likely than not we will utilize a significant portion of our deferred tax assets.

The Company continues to maintain a valuation allowance of $ 30.9 million on certain U.S.

Management believes that it is more likely than not we will utilize a significant portion of our deferred tax assets.

The Company maintained a valuation allowance of $ 29.9 million on certain U.S.

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

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

In the event that actual results differ from these estimates, or if the Company

decides to adjust these estimates in the future periods, further adjustments to its valuation allowance may be recorded, which could materially impact the Company’s financial position and net income in the period of the adjustment.

The Company’s income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate including factors as actual results differing from its estimates of pre-tax earnings in the various jurisdictions in which the Company operates, which could impact the recognition of its deferred tax assets, benefits from stock option exercises, further investments in the Company’s foreign operations, the recognition or de-recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.

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

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

Net Income Per Common Share

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

Three Months Ended Nine Months Ended

2022 October 2,

2021 October 1,

2022 October 2,

Three Months Ended

2023 April 2,

Net income $ 9,598 $ 8,119

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Diluted net income per common share $ 0.14 $ 0.12

Potentially dilutive shares, weighted average 1,724 1,224 1,803 908

Potentially dilutive shares excluded, weighted average 3,023 1,231

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

1 unchanged sentence

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

What changed 10-Q

Item 1. Financial Statements