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Item 2. Management’s Discussion and Analysis

2023-04-24 compared with 2022-10-25 · 90 added, 131 removed, 91 unchanged (71% of the section changed)

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All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

We are the leading global provider of cloud and software platforms, systems and services that focus on the 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, or BSPs, of all types and sizes to innovate and transform their businesses.

Our BSP customers are empowered to utilize real-time data and insights from Calix platforms to simplify their businesses and deliver experiences that excite their subscribers.

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

We market our cloud and software platforms, systems and services to BSPs globally through our direct sales force as well as select resellers.

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

We have enabled approximately 1,800 BSP customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.

Our revenue and potential revenue growth will depend on our ability to sell and license our cloud and software platforms, systems and services to strategically aligned customers of all types such as wireless internet service providers, fiber overbuilders, cable MSOs, municipalities and electric cooperatives in the United States and internationally.

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

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

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

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

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

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

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

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

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

We have enabled approximately 1,900 customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.

Our revenue and potential revenue growth will depend on our ability to develop, market and sell our platform and managed services to strategically aligned customers of all types such as WISPs, fiber overbuilders, cable MSOs, municipalities and electric cooperatives in the United States and internationally.

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

Revenue fluctuations result from many factors, including, but not limited to:

increases or decreases in customer orders for our products and services, market, financial or other factors that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component and labor shortages and increasing lead times as well as disruptions as a result of the COVID-19 pandemic, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers.

increases or decreases in customer orders for our products and services, market, financial or other factors that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component and labor shortages and increasing lead times as well as disruptions as a result of pandemics or natural disasters, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers.

More specifically, our customers have in the past spent less in the first quarter as they are finalizing their annual budgets, and in certain regions, customers are challenged by winter weather conditions that inhibit fiber deployment in outside infrastructure.

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

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

Cost of revenue is strongly correlated to revenue and tends to fluctuate due to all of the above factors that may cause revenue fluctuations.

Factors that have impacted our cost of revenue for the three and nine months ended October 1, 2022, and that we expect will impact cost of revenue in future periods, also include:

Factors that have impacted our cost of revenue for the three months ended April 1, 2023, and that we expect will impact cost of revenue in future periods, also include:

changes in the mix of products delivered, customer location and regional mix, changes in the cost of our inventory, including higher costs due to materials shortages including components, supply constraints or unfavorable changes in trade policies, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty and incurrence of retrofit costs, amortization of intangibles, asset write-offs, support fees for silicon-related development work for our products, allowances for obligations to our suppliers and inventory write-downs.

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

we expect these delays and related challenges to persist in the foreseeable future.

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

In addition, we periodically elect to ship by air in order to meet delivery commitments to our customers, and air freight rates remain elevated relative to pre-pandemic levels.

Given the ongoing supply-chain disruptions related to component shortages, longer

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

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

Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if our revenue declines.

Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory or accrual for supplier commitments) and have in the past been negatively impacted by increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive pressure or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.

Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory or accrual for supplier commitments) and have in the past been and may be negatively impacted by increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive pressure or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.

Our operating expenses fluctuate based on the following factors among others:

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

COVID-19 Pandemic

We are subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, particularly as variants of the coronavirus continue to spread around the world.

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

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

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

Critical Accounting Policies and Estimates

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Our critical accounting policies and estimates, which are revenue recognition, inventory valuation and supplier purchase commitments and income taxes, are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

For the nine months ended October 1, 2022, there have been no significant changes in our critical accounting policies and estimates.

For the three months ended April 1, 2023, there have been no significant changes in our critical accounting policies and estimates.

Recent Accounting Pronouncements

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 our Annual Report on Form 10-K for the year ended December 31, 2021 that are significant or potentially significant to us.

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 our Annual Report on Form 10-K for the year ended December 31, 2022 that are significant or potentially significant to us.

Results of Operations

Comparison of the Three and Nine Months Ended October 1, 2022 and October 2, 2021

Comparison of the Three Months Ended April 1, 2023 and April 2, 2022

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

Three Months Ended Nine Months Ended

2022 October 2,

2021 Variance

Dollars Variance

Percent October 1,

2022 October 2,

Three Months Ended

2023 April 2,

2022 Variance

Dollars Variance

Systems $ 225,845 $ 163,076 $ 62,769 38 % $ 591,466 $ 475,931 $ 115,535 24 %

Services 10,489 9,155 1,334 15 % 31,858 27,044 4,814 18 %

$ 236,334 $ 172,231 $ 64,103 37 % $ 623,324 $ 502,975 $ 120,349 24 %

Percent of total revenue:

Systems 96 % 95 % 95 % 95 %

Services 4 % 5 % 5 % 5 %

100 % 100 % 100 % 100 %

Our revenue increased by $64.1 million and $120.3 million for the three and nine months ended October 1, 2022, respectively, as compared to the corresponding periods in 2021 mostly due to higher systems revenue of $62.8 million and $115.5 million, respectively.

Services revenue increased by $1.3 million and $4.8 million, compared to the corresponding periods in 2021.

The increase in systems revenue was primarily due to higher revenue from our growing base of small and medium customers as BSPs continue to adopt our All Platform offerings and seek to provide a better Wi-Fi experience for their customers.

We also added a new medium-sized customer that began to receive significant shipments during the third quarter of 2022.

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

For the three and nine months ended October 1, 2022, revenue generated in the United States was $215.9 million and $565.4 million, or 91% of our total revenue, compared to $136.3 million and $414.2 million, or 79% and 82% of our total revenue, respectively, for the same periods in 2021.

International revenue was $20.5 million and $57.9 million, or 9% of our total revenue, for the three and nine months ended October 1, 2022, as compared to $35.9 million and $88.7 million, or 21% and 18% of our total revenue, for the same periods in 2021.

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.

Revenue $ 250,008 $ 184,948 $ 65,060 35 %

Our revenue increased by $65.1 million for the three months ended April 1, 2023, respectively, as compared to the corresponding period in 2022.

The increase in revenue was primarily due to higher revenue from our growing base of small and

medium BSP customers and the continuation of BSPs seeking to provide their subscribers a better experience by adopting our platform and managed services.

During the second half of 2022, we added a new medium-sized customer that began to receive significant shipments during the second half of 2022 and the three months ended April 1, 2023.

For the three months ended April 1, 2023, revenue generated in the United States was $227.9 million, or 91% of our revenue, compared to $165.6 million, or 90% of our revenue for the same period in 2022.

International revenue was $22.1 million, or 9% of our revenue, for the three months ended April 1, 2023, as compared to $19.3 million, or 10% of our revenue, for the same period in 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.

Gross Profit and Gross Margin

The following table sets forth our gross profit and gross margin (dollars in thousands):

Three Months Ended Nine Months Ended

2022 October 2,

2021 Variance

Dollars Variance

Percent October 1,

2022 October 2,

Three Months Ended

2023 April 2,

2022 Variance

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Gross profit $ 128,051 $ 91,792 $ 36,259 40 %

Systems $ 115,272 $ 86,737 $ 28,535 33 % $ 300,532 $ 257,256 $ 43,276 17 %

Services 3,300 2,756 544 20 % 10,012 8,098 1,914 24 %

$ 118,572 $ 89,493 $ 29,079 32 % $ 310,544 $ 265,354 $ 45,190 17 %

Gross margin 51.2 % 49.6 %

Systems 51.0 % 53.2 % 50.8 % 54.1 %

Services 31.5 % 30.1 % 31.4 % 29.9 %

Overall 50.2 % 52.0 % 49.8 % 52.8 %

Gross profit increased to $118.6 million and $310.5 million for the three and nine months ended October 1, 2022, respectively, from $89.5 million and $265.4 million during the corresponding periods in 2021 due to higher revenue for both systems and services.

The decrease in systems gross margin of 220 and 330 basis points for the three and nine months ended October 1, 2022, respectively, compared to the corresponding periods in 2021, was mainly due to higher component and logistics costs,

which more than offset the increase in gross margin due to increased software and subscription contributions.

Services gross margin increased by 140 and 150 basis points for the three and nine months ended October 1, 2022, respectively, compared to the corresponding periods in 2021, as our service revenue reflects a greater contribution from higher gross margin services aligned with our platform offerings, which more than offset the investments in our customer success organization.

Gross profit increased to $128.1 million for the three months ended April 1, 2023, from $91.8 million during the corresponding period in 2022.

The increase in gross margin of 160 basis points for the three months ended April 1, 2023 compared to the corresponding period in 2022, was mainly due to the increase in revenue, an increase in contributions from our software and subscription offerings and our overall product mix.

Operating Expenses

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The following table sets forth our sales and marketing expenses (dollars in thousands):

Three Months Ended Nine Months Ended

2022 October 2,

2021 Variance

Dollars Variance

Percent October 1,

2022 October 2,

Three Months Ended

2023 April 2,

2022 Variance

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Sales and marketing expenses $ 51,865 $ 36,091 $ 15,774 44 %

Percent of total revenue 20 % 18 % 20 % 18 %

Sales and marketing expenses for the three months ended October 1, 2022 increased by $15.0 million compared with the corresponding period in 2021 primarily due to increases in personnel expenses mainly related to sales headcount and higher sales incentive compensation of $10.1 million, marketing expenses of $2.1 million, stock-based compensation of $1.3 million and travel expenses of $1.2 million.

Sales and marketing expenses for the nine months ended October 1, 2022 increased by $34.5 million compared with the corresponding period in 2021 primarily due to increases in sales headcount and higher sales incentive compensation of $24.2 million, travel expenses of $3.8 million, stock-based compensation of $3.5 million and marketing expenses of $1.8 million.

Percent of revenue 21 % 20 %

Sales and marketing expenses for the three months ended April 1, 2023 increased by $15.8 million compared with the corresponding period in 2022 primarily due to increases in personnel expenses mainly related to sales headcount and higher sales incentive compensation of $10.6 million, stock-based compensation of $1.9 million, travel expenses of $1.4 million and marketing expenses of $0.8 million.

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

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The following table sets forth our research and development expenses (dollars in thousands):

Three Months Ended Nine Months Ended

2022 October 2,

2021 Variance

Dollars Variance

Percent October 1,

2022 October 2,

Three Months Ended

2023 April 2,

2022 Variance

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Research and development expenses $ 43,173 $ 29,817 $ 13,356 45 %

Percent of total revenue 14 % 15 % 15 % 15 %

Percentage of systems gross profit 29 % 30 % 31 % 29 %

Research and development expenses for the three months ended October 1, 2022 increased by $7.5 million as compared with the corresponding period in 2021 mainly due to increases in personnel expenses of $3.6 million, outside services of $1.6 million and stock-based compensation of $1.0 million.

Research and development expenses for the nine months ended October 1, 2022 increased by $17.6 million as compared with the corresponding period in 2021 mainly due to increases in personnel expenses of $8.9 million, stock-based compensation of $3.8 million and outside services of $2.5 million.

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

Percent of revenue 17 % 16 %

Percentage of gross profit 34 % 32 %

Research and development expenses for the three months ended April 1, 2023 increased by $13.4 million as compared with the corresponding period in 2022 mainly due to increases in personnel expenses of $8.2 million, outside services of $1.8 million, small equipment expenses of $1.3 million and depreciation and amortization of $0.7 million.

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

General and Administrative Expenses

The following table sets forth our general and administrative expenses (dollars in thousands):

Three Months Ended Nine Months Ended

2022 October 2,

2021 Variance

Dollars Variance

Percent October 1,

2022 October 2,

Three Months Ended

2023 April 2,

2022 Variance

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General and administrative expenses $ 23,077 $ 16,031 $ 7,046 44 %

Percent of total revenue 8 % 8 % 9 % 8 %

General and administrative expenses for the three months ended October 1, 2022 increased by $4.6 million as compared with the corresponding period in 2021 mainly due to increases in personnel expenses of $2.1 million, stock-based compensation of $1.8 million and outside services of $0.7 million.

These increases were driven mainly by continued investments in information technology infrastructure.

General and administrative expenses for the nine months ended October 1, 2022 increased by $12.9 million as compared with the corresponding period in 2021 mainly due to increases in stock-based compensation of $5.3 million, personnel expenses of $5.1 million and outside services of $1.9 million.

These increases were primarily driven by continued investments in information technology infrastructure.

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

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

Three Months Ended Nine Months Ended

2022 October 2,

Percent of revenue 9 % 9 %

General and administrative expenses for the three months ended April 1, 2023 increased by $7.0 million as compared with the corresponding period in 2022 mainly due to increases in personnel expenses of $3.3 million, stock-based compensation of $3.1 million and outside services of $0.8 million.

We plan to continue to invest in our information technology infrastructure and headcount due to the growth of our business.

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

Interest and Other Income (Expense), net

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

Three Months Ended

2023 April 2,

2022 Variance

Dollars Variance

Percent October 1,

2022 October 2,

Interest and other income (expense), net $ 1,473 $ (33) $ 1,506 4,564 %

Percent of revenue 1 % — %

Interest and other income (expense), net increased by $1.5 million as compared with the corresponding period in 2022 mainly due to a higher rate of interest earned on our cash, cash equivalents and marketable securities as well as a growing cash balance.

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

Three Months Ended

2023 April 2,

2022 Variance

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Effective tax rate 15.9 % 17.3 %

We maintained a full valuation allowance against our deferred tax assets until the third quarter of 2021.

As such, for the three and nine months ended October 2, 2021, our income tax provision was primarily due to state and foreign taxes payable and the reversal of a significant portion of our valuation allowance associated with our U.S.

federal and certain state deferred tax assets.

For the three and nine months ended October 1, 2022, our income tax expense was $7.0 million and $10.9 million for an effective tax rate of 34.3% and 27.2%, respectively, which differs from the statutory 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.

For the three months ended April 1, 2023, our income tax expense was $1.8 million for an effective tax rate of 15.9%, which differed from the statutory 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.

Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our deferred tax assets, further benefits from stock option exercises, investments in our 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 we conduct business.

Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained.

This may affect the assumptions used to estimate the annual effective tax rate, including factors such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our deferred tax assets, further benefits from stock option exercises, investments in our 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 we conduct business.

Liquidity and Capital Resources

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

As of October 1, 2022, we had cash, cash equivalents and marketable securities of $234.7 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

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

For the past few years, we have generated cash flow from our operations as our business has grown.

As of April 1, 2023, we had cash, cash equivalents and marketable securities of $257.1 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

government agency securities and commercial paper.

Operating Activities

Net cash provided by operating activities was $21.1 million for the nine months ended October 1, 2022 and consisted of net income of $29.1 million and non-cash charges of $47.0 million offset by cash flow decreases of $55.0 million reflected in the net change in assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation of $31.5 million, depreciation and amortization of $10.8 million and deferred income taxes of $5.2 million.

Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in inventory of $52.2 million to improve our responsiveness to customer demand, an increase in prepaid expenses and other assets of $32.9 million mainly due to advanced payments to supply chain partners and an increase in accounts receivable of $15.3 million in line with our revenue growth.

These changes were partially offset by an increase in accounts payable of $36.2 million due to increased inventory purchases and an increase in deferred revenue of $9.1 million due to Calix Cloud and Revenue Edge subscriptions.

Net cash provided by operating activities was $44.2 million for the nine months ended October 2, 2021 and consisted of net income of $218.5 million partially offset by non-cash charges of $132.6 million and cash flow decreases of $41.7 million reflected in the net change in assets and liabilities.

Non-cash charges consisted of the reversal of the valuation allowance on certain deferred tax assets of $162.0 million offset by stock-based compensation of $18.1 million and depreciation and amortization of $11.4 million.

Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in inventory of $22.9 million to support revenue growth and to mitigate supply chain shortages and disruptions and an increase in accounts receivable of $22.5 million, due to product shipment timing.

In addition, there was an increase in prepaid expenses and other assets of $9.8 million mainly due to advance payments to our supply chain partners for deposits, expedite fees and component surcharges, capitalized sales commissions and deposits for our ConneXions conference, and a decrease in total accrued liabilities of $11.6 million, mainly related to incentive compensation payouts, rebate redemptions and a reduction of customer advance payments.

These changes were partially offset by an increase in accounts payable of $18.3 million due to increased inventory purchases and an increase in deferred revenue of $6.7 million due to Calix Cloud subscriptions, support contracts and extended warranties.

Net cash provided by operating activities was $8.1 million for the three months ended April 1, 2023 and consisted of net income of $9.6 million and non-cash charges of $18.6 million offset by cash flow decreases of $20.0 million reflected in the net change in assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation of $16.2 million and depreciation and amortization of $3.7 million.

Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of a decrease in accrued liabilities of $12.3 million due to the payout of incentive compensation and payments related to our Calix ConneXions 2022 Customer Success and Innovation conference;

an increase in inventory of $7.4 million to improve our responsiveness to our BSPs’ subscriber demand;

a decrease in accounts payable of $5.9 million due to the timing of inventory purchases;

and an increase in prepaid expenses and other assets of $7.1 million mainly due to the renewal of a software contract and reclassification of contract assets from deferred revenue.

These changes were partially offset by a decrease in accounts receivable of $1.6 million due to continued strong shipment linearity and an increase in deferred revenue of $11.0 million primarily due to our platform subscriptions and support contracts and reclassification of contract assets to prepaid expenses and other assets.

Net cash provided by operating activities was $7.4 million for the three months ended April 2, 2022 and consisted of net income of $8.1 million partially offset by non-cash charges of $14.7 million and cash flow decreases of $15.4 million reflected in the net change in assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation of $10.5 million and depreciation and amortization of $3.9 million.

Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in inventory of $16.1 million to support revenue growth and to mitigate supply chain shortages and disruptions and an increase in accounts receivable of $2.7 million in line with our revenue growth.

In addition, there was an increase in prepaid expenses and other assets of $6.7 million mainly due to advanced payments to supply chain partners and a decrease in total accrued liabilities of $2.0 million.

These changes were partially offset by an increase in accounts payable of $8.2 million due to increased inventory purchases and an increase in deferred revenue of $4.0 million primarily due to our platform subscriptions and support contracts.

Investing Activity

For the nine months ended October 1, 2022, cash used in investing activities of $17.2 million consisted of net purchases of marketable securities of $8.0 million and capital expenditures of $9.3 million, consisting primarily of purchases of test and computer equipment.

For the nine months ended October 2, 2021, cash used in investing activities of $82.8 million consisted of net purchases of marketable securities of $75.5 million and capital expenditures of $7.3 million, consisting primarily of purchases of test and computer equipment.

For the three months ended April 1, 2023, cash used in investing activities of $3.3 million consisted of net purchases of marketable securities of $1.3 million and capital expenditures of $4.6 million, consisting primarily of purchases of test and computer equipment.

For the three months ended April 2, 2022, cash used in investing activities of $20.1 million consisted of net purchases of marketable securities of $16.9 million and capital expenditures of $3.2 million, consisting primarily of purchases of test equipment and computer equipment.

Financing Activities

Net cash provided by financing activities of $20.5 million for the nine months ended October 1, 2022 and $18.0 million for the nine months ended October 2, 2021 primarily consisted of proceeds from the issuance of common stock related to our equity plans.

Net cash provided by financing activities of $10.2 million for the three months ended April 1, 2023 primarily consisted of proceeds from the issuance of common stock related to our equity plans of $12.5 million.

This was partially offset by repurchases of common stock of $1.2 million and payments related to a financing arrangement of $1.1 million.

Net cash provided by financing activities of $5.9 million for the three months ended April 2, 2022 primarily consisted of proceeds from the issuance of common stock related to our equity plans.

Working Capital and Capital Expenditure Needs

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We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory.

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

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

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

During the three months ended April 1, 2023, repurchases of $1.2 million were made under the program.

Our stock repurchase program does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time.

We believe, based on our current operating plan and expected operating cash flows, that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months.

If we are unable to execute on our current operating plan or continue to generate operating income and positive cash flows, our liquidity, results of operations and financial condition may be adversely affected, and we may need to cease our repurchase program or seek other sources of liquidity, including the sale of additional equity or borrowing, to support our working capital needs.

In addition, we may choose to seek other sources of liquidity even if we believe we have generated sufficient cash flows to support our operational needs.

There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all.

If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which may adversely impact our business and potential growth.

If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to terminate our repurchase program, limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which may adversely impact our business and potential growth.

Contractual Obligations and Commitments

Our principal commitments as of October 1, 2022 consisted of our contractual obligations under non-cancelable outstanding purchase obligations, operating lease obligations for office space and a revenue share obligation.

The following table summarizes our contractual obligations as of October 1, 2022 (in thousands):

Our principal commitments as of April 1, 2023 consisted of our contractual obligations under non-cancelable outstanding purchase obligations, operating lease obligations for office space and a revenue share obligation.

The following table summarizes our contractual obligations as of April 1, 2023 (in thousands):

Payments Due by Period

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(3) Represents remaining payments related to a revenue-share obligation, including imputed interest associated with developed software product and related enhancements by an engineering service provider.

The schedule reflects our expected revenue-share and true-up payments based on our revenue projections for the developed products over a sales period 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.

See Note 5 “Balance Sheet Details” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our outstanding liability.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis