CALIX, INC 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenue or other financial items, any statement of or concerning the following: the plans and objectives of management for future operations, proposed new products or licensing, product development, anticipated customer demand or capital expenditures, anticipated growth and trends in our business and industry, future economic and/or market conditions or performance and assumptions underlying any of the above. In some cases, forward-looking statements can be identified by the use of terminology such as “could,” “may,” “will,” “would,” “expects,” “believes,” “intends,” “plans,” “anticipates,” “estimates,” “projects,” “predicts,” “potential” or “continue” or the negative thereof or other comparable terminology. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including those identified in the Risk Factors discussed in Part II, Item 1A, of this report on Form 10-Q, as well as in other sections of this report and in our Annual Report on Form 10-K for the year ended December 31, 2023. 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. Overview We develop, market and sell our 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 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 to simplify network operations, marketing and customer support and innovate for their customers, business and municipal subscribers by delivering a growing portfolio of SmartLife managed services and experiences. This enables BSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, while creating value for their members, investors and the communities they serve. We market our 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. Customers are defined into small (less than 250,000 subscribers), medium (250,000 to 2.5 million subscribers) or large (greater than 2.5 million subscribers). We have approximately 1,600 active customers that have deployed passive optical, Active Ethernet or point-to-point Ethernet fiber access networks or our subscriber premise systems. 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 wireless internet service providers, fiber overbuilders, cable multiple system operators, 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 our 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 such as government stimulus 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. In recent years, as our revenue from our large customers decreased, we have experienced less year-end volatility due to capital budgetary spending or freezing. This, combined with an increase in recurring revenue, has resulted in smaller seasonal fluctuations, and we expect this trend to continue. Our revenue is also dependent upon our customers’ success in growing their subscribers, 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 six months ended June 29, 2024, or that we expect may 17 Table of Contents 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, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty, incurrence of retrofit costs, amortization of intangibles, support fees for silicon-related development work for our products, changes in trade policies, allowances for obligations to our suppliers and inventory write-downs. In addition, we periodically 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 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: changes in headcount and personnel costs, which comprise a significant portion of our operating expenses; variable compensation due to fluctuations in shipment volumes or level of achievement against performance targets; timing of research and development expenses, including investments in innovative solutions and new customer segments, prototype builds and outsourced development resources; investments in marketing programs; asset write-offs; investments in our business and information technology infrastructure; and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting. Further, as a result of factors contributing to the fluctuations described above among other factors, many of which are outside our control, our quarterly operating results fluctuate from period to period. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. To the extent there are material differences between these estimates and actual results, our financial statements may be affected. Our management evaluates its estimates, assumptions and judgments on an ongoing basis. We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our financial statements. Revenue Recognition Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue from sales of access and premises systems is recognized when control is transferred to the customer, which is generally when the products are shipped. Revenue from software platform licenses, which provides the customer with a right to use the software as it exists, is generally recognized upfront when the license is made available to the customer. Revenue from cloud-based software subscriptions, customer support, maintenance, extended warranty subscriptions and managed services is generally recognized ratably over the contract term. Revenue from professional services and training is recognized as the services are delivered. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our hardware products contain both software and non-software components that function together to deliver the products’ essential functionality and therefore constitutes a single performance obligation as the promise to transfer the individual software and non-software components is not separately identifiable and, therefore, not distinct. Cloud-based software subscriptions can include multi-year agreements with a fixed annual fee for a minimum committed usage level. To the extent that minimum committed usage level each year varies, we have concluded that each year represents a distinct stand-ready performance obligation and the transaction price allocated to each performance obligation is recognized as revenue ratably over each annual period. Our contracts generally include multiple performance obligations. For such arrangements, we allocate the contract’s transaction price to each performance obligation using the relative stand-alone selling price of each distinct good or service in the contract. Observable prices of a product or service when we sell them separately based on stratification by classes of customers and 18 Table of Contents products are the best estimate of stand-alone selling prices. However, when stand-alone selling prices are not directly observable, they are estimated, and judgment is required in their determination. In these instances, we determine stand-alone selling prices using all other available information, which may include pricing practices relative to geographies, market conditions, competitive landscape, characteristics of targeted customers for hardware products, internal costs and gross margin objectives for services and internal costs and value assessments for subscriptions. Inventory Valuation and Supplier Purchase Commitments Inventory, which primarily consists of finished goods purchased from CMs or ODMs, is stated at the lower of cost (determined by the first-in, first-out method) and net realizable value. Inbound shipping costs and tariffs are included in the cost of inventory. In addition, from time to time, we procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers. Furthermore, as a result of the global pandemic-induced supply chain challenges, we have purchased, and may continue to purchase, excess components from our suppliers and consign components back to our suppliers to be consumed on future finished good builds. We regularly monitor inventory on-hand and record write-downs for excess and obsolete inventory. These write-downs are based on our assumptions of demand for our products and requires significant judgement of relevant factors including a comparison of the quantity and cost of inventory on hand to our estimated forecast of customer demand, current levels of orders and backlog, market conditions, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds our estimated selling price. Factors that could influence management’s assumptions and judgements include changes in economic conditions, competitive dynamics, winning or losing a key customer, changes in our customers’ capital expenditures, government investment programs, technology changes, new product introductions and supply-chain lead times. We also evaluate our supplier purchase commitments, which remain elevated due to extended lead-times created by pandemic-induced supply-chain challenges, and record a liability for excess and obsolete components consistent with the valuation of our excess and obsolete inventory and future production requirements. For example, during the fourth quarter of 2023, we wrote down excess and obsolete inventory and accrued a liability for components at suppliers primarily related to a pivot in customer demand to our newer all-platform model from our older legacy product family. Actual demand may differ from forecasted demand and may have a material effect on gross profit. If inventory is written down, a new cost basis is established that cannot be increased in future periods. The sale of previously reserved inventory has not had a material impact on our gross margin. Recent Accounting Pronouncements There have been no additional accounting pronouncements or changes in accounting pronouncements during the six months ended June 29, 2024 as compared with the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2023 that are significant or expected to be significant to us. Results of Operations Comparison of the Three and Six Months Ended June 29, 2024 and July 1, 2023 Revenue The following table sets forth our revenue by customer size (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent Large $ 11,995 $ 26,778 $ (14,783) (55) % $ 28,100 $ 54,983 $ (26,883) (49) % Medium 24,366 37,367 (13,001) (35) % 52,252 77,680 (25,428) (33) % Small 161,778 196,871 (35,093) (18) % 344,097 378,361 (34,264) (9) % $ 198,139 $ 261,016 $ (62,877) (24) % $ 424,449 $ 511,024 $ (86,575) (17) % Our revenue decreased by $62.9 million and $86.6 million for the three and six months ended June 29, 2024, respectively, as compared to the corresponding periods in 2023. The decrease in revenue was primarily due to what we believe were delayed purchasing decisions of our appliances as our customers evaluate and prepare for various government stimulus programs, customers adjusting their purchases due to our shortened lead times and a small set of significant customers that slowed purchases while we believe they reevaluate their investment priorities. In the second quarter of 2024, we also had one small customer grow its subscriber base such that it is now a medium-sized customer. 19 Table of Contents For the three and six months ended June 29, 2024, United States revenue was $182.7 million and $392.8 million, or 92% and 93% of our revenue, compared to $232.4 million and $460.4 million, or 89% and 90% of our revenue for the same periods in 2023. International revenue was $15.4 million and $31.7 million, or 8% and 7% of our revenue, for the three and six months ended June 29, 2024, as compared to $28.6 million and $50.7 million, or 11% and 10% of our revenue, for the same periods in 2023. The decrease in international revenue for the three and six months ended June 29, 2024, as compared to the same periods in 2023, was mainly due to lower shipments to Europe and to a lesser extent the Americas outside the United States. No customer accounted for more than 10% of the Company’s revenue for the three and six months ended June 29, 2024 and July 1, 2023. Gross Profit and Gross Margin The following table sets forth our gross profit and gross margin (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent Gross profit $ 107,603 $ 136,470 $ (28,867) (21) % $ 230,180 $ 264,521 $ (34,341) (13) % Gross margin 54.3 % 52.3 % 54.2 % 51.8 % Gross profit decreased to $107.6 million and $230.2 million for the three and six months ended June 29, 2024, from $136.5 million and $264.5 million during the corresponding periods in 2023. These decreases were mainly due to the corresponding decreases in revenue. The increase in gross margin of 200 and 240 basis points for the three and six months ended June 29, 2024, respectively, compared to the corresponding periods in 2023, was mainly due to the continued growth in our platform, cloud and managed services as well as being a greater percentage of our total revenue. Operating Expenses Sales and Marketing Expenses The following table sets forth our sales and marketing expenses (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent Sales and marketing expenses $ 52,238 $ 54,596 $ (2,358) (4) % $ 106,135 $ 106,461 $ (326) — % Percent of revenue 26 % 21 % 25 % 21 % Sales and marketing expenses for the three months ended June 29, 2024 decreased by $2.4 million compared with the corresponding period in 2023 primarily due to decreases in personnel expenses of $2.0 million and stock-based compensation of $0.9 million. These decreases were partially offset by an increase in marketing expenses of $0.9 million. Sales and marketing expenses for the six months ended June 29, 2024 decreased by $0.3 million compared with the corresponding period in 2023 primarily due to decreases in personnel expenses of $0.9 million, stock-based compensation of $0.4 million and outside services of $0.4 million. These decreases were partially offset by increases of marketing expenses of $1.2 million and $0.4 million in allocated common costs. For the three and six months ended June 29, 2024, sales and marketing expenses as a percentage of revenue increased to 26% from 21% and 25% from 21%, respectively, due to lower revenue compared to the same periods in 2023. We expect our investments in sales and marketing will be relatively flat in absolute dollars in the short-term as we look to land new customers and expand our platform, cloud and managed services. 20 Table of Contents Research and Development Expenses The following table sets forth our research and development expenses (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent Research and development expenses $ 44,123 $ 45,341 $ (1,218) (3) % $ 88,545 $ 88,514 $ 31 — % Percent of revenue 22 % 17 % 21 % 17 % Percentage of gross profit 41 % 33 % 38 % 33 % Research and development expenses for the three months ended June 29, 2024 decreased by $1.2 million as compared with the corresponding period in 2023 mainly due to decreases in prototypes and test equipment expenses of $1.0 million, outside services of $0.9 million and stock-based compensation of $0.5 million. These decreases were partially offset by increases in allocated common costs of $0.5 million and depreciation and amortization of $0.5 million. Research and development expenses for the six months ended June 29, 2024 remained relatively unchanged compared with the corresponding period in 2023. Increases in personnel expenses of $1.7 million, allocated common costs of $1.2 million and depreciation and amortization of $1.2 million were offset by decreases in prototypes and test equipment expenses of $2.4 million and outside services of $1.4 million. For the three and six months ended June 29, 2024, research and development expenses as a percentage of revenue increased to 41% from 33% and 38% from 33%, respectively, due to lower revenue compared to the same periods in 2023. We expect our investments in research and development to remain relatively flat in absolute dollars in the short term as we seek to expand the functionality and capabilities of our platform, cloud and managed services. General and Administrative Expenses The following table sets forth our general and administrative expenses (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent General and administrative expenses $ 22,598 $ 24,722 $ (2,124) (9) % $ 48,888 $ 47,799 $ 1,089 2 % Percent of revenue 11 % 9 % 12 % 9 % General and administrative expenses for the three months ended June 29, 2024 decreased by $2.1 million as compared with the corresponding period in 2023 mainly due to decreases in professional services expenses of $1.6 million, stock-based compensation of $1.0 million and allocated common costs of $0.7 million. These decreases were partially offset by increases in depreciation and amortization of $0.6 million and personnel expenses of $0.3 million. General and administrative expenses for the six months ended June 29, 2024 increased by $1.1 million as compared with the corresponding period in 2023 mainly due to increases in personnel expenses of $2.1 million, depreciation and amortization of $1.3 million and equipment expense of $0.5 million. These increases were partially offset by decreases in allocated common costs of $1.9 million, professional services expenses of $0.8 million and stock-based compensation of $0.8 million. For the three and six months ended June 29, 2024, general and administrative expenses as a percentage of revenue increased to 11% from 9% and 12% from 9%, respectively, due to lower revenue compared to the same periods in 2023. We expect our general and administrative investments to be fairly constant in absolute dollars in the near term and potentially decline as a percentage of revenue over time in relation to anticipated longer-term increased revenue. 21 Table of Contents Interest and Other Expense, net The following table sets forth our interest and other expense, net (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent Interest and other expense, net $ 2,674 $ 2,418 $ 256 11 % $ 5,174 $ 3,891 $ 1,283 33 % Percent of revenue 1 % 1 % 1 % 1 % Interest and other expense, net increased by $0.3 million and $1.3 million as compared with the corresponding periods in 2023 mainly due to a higher rate of interest earned on our cash, cash equivalents and marketable securities. Income Taxes The following table sets forth our income taxes (dollars in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent June 29, 2024 July 1, 2023 Variance in Dollars Variance in Percent Income taxes (benefit) $ (724) $ 4,856 $ (5,580) (115) % $ (359) $ 6,667 $ (7,026) (105) % Effective tax rate 8.3 % 34.1 % 4.4 % 26.0 % For the three and six months ended June 29, 2024, our income tax benefit was $0.7 million and $0.4 million for an effective tax rate of 8.3% and 4.4%, respectively, which differed from the statutory rate of 21% primarily due to state taxes and the effect of non-deductible stock-based compensation for executive officers offset by the favorable impact of U.S. federal research tax credits, excess tax benefits from stock-based compensation and the U.S. tax impact of foreign operations. The effective tax rates for the three and six months ended June 29, 2024 are lower than the similar periods in 2023 primarily as a result of negative pre-tax earnings with a relatively consistent level of non-deductible expenses offset by lower 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. This may affect the assumptions used to estimate the interim income tax provision, 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 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. However, for the past few years, we have funded our operations and investing activities from cash flow generated from our operations as our business has grown and became profitable. As of June 29, 2024, we had cash, cash equivalents and marketable securities of $261.2 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 $37.0 million for the six months ended June 29, 2024 and consisted of a net loss of $7.9 million offset by non-cash charges of $34.3 million and cash flow increases of $10.6 million reflected in the net change in assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $32.3 million and depreciation and amortization of $10.0 million partially offset by deferred income taxes of $5.3 million and the net accretion of available-for-sale securities of $2.7 million. Cash flow increases resulting from the net change in assets and liabilities primarily consisted of a decrease in accounts receivable of $44.0 million and inventory of $19.5 million, both in line with our revenue decline. These changes were partially offset by a decrease in accrued liabilities of $28.6 million relating to various factors including a decrease in our liability for components, a decrease in incentive compensation related accruals and the settlement of a legal matter; a decrease in accounts payable of $23.4 million due to decreased inventory purchases; and a decrease in deferred revenue of $7.3 million primarily due to the recognition of previously deferred revenue and a trend to move customers to monthly from annual billing arrangements. 22 Table of Contents Net cash provided by operating activities was $25.6 million for the six months ended July 1, 2023 and consisted of net income of $19.0 million and non-cash charges of $41.0 million offset by cash flow decreases of $34.4 million reflected in the net change in assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $34.1 million and depreciation and amortization of $7.9 million. Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in prepaid expenses and other assets of $26.1 million mainly due to advanced payments to supply chain partners, the renewal of a software contract and reclassification of contract assets from deferred revenue; a decrease in accounts payable of $6.3 million due to the timing of inventory purchases; an increase in inventory of $4.2 million to improve our responsiveness to our BSPs’ subscriber demand; an increase in accounts receivable of $3.2 million in line with our revenue growth; and a decrease in accrued liabilities of $3.1 million due to the payout of incentive compensation and payments related to our Calix ConneXions 2022 Customer Success and Innovation conference. These changes were partially offset by an increase in deferred revenue of $8.6 million primarily due to our platform subscriptions and support contracts and reclassification of contract assets to prepaid expenses and other assets. Investing Activity For the six months ended June 29, 2024, cash provided by investing activities of $27.0 million consisted of net maturities and sales of marketable securities of $17.4 million and capital expenditures of $9.7 million, consisting primarily of purchases of test and computer equipment. For the six months ended July 1, 2023, cash used in investing activities of $18.8 million consisted of net purchases of marketable securities of $8.7 million and capital expenditures of $10.1 million, consisting primarily of purchases of test and computer equipment and software. Financing Activities Net cash provided by financing activities of $11.1 million for the six months ended June 29, 2024 primarily consisted of proceeds from the issuance of common stock related to our equity plans of $14.8 million partially offset by repurchases of our common stock of $3.7 million. Net cash provided by financing activities of $4.2 million for the six months ended July 1, 2023 primarily consisted of proceeds from the issuance of common stock related to our equity plans of $18.3 million. This was partially offset by repurchases of common stock of $10.0 million and payments related to a financing arrangement of $4.1 million. Working Capital and Capital Expenditure Needs Our material cash commitments include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals, operating leases and revenue-share obligations. We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory. Furthermore, we have a common stock repurchase program, which had $109.9 million available as of June 29, 2024. 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 generate sufficient cash flows or obtain other sources of liquidity, we will be forced to terminate our stock repurchase program, limit our development activities, reduce our investment in growth initiatives and/or institute cost-cutting measures, all of which may adversely impact our business and potential growth. Contractual Obligations and Commitments Our principal commitments as of June 29, 2024 consisted of contractual obligations under non-cancelable outstanding purchase obligations and operating lease obligations for office space. The following table summarizes our contractual obligations as of June 29, 2024 (in thousands): Payments Due by Period Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Non-cancelable purchase commitments (1) $ 178,301 $ 105,031 $ 64,166 $ 6,353 $ 2,751 Operating lease obligations (2) 10,907 4,734 4,444 1,644 85 $ 189,208 $ 109,765 $ 68,610 $ 7,997 $ 2,836 23 Table of Contents (1) Represents outstanding purchase commitments to be delivered by our third-party manufacturers or other vendors. See Note 6, “ Commitments and Contingencies ” 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 purchase commitments related to our third-party manufacturers. (2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2029. See Note 6 “ Commitments and Contingencies ” 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 operating leases.