CALIX, INC 10-Q

ITEM 1. Financial Statements CALIX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value) September 28, 2024 December 31, 2023 (Unaudited) (See Note 1) ASSETS Current assets: Cash and cash equivalents $ 62,361 $ 63,409 Marketable securities 225,223 156,937 Accounts receivable, net 85,272 126,027 Inventory 100,609 132,985 Prepaid expenses and other current assets 111,553 118,598 Total current assets 585,018 597,956 Property and equipment, net 31,105 29,461 Right-of-use operating leases 7,516 9,262 Deferred tax assets 177,775 167,691 Goodwill 116,175 116,175 Other assets 19,936 21,320 $ 937,525 $ 941,865 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 24,318 $ 34,746 Accrued liabilities 76,075 116,227 Deferred revenue 29,513 36,669 Total current liabilities 129,906 187,642 Long-term portion of deferred revenue 21,384 24,864 Operating leases 4,795 7,421 Other long-term liabilities 2,752 2,956 Total liabilities 158,837 222,883 Commitments and contingencies (See Note 6) Stockholders’ equity: Preferred stock, $ 0.025 par value; 5,000 shares authorized; no shares issued and outstanding as of September 28, 2024 and December 31, 2023 — — Common stock, $ 0.025 par value; 100,000 shares authorized; 66,318 shares issued and outstanding as of September 28, 2024, and 65,052 shares issued and outstanding as of December 31, 2023 1,658 1,627 Additional paid-in capital 1,148,742 1,078,393 Accumulated other comprehensive income (loss) 490 ( 659 ) Accumulated deficit ( 372,202 ) ( 360,379 ) Total stockholders’ equity 778,688 718,982 $ 937,525 $ 941,865 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents CALIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Revenue $ 200,945 $ 263,835 $ 625,394 $ 774,859 Cost of revenue 90,898 123,286 285,167 369,789 Gross profit 110,047 140,549 340,227 405,070 Operating expenses: Sales and marketing 52,301 52,356 158,436 158,817 Research and development 45,467 46,963 134,012 135,477 General and administrative 23,175 25,301 72,063 73,100 Total operating expenses 120,943 124,620 364,511 367,394 Operating income (loss) ( 10,896 ) 15,929 ( 24,284 ) 37,676 Interest income and other expense, net: Interest income, net 3,282 2,658 8,877 6,553 Other expense, net ( 178 ) ( 444 ) ( 599 ) ( 448 ) Total interest income and other expense, net 3,104 2,214 8,278 6,105 Income (loss) before income taxes ( 7,792 ) 18,143 ( 16,006 ) 43,781 Income taxes (benefit) ( 3,824 ) 1,190 ( 4,183 ) 7,857 Net income (loss) $ ( 3,968 ) $ 16,953 $ ( 11,823 ) $ 35,924 Net income (loss) per common share: Basic $ ( 0.06 ) $ 0.26 $ ( 0.18 ) $ 0.54 Diluted $ ( 0.06 ) $ 0.24 $ ( 0.18 ) $ 0.52 Weighted-average number of shares used to compute net income (loss) per common share: Basic 66,078 66,288 65,700 66,201 Diluted 66,078 69,579 65,700 69,644 Net income (loss) $ ( 3,968 ) $ 16,953 $ ( 11,823 ) $ 35,924 Other comprehensive income, net of tax: Unrealized gain on available-for-sale marketable securities, net 1,190 263 983 1,185 Foreign currency translation adjustments, net 273 ( 33 ) 166 ( 71 ) Total other comprehensive income, net of tax 1,463 230 1,149 1,114 Comprehensive income (loss) $ ( 2,505 ) $ 17,183 $ ( 10,674 ) $ 37,038 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents CALIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of June 29, 2024 65,800 $ 1,645 $ 1,121,786 $ ( 973 ) $ ( 368,234 ) $ 754,224 Stock-based compensation — — 16,371 — — 16,371 Issuance of common stock under equity incentive plans, net of forfeitures 518 13 10,585 — — 10,598 Net loss — — — — ( 3,968 ) ( 3,968 ) Other comprehensive income — — — 1,463 — 1,463 Balance as of September 28, 2024 66,318 $ 1,658 $ 1,148,742 $ 490 $ ( 372,202 ) $ 778,688 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of July 1, 2023 66,320 $ 1,658 $ 1,112,434 $ ( 1,589 ) $ ( 370,733 ) $ 741,770 Stock-based compensation — — 16,026 — — 16,026 Issuance of common stock under equity incentive plans, net of forfeitures 359 9 8,366 — — 8,375 Repurchases of common stock ( 729 ) ( 18 ) ( 32,391 ) — — ( 32,409 ) Net income — — — — 16,953 16,953 Other comprehensive income — — — 230 — 230 Balance as of September 30, 2023 65,950 $ 1,649 $ 1,104,435 $ ( 1,359 ) $ ( 353,780 ) $ 750,945 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2023 65,052 $ 1,627 $ 1,078,393 $ ( 659 ) $ ( 360,379 ) $ 718,982 Stock-based compensation — — 48,686 — — 48,686 Issuance of common stock under equity incentive plans, net of forfeitures 1,380 34 25,398 — — 25,432 Repurchases of common stock ( 114 ) ( 3 ) ( 3,735 ) — — ( 3,738 ) Net loss — — — — ( 11,823 ) ( 11,823 ) Other comprehensive income — — — 1,149 — 1,149 Balance as of September 28, 2024 66,318 $ 1,658 $ 1,148,742 $ 490 $ ( 372,202 ) $ 778,688 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 Stock-based compensation — — 50,090 — — 50,090 Issuance of common stock under equity incentive plans, net of forfeitures 1,169 29 26,630 — — 26,659 Repurchases of common stock ( 954 ) ( 24 ) ( 42,385 ) — — ( 42,409 ) Net income — — — — 35,924 35,924 Other comprehensive income — — — 1,114 — 1,114 Balance as of September 30, 2023 65,950 $ 1,649 $ 1,104,435 $ ( 1,359 ) $ ( 353,780 ) $ 750,945 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents CALIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited) Nine Months Ended September 28, 2024 September 30, 2023 Operating activities: Net income (loss) $ ( 11,823 ) $ 35,924 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Stock-based compensation 48,686 50,090 Depreciation and amortization 14,805 12,181 Deferred income taxes ( 10,420 ) 4,294 Net accretion of available-for-sale securities ( 3,958 ) ( 3,119 ) Changes in operating assets and liabilities: Accounts receivable, net 40,755 13,143 Inventory 32,376 ( 873 ) Prepaid expenses and other assets 7,659 ( 48,532 ) Accounts payable ( 11,809 ) ( 19,756 ) Accrued liabilities ( 39,768 ) ( 141 ) Deferred revenue ( 10,636 ) 1,745 Other long-term liabilities ( 2,830 ) ( 3,629 ) Net cash provided by operating activities 53,037 41,327 Investing activities Purchases of property and equipment ( 12,905 ) ( 13,883 ) Purchases of marketable securities ( 228,456 ) ( 133,521 ) Sales of marketable securities 49,905 — Maturities of marketable securities 115,529 185,888 Net cash provided by (used in) investing activities ( 75,927 ) 38,484 Financing activities: Proceeds from common stock issuances related to employee benefit plans 25,433 26,659 Repurchases of common stock ( 3,738 ) ( 42,409 ) Payments related to financing arrangements — ( 7,560 ) Net cash provided by (used in) financing activities 21,695 ( 23,310 ) Effect of exchange rate changes on cash and cash equivalents 147 101 Net increase (decrease) in cash and cash equivalents ( 1,048 ) 56,602 Cash and cash equivalents at beginning of period 63,409 79,073 Cash and cash equivalents at end of period $ 62,361 $ 135,675 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents CALIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Company and Basis of Presentation Company Calix, Inc. (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 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. Basis of Presentation The accompanying unaudited condensed consolidated financial statements, including the accounts of Calix, Inc. and its wholly-owned subsidiaries, have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. All intercompany balances and transactions have been eliminated in consolidation. The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from the audited financial statements at that date. The results of the Company’s operations can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year or any future periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The Company’s fiscal year begins on January 1 st and ends on December 31 st . 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 September 28, 2024 than for the nine months ended September 30, 2023. 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. 2. 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, 2023. The Company’s significant accounting policies did not change during the nine months ended September 28, 2024. Newly Adopted Accounting Standard The Company did not adopt any new accounting standards during the nine months ended September 28, 2024 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 September 28, 2024 as compared with the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, that are significant or expected to be significant to the Company. 8 Table of Contents 3. Cash, Cash Equivalents and Marketable Securities The Company has invested its excess cash primarily in money market funds and highly liquid marketable securities such as U.S. treasury securities, corporate debt instruments, commercial paper and U.S. government securities. The Company considers all investments with maturities of three months or less when purchased to be cash equivalents. Marketable securities represent highly liquid U.S. treasury securities, corporate debt instruments, commercial paper and U.S. government securities with maturities greater than 90 days at date of purchase. Cash equivalents are stated at amounts that approximate fair value based on quoted market prices. Marketable securities are recorded at their fair values. Marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations. The Company’s investments have been classified and accounted for as available-for-sale. Such investments are recorded at fair value and unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive loss in stockholders’ equity until realized. Realized gains and losses on sales of marketable securities, if any, are determined on the specific identification method and are reclassified from accumulated other comprehensive loss to results of operations as other expense, net. Realized gains and losses were de minimis for the three and nine months ended September 28, 2024 and September 30, 2023. Cash, cash equivalents and marketable securities consisted of the following (in thousands): September 28, 2024 December 31, 2023 Cash and cash equivalents: Cash $ 30,742 $ 18,040 Commercial paper 18,309 32,837 Money market funds 9,177 2,563 U.S. government agency securities 3,968 — U.S. government securities 165 9,969 Total cash and cash equivalents 62,361 63,409 Marketable securities: Corporate debt securities 109,486 7,000 U.S. government securities 62,804 92,277 U.S. government agency securities 29,872 43,521 Commercial paper 16,183 14,139 Certificates of deposit 6,878 — Total marketable securities 225,223 156,937 $ 287,584 $ 220,346 The carrying amounts of the Company’s money market funds approximate their fair values due to their nature, duration and short maturities. 9 Table of Contents The amortized cost and fair value of marketable securities were as follows (in thousands): As of September 28, 2024 Amortized Cost Unrealized Gains Fair Value Corporate debt securities $ 108,616 $ 870 $ 109,486 U.S. government securities 62,682 287 62,969 Commercial paper 34,474 18 34,492 U.S. government agency securities 33,720 120 33,840 Certificates of deposit 6,850 28 6,878 $ 246,342 $ 1,323 $ 247,665 As of December 31, 2023 Amortized Cost Unrealized Gains (Losses) Fair Value U.S. government securities $ 102,167 $ 80 $ 102,247 Commercial paper 47,003 ( 28 ) 46,975 U.S. government agency securities 43,573 ( 52 ) 43,521 Corporate debt securities 6,999 1 7,000 $ 199,742 $ 1 $ 199,743 4. Fair Value Measurements The Company measures its cash equivalents and marketable securities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company utilizes the following three-tier value hierarchy, which prioritizes the inputs used in measuring fair value: Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 – Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 – Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The fair value hierarchy also requires the Company to maximize the use of observable inputs, when available, and to minimize the use of unobservable inputs when determining inputs and determining fair value. 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 September 28, 2024 Level 1 Level 2 Total Money market funds $ 9,177 $ — $ 9,177 U.S. government securities 62,969 — 62,969 Corporate debt securities — 109,486 109,486 Commercial paper — 34,492 34,492 U.S. government agency securities — 33,840 33,840 Certificates of deposit — 6,878 6,878 $ 72,146 $ 184,696 $ 256,842 10 Table of Contents As of December 31, 2023 Level 1 Level 2 Total Money market funds $ 2,563 $ — $ 2,563 U.S. government securities 102,246 — 102,246 Commercial paper — 46,976 46,976 U.S. government agency securities — 43,521 43,521 Corporate debt securities — 7,000 7,000 $ 104,809 $ 97,497 $ 202,306 5. Balance Sheet Details Accounts receivable, net consisted of the following (in thousands): September 28, 2024 December 31, 2023 Accounts receivable $ 85,593 $ 126,331 Allowance for doubtful accounts ( 321 ) ( 304 ) $ 85,272 $ 126,027 Inventory consisted of the following (in thousands): September 28, 2024 December 31, 2023 Raw materials $ 25,704 $ 22,119 Finished goods 74,905 110,866 $ 100,609 $ 132,985 Prepaid expenses and other current assets consisted of the following (in thousands): September 28, 2024 December 31, 2023 Supplier deposits $ 66,790 $ 78,131 Prepaid expenses and other current assets 44,763 40,467 $ 111,553 $ 118,598 Property and equipment, net consisted of the following (in thousands): September 28, 2024 December 31, 2023 Test equipment $ 58,895 $ 50,853 Computer equipment 15,276 13,615 Software 10,966 12,972 Leasehold improvements 2,167 2,122 Furniture and fixtures 1,301 1,283 Total 88,605 80,845 Accumulated depreciation and amortization ( 57,500 ) ( 51,384 ) $ 31,105 $ 29,461 11 Table of Contents Accrued liabilities consisted of the following (in thousands): September 28, 2024 December 31, 2023 Compensation and related benefits $ 23,869 $ 36,741 Component inventory held by suppliers 12,094 32,182 Professional and consulting fees 6,102 7,717 Current portion of warranty 5,383 5,655 Operating leases 4,374 4,142 Customer advances or rebates 4,246 5,967 Taxes payable 3,903 4,317 Travel and event expenses 3,042 3,537 Product returns 2,560 2,897 Insurance 2,061 2,107 Freight 1,189 1,510 Operations 753 1,080 Litigation settlement — 3,250 Other 6,499 5,125 $ 76,075 $ 116,227 Changes in the Company’s accrued warranty liability were as follows (in thousands): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Balance at beginning of period $ 7,371 $ 8,306 $ 8,029 $ 8,386 Accruals for product warranty 1,057 1,081 1,789 2,899 Cost of warranty claims ( 876 ) ( 995 ) ( 2,266 ) ( 2,893 ) Balance at end of period $ 7,552 $ 8,392 $ 7,552 $ 8,392 6. Commitments and Contingencies Lease Commitments The Company leases office space under non-cancelable operating leases. 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 September 28, 2024 (in thousands): Period Future Minimum Lease Payments Remainder of 2024 $ 1,186 2025 4,564 2026 1,693 2027 1,262 2028 and thereafter 1,051 Total future minimum lease payments 9,756 Less imputed interest ( 587 ) $ 9,169 As of September 28, 2024, the operating lease liability consisted of the following (in thousands): Accrued liabilities - current portion of operating leases $ 4,374 Operating leases 4,795 $ 9,169 12 Table of Contents The Company leases its headquarters office space in San Jose, California under a lease agreement that expires in December 2025. The future minimum lease payments under the lease are $ 3.1 million and are included in the table above. The weighted average discount rate for the Company’s operating leases as of September 28, 2024 was 4.9 %. The weighted average remaining lease term as of September 28, 2024 was 2.8 years. For the three and nine months ended September 28, 2024, rent expense was $ 1.2 million and $ 3.5 million, respectively. For the three and nine months ended September 30, 2023, rent expense was $ 1.2 million and $ 3.6 million, respectively. Cash paid within operating cash flows for operating leases was $ 3.4 million for the nine months ended September 28, 2024 and September 30, 2023 for each respective period. Purchase Commitments The Company’s contract manufacturers (“CMs”) and original design manufacturers (“ODMs”) place orders for component inventory based upon the Company’s build forecasts and pursuant to stated component lead times to ensure adequate component supply. The components are used by the CMs and ODMs to build the products included in the build forecasts. The Company generally does not take ownership of the components held by CMs and ODMs. The Company places purchase orders with its CMs and ODMs in order to fulfill its monthly finished product inventory requirements. The Company incurs a liability when it takes ownership of the finished goods inventory after the CMs and ODMs convert the component inventory into a finished product. 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 actual demand. 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. The estimated excess and obsolete component liabilities related to manufacturing and engineering change orders, termination of manufacturing partners and other factors are included in “Accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets, because the corresponding component parts have not been received or paid for by the Company. The Company records the related charges in “Cost of revenue” in its Condensed Consolidated Statements of Comprehensive Income (Loss). As of September 28, 2024 and December 31, 2023, the Company had approximately $ 142.1 million and $ 176.3 million, respectively, of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs. Litigation 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 proceeding or any legal proceeding known to be contemplated by government authorities 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. 7. Stockholders’ Equity 2019 Equity Incentive Award Plan Employees and consultants of the Company, its subsidiaries and affiliates, as well as members of the Company’s Board of Directors, are eligible to receive awards under the 2019 Equity Incentive Award Plan (the “2019 Plan”). 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. As of September 28, 2024, there were 2.9 million shares available for issuance under the 2019 Plan. During the three months ended September 28, 2024, time-based stock option awards exercisable for up to an aggregate of 7,000 shares of common stock were granted with a grant date weighted-average exercise price of $ 37.68 per share. During the nine months ended September 28, 2024, time-based 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 $ 34.43 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 . In February 2024, performance-based stock option awards exercisable for up to an aggregate of 2.4 million shares of common stock were granted to certain Company executives with a grant date exercise price of $ 34.26 per share and divided into two 13 Table of Contents plans, with the first plan accounting for 75 % of the total shares granted and the second plan accounting for 25 % of the total shares granted. The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net operating income for 2024 (collectively, the “2024 Performance Targets”) during the one-year performance period. 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 2024 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. For the first plan, 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 75 % of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 120 % 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 %. For the second plan, if the bookings target is achieved below 90 % of target, the performance-based stock option awards would be forfeited in full. If the target is achieved at the minimum threshold of 90 % of target, then the shares are awarded at 75 % with an increasing percentage of shares awarded above the minimum thresholds up to 100 % of the granted shares. The maximum award is 100 %. The probability of meeting a portion of the performance conditions related to these performance-based stock option awards was assessed to be probable as of September 28, 2024, and stock-based compensation expense of $ 1.9 million was recognized for the three months ended September 28, 2024. For the nine months ended September 28, 2024, stock-based compensation expense of $ 4.7 million was recognized. During the three months ended September 28, 2024, 55,000 shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 13.31 per share. During the nine months ended September 28, 2024, 0.3 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 9.66 per share. As of September 28, 2024, unrecognized stock-based compensation expense of $ 60.7 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 1.9 years. Employee Stock Purchase Plans The Company maintains two employee stock purchase plans - the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”). 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. 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. As of September 28, 2024, there were 4.2 million shares available for issuance under the ESPP. During the nine months ended September 28, 2024, 0.3 million shares were purchased under the ESPP. As of September 28, 2024, unrecognized stock-based compensation expense of $ 1.2 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. 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. The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 7.5 million shares. As of September 28, 2024, there were 2.5 million shares available for issuance under the NQ ESPP. During the nine months ended September 28, 2024, 0.8 million shares were purchased and issued. As of September 28, 2024, unrecognized stock-based compensation expense of $ 13.5 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 years. 14 Table of Contents Stock-Based Compensation The following table summarizes stock-based compensation expense (in thousands): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Cost of revenue $ 770 $ 734 $ 2,113 $ 2,314 Sales and marketing 4,630 4,333 13,672 13,818 Research and development 4,783 4,245 13,695 13,417 General and administrative 6,188 6,714 19,206 20,541 $ 16,371 $ 16,026 $ 48,686 $ 50,090 Income tax benefit recognized $ 2,688 $ 2,578 $ 8,114 $ 9,685 Stock Repurchase Program The Company maintains a common stock repurchase program. 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 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. No shares were purchased during the three months ended September 28, 2024. For the nine months ended September 28, 2024, the Company purchased 0.1 million shares of common stock for $ 3.7 million at an average price per share of $ 32.87 . As of September 28, 2024, the remaining balance under the current authorizations was $ 109.9 million. 8. Revenue from Contracts with Customers 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 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 United States $ 187,080 $ 235,128 $ 579,873 $ 695,491 Americas ex U.S. 6,573 7,414 20,760 26,280 Europe 5,588 19,377 19,161 46,483 Middle East & Africa 1,476 1,740 4,806 5,888 Asia Pacific 228 176 794 717 $ 200,945 $ 263,835 $ 625,394 $ 774,859 Contract Asset 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. Contract assets were $ 3.4 million as of September 28, 2024 as compared to $ 4.7 million as of December 31, 2023, and are included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The Company expects to bill 28 % of the September 28, 2024 balance during 2024. Contract Liability Deferred revenue was $ 50.9 million, $ 54.2 million and $ 61.5 million as of September 28, 2024, June 29, 2024 and December 31, 2023, respectively. The decrease in the deferred revenue balance for the three and nine months ended September 28, 2024 was driven by $ 13.2 million and $ 25.8 million of revenue recognized that was included in the deferred revenue balance at the beginning of each respective period and a trend to move to monthly from annual billing arrangements. This was partially offset by cash payments received or due in advance of satisfying the Company’s performance obligations. 15 Table of Contents 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 $ 295.7 million as of September 28, 2024, and the Company expects to recognize as revenue 37 % of this amount over the next 12 months and nearly all of the remainder over the two years 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 September 28, 2024 and December 31, 2023, the unamortized balance of deferred commissions was $ 13.8 million and $ 12.0 million, respectively. For the three and nine months ended September 28, 2024, the amount of amortization was $ 2.3 million and $ 6.4 million, respectively, compared to $ 1.7 million and $ 4.6 million for the three and nine months ended September 30, 2023, respectively. There was no impairment loss in relation to the costs capitalized for these periods. Concentration of Customer Risk No customer accounted for more than 10% of the Company’s revenue for the three and nine months ended September 28, 2024 and September 30, 2023. One customer represented 14 % of the Company’s total receivables and one customer represented 12 % of accounts receivable as of September 28, 2024. Two customers represented 19 % and 14 % of the Company’s accounts receivable as of December 31, 2023. 9. Income Taxes 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 September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Income (loss) before income taxes $ ( 7,792 ) $ 18,143 $ ( 16,006 ) $ 43,781 Income taxes (benefit) $ ( 3,824 ) $ 1,190 $ ( 4,183 ) $ 7,857 Effective tax rate 49.1 % 6.6 % 26.1 % 17.9 % The Company’s income taxes for the three and nine months ended September 28, 2024 and September 30, 2023 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 September 28, 2024 and September 30, 2023 differed from the statutory federal corporate tax rate of 21% primarily due 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 Company has net deferred tax assets that have arisen primarily as a result of temporary differences, 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 believes that it is more likely than not that the Company will utilize a significant portion of its deferred tax assets. The Company maintained a valuation allowance of $ 29.3 million for the three and nine months ended September 28, 2024, compared to $ 29.9 million for the three and nine months ended September 30, 2023, 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. During the three months ended September 28, 2024, the Company released a valuation allowance of $ 0.6 million related to foreign tax credits that the Company expects to utilize prior to expiration. 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. In December 2021, the Organization for Economic Cooperation and Development enacted model rules for a new global minimum tax framework (“Pillar Two”), and certain governments in countries which the Company operates have enacted local 16 Table of Contents Pillar Two legislation, with an effective date from January 1, 2024. The Company currently does not expect Pillar Two to have a material impact on its financial statements. 10. Net Income (Loss) Per Common Share The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods indicated (in thousands, except per share data): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Numerator: Net income (loss) $ ( 3,968 ) $ 16,953 $ ( 11,823 ) $ 35,924 Denominator: Weighted-average common shares outstanding used to compute basic net income (loss) per share 66,078 66,288 65,700 66,201 Effect of dilutive common stock equivalents — 3,291 — 3,443 Weighted-average common shares outstanding used to compute diluted net income (loss) per share 66,078 69,579 65,700 69,644 Net income (loss) per common share: Basic net income (loss) per common share $ ( 0.06 ) $ 0.26 $ ( 0.18 ) $ 0.54 Diluted net income (loss) per common share $ ( 0.06 ) $ 0.24 $ ( 0.18 ) $ 0.52 Potentially dilutive shares excluded, weighted average 12,294 4,958 12,004 4,022 Potentially dilutive shares have been excluded from the computation of diluted net income (loss) per common share when their effect is antidilutive. These antidilutive shares were from stock options. 17 Table of Contents