What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-23 · 85 added, 62 removed, 140 unchanged (51% of the section changed)

8 unchanged sentences

All forward-looking statements and reasons why results may differ included in this report 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 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.

We develop, market and sell our appliance-based platform, cloud 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 BEPs 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 deliver a growing portfolio of SmartLife managed services and 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.

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 BEPs 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

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 WISPs, fiber overbuilders, cable MSOs, municipalities and electric cooperatives in the United States and internationally.

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 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.

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.

5 unchanged sentences

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

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.

15 unchanged sentences

We base our 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.

To the extent there are material differences between these estimates and

actual results, our financial statements may be affected.

We evaluate our estimates, assumptions and judgments on an ongoing basis.

3 unchanged sentences

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 product is made available to the customer.

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.

5 unchanged sentences

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 may include multiple performance obligations.

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.

We generally determine stand-alone selling prices based on the prices charged to customers or our best estimate of stand-alone selling price.

Our estimate of stand-alone selling price is established considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, characteristics of targeted customers and pricing practices.

The determination of estimated stand-alone selling price is made through consultation with and formal approval by management, taking into consideration the go-to-market strategy.

Observable prices of a product or service when we sell them separately based on stratification by classes of customers and 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

1 unchanged sentence

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, post the global pandemic-induced supply chain challenges, we have purchased, and may continue to purchase, excess components from our suppliers and consigned back to our suppliers to be consumed on future finish good builds.

We regularly monitor inventory on-hand and record write-downs for excess and obsolete inventory based on our estimate of demand for our products, 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.

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 based on our estimated demand of our products, potential obsolescence of technology and product life cycles.

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 the wind down of our legacy product family that existed before our shift to an all-platform model.

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

In addition, from time to time, we procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers or a change in suppliers.

Furthermore, as a result of the global pandemic-induced supply chain challenges and supply assurance plans, 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.

We also evaluate our supplier purchase commitments and record a liability for excess and obsolete components consistent with the valuation of our excess and obsolete inventory and future production requirements.

These write-downs and accruals 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, losing a key customer, changes in our customers’ capital expenditures, government investment programs, technology changes, new product introductions and supply-chain lead times.

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 Not Yet Adopted

There have been no additional accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to us.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes, which prescribes standardized categories and disaggregation of information in the reconciliation of provision for income taxes, requires disclosure of disaggregated income taxes paid and modifies other income tax-related disclosure requirements.

The updated standard is effective for us beginning

with its 2025 annual reporting period.

Early adoption is permitted.

We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which requires additional disclosure of certain costs and expenses within the notes to the financial statements.

The updated standard is effective for our annual periods beginning in 2027 and interim periods beginning in the first quarter of 2028.

Early adoption is permitted.

We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

There have been no other accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to us.

Results of Operations for Years Ended December 31, 2024 and 2023

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

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

Years Ended December 31, 2024 vs 2023 Change

2024 2023 $ %

Revenue $ 1,039,593 $ 867,827 $ 171,766 20 %

Our revenue increased by $171.8 million, or 20%, during 2023 compared with 2022.

The increase in revenue was primarily due to strength in shipments to one of our large customers, continued shipments throughout 2023 from a new medium-sized BSP customer that we added in the third quarter of 2022 and higher revenue from our growing base of small and medium BSP customers as they expand with our platform and managed services to simplify their operations, excite their subscribers with better experiences and grow their value to the communities they serve.

Our revenue is principally derived in the United States.

Revenue generated in the United States represented 91% of revenue in 2023 and 91% in 2022.

Our primary focus has been, and in the near term will continue to be, the United States and Canada given our large, direct sales and marketing presence and the amount of government stimulus being invested into underserved and not-served areas of these countries.

In 2022, we introduced our platform to the United Kingdom.

Over time, we expect to move to additional high average-revenue-per-user markets with our platform.

Large $ 50,776 $ 82,627 $ (31,851) (39) %

Medium 123,977 166,820 (42,843) (26) %

Small 656,765 790,146 (133,381) (17) %

$ 831,518 $ 1,039,593 $ (208,075) (20) %

Our revenue decreased by $208.1 million, or 20%, during 2024 compared with 2023.

The decrease in revenue in the large- and medium-customer segment was primarily due to a small set of significant customers that slowed purchases while we believe they reevaluated their investment priorities.

The decrease in revenue in the small-customer segment was primarily due to what we believe were delayed purchasing decisions of our appliances as our customers evaluated and prepared for various government stimulus programs and customers adjusting their purchases due to our shortened lead times.

Our revenue is principally derived in the U.S.

Revenue generated in the U.S.

represented 92% of revenue in 2024 and 91% in 2023.

Our primary focus has been, and in the near term will continue to be, the U.S.

and Canada given our large, direct sales and marketing presence and the amount of government stimulus being invested into underserved and not-served areas of these countries.

The decrease in international revenue for 2024, as compared to 2023, was mainly due to lower shipments to Europe and to a lesser extent the Americas outside the U.S.

No customer accounted for more than 10% of our revenue for 2024, 2023 or 2022.

5 unchanged sentences

Gross margin 54.6 % 49.9 %

Gross profit increased by $82.9 million to $518.3 million during 2023 from $435.4 million during 2022.

Gross margin decreased to 49.9% during 2023 from 50.2% during 2022.

The decrease in gross margin of 30 basis points, compared to the corresponding period in 2022, was mainly due to charges of $28.7 million recorded in the fourth quarter of 2023 as we wrote down obsolete inventory and accrued a liability for components at suppliers primarily associated with our legacy product family that existed before our shift to an all-platform model.

During 2023, customers moved to our platform model at a faster rate than originally anticipated, leaving us with excess finished goods and related components at suppliers.

This decrease was partially offset by increased contributions from our platform and managed services, a shift in product mix and the sell through of a lower amount of excessively priced components acquired in the secondary market during the supply-chain disruption.

Gross profit decreased by $64.7 million to $453.6 million during 2024 from $518.3 million during 2023.

This decrease was mainly due to the corresponding decrease in revenue.

Gross margin increased to 54.6% during 2024 from 49.9% during 2023.

The increase in gross margin of 470 basis points, compared to the corresponding period in 2023, was primarily related to a charge of $28.7 million that we recorded in the fourth quarter of 2023 as we wrote down obsolete inventory and accrued a liability for components at suppliers primarily associated with our legacy product family that existed before our shift to an all-platform model.

Furthermore, there was a mix shift of hardware sales towards small customers, which generally have higher gross margins, from large- and medium-sized customers.

Additionally, we continued to experience growth in our licenses, cloud and managed services, which became a greater percentage of our total revenue since the overall decline in revenue was related to our appliance revenue.

Operating Expenses

6 unchanged sentences

Percent of revenue 26 % 21 %

Sales and marketing expenses increased by $40.0 million during 2023 compared to 2022 primarily due to increases in personnel expenses of $29.4 million mainly related to increased sales headcount and higher sales incentive compensation corresponding to our increased revenue, stock-based compensation of $5.0 million and travel expenses of $2.2 million.

We expect our investments in sales and marketing will increase in absolute dollars as we extend our market reach and grow our business in support of our key strategic initiatives.

Sales and marketing expenses increased by $3.3 million during 2024 compared to 2023 primarily due to increases in stock-based compensation of $3.9 million, marketing expenses of $0.8 million and travel expenses of $0.6 million.

These increases were partially offset by decreases of outside services of $1.2 million and personnel expenses of $0.7 million.

During 2024, sales and marketing expenses as a percentage of revenue increased to 26% from 21% due to lower revenue compared to 2023.

We expect our investments in sales and marketing will be relatively flat in absolute dollars in the near term.

Research and Development Expenses

6 unchanged sentences

Percent of gross profit 40 % 34 %

The increase in research and development expenses of $45.8 million during 2023 compared with 2022 was mainly due to increases in personnel expenses of $31.7 million driven by increased headcount, stock-based compensation of $4.8 million, depreciation and amortization of $3.2 million, prototypes and test equipment expenses of $2.9 million and outside services of $1.2 million.

We expect our investments in research and development to increase in absolute dollars as we seek to expand the functionality and capabilities of our platforms.

The increase in research and development expenses of $2.1 million during 2024 compared with 2023 was mainly due to increases in depreciation and amortization of $3.0 million, stock-based compensation of $2.1 million, software subscriptions of $1.9 million and personnel expenses of $1.2 million.

These increases were partially offset by decreases in prototypes and test equipment expenses of $3.7 million and outside services of $3.5 million as we transition projects from consultants to our own employees.

During 2024, research and development expenses as a percentage of revenue increased to 22% from 17% due to lower revenue compared to 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

6 unchanged sentences

Percent of revenue 12 % 10 %

The increase in general and administrative expenses of $24.1 million in 2023 compared to 2022 was mainly due to increases in personnel expenses of $10.8 million driven by increased headcount, stock-based compensation of $8.0 million, litigation settlement of $3.2 million and outside services of $1.0 million.

We expect our general and administrative investments to increase in absolute dollars as we support the business.

Interest and Other Income, Net

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

The decrease in general and administrative expenses of $1.5 million in 2024 compared to 2023 was mainly due to a decrease in legal costs due to a settlement in 2023 of $3.3 million and lower outside services expenses of $2.9 million.

These decreases were partially offset by increases in stock-based compensation of $2.0 million and personnel expenses of $1.6 million.

During 2024, general and administrative expenses as a percentage of revenue increased to 12% from 10% due to lower revenue compared to 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.

Interest Income and Other Expense, Net

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

Years Ended December 31, 2024 vs 2023 Change

2024 2023 $ %

Interest and other income, net $ 9,172 $ 1,432 $ 7,740 541 %

Interest and other income, net increased by $7.7 million in 2023 compared with 2022 mainly due to income from marketable securities corresponding to an increase in interest rates.

Interest income and other expense, net $ 11,388 $ 9,172 $ 2,216 24 %

Interest income and other expense, net increased by $2.2 million in 2024 compared with 2023 mainly due to a higher rate of interest earned on our cash, cash equivalents and marketable securities as well as a larger cash and marketable securities balance.

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

3 unchanged sentences

Effective tax rate 6 % 16 %

During 2023, our current tax expense was $6.1 million, and our deferred tax expense was $(0.7) million.

During 2024, our current tax expense was $8.1 million, and our deferred tax benefit was $10.0 million.

Our effective tax rate was lower than the federal statutory rate of 21% primarily due to the impact of stock-based compensation, foreign operations, valuation allowance and uncertain tax positions, offset by research and development tax credits and provision to return adjustments.

During 2023, our current tax expense was $6.1 million, and our deferred tax benefit was $0.7 million.

Our effective tax rate was lower than the federal statutory rate of 21% primarily due to research and development tax credits and provision to return adjustments, partially offset by the impact of stock-based compensation and uncertain tax positions.

During 2022, our current tax expense was $11.1 million, and our deferred tax expense was $1.9 million.

Our effective tax rate was higher than the federal statutory rate of 21% due to state taxes, the U.S.

tax impact of foreign operations, and the impact of stock-based compensation, partially offset by research and development tax credits and stock option windfall deductions.

We continue to maintain a valuation allowance of $30.6 million on certain U.S.

4 unchanged sentences

Liquidity and Capital Resources

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

We fund our operations and investing activities primarily through cash flow generated from operations and sales of our common stock.

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $297.1 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

1 unchanged sentence

This includes $9.1 million of cash primarily held by our foreign subsidiaries.

As of December 31, 2023, our liability for taxes that would be payable because of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significant and limited to withholding taxes considering our existing net operating loss carryovers.

As of December 31, 2024, our liability for taxes that would be payable because of repatriation of undistributed earnings of our foreign subsidiaries to the U.S.

was not significant and limited to withholding taxes considering our existing net operating loss carryovers.

The following table presents the cash inflows and outflows by activity during 2024 and 2023 (in thousands):

2 unchanged sentences

Net cash used in investing activities (109,530) (6,245)

Net cash provided by financing activities (65,926) 25,063

Net cash provided by (used in) financing activities 20,897 (65,926)

Operating Activities

Our operating activities provided cash of $68.4 million in 2024 and $56.3 million in 2023.

The increase in net cash provided by operating activities during 2023 as compared to 2022 was due primarily to an increase in our net operating results after adjustment of non-cash charges of $2.9 million and an increase in our net cash inflow resulting from changes in operating assets and liabilities of $26.1 million.

Non-cash charges consisted of stock-based compensation of $62.8 million, depreciation and amortization of $16.6 million and deferred income taxes of $0.7 million partially offset by net accretion of available-for-sale securities of $4.2 million.

In 2023, cash outflows from changes in operating assets and liabilities primarily consisted of an increase in prepaid expenses and other assets of $60.8 million, mainly due to advanced payments to supply chain partners, an increase in prepaid taxes and reclassification of contract assets from deferred revenue;

an increase in accounts receivable of $32.2 million due to the timing of shipments;

and a decrease in accounts payable of $6.4 million due to the timing of inventory payments.

These changes were partially offset by an increase in accrued liabilities of $32.7 million, mainly due to an increase in the reserves for inventory at suppliers, a decrease in inventory of $16.2 million and an increase in deferred revenue of $2.9 million.

The increase in net cash provided by operating activities during 2024 as compared to 2023 was due primarily to an increase in our net cash inflow resulting from changes in operating assets and liabilities of $70.7 million partially offset by a decrease in our net operating results after adjustment of non-cash charges of $58.6 million.

Non-cash charges consisted of stock-based compensation of $70.8 million and depreciation and amortization of $19.6 million partially offset by deferred income taxes of $10.0 million and net accretion of available-for-sale securities of $5.3 million.

In 2024, cash inflows from changes in operating assets and liabilities primarily consisted of decreases in accounts receivable of $46.7 million and inventory of $30.3 million, both due to lower revenue, and a decrease in prepaid expenses and other assets of $11.2 million.

These changes were partially offset by a decrease in accrued liabilities of $36.0 million, a decrease in accounts payable of $15.1 million due to the lower inventory purchases and a decrease in deferred revenue of $13.9 million due to a change in billing practices towards monthly versus annual.

Investing Activities

In 2023, net cash used in investing activities of $6.2 million consisted of capital expenditures of $17.9 million, primarily consisting of purchases of test and computer equipment and software, partially offset by net maturities of marketable securities of $11.6 million.

In 2024, net cash used in investing activities of $109.5 million consisted of net purchases of marketable securities of $91.4 million and capital expenditures of $18.1 million, primarily consisting of purchases of test and computer equipment.

Financing Activities

In 2023, net cash used in financing activities of $65.9 million consisted of purchases of our common stock of $86.4 million and payments related to a financing arrangement of $11.7 million, partially offset by proceeds from the issuance of common stock related to our equity plans of $32.1 million.

In 2024, net cash provided by financing activities of $20.9 million consisted of the issuance of common stock related to our equity plans of $31.6 million partially offset by purchases of our common stock of $10.7 million.

2023 Compared to 2022

19 unchanged sentences

See Note 5 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K 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.

(2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2033, including our new San Jose headquarters lease that will commence in August 2025.

See Note 5 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our operating leases.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis