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Item 2. Management’s Discussion and Analysis

2025-07-22 compared with 2025-04-22 · 100 added, 63 removed, 127 unchanged (56% of the section changed)

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

Factors that have impacted our cost of revenue for the three months ended March 29, 2025 include:

Factors that have impacted our cost of revenue for the three and six months ended June 28, 2025 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, allowances for obligations to our suppliers and inventory write-downs.

Factors that we expect may impact our cost of revenue in future periods include the same as in the prior quarter and changes in trade policies.

Factors that we expect may impact our cost of revenue in future periods include the same factors in the prior quarter and changes in trade policies.

For example, in April 2025, the U.S.

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Our critical accounting policies and estimates, which are revenue recognition and inventory valuation and supplier purchase commitments, are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2024.

For the three months ended March 29, 2025, there have been no significant changes in our critical accounting policies and estimates.

For the six months ended June 28, 2025, there have been no significant changes in our critical accounting policies and estimates.

Recent Accounting Pronouncements

There have been no additional accounting pronouncements or changes in accounting pronouncements during the three months ended March 29, 2025 as compared with the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2024 that are significant or expected to be significant to us.

There have been no additional accounting pronouncements or changes in accounting pronouncements during the six months ended June 28, 2025 as compared with the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2024 that are significant or expected to be significant to us.

Results of Operations

Comparison of the Three Months Ended March 29, 2025 and March 30, 2024

Comparison of the Three and Six Months Ended June 28, 2025 and June 29, 2024

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

Three Months Ended

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

Large $ 27,836 $ 11,995 $ 15,841 132 % $ 49,480 $ 28,100 $ 21,380 76 %

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$ 241,882 $ 198,139 $ 43,743 22 % $ 462,124 $ 424,449 $ 37,675 9 %

Our revenue decreased by $6.1 million for the three months ended March 29, 2025 as compared to the corresponding period in 2024.

As with others in the telecommunication industry, our business went through a period of adjustments following the COVID pandemic, which resulted in fewer purchases in 2024 such that our revenue hit its lowest level since the second quarter of 2022 in the second quarter of 2024.

Since then, our quarterly revenue has grown sequentially.

The decrease in revenue in the small- and medium-customer segment was primarily due to the industry slowdown in 2024, caused by factors such as order normalization, consideration of the U.S.

Department of Commerce National Telecommunications and Information Administration’s, or NTIA’s, Broadband Equity, Access and Deployment, or BEAD, program and evaluation of business models given relatively low subscriber attach rates.

The increase in revenue in the large-customer segment was primarily due to a demand pull forward by a customer.

For the three months ended March 29, 2025, United States revenue was $211.2 million, or 96% of our revenue, compared to $210.1 million, or 93% of our revenue for the same period in 2024.

International revenue was $9.1 million, or 4% of our revenue, for the three months ended March 29, 2025, as compared to $16.2 million, or 7% of our revenue, for the same period in 2024.

The decrease in international revenue for the three months ended March 29, 2025, as compared to the same period in 2024, 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 months ended March 29, 2025 and March 30, 2024.

Our revenue increased by $43.7 million and $37.7 million for the three and six months ended June 28, 2025, respectively, as compared to the corresponding periods in 2024.

After bottoming in the second quarter last year, we have experienced sequential quarterly revenue growth.

That growth has been broad based.

Specifically, during the second quarter of 2025, the large-customer segment increased $15.8 million primarily due to a North American customer that increased its capital expenditures this year relative to last year and the reclassification of a small customer to the large-customer segment after being acquired by a different large customer.

The medium-customer segment increased $14.9 million primarily due to increased shipments to a European customer.

The small-customer segment increased by $13.0 million as BXPs focused on adding subscribers.

For the three and six months ended June 28, 2025, United States revenue was $219.0 million and $430.2 million, or 91% and 93% of our revenue, compared to $182.7 million and $392.8 million, or 92% and 93% of our revenue for the same periods in 2024.

International revenue was $22.8 million and $31.9 million, or 9% and 7% of our revenue, for the three and six months ended June 28, 2025, as compared to $15.4 million and $31.7 million, or 8% and 7% of our revenue, for the same periods in 2024.

The increase in international revenue for the three and six months ended June 28, 2025, as compared to the same periods in 2024, was mainly due to higher shipments to Europe.

No customer accounted for more than 10% of the Company’s revenue for the three and six months ended June 28, 2025 and June 29, 2024.

Gross Profit and Gross Margin

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

Three Months Ended

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

Gross profit $ 136,295 $ 107,603 $ 28,692 27 % $ 259,003 $ 230,180 $ 28,823 13 %

Gross margin 56.3 % 54.3 % 56.0 % 54.2 %

Gross profit was relatively flat comparing the three months ended March 29, 2025 to the corresponding period in 2024.

Our gross margin increased by 150 basis points for the three months ended March 29, 2025, compared to the corresponding period in 2024, primarily related to the continued growth in our platform, cloud and managed services being a greater percentage of our total revenue.

Gross profit increased to $136.3 million and $259.0 million for the three and six months ended June 28, 2025, from $107.6 million and $230.2 million during the corresponding periods in 2024.

These increases were mainly due to the corresponding increases in revenue.

Our gross margin increased by 200 and 180 basis points for the three and six months ended June 28, 2025, respectively, compared to the corresponding periods in 2024, primarily related to the continued growth in our platform, cloud and managed services being a greater percentage of our total revenue.

Operating Expenses

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

Three Months Ended

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

Sales and marketing expenses $ 63,653 $ 52,238 $ 11,415 22 % $ 121,712 $ 106,135 $ 15,577 15 %

Percent of revenue 26 % 26 % 26 % 25 %

Sales and marketing expenses for the three months ended March 29, 2025 increased by $4.2 million compared with the corresponding period in 2024 primarily due to increases in personnel expenses of $2.8 million, stock-based compensation of $1.6 million and travel expenses of $0.7 million.

These increases were partially offset by decreases in outside services of $0.4 million and depreciation and amortization of $0.4 million.

For the three months ended March 29, 2025, sales and marketing expenses as a percentage of revenue increased to 26% from 24% in the same period in 2024 due to lower revenue and the increases described above.

Sales and marketing expenses for the three months ended June 28, 2025 increased by $11.4 million compared with the corresponding period in 2024 primarily due to increases in stock-based compensation of $6.9 million and personnel expenses of $5.9 million, mostly related to incentive compensation.

These increases were partially offset by a decrease in marketing expenses of $1.6 million.

Sales and marketing expenses for the six months ended June 28, 2025 increased by $15.6 million compared with the corresponding period in 2024 primarily due to increases in personnel expenses of $8.7 million, mostly related to incentive compensation, stock-based compensation of $8.5 million and travel expenses of $1.2 million.

These increases were partially offset by a decrease in marketing expenses of $1.6 million.

For the three and six months ended June 28, 2025, sales and marketing expenses as a percentage of revenue was flat.

We expect our investments in sales and marketing will increase slightly in absolute dollars on a year-over-year basis, but decline as a percentage of revenue, as we continue to land new customers and expand our platform, cloud and managed services.

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

Three Months Ended

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

Research and development expenses $ 45,787 $ 44,123 $ 1,664 4 % $ 89,767 $ 88,545 $ 1,222 1 %

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Percentage of gross profit 34 % 41 % 35 % 38 %

Research and development expenses for the three months ended March 29, 2025 decreased by $0.4 million as compared with the corresponding period in 2024 mainly due to decreases in personnel expenses of $1.4 million and outside services of $1.2 million.

These decreases were partially offset by increases in prototypes and test equipment expenses of $0.7 million, stock-based compensation of $0.6 million and depreciation and amortization of $0.4 million.

For the three months ended March 29, 2025, research and development expenses as a percentage of revenue was flat compared to the same period in 2024.

We expect our investments in research and development to remain relatively flat in absolute dollars in the short term, and decline as a percentage of revenue, as we continue to expand the functionality and capabilities of our platform, cloud and managed services.

Research and development expenses for the three months ended June 28, 2025 increased by $1.7 million as compared with the corresponding period in 2024 mainly due to increases in stock-based compensation of $1.5 million, depreciation and amortization of $0.5 million and outside services of $0.3 million.

These increases were partially offset by a decrease in personnel expenses of $0.8 million.

Research and development expenses for the six months ended June 28, 2025 increased by $1.2 million as compared with the corresponding period in 2024 mainly due to increases in stock-based compensation of $2.1 million, depreciation and amortization of $0.9 million and prototypes and test equipment expenses of $0.9 million.

These increases were partially offset by decreases in personnel expenses of $2.2 million and outside services of $0.9 million.

For the three and six months ended June 28, 2025, research and development expenses as a percentage of gross profit decreased to 34% from 41% and 35% from 38%, respectively, due to the increase in revenue and gross margin.

We expect our investments in research and development to remain relatively flat in absolute dollars in the short term, and decline as a percentage of revenue and gross profit, as we continue 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

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

General and administrative expenses $ 26,464 $ 22,598 $ 3,866 17 % $ 53,214 $ 48,888 $ 4,326 9 %

Percent of revenue 11 % 11 % 12 % 12 %

General and administrative expenses for the three months ended March 29, 2025 increased by $0.5 million as compared with the corresponding period in 2024 mainly due to increases in personnel expenses of $1.6 million and stock-based compensation of $0.6 million.

These increases were partially offset by decreases in professional services expenses of $1.8 million.

For the three months ended March 29, 2025, general and administrative expenses as a percentage of revenue were flat compared to the same period in 2024.

We expect our general and administrative investments to be fairly constant in absolute dollars in the near term, but decline as a percentage of revenue.

General and administrative expenses for the three months ended June 28, 2025 increased by $3.9 million as compared with the corresponding period in 2024 mainly due to increases in stock-based compensation of $1.7 million, personnel expenses of $1.2 million, mostly related to incentive compensation, and professional services expenses of $0.8 million.

General and administrative expenses for the six months ended June 28, 2025 increased by $4.3 million as compared with the corresponding period in 2024 mainly due to increases in personnel expenses of $2.8 million and stock-based compensation of $2.3 million.

These increases were partially offset by a decrease in professional services expenses of $1.0 million.

For the three and six months ended June 28, 2025, general and administrative expenses as a percentage of revenue were flat compared to the same periods in 2024.

We expect our general and administrative investments to be fairly constant in absolute dollars in the near term and decline as a percentage of revenue.

Interest and Other Expense, net

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

Three Months Ended

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

Interest and other expense, net $ 3,036 $ 2,674 $ 362 14 % $ 6,127 $ 5,174 $ 953 18 %

Percent of revenue 1 % 1 % 1 % 1 %

Interest and other expense, net increased by $0.6 million as compared with the corresponding period in 2024 mainly due to a larger cash and marketable securities balance.

Interest and other expense, net increased by $0.4 million and $1.0 million as compared with the corresponding periods in 2024 mainly due to a larger cash and marketable securities balance.

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

Three Months Ended

2025 March 30,

Three Months Ended Six Months Ended

2025 June 29,

2024 Variance

Dollars Variance

Income taxes $ 1,797 $ 365 $ 1,432 392 %

Percent June 28,

2025 June 29,

2024 Variance

Dollars Variance

Income taxes (benefit) $ 3,626 $ (724) $ 4,350 (601) % $ 5,423 $ (359) $ 5,782 (1,611) %

Effective tax rate 105.8 % 8.3 % 1,241.0 % 4.4 %

For the three ended March 29, 2025, our income tax expense was $1.8 million for an effective tax rate of (60.1)%, which differed from the statutory rate of 21% primarily due to the effect of non-deductible stock-based compensation for executive officers and excess tax expense from stock-based compensation offset by the favorable impact of U.S.

federal research tax credits and the U.S.

For the three and six ended June 28, 2025, our income tax expense was $3.6 million for an effective tax rate of 105.8%, which differed from the statutory rate of 21% primarily due to 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 months ended March 29, 2025 are lower than the corresponding period in 2024 primarily as a result of lower pre-tax earnings with a relatively consistent level of non-deductible expenses.

The effective tax rates for the three and six months ended June 28, 2025 are higher than the corresponding periods in 2024 primarily as a result of higher pre-tax earnings with a relatively higher level of non-deductible stock-based compensation for executive officers.

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

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Liquidity and Capital Resources

For the past few years as our business grew and was profitable, we have funded our operations and investing activities from cash flow generated from our operations as well as the issuance of common stock under our equity incentive plans.

As of March 29, 2025, we had cash, cash equivalents and marketable securities of $282.3 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

We fund our operations and investing activities from cash flow generated from our operations as well as the issuance of common stock under our equity incentive plans.

As of June 28, 2025, we had cash, cash equivalents and marketable securities of $299.0 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S.

government and its agency securities, corporate debt securities and commercial paper.

Operating Activities

Net cash provided by operating activities was $17.2 million for the three months ended March 29, 2025 and consisted of a net loss of $4.8 million offset by non-cash charges of $21.4 million and cash flow increases of $0.6 million reflected in the net change in assets and liabilities.

Net cash provided by operating activities was $56.6 million for the six months ended June 28, 2025 and consisted of a net loss of $5.0 million offset by non-cash charges of $50.5 million and cash flow increases of $11.0 million reflected in the net change in assets and liabilities.

Non-cash charges primarily consisted of stock-based compensation of $45.4 million and depreciation and amortization of $8.6 million partially offset by deferred income taxes of $1.3 million and the net accretion of available-for-sale securities of $2.1 million.

Cash flow increases resulting from the net change in assets and liabilities primarily consisted of a decrease in accounts receivable of $3.8 million due to the timing of customer payments, an increase in deferred revenue of $3.2 million driven by support contract renewals, a decrease in prepaid expenses and other assets of $2.8 million mainly due to a reduction in our inventory deposits and an increase in accounts payable of $3.5 million due to the timing of inventory receipts.

This was partially offset by a decrease in accrued liabilities of $14.6 million relating to various factors including a decrease in incentive compensation related accruals.

Net cash provided by operating activities was $14.7 million for the three months ended March 30, 2024 and consisted of net income of $0.1 million and non-cash charges of $17.9 million offset by cash flow decreases of $3.3 million reflected in the net change in assets and liabilities.

Cash flow increases resulting from the net change in assets and liabilities primarily consisted of a decrease in accounts receivable of $16.2 million due to the linearity of shipments through the quarter and timing of customer payments, a decrease in prepaid expenses and other assets of $13.8 million mainly due to a reduction in our inventory deposits and an increase in accounts payable of $2.3 million due to the timing of inventory receipts.

This was partially offset by an increase in inventory of $7.8 million to support increased revenue, a decrease in accrued liabilities of $11.7 million relating to various factors including a decrease in incentive compensation related accruals and a decrease in deferred revenue of $1.7 million.

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 decreases resulting from the net change in assets and liabilities primarily consisted of a decrease in accrued liabilities of $28.9 million due to the payout of incentive compensation and a decrease in the reserves for inventory held at suppliers, and a decrease in accounts payable of $16.0 million due to the timing of inventory payments.

These changes were partially offset by a decrease in accounts receivable of $25.7 million, due to the timing of customer payments and lower sales in the first quarter of 2024 than the prior quarter, a decrease in inventory of $13.2 million as the supply chain continued to normalize, and an increase in deferred revenue of $2.3 million primarily due to support contract renewals as well as an increase in customer payments received or due in advance of satisfying the related contract’s performance obligation.

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.

Investing Activity

For the three months ended March 29, 2025, cash provided by investing activities of $11.0 million consisted of net purchases of marketable securities of $15.3 million and partially offset by capital expenditures of $4.3 million, consisting primarily of purchases of test and computer equipment.

For the three months ended March 30, 2024, cash provided by investing activities of $3.3 million consisted of net maturities of marketable securities of $7.0 million partially offset by capital expenditures of $3.7 million, consisting primarily of purchases of test and computer equipment.

For the six months ended June 28, 2025, cash provided by investing activities of $25.9 million consisted of net maturities and sales of marketable securities of $33.9 million partially offset by capital expenditures of $8.0 million, consisting primarily of purchases of test and computer equipment.

For the six months ended June 29, 2024, cash used in investing activities of $27.0 million consisted of net purchases of marketable securities of $17.4 million and capital expenditures of $9.7 million, consisting primarily of purchases of test and computer equipment.

Financing Activities

Net cash used in financing activities of $29.1 million for the three months ended March 29, 2025 primarily consisted repurchases of our common stock of $40.0 million partially offset by proceeds from the issuance of common stock related to our equity plans of $10.8 million.

Net cash provided by financing activities of $7.1 million for the three months ended March 30, 2024 primarily consisted of proceeds from the issuance of common stock related to our equity plans of $10.8 million partially offset by repurchases of our common stock of $3.7 million.

Net cash used in financing activities of $49.3 million for the six months ended June 28, 2025 primarily consisted repurchases of our common stock of $73.5 million partially offset by proceeds from the issuance of common stock related to our equity plans of $24.2 million.

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.

Working Capital and Capital Expenditure Needs

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

Furthermore, we have a common stock repurchase program, which had $62.9 million available as of March 29, 2025.

Furthermore, we have a common stock repurchase program, which had $129.4 million available as of June 28, 2025.

In April 2025, our Board of Directors authorized a $100.0 million increase to this program.

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Contractual Obligations and Commitments

Our principal commitments as of March 29, 2025 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 March 29, 2025 (in thousands):

Our principal commitments as of June 28, 2025 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 28, 2025 (in thousands):

Payments Due by Period

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(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.

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 2033, including our new San Jose headquarters lease that will commence in August 2025.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis