What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-22 compared with 2021-02-22 · 225 added, 274 removed, 653 unchanged (43% of the section changed)

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standard Board (FASB), Accounting Standards Update No.

2016-02, Leases (Topic 842).

Basis for Opinions

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a

critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of net realizable value of inventory

As discussed in Note 4 to the consolidated financial statements, the Company has finished goods inventories with a carrying value of $52,234 thousand as of December 31, 2020.

As discussed in Note 1 to the consolidated financial statements, the Company adjusts the inventory carrying value for excess or obsolete inventory based on assumptions about future demand for products, potential obsolescence of technology, product life cycle, and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds the estimated selling price.

We identified the evaluation of net realizable value of inventory for excess and obsolescence as a critical audit matter.

Evaluation of the Company’s forecasted demand, including the Company’s determination of the effect of market and economic conditions and technology changes, required significant auditor judgment.

The following are primary procedures we performed to address this critical audit matter.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the recognition and realizability of deferred tax assets

As discussed in Note 10 to the consolidated financial statements, the Company assesses the estimated future realizability of the gross carrying value of its deferred tax assets at each reporting period.

A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

In addition, the Company recognizes the financial statement effects of uncertain tax positions when it is more likely than not that such positions will be sustained upon audit.

During 2021, the Company recognized an income tax benefit of $165.7 million based on management’s reassessment of the amount of its U.S.

federal and other state deferred tax assets that are more likely than not to be realized.

The Company’s deferred tax assets include U.S.

federal net operating loss and research and development carryforwards (hereinafter, collectively referred to as “carryforward assets”) of $388.2 million and $37.1 million as of December 31, 2021, respectively.

The Company had unrecognized tax benefits of $26.0 million as of December 31, 2021, primarily related to the carryforward assets.

We identified the evaluation of the realizability of the carryforward assets, and the related unrecognized tax positions associated with these carryforward assets, as a critical audit matter.

Subjective and challenging auditor judgment was required to:

(i) evaluate the realizability of the carryforward assets based on the projected future taxable income over the periods in which those carryforward assets will be utilized, and (ii) assess the application of tax laws to utilize the carryforward assets, which have begun to expire.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s evaluation of the realizability of the carryforward assets, and the related unrecognized tax positions, including controls related to the application of tax laws and the projections of future taxable income.

We evaluated positive and negative evidence used in assessing whether the carryforward assets were more likely than not to be realized in the future, including evaluating the nature, frequency, and severity of current and cumulative taxable income or losses, as well as future projections of taxable income.

We evaluated the reasonableness of management’s projections of future taxable income considering (i) recent financial profitability trends of the Company, (ii) consistency with industry data and economic trends, (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit, and (iv) the Company’s ability to project future earnings based on comparisons of the Company’s previous annual projections to actual results.

We performed a sensitivity analysis over the amount and timing of future taxable income to assess the impact on utilization of the carryforward assets.

We read historical financial information to evaluate the more likely than not tax position associated with the U.S.

federal net operating loss carryforwards.

We involved income tax professionals with specialized skills and knowledge, who assisted in assessing the Company’s application of tax laws to utilize the carryforward assets, which have begun to expire, and evaluating the recognition and realizability of the carryforward assets.

Evaluation of net realizable value of inventory and excess and obsolete inventory liabilities

As discussed in Notes 1, 4 and 6 to the consolidated financial statements, the Company has finished goods inventories with a carrying value of $88.9 million and excess and obsolete inventory liabilities of $7.6 million as of December 31, 2021.

The Company adjusts the inventory carrying value for excess or obsolete inventory based on assumptions about future demand for products, potential obsolescence of technology, product life cycle, and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds the estimated selling price.

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

The Company also records a liability and a charge to cost of systems revenue for estimated losses on inventory the Company is obligated to purchase from its manufacturers when the inventory has been rendered excess and obsolete 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 projected demand.

We identified the evaluation of net realizable value of inventory and excess and obsolete inventory liabilities as a critical audit matter.

Evaluation of the Company’s forecasted demand, including the Company’s determination of the effect of market and economic conditions, technology and design changes, new product introductions, and discontinuation of products by its suppliers required significant auditor judgment.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s inventory process.

This included controls over the forecasted demand and the Company’s determination of the effect of market and economic conditions and technology changes.

For a sample of inventory, we reperformed the analysis provided by the Company to assess the accuracy of the net realizable value.

We evaluated the Company’s forecasted demand for a selection of certain inventory by assessing historical sales trends and customer orders.

We inquired of Company’s personnel and inspected documents regarding market and economic conditions and technology changes for a selection of certain inventory.

We compared the Company’s forecasted demand to analyst reports.

This included controls over the forecasted demand and the Company’s determination of the effect of market and economic conditions, technology and design changes, new product introductions, and discontinuation of products.

We evaluated the Company’s forecasted demand for a selection of products by assessing historical sales trends and customer order backlog.

For a selection of inventory items, we (1) reperformed the analysis provided by the Company to assess the accuracy of the net realizable value of inventory by comparing historical sales activity, customer order backlog, or demand forecasts to the inventory on hand quantities, and (2) performed inquiries of Company’s personnel and inspected documents regarding market and economic conditions, technology and design changes, and new product introductions.

We evaluated the reasonableness of management’s assumptions used to estimate the excess and obsolete inventory liabilities considering (1) inquiries of Company’s personnel regarding market and economic conditions, technology and design changes, or supplier discontinuations, (2) historical reimbursements to suppliers for excess and obsolete component inventory, (3) the excess and obsolete liabilities and purchase commitment trends, and (4) the sensitivity of the assumptions to the impact of the excess and obsolete liabilities.

We have served as the Company’s auditor since 2015.

San Francisco, California

Santa Clara, California

February 22, 2022

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Cash and cash equivalents $ 51,333 $ 80,807

Restricted cash — 628

Marketable securities 153,002 52,982

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Right-of-use operating leases 12,182 11,741

Deferred tax assets 168,962 —

Goodwill 116,175 116,175

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Deferred revenue 27,478 19,189

Line of credit — 30,000

Total current liabilities 128,136 101,040

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100,000 shares authorized;

62,122 shares issued and outstanding as of December 31, 2020, and 61,778 shares issued and 56,448 shares outstanding as of December 31, 2019

64,274 shares issued and outstanding as of December 31, 2021, and 62,122 shares issued and outstanding as of December 31, 2020

Additional paid-in capital 997,855 948,055

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Accumulated deficit ( 430,714 ) ( 669,092 )

Treasury stock, no shares as of December 31, 2020 and 5,330 shares as of December 31, 2019

Total stockholders’ equity 568,428 280,325

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General and administrative 55,779 44,444 37,115

Restructuring charges 6,286 — 5,705

Restructuring charges (benefit) ( 786 ) 6,286 —

Loss on asset retirement — — 2,474

Gain on sale of product line — — ( 6,704 )

Total operating expenses 282,649 230,173 203,326

Income (loss) from operations 36,846 ( 15,401 ) ( 18,514 )

Operating income (loss) 73,938 36,846 ( 15,401 )

Interest and other expense, net:

Interest expense, net ( 402 ) ( 1,585 ) ( 958 )

Other income (expense), net ( 977 ) ( 173 ) 378

Other expense, net ( 882 ) ( 977 ) ( 173 )

Total interest and other expense, net ( 1,284 ) ( 2,562 ) ( 1,131 )

Income (loss) before provision for income taxes 34,284 ( 16,532 ) ( 18,768 )

Provision for income taxes 800 1,162 530

Income (loss) before income taxes 72,654 34,284 ( 16,532 )

Income taxes ( 165,724 ) 800 1,162

Net income (loss) $ 238,378 $ 33,484 $ ( 17,694 )

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Other comprehensive income (loss), net of tax:

Unrealized loss on available-for-sale marketable securities, net ( 179 ) — —

Foreign currency translation adjustments, net 50 663 ( 101 )

Total other comprehensive income (loss), net of tax ( 129 ) 663 ( 101 )

Comprehensive income (loss) $ 238,249 $ 34,147 $ ( 17,795 )

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Stock-based compensation — — 11,181 — — — 11,181

Exercise of stock options 57 1 383 — — — 384

Issuance of vested performance restricted stock units and restricted stock units, net of taxes withheld 913 22 ( 96 ) — — — ( 74 )

Stock issued under employee stock purchase plans 1,476 38 7,259 — — — 7,297

Cumulative effect of accounting change — — — — 1,773 — 1,773

Net loss — — — — ( 19,298 ) — ( 19,298 )

Other comprehensive loss — — — ( 584 ) — — ( 584 )

Balance as of December 31, 2018 53,955 1,482 876,073 ( 753 ) ( 684,882 ) ( 39,986 ) 151,934

Stock-based compensation — — 11,181 — — — 11,181

Exercise of stock options 75 2 440 — — — 442

Issuance of vested performance restricted stock units and restricted stock units, net of taxes withheld 611 15 ( 182 ) — — — ( 167 )

Stock issued under employee stock purchase plans 1,807 46 8,387 — — — 8,433

Issuance of common stock under equity incentive plans, net of forfeitures 2,493 63 8,645 — — — 8,708

Net loss — — — — ( 17,694 ) — ( 17,694 )

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Stock-based compensation — — 13,960 — — — 13,960

Exercise of stock options 1,088 27 8,957 — — — 8,984

Issuance of vested performance restricted stock units and restricted stock units, net of taxes withheld 314 7 ( 7 ) — — — —

Stock issued under employee stock purchase plans 1,052 26 9,117 — — — 9,143

Issuance of common stock under equity incentive plans, net of forfeitures 2,454 60 18,067 — — — 18,127

Issuance of common stock in connection with public offering, net of expenses 3,220 82 59,981 — — — 60,063

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Balance as of December 31, 2020 62,122 1,553 948,055 ( 191 ) ( 669,092 ) — 280,325

Stock-based compensation — — 24,230 — — — 24,230

Issuance of common stock under equity incentive plans, net of forfeitures 2,152 54 25,570 — — — 25,624

Net income — — — — 238,378 — 238,378

Other comprehensive loss — — — ( 129 ) — — ( 129 )

Balance as of December 31, 2021 64,274 $ 1,607 $ 997,855 $ ( 320 ) $ ( 430,714 ) $ — $ 568,428

See accompanying notes to consolidated financial statements.

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Depreciation and amortization 15,012 13,718 10,316

Deferred income taxes ( 168,426 ) — —

Asset retirements and write-downs — 3,914 2,636

Gain on sale of product line — — ( 6,704 )

Changes in operating assets and liabilities:

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Maturities of marketable securities 197,894 20,000 —

Proceeds from sale of product line — — 10,350

Net cash used in investing activities ( 110,661 ) ( 60,801 ) ( 13,353 )

Financing activities:

Proceeds from exercise of stock options 8,984 442 384

Proceeds from employee stock purchase plans 9,143 8,433 7,297

Taxes paid for awards vested under equity incentive plan — ( 167 ) ( 74 )

Proceeds from common stock issuances related to employee benefit plans 25,624 18,127 8,708

Payments related to financing arrangements ( 1,241 ) ( 5,758 ) ( 2,737 )

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Proceeds from line of credit — 30,000 143,300

Repayments of line of credit ( 60,000 ) ( 143,300 ) ( 557,915 )

Payments to originate the line of credit ( 285 ) — ( 115 )

Payments related to the line of credit — ( 60,285 ) ( 143,300 )

Net cash provided by financing activities 24,383 42,147 5,971

Effect of exchange rate changes on cash and cash equivalents 11 595 ( 89 )

Net increase (decrease) in cash, cash equivalents and restricted cash 33,350 ( 2,817 ) 10,499

Cash, cash equivalents and restricted cash at beginning of year 47,457 50,274 39,775

Net increase (decrease) in cash and cash equivalents ( 29,474 ) 33,350 ( 2,817 )

Cash and cash equivalents at beginning of year 80,807 47,457 50,274

Cash and cash equivalents at end of year $ 51,333 $ 80,807 $ 47,457

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The Company is the leading global provider of cloud and software platforms, systems and services that focus on the access network, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers.

These cloud and software platforms enable communications service providers (“CSPs”) of all types and sizes to innovate and transform their businesses.

The Company’s CSP customers are empowered to utilize real-time data and insights from Calix platforms to simplify their businesses and deliver experiences that excite their subscribers.

These insights enable CSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue, thereby increasing the value of their businesses and contributions to their communities.

These cloud and software platforms enable broadband service providers (“BSPs”) of all types and sizes to innovate and transform their businesses.

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

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

Basis of Presentation and Accounting Guidance

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All significant intercompany balances and transactions have been eliminated in consolidation.

Any reference in these notes to applicable accounting guidance (“guidance”) is meant to refer to the authoritative U.S.

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S.

GAAP as found in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

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The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict as coronavirus continues to spread around the world.

The availability of vaccines has been limited, and there are no assurances as to when the pandemic will be contained.

Since March 2020, the Company has instituted office closures, travel restrictions and a mandatory work-from-home policy for substantially all of its employees.

The spread of COVID-19 has had a prolonged impact on the Company's supply chain operations due to restrictions, reduced capacity and limited availability from suppliers whom the Company relies on for sourcing components and materials and from third-party partners whom the Company relies on for manufacturing, warehousing and logistics services.

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

Although the availability of vaccines has increased, there are no assurances as to when the pandemic will become endemic.

In March 2020, the Company instituted office closures, travel restrictions and a work-from-anywhere policy for substantially all of its employees due to shelter-in-place mandates.

In July 2021, the Company reopened its U.S.

offices to fully-vaccinated employees who choose to work in the office and lifted certain travel restrictions.

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

Although demand for the Company’s products has been strong in the short-term as subscribers seek more bandwidth and better Wi-Fi, customers’ purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact the Company’s revenue and results of operations.

Furthermore, the Company's supply chain continues to face constraints primarily due to challenges in sourcing components and materials for the Company's products, including due to plant closures.

Furthermore, the Company’s supply chain continues to face constraints primarily due to challenges in sourcing components and materials for the Company’s products.

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

As of the issuance date of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity or results of operations is uncertain.

As of the issuance date of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations remains uncertain.

Use of Estimates

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For the Company, these estimates include, but are not limited to:

allowances for doubtful accounts and sales returns, excess and obsolete inventory, allowances for obligations to its contract manufacturers, valuation of stock-based compensation, useful lives assigned to long-lived assets, standard and extended warranty costs and contingencies.

Actual results could differ from those estimates, and such differences could be material to the Company’s financial position and results of operations.

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• Systems include revenue from the sale of access and premises systems, software platform licenses and cloud-based software subscriptions.

• Services include revenue from professional services, customer support, software- and cloud-based maintenance, extended warranty subscriptions, training and managed services.

Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for

those goods or services.

Specifically, revenue from software platform licenses, which provides the customer with a right to use the software as it exists, is generally recognized upfront when made available to the customer.

• Services include revenue from customer support, software- and cloud-based maintenance, extended warranty subscriptions, professional services, training and managed services.

Revenue from sales of access and premises systems is recognized when control is transferred to the customer, which is generally when the products are shipped.

Revenue from software platform licenses, which provides the customer with a right to use the software as it exists, is generally recognized upfront when 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.

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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.

For certain revenue arrangements involving delivery of both systems and professional services, each is considered a distinct performance obligation.

Systems revenue is recognized at a point in time when management has determined that control over systems has transferred to the customer, which is generally when legal title has transferred to the customer.

For the same revenue arrangements, management believes that the output of the associated professional services is transferred to the customer over time.

As such, professional services revenue is recognized over the period in which the services are provided using a cost input measure.

The Company recognizes revenue when control of the systems and services has been transferred to the customer, which may be earlier than system installation or customer acceptance, in accordance with the agreed-upon specifications in the contract.

Cost of Revenue

Cost of revenue consists primarily of finished goods inventory purchased from the Company’s contract manufacturers, payroll and related expenses associated with managing the relationships with contract manufacturers, depreciation of manufacturing test equipment, warranty and retrofit costs, excess and obsolete inventory costs, shipping charges and amortization of certain intangible assets.

Cost of revenue consists primarily of finished goods inventory purchased from the Company’s contract manufacturers, payroll and related expenses associated with managing the relationships with contract manufacturers, depreciation of manufacturing test equipment, warranty and retrofit costs, excess and obsolete inventory costs, allowances for obligations to its contract manufacturers, shipping charges and amortization of certain intangible assets.

It also includes contractor and other costs of services incurred directly related to the delivery of services to customers.

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Stock-Based Compensation

fair value of the award, and is recognized, net of forfeitures, as expense over the remaining requisite service period (generally the vesting period) on a straight-line basis.

Stock-based compensation expense associated with stock options, performance stock options (“PSOs”), restricted stock units (“RSUs”) and purchase rights under the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”) is measured at the grant date based on the fair value of the award, and is recognized, net of forfeitures, as expense over the remaining requisite service period (generally the vesting period) on a straight-line basis.

The fair value of stock option and employee stock purchase right under the ESPP is estimated at the grant date using the Black-Scholes option valuation model.

The fair value of RSUs and employee stock purchase right under the Nonqualified ESPP is based on closing market price of the Company’s common stock on the date of grant.

The fair value of RSUs and employee stock purchase right under the NQ ESPP is based on closing market price of the Company’s common stock on the date of grant.

Stock-based compensation expense associated with PSOs with graded vesting features and which contain both a performance and a service condition is measured based on fair value of stock options estimated at the grant date using the Black-Scholes option valuation model, and is recognized, net of forfeitures, as expense over the requisite service period using the graded vesting attribution method.

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Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, line of credit and other accrued liabilities approximate their fair value due to their relatively short-term nature.

The carrying amounts of cash and cash equivalents, trade receivables, accounts payable and other accrued liabilities approximate their fair value due to their relatively short-term nature.

Marketable securities are valued using quoted market prices in active markets to determine fair value.

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treasury bonds, corporate debt instruments, commercial paper and U.S.

government securities with maturities

greater than 90 days at date of purchase.

government securities with maturities greater than 90 days at date of purchase.

Marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations.

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Such investments are recorded at fair value and unrealized holding gains and losses are reported as a separate component of comprehensive loss in the 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 income (expense), net”.

The Company had no investments as of December 31, 2019.

See Note 2 “ Cash, Cash Equivalents, Restricted Cash and Marketable Securities”.

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 income (expense), net.” Realized loss was de minimis for 2021.

For the Company’s available-for-sale debt securities in an unrealized loss position, the Company determines whether a credit loss exists.

In this assessment, among other factors, the Company considers the extent to which the fair value is less than the amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security.

If factors indicate a credit loss exists, an allowance for credit loss will be recorded to “Other income (expense), net,” limited by the amount that the fair value is less than the amortized cost basis.

The amount of fair value change relating to all other factors will be recognized in other comprehensive loss.

See Note 2 “ Cash, Cash Equivalents and Marketable Securities.”

Allowance for Doubtful Accounts

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Actual collection losses may differ from management’s estimates, and such differences could be material to the Company's financial position and results of operations.

Inventory Valuation

Inventory Valuation and Supplier Purchase Commitments

Inventory, which primarily consists of finished goods purchased from CMs or ODMs, is stated at the lower of cost (determined by the first-in, first-out method) or market value.

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The Company regularly monitors inventory quantities on hand and records write-downs for excess and obsolete inventories based on the Company’s estimate of demand for its products, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds its estimated selling price.

The Company also evaluates its supplier purchase commitments, which have increased significantly due to extended lead-times in the current supply chain environment, and records a liability for excess and obsolete components based on its estimated demand of our products, potential obsolescence of technology and product life cycles.

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

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Contract Costs

The Company capitalizes sales commissions primarily related to extended warranty for which the expected amortization period is greater than one year.

The Company capitalizes certain sales commissions related primarily to multi-year cloud-based software subscriptions and extended warranty support contracts.

Capitalized commissions are amortized as sales and marketing expenses over the period that the related revenue is recognized, which can be up to five years for extended warranty.

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The Company records goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired.

Goodwill is not amortized but instead is subject to an annual impairment test or more frequently if events or changes in circumstances indicate that it may be impaired.

Goodwill is not amortized but instead is subject

to an annual impairment test or more frequently if events or changes in circumstances indicate that it may be impaired.

The Company evaluates goodwill on an annual basis as of the end of the second quarter of each fiscal year.

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These differences result in deferred tax assets and liabilities on the Company’s Consolidated Balance Sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s Consolidated Statements of Comprehensive Loss become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s Consolidated Statements of Comprehensive Income (Loss) become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance.

Management judgment is required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities and any valuation allowance recorded against the Company’s net deferred tax assets.

Excluding foreign operations, the Company recorded a full valuation allowance at each balance sheet date presented because, based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize all of its deferred tax assets in the future.

The Company intends to maintain the full valuation allowance until sufficient evidence exists to support the reversal of the valuation allowance.

The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not more likely than not, it must establish a valuation allowance.

Management judgment is required in determining the Company’s provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets.

Prior to the third quarter of 2021, the Company maintained a 100% valuation allowance against all deferred tax assets, because there was insufficient positive evidence to overcome the existing negative evidence, primarily consisting of several years of consecutive reported pre-tax losses, such that it was not more likely than not that the deferred tax assets were realizable.

In the third quarter of 2021, the Company had reported positive operating performance for five consecutive quarters and continued to maintain a cumulative three-year pre-tax profit.

In addition, the Company expects continued positive operating performance into the foreseeable future to allow for utilization of all operating loss and substantially all tax credit carryforwards prior to their expiration.

After considering these factors, the Company determined that the positive evidence overcame any negative evidence and concluded that it was more likely than not that a substantial portion of its U.S.

federal and certain other state deferred tax assets were realizable.

The Company currently maintains a valuation allowance of $ 29.2 million for certain U.S.

federal and California state deferred tax assets.

Newly Adopted Accounting Standards

The Company did not adopt any new accounting standard in 2020 that were significant to the Company.

In February 2016, the FASB issued Accounting Standards Update No.

2016-02, Leases (Topic 842), which requires recognition of an asset and liability for lease arrangements longer than twelve months.

The Company adopted the new standard effective January 1, 2019 using the effective date approach which eliminates the need to restate amounts presented prior to that date.

The Company also elected the package of practical expedients but not the hindsight practical expedient.

The adoption had a material impact on the Company's Consolidated Balance Sheets but did not impact the Company's Consolidated Statements of Comprehensive Loss, Cash Flows or Stockholders' Equity.

Upon adoption on January 1, 2019, the Company recognized an operating lease right-of-use asset of $ 15.8 million and a lease liability of $ 16.7 million.

The Company did not adopt any new accounting standards in 2021 that were significant to the Company.

Recent Accounting Pronouncements Not Yet Adopted

There have been no accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to the Company.

Cash, Cash Equivalents, Restricted Cash and Marketable Securities

The Company has invested its excess cash primarily in money market funds and highly liquid marketable securities such as 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 corporate debt instruments, commercial paper and U.S.

government securities with maturities greater than 90 days at date of purchase.

Marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations.

Cash equivalents are stated at amounts that approximate fair value based on quoted market prices.

Marketable securities are recorded at their fair values.

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 the 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 income (loss) to results of operations as other income (expense), net.

Realized and unrealized gains and losses were de minimis for 2020.

Cash, cash equivalents, restricted cash and marketable securities consisted of the following (in thousands):

Cash, Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities consisted of the following (in thousands):

Cash and cash equivalents:

Cash $ 26,442 $ 30,745

government securities 39,994 —

Commercial paper 21,582 —

Money market funds 2,320 10,068

Corporate debt securities 989 —

government securities — 39,994

Total cash and cash equivalents 51,333 80,807

Restricted cash — 628

Total cash, cash equivalents and restricted cash 80,807 47,457

Marketable securities – U.S.

Marketable securities:

Commercial paper 80,812 —

government securities 60,279 52,982

government agency securities 5,527 —

Corporate debt securities 3,576 —

Municipal securities 2,808 —

Total marketable securities 153,002 52,982

$ 204,335 $ 133,789

The carrying amounts of the Company’s money market funds approximate their fair values due to their nature, duration and short maturities.

As of December 31, 2020, all marketable securities were due in one year or less.

The above amounts in 2021 are net of $ 0.2 million in unrealized losses.

Unrealized losses in 2020 were de minimis.

As of December 31, 2021, all marketable securities were due in two years or less.

Fair Value Measurements

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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 December 31, 2020 Level 1

As of December 31, 2021 Level 1 Level 2 Total

Money market funds $ 2,320 $ — $ 2,320

government securities 60,279 — 60,279

Commercial paper — 102,394 102,394

government agency securities — 5,527 5,527

Corporate debt securities — 4,565 4,565

Municipal securities — 2,808 2,808

$ 62,599 $ 115,294 $ 177,893

As of December 31, 2020 Level 1

Money market funds $ 10,068

government securities 92,976

Balance Sheet Details

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The table below summarizes the changes in allowance for doubtful accounts and product return liability for the periods indicated (in thousands):

Balance at Beginning of Year Additions Charged to Costs or Expenses or Revenue Deductions and Write Offs Balance at

Balance at Beginning of Year Additions Charged to Expenses or Revenue Net of Recoveries Write Offs and Returns Balance at

Year Ended December 31, 2021:

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Test equipment $ 39,476 $ 37,670

Software 16,093 20,646

Computer equipment 11,156 9,062

Software 9,013 16,093

Furniture and fixtures 1,812 2,069

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Depreciation and amortization expenses were $ 15.0 million, $ 13.7 million and $ 10.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Loss on Asset Retirement

In July 2018, in connection with establishing a direct relationship with Verizon Communications, Inc.

(“Verizon”), the Company licensed software from a former partner to support the Company's deployments at Verizon.

During the third quarter of 2019, Verizon informed the Company that it no longer required this software.

As a result, the Company wrote off the software in the third quarter of 2019, resulting in a $ 2.5 million charge in the Company's Consolidated Statements of Comprehensive Income (Loss).

Other long-term assets consisted of the following (in thousands):

Intangible asset $ 6,885 $ 9,517

Capitalized cloud implementation costs 1,287 6,089

Other long-term assets 6,800 2,648

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Intangible Asset Acquisition

In March 2018, the Company entered into an agreement with a vendor to develop certain software product and related enhancements pursuant to which the Company may be obligated to make minimum revenue-share payments under the program of up to $ 15.8 million over the three years following availability for sale.

The payments are based on a revenue-share rate applied to revenue from the developed-product and the corresponding hardware sales subject to a minimum and a maximum aggregate amount over the three-year sales period.

In March 2018, and as amended in December 2020, the Company entered into an agreement with a vendor to develop a certain software product and related enhancements pursuant to which the Company is obligated to make revenue-share payments under the program, subject to aggregate fixed revenue-share payments of $ 15.8 million.

The payments are based on a revenue-share rate applied to revenue from the developed-product and the corresponding hardware sales through March 2024.

If the minimum revenue-share payments are not achieved by the end of that period, a true-up payment will be due.

The Company had its first sale in August 2019, and as a result, the Company capitalized an intangible asset with a value of $ 13.2 million in the third quarter of 2019 and also recognized a liability of $ 13.2 million (a non-cash investing activity).

The liability balance is $ 13.9 million of which $ 2.9 million is included in accrued liabilities and $ 11.0 million in other long-term liabilities in the accompanying Consolidated Balance Sheet as of December 31, 2020.

The intangible asset has an estimated five-year useful life and is being amortized using the greater of the ratio of current gross revenue for the products to the total of current and anticipated future gross revenue for the products or the straight-line method.

In December 2020, the Company amended the agreement to increase the revenue-share rate, limit the revenue-share payments to $ 15.8 million and extend the revenue-share period until March 2024.

As of December 31, 2021, the liability, including accrued interest, was $ 13.2 million of which $ 4.7 million is included in “Accrued liabilities” and $ 8.5 million in “Other long-term liabilities” in the accompanying Consolidated Balance Sheet.

As of December 31, 2020, the liability, including accrued interest, was $ 13.9 million of which $ 2.9 million was included in accrued liabilities and $ 11.0 million in other long-term liabilities.

Capitalized Cloud Implementation Costs

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This amount is being amortized over a period of 29 months, representing the remaining contractual term.

The amortization expense for the year ended December 31, 2020 was $ 3.1 million.

The amortization expense for the years ended December 31, 2021 and 2020 was $ 3.1 million.

Accrued liabilities consisted of the following (in thousands):

Compensation and related benefits $ 23,165 $ 23,740

Warranty and retrofit 9,208 7,294

Customer advances or rebates 8,374 7,252

Professional and consulting fees 4,497 4,996

Component inventory held by suppliers 7,611 3,992

Current portion of warranty and retrofit 7,076 9,208

Professional and consulting fees 4,819 4,497

Customer advances or rebates 4,742 8,374

Current portion of revenue-share payments 4,731 2,925

Taxes payable 4,251 3,476

Operating leases 2,994 2,663

Current portion of financing arrangements 2,925 4,044

Freight 3,997 1,955

Operating leases 3,596 2,994

Product returns 1,836 1,888

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The Company incurred restructuring charges of approximately $ 6.3 million, consisting of facilities-related charges and severance and other termination related benefits for the year ended December 31, 2020.

As part of its work-from-anywhere culture, many of the Company’s employees elected to work remotely on a permanent basis.

In light of this shift, the Company evaluated its space needs and determined that a portion of the Company's leased office spaces in Richardson, Texas and San Jose, California would no longer be utilized.

As a result, the right-of-use assets related to these leases were written down, resulting in a charge of $ 3.5 million for the year ended December 31, 2020.

In addition, the Company wrote off assets with net book value of $ 0.3 million and accrued common areas maintenance fees and property taxes related to the unused office space totaling $ 1.4 million for the year ended December 31, 2020.

The following table summarizes the activities pursuant to the above restructuring plans (in thousands):

In the fourth quarter of 2021, as a result of subleasing the abandoned portion of the Company’s San Jose headquarters, the Company reversed $ 0.8 million in facilities-related charges due to the expected recovery of accrued common areas maintenance fees.

The following table summarizes the activities pursuant to the above restructuring plan (in thousands):

Facilities Severance and Related Benefits Total

Balance as of March 28, 2020 $ — $ — $ —

Restructuring charges $ 5,112 $ 1,174 $ 6,286

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Balance as of December 31, 2020 $ 1,244 $ 132 $ 1,376

The Company initiated a restructuring plan in February 2018 to further align its business resources based on the production releases of its platform offerings.

The Company incurred restructuring charges of approximately $ 5.7 million for the year ended December 31, 2018, consisting primarily of severance and other termination related benefits.

Restructuring benefit ( 786 ) — ( 786 )

Cash payments ( 277 ) ( 132 ) ( 409 )

Balance as of December 31, 2021 $ 181 $ — $ 181

Credit Agreements

Line of Credit

In January 2020, the Company terminated its loan and security agreement with Silicon Valley Bank and entered into a new loan and security agreement with Bank of America, N.A.

In January 2022, the Company terminated the loan and security agreement with Bank of America, N.A.

(“BofA Loan Agreement”).

The BofA Loan Agreement provides for a revolving facility up to a principal amount of $ 35.0 million, including a $ 10.0 million sublimit for letters of credit.

The BofA Loan Agreement matures, and all outstanding amounts become due and payable, in January 2023.

The BofA Loan Agreement is secured by substantially all of the Company’s assets, including the Company’s intellectual property.

Loans under the credit facility bear interest at a rate per annum equal to either LIBOR (customarily defined) plus an applicable margin between 1.5 % to 2.0 % or Prime Rate (customarily defined) plus an applicable margin between 0.5 % to 1.0 %, in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter.

The interest rate on the line of credit was 3.75 % as of December 31, 2020.

The availability of borrowings under the BofA Loan Agreement is subject to certain conditions and requirements, including among others, if at any time the Company’s availability is less than $ 5.0 million, the Company must maintain a minimum fixed charge coverage ratio of 1.0 to 1.0.

As of December 31, 2020, the Company was in compliance with these requirements, had no outstanding borrowings and had full availability to $ 35.0 million.

The BofA Loan Agreement provided for a revolving facility up to a principal amount of $ 35.0 million and would have expired in January 2023.

As of December 31, 2021, the Company had no outstanding borrowings.

Financing Arrangements

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The weighted average interest rate was 6.2 %.

During 2018 and 2019, the Company entered into financing arrangements for consulting services of $ 3.8 million in connection with the Company’s ERP implementation.

These were non-cash investing activities of $ 2.0 million and $ 1.8 million for years ended December 31, 2019 and 2018, respectively.

The Company entered into financing arrangements for consulting services of $ 2.0 million in 2019 and $ 1.8 million in 2018 in connection with the Company’s ERP implementation, which were non-cash investing activities.

In the fourth quarter of 2020, the Company paid $ 1.4 million to settle the remainder of the balance.

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Year Ending December 31, Future Minimum Lease Payments

Thereafter 42

Total future minimum lease payments 18,034

Less imputed interest ( 2,062 )

As of December 31, 2020, the o perating lease liability consisted of the following (in thousands):

As of December 31, 2021, the operating lease liability consisted of the following (in thousands):

Accrued liabilities - current portion of operating leases $ 3,596

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The future minimum lease payments under the lease are $ 9.6 million and are included in the table for the year ended December 31, 2021 above.

In October 2020, the Company entered into a lease extension for its facility in Nanjing, China.

The lease extension will commence in February 2021 for a term of 60 months.

In October 2021, the Company entered into a lease for a facility in Bangalore, India.

The lease commenced in October 2021 for a term of 60 months.

The future minimum lease payments of $ 2.2 million are included in the table for the year ended December 31, 2021 above.

The Company recorded a right-of-use operating lease asset and operating lease liability of $ 2.0 million in the fourth quarter of 2021.

The Company’s previous lease in Nanjing, China expires in February 2021.

The above tables also include future minimum lease payments for the Company's office facilities in Petaluma, California;

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Richardson, Texas;

Nanjing, China;

and West Jordan, Utah, which expire at various dates through 2027.

In November 2021, the Company entered into a sublease for a portion of the San Jose headquarters office space that was previously abandoned.

The sublease commences in August 2022 for a term of 39 months.

Future minimum payments consisted of the following as of December 31, 2021 (in thousands):

Year Ending December 31, Future Minimum Sublease Payments

Total future minimum sublease payments $ 2,492

The weighted average discount rate for the Company’s operating leases as of December 31, 2021 was 6.1 %.

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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 the CMs and ODMs convert the component inventory to a finished product and takes ownership of the finished goods inventory.

The Company incurs a liability when the CMs and ODMs convert the

component inventory to a finished product and takes ownership of the finished goods inventory.

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.

As of December 31, 2020, the Company had approximately $ 123.7 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one year.

As of December 31, 2021 and 2020, the Company had approximately $ 247.3 million and $ 123.7 million, respectively, of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one to two years.

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 projected demand.

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Stockholders’ Equity

Stock Offering

In August 2020, the Company completed an underwritten public offering of 3,220,000 shares of its common stock at $ 20.00 per share, including a full exercise by the underwriters of their option to purchase an additional 420,000 shares of Common Stock, resulting in net proceeds of $ 60.1 million, after deducting the underwriting discount and expenses paid by the Company.

Treasury Stock Retirement

In August 2020, the Company’s Board of Directors authorized the retirement of the 5,329,817 shares of common stock held as treasury stock.

Under Delaware law these shares return to the authorized but unissued common stock pool.

As a result, the Company eliminated the $ 40.0 million treasury stock balance, offsetting this against common stock by $ 0.1 million and additional paid-in capital by $ 39.9 million.

Preferred Stock

The Board of Directors has the authority, without action by stockholders with the exception of stockholders who hold board positions, to designate and issue up to 5.0 million shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof.

The Board of Directors has the authority, without a further vote of the stockholders, to designate and issue up to 5.0 million shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof.

These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock.

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No dividends have been declared or paid as of December 31, 2021.

event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

Treasury Stock Retirement

In August 2020, the Company’s Board of Directors authorized the retirement of the 5,329,817 shares of common stock held as treasury stock.

Under Delaware law these shares return to the authorized but unissued common stock pool.

As a result, the Company eliminated the $ 40.0 million treasury stock balance, offsetting this against common stock by $ 0.1 million and additional paid-in capital by $ 39.9 million.

Equity Incentive Plans

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The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs or other stock or cash-based awards and dividend equivalents to eligible individuals.

The number of shares available for issuance under the 2019 Plan includes an initial reserve of 1.7 million shares of common stock, any shares of common stock that are available for issuance under the 2010 Plan as of the effective date of the 2019 Plan and any shares of common stock subject to issued and outstanding awards under the 2010 Plan that expire, are cancelled or otherwise terminate following the effective date of the 2019 Plan.

The number of shares available for issuance under the 2019 Plan included an initial reserve of 1.7 million shares of common stock, any shares of common stock that are available for issuance under the 2010 Plan as of the effective date of the 2019 Plan and any shares of common stock subject to issued and outstanding awards under the 2010 Plan that expire, are cancelled or otherwise terminate following the effective date of the 2019 Plan.

At the Company’s 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 3.8 million shares.

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The options have a maximum term of ten years .

Each RSU granted under the 2019 Plan represents a right to receive one share of the Company’s common stock (subject to adjustment for certain specified changes in the capital structure of the Company) upon the completion of a specific period of continued service.

In February 2019, PSOs exercisable for up to an aggregate of 2.0 million shares of common stock were granted to Company executives with a grant date fair value of $ 8.03 per share.

These PSOs contain a one-year performance period and a subsequent three-year service period.

The actual number of shares earned was contingent upon the achievement of both annual and quarterly corporate financial targets for revenue, non-GAAP gross margin and non-GAAP net income per share for 2019 (collectively, the “2019 Performance Targets”) during the one-year performance period.

In August 2019, the Compensation Committee of the Company’s Board of Directors amended the 2019 Performance Targets to provide for the award of up to 40 % of the total number of shares subject to a stock option award in the event the annual corporate financial targets are not met but the quarterly corporate financial targets are met.

In February 2020, the Compensation Committee of the Company’s Board of Directors certified that 30 % of the PSOs were earned, of which 25 % of the shares of common stock vested on that date and the remaining 75 % of the shares of common stock earned will vest in substantially equal quarterly installments over the subsequent 3 years, subject to the executive’s continuous service with the Company through the respective vesting dates.

In February 2020, PSOs exercisable for up to an aggregate of 0.8 million shares of common stock were granted to certain Company executives with a grant date fair value of $ 9.16 per share.

The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net income for 2020 (collectively, the “2020 Performance Targets”) during the one-year performance period.

Under the 2020 Performance Targets, if non-GAAP net income is below 80 % of target and bookings are below 90 % of target, no shares are awarded.

Under the 2020 Performance Targets, if non-GAAP net income is below 80 % of target or bookings are below 90 % of target, no shares are awarded.

From this base, shares are awarded on a 50 % weighting for both non-GAAP net income and bookings up to 100 % for each 2020 Performance Target using a sliding scale.

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As such, 25 % of the shares of the PSOs were vested on that date, and the remaining 75 % of the shares of common stock will vest substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

Stock-based compensation expense of $ 0.8 million and $ 1.6 million was recognized for the years ended December 31, 2021 and 2020, respectively, related to these awards.

In February 2021, PSOs exercisable for up to an aggregate of 0.7 million shares of common stock were granted to certain Company executives with a grant date exercise price of $ 36.74 per share.

The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net income for 2021 (collectively, the “2021 Performance Targets”) during the one-year performance period.

Under the 2021 Performance Targets, if the non-GAAP net income is below 80 % of target or bookings are below 90 % of target, no shares would be awarded.

From this base, shares are awarded on a 50 % weighting for both non-GAAP net income and bookings up to 100 % for each 2021 Performance Target using a sliding scale.

In February 2022, the Compensation Committee of the Company’s Board of Directors certified the results against the 2021 Performance Targets and awarded 97 % of PSOs subject to the four-year services condition.

As such, 25 % of the awarded shares of the PSOs were vested on that date, and the remaining 75 % of the shares of common stock will vest substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

Stock-based compensation expense of $ 6.3 million was recognized for the year ended December 31, 2021 related to these awards.

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Total cash received from employees as a result of stock option exercises in 2021, 2020 and 2019 was $ 11.2 million, $ 0.9 million and $ 0.4 million, respectively.

Total fair values of stock options vested during 2020, 2019 and 2018 were $ 4.4 million, $ 7.6 million and $ 2.7 million, respectively.

Restricted Stock Units

The following table summarizes the activities of the Company’s RSUs under the Company’s equity incentive plans (in thousands, except per share data):

Number of Fair Value

Shares Per Share

Outstanding as of December 31, 2019 334 $ 6.71

Granted 112 11.22

Vested ( 314 ) 6.70

Canceled ( 5 ) 6.78

Outstanding as of December 31, 2020 127 $ 10.71

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 annual compensation subject to certain Internal Revenue Code limitations.

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.

In addition, no participant may purchase more than 2,000 shares of common stock in each offering period.

During 2020, the Company revised the ESPP’s two six-month offering periods to August 15 th through February 14 th and February 15 th through August 14 th of each year, with a transition period that began on May 15 th and ended on August 14, 2020.

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.

In May 2019, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 2.5 million shares.

At the Company’s 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 1.3 million shares.

The total shares authorized for issuance under the ESPP increased from 9.8 million shares to 11.1 million shares.

As of December 31, 2021, there were 3.6 million shares available for issuance under the ESPP.

During the year ended December 31, 2020, 0.6 million shares were purchased under the

ESPP, respectively.

During the year ended December 31, 2021, 0.3 million shares were purchased under the ESPP.

As of December 31, 2021, unrecognized stock-based compensation expense of $ 0.3 million related to the ESPP is expected to be recognized over a remaining service period of 0.1 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 annual compensation.

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 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.

Beginning in the fourth quarter of 2020, the NQ ESPP’s two six-month offering periods changed to November 15 th through May 14 th and May 15 th through November 14 th of each year, with a transition period that began on June 21, 2020 and ended on November 14, 2020.

In May 2020, the stockholders approved an amendment of certain terms and an increase in the number of shares of common stock issuable under the NQ ESPP by 1.2 million shares.

The NQ ESPP provides two six-month offering periods from November 15 th through May 14 th and May 15 th through November 14 th of each year.

At the Company’s 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the NQ ESPP by 0.8 million shares.

The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 5.5 million shares, with a maximum of 0.5 million shares allocated per purchase period.

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Stock-Based Compensation

During the years ended December 31, 2020, 2019 and 2018, the Company recorded stock-based compensation expense of $ 14.0 million, $ 11.2 million and $ 17.5 million, respectively.

The following table summarizes stock-based compensation expense (in thousands):

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ESPP $ 12.93 $ 5.52 $ 2.04

Nonqualified ESPP $ 19.40 $ 7.24 $ 7.34

The Company values the RSUs and employee stock purchase rights under the Nonqualified ESPP at the closing market price of the Company’s common stock on the date of grant.

NQ ESPP $ 55.50 $ 19.40 $ 7.24

The Company values employee stock purchase rights under the NQ ESPP at the closing market price of the Company’s common stock on the date of grant.

The Company estimates the fair value of stock options and employee stock purchase right under the ESPP at the grant date using the Black-Scholes option-pricing model.

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As of December 31, 2021, unrecognized stock-based compensation expense by award type, net of estimated forfeitures, and their expected weighted-average recognition periods are summarized in the following table (in thousands).

Stock Option RSU ESPPs

Stock Option ESPPs

Unrecognized stock-based compensation expense $ 31,512 $ 8,355

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Stock options outstanding 6,648

Restricted stock units outstanding 127

Shares available for future grant under 2019 Plan 6,846

Shares available for future issuance under ESPP 3,589

Shares available for future issuance under Nonqualified ESPP 2,274

Shares available for future issuance under NQ ESPP 2,802

Employee Benefit Plan

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The table below summarizes the changes in accumulated other comprehensive loss by component:

` Foreign Currency Translation Adjustments

Balance as of December 31, 2018 $ ( 753 )

Other comprehensive loss ( 101 )

` Unrealized Gains and Losses on Available-for-Sale Marketable Securities Foreign Currency Translation Adjustments Total

Balance as of December 31, 2019 $ — $ ( 854 ) $ ( 854 )

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Balance as of December 31, 2020 — ( 191 ) ( 191 )

Other comprehensive income (loss) ( 179 ) 50 ( 129 )

Balance as of December 31, 2021 $ ( 179 ) $ ( 141 ) $ ( 320 )

Assets and liabilities of the Company’s wholly owned foreign subsidiaries are translated from their respective functional currencies at exchange rates in effect at the balance sheet date, and revenue and expenses are translated at the monthly average exchanges rates.

These translations result in differences called foreign currency translation adjustments.

Realized foreign currency transaction gains or losses were not significant during the years ended December 31, 2020, 2019 and 2018 and are recorded in “Other income (expense), net” in the Company's Consolidated Statements of Comprehensive Loss.

The domestic and foreign components of income (loss) before provision for incomes taxes were as follows (in thousands):

Realized foreign currency transaction gains or losses were not significant during the years ended December 31, 2021, 2020 and 2019 and are recorded in “Other income (expense), net” in the Company's Consolidated Statements of Comprehensive Income (Loss).

The domestic and foreign components of income (loss) before incomes taxes were as follows (in thousands):

Years Ended December 31,

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$ 72,654 $ 34,284 $ ( 16,532 )

Provision for income taxes consisted of the following (in thousands):

I ncome taxes consisted of the following (in thousands):

Years Ended December 31,

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Current income tax 3,256 792 1,148

Deferred foreign income tax 8 14 65

Federal ( 157,355 ) — —

State ( 11,631 ) — —

Foreign 6 8 14

Deferred income tax ( 168,980 ) 8 14

$ ( 165,724 ) $ 800 $ 1,162

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Federal statutory rate 21.0 % 21.0 % 21.0 %

State statutory rate 0.1 5.6 5.7

Impact of state taxes ( 15.6 ) 0.1 5.6

Foreign operations ( 0.2 ) 0.6 ( 2.8 )

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Net operating loss expiration ( 13.1 ) 37.4 —

ASC 606 adjustment — — ( 2.0 )

( 228.1 ) % 2.3 % ( 7.0 ) %

The significant components of the Company’s deferred tax assets were as follows (in thousands):

Deferred tax assets:

Deferred tax assets (liabilities):

Net operating loss carryforwards $ 82,672 $ 114,973

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All deferred taxes, along with any related valuation allowance, are classified in the Consolidated Balance Sheet as long-term.

Management reviews the recognition of deferred tax assets to determine if realization of such assets is more likely than not.

The realization of the Company’s deferred tax assets is dependent upon the evaluation of historic losses, reversing temporary differences, and future earnings.

As of December 31, 2020, the positive evidence includes 3 years of cumulative U.S.

profitability.

The negative evidence includes historic cumulative losses from 1999 through the third quarter of 2020, expiring attributes that are unavailable for utilization, uneven financial results from year to year, and uncertainly related to the COVID-19 pandemic which makes the evaluation of future earnings challenging.

Using the more likely than not criteria specified in the applicable accounting guidance, this negative evidence cannot be overcome by positive evidence currently available to the Company.

As a result, the Company has maintained a full valuation allowance against its deferred tax assets with the exception of certain foreign deferred tax assets.

The Company’s valuation allowance decreased by $ 16.5 million in 2020 and increased by $ 2.8 million in 2019.

At each reporting period, the Company assesses the estimated future realizability of the gross carrying value of its deferred tax assets.

The Company’s periodic assessments take into consideration both positive evidence (future profitability projections for example and recent financial performance) and negative evidence (historical financial performance for example) as it relates to evaluating the future recoverability of its deferred tax assets.

During 2021, the Company recognized an income tax benefit of $ 165.7 million, based on management’s reassessment of the amount of its U.S.

federal and other state deferred tax assets that are more likely than not to be realized, primarily as a result of actual and projected increases in U.S.

profitability in the current and future periods.

In performing its analysis, the Company used the most updated plans and estimates that it currently uses to manage the underlying business and calculated the ability to utilize its deferred tax assets.

The Company continues to maintain a valuation allowance of $ 29.2 million 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.

As of December 31, 2021, the Company had U.S.

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federal, California and other U.S.

states research and development credits of approximately $ 37.3 million, $ 38.0 million and $ 3.1 million, respectively, as of December 31, 2020.

federal research and development credits will begin to expire in 2020 and the California research

and development credits have no expiration date.

states research and development credits of approximately $ 37.1 million, $ 42.1 million and $ 3.0 million as of December 31, 2021, respectively.

federal research and development credits have begun to expire in 2021, and the California research and development credits have no expiration date.

The credits related to other various U.S.

states have begun to expire and will continue to expire at various dates through 2036.

In 2019, the Company reassessed its plan to continue to reinvest its foreign earnings overseas.

The Company no longer asserts ASC 740-30 indefinite reinvestment of its historical non-U.S.

earnings or future non-U.S.

As such, for the year ended December 31, 2020, the Company recorded a current and cumulative tax expense of $ 0.1 million and $ 0.6 million, respectively, for the estimated withholding, state income tax and foreign income tax associated with repatriating non-U.S.

earnings back to the United States.

Uncertain Tax Positions

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The standard requires the Company to recognize the financial statement effects of an uncertain tax position when it is more likely than not that such position will be sustained upon audit.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively, in statements of comprehensive loss.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively, in its Consolidated Statements of Comprehensive Income (Loss).

The following table reconciles the Company’s unrecognized tax benefits (in thousands):

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Balance at beginning of year $ 23,516 $ 22,264

Addition (reduction) for tax positions related to prior year ( 163 ) ( 382 )

Reduction for tax positions related to prior year ( 1,427 ) ( 163 )

Additions for tax positions related to prior year 1,947 —

Additions for tax positions related to current year 1,956 1,415

Balance at end of year $ 25,992 $ 23,516

As of December 31, 2020 and 2019, the Company had unrecognized tax benefits of $ 23.5 million and $ 22.3 million, respectively, none of which would affect the Company’s effective tax rate if recognized.

As of December 31, 2021 and 2020, the Company had unrecognized tax benefits of $ 26.0 million and $ 23.5 million, respectively, $13.7 million of which would affect the Company’s effective tax rate if recognized.

There were no accrued interest or penalties for uncertain income tax as of December 31, 2021.

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Geographic Information:

The following is a summary of revenue by geographic region based upon the location of the customers (in thousands):

The following is a summary of revenue disaggregated by geographic region based upon the location of the customers (in thousands):

Years Ended December 31,

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Europe 45,879 22,925 11,464

Canada 16,842 14,531 10,542

Middle East 14,071 18,664 18,814

Caribbean 9,864 5,809 7,075

Other 7,889 8,260 9,690

Americas excluding U.S.

45,719 27,802 24,821

Middle East & Africa 19,018 14,075 18,617

Asia Pacific 2,814 2,658 3,727

$ 679,394 $ 541,239 $ 424,330

The Company’s property and equipment, net of accumulated depreciation, are located in the following geographical areas (in thousands):

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Amounts are billed in accordance with the agreed-upon contractual terms.

The balance at December 31, 2019 was $ 5.0 million of which $ 0.4 million remained in the Company's Consolidated Balance Sheet at December 31, 2020.

The closing balance as of December 31, 2020 was $ 2.3 million of which the Company expects to bill 92 % of the balance during 2021.

The balance as of December 31, 2021 was $ 1.7 million of which the Company expects to bill 91 % of the balance during 2022.

The balance as of December 31, 2020 was $ 2.3 million of which $ 0.2 million remained in the Company's Consolidated Balance Sheet at December 31, 2021.

The decrease in the contract asset was driven by billings for past services as well as the timing and volume of professional services contracts.

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Revenue allocated to remaining performance obligations represent 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.

This amount was

$ 71.1 million as of December 31, 2020, and the Company expects to recognize 40 % of such revenue over the next 12 months and the remainder thereafter.

This amount was $ 125.3 million as of December 31, 2021, and the Company expects to recognize 34 % of such revenue over the next 12 months and the remainder thereafter.

Contract Costs

The Company capitalizes certain sales commissions related primarily to extended warranty support for which the expected amortization period is greater than one year.

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 December 31, 2021, the unamortized balance of deferred commissions was $ 7.4 million.

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Concentration of Customer Risk

Concentrations of credit risk in relation to customers with an accounts receivable balance of 10% or greater of total accounts receivable and customers with net revenue of 10% or greater of total revenue are presented below for the periods indicated.

Percentage of Accounts Receivable Percentage of Revenue

December 31, Years Ended December 31,

2020 2019 2020 2019 2018

No customer accounted for more than 10% of the Company’s total revenue for the year ended December 31, 2021.

Lumen Technologies, Inc.

(formerly CenturyLink, Inc.) < 10 %

17 % 11 % 15 % 18 %

Product Line Divestiture

In February 2018, the Company sold its outdoor cabinet product line to Clearfield, Inc.

(“Clearfield”) for $ 10.4 million in cash as well as the assumption by Clearfield of the related product warranty liabilities and open purchase order commitments with a CM.

The Company transferred $ 2.1 million in net inventory and agreed to solicit orders on Clearfield’s behalf on the newly transferred outdoor cabinets product lines free of charge for 15 months.

The Company established a liability of $ 1.6 million in deferred revenue for providing this service and amortized this amount to service revenue over the corresponding 15-month period.

The Company also recognized a $ 6.7 million gain for the year ended December 31, 2018 within operating expenses in the accompanying Consolidated Statements of Comprehensive Loss.

Quarterly Financial Data—Unaudited

The Company’s fiscal year begins on January 1st and ends on December 31 st .

Quarterly periods are based on a 4-4-5 fiscal calendar with the first quarter ending on the Saturday closest to March 31 st .

As a result, the Company had one fewer day in the first quarter of 2020 and two more days in the fourth quarter of 2020 than in the respective 2019 periods.

The following table presents selected unaudited quarterly financial data of the Company (in thousands, except per share data).

The Company’s quarterly results of operations for these periods are not necessarily indicative of future results of operations.

2020 Quarter Ended

March 28 June 27 September 26 December 31

Revenue $ 101,682 $ 119,023 $ 150,508 $ 170,026

Gross profit 45,624 56,405 75,975 89,015

Operating income (loss) ( 6,340 ) ( 3,338 ) 21,750 24,774

Net income (loss) ( 6,944 ) ( 4,212 ) 20,538 24,102

Net income (loss) per common share, basic $ ( 0.12 ) $ ( 0.07 ) $ 0.34 $ 0.39

Net income (loss) per common share, diluted $ ( 0.12 ) $ ( 0.07 ) $ 0.32 $ 0.37

2019 Quarter Ended

March 30 June 29 September 28 December 31

Revenue $ 89,350 $ 100,304 $ 114,485 $ 120,191

Gross profit 38,343 44,668 50,202 54,712

Operating income (loss) ( 9,113 ) ( 4,931 ) ( 2,851 ) 1,494

Net income (loss) ( 9,767 ) ( 5,045 ) ( 3,379 ) 497

Net income (loss) per common share, basic and diluted $ ( 0.18 ) $ ( 0.09 ) $ ( 0.06 ) $ 0.01

(formerly CenturyLink, Inc.), the Company’s only greater-than-10%-of-revenue customer, represented 11 % and 15 % of total revenue for the years ended December 31, 2020 and 2019, respectively.

One customer represented 12 % of the Company’s accounts receivable as of December 31, 2021.

No customer represented more than 10% of the Company’s accounts receivable as of December 31, 2020.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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-K

Item 8. Financial Statements and Supplementary Data