What changed in this filing

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Item 1. Financial Statements

2022-04-26 compared with 2021-10-26 · 109 added, 169 removed, 341 unchanged (45% of the section changed)

31 unchanged sentences

5,000 shares authorized;

no shares issued and outstanding as of October 2, 2021 and December 31, 2020

no shares issued and outstanding as of April 2, 2022 and December 31, 2021

Common stock, $ 0.025 par value;

100,000 shares authorized;

63,732 shares issued and outstanding as of October 2, 2021, and 62,122 shares issued and outstanding as of December 31, 2020

64,612 shares issued and outstanding as of April 2, 2022, and 64,274 shares issued and outstanding as of December 31, 2021

Additional paid-in capital 1,014,336 997,855

6 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

Systems $ 174,426 $ 153,302

10 unchanged sentences

General and administrative 16,031 13,025

Restructuring charges — — — 6,286

Total operating expenses 81,939 65,440

Income from operations 17,991 21,750 59,322 12,072

Operating income 9,853 20,802

Interest and other expense, net:

Interest expense, net ( 86 ) ( 356 ) ( 330 ) ( 1,263 )

Other expense, net ( 463 ) ( 707 ) ( 120 ) ( 801 )

Interest income (expense), net 35 ( 125 )

Other income (expense), net ( 68 ) 88

Total interest and other expense, net ( 33 ) ( 37 )

10 unchanged sentences

Net income $ 8,119 $ 20,615

Other comprehensive income (loss), net of tax -

Other comprehensive loss, net of tax:

Unrealized loss on available-for-sale marketable securities, net ( 1,161 ) —

Foreign currency translation adjustments, net ( 71 ) ( 35 )

( 24 ) 410 ( 15 ) 161

Total other comprehensive loss, net of tax ( 1,232 ) ( 35 )

Comprehensive income $ 6,887 $ 20,580

2 unchanged sentences

(In thousands, unaudited)

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity

Shares Amount

Balance at July 3, 2021 63,200 $ 1,580 $ 972,259 $ ( 182 ) $ ( 628,019 ) $ — $ 345,638

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

Stock-based compensation

3 unchanged sentences

Other comprehensive loss — — — ( 1,232 ) — ( 1,232 )

Balance at October 2, 2021 63,732 $ 1,594 $ 984,833 $ ( 206 ) $ ( 450,595 ) $ — $ 535,626

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

Shares Amount

Balance at June 27, 2020 58,143 $ 1,587 $ 912,402 $ ( 1,103 ) $ ( 713,732 ) $ ( 39,986 ) $ 159,168

Stock-based compensation

— — 3,574 — — — 3,574

Issuance of common stock under equity incentive plans, net of forfeitures 407 9 3,769 — — — 3,778

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

Treasury stock retirement — ( 134 ) ( 39,852 ) — — 39,986 —

Net income — — — — 20,538 — 20,538

Other comprehensive income — — — 410 — — 410

Balance at September 26, 2020 61,770 $ 1,544 $ 939,874 $ ( 693 ) $ ( 693,194 ) $ — $ 247,531

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

Balance as of April 2, 2022 64,612 $ 1,616 $ 1,014,336 $ ( 1,552 ) $ ( 422,595 ) $ 591,805

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity

Shares Amount

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

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

Stock-based compensation

3 unchanged sentences

Other comprehensive loss — — — ( 35 ) — ( 35 )

Balance at October 2, 2021 63,732 $ 1,594 $ 984,833 $ ( 206 ) $ ( 450,595 ) $ — $ 535,626

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Stockholders’ Equity

Shares Amount

Balance at December 31, 2019 56,448 $ 1,545 $ 895,899 $ ( 854 ) $ ( 702,576 ) $ ( 39,986 ) $ 154,028

Stock-based compensation

— — 9,800 — — — 9,800

Issuance of common stock under equity incentive plans, net of forfeitures 2,102 51 14,046 — — — 14,097

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

Treasury stock retirement — ( 134 ) ( 39,852 ) — — 39,986 —

Net income — — — — 9,382 — 9,382

Other comprehensive income — — — 161 — — 161

Balance at September 26, 2020 61,770 $ 1,544 $ 939,874 $ ( 693 ) $ ( 693,194 ) $ — $ 247,531

Balance as of April 3, 2021 62,851 $ 1,572 $ 961,846 $ ( 226 ) $ ( 648,477 ) $ 314,715

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands, unaudited)

Nine Months Ended

2021 September 26,

Three Months Ended

2022 April 3,

Operating activities:

3 unchanged sentences

Depreciation and amortization 3,943 4,077

Reversal of valuation allowance on deferred tax assets ( 161,995 ) —

Asset retirements and write-downs — 3,749

Deferred income taxes 277 —

Changes in operating assets and liabilities:

15 unchanged sentences

Payments related to financing arrangements ( 137 ) —

Proceeds from the sale of common stock in connection with public offering, net of expense — 60,063

Proceeds from line of credit — 30,000

Repayment of line of credit — ( 60,000 )

Payments to originate the line of credit — ( 285 )

Net cash provided by financing activities 5,886 8,639

25 unchanged sentences

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

As a result, the Company had five more days in the nine months ended October 2, 2021 than for the nine months ended September 26, 2020.

As a result, the Company had one less day in the three months ended April 2, 2022 than for the three months ended April 3, 2021.

The preparation of financial statements in conformity with GAAP for interim financial reporting requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

3 unchanged sentences

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 be fully contained.

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 visitors and lifted certain travel restrictions.

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 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.

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.

4 unchanged sentences

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021.

The Company’s significant accounting policies did not change during the nine months ended October 2, 2021.

The Company’s significant accounting policies did not change during the three months ended April 2, 2022.

Newly Adopted Accounting Standard

The Company did not adopt any new accounting standards during the nine months ended October 2, 2021 that were significant to the Company.

The Company did not adopt any new accounting standards during the three months ended April 2, 2022 that were significant to the Company.

Recent Accounting Pronouncements Not Yet Adopted

There have been no additional accounting pronouncements or changes in accounting pronouncements during the nine months ended October 2, 2021 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, that are significant or potentially significant to the Company.

There have been no additional accounting pronouncements or changes in accounting pronouncements during the three months ended April 2, 2022 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that are significant or potentially significant to the Company.

Cash, Cash Equivalents and Marketable Securities

11 unchanged sentences

Realized gains and losses on sales of marketable securities, if any, are determined on the specific identification method and are reclassified from accumulated other comprehensive loss to results of operations as other expense, net.

Realized and unrealized gains and losses were de minimis for the period ended October 2, 2021.

There were no realized gains and losses for the period ended April 2, 2022.

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

3 unchanged sentences

Commercial paper 9,139 21,582

Money market funds 6,007 10,068

Municipal securities 150 —

government agency securities 3,797 —

government securities 2,499 —

Municipal securities 1,760 —

Money market funds 805 2,320

Corporate debt securities 100 989

Total cash and cash equivalents 44,369 51,333

Marketable securities:

government securities 88,727 60,279

Commercial paper 69,279 80,812

government agency securities 6,613 5,527

Corporate debt securities 3,772 —

government securities 1,520 52,982

Municipal securities 2,226 2,808

Corporate debt securities 1,911 3,576

Total marketable securities 168,756 153,002

1 unchanged sentence

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

The amortized cost and fair value of marketable securities as of April 2, 2022 were as follows (in thousands):

Amortized Cost Gross Unrealized Losses Fair Value

government securities $ 89,943 $ ( 1,216 ) $ 88,727

Commercial paper 69,317 ( 38 ) 69,279

government agency securities 6,685 ( 72 ) 6,613

Municipal securities 2,231 ( 5 ) 2,226

Corporate debt securities 1,916 ( 5 ) 1,911

Total marketable securities $ 170,092 $ ( 1,336 ) $ 168,756

Unrealized gains and losses were de minimis as of December 31, 2021.

Fair Value Measurements

8 unchanged sentences

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 October 2, 2021 Level 1 Level 2 Total

As of April 2, 2022 Level 1 Level 2 Total

Money market funds $ 805 $ — $ 805

2 unchanged sentences

government agency securities — 10,410 10,410

Corporate debt securities — 3,772 3,772

Municipal securities — 3,986 3,986

Corporate debt securities — 2,011 2,011

$ 92,031 $ 94,825 $ 186,856

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

Balance Sheet Details

12 unchanged sentences

Test equipment $ 41,093 $ 39,476

Software 14,440 16,093

Computer equipment 10,735 11,156

Software 9,264 9,013

Furniture and fixtures 1,526 1,812

14 unchanged sentences

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.

As of October 2, 2021, the liability, including accrued interest, was $ 13.6 million of which $ 4.4 million is included in accrued liabilities and $ 9.2 million in other long-term liabilities in the accompanying Condensed 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.

As of April 2, 2022, the liability, including accrued interest, was $ 13.3 million of which $ 6.6 million is included in “Accrued liabilities” and $ 6.7 million in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheet.

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

Accrued liabilities consisted of the following (in thousands):

1 unchanged sentence

Compensation and related benefits $ 15,979 $ 23,165

Warranty and retrofit 10,126 9,208

Component inventory held by suppliers 8,360 7,611

Current portion of warranty and retrofit 7,337 7,076

Customer advances or rebates 6,979 4,742

Current portion of revenue share payments 6,580 4,731

Professional and consulting fees 5,654 4,819

Taxes payable 5,115 4,251

Current portion of revenue share obligations 4,397 2,925

Customer advances or rebates 4,358 8,374

Operating leases 3,151 2,994

Freight 4,548 3,997

Operating leases 3,761 3,596

Product returns 2,186 1,836

3 unchanged sentences

Changes in the Company’s accrued warranty and retrofit liability were as follows (in thousands):

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

Balance at beginning of period $ 9,594 $ 9,208

2 unchanged sentences

Balance at end of period $ 9,570 $ 9,650

Accrued Restructuring Charges

Responding to trends caused by the COVID-19 pandemic, the Company initiated a restructuring plan in June 2020 to accelerate the Company’s All Platform future and to align with a work-from-anywhere culture.

The Company incurred restructuring charges of approximately $ 6.3 million, consisting of facilities-related charges and severance and other termination-related benefits during 2020.

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

In light of this change, 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 during 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 during 2020.

The following table summarizes restructuring activities (in thousands):

Facilities Severance and Related Benefits Total

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

Cash payments ( 193 ) ( 132 ) ( 325 )

Balance as of October 2, 2021 $ 1,051 $ — $ 1,051

Credit Agreement

The Company has a 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 any outstanding amounts become due and payable, in January 2023.

The BofA Loan Agreement is secured by substantially all of the Company’s assets, including its 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 % ( 3.75 % as of October 2, 2021), in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter.

As of October 2, 2021, the Company had no outstanding borrowings and had full availability of borrowings up to $ 35.0 million.

Commitments and Contingencies

2 unchanged sentences

Certain of the Company’s operating leases contain renewal options and rent acceleration clauses.

Future minimum payments under the non-cancelable operating leases consisted of the following as of October 2, 2021 (in thousands):

Future minimum payments under the non-cancelable operating leases consisted of the following as of April 2, 2022 (in thousands):

Period Future Minimum Lease Payments

Remainder of 2022 $ 3,423

Thereafter 175

Total future minimum lease payments 17,267

Less imputed interest ( 1,850 )

As of October 2, 2021, the operating lease liability consisted of the following (in thousands):

As of April 2, 2022, the operating lease liability consisted of the following (in thousands):

Accrued liabilities - current portion of operating leases $ 3,761

2 unchanged sentences

The future minimum lease payments under the lease are $ 9.0 million and are included in the table above.

The weighted average discount rate for the Company’s operating leases as of October 2, 2021 was 6.5 %.

The weighted average remaining lease term as of October 2, 2021 was 4.1 years.

For the three and nine months ended October 2, 2021, total rent expense of the Company was $ 1.0 million and $ 3.1 million, respectively.

For the three and nine months ended September 26, 2020, total rent expense of the Company was $ 0.9 million and $ 3.1 million, respectively.

Cash paid within operating cash flows for operating leases was $ 2.9 million and $ 2.5 million for the nine months ended October 2, 2021 and September 26, 2020, respectively.

The weighted average discount rate for the Company’s operating leases as of April 2, 2022 was 6.1 %.

The weighted average remaining lease term as of April 2, 2022 was 3.8 years.

Total rent expense of the Company was $ 1.1 million for the three months ended April 2, 2022 and April 3, 2021 for each respective period.

Cash paid within operating cash flows for operating leases was $ 1.1 million and $ 1.0 million for the three months ended April 2, 2022 and April 3, 2021, respectively.

Purchase Commitments

5 unchanged sentences

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 October 2, 2021, the Company had approximately $ 184.1 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one year.

As of April 2, 2022 and April 3, 2021, the Company had approximately $ 261.4 million and $ 107.8 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.

The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $ 4.6 million and $ 4.0 million as of October 2, 2021 and December 31, 2020, respectively.

The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $ 8.4 million and $ 7.6 million as of April 2, 2022 and December 31, 2021, respectively.

The Company records the related charges in cost of systems revenue in its Condensed Consolidated Statements of Comprehensive Income.

5 unchanged sentences

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

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.

As of October 2, 2021, there were 7.0 million shares available for issuance under the 2019 Plan.

As of April 2, 2022, there were 5.9 million shares available for issuance under the 2019 Plan.

Stock Options

During the three months ended October 2, 2021, no stock option awards were granted.

During the nine months ended October 2, 2021, stock option awards exercisable for up to an aggregate of 0.6 million shares of common stock were granted with a grant date weighted-average exercise price of $ 39.38 per share.

During the three months ended April 2, 2022, stock option awards exercisable for up to an aggregate of 0.3 million shares of common stock were granted with a grant date weighted-average exercise price of $ 55.96 per share.

These stock option awards vest 25 % on the first anniversary of the vesting commencement date and on a quarterly basis thereafter over an additional three years .

In February 2022, performance-based stock option awards 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 $ 55.96 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.

The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net operating income for 2022 (collectively, the “2022 Performance Targets”) during the one-year performance period.

These performance-based stock option awards will vest, subject to certification by the Compensation Committee of the Company’s Board of Directors upon the achievement of the 2022 Performance Targets, as to 25 % of the shares of common stock earned on the one year anniversary of the date of grant, and as to the remaining 75 % of the shares of common stock earned, in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates.

If the non-GAAP net income target is achieved below 80 % of target or the bookings target is achieved below 90 % of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full.

If both targets are achieved at the minimum threshold of 80 % of target for non-GAAP net income and 90 % of target for bookings, then the shares are awarded at 50 % of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 100 % of the granted shares if both targets are achieved at 100 % or more of target.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of October 2, 2021, and stock-based compensation expense of $ 1.9 million was recognized for the three months ended October 2, 2021.

For the nine months ended October 2, 2021, stock-based compensation expense of $ 4.8 million was recognized.

During the three months ended October 2, 2021, 0.4 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 6.98 per share.

During the nine months ended October 2, 2021, 1.0 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 8.20 per share.

As of October 2, 2021, unrecognized stock-based compensation expense of $ 27.6 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.

If the non-GAAP net operating income target is achieved below 80 % of target or the bookings target is achieved below 90 % of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full.

If both targets are achieved at the minimum threshold of 80 % of target for non-GAAP net operating income

and 90 % of target for bookings, then the shares are awarded at 50 % of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 100 % of the granted shares if both targets are achieved at 100 % or more of target.

The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of April 2, 2022, and stock-based compensation expense of $ 1.6 million was recognized for the three months ended April 2, 2022.

During the three months ended April 2, 2022, 0.2 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $ 7.61 per share.

As of April 2, 2022, unrecognized stock-based compensation expense of $ 54.6 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.

Employee Stock Purchase Plans

4 unchanged sentences

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.

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, which will go into effect for the six-month purchase period commencing August 15, 2021 and ending on February 14, 2022.

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

As of October 2, 2021, there were 3.6 million shares available for issuance under the ESPP.

During the nine months ended October 2, 2021, 0.3 million shares were purchased under the ESPP.

As of October 2, 2021, unrecognized stock-based compensation expense of $ 1.1 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.

As of April 2, 2022, there were 3.5 million shares available for issuance under the ESPP.

During the three months ended April 2, 2022, 0.1 million shares were purchased under the ESPP.

As of April 2, 2022, unrecognized stock-based compensation expense of $ 0.8 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.

The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25 % of their eligible compensation.

Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date.

The NQ ESPP provides 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.

As of October 2, 2021, there were 2.9 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase.

During the nine months ended October 2, 2021, 0.2 million shares were purchased and issued.

As of October 2, 2021, unrecognized stock-based compensation expense of $ 4.8 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 year.

Beginning in the second quarter of 2022, the NQ ESPP will provide four three-month offering periods, from August 8 th through November 7 th , November 8 th through February 7 th , February 8 th through May 7 th and May 8 th through August 7 th of each year.

A transition period will begin on May 15 th and will end on August 7, 2022.

As of April 2, 2022, there were 2.8 million shares available for issuance under the NQ ESPP.

As of April 2, 2022, unrecognized stock-based compensation expense of $ 6.4 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 1.0 year.

Stock-Based Compensation

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

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

Cost of revenue:

10 unchanged sentences

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

Three Months Ended Nine Months Ended

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Three Months Ended

April 2, 2022 April 3, 2021

United States $ 165,631 $ 139,347

Americas ex U.S.

11,800 7,032 37,660 18,969

Europe 6,573 3,414

5 unchanged sentences

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

The balance as of December 31, 2020 was $ 2.3 million of which $ 0.3 million remained in the Company’s Condensed Consolidated Balance Sheet as of October 2, 2021.

The closing balance as of October 2, 2021 was $ 1.2 million of which the Company expects to bill 55 % of the balance during the remainder of 2020.

The decrease in the contract asset was driven by billings for past services and a reduction in expected cash collections on ongoing projects partially offset by additional unbilled work performed during the three months ended October 2, 2021.

The balance as of December 31, 2021 was $ 1.7 million of which $ 0.9 million remained in the Company’s Condensed Consolidated Balance Sheet as of April 2, 2022.

The closing balance as of April 2, 2022 was $ 2.1 million of which the Company expects to bill 83 % of the balance during the remainder of 2022.

The increase in the contract asset was driven by the timing of professional services contracts with the Company's customers.

Contract Liability

8 unchanged sentences

$ 53,450 $ 49,494

The increase in the deferred revenue balance for the three and nine months ended October 2, 2021 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 8.6 million and $ 17.1 million of revenue recognized that was included in the deferred revenue balance at the beginning of each period, respectively.

The increase in the deferred revenue balance for the three months ended April 2, 2022 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $ 7.3 million of revenue recognized that was included in the deferred revenue balance at the beginning of the period.

Revenue allocated to remaining performance obligations represents contract revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

This amount was $ 105.0 million as of October 2, 2021, and the Company expects to recognize 34 % of such revenue over the next 12 months and the remainder thereafter.

This amount was $ 138.0 million as of April 2, 2022, and the Company expects to recognize 35 % of such revenue over the next 12 months and the remainder thereafter.

Contract Costs

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

As of October 2, 2021, the unamortized balance of deferred commissions was $ 4.0 million.

For the three and nine months ended October 2, 2021, the amount of amortization was $ 0.4 million and $ 0.7 million, respectively.

There was no impairment loss in relation to the costs capitalized.

As of April 2, 2022 and December 31, 2021, the unamortized balance of deferred commissions was $ 7.3 million and $ 7.4 million, respectively.

For the three months ended April 2, 2022 and April 3, 2021, the amount of amortization was $ 0.8 million and $ 0.1 million, respectively.

There was no impairment loss in relation to the costs capitalized for either period.

Concentration of Customer Risk

One customer, our only greater-than-10%-of-revenue customer, represented 10 % of the Company’s total revenue for the three months ended October 2, 2021.

No customer accounted for more than 10% of the Company’s total revenue for the nine months ended October 2, 2021.

Another customer, Lumen Technologies, Inc.

(formerly CenturyLink, Inc.), our only greater-than-10%-of-revenue customer, represented 12 % and 14 % of total revenue for three and nine months ended September 26, 2020, respectively.

No customer represented more than 10% of the Company’s accounts receivable as of October 2, 2021 or December 31, 2020.

No customer accounted for more than 10% of the Company’s total revenue for the three months ended April 2, 2022 and April 3, 2021.

No customer represented more than 10% of the Company’s accounts receivable as of April 2, 2022.

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

The following table presents income taxes and the effective tax rates for the periods indicated (in thousands, except percentages):

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

Income before income taxes $ 9,820 $ 20,765

Income taxes $ 1,701 $ 150

Effective tax rate 17.3 % 0.7 %

The Company’s income taxes for the nine months ended October 2, 2021 and September 26, 2020 was determined using an estimated effective tax rate adjusted for discrete items that occurred during the respective periods.

The income tax benefit for the nine months ended October 2, 2021 was primarily due to the release of the valuation allowance on certain U.S.

federal and state deferred tax assets and, to a lesser degree, benefits related to stock-based compensation and income taxes related to various states and profitable subsidiaries.

For the nine months ended September 26, 2020, the tax expense was primarily related to the foreign tax provision.

The Company’s income taxes for the three months ended April 2, 2022 and April 3, 2021 were determined using an estimated effective tax rate adjusted for discrete items that occurred during the respective periods.

The Company's effective tax rate for the three months ended April 2, 2022 was lower than the statutory federal corporate tax rate of 21% primarily due to U.S.

federal research tax credits and excess tax benefits from stock-based compensation partially offset by state taxes, the inclusion of income from certain foreign operations and the effect of non-deductible stock-based compensation for executive officers.

The Company's effective tax rate for the three months ended April 3, 2021 was significantly lower than 2022 as the Company maintained a full valuation allowance during the period.

The Company has net deferred tax assets that have arisen primarily as a result of temporary differences, net operating loss carryforwards and tax credits.

The Company’s ability to realize a deferred tax asset is based on its ability to generate sufficient future taxable income within the applicable carryforward period and subject to any applicable limitations.

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.

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 the third quarter of 2021, the Company recognized an income tax benefit of $ 162.0 million offset by current income taxes, 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.

Management continues to believe that it is more likely than not we will utilize a significant portion of our deferred tax assets.

The Company continues to maintain a valuation allowance of $ 30.3 million on certain U.S.

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In the event that actual results differ from these estimates, or if the Company decides to adjust these estimates in the future periods, further adjustments to its valuation allowance may be recorded, which could materially impact the Company’s financial position and net income in the period of the adjustment.

As of September 26, 2020, the total expense was primarily related to foreign activity.

In 2020, based on a review of the positive and negative evidence, management concluded that the deferred tax assets were not more likely to be realized which resulted in an immaterial domestic provision as the deferred tax assets were fully offset with the valuation allowance.

The Company’s income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate including factors as actual results differing from its estimates of pre-tax earnings in the various jurisdictions in which the Company operates, which could impact the recognition of its deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.

The Company’s income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate including factors as actual results differing from its estimates of pre-tax earnings in the various jurisdictions in which the Company operates, which could impact the recognition of its deferred tax assets, benefits from stock option exercises, further investments in the Company’s foreign operations, the recognition or de-recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.

Net Income Per Common Share

The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):

Three Months Ended Nine Months Ended

2021 September 26,

2020 October 2,

2021 September 26,

Three Months Ended

2022 April 3,

Net income $ 8,119 $ 20,615

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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 1. Financial Statements