☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 77-0560433 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||||||||
Common stock, par value $0.001 per share | INFN | The Nasdaq Global Select Market |
Large accelerated filer | Accelerated Filer | |||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
Emerging growth company | ☐ |
Page | ||||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 6. | ||||||||
June 27, 2020 | December 28, 2019 | June 26, 2021 | December 26, 2020 | |||||||||||||||
ASSETS | ASSETS | |||||||||||||||||
Current assets: | Current assets: | |||||||||||||||||
Cash | $ | 202,782 | $ | 109,201 | Cash | $ | 219,735 | $ | 298,014 | |||||||||
Short-term restricted cash | 4,307 | 4,339 | Short-term restricted cash | 2,840 | 3,293 | |||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $3,183 in 2020 and $4,005 in 2019 | 289,107 | 349,645 | ||||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $2,730 in 2021 and $2,912 in 2020 | Accounts receivable, net of allowance for doubtful accounts of $2,730 in 2021 and $2,912 in 2020 | 281,022 | 319,428 | |||||||||||||||
Inventory | 288,159 | 340,429 | Inventory | 274,030 | 269,307 | |||||||||||||
Prepaid expenses and other current assets | 168,052 | 139,217 | Prepaid expenses and other current assets | 136,607 | 171,831 | |||||||||||||
Total current assets | 952,407 | 942,831 | Total current assets | 914,234 | 1,061,873 | |||||||||||||
Property, plant and equipment, net | 145,110 | 150,793 | Property, plant and equipment, net | 158,326 | 153,133 | |||||||||||||
Operating lease right-of-use assets | 60,798 | 68,081 | Operating lease right-of-use assets | 62,154 | 68,851 | |||||||||||||
Intangible assets | 143,762 | 170,346 | Intangible assets | 106,455 | 124,882 | |||||||||||||
Goodwill | 251,050 | 249,848 | Goodwill | 268,699 | 273,426 | |||||||||||||
Long-term restricted cash | 17,108 | 19,257 | Long-term restricted cash | 10,655 | 14,076 | |||||||||||||
Other non-current assets | 25,623 | 27,182 | ||||||||||||||||
Other long-term assets | Other long-term assets | 40,004 | 36,256 | |||||||||||||||
Total assets | $ | 1,595,858 | $ | 1,628,338 | Total assets | $ | 1,560,527 | $ | 1,732,497 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
Current liabilities: | Current liabilities: | |||||||||||||||||
Accounts payable | $ | 195,947 | $ | 273,397 | Accounts payable | $ | 172,959 | $ | 175,762 | |||||||||
Accrued expenses and other current liabilities | 172,100 | 193,168 | Accrued expenses and other current liabilities | 131,574 | 150,550 | |||||||||||||
Accrued compensation and related benefits | 52,674 | 92,221 | Accrued compensation and related benefits | 69,519 | 52,976 | |||||||||||||
Short-term debt, net | 27,726 | 31,673 | Short-term debt, net | 424 | 101,983 | |||||||||||||
Accrued warranty | 17,674 | 21,107 | Accrued warranty | 20,322 | 19,369 | |||||||||||||
Deferred revenue | 95,932 | 103,753 | Deferred revenue | 119,913 | 133,246 | |||||||||||||
Total current liabilities | 562,053 | 715,319 | Total current liabilities | 514,711 | 633,886 | |||||||||||||
Long-term debt, net | 508,459 | 323,678 | Long-term debt, net | 461,080 | 445,996 | |||||||||||||
Long-term financing lease obligations | 1,869 | 2,394 | ||||||||||||||||
Accrued warranty, non-current | 19,409 | 22,241 | ||||||||||||||||
Deferred revenue, non-current | 31,300 | 36,067 | ||||||||||||||||
Deferred tax liability | 5,564 | 8,700 | ||||||||||||||||
Operating lease liabilities | 63,819 | 64,210 | ||||||||||||||||
Long-term accrued warranty | Long-term accrued warranty | 21,348 | 21,339 | |||||||||||||||
Long-term deferred revenue | Long-term deferred revenue | 28,410 | 29,810 | |||||||||||||||
Long-term deferred tax liability | Long-term deferred tax liability | 3,237 | 4,164 | |||||||||||||||
Long-term operating lease liabilities | Long-term operating lease liabilities | 67,985 | 76,126 | |||||||||||||||
Other long-term liabilities | 73,531 | 69,194 | Other long-term liabilities | 87,163 | 94,892 | |||||||||||||
Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | 0 | 0 | |||||||||||||||
Stockholders’ equity: | Stockholders’ equity: | |||||||||||||||||
Preferred stock, $0.001 par value Authorized shares – 25,000 and no shares issued and outstanding | — | — | ||||||||||||||||
Common stock, $0.001 par value Authorized shares – 500,000 as of June 27, 2020 and December 28, 2019 Issued and outstanding shares – 187,299 as of June 27, 2020 and 181,134 as of December 28, 2019 | 187 | 181 | ||||||||||||||||
Preferred stock, $0.001 par value Authorized shares – 25,000 and 0 shares issued and outstanding | Preferred stock, $0.001 par value Authorized shares – 25,000 and 0 shares issued and outstanding | 0 | 0 | |||||||||||||||
Common stock, $0.001 par value Authorized shares – 500,000 as of June 26, 2021 and December 26, 2020 Issued and outstanding shares – 208,468 as of June 26, 2021 and 201,397 as of December 26, 2020 | Common stock, $0.001 par value Authorized shares – 500,000 as of June 26, 2021 and December 26, 2020 Issued and outstanding shares – 208,468 as of June 26, 2021 and 201,397 as of December 26, 2020 | 208 | 201 | |||||||||||||||
Additional paid-in capital | 1,838,677 | 1,740,884 | Additional paid-in capital | 1,996,091 | 1,965,245 | |||||||||||||
Accumulated other comprehensive loss | (27,566 | ) | (34,639 | ) | Accumulated other comprehensive loss | (8,526) | (11,898) | |||||||||||
Accumulated deficit | (1,481,444 | ) | (1,319,891 | ) | Accumulated deficit | (1,611,180) | (1,527,264) | |||||||||||
Total stockholders' equity | 329,854 | 386,535 | Total stockholders' equity | 376,593 | 426,284 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 1,595,858 | $ | 1,628,338 | Total liabilities and stockholders’ equity | $ | 1,560,527 | $ | 1,732,497 |
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | June 26, 2021 | June 27, 2020 | June 26, 2021 | June 27, 2020 | |||||||||||||||||||||||||||||||
Revenue: | Revenue: | |||||||||||||||||||||||||||||||||||||
Product | $ | 261,227 | $ | 226,866 | $ | 516,419 | $ | 449,873 | Product | $ | 257,441 | $ | 261,227 | $ | 511,602 | $ | 516,419 | |||||||||||||||||||||
Services | 70,360 | 69,384 | 145,441 | 139,084 | Services | 80,786 | 70,360 | 157,532 | 145,441 | |||||||||||||||||||||||||||||
Total revenue | 331,587 | 296,250 | 661,860 | 588,957 | Total revenue | 338,227 | 331,587 | 669,134 | 661,860 | |||||||||||||||||||||||||||||
Cost of revenue: | Cost of revenue: | |||||||||||||||||||||||||||||||||||||
Cost of product | 186,519 | 177,501 | 388,311 | 335,318 | Cost of product | 172,053 | 186,519 | 337,538 | 388,311 | |||||||||||||||||||||||||||||
Cost of services | 36,599 | 36,831 | 77,294 | 73,507 | Cost of services | 41,446 | 36,599 | 84,706 | 77,294 | |||||||||||||||||||||||||||||
Amortization of intangible assets | 8,721 | 8,098 | 17,349 | 16,350 | Amortization of intangible assets | 4,614 | 8,721 | 9,230 | 17,349 | |||||||||||||||||||||||||||||
Acquisition and integration costs | 750 | 10,700 | 1,785 | 12,764 | Acquisition and integration costs | 0 | 750 | 0 | 1,785 | |||||||||||||||||||||||||||||
Restructuring and related | 1,591 | 1,864 | 2,748 | 23,330 | Restructuring and related | (269) | 1,591 | 245 | 2,748 | |||||||||||||||||||||||||||||
Total cost of revenue | 234,180 | 234,994 | 487,487 | 461,269 | Total cost of revenue | 217,844 | 234,180 | 431,719 | 487,487 | |||||||||||||||||||||||||||||
Gross profit | 97,407 | 61,256 | 174,373 | 127,688 | Gross profit | 120,383 | 97,407 | 237,415 | 174,373 | |||||||||||||||||||||||||||||
Operating expenses: | Operating expenses: | |||||||||||||||||||||||||||||||||||||
Research and development | 67,090 | 73,937 | 135,270 | 147,597 | Research and development | 73,934 | 67,090 | 147,463 | 135,270 | |||||||||||||||||||||||||||||
Sales and marketing | 31,816 | 37,651 | 68,505 | 77,688 | Sales and marketing | 33,782 | 31,816 | 66,554 | 68,505 | |||||||||||||||||||||||||||||
General and administrative | 30,101 | 35,672 | 59,721 | 68,716 | General and administrative | 32,197 | 30,101 | 58,703 | 59,721 | |||||||||||||||||||||||||||||
Amortization of intangible assets | 4,585 | 6,745 | 9,140 | 13,802 | Amortization of intangible assets | 4,392 | 4,585 | 8,797 | 9,140 | |||||||||||||||||||||||||||||
Acquisition and integration costs | 3,344 | 12,164 | 12,566 | 19,298 | Acquisition and integration costs | 0 | 3,344 | 614 | 12,566 | |||||||||||||||||||||||||||||
Restructuring and related | 5,097 | 3,471 | 10,677 | 20,659 | Restructuring and related | (674) | 5,097 | 1,645 | 10,677 | |||||||||||||||||||||||||||||
Total operating expenses | 142,033 | 169,640 | 295,879 | 347,760 | Total operating expenses | 143,631 | 142,033 | 283,776 | 295,879 | |||||||||||||||||||||||||||||
Loss from operations | (44,626 | ) | (108,384 | ) | (121,506 | ) | (220,072 | ) | Loss from operations | (23,248) | (44,626) | (46,361) | (121,506) | |||||||||||||||||||||||||
Other income (expense), net: | Other income (expense), net: | |||||||||||||||||||||||||||||||||||||
Interest income | 54 | 183 | 78 | 949 | Interest income | 27 | 54 | 67 | 78 | |||||||||||||||||||||||||||||
Interest expense | (12,436 | ) | (7,280 | ) | (21,230 | ) | (14,843 | ) | Interest expense | (12,017) | (12,436) | (23,860) | (21,230) | |||||||||||||||||||||||||
Other gain (loss), net | (1,992 | ) | 3,210 | (14,674 | ) | 287 | Other gain (loss), net | 2,719 | (1,992) | (9,676) | (14,674) | |||||||||||||||||||||||||||
Total other income (expense), net | (14,374 | ) | (3,887 | ) | (35,826 | ) | (13,607 | ) | Total other income (expense), net | (9,271) | (14,374) | (33,469) | (35,826) | |||||||||||||||||||||||||
Loss before income taxes | (59,000 | ) | (112,271 | ) | (157,332 | ) | (233,679 | ) | Loss before income taxes | (32,519) | (59,000) | (79,830) | (157,332) | |||||||||||||||||||||||||
Provision for income taxes | 2,635 | 1,385 | 3,571 | 1,578 | Provision for income taxes | 3,075 | 2,635 | 4,086 | 3,571 | |||||||||||||||||||||||||||||
Net loss | $ | (61,635 | ) | $ | (113,656 | ) | $ | (160,903 | ) | $ | (235,257 | ) | Net loss | $ | (35,594) | $ | (61,635) | $ | (83,916) | $ | (160,903) | |||||||||||||||||
Net loss per common share: | Net loss per common share: | |||||||||||||||||||||||||||||||||||||
Basic | $ | (0.33 | ) | $ | (0.64 | ) | $ | (0.88 | ) | $ | (1.33 | ) | Basic | $ | (0.17) | $ | (0.33) | $ | (0.41) | $ | (0.88) | |||||||||||||||||
Diluted | $ | (0.33 | ) | $ | (0.64 | ) | $ | (0.88 | ) | $ | (1.33 | ) | Diluted | $ | (0.17) | $ | (0.33) | $ | (0.41) | $ | (0.88) | |||||||||||||||||
Weighted average shares used in computing net loss per common share: | Weighted average shares used in computing net loss per common share: | |||||||||||||||||||||||||||||||||||||
Basic | 185,596 | 178,677 | 183,810 | 177,542 | Basic | 206,780 | 185,596 | 204,709 | 183,810 | |||||||||||||||||||||||||||||
Diluted | 185,596 | 178,677 | 183,810 | 177,542 | Diluted | 206,780 | 185,596 | 204,709 | 183,810 |
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | June 26, 2021 | June 27, 2020 | June 26, 2021 | June 27, 2020 | |||||||||||||||||||||||||||||||
Net loss | $ | (61,635 | ) | $ | (113,656 | ) | $ | (160,903 | ) | $ | (235,257 | ) | Net loss | $ | (35,594) | $ | (61,635) | $ | (83,916) | $ | (160,903) | |||||||||||||||||
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||||
Change in unrealized gain on available-for-sale investments | — | 24 | — | 89 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 18,068 | (1,949 | ) | 6,962 | (7,506 | ) | Foreign currency translation adjustment | 5,480 | 18,068 | 1,647 | 6,962 | |||||||||||||||||||||||||||
Actuarial gain on pension liabilities | 505 | 403 | 111 | 481 | ||||||||||||||||||||||||||||||||||
Net change in accumulated other comprehensive loss | 18,573 | (1,522 | ) | 7,073 | (6,936 | ) | ||||||||||||||||||||||||||||||||
Actuarial loss on pension liabilities | Actuarial loss on pension liabilities | 0 | 0 | 0 | (808) | |||||||||||||||||||||||||||||||||
Amortization of actuarial loss | Amortization of actuarial loss | 864 | 505 | 1,725 | 919 | |||||||||||||||||||||||||||||||||
Net change in accumulated other comprehensive income (loss) | Net change in accumulated other comprehensive income (loss) | 6,344 | 18,573 | 3,372 | 7,073 | |||||||||||||||||||||||||||||||||
Comprehensive loss | $ | (43,062 | ) | $ | (115,178 | ) | $ | (153,830 | ) | $ | (242,193 | ) | Comprehensive loss | $ | (29,250) | $ | (43,062) | $ | (80,544) | $ | (153,830) |
Three Months Ended June 26, 2021 | ||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at March 27, 2021 | 204,812 | $ | 205 | $ | 1,983,599 | $ | (14,870) | $ | (1,575,586) | $ | 393,348 | |||||||||||||||||||||||||||
Restricted stock units released | 3,819 | 3 | — | — | — | 3 | ||||||||||||||||||||||||||||||||
Shares withheld for tax obligations | (163) | — | (1,460) | — | — | (1,460) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 13,952 | — | — | 13,952 | ||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 6,344 | — | 6,344 | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (35,594) | (35,594) | ||||||||||||||||||||||||||||||||
Balance at June 26, 2021 | 208,468 | $ | 208 | $ | 1,996,091 | $ | (8,526) | $ | (1,611,180) | $ | 376,593 |
Six Months Ended June 26, 2021 | ||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 26, 2020 | 201,397 | $ | 201 | $ | 1,965,245 | $ | (11,898) | $ | (1,527,264) | $ | 426,284 | |||||||||||||||||||||||||||
Stock options exercised | 46 | — | 332 | — | — | 332 | ||||||||||||||||||||||||||||||||
ESPP shares issued | 1,294 | 1 | 9,011 | — | — | 9,012 | ||||||||||||||||||||||||||||||||
Restricted stock units released | 6,088 | 6 | — | — | — | 6 | ||||||||||||||||||||||||||||||||
Shares withheld for tax obligations | (357) | — | (3,398) | — | — | (3,398) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 24,901 | — | — | 24,901 | ||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 3,372 | — | 3,372 | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (83,916) | (83,916) | ||||||||||||||||||||||||||||||||
Balance at June 26, 2021 | 208,468 | $ | 208 | $ | 1,996,091 | $ | (8,526) | $ | (1,611,180) | $ | 376,593 |
Three Months Ended June 27, 2020 | ||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at March 28, 2020 | 183,198 | $ | 183 | $ | 1,827,484 | $ | (46,139) | $ | (1,419,809) | $ | 361,719 | |||||||||||||||||||||||||||
Restricted stock units released | 4,323 | 4 | — | — | — | 4 | ||||||||||||||||||||||||||||||||
Shares withheld for tax obligations | (222) | — | (1,319) | — | — | (1,319) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 12,512 | — | — | 12,512 | ||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 18,573 | — | 18,573 | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (61,635) | (61,635) | ||||||||||||||||||||||||||||||||
Balance at June 27, 2020 | 187,299 | $ | 187 | $ | 1,838,677 | $ | (27,566) | $ | (1,481,444) | $ | 329,854 |
Three Months Ended June 27, 2020 | Six Months Ended June 27, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 28, 2020 | 183,198 | $ | 183 | $ | 1,827,484 | $ | (46,139 | ) | $ | (1,419,809 | ) | $ | 361,719 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 28, 2019 | Balance at December 28, 2019 | 181,134 | $ | 181 | $ | 1,740,884 | $ | (34,639) | $ | (1,319,891) | 386,535 | ||||||||||||||||||||||||||||||||||||||||||||||||||
ESPP shares issued | ESPP shares issued | 1,839 | 2 | 7,392 | — | — | 7,394 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock units released | 4,323 | 4 | — | — | — | 4 | Restricted stock units released | 4,548 | 4 | — | — | — | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares withheld for tax obligations | (222 | ) | — | (1,319 | ) | — | — | (1,319 | ) | Shares withheld for tax obligations | (222) | — | (1,319) | — | — | (1,319) | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 12,512 | — | — | 12,512 | Stock-based compensation | — | — | 23,923 | — | — | 23,923 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | 18,573 | — | 18,573 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative effect adjustment from adoption of Topic 326 | Cumulative effect adjustment from adoption of Topic 326 | — | — | — | — | (650) | (650) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion option related to convertible senior notes, net of allocated costs | Conversion option related to convertible senior notes, net of allocated costs | 67,797 | 67,797 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | Other comprehensive income | — | — | — | 7,073 | — | 7,073 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | (61,635 | ) | (61,635 | ) | Net loss | — | — | — | — | (160,903) | (160,903) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 27, 2020 | 187,299 | $ | 187 | $ | 1,838,677 | $ | (27,566 | ) | $ | (1,481,444 | ) | $ | 329,854 | Balance at June 27, 2020 | 187,299 | $ | 187 | $ | 1,838,677 | $ | (27,566) | $ | (1,481,444) | $ | 329,854 |
Six Months Ended June 27, 2020 | |||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
Balance at December 28, 2019 | 181,134 | $ | 181 | $ | 1,740,884 | $ | (34,639 | ) | $ | (1,319,891 | ) | $ | 386,535 | ||||||||||
ESPP shares issued | 1,839 | 2 | 7,392 | — | — | 7,394 | |||||||||||||||||
Restricted stock units released | 4,548 | 4 | — | — | — | 4 | |||||||||||||||||
Shares withheld for tax obligations | (222 | ) | — | (1,319 | ) | — | — | (1,319 | ) | ||||||||||||||
Stock-based compensation | — | — | 23,923 | — | — | 23,923 | |||||||||||||||||
Cumulative-effect adjustment from adoption of Topic 326 | — | — | — | — | (650 | ) | (650 | ) | |||||||||||||||
Conversion option related to convertible senior notes, net of allocated costs | — | — | 67,797 | — | — | 67,797 | |||||||||||||||||
Other comprehensive loss | — | — | — | 7,073 | — | 7,073 | |||||||||||||||||
Net loss | — | — | — | — | (160,903 | ) | (160,903 | ) | |||||||||||||||
Balance at June 27, 2020 | 187,299 | $ | 187 | $ | 1,838,677 | $ | (27,566 | ) | $ | (1,481,444 | ) | $ | 329,854 |
Three Months Ended June 29, 2019 | |||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
Balance at March 30, 2019 | 177,415 | $ | 177 | $ | 1,702,710 | $ | (30,714 | ) | $ | (1,054,874 | ) | $ | 617,299 | ||||||||||
Restricted stock units released | 2,004 | 2 | (2 | ) | — | — | — | ||||||||||||||||
Shares withheld for tax obligations | (80 | ) | — | (354 | ) | — | — | (354 | ) | ||||||||||||||
Stock-based compensation | — | — | 13,303 | — | — | 13,303 | |||||||||||||||||
Other comprehensive loss | — | — | — | (1,522 | ) | — | (1,522 | ) | |||||||||||||||
Net loss | — | — | — | — | (113,656 | ) | (113,656 | ) | |||||||||||||||
Balance at June 29, 2019 | 179,339 | $ | 179 | $ | 1,715,657 | $ | (32,236 | ) | $ | (1,168,530 | ) | $ | 515,070 |
Six Months Ended June 29, 2019 | |||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
Balance at December 29, 2018 | 175,452 | $ | 175 | $ | 1,685,916 | $ | (25,300 | ) | $ | (956,970 | ) | 703,821 | |||||||||||
ESPP shares issued | 1,825 | 2 | 7,738 | — | — | 7,740 | |||||||||||||||||
Restricted stock units released | 2,142 | 2 | (2 | ) | — | — | — | ||||||||||||||||
Shares withheld for tax obligations | (80 | ) | (354 | ) | (354 | ) | |||||||||||||||||
Stock-based compensation | — | — | 22,359 | — | — | 22,359 | |||||||||||||||||
Cumulative-effect adjustment from adoption of Topic 842 | — | — | — | — | 23,697 | 23,697 | |||||||||||||||||
Other comprehensive loss | — | — | — | (6,936 | ) | — | (6,936 | ) | |||||||||||||||
Net loss | — | — | — | — | (235,257 | ) | (235,257 | ) | |||||||||||||||
Balance at June 29, 2019 | 179,339 | $ | 179 | $ | 1,715,657 | $ | (32,236 | ) | $ | (1,168,530 | ) | $ | 515,070 |
Six Months Ended | |||||||||||
June 26, 2021 | June 27, 2020 | ||||||||||
Cash Flows from Operating Activities: | |||||||||||
Net loss | $ | (83,916) | $ | (160,903) | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
Depreciation and amortization | 39,308 | 51,369 | |||||||||
Non-cash restructuring charges and related costs | 824 | 2,818 | |||||||||
Amortization of debt discount and issuance costs | 15,834 | 13,016 | |||||||||
Operating lease expense | 8,526 | 9,873 | |||||||||
Stock-based compensation expense | 24,913 | 24,479 | |||||||||
Other, net | 3,090 | 3,001 | |||||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable | 36,293 | 53,989 | |||||||||
Inventory | (6,120) | 50,164 | |||||||||
Prepaid expenses and other assets | 21,332 | (26,961) | |||||||||
Accounts payable | (2,085) | (77,358) | |||||||||
Accrued liabilities and other expenses | (3,754) | (59,939) | |||||||||
Deferred revenue | (14,311) | (11,637) | |||||||||
Net cash provided by (used in) operating activities | 39,934 | (128,089) | |||||||||
Cash Flows from Investing Activities: | |||||||||||
Purchase of property and equipment, net | (25,789) | (19,002) | |||||||||
Net cash used in investing activities | (25,789) | (19,002) | |||||||||
Cash Flows from Financing Activities: | |||||||||||
Proceeds from issuance of 2027 Notes | 0 | 194,500 | |||||||||
Proceeds from Credit Facility | 0 | 55,000 | |||||||||
Repayment of Credit Facility | (77,000) | (8,000) | |||||||||
Repayment of third party manufacturing funding | (24,610) | (3,960) | |||||||||
Payment of debt issuance cost | 0 | (2,073) | |||||||||
Repayment of mortgage payable | (130) | (166) | |||||||||
Payment of term license obligation | (3,930) | 0 | |||||||||
Principal payments on financing lease obligations | (819) | (922) | |||||||||
Proceeds from issuance of common stock | 9,344 | 7,399 | |||||||||
Minimum tax withholding paid on behalf of employees for net share settlement | (3,398) | (1,319) | |||||||||
Net cash (used in) provided by financing activities | (100,543) | 240,459 | |||||||||
Effect of exchange rate changes on cash and restricted cash | 4,245 | (1,968) | |||||||||
Net change in cash and restricted cash | (82,153) | 91,400 | |||||||||
Cash and restricted cash at beginning of period | 315,383 | 132,797 | |||||||||
Cash and restricted cash at end of period(1) | $ | 233,230 | $ | 224,197 | |||||||
Supplemental disclosures of cash flow information: | |||||||||||
Cash paid (received) for income taxes, net | $ | 13,162 | $ | (773) | |||||||
Cash paid for interest | $ | 9,862 | $ | 7,320 |
Six Months Ended | |||||||
June 27, 2020 | June 29, 2019 | ||||||
Cash Flows from Operating Activities: | |||||||
Net loss | $ | (160,903 | ) | $ | (235,257 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 51,369 | 62,143 | |||||
Non-cash restructuring charges and related costs | 2,818 | 14,538 | |||||
Amortization of debt discount and issuance costs | 13,016 | 9,245 | |||||
Operating lease expense | 9,873 | 19,913 | |||||
Stock-based compensation expense | 24,479 | 21,760 | |||||
Other, net | 3,001 | 10 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | 53,989 | 55,216 | |||||
Inventory | 50,164 | (30,640 | ) | ||||
Prepaid expenses and other assets | (26,961 | ) | (30,958 | ) | |||
Accounts payable | (77,358 | ) | 4,726 | ||||
Accrued liabilities and other expenses | (59,939 | ) | 1,604 | ||||
Deferred revenue | (11,637 | ) | (12,267 | ) | |||
Net cash used in operating activities | (128,089 | ) | (119,967 | ) | |||
Cash Flows from Investing Activities: | |||||||
Proceeds from sale of non-marketable equity investments | — | 1,009 | |||||
Proceeds from maturities of investments | — | 25,085 | |||||
Acquisition of business, net of cash acquired | — | (10,000 | ) | ||||
Purchase of property and equipment, net | (19,002 | ) | (15,784 | ) | |||
Net cash (used in)/provided by investing activities | (19,002 | ) | 310 | ||||
Cash Flows from Financing Activities: | |||||||
Proceeds from issuance of 2027 Notes | 194,500 | — | |||||
Proceeds from mortgage payable | — | 8,584 | |||||
Proceeds from revolving line of credit | 55,000 | — | |||||
Repayment of revolving line of credit | (8,000 | ) | — | ||||
Repayment of third party manufacturing funding | (3,960 | ) | — | ||||
Payment of debt issuance cost | (2,073 | ) | — | ||||
Repayment of mortgage payable | (166 | ) | (96 | ) | |||
Principal payments on financing lease obligations | (922 | ) | — | ||||
Proceeds from issuance of common stock | 7,399 | 7,740 | |||||
Minimum tax withholding paid on behalf of employees for net share settlement | (1,319 | ) | (354 | ) | |||
Net cash provided by financing activities | 240,459 | 15,874 | |||||
Effect of exchange rate changes on cash and restricted cash | (1,968 | ) | (33 | ) |
Net change in cash, cash equivalents and restricted cash | 91,400 | (103,816 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 132,797 | 242,337 | |||||
Cash, cash equivalents and restricted cash at end of period(1) | $ | 224,197 | $ | 138,521 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid for income taxes, net of refunds | $ | (773 | ) | $ | 13,606 | ||
Cash paid for interest | $ | 7,320 | $ | 4,687 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Unpaid debt issuance cost | $ | 382 | $ | — | |||
Third-party manufacturer funding for transfer expenses incurred | $ | — | $ | 3,327 | |||
Transfer of inventory to fixed assets | $ | 118 | $ | 2,195 |
Supplemental schedule of non-cash investing and financing activities: | |||||||||||
Unpaid debt issuance cost | $ | 0 | $ | 382 | |||||||
Property and equipment included in accounts payable and accrued liabilities | $ | 0 | $ | 4,864 | |||||||
Transfer of inventory to fixed assets | $ | 1,735 | $ | 118 | |||||||
Unpaid term licenses (included in accounts payable, accrued liabilities and other long-term liabilities) | $ | 9,807 | $ | 0 |
June 26, 2021 | June 27, 2020 | ||||||||||
Cash | $ | 219,735 | $ | 202,782 | |||||||
Short-term restricted cash | 2,840 | 4,307 | |||||||||
Long-term restricted cash | 10,655 | 17,108 | |||||||||
Total cash and restricted cash | $ | 233,230 | $ | 224,197 |
June 27, 2020 | June 29, 2019 | ||||||
(In thousands) | |||||||
Cash and cash equivalents | $ | 202,782 | $ | 109,034 | |||
Short-term restricted cash | 4,307 | 2,742 | |||||
Long-term restricted cash | 17,108 | 26,745 | |||||
Total cash, cash equivalents and restricted cash | $ | 224,197 | $ | 138,521 |
Remainder of 2020 | $ | 13,162 | ||
2021 | 19,454 | |||
2022 | 16,040 | |||
2023 | 12,919 | |||
2024 | 10,890 | |||
Thereafter | 36,613 | |||
Total lease payments | 109,078 | |||
Less: interest(1) | 28,245 | |||
Present value of lease liabilities | $ | 80,833 |
Remainder of 2021 | $ | 11,926 | ||||||
2022 | 22,395 | |||||||
2023 | 17,378 | |||||||
2024 | 15,247 | |||||||
2025 | 14,246 | |||||||
Thereafter | 30,987 | |||||||
Total lease payments | 112,179 | |||||||
Less: interest(1) | 26,212 | |||||||
Present value of lease liabilities | $ | 85,967 |
Weighted average remaining lease term | 6.89 years | |||
Weighted average discount rate | 9.12 | % | ||
Cash paid for amounts included in the measurement of lease liabilities | $ | 12,919 | ||
Operating cash flow from operating leases | $ | 12,919 | ||
Leased assets obtained in exchange for new operating lease liabilities | $ | 4,501 |
Weighted average remaining lease term | 6.22 years | |||||||
Weighted average discount rate | 9.19 | % | ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 11,695 | ||||||
Leased assets obtained in exchange for new operating lease liabilities | $ | 2,631 |
Remainder of 2021 | $ | 820 | ||||||
2022 | 1,372 | |||||||
2023 | 836 | |||||||
2024 | 177 | |||||||
Thereafter | 0 | |||||||
Total lease payments | 3,205 | |||||||
Less: interest (1) | 222 | |||||||
Present value of lease liabilities | $ | 2,983 |
Remainder of 2020 | $ | 646 | ||
2021 | 1,210 | |||
2022 | 942 | |||
2023 | 411 | |||
Thereafter | — | |||
Total lease payments | 3,209 | |||
Less: interest | 236 | |||
Present value of lease liabilities | $ | 2,973 |
Weighted average remaining lease term | 2.08 years | |||||||
Weighted average discount rate | 7.06 | % | ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 819 | ||||||
Leased assets obtained in exchange for new finance lease liabilities | $ | 1,208 |
Weighted average remaining lease term | 2.63 years | |||
Weighted average discount rate | 7.00 | % | ||
Cash paid for amounts included in the measurement of lease liabilities | $ | 922 | ||
Cash flow from finance leases | $ | 922 | ||
Leased assets obtained in exchange for new finance lease liabilities | $ | — |
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | June 26, 2021 | June 27, 2020 | June 26, 2021 | June 27, 2020 | |||||||||||||||||||||||||||||||
Product | $ | 261,227 | $ | 226,866 | $ | 516,419 | $ | 449,873 | Product | $ | 257,441 | $ | 261,227 | $ | 511,602 | $ | 516,419 | |||||||||||||||||||||
Services | 70,360 | 69,384 | 145,441 | 139,084 | Services | 80,786 | 70,360 | 157,532 | 145,441 | |||||||||||||||||||||||||||||
Total revenue | $ | 331,587 | $ | 296,250 | $ | 661,860 | $ | 588,957 | Total revenue | $ | 338,227 | $ | 331,587 | $ | 669,134 | $ | 661,860 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | ||||||||||||
United States | $ | 166,223 | $ | 133,213 | $ | 336,749 | $ | 265,735 | |||||||
Other Americas | 25,832 | 29,535 | 45,520 | 44,667 | |||||||||||
Europe, Middle East and Africa | 97,168 | 90,467 | 185,746 | 189,459 | |||||||||||
Asia Pacific | 42,364 | 43,035 | 93,845 | 89,096 | |||||||||||
Total revenue | $ | 331,587 | $ | 296,250 | $ | 661,860 | $ | 588,957 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 26, 2021 | June 27, 2020 | June 26, 2021 | June 27, 2020 | ||||||||||||||||||||
United States | $ | 175,184 | $ | 166,223 | $ | 332,833 | $ | 336,749 | |||||||||||||||
Other Americas | 29,577 | 25,832 | 49,108 | 45,520 | |||||||||||||||||||
Europe, Middle East and Africa | 94,275 | 97,168 | 209,183 | 185,746 | |||||||||||||||||||
Asia Pacific | 39,191 | 42,364 | 78,010 | 93,845 | |||||||||||||||||||
Total revenue | $ | 338,227 | $ | 331,587 | $ | 669,134 | $ | 661,860 |
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||
June 27, 2020 | June 29, 2019 | June 27, 2020 | June 29, 2019 | June 26, 2021 | June 27, 2020 | June 26, 2021 | June 27, 2020 | |||||||||||||||||||||||||||||||
Direct | $ | 268,326 | $ | 241,017 | $ | 512,677 | $ | 489,213 | Direct | $ | 265,022 | $ | 268,326 | $ | 536,323 | $ | 512,677 | |||||||||||||||||||||
Indirect | 63,261 | 55,233 | 149,183 | 99,744 | Indirect | 73,205 | 63,261 | 132,811 | 149,183 | |||||||||||||||||||||||||||||
Total revenue | $ | 331,587 | $ | 296,250 | $ | 661,860 | $ | 588,957 | Total revenue | $ | 338,227 | $ | 331,587 | $ | 669,134 | $ | 661,860 |
June 27, 2020 | December 28, 2019 | ||||||
Accounts receivable, net | $ | 289,107 | $ | 349,645 | |||
Contract assets | $ | 28,262 | $ | 22,814 | |||
Deferred revenue | $ | 127,232 | $ | 139,820 |
June 26, 2021 | December 26, 2020 | ||||||||||
Assets (Liabilities) | |||||||||||
Accounts receivable, net | $ | 281,022 | $ | 319,428 | |||||||
Contract assets | $ | 33,686 | $ | 51,583 | |||||||
Deferred revenue | $ | (148,323) | $ | (163,056) |
Remainder of 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||
Revenue expected to be recognized in the future as of June 27, 2020 | $ | 401,347 | $ | 40,971 | $ | 8,662 | $ | 3,107 | $ | 1,449 | $ | 193 | $ | 455,729 |
Remainder of 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
Revenue expected to be recognized in the future as of June 26, 2021 | $ | 449,641 | $ | 96,214 | $ | 40,395 | $ | 13,978 | $ | 3,728 | $ | 4,281 | $ | 608,237 |
As of June 27, 2020 | As of December 28, 2019 | ||||||||||||||||||||||
Fair Value Measured Using | Fair Value Measured Using | ||||||||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||
Liabilities | |||||||||||||||||||||||
Foreign currency exchange forward contracts | $ | — | $ | (32 | ) | $ | (32 | ) | $ | — | $ | (159 | ) | $ | (159 | ) |
As of June 26, 2021 | As of December 26, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measured Using | Fair Value Measured Using | ||||||||||||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||||||||||||||||
Assets (Liabilities) | |||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency exchange forward contracts | $ | 0 | $ | (3) | $ | (3) | $ | 0 | $ | (72) | $ | (72) |
As of June 26, 2021 | As of December 26, 2020 | ||||||||||||||||||||||||||||||||||||||||
Gross Notional(1) | Prepaid expenses and other current assets | Other Accrued Liabilities | Gross Notional(1) | Other Accrued Liabilities | |||||||||||||||||||||||||||||||||||||
Foreign currency exchange forward contracts | |||||||||||||||||||||||||||||||||||||||||
Related to Euro denominated monetary balances | $ | 23,641 | $ | 0 | $ | (9) | $ | 23,605 | $ | (59) | |||||||||||||||||||||||||||||||
Related to British Pound denominated monetary balances | 19,051 | 6 | 0 | 4,868 | (13) | ||||||||||||||||||||||||||||||||||||
$ | 42,692 | $ | 6 | $ | (9) | $ | 28,473 | $ | (72) |
As of June 27, 2020 | As of December 28, 2019 | ||||||||||||||
Gross Notional(1) | Other Accrued Liabilities | Gross Notional(1) | Other Accrued Liabilities | ||||||||||||
Foreign currency exchange forward contracts | |||||||||||||||
Related to euro denominated receivables | $ | 542 | $ | (32 | ) | $ | 27,566 | $ | (159 | ) | |||||
$ | 542 | $ | (32 | ) | $ | 27,566 | $ | (159 | ) |
Balance as of December 28, 2019 | $ | 249,848 | |
Foreign currency translation adjustments | 1,202 | ||
Balance as of June 27, 2020 | $ | 251,050 |
Balance as of December 26, 2020 | $ | 273,426 | |||
Foreign currency translation adjustments | (4,727) | ||||
Balance as of June 26, 2021 | $ | 268,699 |
June 26, 2021 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life (In Years) | ||||||||||||||||||||
Intangible assets with finite lives: | |||||||||||||||||||||||
Trade names | $ | 1,000 | $ | (1,000) | $ | — | — | ||||||||||||||||
Customer relationships and backlog | 160,864 | (98,609) | 62,255 | 4.5 | |||||||||||||||||||
Developed technology | 189,755 | (145,555) | 44,200 | 2.5 | |||||||||||||||||||
Total intangible assets with finite lives | $ | 351,619 | $ | (245,164) | $ | 106,455 |
June 27, 2020 | |||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life (In Years) | ||||||||||
Intangible assets with finite lives: | |||||||||||||
Trade names | $ | 1,000 | $ | (1,000 | ) | $ | — | *NMF* | |||||
Customer relationships and backlog | 156,256 | (77,524 | ) | 78,732 | 5.4 | ||||||||
Developed technology | 180,303 | (115,273 | ) | 65,030 | 3.4 | ||||||||
Total intangible assets with finite lives | $ | 337,559 | $ | (193,797 | ) | $ | 143,762 |
December 28, 2019 | |||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life (In Years) | ||||||||||
Intangible assets with finite lives: | |||||||||||||
Trade names | $ | 1,000 | $ | (1,000 | ) | $ | — | *NMF* | |||||
Customer relationships and backlog | 155,942 | (68,119 | ) | 87,823 | 5.8 | ||||||||
179,593 | (97,070 | ) | 82,523 | 3.5 | |||||||||
Total intangible assets with finite lives | $ | 336,535 | $ | (166,189 | ) | $ | 170,346 |
December 26, 2020 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life (In Years) | ||||||||||||||||||||
Intangible assets with finite lives: | |||||||||||||||||||||||
Trade names | $ | 1,000 | $ | (1,000) | $ | 0 | — | ||||||||||||||||
Customer relationships and backlog | 162,098 | (90,667) | 71,431 | 4.9 | |||||||||||||||||||
Developed technology | 192,285 | (138,834) | 53,451 | 3.0 | |||||||||||||||||||
Total intangible assets with finite lives | $ | 355,383 | $ | (230,501) | $ | 124,882 | |||||||||||||||||
Fiscal Years | |||||||||||||||||||||||||||||||||||||||||
Total | Remainder of 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | |||||||||||||||||||||||||||||||||||
Total future amortization expense | $ | 106,455 | $ | 17,988 | $ | 33,401 | $ | 27,289 | $ | 11,983 | $ | 9,025 | $ | 6,769 |
Fiscal Years | |||||||||||||||||||||||||||
Total | Remainder of 2020 | 2021 | 2022 | 2023 | 2024 | 2025 and Thereafter | |||||||||||||||||||||
Total future amortization expense | $ | 143,762 | $ | 20,934 | $ | 35,332 | $ | 32,808 | $ | 26,911 | $ | 11,983 | $ | 15,794 |
Balance as of December 28, 2019 | $ | 4,005 | |
Adjustment for adoption of new standard | 650 | ||
Additions(1) | 962 | ||
Write offs(2) | (2,418 | ) | |
Recoveries during the period | (39 | ) | |
Other(3) | 23 | ||
Balance as of June 27, 2020 | $ | 3,183 |
Balance as of December 26, 2020 | $ | 2,912 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions(1)
(1) The new additions during the six months ended June 26, 2021 are primarily due to specific reserves. (2) The write offs during the six months endedJune 26, 2021 are primarily amounts fully reserved previously. (3)Primarily represents foreign currency translation adjustments. 18 Selected Balance Sheet Items The following table provides details of selected balance sheet items (in thousands):
(2)Included in computer software at June 26, 2021 and December 26, 2020 were $25.7 million and $25.4 million, respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented. The unamortized ERP costs at June 26, 2021 and December 26, 2020 were $10.0 million and $10.8 million, respectively. Also included in computer software at June 26, 2021 and December 26, 2020 was $18.1 million and $17.0 million, respectively, related to term licenses. The unamortized term license costs at June 26, 2021 and December 26, 2020 was $9.9 million and $12.0 million, respectively. (3)Included in laboratory and manufacturing equipment at June 26, 2021 was $2.0 million related to an equipment finance lease entered into by the Company for a term of three years with an option to purchase at the end of the three-year term. The finance lease was recorded at $2.0 million using a discount rate of 8.2% and was included in property, plant and equipment, net. (4)Included in leasehold improvements at June 26, 2021 was an equipment finance lease entered into by the Company for a term of five years with an option to purchase at the end of the five-year term. The finance lease was recorded at $2.5 million using a discount rate of 5% and was included in property, plant and equipment, net. (5)Depreciation expense was $21.3 million and $24.9 million (which includes depreciation of capitalized ERP cost of $0.6 million and $1.3 million, respectively) for the six months ended June 26, 2021 and June 27, 2020, respectively.
9. Restructuring and Related Costs In December During 2020, the Company implemented a new restructuring initiative (the "2020 Restructuring Plan") that was primarily intended to During the three months ended June 26, 2021 and June 27, 2020, the Company In July, 2021, the Company announced a plan to restructure certain international software research & development operations. The Company estimates it will incur total costs related to the restructuring to range from $2.5 million to $3.5 million. Additional restructuring In connection with the Acquisition, the Company assumed restructuring liabilities associated with Coriant's previous restructuring and reorganization plans consisting of termination benefits primarily comprised of severance payments. These costs are recorded at estimated fair value. The following table presents restructuring and other related costs included in cost of revenue and operating expenses in the accompanying consolidated statements of operations under the 2020 Restructuring Plan, the 2018 Restructuring Plan and Coriant's previous restructuring and reorganization plans
20 Restructuring liabilities are reported within accrued expenses, operating lease liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets (in thousands):
As of June 10. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss includes certain changes in equity that are excluded from net loss. The following table sets forth the changes in accumulated other comprehensive loss by component for the six months ended June
11. Basic and Diluted Net Loss Per Common Share Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using net loss and the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of outstanding in-the-money stock options, assumed release of outstanding restricted stock units (“RSUs”) and performance shares (referred to herein as the “PSUs”), and assumed issuance of common stock under the Company’s 2007 Employee Stock Purchase Plan (the “ESPP”) using the treasury stock method. The Company includes the common shares underlying PSUs in the calculation of diluted net income per common share only when they become contingently issuable. Potentially dilutive common shares also include the assumed conversion of $402.5 million in aggregate principal amount of 21 Notes and 2027 Notes being The following table sets forth the computation of net loss per common share – basic and diluted (in thousands, except per share amounts):
The Company incurred net losses during the The following sets forth the potentially dilutive shares excluded from the computation of the diluted net loss per share because their effect was anti-dilutive (in thousands):
12. Debt $200 million 2.50% Convertible Senior Notes due March 1, 2027 In March 2020, the Company issued the 2027 Notes due on March 1, 2027, unless earlier repurchased, redeemed or converted. The 2027 Notes are governed by an indenture dated as of March 9, 2020 (the “2027 Indenture”), between the Company and U.S. Bank National Association, as trustee. The 2027 Notes are unsecured, and the 2027 Interest is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2020. The net proceeds to the Company were approximately $193.3 million after deducting initial purchasers' fee and other debt issuance costs. The Company intends to use the net proceeds for general corporate purposes, including working capital to fund growth and potential strategic projects. Upon conversion, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2027 Notes. For any remaining conversion obligation, the Company intends to pay or deliver, Throughout the term of the 2027 Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the 2027 Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a 2027 Note. Accrued but unpaid interest will be deemed to be paid 22 in full upon conversion rather than canceled, extinguished or forfeited. Prior to December 1, 2026, holders may convert their 2027 Notes under the following circumstances: •during any fiscal quarter commencing after the fiscal quarter ended on June 27, 2020 (and only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; •during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; •if the Company calls any or all of the 2027 Notes for redemption, such 2027 Notes called for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; •upon the occurrence of specified corporate events described under the 2027 Indenture, such as a consolidation, merger or binding share exchange; or •at any time on or after December 1, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2027 Notes at any time, regardless of the foregoing circumstances. If the Company undergoes a fundamental change as defined in the 2027 Indenture, The net carrying amounts of the debt obligation were as follows (in thousands):
As of June In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2027 Notes. The Company allocated the total issuance costs incurred to the liability and equity components of the 2027 Notes based on their relative values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2027 Notes and will be amortized as interest expense over the term of the 2027 Notes. The issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. 23 The Company recorded a deferred tax liability of $16.2 million in connection with the issuance of the 2027 Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders' equity. The Company determined that the embedded conversion option in the 2027 Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholders’ equity if freestanding. The following table sets forth total interest expense recognized related to the 2027 Notes (in thousands):
For the As of June Based on the closing price of the Company’s common stock of Asset-based revolving credit facility On August 1, 2019, the Company entered into a Credit Agreement (the "Credit Agreement") with Wells Fargo Bank. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $100 million (the "Credit Facility"), which the Company may draw upon from time to time. The Company may increase the total commitments under the Credit Facility by up to an additional $50 million, subject to certain conditions. The Credit Agreement provides for a $50 million letter of credit sub-facility and a $10 million swing loan sub-facility. On December 23, 2019, the Company exercised its option to increase the total commitments under the Credit Facility and entered into an Increase Joinder and Amendment Number One to the Credit Agreement (the “Amendment”), with BMO Harris Bank N.A. and Wells Fargo Bank, National Association, as administrative agent. The Amendment increased the total commitments under the Credit Facility to $150 million. The proceeds of the loans under the Credit Agreement, as amended by the Amendment (the “Amended Credit Agreement”) may be used to pay the fees, costs and expenses incurred in connection with the Amended Credit Agreement and for working capital and general corporate purposes. The Credit Facility matures, and all outstanding loans become due and payable, on March 5, 2024. Availability under the Credit Facility is based upon periodic borrowing base certifications valuing certain inventory and accounts receivable, as reduced by certain reserves. The Credit Facility is secured by first-priority security interest (subject to certain exceptions) in inventory, certain related assets, specified deposit accounts, and certain other accounts in certain domestic subsidiaries. Loans under the Amended Credit Agreement bear interest, at the Company's option, at either a rate based on LIBOR for the applicable interest period or a base rate, in each case plus a margin. The margin ranges from 2.00% to 2.50% for LIBOR rate loans and 1.00% to 1.50% for base rate loans, depending on the utilization of the Credit Facility. The commitment fee payable on the unused portion of the Credit Facility ranges from 0.375% to 0.625% per annum, also based on the current utilization of the Credit Facility. The letter of credit will accrue a fee at a per annum rate equal to the applicable LIBOR rate margin The Amended Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. The Amended Credit Agreement also contains 24 customary covenants that limit the ability of the Company and its subsidiaries to, among other things, incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in transactions with affiliates. The Amended Credit Agreement also contains a financial covenant that requires the Company to maintain a minimum amount of liquidity and customary events of default. In connection with the Credit Facility, the Company incurred lender and other third-party costs of approximately In January 2021, the Company repaid in full the then outstanding principal balance of $77.0 million. As of June Finance Assistance Agreement During March 2019, the Company signed an agreement with a third-party contract manufacturer that governs the transfer of the activities from the legacy Coriant manufacturing facility in Berlin, Germany to Mortgage Payable In March 2019, the Company mortgaged a property it owns. The Company received proceeds of $8.7 million in connection with the loan. The loan carries a fixed interest rate of 5.25% and is repayable in 59 equal monthly installments of approximately $0.1 million each with the remaining unpaid principal balance plus accrued unpaid interest due five years from the date of the loan. As of June $400.5 million 2.125% Convertible Senior Notes due September 1, 2024 In September 2018, the Company issued the 2024 Notes due on September 1, 2024, unless earlier repurchased, redeemed or converted. The 2024 Notes are governed by a base indenture dated as of September 11, 2018 and a first supplemental indenture dated as of September 11, 2018 (together, the “2024 Indenture”), between the Company and U.S. Bank National Association, as trustee. The 2024 Notes are unsecured, and the 2024 Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of the Company's other securities by the Company. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, which commenced on March 1, 2019. The net proceeds to the Company were approximately $391.4 million, of which approximately $48.9 million was used to pay the cost of the capped call transactions with certain financial institutions (“Capped Calls”). The Company also used a portion of the remaining net proceeds to fund the cash portion of the purchase price of the Acquisition, including fees and expenses relating thereto, and intends to use the remaining net proceeds for general corporate purposes. The Capped Calls have an initial strike price of $9.87 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. The Capped Calls have initial cap prices of $15.19 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 40.8 million shares of common stock. The Capped Calls transactions are expected generally to reduce or offset potential dilution to the Company's common stock upon any conversion of the 2024 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Calls expire on various dates between July 5, 2024 and 25 August 29, 2024. The Capped Calls were recorded as a reduction of the Company’s stockholders’ equity in the accompanying condensed consolidated balance sheets. Upon conversion, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2024 Notes. For any remaining conversion obligation, the Company intends to pay or deliver, Throughout the term of the 2024 Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the 2024 Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a 2024 Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Prior to June 1, 2024, holders may convert their 2024 Notes under the following circumstances: •during any fiscal quarter commencing after the fiscal quarter ended on December 29, 2018 (and only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; •during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; •if the Company calls the 2024 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; •upon the occurrence of specified corporate events described under the 2024 Indenture, such as a consolidation, merger or binding share exchange; or •at any time on or after June 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances. If the Company undergoes a fundamental change as defined in the 2024 Indenture, The net carrying amounts of the debt obligation were as follows (in thousands):
As of June In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a 26 similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The The Company allocated the total issuance costs incurred to the liability and equity components of the 2024 Notes based on their relative values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2024 Notes and will be amortized as interest expense over the term of the 2024 Notes. The issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. The Company recorded a deferred tax liability of $30.9 million in connection with the issuance of the 2024 Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders' equity. The Company determined that the embedded conversion option in the 2024 Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholders’ equity if freestanding. The following table sets forth total interest expense recognized related to the 2024 Notes for the
For the As of June Based on the closing price of the Company’s common stock of 13. Commitments and Contingencies The following table sets forth commitments and contingencies related to our various obligations (in thousands): 27
(3) The Company has finance leases for manufacturing and other equipment. See Note 3, "Leases" to the Notes to Condensed Consolidated Financial Statements for more information. (4) See Note 12, "Debt" to the Notes to Condensed Consolidated Financial Statements for more information. Legal Matters Oyster Optics LLC On July 29, 2019, Oyster Optics filed a Capella Photonics, Inc. On March 17, 2020, Capella Photonics, Inc. ("Capella") filed a complaint in the U.S. District Court for the Eastern District of Texas against the Company, Tellabs, Inc., Coriant Operations, Inc., Coriant America Inc., and Coriant (USA) Inc. 28 Loss Contingencies The Company is subject to the possibility of various losses arising in the ordinary course of business. These may relate to disputes, litigation and other legal actions. In the preparation of its quarterly and annual financial statements, the Company considers the likelihood of loss or the incurrence of a liability, including whether it is probable, reasonably possible or remote that a liability has been incurred, as well as the Company’s ability to reasonably estimate the amount of loss, in determining loss contingencies. In accordance with U.S. GAAP, an estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. As of each of June Indemnification Obligations From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third-party claims. The terms of such indemnification obligations vary. These contracts may relate to: (i) certain real estate leases under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (ii) certain agreements with the Company’s officers, directors and certain key employees, under which the Company may be required to indemnify such persons for liabilities. In addition, the Company has agreed to indemnify certain customers for claims made against the Company’s products, where such claims allege infringement of third-party intellectual property rights, including, but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned intellectual property indemnification clauses, the Company may be obligated to defend the customer and pay for the damages awarded against the customer under an infringement claim as well as the customer’s attorneys’ fees and costs. These indemnification obligations generally do not expire after termination or expiration of the agreement containing the indemnification obligation. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification. The Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. The maximum potential amount of any future payments that the Company could be required to make under these indemnification obligations could be significant. As permitted under Delaware law and the Company’s charter and bylaws, the Company has agreements whereby it indemnifies certain of its officers and each of its directors. The term of the indemnification period is for the officer’s or director’s lifetime for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements could be significant; however, the Company has a director and officer insurance policy that may reduce its exposure and enable it to recover all or a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. 29 14. Stockholders’ Equity Open Market Sale Agreement On August 12, 2020, the Company entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”), as sales agent and/or principal, pursuant to which the Company issued and sold through Jefferies, from time to time, shares of the Company’s common stock, par value $0.001 per share (the “Shares”), having an aggregate offering price of $96.3 million. Subject to the terms and conditions of the Sales Agreement, Jefferies will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions. The Company has provided Jefferies with customary indemnification rights, and Jefferies will be entitled to a compensation of 3% of the gross proceeds per Share sold. Sales of the Shares, if any, under the Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended. The Company has no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. During the year ended December 26, 2020, we sold 12 million shares of common stock under the Sales Agreement, for net proceeds of approximately $93.4 million, after paying Jefferies a sales commission of approximately $2.9 million related to services provided as the sales agent with respect to the sales of those shares. 2007 Equity Incentive Plan, 2016 Equity Incentive Plan, 2019 Inducement Equity Incentive Plan and Employee Stock Purchase Plan In February 2007, the Company’s board of directors adopted the 2007 Equity Incentive Plan (the “2007 Plan”) and the Company’s stockholders approved the 2007 Plan in May 2007. The Company reserved a total of 46.8 million shares of common stock for issuance under the 2007 Plan. Upon stockholder approval of the 2016 Equity Incentive Plan (the “2016 Plan”), the Company has ceased granting equity awards under the 2007 In February 2016, the Company's board of directors adopted the 2016 Plan and the Company's stockholders approved the 2016 Plan in May 2016. In May 2018, May 2019, May 2020 and May In February of 2007, the Company's board of directors adopted the ESPP and the Company's stockholders approved Stock-based Compensation Plans 30 The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):
The aggregate intrinsic value of unreleased RSUs and unreleased PSUs is calculated using the closing price of the Company's common stock of The following table presents total stock-based compensation cost for instruments granted but not yet amortized,
31 Employee Stock Options The Company did 0t have any outstanding stock options as of June 26, 2021. The Company did 0t grant any stock options during the six months ended June Employee Stock Purchase Plan The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:
Restricted Stock Units Pursuant to the 2016 Plan, the Company has granted RSUs to employees and non-employee members of the Company's board of directors. All RSUs awarded are subject to each individual's continued service to the Company through each applicable vesting date. The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant. Amortization of stock-based compensation related to RSUs for the Performance Stock Units Pursuant to the 2016 Plan, the Company has granted PSUs to certain of the Company’s executive officers, senior management and certain employees. All PSUs awarded are subject to each individual's continued service to the Company through each applicable vesting date and if the performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled. PSUs granted to the Company’s executive officers and senior management under the 2016 Plan during
PSUs granted to the Company's executive officers and senior management under the 2016 Plan during 2019, 2020 and the first quarter of 32 The following table summarizes by grant year, the Company’s PSU activity for the six months ended June
Amortization of stock-based compensation expense related to PSUs for the Stock-Based Compensation The following tables summarize the effects of stock-based compensation on the Company’s consolidated balance sheets and statements of operations for the periods presented (in thousands):
15. Income Taxes Income taxes for the The Company must assess the likelihood that some portion of or all 33 adjustment will be recorded in the period that the determination is made and would generally decrease the valuation allowance and record a corresponding benefit to earnings. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act includes several provisions for corporations including increasing the amount of deductible interest, allowing companies to carryback certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income. The aforementioned relief available under the CARES Act did not have a material impact on the Company's provision for income taxes for the six months ended June 16. Segment Information Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or Revenue by geographic region is based on the shipping address of the customer.
For more information regarding revenue disaggregated by geography, see Note 4, “Revenue Recognition” to the Notes to Condensed Consolidated Financial Statements. Additionally, the following table sets forth long-lived assets by geographic region (in thousands):
17. Guarantees Product Warranties Activity related to product warranty was as follows (in thousands):
(1)The Company records product warranty liabilities based on the latest quality and cost information available as of the date the revenue is recorded. The changes in estimate shown here are due to changes in overall actual failure rates, the mix of new compared to used units related to replacement of failed units, and changes in the estimated cost of repair and product recalls. As the Company's products mature over time, failure rates and repair costs associated with such products generally decline, leading to favorable changes in warranty reserves. 34
Letters of Credit and Bank Guarantees The Company had The Company had As of each of June 18. Pension and Post-Retirement Benefit Plans As a result of the Acquisition, the Company acquired a number of post-employment plans in Germany, as well as a number of smaller post-employment plans in other countries, including both defined contribution and defined benefit plans. The defined benefit plans expose the Company to actuarial risks such as investment risk, interest rate risk, life expectancy risk and salary risk. The characteristics of the defined benefit plans and the risks associated with them vary depending on legal, fiscal and economic requirements. Components of Net Periodic Benefit Cost Net periodic benefit cost for the Company's pension and other post-retirement benefit plans consisted of the following (in thousands):
The components of net periodic benefit costs other than the service cost component are included in Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10% of the greater of the pension benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the pension plan participants. 35 Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks, estimates and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results and the timing of certain events to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, but are not limited to, our expectations regarding revenue, gross margin, operating expenses, cash flows and other financial items; our expectations regarding industry-wide supply chain challenges; the severity, magnitude, duration and effects of the Overview We are a global supplier of networking solutions comprised of networking equipment, software and services. Our portfolio of solutions includes optical transport platforms, compact modular platforms, converged packet-optical transport platforms, optical line systems, disaggregated router platforms, and a suite of networking and automation software offerings, and support and professional services. Our customers include telecommunications service providers, internet content providers (“ICPs”), cable providers, wholesale carriers, research and education institutions, large enterprises and government entities. Our networking solutions enable our customers to deliver high-bandwidth business and consumer communications services. Our comprehensive portfolio of networking solutions also enables our customers to scale their transport networks as end-user services and applications continue to drive growth in demand for network bandwidth. These end-user services and applications include, but are not limited to, high-speed internet access, business ethernet services, 4G/5G mobile broadband, cloud-based services, high-definition video streaming services, virtual and augmented reality and the Internet of Things. Our systems are highly scalable, flexible and designed with open networking principles for ease of deployment. We build our systems using a combination of internally manufactured and third-party components. Our portfolio includes systems that leverage our innovative, vertically integrated optical engine technology, comprised of integrated circuits (“PICs”) and digital signal processors (“DSPs”). We optimize the manufacturing process by using indium phosphide to build our PICs, which enables the integration of hundreds of optical functions onto a set of semiconductor chips. This large-scale integration of our PICs and advanced DSPs allows us to deliver high-performance transport networking platforms with features that customers care about the 36 most, including low cost per bit, low power consumption and space savings. In addition, we design our optical engines to increase the capacity and reach performance of our products by leveraging coherent optical transmission. We believe our vertical integration strategy becomes increasingly more valuable as our customers transition to 800 gigabits per second (“Gb/s”) per wavelength transmission speeds and beyond, as the combination of our optical integration, DSP, and tightly integrated packaging enables a leading optical performance at higher optical speeds. Over the past several years, we expanded our portfolio of solutions, evolving from our initial focus on the long-haul and subsea optical transport markets to We have grown our solutions portfolio through internal development as well as acquisitions. In 2014, we introduced the Infinera Cloud Xpress to address the emerging DCI market opportunity. In 2015, we entered the metro market with the acquisition of Transmode AB. In October 2018, we closed the Acquisition and expanded our product portfolio and customer base by acquiring Coriant, Our high-speed optical transport platforms and pluggable solutions are differentiated by Our products are designed to be managed by a suite of software solutions that enable We believe our For the three months ended June We are headquartered in Impact of COVID-19 Pandemic COVID-19 was declared a global pandemic in March 2020. 37 will continue monitoring and adjusting our operations, as appropriate, in response to the ongoing COVID-19 pandemic. Employees Since the outset of the COVID-19 pandemic, we have taken a number of precautionary steps to safeguard our business and our employees from Business Operations In addition, we have implemented certain business continuity plans in response to the COVID-19 pandemic in order to minimize any We continue to monitor the COVID-19 pandemic, Liquidity and Capital Resources While we believe we have enough cash in combination with our Credit Facility (as defined below) to operate our business for the next 12 months, if the impact of the COVID-19 pandemic to our business and financial position is more extensive than expected, we may need additional capital to enhance liquidity and working capital. We have historically been successful in our ability to secure other sources of financing, such as accessing capital markets, and implementing other cost reduction initiatives such as restructuring, delaying or eliminating discretionary spending to satisfy our liquidity needs. However, our access to these sources of capital could be materially and adversely impacted and we may not be able to receive terms as favorable as we have historically received. Capital markets have been volatile and there is no assurance that we would have access to capital markets at a reasonable cost, or at all, at times when capital is needed. In addition, some of our existing debt has restrictive covenants that may limit our ability to raise new debt, which would limit our ability to access liquidity by those means without obtaining the consent of our lenders. In May 2019, we entered into a financing assistance agreement with a third-party contract manufacturer whereby the contract manufacturer agreed to provide funding of up to $40.0 million to cover severance, retention and other costs associated with the transfer of our manufacturing operations in Berlin, Germany to the contract manufacturer. The funding was secured against certain foreign assets, carried a fixed interest rate of 6% and 38 repayable in 12 months from the date of each draw down. In October 2020, the payment terms were amended to extend the due date by six months, set the fixed interest rate at 3% during such period, and allowed for the phased transfer of inventory to offset the amount due. As of June 26, 2021, there was no outstanding balance as the loan and accrued interest was fully paid off in April 2021. Critical Accounting Policies and Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which we have prepared in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates, assumptions and judgments that can affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. An accounting policy is deemed to be critical if it requires a significant accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the Due to the COVID-19 pandemic, there has been and continues to be uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of the date we filed this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ from these estimates under different assumptions or conditions. Results of Operations The following sets forth, for the periods presented, certain unaudited condensed consolidated statements of operations information (in thousands, except percentage data): 39
Revenue Total product revenue Total services revenue increased by $10.4 million, or 15% for the three months ended June 40 We expect our total revenue will be The following table summarizes our revenue by geography and sales channel for the periods presented (in thousands, except percentage data):
Domestic revenue increased by International revenue Direct revenue decreased by $3.3 million, or 1%, and indirect revenue increased by $9.9 million, or 16% during the three months ended June 26, 2021 compared to the corresponding period in 2020. The increase in indirect revenue for the second quarter of 2021 was driven by certain ICP customers who purchased through our indirect sales channel. Direct revenue increased by $23.6 million, or 5%, and indirect revenue decreased by $16.4 million, or 11%, during the six months ended June 26, 2021 compared to the corresponding respective period in 2020. The increase in direct revenue is attributable to growth in professional services due to 41 Cost of Revenue and Gross Margin Gross profit was We currently expect that gross margin in the third quarter of Amortization of Intangible Assets Amortization of intangible assets Acquisition and Integration Costs Integration costs, within cost of revenue, decreased by Restructuring and Related Restructuring and related costs primarily consisting of severance and related costs decreased by 42 Operating Expenses The following tables summarize our operating expenses for the periods presented (in thousands, except percentage data):
Research and Development Expenses Research and development expenses Sales and Marketing Expenses Sales and marketing expenses 43 making prudent investments in General and Administrative Expenses General and administrative expenses this period were partially offset by Amortization of Intangible Assets Amortization of intangible assets decreased by Acquisition and Integration Costs Integration costs decreased by Restructuring and Related Costs Restructuring and related costs Restructuring and related costs decreased by 44 Other Income (Expense), Net
Interest income during the Interest expense decreased by $0.4 million, or 3%, during the three months ended June April 2021. Interest expense increased by $2.6 million, or 12%, during the six months ended June Other gain (loss), net, increased by $4.7 million, or 236%, during the three months ended June Income Tax Benefit/Expense Income taxes 45 Liquidity and Capital Resources
Our restricted cash balance amounts are primarily pledged as collateral for certain standby letters of credit related to customer performance guarantees, value added tax licenses and property leases. Operating Activities Net cash Net loss during the six months ended June 26, 2021 was $83.9 million, which included non-cash charges of $92.5 million such as depreciation, amortization of intangibles, restructuring charges and related costs, amortization of debt discount and debt issuance costs, operating lease expense, and stock-based compensation, compared to a net loss during the three months ended June 27, 2020 Net cash Net cash used to fund working capital was Investing Activities Net cash used in investing activities during the six months ended June Net cash 46 Financing Activities Net cash used in financing activities during the six months ended June Net cash provided by financing activities during the six months ended June 27, 2020 was $240.5 Liquidity We believe that our current cash, along with the Credit Facility, On March 9, 2020, we issued the 2027 Notes, which will mature on March 1, 2027, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2020. The net proceeds from the 2027 Notes issuance were approximately $194.5 million and we intend to use the net proceeds for general corporate purposes, including working capital to fund growth and potential strategic projects. Upon conversion, it is our intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2027 Notes. For any remaining conversion obligation, we intend to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. As of June As of June On August 1, 2019, we entered into 47 entered into the Amendment to the Credit Agreement. The Amended Credit Agreement provides for a $50.0 million letter of credit sub-facility and a $10.0 million swing loan sub-facility. The proceeds of the loans under the Amended Credit Agreement Loans under the Amended Credit Agreement bear interest, at our option, at either a rate based on In May 2019, we entered into a financing assistance agreement with a third-party contract manufacturer whereby the contract manufacturer agreed to provide funding of up to $40.0 million to cover severance, retention and other costs associated with the transfer of our manufacturing operations in Berlin, Germany to the contract manufacturer. The funding was secured against certain foreign assets, carried a fixed interest rate of 6% and repayable in 12 months from the date of each draw down. In October 2020, the payment terms were amended to extend the due date by six months, set the fixed interest rate at 3% during such period, and allowed for the phased transfer of inventory to offset the amount due. In April 2021, we repaid the entire outstanding principal balance and accrued interest of $24.6 million and $1.8 million, respectively. In September 2018, we issued the 2024 Notes, which will mature on September 1, 2024, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, which commenced on March 1, 2019. The net proceeds from the 2024 Notes issuance were approximately $391.4 million, of which approximately $48.9 million was used to pay the cost of the Capped Calls. We also used a portion of the remaining net proceeds to fund the cash portion of the purchase price of the Acquisition, including fees and expenses relating thereto, and intend to use the remaining net proceeds for general corporate purposes. Upon conversion, it is our intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2024 Notes. For any remaining conversion obligation, we intend to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. As of June request conversion during an early conversion window, we may require funds for repayment of such 2024 Notes prior to their maturity date. As of June As of June Off-Balance Sheet Arrangements As of June Item 3.Quantitative and Qualitative Disclosures about Market Risk Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We assess these risks on a regular basis and have established policies that are designed to protect against, but that cannot entirely eliminate the adverse effects of these and other potential exposures. Foreign Currency Exchange Rate Risk There have been no material changes to the foreign currency exchange rate risk previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the fiscal year ended December Interest Rate Risk There have been no material changes to the interest rate risk previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the fiscal year ended December Market Risk and Market Interest Risk For a discussion of our exposure to market risk and market interest risk related to the 2027 Notes and 2024 Notes, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December Item 4.Controls and Procedures Evaluation of Disclosure Controls and Procedures An evaluation was performed by our management, with the participation of our CEO and our CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO concluded that, as of June Inherent Limitations on Effectiveness of Controls Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures. 49 Changes in Internal Control over Financial Reporting 50 PART II. OTHER INFORMATION Investing in our securities involves a high degree of risk and a description of the risks and uncertainties associated with our business is set forth below. This description includes any material changes to and supersedes the description of the risks and uncertainties associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December Risk Factors Summary The following is a summary of the Business and Operational Risk Factors •Our quarterly results may vary significantly from period to period. •Any delays in the •We are dependent on sole source and •The COVID-19 pandemic could have a material adverse effect on our business and results of •Our ability to increase our revenue will depend upon continued demand growth for additional network capacity and •We are dependent on a small number of •Product performance problems or deployment delays could harm our business and •The markets in •If we lose key personnel or fail to attract qualified personnel, our business may be harmed. •Aggressive business tactics by our competitors may harm our business. •Increased consolidation among our customers and suppliers in the communications networking industry has had, and could continue to have, an adverse effect on our •The manufacturing process for our optical engine and the assembly of our products are very complex. •Actions that we are taking to restructure our business may not be as effective as anticipated. •We rely on various third-party service partners to help complement our global operations. •We must respond to rapid technological change for our products to be successful. •If our contract manufacturers do not perform as we expect, our business may be harmed. •If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs. •Our large customers have substantial negotiating leverage. •Our sales cycle can be long and unpredictable, which could result in unexpected revenue shortfalls. •Any strategic transactions that we undertake could disrupt our business and harm our financial condition and operations. Financial and Macroeconomic Risk Factors •We may be unable to generate the cash flow necessary to make anticipated capital expenditures, service our debt, or grow our business. 51 •Unfavorable macroeconomic and market conditions may adversely affect our industry, business and financial results. •If we need additional capital in the future, it may not be available to us on favorable terms, or at all. •Our international sales and operations subject us to additional risks. •We may be adversely affected by fluctuations in currency exchange rates. •Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income. •Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources. •We may issue additional shares of our common stock in connection with conversions of the Notes. •The fundamental change provisions of the 2024 Notes and the 2027 Notes may delay or prevent an otherwise beneficial takeover attempt of us. •The Capped Calls may affect the value of the 2024 Notes and our common stock. •We are subject to counterparty risk with respect to the Capped Calls. Legal and Regulatory Risk Factors •If we fail to protect our intellectual property rights, our competitive position could be harmed, or we could incur significant expense to enforce our rights. •Claims by others that we infringe their intellectual property could harm our business. •If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected. •Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property and proprietary or confidential information and cause significant damage to our business and reputation. •We are subject to governmental regulations that could adversely affect our business. •We are subject to various governmental export control, trade sanctions and import laws and regulations that could impair our ability to compete in international markets or subject us to liability. •A portion of our revenue is generated by sales to government entities, which are subject to a number of uncertainties, challenges, and risks. •Our business could be adversely affected if we cannot obtain and maintain required security clearances, or we do not comply with obligations regarding the •Failure to comply with anti-bribery and similar laws could subject us to adverse consequences. General Risk Factors •The trading price of our common stock has been volatile and is likely to •Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock. •Exclusive forum provisions in our bylaws will restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees. •Natural disasters, terrorist attacks or other catastrophic events could harm our operations. For a more complete discussion of the material risks facing our business, see below. 52 Business and Our quarterly results may vary significantly from period to period, which could make our future results difficult to predict and could cause our operating results to fall below investor, analyst or our expectations. Our quarterly results and, in particular, our revenue, gross margins, operating expenses, operating margins and net income (loss),have historically varied significantly from period to period and may continue to do so in the future. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our budgeted expense levels are based, in large part, on our expectations of future revenue and the development efforts associated with that future revenue. Consequently, if our revenue does not meet projected levels in the short-term, our inventory levels, cost of goods sold and operating expenses would be high relative to revenue, resulting in potential operating losses. •fluctuations in demand, sales cycles and prices for products and services, including discounts given in response to competitive pricing pressures or to secure long-term customer relationships, as well as the timing of •fluctuations in our customer, product or geographic mix, including the •the •our ability to manage manufacturing costs, maintain or improve quality, and increase volumes and yields on products manufactured in our internal manufacturing facilities, each of which has been impacted by the COVID-19 pandemic; •the price, quality and •our ability to successfully restructure or transform our operations within our anticipated time frame and realize our anticipated savings; •order cancellations, reductions or delays in •any delay in collecting or failure to collect accounts receivable; •our ability to control •any significant changes in •our ability to manage inventory while timely meeting customer demand and •readiness of •the timing of revenue recognition and revenue deferrals; 53 •any future changes in U.S. GAAP or new interpretations of existing accounting rules; •the impact of a significant natural disaster, as well as interruptions or shortages in the supply of utilities such as water and electricity, in a key location such as our Northern California facilities, which are located near major earthquake fault lines, in areas of high fire risk and in a designated flood zone; and •general economic and political conditions in domestic and international markets, including those Any delays in the development, introduction or acceptance of our new products or in releasing enhancements to our existing products may harm our business. Our products are based on complex technologies, including, in many cases, the development of next-generation PICs, DSPs and specialized application-specific integrated circuits (“ASICs”), each of which are key components of our optical engines. In addition, we may also depend on technologies from outside suppliers, all of which may cause us to experience unanticipated delays in developing, improving, manufacturing or deploying our products. The development process for our optical engines is lengthy, and any modifications entail significant development cost and risks. At any given time, various new product introductions and enhancements to our existing products are in the development phase and are not yet ready for commercial manufacturing or deployment. We rely on third parties, some of which are relatively early stage companies, to develop, manufacture and deliver components for our next-generation products, which can often require custom development. The development process from laboratory prototype to customer trials, and subsequently to general availability, involves a significant number of simultaneous efforts. These efforts often must be completed in a timely and coordinated manner so that they may be incorporated into the product development cycle for our systems, and include: •completion of product development, including the development and completion of our next-generation optical engines, and the completion of associated module development; •the qualification and multiple sourcing of critical components; •validation of manufacturing methods and processes; •extensive quality assurance and reliability testing and staffing of testing infrastructure; •validation of software; and •establishment of systems integration and systems test validation requirements. Each of these steps, in turn, presents risks of failure, rework or delay, any one of which could decrease the speed and scope of product introduction and marketplace acceptance of our products. New generations of our optical engines as well as intensive software testing are important to the timely introduction of new products and enhancements to our existing products, As we transition customers to new products, we face significant risk that our new products may not be accepted by our current or new customers. To the extent that we fail to introduce new and innovative products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face decreased revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to focus purchases on new product platforms. We could incur significant costs in completing the transition, including costs of inventory write-downs of the current product as customers transition to new product platforms. In addition, 54 products or technologies developed by others may render our products noncompetitive or obsolete and result in significant reduction in orders from our customers and the loss of existing and prospective customers. We are dependent on sole source and limited source suppliers for several key components, and if we fail to obtain these components on a timely basis, we will not meet our customers’ product delivery requirements. We currently purchase several key components for our products from sole or limited sources. In particular, we rely on our own production of certain components of our products, such as PICs, and on third parties, including sole source and limited source suppliers, for certain of the components of our products, including ASICs, The loss of a source of supply, or lack of sufficient availability of key components, could require us to redesign products that use such components, which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. For example, the COVID-19 pandemic has caused a disruption of the global supply chain for certain components necessary for our products and The COVID-19 pandemic could have a material adverse effect on our business and results of operations. The COVID-19 pandemic has caused disruptions to our business and operations to date and could have a material adverse effect on our business and results of operations in the future. The COVID-19 global pandemic has adversely affected the economies of many countries and has resulted in significant governmental measures to control the spread of COVID-19, including, among others, restrictions on travel, business operations and the movement of people in many regions of the world in which we operate, and the imposition of shelter-in-place or similarly restrictive work-from-home orders impacting many of our offices and employees, including those located in the United States. As a result of these governmental measures and pursuant to recommended safety guidelines, we have temporarily closed or substantially limited the presence of personnel in our offices in several impacted locations, implemented travel restrictions and withdrawn from various industry events. Our 55 process in the first quarter of 2020, and may The impact of the COVID-19 pandemic on our business and results of operations during the remainder of fiscal 2021 remains uncertain and is dependent in part on future infection rates, the emergence of new strains of the virus, the effectiveness and availability of vaccinations, and broader global macroeconomic developments. We may face further disruptions or restrictions on our ability to source, manufacture or distribute our products due to existing or additional governmental restrictions in multiple countries on business operations and movement of people and products. If we experience pronounced disruptions in our operations or in our ability to service our customers, including due to COVID-19 infections or quarantines among our employees and service providers, or if we face curtailed customer demand, these factors may materially adversely impact our business and results of operations. We could also face negative impacts on our liquidity and capital resources during the remainder of fiscal 2021 due to the COVID-19 pandemic and its impacts on our customers, third-party service providers and capital markets. Our Our future success depends on factors that increase the amount of data transmitted over communications networks and pandemic, changes in 56 We are dependent on a small number of key customers for a significant portion of our revenue from period to period and the loss of, or a significant reduction in, orders from one or more of our key customers would reduce our revenue and harm our operating results. While our revenue and customer base have become more diversified over the past few years, Our ability to continue to generate revenue from our key customers will depend on our ability to maintain strong relationships with these customers and introduce competitive new products at competitive prices. In most cases, our sales are made to these customers pursuant to standard purchase agreements, which may be canceled or reduced readily, rather than long-term purchase commitments that would require these customers to purchase any minimum or guaranteed volumes orders. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business. Our operating results will continue to depend on our ability to sell our products to our key customers. In addition, we must regularly compete for and win business with existing and new customers across all of our customer segments. In addition, the negative effects of the COVID-19 pandemic on global economic conditions may affect the network spending, procurement strategies, or business practices of our key customers. If any of our key customers experience a loss in revenue due to the impact of the COVID-19 pandemic on their consumer or enterprise customers, they may reduce or delay capital spending generally or with respect to our products, which could materially adversely affect our business and results of operations. Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation. The development and production of products with high technology content is complicated and often involves problems with hardware, software, components and manufacturing methods. Complex hardware and software systems, such as our products, can often contain undetected errors or bugs when first introduced or as new versions are released. In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve. We have experienced issues in the past in connection with our products, including failures due to the receipt of faulty components from our suppliers and performance issues related to software updates. From time to time we have had to replace certain components or provide software remedies or other remediation in response to errors or bugs, and we may have to do so again in the future. In addition, performance issues can be heightened during periods where we are developing and introducing multiple new products to the market, as any performance issues we encounter in one technology or product could impact the performance or timing of delivery of other products. Our products may also suffer degradation of performance and reliability over time. If reliability, quality, security or network monitoring problems develop, a number of negative effects on our business could result, including: •reduced orders from existing customers; •declining interest from potential customers; •delays in our ability to recognize revenue or in collecting accounts receivables; •costs associated with fixing hardware or software defects or replacing products; •high service and warranty expenses; •delays in shipments; 57 •high inventory excess and obsolescence expense; •high levels of product returns; •diversion of our engineering personnel from our product development efforts; and •payment of liquidated damages, performance guarantees or similar penalties. Because we outsource the manufacturing of certain components of our products, we may also be subject to product performance problems as a result of the acts or omissions of third parties, and we may not have adequate compensating remedies against such third parties. From time to time, we encounter interruptions or delays in the activation of our products at a customer’s site. These interruptions or delays may result from product performance problems or from issues with installation and activation, some of which are outside our control. If we experience significant interruptions or delays that we cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our products could be undermined, which could cause us to lose customers, fail to add new customers, and consequently harm our financial results. Competition in the Competition in the markets we serve is based on •price and other commercial terms; •functionality and optical performance; •existing business and •the ability of •power consumption; •heat dissipation; •form factor or density; •installation and operational simplicity; •quality and reliability; •service and support; •security and encryption requirements; •scalability and investment protection; and •product lead times. In addition to our current competitors, other companies have, or may in the future develop, products that are or could be competitive with our products. We Some of our competitors have substantially greater name recognition and 58 or have the ability to provide financing to customers, which could prevent us from competing effectively. Further, many of our competitors have built long-standing relationships with some of our prospective and We also compete with low-cost producers that may increase pricing If we lose key personnel or fail to attract and retain additional qualified personnel when needed, our business may be harmed. Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, and finance personnel, many of whom would be difficult to replace. For example, senior members of our engineering team have unique technical experience that would be difficult to replace. Because our products are complex, we must hire and retain highly trained customer service and support personnel to ensure that the deployment of our products does not result in network disruption for our customers. We believe our future success will depend in large part upon our ability to identify, attract and retain highly skilled personnel, and competition for these individuals is intense in our industry, especially in the San Francisco Bay Area where we are headquartered and, increasingly, in certain cities and regions where we have operations outside the United States as well. In addition, we may not succeed in identifying, attracting and retaining appropriate personnel. The loss of the services of any of our key personnel, the inability to identify, attract or retain qualified personnel in the future or delays in hiring qualified personnel, particularly engineers and sales personnel, could make it difficult for us to manage our business and meet key objectives, such as timely product introductions. In addition, we do not have long-term employment contracts or key person life insurance covering any of our key personnel. If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively, and our results of operations could suffer. Aggressive business tactics by our competitors may harm our business. The markets in which we compete are extremely competitive and this often results in aggressive business tactics by our competitors, including: •aggressively pricing their optical transport products and other portfolio products, including offering significant one-time discounts and guaranteed future price decreases; •offering optical products at a substantial discount or for free when bundled together with broader technology purchases, such as router or wireless equipment purchases; •providing financing, marketing and advertising assistance to customers; and •influencing customer requirements to emphasize different product capabilities, which better suit their products. The level of competition and pricing pressure tend to increase when competing for larger high-profile opportunities or during periods of economic weakness when there are fewer network build-out projects. If we fail to compete successfully against our current and future competitors, or if our current or future competitors continue or expand their aggressive business tactics, including those described above, demand for our products could decline, we could experience delays or cancellations of customer orders, and/or we could be required to reduce our prices to compete in the market. 59 combined companies evaluate the needs of In addition, our suppliers in the communications networking industry have recently continued to consolidate. For example, Lumentum acquired Oclaro in 2018 and II-VI acquired Finisar in 2019. In June 2021, the stockholders of Coherent and II-VI approved a proposal for Coherent to be acquired by II-VI. Supplier consolidation may lead to increased prices of components for our products, deployment delays and/or a disruption in output. In addition, such consolidation may exacerbate the risks relating to our dependence on a small number of suppliers for certain components and materials that are required to manufacture our products. The manufacturing process for our optical engine and the assembly of our finished products are is very complex. The partial or complete loss of any of our manufacturing facilities, a reduction in yields of our PICs or an inability to scale capacity to meet customer demands could harm our business. The manufacturing process for our optical engine, including the PICs, DSPs and specialized ASICs, and the assembly of our finished products are very complex. In the event that any of our manufacturing facilities utilized to build these components and assemble our finished products were fully or partially destroyed, or shut down, as a result of a natural disaster, work stoppage or otherwise, it could severely limit our ability to sell our products. Because of the complex nature of our manufacturing facilities, such loss would take a considerable amount of time to repair or replace. The partial or complete loss of any of our manufacturing facilities, or an event causing the interruption in our use of any such facilities, whether as a result of a natural disaster, like the COVID-19 pandemic, work stoppage or otherwise, for any extended period of time would cause our business, financial condition and results of operations to be harmed. Minor deviations in the PIC manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. In the past, we Our inability to obtain sufficient manufacturing capacity to meet demand, either in our own facilities or through foundry or similar arrangements with third parties, could harm our relationships with our customers, our business and our results of operations. Actions that we are taking to restructure our business to cut costs in order to align our operating structure with current opportunities may not be as effective as anticipated. During 2020 and 2021, we have undertaken certain restructuring initiatives, including the 2020 Restructuring Plan and the recent restructuring of certain international research and development functions, in order to reduce expenses, reallocate resources to align more closely with our evolving business model, and improve operating efficiencies. These activities might not produce the full expense reduction, resource realignment and efficiency benefits we expect, which could harm our business. Further, any anticipated benefits from these restructuring initiatives may be realized later than expected or not at all, and the ongoing costs of implementing these measures may be greater than anticipated. In addition, as a result of these restructuring actions, our ability to execute on product development, address key market opportunities and/or meet customer demand could be materially and adversely affected. We rely on various third-party service partners to help complement our global operations, and failure to adequately manage these relationships could adversely impact our financial results and relationships with customers. We rely on a number of third-party service partners, both domestic and international, to complement our global operations. We rely upon these partners for certain installation, maintenance, logistics and support functions. In addition, as our customers increasingly seek to rely on vendors to perform additional services relating to the 60 design, construction and operation of their networks, the scope of work performed by our service partners is likely to increase and may include areas where we have less experience providing or managing such services. We must successfully identify, assess, train and certify qualified service partners in order to ensure the proper installation, deployment and maintenance of our products. The vetting and certification of these partners can be costly and time-consuming, and certain partners may not have the same operational history, financial resources and scale as we have. Moreover, certain service partners may provide similar services for other companies, including our competitors. We may not be able to manage our relationships with our service partners effectively, and we cannot be certain that they will be able to deliver services in the manner or time required, that we will be able to maintain the continuity of their services, or that they will adhere to our approach to ethical business practices. Our service partners may also experience challenges in providing services to us as a result of the impact of the COVID-19 pandemic. We may also be exposed to a number of risks or challenges relating to the performance of our service partners, including: •delays in recognizing revenue; •liability for injuries to persons, damage to property or other claims relating to the actions or omissions of our service partners; •our services revenue and gross margin may be adversely affected; and •our relationships with customers could suffer. If we do not effectively manage our relationships with third-party service partners, or if they fail to perform these services in the manner or time required, our financial results and relationships with our customers could be adversely affected. We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful. The optical transport networking equipment market is characterized by rapid technological change, changes in customer requirements and evolving industry standards. We continually invest in research and development to sustain or enhance our existing products, but the introduction of new communications technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and competitors. If the standards or requirements adopted by our prospective customers are different from those on which we have focused our efforts, market acceptance of our products would be reduced or delayed, and our business would be harmed. We are continuing to invest a significant portion of our research and development efforts in the development of our next-generation products. We expect our competitors will continue to improve the performance of their existing products and introduce new products and technologies and to influence customers’ buying criteria so as to emphasize product capabilities that we do not, or may not, possess. To be competitive, we must anticipate future customer requirements and continue to invest significant resources in research and development, sales and marketing, and customer support. If we do not anticipate these future customer requirements and invest in the technologies necessary to enable us to have and to sell the appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect on our business and financial condition. We may not have sufficient resources to make these investments and we may not be able to make the technological advances necessary to be competitive. If our contract manufacturers do not perform as we expect, our business may be harmed. We rely on third-party contract manufacturers to perform a portion of the manufacturing of our products, and our future success will depend on our ability to have sufficient volumes of our products manufactured in a cost-effective and quality-controlled manner. We have engaged third parties to manufacture certain elements of our products at multiple contract manufacturing sites located around the world but do not have long-term agreements in place with some of our manufacturers and suppliers that will guarantee product availability, or the continuation of particular pricing or payment terms. •reduced control over delivery schedules, particularly for international contract manufacturing sites; •reliance on the quality assurance procedures of third parties; 61 •potential uncertainty regarding manufacturing yields and costs; •potential lack of adequate capacity during periods of high demand; •potential variability of pricing or payment terms due to agreement length; •risks and uncertainties associated with the locations or countries where our products are manufactured, including potential manufacturing disruptions caused by social, geopolitical, environmental or health factors, including pandemics or widespread health epidemics, such as the COVID-19 pandemic; •limited warranties on components; •potential misappropriation of our intellectual property; and •potential manufacturing disruptions (including disruptions caused by geopolitical events, military actions, work stoppages, natural disasters or international health emergencies such as the COVID-19 pandemic). Any of these risks could impair our ability to fulfill orders. Any delays by our contract manufacturers may cause us to be unable to meet the delivery requirements of our customers, which could decrease customer satisfaction and harm our product sales. In addition, if our contract manufacturers are unable or unwilling to continue manufacturing our products or components of our products in required volumes or our relationship with any of our contract manufacturers is discontinued for any reason, we would be required to identify and qualify alternative manufacturers, which could cause us to be unable to meet our supply requirements to our customers and result in the breach of our customer agreements. Qualifying a new contract manufacturer and commencing volume production is expensive and If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, including inventory write-downs or equipment write-offs, which would adversely affect our business and results of operations. We generate forecasts of future demand for our products several months prior to the scheduled delivery to our prospective customers. This requires us to make significant investments before we know if corresponding revenue will be recognized. Lead times for materials and components, including ASICs, that we need to order for the manufacture of our products vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. In the past, we have experienced lengthened lead times for certain components, and we are currently seeing longer lead times with certain components due to industry-wide supply chain challenges, which makes forecasting more challenging. We may be required to purchase increased levels of such components to satisfy our delivery commitments to our customers as a result of longer lead times for components. In addition, we must manage our inventory to ensure we continue to meet our commitments as we introduce new products or make enhancements to our existing products. If we overestimate market demand for our products and, as a result, increase our inventory in anticipation of customer orders that do not materialize, we will have excess inventory, which could result in increased risk of obsolescence and significant inventory write-downs. Furthermore, this will result in reduced production volumes and our fixed costs will be spread across fewer units, increasing our per unit costs. If we underestimate demand for our products, we will have inadequate inventory, which could slow down or interrupt the manufacturing of our products, cause delays in shipments and our ability to recognize revenue, and result in potential loss of customers to competitors. In addition, we may be unable to meet our supply commitments to customers, which could result in a loss of certain customer opportunities or a breach of our customer agreements. Our large customers have substantial negotiating leverage, which may cause us to agree to terms and conditions that result in lower average selling prices and potentially increased cost of sales leading to lower gross margin, each of which would harm our results of operations. Many of our customers are large service providers and ICPs that have substantial purchasing power and leverage in negotiating contractual arrangements with us. In addition, customer consolidation in the past few years has created combined companies that are even larger and have greater negotiating leverage. Our customers have sought and may continue to seek advantageous pricing, payment and other commercial terms. We have agreed and may continue to agree to unfavorable commercial terms with these customers, including the potential of reducing the average selling price of our products, increasing cost of sales or agreeing to extended payment terms 62 in response to these commercial requirements or competitive pricing pressures. To maintain acceptable operating results, we will need to comply with these commercial terms, develop and introduce new products and product enhancements on a timely basis, and continue to reduce our costs, which could affect our results of operations. Our sales cycle can be long and unpredictable, which could result in an unexpected revenue shortfall in any given quarter. Our products can have a lengthy sales cycle, which can extend from six to twelve months and may take even longer for larger prospective customers. Our prospective customers conduct significant evaluation, testing, implementation and acceptance procedures before they purchase our products. We incur substantial sales and marketing expenses and expend significant management effort during this time, regardless of whether we make a sale. We have seen a lengthening of our sales cycle as a result of the COVID-19 pandemic, due to delays in the customer certification process for our products resulting from customer facility closures or access restrictions. Because the purchase of our equipment involves substantial cost, most of our customers wait to purchase our equipment until they are ready to deploy it in their network. As a result, it is difficult for us to accurately predict the timing of future purchases by our customers. In addition, product purchases are often subject to budget constraints, multiple approvals and unplanned administrative processing and other delays, including the need for the customer to obtain external financing. If sales expected from customers for a particular quarter are not realized in that quarter or at all, our revenue will be negatively impacted. Any acquisitions or strategic transaction that we undertake could disrupt our business and harm our financial condition and operations. We have made strategic acquisitions of businesses, technologies and other assets in the past, including most recently the Acquisition. We may engage in acquisitions, divestitures or other strategic transactions in the future. In order to undertake certain of these transactions, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. If we are unable to achieve the anticipated strategic benefits of such transactions, it could adversely affect our business, financial condition and results of operations. In addition, the market price of our common stock could be adversely affected if investors and securities analysts react unfavorably to a strategic transaction or if the integration or the anticipated financial and strategic benefits of such transactions are not realized as rapidly as or to the extent anticipated by investors and securities analysts. Acquisitions, divestitures or other strategic transactions can also result in adverse tax consequences, warranty or product liability exposure related to acquired assets, additional stock-based compensation expense, and write-up of acquired inventory to fair value. Divestitures can also result in contractual, employment or intellectual property liability related to divested assets. In addition, we may record goodwill and other purchased intangible assets in connection with an acquisition and incur impairment charges in the future. If our actual results, or the plans and estimates used in future impairment analyses, are less favorable than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges. Acquisitions, divestitures or other strategic transactions also involve numerous risks that could disrupt our ongoing business and distract our management team, including: •problems integrating the acquired operations, technologies or products with our own; •challenges in divesting assets and intellectual property without negatively affecting our retained business lines; •diversion of management’s attention from our core business; •adverse effects on existing business relationships with suppliers and customers; •risks associated with entering new markets or exiting existing markets; and •loss of key employees. Our failure to adequately manage the risks associated with an acquisition, divestment or strategic transaction could have an adverse effect on our business, financial condition and results of operations. Financial and Macroeconomic Risk Factors 63 We may be unable to generate the cash flow necessary to make anticipated capital expenditures, service our debt or grow our business. We may not be able to generate sufficient cash flow from operations to make anticipated capital expenditures, to enable us to service our debt or to grow our business. For example, in each of the fiscal years since the completion of the Acquisition, we have had a net loss and negative cash flows from operations and we may continue to incur losses and negative cash flows from operations in the future periods. Our ability to pay our expenses, service our debt and fund planned capital expenditures will depend on our future performance, which will be affected by general economic, competitive, legislative, political, regulatory, public health issues and other factors beyond our control, and our ability to continue to realize synergies and anticipated cost savings. If we are unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future to service our debt or to make anticipated capital expenditures, we may be required to sell assets, reduce capital expenditures or evaluate alternatives for efficiently funding our capital expenditures and ongoing operations, including the issuance of equity, equity-linked and debt securities. Unfavorable macroeconomic and market conditions may adversely affect our industry, business and financial results. In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand for optical communications products. The COVID-19 pandemic has negatively affected the economies of many countries and has created significant uncertainty regarding global macroeconomic conditions. The COVID-19 pandemic has also led to increased disruption and volatility in capital markets and credit markets. These conditions may also result in the tightening of credit markets, which could limit or delay our customers’ ability to obtain necessary financing for their purchases of our products. A lack of liquidity in the capital markets or the continued uncertainty in the global economic environment may cause our customers to delay or cancel their purchases, or increase the time they take to pay or default on their payment obligations, each of which would negatively affect our business and operating results. Weakness and uncertainty in the global economy could cause some of our customers to become illiquid, delay payments or adversely affect our collection of their accounts, which could result in a higher level of bad debt expense. In addition, currency fluctuations could negatively affect our international customers’ ability or desire to purchase our products. Challenging economic conditions have from time to time contributed to slowdowns in the telecommunications industry in which we operate. Such slowdowns may result in: •reduced demand for our products as a result of constraints on capital spending by our customers; •increased price competition for our products, not only from our competitors, but also as a result of our customer’s or potential customer’s utilization of inventoried or underutilized products, which could put additional downward pressure on our near-term gross profits; •risk of excess or obsolete inventories; •our customers facing financial difficulties, including bankruptcy; •excess manufacturing capacity and higher associated overhead costs as a percentage of revenue; and •more limited ability to accurately forecast our business and future financial performance. A lack of liquidity and economic uncertainty may adversely affect our suppliers or the terms on which we purchase products from these suppliers. It may also cause some of our suppliers to become illiquid. Any of these impacts could limit our ability to obtain components for our products from these suppliers and could adversely impact our supply chain or the delivery schedule to our customers. This also could require us to purchase more expensive components, or re-design our products, which could cause increases in the cost of our products and delays in the manufacturing and delivery of our products. Such events could harm our gross margin and harm our reputation and our customer relationships, either of which could harm our business and operating results. If we need additional capital in the future, it may not be available to us on favorable terms, or at all. 64 Our business requires significant capital. Our international sales and operations subject us to additional risks that may harm our operating results. Sales of our products into international markets continue to be an important part of our business. During fiscal 2020, fiscal 2019 and fiscal 2018, we derived approximately 54%, 52% and 49%, respectively, of our revenue from customers outside of the United States. We expect that significant management attention and financial resources will be required for our international activities over the foreseeable future as we continue to operate in international markets. In some countries, our success in selling our products and growing revenue will depend in part on our ability to form relationships with local partners. Our inability to identify appropriate partners or reach mutually satisfactory arrangements for international sales of our products could impact our ability to maintain or increase international market demand for our products. In addition, many of the companies we compete against internationally have greater name recognition and a more substantial sales and marketing presence. We have sales and support personnel in the Americas, EMEA (with offices in the Middle East) and APAC (including China). In addition, we have established development centers in Canada, China, Finland, Germany, India, Portugal and Sweden. There is no assurance that our reliance upon development resources in international locations will enable us to achieve meaningful cost reductions or greater resource efficiency. As a result of having global operations, the sudden disruption of the supply chain and/or the manufacture of our customer’s components caused by events outside of our control could impact our results of operations by impairing our ability to timely and efficiently deliver our products or provide installation and maintenance services to our customers. For example, the global COVID-19 pandemic has disrupted and is expected to continue to disrupt the global supply chain for certain components necessary for our products and could threaten the health and safety of our employees. Our international operations are subject to inherent risks, and our future results could be adversely affected by a variety of factors, many of which are outside of our control, including: •greater difficulty in collecting accounts receivable and longer collection periods; •difficulties of managing and staffing international offices, and the increased travel, infrastructure and legal compliance costs associated with multiple international locations; •political, social and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions; 65 •tariff and trade barriers and other regulatory requirements, contractual limitations, or customer specifications impacting our ability to sell or develop our products in certain foreign markets; •less effective protection of intellectual property than is afforded to us in the United States or other developed countries; •potentially adverse tax consequences; •natural disasters, acts of war or terrorism, and health crises, including the COVID-19 pandemic; •changes to free trade agreements, trade protection measures, tariffs, export compliance, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements, including changes related to policy and other changes made by the federal government or presidential administration in the United States; and •effects of changes in currency exchange rates, particularly relative increases in the exchange rate of the U.S. dollar compared to other currencies that could negatively affect our financial results and cash flows. International customers may also require that we comply with certain testing or customization of our products to conform to local standards. The product development costs to test or customize our products could be extensive and a material expense for us. Our international operations are subject to increasingly complex foreign and U.S. laws and regulations, including but not limited to anti-corruption laws, such as the Foreign Corrupt Practices Act and the UK Bribery Act, antitrust or competition laws, anti-money laundering laws, various trade controls, national security related regulations, and data privacy laws, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results. Although we have implemented policies, procedures and training designed to ensure compliance with these laws and regulations, there can be no complete assurance that any individual employee, contractor or agent will not violate our policies. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and monitoring) could also adversely affect our current or future business. As we continue to expand our business globally, our success will depend, in large part, on our ability to effectively anticipate and manage these and other risks and expenses associated with our international operations. For example, political instability and uncertainty in the European Union ("the E.U.") and, in particular, the United Kingdom's exit from the E.U., could slow economic growth in the region, affect foreign exchange rates, and could have a negative impact on near-term economic activity, leading to our customers delaying purchases of our products. Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, adversely affecting our business, financial condition and results of operations. We may be adversely affected by fluctuations in currency exchange rates. A portion of our sales and expenses stem from countries outside of the United States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency rates could have a material impact on our financial results in future periods. We currently enter into foreign currency exchange forward contracts to reduce the impact of foreign currency fluctuations on certain non-functional currency account balances, and also to reduce the volatility of cash flows primarily related to forecasted foreign currency revenue and expenses. These forward contracts reduce the impact of currency exchange rate movements on certain transactions, but do not cover all foreign-denominated transactions and therefore do not entirely eliminate the impact of fluctuations in exchange rates on our results of operations and financial condition. Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income. Our effective tax rate and the amount of our taxable income could be subject to volatility or adversely affected by several factors, many of which are outside of our control, including: •changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances; 66 •changes in the relative proportions of revenue and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates; •changing tax laws, regulations, rates and interpretations in multiple jurisdictions in which we operate; •changes to the financial accounting rules for income taxes; •the tax effects of acquisitions; and •the resolution of issues arising from tax audits. For example, the 2017 Tax Act made a number of changes to the taxation of business entities and the U.S. Department of Treasury continues to issue regulations and interpretative guidance related thereto, which may impact our future effective tax rate. Additionally, the Biden administration has proposed tax reform legislation to increase the U.S. corporate income tax rate from 21% to 28%, increase U.S. taxation of international business operations and impose a global minimum tax, which could result in increased marginal corporate tax rates. Many countries and organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. Any changes in federal, state or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations. Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase. As of June 26, 2021, we had $402.5 million outstanding aggregate principal amount of 2024 Notes and $200.0 million outstanding aggregate principal amount of 2027 Notes. The degree to which we are leveraged could have important consequences, including, but not limited to, the following: •our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited; and •a substantial portion of our future cash balance may be dedicated to the payment of the principal of our indebtedness as we have stated the intention to pay the principal amount of each series Notes in cash upon conversion or when otherwise due, such that we would not have those funds available for use in our business. Our ability to meet our payment obligations under our debt instruments, including the Notes, depends on our future cash flow performance. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our business will generate positive cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations. As a result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions. We may issue additional shares of our common stock in connection with conversions of the 2024 Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock. In the event that some or all of each series of Notes are converted and we elect to deliver shares of common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock. In addition, the anticipated conversion of any series of Notes could depress the market price of our common stock. The fundamental change provisions of the 2024 Notes and the 2027 Notes may delay or prevent an otherwise beneficial takeover attempt of us. 67 If a fundamental change, such as an acquisition of our company, occurs prior to the maturity of the 2024 Notes or 2027 Notes, holders of the applicable series of Notes will have the right, at their option, to require us to repurchase all or a portion of their Notes of such series. In addition, if such fundamental change also constitutes a make-whole fundamental change, the conversion rate for the applicable series of Notes may be increased upon conversion of the such series of Notes in connection with such make-whole fundamental change. Any increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Any such increase will be dilutive to our existing stockholders. Our obligation to repurchase any series of Notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders. The Capped Calls may affect the value of the 2024 Notes and our common stock. In connection with the issuance of the 2024 Notes, we entered into capped call transactions (the "Capped Calls") with certain financial institutions who are the option counterparties. The capped call transactions are expected generally to reduce or offset the potential dilution upon conversion of the 2024 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap. From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2024 Notes. This activity could also cause or avoid an increase or a decrease in the market price of our common stock. We are subject to counterparty risk with respect to the Capped Calls. The option counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties. Legal and Regulatory Risk Factors If we fail to protect our intellectual property rights, our competitive position could be harmed, or we could incur significant expense to enforce our rights. We depend on our ability to protect our proprietary technology. We rely on a combination of methods to protect our intellectual property, including limiting access to certain information, and utilizing trade secret, patent, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. The steps we have taken to protect our proprietary rights may be inadequate to preclude misappropriation or unauthorized disclosure of our proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation, unauthorized disclosure or infringement is uncertain, particularly in countries outside of the United States. This is likely to become an increasingly important issue if we expand our operations and product development into countries that provide a lower level of intellectual property protection. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims, and even if patents are issued, they may be contested, circumvented or invalidated. Moreover, the rights granted under any issued patents may not provide us with a competitive advantage, and, as with any technology, competitors may be able to develop similar or superior technologies to our own now or in the future. Protecting against the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult, time consuming and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity or scope of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management resources, either of which could harm our business, financial condition and 68 many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Claims by others that we infringe their intellectual property could harm our business. Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, many leading companies in the optical transport networking industry, including our competitors, have extensive patent portfolios with respect to optical transport networking technology. In addition, non-practicing patent holding companies seek to monetize patents they have purchased or otherwise obtained. We expect that infringement claims may increase as the number of products and competitors in our market increases and overlaps in technology implementation occur. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are important to our business or seek to invalidate the proprietary rights that we hold. Competitors or other third parties have asserted, and may continue to assert claims or initiate litigation or other proceedings against us or our manufacturers, suppliers or customers alleging infringement of their proprietary rights, or seeking to invalidate our proprietary rights, with respect to our products and technology. In addition, in the past we have had certain patent licenses with third parties that have not been renewed, and if we cannot successfully renew these licenses, we could face claims of infringement. In the event that we are unsuccessful in defending against any such claims, or any resulting lawsuits or proceedings, we could incur liability for damages and/or have valuable proprietary rights invalidated. For additional information regarding certain of the legal proceedings in which we are involved, see the heading “Legal Matters” in Note 13, Commitments and Contingencies, in Part Any claim of infringement from a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from running our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages or could include an injunction or other court order that could prevent us from offering our products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense and may ultimately not be successful. Any of these events could harm our business, financial condition and Competitors and other third parties have and may continue to assert infringement claims against our customers and sales partners. Any of these claims would require us to initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because we generally indemnify our customers and sales partners from claims of infringement of proprietary rights of third parties. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or sales partners, which could have an adverse effect on our business, financial condition and We incorporate free and open source licensed software into our products. Although we monitor our use of such open source software closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In addition, non-compliance with open source software license terms and conditions could subject us to potential liability, including intellectual property infringement and/or contract claims. In such events, we may be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished in a timely manner, any of which could adversely affect our business, If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected. 69 We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the act require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property and proprietary or confidential information and cause significant damage to our business and reputation. In the ordinary course of our business, we maintain sensitive data on our networks, including data related to our intellectual property and data related to our business, customers and business partners, which is considered proprietary or confidential information, and includes certain personal information and other data relating to our employees and others. We also utilize third-party service providers to host, transmit, or otherwise process data in connection with our business activities, including our supply chain processes, operations, and communications. We believe that companies in the technology industry have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized actions and investigations, disrupt key business operations, open us up to liability, and divert attention of management and key information technology resources, any of which could cause significant harm to our business and reputation. Even the perception of inadequate security may damage our reputation and negatively impact our business. Further, we could be required to expend significant capital and other resources to address any data security incident or breach and in an effort to prevent future security incidents and breaches. 70 that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, or denials of coverage could have a material adverse effect on our business, including our financial condition, results of operations and reputation. We are subject to governmental regulations that could adversely affect our business. We are subject to governmental regulations that could adversely affect our business. This includes U.S. and foreign trade control laws that may limit where and to whom we are permitted to sell our products as well as the impact of new or revised environmental rules and regulations or other social initiatives on how and where we manufacture our products. In particular, our manufacturing operations use substances that are regulated by various federal, state, local, foreign and international laws and regulations governing health, safety and the Changes in regulatory requirements or uncertainty associated with the regulatory environment could delay or impede investment in network infrastructures. The Federal Communications Commission (“FCC”) has jurisdiction over the entire U.S. communications industry and, as a result, our products and our U.S. customers are subject to FCC rules and regulations. In December 2017, the FCC voted to roll back its 2015 order regulating broadband internet service providers as telecommunications service carriers under Title II of the Telecommunications Act. This decision repeals net neutrality regulations that prohibit blocking, degrading or prioritizing certain types of internet traffic and restores the light touch regulatory treatment of broadband service in place prior to 2015. Similarly, changes in regulatory tariff requirements or other regulations relating to pricing or terms of carriage on communications networks could slow the development or expansion of network infrastructures and adversely affect our business, financial condition and results of operations. In addition, international regulatory standards could impair our ability to develop products for international customers in the future. Moreover, many jurisdictions, including the United States, the EU and other regions, are evaluating or have implemented regulations relating to cybersecurity, privacy and data protection, which can affect the market and requirements for networking and communications equipment. For example, the General Data Protection Regulation (“GDPR”) has been in effect in the EU since May 2018, and similar regulatory standards are now in effect in the United Kingdom following its exit from the EU on December 31, 2020. These EU and UK laws impose stringent data handling requirements on companies that receive or process personal data of residents of the EU and the UK, respectively, and non-compliance could result in significant penalties, including data protection audits and heavy fines. Additionally, California has enacted the California Consumer Privacy Act (“CCPA”) which, among other things, requires covered companies to provide new disclosures to California consumers and afford such consumers new rights, including the right to opt-out of certain sales of personal information. Enforcement of the CCPA by the California Attorney General began on July 1, 2020. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”) was approved by California voters in the November 2020 election. The CPRA creates obligations relating to certain types of data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. The CPRA significantly modifies the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. We cannot fully predict the impact of the GDPR, the CCPA, the CPRA or other laws or regulations, including those enacted in the future, relating to cybersecurity, privacy or data protection on our business or operations, but these laws and regulations may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Any failure to obtain the required approvals or comply with such laws and regulations could result in claims, litigation, and regulatory proceedings. These could result in substantial costs, diversion of resources, fines, penalties, and other damages, and harm to our reputation. Any of these could harm our business, financial condition and results of operations. 71 We are subject to various governmental export control, trade sanctions, and import laws and regulations that could We have procedures in place designed to ensure our compliance with Trade Controls, with which failure to comply could subject us to both civil and criminal penalties, including substantial fines, possible incarceration of responsible individuals for willful violations, possible loss of our In addition, various countries regulate the import of certain technologies and have enacted laws that could limit our ability to distribute our products and certain product features or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in U.S. and foreign import and export regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the import and export of our products to certain countries altogether. A portion of our revenue is generated by sales to government entities, which are subject to a number of uncertainties, challenges, and risks. We currently sell many of our solutions to various government entities, and we may in the future increase sales to government entities. Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time consuming, often requiring significant upfront time and expense without any assurance that we will complete a sale. In the event that we are successful in being awarded a government contract, such award may be subject to appeals, disputes, or litigation, including, but not limited to, bid protests by unsuccessful bidders. Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Government entities may also have statutory, contractual, or other legal rights to terminate contracts for convenience or due to a default. For purchases by the U.S. federal government, the government may require certain products to be manufactured in the United States and other high cost manufacturing locations, and we may not manufacture all products in locations that meet government requirements, and as a result, our business and results of operations may suffer. Contracts with governmental entities may also include preferential pricing terms, including, but not limited to, “most favored customer” pricing. Additionally, we may be required to obtain special certifications to sell some or all of our solutions to government or quasi-government entities. Such certification requirements for our solutions may change, thereby 72 restricting our ability to sell into the federal government sector until we have attained the revised certification. If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products to such governmental entities, or be at a competitive disadvantage, which would harm our business, financial condition and results of operations. There are no assurances that we will find the terms for obtaining such certifications to be acceptable or that we will be successful in obtaining or maintaining the certifications. As a government contractor or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government agencies. As a result of actual or perceived noncompliance with government contracting laws, regulations, or contractual provisions, we may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management time, or limit our ability to continue selling our products and services to our government customers. These laws and regulations may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our channel partners, downward contract price adjustments or refund obligations, civil or criminal penalties, and termination of contracts and suspension or debarment from government contracting for a period of time with government agencies. Any such damages, penalties, disruption, or limitation in our ability to do business with a government would adversely impact, and could have a material adverse effect on, our business, financial condition, results of operations, public perception, and growth prospects. Our business could be adversely affected if our employees cannot obtain and maintain required security clearances or we cannot maintain a required facility security clearance, or we do not comply with legal and regulatory obligations regarding the safeguarding of classified information. Our U.S. government contract revenue includes income derived from contracts that require our employees to maintain various levels of security clearances, and may require us to maintain a facility security clearance, to comply with Department of Defense (“DoD”) requirements. The DoD has strict security clearance requirements for personnel who perform work in support of classified programs. In general, access to classified information, technology, facilities, or programs are subject to additional contract oversight and potential liability. In the event of a security incident involving classified information, technology, facilities, programs, or personnel holding clearances, we may be subject to legal, financial, operational, and reputational harm. We are limited in our ability to provide specific information about these classified programs, their risks, or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business or our business overall. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit, and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain their clearances or terminate employment with us, then a customer requiring classified work could terminate an existing contract or decide not to renew the contract upon its expiration. To the extent we are not able to obtain or maintain a facility security clearance, we may not be able to bid on or win new classified contracts, and existing contracts requiring a facility security clearance could be terminated. Failure to comply with anti-bribery, anti-corruption, anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences. We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the United Kingdom Bribery Act 2010, and possibly other anti-bribery and anti-money laundering laws in the United States and in countries outside of the United States in which we conduct our activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. We sometimes leverage third parties to sell our products and conduct our business abroad. We, our employees, agents, representatives, business partners our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly authorize such activities. We cannot assure you that all of our 73 employees and agents will not take actions in violation of applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot assure you that none of our employees, agents, representatives, business partners or third-party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any allegations or violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. General Risk Factors The trading price of our common stock has been volatile and may be volatile in the future. The trading prices of our common stock and the securities of other technology companies have been and may continue to be highly volatile. Factors affecting the trading price of our common stock include: •variations in our operating results; •announcements of technological innovations, new services or service enhancements, strategic alliances or agreements by us or by our competitors; •the gain or loss of customers; •recruitment or departure of key personnel; •changes in the estimates of our future operating results or external guidance on those results or changes in recommendations or business expectations by any securities analysts that elect to follow our common stock; •mergers and acquisitions by us, by our competitors or by our customers; •market conditions in our industry, the industries of our customers and the economy as a whole, including global trade tariffs; •social, geopolitical, environmental or health factors, including pandemics or widespread health epidemics such as the COVID-19 pandemic; and •adoption or modification of regulations, policies, procedures or programs applicable to our business. In addition, if the market for technology stocks or the broader stock market experience a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention and resources. Future sales of our common stock could cause our stock price to fall. We have sold, and plan in the future to sell, shares of our common stock in underwritten offerings and have established, and may in the future establish, “at-the-market” offering programs pursuant to which we may offer and sell shares of our common stock. Sales of securities have resulted and will continue to result in dilution of our existing stockholders, and such sales could cause our stock price to fall. 74 In addition, if our existing stockholders sell, or indicate an intent to sell, a large number of shares of our common stock in the public market, it could cause our stock price to fall. We may also issue shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments or otherwise. Any such issuance would Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock. We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our amended and restated certificate of incorporation and amended and restated bylaws: •authorize the issuance of “blank check” convertible preferred stock that could be issued by our board of directors to thwart a takeover attempt; •establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election; •require that directors only be removed from office for cause; •provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders; •prevent stockholders from calling special meetings; and •prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders. Our Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. Our stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a 75 These exclusive choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find such exclusive-forum provisions to be inapplicable or unenforceable in an Natural disasters, human violence or other catastrophic events could harm our operations. Our headquarters and the majority of our infrastructure, including our PIC fabrication manufacturing facility, are located in Northern California, an area that is susceptible to products. In the event that 76 Item 6.Exhibits
* Management contract or compensatory plan, contract or arrangement. ** The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. 77 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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