UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


☒
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 30, ~~2017~~2024


☐
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34674

Calix, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			68-0438710

~~Delaware~~	~~68-0438710~~
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

~~1035 N. McDowell Blvd., Petaluma,~~2777 Orchard Parkway, San Jose, CA ~~94954~~95134

(Address of Principal Executive Offices) (Zip Code)

~~(707) 766-3000~~(408) 514-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.025 per share

CALX

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes: x No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

x☐

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller Reporting Company

o☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ~~Act).~~ Act. o

Table of Contents

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o☐ No: x

As of ~~November 2, 2017,~~April 15, 2024, there were ~~50,394,757~~65,525,049 shares of the Registrant’s common stock, par value $0.025, outstanding.

Table of Contents

CALIX, INC.

~~Calix, Inc.~~

~~Form~~FORM 10-Q

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION			34

Item 1. Financial Statements (Unaudited)			34

Condensed Consolidated Balance Sheets			34

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~(L oss)			45

Condensed Consolidated Statements of Stockholders ’ Equity			6

Condensed Consolidated Statements of Cash Flows			57

Notes to Condensed Consolidated Financial Statements			68

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1718

Overview			18

Critical Accounting Policies and Estimates			19

Results of Operations			19

Liquidity and Capital Resources			2322

Item 3. Quantitative and Qualitative Disclosures About Market Risk			2523

Item 4. Controls and Procedures			2624

PART II. OTHER INFORMATION			2726

Item 1. Legal Proceedings			2726

Item 1A. Risk Factors			2726

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4241

Item 3. Defaults Upon Senior Securities			4241

Item 4. Mine Safety Disclosures			4241

Item 5. Other Information			4241

Item 6. Exhibits			4342

SIGNATURES			4443

Table of Contents

PART I. FINANCIAL INFORMATION


~~ITEM 1.~~	~~Financial Statements~~

ITEM 1.Financial Statements

CALIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)


	March 30, 2024		December 31, 2023
	(Unaudited)		(See Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	88,418	$	63,409
Marketable securities	151,064		156,937
Accounts receivable, net	100,307		126,027
Inventory	119,782		132,985
Prepaid expenses and other current assets	119,214		118,598
Total current assets	578,785		597,956
Property and equipment, net	28,876		29,461
Right-of-use operating leases	9,065		9,262
Deferred tax assets	170,213		167,691
Goodwill	116,175		116,175
Other assets	19,674		21,320
	$	922,788	$	941,865
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,026	$	34,746
Accrued liabilities	87,605		116,227
Deferred revenue	39,448		36,669
Total current liabilities	146,079		187,642
Long-term portion of deferred revenue	24,434		24,864
Operating leases	6,925		7,421
Other long-term liabilities	2,657		2,956
Total liabilities	180,095		222,883
Commitments and contingencies (See Note 6)
Stockholders’ equity:
Preferred stock, $0.025 par value; 5,000 shares authorized; no shares issued and outstanding as of March 30, 2024 and December 31, 2023	—		—
Common stock, $0.025 par value; 100,000 shares authorized; 65,525 shares issued and outstanding as of March 30, 2024, and 65,052 shares issued and outstanding as of December 31, 2023	1,638		1,627
Additional paid-in capital	1,102,314		1,078,393
Accumulated other comprehensive loss	(983)		(659)
Accumulated deficit	(360,276)		(360,379)
Total stockholders’ equity	742,693		718,982
	$	922,788	$	941,865

September 30,
2017 December 31,
2016
(Unaudited) (See Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 64,184
$ 50,359
Marketable securities 6,598
27,748
Accounts receivable, net 44,227
51,336
Inventory 36,321
44,545
Deferred cost of revenue 22,859
34,763
Prepaid expenses and other current assets 11,504
10,571
Total current assets 185,693
219,322
Property and equipment, net 16,997
17,984
Goodwill 116,175
116,175
Other assets 777
1,994
$ 319,642
$ 355,475
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 29,576
$ 23,827
Accrued liabilities 59,401
69,715
Deferred revenue 28,228
27,854
Line of credit 30,000
—
Total current liabilities 147,205
121,396
Long-term portion of deferred revenue 21,173
20,237
Other long-term liabilities 881
878
Total liabilities 169,259
142,511
Commitments and contingencies (See Note 7)

Stockholders’ equity:
Preferred stock, $0.025 par value; 5,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016 —
—
Common stock, $0.025 par value; 100,000 shares authorized; 55,712 shares issued and 50,382 shares outstanding as of September 30, 2017, and 54,722 shares issued and 49,392 shares outstanding as of December 31, 2016 1,393
1,368
Additional paid-in capital 843,811
836,563
Accumulated other comprehensive loss (344 ) (656 )
Accumulated deficit (654,491 ) (584,325 )
Treasury stock, 5,330 shares as of September 30, 2017 and December 31, 2016 (39,986 ) (39,986 )
Total stockholders’ equity 150,383
212,964
$ 319,642
$ 355,475

See accompanying notes to condensed consolidated financial statements.

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CALIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)


	Three Months Ended
	March 30, 2024		April 1, 2023

Revenue	$	226,310	$	250,008
Cost of revenue	103,733		121,957
Gross profit	122,577		128,051
Operating expenses:
Sales and marketing	53,897		51,865
Research and development	44,422		43,173
General and administrative	26,290		23,077


Total operating expenses	124,609		118,115
Operating income (loss)	(2,032)		9,936
Interest income and other expense, net:
Interest income, net	2,635		1,640
Other expense, net	(135)		(167)
Total interest income and other expense, net	2,500		1,473
Income before income taxes	468		11,409
Income taxes	365		1,811
Net income	$	103	$	9,598
Net income per common share:
Basic	$	0.00	$	0.15
Diluted	$	0.00	$	0.14
Weighted-average number of shares used to compute
net income per common share:
Basic	65,338		66,044
Diluted	68,119		69,708

Net income	$	103	$	9,598
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale marketable securities, net	(212)		1,064
Foreign currency translation adjustments, net	(112)		102
Total other comprehensive income (loss), net of tax	(324)		1,166
Comprehensive income (loss)	$	(221)	$	10,764

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Revenue:
Products $ 106,442
$ 114,029
$ 305,395
$ 305,853
Services 22,385
7,158
67,073
21,134
Total revenue 128,827
121,187
372,468
326,987
Cost of revenue:
Products ⁽¹⁾
55,494
60,662
171,166
159,856
Services ⁽¹⁾
28,700
6,981
78,969
18,099
Total cost of revenue 84,194
67,643
250,135
177,955
Gross profit 44,633
53,544
122,333
149,032
Operating expenses:
Research and development ⁽¹⁾
32,633
28,119
99,391
75,925
Sales and marketing ⁽¹⁾
18,448
20,575
59,306
58,850
General and administrative ⁽¹⁾
10,203
8,615
30,161
32,940
Amortization of intangible assets —
—
—
1,701
Restructuring charges 612
—
2,268
—
Litigation settlement gain —
(4,500 ) —
(4,500 )
Total operating expenses 61,896
52,809
191,126
164,916
Income (loss) from operations (17,263 ) 735
(68,793 ) (15,884 )
Interest and other income (expense), net:
Interest income (expense), net (60 ) 80
88
274
Other income (expense), net (305 ) 30
(386 ) 145
Income (loss) before provision for income taxes (17,628 ) 845
(69,091 ) (15,465 )
Provision for income taxes 225
209
1,075
454
Net income (loss) $ (17,853 )
$ 636
$ (70,166 ) $ (15,919 )
Net income (loss) per common share:
Basic $ (0.35 ) $ 0.01
$ (1.40 ) $ (0.33 )
Diluted $ (0.35 ) $ 0.01
$ (1.40 ) $ (0.33 )
Weighted-average number of shares used to compute

net income (loss) per common share:
Basic 50,336
48,773
49,960
48,578
Diluted 50,336
49,309
49,960
48,578

Net income (loss) $ (17,853 ) $ 636
$ (70,166 ) $ (15,919 )
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale
marketable securities, net 4
(9 ) 3
97
Foreign currency translation adjustments, net 116
(87 ) 309
(128 )
Total other comprehensive income, net of tax 120
(96 ) 312
(31 )
Comprehensive income (loss) $ (17,733 ) $ 540
$ (69,854 ) $ (15,950 )

⁽¹⁾ Includes stock-based compensation as follows:

Cost of revenue:
Products $ 137
$ 120
$ 349
$ 338
Services 69
54
200
146
Research and development 1,215
1,573
3,663
3,719
Sales and marketing 816
1,661
2,581
3,323
General and administrative 759
1,269
2,521
2,840

See accompanying notes to condensed consolidated financial statements.

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CALIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2023	65,052	$	1,627	$	1,078,393	$	(659)	$	(360,379)	$	718,982
Stock-based compensation	—	—		16,856		—		—		16,856
Issuance of common stock under equity incentive plans, net of forfeitures	587	14		10,800		—		—		10,814
Repurchases of common stock	(114)	(3)		(3,735)		—		—		(3,738)
Net income	—	—		—		—		103		103
Other comprehensive loss	—	—		—		(324)		—		(324)
Balance as of March 30, 2024	65,525	$	1,638	$	1,102,314	$	(983)	$	(360,276)	$	742,693


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2022	65,735	$	1,644	$	1,070,100	$	(2,473)	$	(389,704)	$	679,567
Stock-based compensation	—	—		16,220		—		—		16,220
Issuance of common stock under equity incentive plans, net of forfeitures	534	13		12,458		—		—		12,471
Repurchases of common stock	(25)	(1)		(1,182)		—		—		(1,183)
Net income	—	—		—		—		9,598		9,598
Other comprehensive income	—	—		—		1,166		—		1,166
Balance as of April 1, 2023	66,244	$	1,656	$	1,097,596	$	(1,307)	$	(380,106)	$	717,839

See accompanying notes to condensed consolidated financial statements.

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CALIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In ~~thousands)~~thousands, unaudited)

~~(Unaudited)~~


	Three Months Ended
	March 30, 2024		April 1, 2023
Operating activities:
Net income	$	103	$	9,598
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	16,856		16,220
Depreciation and amortization	4,867		3,723
Deferred income taxes	(2,448)		(681)
Net accretion of available-for-sale securities	(1,406)		(708)
Changes in operating assets and liabilities:
Accounts receivable, net	25,719		1,595
Inventory	13,203		(7,353)
Prepaid expenses and other assets	272		(7,083)
Accounts payable	(15,973)		(5,899)
Accrued liabilities	(28,056)		(8,688)
Deferred revenue	2,348		11,005
Other long-term liabilities	(794)		(3,617)
Net cash provided by operating activities	14,691		8,112
Investing activities
Purchases of property and equipment	(3,709)		(4,618)
Purchases of marketable securities	(35,575)		(54,908)
Maturities of marketable securities	42,565		56,248
Net cash provided by (used in) investing activities	3,281		(3,278)
Financing activities:
Proceeds from common stock issuances related to employee benefit plans	10,814		12,471
Repurchases of common stock	(3,738)		(1,183)
Payments related to financing arrangements	—		(1,066)
Net cash provided by financing activities	7,076		10,222
Effect of exchange rate changes on cash and cash equivalents	(39)		57
Net increase in cash and cash equivalents	25,009		15,113
Cash and cash equivalents at beginning of period	63,409		79,073
Cash and cash equivalents at end of period	$	88,418	$	94,186

Nine Months Ended
September 30,
2017 September 24,
2016
Operating activities:
Net loss $ (70,166 ) $ (15,919 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation 9,314
10,366
Depreciation and amortization 7,632
6,282
Amortization of intangible assets 813
4,991
Loss on retirement of property and equipment 148
—
Amortization of premium (discount) related to available-for-sale securities (7 ) 337
Changes in operating assets and liabilities:
Accounts receivable, net 7,109
(10,104 )
Inventory 8,224
7,477
Deferred cost of revenue 11,904
(9,800 )
Prepaid expenses and other assets (320 ) (6,058 )
Accounts payable 5,543
(356 )
Accrued liabilities (10,132 ) 13,974
Deferred revenue 1,310
4,383
Other long-term liabilities 3
(313 )
Net cash provided by (used in) operating activities (28,625 ) 5,260
Investing activities:
Purchases of property and equipment (6,786 ) (5,364 )
Purchases of marketable securities (8,732 ) —
Sales of marketable securities 5,051
—
Maturities of marketable securities 24,841
20,170
Net cash provided by investing activities 14,374
14,806
Financing activities:
Proceeds from exercise of stock options 29
14
Proceeds from employee stock purchase plan 673
2,905
Payments for repurchases of common stock —
(12,809 )
Taxes paid for awards vested under equity incentive plan (2,743 ) (1,787 )
Proceeds from line of credit 68,534
—
Repayment of line of credit (38,534 ) —
Payments to originate the line of credit (186 ) —
Net cash provided by (used in) financing activities 27,773
(11,677 )
Effect of exchange rate changes on cash and cash equivalents 303
(251 )
Net increase in cash and cash equivalents 13,825
8,138
Cash and cash equivalents at beginning of period 50,359
23,626
Cash and cash equivalents at end of period $ 64,184
$ 31,764

See accompanying notes to condensed consolidated financial statements.

Table of Contents

CALIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Company and Basis of Presentation

Company

Calix, Inc. (together with its subsidiaries, ~~“Calix,”~~“Calix” or the ~~“Company,” “our,” “we,” or “us”~~“Company”) was incorporated in August 1999 and is a Delaware corporation. The Company is athe leading global provider of ~~broadband communications access platforms, systems~~a platform (cloud, software and ~~software for fiber-~~systems) and ~~copper-based~~managed services that focus on the subscriber-facing network, architectures and a pioneer in software defined access and cloud products focused on access networks and the subscriber. Calix’s portfolio combines Access eXtensible Operating System (“AXOS”), a software platform for access, with Calix Cloud, the Company’s innovative cloud products for network data analytics and subscriber experience assurance. Together they enable communications service providers (“CSPs”) to transform their networks and enhance how they connect to their residential and business subscribers. The Company enables CSPs to provide a wide range of revenue-generating services, from basic voice and data to advanced broadband services, over legacy and next-generation access networks. The Company focuses solely on CSP access networks, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers. This platform and managed services enable broadband service providers (“BSPs”) of all sizes to innovate and transform their businesses. The Company’s BSP customers are empowered to utilize real-time data and insights from the Calix platform to simplify their businesses and deliver experiences that excite their subscribers. These insights enable BSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue, thereby increasing the value of their businesses and contributions to their communities.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, including the accounts of Calix, Inc. and its wholly-owned subsidiaries, have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation. The Condensed Consolidated Balance Sheet at as of December 31, ~~2016~~2023 has been derived from the audited financial statements at that date.

The results of the Company’s operations can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year or any future periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2023.

The Company’s fiscal year begins on January 1^st and ends on December 31^st. Quarterly periods are based on a 4-4-5 calendar with the first ~~second and third quarters~~quarter ending on the 13^thSaturday ~~of each fiscal period.~~closest to March 31st. As a result, the Company had ~~five more days~~one less day in the ~~nine~~three months ended ~~September~~March 30, ~~2017~~2024 than infor the ~~nine~~three months ended ~~September 24, 2016.~~April 1, 2023. The preparation of financial statements in conformity with GAAP for interim financial reporting requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

~~Prior Period Recast~~

The Company’s revenue from services for the three and nine months ended September 30, 2017 represents more than 10% of its total revenue; hence, the services revenue and the associated cost of revenue are presented separately in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss). Services include professional services, customer support, software maintenance, extended warranty subscriptions, training and managed services. Accordingly, revenue and cost of revenue for the three and nine months ended September 24, 2016 are recast solely to conform with the current period presentation. The recast does not affect total revenue, total cost of revenue, gross profit, operating expenses or net income (loss).

2. Significant Accounting Policies

The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2023. The Company’s significant accounting policies did not change during the ~~nine~~three months ended ~~September~~March 30, ~~2017, except for those impacted by the newly adopted accounting standards below.~~2024.

Newly Adopted Accounting ~~Standards~~Standard

~~Stock-Based Compensation~~

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company ~~adopted ASU 2016-09 in~~did not adopt any new accounting standards during the ~~first quarter of 2017 and had the following impact:~~


a.	Accounting for Income Taxes - The primary impact of the adoption was the recognition of excess tax benefits and tax deficiencies through the statement of operations when the awards vest or are settled rather than through paid-in capital. The new guidance eliminates the requirement to delay the recognition of excess tax benefits until it reduces current taxes payable and requires the

recognition of excess tax benefits and tax deficiencies in the period they arise. The Company adopted this guidance on a modified retrospective basis beginning on January 1, 2017, and the adoption had a cumulative-effect adjustmentthree months ended March 30, 2024 that were significant to the beginning balance of deferred tax asset and was fully offset by the corresponding valuation allowance as of January 1, 2017. The adoption had no cumulative-effect adjustment on January 1, 2017 accumulated deficit as the Company’s net operating loss carryforwards are offset by a full valuation allowance.

Classification of Excess Tax Benefits on the Statement of Cash Flows - ASU 2016-09 requires all tax-related cash flows resulting from share-based payments to be reported as operating activities on the statement of cash flows, a change from the current requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. The Company adopted this guidance prospectively beginning on January 1, 2017. The adoption of ASU 2016-09 as it relates to this matter had no impact to the Company’s consolidated financial statements.


c.	Forfeitures - The Company has historically recognized stock-based compensation expense net of estimated forfeitures on all unvested awards and elected to continuously do so with the adoption of this new guidance. Hence, the adoption of ASU 2016-09 as it relates to this matter had no impact to the Company’s consolidated financial statements.

Minimum Statutory Tax Withholding Requirements - ASU 2016-09 allows companies to withhold an amount up to the employee’s maximum individual tax rate in the relevant jurisdiction without resulting in liability classification of the award. The Company adopted this guidance using a modified retrospective approach. The adoption had no impact on the January 1, 2017 accumulated deficit as the Company had no outstanding liability awards that would otherwise qualify for equity classification under this new guidance.

Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-Withholding Purposes - ASU 2016-09 clarifies that all cash payments made to taxing authorities on the employees’ behalf for withheld shares should be presented as financing activities on the statement of cash flows. The Company has historically presented the taxes paid related to net share settlement of equity awards as a financing activity on the statements of cash flows. Hence, the adoption of ASU 2016-09 as it relates to this matter had no impact to the Company’s consolidated financial statements.

~~Inventory~~Company.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which requires measurement of inventory at lower of cost and net realizable value, versus lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 prospectively beginning on January 1, 2017. The adoption of this standard had no material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

~~Leases~~

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires recognition of an asset and liability for lease arrangements longer than twelve months. ASU 2016-02 will be effective for the Company beginningThere have been no additional accounting pronouncements or changes in the first quarter of 2019. Early application is permitted, and it is required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is not planning to early adopt, and accordingly, it will adopt the new standard effective January 1, 2019. The Company intends to elect the available practical expedients on adoption. The Company is currently assessing the potential impact of adopting this new guidance on its consolidated financial statements. The Company expects its assets and liabilities to increase as the new standard requires recognition of right-of-use assets and lease liabilities for operating leases, but does not expect any material impact on its income (loss) from operations or net income (loss) as a result of the adoption of this standard.

~~Revenue from Contracts with Customers~~

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. Additionally, it supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. On August 12, 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date (“ASU 2015-14”) to defer the effective date of ASU 2014-09 by one year. ASU 2015-14 permits early adoption of the new revenue standard, but not before its original effective date. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”) which further clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) which addresses narrow-scope improvements to the guidance on collectibility, non-cash consideration, and completed contracts at transition and provides a practical expedient for contract modifications at transition and an accounting ~~policy election related to the presentation of sales taxes and other similar taxes collected from customers.~~

The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The Company will adopt the new standard effective January 1, 2018 using the modified retrospective transition method applied to those contracts which are not completed as of that date.

The Company has reached preliminary conclusions on key accounting assessments related to the standard and is in the process of evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company has assigned internal resources in addition to the engagement of third party service providers to assist in its evaluation. Additionally, the Company expects to make investments in new systems or enhancement of existing systems to enable timely and accurate reporting under the new standard. While the Company continues to perform further assessment of all potential impacts under the new standard, the Company expects the timing of revenue recognition to be accelerated for certain performance obligations related to certain revenue arrangements which are currently deferred until customer acceptance. Depending on the outcome of the Company’s final evaluation, the timing of when revenue is recognized could change significantly for those revenue arrangements under the new standard.

In connection with the adoption of the new revenue standard, the Company will also adopt ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, with respect to capitalization and amortization of incremental costs of obtaining a contract effective January 1, 2018. As a result, the Company may need to capitalize additional costs of obtaining a contract, including sales commissions, as the guidance requires the capitalization of all incremental costs incurred to obtain a contract with a customer that it would not have incurred if the contract had not been obtained, provided it expects to recover the costs. The Company expects that sales commissions as a result of obtaining customer contracts are recoverable, and as a result, the Company will defer certain sales commissions and amortize them over the period that the related revenue is recognized.

While the Company continues to assess all the potential impacts of the new standard, including the areas described above, and anticipates this standard could have a material impact on its consolidated financial statements, the Company is not able to quantify or cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.

~~Concentration of Customer Risk~~

~~The Company had one customer that accounted for more than 10% of its total revenue for~~pronouncements during the three months ended ~~September~~March 30, ~~2017 and two customers that each accounted for more than 10% of its total revenue~~2024 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the ~~nine months~~year ended September 30, 2017. These two customers each accounted for more than 10% of the Company’s total revenue for the three and nine months ended September 24, 2016. These two customers together represented ~~41%~~ ~~and~~ ~~43%~~ of the Company’s total revenue for the three and nine months ended September 30, 2017, respectively, and 37% and 34% for the three and nine months ended September 24, 2016, respectively. One of these two customers represented more than 10% of the Company’s accounts receivable as of September 30, 2017 and each of these two customers represented more than 10% of the Company’s accounts receivable as of December 31, ~~2016.~~2023, that are significant or expected to be significant to the Company.

Table of Contents

3. Cash, Cash Equivalents and Marketable Securities

The Company has invested its excess cash primarily in money market funds and highly liquid marketable securities such as U.S. treasury securities, corporate debt instruments, commercial paper and U.S. government ~~agency~~ securities. The Company considers all investments with maturities of three months or less when purchased to be cash equivalents. Marketable securities represent highly liquid U.S. treasury securities, corporate debt instruments, commercial paper and U.S. government ~~agency~~ securities with maturities greater than 90 days at date of purchase. Cash equivalents are stated at amounts that approximate fair value based on quoted market prices. Marketable securities are recorded at their fair values.

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

~~Cash equivalents are stated at amounts that approximate fair value based on quoted market prices. Marketable securities are recorded at their fair values.~~

The Company’s investments have been classified and accounted for as available-for-sale. Such investments are recorded at fair value and unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive ~~income (loss)~~loss in ~~the~~ stockholders’ equity until realized. Realized gains and losses on sales of marketable securities, if any, are determined on the specific identification method and are reclassified from accumulated other comprehensive ~~income (loss)~~loss to results of operations as other ~~income (expense).~~

~~The Company, to date, has not determined that any~~expense, net. There were no realized gains and losses for each of the unrealized losses on its investments are considered to be other-than-temporary. The Company reviews its investment portfolio to determine if any security is other-than-temporarily impaired, which would require the Company to record an impairment charge in the period any such determination is made. In making this judgment, the Company evaluates, among other things: the durationthree months ended March 30, 2024 and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent and ability to hold its investment for a period of time sufficient to allow for any anticipated recovery in market value, or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis. The Company has evaluated its investments as of September 30, 2017 and has determined that no investments with unrealized losses are other-than-temporarily impaired. No investments have been in a continuous loss position for greater than one year.April 1, 2023.

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


	September 30, 2017			December 31, 2016
			March 30, 2024			March 30, 2024	December 31, 2023
Cash and cash equivalents:
Cash	$	55,058		$	34,340
Cash
Cash
Commercial paper
Money market funds	9,126			15,020
Commercial paper	—			999
U.S. government securities
U.S. government agency securities

Total cash and cash equivalents
Total cash and cash equivalents
Total cash and cash equivalents	64,184			50,359
Marketable securities:
U.S. government securities
U.S. government securities
U.S. government securities
U.S. government agency securities
Commercial paper
Corporate debt securities	—			17,272
Commercial paper	2,400			6,275
U.S. government agency securities	4,198			4,201
Municipal securities
Total marketable securities	6,598			27,748
	$	70,782		$	78,107
			$

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

~~As of September 30, 2017, all marketable securities were due in one year or less; and the~~The amortized cost and fair value of marketable securities were as follows (in thousands):


As of March 30, 2024	Amortized Cost		Unrealized Losses		Fair Value
U.S. government securities	$	86,588	$	(78)	$	86,510
Commercial paper	49,092		(22)		49,070
U.S. government agency securities	41,439		(155)		41,284

Corporate debt securities	7,027		(28)		6,999
	$	184,146	$	(283)	$	183,863


As of December 31, 2023	Amortized Cost		Unrealized Losses		Fair Value
U.S. government securities	$	102,167	$	80	$	102,247
Commercial paper	47,003		(28)		46,975
U.S. government agency securities	43,573		(52)		43,521
Corporate debt securities	6,999		1		7,000

	$	199,742	$	1	$	199,743

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Commercial paper $ 2,401
$ —
$ (1 ) $ 2,400
U.S. government agency securities 4,200
—
(2 ) 4,198
$ 6,601
$ —
$ (3 ) $ 6,598

Table of ~~December 31, 2016, the amortized cost and fair value of marketable securities were as follows (in thousands):~~Contents

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Corporate debt securities $ 17,279
$ 1
$ (8 ) $ 17,272
Commercial paper 6,275
—
—
6,275
U.S. government agency securities 4,200
1
—
4,201
$ 27,754
$ 2
$ (8 ) $ 27,748

4. Fair Value Measurements

The Company measures its cash equivalents and marketable securities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company utilizes the following three-tier value hierarchy, which prioritizes the inputs used in measuring fair value:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The fair value hierarchy also requires the Company to maximize the use of observable inputs, when available, and to minimize the use of unobservable inputs when determining inputs and determining fair value.

The following ~~table~~tables sets forth the Company’s financial assets measured at fair value on a recurring basis ~~as of September 30, 2017 and~~ ~~December 31, 2016~~, based on the three-tier fair value hierarchy (in thousands):


As of September 30, 2017		Level 1		Level 2		Total
As of March 30, 2024								As of March 30, 2024	Level 1	Level 2	Total
Money market funds		$	9,126	$	—	$	9,126
U.S. government securities
Commercial paper		—		2,400		2,400
U.S. government agency securities		—		4,198		4,198
		$	9,126	$	6,598	$	15,724
Corporate debt securities
Corporate debt securities
Corporate debt securities
	$


As of December 31, 2023	Level 1		Level 2		Total
Money market funds	$	2,563	$	—	$	2,563
U.S. government securities	102,246		—		102,246
Commercial paper	—		46,976		46,976
U.S. government agency securities	—		43,521		43,521
Corporate debt securities	—		7,000		7,000

	$	104,809	$	97,497	$	202,306

As of December 31, 2016 Level 1 Level 2 Total
Money market funds $ 15,020
$ —
$ 15,020
Corporate debt securities —
17,272
17,272
Commercial paper —
7,274
7,274
U.S. government agency securities —
4,201
4,201
$ 15,020
$ 28,747
$ 43,767

The fair values of money market funds classified as Level 1 were derived from quoted market prices as active markets for these instruments exist. The fair values of corporate debt securities, commercial paper and U.S. government agency securities classified as Level 2 were derived from quoted market prices for similar instruments indexed to prevailing market yield rates. The Company has no level 3 financial assets. The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2017 and September 24, 2016.

5. ~~Goodwill~~

Goodwill was recorded as a result of the Company’s acquisitions of Occam Networks, Inc. (“Occam”) in February 2011 and Optical Solutions, Inc. in February 2006. This goodwill is not deductible for tax purposes, and there have been no adjustments to goodwill since the acquisition dates.

Goodwill is not amortized but instead is subject to an annual impairment test or more frequently if events or changes in circumstances indicate that it may be impaired. The Company evaluates goodwill on an annual basis at the end of the second quarter of each year. Management has determined that the Company operates as a single reporting unit and, therefore, evaluates goodwill impairment at the enterprise level. Management assessed qualitative factors to determine whether it was more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the Company was less than its carrying amount, including goodwill, as of July 1, 2017. In assessing the qualitative factors, management considered the impact of these key factors: macro-economic conditions, industry and market environment, overall financial performance of the Company, cash flow from operating activities, market capitalization and stock price. Management concluded that the fair value of the Company was more likely than not greater than its carrying amount as of July 1, 2017. As such, it was not necessary to perform the two-step goodwill impairment test at the time.

There have been no significant events or changes in circumstances subsequent to the 2017 annual impairment test that would more likely than not indicate that the carrying value of goodwill may have been impaired as of September 30, 2017. Therefore, there was no impairment to the carrying value of the Company’s goodwill as of September 30, 2017.

6. Balance Sheet Details

Accounts receivable, net consisted of the following (in thousands):


	September 30, 2017			December 31, 2016
			March 30, 2024				March 30, 2024	December 31, 2023
Accounts receivable	$	45,630		$	52,792
Allowance for doubtful accounts	(550		)	(518		)
Product return reserve	(853		)	(938		)
	$	44,227		$	51,336
			$

Inventory consisted of the following (in thousands):


	March 30, 2024		December 31, 2023
Raw materials	$	25,675	$	22,119
Finished goods	94,107		110,866
	$	119,782	$	132,985

September 30,
2017 December 31,
2016
Raw materials $ 1,082
$ 1,827
Finished goods 35,239
42,718
$ 36,321
$ 44,545

Table of Contents

Prepaid expenses and other current assets consisted of the following (in thousands):


	March 30, 2024		December 31, 2023
Supplier deposits	$	76,131	$	78,131
Prepaid expenses and other current assets	43,083		40,467
	$	119,214	$	118,598

Property and equipment, net consisted of the following (in thousands):


	September 30, 2017			December 31, 2016
			March 30, 2024				March 30, 2024	December 31, 2023
Test equipment	$	46,580		$	43,580
Computer equipment and software	33,652			30,306
Computer equipment
Software
Leasehold improvements
Furniture and fixtures	2,890			2,831
Leasehold improvements	6,759			6,898
Total	89,881			83,615
Accumulated depreciation and amortization	(72,884		)	(65,631		)
	$	16,997		$	17,984
			$

Accrued liabilities consisted of the following (in thousands):


	March 30, 2024		December 31, 2023
Component inventory held by suppliers	$	25,536	$	32,182
Compensation and related benefits	22,630		36,741
Professional and consulting fees	6,985		7,717
Current portion of warranty and retrofit	5,581		5,655
Operating leases	4,236		4,142
Taxes payable	4,165		4,317
Litigation settlement	3,250		3,250
Product returns	3,040		2,897
Customer advances or rebates	3,038		5,967
Insurance	2,106		2,107

Business events	—		2,938
Other	7,038		8,314
	$	87,605	$	116,227

September 30,
2017 December 31,
2016
Accrued compensation and related benefits $ 23,890
$ 19,541
Accrued professional and consulting fees 12,222
8,205
Accrued warranty and retrofit 8,454
12,214
Advance customer payments 5,211
20,726
Accrued excess and obsolete inventory at contract manufacturers 1,819
1,327
Accrued customer rebates 828
1,931
Accrued restructuring charges 195
—
Accrued other 6,782
5,771
$ 59,401
$ 69,715

~~Advance customer payments~~Changes in the Company’s accrued warranty and retrofit liability were as ~~of September 30, 2017 and~~ ~~December 31, 2016~~ primarily included $3.4 million and $20.3 million, respectively, which the Company received as payments in advance of completion of final customer acceptance of the products and services provided in connection with turnkey network improvement projects for a customer.

~~Deferred revenue consisted of the following~~follows (in thousands):


	Three Months Ended
	March 30, 2024		April 1, 2023
Balance at beginning of period	$	8,029	$	8,386
Accruals for product warranty and retrofit	339		1,016
Cost of warranty and retrofit claims	(713)		(957)

Balance at end of period	$	7,655	$	8,445

September 30,
2017 December 31,
2016
Current:
Products and services $ 24,512
$ 24,472
Extended warranty 3,716
3,382
28,228
27,854
Long-term:
Products and services 18
22
Extended warranty 21,155
20,215
21,173
20,237
$ 49,401
$ 48,091

~~Deferred cost~~

Table of ~~revenue consisted of costs incurred for products and services for which revenue has been deferred or not yet earned.~~Contents

7.6. Commitments and Contingencies

Lease Commitments

The Company leases office space under non-cancelable operating leases. Certain of the Company’s operating leases contain renewal options and rent acceleration clauses. Future minimum payments under the non-cancelable operating leases consisted of the following as of ~~September~~March 30, ~~2017~~2024 (in thousands):


Period	Future Minimum Lease Payments
Remainder of 2024	$	3,522
2025	4,545
2026	1,672
2027	1,240
2028 and thereafter	1,048

Total future minimum lease payments	12,027
Less imputed interest	(866)
	$	11,161

Period Minimum Future Lease Payments
Remainder of 2017 $ 756
2018 2,794
2019 1,082
2020 738
2021 286
Thereafter 19
$ 5,675

As of March 30, 2024, the operating lease liability consisted of the following (in thousands):



Accrued liabilities - current portion of operating leases	$	4,236
Operating leases	6,925
	$	11,161

The Company leases its ~~primary~~headquarters office space in ~~Petaluma,~~San Jose, California under a lease agreement ~~(“Petaluma Lease”)~~ that expires ~~February 2019. On January 28, 2013, the Company entered into an amendment to its Petaluma Lease ("Amendment") to extend~~in December 2025. The future minimum lease payments under the lease ~~term to February 2019. In connection with the Petaluma Lease and the Amendment, the Company received lease incentives of $1.2~~are $4.3 million and ~~$0.4 million, respectively, which can be used~~are included in the table above.

The weighted average discount rate for leasehold improvements or be applied as credits to rent payments. The Company capitalized the full amount of the lease incentives upon inception of the respective agreement and these incentives are being amortized to reduce rent expense over the extended lease term. As of September 30, 2017, total unamortized lease incentive is not significant. Payments under the Company’s operating leases ~~that escalate over the~~as of March 30, 2024 was 5.1%. The weighted average remaining lease term as of ~~the lease are recognized as rent expense on a straight-line basis.~~

The above table also includes future minimum lease payments primarily for our facilities in Minneapolis, Minnesota; Nanjing, China; Richardson, Texas; and San Jose, and Santa Barbara, California, which expire at various dates through 2022.March 30, 2024 was 3.1 years.

For the three ~~and nine~~ months ended ~~September~~March 30, ~~2017,~~2024 and April 1, 2023, total rent expense of the Company was ~~$0.9~~$1.1 million and ~~$2.7~~$1.2 million, respectively. ~~For~~Cash paid within operating cash flows for operating leases was $1.1 million and $1.2 million for the three ~~and nine~~ months ended ~~September 24, 2016, total rent expense of the Company was $0.9 million~~March 30, 2024 and ~~$2.6 million,~~April 1, 2023, respectively.

Purchase Commitments

The Company’s ~~primary~~ contract manufacturers (“CMs”) and original design manufacturers (“ODMs”) place orders for component inventory ~~in advance~~ based upon the Company’s build forecasts ~~in order~~and pursuant to ~~reduce manufacturing~~stated component lead times ~~and~~to ensure adequate component supply. The components are used by the ~~contract manufacturers~~CMs and ODMs to build the products included in the build forecasts. The Company generally does not take ownership of the components held by ~~contract manufacturers.~~CMs and ODMs. The Company places purchase orders with its ~~contract manufacturers~~CMs and ODMs in order to fulfill its monthly finished product inventory requirements. The Company incurs a liability when ~~the contract manufacturer has converted the component inventory to a finished product and~~it takes ownership of the finished goods inventory ~~when transferred to~~after the ~~designated shipping warehouse. In~~CMs and ODMs convert the ~~event of termination of services with~~component inventory into a contract manufacturer, the Company may be required to purchase the remaining components inventory held by the contract manufacturer as well as any outstanding orders pursuant to the contractual provisions with such contract manufacturer. As of September 30, 2017, the Company had approximately $62.6 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including contract manufacturers, within one year.finished product.

The Company has from time to time, and subject to certain conditions, reimbursed ~~its primary contract manufacturer~~certain suppliers for component inventory purchases when this inventory has been rendered excess or obsolete, for example due to manufacturing and engineering change orders resulting from design changes, manufacturing discontinuation of ~~parts~~products by its suppliers, or in cases where the Company has committed inventory levels that greatly exceed ~~projected~~actual demand. In the event of termination of services with a manufacturing partner, the Company has purchased, and may be required to purchase in the future, certain of the remaining components inventory held by the CM or ODM as well as any outstanding orders pursuant to the contractual provisions with such CM or ODM. The estimated excess and obsolete ~~inventory~~component liabilities related to ~~such~~ manufacturing and engineering change orders, termination of manufacturing partners and other factors ~~which~~ are included in ~~accrued liabilities~~“Accrued liabilities” in the accompanying ~~balance sheets, were $1.8 million and $1.3 million as of September 30, 2017 and~~ ~~December 31, 2016, respectively.~~Condensed Consolidated Balance Sheets, because the corresponding component parts have not been received by the Company. The Company records ~~these amounts~~the related charges in ~~cost~~“Cost of ~~products and services~~revenue” in ~~the accompanying~~its Condensed Consolidated Statements of Comprehensive Income (Loss).

~~Contingencies~~

~~The Company evaluates the circumstances regarding outstanding~~As of March 30, 2024 and potential litigation and other contingencies on a quarterly basis to determine whether there is at least a reasonable possibility that a loss exists requiring accrual or disclosure, and if so, whether an estimate of the possible loss or range of loss can be made, or whether such an estimate cannot be made. When a loss is probable and reasonably estimable,December 31, 2023, the Company ~~accrues~~had approximately $146.8 million and $176.3 million, respectively, of outstanding purchase commitments for ~~such amount based on~~inventories to be delivered by its ~~estimate~~suppliers, including CMs and ODMs.

Table of the probable loss considering information available at the time. When a loss is reasonably possible, the Company discloses the estimated possible loss or range of loss in excess of amounts accrued if material. Except as otherwise disclosed below, the Company does not believe that there was a reasonable possibility that a material loss may have been incurred during the period presented with respect to the matters disclosed.Contents

~~Accrued Warranty and Retrofit~~

The Company provides a standard warranty for its hardware products. Hardware generally has a one-, three- or five-year standard warranty from the date of shipment. Under certain circumstances, the Company also provides fixes on specifically identified performance failures for products that are outside of the standard warranty period and recognizes estimated costs related to retrofit activities upon identification of such product failures. The Company accrues for potential warranty and retrofit claims based on the Company’s historical product failure rates and historical costs incurred in correcting product failures along with other relevant information related to any specifically identified product failures. The Company’s warranty and retrofit accruals are based on estimates of losses that are probable based on information available. The adequacy of the accrual is reviewed on a periodic basis and adjusted, if necessary, based on additional information as it becomes available. Changes in the Company’s warranty and retrofit reserves in the periods as indicated were as follows (in thousands):

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Balance at beginning of period $ 9,265
$ 9,152
$ 12,214
$ 9,564
Provision for warranty and retrofit charged to cost of revenue 2,057
3,180
5,661
6,292
Utilization of reserve (2,868 ) (948 ) (9,421 ) (4,073 )
Adjustments to pre-existing reserve —
(11 ) —
(410 )
Balance at end of period $ 8,454
$ 11,373
$ 8,454
$ 11,373

Litigation

From time to time, the Company is involved in various legal proceedings arising from the normal course of business activities.

The Company is not currently a party to any legal ~~proceedings~~proceeding or any legal proceeding known to be contemplated by government authorities that, if determined adversely to the Company, in management’s opinion, ~~are~~is currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition taken as a whole.

~~Indemnifications~~

The Company from time to time enters into contracts that require it to indemnify various parties against claims from third parties. These contracts primarily relate to (i) certain real estate leases, under which7. Stockholders’ Equity

2019 Equity Incentive Award Plan

Employees and consultants of the Company, ~~may be required to indemnify property owners for environmental~~its subsidiaries and ~~other liabilities, and other claims arising from~~affiliates, as well as members of the Company’s ~~use~~Board of Directors, are eligible to receive awards under the applicable premises, (ii) agreements with the Company’s officers, directors and certain employees, under which the Company may be required to indemnify such persons for liabilities arising out of their relationship with the Company, (iii) contracts under which the Company may be required to indemnify customers against third-party claims that a Company product infringes a patent, copyright or other intellectual property right and (iv) procurement or license agreements, under which the Company may be required to indemnify licensors or vendors for certain claims that may be brought against them arising from the Company’s acts or omissions with respect to the supplied products or technology.

Because any potential obligation associated with these types of contractual provisions are not quantified or stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been required to make payments under these obligations, and no liabilities have been recorded for these obligations in the accompanying Condensed Consolidated Balance Sheets.

~~8. Net Income (Loss) Per Common Share~~

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

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Numerator:
Net income (loss) $ (17,853 ) $ 636
$ (70,166 ) $ (15,919 )
Denominator:
Weighted-average common shares outstanding used to compute basic net income (loss) per share 50,336
48,773
49,960
48,578
Effect of dilutive common stock equivalents —
536
—
—
Weighted-average common shares outstanding used to compute diluted net income (loss) per share 50,336
49,309
49,960
48,578
Net income (loss) per common share:
Basic $ (0.35 ) $ 0.01
$ (1.40 ) $ (0.33 )
Diluted $ (0.35 ) $ 0.01
$ (1.40 ) $ (0.33 )
Potentially dilutive shares, weighted average
5,741
3,951
5,704
5,794

Potentially dilutive shares have been excluded from the computation of diluted net loss per common share when their effect is antidilutive. These antidilutive shares were primarily from stock options, restricted stock units and performance restricted stock units. For each of the periods presented where the Company reported a net loss, the effect of all potentially dilutive securities would be antidilutive, and as a result diluted net loss per common share is the same as basic net loss per common share.

~~9. Stockholders’ Equity~~

~~Equity Incentive Plans~~

~~As of September 30, 2017, the Company currently maintains two equity incentive plans, the 2002 Stock Plan and the 2010~~2019 Equity Incentive Award Plan ~~(together,~~(the “2019 Plan”). The 2019 Plan provides for the “Plans”). These plans were approved by the stockholders and are described in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2017. The Company also maintains a Long Term Incentive Program under the 2010 Equity Incentive Award Plan. Under the Long Term Incentive Program, certain key employees of the Company are eligible for equity awards based on the Company’s stock price performance. To date, awards granted under the Plans consistgrant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, ~~(“RSUs”)~~other stock or cash-based awards and ~~performance restricted stock units (“PRSUs”).~~

~~Stock Options~~dividend equivalents to eligible individuals. As of March 30, 2024, there were 2.9 million shares available for issuance under the 2019 Plan.

During the three ~~and nine~~ months ended ~~September~~March 30, ~~2017, 1,565,000~~2024, time-based stock option awards exercisable for up to an aggregate of 0.3 million shares of common stock ~~options~~ were granted with a ~~weighted-average~~ grant date ~~fair value~~weighted-average exercise price of ~~$3.45~~$35.95 per ~~share,~~share. These stock option awards vest 25% on the first anniversary of ~~which 1,165,000 shares with~~the vesting commencement date and on a ~~weighted-average grant date fair value of $3.43 per share were~~quarterly basis thereafter over an additional three years.

In February 2024, performance-based stock option awards ~~which~~exercisable for up to an aggregate of 2.4 million shares of common stock were granted byto certain Company executives with a grant date exercise price of $34.26 per share and divided into two plans, with the ~~Company to its executives.~~first plan accounting for 75% of the total shares granted and the second plan accounting for 25% of the total shares granted. The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net operating income for 2024 (collectively, the “2024 Performance Targets”) during the one-year performance period. These performance-based stock option awards contain a one-year performance period and a subsequent three-year service period. The performance target is based on a combination of the Company’s revenue and non-GAAP operating income during the performance period and accounted for as a performance condition. After the one-year performance period, if the performance target is met andwill vest, subject to certification by the Compensation Committee of the Company’s ~~board~~Board of ~~directors, each performance-based stock option award shall vest with respect~~Directors upon the achievement of the 2024 Performance Targets, as to 25% of the shares of common stock earned ~~shares~~ on ~~February 6, 2018 and 6.25%~~the one year anniversary of the date of grant, and as to the remaining 75% of the shares of common stock earned, ~~shares on~~in substantially equal quarterly installments over the ~~quarterly anniversary thereafter,~~subsequent 36 months, subject to the executive’s continuous service with the Company ~~from the grant date~~ through the respective vesting dates. For the first plan, if the non-GAAP net operating income target and the bookings target are each achieved below 80% of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full. If either target is achieved at the minimum threshold of 80% of target, then the shares are awarded at 75% of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 120% of the granted shares for each target. Each target result is then weighted by 50% and the combined total determines the percent of target shares. The maximum combined award is 100%. For the second plan, if the bookings target is achieved below 90% of target, the performance-based stock option awards would be forfeited in full. If the ~~performance~~ target is ~~not met, all~~achieved at the minimum threshold of 90% of target, then the shares are awarded at 75% with an increasing percentage of shares awarded above the minimum thresholds up to 100% of the granted shares. The maximum award is 100%. The probability of meeting a portion of the performance conditions related to these performance-based stock ~~options granted under this award shall~~option awards was assessed to be ~~immediately forfeited~~probable as of March 30, 2024, and ~~canceled without vesting~~stock-based compensation expense of ~~any shares.~~$1.7 million was recognized for the three months ended March 30, 2024.

During the three months ended ~~September~~March 30, ~~2017, no stock options were exercised. During the~~ ~~nine~~ ~~months ended September 30, 2017, 5,000~~2024, 168,000 shares of common stock were issued pursuant to the exercise of stock options ~~were exercised~~ at a weighted-average exercise price of ~~$5.99~~$8.56 per share. As of ~~September~~March 30, ~~2017,~~2024, unrecognized stock-based compensation expense of ~~$3.4~~$87.8 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.3 years.

~~Restricted Stock Units~~

During the three months ended September 30, 2017, 92,266 shares of RSUs were granted with a weighted-average grant date fair value of $6.34 per share. During the nine months ended September 30, 2017, 505,236 shares of RSUs were granted with a weighted-average grant date fair value of $6.75 per share. During the three months ended September 30, 2017, 107,107 shares of RSUs vested, net of shares withheld for statutory income tax purposes, and were converted to an equivalent number of shares of common stock. During the nine months ended September 30, 2017, 670,095 shares of RSUs vested, net of shares withheld for statutory income tax purposes, and were converted to an equivalent number of shares of common stock. Taxes withheld from employees of $0.1 million were remitted to the relevant taxing authorities during the three months ended September 30, 2017. Taxes withheld from employees of $1.8 million were remitted to the relevant taxing

authorities during the nine months ended September 30, 2017. As of September 30, 2017, unrecognized stock-based compensation expense of $10.2 million related to RSUs, net of estimated forfeitures, was expected to be recognized over a weighted-average period of 2.2 years.

~~Performance Restricted Stock Units~~

In 2016, the Company granted PRSUs to its executives with a one-year performance period and a subsequent two-year service period. The performance target for these particular performance-based awards is based on the Company’s revenue during the performance period and accounted for as a performance condition. After the one-year performance period, if the performance target is met and subject to certification by the Compensation Committee of the Company’s board of directors, each PRSU award shall vest with respect to 50% of the PRSUs subject to the award in February 2017, 25% in February 2018 and 25% in February 2019, subject to the executive’s continuous service with the Company from the grant date through the respective vesting dates. If the performance target is not met, all PRSUs granted under this award shall be immediately forfeited and canceled without vesting of any shares.

During the three months ended September 30, 2017, no PRSUs vested. During the nine months ended September 30, 2017, 325,000 shares of PRSUs vested and were converted into 195,656 shares of common stock, net of shares withheld for statutory income tax purposes. Taxes withheld from employees of $0.9 million were remitted to the relevant taxing authorities during the nine months ended September 30, 2017. As of September 30, 2017, unrecognized stock-based compensation expense of $0.3 million related to PRSUs, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 10.3 months.

Employee Stock Purchase Plans

The ~~Company’s~~Company maintains two employee stock purchase plans - the Amended and Restated Employee Stock Purchase Plan (“(the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”).

The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to ~~15 percent~~15% of their ~~annual~~eligible compensation subject to certain Internal Revenue Code limitations. ~~In addition, no participant may purchase more than 2,000 shares of common stock in each offering period.~~

The offering periods under the ~~Restated~~ ESPP ~~were~~are two six-month offering periods ~~commencing on November 2~~^ndfrom August 15th through February 14th and ~~May 2~~^ndFebruary 15th through August 14th of each ~~year, effective November 2, 2015. In July 2016, the Compensation Committee of the Company’s board of directors approved a change in those six-month period commencement dates to May 15~~^th ~~and November 15~~^th ~~of each year, effective May 15, 2017. The ending date of the Restated ESPP offering period which commenced on November 2, 2016 was extended until May 14, 2017 as a result of this change.~~year. The price of common stock purchased under the ~~Restated~~ ESPP is ~~85 percent~~85% of the lower of the fair market value of the common stock on the commencement date and the end date of each six-month offering period. As of ~~September~~March 30, ~~2017,~~2024, there were ~~3,000,217~~4.3 million shares available for issuance under the ~~Restated~~ ESPP.

During the three months ended ~~September~~March 30, ~~2017, no~~

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2024, 0.2 million shares were purchased under the ~~Restated ESPP. During the nine months ended September 30, 2017, 119,011 shares were purchased under the Restated~~ ESPP. As of ~~September~~March 30, ~~2017,~~2024, unrecognized stock-based compensation expense of ~~$0.2~~$0.9 million related to the ~~Restated~~ ESPP is expected to be recognized over a remaining service period of ~~1.5 months.~~0.4 years.

On March 30, 2017, the Company’s board of directors, upon recommendation of the Compensation Committee, approved the adoption of the Calix, Inc. 2017 Nonqualified Employee Stock Purchase Plan (“Nonqualified ESPP”). The ~~Nonqualified~~NQ ESPP ~~was approved by our stockholders on May 17, 2017, with the initial offering period commencing July 1, 2017. Under the Nonqualified ESPP,~~allows eligible employees ~~can~~to purchase shares of the Company’s common stock through payroll deductions of up to ~~25 percent~~25% of their ~~annual~~eligible recurring compensation. Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date. The ~~Nonqualified~~NQ ESPP provides ~~two six-month~~quarterly offering periods from ~~January 1~~February 8th through ~~June 30~~ May 7th, May 8th through August 7th, August 8th through November 7th and ~~July 1~~November 8th through ~~December 31~~ February 7th of each ~~year.~~year, with a maximum of 0.25 million shares allocated per purchase period. The maximum number of shares of common stock currently authorized for issuance under the ~~Nonqualified~~NQ ESPP is ~~1,000,000 shares, with a maximum of 500,000 shares allocated per purchase period.~~7.5 million shares. As of ~~September~~March 30, ~~2017,~~2024, there were 3.1 million shares available for issuance under the NQ ESPP. During the three months ended March 30, 2024, 0.2 million shares were purchased and issued. As of March 30, 2024, unrecognized stock-based compensation expense of ~~$1.2~~$11.3 million related to the ~~Nonqualified~~NQ ESPP is expected to be recognized over a remaining weighted-average service period of ~~1.3~~0.8 years.

Stock-Based Compensation ~~Expense~~

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


	Three Months Ended
	March 30, 2024		April 1, 2023
Cost of revenue	$	636	$	800
Sales and marketing	4,850		4,432
Research and development	4,515		4,312
General and administrative	6,855		6,676
	$	16,856	$	16,220
Income tax benefit recognized	$	3,312	$	4,153

Stock Repurchase Program

The Company maintains a common stock repurchase program. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements. The specific timing, price and size of the purchases depends on prevailing stock ~~options, RSUs, PRSUs~~prices, general economic and ~~purchase rights~~market conditions, and other considerations consistent with the Company’s capital allocation strategy. The repurchase program does not obligate the Company to acquire a particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. For the three months ended March 30, 2024, the Company purchased 0.1 million shares of common stock for $3.7 million at an average price per share of $32.87. As of March 30, 2024, the remaining balance under the ~~Restated ESPP~~current authorizations was $109.9 million.

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8. Revenue from Contracts with Customers

The Company develops, markets and ~~Nonqualified ESPP~~sells a broadband platform and managed services, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the Company unit level. Accordingly, the Company is ~~measured~~considered to be a single reporting segment and operating unit structure. The Company’s chief operating decision maker is the Company’s Chief Executive Officer, who reviews financial information presented on a Company-wide basis, for purposes of allocating resources and evaluating financial performance.

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


	Three Months Ended
	March 30, 2024		April 1, 2023
United States	$	210,089	$	227,939
Americas ex U.S.		7,136		7,538
Europe		6,860		12,368
Middle East & Africa		1,889		1,773
Asia Pacific		336		390
	$	226,310	$	250,008

Contract Asset

Contract assets include amounts recognized as revenue prior to the Company’s contractual right to bill the customer. Amounts are billed in accordance with the agreed-upon contractual terms. Contract assets were $3.3 million as of March 30, 2024 as compared to $4.7 million as of December 31, 2023, and are included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The Company expects to bill 46% of the March 30, 2024 balance during 2024.

Contract Liability

Deferred revenue was $63.9 million and $61.5 million as of March 30, 2024 and December 31, 2023, respectively. The increase in the deferred revenue balance for the three months ended March 30, 2024 was driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $14.0 million of revenue recognized that was included in the deferred revenue balance at the ~~grant date based on the fair value~~beginning of the ~~award,~~period.

Revenue allocated to remaining performance obligations (“RPOs”) represents contract revenue that has not yet been recognized, which includes deferred revenue and isamounts that will be invoiced and recognized ~~net of forfeitures,~~ as ~~expense over~~revenue in future periods but excludes variable consideration where the ~~remaining requisite service period on a straight-line basis.~~

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

~~The fair value of RSUs and Nonqualified ESPP~~monthly invoicing is based on ~~closing market price~~usage or where actual usage exceeds the minimum commitment. RPOs were $245.2 million as of March 30, 2024, and the Company expects to recognize as revenue 40% of this amount over the next 12 months and nearly all of the ~~Company’s common stock on the date of grant.~~

Stock-based compensation expense associated with PRSUs with graded vesting features and which contain both a performance and a service condition is measured based on the closing market price of the Company’s common stock on the date of grant, and is recognized, net of forfeitures, as expenseremainder over the ~~requisite service period using the graded vesting attribution method.~~two years thereafter.

Stock-based compensation expense associated with performance-based stock options with graded vesting features and which contain both a performance and a service condition is measured based on fair value of stock option estimated at the grant date using the Black-

Contract Costs

~~Scholes option valuation model, and is recognized, net of forfeitures, as expense over the requisite service period using the graded vesting attribution method.~~

Compensation expense associated with PRSUs and performance-based stock option awards with graded vesting features and which contain both a performance and a service condition is only recognized if the Company has determined that it is probable that the performance condition will be met. The Company ~~reassesses~~capitalizes certain sales commissions related primarily to multi-year subscriptions and extended warranty support for which the ~~probability~~expected amortization period is greater than one year. As of ~~vesting at each reporting period~~March 30, 2024 and ~~adjusts compensation expense based on its probability assessment. In February 2017,~~December 31, 2023, the ~~Compensation Committee~~unamortized balance of deferred commissions was $11.8 million and $12.0 million, respectively. For the ~~Company’s board~~three months ended March 30, 2024 and April 1, 2023, the amount of ~~directors determined that the performance condition related to PRSUs granted to executives in 2016~~amortization was met based on the Company’s actual revenue recognized during 2016. The probability of meeting the performance condition related to performance-based stock option awards granted to executives in August 2017$2.0 million and $1.3 million, respectively. There was ~~assessed to be unlikely as of September 30, 2017; as such,~~ no ~~stock-based compensation expense was recognized for these performance-based stock option awards as of September 30, 2017.~~

~~The fair value of PRSUs with a market condition is estimated on the date of award using a Monte Carlo simulation model to estimate the total shareholder return of the Company’s stock~~impairment loss in relation to the ~~peer group over each performance period. Compensation cost on PRSUs with a market condition is not adjusted~~costs capitalized for ~~subsequent changes in~~these periods.

Concentration of Customer Risk

No customer accounted for more than 10% of the Company’s ~~stock performance or the level of ultimate vesting.~~

~~10. Accumulated Other Comprehensive Loss~~

~~The table below summarizes the changes in accumulated other comprehensive loss by component~~revenue for the ~~periods indicated (in thousands):~~three months ended March 30, 2024 and April 1, 2023.

Three Months Ended
September 30, 2017 September 24, 2016
Unrealized Gains and Losses on Available-for-Sale Marketable Securities Foreign Currency Translation Adjustments Total Unrealized Gains and Losses on Available-for-Sale Marketable Securities Foreign Currency Translation Adjustments Total
Balance at beginning of period $ (7 ) $ (457 ) $ (464 ) $ 12
$ (142 ) $ (130 )
Other comprehensive income (loss) 4
116
120
(9 ) (87 ) (96 )
Balance at end of period $ (3 ) $ (341 ) $ (344 ) $ 3
$ (229 ) $ (226 )

Nine Months Ended
September 30, 2017 September 24, 2016
Unrealized Gains and Losses on Available-for-Sale Marketable Securities Foreign Currency Translation Adjustments Total Unrealized Gains and Losses on Available-for-Sale Marketable Securities Foreign Currency Translation Adjustments Total
Balance at beginning of period $ (6 ) $ (650 ) $ (656 ) $ (94 ) $ (101 ) $ (195 )
Other comprehensive income (loss) 3
309
312
97
(128 ) (31 )
Balance at end of period $ (3 ) $ (341 ) $ (344 ) $ 3
$ (229 ) $ (226 )

~~Realized gains~~One customer represented 15% of the Company’s total receivables as of March 30, 2024. Two customers represented 19% and ~~losses on sales~~14% of ~~available-for-sale marketable securities, if any, are reclassified from accumulated other comprehensive loss to “Other income (expense)” in~~ the ~~accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).~~

~~11. Credit Facility~~

The Company entered into a credit agreement with Bank of America, N.A. on July 29, 2013 (as amended on December 23, 2015, the “Credit Agreement”). The Credit Agreement provided for a revolving facility in the aggregate principal amount of up to $50.0 million, with any borrowings limited to a maximum consolidated leverage ratio of consolidated funded indebtedness to consolidated EBITDA (as defined in the Credit Agreement). On August 7, 2017, the Company contemporaneously terminated the Credit Agreement in connection with entering into a loan and security agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”).

The Loan Agreement provides for a senior secured revolving credit facility with SVB, pursuant to which SVB agreed to make revolving advances available to the Company in a principal amount of up to $30.0 million based on a customaryCompany’s accounts receivable ~~borrowing base, subject to certain exceptions for accounts originating outside the United States and certain specific accounts. The credit facility includes a $10.0 million sublimit for the issuance~~as of ~~letters~~December 31, 2023.

Table of credit. The letters of credit issued under the Loan Agreement will reduce, on a dollar-for-dollar basis, the amount available under the credit facility. Additionally, the Company can borrow up to $5.0 million on a non-formula revolver until January 15, 2018, which will reduce, on a dollar-for-dollar basis, the amount available under the credit facility so that at no time will more than $30.0 million in principal amount be outstanding under the Loan Agreement. The credit facility matures and all outstanding amounts become due and payable on August 7, 2019. Subject to certain exceptions, the Company will also be required to pay to SVB a fee of $0.3 million if it terminates the credit facility prior to August 7, 2018. The credit facility is secured by substantially all of theContents

Company’s assets, including the Company’s intellectual property. Loans under the credit facility will bear interest through maturity at a variable annual rate based upon an annual rate of either a prime rate or a LIBOR rate, plus an applicable margin between 0.50% to 1.50% for prime rate advances and between 2.00% and 3.00% for LIBOR advances based on the Company’s maintenance of an applicable liquidity ratio. As of September 30, 2017, the Company was in compliance with these requirements. The credit facility includes affirmative and negative covenants applicable to the Company and its subsidiaries. Furthermore, the Loan Agreement requires the Company to maintain a liquidity ratio at minimum levels set forth in more detail in the Loan Agreement. The credit facility also includes events of default, the occurrence and continuation of which would provide SVB with the right to demand immediate repayment of any principal and unpaid interest under the credit facility, and to exercise remedies against the Company and the collateral securing the loans under the credit facility. As of September 30, 2017, the outstanding balance on the line of credit was $30 million.

~~12.~~9. Income Taxes

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


	Three Months Ended
	March 30, 2024			April 1, 2023
Income before income taxes	$	468		$	11,409
Income taxes	$	365		$	1,811
Effective tax rate	78.0		%	15.9		%

Three Months Ended Nine Months Ended

September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Provision for income taxes $ 225
$ 209
$ 1,075
$ 454
Effective tax rate (1.3 )% 24.7 % (1.6 )% (2.9 )%

The ~~income tax~~Company has historically recorded its interim period provision for ~~the three and nine months ended September 30, 2017 and September 24, 2016 consisted primarily of foreign~~ income ~~taxes. The effective tax rate for the three and nine months ended September 30, 2017 and September 24, 2016 was determined using an estimated~~taxes by applying a forecasted annual effective tax rate ~~adjusted~~to year-to-date earnings and adjusting for discrete items. However, due to the level of forecasted provision for income taxes relative to the forecasted pre-tax income used in computing the effective tax rate, the effective tax rate is highly sensitive to fluctuations in pre-tax income and does not provide a reasonable estimate for income taxes in the interim period. As such, the Company has computed its provision for income taxes for the three months ended March 30, 2024 using an actual year-to-date tax calculation. The Company plans to revert to applying a forecasted annual effective tax rate to year-to-date earnings and adjusting for discrete items ~~if any,~~once that ~~occurred during the respective periods.~~ method produces more reasonable results.

The Company’s effective tax rate for the three ~~and nine~~ months ended ~~September~~March 30, ~~2017~~2024 and ~~September 24, 2016 is impacted~~April 1, 2023 differed from the statutory federal corporate tax rate of 21% primarily due to state taxes and the effect of non-deductible stock-based compensation for executive officers offset by the ~~change in~~favorable impact of U.S. federal research tax credits, excess tax benefits from stock-based compensation and the U.S. tax impact of foreign ~~income tax expense.~~operations.

~~Deferred~~The Company has net deferred tax assets ~~are recognized if realization~~that have arisen primarily as a result of ~~such assets~~temporary differences, net operating loss carryforwards, capitalized research and development costs and tax credits. The Company’s ability to realize a deferred tax asset is based on its ability to generate sufficient future taxable income within the applicable carryforward period and subject to any applicable limitations. Management believes that it is more likely than ~~not.~~ not that the Company will utilize a significant portion of its deferred tax assets.

The Company ~~has established~~maintained a valuation of $29.9 million the three months ended March 30, 2024 on certain U.S. federal and ~~continues to maintain a full valuation allowance against its net~~state deferred tax assets ~~with~~that the ~~exception~~Company believes are not more likely than not to be realized in future periods.

The Company considered scheduled reversals of ~~certain foreign~~deferred tax liabilities, historic profitability, projected future taxable income, ongoing tax planning strategies and other matters, including the period over which its deferred tax assets aswill be recoverable, in assessing the need for and the amount of the valuation allowance. In the event that actual results differ from these estimates, or if the Company decides to adjust these estimates in the future periods, further adjustments to its valuation allowance may be recorded, which could materially impact the Company’s financial position and net income in the period of the adjustment.

In December 2021, the Organization for Economic Cooperation and Development enacted model rules for a new global minimum tax framework (“Pillar Two”), and certain governments in countries which the Company operates have enacted local Pillar Two legislation, with an effective date from January 1, 2024. The Company currently does not ~~believe that realization~~expect Pillar Two to have a material impact on its financial statements.

Table of ~~those assets is more likely than not.~~Contents

The Company’s effective tax rate may be subject to fluctuation during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of forecasted pre-tax earnings in the various jurisdictions in which it operates, valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where it conducts business.

~~13. Restructuring Charges~~

The Company adopted a restructuring plan in March 2017. This restructuring plan realigns the Company’s business, increasing its focus towards its investments in software defined access and cloud products, while reducing its cost structure in its traditional systems business. The Company began to take action under this plan beginning in March 2017 and recognized $0.6 million and $2.3 million of restructuring charges for the three and nine months ended September 30, 2017, respectively, consisting primarily of severance and other one-time termination benefits. Restructuring charges are presented separately under operating expenses in the accompanying Condensed Consolidated Statements of Comprehensive10. Net Income ~~(Loss).~~Per Common Share

The following table ~~summarizes~~sets forth the ~~activities related to~~computation of basic and diluted net income per common share for the ~~restructuring charges pursuant to~~periods indicated (in thousands, except per share data):


	Three Months Ended
	March 30, 2024		April 1, 2023
Numerator:
Net income	$	103	$	9,598
Denominator:
Weighted-average common shares outstanding used to compute basic net income per share	65,338		66,044
Effect of dilutive common stock equivalents	2,781		3,664
Weighted-average common shares outstanding used to compute diluted net income per share	68,119		69,708
Net income per common share:
Basic net income per common share	$	0.00	$	0.15
Diluted net income per common share	$	0.00	$	0.14
Potentially dilutive shares excluded, weighted average	7,413		3,023

Potentially dilutive shares have been excluded from the ~~above restructuring plan (in thousands):~~computation of diluted net income per common share when their effect is antidilutive. These antidilutive shares were from stock options.

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Liability at beginning of period $ 600
$ —
Restructuring charges for the period 612
2,268
Cash payments (1,017 ) (2,073 )
Liability at end of period $ 195
$ 195

~~The Company currently estimates that this plan will result in pre-tax restructuring charges totaling up to $4.0 million with approximately up to $1.7 million~~

Table of ~~additional charges expected to be recognized during the fourth quarter of 2017. These charges are primarily cash-based.~~Contents


~~ITEM 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as ~~amended.~~amended, or the Exchange Act. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenue or other financial items, any statement of or concerning the

following: the plans and objectives of management for future operations, proposed new products or licensing, product development, anticipated customer demand or capital expenditures, anticipated growth and trends in our business and industry, future economic and/or market conditions or performance and assumptions underlying any of the above. In some cases, forward-looking statements can be identified by the use of terminology such as “could,” “may,” “will,” “would,” “expects,” “believes,” “intends,” “plans,” “anticipates,” “estimates,” “projects,” ~~“potential,~~“predicts,” “potential” or “continue” or the negative thereof or other comparable terminology. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including those identified in the Risk Factors discussed in Part II, Item 1A, ~~in the discussion below,~~of this report on Form 10-Q, as well as in other sections of this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2023. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Overview

We ~~are~~develop, market and sell our platform (cloud, software and systems) and managed services that enable service providers of all types and sizes to innovate and transform their businesses. For our customers to successfully transform their businesses into the innovative BSPs of the future, they require actionable data for critical business functions such as network operations, customer support and marketing. However, this data is often trapped in disparate systems or departmental silos. Our platform, which includes Calix Cloud, Revenue EDGE and Intelligent Access EDGE, gathers, analyzes and applies machine learning to deliver real-time insights seamlessly to each key business function. Our customers utilize these insights to simplify network operations, marketing and customer support and innovate for their customers, business and municipal subscribers by delivering a ~~leading global provider~~growing portfolio of ~~broadband communications access platforms, systems~~SmartLife managed services and ~~software~~experiences. This enables BSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, while creating value for ~~fiber- and copper-based network architectures and a pioneer in software defined access and cloud products focused on access networks~~their members, investors and the ~~subscriber. Calix’s portfolio combines AXOS, a software platform for access, with Calix Cloud, innovative cloud products for network data analytics and subscriber experience assurance. Together,~~communities they enable CSPs to transform their networks and enhance how they connect to their residential and business subscribers. We enable CSPs to provide a wide range of revenue-generating services, from basic voice and data to advanced broadband services, over legacy and next-generation access networks. We focus solely on CSP access networks, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers. We believe that continued innovation and investment in advanced platforms and systems are important elements of our growth strategy. Our most advanced systems operate on AXOS, a network operating system and software platform built for the specific needs of the access network that allows for all software functions in the access network to be developed and run without dependence on underlying hardware and associated silicon chipsets.serve.

We market our ~~access systems~~platform and ~~related software~~managed services to ~~CSPs~~communication service providers globally through our direct sales force as well as ~~a number of~~select resellers. ~~At the end of the third quarter of 2017, over 24 million ports of the Calix portfolio have been deployed at a growing number of CSPs worldwide.~~ Our customers range from smaller, regional ~~CSPs~~service providers to some of the world’s largest ~~CSPs.~~service providers. Customers are defined into small (less than 250,000 subscribers), medium (250,000 to 2.5 million subscribers) or large (greater than 2.5 million subscribers). We have ~~enabled over 1,300~~approximately 1,600 active customers ~~to deploy gigabit~~that have deployed passive optical, ~~network,~~ Active Ethernet ~~and~~or point-to-point Ethernet fiber access ~~networks.~~networks or our subscriber premise systems.

Our revenue ~~was $128.8 million~~ and $372.5 million for the three and nine months ended September 30, 2017, respectively, compared to $121.2 million and $327.0 million for the three and nine months ended September 24, 2016, respectively. Our revenue levels and continuedpotential revenue growth will depend on our ability to ~~continue to~~develop, market and sell our ~~access systems~~platform and ~~software~~managed services to ~~existing~~strategically aligned customers of all types such as wireless internet service providers, fiber overbuilders, cable multiple system operators, municipalities and ~~to attract new customers, particularly larger CSPs, globally. During~~electric cooperatives in the ~~three months ended September 30, 2017, we continued to see~~United States and internationally. Our growth in our services business to meet customer demand for turnkey solutions that include professional services together with the supply of equipment and materials, including projects that are funded by the Federal Communication Commission’s (FCC) current Connect America Fund program, CAF2. Specifically, during the nine months ended September 30, 2017, we completed a significant turnkey network improvement project that we had commenced in 2015, and continued work underway on previously-awarded CAF2 projects including completion of a large majority of these projects. Revenue for such projects is ~~generally recognized only when all project requirements are completed, which typically requires longer periods depending~~also highly dependent on the ~~nature~~speed and ~~scope~~willingness of ~~the project. Similarly, some of the costs incurred by us for such projects, including labor~~customers to adopt our platform and ~~related costs, are deferred and recognized to cost of revenue when the associated revenue is recognized.~~managed services.

Revenue fluctuations result from many factors, ~~including:~~including, but not limited to: increases or decreases in customer orders for our products and services, market, financial or other factors such as government stimulus that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component and labor shortages and increasing lead times as well as disruptions as a result of pandemics or natural disasters, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers. More specifically, our customers ~~tend to spend~~have in the past spent less in the first quarter as they are finalizing their annual budgets, and in certain regions, customers are ~~also~~ challenged by winter weather conditions that inhibit fiber deployment in outside ~~plants.~~infrastructure. In recent years, as our revenue from our large customers decreased, we have experienced less year-end volatility due to capital budgetary spending or freezing. This, combined with an increase in recurring revenue, has resulted in smaller seasonal fluctuations, and we expect this trend to continue. Our revenue ~~levels are~~is also dependent upon our customers’ success in growing their subscribers, timing of purchases, ~~and~~ capital expenditure plans and decisions to upgrade their networks or adopt new technologies, including ~~expenditure plans for turnkey~~adoption of our software and cloud platform solutions, ~~projects, which are generally non-recurring in nature. As of September 30, 2017, we had deferred product revenue of approximately $16.8 million related~~as well as our ability to ~~ongoing work in turnkey network improvement projects that will be recognized upon acceptance by the~~grow our customer ~~or upon agreed milestones. The timing of recognition of deferred revenue may cause significant fluctuations in our revenue and operating results from period to period.~~base.

Cost of revenue is strongly correlated to revenue and tends to fluctuate due to all of the above factors that ~~could impact revenue.~~may cause revenue fluctuations. Factors that have impacted our cost of revenue for the three ~~and nine~~ months ended ~~September~~March 30, ~~2017, and~~2024, or that we expect may

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impact cost of revenue in future periods, also include: changes in the mix of products delivered, customer location and regional mix, changes in ~~product warranty and incurrence of retrofit costs, changes in~~ the cost of our inventory, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty, incurrence of retrofit costs, amortization of intangibles, support fees for silicon-related development work for our products, changes in trade policies, allowances for obligations to our suppliers and inventory write-downs. ~~Cost of services revenue has been impacted, and~~In addition, we periodically ship by air versus by ocean in order to meet delivery commitments to our customers, which is expected to continue to be impacted in future periods, by increases in the pace of professional services activity due to customer requirements and project deadlines, the timing of completion of project requirements, higher than anticipated costs associated with delivery of professional services for which project pricing is typically set at the outset of the project, charges related to cost overruns on services projects and inefficiencies associated with delays resulting from third party dependencies and incremental costs to rework.more costly. Cost of revenue also includes fixed expenses related to our internal operations, which could ~~impact~~increase our cost of revenue as a percentage of revenue if ~~there are large fluctuations in revenue.~~our revenue declines.

Cost of revenue has a direct impact on gross profit and gross margins. During the three and nine months ended September 30, 2017, our gross profit and gross margin continued to be negatively impacted by an increase in our services revenue, which carries negative gross

margin, as a mix of total revenue. We have continued to incur higher costs related to our professional services business for turnkey network improvement projects, largely associated with projects initiated in 2016. Overall, ourOur gross profit and gross margin fluctuate based on timing of factors such as ~~new product introductions or upgrades to existing products,~~ changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing ~~inventory), increases~~inventory or accrual for supplier commitments) and have in ~~mix of revenue towards professional services,~~the past been and may be negatively impacted by increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive ~~pressure. The timing~~pressure or materials shortages, supply constraints, investments to support expansion of ~~our recognition of deferred revenue~~cloud and ~~related deferred costs related to turnkey professional services projects could also result~~customer support offerings, tariffs or unfavorable changes in lower gross profit and gross margin in the periods that such revenue is recognized, and the relative size of these projects could cause large fluctuations in our gross profit from period to period. Moreover, to the extent that deferred costs related to the professional services portion of turnkey projects is determined to be unrecoverable, we incur a charge to cost of service revenue in the period such cost is determined to be unrecoverable. In connection with our recoverability assessment as of September 30, 2017, we wrote down our deferred costs by $3.3 million. See the risk factor titled “An increase in revenue mix towards services will adversely affect our gross margins” below in the “Risk Factors” section of this Quarterly Report on Form 10-Q.trade policies.

Our operating expenses ~~have fluctuated~~fluctuate based on the following ~~factors:~~factors among others: changes in headcount and personnel costs, which comprise a significant portion of our operating ~~expenses, timing of~~expenses; variable compensation ~~expenses~~ due to fluctuations in ~~order~~shipment volumes or level of achievement against performance targets; timing of research and development expenses, including investments in innovative solutions ~~such as next generation solutions~~ and new customer segments, prototype builds and outsourced development ~~projects,~~resources; investments in marketing programs; asset write-offs; investments in our business and information technology infrastructure; and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting, changes in acquisition-related expenses and timing of litigation-related costs. During the three and nine months ended September 30, 2017 as compared with the corresponding periods in 2016, our total operating expense increased due to increases in headcount and outside contractors, primarily for research and development and, to a lesser extent, as a result of severance-related expenses incurred in the three and nine months ended September 30, 2017. In March 2017, we adopted a restructuring plan to realign our business to increase focus towards investments in software defined access and cloud products and to reduce costs in our traditional systems business, which we expect will result in revised pre-tax restructuring charges estimated to be up to $4.0 million in 2017, of which we incurred $2.3 million during the nine months ended September 30, 2017. We anticipate that our operating expenses will be relatively consistent over the next several quarters in absolute dollars, but will decline as a percentage of revenue over time.vesting.

~~Our net loss was~~ ~~$17.9 million~~ ~~and $70.2 million for the~~ ~~three and nine~~ ~~months ended September 30, 2017, respectively, compared to a net income of~~ ~~$0.6 million~~ ~~and net loss of $15.9 million for the~~ ~~three and nine~~ ~~months ended~~ ~~September 24, 2016, respectively. Since our inception we have incurred significant losses and, as of September 30, 2017, we had an accumulated deficit of~~ ~~$654.5 million~~. Further, as a result of factors contributing to the fluctuations described above ~~and a number of~~among other factors, many of which are outside our control, our quarterly operating results fluctuate from period to period. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. To the extent there are material differences between these estimates and actual results, our financial statements may be affected. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.

Our critical accounting policies and estimates, which are revenue recognition and inventory valuation and supplier purchase commitments, are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2016. During~~2023. For the ~~nine~~three months ended ~~September~~March 30, ~~2017,~~2024, there have been no significant changes in our critical accounting policies and estimates.

Recent Accounting Pronouncements

~~See Note 2~~There have been no additional accounting pronouncements or changes in accounting pronouncements during the three months ended March 30, 2024 as compared to the ~~unaudited condensed consolidated financial statements set forth~~recent accounting pronouncements described in ~~Part I, Item 1 of this Quarterly~~our Annual Report on Form ~~10-Q~~10-K for ~~a full description of recent accounting pronouncements, including~~ the year ended December 31, 2023 that are significant or expected ~~dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.~~to be significant to us.

Results of Operations

Comparison of the Three ~~and Nine~~ Months Ended ~~September~~March 30, ~~2017~~2024 and ~~September 24, 2016~~April 1, 2023

Revenue

~~Our revenue is comprised of the following:~~

~~Products — includes revenue from the sale of access systems, premises equipment, software licenses and cloud-based software products.~~

~~Services — includes revenue from professional services, customer support, software maintenance, extended warranty subscriptions, training and managed services.~~

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


	Three Months Ended
	March 30, 2024		April 1, 2023		Variance in Dollars		Variance in Percent
Revenue	$	226,310	$	250,008	$	(23,698)	(9)	%

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 Variance
in
Dollars Variance
in
Percent September 30,
2017 September 24,
2016 Variance
in
Dollars Variance
in
Percent
Revenue:
Products $ 106,442
$ 114,029
$ (7,587 ) (7 )% $ 305,395
$ 305,853
$ (458 ) — %
Services 22,385
7,158
15,227
213 % 67,073
21,134
45,939
217 %
$ 128,827
$ 121,187
$ 7,640
6 % $ 372,468
$ 326,987
$ 45,481
14 %

Percent of total revenue:
Products 83 % 94 % 82 % 94 %
Services 17 % 6 % 18 % 6 %
100 % 100 % 100 % 100 %

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Our revenue increased by $7.6 million, or 6%, for the three months ended September 30, 2017 and $45.5 million, or 14%, for the nine months ended September 30, 2017 as compared with the corresponding periods in 2016. This was mainly due to an increase in services revenue by $15.2 million, or 213%, for the three months ended September 30, 2017 and $45.9 million, or 217%, for the nine months ended September 30, 2017, primarily driven by the completion of services associated with a significant turnkey network improvement project substantially completed during the first quarter of 2017 and the completion of a number of sites from previously-awarded CAF2 projects. Our product revenue decreased by ~~$7.6~~$23.7 million for the three months ended ~~September~~March 30, ~~2017~~2024 as compared ~~with~~to the corresponding period in ~~2016 mainly~~2023. The decrease in revenue was primarily due to ~~lower shipment levels to one~~what we believe were delayed purchasing decisions of our ~~large Tier 2~~appliances as our customers ~~relative~~evaluate and prepare for various government stimulus programs, the shortening of our lead times to ~~the prior year period. During~~customers and a small set of significant customers that slowed purchases while we believe they reevaluate their investment priorities. Meanwhile, software, cloud and managed services have continued to grow as our customers add new subscribers over time.

For the three ~~and nine~~ months ended ~~September~~March 30, ~~2017, revenue generated in the~~2024, United States revenue was ~~$117.5~~$210.1 million, ~~and $332.1~~or 93% of our revenue, compared to $227.9 million, or 91% ~~and 89%, respectively,~~ of our ~~total revenue, compared to $111.8 million and $298.8 million, or 92% and 91% of our total~~ revenue for the same ~~periods~~period in ~~2016.~~2023. International revenue was ~~$11.3 million and $40.3~~$16.2 million, or ~~9% and 11%~~7% of our ~~total~~ revenue, for the three ~~and nine~~ months ended ~~September~~March 30, ~~2017, respectively,~~2024, as compared to ~~$9.4~~$22.1 million, ~~and $28.1 million,~~ or ~~8% and~~ 9% of our ~~total~~ revenue, for the same ~~periods~~period in ~~2016.~~2023.

~~We had one~~No customer ~~that~~ accounted for more than 10% of ~~our total~~the Company’s revenue ~~during~~for the three months ended ~~September~~March 30, ~~2017. See Note 2 to the unaudited condensed consolidated financial statements set forth in Part I, Item~~2024 and April 1, ~~of this Quarterly Report on Form 10-Q for more details on concentration of revenue for the periods presented.~~2023.

~~Cost of Revenue,~~ Gross Profit and Gross Margin

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

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016
Variance
in
Dollars

Variance
in
Percent
September 30,
2017 September 24,
2016 Variance
in
Dollars Variance
in
Percent
Cost of revenue:
Products $ 55,494
$ 60,662
$ (5,168 ) (9 )% $ 171,166
$ 159,856
$ 11,310
7 %
Services 28,700
6,981
21,719
311 % 78,969
18,099
60,870
336 %
$ 84,194
$ 67,643
$ 16,551
24 % $ 250,135
$ 177,955
$ 72,180
41 %

Our cost of revenue increased by $16.6 million and $72.2 million during the three and nine months ended September 30, 2017, respectively, as compared with the corresponding periods in 2016. This was primarily attributable to an increase in cost of service revenue by $21.7 million and $60.9 million during those respective periods, as we experienced higher levels of service activities, as well as higher costs attributed to rework, delays, unanticipated costs and overruns (including third party costs) for our turnkey network improvement projects. Our product cost of revenue also decreased by $5.2 million for the three months ended September 30, 2017 as compared with the corresponding period in 2016 mainly due to lower shipments as described above, and increased by $11.3 million for the nine months ended September 30, 2017 as compared to the year ago period mainly due to product mix. Our warranty and retrofit costs primarily related to certain retrofit charges for two specific product families also decreased by approximately $1.1 million and $0.6 million during the three and nine months ended September 30, 2017, respectively, as compared with the corresponding periods in 2016. This is partly offset by increases in our inventory write-downs attributed to slow moving inventories by $0.5 million and $0.8 million during those respective periods.

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

Three Months Ended Nine Months Ended
September 30,
2017 September 24,
2016 Variance
in
Dollars Variance
in
Percent September 30,
2017 September 24,
2016 Variance
in
Dollars Variance
in
Percent
Gross profit:
Products $ 50,948
$ 53,367
$ (2,419 ) (5 )% $ 134,229
$ 145,997
$ (11,768 ) (8 )%
Services (6,315 ) 177
(6,492 ) (3,668 )% (11,896 ) 3,035
(14,931 ) (492 )%
Total gross profit $ 44,633
$ 53,544
$ (8,911 ) (17 )% $ 122,333
$ 149,032
$ (26,699 ) (18 )%
Gross margin:
Products 48 % 47 % 44 % 48 %
Services (28 )% 2 % (18 )% 14 %
Total gross margin 35 % 44 % 33 % 46 %


	Three Months Ended
	March 30, 2024			April 1, 2023			Variance in Dollars		Variance in Percent
Gross profit	$	122,577		$	128,051		$	(5,474)	(4)	%
Gross margin	54.2		%	51.2		%

Gross profit decreased to ~~$44.6~~$122.6 million ~~and $122.3 million during~~for the three ~~and nine~~ months ended ~~September~~March 30, ~~2017, respectively,~~2024, from ~~$53.5 million and $149.0~~$128.1 million during the corresponding ~~periods~~period in ~~2016. Gross~~2023. The increase in gross margin ~~decreased~~of 300 basis points for the three months ended March 30, 2024, respectively, compared to ~~35%~~the corresponding period in 2023, was mainly due to the continued growth in our platform, cloud and ~~33%~~managed services as well as being a greater percentage of our total revenue, customer mix and the sell through of a lower amount of excessively priced components acquired in the secondary market during the ~~three~~supply-chain disruption partially offset by excess and ~~nine~~obsolete inventory charges.

Operating Expenses

Sales and Marketing Expenses

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


	Three Months Ended
	March 30, 2024			April 1, 2023			Variance in Dollars		Variance in Percent
Sales and marketing expenses	$	53,897		$	51,865		$	2,032	4	%
Percent of revenue	24		%	21		%

Sales and marketing expenses for the three months ended ~~September~~March 30, ~~2017, respectively, from 44% and 46% during~~2024 increased by $2.0 million compared with the corresponding ~~periods~~period in ~~2016. The decrease in gross profit and gross margin during the three and nine months ended September 30, 2017 was~~2023 primarily due to ~~an increase~~increases in personnel expenses of $1.1 million, stock-based compensation of $0.4 million, $0.3 million in allocated common costs and marketing expenses of $0.3 million.

Sales and marketing expenses as a percentage of revenue ~~mix toward service~~increased to 24% from 21% due to lower revenue in the first quarter of 2024. We expect our investments in sales and marketing will be relatively flat in absolute dollars in the short-term as we ~~continued~~look to ~~grow~~land new customers and expand our ~~professional services business, an increased level of activities in our turnkey network improvement projects~~platform, cloud and higher costs attributed to rework and overruns. The rework costs and overruns generally relate to projects that were started in 2016 that incurred higher than anticipated costs, project delays, third party dependencies, quality issues associated with subcontracted work, rework to meet customer requirements and longer than anticipated time to complete. The large majority of these 2016 projects were completed by the end of the third quarter of 2017. Looking forward, we expect to continue to drive efficiencies in our delivery of professional services for turnkey network improvement projects.

The decrease within the products category was partly attributed to product and regional mix as well as higher inventory write-downs, partly offset by lower warranty and retrofit charges as described above.

~~Operating Expenses~~managed services.

Research and Development Expenses

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


	Three Months Ended
	March 30, 2024			April 1, 2023			Variance in Dollars		Variance in Percent
Research and development expenses	$	44,422		$	43,173		$	1,249	3	%
Percent of revenue	20		%	17		%
Percentage of gross profit	36		%	34		%

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~~The increase in research~~Research and development expenses ~~by $4.5 million during~~for the three months ended ~~September~~March 30, ~~2017~~2024 increased by $1.2 million as compared with the corresponding period in ~~2016 was primarily~~2023 mainly due to ~~an increase~~increases in personnel expenses ~~for outside contractors~~of $1.6 million, $0.7 million of depreciation and amortization, $0.7 million in allocated common costs and stock-based compensation of $0.2 million. These increases were partially offset by ~~$4.5~~decreases in prototypes and test equipment expenses of $1.4 million and ~~expenditures relating to prototype and expendable equipment used for research and development activities by $0.4 million primarily for development~~outside services including investments in next generation technologies to pursue broader growth opportunities. Our personnel for research and development also increased during the three months ended September 30, 2017 as compared with the corresponding period in 2016 which resulted in higher compensation and employee benefits (other than bonuses) of ~~$0.6~~$0.5 million. ~~The increase was partly offset by lower employee bonuses of $0.7 million during the three months ended September 30, 2017 as compared with the corresponding period in 2016.~~

~~The increase in research~~Research and development expenses ~~by $23.5 million during the nine months ended September 30, 2017~~ as ~~compared with the corresponding period in 2016 was primarily~~a percentage of gross profit increased to 36% from 34% due to ~~an increase~~lower revenue in expenses for outside contractors by $13.2 million and expenditures relating to prototype and expendable equipment used for research and development activities by $2.7 million primarily for development services including investments in next generation technologies to pursue broader growth opportunities. Our personnel for research and development also increased during the ~~nine months ended September 30, 2017 as compared with the corresponding period in 2016 which resulted in higher compensation and employee benefits (other than bonuses)~~first quarter of ~~$7.6 million. The increase was partly offset by lower employee bonuses of $0.7 million during the nine months ended September 30, 2017 as compared with the corresponding period in 2016.~~

2024. We increased our research and development efforts to grow our product portfolio and to make strategic investments in innovative solutions, including next generation platforms and new market segments. We intend to continue to moderateexpect our investments in research and development to remain relatively flat in absolute dollars in the short term as ~~our next generations systems~~we seek to expand the functionality and ~~software platforms are brought to market.~~

~~Sales and Marketing Expenses~~

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

The decrease in sales and marketing expenses by $2.1 million during the three months ended September 30, 2017 as compared with the corresponding period in 2016 was primarily due to lower compensation and employee benefits of $1.1 million arising from changes in personnel as a resultcapabilities of our ~~restructuring plan and lower stock-based compensation expense of $0.8 million.~~

~~Sales and marketing expenses were relatively flat during the nine months ended September 30, 2017 as compared with the corresponding period in 2016.~~

~~We expect to continue our investments in sales and marketing in order to extend our market reach and grow our business in support of our key strategic initiatives.~~platforms.

General and Administrative Expenses

The following table sets forth our general and administrative expenses (dollars in thousands):


	Three Months Ended
	March 30, 2024			April 1, 2023			Variance in Dollars		Variance in Percent
General and administrative expenses	$	26,290		$	23,077		$	3,213	14	%
Percent of revenue	12		%	9		%

~~The increase in general~~General and administrative expenses ~~by $1.6 million~~ for the three months ended ~~September~~March 30, ~~2017~~2024 increased by $3.2 million as compared with the corresponding period in ~~2016 was~~2023 mainly due to ~~higher~~increases in personnel expenses of $1.8 million, professional services ~~expense~~expenses of ~~$2.0~~$0.8 million ~~primarily related to outside consulting services for the implementation of a new SaaS-based enterprise resource planning (“ERP”) infrastructure, which was partially offset by a lower~~and stock-based compensation ~~expense~~ of ~~$0.5~~$0.2 million.

~~The decrease~~General and administrative expenses as a percentage of revenue increased to 12% from 9% due to lower revenue in the three months ended March 30, 2024. We expect our general and administrative ~~expenses~~investments to be fairly constant in absolute dollars in the near term and potentially decline as a percentage of revenue over time in relation to anticipated longer-term increased revenue.

Interest and Other Expense, net

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


	Three Months Ended
	March 30, 2024			April 1, 2023			Variance in Dollars		Variance in Percent
Interest and other expense, net	$	2,500		$	1,473		$	1,027	70	%
Percent of revenue	1		%	1		%

Interest and other expense, net increased by ~~$2.8~~$1.0 million ~~for the nine months ended September 30, 2017~~ as compared with the corresponding period in 2016 included legal fees and expenses related to the Occam litigation of $6.4 million that did not recur in 2017 as the litigation was settled in 2016. The decrease was partially offset by increases in professional services expense of $2.6 million primarily related to outside consulting services in 2017 for the implementation of the new ERP infrastructure, recoveries of legal fees and expenses in 2016 that did not recur in 2017, compensation and employee benefits of $1.3 million2023 mainly due to ~~increase in headcount~~a higher rate of interest earned on our cash, cash equivalents and severance benefits of $0.5 million related to our separation agreement with our former Chief Financial Officer. We expect that general and administrative expenses will continue at current levels until the implementation of the new ERP infrastructure is completed, which is expected to occur in mid-2018.marketable securities.

~~Amortization of Intangible Asset~~

~~The intangible asset related to customer relationships had reached completion of its amortization period during the first quarter of 2016.~~

~~Restructuring Charges~~

~~In connection with a restructuring plan we adopted in March 2017, we recognized approximately $0.6 million and $2.3 million of restructuring charges during the~~ ~~three and nine~~ ~~months ended September 30, 2017, respectively, consisting primarily of severance and other one-time termination benefits. See Note 13, “Restructuring Charges” of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further details regarding this restructuring plan.~~

~~Litigation Settlement Gain~~

During the three and nine months ended September 24, 2016, we recognized a litigation settlement gain of $4.5 million as a reduction to operating expense. This litigation settlement gain consisted of a litigation settlement accrual of $4.5 million in partial recovery of out-of-pocket costs related to the Occam litigation.

~~Provision for~~ Income Taxes

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


	Three Months Ended
	March 30, 2024			April 1, 2023			Variance in Dollars		Variance in Percent
Income taxes	$	365		$	1,811		$	(1,446)	(80)	%
Effective tax rate	78.0		%	15.9		%

~~The~~For the three months ended March 30, 2024, our income tax ~~provision~~expense was $0.4 million for an effective tax rate of 78.0% which differed from the statutory rate of 21% primarily due to state taxes and the effect of non-deductible stock-based compensation for executive officers offset by the favorable impact of U.S. federal research tax credits, excess tax benefits from stock-based compensation and the U.S. tax impact of foreign operations. The effective tax rates for the three ~~and nine~~ months ended ~~September~~March 30, ~~2017 and September 24, 2016 consisted~~2024 are higher than the similar period in 2023 primarily as a result of foreign income taxes. The effective tax rate for the three and nine months ended September 30, 2017 and September 24, 2016 was determined using an estimated annual effective tax rate adjusted for discrete items, if any, that occurred during the respective periods. Our effective tax rate for the three and nine months ended September 30, 2017 and September 24, 2016 is impacted by the change in foreign income tax expense.

~~Deferred tax assets are recognized if realization~~lower pre-tax earnings with a relatively consistent level of such assets is more likely than not. We have established and continue to maintain a full valuation allowance against our net deferred tax assets, with the exception of certain foreign deferred tax assets, as we do not believe that realization of those assets is more likely than not.non-deductible expenses.

Our ~~effective tax rate~~income taxes may be subject to fluctuation during the year and in future years as new information is ~~obtained, which~~obtained. This may affect the assumptions used to estimate the ~~annual effective~~interim income tax ~~rate,~~provision, including factors such as ~~the mix~~actual results differing from our estimates of ~~forecasted~~ pre-tax earnings in the various jurisdictions in which we operate, ~~valuation allowances against~~which could impact the recognition of our deferred tax assets, further benefits from stock option exercises, investments in our foreign operations, the recognition or ~~de-recognition~~de-

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recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where we conduct business.

Liquidity and Capital Resources

WeHistorically, we have ~~historically~~ funded our operations and investing activities primarily through sales of our common stock, cash flow generated from operations and ~~sales~~various borrowing arrangements. However, for the past few years, we have funded our operations and investing activities from cash flow generated from our operations as our business has grown and became profitable. As of ~~our common stock. At September~~March 30, ~~2017,~~2024, we had cash, cash equivalents and marketable securities of ~~$70.8~~$239.5 million, which consisted of deposits held at banks ~~money market mutual funds held at~~and major financial institutions and highly liquid marketable securities such as ~~commercial paper and~~ U.S. government agency securities. This includes $5.8 million of cash held by our foreign subsidiaries, primarily in China. As of September 30, 2017, our liability for taxes that would be payable as a result of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significantsecurities and ~~limited to withholding taxes considering our existing net operating loss carryovers.~~commercial paper.

Operating Activities

~~During the nine months ended September 30, 2017,~~Net cash ~~used in~~provided by operating activities increased as we continued to invest in research and development to pursue broader market and customer opportunities. Furthermore, during this period we continued to experience losses due to higher costs, delays, overruns and other inefficiencies associated with our professional services business for turnkey network improvement projects (including CAF2 projects). As described below, these turnkey network improvement projects generally involve greater working capital needs at the outset as services and products are supplied, while revenue and cash collections occur after projects are accepted or agreed-upon milestones are reached. Net cash used in operations of $28.6was $14.7 million for the ~~nine~~three months ended ~~September~~March 30, ~~2017~~2024 and consisted of a net ~~loss~~income of ~~$70.2~~$0.1 million ~~partially~~and non-cash charges of $17.9 million offset by ~~$23.6 million of~~ cash flow ~~increases~~decreases of $3.3 million reflected in the net change in assets and ~~liabilities~~liabilities. Non-cash charges primarily consisted of stock-based compensation of $16.9 million and ~~$17.9~~depreciation and amortization of $4.9 million partially offset by deferred income taxes of ~~non-cash charges.~~ $2.4 million and the net accretion of available-for-sale securities of $1.4 million.

Cash flow ~~increases~~decreases resulting from the net change in assets and liabilities primarily consisted of a decrease in ~~deferred cost~~accrued liabilities of ~~revenue of $11.9~~$28.9 million ~~mainly~~ due to ~~recognition~~the payout of ~~associated costs related~~incentive compensation and a decrease in the reserves for inventory held at suppliers, and a decrease in accounts payable of $16.0 million due to ~~turnkey network improvement projects that are either accepted or for which agreed-upon milestones are reached, partly~~the timing of inventory payments. These changes were partially offset by a decrease in accounts receivable of $25.7 million, due to the timing of customer payments and lower sales in the first quarter of 2024 than the prior quarter, a decrease in inventory of $13.2 million as the supply chain continued to normalize, and an increase in deferred revenue of ~~$1.3 million attributed to additional deferral of revenue related to turnkey network improvement projects, a decrease in inventories of $8.2~~$2.3 million primarily due to ~~higher inventory turnover, a decrease in accounts receivable of $7.1 million mainly due to collection from one of our customers for turnkey improvement projects and~~support contract renewals as well as an increase in ~~accounts payable~~customer payments received or due in advance of ~~$5.5~~satisfying the related contract’s performance obligation.

Net cash provided by operating activities was $8.1 million ~~primarily due to~~for the ~~timing~~three months ended April 1, 2023 and consisted of ~~inventory receipts~~net income of $9.6 million and ~~payments to our manufacturers. This was partially~~non-cash charges of $18.6 million offset by ~~a decrease~~cash flow decreases of $20.0 million reflected in ~~accrued expenses~~the net change in assets and other liabilities of $10.1 million primarily due to a decrease in customer advance payments for turnkey services projects for one of our customers and partly due to the timing of our payments of payroll, sales commissions and other expenses.liabilities. Non-cash charges primarily consisted of stock-based compensation of ~~$9.3~~$16.2 million and depreciation and amortization of ~~$7.6 million and amortization of intangible assets of $0.8~~$3.7 million.

Net cash provided by operations of $5.3 million for the nine months ended September 24, 2016 consisted of a net loss of $15.9 million and $0.8 million of cash flow decreases reflected in the net change in assets and liabilities, more than offset by $22.0 million of non-cash charges. Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of a decrease in accrued liabilities of $12.3 million due to the payout of incentive compensation and payments related to our Calix ConneXions 2022 Customer Success and Innovation conference; an increase in inventory of $7.4 million to improve our responsiveness to our BSPs’ subscriber demand; a decrease in accounts ~~receivable~~payable of ~~$10.1~~$5.9 million ~~mainly~~ due to ~~higher revenue in 2016,~~the timing of inventory purchases; and an increase in prepaid expenses and other assets of ~~$6.1~~$7.1 million mainly due to ~~litigation settlement gain accrual,~~the renewal of a ~~net decrease in~~software contract and reclassification of contract assets from deferred revenue and deferred cost of revenue of $5.4 million as a result of revenue and cost recognition for previous shipments related to certain turnkey projects and Rural Utility Service (“RUS”) funded contracts andrevenue. These changes were partially offset by a decrease in accounts ~~payable~~receivable of ~~$0.4~~$1.6 million due to continued strong shipment linearity and an increase in deferred revenue of $11.0 million primarily due to ~~the timing~~our platform subscriptions and support contracts and reclassification of ~~inventory receipts and payments~~contract assets to ~~our manufacturers. This was partially offset by an increase in accrued~~prepaid expenses and other ~~liabilities of $13.7 million primarily due to~~assets.

Investing Activity

For the timing of our payments of payroll, sales commissions and other expenses and a decrease in inventories of $7.5 million primarily due to higher inventory turnover. Non-cash charges primarily consisted of stock-based compensation of $10.4 million, depreciation and amortization of $6.3 million and amortization of intangible assets of $5.0 million.

~~Investing Activities~~

~~Net~~three months ended March 30, 2024, cash provided by investing activities of ~~$14.4~~$3.3 million ~~for the nine months ended September 30, 2017~~ consisted of net ~~sales and~~ maturities of marketable securities of ~~$21.2~~$7.0 million partially offset by capital expenditures of ~~$6.8~~$3.7 million, ~~for~~consisting primarily of purchases of test ~~equipment,~~and computer ~~equipment and software.~~equipment.

~~Our~~For the three months ended April 1, 2023, cash ~~provided by~~used in investing activities of ~~$14.8~~$3.3 million ~~for the nine months ended September 24, 2016~~ consisted of ~~maturities~~net purchases of marketable securities of ~~$20.2~~$1.3 million ~~partially offset by~~and capital expenditures of ~~$5.4~~$4.6 million, ~~for~~consisting primarily of purchases of test ~~equipment,~~and computer ~~equipment and software.~~equipment.

Financing Activities

Net cash provided by financing activities of ~~$27.8~~$7.1 million for the ~~nine~~three months ended ~~September~~March 30, ~~2017~~2024 primarily consisted of ~~net proceeds from our line of credit of $30.0 million and the~~ proceeds from the issuance of common stock ~~under~~related to our ~~Amended and Restated Employee Stock Purchase Plan (“Restated ESPP”)~~equity plans of ~~$0.7~~$10.8 million partially offset by ~~the payment~~repurchases of ~~payroll taxes for the vesting~~our common stock of ~~awards under our 2010 Equity Incentive Award Plan of $2.7 million and payments to originate the line of credit of $0.2~~$3.7 million.

Net cash ~~used in~~provided by financing activities of ~~$11.7~~$10.2 million for the ~~nine~~three months ended ~~September 24, 2016~~April 1, 2023 primarily consisted of ~~the repurchases of common stock of $12.8 million and the payment of payroll taxes for the vesting of awards under our 2010 Equity Incentive Award Plan of $1.8 million, partially offset by the~~ proceeds from the issuance of common stock ~~under the Restated ESPP~~related to our equity plans of ~~$2.9~~$12.5 million.

~~Stock Repurchase Program~~

~~On April 26, 2015, our board of directors approved a program to repurchase up to $40 million of our common stock from time to time.~~ This ~~stock repurchase program commenced in May 2015. During the nine months ended September 24, 2016, we repurchased 1,789,287 shares~~was partially offset by repurchases of common stock ~~for $12.8~~of $1.2 million ~~at an average price~~and payments related to a financing arrangement of ~~$7.16 per share. In March 2016, we completed purchases under the $40 million stock repurchase program and repurchased a total~~$1.1 million.

Table of ~~5,329,817 shares of common stock from May 2015 to March 2016 at an average price of $7.50 per share.~~Contents

Working Capital and Capital Expenditure Needs

~~We currently have no~~Our material cash commitments ~~except for contractual obligations under our Loan Agreement,~~include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals, operating leases and non-cancelable firm purchase commitments. Our working capital needs related to turnkey network improvement arrangements have been substantial, and are expected to remain substantial, as under such arrangements we generally purchase substantial equipment, components and materials and pay our subcontractors at the outset and through the course of a project, but we may not receive payment from our customers until completion and acceptance of the associated services, which may be one or more quarters later.revenue-share obligations. We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory. ~~In the event that our revenue plan~~Furthermore, we have a common stock repurchase program, which had $109.9 million available as of March 30, 2024. Our stock repurchase program does not ~~meet our expectations, we~~require us to purchase a specific number of shares and may ~~eliminate~~be modified, suspended or ~~curtail expenditures to mitigate the impact on our working capital.~~

On August 7, 2017, we entered into the Loan Agreement for a senior secured revolving credit facility with SVB which provides for a revolving credit facility of up to $30.0 million based on a customary accounts receivable borrowing base, subject to certain exceptions for accounts originating outside the United States and certain specific accounts. The credit facility matures and all outstanding amounts become due and payable on August 7, 2019. As of September 30, 2017, we borrowed $30.0 million under this line of credit. Please refer to Note 11, “~~Credit Facility” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details on this credit facility.~~terminated at any time.

We believe, based on our current operating plan and expected operating cash flows, that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months. In addition, we may also use our existing credit facility from time to time to support our working capital needs. Our future capital requirements will depend on many factors including our rate of revenue growth, timing of customer payments and payment terms, particularly of larger customers, the timing and extent of spending to support development efforts, particularly research and development related to growth initiatives such as our software defined access portfolio, our ability to manage product cost efficiencies and maintain product margin levels, the timing, extent and size of turnkey professional services projects and our ability to develop operational efficiencies and successfully scale that business, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the acquisition of new capabilities or technologies and the continued market acceptance of our products. If we are unable to generate positive operating income and positive cash flows from operations, our liquidity, results of operations and financial condition will be adversely affected. If we are unable to generate cash flows to support our operational needs, we may need to seek other sources of liquidity, including borrowings, to support our working capital needs. In addition, we may choose to seek other sources of liquidity even if we believe we have generated sufficient cash flows to support our operational needs. There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to terminate our stock repurchase program, limit our development activities, reduce our investment in growth initiatives ~~and~~and/or institute cost-cutting measures, all of which ~~would~~may adversely impact our business and potential growth.

Contractual Obligations and Commitments

Our principal commitments as of ~~September~~March 30, ~~2017 consist~~2024 consisted of our contractual obligations under ~~the Loan Agreement, operating leases for office space and~~ non-cancelable outstanding purchase ~~obligations.~~obligations and operating lease obligations for office space. The following table summarizes our contractual obligations ~~at September~~as of March 30, ~~2017~~2024 (in thousands):


	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Non-cancelable purchase commitments (1)	$	191,286	$	109,852	$	69,259	$	9,052	$	3,123
Operating lease obligations (2)	12,027		4,708		5,329		1,792		198
	$	203,313	$	114,560	$	74,588	$	10,844	$	3,321

Payments Due by Period
Total Less Than 1 Year 1-3 Years 3-5 Years
Line of credit, including interest ⁽¹⁾
$ 33,239
$ 1,749
$ 31,490
$ —
Operating lease obligations ⁽²⁾
5,675
2,989
2,196
490
Non-cancelable purchase commitments ⁽³⁾
62,579
62,579
—
—
Total $ 68,254
$ 65,568
$ 2,196
$ 490

(1) Line of credit contractual obligations include projected interest payments over the term of the Loan Agreement, assuming interest rate in effect for the outstanding borrowings as of September 30, 2017 and payment of the borrowings on August 7, 2019, the contractual maturity date of the credit facility. See Note 11, “Credit Facility” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussions regarding our contractual obligations relating to our line of credit.

(2) Future minimum operating lease obligations in the table above include primarily payments for our office space in Petaluma, California, and for our facilities in Minneapolis, Minnesota; Nanjing, China; Richardson, Texas; and San Jose and Santa Barbara, California, which expire at various dates through 2022. See Note 7, “~~Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our operating leases.~~

~~(3)~~ Represents outstanding purchase commitments ~~for inventory~~ to be delivered by our ~~suppliers, including contract manufacturers.~~third-party manufacturers or other vendors. See Note 7,6, “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our outstanding purchase ~~commitments.~~commitments related to our third-party manufacturers.

~~Off-Balance Sheet Arrangements~~(2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2029. See Note 6 “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our operating leases.

~~As of September 30, 2017 and December 31, 2016, we did not have any off-balance sheet arrangements.~~

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The primary objectives of our investment activity are to preserve principal, provide liquidity and maximize income without significantly increasing risk. By policy, we do not enter into investments for trading or speculative purposes. ~~At September~~As of March 30, ~~2017,~~2024, we had cash, cash equivalents and marketable securities of ~~$70.8~~$239.5 million, which was held primarily in cash, money market funds and highly liquid marketable securities such as ~~corporate debt instruments, commercial paper and~~ U.S. government agency ~~securities.~~securities and commercial paper. Due to the nature of these money market funds and highly liquid marketable securities, we believe that we do not have any material exposure to changes in the fair value of our cash equivalents and marketable securities ~~as a result~~because of changes in interest rates.

Our exposure to interest rate risk also relates to the amount of interest we must pay on our borrowings under our new revolving credit facility pursuant to our Loan Agreement with SVB. Borrowings under the Loan Agreement will bear interest through maturity at a variable annual rate based upon an annual rate of either a prime rate or a LIBOR rate, plus an applicable margin between 0.50% to 1.50% for prime rate advances and between 2.00% and 3.00% for LIBOR advances based on the Company’s maintenance of an applicable liquidity ratio. As of September 30, 2017, we had $30 million outstanding borrowings under the Loan Agreement.

Foreign Currency Exchange Risk

Our primary foreign currency exposures are described below.

Economic Exposure

The direct effect of foreign currency fluctuations on our sales and expenses has not been material because our sales and expenses are primarily denominated in U.S. dollars, ~~(“USD”).~~or USD. However, we are indirectly exposed to changes in foreign currency exchange rates to the extent of our use of foreign ~~contract manufacturers~~CMs whom we pay in USD. Increases in the local currency rates of these vendors in relation to USD could cause an increase in the price of products that we purchase. Additionally, if the USD strengthens relative to other currencies, such strengthening could have an indirect effect on our sales to the extent it raises the cost of our products to non-U.S. customers and thereby reduces demand. A weaker USD could have the opposite effect. The

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precise indirect effect of currency fluctuations is difficult to measure or predict because our sales are influenced by many factors in addition to the impact of such currency fluctuations.

Translation Exposure

Our sales contracts are primarily denominated in USD and, therefore, ~~the majority~~most of our revenue is not subject to foreign currency risk. We are directly exposed to changes in foreign exchange rates to the extent such changes affect our expenses related to our foreign assets and liabilities with our subsidiaries in ~~Brazil,~~ China, India and the United Kingdom, whose functional currencies are ~~the Brazilian Real (“BRL”),~~ Chinese Renminbi, ~~(“RMB”)~~or RMB, Indian Rupee, or INR, and British Pounds Sterling, ~~(“GBP”), respectively.~~or GBP.

Our operating expenses are incurred primarily in the United States, ~~with a small portion of expenses incurred in Brazil associated with sales and marketing expenses,~~ in China associated with our research and development operations that are maintained there, in India for our center of excellence and in the United Kingdom for our international sales and ~~services operations there.~~marketing activities. Our operating expenses are generally denominated in the functional currencies of our

subsidiaries in which the operations are located. The percentages of our operating expenses denominated in the following currencies for the indicated periods were as follows:


	Nine Months Ended						Three Months Ended
	September 30, 2017			September 24, 2016			March 30, 2024				April 1, 2023
USD	90	%		88	%	USD	89	%			91	%
RMB	7	%		7	%	RMB	6	%			5	%
INR						INR	3	%			2	%
GBP	3	%		4	%	GBP	2	%			2	%
BRL	—	%		1	%
	100	%		100	%
			100						100	%			100	%

If USD had appreciated or depreciated by 10%, relative to RMB, ~~GBP~~INR and ~~BRL,~~GBP, our operating expenses for the first ~~nine~~three months of ~~2017~~2024 would have decreased or increased by approximately ~~$2.0~~$1.3 million, or approximately 1%. We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies or any derivative financial instruments. In the future, we may consider entering into hedging transactions to help mitigate our foreign currency exchange risk.

Foreign exchange rate fluctuations may also adversely impact our financial position as the assets and liabilities of our foreign operations are translated into USD in preparing our Condensed Consolidated Balance Sheets. The effect of foreign exchange rate fluctuations on our consolidated financial position for the ~~nine~~three months ended ~~September~~March 30, ~~2017~~2024 was a net translation ~~gain~~loss of ~~approximately $0.3~~$0.1 million. This ~~gain~~loss is recognized as an adjustment to stockholders’ equity through ~~accumulated~~“Accumulated other comprehensive loss.”

Transaction Exposure

We have certain assets and liabilities, primarily ~~receivables~~accounts receivable and accounts payable (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, cash flows and results of operations. Periodically, we use derivatives to hedge against fluctuations in foreign exchange rates. We do not enter into derivatives for speculative or trading purposes. We use foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain assets denominated in foreign currencies. These foreign exchange forward contracts typically have maturities of approximately one to two months. As of March 30, 2024, we had no forward contracts outstanding. Transaction gains and losses on these foreign currency denominated assets and liabilities are recognized each period within ~~other income (expense), net~~“Other expense, net” in our Condensed Consolidated Statements of Comprehensive Income (Loss). During the ~~nine~~three months ended ~~September~~March 30, ~~2017,~~2024, the net loss we recognized related to these foreign ~~exchange~~currency denominated assets and liabilities was ~~insignificant.~~approximately $0.1 million.


~~ITEM 4.~~	~~Controls and Procedures~~

ITEM 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of ~~September~~March 30, ~~2017,~~2024, our Chief Executive Officer and Chief Financial Officer, with the participation of our management, have concluded that our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Exchange Act) were effective at the reasonable assurance level.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our Chief Executive Officer and Chief Financial Officer reasonable assurance that our disclosure controls and procedures will achieve their objectives. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the

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Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. Our management recognizes that a control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

For a description of our material pending legal proceedings, please refer to Note ~~7 “Commitments~~6 “Commitments and Contingencies – Litigation” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference.

ITEM 1A. Risk Factors

We have identified the following additional risks and uncertainties that may affect our business, financial condition and/or results of operations. The risks described below include any material changes to and supersede the description of the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2023, as filed with the Securities and Exchange Commission on February ~~28, 2017.~~23, 2024. Investors should carefully consider the risks described below, together with the other information set forth in this Quarterly Report on Form 10-Q, before making any investment decision. The risks described below are not the only ones we face. Additional risks not currently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

~~Risks Related to Our~~ Business and ~~Industry~~Operational Risks

~~Our markets are rapidly changing, which makes it difficult to predict our future revenue and plan our expenses appropriately.~~

We compete in markets characterized by rapid technological change, changing needs of communications service providers, or CSPs, evolving industry standards and frequent introductions of new products and services. We invest significant amounts to pursue innovative technologies thatIf we believe would be adopted by CSPs. In addition, on an ongoing basis we expect to reposition our product and service offerings and introduce new products and services as we encounter rapidly changing CSP requirements and increasing competitive pressures. We maydo not be successful in doing so in a timely and responsive manner, or at all. As a result, it is difficult to forecast our future revenue and plan our operating expenses appropriately, which makes it difficult to predict our future operating results.

~~We have a history of losses, and we may not be able to generate positive operating income and positive cash flows in the future.~~

We have experienced net losses in each year of our existence. For the years ended December 31, 2016, 2015 and 2014, we incurred net losses of $27.4 million, $26.3 million, and $20.8 million, respectively. For the first nine months of 2017, we incurred a net loss of $70.2 million. As of September 30, 2017 ~~and~~ ~~December 31, 2016, we had an accumulated deficit of $654.5 million and $584.3 million, respectively.~~

We expect to continue to incur significant expenses and cash outlays for research and development, growth of our services operations, investments in innovative technologies, expansion of our product portfolio, sales and marketing, customer support and general and administrative functions as we expandsuccessfully execute our business and operations and target new customer segments, primarily larger CSPs including cable multiple system operators, or MSOs. Given our growth rate and the intense competitive pressures we face, we may be unable to control our operating costs.

We cannot guarantee that we will achieve profitability in the future. We will have to generate and sustain significant and consistent increased revenue, while continuing to control our expenses, in order to achieve and then maintain profitability. We may also incur significant losses in the future for a number of reasons, including the risks discussed in this “Risk Factors” section and other factors that we cannot anticipate. We have incurred higher than expected costs associated with the growth of our professional services business and, if we are unable to scale that business and attain operational efficiencies, we will continue to incur losses. If we are unable to generate positive operating income and positive cash flows from operations, our liquidity, gross margins, results of operations and financial condition will be adversely affected. If we are unable to generate cash flows to support our operational needs, we may need to seek other sources of liquidity, including additional borrowings, to support our working capital needs. In addition, we may choose to seek other sources of liquidity even if we believe we have generated sufficient cash flows to support our operational needs. There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which would adversely impact our business and growth.

The U.S. federal government has called for potentially substantial changes to U.S. tax policies and laws. We are unable to predict what U.S. tax reform may be enacted in the future or what effect such changes would have on our business. Any significant change in our future effective tax rate could have a material impact on our business, financial condition, results of operations, or cash flows.

~~Our quarterly and annual operating results may fluctuate significantly, which may make it difficult to predict our future performance and could cause the market price of our stock to decline.~~

A number of factors, many of which are outside of our control, may cause or contribute to significant fluctuations in our quarterly and annual operating results. These fluctuations may make financial planning and forecasting difficult. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. If our

revenue or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide to the market, the market price of our stock would likely decline. Moreover, we may experience delays in recognizing revenue under applicable revenue recognition rules. For example, revenue associated with large turnkey network improvement projects, which include projects that are funded by the CAF2 program, is generally deferred until customer acceptance is received and may be subject to delays, rework requirements and unexpected costs, among other uncertainties. Certain government-funded contracts, such as those funded by U.S. Department of Agriculture’s RUS, also include acceptance and administrative requirements that delay revenue recognition. The extent of these delays and their impact on our revenue can fluctuate considerably depending on the number and size of purchase orders under these contracts for a given time period. In addition, unanticipated decreases in our available liquidity due to fluctuating operating results could limit our growth and delay implementation of our expansion plans.

~~In addition to the other risk factors listed in this “Risk Factors” section, factors that have in the past and may continue to contribute to the variability of our operating results include:~~

~~our ability to predict our revenue and reduce and control product costs;~~

~~our ability~~strategy to increase our sales to ~~larger CSPs globally;~~new and existing BSPs, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.

~~the capital spending patterns of CSPs and any decrease or delay in capital spending by CSPs due to macro-economic conditions, regulatory uncertainties or other reasons;~~

~~the impact of government-sponsored programs on our customers;~~

~~intense competition;~~

Our growth depends upon our ability to ~~develop~~increase sales to existing and new ~~products or enhancements that support technological advances~~service providers of all types and ~~meet changing CSP requirements;~~

~~our ability to achieve market acceptance~~sizes, and the execution of our ~~products and CSPs’ willingness to deploy our new products;~~

~~the concentration of our customer base;~~

~~the length and unpredictability of our sales cycles and timing of orders;~~

~~our focus on CSPs with limited revenue potential;~~

~~our lack of long-term, committed-volume purchase contracts with our customers;~~

~~our exposure to the credit risks of our customers;~~

~~fluctuations in our gross margins;~~

~~the interoperability of our products with CSP networks;~~

~~our dependence on sole-, single- and limited-source suppliers;~~

~~our ability to manage our relationships with our third-party vendors, including contract manufacturers, ODMs, logistics providers, component suppliers and development partners;~~

~~our ability to forecast our manufacturing requirements and manage our inventory;~~

~~our products’ compliance with industry standards;~~

~~our ability to expand our international operations;~~

~~our ability to protect our intellectual property and the cost of doing so;~~

~~the quality of our products, including any undetected hardware defects or bugs in our software;~~

~~our ability to estimate future warranty obligations due to product failure rates;~~

~~our ability to obtain necessary third-party technology licenses at reasonable costs;~~

~~the regulatory and physical impacts of climate change and other natural events;~~

~~the attraction and retention of qualified employees and key management personnel;~~

~~our ability to build and sustain the proper information technology infrastructure; and~~

~~our ability to maintain proper and effective internal controls.~~

~~Our gross margins may fluctuate over time, and our current level of gross margins may not be sustainable.~~

~~Our current level of gross margins may not be sustainable and may be adversely affected by numerous factors, including:~~

~~changes in customer, geographic or product mix, including the mix of configurations within each product group;~~

~~increased price competition, including the impact of customer discounts and rebates;~~

~~our ability to reduce and control product costs;~~

~~an increase in revenue mix toward services, which typically have lower margins;~~

~~changes in component pricing;~~

~~changes in contract manufacturer rates;~~

~~charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand;~~

~~introduction of new products;~~

~~our ability to scale our services business in order to gain desired efficiencies;~~

~~changes in shipment volume;~~

~~changes in or increased reliance on distribution channels;~~

~~potential liabilities associated with increased reliance on third-party vendors;~~

~~increased expansion efforts into new or emerging markets;~~

~~increased warranty costs;~~

~~excess and obsolete inventory and inventory holding charges;~~

~~expediting costs incurred to meet customer delivery requirements; and~~

~~potential costs associated with contractual liquidated damages obligations.~~

~~An increase in revenue mix towards services will adversely affect our gross margins.~~

Customers are demanding greater professional and support services for our products, which usually have a lower gross margin than product purchases. In particular, we have experienced increased demand for professional services associated with network improvement projects, which typically are turnkey projects whereby we supply products and related professional services such as network planning, product installation, testing and network turn up. Revenue recognized from such professional services may be delayed because of the timing of completion and acceptance of a project or milestone, including third-party delays that may be outside our control. Additionally, if we are unable to meet project deadlines for professional and support services due to our suppliers’ inability to meet our demands for components or for any other reasons, we will incur additional costs, including higher premiums to source necessary components, additional costs and expedited fees to meet project deadlines, all of which would negatively impact our gross margins. We also rely upon third-party subcontractors to assist with some of our services projects, which generally result in higher costs and increased risk of cost overruns, including expenditures for costly rework, which would also negatively impact our gross margins. Furthermore, we incurred ramp up costs to grow our professional service business to meet customer demand, but we may not achieve the desired efficiencies and scale in our professional services business, which will have an adverse impact on our gross margins. Increases in professional services as a proportion of our revenue mix have resulted in lower overall gross margins and may continue to result in lower overall gross margins in future periods. This negative impact on gross margins is exacerbated in periods where we experience accelerated levels of activity to meet project requirements and customer deadlines. Moreover, the increase in our professional services projects has resulted in increased deferred costs, including costs directly associated with the delivery of the professional services for the arrangement, that are recognized as cost of revenue only when all revenue recognition criteria are met for the arrangement. In the event some or all of such deferred costs are deemed unrecoverable, including as a result of cost overruns, we will incur additional charges to cost of revenue in the period such deferred costs are determined to be unrecoverable. Any charge to cost of revenue for deferred costs determined to be unrecoverable would negatively impact our gross margins.

Our business is dependent on the capital spending patterns of CSPs, and any decrease or delay in capital spending by CSPs in response to economic conditions, uncertainties associated with the implementation of regulatory reform, or otherwise would reduce our revenue and harm our business.

Demand for our products depends on the magnitude and timing of capital spending by CSPs as they construct, expand, upgrade and maintain their access networks. Any future economic downturn may cause a slowdown in telecommunications industry spending, including in the specific geographies and markets in which we operate. In response to reduced consumer spending, challenging capital markets or declining liquidity trends, capital spending for network infrastructure projects of CSPs could be delayed or canceled. In addition, capital spending is cyclical in our industry, sporadic among individual CSPs and can change on short notice. As a result, we may not have visibility into changes in spending behavior until nearly the end of a given quarter.

CSP spending on network construction, maintenance, expansion and upgrades is also affected by reductions in their budgets, delays in their purchasing cycles, access to external capital (such as government grants and loan programs or the capital markets), and seasonality and delays in capital allocation decisions. For example, our CSP customers tend to spend less in the first quarter as they are still finalizing their annual budgets and in certain regions customers are also challenged by winter weather conditions that inhibit fiber deployment in outside plants. Also, softness in demand across any of our customer markets, including due to macro-economic conditions beyond our control or uncertainties associated with the implementation of regulatory reform, has in the past and could in the future lead to unexpected slowdown in capital expenditures by service providers.

Many factors affecting our results of operations are beyond our control, particularly in the case of large CSP orders and network infrastructure deployments involving multiple vendors and technologies where the achievement of certain thresholds for acceptance is subject to the readiness and performance of the CSP or other providers and changes in CSP requirements or installation plans. Further, CSPs may not pursue infrastructure upgrades that require our access systems and software. Infrastructure improvements may be delayed or prevented by a variety of factors including cost, regulatory obstacles (including uncertainties associated with the implementation of regulatory reforms), mergers, lack of consumer demand for advanced communications services and alternative approaches to service delivery. Reductions in capital expenditures by CSPs, particularly CSPs that are significant customers, may have a material negative impact on our revenue and results of operations and slow our rate of revenue growth. As a consequence, our results for a particular period may be difficult to predict, and our prior results are not necessarily indicative of results in future periods.

~~Government-sponsored programs could impact the timing and buying patterns of CSPs, which may cause fluctuations in our operating results.~~

We sell to CSPs, which include U.S.-based Independent Operating Companies (“IOCs”), which have revenue that is particularly dependent upon interstate and intrastate access charges and federal and state subsidies. The FCC and some states may consider changes to such payments and subsidies, and these changes could reduce IOC revenue. Furthermore, many IOCs use or expect to use government-supported loan programs or grants, such as RUS loans and grants, to finance capital spending. Changes to these programs, including uncertainty from government and administrative change, could reduce the ability of IOCs to access capital and thus reduce our revenue opportunities.

Many of our customers were awarded grants or loans under government stimulus programs such as the Broadband Stimulus (“BBS”) programs under the American Recovery and Reinvestment Act of 2009 (“ARRA”) and the funds distributed under the FCC’s Connect America Fund (“CAF”) program, and have purchased and will continue to purchase products from us or other suppliers while such programs

~~and funding are available. However, customers may substantially curtail future purchases of products as ARRA funding winds down or because all purchases have been completed.~~

In addition, any changes in government regulations and subsidies could cause our customers to change their purchasing decisions, which could have an adverse effect on our operating results and financial condition.

~~We face intense competition that could reduce our revenue and adversely affect our financial results.~~

The market for our products is highly competitive, and we expect competition from both established and new companies to increase. Our competitors include companies such as ADTRAN, Inc., Alcatel-Lucent S.A. (now part of Nokia), Arris Group, Inc., Ciena Corporation, Huawei Technologies Co. Ltd., ZTE Corporation and DASAN Zhone Solutions, Inc., among others.

~~Our ability to compete successfully depends on a number of factors, including:~~

~~the successful development of new products;~~

~~our ability to anticipate CSP and market requirements and changes in technology and industry standards;~~

~~our ability to differentiate our products from our competitors’ offerings based on performance, cost-effectiveness or other factors;~~

~~our ongoing ability to successfully integrate acquired product lines and customer bases into our business;~~

~~our ability to meet increased customer demand for professional services associated with network improvement projects;~~

~~our ability to gain customer acceptance of our products; and~~

~~our ability to market and sell our products.~~

The broadband access equipment market has undergone and continues to undergo consolidation, as participants have merged, made acquisitions or entered into partnerships or other strategic relationships with one another to offer more comprehensive solutions than they individually had offered. Examples include our acquisitions of Occam in February 2011 and Ericsson’s fiber access assets in November 2012; Adtran’s acquisition of Nokia Siemens’s broadband access line business in May 2012; Arris’ acquisitions of BigBand Networks in October 2011, Motorola Mobility’s Home Unit from Google in December 2012 and Pace plc in January 2016; Nokia’s acquisition of Alcatel-Lucent in January 2016; and the merger of DASAN Zhone Solutions with DASAN Network Solutions in September 2016. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry.

Many of our current or potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do and are better positioned to acquire and offer complementary products and services. Many of our competitors have broader product lines and can offer bundled solutions, which may appeal to certain customers. Our competitors may also invest additional resources in developing more compelling product offerings. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features, because the products that we and our competitors offer require a substantial investment of time and funds to install.

Some of our competitors may offer substantial discounts or rebates to win new customers or to retain existing customers. If we are forced to reduce prices in order to secure customers, we may be unable to sustain gross margins at desired levels or achieve profitability. Competitive pressures could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failurestrategy to increase ~~or the loss of, market share, any of which could reduce our revenue and adversely affect our financial results.~~

~~Product development is costly and if we fail to develop new products or enhancements that meet changing CSP requirements, we could experience lower sales.~~

Our industry is characterized by rapid technological advances, frequent new product introductions, evolving industry standards and unanticipated changes in subscriber requirements. Our future success will depend significantly on our ability to anticipate and adapt to such changes, and to offer, on a timely and cost-effective basis, products and features that meet changing CSP demands and industry standards. We intend to continue making significant investments in developing new products and enhancing the functionality of our existing products. Developing our products is expensive and complex and involves uncertainties. We may not have sufficient resources to successfully manage lengthy product development cycles. For the years ended ~~December 31, 2016~~, 2015, and 2014, our research and development expenses were $106.9 million or 23% of our revenue, $89.7 million or 22% of our revenue, and $80.3 million or 20% of our revenue, respectively. For the first nine months of 2017, our research and development expenses were $99.4 million or 27% of our revenue. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts, including increased reliance on third-party development partners, to maintain our competitive position. These investments may take several years to generate positive returns, if ever. In addition, we may experience design, manufacturing, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new products and enhancements. If we fail to meet our development targets, demand for our products will decline.

In addition, the introduction of new or enhanced products also requires that we manage the transition from older products to these new or enhanced products in order to minimize disruption in customer ordering patterns, fulfill ongoing customer commitments and ensure that adequate supplies of new products are available for delivery to meet anticipated customer demand. If we fail to maintain compatibility with other software or equipment found in our customers’ existing and planned networks, we may face substantially reduced demand for our products, which would reduce our revenue opportunities and market share. Moreover, as customers complete infrastructure deployments, they may require greater levels of service and support than we have provided in the past. We may not be able to provide products, services and support to compete effectively for these market opportunities. If we are unable to anticipate and develop new products or enhancements to our existing products on a timely and cost-effective basis, we could experience lower sales, which would harm our business.

Our new products are early in their life cycles and subject to uncertain market demand. If our customers are unwilling to install our new products or deploy our new services, or we are unable to achieve market acceptance of our new products, our business and financial results will be harmed.

Our new products are early in their life cycles and subject to uncertain market demand. They also may face obstacles in manufacturing, deployment and competitive response. Potential customers may choose not to invest the additional capital required for initial system deployment of new products. In addition, demand for new products is dependent on the success of our customers in deploying and selling advanced services to their subscribers. Our products support a variety of advanced broadband services, such as high-speed Internet, Internet protocol television, mobile broadband, high-definition video and online gaming. If subscriber demand for such services does not grow as expected or declines or our customers are unable or unwilling to deploy and market these services, demand for our products may decrease or fail to grow at rates we anticipate.

Our customer base is concentrated, and there are a limited number of potential customers for our products. The loss of any of our key customers, a decrease in purchases by our key customers or our inability to grow our customer base would adversely impact our revenue and results of operations and any delays in payment by a key customer could negatively impact our cash flows and working capital.

Historically, a large portion of our sales has been to a limited number of customers. For example, one customer accounted for 21%, 22% and 23% of our revenue for the years ended December 31, 2016, 2015 and 2014, respectively, and another customer accounted for 15% of our revenue for the year ended December 31, 2016. However, we cannot anticipate the level of purchases in the future by these customers. Customer purchases may be delayed or impacted due to financial difficulties, spending cuts or corporate consolidations. For example, one of our key customers recently completed a large acquisition, which may disrupt its normal expenditure plans, including possible delays or reduction in purchases of our products and services. Any decrease or delay in purchases and/or capital expenditure plans of any of our key customers, or our inability to grow our sales with existing customers, may have a material negative impact on our revenue and results of operations.

~~We anticipate that a large portion of our revenue will continue to depend on~~ sales to a limited number of customers. In addition, some larger customers may demand discounts and rebates or desire to purchase their access systems and software from multiple providers. As a result of these factors, our future revenue opportunities may be limited, our margins could be reduced, and our profitability may be adversely impacted.BSPs involves significant risk. The loss of, or reduction in, orders from any key customer would significantly reduce our revenue and harm our business. Furthermore, delays in payment and/or extended payment terms from any of our key or larger customers could have a material negative impact on our cash flows and working capital to support our business operations.

Furthermore, in recent years, the CSP market has undergone substantial consolidation. Industry consolidation generally has negative implications for equipment suppliers, including a reduction in the number of potential customers, a decrease in aggregate capital spending and greater pricing leverage on the part of CSPs over equipment suppliers. Continued consolidation of the CSP industry and among the ILEC and IOC customers, who represent a large part of our business, could make it more difficult for us to grow our customer base, increase sales of our products and maintain adequate gross margins.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our sales are difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate significantly.

~~The timing~~majority of our revenue is ~~difficult to predict. Our sales efforts often involve educating CSPs about the use~~not recurring, and ~~benefits of~~ our products. CSPs typically undertake a significant evaluation process, which frequently involves not only our products but also those of our competitors and results in a lengthy sales cycle. Sales cycles for larger customers are relatively longer and require considerably more time and expense. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative, processing and other delays. The timing of revenue related to sales of products and services thatgenerally have ~~installation~~no committed purchase requirements, may ~~be difficult to predict due to interdependencies that may be beyond our control, such as CSP testing and turn-up protocols~~cancel orders or other vendors’ products, services or installations of equipment upon which our products and services rely. In addition, larger projects may have longer periods between project commencement and completion and recognition of revenue. Such delays may result in fluctuations in our quarterly revenue. If sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, we may not achieve our revenue forecasts and our financial results would be adversely affected.

~~Our focus on CSPs with relatively small networks limits our revenue from sales to any one customer and makes our future operating results difficult to predict.~~

A large portion of our sales efforts continue to be focused on CSPs with relatively small networks, MSOs and selected international CSPs. Our current and potential customers generally operate small networks with limited capital expenditure budgets. Accordingly, we believe the potential revenue from the sale of our products to any one of these customers is limited. As a result, we must identify and sell products to new customers each quarter to continue to increase our sales. In addition, the spending patterns of many of our customers are characterized by small and sporadic purchases. As a consequence, we have limited backlog and will likely continue to have limited visibility into future operating results.

~~We do not have long-term, committed-volume purchase contracts with our customers, and therefore have no guarantee of future revenue from any customer.~~

We typically have not entered into long-term, committed-volume purchase contracts with our customers, including our key customers which account for a material portion of our revenue. As a result, any of our customers may cease ~~to purchase~~purchasing our products at any time. ~~In addition,~~If our ~~customers may attempt to renegotiate terms of sale, including price and quantity. If any of our key~~ customers stop purchasing our ~~access platforms, systems and software~~products for any reason, our business and results of operations would be harmed.

~~Our efforts~~ If we are unable to increase our sales to ~~CSPs globally, including MSOs,~~new and existing BSPs, our operating results, financial condition, cash flows and long-term growth may be ~~unsuccessful.~~negatively impacted. Our strategy includes investing in regional sales teams and select channel partners to sell to smaller regional BSPs. A large portion of our current sales are to customers with smaller regional networks and limited capital expenditure budgets. The spending patterns of many of these customers are generally less formal than larger service providers and often characterized by small and sporadic purchases, and the potential revenue from any one of these customers is limited. We rely primarily on channel partners, including value added resellers, internationally and for certain U.S. markets. We face fierce competition for business with key channel partners. If we are unable to engage channel partners, we may fail to grow our sales, or our sales may be reduced. Furthermore, we rely on our channel partners to promote and sell our products. The loss of a key channel partner or the failure of our partners to provide adequate services could have a negative effect on customer satisfaction and could cause harm to our business.

Our ~~sales and marketing~~selling efforts ~~have been focused on CSPs in North America. Part~~to larger BSPs require substantial investments of ~~our long-term strategy is to increase sales to CSPs globally, including MSOs. We have devoted and continue to devote substantial~~ technical, marketing and sales resources ~~to the pursuit of these larger CSPs, who have~~through lengthy equipment qualification and sales cycles without any assurance of generating sales. ~~In particular, sales~~We may be required to ~~these larger CSPs may require us to upgrade our products~~invest in costly upgrades to meet more stringent performance criteria and interoperability requirements, develop new customer-specific features or adapt our ~~product~~products to meet ~~international~~required standards. ~~For example, we have been invited by a large CSP to engage in initial testing and laboratory trials for our NG-PON2 technology along with our partner Ericsson.~~ We have invested and expect to continue to invest considerable time, effort and expenditures, including investment in product research and development, related to ~~this opportunity~~these opportunities without any assurance that our efforts will ~~produce orders or~~result in revenue. ~~If we are unable to successfully increase our sales to larger CSPs, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.~~

We are exposed to the credit risks of our customers; if we have inadequately assessed their creditworthiness, we may have more exposure to accounts receivable risk than we anticipate. Failure to collect our accounts receivable in amounts that we anticipate could adversely affect our operating results and financial condition.

In the course of our sales to customers, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of our customers to make required payments. However, these allowances are based on our judgment and a variety of factors and assumptions.

We perform credit evaluations of our customers’ financial condition. However, our evaluation of the creditworthiness of customers may not be accurate if they do not provide us with timely and accurate financial information, or if their situations change after we evaluate their credit. While we attempt to monitor these situations carefully, adjust our allowances for doubtful accounts as appropriate and take measures to collect accounts receivable balances, we have written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid additional write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur, and could harm our financial condition.

Our products must interoperate with many software applications and hardware products found in our customers’ networks. If we are unable to ensure that our products interoperate properly, our business would be harmed.

We have entered into interoperability arrangements with a number of equipment and software vendors for the use or integration of their technology with our products. These arrangements give us access to and enable interoperability with various products that we do not otherwise offer. If these relationships fail, we may have to devote substantially more resources to the development of alternative products and processes and our efforts may not be as effective as the combined solutions under our current arrangements. In some cases, these other vendors are either companies that we compete with directly or companies that have extensive relationships with our existing and potential customers and may have influence over the purchasing decisions of those customers. Some of our competitors have stronger relationships with some of our existing and other potential interoperability partners, and as a result, our ability to have successful interoperability arrangements with these companies may be harmed. Our failure to establish or maintain key relationships with third-party equipment and software vendors may harm our ability to successfully sell and market our products.

The quality of our support and services offerings is important to sustain and increase our sales to new and existing customers. Our services to customers ~~and if we fail~~include services to ~~continue to offer high quality support and services, we could lose customers, which would harm~~help them deploy our ~~business.~~

products within their networks. Once our products are deployed within our customers’ networks, they depend on our customer success, customer support ~~organization~~and research and development organizations to resolve any issues relating to those products. A high level of support is critical for the successful marketing and sale of our products. Furthermore, our services to customers have increasingly broadened to include network design and services to deploy our products within our customers’ networks, such as our professional services associated with turnkey network improvement projects for our customers. If we do not effectively assist our customers in deploying our products, succeed in helping them quickly resolve post-deployment issues, effectively utilize features or enhancements or provide effective ~~ongoing~~ support, it could adversely affect our ability to sell our products to existing customers and harm our reputation with potential new customers. As a result, our failure to maintain high quality support and services could result in the loss of customers, which would harm our business.

We face risks associated with being materially dependent upon third-party vendors; certain factors that affect our business as a result of those dependencies have and could continue to disrupt our business and adversely impact our gross margin and results of operations.

We materially depend upon third-party vendors for our complex global supply-chain operations, including for services to develop, design and source components and materials, as well as manufacture, transport and deliver our products. If any of

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these vendors stop providing their services, for any reason, we would have to obtain similar services from other sources, which may not be available on commercially reasonable terms, if at all. We also have limited control over disruptions that may occur at the facilities of those providers, such as supply interruptions, labor shortages, strikes, shipping backlogs at ports and similar disruptions to transportation infrastructure, design and manufacturing failures, quality control issues, systems failures or facility closures arising from pandemics or natural disasters. In addition, switching development firms or manufacturers could delay the manufacture and availability of products and/or require us to re-qualify our products with our customers, which would be costly and time-consuming. Any interruption in the development, supply or distribution of our products would adversely affect our ability to meet scheduled product deliveries to our customers and could result in lost revenue or higher costs, which would negatively impact our gross margin and operating results and harm our business.

Particular risks associated with management of our global supply chain operations include the following:

•Manufacturing constraints, shortages and other disruptions. We do not have internal manufacturing capabilities and rely solely on a small number of contract manufacturers, or CMs, and original design manufacturers, or ODMs, to manufacture and supply our products. Our business operations and ability to supply our products are highly dependent upon our ability to secure adequate third-party manufacturing capabilities and capacity and to effectively manage those third parties to meet our business needs. Our dependence solely on third-party manufacturers makes us vulnerable to possible supply and capacity constraints and reduces our control over manufacturing disruptions due to component availability, extended lead times delivery schedules, quality, manufacturing yields and increased costs. Some of these risks occur from time to time in our business. If these disruptions and constraints are prolonged, or if these manufacturers do not have the ability or business continuity plans to fulfill their obligations to us, our business could be disrupted. If we cannot effectively manage our vendors or if we fail to invest adequate resources to manage our supply chain operations, our ability to meet customer orders and generate revenue may be negatively impacted. A substantial portion of our manufacturing is done at facilities outside of the U.S., largely in Asia, which presents increased supply risk, including the risk of supply interruptions, delays, shortages or reductions in manufacturing quality or controls. In addition, these supply interruptions, delays and shortages could impair our ability to meet our customer requirements, require us to pay higher prices or incur expedite fees, which would harm our business and negatively impact our gross margin and results of operations. Our international manufacturing also creates risks and uncertainties associated with regulatory changes or government actions such as local business requirements, trade restrictions and tariffs, economic sanctions or related legislation, which may complicate our export and import activities, be disruptive to the operations of our manufacturers and logistics partners or result in higher product and shipping costs and variability of supply. For example, in 2022, substantially all our silicon suppliers extended their lead times and increased prices. Prices remain high, and while many silicon suppliers have begun reducing their lead-times, we continue to face extended lead times. Manufacturing in Asia further heightens our risk of meeting customer delivery requirements as we rely upon third-party logistics companies to transport and import significant volumes of products to the U.S. where we generate a substantial majority of our revenue. These supply chain risks are further increased by periodic shipping backlogs at ports and similar disruptions to transportation infrastructure.

•Limited sources and sole-sourced supply.We are dependent upon sole-source or limited-source suppliers for some key product components such as chipsets and certain of our application-specific integrated circuit processors and resistor components, including certain components sourced solely through suppliers located in China and other Asian countries. Any of these suppliers could stop producing our components, raise the prices they charge us, be subject to higher product tariffs, epidemics or other conditions that disrupt their operations, cease operations or enter into exclusive arrangements with our competitors, consequently affecting our operations and results. For example, we have experienced disruptions in our supply of certain components that we source from suppliers in China and other Asian countries due to production disruptions, factory closures and longer lead times for components and from uncertainty around trade and tariff policies between the U.S. and China, which caused delays in our product supply. Being dependent upon a limited number of suppliers constrains our ability to mitigate these disruptions in our supply chain, particularly if such disruptions are prolonged. This may adversely affect our ability to obtain components and materials needed to manufacture our products at acceptable prices or at all. These risks would adversely affect our ability to meet scheduled product deliveries to our customers, increase costs and in turn harm our business and results of operations.

•Limitations on ability to manage third-party risks. Our business with certain third-party manufacturers may represent a relatively small percentage of their revenue. Consequently, our orders may not be given adequate priority if such manufacturers have to allocate limited capacity among competing customers. This could delay supplies of product to us or limit our ability to ramp product volumes within desired timeframes. If any of our manufacturing partners are unable or unwilling to continue manufacturing our products in required volumes and at high quality levels, we would have to identify, qualify and select acceptable alternative manufacturers. The time it takes to qualify new third-party manufacturers could disrupt our ability to maintain continuous supply of product to meet customer requirements. An

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alternative manufacturer may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices and quality. In addition, we and/or our manufacturers may not be able to negotiate commercially reasonable terms and sufficient quantities of component supplies with component and materials suppliers to meet our manufacturing needs because our purchase volumes may be too low for us to be considered a priority customer for securing supplies, particularly when there are shortages or limited availability of key components and materials. As a result, suppliers could stop selling to us and our manufacturers at commercially reasonable prices, or at all. While we have worked to mitigate the cost impact of recent price increases, those efforts may not be successful. Any such interruption or delay may force us and our manufacturers to seek components or materials from alternative sources, which may not be available, or result in higher prices. Switching suppliers could also force us to redesign our products to accommodate new components and could require us to re-qualify our products with our customers, which would be costly and time consuming. A significant interruption in manufacturing or supply availability for any of these reasons would reduce supply to our customers, which would result in lost revenue and harm our customer relationships.

•Ability to forecast and manage inventory liability with vendors. We have experienced increases in demand from many customers, in part as a result of higher consumer demand for better internet services and improved Wi-Fi. If we underestimate product demand from our customers, our manufacturers may have inadequate component inventory to meet our demand. If we are not able to adequately anticipate demand, this could interrupt our product manufacturing, increase our cost of revenue associated with expedite fees and air freight and/or result in delays or cancellation of customer orders. If we are unable to deliver products timely to our customers, we may lose customer goodwill or our customers may choose to purchase from other vendors, all of which may have a material negative impact on our revenue and operating results. If we overestimate our product demand, our third-party manufacturers may purchase excess components and build excess inventory, and we could be required to pay for these excess parts or products and their storage costs. For example, as of March 30, 2024, we had inventory deposits totaling $76.1 million to address excess components owned by our CMs and ODMs. Long lead times for component supply, which may be exacerbated by higher demand for certain components, and demand for our products has and is expected to continue to impact our ability to accurately forecast our production requirements. We may incur liabilities for certain component inventory purchases that have been rendered excess or obsolete, which may have an adverse effect on our gross margin, financial condition and results of operations. For example, during the fourth quarter of 2023, we wrote down excess and obsolete inventory and accrued a liability for components at suppliers primarily related to the wind down of our legacy product family that existed before our shift to an all-platform model.

Cyberattacks or other security incidents that disrupt our operations or compromise data, may expose us to liability, harm our reputation or otherwise adversely affect our business.

We rely on hardware, software, technology infrastructure, data centers, digital networks and online sites and services for both internal and customer-facing operations that are critical to our business, or collectively, IT Systems. In addition, as part of our business operations, we collect, store, process, use and/or disclose information, including sensitive data relating to our business and personal information about individuals such as our employees and our customers’ subscribers, or collectively, Confidential Information. We process Confidential Information to operate our business, including in connection with the provision of our cloud services and by relying on our and our providers’ IT Systems and data centers, including third-party data centers. We also engage third-party providers to support various internal functions, such as human resources, finance, information technology and electronic communications, as well as the development and delivery of our customer-facing products and cloud services, which includes collecting, handling, processing and/or storage of data on our behalf. These internal and external functions involve an array of software and systems, including cloud-based, that enable us to conduct, monitor and/or protect our business, operations, systems and information technology assets. Our cloud-based solutions enable us to host our customers’ subscriber data in third-party data centers.

We face evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems and Confidential Information, including from diverse threat actors such as state-sponsored organizations, opportunistic hackers and hacktivists, as well as through diverse attack vectors such as social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error and, as a result of bugs, misconfigurations or exploited vulnerabilities in software or hardware. Threat actors could steal Confidential Information related to our business, products, employees, customers and our customers’ subscribers; hold data ransom; and/or disrupt our systems and services or those of our supply chain partners, vendors, customers or others. We expect cybersecurity attacks and security breaches to accelerate in the future, including sophisticated supply chain attacks. As we and our third-party providers continue to increase our reliance on virtual environments and communications systems and cloud-based solutions to support our work-from-anywhere culture and overall business needs, our exposures to third-party vulnerabilities and security risks also increase. Because threat actors are increasingly sophisticated and aggressive, our efforts may be inadequate to prevent, detect or recover from future attacks due, for example, to the increased use by attackers of tools and techniques (including artificial intelligence) that are specifically

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designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. We may also experience security breaches that may remain undetected for an extended period.

We and certain of our third-party providers have been subject to cyberattacks and other security incidents, and we expect such attacks and incidents to continue in varying degrees. There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information. Accordingly, while to date no cybersecurity incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future. A cyberattack or incident that affects the confidentiality, integrity or availability of our IT Systems or Confidential Information could result in significant investigative, security and remediation costs, regulatory fines and penalties and/or litigation costs and other liability. Even if we and our third-party providers allocate, implement and manage reasonable security and data protection measures, we could still experience significant data loss, unauthorized data disclosure or a breach of our IT Systems, products or those of our third-party providers (for example, data centers) that materially impact our business. The continued growth of our cloud-based platform and managed services portfolio and increased reliance on third-party development partners and third-party software and cloud-based solutions increases the likely risks arising from security breaches or data loss. Any data loss or compromise of our systems that collect and process personal information (including personal information of our customers’ subscribers), or third-party data centers where that personal information is stored, could result in loss of confidence in the security of our offerings and loss of customers or customer goodwill. Further, security incidents could subject us to obligations under privacy and data security laws and regulations around the world (including to notify governmental authorities, regulatory bodies and/or affected individuals), lead to liability given the increasing development of such strict laws and regulations, increase the risk of litigation and governmental or regulatory investigation, require us to notify our customers or other counterparties in relation to such incidents, damage our reputation and adversely affect our business, financial condition, operating results and cash flows. Although we maintain insurance that may apply to cybersecurity risks and liabilities, there can be no guarantee that any or all costs or losses incurred will be partially or fully insured or that we will be able to procure applicable insurance in the future on reasonable terms or at all.

If we do not successfully increase our sales through adoption of our new platform and managed service offerings, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.

We have platform and managed service offerings that are new and early in their life cycles and subject to uncertain market demand. If our customers are unwilling to adopt these new offerings, install our new products or deploy our new services, or if we are unable to achieve market acceptance of our products and platform, our business and financial results may be harmed. Moreover, adoption of our cloud product offerings, such as our Revenue EDGE, is dependent upon the success of our customers in investing, marketing, selling and deploying broader services—including managed services—to their subscribers, and our ability to differentiate our products from competing or substitutive product and service offerings. For example, our managed services include managed Wi-Fi, network security, parental controls and an ecosystem of services from partners, including Arlo, Bark and Servify. However, if subscriber demand for such services does not grow as expected or declines, or our customers are unable or unwilling to invest in our platform to deploy and market these services, demand for our products may not grow at rates as we anticipate.

Changing market and customer requirements may adversely affect the valuation of our inventory as well as our supplier purchase commitments.

Customer demand for our products can change rapidly in response to market and technology developments. We may, from time to time, adjust inventory valuations downward or end of life certain of our products in response to our assessment of our business strategy as well as consideration of demand from our customers for specific products or product lines. We also periodically evaluate our supplier purchase commitments, which increased significantly due to extended lead-times during the global pandemic-induced supply-chain challenges. While our purchase commitments have normalized, the effect of those purchase decisions are still impacting our balance sheet through component inventory and inventory deposits with suppliers. We record a liability for excess and obsolete components based on our estimated future demand for our products, potential obsolescence of technology and product life cycles. If we fail to accurately plan our inventory levels, which becomes more challenging as component lead times increase, we may have to increase write offs for excess or obsolete inventory, or accrue additional liabilities for component inventory held by our suppliers, both of which could have a material adverse effect on our financial condition and results of operations. For example, during the fourth quarter of 2023, we wrote down obsolete inventory and accrued a liability for components at suppliers, totaling $28.7 million, primarily related to the wind down of our legacy product family that existed before our shift to an all-platform model.

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Business and operational risks associated with expanding our international operations could harm our business.

We are subject to business and operational risks associated with our international operations, including our global supply-chain operations, and our international offices located in Nanjing, China and Bangalore, India as well as dependence upon our international sales operations. In addition, we are exposed to risk arising from our dependence upon third-party development contractors in India. The risks associated with our international operations also include costs of complying with differing and changing laws and regulatory requirements, tariffs, export quotas, custom duties and other trade restrictions; effects of inflation, currency controls and/or fluctuations in currency exchange rates; limited, inadequate or non-existent IP protection; and uncertainties associated with political conflicts and instabilities, variable economic conditions, terrorist attacks or acts of war. Our development operations and activities in China and India involve these and other significant risks, including: local labor conditions and regulations; knowledge transfer related to our technology and exposure to misappropriation of IP or confidential information, including information that is proprietary to us, our customers and third parties; heightened exposure to changes in the economic, security, political and pandemic conditions; international trade agreements and U.S. tax provisions that could adversely affect our international operations; complexities of managing development timelines and deliverables from abroad; and differences in local business practices and customs that may not align with our expectations and standards.

Along with the foregoing risks, our international sales operations involve risks associated with greater costs and complexity localizing and supporting our products and platform in local markets; evolving privacy regulations, trade regulations, compliance requirements and incremental costs applicable to the qualification, production, sale and delivery of our products; longer collection periods, financial instability and other difficulties impacting collection of accounts receivable in certain jurisdictions; more intense competition including from local equipment suppliers; and our reliance on value added resellers to sell and support our products in international markets given our limited presence and infrastructure outside the U.S. To expand our international operations, we will need to invest resources to attract key talent, build operational infrastructure, execute on our international strategy and drive international market demand for our products. If we invest substantial resources to expand our international operations and are unable to do so successfully and in a timely manner, our financial condition and results of operations may suffer.

We may have difficulty evolving and scaling our business and operations to meet customer and market demand, which could harm our financial results or cause us to fail to execute on our business strategies.

In order to grow our business, we will need to continually evolve and scale our business and operations to meet customer and market demand. Evolving and scaling our business and operations places increased demands on our management as well as our financial and operational resources to effectively manage organizational change; design scalable processes; accelerate and/or refocus research and development activities; expand our manufacturing, supply chain and distribution capacity; increase our sales and marketing efforts; broaden our customer success, support and services capabilities; maintain or increase operational efficiencies; scale support operations in a cost-effective manner; implement appropriate operational and financial systems; and maintain effective financial disclosure controls and procedures. If we cannot evolve and scale our business and operations effectively, we may not be able to execute our business strategies in a cost-effective manner and our business, financial condition and results of operations could be adversely affected.

Our business and results of operations have been, and may continue to be, negatively affected by global macroeconomic conditions and supply chain constraints, and the demand for broadband products may not be sustained.

Global macroeconomic, financial and supply chain disruptions have impacted most regions in which we sell our products and services and conduct our business operations. For example, BSPs may not invest in our platform or delay infrastructure improvements due to uncertainty in the global economy. There are no assurances that the demand for our products will remain strong. To the extent we experience a renewed or worsening disruption to our business and operations and other adverse residual impacts of a pandemic or further future disruptions, it could have a material adverse effect on our business, results of operations and financial condition.

Litigation and regulatory proceedings could harm our business or negatively impact our results of operations.

In the ordinary course of business, we are subject to legal claims, litigation and regulatory proceedings related to disputes over commercial, competition, IP, labor and employment and other matters. Regardless of the merits of any such claims, litigation and regulatory proceedings are inherently uncertain, and can be costly, disruptive to our business and operations, harmful to our reputation and distracting to management. In particular, as a technology company, we are subject to IP claims asserting patent, copyright, trademark and/or other infringement claims that are costly to defend and could limit our ability to use some technologies in the future. The risk of such claims is heightened as we expand our products and services and rely on more technologies, including third-party IP rights that we license and incorporate into our products and services. Third parties from whom we license IP may be unable or unwilling to indemnify us for such claims or offer any other remedy to us. Patent infringement claims may be asserted by patent assertion entities and non-practicing entities, or NPEs, that do not conduct business as an operating company and hold and own patents only for the purpose of aggressively pursuing royalties through

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infringement assertions or patent infringement litigation. Further, in our industry, the number of assertions by NPEs has continued to increase due in part to patent sales by operating companies to NPEs and availability of litigation financing. We have received and expect to continue to receive assertions from NPEs and other third parties alleging that we may be infringing their patents or other IP rights; offering licenses to such IP; and/or threatening litigation. If our products are found to infringe, these claims could also result in the suspension of our ability to import, market and sell our products and services, product shipment delays or requirements to modify our products or enter into costly settlements or licensing agreements. Such royalty or licensing agreements, if required, may not be available to us on acceptable terms, if at all. Furthermore, we may additionally be financially responsible for claims made against our customers, including costs of litigation and damages awarded, under indemnity obligations which could further negatively impact our results of operations. Protracted litigation could cause us to incur significant defense costs, which would negatively impact our results of operations.

We have a history of fluctuations in our gross margin and operating results, which can make it difficult to predict our future performance and could cause the market price of our stock to decline.

We have a history of fluctuations in our quarterly and annual gross margin and operating results, including fluctuations due to factors outside of our control. Factors that impact variability of our operating results include our ability to predict our revenue and reduce and control our costs, our ability to predict product functions and features desired by our customers, the impact of global economic conditions, our ability to effectively manage our global supply chain operations, our ability to effectively manage third parties upon whom we depend to conduct our business, our customers’ spending patterns and purchasing decisions, the impact of competition, customer adoption of our products, our ability to manage our legal, contractual and regulatory obligations and liabilities and other risk factors identified in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in this “Risk Factors” section. Our gross margin is further impacted by customer, geographic and product mix, the impact of competition on our prices, our ability to manage our costs associated with components and materials, excess and obsolescence, expedite fees and logistics-related activities, contractual commitments and other product costs. Fluctuating results make it difficult to predict our future performance and could cause the market price of our stock to decline. We expect to continue to incur significant expenses and cash outlays as we seek to expand our business and operations and target new customer opportunities. Given our growth objectives and the intense competitive pressures we face, our operating expenses may increase at unexpected levels, and we may be unable to maintain positive operating income. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. If our revenue or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide to the market, the market price of our stock would likely decline.

We are exposed to customer credit risks that could adversely affect our operating results and financial condition.

We generally extend credit terms for sales to our customers which exposes us to credit risk. If we are unable to collect our accounts receivable balances as anticipated, our operating results and financial condition will be harmed. A number of factors contribute to this risk, including our ability to adequately assess a customer’s creditworthiness and financial condition, changes in a customer’s financial condition and/or liquidity, our ability to timely collect our accounts receivable from customers, disagreements with customers on invoiced balances and economic downturns or other unanticipated events impacting a customer’s ability to pay. Furthermore, some of our international customers operate in countries with developing economies, volatile financial markets or currency regulations that impact their ability to make payments in U.S. dollars. While we take measures to pursue collections on our accounts receivable, we have from time to time written down accounts receivable and written off doubtful accounts and may need to do so in future periods. The determination of allowances for doubtful accounts involves significant judgment, and if we underestimate our allowance for doubtful accounts, we will have to make further write-downs. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur and could harm our cash flow or our financial condition.

If we lose any of our key personnel, or are unable to attract, train and retain qualified personnel, our ability to manage our business and continue our growth would be negatively impacted.

Our success depends, in large part, on the continued contributions of our key personnel who are highly skilled and would be difficult to replace. Competition for skilled personnel, particularly in software and cloud development and engineering, is intense. We cannot be certain that we will be successful in attracting and retaining qualified personnel, or that newly hired personnel will function effectively, both individually and as a group. If we are unable to effectively recruit, hire and utilize new employees to align with our company objectives, execution of our business strategy and our ability to react to changing market conditions may be impeded, and our business, financial condition and results of operations may suffer. We operate using a “work-from-anywhere” model, and if we do not continue to effectively manage our distributed workforce, we could face challenges maintaining our corporate culture, which could increase attrition or limit our ability to attract personnel. None of our key personnel are bound by a written employment contract to remain with us for a specified period. In addition, we do not currently maintain key person life insurance covering our key personnel. If we lose the services of any key personnel, our business, financial condition and results of operations may suffer.

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If we experience disruptions with our enterprise resource planning system, we may not be able to effectively transact business or produce financial statements, which would adversely affect our business, results of operations and cash flows.

In January 2020, we migrated our Oracle enterprise resource planning, or ERP, system to Oracle’s cloud platform. In 2022, we implemented a software billing application on Salesforce.com. With these implementations, we are highly dependent upon Oracle and Saleforce.com to host, manage and maintain our ERP system and supporting applications. Any disruptions to their business or processes, or delays in their ability to provide services to us, may in turn disrupt our business operations or increase costs. Furthermore, we receive quarterly system updates and enhancements on the cloud platform according to Oracle’s release timeline and change management processes, which if not managed properly may disrupt our business operations and delay our ability to process transactions and produce reports necessary to conduct our business. We are highly dependent upon our ERP system for critical business functions, including order processing and management, supply chain and procurement operations, financial planning, accounting and reporting; accordingly, protracted disruption in functionality or processing capabilities of the ERP system could materially impair our ability to process transactions timely or produce accurate financial statements on a timely basis. If our systems suffer prolonged interruption, our results of operations and cash flows would be adversely affected.

Risks Related to Our Products

Our products are highly technical and may contain undetected hardware or software defects or software bugs, which could harm our reputation and adversely affect our business.

Our products, including our platform (cloud, software and systems) and managed services, are highly technical and, when deployed, are critical to the operation of many networks. Our products have contained and ~~may contain undetected~~are subject to defects, bugs or security ~~vulnerabilities.~~vulnerabilities, which risks may be exacerbated as we continue to expand our cloud and software portfolio and include services from third-party partners. Some defects in our products may only be discovered after a product has been installed and used by customers and may in some cases only be detected under certain circumstances or after extended use. Any errors, bugs, defects or security vulnerabilities discovered in our products after commercial release could result in loss of revenue or delay in revenue recognition, loss of customers and increased service and warranty and retrofit costs, any of which could adversely affect our business, operating results and financial condition. In addition, we ~~could face~~are subject to claims for security and data breach, product liability, tort or breach of warranty. Our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely impacted.

If we are unable to ensure that our products interoperate properly and as required within our customers’ networks, our business will be harmed.

Our products must interoperate with our customers’ existing and planned networks, which often have varied and complex specifications, utilize multiple protocol standards, include software applications and customizations and products from multiple vendors and contain multiple generations of products that have been added over time. As a result, we must continually ensure that our products interoperate properly with these existing and planned networks. To meet these requirements, we must undertake development efforts, including test protocols, which require substantial capital investment and employee resources. We may not accomplish these development goals quickly or cost-effectively, if at all. If we fail to maintain interoperability, we may face substantially reduced demand for our products, which would reduce our revenue opportunities and market share. We rely upon interoperability arrangements with equipment and software vendors for the use or integration of their technology with our products. If these relationships fail, we may have to devote substantially more resources to developing alternative products and processes and our efforts may not be as effective as the combined solutions under our current arrangements. In some cases, these other vendors are either direct competitors or companies that have extensive relationships with our existing and potential customers and influence the purchasing decisions of those customers. Some of our competitors have stronger relationships with some of our interoperability partners, and as a result, our ability to have successful interoperability arrangements with these companies may be harmed, which in turn may harm our ability to successfully sell and market our products.

Our estimates regarding ~~future~~ warranty or product obligations ~~may change due to product failure rates, shipment volumes, field service obligations and rework costs incurred in correcting product failures.~~are highly subjective. If our estimates change, the liability for warranty or product obligations may be increased, impacting future cost of revenue.

Our products are highly complex, and our product ~~development, manufacturing and integration~~ testing may not be adequate to detect all defects, errors, failures and quality issues. Accordingly, our estimates regarding future warranty or product obligations are highly subjective, and if our estimates change, the liability for warranty or product obligations may be increased, impacting future cost of revenue. Quality or performance problems for products covered under warranty could adversely impact our reputation and negatively affect our operating results and financial position. The development and production of new products with high complexity often involves problems with software, components and manufacturing methods. IfAny significant warranty or other product obligations ~~arise~~ due to reliability or quality issues arising from defects in software, faulty components or improper manufacturing methods could

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negatively impact our operating results and financial position ~~could be negatively impacted by:~~

~~cost~~due to costs associated with fixing software or hardware defects;

high service and warranty expenses;

high inventory obsolescence expense;

delays in collecting accounts receivable;

payment of liquidated damages for performance failures; and

~~declining sales to existing customers.~~

~~We do not have manufacturing capabilities,~~ loss of customer goodwill and therefore we depend upon a small number of outside contract manufacturers. We do not have supply contracts with all of these contract manufacturers; consequently, our operations could be disrupted if we encounter problems with any of these contract manufacturers.

We do not have internal manufacturing capabilities, and rely upon a small number of contract manufacturers to build our products. In particular, we rely on Flex Ltd. for the manufacture of most of our products. Our reliance on a small number of contract manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs.

We do not have supply contracts with some of our contract manufacturers. Consequently, these contract manufacturers are not obligated to supply products to us for any specific period, in any specific quantity or at any certain price. In addition, we have limited control over our contract manufacturers’ quality systems and controls, and therefore may not be able to ensure levels of quality manufacture suitable for our customers.

The revenue that Flex and other contract manufacturers generate from our orders represent a relatively small percentage of those manufacturers’ overall revenue. As a result, fulfilling our orders may not be considered a priority if such manufacturers are constrained in their ability to fulfill all of their customer obligations in a timely manner. In addition, a substantial part of our manufacturing is done in our contract manufacturer facilities that are located outside of the United States. We believe that the location of these facilities outside of the United States increases supply risk, including the risk of supply interruptions or reductions in manufacturing quality or controls. Moreover, regulatory changes or government actions relating to export or import regulations, economic sanctions or related legislation, or the possibility of such changes or actions, may create uncertainty or result in changes to or disruption in our operations with our contract manufacturers.

If Flex or any of our other contract manufacturers were unable or unwilling to continue manufacturing our products in required volumes and at high quality levels, we would have to identify, qualify and select acceptable alternative contract manufacturers. An alternative contract manufacturer may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices and quality. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers, which in turn would reduce our revenue and harm our relationships with our customers.

~~We and our business partners, including our contract manufacturers and suppliers,~~depend on sole-source, single-source and limited-source suppliers for some key components. If we and our business partners are unable to source these components on a timely basis, we will not be able to deliver our products to our customers.

We and our business partners, including our contract manufacturers and suppliers, depend on sole-source, single-source and limited-source suppliers for some key components of our products. For example, certain of our application-specific integrated circuit processors and resistor networks are purchased from sole-source suppliers.

Any of the sole-source, single-source and limited-source suppliers upon whom we or our business partners rely could stop producing our components, cease operations or enter into exclusive arrangements with our competitors. In addition, purchase volumes of such components may be too low for Calix to be considered a priority customer by these suppliers. As a result, these suppliers could stop selling to us and our business partners at commercially reasonable prices, or at all. Any such interruption or delay may force us and our business partners to seek similar components from alternative sources, which may not be available. Switching suppliers could also require that we redesign our products to accommodate new components, and could require us to re-qualify our products with our customers, which would be costly and time-consuming. Any interruption in the supply of sole-source, single-source or limited-source components for our products would adversely affect our ability to meet scheduled product deliveries to our customers, could result in lost revenue or higher expenses and would harm our business.

We utilize domestic and international third-party vendors to assist in the design, development and manufacture of certain of our products, and to provide logistics services in the distribution of our products. If these vendors fail to provide these services, we could incur additional costs and delays or lose revenue.

From time to time we enter into original design manufacturer (“ODM”), original equipment manufacturer (“OEM”) and development agreements for the design, development and/or manufacture of certain of our products in order to enable us to offer products on an accelerated basis. For example, a third party assisted in the design and currently manufactures portions of our E-series systems and nodes family. We also rely upon limited third party vendors for logistics services to distribute our products. If any of these third-party vendors stop providing their services, for any reason, we would have to obtain similar services from alternative sources, which may not be available on commercially reasonable terms, if at all. We also have limited control over disruptions that may occur at the facilities of these third party partners, such as supply interruptions or manufacturing quality that may occur at ODM and OEM facilities and strikes or systems failures that may interrupt transportation and logistics services. In addition, switching development firms or manufacturers could require us to extend our development timeline and/or re-qualify our products with our customers, which would also be costly and time-consuming. Any interruption in the development, supply or distribution of our products would adversely affect our ability to meet scheduled product deliveries to our customers, could result in lost revenue or higher costs, which would negatively impact our margins and operating results and harm our business.

If we fail to forecast our manufacturing requirements accurately or fail to properly manage our inventory with our contract manufacturers, we could incur additional costs, experience manufacturing delays and lose revenue.

We bear inventory risk under our contract manufacturing arrangements and our ODM and OEM agreements. Lead times for the materials and components that we order through our manufacturers vary significantly and depend on numerous factors, including the specific supplier, contract terms and market demand for a component at a given time. Lead times for certain key materials and components incorporated into our products are currently lengthy, requiring our manufacturers to order materials and components several months in advance of manufacture.

If we overestimate our production requirements, our manufacturers may purchase excess components and build excess inventory. If our manufacturers, at our request, purchase excess components that are unique to our products or build excess products, we could be required to pay for these excess parts or products and their storage costs. Historically, we have reimbursed our primary contract manufacturers for a portion of inventory purchases when our inventory has been rendered excess or obsolete. Examples of when inventory may be rendered excess or obsolete include manufacturing and engineering change orders resulting from design changes or in cases where inventory levels greatly exceed projected demand. If we incur payments to our manufacturers associated with excess or obsolete inventory, this would have an adverse effect on our gross margins, financial condition and results of operations.

We have experienced unanticipated increases in demand from customers, which resulted in delayed shipments and variable shipping patterns. If we underestimate our product requirements, our manufacturers may have inadequate component inventory, which could interrupt manufacturing of our products and result in delays or cancellation offuture sales.

~~As the market for our products evolves, changing customer requirements may adversely affect the valuation of our inventory.~~

Customer demand for our products can change rapidly in response to market and technology developments. Demand can be affected not only by customer- or market-specific issues, but also by broader economic and/or geopolitical factors. We may, from time to time, adjust inventory valuations downward in response to our assessment of demand from our customers for specific products or product lines.

~~If we fail to comply with evolving industry standards, sales of our existing and future products would be adversely affected.~~

The markets for our products are characterized by a significant number of standards, both domestic and international, which are evolving as new technologies are developed and deployed. As we expand into adjacent markets and increase our international footprint, we are likely to encounter additional standards. Our products must comply with these standards in order to be widely marketable. In some cases, we are compelled to obtain certifications or authorizations before our products can be introduced, marketed or sold in new markets or to customers that we have not historically served. For example, our ability to maintain Operations System Modification for Intelligent Network Elements (“OSMINE”) certification for our products will affect our ongoing ability to continue to sell our products to Tier 1 CSPs.

In addition, our ability to expand our international operations and create international market demand for our products may be limited by regulations or standards adopted by other countries that may require us to redesign our existing products or develop new products suitable for sale in those countries. Although we believe our products are currently in compliance with domestic and international standards and regulations in countries in which we currently sell, we may not be able to design our products to comply with evolving standards and regulations in the future. This ongoing evolution of standards may directly affect our ability to market or sell our products. Further, the cost of

complying with the evolving standards and regulations or the failure to obtain timely domestic or foreign regulatory approvals or certification could prevent us from selling our products where these standards or regulations apply, which would result in lower revenue and lost market share.

~~We may be unable to successfully expand our international operations. In addition, we may be subject to a variety of international risks that could harm our business.~~

We currently generate most of our sales from customers in North America and have limited experience marketing, selling and supporting our products and services outside North America or managing the administrative aspects of a worldwide operation. Our ability to expand our international operations is dependent on our ability to create or maintain international market demand for our products. In addition, as we expand our operations internationally, our support organization will face additional challenges including those associated with delivering support, training and documentation in languages other than English. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business, financial condition and results of operations will suffer.

~~In the course of expanding our international operations and operating overseas, we will be subject to a variety of risks, including:~~

~~differing regulatory requirements, including tax laws, trade laws, data privacy laws, labor regulations, tariffs, export quotas, custom duties or other trade restrictions;~~

~~liability or damage to our reputation resulting from corruption or unethical business practices in some countries;~~

~~exposure to effects of fluctuations in currency exchange rates if, over time, international customer contracts are increasingly denominated in local currencies;~~

~~longer collection periods and difficulties in collecting accounts receivable;~~

~~greater difficulty supporting and localizing our products;~~

~~different or unique competitive pressures as a result of, among other things, the presence of local equipment suppliers;~~

challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies and compensation, benefits and compliance programs;

~~limited or unfavorable intellectual property protection;~~

~~risk of change in international political or economic conditions, terrorist attacks or acts of war; and~~

~~restrictions on the repatriation of earnings.~~

We engage resellers to promote, sell, install and support our products to some customers in North America and internationally. Their failure to do so or our inability to recruit or retain appropriate resellers may reduce our sales and thus harm our business.

We engage some value added resellers (“VARs”), who provide sales and support services for our products. In particular, the non-exclusive reseller agreement entered into with Ericsson in 2012 has provided us with an extensive global reseller channel. More recently we have partnered with Ericsson on larger customer opportunities. We compete with other telecommunications systems providers for our VARs’ business and many of our VARs, including Ericsson, are free to market competing products. Our use of VARs and other third-party support partners and the associated risks of doing so are likely to increase as we expand sales outside of North America. If Ericsson or any other VAR promotes a competitor’s products to the detriment of our products or otherwise fails to market our products and services effectively, we could lose market share. In addition, the loss of a key VAR or the failure of VARs to provide adequate customer service could have a negative effect on customer satisfaction and could cause harm to our business. If we do not properly recruit and train VARs to sell, install and service our products, our business, financial condition and results of operations may suffer.

~~The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.~~

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiated the withdrawal process in March 2017. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, or the access to capital of our customers or partners, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our securities.

~~We may have difficulty evolving and scaling our~~ business and operations ~~to meet customer~~depend on proprietary technologies, and ~~market demand, which could result in lower profitability or cause us to fail to execute on our business strategies.~~

In order to grow our business, we believe we will need to continually evolve and scale our business and operations to meet customer and market demand. Evolving and scaling our business and operations places increased demands on our management as well as our financial ~~and operational resources to effectively:~~

m~~anage organizational change;~~

~~manage a larger organization;~~

~~accelerate and/or refocus research and development activities;~~

~~expand our manufacturing, supply chain and distribution capacity;~~

~~increase our sales and marketing efforts;~~

~~broaden our customer-support and services capabilities;~~

~~maintain or increase operational efficiencies;~~

~~scale support operations in a cost-effective manner;~~

~~implement appropriate operational and financial systems; and~~

~~maintain effective financial disclosure controls and procedures.~~

Ifperformance may suffer if we cannot ~~evolve~~protect and ~~scale~~enforce our business and operations effectively, we may not be able to execute our business strategies in a cost-effective manner and our business, financial condition, profitability and results of operations would be adversely affected.IP rights.

~~We may not be able to protect our intellectual property, which could impair our ability to compete effectively.~~

~~We depend on certain proprietary technology for our~~Our success and ability to ~~compete.~~compete depend on proprietary technology. We rely ~~on intellectual property~~significantly upon patent, copyright, trademark, trade secret and other IP laws, ~~as well as nondisclosure~~IP registration rights and agreements ~~licensing arrangements~~with our employees, customers, partners, suppliers and ~~confidentiality provisions~~other parties, to establish and ~~protect~~maintain IP rights necessary for our ~~proprietary rights.~~business and operations. U.S. ~~patent, copyright and trade secret~~IP laws afford us only limited protection, and the laws of some foreign countries do not protect proprietary rights to the same ~~extent.~~extent or at all. Our ~~pending~~ patent applications may not result in issued patents, and our issued patents may not be enforceable. ~~Any infringement of our proprietary~~Our IP rights could ~~result in significant litigation costs. Further,~~be challenged, invalidated, infringed or circumvented, any of which could impair or harm our business and operations and be costly to defend. Our failure ~~by us~~ to adequately protect our ~~proprietary~~IP rights could result in our competitors offering similar products, resulting in the loss of our competitive advantage and decreased sales.

~~Despite~~We and our ~~efforts to protect our proprietary rights, attempts may be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we~~third-party providers may be unable to ~~protect our proprietary rights against~~adequately prevent unauthorized third-party copying or ~~use. Furthermore, policing~~use of our IP. For example, contractual provisions protecting our IP are subject to breach, and our IP is subject to reverse engineering and unlawful distribution. It may become more difficult to adequately protect our IP as we expand our reliance on third parties for the design, development and/or manufacture of our products. In addition, we may become subject to increased risks arising from or related to security breaches, data loss or theft of our data or our IP, and have greater difficulty protecting our IP as our work-from-anywhere workforce and work product become more distributed. Policing the unauthorized use and distribution of our ~~intellectual property~~IP is difficult and costly. Litigation, ~~may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Litigation~~which could result in substantial costs, diversion of resources and harm to our ~~business.~~business, may be necessary to enforce our IP rights, protect our trade secrets or determine the validity and scope of proprietary rights.

If we are unable to obtain third-party technology licenses needed for our products and platform solutions, our business and operations will be impaired, and our operating results could be adversely affected.

We ~~could become subject~~increasingly rely on technology licensed from third parties for our products and platform solutions. We may not be able to ~~litigation regarding intellectual property rights~~secure or maintain necessary technology licenses from these third parties on commercially reasonable terms or at all. Third parties may also choose to not renew licenses with us, demand unreasonable license fees or cease to offer technologies that we require. The inability to obtain necessary third-party licenses or to secure reasonable license terms at a cost acceptable to us could harm the competitiveness of our ~~business.~~

Weproducts and solutions, result in lost revenue and adversely affect our operating results. For example, we may be ~~subject~~forced to ~~intellectual property infringement claims that~~forego product features or platform offerings, including features and offerings we believe are ~~costly~~critical to ~~defend and~~our strategy, accept substitute technology of lower quality or performance standards or incur higher costs, or the time-to-market of our products or product features could ~~limit~~be delayed. Furthermore, our ability to use some technologies in the future. Third parties may assert patent, copyright, trademark or other intellectual property rights to technologies or rights that are important to our business. Such claims may originate from non-practicing entities, patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore, our own issued and pending patents may provide little or no deterrence to suit from these entities.

~~We have received in the past and expect that in the future we may receive communications from competitors and other companies alleging that we~~utilize third-party technology may be infringing their patents, trade secrets or other intellectual property rights; offering licenses to such intellectual property; threatening litigation or requiring us to act as a third-party witness in litigation. In addition, we have agreed, and may in the future agree, to indemnify our customers for expenses or liabilities resulting from certain claimed infringementsdisrupted by disputes over IP rights, including claims of patents, trademarks or copyrights of third parties. Such indemnification may require us to be financially responsible for claims made against our customers, including costs of litigation and damages awarded,IP infringement, which could ~~negatively impact~~prevent us from offering or selling the products that utilize the disputed technology and adversely affect our results of operations. Any claims asserting that our products infringe the proprietary rights of third parties, with or without merit, could be time-consuming, result in costly litigation and divert the efforts of our engineering teams and management. These claims could also result in product shipment delays or require us to modify our products or enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available to us on acceptable terms, if at all.operating results.

Our use of ~~open source~~open-source software could impose limitations on our ability to commercialize our products.

We incorporate ~~open source~~open-source software into our products. ~~Although we closely monitor our use of open source software, the~~The terms of many ~~open source~~open-source software licenses have not been interpreted by the 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 sell our products. In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, 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 on a timely basis or at all, any of which could adversely affect our revenue and operating expenses.

Macroeconomic and Industry Risks

Our business depends upon the capital spending patterns and decisions of BSPs, and any decrease or delay in capital spending by BSPs due to the timing and availability of capital and other causes would reduce our revenue and harm our business.

Demand for our products depends on the magnitude and timing of capital spending by BSPs as they construct, expand, upgrade and maintain their access networks as well as BSPs’ adoption of our platform and managed services. Capital spending is cyclical in our industry, sporadic among individual BSPs and can change on short notice, which gives us little visibility into changes in spending behavior in any particular quarter. Capital spending for network infrastructure projects could be delayed or canceled in response to factors outside our control, such as reduced consumer spending, challenging capital markets or declining liquidity trends. BSP spending is also affected by reductions in budgets, including as a result of a general economic downturn, delays in purchasing cycles, access to or timing of government funding programs or capital markets, and seasonality and delays in capital allocation decisions. Historically, our customers may spend less or have less deployments in the first quarter due to pending annual budgets or, in certain regions, due to weather conditions that inhibit outside fiber deployment,

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resulting in weaker demand for our products in the first quarter. Softness in demand in any of our customer markets, including due to macroeconomic conditions beyond our control or uncertainties associated with regulatory reforms, has and could in the future lead to unexpected decline or slowdown in customer capital expenditures. Further, BSPs may pursue capital investment in network technologies other than those offered by us or may choose not to adopt our products and platform solutions in their networks. Reductions in capital expenditures by BSPs would have a material negative impact on our revenue and results of operations and slow our rate of revenue growth. As a consequence, our results for a particular period may be difficult to predict, and our prior results are not necessarily indicative of results in future periods.

Government-sponsored programs and U.S. federal government shutdowns could impact the timing and buying patterns of BSPs, which may cause fluctuations in our operating results.

We sell to BSPs, including U.S.-based independent operating companies, or IOCs, which rely significantly upon interstate and intrastate access charges and federal and state subsidies in the form of grants and other funding, such as the Federal Communications Commission’s, or FCC’s, Rural Digital Opportunity Fund, the CARES Act Enhanced Alternative Connect America Cost Model, or the American Rescue Plan Act. The FCC and some states may change such payments and subsidies, which could reduce IOC revenue. Furthermore, many IOCs use or expect to use government-supported loan programs or grants, such as U.S. Department of Agriculture’s Rural Utility Service or the U.S. Department of Commerce National Telecommunications and Information Administration’s, or NTIA’s, Broadband Equity, Access and Deployment, or BEAD, Program loans and grants, to finance capital spending. These government-supported loan programs and grants generally include conditions such as deployment criteria, domestic preference provisions and other requirements that apply to the project and selected equipment as conditions for funding. For example, the U.S. government recently passed The Infrastructure Investment Jobs Act , which charged the NTIA with establishing the BEAD Program and ensuring that BEAD-funded infrastructure projects comply with the Buy America Domestic Content Procurement Preference, or Buy America Preference, of the Build America, Buy America Act, or BABA. In accordance with BABA, the U.S. Department of Commerce has proposed to issue a limited, general applicability, nonavailability waiver of the Buy America Preference to recipients of Federal financial assistance under the NTIA’s BEAD Program. Changes to the terms or administration of these programs, including uncertainty from government and administrative change, increasing focus on domestic requirements by the U.S. that may require re-assessment of compliance, potential funding limitations that impact our ability to meet program requirements or delays due to U.S. federal government shutdowns could reduce the ability of IOCs to access capital or secure funding under these programs to purchase our products and services and thus reduce our revenue opportunities. In addition, compliance with these requirements may significantly increase our record-keeping, accounting and production costs. As a result of these risks, the domestic content requirements may have a material adverse impact on our U.S. sales, business and results of operations. Customers may curtail purchases if they receive less funding than planned, are negatively impacted by federal government shutdowns or changes in government regulations and subsidies, or as funding winds down, any of which could have an adverse effect on our operating results and financial condition.

Adverse global economic, market and industry conditions, geopolitical issues and other conditions that impact our increasingly global operations could have a negative effect on our business, results of operations and financial condition and liquidity.

As a global company, our performance is affected by global economic, market and industry conditions as well as geopolitical issues and other conditions with global reach. In recent years, concerns about the global economic outlook, inflation and increased interest rates have adversely affected market and business conditions in general. Macroeconomic weakness and uncertainty make it more difficult for us to manage our operations and accurately forecast revenue, gross margin and operating expenses. Further, bank failures and other adverse developments that affect financial institutions, transactional counterparties, or other third parties, or concerns or rumors about these events, have led to market-wide liquidity problems.

Geopolitical issues, such as the Russian invasion of Ukraine, armed conflict in the Middle East, relations between the U.S. and China, tariff and trade policy changes, and increasing potential of conflict involving countries in Asia that are critical to our supply-chain operations, such as Taiwan and China, have resulted in increasing global tensions and create uncertainty for global commerce. In addition, inflation in the United States has affected businesses across many industries, including ours, by increasing the costs of labor, employee healthcare, components and freight and shipping, which may further constrain our customers’ or prospective customers’ budgets. To the extent there is a sustained general economic downturn, and our platform and services are perceived by customers or potential customers as costly, or too difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in spending. Sustained or worsening of global economic conditions and geopolitical issues may increase our cost of doing business, materially disrupt our supply chain operations, cause our customers to reduce or delay spending and intensify pricing pressures. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or markets in which we operate worsen from present levels, demand for our products, and our business, financial condition and results of operations, could be adversely affected.

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We face intense competition that could reduce our revenue and adversely affect our financial results.

The market for our products is highly competitive, and we expect competition from both established and new companies to increase. Our ability to compete successfully depends on a number of factors, including our ability to successfully develop new products and solutions that anticipate BSP and market requirements and changes in technology and industry standards; BSP acceptance and adoption of our products and solutions; our ability to differentiate our products from our competitors’ offerings based on performance, features, cost-effectiveness or other factors; our product capabilities to meet customer network requirements and preferences; and our success in marketing and selling our products and platform solutions.

Many of our current or potential competitors have longer operating histories, greater name recognition, broader product lines, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do and are better positioned to acquire and offer complementary products and services. As the broadband access equipment market has undergone and continues to undergo consolidation, our competitors have merged, grown and been able to offer more comprehensive solutions than they individually had offered. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features, because the products that we and our competitors offer require a substantial investment of time and funds to qualify and install. The demand on network capacity due to remote workforces may attract new market entrants with competitive or substitutive products, which may lead to increased sales cycles, cause pricing pressure and impact adoption of our platform due to the broader availability of product offerings. Some of our competitors may offer substantial discounts or rebates to win or retain customers. If we are forced to reduce prices to retain existing customers or win new customers, we may be unable to sustain gross margin at desired levels or obtain or sustain profitability. Competitive pressures could result in increased pricing pressure, reduced profit margin, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which could reduce our revenue and adversely affect our financial results.

Historically, our customer base has been concentrated, and the loss of any of our key customers may adversely impact our revenue and results of operations, and any delays in payment by a key customer could negatively impact our cash flows and working capital.

Although we have not had a greater-than-10%-of-revenue customer in the past three years, a large portion of our sales has been, and in the future may be, to a limited number of customers. Changes in the BSP market, such as financial difficulties, spending cuts or corporate consolidations that impact purchasing decisions by these customers have and may again negatively impact our revenue, and as a result, revenue from such customers may remain flat or decline. There are no assurances that the demand for our products will remain strong from our key customers, and any decrease or delay in purchases of any of our key customers, particularly if prolonged or sustained, or our inability to grow our sales with them, may have a material negative impact on our revenue and results of operations.

In addition, some larger customers may demand discounts and rebates or desire to purchase their access systems and software from multiple providers. As a result of these factors, our future revenue opportunities may be limited, and we may face pricing pressures, which in turn could adversely impact our gross margin and our financial results. The loss of, reduction in, or pricing discounts associated with orders from any larger customer could significantly reduce our revenue and harm our business. Furthermore, delays in payment and/or extended payment terms from any of our larger customers could have a material negative impact on our cash flows and working capital to support our business operations.

Our industry is characterized by rapid technological advancements, and if we fail to develop new products or enhancements that meet changing BSP requirements, we could experience lower sales.

Our industry is characterized by rapid technological change, changing needs of BSPs, evolving industry standards and frequent introductions of new products and platform offerings. We invest significant amounts to pursue innovative technologies that we believe will be adopted by BSPs. For example, we have invested and plan to continue to invest resources in our platform offerings. In addition, on an ongoing basis, we expect to reposition our product and service offerings and introduce new offerings as we encounter rapidly changing BSP requirements and increasing competitive pressures. If we cannot increase sales of our new platform and services, keep pace with rapid technological developments to meet customer needs and compete with evolving standards or if the technologies we choose to invest in fail to meet customer needs or are not adopted by customers in the timeframes that we expect, our financial condition and results of operations would be adversely affected.

Developing our products is complex and involves uncertainties, including pricing risks for key materials, component shortages and limited suppliers. We may experience design, manufacturing, software development quality, support, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new products and enhancements. If we fail to meet our development targets, demand for our products will decline. If we are unable to ~~obtain necessary third-party technology licenses, our ability to~~anticipate and develop new products or enhancements to our existing products on a timely and cost-effective basis, our products may become technologically obsolete more rapidly than anticipated over time, resulting in lower sales which would harm our business. Furthermore, the introduction of new or enhanced products also requires that we manage the transition from older products in

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accordance with customer requirements. If we fail to maintain compatibility requirements in our customers’ networks, demand for our products would decline, which would reduce our revenue opportunities and market share.

We use third-party development partners both for their key skills and to augment our employee developers. Using third-party development partners for our broadband platform and managed services allow us to accelerate development and leverage the third parties’ expertise, but increases our risks due to reduced direct control over the third party’s work. This product ~~enhancements~~development approach may cause unforeseen issues in product design, as well as challenges arising from integration and support of third-party features in our products. In addition, our revenue based on the third parties’ product development work may take several years to cover our out-of-pocket expenses, if ever.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our sales are difficult to predict and may vary substantially, which may cause our operating results to fluctuate significantly.

The timing of our revenue is difficult to predict. Our sales efforts often involve educating BSPs about the use and benefits of our platform (cloud, software and systems) and managed services. BSPs typically undertake a significant evaluation process, which frequently involves not only our platform and managed services, but also those of our competitors and results in a lengthy sales cycle. Sales cycles for larger customers are relatively longer and require considerably more time and expense. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative, processing and other delays. The timing of revenue related to sales of products and services that have installation requirements may be ~~impaired.~~

~~While~~difficult to predict due to interdependencies that may be beyond our ~~current licenses~~control, such as BSP testing and turn-up protocols or other vendors’ products, services or installations of ~~third-party technology generally relate to commercially available off-the-shelf technology,~~equipment upon which our products and services rely. Such delays may result in fluctuations in our quarterly revenue. If sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, we may not achieve our revenue forecasts, and our financial results would be adversely affected.

Government and Regulatory Risks

Actual or perceived failure to comply with applicable data privacy and security laws, regulations and standards could impact our business, operations, and expose us to increased liability.

Government authorities in the U.S. and around the world have implemented and are continuing to implement broader and more stringent laws and regulations concerning data protection. The interpretation and application of these data protection laws and regulations are often uncertain and changing, and it is possible that they may be interpreted and applied in a manner that is inconsistent with our data practices.

For example, in the U.S., certain states have adopted privacy and security laws and regulations which govern the privacy, processing and protection of personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California Consumer Privacy Act of 2018, or CCPA, went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that has increased the likelihood of, and risks associated with data breach litigation. Further, the California Privacy Rights Act, or CPRA, generally went into effect on January 1, 2023, and significantly amends the CCPA. It imposes additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It also created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may also be required. Similar laws have been passed in other states, and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. Most of the new or proposed laws include restrictions on processing consumer information for targeted advertising, which could negatively affect our marketing cloud products. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by the CCPA, the CPRA or other domestic privacy and data protection laws, any liability from ~~time~~failure to ~~time~~comply with the requirements of these laws could adversely affect our financial condition.

Furthermore, the Federal Trade Commission, or FTC, and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive. For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.

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The General Data Protection Regulation, or EU GDPR, adopted by the European Union, or EU, and the UK General Data Protection Regulation, or UK GDPR, adopted by the United Kingdom, or UK, (the EU GDPR and UK GDPR hereinafter referred to as the GDPR) and national data protection supplementing laws in these jurisdictions impose specific duties and requirements upon companies that are subject to their provisions and collect, process or control personal data of individuals, including a principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit. Although we currently do not have material operations or business in the EU or the UK, we are in the process of expanding in these jurisdictions, and we have incurred and will continue to incur substantial costs in this respect. Furthermore, the GDPR imposes significant penalties for noncompliance which can amount to €20 million (for the EU GDPR) or £17.5 million (for the UK GDPR), or in the case of an undertaking, up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher; thus, any non-compliance with the GDPR could result in a material adverse effect on our business, financial condition and results of operations.

The EU GDPR and UK GDPR regulate cross-border transfers of personal data out of the European Economic Area, or the EEA, and the UK. Case law from the Court of Justice of the European Union, or the CJEU,held that transfers must be assessed on a case-by-case basis and reliance on standard contractual clauses (a standard form of contract approved by the European Commission as an adequate mechanism for personal data transfers) may not be sufficient in all circumstances. On October 7, 2022, President Biden signed an Executive Order on Enhancing Safeguards for United States Intelligence Activities. This introduced new binding safeguards to address the concerns raised by the CJEU in relation to data transfers from the EEA to the United States and formed the basis of the new EU-US Data Privacy Framework, or DPF, which was released on December 13, 2022. The European Commission adopted its Adequacy Decision in relation to the DPF on July 10, 2023, rendering it effective as an EU GDPR transfer mechanism to U.S. entities self-certified under the DPF; further, on October 12, 2023, the UK Extension to the DPF came into effect (as approved by the UK Government), as a UK GDPR data transfer mechanism to U.S. entities self-certified under the UK Extension to the DPF. We currently rely on the standard contractual clauses and the UK International Data Transfer Agreement (or Addendum) to transfer personal data outside the EEA and the UK respectively, including to the U.S. The data transfers enforcement landscape and the DPF’s longer term stability remain uncertain and we expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. As the regulatory guidance and enforcement landscape in relation to data transfers further develops, our business, operations and financial condition could be adversely affected. Our current contracts may not be sufficient, and we could suffer additional costs, complaints and/or regulatory investigations or fines. We may also have to stop using certain tools and vendors and make other operational changes. We have had to and will have to implement standard contractual clauses and/or the UK equivalent mechanism for intragroup, customer and vendor arrangements. Further, our customers may not use our services in a manner that is compliant with applicable data privacy laws and regulations and our services may not be competitive in certain markets.

We and/or our customers are also subject to evolving EU and UK privacy laws on cookies, tracking technologies, e-marketing and electronic communications. Recent European court and regulator decisions are driving increased attention to cookies and tracking technologies. If the trend of increasing enforcement by regulators of the strict approach to opt-in consent for all but essential use cases, as seen in recent guidance and decisions continues, this could lead to substantial costs, require significant systems changes, limit the effectiveness of marketing activities conducted on behalf of our customers, divert the attention of our technology personnel, adversely affect our margins, and subject us to additional liabilities. In addition, new security regulations, such as the EU’s Network and Information Security 2 Directive (NIS2) and the UK’s Telecommunications (Security) Act 2021 together with its implementing regulations impose further security obligations, including on electronic communications networks and services. We may be required to ~~license~~implement (and contractually commit to) additional ~~technology from third parties~~security measures to ~~develop~~remain a competitive vendor, as customers will need to ensure their vendors are able to meet the obligations that they are themselves subject to, or customers may choose different vendors due to our security measures. This could result in additional costs and require operational changes which could adversely affect our business, operations and financial condition.

In light of the complex and evolving nature of EU, EU Member State and UK privacy and security laws, there can be no assurances that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/change our use of technologies and/or our processing activities, enforcement notices and assessment notices (for a compulsory audit), as well as lead to civil claims including class actions, and reputational damage.

Complying with new ~~products or product enhancements. These third-party licenses may be unavailable to us on commercially reasonable terms, if at all. Our inability to obtain necessary third-party licenses may force~~and changing laws could cause us to ~~obtain substitute technology of lower quality or performance standards or at greater cost, or may increase the time-to-market of~~incur substantial costs in order to market and sell our ~~products or product enhancements, any of which could harm the competitiveness of our products and result in lost revenue.~~

~~Our ability to incur debt and the use of our funds could be limited by borrowing base restrictions and restrictive covenants in our loan and security agreement for our revolving credit facility.~~

The Loan and Security Agreement we entered into in August 2017 with Silicon Valley Bank (“Loan Agreement”) provides for a revolving credit facility based on a customary accounts receivable borrowing base, subject to certain exceptions and exclusions, such that borrowings available to us are limited by eligible accounts receivable (as definedcloud-based solutions in the ~~Loan Agreement). If~~U.S. and internationally, deter customers from adopting our financial position deteriorates our borrowing capacity under the credit facility may be reduced. In addition, the Loan Agreement includes affirmative and negative covenants and requires that we maintain a specified minimum liquidity ratio. The negative covenants also include, among others, restrictions on our and our subsidiaries’ transferring collateral, making changes to the nature of our business or the business of the applicable subsidiary, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, engaging in transactions with affiliates, making payments in respect of subordinated debt, creating liens and selling assets, in each case subject to certain exceptions. Failure to maintain these restrictive covenants and requirements can limit the amount of borrowings that are available to us, increase the cost of borrowings under the facilitycloud-based solutions or require us to ~~make immediate payments~~redesign our platform in order to ~~reduce borrowings.~~meet customer requirements related to such laws. Regulatory actions or claims involving our practices in the collection, storage, processing, use or disclosure of consumer information or other personal data, even if unfounded, could damage our reputation and adversely affect our operating results. The ~~Loan Agreement covenants~~failure or perceived failure to comply may ~~also affect~~result in government or civil proceedings or actions against us, or could cause us to lose customers, which could have an adverse effect on our business.

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If we fail to comply with evolving industry standards, sales of our products would be adversely affected.

Our products are subject to a significant number of domestic and international standards, which evolve as new technologies are developed and deployed. As we expand into new global markets, we are likely to encounter additional standards. Our products must comply with these standards in order to be widely marketable. In some cases, we are required to obtain certifications or authorizations before our products can be introduced, marketed or sold in new markets or to new customers. For example, our ability to ~~obtain future financing and~~maintain Operations System Modification for Intelligent Network Elements certification for our products will affect our ongoing ability to ~~pursue attractive business opportunities and~~continue to sell our ~~flexibility~~products to large BSPs. In addition, our ability to expand our international operations may be limited by standards in ~~planning for, and reacting~~countries or may require us to ~~changes in business conditions. These covenants could place us at a disadvantage compared~~redesign our products or develop new products to ~~some of our competitors, who may have fewer restrictive covenants and~~meet local standards. We may not be ~~required~~able to ~~operate under~~design our products to comply with local requirements, which would impede or prevent our ability to grow our business in those locations. Moreover, as we expand our business and operations globally, we must increase investments to maintain compliance with evolving standards across all of our markets. The costs of complying with evolving standards or failure to obtain timely authorizations or certification could prevent us from selling our products where these ~~restrictions.~~standards or regulations apply, which would result in lower revenue and lost market share.

Our failure or the failure of our manufacturers to comply with environmental and other legal regulations could adversely impact our results of operations.

The manufacture, assembly and testing of our products may require the use and disposal of hazardous materials that are subject to environmental, health and safety regulations, or materials subject to laws restricting the use of conflict minerals. ~~Our failure or the failure of~~We substantially depend upon our ~~contract~~third-party manufacturers ~~ODMs and OEMs~~ to comply with ~~any of~~these requirements. Any failure by us or our third-party manufacturers to comply with these requirements could result in regulatory penalties, legal claims or disruption of ~~production.~~production of our products. In addition, ~~our~~any failure ~~or the failure of our manufacturers~~ to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to increased costs or liabilities. Existing and future environmental regulations and other legal requirements may restrict our use of certain materials to manufacture, assemble and test products. Any of these consequences could adversely impact our results of operations by increasing our expenses and/or requiring us to alter our manufacturing processes.

~~Regulatory and physical impacts of climate change and other natural events may affect our customers and our contract manufacturers, resulting in adverse effects on our operating results.~~

As emissions of greenhouse gases continue to alter the composition of the atmosphere, affecting large-scale weather patterns and the global climate, any new regulation of greenhouse gas emissions may result in additional costs to our customers and our contract manufacturers. In addition, the physical impacts of climate change and other natural events, including changes in weather patterns, drought, rising ocean and temperature levels, earthquakes and tsunamis may impact our customers, suppliers and contract manufacturers, and our operations. These potential physical effects may adversely affect our revenue, costs, production and delivery schedules, and cause harm to our results of operations and financial condition.

We have in the past pursued, and may in the future continue to pursue, acquisitions which involve a number of risks and uncertainties. If we are unable to address and resolve these risks and uncertainties successfully, such acquisitions could disrupt our business and result in higher costs than we anticipate.

We acquired Occam Networks in 2011 and Ericsson’s fiber access assets in 2012. We may in the future acquire other businesses, products or technologies to expand our product offerings and capabilities, customer base and business. We have evaluated and expect to continue to evaluate a wide array of potential strategic transactions. We have limited experience making such acquisitions or integrating these businesses after such acquisitions. Unanticipated costs to us from these historical transactions as well as both anticipated and unanticipated costs to us related to any future transactions could exceed amounts that are covered by insurance and could have a material adverse impact on our financial condition and results of operations. For example, the Occam acquisition resulted in litigation with defense costs that were in excess of available directors and officers liability insurance coverage, including costs for which coverage was denied by our insurance carriers. In addition, the anticipated benefit of any acquisitions may never materialize or the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures.

~~Some of the areas where we have experienced and may in the future experience acquisition-related risks include:~~

~~expenses and distractions, including diversion of management time related to litigation;~~

~~expenses and distractions related to potential claims resulting from any possible future acquisitions, whether or not they are completed;~~

~~retaining and integrating employees from acquired businesses;~~

~~issuance of dilutive equity securities or incurrence of debt;~~

~~integrating various accounting, management, information, human resource and other systems to permit effective management;~~

~~incurring possible write-offs, impairment charges, contingent liabilities, amortization expense of intangible assets or impairment of goodwill and intangible assets with finite useful lives;~~

~~difficulties integrating and supporting acquired products or technologies;~~

~~unexpected capital expenditure requirements;~~

~~insufficient revenue to offset increased expenses associated with acquisitions; and~~

~~opportunity costs associated with committing capital to such acquisitions.~~

If our goodwill or intangible assets with finite useful lives become impaired, we may be required to record a significant charge to earnings. We review our goodwill and intangible assets with finite useful lives for impairment when events or changes in circumstances indicate the carrying value may not be recoverable, such as a sustained or significant decline in stock price and market capitalization. We test goodwill for impairment at least annually. If the carrying values of such assets were deemed to be impaired, an impairment loss equal to the amount by which the carrying amount exceeds the estimated fair value would be recognized. Any such impairment could materially and adversely affect our financial condition and results of operations.

Foreign acquisitions would involve risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. We may not be able to address these risks and uncertainties successfully, or at all, without incurring significant costs, delays or other operating problems.

~~Our inability to address or anticipate any of these risks and uncertainties could disrupt our business and could have a material impact on our financial condition and results of operations.~~

~~Our use of and reliance upon development resources in China may expose us to unanticipated costs or liabilities.~~

We operate a wholly foreign owned enterprise in Nanjing, China, where a dedicated team of engineers performs product development, quality assurance, cost reduction and other engineering work. We also outsource a portion of our software development to a team of software engineers based in Shenyang, China. Our reliance upon development resources in China may not enable us to achieve meaningful product cost reductions or greater resource efficiency. Further, our development efforts and other operations in China involve significant risks, including:

~~difficulty hiring and retaining appropriate engineering resources due to intense competition for such resources and resulting wage inflation;~~

the knowledge transfer related to our technology and exposure to misappropriation of intellectual property or confidential information, including information that is proprietary to us, our customers and third parties;

~~heightened exposure to changes in the economic, security and political conditions of China;~~

~~fluctuation in currency exchange rates and tax risks associated with international operations;~~

~~development efforts that do not meet our requirements because of language, cultural or other differences associated with international operations, resulting in errors or delays; and~~

uncertainty with regards to actions the Trump administration may take with respect to international trade agreements and U.S. tax provisions related to international commerce that could adversely affect our international operations.

Difficulties resulting from the factors above and other risks related to our operations in China could expose us to increased expense, impair our development efforts, harm our competitive position and damage our reputation.

~~Our customers are subject to government regulation, and changes in current or future laws or regulations that negatively impact our customers could harm our business.~~

The FCC has jurisdiction over all of our U.S. customers. FCC regulatory policies that create disincentives for investment in access network infrastructure or impact the competitive environment in which our customers operate may harm our business. For example, future FCC regulation affecting providers of broadband Internet access services could impede the penetration of our customers into certain markets or affect the prices they may charge in such markets. Similarly, changes to regulatory tariff requirements or other regulations relating to pricing or terms of carriage on communication networks could slow the development or expansion of network infrastructures. Consequently, such changes could adversely affect the sale of our products and services. Furthermore, many of our customers are subject to FCC rate regulation of interstate telecommunications services and are recipients of CAF capital incentive payments, which are intended to subsidize broadband and telecommunications services in areas that are expensive to serve. Changes to these programs, rules and regulations that could affect the ability of IOCs to access capital, and which could in turn reduce our revenue opportunities, remain possible.

In addition, many of our customers are subject to state regulation of intrastate telecommunications services, including rates for such services, and may also receive funding from state universal service funds. Changes in rate regulations or universal service funding rules, either at the U.S. federal or state level, could adversely affect our customers’ revenue and capital spending plans. Moreover, various international regulatory bodies have jurisdiction over certain of our non-U.S. customers. Changes in these domestic and international standards, laws and regulations, or judgments in favor of plaintiffs in lawsuits against CSPs based on changed standards, laws and regulations could adversely affect the development of broadband networks and services. This, in turn, could directly or indirectly adversely impact the communications industry in which our customers operate.

Many jurisdictions, including international governments and regulators, are also evaluating, implementing and enforcing regulations relating to cyber security, privacy and data protection, which can affect the market and requirements for networking and communications equipment. To the extent our customers are adversely affected by laws or regulations regarding their business, products or service offerings, our business, financial condition and results of operations would suffer.

~~Privacy concerns relating to our products and services could affect our business practices, damage our reputation and deter customers from purchasing our products and services.~~

Government and regulatory authorities in the United States and around the world have implemented and are continuing to implement laws and regulations concerning data protection. For example, in July 2016, the European Commission adopted the EU-U.S. Privacy Shield to

replace Safe Harbor as a compliance mechanism for the transfer of personal data from the European Union to the United States. In addition, the General Data Protection Regulation adopted by the EU Parliament goes into effect in May 2018 to harmonize data privacy laws across Europe. The interpretation and application of these data protection laws and regulations are often uncertain and in flux, and it is possible that they may be interpreted and applied in a manner that is inconsistent with our data practices. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

Concerns about or regulatory actions involving our practices with regard to the collection, use, disclosure, or security of customer information or other privacy related matters, even if unfounded, could damage our reputation and adversely affect operating results. While we strive to comply with all data protection laws and regulations, the failure or perceived failure to comply may result in inquiries and other proceedings or actions against us by government entities or others, or could cause us to lose customers, which could potentially have an adverse effect on our business.

~~We are subject to cybersecurity and privacy risks.~~

Our information systems and data centers (including third-party data centers) contain sensitive information that help us operate our business efficiently, interface with and provide software solutions to customers, maintain financial accuracy and accurately produce our financial statements. In addition, we host sensitive data in data centers, including subscriber data, in the course of providing services and solutions to customers. Malicious hackers may attempt to gain access to our network or data centers; steal proprietary information related to our business, products, employees, and customers; or interrupt our systems and services or those of our customers or others. The theft, loss, or misuse of personal data collected, used, stored or transferred by us to run our business could result in significantly increased security and remediation costs or costs related to defending legal claims. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to cyberattacks, transaction errors, processing inefficiencies, the loss of customers, business disruptions or the loss of or damage to intellectual property through security breaches. If our data management systems, including those of our third-party data centers, do not effectively and securely collect, store, process and report relevant data for the operation of our business, whether due to cyberattacks, equipment malfunction or constraints, software deficiencies or human error, our ability to effectively plan, forecast and execute our business plan and comply with laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, the timeliness with which we internally and externally report our operating results and our business and reputation.

While we have applied multiple layers of security to control access to our information technology systems and use encryption and authentication technologies to secure the transmission and storage of data, these security measures may be compromised as a result of third-party security breaches, employee error, malfeasance, faulty password management or other irregularity, and result in persons obtaining unauthorized access to our data or accounts. Third parties may attempt to fraudulently induce employees into disclosing user names, passwords or other sensitive information, which may in turn be used to access our information technology systems.

While we seek to apply best practice policies and devote significant resources to network security, data encryption and other security measures to protect our information technology and communications systems and data, these security measures cannot provide absolute security. We or our third-party hosting providers may experience a system breach and be unable to protect sensitive data. The costs to us to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in unexpected interruptions, delays and cessation of service which may harm our business operations.

Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, cyberattacks, viruses, denial-of-service attacks, human error, hardware or software defects or malfunctions, and similar events or disruptions. Some of our systems are not fully redundant, and our disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to break-ins, sabotage and intentional acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons, a data breach or other unanticipated problems at our hosting facilities could cause system interruptions and delays which may result in loss of critical data and lengthy interruptions in our services.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in additional international markets.

Our products are subject to U.S. export and trade controls and restrictions. International shipments of certain of our products may require export licenses or are subject to additional ~~requirements for export.~~export requirements. In addition, the import laws of other countries may limit our ability to distribute our products, or our customers’ ability to buy and use our products, in those countries. Changes in our products or changes in export and import regulations or duties may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import regulations, duties or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could negatively impact our ability to sell, profitably or at all, our products to existing or potential international customers.

Regulatory and physical impacts of climate change and other natural events may affect our customers and our manufacturers, resulting in adverse effects on our operating results.

As emissions of greenhouse gases continue to alter the composition of the atmosphere, affecting large-scale weather patterns and the global climate, any new regulation of greenhouse gas emissions may result in additional costs to our customers and our manufacturers. In addition, the physical impacts of climate change and other natural events, including changes in weather patterns, drought, rising ocean and temperature levels, earthquakes and tsunamis may impact our customers, suppliers and manufacturers and our operations. These potential physical effects may adversely affect our revenue, costs, production and delivery schedules, and cause harm to our results of operations and financial condition.

Our customers are subject to government regulation, and changes in current or future laws or regulations that negatively impact our customers could harm our business.

Many of our customers are subject to state and federal regulation of their businesses, and adoption of regulations that affect providers of broadband Internet access services could impede the penetration of our customers into certain markets. For example, the FCC has jurisdiction over many of our U.S. customers, and FCC regulatory policies that create disincentives for investment in access network infrastructure or impact the competitive environment in which our customers operate may harm our business. Moreover, various international regulatory bodies have jurisdiction over certain of our customers outside the U.S. Changes in any of these standards, laws and regulations, or judgments in favor of plaintiffs in lawsuits against BSPs based on changed standards, laws and regulations could adversely affect the development of broadband networks and services. This, in turn, could directly or indirectly adversely impact the industries in which our customers operate.

Table of Contents

Risks Related to Ownership of Our Common Stock and Other Risks

Our stock price may continue to be volatile, and the value of an investment in our common stock may decline.

The trading price of our common stock has been, and is likely to continue to be, volatile, which means that it could decline substantially within a short period of time and could fluctuate widely in response to various factors, some of which are beyond our control. These factors include those discussed above and others such as quarterly variations in our results of operations or those of our competitors; failure to meet any guidance that we have previously provided regarding our anticipated results; changes in earnings estimates or recommendations by securities analysts; failure to meet securities analysts’ estimates; announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments; developments with respect to IP rights; our ability to develop and market new and enhanced products on a timely basis; our commencement of, or involvement in, litigation and developments relating to such litigation; changes in governmental regulations; and a slowdown in the communications industry or the general economy.

The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price and volatility of our common stock, regardless of our actual operating performance. Historically, following periods of volatility in the market price of a company’s securities, there is increased risk that stockholders may initiate securities class action litigation against the company. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of our management and Board of Directors.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management or our Board of Directors. These provisions include: (1) a classified Board of Directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board of Directors; (2) no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; (3) the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board of Directors; (4) the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; (5) a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; (6) the requirement that a special meeting of stockholders may be called only by the chairman of the Board of Directors, the chief executive officer or the Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and (7) advance notice procedures that stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. We are also subject to certain anti-takeover provisions under Delaware law, which prohibits a corporation, in general, from engaging in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the Board of Directors has approved the transaction.

We may need additional capital in the future to finance our business.

While our working capital needs to support our business operations and growth have been funded from operating cash flows in the near term, we may need additional capital if our current plans and assumptions change. If our financial position deteriorates, we may not be able to secure a source of financing to support our working capital needs on acceptable terms or at all. If future financings involve the issuance of equity securities, our then-existing stockholders will suffer dilution. If we ~~lose any of~~raise debt financing, we may be subject to restrictive covenants that limit our ~~key personnel, or~~ability to conduct our business. If we are unable to ~~attract, train~~obtain and ~~retain qualified personnel,~~sustain operating income and positive cash flows from operations, our ~~ability~~liquidity, results of operations and financial condition may be adversely affected. Furthermore, if we are unable to ~~manage~~generate sufficient cash flows to support our operational needs, we may need to cease our common stock repurchase program or seek additional sources of liquidity, including borrowings, to support our working capital needs, even if we believe we have generated sufficient cash flows to support our operational needs. There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which would adversely impact our business and ~~continue our growth would be negatively impacted.~~growth.

~~Our success depends, in large part, on the continued contributions~~

Table of ~~our key management, engineering, sales and marketing personnel, many of whom are highly skilled and would be difficult to replace. None of our senior management or key technical or sales personnel is~~Contents

~~bound by a written employment contract to remain with us for a specified period. In addition, we~~We do not currently ~~maintain key person life insurance covering~~intend to pay dividends on our ~~key personnel. If we lose~~common stock and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the ~~services~~price of our common stock.

We do not currently intend to pay a cash dividend on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, ~~key personnel,~~to fund our ~~business,~~growth. Therefore, our stockholders are not likely to receive any dividends on our common stock for the foreseeable future.

Our failure to adequately address and resolve risks and uncertainties associated with acquisitions could have a material adverse impact on our financial condition and results of operations.

We may acquire businesses, products or technologies to expand our product offerings and capabilities, customer base and business. We have evaluated and expect to continue to evaluate a wide array of potential strategic transactions. Such investments may involve significant risks and uncertainties, including distraction of management from current operations, unanticipated costs, and legal and regulatory challenges, all of which could have a material adverse impact on our financial condition and results of operations. In addition, the anticipated benefit of any acquisition may ~~suffer.~~never materialize or the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures.

~~Competition for skilled personnel, particularly those specializing~~We cannot guarantee that our stock repurchase program will be utilized to the full value approved or that it will enhance long-term stockholder value. Repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance.

We have a common stock repurchase program of which $109.9 million was available as of March 30, 2024. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in ~~engineering~~accordance with the rules of the SEC and ~~sales,~~other applicable legal requirements. The specific timing, price and size of the purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations consistent with our capital allocation strategy. Stock repurchases could have an impact on our common stock trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. The repurchase program does not obligate us to acquire a particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is ~~intense.~~fully implemented, it may not enhance long-term stockholder value.

General Risks

As a public company, we are subject to significant accounting, legal and regulatory requirements; our failure to comply with these requirements may adversely affect our operating results and financial condition.

We are subject to significant accounting, legal and regulatory requirements, including requirements and rules under the Sarbanes-Oxley Act, or SOX, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, among other rules and regulations implemented by the SEC, as well as listing requirements of the New York Stock Exchange, or NYSE. We incur significant accounting, legal and other expenses and must invest substantial time and resources to comply with public company reporting and compliance requirements, including costs to ensure we have adequate internal controls over accounting and financial reporting, proper documentation and testing procedures among other requirements. We cannot be certain that the actions we have taken to implement internal controls over financial reporting will be ~~successful~~sufficient. We have in ~~attracting~~the past discovered, and ~~retaining qualified personnel, or~~may in the future discover, areas of our internal financial and accounting controls and procedures that ~~newly hired personnel will function effectively, both individually~~need improvement, particularly as we enhance, automate and improve functionality of our processes and internal applications. New laws and regulations as ~~a group. In particular,~~well as changes to existing laws and regulations affecting public companies would likely result in increased costs to us as we ~~must~~respond to their requirements. We continue to ~~expand our direct sales force, including hiring additional sales managers,~~invest resources to ~~grow our customer base~~comply with evolving laws and ~~increase sales. If we are unable to effectively recruit, hire~~regulations, and ~~utilize new employees, execution of our business strategy~~this investment may result in increased general and ~~our ability to react to changing market conditions may be impeded, and our business, financial condition and results of operations may suffer.~~

Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key personnel. Our executive officers and employees hold a substantial number of shares of our common stock and vested stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their equity awards decline in value, or if the exercise prices of stock options that they hold are significantly above the market price of our common stock. If we are unable to retain our employees, our business, operating results and financial condition will be harmed.administrative expense.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our operating results ~~our ability to operate our business~~ and our stock price.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We have in the past discovered, and may in the future, discover areas of our internal financial and accounting controls and procedures that need improvement.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements ~~for external purposes~~ in accordance with U.S. generally accepted accounting principles. Our management does not expect that our internal control over financial reporting will prevent or detect all error 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. 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, within our company will have been detected.

We are required to comply with Section 404 of the Sarbanes-Oxley Act (“SOX”), which requires us to expend significant resources in developing the required documentation and testing procedures. We cannot be certain that the actions we have taken and are taking to improve our internal controls over financial reporting will be sufficient to maintain effective internal controls over financial reporting in subsequent reporting periods or that we will be able to implement our planned processes and procedures in a timely manner. In addition, new and revised accounting standards and financial reporting requirements may occur in the future and implementing changes required by new standards, requirements or laws may require a significant expenditure of our management’s time, attention and resources which may adversely affect our reported financial results. If we are unable to produce accurate financial statements on a timely basis, investors could lose confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.

~~We incur significant costs as a result~~

Table of ~~operating as a public company, which may adversely affect our operating results and financial condition.~~

As a public company, we incur significant accounting, legal and other expenses, including costs associated with our public company reporting requirements. We also anticipate that we will continue to incur costs associated with corporate governance requirements, including requirements and rules under SOX and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) among other rules and regulations implemented by the SEC, as well as listing requirements of the New York Stock Exchange (the “NYSE”). Furthermore, these laws and regulations could make it difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of SOX and the Dodd-Frank Act and rules adopted by the SEC and the NYSE, would likely result in increased costs to us as we respond to their requirements. We continue to invest resources to comply with evolving laws and regulations, and this investment may result in increased general and administrative expense.

~~Our stock price may continue to be volatile, and the value of an investment in our common stock may decline.~~

~~quarterly variations in our results of operations or those of our competitors;~~

~~failure to meet any guidance that we have previously provided regarding our anticipated results;~~

~~changes in earnings estimates or recommendations by securities analysts;~~Contents

~~failure to meet securities analysts’ estimates;~~

~~announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments;~~

~~developments with respect to intellectual property rights;~~

~~our ability to develop and market new and enhanced products on a timely basis;~~

~~our commencement of, or involvement in, litigation and developments relating to such litigation;~~

~~changes in governmental regulations; and~~

~~a slowdown in the communications industry or the general economy.~~

In recent years, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

If securities or industry analysts do not publish research or reports about our business or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding our stock, our stock price would likely decline. If several of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

~~Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of our management and board of directors.~~

~~a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;~~

~~no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;~~

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

~~a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;~~

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

We are also subject to certain anti-takeover provisions under Delaware law. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction.

~~We may need additional capital in the future to finance our business.~~

We may need to raise additional capital to fund operations in the future. Although we believe that, based on our current level of operations and anticipated growth, our existing cash, cash equivalents, marketable securities and borrowings available under our Loan Agreement will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next twelve months, our working capital needs and cash use have continued to increase to support our growth initiatives, and we may need additional capital if our current plans and assumptions change. If future financings involve the issuance of equity securities, our then-existing stockholders would suffer dilution. If we raise additional debt financing, we may be subject to restrictive covenants that limit our ability to conduct our business. If we are unable to generate positive operating income and positive cash flows from operations, our liquidity, results of operations and financial condition will be adversely affected. If we are unable to generate cash flows to support our operational needs, we may need to seek other sources of liquidity, including borrowings, to support our working capital needs. In addition, we may choose to seek other sources of liquidity even if we believe we have generated sufficient cash flows to support our operational needs. There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all. If we are unable to generate sufficient cash flows or

obtain other sources of liquidity, we will be forced to limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which would adversely impact our business and growth.

We do not currently intend to pay dividends on our common stock and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our credit facility restrict our ability to pay dividends under certain circumstances. Therefore, our stockholders are not likely to receive any dividends on our common stock for the foreseeable future.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

We maintain a common stock repurchase program. Our repurchase activity for the three months ended March 30, 2024 was as follows (in thousands, except per share amounts):


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs
January 1 to January 31	56	$	32.75	56	$	111,768
February 1 to February 29	58	33.00		58	109,865
March 1 to March 30	—	—		—	109,865
	114			114

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

~~None.~~During the three months ended March 30, 2024, no director or officer (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K. On November 3, 2023, Cory Sindelar, Chief Financial Officer of the Company, adopted a Rule 10b5-1 trading arrangement (the “10b5-1 Plan”) that is intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended. The 10b5-1 Plan allows for the contemporaneous exercise of options and sale of up to 55,000 shares of Common Stock, at specific market prices, commencing on February 28, 2024, and continuing until all such options are exercised and the underlying shares are sold, or February 28, 2025, whichever comes first.

Table of Contents

ITEM 6. Exhibits


Exhibit Number		Description
~~Exhibit~~ ~~Number~~			~~Description~~
3.1
~~10.1†~~	~~Loan and Security Agreement dated August 7, 2017 between Silicon Valley Bank and Calix, Inc.~~

10.2*	~~Offer Letter between Calix, Inc. and Cory Sindelar dated September 28, 2017.~~

10.3*	~~Nonstatutory Inducement Stock Option Grant Notice between Calix, Inc. and Cory Sindelar dated October 1, 2017.~~

10.4*	Amended and Restated ~~Executive Change in Control and Severance Plan effective September 6, 2017~~Certificate of Incorporation of Calix, Inc. (filed as Exhibit ~~10.1~~3.3 to Amendment No. 7 to Calix’s Registration Statement on Form ~~8-K~~S-1 filed with the ~~SEC~~Securities and Exchange Commission on ~~September 11, 2017~~March 23, 2010 (File No. ~~001-34674)~~333-163252) and incorporated by reference).

10.5*3.2		~~Amendment to~~ Amended and Restated ~~Executive Change in Control~~Bylaws of Calix, Inc. (filed as Exhibit 3.5 to Amendment No. 7 to Calix’s Registration Statement on Form S-1 filed with the Securities and ~~Severance Plan effective October 1, 2017.~~Exchange Commission on March 23, 2010 (File No. 333-163252) and incorporated by reference).
31.1
~~31.1~~	Certification of Chief Executive Officer of Calix, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer of Calix, Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer of Calix, Inc. Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



~~† Confidential treatment has been requested for portions of this agreement.~~
* Indicates management contract or compensatory plan or arrangement.

Table of Contents

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.


		CALIX, INC. (Registrant)

Date: April 23, 2024		By:		/s/ Michael Weening
		~~CALIX, INC.~~ ~~(Registrant)~~		Michael Weening

~~Date: November 8, 2017~~	~~By:~~		~~/s/ Carl Russo~~
		~~Carl Russo~~
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November 8, 2017~~April 23, 2024		By:		/s/ Cory Sindelar
				Cory Sindelar
				Chief Financial Officer (Principal Financial Officer)

~~Date: November 8, 2017~~	~~By:~~	~~/s/ Sheila Cheung~~
		~~Sheila Cheung~~
		~~Vice President, Finance and Accounting~~ ~~(Principal Accounting Officer)~~



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	2,401	$	—	$	(1	)	$	2,400
U.S. government agency securities	4,200		—		(2		)	4,198
	$	6,601	$	—	$	(3	)	$	6,598



As of December 31, 2016	Level 1		Level 2		Total
Money market funds	$	15,020	$	—	$	15,020
Corporate debt securities	—		17,272		17,272
Commercial paper	—		7,274		7,274
U.S. government agency securities	—		4,201		4,201
	$	15,020	$	28,747	$	43,767



	September 30, 2017		December 31, 2016
Accrued compensation and related benefits	$	23,890	$	19,541
Accrued professional and consulting fees	12,222		8,205
Accrued warranty and retrofit	8,454		12,214
Advance customer payments	5,211		20,726
Accrued excess and obsolete inventory at contract manufacturers	1,819		1,327
Accrued customer rebates	828		1,931
Accrued restructuring charges	195		—
Accrued other	6,782		5,771
	$	59,401	$	69,715



	September 30, 2017		December 31, 2016
Current:
Products and services	$	24,512	$	24,472
Extended warranty	3,716		3,382
	28,228		27,854
Long-term:
Products and services	18		22
Extended warranty	21,155		20,215
	21,173		20,237
	$	49,401	$	48,091



Period	Minimum Future Lease Payments
Remainder of 2017	$	756
2018	2,794
2019	1,082
2020	738
2021	286
Thereafter	19
	$	5,675



	Three Months Ended
	September 30, 2017									September 24, 2016
	Unrealized Gains and Losses on Available-for-Sale Marketable Securities			Foreign Currency Translation Adjustments			Total			Unrealized Gains and Losses on Available-for-Sale Marketable Securities			Foreign Currency Translation Adjustments			Total
Balance at beginning of period	$	(7	)	$	(457	)	$	(464	)	$	12		$	(142	)	$	(130	)
Other comprehensive income (loss)	4			116			120			(9		)	(87		)	(96		)
Balance at end of period	$	(3	)	$	(341	)	$	(344	)	$	3		$	(229	)	$	(226	)



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Liability at beginning of period	$	600		$	—
Restructuring charges for the period	612			2,268
Cash payments	(1,017		)	(2,073		)
Liability at end of period	$	195		$	195