10-Q 1 calx-20221001.htm 10-Q calx-20221001
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2022
OR 
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
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
2777 Orchard Parkway, San Jose, CA 95134
(Address of Principal Executive Offices) (Zip Code)
(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 SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.025 per share
CALXNew 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 every Interactive Data File required to be submitted 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 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 FilerAccelerated Filer
Non-accelerated filerSmaller Reporting Company
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. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes:     No:  x
As of October 17, 2022, there were 65,441,288 shares of the Registrant’s common stock, par value $0.025 outstanding.


CALIX, INC.
FORM 10-Q
TABLE OF CONTENTS
 
3

PART I. FINANCIAL INFORMATION
 
ITEM 1.Financial Statements
CALIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value) 
October 1,
2022
December 31,
2021
 (Unaudited) (See Note 1)
ASSETS
Current assets:
Cash and cash equivalents$75,172 $51,333 
Marketable securities159,534 153,002 
Accounts receivable, net100,527 85,219 
Inventory141,116 88,880 
Prepaid expenses and other current assets58,827 30,811 
Total current assets535,176 409,245 
Property and equipment, net24,348 21,783 
Right-of-use operating leases10,002 12,182 
Deferred tax assets163,737 168,962 
Goodwill116,175 116,175 
Other assets17,441 13,685 
$866,879 $742,032 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$66,246 $29,061 
Accrued liabilities80,573 71,597 
Deferred revenue33,687 27,478 
Total current liabilities180,506 128,136 
Long-term portion of deferred revenue24,919 22,016 
Operating leases9,443 12,376 
Other long-term liabilities4,264 11,076 
Total liabilities219,132 173,604 
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 October 1, 2022 and December 31, 2021
  
Common stock, $0.025 par value; 100,000 shares authorized; 65,442 shares issued and outstanding as of October 1, 2022, and 64,274 shares issued and outstanding as of December 31, 2021
1,636 1,607 
Additional paid-in capital1,050,826 997,855 
Accumulated other comprehensive loss(3,084)(320)
Accumulated deficit(401,631)(430,714)
Total stockholders’ equity647,747 568,428 
$866,879 $742,032 
See accompanying notes to condensed consolidated financial statements.
4

CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
 Three Months EndedNine Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Revenue:
Systems$225,845 $163,076 $591,466 $475,931 
Services10,489 9,155 31,858 27,044 
Total revenue236,334 172,231 623,324 502,975 
Cost of revenue:
Systems110,573 76,339 290,934 218,675 
Services7,189 6,399 21,846 18,946 
Total cost of revenue117,762 82,738 312,780 237,621 
Gross profit118,572 89,493 310,544 265,354 
Operating expenses:
Sales and marketing46,134 31,144 123,363 88,905 
Research and development33,196 25,727 93,443 75,807 
General and administrative19,237 14,631 54,179 41,320 
Total operating expenses98,567 71,502 270,985 206,032 
Operating income20,005 17,991 39,559 59,322 
Interest and other income (expense), net:
Interest income (expense), net595 (86)870 (330)
Other income (expense), net(134)(463)(474)(120)
Total interest and other income (expense), net461 (549)396 (450)
Income before income taxes20,466 17,442 39,955 58,872 
Income taxes7,023 (159,982)10,872 (159,625)
Net income$13,443 $177,424 $29,083 $218,497 
Net income per common share:
Basic$0.21 $2.79 $0.45 $3.47 
Diluted$0.19 $2.61 $0.42 $3.24 
Weighted-average number of shares used to compute
net income per common share:
Basic65,355 63,588 64,892 63,057 
Diluted69,174 67,907 68,587 67,537 
Net income$13,443 $177,424 $29,083 $218,497 
Other comprehensive loss, net of tax:
Unrealized loss on available-for-sale marketable securities, net(488) (1,956) 
Foreign currency translation adjustments, net(335)(24)(808)(15)
Total other comprehensive loss, net of tax(823)(24)(2,764)(15)
Comprehensive income$12,620 $177,400 $26,319 $218,482 

See accompanying notes to condensed consolidated financial statements.
5

CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, unaudited)

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance as of July 2, 202265,241 $1,631 $1,032,833 $(2,261)$(415,074)$617,129 
Stock-based compensation
— — 11,027 — — 11,027 
Issuance of common stock under equity incentive plans, net of forfeitures201 5 6,966 — — 6,971 
Net income— — — — 13,443 13,443 
Other comprehensive loss— — — (823)— (823)
Balance as of October 1, 202265,442 $1,636 $1,050,826 $(3,084)$(401,631)$647,747 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance as of July 3, 202163,200 $1,580 $972,259 $(182)$(628,019)$345,638 
Stock-based compensation
— — 6,661 — — 6,661 
Issuance of common stock under equity incentive plans, net of forfeitures532 14 5,913 — — 5,927 
Net income— — — — 177,424 177,424 
Other comprehensive loss— — — (24)— (24)
Balance as of October 2, 202163,732 $1,594 $984,833 $(206)$(450,595)$535,626 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance as of December 31, 202164,274 $1,607 $997,855 $(320)$(430,714)$568,428 
Stock-based compensation
— — 31,502 — — 31,502 
Issuance of common stock under equity incentive plans, net of forfeitures1,168 29 21,469 — — 21,498 
Net income— — — — 29,083 29,083 
Other comprehensive loss— — — (2,764)— (2,764)
Balance as of October 1, 202265,442 $1,636 $1,050,826 $(3,084)$(401,631)$647,747 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance as of December 31, 202062,122 $1,553 $948,055 $(191)$(669,092)$280,325 
Stock-based compensation
— — 18,055 — — 18,055 
Issuance of common stock under equity incentive plans, net of forfeitures1,610 41 18,723 — — 18,764 
Net income— — — — 218,497 218,497 
Other comprehensive loss— — — (15)— (15)
Balance as of October 2, 202163,732 $1,594 $984,833 $(206)$(450,595)$535,626 


See accompanying notes to condensed consolidated financial statements.
6

CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Nine Months Ended
October 1,
2022
October 2,
2021
Operating activities:
Net income$29,083 $218,497 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation31,502 18,055 
Depreciation and amortization10,837 11,351 
Deferred income taxes5,225 (161,995)
Net accretion of available-for-sale securities(533) 
Changes in operating assets and liabilities:
Accounts receivable, net(15,308)(22,510)
Inventory(52,236)(22,897)
Prepaid expenses and other assets(32,854)(9,776)
Accounts payable36,170 18,311 
Accrued liabilities9,825 (7,008)
Deferred revenue9,112 6,691 
Other long-term liabilities(9,745)(4,544)
Net cash provided by operating activities21,078 44,175 
Investing activities
Purchases of property and equipment(9,260)(7,271)
Purchases of marketable securities(142,280)(200,509)
Maturities of marketable securities134,325 125,000 
Net cash used in investing activities(17,215)(82,780)
Financing activities:
Proceeds from common stock issuances related to employee benefit plans21,498 18,764 
Payments related to financing arrangements(995)(723)
Net cash provided by financing activities20,503 18,041 
Effect of exchange rate changes on cash and cash equivalents(527)(28)
Net increase (decrease) in cash and cash equivalents23,839 (20,592)
Cash and cash equivalents at beginning of period51,333 80,807 
Cash and cash equivalents at end of period$75,172 $60,215 

See accompanying notes to condensed consolidated financial statements.
7

CALIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Company and Basis of Presentation
Company
Calix, Inc. (together with its subsidiaries, “Calix” or the “Company”) was incorporated in August 1999 and is a Delaware corporation. The Company is the leading global provider of cloud and software platforms, systems and services that focus on the subscriber-facing network, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers. These cloud and software platforms enable broadband service providers (“BSPs”) of all types and sizes to innovate and transform their businesses. The Company’s BSP customers are empowered to utilize real-time data and insights from Calix platforms to simplify their businesses and deliver experiences that excite their subscribers. These insights enable BSPs to grow their businesses through increased subscriber acquisition, loyalty and revenue, thereby increasing the value of their businesses and contributions to their communities.
Basis of Presentation
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 intercompany balances and transactions have been eliminated in consolidation. The Condensed Consolidated Balance Sheet as of December 31, 2021 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, 2021.
The Company’s fiscal year begins on January 1st and ends on December 31st. Quarterly periods are based on a 4-4-5 calendar with the first quarter ending on the Saturday closest to March 31st. As a result, the Company had one less day in the nine months ended October 1, 2022 than for the nine months ended October 2, 2021. The preparation of financial statements in conformity with GAAP for interim financial reporting requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, particularly as variants of the coronavirus continue to spread around the world. The COVID-19 pandemic has had a prolonged impact on the Company’s supply chain operations due to restrictions, reduced capacity and limited availability from suppliers on whom the Company relies for sourcing components and materials and from third-party partners on whom the Company relies for manufacturing, warehousing and logistics services. Shortages and delays relating to the Company’s components and materials have also caused, and may continue to cause, difficulties in managing global logistics, and transport and warehousing services for the Company’s products. The prolonged impact of COVID-19 could exacerbate these constraints or cause further supply chain disruptions.
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, 2021. The Company’s significant accounting policies did not change during the nine months ended October 1, 2022.
8

Newly Adopted Accounting Standard
The Company did not adopt any new accounting standards during the nine months ended October 1, 2022 that were significant to the Company.

Recent Accounting Pronouncements Not Yet Adopted
There have been no additional accounting pronouncements or changes in accounting pronouncements during the nine months ended October 1, 2022 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that are significant or potentially significant to the Company.
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 commercial paper, corporate debt securities, municipal securities and U.S. government securities. The Company considers all investments with maturities of three months or less when purchased to be cash equivalents. Marketable securities represent commercial paper, U.S. government agency securities, corporate debt securities, municipal securities and U.S. government 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.
The Company’s investments have been classified and accounted for as available-for-sale. Such investments are recorded at fair value and unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive loss in the stockholders’ equity until realized. Realized gains and losses on sales of marketable securities, if any, are determined on the specific identification method and are reclassified from accumulated other comprehensive loss to results of operations as other expense, net. There were no realized gains and losses for the three and nine months ended October 1, 2022 and October 2, 2021, respectively.
Cash, cash equivalents and marketable securities consisted of the following (in thousands):
October 1,
2022
December 31,
2021
Cash and cash equivalents:
Cash$33,807 $26,442 
Commercial paper34,377 21,582 
U.S. government securities6,966  
Money market funds22 2,320 
Corporate debt securities 989 
Total cash and cash equivalents75,172 51,333 
Marketable securities:
U.S. government securities109,548 60,279 
Commercial paper28,953 80,812 
U.S. government agency securities20,533 5,527 
Corporate debt securities249 3,576 
Municipal securities251 2,808 
Total marketable securities159,534 153,002 
$234,706 $204,335 
The carrying amounts of the Company’s money market funds approximate their fair values due to their nature, duration and short maturities.
9

The amortized cost and fair value of marketable securities as of October 1, 2022 were as follows (in thousands):
Amortized CostGross Unrealized LossesFair Value
U.S. government securities$118,340 $(1,826)$116,514 
Commercial paper63,405 (75)63,330 
U.S. government agency securities20,763 (230)20,533 
Municipal securities252 (1)251 
Corporate debt securities251 (2)249 
Total marketable securities$203,011 $(2,134)$200,877 
Unrealized gains and losses were de minimis as of December 31, 2021.
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 tables sets forth the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
As of October 1, 2022Level 1Level 2Total
Money market funds$22 $ $22 
U.S. government securities116,514  116,514 
Commercial paper 63,330 63,330 
U.S. government agency securities 20,533 20,533 
Municipal securities 251 251 
Corporate debt securities 249 249 
$116,536 $84,363 $200,899 

As of December 31, 2021Level 1Level 2Total
Money market funds$2,320 $ $2,320 
U.S. government securities60,279  60,279 
Commercial paper 102,394 102,394 
U.S. government agency securities 5,527 5,527 
Corporate debt securities 4,565 4,565 
Municipal securities 2,808 2,808 
$62,599 $115,294 $177,893 
10

5. Balance Sheet Details
Accounts receivable, net consisted of the following (in thousands):
October 1,
2022
December 31,
2021
Accounts receivable$101,220 $85,944 
Allowance for doubtful accounts(693)(725)
$100,527 $85,219 
Inventory consisted of the following (in thousands):
October 1,
2022
December 31,
2021
Raw materials$804 $130 
Finished goods140,312 88,750 
$141,116 $88,880 
Property and equipment, net consisted of the following (in thousands):
October 1,
2022
December 31,
2021
Test equipment$43,660 $39,476 
Computer equipment12,024 11,156 
Software9,859 9,013 
Leasehold improvements1,704 1,351 
Furniture and fixtures1,140 1,812 
Total68,387 62,808 
Accumulated depreciation and amortization(44,039)(41,025)
$24,348 $21,783 
Accrued liabilities consisted of the following (in thousands):
October 1,
2022
December 31,
2021
Compensation and related benefits$16,262 $23,165 
Component inventory held by suppliers10,290 7,611 
Current portion of revenue share payments10,284 4,731 
Professional and consulting fees6,993 4,819 
Current portion of warranty and retrofit6,559 7,076 
Customer advances or rebates6,220 4,742 
Taxes payable6,154 4,251 
Freight3,952 3,997 
Operating leases3,853 3,596 
Product returns2,722 1,836 
Operations1,577 1,400 
Other5,707 4,373 
$80,573 $71,597 
11

In March 2018, and as amended in December 2020, the Company entered into an agreement with a vendor to develop a certain software product and related enhancements pursuant to which the Company is obligated to make revenue-share payments under the program, subject to aggregate fixed revenue-share payments of $15.8 million. The payments are based on a revenue-share rate applied to revenue from the developed-product and the corresponding hardware sales through March 2024. If the minimum revenue-share payments are not achieved by the end of that period, a true-up payment will be due. As of October 1, 2022, the liability, including accrued interest, was $12.7 million, of which $10.3 million is included in “Accrued liabilities” and $2.4 million in “Other long-term liabilities” in the accompanying Condensed Consolidated Balance Sheet. As of December 31, 2021, the liability, including accrued interest, was $13.2 million, of which $4.7 million was included in “Accrued liabilities” and $8.5 million in other “Other long-term liabilities.”
Changes in the Company’s accrued warranty and retrofit liability were as follows (in thousands):
 Three Months EndedNine Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Balance at beginning of period$8,654 $9,911 $9,594 $9,208 
Accruals for product warranty and retrofit
219 769 396 2,974 
Cost of warranty and retrofit claims
(566)(554)(1,683)(2,056)
Balance at end of period$8,307 $10,126 $8,307 $10,126 
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 October 1, 2022 (in thousands):
PeriodFuture Minimum Lease Payments
Remainder of 2022$1,136 
20234,619 
20244,448 
20253,945 
2026 and thereafter530 
Total future minimum lease payments14,678 
Less imputed interest(1,382)
$13,296 
As of October 1, 2022, the operating lease liability consisted of the following (in thousands):
Accrued liabilities - current portion of operating leases$3,853 
Operating leases9,443 
$13,296 
The Company leases its headquarters office space in San Jose, California under a lease agreement that expires in December 2025. The future minimum lease payments under the lease are $7.9 million and are included in the table above.
The weighted average discount rate for the Company’s operating leases as of October 1, 2022 was 6.1%. The weighted average remaining lease term as of October 1, 2022 was 3.2 years.
For the three and nine months ended October 1, 2022, total rent expense of the Company was $1.0 million and $3.2 million, respectively. For the three and nine months ended October 2, 2021, total rent expense of the Company was $1.0 million and $3.1 million, respectively. Cash paid within operating cash flows for operating leases was $3.4 million and $2.9 million for the nine months ended October 1, 2022 and October 2, 2021, respectively.
Purchase Commitments
The Company’s suppliers, including contract manufacturers (“CMs”) and original design manufacturers (“ODMs”), place orders for certain component inventory in advance based upon the Company’s build forecasts in order to reduce manufacturing
12

lead times and ensure adequate component supply. The components are used by the CMs and ODMs to build the products included in the build forecasts. The Company generally does not take ownership of the components held by CMs and ODMs. The Company places purchase orders with its CMs and ODMs in order to fulfill its monthly finished product inventory requirements. The Company incurs a liability when the CMs and ODMs convert the component inventory to a finished product and takes ownership of the finished goods inventory. In the event of termination of services with a manufacturing partner, the Company has purchased, and may be required to purchase in the future, certain of the remaining components inventory held by the CM or ODM as well as any outstanding orders pursuant to the contractual provisions with such CM or ODM. As of October 1, 2022 and December 31, 2021, the Company had approximately $398.8 million and $247.3 million, respectively, of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs.
The Company has from time to time, and subject to certain conditions, reimbursed certain suppliers for component inventory purchases when this inventory has been rendered excess or obsolete, for example due to manufacturing and engineering change orders resulting from design changes, manufacturing discontinuation of products by its suppliers, or in cases where the Company has committed inventory levels that greatly exceed projected demand. The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $10.3 million and $7.6 million as of October 1, 2022 and December 31, 2021, respectively. The Company records the related charges in cost of systems revenue in its Condensed Consolidated Statements of Comprehensive Income.
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 that, if determined adversely to the Company, in management’s opinion, are 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.
7. Stockholders’ Equity
2019 Equity Incentive Award Plan
Employees and consultants of the Company, its subsidiaries and affiliates, as well as members of the Company’s Board of Directors, are eligible to receive awards under the 2019 Equity Incentive Award Plan (“the 2019 Plan”). The 2019 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash-based awards and dividend equivalents to eligible individuals. At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 1.5 million shares. As of October 1, 2022, there were 6.7 million shares available for issuance under the 2019 Plan.
Stock Options
During the three months ended October 1, 2022, stock option awards exercisable for up to an aggregate of 0.3 million shares of common stock were granted with a grant date weighted-average exercise price of $56.21 per share. During the nine months ended October 1, 2022, stock option awards exercisable for up to an aggregate of 1.1 million shares of common stock were granted with a grant date weighted-average exercise price of $46.83 per share. These stock option awards vest 25% on the first anniversary of the vesting commencement date and on a quarterly basis thereafter over an additional three years.
In February 2022, performance-based stock option awards exercisable for up to an aggregate of 0.7 million shares of common stock were granted to certain Company executives with a grant date exercise price of $55.96 per share. The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net operating income for 2022 (collectively, the “2022 Performance Targets”) during the one-year performance period. These performance-based stock option awards will vest, subject to certification by the Compensation Committee of the Company’s Board of Directors upon the achievement of the 2022 Performance Targets, as to 25% of the shares of common stock earned on the one year anniversary of the date of grant, and as to the remaining 75% of the shares of common stock earned, in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates. If the non-GAAP net operating income target is achieved below 80% of target or the bookings target is achieved below 90% of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full. If both targets are achieved at the minimum threshold of 80% of target for non-GAAP net operating income and 90% of target for bookings, then the shares are awarded at 50% of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 100% of the granted shares if both targets are achieved at 100% or more of target. The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of October 1, 2022, and stock-based compensation expense of $2.9 million was recognized for the
13

three months ended October 1, 2022. For the nine months ended October 1, 2022, stock-based compensation expense of $7.4 million was recognized.
During the three months ended October 1, 2022, 46,000 shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $23.18 per share. During the nine months ended October 1, 2022, 0.6 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $8.86 per share. As of October 1, 2022, unrecognized stock-based compensation expense of $55.7 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.
Employee Stock Purchase Plans
The Company maintains two employee stock purchase plans - the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated 2017 Nonqualified Employee Stock Purchase Plan (the “NQ ESPP”).
The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their eligible compensation subject to certain Internal Revenue Code limitations. In addition, participants may purchase up to 2,000 shares of common stock during each offering period.
The offering periods under the ESPP are two six-month offering periods from August 15th through February 14th and February 15th through August 14th of each year. The price of common stock purchased under the ESPP is 85% of the lower of the fair market value of the common stock on the commencement date and the end date of each six-month offering period. At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 1.3 million shares. The total shares authorized for issuance under the ESPP increased from 11.1 million shares to 12.4 million shares. As of October 1, 2022, there were 4.7 million shares available for issuance under the ESPP. During the nine months ended October 1, 2022, 0.2 million shares were purchased under the ESPP. As of October 1, 2022, unrecognized stock-based compensation expense of $1.3 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.
The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25% of their eligible compensation. Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date. Beginning in the second quarter of 2022, the NQ ESPP provides quarterly offering periods from February 8th through May 7th, May 8th through August 7th, August 8th through November 7th and November 8th through February 7th of each year. A transition period began on May 15th and ended on August 7th. At the Company’s 2022 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the NQ ESPP by 0.8 million shares. The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 6.3 million shares, with a maximum of 0.5 million shares allocated per purchase period. As of October 1, 2022, there were 3.2 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase. During the nine months ended October 1, 2022, 0.5 million shares were purchased and issued. As of October 1, 2022, unrecognized stock-based compensation expense of $8.2 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 years.
Stock-Based Compensation
The following table summarizes stock-based compensation expense (in thousands):
 Three Months EndedNine Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Cost of revenue:
Products$432 $211 $1,225 $559 
Services266 177 739 483 
Sales and marketing3,082 1,791 8,412 4,961 
Research and development2,808 1,803 8,812 5,031 
General and administrative4,439 2,679 12,314 7,021 
$11,027 $6,661 $31,502 $18,055 
14

Stock Repurchase Program
In July 2022, the Company’s Board of Directors authorized a one-year stock repurchase program for up to $100 million of the Company’s common stock. 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 will depend on prevailing stock prices, general economic and 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. During the three months ended October 1, 2022, no repurchases were made under the program.
8. Revenue from Contracts with Customers
The Company derives revenue from contracts with customers primarily from the following and categorizes its revenue as follows:
Systems include revenue from the sale of access and premises systems, software platform licenses and cloud-based software subscriptions; and
Services include revenue from customer support, software- and cloud-based maintenance, extended warranty subscriptions, professional services, training and managed services.
The following is a summary of revenue disaggregated by geographic region based upon the location of the customers (in thousands):
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
United States$215,857 $136,312 $565,420 $414,246 
Americas ex U.S.11,557 11,800 31,236 37,660 
Europe7,178 19,443 16,705 32,701 
Middle East & Africa1,223 3,905 8,940 16,165 
Asia Pacific519 771 1,023 2,203 
$236,334 $172,231 $623,324 $502,975 
Contract Asset
The primary contract asset is revenue recognized on professional services contracts where the services are transferred to the customer over time, which has yet to be billed, and is classified within accounts receivable. Amounts are billed in accordance with the agreed-upon contractual terms. The balance as of December 31, 2021 was $1.7 million of which $0.3 million remained in the Company’s Condensed Consolidated Balance Sheet as of October 1, 2022. The closing balance as of October 1, 2022 was $2.0 million of which the Company expects to bill 26% of the balance during the remainder of 2022. The contract asset balance may fluctuate depending on the timing of professional services contracts with the Company's customers.
Contract Liability
Deferred revenue consisted of the following (in thousands):
October 1,
2022
December 31,
2021
Current:
Products and services$28,713 $22,586 
Extended warranty4,974 4,892 
33,687 27,478 
Long-term:
Products and services6,477 3,137 
Extended warranty18,442 18,879 
24,919 22,016 
$58,606 $49,494 
15


The increase in the deferred revenue balance for the three and nine months ended October 1, 2022 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations offset by $13.0 million and $23.2 million of revenue recognized that was included in the deferred revenue balance at the beginning of each period, respectively.

Revenue allocated to remaining performance obligations (“RPOs”) represents contract revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods but excludes variable consideration where the monthly invoicing is based on usage or where actual usage exceeds the minimum commitment. RPOs were $173.1 million as of October 1, 2022, and the Company expects to recognize as revenue 35% of this amount over the next 12 months and the remainder thereafter.
Contract Costs
The Company capitalizes certain sales commissions related primarily to multi-year subscriptions and extended warranty support for which the expected amortization period is greater than one year. As of October 1, 2022 and December 31, 2021, the unamortized balance of deferred commissions was $8.5 million and $7.4 million, respectively. For the three and nine months ended October 1, 2022, the amount of amortization was $1.0 million and $2.6 million, respectively, compared to $0.4 million and $0.7 million for the three and nine months ended October 2, 2021, respectively. There was no impairment loss in relation to the costs capitalized for either period.
Concentration of Customer Risk
No customer accounted for more than 10% of the Company’s total revenue for the three or nine months ended October 1, 2022. One customer represented 10% of the Company’s total revenue for the three months ended October 2, 2021. No customer accounted for more than 10% of the Company’s total revenue for the nine months ended October 2, 2021.
No customer represented more than 10% of the Company’s accounts receivable as of October 1, 2022. One customer represented 12% of the Company’s accounts receivable as of December 31, 2021.
9. Income Taxes
The following table presents income taxes and the effective tax rates for the periods indicated (in thousands, except percentages):
 Three Months EndedNine Months Ended
October 1,
2022
October 2,
2021
October 1,
2022
October 2,
2021
Income before income taxes$20,466 $17,442 $39,955 $58,872 
Income taxes$7,023 $(159,982)