10-Q 1 calx-20211002.htm 10-Q calx-20211002
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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 2, 2021
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 18, 2021, there were 63,756,160 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 2,
2021
December 31,
2020
 (Unaudited) (See Note 1)
ASSETS
Current assets:
Cash and cash equivalents$60,215 $80,807 
Marketable securities128,492 52,982 
Accounts receivable, net91,929 69,419 
Inventory75,166 52,268 
Prepaid expenses and other current assets18,957 11,414 
Total current assets374,759 266,890 
Property and equipment, net20,960 20,381 
Right-of-use operating leases10,841 11,741 
Deferred tax assets161,968  
Goodwill116,175 116,175 
Other assets11,014 12,165 
$695,717 $427,352 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$31,340 $13,115 
Accrued liabilities61,444 68,736 
Deferred revenue24,217 19,189 
Total current liabilities117,001 101,040 
Long-term portion of deferred revenue21,568 19,904 
Operating leases11,516 12,946 
Other long-term liabilities10,006 13,137 
Total liabilities160,091 147,027 
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 October 2, 2021 and December 31, 2020
  
Common stock, $0.025 par value; 100,000 shares authorized; 63,732 shares issued and outstanding as of October 2, 2021, and 62,122 shares issued and outstanding as of December 31, 2020
1,594 1,553 
Additional paid-in capital984,833 948,055 
Accumulated other comprehensive loss(206)(191)
Accumulated deficit(450,595)(669,092)
Total stockholders’ equity535,626 280,325 
$695,717 $427,352 
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 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Revenue:
Systems$163,076 $142,294 $475,931 $347,644 
Services9,155 8,214 27,044 23,569 
Total revenue172,231 150,508 502,975 371,213 
Cost of revenue:
Systems76,339 68,889 218,675 176,318 
Services6,399 5,644 18,946 16,891 
Total cost of revenue82,738 74,533 237,621 193,209 
Gross profit89,493 75,975 265,354 178,004 
Operating expenses:
Sales and marketing31,144 23,079 88,905 65,046 
Research and development25,727 20,378 75,807 61,970 
General and administrative14,631 10,768 41,320 32,630 
Restructuring charges   6,286 
Total operating expenses71,502 54,225 206,032 165,932 
Income from operations17,991 21,750 59,322 12,072 
Interest and other expense, net:
Interest expense, net(86)(356)(330)(1,263)
Other expense, net(463)(707)(120)(801)
Total interest and other expense, net(549)(1,063)(450)(2,064)
Income before income taxes17,442 20,687 58,872 10,008 
Income taxes(159,982)149 (159,625)626 
Net income$177,424 $20,538 $218,497 $9,382 
Net income per common share:
Basic$2.79 $0.34 $3.47 $0.16 
Diluted$2.61 $0.32 $3.24 $0.16 
Weighted-average number of shares used to compute
net income per common share:
Basic63,588 60,307 63,057 58,053 
Diluted67,907 63,449 67,537 60,331 
Net income$177,424 $20,538 $218,497 $9,382 
Other comprehensive income (loss), net of tax -
foreign currency translation adjustments, net
(24)410 (15)161 
Comprehensive income$177,400 $20,948 $218,482 $9,543 

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 DeficitTreasury StockTotal Stockholders’ Equity
SharesAmount
Balance at 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 at October 2, 202163,732 $1,594 $984,833 $(206)$(450,595)$ $535,626 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTreasury StockTotal Stockholders’ Equity
SharesAmount
Balance at June 27, 202058,143 $1,587 $912,402 $(1,103)$(713,732)$(39,986)$159,168 
Stock-based compensation
— — 3,574 — — — 3,574 
Issuance of common stock under equity incentive plans, net of forfeitures407 9 3,769 — — — 3,778 
Issuance of common stock in connection with public offering3,220 82 59,981 — — — 60,063 
Treasury stock retirement— (134)(39,852)— — 39,986  
Net income— — — — 20,538 — 20,538 
Other comprehensive income— — — 410 — — 410 
Balance at September 26, 202061,770 $1,544 $939,874 $(693)$(693,194)$ $247,531 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTreasury StockTotal Stockholders’ Equity
SharesAmount
Balance at 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 at October 2, 202163,732 $1,594 $984,833 $(206)$(450,595)$ $535,626 

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTreasury StockTotal Stockholders’ Equity
SharesAmount
Balance at December 31, 201956,448 $1,545 $895,899 $(854)$(702,576)$(39,986)$154,028 
Stock-based compensation
— — 9,800 — — — 9,800 
Issuance of common stock under equity incentive plans, net of forfeitures2,102 51 14,046 — — — 14,097 
Issuance of common stock in connection with public offering3,220 82 59,981 — — — 60,063 
Treasury stock retirement— (134)(39,852)— — 39,986  
Net income— — — — 9,382 — 9,382 
Other comprehensive income— — — 161 — — 161 
Balance at September 26, 202061,770 $1,544 $939,874 $(693)$(693,194)$ $247,531 

See accompanying notes to condensed consolidated financial statements.
6

CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Nine Months Ended
October 2,
2021
September 26,
2020
Operating activities:
Net income$218,497 $9,382 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation18,055 9,800 
Depreciation and amortization11,351 10,311 
Reversal of valuation allowance on deferred tax assets(161,995) 
Asset retirements and write-downs 3,749 
Changes in operating assets and liabilities:
Accounts receivable, net(22,510)(22,622)
Inventory(22,897)(1,464)
Prepaid expenses and other assets(9,776)3,710 
Accounts payable18,311 5,616 
Accrued liabilities(7,008)3,834 
Deferred revenue6,691 (342)
Other long-term liabilities(4,544)(1,038)
Net cash provided by operating activities44,175 20,936 
Investing activities
Purchases of property and equipment(7,271)(5,617)
Purchases of marketable securities(200,509)(39,986)
Maturities of marketable securities125,000  
Net cash used in investing activities(82,780)(45,603)
Financing activities:
Proceeds from common stock issuances related to employee benefit plans18,764 14,097 
Payments related to financing arrangements(723)(2,342)
Proceeds from the sale of common stock in connection with public offering, net of expense 60,063 
Proceeds from line of credit 30,000 
Repayment of line of credit (60,000)
Payments to originate the line of credit (285)
Net cash provided by financing activities18,041 41,533 
Effect of exchange rate changes on cash and cash equivalents(28)131 
Net increase (decrease) in cash and cash equivalents(20,592)16,997 
Cash and cash equivalents at beginning of period80,807 47,457 
Cash and cash equivalents at end of period$60,215 $64,454 

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 access network, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers. These cloud and software platforms enable 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, 2020 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, 2020.
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 five more days in the nine months ended October 2, 2021 than for the nine months ended September 26, 2020. 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. Although the availability of vaccines has increased, there are no assurances as to when the pandemic will be fully contained. In March 2020, the Company instituted office closures, travel restrictions and a work-from-anywhere policy for substantially all of its employees due to shelter-in-place mandates. In July 2021, the Company reopened its U.S. offices to fully-vaccinated employees who choose to work in the office and visitors and lifted certain travel restrictions. The spread of COVID-19 has had a prolonged impact on the Company’s supply chain operations due to restrictions, reduced capacity and limited availability from suppliers on whom the Company relies for sourcing components and materials and from third-party partners on whom the Company relies for manufacturing, warehousing and logistics services. Although demand for the Company’s products has been strong in the short-term as subscribers seek more bandwidth and better Wi-Fi, customers’ purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact the Company’s revenue and results of operations. Furthermore, the Company’s supply chain continues to face constraints primarily due to challenges in sourcing components and materials for the Company’s products. The prolonged impact of COVID-19 could exacerbate these constraints or cause further supply chain disruptions. As of the issuance date of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company’s financial condition, liquidity or results of operations remains uncertain.
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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, 2020. The Company’s significant accounting policies did not change during the nine months ended October 2, 2021.
Newly Adopted Accounting Standard
The Company did not adopt any new accounting standards during the nine months ended October 2, 2021 that were significant to the Company.

Recent Accounting Pronouncements Not Yet Adopted
There have been no additional accounting pronouncements or changes in accounting pronouncements during the nine months ended October 2, 2021 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, that are significant or potentially significant to the Company.
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 highly liquid 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. Realized and unrealized gains and losses were de minimis for the period ended October 2, 2021.
Cash, cash equivalents and marketable securities consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Cash and cash equivalents:
Cash$30,609 $30,745 
Commercial paper23,449  
Money market funds6,007 10,068 
Municipal securities150  
U.S. government securities 39,994 
Total cash and cash equivalents60,215 80,807 
Marketable securities:
Commercial paper117,984  
U.S. government agency securities3,891  
Corporate debt securities3,772  
U.S. government securities1,520 52,982 
Municipal securities1,325  
Total marketable securities128,492 52,982 
$188,707 $133,789 
The carrying amounts of the Company’s money market funds approximate their fair values due to their nature, duration and short maturities.
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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 2, 2021Level 1Level 2Total
Money market funds$6,007 $ $6,007 
U.S. government securities1,520  1,520 
Commercial paper 141,433 141,433 
U.S. government agency securities 3,891 3,891 
Corporate debt securities 3,772 3,772 
Municipal securities 1,475 1,475 
$7,527 $150,571 $158,098 

As of December 31, 2020Level 1
Money market funds$10,068 
U.S. government securities92,976 
$103,044 
5. Balance Sheet Details
Accounts receivable, net consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Accounts receivable$92,703 $70,824 
Allowance for doubtful accounts(774)(1,405)
$91,929 $69,419 
Inventory consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Raw materials$169 $34 
Finished goods74,997 52,234 
$75,166 $52,268 
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Property and equipment, net consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Test equipment$38,876 $37,670 
Software14,440 16,093 
Computer equipment10,594 9,062 
Furniture and fixtures1,733 2,069 
Leasehold improvements1,189 1,345 
Total66,832 66,239 
Accumulated depreciation and amortization(45,872)(45,858)
$20,960 $20,381 
Other long-term assets consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Intangible asset$7,543 $9,517 
Other long-term assets3,471 2,648 
$11,014 $12,165 
Intangible Asset Acquisition
In March 2018, and as amended in December 2020, the Company entered into an agreement with a vendor to develop a certain software product and related enhancements pursuant to which the Company is obligated to make revenue-share payments under the program, subject to aggregate fixed revenue-share payments of $15.8 million. The payments are based on a revenue-share rate applied to revenue from the developed-product and the corresponding hardware sales through March 2024. If the minimum revenue-share payments are not achieved by the end of that period, a true-up payment will be due. The Company had its first sale in August 2019, and as a result, the Company capitalized an intangible asset with a value of $13.2 million in the third quarter of 2019 and also recognized a liability of $13.2 million (a non-cash investing activity). The intangible asset has an estimated five-year useful life and is being amortized using the greater of the ratio of current gross revenue for the products to the total of current and anticipated future gross revenue for the products or the straight-line method. As of October 2, 2021, the liability, including accrued interest, was $13.6 million of which $4.4 million is included in accrued liabilities and $9.2 million in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet. As of December 31, 2020, the liability, including accrued interest, was $13.9 million of which $2.9 million was included in accrued liabilities and $11.0 million in other long-term liabilities.
Accrued liabilities consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Compensation and related benefits$14,261 $23,740 
Warranty and retrofit10,126 9,208 
Component inventory held by suppliers4,606 3,992 
Professional and consulting fees4,595 4,497 
Taxes payable4,482 3,476 
Current portion of revenue share obligations4,397 2,925 
Customer advances or rebates4,358 8,374 
Operating leases3,151 2,994 
Freight2,587 1,955 
Product returns1,749 1,888 
Operations1,286 950 
Other5,846 4,737 
$61,444 $68,736 
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Changes in the Company’s accrued warranty and retrofit liability were as follows (in thousands):
 Three Months EndedNine Months Ended
October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Balance at beginning of period$9,911 $7,732 $9,208 $7,294 
Provision for warranty and retrofit charged to cost of revenue769 1,716 2,974 4,341 
Utilization of reserve(554)(892)(2,056)(3,079)
Balance at end of period$10,126 $8,556 $10,126 $8,556 

Accrued Restructuring Charges
Responding to trends caused by the COVID-19 pandemic, the Company initiated a restructuring plan in June 2020 to accelerate the Company’s All Platform future and to align with a work-from-anywhere culture. The Company incurred restructuring charges of approximately $6.3 million, consisting of facilities-related charges and severance and other termination-related benefits during 2020.
As part of the Company’s shift to a work-from-anywhere culture, many of the Company’s employees elected to work remotely on a permanent basis. In light of this change, the Company evaluated its space needs and determined that a portion of the Company’s leased office spaces in Richardson, Texas and San Jose, California would no longer be utilized. As a result, the right-of-use assets related to these leases were written down, resulting in a charge of $3.5 million during 2020. In addition, the Company wrote off assets with net book value of $0.3 million and accrued common areas maintenance fees and property taxes related to the unused office space totaling $1.4 million during 2020.
The following table summarizes restructuring activities (in thousands):
FacilitiesSeverance and Related BenefitsTotal
Balance as of December 31, 2020$1,244 $132 $1,376 
Cash payments(193)(132)(325)
Balance as of October 2, 2021$1,051 $ $1,051 
6. Credit Agreement
The Company has a loan and security agreement with Bank of America, N.A. (“BofA Loan Agreement”). The BofA Loan Agreement provides for a revolving facility up to a principal amount of $35.0 million, including a $10.0 million sublimit for letters of credit. The BofA Loan Agreement matures, and any outstanding amounts become due and payable, in January 2023. The BofA Loan Agreement is secured by substantially all of the Company’s assets, including its intellectual property. Loans under the credit facility bear interest at a rate per annum equal to either LIBOR (customarily defined) plus an applicable margin between 1.5% to 2.0% or Prime Rate (customarily defined) plus an applicable margin between 0.5% to 1.0% (3.75% as of October 2, 2021), in each case largely based on a fixed charge coverage ratio measured at the end of each fiscal quarter. As of October 2, 2021, the Company had no outstanding borrowings and had full availability of borrowings up to $35.0 million.
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7. 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 2, 2021 (in thousands):
PeriodFuture Minimum Lease Payments
Remainder of 2021$1,005 
20224,014 
20234,157 
20243,962 
20253,453 
Thereafter175 
Total future minimum lease payments16,766 
Less imputed interest(2,099)
$14,667 
As of October 2, 2021, the operating lease liability consisted of the following (in thousands):
Accrued liabilities - current portion of operating leases$3,151 
Operating leases11,516 
$14,667 
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 $10.2 million and are included in the table above.
The weighted average discount rate for the Company’s operating leases as of October 2, 2021 was 6.5%. The weighted average remaining lease term as of October 2, 2021 was 4.1 years.
For the three and nine months ended October 2, 2021, total rent expense of the Company was $1.0 million and $3.1 million, respectively. For the three and nine months ended September 26, 2020, total rent expense of the Company was $0.9 million and $3.1 million, respectively. Cash paid within operating cash flows for operating leases was $2.9 million and $2.5 million for the nine months ended October 2, 2021 and September 26, 2020, respectively.
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 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 2, 2021, the Company had approximately $184.1 million of outstanding purchase commitments for inventories to be delivered by its suppliers, including CMs and ODMs, within one year.
The Company has from time to time, and subject to certain conditions, reimbursed certain suppliers for component inventory purchases when this inventory has been rendered excess or obsolete, for example due to manufacturing and engineering change orders resulting from design changes, manufacturing discontinuation of products by its suppliers, or in cases where the Company has committed inventory levels that greatly exceed projected demand. The estimated excess and obsolete inventory liabilities related to such manufacturing and engineering change orders and other factors, which are included in accrued liabilities in the accompanying balance sheets, were $4.6 million and $4.0 million as of October 2, 2021 and December 31, 2020, respectively. The Company records the related charges in cost of systems revenue in its Condensed Consolidated Statements of Comprehensive Income.
13

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.
8. 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 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the 2019 Plan by 3.8 million shares. As of October 2, 2021, there were 7.0 million shares available for issuance under the 2019 Plan.
Stock Options
During the three months ended October 2, 2021, no stock option awards were granted. During the nine months ended October 2, 2021, stock option awards exercisable for up to an aggregate of 0.6 million shares of common stock were granted with a grant date weighted-average exercise price of $39.38 per share. 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 2021, 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 $36.74 per share. The actual number of shares earned is contingent upon achievement of annual corporate financial targets for bookings and non-GAAP net income for 2021 (collectively, the “2021 Performance Targets”) during the one-year performance period. 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 2021 Performance Targets, as to 25% of the shares of common stock earned on the one year anniversary of the date of grant, and as to the remaining 75% of the shares of common stock earned, in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with the Company through the respective vesting dates. If the non-GAAP net income target is achieved below 80% of target or the bookings target is achieved below 90% of target, no shares would be awarded, and the performance-based stock option awards would be forfeited in full. If both targets are achieved at the minimum threshold of 80% of target for non-GAAP net income and 90% of target for bookings, then the shares are awarded at 50% of the granted shares, with an increasing percentage of shares awarded above the minimum thresholds up to 100% of the granted shares if both targets are achieved at 100% or more of target. The probability of meeting the performance conditions related to these performance-based stock option awards was assessed to be probable as of October 2, 2021, and stock-based compensation expense of $1.9 million was recognized for the three months ended October 2, 2021. For the nine months ended October 2, 2021, stock-based compensation expense of $4.8 million was recognized.
During the three months ended October 2, 2021, 0.4 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $6.98 per share. During the nine months ended October 2, 2021, 1.0 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $8.20 per share. As of October 2, 2021, unrecognized stock-based compensation expense of $27.6 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.
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, no participant may purchase more than 2,000 shares of common stock in 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
14

Company’s 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the ESPP by 1.3 million shares, which will go into effect for the six-month purchase period commencing August 15, 2021 and ending on February 14, 2022. The total shares authorized for issuance under the ESPP increased from 9.8 million shares to 11.1 million shares. As of October 2, 2021, there were 3.6 million shares available for issuance under the ESPP. During the nine months ended October 2, 2021, 0.3 million shares were purchased under the ESPP. As of October 2, 2021, unrecognized stock-based compensation expense of $1.1 million related to the ESPP is expected to be recognized over a remaining service period of 0.4 years.
The NQ ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 25% of their eligible compensation. Eligible employees have the right to (a) purchase the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of the Company’s common stock on the last day of such offering period and (b) receive an equal number of shares of the Company’s common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date. The NQ ESPP provides two six-month offering periods from November 15th through May 14th and May 15th through November 14th of each year. At the Company’s 2021 annual meeting of stockholders, the stockholders approved an increase in the number of shares of common stock issuable under the NQ ESPP by 0.8 million shares. The maximum number of shares of common stock currently authorized for issuance under the NQ ESPP is 5.5 million shares, with a maximum of 0.5 million shares allocated per purchase period. As of October 2, 2021, there were 2.9 million shares available for issuance under the NQ ESPP, including the stockholder-approved 0.8 million share increase. During the nine months ended October 2, 2021, 0.2 million shares were purchased and issued. As of October 2, 2021, unrecognized stock-based compensation expense of $4.8 million related to the NQ ESPP is expected to be recognized over a remaining weighted-average service period of 0.9 year.
Stock-Based Compensation
The following table summarizes stock-based compensation expense (in thousands):
 Three Months EndedNine Months Ended
October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Cost of revenue:
Products$211 $159 $559 $392 
Services177 103 483 308 
Sales and marketing1,791 1,035 4,961 2,994 
Research and development1,803 1,237 5,031 3,344 
General and administrative2,679 1,040 7,021 2,762 
$6,661 $3,574 $18,055 $9,800 
9. 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 2, 2021September 26, 2020October 2, 2021September 26, 2020
United States$136,312 $129,205 $414,246 $326,063 
Americas ex U.S.11,800 7,032 37,660 18,969 
Europe19,443 9,183 32,701 15,414 
Middle East & Africa3,905 4,537 16,165 9,171 
Asia Pacific771 551 2,203 1,596 
$172,231 $150,508 $502,975 $371,213 
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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, 2020 was $2.3 million of which $0.3 million remained in the Company’s Condensed Consolidated Balance Sheet as of October 2, 2021. The closing balance as of October 2, 2021 was $1.2 million of which the Company expects to bill 55% of the balance during the remainder of 2020. The decrease in the contract asset was driven by billings for past services and a reduction in expected cash collections on ongoing projects partially offset by additional unbilled work performed during the three months ended October 2, 2021.
Contract Liability
Deferred revenue consisted of the following (in thousands):
October 2,
2021
December 31,
2020
Current:
Products and services$19,465 $14,651 
Extended warranty4,752 4,538 
24,217 19,189 
Long-term:
Products and services2,639 1,879 
Extended warranty18,929