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What changed in CALIX, INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CALIX, INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+288 added−284 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-21)

Top changes in CALIX, INC's 2023 10-K

288 paragraphs added · 284 removed · 222 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

47 edited+21 added−22 removed26 unchanged
Biggest changeOur Cloud enables simple integrations with other market leading workflow solutions for Marketing, including Facebook, Mailchimp, Constant Contact and HubSpot, support ticketing solutions and operations support systems and business support systems to further simplify BSP processes and accelerate their time to market. Calix customers are evolving their go-to-market strategies to go beyond marketing broadband speed.
Biggest changeThese insights enable BSPs to anticipate and target new revenue-generating services and applications through our mobile application, CommandIQ ® for residents and CommandWorx ™ for businesses. Our Calix Cloud enables simple integrations with other market-leading workflow solutions for marketing (including Facebook, Mailchimp, Constant Contact and HubSpot), support ticketing solutions and operations support systems and business support systems.
ITEM 1. Business Company Overview Calix was founded in 1999. We develop, market and sell our Calix platform (cloud, software and systems) and managed services that enable service providers of all types and sizes to innovate and transform their businesses.
ITEM 1. Business Company Overview Calix was founded in 1999. We 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.
Increasingly, our engineers are focused on enhancements to our cloud and software platform components. Our teams of engineers currently remain concentrated in San Jose and Petaluma, California; Bangalore, India; Minneapolis, Minnesota; Nanjing, China; and Richardson, Texas.
Increasingly, our engineers are focused on enhancements to our cloud and software platform components. Our teams of engineers currently remain concentrated in San Jose and Petaluma, California; Nanjing, China; Bangalore, India; Minneapolis, Minnesota and Richardson, Texas.
Vendors with which we compete include: ADTRAN, Inc.; Ciena Corporation; CommScope Inc.; DZS Inc.; eero/Ring (Amazon companies); Huawei Technologies Co., Ltd.; Google Nest (a Google company); Nokia Corporation; Plume Design, Inc. and Ubiquiti Inc. In various geographic or vertical markets, there are also several smaller companies with which we compete.
Vendors with which we compete include: ADTRAN, Inc.; Ciena Corporation; CommScope Inc.; DZS Inc.; eero/Ring (Amazon companies); Harmonic, Inc.; Huawei Technologies Co., Ltd.; Google Nest (a Google company); Nokia Corporation; Plume Design, Inc. and Ubiquiti Inc. In various geographic or vertical markets, there are also several smaller companies with which we compete.
Over time, we expect this competition can erode a BSP’s brand and relationship with its subscribers, by reducing broadband to an easy-to-replace commodity, which can increase churn and reduce revenue. Our platform enables BSPs to build next generation networks and offer higher-value managed services offerings that enable them to grow revenue, increase subscriber loyalty and monetize their network investments.
Over time, we expect this competition can erode a BSP’s brand and relationship with its subscribers, by reducing broadband to an easy-to-replace commodity, which can increase churn and reduce revenue. Our platform enables BSPs to build next generation networks and offer higher-value managed service offerings that enable them to grow revenue, increase subscriber loyalty and monetize their network investments.
The BSPs’ teams can then utilize insights from Calix Cloud to offer these new and innovative services to those subscribers who have the propensity to buy, thereby growing revenue as they deliver a connected home experience at significantly lower operating costs. This also enables them to build their brand and value proposition around innovation and subscriber experience.
The BSPs’ teams can utilize insights from Calix Cloud to offer these new and innovative services to those subscribers who have the propensity to buy, thereby growing revenue as they deliver a connected experience at significantly lower operating costs. This also enables them to build their brand and value proposition around innovation and subscriber experience.
At the same time, we offer our Calix Customer Success and Support Services along with a growing portfolio of market activation resources that provide the BSPs with best practices and programs to strengthen and grow their brand with their subscribers, thereby increasing subscriber loyalty and opportunities to grow their subscriber base.
At the same time, we offer our Calix Customer Success and Support Services along with a growing portfolio of award-winning market activation resources that provide the BSPs with best practices and programs to strengthen and grow their brand with their subscribers, thereby increasing subscriber loyalty and opportunities to grow their subscriber base.
Competition is largely based on any one or a combination of the following factors: functionality and features, price, existing business and customer relationships, product quality, installation capability, service and support, long-term returns, scalability, development and manufacturing capability. We compete with several companies within the markets that we serve, and we anticipate that competition will intensify.
Competition is largely based on any one or a combination of the following factors: functionality and features, price, existing business and customer relationships, 7 Table of Contents product quality, installation capability, service and support, long-term returns, scalability, development and manufacturing capability. We compete with several companies within the markets that we serve, and we anticipate that competition will intensify.
Our platform expands our total addressable opportunity and recurring revenue streams by allowing us to address the needs of not only traditional wireline-focused service providers, but also emerging service providers. As such, we intend to continue to engage emerging providers that are creating entirely new customer segments, including fiber overbuilders, utilities and municipalities.
Our platform enables us to expand our total addressable opportunity and recurring revenue streams by allowing us to address the needs of not only traditional wireline-focused service providers, but also emerging service providers. As such, we intend to continue to engage emerging providers that are creating entirely new customer segments, including fiber overbuilders, utilities and municipalities.
Customer Engagement Model We market, sell and support the success of our platform (cloud, software and systems) and managed services predominantly through our direct sales force, supported by marketing, product management and customer success personnel. We have also expanded this model to include select channel partners in North America and more than 40 international channel partners.
Customer Engagement Model We market, sell and support the success of our platform and managed services predominantly through our direct sales force, supported by marketing, product management and customer success personnel. We have also expanded this model to include select channel partners in North America and more than 40 international channel partners.
Most BSPs will require significant transformation of their business and operations to become an essential provider of data-driven, high-value managed services to their subscribers. The principal elements of our strategy are: 4 Table of Contents Starting with the data – The principal way we gather, analyze and deliver actionable insights for BSPs is via the Calix Cloud.
Most BSPs will require transformation of their business and operations to become an essential provider of data-driven, high-value managed services to their subscribers. The principal elements of our strategy are: Starting with the data – The principal way we gather, analyze and deliver actionable insights for BSPs is via the Calix Cloud.
Innovative BSPs, who are embracing our platform, understand this competitive threat and that their brand’s central position in the home is their most valuable strategic asset. As such, they must protect and expand continually.
Innovative BSPs, who embrace our platform, understand this competitive threat and that their brand’s central position in the home is their most valuable strategic asset. As such, they must protect and expand continually.
Finally, to support these managed services, we offer Market Activation resources and programs to enable BSP teams to quickly deploy, manage and monetize each service that they provide to subscribers. These resources include marketing content that can be easily customized with on-line tools, training programs, success services and professional services.
Finally, to support these managed services, we offer market activation resources and customer support programs through our customer success organization to enable BSP teams to quickly deploy, manage and monetize each service that they provide to subscribers. These resources include marketing content that can be easily customized with on-line tools, training programs, success services and professional services.
Our role-based Calix Cloud enables critical functions within a BSP’s business, such as marketing, operations and support, to leverage real-time data to continually understand and optimize the experience for their subscribers. Building and evolving our platform – Our product strategy centers on our strategic platform.
Our role-based Calix Cloud enables critical functions within a BSP’s business, such as marketing, operations and support, to leverage real-time data to continually understand and optimize the experience for their subscribers. 4 Table of Contents Building and evolving our platform – Our product strategy centers on our strategic platform.
Expanding customer footprint across our total addressable opportunity – Our total addressable opportunity includes service providers of any type and size, including local and competitive exchange carriers, cable multiple system operators, or cable MSOs, wireless internet service providers, or WISPs, fiber overbuilders such as municipalities and electric cooperatives and hospitality providers.
Expanding customer footprint across our total addressable opportunity – Our total addressable opportunity includes service providers of any type and size, including local and competitive exchange carriers, cable multiple system operators, or cable MSOs, wireless internet service providers, or WISPs, fiber overbuilders such as municipalities and electric cooperatives and tribal communities, multiple dwelling units and hospitality providers.
We continue to invest to provide interoperability across the ecosystems that support our customers’ most critical business processes through our partner programs. By adding new solutions to our platform ecosystem, we significantly enhance the value that our platform delivers to BSPs. In addition, we are expanding our relationships with organizations that help our customers plan and execute in market.
We continue to invest to provide technical synergy across the ecosystems that support our customers’ most critical business processes through our partner program. By adding new solutions to our platform ecosystem, we significantly enhance the value that our platform delivers to BSPs. In addition, we are expanding our relationships with organizations that help our customers plan and execute in-market.
Sales to customers outside the United States represented 9% of our revenue in 2022, 17% of our revenue in 2021 and 13% of our revenue in 2020. Our sales outside the United States have been and are currently predominantly to customers in the Americas and Europe.
Sales to customers outside the United States represented 9% of our revenue in 2023, 9% of our revenue in 2022 and 17% of our revenue in 2021. Our sales outside the United States have been and are currently predominantly to customers in the Americas and Europe.
For example, these competitors are entering the home by offering Wi-Fi enabled devices, and then leveraging behavioral insights to expand their direct relationship and build their brand with the subscriber by offering additional consumer services.
For example, these over-the-top competitors are entering the home by offering Wi-Fi enabled devices, and then leveraging behavioral insights to expand their direct relationship and build their brand, not the BSP’s, with the subscriber by offering additional consumer services.
Our website address is: www.calix.com. We do not incorporate the information on or accessible through our website into this Annual Report on Form 10-K, and you should not consider any information on, or that can be accessed through, our website as part of this Annual Report on Form 10-K.
We do not incorporate the information on or accessible through our website into this Annual Report on Form 10-K, and you should not consider any information on, or that can be accessed through, our website as part of this Annual Report on Form 10-K.
We have added over 100 new BSP customers per year for the past three years purchasing directly or through our partners. Our diverse and growing customer footprint is a critical source of our future growth as we expand our portfolio and sell additional components of our platform and managed services to both new and existing customers.
For the past four years, we have averaged adding over 90 new BSP customers per year purchasing directly or through our partners. Our diverse and growing customer footprint is a critical source of our future growth as we expand our portfolio and sell additional components of our platform and managed services to both new and existing customers.
Our Calix 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 data and insights to simplify network operations, marketing and customer support and deliver experiences that excite their subscribers.
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 data and insights to simplify network operations, marketing and customer support and deliver a growing portfolio of SmartLife managed services and experiences that excite their subscribers.
Calix ® , the Calix logo design, AXOS ® , Calix Cloud ® , CommandIQ ® , EXOS ® , GigaCenter ® , GigaSpire ® and other trademarks or service marks of Calix appearing in this Annual Report on Form 10-K are the property of Calix.
Calix ® , the Calix logo design, AXOS ® , Calix Cloud ® , CommandIQ ® , CommandWorx ™ , GigaPro ® , GigaSpire ® , SmartTown ® and other trademarks or service marks of Calix appearing in this Annual Report on Form 10-K are the property of Calix.
The Network Innovation Platform component is implemented in our E-Series family of modular, non-blocking systems, enabling BSPs to meet a wide variety of deployment scenarios.
The Calix Platform’s access network component is implemented in our E-Series family of modular, non-blocking systems, enabling BSPs to meet a wide variety of deployment scenarios.
However, an increased segment of our customers is leveraging all three components of our platform in an end-to-end strategy to simplify their businesses, excite their subscribers and grow the value that they deliver for their subscribers and communities.
Moreover, an increased segment of our customer base is leveraging all components of our platform and managed services in an end-to-end strategy to simplify their businesses, excite their subscribers and grow the value that they deliver for their subscribers and communities.
We also outsource a portion of our software and cloud development to domestic and international third parties, and we depend on these partners to meet our development plans. 7 Table of Contents Manufacturing and Supply Chain We rely on contract manufacturers, original design manufacturers, original equipment manufacturers and third-party logistics partners for the supply and distribution of our products.
We also outsource a portion of our software and cloud development to domestic and international third parties and depend on these partners to meet our development plans. Manufacturing and Supply Chain We rely on CMs, ODMs and third-party logistics partners for the supply and distribution of our products.
Strategy Overview Our strategy is to position Calix as the key partner providing a broadband delivery platform (cloud, software and systems) and managed services to enable and facilitate the transformation of BSP access networks and the home network experience in order to provide an exceptional broadband experience for their subscribers.
Strategy Overview Our strategy is to position Calix as the key partner providing a broadband delivery platform (cloud, software and systems) and managed services to enable and facilitate the transformation of BSP networks and the residential and small business network experience in order to excite all of their subscribers.
Product Overview Our product strategy centers on increasing the market adoption of our platform, which consists of: • Calix Cloud ® , which comes in three role-base editions: Calix Marketing Cloud, Calix Support Cloud and Calix Operations Cloud; • Calix Revenue EDGE, our premises solution for subscriber managed services; and • Calix Intelligent Access EDGE, access network solution for automated, intelligent next generation networks.
Our Calix Platform, which consists of: • Calix Cloud ® , which comes in three role-base editions: Calix Engagement Cloud (formerly Calix Marketing Cloud), Calix Service Cloud (formerly Calix Support Cloud) and Calix Operations Cloud. • Calix Intelligent Access EDGE™, access network solution for automated, intelligent next generation networks. • Calix Revenue EDGE™, our premises solution for subscriber managed services. 2.
The Intelligent Access EDGE allows BSPs to collapse multiple network elements in the access network into a single system and by using specialized software modules to add functionality and remove complexity, the solution reduces the total cost of ownership and the time to market for new services.
BSPs can consolidate multiple access network elements into a single system using specialized software modules that add functionality and remove complexity, thereby reducing the total cost of ownership and the time to market for new services.
Increasingly, they are becoming “experience” providers by delivering valuable managed services built on top of their Wi-Fi offerings. To date, Calix has launched nine managed services. This unique portfolio gives BSPs more opportunities to provide differentiated services to their subscribers and grow their revenue.
Increasingly, they are becoming “experience” providers by delivering valuable managed services built on top of their Wi-Fi offerings. This unique portfolio gives BSPs more opportunities to provide differentiated services to their subscribers and grow their revenue. Our access network solutions redefine the access edge of the network by simplifying its architecture and operations.
Our service provider customers include: ALLO Communications; Connect Holding II, LLC (dba Brightspeed); CityFibre Holdings Limited; Conexon Connect; Cox Communications; Gibson Connect, LLC; Jade Communications; Lumen Technologies, Inc. (formerly known as CenturyLink, Inc.), or Lumen; Paul Bunyan Communications; Silver Star Communications; TDS Telecommunications LLC; Windstream Holdings, Inc. and Verizon Communications, Inc. The U.S.
Our service provider customers include: ALLO Communications; Connect Holding II, LLC (dba Brightspeed); CityFibre Holdings Limited; Conexon Connect; Cox Communications; Gibson Connect, LLC; Hunter Communications; Jade Communications; Gridiron Fiber Corporation (DBA Lumos); Lumen Technologies, Inc., or Lumen; Paul Bunyan Communications; Silver Star Communications; Tombigbee Electric Power Association and Tombigbee Fiber, LLC and Verizon Communications, Inc. The U.S.
In addition, we might be required to seek a license which may not be available on commercially reasonable terms or at all.
In addition, we might be required to seek a license which may not be available on commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense.
As we expand into adjacent markets, we expect to encounter new competitors. Many of our competitors have the financial resources to offer competitive products at a below market price, which could prevent us from competing effectively.
As we expand into adjacent markets, we expect to encounter new competitors. Many of our competitors have the financial resources to offer competitive products at a below market price, which could prevent us from competing effectively. Intellectual Property We rely on a combination of IP rights, including patents, trade secrets, copyrights and trademarks as well as customary contractual protections.
They include a growing number of municipalities, electric cooperatives, fiber overbuilders and WISPs. These entities range in size from a few hundred to 250,000 broadband subscribers. Historically, Lumen accounted for more than 10% of revenue and represented 11% of revenue in 2020.
They include a growing number of municipalities, cable MSOs, electric cooperatives, fiber overbuilders and WISPs. These entities range in size from a few hundred to 250,000 broadband subscribers. 6 Table of Contents No customer represented more than 10% of revenue in 2023, 2022 or 2021.
Intellectual Property We rely on a combination of intellectual property, or IP, rights, including patents, trade secrets, copyrights and trademarks as well as customary contractual protections. These rights and protections are accomplished through a combination of internal and external controls, including contractual protections with employees, contractors, customers and partners, and through a combination of U.S. and international IP laws.
These rights and protections are accomplished through a combination of internal and external controls, including contractual protections with employees, contractors, customers and partners, and through a combination of U.S. and international IP laws. As of December 31, 2023, we held 111 U.S. patents and 26 pending U.S. and international patent applications.
The platform is built on Experience Innovation Platform component (formerly known as EXOS) and fully integrated with our GigaSpire ® and GigaPro ® family of systems to be ready for deployment as a complete subscriber experience platform for a BSP’s residential subscribers, small business subscribers and community networks.
The SmartLife™ managed services are built on the Calix Platform and fully integrated with our GigaSpire ® and GigaPro ® family of Wi-Fi systems to be ready for deployment as a complete subscriber experience solution for a BSP’s residential subscribers, small business subscribers and community networks. Calix customers are evolving their go-to-market strategies to go beyond marketing broadband speed.
Engaging directly with customers – We continue to invest in our direct sales capabilities so that we can engage deeply with our customers to help them understand the differentiable value that our platform provides. As we deploy new solutions, we are building the expertise of our team by adding specialized resources in areas such as marketing, cloud and network operations.
Engaging directly with BSP customers – We continue to invest in our direct sales capabilities so that we can engage deeply with our BSP customers to help them understand the differentiable value that our platform provides.
We expect that these products will continue to be utilized in our customers’ networks in addition to our newer platform offerings. Customers We market and sell our platform (cloud, software and systems) and managed services to service providers of all types and sizes. To date, we have focused primarily on service providers in the North American market.
Customers We market and sell our platform (cloud, software and systems) and managed services to service providers of all types and sizes. To date, we have focused primarily on service providers in the North American market. Our customers span all sizes of broadband subscriber count from a few hundred to more than six million.
These platform offerings are sold independently and offer unique entry points for new customers who are partnering with Calix to transform their businesses.
We offer a range of training, professional and success services to assist BSPs in every domain of network management from strategy to deployment and management. These offerings are sold independently and offer unique entry points for new customers who are partnering with Calix to transform their businesses.
Although global logistics and transport services have begun to improve, we continue to monitor potential challenges in managing these areas to ensure consistent delivery to our customers. Seasonality Fluctuations in our revenue occur due to many factors, including the varying budget cycles and seasonal buying patterns of our customers.
Seasonality Fluctuations in our revenue occur due to many factors, including the varying budget cycles and seasonal buying patterns of our customers.
Our role-based cloud enables BSP teams, such as marketing, operations or customer support, to leverage real-time behavioral analytics to anticipate the subscriber’s needs, whether that is optimized broadband speed, managed Wi-Fi or a new, differentiated managed service offering such as home network security, content control and connected cameras.
Our role-based cloud enables BSP teams, such as marketing, operations or customer support, to leverage real-time behavioral analytics to anticipate the subscriber’s needs, whether they are in the home, roaming across the town or managing a small business.
U.S. patent, copyright and trade secret laws afford us only limited protection, and the laws of some foreign countries do not protect proprietary rights to the same extent. We believe that the frequency of assertions of patent infringement has and continues to increase in our industry.
U.S. patents generally have a term of twenty years from filing. The remaining terms on our individual patents vary from less than a year to seventeen years. U.S. patent, copyright and trade secret laws afford us only limited protection, and the laws of some foreign countries do not protect proprietary rights to the same extent.
Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense. 8 Table of Contents Human Capital We employed 1,426 employees globally as of December 31, 2022 with 930 employees located in the United States and 496 outside of the United States, primarily in Canada, China and India.
Human Capital We employed 1,760 employees globally as of December 31, 2023 with 1,055 employees located in the United States and 705 outside of the United States, primarily in Canada, China and India.
Our customers span all sizes of broadband subscriber count from a few hundred to more than six million. We have enabled approximately 1,900 service providers, purchasing directly and through partners, to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.
We currently have approximately 1,600 active service provider customers, purchasing directly and through partners, to deploy passive optical, Active Ethernet or point-to-point Ethernet access networks or subscriber premise systems.
Examples of these partners are Conexon Connect, LLC, CCI Systems, Inc. and The Pivot Group, LLC.
Examples of these partners are Conexon Connect, LLC, ePlus Technology, inc. and The Pivot Group, LLC. Product Overview Our product strategy centers on increasing the market adoption of two fundamental components: 1.
Our programs seek to support wellbeing broadly, with comprehensive physical and mental health and financial benefit offerings, that include various time off programs as well as reimbursement benefits and a remote office program. Corporate Information Our principal executive offices are located at: 2777 Orchard Parkway, San Jose, California 95134, and our telephone number is: (408) 514-3000.
We believe that these initiatives have helped Calix become a top company to work for. Corporate Information Our principal executive offices are located at: 2777 Orchard Parkway, San Jose, California 95134, and our telephone number is (408) 514-3000. Our website address is: www.calix.com.
Our talent strategy focuses on our culture and core values, our talent programs and the overall well-being and safety of our talent. Our culture and core values. We believe that by nurturing a robust culture based on our core values we can attract, hire and retain a highly skilled and engaged team.
Our talent strategy focuses on our culture and core values, our talent programs and the overall well-being and safety of our talent. Culture and values. At Calix, we believe culture is how each employee treats their teammates, customers and partners every day. Each employee is entrusted with our culture to create a positive work experience for all.
The Revenue EDGE also integrates real-time subscriber insights via our Calix Marketing Cloud, Calix Support Cloud and Calix Operations Cloud offerings, which are configurable to display role-based insights. These insights enable BSPs to anticipate and 5 Table of Contents target new revenue-generating services and applications through our mobile application, CommandIQ ® , and expanding portfolio of managed services.
Each managed subscriber service is complemented by real-time subscriber insights via Calix Engagement Cloud, Calix Service Cloud and Calix Operations Cloud offerings, which are configurable to display role-based insights for BSP general management, marketing, support, operations and engineering staff.
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Our platform is built to enable BSPs to deploy a growing ecosystem of third-party solutions such as Arlo Secure and Bark Social as fully managed services quickly and easily. This enables the BSP to add significant value to what were previously just “over-the-top” solutions.
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Our platform is built to enable BSPs to quickly and easily deploy a growing portfolio of SmartLife managed services to connect entire communities. This enables BSPs to establish themselves as essential technology innovators that are enabling their communities to grow and thrive.
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We are also enabling deeper integration with workflow solutions such as Facebook and solutions from independent software vendors such as National Information Solutions Cooperative, or NISC. This level of integration enables BSPs to simplify and streamline their operations and go-to-market execution.
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As we deploy new solutions, we are building the expertise of our team by adding specialized resources in areas such as marketing, cloud and network operations.
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The Revenue EDGE The Revenue EDGE is a subscriber experience solution designed to enable BSPs to rapidly deploy new subscriber services to grow their businesses.
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Our SmartLife managed services offerings, which consist of: • SmartHome™ managed services and applications to enhance, operate and secure the connected experience of subscribers in their home, including managed Wi-Fi, advanced content control, network security, connected cameras, social media monitoring for kids and device protection programs. • SmartTown ® managed services that reimagine community Wi-Fi as a ubiquitous, secure and managed experience across a BSP’s footprint by making their town a SmartTown.
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The Revenue EDGE managed services portfolio enables BSPs to enter new markets for small businesses and communities, as well as expand their residential footprints.
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By leveraging residential and small business Wi-Fi systems combined with strategically deployed outdoor Wi-Fi access points, BSPs can serve subscribers, schools, municipalities, organizations, planned communities and more.
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By leveraging the power of the Calix platform, BSPs of any size can simplify their businesses, excite their subscribers and grow value in their communities. • Managed Wi-Fi enables BSPs to actively manage all aspects of the subscriber’s Wi-Fi experience, ensuring they enjoy improved speeds, performance and Wi-Fi coverage that extends throughout their homes. • Command IQ is an intuitive mobile app designed to be branded by each BSP and provides their subscribers with visibility and control to understand and manage their connected experience. • Experience IQ offers the subscriber a full set of tools to manage and monitor each connected device in the home and the content it has access to. • Protect IQ is a network-level security application that works quietly in the background and proactively keeps malicious websites, viruses and intrusions away from subscribers’ homes 24x7. • Arlo Secure, a third-party application, enables BSPs to offer peace of mind to their subscribers with a fully managed connected camera solution. • Bark, a third-party application, is an integrated cutting-edge social monitoring service that scans over 30 of the most popular apps and social media platforms to alert parents and caregivers of issues like cyberbullying, online predators and sexual content. • Servify Care, a third-party application, enables BSPs to protect all eligible devices in a home under the same easy-to-use plan and potentially save subscribers hundreds of dollars annually. • SmartTown is an innovative solution to enable BSPs of any size to connect people with private, secure and safe Wi-Fi experiences in town, at parks, at outdoor events and on the go. • SmartBiz is an all-in-one integrated managed service to deliver a purpose-built, broadband solution to address the needs of the 34 million small businesses across the United States and Canada.
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These opportunities open new markets and relationships with the public sector to reduce reliance on and protect against 5G LTE fixed wireless access. 5 Table of Contents • SmartBiz™ managed services that address the business networking and productivity needs of small business owners with an all-in-one managed service that increases staff productivity, secures critical business systems and enhances customer loyalty.
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The Intelligent Access EDGE The Intelligent Access EDGE solution is built on the award-winning Network Innovation Platform component (formerly known as AXOS) and redefines the access edge of the network by simplifying its architecture and operations.
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We continue to qualify and utilize additional vendors for various portions of our supply chain from time to time. The COVID-19 pandemic-induced global demand surge resulted in supply chain challenges, including component shortages or unavailability, end-of-life notifications, extended lead times, elongated transit times, port congestion, spot market purchases, multiple price increases and surcharges. These challenges abated during 2023.
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In addition, insights delivered through Calix Operations Cloud enable BSPs to monitor network performance more effectively and address performance issues more efficiently. Intelligent Access EDGE Enablement services are designed to ensure BSP teams are fully enabled to deploy and manage next generation networks.
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The overhang from these events is a buildup of inventory in the supply chain. At our direction, our suppliers built up inventory to buffer against the long lead-times for semiconductors and other electronic components. We are using this as an opportunity to realign our strategic buffer inventory to protect against future disruptions.
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We offer a range of training, professional and success services to assist BSPs in every domain of network management from strategy to deployment and management. 6 Table of Contents Traditional Products We continue to support and offer customers our traditional family of EXA and GigaCenter ® Systems that are widely deployed in customer networks, primarily in North America.
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Most of the excess inventory will be worked off during the normal course of business. As time goes on, there may be components that become obsolete due to technology shifts or demand changes. This will be reflected in our inventory reserve balance as it becomes apparent during our financial reviews.
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Our efforts to grow our Calix platform, add new BSP customers and shift away from low-value deployment services primarily related to Lumen have all contributed to Lumen representing less than 10% of our revenue in 2022 and 2021. No other customer represented more than 10% of revenue in 2022, 2021 and 2020.
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For example, during the fourth quarter of 2023, we wrote down 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.
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We continue to qualify and utilize other vendors for various portions of our supply chain from time to time.
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We believe that the frequency of assertions of patent infringement has and continues to increase in our industry.
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As a result of the current semiconductor and other component shortages, global restrictions and uncertainty related to the COVID-19 pandemic, we have experienced product supply delays as we and our supply chain partners experience longer lead times and shortages of components and materials.
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This is grounded by each employee knowing their purpose, their commitment to creativity, collaboration and communication as well as investing in the success of others. From leadership down, Calix embraces a “better, better, never best” philosophy, which we believe encourages continuous improvement and experimentation.
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We believe the impact of these shortages will continue to impact the ability of our third-party manufacturers to supply products to us at the cost and in the time frames and volumes required by us.
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This culture enables Calix to deliver on its mission to help BSPs simplify their businesses, excite their subscribers and grow value for their communities. Talent Development. We prioritize the ongoing professional growth of our team by providing on-demand access to training through top-notch industry platforms.
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As of December 31, 2022, we held 110 U.S. patents and have seven pending U.S. patent applications. As of December 31, 2022, we had no pending international patent applications. U.S. patents generally have a term of twenty years from filing. The remaining terms on our individual patents vary from less than a year to seventeen years.
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Additionally, we provide educational resources and the chance to glean insights from subject matter experts spanning diverse topics. Our commitment extends globally, fostering a collaborative space for leaders to connect and evolve as Calix champions. Complementing these efforts, we offer valuable developmental opportunities such as stretch assignments and participation in our mentorship program.
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Our cultural pillars – to collaborate, create and communicate – reflect the way we lead and work with one another internally as well as externally with our customers, partners, suppliers and other stakeholders.
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We firmly believe that sustained investment in the skills and knowledge of our team is pivotal to ensuring our enduring success. Diversity, Equity and Inclusion. At Calix, we strive to create an inclusive culture that values diversity, promotes equity and celebrates the differences among us.
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We seek to embed our core values to act responsibly and with integrity, to instill a sense of individual roles and purpose at Calix, to communicate openly and honestly and to “take care of our own” in how we lead and conduct our business.
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We believe a diverse workforce is at the core of our innovation and drives productivity and growth. Our diversity and inclusion strategy takes into consideration the entire employee life cycle, from recruitment, to learning and development and total rewards.
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Our culture of collaboration creates an inclusive working environment and inclusive engagement with our stakeholders; our culture to create encourages innovation from diverse experiences, backgrounds and characteristics; and our culture to communicate encourages open and honest discussion. Our talent programs.
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We support a range of employee programs and initiatives designed to foster belonging, engagement, acceptance and diversity through employee-led affinity groups, leadership events, meetups and celebrations. We are proud and honored to be recognized by industry experts for our diverse culture. Community Outreach.
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We invest in talent programs to identify and hire candidates who embody our culture and core values and will further our mission. We focus on onboarding and assimilating our hires into the Calix culture while encouraging them to express their own diverse views and talents, in turn strengthening our culture.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn light of the complex and evolving nature of EU, EU Member State and UK privacy 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, as well as lead to civil claims including class actions, and reputational damage.
Biggest changeIn 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. 20 Table of Contents Complying with new and changing laws could cause us to incur substantial costs in order to market and sell our cloud-based solutions in the U.S. and internationally, deter customers from adopting our cloud-based solutions or require us to redesign our platform in order to meet customer requirements related to such laws.
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-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.
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.
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 these programs to purchase our products and services and thus reduce our revenue opportunities.
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.
The risk of such claims is heightened as we expand our products and services and increasingly 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.
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.
Recently, 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.
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.
Being dependent upon a limited number of suppliers constrains our ability to mitigate these disruptions in our supply chain and such disruptions, particularly if prolonged. This may adversely affect our ability to obtain components and materials needed to manufacture our products at acceptable prices or at all.
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.
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. 17 Table of Contents Macroeconomic and Industry Risks 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.
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. 16 Table of Contents Macroeconomic and Industry Risks 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.
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 expand our business and operations and target new customer opportunities.
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.
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 sustain positive operating income and cash flows from operations, our liquidity, results of operations and financial condition may be adversely affected.
If we raise debt financing, we may be subject to restrictive covenants that limit our ability to conduct our business. If we are unable to sustain positive operating income and cash flows from operations, our liquidity, results of operations and financial condition may be adversely affected.
In addition, rising 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.
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.
We have experienced unanticipated increases in demand from customers, in part as a result of higher consumer demand for internet services and improved Wi-Fi; in turn, this has resulted in our shipments being delayed. If we underestimate product demand from our customers, our manufacturers may have inadequate component inventory to meet our demand.
We have experienced increases in demand from many customers, in part as a result of higher consumer demand for internet services and improved Wi-Fi; in turn, this has resulted in our shipments being delayed. If we underestimate product demand from our customers, our manufacturers may have inadequate component inventory to meet our demand.
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 products and cloud services, which includes collecting, handling, processing and/or storage of data on our behalf.
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.
We may be required to implement (and contractually commit to) additional security measures to remain a competitive vendor, as customers will need to ensure its vendors are able to meet the obligations that they are themselves subject to, or customers may choose different vendors due to our security measures.
We may be required to implement (and contractually commit to) additional security measures to 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.
As a result, suppliers could stop selling to us and our manufacturers at commercially reasonable prices, or at all. We have worked to mitigate the cost impact of recent price increases, but those efforts may not be successful.
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.
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 continue to decline.
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.
Furthermore, if we are unable to generate sufficient cash flows to support our operational needs, we may need to cease our 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.
Furthermore, if we are unable to 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.
Any data loss or compromise of our systems that collect and process personal information (including personal information of customers of our customers), 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.
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.
In addition, the anticipated benefit of any acquisition may never materialize or the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures. 23 Table of Contents 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.
In addition, the anticipated benefit of any acquisition may never materialize or the process of integrating acquired businesses, products or technologies may create unforeseen operating difficulties and expenditures. 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.
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 14 Table of Contents 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 the lead-in to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above and in this “Risk Factors” section.
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.
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 warranty or product obligations are highly subjective.
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. 15 Table of Contents Our estimates regarding warranty or product obligations are highly subjective.
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.
If we are unable to generate 22 Table of Contents 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.
If we do not effectively assist our customers in deploying our products, succeed in helping them quickly resolve post-deployment issues or provide effective support, it could adversely affect our ability to sell our products to existing customers and harm our reputation with potential new 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 support, it could adversely affect our ability to sell our products to existing customers and harm our reputation with potential new customers.
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 communications industry in which our customers operate.
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.
Consequently, our orders may not be given adequate priority if such 10 Table of Contents 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.
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.
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 even facility closures arising from the COVID-19 pandemic or natural disasters.
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 even facility closures arising from pandemics or natural disasters.
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. Having to take the time to qualify new third-party manufacturers could disrupt our ability to maintain continuous supply of product to meet customer requirements.
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.
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 have occurred from time to time in our business, including recent unforeseen increases in component costs.
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, including recent increases in component costs.
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 are unable to deliver products timely to our 10 Table of Contents 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.
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 11 Table of Contents risks arising from security breaches or data loss.
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.
We may in the future 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.
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.
Increasingly, patent infringement claims are 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 infringement assertions or patent infringement litigation.
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 infringement assertions or patent infringement litigation.
In the ordinary course of business, we are subject to legal claims and litigation, and may become involved in regulatory proceedings, related to disputes over commercial, competition, IP, labor and employment and other matters.
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.
If we fail to accurately plan our inventory levels, which becomes more challenging as component lead times increase, we may have to write off excess or obsolete inventory, or accrue a liability for component inventory held by our suppliers, both of which could have a material adverse effect on our financial condition and results of operations.
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.
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, resulting in weaker demand for our products in the first quarter.
Historically, our customers may spend less or have less deployments in the first quarter due to 18 Table of Contents pending annual budgets or, in certain regions, due to weather conditions that inhibit outside fiber deployment, resulting in weaker demand for our products in the first quarter.
For example, we have experienced disruptions in our supply of certain components that we source from suppliers in China and other Asian countries, causing delays in supply of our products 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.
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.
In addition, we could face 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.
In addition, we 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.
Further, in our industry, the number of assertions by NPEs continues to increase due in part to patent sales by operating companies to NPEs and availability of litigation financing.
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.
For example, 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 collect, process or control personal data of individuals located in the EU/UK, including a principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
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.
If these relationships fail, we may have to devote substantially more resources to developing alternative products and 16 Table of Contents processes and our efforts may not be as effective as the combined solutions under our current arrangements.
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.
We sell to BSPs, including U.S.-based 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 or the American Rescue Plan Act.
We sell to BSPs, including U.S.-based 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.
Even if we and our third-party providers allocate, implement and manage reasonable security and data protection measures, we could experience data loss, unauthorized data disclosure or a breach of our systems, products or those of our third-party data centers that materially impact our business.
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.
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 these disruptions and constraints are prolonged, or if these manufacturers do not have 9 Table of Contents the ability or business continuity plans to fulfill their obligations to us, our business could be disrupted.
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 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.
International shipments of certain of our products may require export licenses or are subject to additional 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.
If significant warranty or other product obligations arise due to reliability or quality issues arising from defects in software, faulty components or improper manufacturing methods, our operating results and financial position could be negatively impacted by cost 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 loss of customer goodwill and future sales.
Any significant warranty or other product obligations due to reliability or quality issues arising from defects in software, faulty components or improper manufacturing methods could negatively impact our operating results and financial position 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 loss of customer goodwill and future sales.
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 third-party manufacturers typically represents a relatively small percentage of their total revenue.
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.
Geopolitical issues, such as the Russian invasion of Ukraine, relations between the United States 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.
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 particular, as a technology company, we may be 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.
In particular, as a technology company, we are subject to IP claims asserting patent, 13 Table of Contents copyright, trademark and/or other infringement claims that are costly to defend and could limit our ability to use some technologies in the future.
Softness in demand in any of our customer markets, including due to macro-economic conditions beyond our control or uncertainties associated with regulatory reforms, has in the past and could in the future lead to unexpected decline or slowdown in customer capital expenditure.
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.
If we are unable 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.
If we fail to meet our development targets, demand for our products will decline. If we are unable 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.
As a global company, our performance is affected by global economic, market and industry conditions (including the current inflationary economic environment and rising interest rates) as well as geopolitical issues and other conditions with global reach. In recent years, concerns about the global economic outlook have adversely affected market and business conditions in general.
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.
Any of these consequences could adversely impact our results of operations by increasing our expenses and/or requiring us to alter our manufacturing processes. 21 Table of Contents 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.
Any of these consequences could adversely impact our results of operations by increasing our expenses and/or requiring us to alter our manufacturing processes. 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.
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.
If we 23 Table of Contents 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. ITEM 1B. Unresolved Staff Comments None.
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 (currently in draft form) imposes further security obligations on electronic communications networks.
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.
Given our anticipated growth and the intense competitive pressures we face, we may be unable to adequately control our operating expenses or 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.
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.
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 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.
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 Rural Utility Service loans and grants, to finance capital spending.
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.
Government and Regulatory Risks Increasing data privacy regulations could impact our business and expose us to increased liability. Government authorities in the United States and around the world have implemented and are continuing to implement broader and more stringent laws and regulations concerning data protection.
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 United States and around the world have implemented and are continuing to implement broader and more stringent laws and regulations concerning data protection.
We have operated using a “work-from-anywhere” model since the first half of 2020, 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.
We operate using a 14 Table of Contents “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.
Twice, the Court of Justice of the European Union, or the CJEU, has invalidated regulations designed to facilitate the transfer of data from European countries to the United States, and in July 2020, 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.
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.
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 profitability.
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 profitability.
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 that we believe are key to our strategy, we may fail to grow our sales as planned.
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.
We also periodically evaluate our supplier purchase commitments, which have increased significantly due to extended lead-times in the current supply-chain environment. 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.
We also periodically evaluate our supplier purchase commitments due to extended lead-times as a result of the global pandemic-induced demand pulse and corresponding impact on the supply-chain environment. 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.
The demand on network capacity due to the shift towards a remote workforce 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.
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.
In January 2022, we terminated our loan and security agreement with Bank of America, N.A. If our financial position deteriorates, we may not be able to secure a similar 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 would suffer dilution.
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 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. 18 Table of Contents Developing our products is complex and involves uncertainties, including pricing risks for key materials, component shortages and limited suppliers.
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.
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.
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 December 31, 2023, we had inventory deposits totaling $78.1 million.
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. Security breaches and data loss may expose us to liability, harm our reputation and adversely affect our business.
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.
The FCC has jurisdiction over 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.
For 21 Table of Contents 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.
Furthermore, the GDPR imposes significant penalties for noncompliance of at least €20 million (for the EU GDPR) or £17.5 million (for the UK GDPR), or up to 4% of a company’s worldwide revenue; thus, any non-compliance with the GDPR could result in a material adverse effect on our business, financial condition and results of operations.
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.
Our services to customers have increasingly broadened to help them deploy our products within their networks. Once our products are deployed within our customers’ networks, they depend on our support organization to resolve any issues relating to those products.
Our services to customers include services to help them deploy our products within their networks. Once our products are deployed within our customers’ networks, they depend on our customer success, customer support and research and development organizations to resolve any issues relating to those products.
For example, substantially all our silicon suppliers have extended their lead times to 52 weeks or more and increased prices. 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.
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.
We and our third-party providers may be unable to adequately prevent unauthorized third-party copying or use of our IP. For example, contractual provisions protecting our IP could be breached, or our IP could be reverse engineered or unlawfully distributed.
We and our third-party providers may be unable to adequately prevent unauthorized third-party copying or 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.
Any decrease or delay in 19 Table of Contents 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.
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.
We continue to invest resources to comply with evolving laws and regulations, and this investment may result in increased general and 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 and our stock price.
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 and our stock price.
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.
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.
A prolonged disruption to our business and operations and other adverse residual impacts of the COVID-19 pandemic or further future disruptions could have a material adverse effect on our business, results of operations and financial condition.
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.
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. 9 Table of Contents Business and Operational Risks 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 in the past and could continue to disrupt our business and adversely impact our gross margin and results of operations.
Business and Operational Risks 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.
Our products have contained and may contain undetected defects, bugs or security vulnerabilities, which risks may be exacerbated as we continue to expand our cloud and software portfolio and include services from third-party partners.
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 are subject to defects, bugs or security vulnerabilities, which risks may be exacerbated as we continue to expand our cloud and software portfolio and include services from third-party partners.
Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. 22 Table of Contents 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.
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.
If our systems suffer prolonged interruption, our results of operations and cash flows would be adversely affected. 15 Table of Contents 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.
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. Properties We currently lease our corporate headquarters in San Jose, California. In addition to our headquarters site, we lease additional office space in the United States, China and India. We believe that our facilities are in good condition and are generally suitable to meet our needs for the foreseeable future.
Biggest changeITEM 2. Properties We currently lease our corporate headquarters in San Jose, California. In addition to our headquarters site, we lease additional office space in China, India and the United States. We believe that our facilities are in good condition and are generally suitable to meet our needs for the foreseeable future.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not currently a party to any legal proceedings that, if determined adversely to us, in our opinion, are currently expected to individually or in the aggregate have a material adverse effect on our business, operating results or financial condition taken as a whole. ITEM 4. Mine Safety Disclosures Not applicable. 24 Table of Contents PART II
Biggest changeWe are not currently a party to any legal proceedings that, if determined adversely to us, in our opinion, are currently expected to individually or in the aggregate have a material adverse effect on our business, operating results or financial condition taken as a whole. ITEM 4. Mine Safety Disclosures Not applicable. 25 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Calix, Inc. under the Securities Act of 1933, as amended. 25 Table of Contents ITEM 6. [Reserved]
Biggest changeStockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns. 26 Table of Contents This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Calix, Inc. under the Securities Act of 1933, as amended.
The graph tracks the performance of a $100 investment in our common stock and in each of the indexes during the last five fiscal years ended December 31, 2022. Data for the Russell 2000 Index and S&P 500 Communications Equipment assume reinvestment of dividends.
The graph tracks the performance of a $100 investment in our common stock and in each of the indexes during the last five fiscal years ended December 31, 2023. Data for the Russell 2000 Index and S&P 500 Communications Equipment assume reinvestment of dividends.
Dividends We have never declared or paid a cash dividend on our common stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. Recent Sales of Unregistered Securities None.
Dividends We have never declared or paid a cash dividend on our common stock, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities We maintain a common stock repurchase program.
Number of Common Stockholders As of February 10, 2023, the approximate number of holders of our common stock was 877 (not including beneficial owners of stock held in street name).
Number of Common Stockholders As of February 9, 2024, the approximate number of holders of our common stock was 1,151 (not including beneficial owners of stock held in street name).
Removed
Stock Repurchase 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. There were no repurchases during the year ended December 31, 2022. As of December 31, 2022, $100 million remained available for future stock repurchases under the repurchase program.
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Securities Authorized for Issuance under Equity Compensation Plans The information required by this item is incorporated by reference to our 2023 Annual Report to Stockholders, which includes our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders.
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Performance Graph The following graph shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total returns of the NYSE Composite Index, Russell 2000 Index and the S&P 500 Communications Equipment Index.
Added
In November 2023, our Board of Directors authorized a $100 million increase to this program.
Removed
Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
Added
Our repurchase activity for the three months ended December 31, 2023 was as follows (in thousands, except per share amounts): Total Number of Shares Repurchased Average Price Paid Per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs October 1 to October 31 485 $ 35.07 485 $ 40,587 November 1 to November 30 772 34.96 772 113,603 December 1 to December 31 — — — 113,603 1,257 1,257 Performance Graph The following graph shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total returns of the NYSE Composite Index, Russell 2000 Index and the S&P 500 Communications Equipment Index.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32 Item 8. Financial Statements and Supplementary Data 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 Item 9A. Controls and Procedures 59
Biggest changeItem 6. [Reserved] 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33 Item 8. Financial Statements and Supplementary Data 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 60 Item 9A. Controls and Procedures 60

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThis was partially offset by payments related to a financing arrangement of $2.4 million. 2021 Compared to 2020 For a discussion of our liquidity and capital resources and our cash flow activities for the years ended December 31, 2021 and 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022. 31 Table of Contents Working Capital and Capital Expenditure Needs Our material cash commitments include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals, operating leases and revenue-share obligations.
Biggest changeFinancing Activities In 2023, net cash used in financing activities of $65.9 million consisted of purchases of our common stock of $86.4 million and payments related to a financing arrangement of $11.7 million, partially offset by proceeds from the issuance of common stock related to our equity plans of $32.1 million. 32 Table of Contents 2022 Compared to 2021 For a discussion of our liquidity and capital resources and our cash flow activities for the years ended December 31, 2022 and 2021, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 21, 2023.
This enables BSPs to grow their brand through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, creating value for their businesses and the communities they serve. We market our Calix platform and managed services to communication service providers globally through our direct sales force as well as select resellers.
This enables BSPs to grow their brand through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, creating value for their businesses and the communities they serve. We market our platform and managed services to communication service providers globally through our direct sales force as well as select resellers.
Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory or accrual for supplier commitments) and have in the past been 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 or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.
Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory or accrual for supplier commitments) and have in 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 or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.
We regularly monitor inventory quantities on-hand and record write-downs for excess and obsolete inventory based on our estimate of demand for our products, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds our estimated selling price.
We regularly monitor inventory on-hand and record write-downs for excess and obsolete inventory based on our estimate of demand for our products, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds our estimated selling price.
See Note 5 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our outstanding purchase commitments related to our third-party manufacturers. (2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2027.
See Note 5 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our outstanding purchase commitments related to our third-party manufacturers. (2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2029.
Our growth is also highly dependent on the speed and willingness of customers to adopt the Calix platform and managed services.
Our growth is also highly dependent on the speed and willingness of customers to adopt our platform and managed services.
As of December 31, 2022, our liability for taxes that would be payable because of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significant and limited to withholding taxes considering our existing net operating loss carryovers.
As of December 31, 2023, our liability for taxes that would be payable because of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significant and limited to withholding taxes considering our existing net operating loss carryovers.
Our estimate of stand-alone selling price is established 27 Table of Contents considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, characteristics of targeted customers and pricing practices. The determination of estimated stand-alone selling price is made through consultation with and formal approval by management, taking into consideration the go-to-market strategy.
Our estimate of stand-alone selling price is established considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, characteristics of targeted customers and pricing practices. The determination of estimated stand-alone selling price is made through consultation with and formal approval by management, taking into consideration the go-to-market strategy.
Our primary focus has been and in the near term will continue to be the United States and Canada given our large, direct sales and marketing presence and the amount of government stimulus being invested into underserved and not- 28 Table of Contents served areas of these countries. In 2022, we introduced our platform to the United Kingdom.
Our primary focus has been, and in the near term will continue to be, the United States and Canada given our large, direct sales and marketing presence and the amount of government stimulus being invested into underserved and not-served areas of these countries. In 2022, we introduced our platform to the United Kingdom.
Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our 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 we conduct business. 30 Table of Contents 2021 Compared to 2020 For a comparison of our results of operations for the years ended December 31, 2021 and 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022.
Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our 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 we conduct business. 2022 Compared to 2021 For a comparison of our results of operations for the years ended December 31, 2022 and 2021, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023.
Revenue fluctuations result from many factors, including, but not limited to: increases or decreases in customer orders for our products and services, market, financial or other factors 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 COVID-19 outbreaks, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers.
Revenue fluctuations result from many factors, including, but not limited to: increases or decreases in customer orders for our products and services, market, financial or other factors 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.
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 may adversely impact our business and potential growth.
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 institute cost-cutting measures, all of which may adversely impact our business and potential growth.
Our revenue is also dependent upon our customers’ timing of purchases, capital expenditure plans and decisions to upgrade their networks or adopt new technologies, including adoption of our software and cloud platform solutions, as well as our ability to grow our customer base.
Our revenue is also dependent upon our customers’ success in growing their subscribers, timing of purchases, capital expenditure plans and decisions to upgrade their networks or adopt new technologies, including adoption of our software and cloud platform solutions, as well as our ability to grow our customer base.
As of December 31, 2022, we had cash, cash equivalents and marketable securities of $241.7 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S. government agency securities and commercial paper. This includes $2.7 million of cash primarily held by our foreign subsidiaries.
As of December 31, 2023, we had cash, cash equivalents and marketable securities of $220.3 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S. government securities and commercial paper. This includes $7.7 million of cash primarily held by our foreign subsidiaries.
Our Calix 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 data and insights to simplify network operations, marketing and customer support and deliver experiences that excite their subscribers.
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 deliver a growing portfolio of SmartLife managed services and experiences that excite their subscribers.
Our revenue is principally derived in the United States. Revenue generated in the United States represented 91% of revenue in 2022 and 83% in 2021.
Our revenue is principally derived in the United States. Revenue generated in the United States represented 91% of revenue in 2023 and 91% in 2022.
Factors that have impacted our cost of revenue, and that we expect will impact cost of revenue in future periods, also include: changes in the mix of products delivered, customer location and regional mix, changes in the cost of our inventory, including higher costs due to materials shortages including components, supply constraints or unfavorable changes in trade policies, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty and incurrence of retrofit costs, amortization of intangibles, asset write-offs, support fees for silicon-related development work for our products, allowances for obligations to our suppliers and inventory write- 26 Table of Contents downs.
Factors that have impacted our cost of revenue, or that we expect may impact cost of revenue in future periods, also include: changes in the mix of products delivered, customer location and regional mix, 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.
Contractual Obligations and Commitments Our principal commitments as of December 31, 2022 consisted of our contractual obligations under non-cancelable outstanding purchase obligations, operating lease obligations for office space and a revenue share obligation.
Contractual Obligations and Commitments Our principal commitments as of December 31, 2023 consisted of our contractual obligations under non-cancelable outstanding purchase obligations and operating lease obligations for office space.
The following table presents the cash inflows and outflows by activity during 2022 and 2021 (in thousands): Years Ended December 31, 2022 2021 Net cash provided by operating activities $ 27,183 $ 56,793 Net cash used in investing activities (24,082) (110,661) Net cash provided by financing activities 25,063 24,383 Operating Activities Our operating activities provided cash of $27.2 million in 2022 and $56.8 million in 2021.
The following table presents the cash inflows and outflows by activity during 2023 and 2022 (in thousands): Years Ended December 31, 2023 2022 Net cash provided by operating activities $ 56,251 $ 27,183 Net cash used in investing activities (6,245) (24,082) Net cash provided by financing activities (65,926) 25,063 Operating Activities Our operating activities provided cash of $56.3 million in 2023 and $27.2 million in 2022.
We also evaluate our supplier purchase commitments, which have increased significantly due to extended lead-times in the current supply-chain environment, and record a liability for excess and obsolete components based on our estimated demand of our products, potential obsolescence of technology and product life cycles.
We also evaluate our supplier purchase commitments, which remain elevated due to extended lead-times created by pandemic-induced supply-chain challenges, and record a liability for excess and obsolete components based on our estimated demand of our products, potential obsolescence of technology and product life cycles.
We expect our investments in research and development to increase in absolute dollars, but remain relatively consistent as a percentage of gross profit, as we plan to expand the functionality and capabilities of our platform and deliver new managed services. 29 Table of Contents General and Administrative Expenses General and administrative expenses consist primarily of personnel costs related to our executive, finance, human resources, information technology and legal organizations, outside consulting services, insurance, facilities and fees for professional services.
We expect our investments in research and development to increase in absolute dollars as we seek to expand the functionality and capabilities of our platforms. General and Administrative Expenses General and administrative expenses consist primarily of personnel costs related to our executive, finance, human resources, information technology and legal organizations, outside consulting services, insurance, facilities and fees for professional services.
Interest and Other Income (Expense), Net The following table sets forth our interest and other expense, net (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % Interest and other income (expense), net $ 1,432 $ (1,284) $ 2,716 212 % Interest and other income (expense), net increased by $2.7 million in 2022 compared with 2021 mainly due to income from marketable securities.
Interest and Other Income, Net The following table sets forth our interest and other income, net (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % Interest and other income, net $ 9,172 $ 1,432 $ 7,740 541 % Interest and other income, net increased by $7.7 million in 2023 compared with 2022 mainly due to income from marketable securities corresponding to an increase in interest rates.
Non-cash charges consisted of stock-based compensation of $44.8 million, depreciation and amortization of $14.3 million and deferred income taxes of $1.9 million partially offset by net accretion of available-for-sale securities of $1.1 million.
Non-cash charges consisted of stock-based compensation of $62.8 million, depreciation and amortization of $16.6 million and deferred income taxes of $0.7 million partially offset by net accretion of available-for-sale securities of $4.2 million.
These factors are impacted by market and economic conditions, technology changes and new product introductions and require estimates that may include elements that are uncertain. Actual demand may differ from forecasted demand and may have a material effect on gross profit. If inventory is written down, a new cost basis is established that cannot be increased in future periods.
These factors are impacted by market and economic conditions, competitive dynamics, technology changes and new product introductions and require estimates that may include elements that are uncertain. Actual demand may differ from forecasted demand and may have a material effect on gross profit.
The following table sets forth our research and development expenses (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % Research and development $ 131,994 $ 101,747 $ 30,247 30 % Percent of revenue 15 % 15 % Percent of gross profit 30 % 29 % The increase in research and development expenses of $30.2 million during 2022 compared with 2021 was mainly due to increases in personnel expenses of $15.5 million, stock-based compensation of $5.4 million, outside services of $4.5 million and depreciation and amortization of $1.5 million.
The following table sets forth our research and development expenses (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % Research and development $ 177,772 $ 131,994 $ 45,778 35 % Percent of revenue 17 % 15 % Percent of gross profit 34 % 30 % The increase in research and development expenses of $45.8 million during 2023 compared with 2022 was mainly due to increases in personnel expenses of $31.7 million driven by increased headcount, stock-based compensation of $4.8 million, depreciation and amortization of $3.2 million, prototypes and test equipment expenses of $2.9 million and outside services of $1.2 million.
See Note 4 “Balance Sheet Details” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our outstanding liability.
See Note 5 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our operating leases.
Revenue Recognition Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our financial statements. 28 Table of Contents Revenue Recognition Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The decrease in net cash provided by operating activities during 2022 as compared to 2021 was due primarily to unfavorable charges of $8.3 million in our net operating results after adjustment of non-cash charges and $21.4 million in our net cash outflow resulting from changes in operating assets and liabilities.
The increase in net cash provided by operating activities during 2023 as compared to 2022 was due primarily to an increase in our net operating results after adjustment of non-cash charges of $2.9 million and an increase in our net cash inflow resulting from changes in operating assets and liabilities of $26.1 million.
Overview We are the leading global provider of a broadband delivery platform (cloud, software and systems) and managed services that enable service providers of all types and sizes to innovate and transform their businesses.
Overview We 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.
Income Taxes The following table sets forth our income taxes (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % Income taxes $ 13,032 $ (165,724) $ 178,756 108 % Effective tax rate 24 % (228) % During 2022, our current tax expense was $11.1 million, and our deferred tax expense was $1.9 million.
Income Taxes The following table sets forth our income taxes (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % Income taxes $ 5,432 $ 13,032 $ (7,600) (58) % Effective tax rate 16 % 24 % During 2023, our current tax expense was $6.1 million, and our deferred tax expense was $(0.7) million.
The following table sets forth our general and administrative expenses (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % General and administrative $ 76,275 $ 55,779 $ 20,496 37 % Percent of revenue 9 % 8 % The increase in general and administrative expenses of $20.5 million in 2022 compared to 2021 was mainly due to increases in personnel expenses of $8.7 million, stock-based compensation of $8.7 million and outside services of $2.5 million.
The following table sets forth our general and administrative expenses (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % General and administrative $ 100,395 $ 76,275 $ 24,120 32 % Percent of revenue 10 % 9 % The increase in general and administrative expenses of $24.1 million in 2023 compared to 2022 was mainly due to increases in personnel expenses of $10.8 million driven by increased headcount, stock-based compensation of $8.0 million, litigation settlement of $3.2 million and outside services of $1.0 million.
The following table sets forth our sales and marketing expenses (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % Sales and marketing $ 174,549 $ 125,909 $ 48,640 39 % Percent of revenue 20 % 19 % Sales and marketing expenses increased by $48.6 million during 2022 compared to 2021 primarily due to increases in personnel expenses of $33.6 million related to investments in sales headcount and higher sales incentive compensation, travel expenses of $5.7 million, stock-based compensation of $5.3 million and marketing expenses of $1.9 million.
The following table sets forth our sales and marketing expenses (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % Sales and marketing $ 214,564 $ 174,549 $ 40,015 23 % Percent of revenue 21 % 20 % Sales and marketing expenses increased by $40.0 million during 2023 compared to 2022 primarily due to increases in personnel expenses of $29.4 million mainly related to increased sales headcount and higher sales incentive compensation corresponding to our increased revenue, stock-based compensation of $5.0 million and travel expenses of $2.2 million.
Gross Profit and Gross Margin The following table sets forth our gross profit and gross margin (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % Gross profit $ 435,428 $ 356,587 $ 78,841 22 % Gross margin 50.2 % 52.5 % Gross profit increased by $78.8 million to $435.4 million during 2022 from $356.6 million during 2021.
Gross Profit and Gross Margin The following table sets forth our gross profit and gross margin (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % Gross profit $ 518,316 $ 435,428 $ 82,888 19 % Gross margin 49.9 % 50.2 % Gross profit increased by $82.9 million to $518.3 million during 2023 from $435.4 million during 2022.
Results of Operations for Years Ended December 31, 2022 and 2021 Revenue The following table sets forth our revenue (dollars in thousands): Years Ended December 31, 2022 vs 2021 Change 2022 2021 $ % Revenue $ 867,827 $ 679,394 $ 188,433 28 % Our revenue increased by $188.4 million, or 28%, during 2022 compared to 2021.
Results of Operations for Years Ended December 31, 2023 and 2022 Revenue The following table sets forth our revenue (dollars in thousands): Years Ended December 31, 2023 vs 2022 Change 2023 2022 $ % Revenue $ 1,039,593 $ 867,827 $ 171,766 20 % 29 Table of Contents Our revenue increased by $171.8 million, or 20%, during 2023 compared with 2022.
Over time, we expect to move to additional high average-revenue-per-user markets with our platform. No customer accounted for more than 10% of our revenue for 2022 or 2021. See Note 11 “Revenue from Contracts with Customers” to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more details on concentration of revenue for the years presented.
See Note 11 “Revenue from Contracts with Customers” to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more details on concentration of revenue for the years presented.
We continue to maintain a valuation allowance of $29.9 million on certain U.S. federal and California state deferred tax assets that we believe are not more likely than not to be realized in future periods.
Our effective tax rate was higher than the federal statutory rate of 21% due to state taxes, the U.S. tax impact of foreign operations, and the impact of stock-based compensation, partially offset by research and development tax credits and stock option windfall deductions. 31 Table of Contents We continue to maintain a valuation allowance of $29.9 million on certain U.S. federal and California state deferred tax assets that we believe are not more likely than not to be realized in future periods.
Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if our revenue declines.
In addition, we periodically elect to ship by air versus by ocean in order to meet delivery commitments to our customers, which is more costly. Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if our revenue declines.
The following table summarizes our contractual obligations as of December 31, 2022 (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) $ 398,366 $ 316,394 $ 62,710 $ 12,092 $ 7,170 Operating lease obligations (2) 13,573 4,629 8,413 531 — Revenue share obligation (3) 11,902 7,209 4,693 — — $ 423,841 $ 328,232 $ 75,816 $ 12,623 $ 7,170 (1) Represents outstanding purchase commitments to be delivered by our third-party manufacturers or other vendors.
The following table summarizes our contractual obligations as of December 31, 2023 (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) $ 219,989 $ 140,521 $ 69,145 $ 6,649 $ 3,674 Operating lease obligations (2) 12,454 4,676 5,978 1,576 224 $ 232,443 $ 145,197 $ 75,123 $ 8,225 $ 3,898 (1) Represents outstanding purchase commitments to be delivered by our third-party manufacturers or other vendors.
The increase in revenue was primarily due to higher revenue from our growing base of small and medium BSP customers and the continuation of BSPs seeking to provide their subscribers a better experience by adopting our platform and managed services. In particular, we added a new medium-sized customer that began to receive significant shipments during the second half of 2022.
The increase in revenue was primarily due to strength in shipments to one of our large customers, continued shipments throughout 2023 from a new medium-sized BSP customer that we added in the third quarter of 2022 and higher revenue from our growing base of small and medium BSP customers as they expand with our platform and managed services to simplify their operations, excite their subscribers with better experiences and grow their value to the communities they serve.
Investing Activities In 2022, cash used in investing activities of $24.1 million consisted of net purchases of marketable securities of $10.0 million and capital expenditures of $14.1 million, primarily related to purchases of test equipment and computer equipment.
Investing Activities In 2023, net cash used in investing activities of $6.2 million consisted of capital expenditures of $17.9 million, primarily consisting of purchases of test and computer equipment and software, partially offset by net maturities of marketable securities of $11.6 million.
Our effective tax rate was higher than the federal statutory rate of 21% due to state taxes, Base Erosion and Anti-Abuse Tax and the impact of stock-based compensation, partially offset by research and development tax credits and stock option windfall deductions.
Our effective tax rate was lower than the federal statutory rate of 21% primarily due to research and development tax credits and provision to return adjustments, partially offset by the impact of stock-based compensation and uncertain tax positions. During 2022, our current tax expense was $11.1 million, and our deferred tax expense was $1.9 million.
In 2022, cash outflows from changes in operating assets and liabilities primarily consisted of increases in inventory of $60.3 million to improve our responsiveness to our BSPs’ subscriber demand; in prepaid expenses and other assets of $38.4 million mainly due to an inventory deposit to a CM partner; and in accounts receivable of $8.6 million due to increased revenue.
In 2023, cash outflows from changes in operating assets and liabilities primarily consisted of an increase in prepaid expenses and other assets of $60.8 million, mainly due to advanced payments to supply chain partners, an increase in prepaid taxes and reclassification of contract assets from deferred revenue; an increase in accounts receivable of $32.2 million due to the timing of shipments; and a decrease in accounts payable of $6.4 million due to the timing of inventory payments.
Research and Development Expenses Research and development expenses include personnel costs, outside contractor and consulting services, depreciation on lab equipment, costs of prototypes and overhead allocations.
We expect our investments in sales and marketing will increase in absolute dollars as we extend our market reach and grow our business in support of our key strategic initiatives. 30 Table of Contents Research and Development Expenses Research and development expenses include personnel costs, outside contractor and consulting services, depreciation on lab equipment, costs of prototypes and overhead allocations.
In addition, from time to time, we procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers.
In addition, from time to time, we procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers. Furthermore, post the global pandemic-induced supply chain challenges, we have purchased, and may continue to purchase, excess components from our suppliers and consigned back to our suppliers to be consumed on future finish good builds.
Recent Accounting Pronouncements Not Yet Adopted There have been no additional accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to us.
If inventory is written down, a new cost basis is established that cannot be increased in future periods. The sale of previously reserved inventory has not had a material impact on our gross margin. Recent Accounting Pronouncements Not Yet Adopted There have been no additional accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to us.
We made continued investments in our information technology infrastructure in 2022. We expect our general and administrative investments to increase in absolute dollars but decline slightly as a percentage of revenue over time as we expect revenue to grow.
We expect our general and administrative investments to increase in absolute dollars as we support the business.
Going forward, we expect that the effects of the global supply-chain disruption will continue to normalize in 2023, and we expect the software and subscription contributions will grow, resulting in potential gross margin expansion. Operating Expenses Sales and Marketing Expenses Sales and marketing expenses consist of personnel costs, employee sales commissions, marketing programs and events, software tools and travel-related expenses.
Operating Expenses Sales and Marketing Expenses Sales and marketing expenses consist of personnel costs, employee sales commissions, marketing programs and events, software tools and travel-related expenses.
These changes were partially offset by increases in accounts payable of $12.1 million due to increased inventory purchases; in accrued liabilities of $12.2 million, mainly related to accrued compensation and accruals for our Calix ConneXions 2022 Customer Success and Innovation conference; and in deferred revenue of $9.1 million due to our platform subscriptions.
These changes were partially offset by an increase in accrued liabilities of $32.7 million, mainly due to an increase in the reserves for inventory at suppliers, a decrease in inventory of $16.2 million and an increase in deferred revenue of $2.9 million.
Our customers range from smaller, regional service providers to some of the world’s largest service providers. We have enabled approximately 1,900 customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.
We have approximately 1,600 active customers that have deployed passive optical, Active Ethernet or point-to-point Ethernet fiber access networks or our subscriber premise systems.
Removed
Given the ongoing supply-chain disruptions related to component shortages, longer lead times as a result of increased global demand for certain components and disruptions related to the COVID-19 pandemic, we have experienced and are continuing to experience product supply delays and related challenges, and we expect these delays and related challenges to persist in the foreseeable future.
Added
Our customers range from smaller, regional service providers to some of the world’s largest service 27 Table of Contents 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).
Removed
Similarly, while on-going challenges in supply-chain logistics have improved to an extent, delivery timelines remain elongated. In addition, we periodically elect to ship by air versus by ocean in order to meet delivery commitments to our customers, which is more costly.
Added
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.
Removed
We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our financial statements.
Added
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.
Removed
The sale of previously reserved inventory has not had a material impact on our gross margin. Income Taxes We evaluate our tax positions and estimate our current tax exposure along with assessing temporary differences that result from different book to tax treatment of items not currently deductible for tax purposes.
Added
Over time, we expect to move to additional high average-revenue-per-user markets with our platform. No customer accounted for more than 10% of our revenue for 2023, 2022 or 2021.
Removed
These differences result in deferred tax assets and liabilities on our Consolidated Balance Sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse.
Added
Gross margin decreased to 49.9% during 2023 from 50.2% during 2022.
Removed
In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our Consolidated Statements of Comprehensive Income become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.
Added
The decrease in gross margin of 30 basis points, compared to the corresponding period in 2022, was mainly due to charges of $28.7 million recorded in the fourth quarter of 2023 as we wrote down obsolete inventory and accrued a liability for components at suppliers primarily associated with our legacy product family that existed before our shift to an all-platform model.
Removed
Accordingly, realization of our deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized. We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance.
Added
During 2023, customers moved to our platform model at a faster rate than originally anticipated, leaving us with excess finished goods and related components at suppliers.
Removed
Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. In the third quarter of 2021, we reversed the majority of our valuation allowance and recorded on our balance sheet U.S. federal and certain state deferred tax assets of $162 million.
Added
This decrease was partially offset by increased contributions from our platform and managed services, a shift in product mix and the sell through of a lower amount of excessively priced components acquired in the secondary market during the supply-chain disruption.
Removed
As of December 31, 2022, we determined that positive evidence continues to outweigh negative evidence and concluded that it was more likely than not that our U.S. federal and state (with the exception of California) deferred tax assets are realizable. We currently maintain a valuation allowance of $29.9 million for certain U.S. federal and California deferred tax assets.
Added
Working Capital and Capital Expenditure Needs Our material cash commitments include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals and operating leases. We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory.
Removed
Gross margin decreased to 50.2% during 2022 from 52.5% during 2021. The decrease in gross margin of 230 basis points was mainly due to higher component and logistics costs from the COVID-19-pandemic-induced, supply-chain disruption, which more than offset the increase in gross margin due to increased software and subscription contributions.
Added
Furthermore, we maintain a common stock repurchase program of which $113.6 million was available as of December 31, 2023. Our stock repurchase program does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time.
Removed
We expect our investments in sales and marketing will increase in absolute dollars, but be relatively consistent as a percentage of revenue, as we attempt to capitalize on Calix’s ability to enable new platform capabilities and managed services for our BSP customers.
Removed
Restructuring Benefit We initiated a restructuring plan in June 2020 to accelerate our platform future and to align with a work-from-anywhere culture. We incurred restructuring charges of $6.3 million in 2020, consisting of facilities-related charges and severance and other termination related benefits.
Removed
In 2021, we reversed $0.8 million in facilities-related charges as a result of subleasing the abandoned portion of our San Jose headquarters. See Note 4 “Balance Sheet Details” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Removed
During 2021, we recognized an income tax benefit of $162.0 million offset by current income taxes, based on our reassessment of the amount of our U.S. federal and other state deferred tax assets that are more likely than not to be realized, primarily as a result of actual and projected increases in U.S. profitability in the current and future periods.
Removed
Financing Activities In 2022, net cash provided by financing activities of $25.1 million primarily consisted of proceeds from the issuance of common stock related to our equity plans of $27.5 million.
Removed
We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory. Furthermore, in July 2022, our Board of Directors authorized a one-year stock repurchase program for up to $100 million of our common stock. During the year ended December 31, 2022, no repurchases were made under the program.
Removed
If we are unable to execute on our current operating plan or continue to generate operating income and positive cash flows, our liquidity, results of operations and financial condition may be adversely affected, and we may need to cease our repurchase program or seek other sources of liquidity, including the sale of additional equity or borrowing, to support our working capital needs.
Removed
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.
Removed
See Note 5 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our operating leases. (3) Represents remaining payments related to a revenue-share obligation, including imputed interest associated with developed software product and related enhancements by an engineering service provider.
Removed
The schedule reflects our expected revenue-share and true-up payments based on our revenue projections for the developed products over a sales period 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed8 unchanged
Biggest changeThe percentages of our operating expenses denominated in the following currencies for the indicated fiscal years were as follows: Years Ended December 31, 2022 2021 2020 USD 91 % 92 % 92 % RMB 6 6 6 GBP 2 2 2 INR 1 — — 100 % 100 % 100 % If USD had appreciated or depreciated by 10%, relative to RMB, GBP and INR, our operating expenses for 2022 would have decreased or increased by approximately $3.3 million, or approximately 1%.
Biggest changeThe percentages of our operating expenses denominated in the following currencies for the indicated fiscal years were as follows: Years Ended December 31, 2023 2022 2021 USD 90 % 91 % 92 % RMB 6 6 6 INR 3 1 — GBP 1 2 2 100 % 100 % 100 % If USD had appreciated or depreciated by 10%, relative to RMB, GBP and INR, our operating expenses for 2023 would have decreased or increased by approximately $4.9 million, or approximately 1%.
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 December 31, 2022, we had no forward contracts outstanding.
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 December 31, 2023, we had no forward contracts outstanding.
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 because of changes in interest rates. 32 Table of Contents Foreign Currency Exchange Risk Our primary foreign currency exposures are described below.
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 because of changes in interest rates. Foreign Currency Exchange Risk Our primary foreign currency exposures are described below.
This loss is recognized as an adjustment to stockholders’ equity through “Accumulated other comprehensive loss.” Transaction Exposure We have certain assets and liabilities, primarily accounts receivables and accounts payable (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency.
This gain is recognized as an adjustment to stockholders’ equity through “Accumulated other comprehensive loss.” Transaction Exposure We have certain assets and liabilities, primarily accounts receivable and accounts payable (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency.
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.
Additionally, if the USD 33 Table of Contents 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.
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 Consolidated Balance Sheets. The effect of foreign exchange rate fluctuations on our consolidated financial position for the year ended December 31, 2022 was a net translation loss of $0.6 million.
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 Consolidated Balance Sheets. The effect of foreign exchange rate fluctuations on our consolidated financial position for the year ended December 31, 2023 was a net translation gain of $0.1 million.
Transaction gains and losses on these foreign currency denominated assets and liabilities are recognized each period within “Other income (expense), net” in our Consolidated Statements of Comprehensive Income. During the year ended December 31, 2022, we recognized a net loss related to these foreign exchange assets and liabilities of approximately $0.3 million. 33 Table of Contents
Transaction gains and losses on these foreign currency denominated assets and liabilities are recognized each period within “Other expense, net” in our Consolidated Statements of Comprehensive Income. During the year ended December 31, 2023, the net loss we recognized related to these foreign exchange assets and liabilities was approximately $0.2 million. 34 Table of Contents
As of December 31, 2022, we had cash, cash equivalents and marketable securities of $241.7 million, which was held primarily in cash, money market funds and highly liquid marketable securities such as U.S. government agency securities and commercial paper.
As of December 31, 2023, we had cash, cash equivalents and marketable securities of $220.3 million, which was held primarily in cash, money market funds and highly liquid marketable securities such as U.S. government securities and commercial paper.

Other CALX 10-K year-over-year comparisons