Calix, Inc 10-Q for FY2026 Q2
Calix, Inc (CALX)
10-Q
2026-07-21
For: 2026-06-27
View Original
Added on
July 21, 2026
About this 10-Q
Calix, Inc filed this 10-Q on July 21, 2026, covering the quarter ended June 27, 2026 (FY2026 Q2).
Headline figures
Quarter ended June 27, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $293.33M
- up 21.3% from $241.88M a year earlier
- Net income
- $17.11M
- compared with a net loss of $199K a year earlier
- Diluted EPS
- $0.26
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 27, 2026
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-34674
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of Principal Executive Offices) (Zip Code)
(408 ) 514-3000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes : x No: o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes : x No: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | |||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller Reporting Company | |||||||||||||||||||||
| Emerging Growth Company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No: x
As of July 13, 2026, there were 62,963,989 shares of the Registrant’s common stock, par value $0.025, outstanding.
CALIX, INC.
FORM 10-Q
TABLE OF CONTENTS
3
PART I. FINANCIAL INFORMATION
ITEM 1.Financial Statements
CALIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
| June 27, 2026 | December 31, 2025 | |||||||||||||
| (Unaudited) | (See Note 1) | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Marketable securities | ||||||||||||||
| Accounts receivable, net | ||||||||||||||
| Inventory | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Right-of-use operating leases | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Goodwill | ||||||||||||||
| Other assets | ||||||||||||||
| $ | $ | |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued liabilities | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term portion of deferred revenue | ||||||||||||||
| Operating leases | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies (See Note 6) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Total stockholders’ equity | ||||||||||||||
| $ | $ | |||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||
| Appliance | $ | $ | $ | $ | ||||||||||||||||||||||
| Software and service | ||||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||||
| Cost of revenue: | ||||||||||||||||||||||||||
| Appliance | ||||||||||||||||||||||||||
| Software and service | ||||||||||||||||||||||||||
| Total cost of revenue | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Operating income (loss) | ( | |||||||||||||||||||||||||
| Interest income and other income (expense), net: | ||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Other income (expense), net | ( | ( | ( | |||||||||||||||||||||||
| Total interest income and other income (expense), net | ||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income taxes | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Weighted-average number of shares used to compute | ||||||||||||||||||||||||||
| net income (loss) per common share: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| Unrealized gain (loss) on available-for-sale marketable securities, net | ( | |||||||||||||||||||||||||
| Foreign currency translation adjustments, net | ( | |||||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | |||||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | $ | ( | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of March 28, 2026 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net of forfeitures | — | — | |||||||||||||||||||||||||||||||||
| Repurchases of common stock including excise tax | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance as of June 27, 2026 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of March 29, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net of forfeitures | — | — | |||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance as of June 28, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net of forfeitures | — | — | |||||||||||||||||||||||||||||||||
| Repurchases of common stock including excise tax | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance as of June 27, 2026 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plans, net of forfeitures | — | — | |||||||||||||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance as of June 28, 2025 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
6
CALIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Six Months Ended | ||||||||||||||
| June 27, 2026 | June 28, 2025 | |||||||||||||
| Operating activities: | ||||||||||||||
| Net income (loss) | $ | $ | ( | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Deferred income taxes | ( | |||||||||||||
| Net accretion of available-for-sale securities | ( | ( | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable, net | ( | |||||||||||||
| Inventory | ( | ( | ||||||||||||
| Prepaid expenses and other assets | ( | |||||||||||||
| Accounts payable | ||||||||||||||
| Accrued liabilities | ( | ( | ||||||||||||
| Deferred revenue | ( | |||||||||||||
| Other long-term liabilities | ( | ( | ||||||||||||
| Net cash provided by operating activities | ||||||||||||||
Investing activities | ||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||
| Purchases of marketable securities | ( | ( | ||||||||||||
| Sales of marketable securities | ||||||||||||||
| Maturities of marketable securities | ||||||||||||||
| Net cash provided by investing activities | ||||||||||||||
| Financing activities: | ||||||||||||||
| Proceeds from common stock issuances related to employee benefit plans | ||||||||||||||
| Repurchases of common stock | ( | ( | ||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | |||||||||||||
| Net decrease in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
7
CALIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Company and Basis of Presentation
Company
Calix, Inc. (together with its subsidiaries, “Calix,” “we,” “us,” or “our”) was incorporated in August 1999 and is a Delaware corporation. We develop, market and sell platform, cloud and managed services, which are powered by agentic AI, that enable communications service providers (“CSPs”) of all types and sizes to innovate and transform their businesses to focus on delivering an outstanding subscriber experience and become Communication Experience Providers (“CXPs”). The platform combines the Calix Agent Workforce™ with intelligent appliances, software, cloud and fully integrated SmartLife™ managed services to enable simplified business models that acquire, retain and grow subscribers and revenue. Calix Customer Success guides service providers through every stage of their transformation journey with expertise across technology, business and market insights. Our partner community extends innovation so customers can grow their businesses across markets at scale. With deep broadband expertise and an end-to-end approach from the datacenters’ access edge to every residential, business and municipal subscriber location, Calix enables any service provider to simplify operations, engagement and service; innovate for their subscribers; and grow value for members, investors and the communities they serve. This focus on subscriber experience allows CXPs to expand their brand through increased subscriber acquisition, loyalty and revenue while reducing their operating costs.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, including the accounts of Calix, Inc. and its wholly-owned subsidiaries, have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles (“GAAP”) can be condensed or omitted. In the opinion of management, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. All intercompany balances and transactions have been eliminated in consolidation. The Condensed Consolidated Balance Sheet as of December 31, 2025 has been derived from the audited financial statements at that date.
The results of our operations can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year or any future periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025.
Our fiscal year begins on January 1st and ends on December 31st. Quarterly periods are based on a 4-4-5 calendar with the first quarter ending on the Saturday closest to March 31st. As a result, we had one less day in the six months ended June 27, 2026 than for the six months ended June 28, 2025. The preparation of financial statements in conformity with GAAP for interim financial reporting requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
2. Significant Accounting Policies
Our significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2025. Our significant accounting policies did not change during the six months ended June 27, 2026.
Newly Adopted Accounting Standard
We did not adopt any new accounting standards during the six months ended June 27, 2026 that were significant to us.
Recent Accounting Pronouncements Not Yet Adopted
There have been no additional accounting pronouncements or changes in accounting pronouncements during the six months ended June 27, 2026 as compared with the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2025, that are significant or expected to be significant to us.
8
3. Cash, Cash Equivalents and Marketable Securities
We have invested our excess cash primarily in money market funds and highly liquid marketable securities such as U.S. treasury securities, corporate debt instruments, commercial paper and U.S. government securities. We consider all investments with maturities of three months or less when purchased to be cash equivalents. Marketable securities represent highly liquid U.S. treasury securities, corporate debt instruments, commercial paper and U.S. government securities with maturities greater than 90 days at date of purchase. Cash equivalents are stated at amounts that approximate fair value based on quoted market prices. Marketable securities are recorded at their fair values. Marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations.
Cash, cash equivalents and marketable securities consisted of the following (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $ | $ | ||||||||||||
| Money market funds | ||||||||||||||
| Commercial paper | ||||||||||||||
| U.S. government agency securities | ||||||||||||||
| Total cash and cash equivalents | ||||||||||||||
| Marketable securities: | ||||||||||||||
| Corporate debt securities | ||||||||||||||
| U.S. government securities | ||||||||||||||
| U.S. government agency securities | ||||||||||||||
| Certificates of deposit | ||||||||||||||
| Commercial paper | ||||||||||||||
| Total marketable securities | ||||||||||||||
| $ | $ | |||||||||||||
The carrying amounts of our money market funds approximate their fair values due to their nature, duration and short maturities. The amortized cost and fair value of marketable securities were as follows (in thousands):
| As of June 27, 2026 | Amortized Cost | Unrealized Gains (Losses), net | Fair Value | |||||||||||||||||
| Corporate debt securities | $ | $ | ( | $ | ||||||||||||||||
| U.S. government securities | ||||||||||||||||||||
| U.S. government agency securities | ( | |||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Commercial paper | ( | |||||||||||||||||||
| $ | $ | ( | $ | |||||||||||||||||
| As of December 31, 2025 | Amortized Cost | Unrealized Gains, net | Fair Value | |||||||||||||||||
| Corporate debt securities | $ | $ | $ | |||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| U.S. government securities | ||||||||||||||||||||
| U.S. government agency securities | ||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
9
4. Fair Value Measurements
We measure our cash equivalents and marketable securities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We utilize the following three-tier value hierarchy, which prioritizes the inputs used in measuring fair value:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 – Unobservable inputs to the valuation derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The fair value hierarchy also requires us to maximize the use of observable inputs, when available, and to minimize the use of unobservable inputs when determining inputs and determining fair value.
The following tables sets forth our financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
| As of June 27, 2026 | Level 1 | Level 2 | Total | ||||||||||||||
| Money market funds | $ | $ | $ | ||||||||||||||
| U.S. government securities | |||||||||||||||||
| Corporate debt securities | |||||||||||||||||
| U.S. government agency securities | |||||||||||||||||
| Certificates of deposit | |||||||||||||||||
| Commercial paper | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
| As of December 31, 2025 | Level 1 | Level 2 | Total | ||||||||||||||
| Money market funds | $ | $ | $ | ||||||||||||||
| U.S. government securities | |||||||||||||||||
| Corporate debt securities | |||||||||||||||||
| Commercial paper | |||||||||||||||||
| U.S. government agency securities | |||||||||||||||||
| Certificates of deposit | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
5. Balance Sheet Details
Accounts receivable, net consisted of the following (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| Accounts receivable | $ | $ | ||||||||||||
| Allowance for doubtful accounts | ( | ( | ||||||||||||
| $ | $ | |||||||||||||
Inventory consisted of the following (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| Components | $ | $ | ||||||||||||
| Finished goods | ||||||||||||||
| $ | $ | |||||||||||||
10
Prepaid expenses and other current assets consisted of the following (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| Supplier deposits | $ | $ | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| $ | $ | |||||||||||||
Property and equipment, net consisted of the following (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| Test equipment | $ | $ | ||||||||||||
| Computer equipment | ||||||||||||||
| Software | ||||||||||||||
| Leasehold improvements | ||||||||||||||
| Furniture and fixtures | ||||||||||||||
| Total | ||||||||||||||
| Accumulated depreciation and amortization | ( | ( | ||||||||||||
| $ | $ | |||||||||||||
Accrued liabilities consisted of the following (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| Compensation and related benefits | $ | $ | ||||||||||||
| Taxes payable | ||||||||||||||
| Professional and consulting fees | ||||||||||||||
| Component inventory held by suppliers | ||||||||||||||
| Operations | ||||||||||||||
| Customer advances or rebates | ||||||||||||||
| Operating leases | ||||||||||||||
| Current portion of warranty and retrofit | ||||||||||||||
| Insurance | ||||||||||||||
| Freight | ||||||||||||||
| Travel | ||||||||||||||
| Fixed assets | ||||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
Changes in the accrued warranty liability were as follows (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
Accruals for product warranty | ( | ( | ||||||||||||||||||||||||
Cost of warranty claims | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||||||||||||
11
6. Commitments and Contingencies
Lease Commitments
We lease office space under non-cancelable operating leases. Certain of our operating leases contain renewal options and rent acceleration clauses. Future minimum payments under the non-cancelable operating leases consisted of the following as of June 27, 2026 (in thousands):
| Period | Future Minimum Lease Payments | |||||||
| Remainder of 2026 | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total future minimum lease payments | ||||||||
| Less imputed interest | ( | |||||||
| $ | ||||||||
As of June 27, 2026, the operating lease liability consisted of the following (in thousands):
| $ | ||||||||
| Operating leases | ||||||||
| $ | ||||||||
We lease our headquarters office space in San Jose, California under a lease agreement that expires in January 2033. The future minimum lease payments under the lease are $8.4 million and are included in the table above.
The weighted average discount rate for our operating leases as of June 27, 2026 was 5.4 %. The weighted average remaining lease term as of June 27, 2026 was 5.4 years.
For both the three and six months ended June 27, 2026 and June 28, 2025, rent expense was $1.1 2.2 1.7 million and $2.3 million for the six months ended June 27, 2026 and June 28, 2025, respectively.
Purchase Commitments
Our contract manufacturers (“CMs”) and original design manufacturers (“ODMs”) place orders for component inventory based upon our build forecasts and pursuant to stated component lead times to ensure adequate component supply. The components are used by the CMs and ODMs to build the products included in the build forecasts. We generally do not take ownership of the components held by CMs and ODMs. We place purchase orders with our CMs and ODMs in order to fulfill our monthly finished product inventory requirements. We incur a liability when the CMs and ODMs convert the component inventory to a finished product and takes ownership of the finished goods inventory. As of June 27, 2026 and December 31, 2025, we had approximately $338.3 million and $317.8 million, respectively, of outstanding purchase commitments to be delivered by our third-party manufacturers and other vendors such as enterprise software vendors.
Litigation
From time to time, we are involved in various legal proceedings arising from the normal course of business activities.
On May 27, 2026, a putative shareholder class action complaint captioned Noor v. Calix, Inc., et al., Case No. 5:26-cv-04993-PCP (the “Securities Class Action”), was filed in the U.S. District Court for the Northern District of California, naming us and certain of our current officers of the Company as defendants. The lawsuit generally alleges that the defendants made material misrepresentations and/or omissions of material fact relating to our memory component supply and its impact on non-GAAP gross margins, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. The putative class action is brought on behalf of persons and entities who purchased or otherwise acquired our securities between January 28, 2026, and April 21, 2026, inclusive, seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including attorneys’ fees.
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It is possible that additional lawsuits will be filed or allegations will be made by stockholders with respect to these same or other matters also naming us and/or our officers and directors as defendants. We intend to vigorously defend against the claims brought by the plaintiffs in each of these matters.
Such lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of the pending lawsuit and any other related lawsuits is necessarily uncertain. We could be forced to expend significant resources and may incur substantial legal fees and costs in defending against the pending lawsuits and any other related lawsuits, and we may not prevail. Monitoring, initiating and defending against legal actions is time-consuming for our management, is likely to be expensive, and may detract from the ability to fully focus internal resources on business activities. Additionally, we may not be successful in having any such lawsuits dismissed or settled within the limits of insurance coverage. Given the early stage of this lawsuit and the inherent uncertainty of litigation, we cannot predict how long it may take to resolve the pending lawsuit, or the potential outcome, or possible amount of any damages. As such, we currently are unable to reasonably estimate the possible losses or a range of possible losses that may result from these matters, if any. Expenses associated with the pending lawsuit and any potential related lawsuits could be material to the financial statements if we do not prevail in the defense of such lawsuits, or even if we do prevail.
We are not currently a party to any legal proceeding that, if determined adversely to us, in management’s opinion, is 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.
7. Stockholders’ Equity
2019 Equity Incentive Award Plan
Our employees, consultants and members of our Board of Directors are eligible to receive awards under the Fourth Amended and Restated 2019 Equity Incentive Award Plan (the “2019 Plan”). The 2019 Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance stock units (“PSUs”), other stock or cash-based awards and dividend equivalents to eligible individuals. As of June 27, 2026, there were 2.6 million shares available for issuance under the 2019 Plan.
In February 2026, 0.7 million PSUs were granted to certain members of our leadership team with a grant date fair value of $52.02 per share. The actual number of PSUs earned is contingent upon achievement of an annual corporate financial target for non-GAAP net income per share for 2026 (collectively, the “2026 Performance Target”) during the one-year performance period. The PSUs will vest, subject to certification by the Compensation Committee of our Board of Directors upon the achievement of the 2026 Performance Target, as to 25 % of the shares of common stock earned on the one year anniversary of the date of grant, and as to the remaining 75 % of the shares of common stock earned, in substantially equal quarterly installments over the subsequent 36 months, subject to the executive’s continuous service with us through the respective vesting dates. If the non-GAAP net income per share target is achieved below 80 % of target, no shares would be awarded. If the target is achieved at the minimum threshold of 80 % of target, then the shares would be awarded, with an increasing percentage of shares awarded above the minimum thresholds up to 100 % of the granted shares. The maximum combined award is 100 %. The probability of meeting the minimum threshold was assessed to be probable as of June 27, 2026, and stock-based compensation expense of $1.1 million was recognized for the six months ended June 27, 2026.
During the three months ended June 27, 2026, 0.1 million RSUs were granted with a grant date fair value of $40.26 per share. During the six months ended June 27, 2026, 0.2 million RSUs were granted with a grant date fair value of $49.17 per share. These RSUs generally vest 25 % on the first anniversary of the vesting commencement date and on a quarterly basis thereafter over an additional three years .
As of June 27, 2026, unrecognized stock-based compensation expense of $12.5 million related to the PSUs and RSUs, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 2.2 years.
During the three months ended June 27, 2026, stock option awards exercisable for up to an aggregate of 12,000 shares of common stock were granted with a grant date weighted-average exercise price of $49.40 per share. During the six months ended June 27, 2026, stock option awards exercisable for up to an aggregate of 23,000 shares of common stock were granted with a grant date weighted-average exercise price of $51.49 per share. These stock option awards generally vest 25 % on the first anniversary of the vesting commencement date and on a yearly basis thereafter over an additional three years .
During the three months ended June 27, 2026, 26,000 shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $18.55 per share. During the six months ended June 27, 2026, 0.3 million shares of common stock were issued pursuant to the exercise of stock options at a weighted-average exercise price of $30.52 per share. As of June 27, 2026, unrecognized stock-based compensation expense of $52.5 million related to stock options, net of estimated forfeitures, is expected to be recognized over a weighted-average period of 1.8 years.
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Employee Stock Purchase Plans
Historically, we have maintained two plans under which employees could purchase our common stock - the Amended and Restated Employee Stock Purchase Plan (the “ESPP”) and the non-executive Stock Purchase and Matching Plan (“SPMP”). Following the February 14, 2026 ESPP purchase, the ESPP was indefinitely suspended, and the maximum payroll contribution limit to the SPMP was increased from 25 % to 33 %. During the six months ended June 27, 2026, 0.1 million shares were purchased under the ESPP. At the Company’s 2026 annual meeting of stockholders, the stockholders approved an increase of 0.7 million shares of common stock reserved for issuance under the matching component of the SPMP, which, along with the corresponding increase of 0.7 million shares of common stock reserved for issuance under the purchase component of the SPMP, will go into effect for the three-month purchase period commencing August 8, 2026 and ending on November 7, 2026.
The SPMP allows eligible employees to purchase shares of our common stock through payroll deductions of up to 33 % of their eligible compensation. Eligible employees have the right to (a) purchase under the purchase component the maximum number of whole shares of common stock that can be purchased with the elected payroll deductions during each offering period for which the employee is enrolled at a purchase price equal to the closing price of our common stock on the last day of such offering period and (b) receive under the matching component an equal number of shares of our common stock that are subject to a risk of forfeiture in the event the employee terminates employment within the one year period immediately following the purchase date. The SPMP provides quarterly offering periods from February 8th through May 7th, May 8th through August 7th, August 8th through November 7th and November 8th through February 7th of each year, with a maximum of 0.35 million shares allocated per purchase period for the combination of the purchase and matching components. As of June 27, 2026, there were 2.5 0.6 17.8 million related to the SPMP is expected to be recognized over a remaining weighted-average service period of 0.8 years.
Stock-Based Compensation
The following table summarizes stock-based compensation expense (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Income tax benefit recognized | $ | $ | $ | $ | ||||||||||||||||||||||
Stock Repurchase Program
We maintain a common stock repurchase program. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements. The specific timing, price and size of the purchases depends on prevailing stock prices, general economic and market conditions and other considerations consistent with our capital allocation strategy. The repurchase program does not obligate us to acquire a particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion. During 2026, our Board of Directors authorized a $225.0 million increase to this program. During the three months ended June 27, 2026, we purchased 1.6 million shares of common stock for an aggregate purchase price of $69.4 million at an average price per share of $42.48 . During the six months ended June 27, 2026, we purchased 5.0 million shares of common stock for an aggregate purchase price of $240.2 million at an average price per share of $48.42 . As of June 27, 2026, the remaining authorized balance under this program was $94.1 million.
8. Revenue from Contracts with Customers
Contract Asset
Contract assets include amounts recognized as revenue prior to our contractual right to bill the customer. Amounts are billed in accordance with the agreed-upon contractual terms. Contract assets were $4.9 million as of June 27, 2026 as compared to
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$4.8 million as of December 31, 2025, and are included in prepaid expenses and other current assets and long-term other assets on the Condensed Consolidated Balance Sheets. We expect to recognize 38 % of the June 27, 2026 balance during 2026.
Contract Liability
Deferred revenue was $56.0 million, $50.5 million and $50.3 million as of June 27, 2026, March 28, 2026 and December 31, 2025, respectively. The increase in the deferred revenue balance for the three and six months ended June 27, 2026 was driven by cash payments received or due in advance of satisfying our performance obligations offset by $13.3 million and $18.2 million of revenue recognized that was included in the deferred revenue balance at the beginning of each respective period.
Remaining performance obligations (“RPOs”) represent contractual commitments that have not yet been fulfilled, which include deferred revenue and amounts that will be invoiced and recognized as revenue in future periods but exclude variable consideration where the monthly invoicing is based on usage or where actual usage exceeds the minimum commitment. RPOs were $386.4 million as of June 27, 2026, and we expect to recognize as revenue 42 % of this amount over the next 12 months and nearly all of the remainder over the two years thereafter.
Contract Costs
We capitalize certain sales commissions related primarily to multi-year subscriptions and extended warranty support for which the expected amortization period is greater than one year. As of June 27, 2026 and December 31, 2025, the unamortized balance of deferred commissions was $19.1 million and $20.7 million, respectively, and were included in prepaid expenses and other current assets, and other long-term assets on the Condensed Consolidated Balance Sheets. For the three and six months ended June 27, 2026 the amount of amortization was $3.2 million and $6.3 million, respectively, compared to $2.7 million and $5.3 million for the three and six months ended June 28, 2025, respectively. There was no
Concentration of Customer Risk
One customer accounted for 12 % of our revenue for the three months ended June 27, 2026. No customer accounted for more than 10% of our revenue for the six months ended June 27, 2026 and three and six months ended June 28, 2025.
One customer represented 12 % of our total receivables as of June 27, 2026 and another customer represented 12 % of our total receivables as of December 31, 2025.
9. Segment Information
We develop, market and sell an appliance-based broadband platform, cloud and managed services. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below our unit level. Accordingly, we are a single reporting segment and operating unit structure. Our chief operating decision maker (“CODM”) is our Chief Executive Officer, who reviews financial information presented on a Company-wide basis, for purposes of allocating resources and evaluating financial performance. The CODM assesses the performance of the single segment and allocates resources based on revenue and measures derived from gross margin and operating loss that is reported in the Condensed Consolidated Statements of Comprehensive Income (Loss). In addition, the CODM uses a measure derived from operating expenses in the Condensed Consolidated Statements of Comprehensive Income (Loss) to monitor budget versus actual results to determine the entity’s and management’s performance. We do not have intra-entity sales or transfers. The measure of the single segment assets is the consolidated assets in the Condensed Consolidated Balance Sheet. The accounting policies of the single segment are the same as described in the significant accounting policies.
Geographic Information:
A summary of revenue disaggregated by geographic region based upon the location of the customers was as follows (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||||||||||||
| Americas ex U.S. | ||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||
| Rest of world | ||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
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Our property and equipment, net of accumulated depreciation, was located in the following geographical areas (in thousands):
| June 27, 2026 | December 31, 2025 | |||||||||||||
| United States | $ | $ | ||||||||||||
| India | ||||||||||||||
| China | ||||||||||||||
| $ | $ | |||||||||||||
Selected Financial Information:
The following table presents selected financial information with respect to our single operating segment (in thousands):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
Adjusted cost of revenue (1) | ( | ( | ( | ( | |||||||||||||||||||
Adjusted sales and marketing operating expenses (2) | ( | ( | ( | ( | |||||||||||||||||||
Adjusted research and development operating expenses (3) | ( | ( | ( | ( | |||||||||||||||||||
Adjusted general and administrative operating expenses (4) | ( | ( | ( | ( | |||||||||||||||||||
Other segment items (5) | ( | ( | ( | ( | |||||||||||||||||||
| Interest income and other expenses, net | |||||||||||||||||||||||
| Income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
(1) GAAP cost of revenue adjusted for stock-based compensation and intangible asset amortization (2025 only).
(2) GAAP sales and marketing operating expenses adjusted for stock-based compensation.
(3) GAAP research and development operating expenses adjusted for stock-based compensation.
(4) GAAP general and administrative operating expenses adjusted for stock-based compensation.
(5) Other segment items consisted of stock-based compensation expense and intangible asset amortization (2025 only).
10. Income Taxes
The following table presents income taxes and the effective tax rates for the periods indicated (in thousands, except percentages):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Income (loss) before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
| Income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
| Effective tax rate | % | % | % | % | ||||||||||||||||||||||
Our income taxes for the three and six months ended June 27, 2026 were determined using an estimated annual effective tax rate adjusted for discrete items that occurred during that period as required under Accounting Standards Codification (“ASC”) 740-270, Accounting for Income Taxes in Interim Periods. We have historically recorded interim provision for income taxes by applying ASC 740-270. For the three and six months ended June 28, 2025, due to the level of forecasted provision for income taxes relative to the forecasted pre-tax income used in computing the effective tax rate, the effective tax rate was highly sensitive to fluctuations in pre-tax income and did not provide a reasonable estimate for income taxes in the interim period. As such, we computed the provision for income taxes for the three and six months ended June 28, 2025 using an actual year-to-date tax calculation.
Our effective tax rate for the three and six months ended June 27, 2026 is different from the statutory federal corporate tax rate of 21% primarily due to state taxes, the effect of non-deductible stock-based compensation for executive officers offset by the favorable impact of U.S. federal research tax credits and excess tax benefits from stock-based compensation. Our effective tax rate for the three and six months ended June 28, 2025 was different from the statutory federal corporate tax rate of 21%
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primarily due to state taxes, the effect of non-deductible stock-based compensation for executive officers, offset by the favorable impact of U.S. federal research tax credits, excess tax benefits from stock-based compensation and the U.S. tax impact of foreign operations.
We maintained a valuation allowance of $32.3 million for the three and six months ended June 27, 2026, compared to $30.6 million for the three and six months ended June 28, 2025, on certain federal tax credits along with state deferred tax assets that we believe are not more likely than not to be realized in future periods.
We considered scheduled reversals of deferred tax liabilities, historic profitability, projected future taxable income, ongoing tax planning strategies and other matters, including the period over which its deferred tax assets will be recoverable, in assessing the need for and the amount of the valuation allowance. In the event that actual results differ from these estimates, or if we decide to adjust these estimates in the future periods, further adjustments to its valuation allowance may be recorded, which could materially impact our financial position and net income in the period of the adjustment.
In December 2021, the Organization for Economic Cooperation and Development enacted model rules for a new global minimum tax framework (“Pillar Two”), and certain governments in countries which we operate have enacted local Pillar Two legislation, with an effective date from January 1, 2024. We currently do not expect Pillar Two to have a material impact on our financial statements.
In July 2025, President Trump signed the One Big Beautiful Bill Act ("OBBBA"), which includes a broad range of tax reform provisions affecting businesses. The OBBBA includes numerous changes to existing tax law including extending or making permanent certain business and international tax measures initially established under the 2017 Tax Cuts and Jobs Act, which were set to expire. Additionally, the OBBBA permanently eliminates the requirement to capitalize and amortize U.S.-based research and experimental expenditures over five years, making these expenditures fully deductible in the period incurred. We have accounted for the effects of the OBBBA in the financial statements for the period ended June 27, 2026. We will continue to evaluate the impacts of OBBBA including the potential impacts on future periods and tax planning strategies.
11. Net Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods indicated (in thousands, except per share data):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted-average common shares outstanding used to compute basic net income (loss) per share | ||||||||||||||||||||||||||
| Effect of dilutive common stock equivalents | ||||||||||||||||||||||||||
| Weighted-average common shares outstanding used to compute diluted net income (loss) per share | ||||||||||||||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||||||||
| Basic net income (loss) per common share | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Diluted net income (loss) per common share | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Potentially dilutive shares excluded, weighted average | ||||||||||||||||||||||||||
Potentially dilutive shares have been excluded from the computation of diluted net income (loss) per common share when their effect is antidilutive. These antidilutive shares were primarily from stock options.
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ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenue or other financial items, any statement of or concerning the following: the plans and objectives of management for future operations, proposed new products or licensing, product development, anticipated customer demand or capital expenditures, anticipated growth and trends in our business and industry, future economic and/or market conditions or performance and assumptions underlying any of the above. In some cases, forward-looking statements can be identified by the use of terminology such as “could,” “may,” “will,” “would,” “expects,” “believes,” “intends,” “plans,” “anticipates,” “estimates,” “projects,” “predicts,” “potential” or “continue” or the negative thereof or other comparable terminology. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including those identified in the Risk Factors discussed in Part II, Item 1A, of this Quarterly Report on Form 10-Q, as well as in other sections of this report and in our Annual Report on Form 10-K for the year ended December 31, 2025. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.
Overview
We develop, market and sell platform, cloud and managed services, which are powered by agentic AI, that enable communications service providers (“CSPs”) providers of all types and sizes to innovate and transform their businesses to focus on delivering outstanding subscriber experiences and become communication experience providers’ (“CXPs”). The platform combines the Calix Agent Workforce™ with intelligent appliances, software, cloud and fully integrated SmartLife™ managed services to enable simplified business models that acquire, retain and grow subscribers and revenue. Calix Customer Success guides service providers through every stage of their transformation journey with expertise across technology, business and market insights. Our partner community extends innovation so customers can grow their businesses across markets at scale. With deep broadband expertise and an end-to-end approach from the datacenters’ access edge to every residential, business and municipal subscriber location, Calix enables any service provider to simplify operations, engagement and service; innovate for their subscribers; and grow value for members, investors and the communities they serve. This focus on subscriber experience allows CXPs to expand their brand through increased subscriber acquisition, loyalty and revenue while reducing their operating costs.
We market our platform, cloud and managed services to CSPs globally through our direct sales force as well as select resellers. Our customers range from smaller, regional service providers to some of the world’s largest service providers. 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 appliances.
Our revenue and potential revenue growth will depend on, among other things, our ability to develop, market and sell our platform and managed services to strategically aligned customers of all types such as managed service providers (“MSPs”), local and competitive exchange carriers, cable multiple system operators (“MSOs”), wireless internet service providers (“WISPs”), fiber overbuilders such as municipalities, electric cooperatives, tribal communities, multiple dwelling units (“MDUs”) and hospitality providers in the U.S. and internationally. Our growth is also highly dependent on the speed and willingness of customers to adopt our platform and managed services.
Revenue fluctuations result from many factors, including, but not limited to: increases or decreases in customer orders for our products and services, global economic and geopolitical events and conditions, including tariffs (and certainty related to the enforceability thereof), trade controls, inflation, economic downturns and market, financial or other factors such as government stimulus or shutdowns that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component and labor shortages and increasing lead times as well as disruptions as a result of pandemics or natural disasters, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers. More specifically, our customers have in the past spent less in the first quarter as they are finalizing their annual budgets, and in certain regions, customers are challenged by winter weather conditions that inhibit fiber deployment in outside infrastructure. 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.
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Cost of revenue is strongly correlated to revenue and tends to fluctuate due to all the above factors that may cause revenue fluctuations. 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, allowances for obligations to our suppliers and inventory write-downs. Factors that we expect may impact our cost of revenue in future periods include the same factors in the prior quarter, changes in trade policies and increased memory component prices due to shortages caused by the large scale build out of AI infrastructure. Regarding trade policies, in February 2026, The U.S. Supreme Court ruled that the broad tariffs implemented under International Emergency Economic Powers Act (“IEEPA”) exceeded the administration’s authority and eliminated those tariffs. We did not experience a significant financial impact as a result of the ruling because the majority of our finished goods are exempt from tariffs. For imported components for domestic manufacturing and certain finished goods, the original tariff increased our cost of revenue but have since abated. We continue to evaluate the actions we may be able to take to mitigate such costs as we monitor and navigate this challenging and dynamic operating environment. In addition, we periodically ship by air versus by ocean 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.
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.
Our operating expenses fluctuate based on the following factors among others: changes in headcount and personnel costs, which comprise a significant portion of our operating expenses; variable compensation due to fluctuations in shipment volumes or level of achievement against performance targets; timing of research and development expenses, including investments in innovative solutions and new customer segments, prototype builds and outsourced development resources; investments in marketing programs; asset write-offs; investments in our business and information technology infrastructure; and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting.
Further, as a result of factors contributing to the fluctuations described above among other factors, many of which are outside our control, our quarterly operating results fluctuate from period to period. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. To the extent there are material differences between these estimates and actual results, our financial statements may be affected. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.
Our critical accounting policies and estimates, which are revenue recognition and inventory valuation and supplier purchase commitments, are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025. For the six months ended June 27, 2026, there have been no significant changes in our critical accounting policies and estimates.
Recent Accounting Pronouncements
There have been no additional accounting pronouncements or changes in accounting pronouncements during the six months ended June 27, 2026 as compared with the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2025 that are significant or expected to be significant to us.
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Results of Operations
Comparison of the Three and Six Months Ended June 27, 2026 and June 28, 2025
Revenue
The following table sets forth our revenue (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Appliance | $ | 242,783 | $ | 198,126 | $ | 44,657 | 23 | % | $ | 475,626 | $ | 377,869 | 97,757 | 26 | % | |||||||||||||||||||||||||||||||||||
| Software and service | 50,546 | 43,756 | 6,790 | 16 | % | 97,687 | 84,255 | 13,432 | 16 | % | ||||||||||||||||||||||||||||||||||||||||
| $ | 293,329 | $ | 241,882 | $ | 51,447 | 21 | % | $ | 573,313 | $ | 462,124 | $ | 111,189 | 24 | % | |||||||||||||||||||||||||||||||||||
Our revenue increased by $51.4 million and $111.2 million during the three and six months ended June 27, 2026, respectively, compared to the corresponding periods in 2025. The increase in appliance revenue was primarily due to the adoption of our platform, cloud and managed services by new customers as we continue to take footprint from legacy box vendors and the continued robust expansion of our appliances within our existing customer base. The increase in software and service revenue was primarily due to our CXP customers adding new subscribers. Our software is sold on a per-subscriber basis. CXPs use our platform, cloud and managed services to deliver better subscriber experiences as evidenced by best-in-class Net Promoter ScoresSM, thereby allowing them to take market share.
United States revenue was $277.7 million and $543.1 million during the three and six months ended June 27, 2026, respectively, or 95% of our revenue for both periods, compared to $219.0 million and $430.2 million, or 91% and 93% of our revenue, respectively, for the corresponding periods in 2025. International revenue was $15.6 million and $30.3 million during the three and six months ended June 27, 2026, or 5% of our revenue for both periods, as compared to $22.8 million and $31.9 million, or 9% and 7% of our revenue, respectively, for the corresponding periods in 2025. Our primary focus has been, and in the near term is expected to be, the U.S. 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. However, with the introduction of our third-generation platform, we plan to increase our attention on international markets.
One customer accounted for 12% of our revenue for the three months ended June 27, 2026. No customer accounted for more than 10% of our revenue for the six months ended June 27, 2026 or the three and six months ended June 28, 2025.
Gross Profit and Gross Margin
The following table sets forth our gross profit and gross margin (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| Gross profit: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Appliance | $ | 128,286 | $ | 107,852 | $ | 20,434 | 19 | % | $ | 261,993 | $ | 204,850 | $ | 57,143 | 28 | % | ||||||||||||||||||||||||||||||||||
| Software and service | 31,838 | 28,443 | 3,395 | 12 | % | $ | 57,427 | $ | 54,153 | 3,274 | 6 | % | ||||||||||||||||||||||||||||||||||||||
| $ | 160,124 | $ | 136,295 | $ | 23,829 | 17 | % | $ | 319,420 | $ | 259,003 | $ | 60,417 | 23 | % | |||||||||||||||||||||||||||||||||||
| Gross margin: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Appliance | 52.8 | % | 54.4 | % | (160) bps | 55.1 | % | 54.2 | % | 90 bps | ||||||||||||||||||||||||||||||||||||||||
| Software and service | 63.0 | % | 65.0 | % | (200) bps | 58.8 | % | 64.3 | % | (550) bps | ||||||||||||||||||||||||||||||||||||||||
| 54.6 | % | 56.3 | % | (170) bps | 55.7 | % | 56.0 | % | (30) bps | |||||||||||||||||||||||||||||||||||||||||
Gross profit increased to $160.1 million and $319.4 million for the three and six months ended June 27, 2026 from $136.3 million and $259.0 million for the corresponding periods in 2025. This increase was mainly due to the corresponding increase in revenue. Our gross margin decreased by 170 basis points for the three months ended June 27, 2026 compared to the corresponding period in 2025, primarily related to increased component memory costs. Our gross margin decreased by 30 basis points for the six months ended June 27, 2026 compared to the corresponding period in 2025, primarily related to a decline in our software and service gross margin, which declined by 550 basis points due to the transition from our second-generation platform to our third-generation platform where we operated in a dual cloud environment to successfully support customer migrations during a portion of the respective periods.
Operating Expenses
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Sales and Marketing Expenses
The following table sets forth our sales and marketing expenses (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing expenses | $ | 62,338 | $ | 63,653 | $ | (1,315) | (2) | % | $ | 125,824 | $ | 121,712 | $ | 4,112 | 3 | % | ||||||||||||||||||||||||||||||||||
| Percent of revenue | 21 | % | 26 | % | 22 | % | 26 | % | ||||||||||||||||||||||||||||||||||||||||||
Sales and marketing expenses for the three months ended June 27, 2026 decreased by $1.3 million compared with the corresponding period in 2025 primarily due to a decrease in stock-based compensation expense of $5.4 million. This decrease was partially offset by increases in personnel expenses of $1.6 million, mostly related to increased headcount, marketing expenses of $1.4 million, outside services of $0.5 million and software expenses of $0.4 million.
Sales and marketing expenses for the six months ended June 27, 2026 increased by $4.1 million compared with the corresponding period in 2025 primarily due to increases in personnel expenses of $6.2 million, mostly related to incentive compensation and increased headcount, marketing expenses of $1.2 million, outside services of $1.0 million and software expenses of $0.7 million. This increase was partially offset by a decrease in stock-based compensation expense of $5.2 million.
For the three and six months ended June 27, 2026, sales and marketing expenses as a percentage of revenue decreased to 21% from 26% and 22% from 26%, respectively, mainly due to increased revenue. We expect our investments in sales and marketing will increase in absolute dollars on a year-over-year basis, but decline as a percentage of revenue as we continue to land new customers and expand our platform, cloud and managed services.
Research and Development Expenses
The following table sets forth our research and development expenses (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | $ | 52,754 | $ | 45,787 | $ | 6,967 | 15 | % | $ | 107,400 | $ | 89,767 | $ | 17,633 | 20 | % | ||||||||||||||||||||||||||||||||||
| Percent of revenue | 18 | % | 19 | % | 19 | % | 19 | % | ||||||||||||||||||||||||||||||||||||||||||
| Percentage of gross profit | 33 | % | 34 | % | 34 | % | 35 | % | ||||||||||||||||||||||||||||||||||||||||||
Research and development expenses for the three months ended June 27, 2026 increased by $7.0 million as compared with the corresponding period in 2025 mainly due to increases in personnel expenses of $4.3 million mostly related to increased headcount, allocated shared services expenses of $1.0 million, outside services of $0.7 million, depreciation and amortization of $0.7 million and facilities expenses of $0.6 million. This increase was partially offset by a decrease in stock-based compensation expense of $0.6 million.
Research and development expenses for the six months ended June 27, 2026 increased by $17.6 million as compared with the corresponding period in 2025 mainly due to increases in personnel expenses of $9.4 million mostly related to increased headcount, outside services of $4.4 million, allocated shared services expenses of $1.5 million, depreciation and amortization of $1.5 million and facilities expenses of $0.6 million.
For the three and six months ended June 27, 2026, research and development expenses as a percentage of gross profit decreased to 33% from 34% and 34% from 35%, respectively, primarily due to the increase in revenue and gross margin and we expect our investments in research and development to increase in absolute dollars in the short term as we accelerate the development of artificial intelligence (“AI”) functionality and capabilities of our platform, cloud and managed services.
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General and Administrative Expenses
The following table sets forth our general and administrative expenses (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | $ | 23,183 | $ | 26,464 | $ | (3,281) | (12) | % | $ | 51,631 | $ | 53,214 | $ | (1,583) | (3) | % | ||||||||||||||||||||||||||||||||||
| Percent of revenue | 8 | % | 11 | % | 9 | % | 12 | % | ||||||||||||||||||||||||||||||||||||||||||
General and administrative expenses for the three months ended June 27, 2026 decreased by $3.3 million as compared with the corresponding period in 2025 mainly due to decreases in stock-based compensation expense of $2.7 million and allocated shared services expenses of $1.5 million. This decrease was partially offset by an increase in depreciation and amortization of $0.8 million.
General and administrative expenses for the six months ended June 27, 2026 decreased by $1.6 million as compared with the corresponding period in 2025 mainly due to decreases in stock-based compensation expense of $3.0 million and allocated shared services expenses of $2.2 million. These decreases were partially offset by increases in depreciation and amortization of $1.8 million, personnel expenses of $0.6 million, facilities expenses of $0.4 million and software expenses of $0.3 million.
For the three and six months ended June 27, 2026, general and administrative expenses as a percentage of revenue decreased to 8% from 11% and 9% from 12%, respectively, mainly due to the increase in revenue. We expect our general and administrative investments to increase in absolute dollars but decline as a percentage of revenue.
Interest and Other Income (Expense), net
The following table sets forth our interest and other expense, net (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| Interest and other income (expense), net | $ | 1,746 | $ | 3,036 | $ | (1,290) | (42) | % | $ | 4,262 | $ | 6,127 | $ | (1,865) | (30) | % | ||||||||||||||||||||||||||||||||||
| Percent of revenue | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||||||||||||||||||||||||||||||||||
For the three and six months ended June 27, 2026, interest and other income (expense), net decreased by $1.3 million and $1.9 million, respectively, as compared with the corresponding periods in 2025 primarily due to a lower balance of marketable securities. We repurchased 5.0 million shares of common stock for $240.2 million using proceeds from the sale of marketable securities during the first half of 2026.
Income Taxes
The following table sets forth our income taxes (dollars in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | June 27, 2026 | June 28, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||
| Income taxes | $ | 6,484 | $ | 3,626 | $ | 2,858 | 79 | % | $ | 10,506 | $ | 5,423 | $ | 5,083 | 94 | % | ||||||||||||||||||||||||||||||||||
| Effective tax rate | 27.5 | % | 105.8 | % | 27.1 | % | 1,241.0 | % | ||||||||||||||||||||||||||||||||||||||||||
For the three and six months ended June 27, 2026, our income tax expense was $6.5 million and $10.5 million, respectively, for an effective tax rate of 27.5% and 27.1%, respectively, which differed from the statutory rate of 21% primarily due to state taxes, the effect of non-deductible stock-based compensation for executive officers offset by the favorable impact of U.S. federal research tax credits and excess tax benefits from stock-based compensation. The effective tax rate for the three and six months ended June 27, 2026 is lower than the corresponding period in 2025 primarily due higher pre-tax earnings with a relatively similar level of non-deductible expenses, compared to break-even pre-tax results in the corresponding period in 2025.
Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained. This may affect the assumptions used to estimate the interim income tax provision, 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, further benefits from stock option exercises, investments in our foreign operations, 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.
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Liquidity and Capital Resources
We fund our operations and investing activities from cash flow generated from our operations as well as the issuance of common stock under our equity incentive plans. As of June 27, 2026, we had cash, cash equivalents and marketable securities of $194.3 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S. government and its agency securities, corporate debt securities and commercial paper.
Operating Activities
Net cash provided by operating activities was $31.1 million for the six months ended June 27, 2026 and consisted of net income of $28.3 million and non-cash charges of $49.7 million partially offset by cash flow decreases of $46.8 million reflected in the net change in assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $37.3 million, depreciation and amortization of $8.8 million and deferred income taxes of $4.3 million partially offset by the net accretion of available-for-sale securities of $0.7 million.
Cash flow decreases resulting from the net change in assets and liabilities primarily consisted of an increase in inventory of $46.7 million to support future revenue, an increase in accounts receivable of $37.0 million due to higher revenue, an increase in prepaid expenses and other assets of $10.1 million mainly due to an increase in inventory deposits and a decrease in accrued liabilities of $9.6 million relating to various factors including a decrease in incentive compensation-related accruals. This was partially offset by an increase in accounts payable of $50.9 million due to increased inventory purchases and an increase in deferred revenue of $5.8 million primarily related to an increase in our remaining performance obligations on appliances.
Net cash provided by operating activities was $56.6 million for the six months ended June 28, 2025 and consisted of a net loss of $5.0 million offset by non-cash charges of $50.5 million and cash flow increases of $11.0 million reflected in the net change in assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $45.4 million and depreciation and amortization of $8.6 million partially offset by deferred income taxes of $1.3 million and the net accretion of available-for-sale securities of $2.1 million. Cash flow increases resulting from the net change in assets and liabilities primarily consisted of a decrease in accounts receivable of $16.2 million due to the linearity of shipments through the quarter and timing of customer payments, a decrease in prepaid expenses and other assets of $13.8 million mainly due to a reduction in our inventory deposits and an increase in accounts payable of $2.3 million due to the timing of inventory receipts. This was partially offset by an increase in inventory of $7.8 million to support increased revenue, a decrease in accrued liabilities of $11.7 million relating to various factors including a decrease in incentive compensation-related accruals and a decrease in deferred revenue of $1.7 million.
Investing Activity
For the six months ended June 27, 2026, cash provided by investing activities consisted of net maturities and sales of marketable securities of $119.6 million partially offset by capital expenditures of $12.7 million, consisting primarily of purchases of test equipment.
For the six months ended June 28, 2025, cash provided by investing activities of $25.9 million consisted of net maturities and sales of marketable securities of $33.9 million partially offset by capital expenditures of $8.0 million, consisting primarily of purchases of test and computer equipment.
Financing Activities
Net cash used in financing activities of $212.2 million for the six months ended June 27, 2026 primarily consisted repurchases of our common stock of $240.2 million partially offset by proceeds from the issuance of common stock related to our equity plans of $28.1 million.
Net cash used in financing activities of $49.3 million for the six months ended June 28, 2025 primarily consisted repurchases of our common stock of $73.5 million partially offset by proceeds from the issuance of common stock related to our equity plans of $24.2 million.
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. Furthermore, we have a common stock repurchase program, which had $94.1 million available as of June 27, 2026. 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. In April 2026, our Board of Directors authorized a $100.0 million increase to our common stock repurchase program.
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We believe, based on our current operating plan and expected operating cash flows, that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit or terminate our stock repurchase program, limit our development activities, reduce our investment in growth initiatives and/or institute cost-cutting measures, all of which may adversely impact our business and potential growth.
Contractual Obligations and Commitments
Our principal commitments as of June 27, 2026 consisted of contractual obligations under non-cancelable outstanding purchase obligations and operating lease obligations for office space. The following table summarizes our contractual obligations as of June 27, 2026 (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) | $ | 338,300 | $ | 260,037 | $ | 75,430 | $ | 2,833 | $ | — | ||||||||||||||||||||||
Operating lease obligations (2) | 16,390 | 3,498 | 5,885 | 4,581 | 2,426 | |||||||||||||||||||||||||||
| $ | 354,690 | $ | 263,535 | $ | 81,315 | $ | 7,414 | $ | 2,426 | |||||||||||||||||||||||
(1) Represents outstanding purchase commitments to be delivered by our third-party manufacturers or other vendors. See Note 6, “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our 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 2033. See Note 6 “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion regarding our operating leases.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The primary objectives of our investment activity are to preserve principal, provide liquidity and maximize income without significantly increasing risk. By policy, we do not enter into investments for trading or speculative purposes. As of June 27, 2026, we had cash, cash equivalents and marketable securities of $194.3 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. 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.
Economic Exposure
The direct effect of foreign currency fluctuations on our sales and expenses has not been material because our sales and expenses are primarily denominated in U.S. dollars, or USD. However, we are indirectly exposed to changes in foreign currency exchange rates to the extent of our use of foreign CMs whom we pay in USD. Increases in the local currency rates of these vendors in relation to USD could cause an increase in the price of products that we purchase. Additionally, if the USD strengthens relative to other currencies, such strengthening could have an indirect effect on our sales to the extent it raises the cost of our products to non-U.S. customers and thereby reduces demand. A weaker USD could have the opposite effect. The precise indirect effect of currency fluctuations is difficult to measure or predict because our sales are influenced by many factors in addition to the impact of such currency fluctuations.
Translation Exposure
Our sales contracts are primarily denominated in USD and, therefore, most of our revenue is not subject to foreign currency risk. We are directly exposed to changes in foreign exchange rates to the extent such changes affect our expenses related to our foreign assets and liabilities with our subsidiaries in China, India, Canada, the United Kingdom and Ireland, whose functional currencies are Chinese Renminbi, or RMB, Indian Rupee, or INR, Canada, or CAD, British Pounds Sterling, or GBP, and Euro, or EUR.
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Our operating expenses are incurred primarily in the United States and Canada, in China associated with our research and development operations that are maintained there, in India for our center of excellence and in the United Kingdom for our international sales and marketing activities. Our operating expenses are generally denominated in the functional currencies of our subsidiaries in which the operations are located. The percentages of our operating expenses denominated in the following currencies for the indicated periods were as follows:
| Six Months Ended | ||||||||||||||
| June 27, 2026 | June 28, 2025 | |||||||||||||
| USD | 84 | % | 84 | % | ||||||||||
| RMB | 6 | % | 6 | % | ||||||||||
| INR | 5 | % | 4 | % | ||||||||||
| CAD | 3 | % | 5 | % | ||||||||||
| GBP | 1 | % | 1 | % | ||||||||||
| EUR | 1 | % | 0 | % | ||||||||||
| 100 | % | 100 | % | |||||||||||
If USD had appreciated or depreciated by 10%, relative to RMB, INR, CAD, GBP and EUR, our operating expenses for the first six months of 2026 would have decreased or increased by approximately $4.5 million, or approximately 2%.
Foreign exchange rate fluctuations may also adversely impact our financial position as the assets and liabilities of our foreign operations are translated into USD in preparing our Condensed Consolidated Balance Sheets. The effect of foreign exchange rate fluctuations on our consolidated financial position for the six months ended June 27, 2026 was a net translation loss of $41,000. 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 receivable and accounts payable (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, cash flows and results of operations. Periodically, we use derivatives to hedge against fluctuations in foreign exchange rates. We do not enter into derivatives for speculative or trading purposes. We use foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain assets denominated in foreign currencies. These foreign exchange forward contracts typically have maturities of approximately one to two months. As of June 27, 2026, we had no forward contracts outstanding. Transaction gains and losses on these foreign currency denominated assets and liabilities are recognized each period within “Other expense, net” in our Condensed Consolidated Statements of Comprehensive Income (Loss). During the six months ended June 27, 2026, the net loss we recognized related to these foreign currency denominated assets and liabilities was approximately $0.5 million.
ITEM 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of June 27, 2026, our Chief Executive Officer and Chief Financial Officer, with the participation of our management, have concluded that our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Exchange Act) were effective at the reasonable assurance level.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures provide our Chief Executive Officer and Chief Financial Officer reasonable assurance that our disclosure controls and procedures will achieve their objectives. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. Our management recognizes that a control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
For a description of our material pending legal proceedings, please refer to Note 6 “Commitments and Contingencies – Litigation” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated by reference.
ITEM 1A. Risk Factors
We have identified the following additional risks and uncertainties that may affect our business, financial condition and/or results of operations. The risks described below include any material changes to and supersede the description of the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission on February 20, 2026. Investors should carefully consider the risks described below, together with the other information set forth in this Quarterly Report on Form 10-Q, before making any investment decision. The risks described below are not the only ones we face. Additional risks not currently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.
Summary of Material Risks Associated With Our Business
The principal risks and uncertainties affecting our business include the following:
Business and Operational Risks
•If we do not successfully increase our sales through adoption of our platform, cloud and managed service offerings, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.
•If we do not successfully execute our business strategy to increase our sales to new and existing CXPs, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.
•We face risks associated with dependence on third-party vendors; component prices volatility and shortages have in the past, currently are, and may in the future adversely affect our gross margin and results of operations; and our mitigation strategies may be of limited or temporary value.
•If we fail to properly develop, invest in, and manage AI Technologies used in our products and services, our business, financial condition, and results of operations could be materially adversely affected.
•The imposition of new duties, tariffs (and uncertainty related to the enforceability thereof), trade barriers and retaliatory countermeasures implemented by the U.S. and other governments and resulting impact on customer demand may have a material adverse effect on our business, financial condition and results of operations.
•Cyberattacks or other security incidents that disrupt our or our third-party providers’ operations or compromise data, may expose us to liability, harm our reputation or otherwise adversely affect our business.
•Changing market and customer requirements may adversely affect the valuation of our inventory as well as our supplier purchase commitments.
•Business and operational risks associated with expanding our international operations could harm our business.
•We may have difficulty evolving and scaling our business and operations to meet customer and market demand, which could harm our financial results or cause us to fail to execute on our business strategies.
•Litigation and regulatory proceedings could harm our business or negatively impact our results of operations.
•We have a history of fluctuations in our gross margin and operating results, and we expect continued fluctuations as memory component costs, advance-purchased supply depletion, surcharge recovery, customer and product mix, and cloud costs evolve, which can make it difficult to predict our future performance and could cause the market price of our stock to decline.
•We are exposed to customer credit risks that could adversely affect our operating results and financial condition.
•If we lose any of our key personnel, or are unable to attract, train and retain qualified personnel, our ability to manage our business and continue our growth would be negatively impacted.
•If we experience disruptions with our enterprise resource planning system, we may not be able to effectively transact business or produce financial statements, which would adversely affect our business, results of operations and cash flows.
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Risks Related to Our Products
•Our products are highly technical and may contain undetected hardware or software defects or software bugs, which could harm our reputation and adversely affect our business.
•If we are unable to ensure that our products interoperate properly and as required within our customers’ networks, our business will be harmed.
•Our estimates regarding warranty or product obligations are highly subjective. If our estimates change, the liability for warranty or product obligations may be increased, impacting future cost of revenue.
•Our business and operations depend on proprietary technologies, and our financial performance may suffer if we cannot protect and enforce our IP rights.
•If we are unable to obtain third-party technology licenses needed for our products and platform solutions, our business and operations will be impaired, and our operating results could be adversely affected.
•Our use of open-source software could impose limitations on our ability to commercialize our products.
Macroeconomic and Industry Risks
•Our business depends upon the capital spending patterns and decisions of CXPs, and any decrease or delay in capital spending by CXPs due to the timing and availability of capital and other causes would reduce our revenue and harm our business.
•Government-sponsored programs and U.S. federal government shutdowns could impact the timing and buying patterns of CXPs, which may cause fluctuations in our operating results.
•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.
•We face intense competition that could reduce our revenue and adversely affect our financial results.
•Historically, our customer base has been concentrated, and the loss of any of our key customers may adversely impact our revenue and results of operations, and any delays in payment by a key customer could negatively impact our cash flows and working capital.
•Our industry is characterized by rapid technological advancements, and if we fail to develop new products or enhancements that meet changing CXP requirements, we could experience lower sales.
•Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our sales are difficult to predict and may vary substantially, which may cause our operating results to fluctuate significantly.
Government and Regulatory Risks
•Actual or perceived failure to comply with applicable data privacy, security and platform and technology laws, regulations, rules and industry standards and other requirements relating to the processing of personal information could impact our business, operations, and expose us to increased liability.
•Failure to obtain or maintain necessary regulatory approvals from the FCC or other governmental agencies, or limitations put on on-going support of certain foreign-produced products, could significantly restrict our ability to offer and maintain certain products in the U.S. market.
•If we fail to comply with evolving industry standards, sales of our products would be adversely affected.
•Our failure or the failure of our manufacturers to comply with environmental and other legal regulations could adversely impact our results of operations.
•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.
•Regulatory and physical impacts of climate change and other natural events may affect our customers and our manufacturers, resulting in adverse effects on our operating results.
•Our customers are subject to government regulation, and changes in current or future laws or regulations that negatively impact our customers could harm our business.
Risks Related to Ownership of Our Common Stock and Other Risks
•Our stock price may continue to be volatile, and the value of an investment in our common stock may decline.
•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.
•We may need additional capital in the future to finance our business.
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•We do not currently intend to pay dividends on our common stock and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
•Our failure to adequately address and resolve risks and uncertainties associated with acquisitions could have a material adverse impact on our financial condition and results of operations.
•We cannot guarantee that our stock repurchase program will be utilized to the full value approved or that it will enhance long-term stockholder value. Repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance.
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.
•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.
Business and Operational Risks
If we do not successfully increase our sales through adoption of our platform, cloud and managed service offerings, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.
We have platform, cloud and managed service offerings, including new AI-enabled “agentic” capabilities, which are early in their product life cycles and subject to uncertain market demand. If our customers are unwilling to adopt these new offerings, install our new products or deploy our new services, or if we are unable to achieve market acceptance of our products and platform, our business and financial results may be harmed. Moreover, adoption of our platform, cloud and managed service offerings is dependent upon the success of our customers in investing, marketing, selling and deploying broader services to their subscribers, and our ability to differentiate our products from competing or substitutive product and service offerings. For example, our SmartLife managed services include AI-driven managed Wi-Fi, network security, parental controls and an ecosystem of services from partners, including Arlo and Bark. However, if subscriber demand for such services does not grow as expected or declines, or our customers are unable or unwilling to invest in our platform to deploy and market these services, demand for our products may not grow at rates as we anticipate, negatively impacting our revenue and long-term growth.
If we do not successfully execute our business strategy to increase our sales to new and existing CXPs, our operating results, financial condition, cash flows and long-term growth may be negatively impacted.
Our growth depends upon our ability to increase sales to existing and new service providers of all types and sizes, and the execution of our strategy to increase sales to CXPs involves significant risk. The majority of our revenue is not recurring, and our customers generally have no committed purchase requirements, may cancel orders or cease purchasing our products at any time. If our customers stop purchasing our products for any reason, our business and results of operations would be harmed. If we are unable to increase our sales to new and existing CXPs, our operating results, financial condition, cash flows and long-term growth may be negatively impacted. Our strategy includes investing in regional sales teams and select channel partners to sell to smaller regional broadband service providers. A large portion of our current sales are to customers with smaller regional networks and limited capital expenditure budgets. The spending patterns of many of these customers are generally less formal than larger service providers and often characterized by small and sporadic purchases, and the potential revenue from any one of these customers is limited. We rely primarily on channel partners, including value added resellers, internationally and for certain U.S. markets. We face fierce competition for business with key channel partners. If we are unable to engage channel partners, we may fail to grow our sales, or our sales may be reduced. Furthermore, we rely on our channel partners to promote and sell our products. The loss of a key channel partner or the failure of our partners to provide adequate services could have a negative effect on customer satisfaction and could cause harm to our business.
Our selling efforts to larger broadband service providers require substantial investments of technical, marketing and sales resources through lengthy equipment qualification and sales cycles without any assurance of generating sales. We may be required to invest in costly upgrades to meet more stringent performance criteria and interoperability requirements, develop new customer-specific features or adapt our products to meet required standards. We have invested and expect to continue to invest considerable time, effort and expenditures, including investment in product research and development, related to these opportunities without any assurance that our efforts will result in revenue.
The quality of our support and services offerings is important to sustain and increase our sales to new and existing customers. Our services to customers 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. 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
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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. As a result, our failure to maintain high quality support and services could result in the loss of customers, which would harm our business.
We face risks associated with dependence on third-party vendors; component prices volatility and shortages have in the past, currently are, and may in the future adversely affect our gross margin and results of operations; and our mitigation strategies may be of limited or temporary value.
We materially depend upon third-party vendors for our complex global supply-chain operations, including for services to develop, design and source components and materials as well as manufacture, transport and deliver our products. If any of these vendors stop providing their services, for any reason, we would have to obtain similar services from other sources, which may not be available on commercially reasonable terms, if at all. We also have limited control over disruptions that may occur at the facilities of those providers, such as supply interruptions, labor shortages, strikes, shipping backlogs at ports and similar disruptions to transportation infrastructure, design and manufacturing failures, quality control issues, systems failures or facility closures arising from pandemics, natural disasters, terrorist attacks or acts of war. In addition, switching development firms or manufacturers could delay the manufacture and availability of products and/or require us to re-qualify our products with our customers, which would be costly and time-consuming.
A significant portion of our cost of revenue is driven by memory component pricing, which is subject to significant volatility and has significantly increased recently. Although we have in the past, are currently, and may in the future use advance purchasing and pricing actions, including memory surcharges, to mitigate these impacts, such measures may be only partially effective. As component prices stay at their current level or increase, our gross margin and operating results have in the past, currently are, and may in the future be adversely affected.
Any interruption in the development, supply or distribution of our products, any continued increase in memory or other component costs or any inability to recover increased component costs through surcharges or other pricing actions, have adversely affected and may in the future adversely affect our ability to meet scheduled product deliveries to our customers and could result in lost revenue or higher costs, which have adversely impacted, and may in the future adversely impact, our gross margin and operating results and harm our business.
Particular risks associated with management of our global supply-chain operations include the following:
•Manufacturing constraints, shortages and other disruptions. We do not have internal manufacturing capabilities and we rely solely on a small number of contract manufacturers, or CMs, and original design manufacturers, or ODMs, to manufacture and supply our products. Our business operations and ability to supply our products are highly dependent upon our ability to secure adequate third-party manufacturing capabilities and capacity and to effectively manage those third parties to meet our business needs. Our dependence solely on third-party manufacturers has made us in the past and continues to make us vulnerable to possible supply and capacity constraints and has reduced in the past and continues to reduce our control over manufacturing disruptions due to component availability, extended lead times, delivery schedules, quality, manufacturing yields and increased costs. Some of these risks occur from time to time in our business. If these disruptions and constraints are prolonged, or if these manufacturers do not have the ability or business continuity plans to fulfill their obligations to us, our business could be disrupted. If we cannot effectively manage our vendors or if we fail to invest adequate resources to manage our supply chain operations, our ability to meet customer orders and generate revenue may be negatively impacted. A substantial portion of our manufacturing is done at facilities outside of the U.S., largely in Asia, which presents increased supply risk, including the risk of supply interruptions, delays, shortages or reductions in manufacturing quality or controls. In addition, these supply interruptions, delays and shortages could impair our ability to meet our customer requirements or require us to pay higher prices or incur expedite fees, which would harm our business and negatively impact our gross margin and results of operations. Our international manufacturing also creates risks and uncertainties associated with regulatory changes or government actions such as local business requirements, trade restrictions and tariffs, economic sanctions or related legislation, which may complicate our export and import activities, be disruptive to the operations of our manufacturers and logistics partners or result in higher product and shipping costs and variability of supply. Manufacturing in Asia further heightens our risk of meeting customer delivery requirements as we rely upon third-party logistics companies to transport and import significant volumes of products to the U.S. where we generate a substantial majority of our revenue. These supply chain risks are further increased by periodic shipping backlogs at ports and similar disruptions to transportation infrastructure.
•Limited sources and sole-sourced supply. We are dependent upon sole-source or limited-source suppliers for some key product components such as chipsets, certain of our application-specific integrated circuit processors and memory and resistor components, including certain components sourced solely through suppliers located in China and other Asian countries. Any of these suppliers could stop producing our components, raise the prices they charge us, be subject to higher product tariffs, epidemics or other conditions that disrupt their operations, cease operations or enter
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into exclusive arrangements with our competitors, consequently affecting our operations and results. For example, the technology industry is currently experiencing significant supply constraints for memory components, driven in part by the reallocation of manufacturing capacity towards the global AI infrastructure build, which constraints may continue for years until new manufacturing capacity is built. These constraints have contributed to elevated and volatile DDR memory and other memory component prices in the past, currently are contributing to elevated and volatile DDR memory and other memory component prices and may do so in the future, as a result, the impact on our gross margin may vary based on inventory timing, supply availability, and the effectiveness of surcharges or other pricing actions. These constraints have resulted in, and are expected to continue to result in, increased costs and extended lead times for the components used in our products. 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 in a timely fashion, or at all, which would adversely affect our ability to meet scheduled product deliveries to our customers, increase costs and in turn harm our business and results of operations.
•Limitations on ability to manage third-party risks. Our business with certain third-party manufacturers may represent a relatively small percentage of their revenue. Consequently, our orders may not be given adequate priority if such manufacturers have to allocate limited capacity among competing customers. This could delay supplies of product to us or limit our ability to ramp product volumes within desired timeframes. If any of our manufacturing partners are unable or unwilling to continue manufacturing our products in required volumes and at high quality levels, we would have to identify, qualify and select acceptable alternative manufacturers. The time it takes to qualify new third-party manufacturers could disrupt our ability to maintain continuous supply of product to meet customer requirements. An alternative manufacturer may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices and quality. In addition, we and/or our manufacturers may not be able to negotiate commercially reasonable terms and sufficient quantities of component supplies with component and materials suppliers to meet our manufacturing needs because our purchase volumes may be too low for us to be considered a priority customer for securing supplies, particularly when there are shortages or limited availability of key components and materials. As a result, suppliers could stop selling to us and our manufacturers at commercially reasonable prices, or at all. While we have worked to mitigate the cost impact from historical price increases, our efforts may not be successful with respect to increases arising from product tariffs recently announced by the U.S. Any such interruption or delay may force us and our manufacturers to seek components or materials from alternative sources, which may not be available, or result in higher prices. Switching suppliers could also force us to redesign our products to accommodate new components and could require us to re-qualify our products with our customers, which would be costly and time consuming. A significant interruption in manufacturing or supply availability for any of these reasons would reduce supply to our customers, which would result in lost revenue and harm our customer relationships.
•Ability to forecast and manage inventory liability with vendors. We have experienced increases in demand from many customers, in part as a result of higher consumer demand for better internet services and improved Wi-Fi. If we underestimate product demand from our customers, our manufacturers may have inadequate component inventory to meet our demand. If we are unable to adequately anticipate demand, this could interrupt our product manufacturing, increase our cost of revenue associated with expedite fees and air freight and/or result in delays or cancellation of customer orders. If we are unable to deliver products timely to our customers, we may lose customer goodwill or our customers may choose to purchase from other vendors, all of which may have a material negative impact on our revenue and operating results. If we overestimate our product demand, our third-party manufacturers may purchase excess components and build excess inventory, and we could be required to pay for these excess parts or products and their storage costs. Long lead times for component supply, which may be exacerbated by higher demand for certain components, and demand for our products has and is expected to continue to impact our ability to accurately forecast our production requirements. We may incur liabilities for certain component inventory purchases that have been rendered excess or obsolete, which may have an adverse effect on our gross margin, financial condition and results of operations.
If we fail to properly develop, invest in, and manage AI Technologies used in our products and services, our business, financial condition, and results of operations could be materially adversely affected.
We use AI, machine learning, and automated decision-making technologies, including proprietary AI and machine learning algorithms and models (collectively, “AI Technologies”) throughout our business, and are making significant investments in this area. For example, with the implementation of our agentic workflows within our platform, we will aim to provide both our customer success team and CXP customers with advanced automated tools to augment their operations, accelerate transformation initiatives and expand their impact independent of traditional resource constraints.
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We expect that increased investment will be required in the future to continuously improve our use of AI Technologies. As with many technological innovations, there are significant risks involved in developing, maintaining and deploying these technologies, and there can be no assurance that the usage of, or our investments in, such technologies will always enhance our products or services or be beneficial to our business, including our efficiency or profitability.
In particular, if the models underlying our AI Technologies are: incorrectly designed or implemented; trained or reliant on incomplete, inadequate, inaccurate, biased or otherwise poor quality data, or on data to which we do not have sufficient rights or in relation to which we and/or the providers of such data have not implemented sufficient legal compliance measures; used without sufficient oversight and governance to ensure their responsible use; and/or adversely impacted by unforeseen defects, technical challenges, cybersecurity threats, data privacy concerns, or material performance issues, the performance of our products, services and business, as well as our reputation and the reputations of our customers, could suffer or we could incur liability resulting from the violation of laws or contracts to which we are a party or civil claims.
With respect to our products or services that incorporate AI Technologies, including agentic AI, the market for such products and services is rapidly evolving and unproven in many industries, including our own, and important assumptions about the characteristics of targeted markets, pricing, sales cycles, cost, performance, and perceived value associated with our services or products may be inaccurate. We cannot be sure that the market will continue to grow or that it will grow in ways we anticipate. In addition, market acceptance and consumer perceptions of products and services that incorporate AI Technologies is uncertain. Our failure to successfully develop and commercialize our products or services involving AI Technologies could depress the market price of our stock and impair our ability to: raise capital; expand our business; provide, improve and diversify our product offerings; continue our operations and efficiently manage our operating expenses; and respond effectively to competitive developments.
Additionally, the regulatory framework for AI Technologies is rapidly evolving. Already, certain existing legal regimes (e.g., relating to data privacy) regulate certain aspects of AI Technologies, and existing laws and regulations may be enjoined in judicial proceedings, interpreted or enforced in ways that would affect the operation of our AI Technologies, or could be rescinded or amended as new administrations take differing approaches to evolving AI Technologies. Additionally, many federal, state and foreign government bodies and agencies have enacted or are currently considering additional laws and regulations governing AI. As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot predict the impact future laws, regulations, or standards, or the market perception of their requirements, may have on our business or how we will respond to these laws or regulations.
For example, in the U.S., the regulatory framework for AI Technologies faces significant uncertainty. At the federal level, Congress has yet to enact meaningful AI legislation. Instead, federal policy on AI has been shaped by a series of executive orders that have shifted priorities and requirements substantially depending on the administration in power. In the absence of AI legislation, states have filled the void by enacting laws regulating different aspects of AI Technologies. For example, California has enacted laws and regulations related to AI safety protocols, reporting and transparency, among other AI-related topics. Numerous other states have enacted, passed or are considering AI-focused legislation, creating a patchwork of state-level governance of AI in the U.S. and a complex compliance challenge. However, the durability of these laws and the potential of additional state-level legislative activity faces uncertainty following President Trump’s December 2025 Executive Order “Ensuring a National Policy Framework for Artificial Intelligence”, which establishes a federal policy favoring a uniform national AI regulatory framework designed to promote innovation and U.S. global competitiveness, and directs federal agencies to identify, challenge, and potentially pre-empt state and local AI laws that are viewed as inconsistent with or burdensome to this national approach. It remains to be seen how agencies will effectuate this directive, and how states will approach AI legislation moving forward.
In Europe, the EU Artificial Intelligence Act (“EU AI Act”) establishes a comprehensive, risk-based governance framework for AI in the European Union (“EU”) market. The majority of the substantive requirements are expected to apply from August 2, 2026, though the European Commission has proposed an extension to December 2, 2027 (such extension is not yet finalized or effective). The EU AI Act applies to companies that develop, use and/or provide AI in the EU, with specific requirements based on the relevant AI use cases. For example, in relation to our use of generative AI, we may be subject to certain disclosure and transparency obligations, with fines up to the greater of €15 million or 3% of global revenue.
In addition, the revised EU Product Liability Directive, to be implemented into EU member state national law by December 2026, extends the EU’s existing strict product liability regime to AI Technologies and AI-enabled products, and facilitates civil claims in respect of harm caused by AI. Once fully applicable, the EU AI Act and the EU Product Liability Directive, together with developing guidance and/or decisions in this area, will have a material impact on the way AI is regulated in the EU. It is possible that further new laws and regulations will be adopted in the United States and in other non-U.S. jurisdictions, or that existing laws and regulations, including competition, antitrust, data privacy and consumer protection laws, may be interpreted or enforced in ways that would limit our ability to use AI Technologies for our business, or require us to change the way we use AI Technologies in a manner that negatively affects the performance of our products, services, and business and the way in
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which we use AI Technologies. We may need to expend resources to adjust our products or services in certain jurisdictions if the laws, regulations, or decisions are not consistent across jurisdictions. Further, the cost to comply with such laws, regulations, decisions and/or guidance interpreting existing laws, or to adjust our business plans based on changes to how such laws are enforced, including adapting to loosened regulation to remain competitive, could be significant and would increase our operating expenses (such as by imposing additional reporting obligations regarding our use of AI Technologies) or impact our ability to use, procure or commercialize AI Technologies. Such an increase in operating expenses could adversely affect our business, financial condition and results of operations. In addition, if we fail or are perceived to fail to comply with these laws and regulations, we may face lawsuits (including class actions), investigations, enforcement actions, negative reputational impacts, and other penalties that materially impact our business.
The imposition of new duties, tariffs (and uncertainty related to the enforceability thereof), trade barriers and retaliatory countermeasures implemented by the U.S. and other governments and resulting impact on customer demand may have a material adverse effect on our business, financial condition and results of operations.
The implementation of significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, significant new tariffs on goods imported into the U.S.(and uncertainty related to the enforceability thereof), have introduced uncertainty to our business and will increase the cost of our U.S. manufactured products and components sourced outside of the U.S., which will result in an increase to our cost of revenue and may cause a reduction in our gross margin. In response, China announced additional tariffs on U.S. goods and new export control restrictions. The imposition of additional tariffs or other trade barriers by countries outside of the U.S may increase our costs in these markets, and to the extent these increased costs result in increased prices for our customers, the demand for our products may decrease as our customers seek alternative sourcing, making it more difficult for us to sell our products in some markets.
The extent and duration of increased tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets. Other countries where we operate or sell our products may themselves change their own policies on trade as well, which may affect future business and foreign investment in their respective countries. U.S. and foreign policy changes and uncertainty about such changes has resulted in increased market volatility and currency exchange rate fluctuations. To the extent dissatisfaction with U.S. government policy results in U.S.-based suppliers being disfavored over foreign-based alternatives, it may diminish demand for our products with such customers and cause them to find alternative sourcing or otherwise make it more difficult for us to sell more products to these customers.
As a result of these dynamics, we may find it difficult to predict the impact to our business of these and future changes to the trading relationships between the U.S. or other countries or the impact on our business of new laws or regulations adopted by the U.S. or other countries.
Cyberattacks or other security incidents that disrupt our or our third-party providers’ operations or compromise data, may expose us to liability, harm our reputation or otherwise adversely affect our business.
We rely on our own and third-party hardware, software, technology infrastructure, data centers, digital networks and online sites and services for both internal and customer-facing operations that are critical to our business (collectively, “IT Systems”). In addition, as part of our business operations, we collect, store, process, use and/or disclose information, including sensitive data relating to our business, our business partners and our customers, and personal information about individuals such as our employees and our customers’ subscribers (collectively, “Confidential Information”). We process Confidential Information to operate our business, including in connection with the provision of our cloud services and by relying on our and our providers’ IT Systems. We also engage third-party providers to support various internal functions, such as human resources, finance, information technology and electronic communications, as well as the development and delivery of our customer-facing products and cloud services, which includes collecting, handling, processing and/or storage of data on our behalf. These internal and external functions involve an array of software and systems, including cloud-based, that enable us to conduct, monitor and/or protect our business, operations, systems and information technology assets. Our cloud-based solutions enable us to host our customers’ subscriber data in third-party data centers.
We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems and Confidential Information, including from diverse threat actors such as state-sponsored organizations, opportunistic hackers and hacktivists, as well as through diverse attack vectors such as social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error and, as a result of malicious code embedded in open-source software, bugs, misconfigurations or exploited vulnerabilities in software or hardware that is integrated into our (or our suppliers’ or service providers’) IT Systems, products or services. Threat actors could steal Confidential Information related to our business, products, employees, customers and our customers’ subscribers; hold data ransom; and/or disrupt our systems and services or those of our supply chain partners, vendors, customers or others. We expect cybersecurity attacks and security breaches to accelerate in the future, including sophisticated supply chain attacks. As we and our third-party providers continue to increase
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our reliance on virtual environments and communications systems and cloud-based solutions to support our work-from-anywhere culture and overall business needs, our exposures to third-party vulnerabilities and security risks also increase. Because threat actors are increasingly sophisticated and aggressive, our efforts may be inadequate to prevent, detect or recover from future attacks due, for example, to the increased use by attackers of tools and techniques (including artificial intelligence) that are specifically designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. In addition, artificial intelligence-enabled products and technologies have enabled threat actors to perpetrate attacks at a speed, scale and complexity that was previously beyond their capabilities. As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or to avoid a material adverse impact on our IT Systems, Confidential Information, or business. We may also experience security breaches that may remain undetected for an extended period.
We and certain of our third-party providers have been subject to cyberattacks and other security incidents, and we expect such attacks and incidents to continue in varying degrees. There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information. Accordingly, while to date no cybersecurity incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future. A cyberattack or incident that affects the confidentiality, integrity or availability of our IT Systems or Confidential Information could result in legal claims or proceedings (such as class actions), regulatory investigations and enforcement actions, fines and penalties, negative reputational impacts that cause us to lose existing or future customers, and/or significant incident response, system restoration or remediation and future compliance costs. Even if we and our third-party providers allocate, implement and manage reasonable security and data protection measures, we could still experience significant data loss, unauthorized data disclosure or a breach of our IT Systems, products or those of our third-party providers (for example, data centers) that materially impact our business. The continued growth of our cloud-based platform and managed services portfolio and increased reliance on third-party development partners and third-party software and cloud-based solutions increases the likely risks arising from security breaches or data loss. Any data loss or compromise of our systems that collect and process personal information (including personal information of our customers’ subscribers), or third-party data centers where that personal information is stored, could result in loss of confidence in the security of our offerings and loss of customers or customer goodwill. Further, security incidents could subject us to obligations under privacy and data security laws and regulations around the world (including to notify governmental authorities, regulatory bodies and/or affected individuals), lead to liability given the increasing development of such strict laws and regulations, increase the risk of litigation and governmental or regulatory investigation, require us to notify our customers or other counterparties in relation to such incidents, and damage our reputation. Any or all of the foregoing could materially and adversely affect our business, financial condition, operating results and cash flows. Although we maintain insurance that may apply to cybersecurity risks and liabilities, there can be no guarantee that any or all costs or losses incurred in relation to a cyberattack or security incident will be partially or fully insured by our existing policies or that we will be able to procure applicable insurance in the future on economically reasonable terms or at all.
Changing market and customer requirements may adversely affect the valuation of our inventory as well as our supplier purchase commitments.
Customer demand for our products can change rapidly in response to market and technology developments. From time to time, we adjust inventory valuations downward or end of life certain of our products in response to our assessment of our business strategy as well as consideration of demand from our customers for specific products or product lines. We also evaluate our supplier purchase commitments, which fluctuate based on lead-times, demand environment and perceived component availability. We record a liability for excess and obsolete components based on our estimated future demand for our products, potential obsolescence of technology and product life cycles. If we fail to accurately plan our inventory levels, which becomes more challenging as component lead times increase, we may have to increase write offs for excess or obsolete inventory, or accrue additional liabilities for component inventory held by our suppliers, both of which could have a material adverse effect on our financial condition and results of operations.
Business and operational risks associated with expanding our international operations could harm our business.
We are subject to business and operational risks associated with our international operations, including our global supply-chain operations, and our international offices located in Nanjing, China and Bangalore, India as well as dependence upon our international sales operations. In addition, we are exposed to risk arising from our dependence upon third-party development contractors in India. The risks associated with our international operations also include costs of complying with differing and changing laws and regulatory requirements, tariffs, export quotas, custom duties and other trade restrictions; effects of inflation, currency controls and/or fluctuations in currency exchange rates; limited, inadequate or non-existent intellectual property (“IP”) protection; and uncertainties associated with political conflicts and instabilities, variable economic conditions, terrorist attacks or acts of war. Our development operations and activities in China and India involve these and other significant risks, including: local labor conditions and regulations; knowledge transfer related to our technology and exposure to misappropriation of IP or Confidential Information, including information that is proprietary to us, our customers and third parties; heightened exposure to changes in the economic, security, political and pandemic conditions; international trade agreements and U.S. tax provisions
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that could adversely affect our international operations; complexities of managing development timelines and deliverables from abroad; and differences in local business practices and customs that may not align with our expectations and standards.
Along with the foregoing risks, our international sales operations involve risks associated with greater costs and complexity localizing and supporting our products and platform in local markets; evolving privacy regulations, trade regulations, compliance requirements and incremental costs applicable to the qualification, production, sale and delivery of our products; longer collection periods, financial instability and other difficulties impacting collection of accounts receivable in certain jurisdictions; more intense competition including from local equipment suppliers; and our reliance on value added resellers to sell and support our products in international markets given our limited presence and infrastructure outside the U.S. To expand our international operations, we will need to invest resources to attract key talent, build operational infrastructure, execute on our international strategy and drive international market demand for our products. If we invest substantial resources to expand our international operations and are unable to do so successfully or in a timely manner, our financial condition and results of operations may suffer.
We may have difficulty evolving and scaling our business and operations to meet customer and market demand, which could harm our financial results or cause us to fail to execute on our business strategies.
In order to grow our business, we will need to continually evolve and scale our business and operations to meet customer and market demand. Evolving and scaling our business and operations places increased demands on our management as well as our financial and operational resources to effectively manage organizational change; design scalable processes; accelerate and/or refocus research and development activities; expand our manufacturing, supply chain and distribution capacity; increase our sales and marketing efforts; broaden our customer success, support and services capabilities; maintain or increase operational efficiencies; scale support operations in a cost-effective manner; implement appropriate operational and financial systems; and maintain effective financial disclosure controls and procedures. If we cannot evolve and scale our business and operations effectively, we may not be able to execute our business strategies in a cost-effective manner and our business, financial condition and results of operations could be adversely affected.
Litigation and regulatory proceedings could harm our business or negatively impact our results of operations.
In the ordinary course of business, we are subject to legal claims, litigation and regulatory proceedings related to disputes over commercial, securities class action litigation, competition, IP, labor and employment and other matters. Regardless of the merits of any such claims, litigation and regulatory proceedings are inherently uncertain, and can be costly, disruptive to our business and operations, harmful to our reputation and distracting to management. In particular, as a technology company, we are subject to IP claims asserting patent, copyright, trademark and/or other infringement claims that are costly to defend and could limit our ability to use some technologies in the future. The risk of such claims is heightened as we expand our products and services and rely on more technologies, including third-party IP rights that we license and incorporate into our products and services. Third parties from whom we license IP may be unable or unwilling to indemnify us for such claims or offer any other remedy to us. Patent infringement claims may be asserted by patent assertion entities and non-practicing entities (“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. Further, in our industry, the number of assertions by NPEs has continued to increase due in part to patent sales by operating companies to NPEs and availability of litigation financing. We have received and expect to continue to receive assertions from NPEs and other third parties alleging that we may be infringing their patents or other IP rights; offering licenses to such IP; and/or threatening litigation. If our products are found to infringe, these claims could also result in the suspension of our ability to import, market and sell our products and services, product shipment delays or requirements to modify our products or enter into costly settlements or licensing agreements. Such royalty or licensing agreements, if required, may not be available to us on acceptable terms, if at all. Furthermore, we may additionally be financially responsible for claims made against our customers, including costs of litigation and damages awarded, under indemnity obligations which could further negatively impact our results of operations. Protracted litigation could cause us to incur significant defense costs, which would negatively impact our results of operations.
We have a history of fluctuations in our gross margin and operating results, and we expect continued fluctuations as memory component costs, advance-purchased supply depletion, surcharge recovery, customer and product mix, and cloud costs evolve, which can make it difficult to predict our future performance and could cause the market price of our stock to decline.
We have a history of fluctuations in our quarterly and annual gross margin and operating results, including fluctuations due to factors outside of our control. The timing and magnitude of these effects are difficult to predict because component pricing, supplier availability, inventory consumption, customer demand, product mix, and pricing actions may change rapidly and interact in complex ways.
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Our gross margin and operating results has in the past and may in the future fluctuate due to component costs, pricing actions, customer and product mix, cloud costs, tariffs and market conditions. The timing and magnitude of these factors are difficult to predict, and prior period results may not be indicative of future performance.
Factors that impact variability of our operating results include our ability to predict our revenue and reduce and control our costs; the level, timing, and effectiveness of advance purchasing of memory and other components; the rate at which advance-purchased inventory is depleted; the level and trajectory of memory and other component market prices, including DDR memory prices; the timing, scope, and effectiveness of memory surcharges and other pricing actions, which have in the past, currently do, and may in the future recover only a portion of increased costs and have not in the past, currently do not and may not in the future generate incremental gross profit; our ability to predict product functions and features desired by our customers, the impact of global economic and geopolitical events and conditions, including tariffs, trade controls, inflation, government shutdowns, market instability and economic downturns, 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.
We have implemented memory surcharges with customers to partially offset elevated memory component costs; however, our ability to maintain, expand or increase those surcharges is subject to significant constraints, including customer resistance, the competitive dynamics of our markets and the terms of existing customer contracts and purchase arrangements, any of which may limit our ability to fully recover incremental component costs through pricing actions. Even where customers accept surcharges, the implementation of new or increased surcharges may lag the onset of component cost increases by one or more quarters, creating periods during which we bear elevated costs without corresponding pricing relief and our gross margin is disproportionately compressed relative to the rate at which costs are rising. Further, because surcharge revenue is recognized at cost with no gross profit contribution, surcharges dilute our overall gross margin percentage by adding revenue at zero margin, and any surcharge-related revenue that causes customers to defer, reduce or cancel orders would adversely affect both our revenue and our gross margin simultaneously, further adversely affecting our results of operations.
Our gross margin is further impacted by customer, geographic and product mix; the impact of competition on our prices; our ability to manage our costs associated with components and materials, including memory components; excess and obsolescence; expedite fees and logistics-related activities; cloud platform migration and dual-environment cloud operating costs; contractual commitments; and other product costs.
Our prior gross margin performance, including any record or sequential improvements, may not be indicative of future gross margin and has been in the past and may be in the future affected by the timing of advance-purchased component inventory or other transitory factors. Fluctuations in any single factor, or the combination of multiple factors, may cause our gross margin to decline materially from prior periods, including in periods in which revenue and operating execution otherwise meet expectations.
Fluctuating results make it difficult to predict our future performance and could cause the market price of our stock to decline. We expect to continue to incur significant expenses and cash outlays as we seek to expand our business and operations and target new customer opportunities. Given our growth objectives and the intense competitive pressures we face, our operating expenses may increase at unexpected levels, and we may be unable to maintain positive operating income. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our expectations and guidance are based on assumptions regarding component costs, supply availability, inventory consumption, and pricing actions that are inherently uncertain and subject to change. If our revenue or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide to the market, the market price of our stock would likely decline.
We are exposed to customer credit risks that could adversely affect our operating results and financial condition.
We generally extend credit terms for sales to our customers which exposes us to credit risk. If we are unable to collect our accounts receivable balances as anticipated, our operating results and financial condition will be harmed. A number of factors contribute to this risk, including our ability to adequately assess a customer’s creditworthiness and financial condition, changes in a customer’s financial condition and/or liquidity, our ability to timely collect our accounts receivable from customers, disagreements with customers on invoiced balances and economic downturns or other unanticipated events impacting a customer’s ability to pay. Furthermore, some of our international customers operate in countries with developing economies, volatile financial markets or currency regulations that impact their ability to make payments in U.S. dollars. While we take measures to pursue collections on our accounts receivable, we have from time to time written down accounts receivable and written off doubtful accounts and may need to do so in future periods. The determination of allowances for doubtful accounts involves significant judgment, and if we underestimate our allowance for doubtful accounts, we will have to make further write-
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downs. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur and could harm our cash flow or our financial condition.
If we lose any of our key personnel, or are unable to attract, train and retain qualified personnel, our ability to manage our business and continue our growth would be negatively impacted.
Our success depends, in large part, on the continued contributions of our key personnel who are highly skilled and would be difficult to replace. Competition for skilled personnel, particularly in software and cloud development and engineering, is intense. We cannot be certain that we will be successful in attracting and retaining qualified personnel, or that newly hired personnel will function effectively, both individually and as a group. If we are unable to effectively recruit, hire and utilize new employees to align with our company objectives, execution of our business strategy and our ability to react to changing market conditions may be impeded, and our business, financial condition and results of operations may suffer. We operate using a “work-from-anywhere” model, and if we do not continue to effectively manage our distributed workforce, we could face challenges maintaining our corporate culture, which could increase attrition or limit our ability to attract personnel. None of our key personnel are bound by a written employment contract to remain with us for a specified period. In addition, we do not currently maintain key person life insurance covering our key personnel. If we lose the services of any key personnel, our business, financial condition and results of operations may suffer.
If we experience disruptions with our enterprise resource planning system, we may not be able to effectively transact business or produce financial statements, which would adversely affect our business, results of operations and cash flows.
We operate our Oracle enterprise resource planning (“ERP”) system on Oracle’s cloud platform and our software billing application on Salesforce.com. With these implementations, we are highly dependent upon Oracle and Saleforce.com to host, manage and maintain our ERP system and supporting applications. Any disruptions to their business or processes, or delays in their ability to provide services to us, may in turn disrupt our business operations or increase costs. Furthermore, we receive quarterly system updates and enhancements on the cloud platform according to Oracle’s release timeline and change management processes, which if not managed properly may disrupt our business operations and delay our ability to process transactions and produce reports necessary to conduct our business. We are highly dependent upon our ERP system for critical business functions, including order processing and management, supply chain and procurement operations, financial planning, accounting and reporting; accordingly, protracted disruption in functionality or processing capabilities of the ERP system could materially impair our ability to process transactions timely or produce accurate financial statements on a timely basis. If our systems suffer prolonged interruption, our results of operations and cash flows would be adversely affected.
Risks Related to Our Products
Our products are highly technical and may contain undetected hardware or software defects or software bugs, which could harm our reputation and adversely affect our business.
Our products, including our platform (agentic AI, cloud, software and appliances) and SmartLife 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. Some defects in our products may only be discovered after a product has been installed and used by customers and may in some cases only be detected under certain circumstances or after extended use. Any errors, bugs, defects or security vulnerabilities discovered in our products after commercial release could result in loss of revenue or delay in revenue recognition, loss of customers and increased service and warranty and retrofit costs, any of which could adversely affect our business, operating results and financial condition. In addition, we are subject to claims for security and data breach, product liability, tort or breach of warranty. Our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely impacted.
If we are unable to ensure that our products interoperate properly and as required within our customers’ networks, our business will be harmed.
Our products must interoperate with our customers’ existing and planned networks, which often have varied and complex specifications, utilize multiple protocol standards, include software applications and customizations and products from multiple vendors and contain multiple generations of products that have been added over time. As a result, we must continually ensure that our products interoperate properly with these existing and planned networks. To meet these requirements, we must undertake development efforts, including test protocols, which require substantial capital investment and employee resources. We may not accomplish these development goals quickly or cost-effectively, if at all. If we fail to maintain interoperability, we may face substantially reduced demand for our products, which would reduce our revenue opportunities and market share. We
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rely upon interoperability arrangements with equipment and software vendors for the use or integration of their technology with our products. If these relationships fail, we may have to devote substantially more resources to developing alternative products and processes and our efforts may not be as effective as the combined solutions under our current arrangements. In some cases, these other vendors are either direct competitors or companies that have extensive relationships with our existing and potential customers and influence the purchasing decisions of those customers. Some of our competitors have stronger relationships with some of our interoperability partners, and as a result, our ability to have successful interoperability arrangements with these companies may be harmed, which in turn may harm our ability to successfully sell and market our products.
Our estimates regarding warranty or product obligations are highly subjective. If our estimates change, the liability for warranty or product obligations may be increased, impacting future cost of revenue.
Our products are highly complex, and our product testing may not be adequate to detect all defects, errors, failures and quality issues. Accordingly, our estimates regarding future warranty or product obligations are highly subjective, and if our estimates change, the liability for warranty or product obligations may be increased, impacting future cost of revenue. Quality or performance problems for products covered under warranty could adversely impact our reputation and negatively affect our operating results and financial position. The development and production of new products with high complexity often involves problems with software, components and manufacturing methods. 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.
Our business and operations depend on proprietary technologies, and our financial performance may suffer if we cannot protect and enforce our IP rights.
Our success and ability to compete depend on proprietary technology. We rely significantly upon patent, copyright, trademark, trade secret and other IP laws, IP registration rights and agreements with our employees, customers, partners, suppliers and other parties, to establish and maintain IP rights necessary for our business and operations. U.S. IP laws afford us only limited protection, and the laws of some foreign countries do not protect proprietary rights to the same extent or at all. Our patent applications may not result in issued patents, and our issued patents may not be enforceable. Our IP rights could be challenged, invalidated, infringed or circumvented, any of which could impair or harm our business and operations and be costly to defend. Our failure to adequately protect our IP rights could result in our competitors offering similar products, resulting in the loss of our competitive advantage and decreased sales.
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. It may become more difficult to adequately protect our IP as we expand our reliance on third parties for the design, development and/or manufacture of our products. In addition, we may become subject to increased risks arising from or related to security breaches, data loss or theft of our data or our IP, and have greater difficulty protecting our IP as our work-from-anywhere workforce and work product become more distributed. Policing the unauthorized use and distribution of our IP is difficult and costly. Litigation, which could result in substantial costs, diversion of resources and harm to our business, may be necessary to enforce our IP rights, protect our trade secrets or determine the validity and scope of proprietary rights.
If we are unable to obtain third-party technology licenses needed for our products and platform solutions, our business and operations will be impaired, and our operating results could be adversely affected.
We increasingly rely on technology licensed from third parties for our products and platform solutions. We may not be able to secure or maintain necessary technology licenses from these third parties on commercially reasonable terms or at all. Third parties may also choose not to renew licenses with us, demand unreasonable license fees or cease to offer technologies that we require. The inability to obtain necessary third-party licenses or to secure reasonable license terms at a cost acceptable to us could harm the competitiveness of our products and solutions, result in lost revenue and adversely affect our operating results. For example, we may be forced to forego product features or platform offerings, including features and offerings we believe are critical to our strategy, accept substitute technology of lower quality or performance standards or incur higher costs, or the time-to-market of our products or product features could be delayed. Furthermore, our ability to utilize third-party technology may be disrupted by disputes over IP rights, including claims of IP infringement, which could prevent us from offering or selling the products that utilize the disputed technology and adversely affect our operating results.
Our use of open-source software could impose limitations on our ability to commercialize our products.
We incorporate open-source software into our products. The terms of many open-source software licenses have not been interpreted by the courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to sell our products. In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties in order to
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continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect our revenue and operating expenses.
Macroeconomic and Industry Risks
Our business depends upon the capital spending patterns and decisions of CXPs, and any decrease or delay in capital spending by CXPs due to the timing and availability of capital and other causes would reduce our revenue and harm our business.
Demand for our products depends on the magnitude and timing of capital spending by CXPs as they construct, expand, upgrade and maintain their access networks as well as CXPs’ adoption of our platform and managed services. Capital spending is cyclical in our industry, sporadic among individual CXPs and can change on short notice, which gives us little visibility into changes in spending behavior in any particular quarter. Capital spending for network infrastructure projects could be delayed or canceled in response to factors outside our control, such as reduced consumer spending, challenging capital markets or declining liquidity trends. CXP spending is also affected by reductions in budgets, including as a result of a general economic downturn, delays in purchasing cycles, access to or timing of government funding programs or capital markets, government shutdowns and seasonality and delays in capital allocation decisions. Historically, our customers may spend less or have less deployments in the first quarter due to pending annual budgets or, in certain regions, due to weather conditions that inhibit outside fiber deployment, resulting in weaker demand for our products in the first quarter. Softness in demand in any of our customer markets, including due to macroeconomic conditions beyond our control or uncertainties associated with regulatory reforms, has and could in the future lead to unexpected decline or slowdown in customer capital expenditures. Further, CXPs may pursue capital investment in network technologies other than those offered by us or may choose not to adopt our products and platform solutions in their networks. Reductions in capital expenditures by CXPs would have a material negative impact on our revenue and results of operations and slow our rate of revenue growth. As a consequence, our results for a particular period may be difficult to predict, and our prior results are not necessarily indicative of results in future periods.
Government-sponsored programs and U.S. federal government shutdowns could impact the timing and buying patterns of CXPs, which may cause fluctuations in our operating results.
We sell to broadband service providers and CXPs, including U.S.-based independent operating companies (“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 (“FCC”) Rural Digital Opportunity Fund, the CARES Act Enhanced Alternative Connect America Cost Model, or the American Rescue Plan Act. The FCC and some states may change such payments and subsidies, which could reduce IOC revenue. Furthermore, many IOCs use or expect to use government-supported loan programs or grants, such as U.S. Department of Agriculture’s Rural Utility Service or National Telecommunications and Information Administration’s (“NTAI”) Broadband Equity, Access and Deployment (“BEAD”) program loans and grants, to finance capital spending. These government-supported loan programs and grants generally include conditions such as deployment criteria, domestic preference provisions and other requirements that apply to the project and selected equipment as conditions for funding. For example, the U.S. government passed The Infrastructure Investment Jobs Act, which charged the NTIA with establishing the BEAD Program and ensuring that BEAD-funded infrastructure projects comply with the Buy America Domestic Content Procurement Preference (“Buy America Preference”) of the Build America, Buy America Act (“BABA”). In accordance with BABA, the U.S. Department of Commerce has issued a limited, general applicability, nonavailability waiver of the Buy America Preference to recipients of Federal financial assistance under the NTIA’s BEAD Program. Notwithstanding this waiver, certain of our products will be required to meet BABA domestic content requirements to enable certain customers to qualify for grant funding under the BEAD Program. Any failure of such products to meet BABA domestic content requirements would result in those products being ineligible for purchase and use by certain customers under the BEAD Program, and could result in lost sales, lost business opportunity, breach of warranty claims, and damage to our reputation and customer relationships.
Changes to the terms or administration of these programs, including uncertainty from government and administrative change, increasing focus on domestic requirements by the U.S. that may require re-assessment of compliance, potential funding limitations that impact our ability to meet program requirements or delays due to U.S. federal government shutdowns could reduce the ability of IOCs to access capital or secure funding under these programs to purchase our products and services and thus reduce our revenue opportunities. In addition, compliance with these requirements may significantly increase our record-keeping, accounting and production costs. As a result of these risks, the domestic content requirements may have a material adverse impact on our U.S. sales, business and results of operations. Customers may curtail purchases if they receive less funding than planned, are negatively impacted by federal government shutdowns or changes in government regulations and subsidies, or as funding winds down, any of which could have an adverse effect on our operating results and financial condition.
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Adverse global economic, market and industry conditions, geopolitical issues and other conditions that impact our increasingly global operations could have a negative effect on our business, results of operations and financial condition and liquidity.
As a global company, our performance is affected by global economic, market and industry conditions as well as geopolitical issues and other conditions with global reach. In recent years, concerns about the global economic outlook, inflation and increased interest rates have adversely affected market and business conditions in general. Macroeconomic weakness and uncertainty make it more difficult for us to manage our operations and accurately forecast revenue, gross margin and operating expenses. Further, bank failures and other adverse developments that affect financial institutions, transactional counterparties, or other third parties, or concerns or rumors about these events, have led to market-wide liquidity problems.
Geopolitical issues such as armed conflicts, relations between the U.S. and China, tariff and trade policy changes (and uncertainty related to the enforceability thereof) 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. New or increased tariffs and other changes in U.S. trade policy, including new sanctions, have triggered and may continue to trigger retaliatory actions by affected countries or changes in demand from customers displeased with U.S. tariff and trade policy changes. U.S. executive orders have resulted in tariffs on imports from numerous countries, including China and other Asian countries where our sole-source or limited-source suppliers are located. Consequently, absent policy changes, these actions will increase our cost of revenue. To the extent dissatisfaction with U.S. government policy results in U.S.-based suppliers being disfavored over foreign-based alternatives, it may diminish demand for our products with such customers and cause them to find alternative sourcing or otherwise make it more difficult for us to sell more products to these customers. The imposition of additional tariffs or other trade barriers by countries other than the U.S., including China and other Asian countries, will increase our costs in these markets, and to the extent these increased costs result in increased prices for our customers, we expect the demand for products in these markets to decrease as some of our customers seek alternative sources, making it more difficult for us to sell our products in these markets. In addition, inflation in the U.S. has affected businesses across many industries, including ours, by increasing the costs of labor, employee healthcare, components and freight and shipping, which may further constrain our customers’ or prospective customers’ budgets. To the extent there is a sustained general economic downturn, and our platform and services are perceived by customers or potential customers as costly, or too difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in spending. Sustained or worsening of global economic conditions and geopolitical issues may increase our cost of doing business, materially disrupt our supply chain operations, cause our customers to reduce or delay spending and intensify pricing pressures. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or markets in which we operate worsen from present levels, demand for our products, and our business, financial condition and results of operations, could be adversely affected.
We face intense competition that could reduce our revenue and adversely affect our financial results.
The market for our products is highly competitive, and we expect competition from both established and new companies to increase. Our ability to compete successfully depends on a number of factors, including our ability to successfully develop new products and solutions that anticipate CXP and market requirements and changes in technology and industry standards; CXP acceptance and adoption of our products and solutions; our ability to differentiate our products from our competitors’ offerings based on performance, features, cost-effectiveness or other factors; our product capabilities to meet customer network requirements and preferences; and our success in marketing and selling our products and platform solutions.
Many of our current or potential competitors have longer operating histories, greater name recognition, broader product lines, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do and are better positioned to acquire and offer complementary products and services. As the broadband access equipment market has undergone and continues to undergo consolidation, our competitors have merged, grown and been able to offer more comprehensive solutions than they individually had offered. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features, because the products that we and our competitors offer require a substantial investment of time and funds to qualify and install. The demand on network capacity due to remote workforces may attract new market entrants with competitive or substitutive products, which may lead to increased sales cycles, cause pricing pressure and impact adoption of our platform due to the broader availability of product offerings. Some of our competitors may offer substantial discounts or rebates to win or retain customers. If we are forced to reduce prices to retain existing customers or win new customers, we may be unable to sustain gross margin at desired levels or obtain or sustain profitability. Competitive pressures could result in increased pricing pressure, reduced profit margin, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which could reduce our revenue and adversely affect our financial results.
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Historically, our customer base has been concentrated, and the loss of any of our key customers may adversely impact our revenue and results of operations, and any delays in payment by a key customer could negatively impact our cash flows and working capital.
Although we have not had a greater-than-10%-of-annual revenue customer since 2020, a large portion of our sales has been, and in the future may be, to a limited number of customers. Changes in the broadband service provider market, such as financial difficulties, spending cuts or corporate consolidations that impact purchasing decisions by these customers have and may again negatively impact our revenue, and as a result, revenue from such customers may remain flat or decline. There are no assurances that the demand for our products will remain strong from our key customers, and any decrease or delay in purchases of any of our key customers, particularly if prolonged or sustained, or our inability to grow our sales with them, may have a material negative impact on our revenue and results of operations.
In addition, some larger customers may demand discounts and rebates or desire to purchase their access systems and software from multiple providers. As a result of these factors, our future revenue opportunities may be limited, and we may face pricing pressures, which in turn could adversely impact our gross margin and our financial results. The loss of, reduction in, or pricing discounts associated with orders from any larger customer could significantly reduce our revenue and harm our business. Furthermore, delays in payment and/or extended payment terms from any of our larger customers could have a material negative impact on our cash flows and working capital to support our business operations.
Our industry is characterized by rapid technological advancements, and if we fail to develop new products or enhancements that meet changing CXP requirements, we could experience lower sales.
Our industry is characterized by rapid technological change, changing needs of CXPs, evolving industry standards and frequent introductions of new products and platform offerings. We invest significant amounts to pursue innovative technologies that we believe will be adopted by CXPs. For example, we have invested and plan to continue to invest resources in our platform offerings and agentic AI. In addition, on an ongoing basis, we expect to reposition our product and service offerings and introduce new offerings as we encounter rapidly changing CXP requirements and increasing competitive pressures. If we cannot increase sales of our new platform and services, keep pace with rapid technological developments to meet customer needs and compete with evolving standards or if the technologies we choose to invest in fail to meet customer needs or are not adopted by customers in the timeframes that we expect, our financial condition and results of operations would be adversely affected.
Developing our products is complex and involves uncertainties, including pricing risks for key materials, component shortages and limited suppliers. We may experience design, manufacturing, software development quality, support, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new products and enhancements. If we fail to meet our development targets, demand for our products will decline. If we are unable to anticipate and develop new products or enhancements to our existing products on a timely and cost-effective basis, our products may become technologically obsolete more rapidly than anticipated over time, resulting in lower sales which would harm our business. Furthermore, the introduction of new or enhanced products also requires that we manage the transition from older products in accordance with customer requirements. If we fail to maintain compatibility requirements in our customers’ networks, demand for our products would decline, which would reduce our revenue opportunities and market share.
We use third-party development partners both for their key skills and to augment our employee developers. Using third-party development partners for our broadband platform and managed services allow us to accelerate development and leverage the third parties’ expertise, but increases our risks due to reduced direct control over the third party’s work. This product development approach may cause unforeseen issues in product design, as well as challenges arising from integration and support of third-party features in our products. In addition, our revenue based on the third parties’ product development work may take several years to cover our out-of-pocket expenses, if ever.
Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our sales are difficult to predict and may vary substantially, which may cause our operating results to fluctuate significantly.
The timing of our revenue is difficult to predict. Our sales efforts often involve educating broadband service providers about the use and benefits of our platform (agentic AI, cloud, software and appliances) and managed services, and the desirability of transforming into a CXP. CXPs typically undertake a significant evaluation process, which frequently involves not only our platform and managed services, but also those of our competitors and results in a lengthy sales cycle. Sales cycles for larger customers are relatively longer and require considerably more time and expense. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals and unplanned administrative, processing and other delays. The timing of revenue related to sales of products and services that have installation requirements may be difficult to predict due to interdependencies that may be beyond our control, such as new customer testing and turn-up protocols or other vendors’ products, services or installations of equipment upon which our products and services rely. Such delays may result in
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fluctuations in our quarterly revenue. If sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, we may not achieve our revenue forecasts, and our financial results would be adversely affected.
Government and Regulatory Risks
Actual or perceived failure to comply with applicable data privacy, security and platform and technology laws, regulations, rules, industry standards, and other requirements related to the processing of personal information could impact our business, operations, and expose us to increased liability.
Government authorities in the U.S. and around the world have implemented and are continuing to implement broader and more stringent laws, rules, regulations, industry standards and other requirements concerning data protection, privacy, security and the processing of personal information, many of which we are subject to. The interpretation, application and amendment of these laws, regulations and other requirements are often uncertain and constantly changing, and it is possible that they may be interpreted and applied in a manner that is inconsistent with our data practices or that new laws, regulations and other requirements require us to incur significant costs, implement new processes, or change our processing of information and business operations.
For example, in the U.S., certain states have adopted or modified privacy and security laws and regulations which govern the privacy, processing and protection of personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California Consumer Privacy Act (the “CCPA”) requires covered businesses that process the personal information of California residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s collection, use and disclosure of their personal information; (ii) receive and respond to requests from California residents to access, delete and correct their personal information or to opt out of certain disclosures of their personal information; and (iii) enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf. Additional compliance investment and potential business process changes may also be required. Similar laws have been passed in other states, creating a patchwork of overlapping but different state laws, and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the U.S. Many of these laws include restrictions on processing consumer information for targeted advertising, which could negatively affect our marketing cloud products. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. If we are subject to or affected by the CCPA, or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
In 2024, the National Security Division of the U.S. Department of Justice (“DOJ”) issued a new rule—referred to as the “Data Security Program” (“DSP”) to implement Executive Order 14117, aimed at preventing access to “bulk U.S. sensitive personal data” and “government-related data” by “countries of concern” (including China, Russia, Iran, North Korea, Cuba, and Venezuela) and “covered persons” (as all such terms are defined in the DSP). Effective as of April 8, 2025, and fully enforceable as of July 9, 2025, the DSP imposes stringent obligations on companies within its scope and prohibits or restricts “covered data transactions” that grant countries of concern or covered persons access to bulk U.S. sensitive personal data or any amount of government-related data. The DSP is new, complex and has yet to be enforced, and as such, there is a risk that our interpretation of its applicability, scope and requirements is incorrect, incomplete or misapplied.
Compliance with the DSP may require us to invest heavily in data security and compliance measures such as implementing and complying with the Cybersecurity and Infrastructure Security Agency’s guidelines and other burdensome recordkeeping, reporting and auditing requirements. It may also require us to implement new processes, stop or restrict certain data transfers, alter the geographic scope of our operations, cease doing business with certain third parties or using certain tools or vendors, or change how data flows throughout our business, any of which could materially impact our business operations or hinder our ability to grow our business. Finally, non-compliance with the DSP could result in significant civil or criminal penalties, which could materially adversely affect our business, results of operations and financial condition.
Furthermore, the Federal Trade Commission (“FTC”) and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive. For example, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
The General Data Protection Regulation (“EU GDPR”) adopted by the European Union (“EU”) and the UK General Data Protection Regulation (“UK GDPR”) adopted by the United Kingdom (“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
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requirements upon companies that are subject to their provisions and collect, process or control personal data of individuals. Although we currently do not have material operations or business in the EU or the UK, we are in the process of expanding in these jurisdictions, and we have incurred and will continue to incur substantial costs in this respect. Furthermore, the GDPR imposes significant penalties for noncompliance which can amount to the greater of €20 million (for the EU GDPR) or £17.5 million (for the UK GDPR) or 4% of the total worldwide annual turnover of the preceding financial year; thus, any non-compliance with the GDPR could result in a material adverse effect on our business, financial condition and results of operations.
The GDPR regulate cross-border transfers of personal data out of the European Economic Area (the “EEA”) and the UK. There is currently legal complexity and uncertainty regarding international personal data transfers, and we expect this to continue. For example, there are number of decisions and proceedings in the EU where the legality of data transfers to China is being challenged. As the regulatory guidance and enforcement landscape in relation to data transfers further develops, our business, operations and financial condition could be adversely affected and we could suffer additional costs, complaints and/or regulatory investigations or fines. We may also have to stop using certain tools and vendors and make other operational changes. Further, our customers may not use our services in a manner that is compliant with applicable data privacy laws and regulations and our services may not be competitive in certain markets. We may also become subject to new laws that regulate both personal and non-personal data. For example, the Data Act came into effect on September 12, 2025, establishing new requirements for providers of data processing services (including cloud, SaaS) into the EU. The Data Act requires providers to facilitate customers switching to other providers/ on-premise solutions and porting their data within certain timeframes; remove technical, contractual, and commercial obstacles to service switching (including switching charges); and include certain mandatory terms in customer contracts. Failure to comply with the Data Act can result in regulatory enforcement and fines, civil claims, and reputational damage. The Data Act, together with developing guidance in this area, may require changes to our customer contracts, products, operations and business practices, increase our compliance costs, require adjustments to our revenue recognition practices and adversely affect our financial condition, business and operations.
In addition, security regulations such as the EU’s Network and Information Security 2 Directive (“NIS2”) and its EU Member State transpositions, and the UK’s Telecommunications (Security) Act 2021 together with its implementing regulations impose further security obligations, including on electronic communications networks and services. We may be required to 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. This could result in additional costs and require operational changes which could adversely affect our business, operations and financial condition.
In light of the complex and evolving nature of EU, EU Member State and UK data and security laws, there can be no assurances that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/change our use of technologies and/or our processing activities, enforcement notices and assessment notices (for a compulsory audit), as well as lead to civil claims including class actions and reputational damage.
Complying with new 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. Regulatory actions or claims involving our practices in the collection, storage, processing, use or disclosure of consumer information or other personal data, even if unfounded, could damage our reputation and adversely affect our operating results. The failure or perceived failure to comply with such laws, rules, regulations, industry standards and other requirements relating to data privacy, security or the processing of personal information may result in proceedings or actions against us, by individuals, consumer rights groups, government agencies or others, could cause us to incur significant costs in investigations and defending such claims, or could cause us to incur significant costs in investigations and defending such claims, pay significant damages or fines or be required to make changes to our business if found liable, lose customers and subject us to significant negative publicity and an erosion of trust, all of which could have an adverse effect on our business, results of operations and financial condition.
Failure to obtain or maintain necessary regulatory approvals from the FCC or other governmental agencies, or limitations put on on-going support of certain foreign-produced products, could significantly restrict our ability to offer and maintain certain products in the U.S. market.
The U.S. regulatory environment for foreign-produced telecommunications equipment is undergoing rapid and significant changes that could restrict our ability to sell or support certain products.
On March 23, 2026, the FCC updated its “Covered List” under Section 2 of the Secure and Trusted Communications Networks Act of 2019 to include consumer-grade routers produced outside of the U.S. This action effectively bars the future importation, sale, or use of these products in the U.S. absent regulatory approval or waiver.
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While we primarily market systems to CSPs, there is a risk that regulators may interpret “consumer-grade routers” broadly enough to encompass some of our residential-facing hardware. This would not affect the importation and sale of our current models, which already have the necessary FCC authorizations. However, absent regulatory approval or waivers, we may be restricted from providing critical security patches, firmware updates, or functionality enhancements to the affected hardware products after early 2027.
Our future product roadmap may be impacted unless we can obtain the necessary “Conditional Approvals” from the Department of War (“DoW”) or Department of Homeland Security (“DHS”). Securing such approvals or waivers may require us to disclose sensitive supply chain data to U.S. regulators and implement time-bound U.S. manufacturing or “onshoring” plans, which would likely involve significant capital expenditures and higher unit costs which we may be unable to pass on to customers. Uncertainty regarding our ability to provide long-term support for affected products may cause customers to delay capital spending or transition to competitors perceived as having lower regulatory risk. Our failure to navigate these requirements or secure necessary approvals or waivers could materially and adversely affect our business, financial condition, and results of operations.
If we fail to comply with evolving industry standards, sales of our products would be adversely affected.
Our products are subject to a significant number of domestic and international standards, which evolve as new technologies are developed and deployed. As we expand into new global markets, we are likely to encounter additional standards. Our products must comply with these standards in order to be widely marketable. In some cases, we are required to obtain certifications or authorizations before our products can be introduced, marketed or sold in new markets or to new customers. For example, our ability to maintain Operations System Modification for Intelligent Network Elements certification for our products will affect our ongoing ability to continue to sell our products to large broadband service providers. In addition, our ability to expand our international operations may be limited by standards in countries or may require us to redesign our products or develop new products to meet local standards. We may not be able to design our products to comply with local requirements, which would impede or prevent our ability to grow our business in those locations. Moreover, as we expand our business and operations globally, we must increase investments to maintain compliance with evolving standards across all of our markets. The costs of complying with evolving standards or failure to obtain timely authorizations or certification could prevent us from selling our products where these standards or regulations apply, which would result in lower revenue and lost market share.
Our failure or the failure of our manufacturers to comply with environmental and other legal regulations could adversely impact our results of operations.
The manufacture, assembly and testing of our products may require the use and disposal of hazardous materials that are subject to environmental, health and safety regulations, or materials subject to laws restricting the use of conflict minerals. We substantially depend upon our third-party manufacturers to comply with these requirements. Any failure by us or our third-party manufacturers to comply with these requirements could result in regulatory penalties, legal claims or disruption of production of our products. In addition, any failure to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to increased costs or liabilities. Existing and future environmental regulations and other legal requirements may restrict our use of certain materials to manufacture, assemble and test products. Any of these consequences could adversely impact our results of operations by increasing our expenses and/or requiring us to alter our manufacturing processes.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in additional international markets.
Our products are subject to U.S. export and trade controls and restrictions. International shipments of certain of our products may require export licenses or are subject to additional export requirements. In addition, the import laws of other countries may limit our ability to distribute our products, or our customers’ ability to buy and use our products, in those countries. Changes in our products or changes in export and import regulations or duties may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import regulations, duties or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could negatively impact our ability to sell, profitably or at all, our products to existing or potential international customers.
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Regulatory and physical impacts of climate change and other natural events may affect our customers and our manufacturers, resulting in adverse effects on our operating results.
As emissions of greenhouse gases continue to alter the composition of the atmosphere, affecting large-scale weather patterns and the global climate, any new regulation of greenhouse gas emissions may result in additional costs to our customers and our manufacturers. In addition, the physical impacts of climate change and other natural events, including changes in weather patterns, drought, rising ocean and temperature levels, earthquakes and tsunamis may impact our customers, suppliers and manufacturers and our operations. These potential physical effects may adversely affect our revenue, costs, production and delivery schedules, and cause harm to our results of operations and financial condition.
Our customers are subject to government regulation, and changes in current or future laws or regulations that negatively impact our customers could harm our business.
Many of our customers are subject to state and federal regulation of their businesses, and adoption of regulations that affect providers of broadband Internet access services could impede the penetration of our customers into certain markets. For example, the FCC has jurisdiction over many of our U.S. customers, and FCC regulatory policies that create disincentives for investment in access network infrastructure or impact the competitive environment in which our customers operate may harm our business. Moreover, various international regulatory bodies have jurisdiction over certain of our customers outside the U.S. Changes in any of these standards, laws and regulations, or judgments in favor of plaintiffs in lawsuits against broadband service providers 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.
Risks Related to Ownership of Our Common Stock and Other Risks
Our stock price may continue to be volatile, and the value of an investment in our common stock may decline.
The trading price of our common stock has been, and is likely to continue to be, volatile, which means that it could decline substantially within a short period of time and could fluctuate widely in response to various factors, some of which are beyond our control. These factors include those discussed above and others such as quarterly variations in our results of operations or those of our competitors; failure to meet any guidance that we have previously provided regarding our anticipated results; changes in earnings estimates or recommendations by securities analysts; failure to meet securities analysts’ estimates; announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments; developments with respect to IP rights; our ability to develop and market new and enhanced products on a timely basis; our commencement of, or involvement in, litigation and developments relating to such litigation; changes in governmental regulations; and a slowdown in the communications industry or the general economy.
The stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price and volatility of our common stock, regardless of our actual operating performance. Historically, following periods of volatility in the market price of a company’s securities, there is increased risk that stockholders may initiate securities class action litigation against the company. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of our management and Board of Directors.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management or our Board of Directors. These provisions include: (i) a classified Board of Directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board of Directors; (ii) no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; (iii) the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board of Directors; (iv) the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; (v) a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; (vi) the requirement that a special meeting of stockholders may be called only by the chairman of the Board of Directors, the chief executive officer or the Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and (vii) advance notice procedures that stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. We are also subject to certain anti-takeover
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provisions under Delaware law, which prohibits a corporation, in general, from engaging in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the Board of Directors has approved the transaction.
We may need additional capital in the future to finance our business.
While our working capital needs to support our business operations and growth have been funded from operating cash flows and through issuance of our common stock under our equity incentive plans, we may need additional capital if our current plans and assumptions change. If our financial position deteriorates, we may not be able to secure a source of financing to support our working capital needs on acceptable terms or at all. If future financings involve the issuance of equity securities, our then-existing stockholders will suffer dilution. If we raise debt financing, we may be subject to restrictive covenants that limit our ability to conduct our business. If we are unable to obtain and sustain operating income and positive cash flows from operations, our liquidity, results of operations and financial condition may be adversely affected. 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. There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which would adversely impact our business and growth.
We do not currently intend to pay dividends on our common stock and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
We do not currently intend to pay a cash dividend on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, our stockholders are not likely to receive any dividends on our common stock for the foreseeable future.
Our failure to adequately address and resolve risks and uncertainties associated with acquisitions could have a material adverse impact on our financial condition and results of operations.
We may acquire businesses, products or technologies to expand our product offerings and capabilities, customer base and business. We have evaluated and expect to continue to evaluate a wide array of potential strategic transactions. Such investments may involve significant risks and uncertainties, including distraction of management from current operations, unanticipated costs, and legal and regulatory challenges, all of which could have a material adverse impact on our financial condition and results of operations. In addition, the anticipated benefit of any acquisition may 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. Repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance.
We have a common stock repurchase program of which $94.1 million was available as of June 27, 2026. Under the repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements. The specific timing, price and size of the purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations consistent with our capital allocation strategy. Stock repurchases could have an impact on our common stock trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. The repurchase program does not obligate us to acquire a particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value.
General Risks
As a public company, we are subject to significant accounting, legal and regulatory requirements; our failure to comply with these requirements may adversely affect our operating results and financial condition.
We are subject to significant accounting, legal and regulatory requirements, including requirements and rules under the Sarbanes-Oxley Act (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) among other rules and regulations implemented by the SEC as well as listing requirements of the New York Stock Exchange (“NYSE”). We incur significant accounting, legal and other expenses and must invest substantial time and resources to comply with public company reporting and compliance requirements, including costs to ensure we have adequate internal controls over accounting and financial reporting, proper documentation and testing procedures among other requirements. We cannot be
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certain that the actions we have taken to implement internal controls over financial reporting will be sufficient. We have in the past discovered, and may in the future discover, areas of our internal financial and accounting controls and procedures that need improvement, particularly as we enhance, automate and improve functionality of our processes and internal applications. New laws and regulations as well as changes to existing laws and regulations affecting public companies would likely result in increased costs to us as we respond to their requirements. We continue to invest resources to comply with evolving laws and regulations, and this investment may result in increased general and administrative expense.
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.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Our management does not expect that our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected. 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.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None.
Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
We maintain a common stock repurchase program. Our repurchase activity for the three months ended June 27, 2026 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 | ||||||||||||||||||||
| March 29 to April 30 | 903 | $ | 45.81 | 903 | $ | 122,052 | |||||||||||||||||
| May 1 to May 31 | 300 | 39.97 | 300 | 110,053 | |||||||||||||||||||
| June 1 to June 27 | 430 | 37.22 | 430 | 94,053 | |||||||||||||||||||
| 1,633 | 1,633 | ||||||||||||||||||||||
In April 2026, our Board of Directors authorized a $100.0 million increase to our common stock repurchase program.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
During the three months ended June 27, 2026, no director or officer of us (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) adopted , terminated
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for the sale of up to 300,000 shares of Common Stock, at market prices, commencing July 2026, and continuing until May 28, 2027 .
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ITEM 6. Exhibits
| Exhibit Number | Description | ||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 | |||||||||||
| 101.INS | XBRL Instance Document | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CALIX, INC. (Registrant) | |||||||||||
| Date: July 21, 2026 | By: | /s/ Michael Weening | |||||||||
| Michael Weening | |||||||||||
| President and Chief Executive Officer (Principal Executive Officer) | |||||||||||
| Date: July 21, 2026 | By: | /s/ Cory Sindelar | |||||||||
| Cory Sindelar | |||||||||||
| Chief Financial Officer (Principal Financial Officer) | |||||||||||
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Michael Weening, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Calix, Inc. for the quarter ended June 27, 2026;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 21, 2026 | /s/ Michael Weening | |||||||||||||
| Michael Weening | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Cory Sindelar, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Calix, Inc. for the quarter ended June 27, 2026;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 21, 2026 | /s/ Cory Sindelar | |||||||||||||
| Cory Sindelar | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Weening, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Calix, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended June 27, 2026 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.
| Date: July 21, 2026 | /s/ Michael Weening | |||||||||||||
| Michael Weening | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
I, Cory Sindelar, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Calix, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended June 27, 2026 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.
| Date: July 21, 2026 | /s/ Cory Sindelar | |||||||||||||
| Cory Sindelar | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Calix, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.