Infinera Corp - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 24, 2022


☐			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: 001-33486

INFINERA CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						77-0560433
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6373 San Ignacio Avenue

San Jose, CA 95119

(Address of principal executive offices, including zip code)

(408) 572-5200

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common stock, par value $0.001 per share

INFN

The Nasdaq Global Select Market

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 ☒ No ☐

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 ☒ No ☐

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

Large accelerated filer

☒

Accelerated Filer

☐

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. ☐

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

As of October 28, 2022, 219,743,831 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.

Table of Contents

INFINERA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED SEPTEMBER 24, 2022

INDEX


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets - As of September 2 4 , 2022 and December 25, 2021	3

	Condensed Consolidated Statements of Operations - Three and Nine Months ended September 2 4 , 2022 and September 2 5 , 2021	4

	Condensed Consolidated Statements of Comprehensive Loss - Three and Nine Months ended September 2 4 , 2022 and September 2 5 , 2021	5

	Condensed Consolidated Statements of Stockholders' Equity - Three and Nine Months ended September 2 4 , 2022 and September 2 5 , 2021	6

	Condensed Consolidated Statements of Cash Flows - Nine Months ended September 2 4 , 2022 and September 2 5 , 2021	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47

Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	50

Item 6.	Exhibits	79

	Signature Page	80

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PART I. FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

INFINERA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)


	September 24, 2022		December 25, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	198,044	$	190,611
Short-term restricted cash	8,946		2,840
Accounts receivable, net	284,001		358,954
Inventory	331,058		291,367
Prepaid expenses and other current assets	159,825		147,989
Total current assets	981,874		991,761
Property, plant and equipment, net	160,053		160,218
Operating lease right-of-use assets	35,396		45,338
Intangible assets	55,583		86,574
Goodwill	224,238		255,788
Long-term restricted cash	3,027		9,070
Other long-term assets	39,517		38,475
Total assets	$	1,499,688	$	1,587,224
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	246,124	$	216,404
Accrued expenses and other current liabilities	133,577		147,029
Accrued compensation and related benefits	70,438		88,021
Short-term debt, net	547		533
Accrued warranty	20,758		23,204
Deferred revenue	106,738		137,297
Total current liabilities	578,182		612,488
Long-term debt, net	667,070		476,789

Long-term accrued warranty	18,214		21,106
Long-term deferred revenue	22,592		31,612
Long-term deferred tax liability	1,939		2,364
Long-term operating lease liabilities	47,294		54,326
Other long-term liabilities	50,196		64,768
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value Authorized shares – 25,000 and no shares issued and outstanding	—		—
Common stock, $0.001 par value Authorized shares – 500,000 as of September 24, 2022 and December 25, 2021 Issued and outstanding shares – 218,863 as of September 24, 2022 and 211,381 as of December 25, 2021	219		211
Additional paid-in capital	1,886,166		2,026,098
Accumulated other comprehensive loss	(39,133)		(4,496)
Accumulated deficit	(1,733,051)		(1,698,042)
Total stockholders' equity	114,201		323,771
Total liabilities and stockholders’ equity	$	1,499,688	$	1,587,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Revenue:
Product	$	317,439	$	270,818	$	869,744	$	782,420
Services	73,008		84,996		217,562		242,528
Total revenue	390,447		355,814		1,087,306		1,024,948
Cost of revenue:
Cost of product	210,018		187,956		597,027		525,494
Cost of services	39,765		43,722		116,145		128,428
Amortization of intangible assets	6,227		4,609		18,687		13,839

Restructuring and other related costs	22		1,434		185		1,679
Total cost of revenue	256,032		237,721		732,044		669,440
Gross profit	134,415		118,093		355,262		355,508
Operating expenses:
Research and development	76,156		76,648		228,202		224,111
Sales and marketing	33,919		33,223		105,072		99,777
General and administrative	28,923		28,301		86,963		87,004
Amortization of intangible assets	3,582		4,351		10,995		13,148
Acquisition and integration costs	—		—		—		614
Restructuring and other related costs	1,142		6,546		9,545		8,191
Total operating expenses	143,722		149,069		440,777		432,845
Loss from operations	(9,307)		(30,976)		(85,515)		(77,337)
Other income (expense), net:
Interest income	269		22		426		89
Interest expense	(6,516)		(12,622)		(18,760)		(36,482)
Gain on extinguishment of debt	15,521		—		15,521		—
Other loss	(7,105)		(4,763)		(4,605)		(14,439)
Total other income (expense), net	2,169		(17,363)		(7,418)		(50,832)
Loss before income taxes	(7,138)		(48,339)		(92,933)		(128,169)
Provision for income taxes	4,792		5,455		16,568		9,541
Net loss	$	(11,930)	$	(53,794)	$	(109,501)	$	(137,710)
Net loss per common share:
Basic	$	(0.05)	$	(0.26)	$	(0.51)	$	(0.67)
Diluted	$	(0.05)	$	(0.26)	$	(0.51)	$	(0.67)
Weighted average shares used in computing net loss per common share:
Basic	217,620		209,183		215,104		206,201
Diluted	217,620		209,183		215,104		206,201

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net loss	$	(11,930)	$	(53,794)	$	(109,501)	$	(137,710)
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment	(9,673)		(2,725)		(34,883)		(1,078)

Amortization of actuarial loss	77		844		246		2,569
Net change in accumulated other comprehensive income (loss)	(9,596)		(1,881)		(34,637)		1,491
Comprehensive loss	$	(21,526)	$	(55,675)	$	(144,138)	$	(136,219)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended September 24, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at June 25, 2022	216,431	$	216	$	1,867,000	$	(29,537)	$	(1,721,121)	$	116,558



ESPP shares issued	1,318	1		6,309		—		—		6,310
Restricted stock units released	1,324	2		—		—		—		2
Shares withheld for tax obligations	(210)	—		(957)		—		—		(957)
Stock-based compensation	—	—		13,814		—		—		13,814
Other comprehensive loss	—	—		—		(9,596)		—		(9,596)
Net loss	—	—		—		—		(11,930)		(11,930)
Balance at September 24, 2022	218,863	$	219	$	1,886,166	$	(39,133)	$	(1,733,051)	$	114,201



	Nine Months Ended September 24, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 25, 2021	211,381	$	211	$	2,026,098	$	(4,496)	$	(1,698,042)	$	323,771
Cumulative-effect adjustment from adoption of ASU 2020-06				(196,493)				74,492		(122,001)


ESPP shares issued	2,552	2		15,189		—		—		15,191
Restricted stock units released	5,419	6		—		—		—		6
Shares withheld for tax obligations	(489)	—		(3,346)		—		—		(3,346)
Stock-based compensation	—	—		44,718		—		—		44,718


Other comprehensive loss	—	—		—		(34,637)		—		(34,637)
Net loss	—	—		—		—		(109,501)		(109,501)
Balance at September 24, 2022	218,863	$	219	$	1,886,166	$	(39,133)	$	(1,733,051)	$	114,201


	Three Months Ended September 25, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at June 26, 2021	208,468	$	208	$	1,996,091	$	(8,526)	$	(1,611,180)	$	376,593

ESPP shared issued	977	1		7,153		—		—		7,154
Restricted stock units released	879	1		—		—		—		1
Shares withheld for tax obligations	(147)	—		(1,326)		—		—		(1,326)
Stock-based compensation	—	—		13,524		—		—		13,524


Other comprehensive income	—	—		—		(1,881)		—		(1,881)
Net loss	—	—		—		—		(53,794)		(53,794)
Balance at September 25, 2021	210,177	$	210	$	2,015,442	$	(10,407)	$	(1,664,974)	$	340,271

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	Nine Months Ended September 25, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 26, 2020	201,397	$	201	$	1,965,245	$	(11,898)	$	(1,527,264)	$	426,284
Stock options exercised	46	—		332		—		—		332
ESPP shares issued	2,272	2		16,164		—		—		16,166
Restricted stock units released	6,967	7		—		—		—		7
Shares withheld for tax obligations	(505)	—		(4,724)		—		—		(4,724)
Stock-based compensation	—	—		38,425		—		—		38,425


Other comprehensive income	—	—		—		1,491		—		1,491
Net loss	—	—		—		—		(137,710)		(137,710)
Balance at September 25, 2021	210,177	$	210	$	2,015,442	$	(10,407)	$	(1,664,974)	$	340,271

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 24, 2022		September 25, 2021
Cash Flows from Operating Activities:
Net loss	$	(109,501)	$	(137,710)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	64,011		60,233
Non-cash restructuring charges and other related costs	6,098		917
Amortization of debt discount and issuance costs	5,270		24,039
Operating lease expense	7,203		11,792
Stock-based compensation expense	44,418		38,545
Gain on extinguishment of debt	(15,521)		—
Other, net	892		3,466
Changes in assets and liabilities:
Accounts receivable	64,833		42,498
Inventory	(45,514)		(24,893)
Prepaid expenses and other current assets	(36,971)		14,973
Accounts payable	37,327		(2,076)
Accrued liabilities and other current liabilities	(23,083)		19,127
Deferred revenue	(36,458)		(24,152)
Net cash (used in) provided by operating activities	(36,996)		26,759
Cash Flows from Investing Activities:




Purchase of property and equipment, net	(37,750)		(32,314)
Net cash used in investing activities	(37,750)		(32,314)
Cash Flows from Financing Activities:
Proceeds from issuance of 2028 Notes	373,750		—
Repayment of 2024 Notes	(280,842)		—
Proceeds from asset-based revolving credit facility	80,000		—
Repayment of asset-based revolving credit facility	(80,000)		(77,000)
Repayment of third-party manufacturing funding	—		(24,610)
Repayment of mortgage payable	(366)		(233)
Payment of debt issuance cost	(11,246)		—
Payment of term license obligation	(5,413)		(5,474)
Principal payments on finance lease obligations	(1,054)		(1,185)
Proceeds from issuance of common stock	15,189		16,497
Tax withholding paid on behalf of employees for net share settlement	(3,346)		(4,724)
Net cash provided by (used in) financing activities	86,672		(96,729)
Effect of exchange rate changes on cash	(4,430)		3,301
Net change in cash, cash equivalents, and restricted cash	7,496		(98,983)
Cash, cash equivalents, and restricted cash at beginning of period	202,521		315,383
Cash, cash equivalents, and restricted cash at end of period(1)	$	210,017	$	216,400




Supplemental disclosures of cash flow information:
Cash paid for income taxes, net	$	9,330	$	15,901

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Cash paid for interest	$	14,694	$	17,171
Supplemental schedule of non-cash investing and financing activities:
Unpaid debt issuance cost	$	1,313	$	—
Property and equipment included in accounts payable and accrued liabilities	$	2,698	$	851
Transfer of inventory to fixed assets	$	4,805	$	4,133
Unpaid term licenses (included in accounts payable, accrued liabilities and other long-term liabilities)	$	8,591	$	9,858

(1) Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:


	September 24, 2022		September 25, 2021

Cash and cash equivalents	$	198,044	$	203,484
Short-term restricted cash	8,946		2,840
Long-term restricted cash	3,027		10,076
Total cash, cash equivalents and restricted cash	$	210,017	$	216,400

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INFINERA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Infinera Corporation (the “Company”) prepared its interim condensed consolidated financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021, other than the adoption of an accounting pronouncement as described in Note 2, "Recent Accounting Pronouncements".

The Company has made certain estimates, assumptions and judgments that can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates, assumptions and judgments made by management include revenue recognition, stock-based compensation, employee benefit and pension plans, inventory valuation, accrued warranty, operating and finance lease liabilities, restructuring and other related costs, loss contingencies, and accounting for income taxes. Other less significant estimates, assumptions and judgments made by management include allowances for sales returns, allowances for credit losses, useful life of intangible assets, and property, plant and equipment. Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with inflation, disruption in the global economy and financial markets and the on-going effects of the coronavirus (“COVID-19”) pandemic. These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in the Company's condensed consolidated financial statements.

The interim financial information is unaudited, but reflects all adjustments that are, in management’s opinion, necessary to provide a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.

This interim information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

For the three-months ended September 24, 2022, one customer accounted for 12% of the Company's total revenue and for the nine-months ended September 24, 2022, no customer accounted for 10% or more of the Company's total revenue. For the three- and nine-months ended September 25, 2021, no customer accounted for 10% of the Company's total revenue.

There have been no material changes in the Company’s significant accounting policies for the nine-months ended September 24, 2022 compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021, with the exception of updates to the policy noted below.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

2.Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In August 2020, the FASB issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity" ("ASU 2020-06"). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. On December 26, 2021, the Company adopted ASU 2020-06 using the modified retrospective method. Applying the transition guidance, the Company was required to apply the guidance to all impacted financial instruments that were outstanding as of December 26, 2021 with the cumulative effect recognized as an adjustment to the opening balance of accumulated deficit.

The adoption of ASU 2020-06 required the Company to record a $196.5 million reduction of additional paid in capital, on December 26, 2021, due to the recombination of the equity conversion component of convertible debt remaining outstanding, which was initially separated and recorded in equity. The $122.0 million increase in debt represented the removal of the remaining debt discounts recorded for this previous separation. The Company recognized a $74.5 million cumulative effect decrease of initially applying ASU 2020-06 as an adjustment to the December 26, 2021 opening balance of accumulated deficit. Interest expense recognized in future periods will be reduced as a result of accounting for the convertible senior notes as a liability instrument. Since the Company had a net loss in the three- and nine-months ended September 24, 2022, the convertible senior notes were determined to be anti-dilutive and therefore had no impact to basic or diluted net loss per share for the periods as a result of adopting ASU 2020-06. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

3. Leases

The Company has operating leases for real estate (facilities) and automobiles. For the three- and nine-months ended September 24, 2022, operating lease expense was $4.2 million and $17.5 million, respectively. Included in operating lease expense were rent expense and impairment charges due to restructuring resulting in abandonment of certain lease facilities, amounting to $1.1 million and $7.5 million, for the three- and nine-months ended September 24, 2022, respectively. For the three- and nine-months ended September 25, 2021, operating lease expense was $5.1 million and $17.7 million, respectively. Included in operating lease expense were rent expense and impairment charges due to restructuring resulting in abandonment of certain lease facilities, amounting to $0.3 million and $2.8 million, respectively.

Variable lease cost, short-term lease cost and sublease income were immaterial during the three- and nine-months ended September 24, 2022 and September 25, 2021.

The following table presents operating lease liabilities in both current and long-term (in thousands):


	September 24, 2022		December 25, 2021
Accrued expenses and other current liabilities	$	12,429	$	16,542
Other long-term liabilities	47,294		54,326
Total operating lease liability	$	59,723	$	70,868

The Company also has finance leases. The lease term for these arrangements range from three to five years with option to purchase, or ownership transferring at the end of the term. As of September 24, 2022 and December 25, 2021, finance leases included in property, plant, and equipment, net in the condensed consolidated balance sheets were $1.9 million and $3.5 million, respectively. Finance lease expense includes amortization of the right-of-use assets and interest expense. Total finance lease expense during the three- and nine-months ended September 24, 2022 and September 25, 2021 was not material.

The following table presents maturity of lease liabilities under the Company's non-cancelable leases as of September 24, 2022 (in thousands):


	Operating Lease		Finance Lease
Total lease payments	$	75,802	$	1,181
Less: interest(1)	16,079		54
Present value of lease liabilities	$	59,723	$	1,127

(1) Calculated using the interest rate for each lease.

The following table presents supplemental information for the Company's non-cancelable leases for the nine-months ended September 24, 2022 (in thousands, except for weighted average and percentage data):


	Operating Lease			Finance Lease
Weighted average remaining lease term	5.55 years			1.25 years
Weighted average discount rate	9.21		%	6.94		%
Cash paid for amounts included in the measurement of lease liabilities	$	17,666		$	1,054
Leased assets obtained in exchange for new lease liabilities	$	5,197		$	—

4. Revenue Recognition

Disaggregation of Revenue

The following table presents the Company's revenue disaggregated by geography, based on the shipping address of the customer (in thousands):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
United States	$	222,071	$	163,583	$	573,786	$	496,416
Other Americas	21,496		28,877		75,232		77,985
Europe, Middle East and Africa	94,181		114,815		306,630		323,998
Asia Pacific	52,699		48,539		131,658		126,549
Total revenue	$	390,447	$	355,814	$	1,087,306	$	1,024,948

The Company sells its products directly to customers who are predominantly service providers and to channel partners that sell on its behalf.

The following table presents the Company's revenue disaggregated by sales channel (in thousands):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Direct	$	287,055	$	259,349	$	821,666	$	795,672
Indirect	103,392		96,465		265,640		229,276
Total revenue	$	390,447	$	355,814	$	1,087,306	$	1,024,948

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):


	September 24, 2022		December 25, 2021
Assets (Liabilities)
Accounts receivable, net	$	284,001	$	358,954
Contract assets	$	57,124	$	49,052
Deferred revenue	$	(129,330)	$	(168,909)

Revenue recognized for the three- and nine-months ended September 24, 2022 that was included in the deferred revenue balance at the beginning of the reporting period was $21.5 million and $92.0 million, respectively. Revenue recognized for the three- and nine-months ended September 25, 2021 that was included in the deferred revenue balance at the beginning of the reporting period was $20.1 million and $74.0 million, respectively. Changes in the contract asset and liability balances during the three- and nine-month periods ended September 24, 2022 and September 25, 2021 were not materially impacted by other factors.

Transaction Price Allocated to the Remaining Performance Obligation

The Company’s remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially satisfied, consisting of deferred revenue and backlog. The Company’s backlog represents purchase orders received from customers for future product shipments and services. The Company’s backlog is subject to future events that could cause the amount or timing of the related revenue to change, and, in certain cases, may be canceled without penalty. Orders in backlog may be fulfilled several quarters following receipt or may relate to multi-year support service obligations.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) pursuant to contracts that are not subject to cancellation without penalty at the end of the reporting period (in thousands):


	Remainder of 2022		2023		2024		2025		2026		Thereafter		Total
Revenue expected to be recognized in the future as of September 24, 2022	$	426,197	$	386,279	$	74,744	$	11,973	$	5,947	$	4,190	$	909,330

5. Fair Value Measurements

Disclosure of Fair Values

Financial instruments that are not re-measured at fair value include accounts receivable, accounts payable, accrued liabilities, and debt. The carrying values of these financial instruments other than the Company's 2024 Notes, 2027 Notes and 2028 Notes (collectively referred to as "convertible senior notes" below) approximate their fair values. The fair value of convertible senior notes was determined based on the quoted bid price of the convertible senior notes in an over-the-counter market on September 23, 2022 (the last trading day of the quarter).

The following table presents the estimated fair values of the convertible senior notes (in thousands):


	As of September 24, 2022						As of December 25, 2021
	Fair Value Measured Using						Fair Value Measured Using
	Level 1		Level 2		Total		Level 1		Level 2		Total
Convertible senior notes	$	—	$	640,397	$	640,397	$	—	$	765,412	$	765,412

We measure and report our cash equivalents at fair value on a recurring basis. The following table presents the fair value of these financial assets and their levels within the fair value hierarchy (in thousands):


	As of September 24, 2022						As of December 25, 2021
	Fair Value Measured Using						Fair Value Measured Using
	Level 1		Level 2		Total		Level 1		Level 2		Total
Money market funds	$	50,044	$	—	$	50,044	$	—	$	—	$	—

During the nine-months ended September 24, 2022, there were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy. As of each of September 24, 2022 and December 25, 2021, none of the Company’s existing assets or liabilities were classified as Level 3.

The Company measures goodwill and intangible assets at fair value on a nonrecurring basis when there are identifiable events or changes in circumstances that may have a significant adverse impact on the fair value of these assets. The Company performed an analysis of impairment indicators of these assets and noted no adverse impact to their fair values as of September 24, 2022.

Facilities-related Charges

The Company classifies certain facilities-related charges within Level 3 of the fair value hierarchy and applies fair value accounting on a nonrecurring basis when impairment indicators exist or upon the existence of observable fair values.

In connection with its restructuring plans (as discussed in Note 9, “Restructuring and Other Related Costs” to the Notes to Condensed Consolidated Financial Statements), the Company incurred facilities-related charges of $1.1 million and $7.5 million for the three- and nine-months ended September 24, 2022, respectively. The Company incurred facilities-related charges of $0.3 million and $2.8 million for the three- and nine- months ended September 25, 2021, respectively. These charges primarily consisted of impairment charges incurred for operating lease right-of-use assets and were calculated at fair value based on estimated future sublease rental receipts that the Company could reasonably obtain over the remaining lease term at the discount rate. Facilities-related charges are classified as Level 3 measurement due to the significance of these unobservable inputs. See Note 9, "Restructuring and Other Related Costs" to the Notes to Condensed Consolidated Financial Statements for more information.

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Cash and Cash Equivalents

As of September 24, 2022 and December 25, 2021, the Company had $210.0 million and $202.5 million of cash, cash equivalents and restricted cash, respectively. Of the total cash, cash equivalents and restricted cash, $89.6 million and $77.6 million was held by its foreign subsidiaries as of September 24, 2022 and December 25, 2021, respectively. The Company's cash held by its foreign subsidiaries is used for operating and investing activities in those locations, and the Company does not currently have the need or the intent to repatriate those funds to the United States.

6. Derivative Instruments

Foreign Currency Exchange Forward Contracts

The Company transacts business in various foreign currencies, has international sales, cost of sales, and expenses denominated in foreign currencies, and carries foreign-currency-denominated account balances, subjecting the Company to foreign currency risk. The Company’s primary foreign currency risk management objective is to protect the U.S. dollar value of future cash flows and minimize the volatility of reported earnings.

Historically, the Company entered into foreign currency exchange forward contracts to manage its exposure to fluctuation in foreign exchange rates that arise from its Euro and British Pound denominated account balances. Gains and losses on these contracts were intended to offset the impact of foreign exchange rate fluctuations on the underlying foreign currency denominated account balances, and therefore did not subject the Company to material balance sheet risk.

The Company had no outstanding foreign currency exchange forward contracts as of September 24, 2022. As of December 25, 2021, the Company had $29.5 million outstanding foreign currency exchange forward contracts. The Company posted collateral of $0.9 million to cover associated potential credit risk exposure as of September 24, 2022 and December 25, 2021. This amount is included in restricted cash on the accompanying condensed consolidated balance sheets.

The Company did not enter into any foreign currency exchange forward contracts during the three-months ended September 24, 2022. For the nine-months ended September 24, 2022, the before-tax effect of the foreign currency exchange forward contracts was a net gain of $0.6 million. For the three-months ended September 25, 2021, the before-tax effect of the foreign currency exchange forward contracts was immaterial. For the nine-months ended September 25, 2021, the before-tax effect of the foreign currency exchange forward contracts was a net gain of $0.8 million. These were included in other loss in the condensed consolidated statements of operations. In each of these periods, the impact of the gross gains and losses was offset by foreign exchange rate fluctuations on the underlying foreign currency denominated amounts.

The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):


	As of September 24, 2022		As of December 25, 2021
	Gross Notional(1)			Accrued expenses and other current liabilities		Gross Notional(1)		Accrued expenses and other current liabilities
Foreign currency exchange forward contracts
Related to Euro denominated monetary balances	$	—		$	—	$	21,981	$	(139)
Related to British Pound denominated monetary balances	—			—		7,566		(82)
	$	—		$	—	$	29,547	$	(221)

(1)Represents the face amounts of forward contracts that were outstanding as of the end of the period noted.

Accounts Receivable Factoring

The Company sells certain designated trade account receivables based on factoring arrangements with well-established factoring companies. Pursuant to the terms of the arrangements, the Company accounts for these transactions in accordance with ASC Topic 860, "Transfers and Servicing". The Company's factor purchases trade accounts receivables on a non-recourse basis and without any further obligations. Trade accounts receivables balances sold are removed from the condensed consolidated balance sheets and cash received is reflected as cash

provided by operating activities in the condensed consolidated statements of cash flows. The difference between the fair value of the Company's trade receivables and the proceeds received is recorded as interest expense in the Company's condensed consolidated statements of operations. For the three- and nine-months ended September 24, 2022, the Company's factoring related interest expense was approximately $0.2 million and $0.4 million, respectively. For the three- and nine-months ended September 25, 2021, the Company's factoring related interest expense was approximately $0.1 million and $0.4 million, respectively. For the three- and nine-months ended September 24, 2022, the Company's gross amount of trade accounts receivables sold were approximately $25.0 million and $67.6 million, respectively. For the three- and nine-months ended September 25, 2021, the Company's gross amount of trade accounts receivables sold were approximately $26.7 million and $94.0 million, respectively.

7. Goodwill and Intangible Assets

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired.

The following table presents details of the Company’s goodwill during the nine-months ended September 24, 2022 (in thousands):


Balance as of December 25, 2021	$	255,788
Foreign currency translation adjustments	(31,550)
Balance as of September 24, 2022	$	224,238

The gross carrying amount of goodwill may change due to the effects of foreign currency fluctuations as a portion of these assets are denominated in foreign currency. To date, the Company has not recognized any impairment losses on goodwill.

Intangible Assets

The following tables present details of the Company’s intangible assets as of September 24, 2022 and December 25, 2021 (in thousands, except for weighted average data):


	September 24, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:

Customer relationships and backlog	$	149,262	$	(108,747)	$	40,515	3.7
Developed technology	165,958		(150,890)		15,068		1.0
Total intangible assets with finite lives	$	315,220	$	(259,637)	$	55,583


	December 25, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:

Customer relationships and backlog	$	157,495	$	(104,701)	$	52,794	4.2
Developed technology	182,844		(149,064)		33,780		1.5
Total intangible assets with finite lives	$	340,339	$	(253,765)	$	86,574

The gross carrying amount of intangible assets and the related amortization expense of intangible assets may change due to the effects of foreign currency fluctuations as a portion of these assets are denominated in foreign currency. Amortization expense was $9.8 million and $29.7 million for the three- and nine-months ended September 24, 2022 respectively. Amortization expense was $9.0 million and $27.0 million for the three- and nine-months ended September 25, 2021, respectively.

Intangible assets are carried at cost less accumulated amortization and impairment, if any. Amortization expenses are recorded to the appropriate cost and expense categories.

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of September 24, 2022 (in thousands):


			Fiscal Years
	Total		Remainder of 2022		2023		2024		2025		2026		Thereafter
Total future amortization expense	$	55,583	$	7,977	$	22,788	$	9,025	$	9,025	$	6,768	$	—

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8. Balance Sheet Details

Restricted Cash

The Company’s restricted cash balance is held in deposit accounts at various banks globally. These amounts primarily collateralize the Company’s issuances of standby letters of credit and bank guarantees.

Allowance for Credit Losses

The following table provides a rollforward of the allowance for credit losses for accounts receivable for the nine-months ended September 24, 2022 (in thousands):


Balance as of December 25, 2021	$	1,304
Additions(1)	974
Write offs(2)	(1,110)

Other(3)	(8)
Balance as of September 24, 2022	$	1,160

(1)The new additions during the nine-months ended September 24, 2022 are primarily due to specific reserves.

(2)The write offs during the nine-months ended September 24, 2022 are primarily amounts fully reserved previously.

(3)Primarily represents foreign currency translation adjustments.

Selected Balance Sheet Items

The following table provides details of selected balance sheet items (in thousands):


	September 24, 2022		December 25, 2021
Inventory
Raw materials	$	43,470	$	39,379
Work in process	62,649		53,924
Finished goods	224,939		198,064
Total inventory	$	331,058	$	291,367
Property, plant and equipment, net
Computer hardware	$	45,974	$	45,824
Computer software(1)	58,682		56,820
Laboratory and manufacturing equipment	285,392		287,875
Land and building	12,369		12,369
Furniture and fixtures	2,792		2,164
Leasehold and building improvements	50,338		51,471
Construction in progress	35,428		18,807
Subtotal	490,975		475,330
Less accumulated depreciation and amortization(2)	(330,922)		(315,112)
Total property, plant and equipment, net	$	160,053	$	160,218
Accrued expenses and other current liabilities
Loss contingency related to non-cancelable purchase commitments	$	28,961	$	19,405

Taxes payable	37,871		43,308

Short-term operating and finance lease liability	13,285		17,792

Restructuring accrual	1,017		8,610
Other accrued expenses and other current liabilities	52,443		57,914
Total accrued expenses	$	133,577	$	147,029

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(1)Included in computer software at September 24, 2022 and December 25, 2021 were $29.1 million and $25.9 million, respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented. The unamortized ERP costs at September 24, 2022 and December 25, 2021 were $10.3 million and $8.9 million, respectively. Also included in computer software at September 24, 2022 and December 25, 2021 was $21.2 million and $20.9 million, respectively, related to term licenses. The unamortized term license costs at September 24, 2022 and December 25, 2021 was $8.2 million and $9.2 million, respectively.

(2)Depreciation expense was $11.5 million and $34.3 million (which includes depreciation of capitalized ERP cost of $1.1 million and $2.6 million, respectively) for the three- and nine-months ended September 24, 2022, respectively. Also included in depreciation expense for three- and nine-months ended September 24, 2022 was $2.0 million and $5.5 million, respectively, related to term licenses. Depreciation expense was $12.0 million and $33.2 million (which includes depreciation of capitalized ERP cost of $0.7 million and $1.9 million, respectively) for the three- and nine-months ended September 25, 2021, respectively. Also included in depreciation expense for three- and nine-months ended September 25, 2021 was $1.7 million and $4.9 million, respectively, related to term licenses.

9. Restructuring and Other Related Costs

In December 2018, following the Telecom Holding Parent LLC ("Coriant") acquisition by the Company (the "Acquisition"), a restructuring initiative was implemented in connection with a comprehensive review of the Company's operations and ongoing integration activities in order to optimize resources for future growth, improve efficiencies and address redundancies following the Acquisition. As part of this initiative, the Company made several changes to improve its research and development efficiency by consolidating its manufacturing and development sites, reducing headcount, and processing changes to leverage the Company's engineering and product line development resources across regions and prioritizing research and development initiatives. In 2021 and in the nine-months ended September 24, 2022, the Company incurred lease-related impairment charges from consolidation of various sites that resulted in abandonment of related leased facilities. In connection with the Acquisition, the Company assumed restructuring liabilities associated with Coriant's previous restructuring and reorganization plans consisting of termination benefits primarily comprised of severance payments. These costs are recorded at estimated fair value.

During 2020, the Company implemented a new restructuring initiative (the "2020 Restructuring Plan") that was primarily intended to reduce costs and consolidate its operations. The identified cost reduction initiatives under the 2020 Restructuring Plan were completed in fiscal year 2021.

In 2021, the Company announced a plan to restructure certain international research and development operations (the "2021 Restructuring Plan"). The Company estimates it will incur total costs related to the restructuring ranging from $15.0 million to $17.0 million, of which $0.1 million and $6.0 million was recorded in the three- and nine-months ended September 24, 2022, respectively. The 2021 Restructuring Plan is expected to be substantially completed by the end of 2022 with the associated payments made in 2022. Additional restructuring activities may occur in the future in connection with the Company’s ongoing transformation initiatives.

The following table presents restructuring and other related costs included in cost of revenue and operating expenses in the accompanying condensed consolidated statements of operations under the restructuring plans (in thousands):


	Three Months Ended
	September 24, 2022				September 25, 2021
	Cost of Revenue		Operating Expenses		Cost of Revenue		Operating Expenses
Severance and other related expenses	$	22	$	32	$	252	$	6,087
Lease related impairment charges	—		1,076		—		300
Asset impairment	—		—		—		2
Others	—		34		1,182		157
Total	$	22	$	1,142	$	1,434	$	6,546

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	Nine Months Ended
	September 24, 2022				September 25, 2021
	Cost of Revenue		Operating Expenses		Cost of Revenue		Operating Expenses
Severance and other related expenses	$	166	$	1,789	$	497	$	5,070
Lease related impairment charges	—		7,535		—		2,785
Asset impairment	—		35		—		9
Others	19		186		1,182		327
Total	$	185	$	9,545	$	1,679	$	8,191

Restructuring liabilities are reported within accrued expenses and other long-term liabilities in the accompanying condensed consolidated balance sheets (in thousands):


	Severance and other related expenses		Lease related impairment charges		Asset impairment		Others		Total
Balance at December 25, 2021	$	7,536	$	—	$	—	$	1,346	$	8,882
Charges	1,955		7,535		35		205		9,730
Cash Payments	(8,277)		(1,791)		—		(1,429)		(11,497)
Non-Cash Settlements and Other	(304)		(5,744)		(35)		(15)		(6,098)

Balance at September 24, 2022	$	910	$	—	$	—	$	107	$	1,017

As of September 24, 2022, the Company's restructuring liability was primarily comprised of $0.6 million related to the 2021 Restructuring Plan and $0.4 million related to assumed restructuring liabilities associated with Coriant's previous restructuring and reorganization plans, which was substantially completed in previous years. The liability related to the 2021 Restructuring Plan is expected to be paid by the end of 2022.

10. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes certain changes in equity that are excluded from net loss. The following table sets forth the changes in accumulated other comprehensive loss by component for the nine-months ended September 24, 2022 (in thousands):


	Foreign Currency Translation		Actuarial Gain (Loss) on Pension		Accumulated Tax Effect		Total
Balance at December 25, 2021	$	(7,829)	$	4,297	$	(964)	$	(4,496)
Other comprehensive loss before reclassifications	(34,883)		—		—		(34,883)
Amounts reclassified from accumulated other comprehensive loss	—		246		—		246
Net current-period other comprehensive income (loss)	(34,883)		246		—		(34,637)
Balance at September 24, 2022	$	(42,712)	$	4,543	$	(964)	$	(39,133)

11. Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using net loss and the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed release of outstanding restricted stock units (“RSUs”) and performance shares (referred to herein as the “PSUs”), assumed issuance of common stock under the Company’s 2007 Employee Stock Purchase Plan (the “ESPP”) using the treasury stock method, and shares of common stock issuable upon conversion of convertible senior notes. The Company includes the common shares underlying PSUs in the calculation of diluted net income per common share only when they become contingently issuable. As the Company incurred net losses during the three- and nine-month periods ended

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September 24, 2022 and September 25, 2021, all potentially issuable shares of common stock were determined to be anti-dilutive.

The following table sets forth the computation of net loss per common share – basic and diluted (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net loss	$	(11,930)	$	(53,794)	$	(109,501)	$	(137,710)
Weighted average common shares outstanding - basic and diluted	217,620		209,183		215,104		206,201
Net loss per common share - basic and diluted	$	(0.05)	$	(0.26)	$	(0.51)	$	(0.67)

The following sets forth the potentially dilutive shares excluded from the computation of the diluted net loss per share because their effect was anti-dilutive (in thousands):


	Three Months Ended		Nine Months Ended
	September 24, 2022	September 25, 2021	September 24, 2022	September 25, 2021
Convertible senior notes(1)	49,866	4,304	62,227	5,188
Restricted stock units	14,030	11,699	15,585	13,278
Performance stock units	2,559	2,891	2,727	2,964
Employee stock purchase plan shares	19	1,440	474	1,085
Total	66,474	20,334	81,013	22,515

(1) The convertible senior notes were calculated under the if-converted method for 2022 due to the adoption of ASU 2020-06 and under the treasury stock method for 2021.

Prior to the adoption of ASU 2020-06, the Company used the treasury stock method for calculating any potential dilutive effect of the conversion spread of its convertible senior notes. The conversion spread had a dilutive impact for the 2027 Notes during both the three- and nine-months ended September 25, 2021 since the average market price of the Company’s common stock during the periods exceeded the initial conversion price of $7.66 per share. However, the potential shares of common stock issuable upon the conversion of the convertible senior notes were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive.

After the adoption of ASU 2020-06, the Company used the if-converted method for calculating any potential dilutive effect of the convertible senior notes for both the three- and nine-months ended September 24, 2022. Under this method, the Company calculates diluted earnings per share under both the cash and share settlement assumptions to determine which is more dilutive. If share settlement is more dilutive, the Company calculates diluted earnings per share assuming that all of the convertible senior notes permitted to be share settled were converted solely into shares of common stock at the beginning of the reporting period. The potential impact upon the conversion of the convertible senior notes was excluded from the calculation of diluted net loss per share for both the three- and nine-months ended September 24, 2022 because the effect would have been anti-dilutive.

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12. Debt

The following is a summary of debt as of September 24, 2022 (post-ASU 2020-06 adoption) (in millions):


	Net Carrying Value				Unpaid Principal Balance		Contractual Maturity Date
	Current		Long-Term
2024 Notes	$	—	$	101.6	$	102.7	September 2024
2027 Notes	—		195.6		200.0		March 2027
2028 Notes	—		363.0		373.8		August 2028
Asset-based revolving credit facility	—		—		—		June 2027

Mortgage	0.5		6.9		7.4		March 2024
Total Debt	$	0.5	$	667.1	$	683.9

The following is a summary of our debt as of December 25, 2021 (pre-ASU 2020-06 adoption) (in millions):


	Net Carrying Value				Unpaid Principal Balance		Contractual Maturity Date
	Current		Long-Term
2024 Notes	$	—	$	329.2	$	402.5	September 2024
2027 Notes	—		140.3		200.0		March 2027
Asset-based revolving credit facility	—		—		—		March 2024

Mortgage	0.5		7.3		7.8		March 2024
Total Debt	$	0.5	$	476.8	$	610.3

Convertible Senior Notes

In September 2018, the Company issued $402.5 million aggregate principal amount of 2.125% Convertible Senior Notes due 2024 (the "2024 Notes"). In March 2020, the Company issued $200.0 million aggregate principal amount of 2.5% Convertible Senior Notes due 2027 (the “2027 Notes"). In August 2022, the Company issued $373.8 million aggregate principal amount of 3.75% Convertible Senior Notes due 2028 (the "2028 Notes," and together with the 2024 Notes and 2027 Notes, the “convertible senior notes”). The 2024 Notes bear interest at a fixed rate of 2.125% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2019. The 2027 Notes bear interest at a fixed rate of 2.5% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The 2028 Notes bear interest at a fixed rate of 3.75% per year, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2023. Each series of the convertible senior notes is governed by an indenture between the Company, as the issuer, and U.S. Bank National Association, as Trustee (individually, each an “Indenture,” and together, the “Indentures”). The convertible senior notes of each series are unsecured and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the convertible senior notes; equal in right of payment to any of the Company's existing and future liabilities that are not so subordinated, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s current or future subsidiaries. The applicable Indenture governing each series of the convertible senior notes does not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of the Company's other securities by the Company.

The net proceeds to the Company from the issuance of 2024 Notes were approximately $391.4 million, of which approximately $48.9 million was used to pay the cost of the capped call transactions with certain financial institutions (“Capped Calls”). The Company also used a portion of the remaining net proceeds to fund the cash portion of the purchase price of the Acquisition, including fees and expenses relating thereto, and intends to use the remaining net proceeds for general corporate purposes.

The Capped Calls have an initial strike price of $9.87 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. The Capped Calls have initial cap prices of $15.19 per

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share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 40.8 million shares of common stock. The Capped Calls transactions are expected generally to reduce or offset potential dilution to the Company's common stock upon any conversion of the 2024 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Calls expire on various dates between July 5, 2024 and August 29, 2024. The Capped Calls were recorded as a reduction of the Company’s stockholders’ equity in the accompanying condensed consolidated balance sheets.

The net proceeds to the Company from the issuance of 2027 Notes were approximately $193.3 million after deducting initial purchasers' fee and other debt issuance costs. The Company intends to use the remaining net proceeds for general corporate purposes, including working capital to fund growth and potential strategic projects.

The net proceeds to the Company from the issuance of 2028 Notes were approximately $362.4 million after deducting the initial purchasers' fee and other debt issuance costs. The Company used approximately $283.6 million, which included accrued and unpaid interest, of the net proceeds from this issuance to repurchase approximately $299.8 million in aggregate principal amount of its 2024 Notes concurrently with the issuance. This transaction involved a contemporaneous exchange of cash between the Company and holders of the 2024 Notes participating in the issuance of the 2028 Notes. Accordingly, the transaction was evaluated for modification or extinguishment accounting in accordance with ASC 470-50, Debt – Modifications and Extinguishments on a creditor-by creditor basis depending on whether the exchange was determined to have substantially different terms. The repurchase of the 2024 Notes and issuance of the 2028 Notes were deemed to have substantially different terms based on the present value of the cash flows or significant difference between the value of the conversion option immediately prior to and after the exchange. Therefore, the repurchase of the 2024 Notes was accounted for as a debt extinguishment. The Company recorded a $15.5 million gain on extinguishment of debt on its Condensed Consolidated Statements of Operations for the three- and nine-months ended September 24, 2022, which includes the write-off of related deferred issuance costs of $3.5 million. After giving effect to the repurchase, the total remaining principal amount outstanding under the 2024 Notes as of September 24, 2022 was $102.7 million.

The Company intends to use the remaining net proceeds from the issuance of 2028 Notes for general corporate purposes, including working capital and to fund growth and potential strategic projects.

The 2024 Notes, the 2027 Notes and the 2028 Notes mature on September 1, 2024, March 1, 2027 and August 1, 2028, respectively. The Company did not have the right to redeem the 2024 Notes prior to September 5, 2021, and may not redeem the 2027 Notes prior to March 5, 2024 or the 2028 Notes prior to August 5, 2025. The Company may redeem for cash all or any portion of the 2024 Notes at its option, on or after September 5, 2021, the 2027 Notes, at its option, on or after March 5, 2024, and the 2028 Notes, at its option, on or after August 5, 2025, if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the convertible senior notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the convertible senior notes.

Conversion Rate and Initial Conversion Price for each series of convertible senior notes are presented in the following table:


	Conversion Rate per $1,000 Principal	Initial Conversion Price
2024 Notes	101.2812	$	9.87
2027 Notes	130.5995	$	7.66
2028 Notes	147.1183	$	6.80

Throughout the term of the convertible senior notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the convertible senior notes will not receive any cash payment representing accrued and unpaid interest upon conversion. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Prior to June 1, 2024 for the 2024 Notes, prior to December 1, 2026 for the 2027 Notes and prior to May 1, 2028 for the 2028 Notes (the convertible dates), holders may convert their convertible senior notes under the following circumstances:

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•during any fiscal quarter commencing after the fiscal quarters ended on December 29, 2018 for the 2024 Notes, June 27, 2020 for the 2027 Notes and September 24, 2022 for the 2028 Notes (and only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the convertible senior notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•if the Company calls any or all of the convertible senior notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

•upon the occurrence of specified corporate events described under the Indentures, such as a consolidation, merger or binding share exchange;

•or at any time on or after respective convertible dates, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their convertible senior notes at any time, regardless of the foregoing circumstances.

Upon the receipt of conversion requests, the settlement of the convertible senior notes will be paid pursuant to the terms of the respective governing Indentures. In the event that all of the 2024 Notes and 2027 Notes are converted, the Company would be required to repay the principal amount and any conversion premium in any combination of cash and shares of its common stock at the Company’s option. In the event that all of the 2028 Notes are converted, the Company would be required to repay the principal amount in cash and the conversion premium in any combination of cash and shares of its common stock at the Company’s option.

If the Company undergoes a fundamental change as defined in the Indentures, holders may require the Company to repurchase for cash all or any portion of their convertible senior notes at a repurchase price equal to 100% of the principal amount of the convertible senior notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the Indentures), the Company may, in certain circumstances, be required to increase the conversion rate by a number of additional shares for a holder that elects to convert its convertible senior notes in connection with such make-whole fundamental change.

There have been no changes to the initial conversion price of the convertible senior notes since issuance and during the three- and nine-months ended September 24, 2022. None of the conditions allowing holders of the convertible senior notes to convert early were met. The convertible senior notes were therefore not convertible during the three- and nine-months ended September 24, 2022.

Interest Expense

The following table presents the interest expense related to the contractual interest coupon, the amortization of debt issuance costs, and the amortization of debt discounts on our convertible senior notes (in thousands):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Contractual interest expense	$	4,513	$	3,389	$	11,291	$	10,165
Amortization of debt issuance costs	1,087		480		2,626		1,402
Amortization of debt discount	—		7,441		—		21,783
Total interest expense	$	5,600	$	11,310	$	13,917	$	33,350

Adoption of ASU 2020-06

Prior to the adoption of ASU 2020-06 on December 26, 2021 and in accounting for the issuance of the convertible senior notes, the convertible senior notes were separated into liability and equity components. The

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carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature. The carrying amounts of the equity component representing the conversion option related to the 2024 Notes and 2027 Notes were $128.7 million and $67.8 million, respectively. This was determined by deducting the fair value of the liability component from its par value. The equity component was recorded in additional paid-in-capital and was not re-measured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (the “debt discount”) was amortized to interest expense over the respective contractual term of the convertible senior notes at an effective interest rate of 9.92%.

Prior to the adoption of ASU 2020-06 on December 26, 2021 and in accounting for the debt issuance costs of $12.9 million and $6.7 million related to the 2024 Notes and 2027 Notes, respectively, the Company allocated the total amount incurred to the liability and equity components of the convertible senior notes based on their relative values. Issuance costs attributable to the liability component were $8.7 million and $4.3 million, related to the 2024 Notes and 2027 Notes, respectively, and were amortized to interest expense using the effective interest method over the contractual term of the convertible senior notes. Issuance costs attributable to the equity component were netted with the equity component in additional paid-in-capital.

On December 26, 2021, the Company adopted ASU 2020-06 based on a modified retrospective transition method. Under such transition, prior-period information has not been retrospectively adjusted.

In accounting for the convertible senior notes after adoption of ASU 2020-06, the convertible senior notes are accounted for as a single liability. The issuance cost related to the 2024 Notes, the 2027 Notes and the 2028 Notes are being amortized to interest expense over the respective contractual term, at effective interest rates of 2.7%, 3.0% and 4.3%, respectively. Unamortized debt issuance costs will be amortized over the remaining life of the 2024 Notes, the 2027 Notes and the 2028 Notes which is approximately 23 months, 53 months, and 70 months, respectively.

The net carrying amount of the convertible senior notes as of September 24, 2022 (post-ASU 2020-06 adoption) and as of December 25, 2021 (pre-ASU 2020-06 adoption) was as follows (in thousands):


	2024 Notes				2027 Notes				2028 Notes
	September 24, 2022		December 25, 2021		September 24, 2022		December 25, 2021		September 24, 2022
Principal	$	102,652	$	402,500	$	200,000	$	200,000	$	373,750
Unamortized debt discount	—		(68,755)		—		(56,270)		—
Unamortized issuance costs	(1,061)		(4,488)		(4,354)		(3,472)		(10,811)
Net carrying amount	$	101,591	$	329,257	$	195,646	$	140,258	$	362,939

Asset-based revolving credit facility

On June 24, 2022, the Company entered into a Loan, Guaranty and Security Agreement (the “Loan Agreement”) with the lenders party thereto, and Bank of America, N.A., as agent. The Loan Agreement provides for a senior secured asset-based revolving credit facility of up to $200 million (the "Credit Facility"), which the Company may draw upon from time to time. The Company may increase the total commitments under the revolving credit facility by up to an additional $100 million, subject to certain conditions. In addition, the Loan Agreement provides for a $50 million letter of credit subfacility and a $20 million swingline loan facility.

The proceeds of the loans under the Loan Agreement may be used to pay the fees, costs, and expenses incurred in connection with the Loan Agreement, repay existing debt and for working capital and general corporate purposes, including to fund growth. The Credit Facility has a stated maturity date of June 24, 2027. Availability under the Credit Facility will be based upon periodic borrowing base certifications valuing certain inventory and accounts receivable, as reduced by certain reserves. The Credit Facility is secured by a first-priority security interest (subject to certain exceptions) in inventory, certain related assets, specified deposit accounts, and certain other accounts.

Outstanding borrowings accrue interest at floating rates plus an applicable margin of 1.25% to 1.75% for Term Secured Overnight Financing Rate ("SOFR") rate loans and 0.25% to 0.75% for base rate loans. The unused line fee rate payable on the unused portion of the Credit Facility is equal to 0.25% per annum based on utilization of the Credit Facility.

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The Loan Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. The Loan Agreement also contains customary covenants that limit the ability of the Company to, among other things, incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in transactions with affiliates. The Loan Agreement also contains a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio. As of September 24, 2022, the Company was in compliance with all covenants under the Loan Agreement.

In connection with the Credit Facility, the Company incurred lender and other third-party costs of approximately $1.2 million, which are recorded as a deferred asset and will be amortized to interest expense using a straight-line method over the term of the Credit Facility.

As of September 24, 2022, the Company had availability of $112.7 million under the Credit Facility. As of September 24, 2022, the Loan Agreement included a $50.0 million letter of credit subfacility and $13.3 million letters of credit issued and outstanding.

On August 1, 2019, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A., (the "2019 Credit Agreement"), which was subsequently amended on December 23, 2019 (the "Amended Credit Agreement", and together with the 2019 Credit Agreement, the "Prior Credit Agreement"). The Prior Credit Agreement provided for a senior secured asset-based revolving credit facility of up to $150 million, which the Company could draw upon from time to time. The credit facility was secured by first-priority security interest (subject to certain exceptions) in inventory, certain related assets, specified deposit accounts, and certain other accounts in certain domestic subsidiaries. The Prior Credit Agreement also provided for a $50 million letter of credit sub-facility and a $10 million swing loan sub-facility.

Outstanding borrowings under the Prior Credit Agreement accrued interest at floating rates plus and applicable margin from 2.00% to 2.50% for LIBOR rate loans and 1.00% to 1.50% for base rate loans, depending on the utilization of the credit facility. The commitment fee payable on the unused portion of the credit facility ranged from 0.375% to 0.625% per annum, also based on the utilization of the credit facility. The letter of credit accrued fee at a per annum rate equal to the applicable LIBOR rate margin times by the average amount of the letter of credit usage during the immediately preceding quarter, in addition to the fronting fees, commissions and other fees.

Effective January 1, 2022, with the cessation of LIBOR, the Prior Credit Agreement provided for an alternative benchmark rate for LIBOR-based loans, which included SOFR or other prevailing market rate as determined by the agent plus a spread based on prevailing market convention for the applicable interest period plus a margin ranging from 2.00% to 2.50%.

The Prior Credit Agreement contained customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. It also contained customary covenants that limited the ability of the Company and its subsidiaries to, among other things, incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in transactions with affiliates. In addition the Prior Credit Agreement also contained a financial covenant that required the Company to maintain a minimum amount of liquidity and customary events of default.

In connection with the Prior Credit Agreement, the Company incurred lender and other third-party costs of approximately $4.9 million in 2019, which were recorded as a deferred asset and are amortized to interest expense using a straight-line method over the term of the Prior Credit Agreement. As of December 25, 2021, the Prior Credit Agreement included a $50 million letter of credit facility and $11.5 million had been issued and outstanding.

In June 2022, the Company terminated the Prior Credit Agreement and repaid the entire outstanding principal balance of $40.0 million, in addition to accrued interest and other fees of $0.5 million. The Company also recorded $2.0 million in interest expense to write off the unamortized deferred debt issuance costs related to the Prior Credit Agreement.

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Mortgage Payable

In March 2019, the Company mortgaged a property it owns. The Company received proceeds of $8.7 million in connection with the loan. The loan carries a fixed interest rate of 5.25% and is repayable in 59 equal monthly installments of principal balance plus accrued unpaid interest due five years from the date of the loan.

On September 24, 2021, the loan was amended to reduce the interest rate from 5.25% to 3.80% for the remaining 31 equal monthly installments of approximately $0.1 million each.

As of September 24, 2022, $7.4 million of the loan remained outstanding, of which $0.5 million was included in short-term debt and $6.9 million was included in long-term debt.

13. Commitments and Contingencies

The following table sets forth commitments and contingencies related to our various obligations (in thousands):


			Payments Due by Period
	Total		Remainder of 2022		2023		2024		2025		2026		Thereafter


Operating leases(1)(2)	$	75,802	$	5,647	$	15,177	$	13,900	$	12,850	$	9,956	$	18,272
Finance lease obligations(3)	1,181		244		760		177		—		—		—
2028 Notes, including interest(4)	457,572		—		13,743		14,016		14,016		14,016		401,781
2027 Notes, including interest(4)	222,500		—		5,000		5,000		5,000		5,000		202,500
2024 Notes, including interest(4)	107,015		—		2,182		104,833		—		—		—


Mortgage Payable, including interest(4)	7,871		260		781		6,830		—		—		—
Total contractual obligations	$	871,941	$	6,151	$	37,643	$	144,756	$	31,866	$	28,972	$	622,553

(1)The Company leases facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 11 years. The above payment schedule includes interest. See Note 3, "Leases" to the Notes to Condensed Consolidated Financial Statements for more information.

(2)The Company has contractual commitments to remove leasehold improvements and return certain properties to a specified condition when the leases terminate. At the inception of a lease with such conditions, the Company records an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. Asset retirement obligations were $5.0 million and $5.1 million as of September 24, 2022 and December 25, 2021, respectively. Of the $5.0 million as of September 24, 2022, $4.7 million is classified as other long-term liabilities on the accompanying condensed consolidated balance sheets. The remainder is classified as accrued expenses and other current liabilities.

(3)The Company has finance leases for manufacturing and other equipment. The above payment schedule includes interest. See Note 3, "Leases" to the Notes to Condensed Consolidated Financial Statements for more information.

(4)See Note 12, "Debt" to the Notes to Condensed Consolidated Financial Statements for more information.

Legal Matters

NextGen Innovations, LLC

On August 9, 2022, NextGen Innovations, LLC ("NextGen") filed a complaint against us in the United States District Court for the Eastern District of Texas. The complaint asserts that through certain products we infringe on U.S. Patent Nos. 9,887,795, 10,263,723, and 10,771,181. The complaint alleges that NextGen is entitled to unspecified damages, costs, fees, expenses, interest, and injunctive relief. We are currently unable to predict the outcome of this litigation and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this matter.

In addition to the matter described above, we are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material effect on our consolidated financial position, results of operations or cash flows.

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Loss Contingencies

The Company is subject to the possibility of various losses arising in the ordinary course of business. These may relate to disputes, litigation and other legal actions. In the preparation of its quarterly and annual financial statements, the Company considers the likelihood of loss or the incurrence of a liability, including whether it is probable, reasonably possible or remote that a liability has been incurred, as well as the Company’s ability to reasonably estimate the amount of loss, in determining loss contingencies. In accordance with U.S. GAAP, an estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. As of each of September 24, 2022 and December 25, 2021, the Company has accrued the estimated liabilities associated with certain loss contingencies.

Indemnification Obligations

From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third-party claims. The terms of such indemnification obligations vary. These contracts may relate to: (i) certain real estate leases under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (ii) certain agreements with the Company’s officers, directors and certain key employees, under which the Company may be required to indemnify such persons for liabilities.

In addition, the Company has agreed to indemnify certain customers for claims made against the Company’s products, where such claims allege infringement of third-party intellectual property rights, including, but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned intellectual property indemnification clauses, the Company may be obligated to defend the customer and pay for the damages awarded against the customer under an infringement claim as well as the customer’s attorneys’ fees and costs. These indemnification obligations generally do not expire after termination or expiration of the agreement containing the indemnification obligation. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification. The Company cannot estimate the amount of potential future payments, if any, that it might be required to make as a result of these agreements. The maximum potential amount of any future payments that the Company could be required to make under these indemnification obligations could be significant.

As permitted under Delaware law and the Company’s charter and bylaws, the Company has agreements whereby it indemnifies certain of its officers and each of its directors. The term of the indemnification period is for the officer’s or director’s lifetime for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements could be significant; however, the Company has a director and officer insurance policy that may reduce its exposure and enable it to recover all or a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

14. Stockholders’ Equity

2016 Equity Incentive Plan and Employee Stock Purchase Plan

In February of 2007, the Company's board of directors adopted the ESPP and the Company's stockholders approved the ESPP in May of 2007. The ESPP was last amended by the Company's stockholders in May 2019 to increase the shares authorized under the ESPP to a total of approximately 31.6 million shares of common stock. The ESPP has a 20-year term. Eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the ESPP are limited to a maximum of 15% of the employee’s compensation and an employee may not purchase more than 3,000 shares per purchase period.

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In February 2016, the Company's board of directors adopted the 2016 Equity Incentive Plan (the "2016 Plan") and the Company's stockholders approved the 2016 Plan in May 2016. In May 2017, May 2018, May 2019, May 2020, May 2021 and May 2022, the Company's stockholders approved amendments to the 2016 Plan to increase the number of shares authorized for issuance under the 2016 Plan by 6.4 million shares, 1.5 million shares, 7.3 million shares, 8.1 million shares, 4.4 million shares and 8.5 million shares, respectively. As of September 24, 2022, the Company reserved a total of 43.7 million shares of common stock for the award of stock options, RSUs and PSUs to employees, non-employees, consultants and members of the Company's board of directors pursuant to the 2016 Plan, plus any shares subject to awards granted under the 2007 Equity Incentive Plan (the "2007 Plan") that, after the effective date of the 2016 Plan, expire, are forfeited or otherwise terminate without having been exercised in full to the extent such awards were exercisable, and shares issued pursuant to awards granted under the 2007 Plan that, after the effective date of the 2016 Plan, are forfeited to or repurchased by the Company due to failure to vest. The 2016 Plan has a maximum term of 10 years from the date of adoption, or it can be earlier terminated by the Company's board of directors. The 2007 Plan was canceled and there are no outstanding grants under the 2007 plan.

Stock-based Compensation Plans

As described above, the Company has stock-based compensation plans pursuant to which the Company has granted RSUs and PSUs, as well as an ESPP for all eligible employees.


(in thousands except weighted average data)	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 25, 2021	11,607	$	7.66	$	110,849
RSUs granted	8,646	$	8.32
RSUs released	(5,084)	$	7.53	$	36,590
RSUs canceled	(1,139)	$	7.84
Outstanding at September 24, 2022	14,030	$	8.10	$	64,259


(in thousands except weighted average data)	Number of Performance Stock Units	Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 25, 2021	2,114	$	6.66	$	20,184
PSUs granted	899	$	8.38
PSUs released	(335)	$	5.40	$	2,592
PSUs canceled	(119)	$	7.19
Outstanding at September 24, 2022	2,559	$	7.40	$	11,720
Expected to vest at September 24, 2022	1,851			$	8,478

The aggregate intrinsic value of unreleased RSUs and unreleased PSUs is calculated using the closing price of the Company's common stock of $4.58 at September 23, 2022 (the last trading day of the quarter). The aggregate intrinsic value of RSUs and PSUs released is calculated using the fair market value of the common stock at the date of release.

The following table presents total stock-based compensation cost for instruments granted but not yet amortized, of the Company’s equity compensation plans as of September 24, 2022. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted average period data):


	Unrecognized Compensation Expense, Net		Weighted Average Period (in Years)
RSUs	$	89,074	2.1
PSUs	$	9,583	2.1

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Employee Stock Purchase Plan

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:


	Three Months Ended		Nine Months Ended
	September 24, 2022	September 25, 2021	September 24, 2022	September 25, 2021
Volatility	63%	38%	38% - 63%	38% - 50%
Risk-free interest rate	3.12%	0.05%	0.05% - 3.12%	0.05% - 0.06%
Expected life	0.5 years	0.5 years	0.5 years	0.5 years
Estimated fair value	$1.91	$2.22	$1.91 - $2.22	$2.22- $3.11

Stock-based compensation expense related to ESPP for the three- and nine-months ended September 24, 2022 was approximately $1.3 million and $3.7 million, respectively, and for the three- and nine-months ended September 25, 2021 was approximately $1.4 million and $4.4 million, respectively.

Restricted Stock Units

Pursuant to the 2016 Plan, the Company has granted RSUs to employees and non-employee members of the Company's board of directors. All RSUs awarded are subject to each individual's continued service to the Company through each applicable vesting date. The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant. Amortization of stock-based compensation related to RSUs for the three- and nine-months ended September 24, 2022 was approximately $14.0 million and $40.0 million, respectively, and for the three- and nine-months ended September 25, 2021 was approximately $10.4 million and $31.8 million, respectively.

Performance Stock Units

Pursuant to the 2016 Plan, the Company has granted PSUs to certain of the Company’s executive officers, senior management and certain employees. All PSUs awarded are subject to each individual's continued service to the Company through each applicable vesting date and if the performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled.

The following table summarizes by grant year, the Company’s PSU activity for the nine-months ended September 24, 2022 (in thousands):


	Total Number of Performance Stock Units	2019	2020	2021	2022
Outstanding at December 25, 2021	2,114	185	1,270	659	—
PSUs granted	899	—	—	—	899
PSUs released	(335)	(185)	(150)	—	—
PSUs canceled	(119)	—	(62)	(57)	—
Outstanding at September 24, 2022	2,559	—	1,058	602	899

Stock-based compensation expense related to PSUs for the three- and nine-months ended September 24, 2022 was a credit of approximately $1.5 million and expense of approximately $1.0 million, respectively. Stock-based compensation expense related to PSUs for the three- and nine-months ended September 25, 2021 was approximately $1.7 million and $2.2 million, respectively.

Stock-Based Compensation

The following tables summarize the effects of stock-based compensation on the Company’s condensed consolidated balance sheets and statements of operations for the periods presented (in thousands):


	September 24, 2022		December 25, 2021
Stock-based compensation effects in inventory	$	4,012	$	3,707

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	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021

Income tax benefit associated with stock-based compensation	$	2,296	$	2,444	$	7,130	$	6,637
Stock-based compensation effects in net loss before income taxes
Cost of revenue	$	2,239	$	1,968	$	6,722	$	5,894
Research and development	5,768		4,714		17,261		14,082
Sales and marketing	3,201		3,059		10,015		9,069
General and administration	2,488		3,891		10,420		9,500

Total stock-based compensation expense	$	13,696	$	13,632	$	44,418	$	38,545

15. Income Taxes

Income taxes for the three- and nine-months ended September 24, 2022 represented a tax expense of $4.8 million and $16.6 million on pre-tax losses of $7.1 million and $92.9 million, respectively. This compared to a tax expense of $5.5 million and $9.5 million, on pre-tax losses of $48.3 million and $128.2 million for the three- and nine-months ended September 25, 2021, respectively. Provision for income taxes decreased by approximately $0.7 million and increased by approximately $7.0 million during the three- and nine-months ended September 24, 2022, respectively, compared to the corresponding period in 2021. The increase during the nine-months ended September 24, 2022 is a result of an increase in income taxes and withholding taxes in foreign jurisdictions, primarily driven by an increase in Germany's withholding tax rate to 18.8% as compared to 5.3% in the nine months ended September 25, 2021.

During the three-months ended September 24, 2022, the Company implemented a restructuring of its internal supply chain and customer-facing entities. The new structure aligned and consolidated the Company's intellectual property and the associated commercial risk and reward among the customer-facing entities in their internal supply chain and improved operational efficiency. The impact of this internal restructuring is reflected in the Company’s tax provision for the three- and nine-months ended September 24, 2022.

The Company must assess the likelihood that some portion or all of its deferred tax assets will be recovered from future taxable income within the respective jurisdictions. In the past, the Company established a valuation allowance against its deferred tax assets as it determined that its ability to recover the value of these assets did not meet the “more-likely-than-not” standard. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management judgment is required on an on-going basis to determine whether it needs to maintain the valuation allowance recorded against its net deferred tax assets. The Company must consider all positive and negative evidence, including its forecasts of taxable income over the applicable carryforward periods, its current financial performance, its market environment and other factors in evaluating the need for a valuation allowance against its net U.S. deferred tax assets. At September 24, 2022, the Company does not believe that it is more-likely-than-not that it would be able to utilize its domestic deferred tax assets in the foreseeable future. Accordingly, the domestic net deferred tax assets continued to be fully reserved with a valuation allowance. To the extent that the Company determines that deferred tax assets are realizable on a more-likely-than-not basis, and adjustment is needed, that adjustment will be recorded in the period that the determination is made and would generally decrease the valuation allowance and record a corresponding benefit to earnings.

16. Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Company’s Chief Executive Officer (the "CEO”). The CEO reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. The Company has one business activity as a provider of optical transport networking equipment, software and related services. Accordingly, the Company is considered a single reporting segment and operating unit structure.

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Revenue by geographic region is based on the shipping address of the customer. For more information regarding revenue disaggregated by geography, see Note 4, “Revenue Recognition” to the Notes to Condensed Consolidated Financial Statements.

Additionally, the following table sets forth our property, plant and equipment, net by geographic region (in thousands):


	September 24, 2022		December 25, 2021
United States	$	144,850	$	141,977
Other Americas	2,780		2,687
Europe, Middle East and Africa	9,508		12,245
Asia Pacific	2,915		3,309
Total property, plant and equipment, net	$	160,053	$	160,218

17. Guarantees

Product Warranties

Activity related to product warranty was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Beginning balance	$	36,769	$	41,670	$	44,310	$	40,708
Charges to operations	8,603		5,267		19,831		16,429
Utilization	(4,179)		(5,953)		(14,910)		(18,702)
Change in estimate(1)	(2,221)		3,601		(10,259)		6,150
Balance at the end of the period	$	38,972	$	44,585	$	38,972	$	44,585

(1)The Company records product warranty liabilities based on the latest quality and cost information available as of the date the revenue is recorded. The changes in estimate shown here are due to changes in overall actual failure rates, the mix of new compared to used units related to replacement of failed units, and changes in the estimated cost of repair and product recalls. As the Company's products mature over time, failure rates and repair costs associated with such products generally decline, leading to favorable changes in warranty reserves.

Letters of Credit and Bank Guarantees

The Company had $24.0 million and $22.5 million of standby letters of credit, bank guarantees and surety bonds outstanding as of September 24, 2022 and December 25, 2021, respectively. Details are provided in the table below (in thousands).


	September 24, 2022		December 25, 2021
Customer performance guarantees	$	19,886	$	16,307
Value added tax license	272		287
Property leases	2,995		4,684
Pension plans	816		1,004
Credit cards	—		150
Other liabilities	71		68
Total	$	24,040	$	22,500

Of the $19.9 million related to customer performance guarantees as of September 24, 2022, approximately $4.0 million was used to secure surety bonds in the aggregate of $7.5 million. Of the $16.3 million related to customer performance guarantees as of December 25, 2021, approximately $4.0 million was used to secure surety bonds in the aggregate of $5.5 million.

As of September 24, 2022, of the aforementioned standby letters of credit and bank guarantees outstanding, $11.7 million was backed by cash collateral.

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18. Pension and Post-Retirement Benefit Plans

As a result of the Acquisition, the Company acquired a number of post-employment plans in Germany, as well as a number of smaller post-employment plans in other countries, including both defined contribution and defined benefit plans. The defined benefit plans expose the Company to actuarial risks such as investment risk, interest rate risk, life expectancy risk and salary risk. The characteristics of the defined benefit plans and the risks associated with them vary depending on legal, fiscal and economic requirements.

Components of Net Periodic Benefit Cost

Net periodic benefit cost for the Company's pension and other post-retirement benefit plans consisted of the following (in thousands):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Service cost	$	71	$	112	$	227	$	341
Interest cost	297		315		944		960
Expected return on plan assets	(697)		(721)		(2,216)		(2,198)
Amortization of actuarial loss	77		844		246		2,569
Total net periodic benefit cost	$	(252)	$	550	$	(799)	$	1,672

The components of net periodic benefit costs other than the service cost component are included in other loss, in the Company’s condensed consolidated statements of operations.

Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10% of the greater of the pension benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the pension plan participants.

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

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, but are not limited to, our expectations regarding revenue, gross margin, operating expenses, cash flows and other financial items and the drivers related to these; the magnitude and duration of supply constraints, including delays, shortages and increased costs and our ability to mitigate such supply constraints, and the extent to which supply-related impacts could materially and adversely affect our business operations, financial performance, results of operations, financial position, and stock price; the adverse impact inflation may have on us by increasing costs beyond what we can recover through price increases; the extent to which the ongoing COVID-19 pandemic and related impacts could materially and adversely affect our business operations, financial performance, results of operations, financial position, stock price and personnel; achievement of strategic objectives, any statements regarding our plans, strategies and objectives; progress and remaining payments under the 2021 Restructuring Plan; the impact of new customer network footprint on our gross margin; statements regarding our ERP systems; the effects of seasonal patterns in our business; factors that may affect our operating results; anticipated customer acceptance of our solutions; statements concerning new products or services, including new product features; our beliefs about who we may compete with and how we are differentiated from those competitors; statements regarding our production capacity and facilities requirements; statements related to capital expenditures; statements related to working capital and liquidity; the sufficiency of our cash to operate our business; expectations regarding research and development investments; our ability to realize deferred tax assets; statements related to future economic conditions, performance, market growth, competitor consolidation or our sales cycle; our ability to identify, attract and retain highly skilled personnel; statements regarding our corporate culture; our ability to protect our technology and intellectual property, the frequency of claims related to our intellectual property and the value of our intellectual property; statements related to our convertible senior notes and our Credit Facility; statements related to the impact of tax regulations; statements related to the proliferation and impact of environmental, social and governance regulation; statements related to the effects of litigation on our financial position, results of operations or cash flows; statements related to factors beyond our control, such as natural disasters, acts of war or terrorism, epidemics and pandemics; statements related to new accounting standards; statements as to industry trends and other matters that do not relate strictly to historical facts; and statements of assumptions underlying any of the foregoing. These statements are often identified using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” "should," "will," or "would," and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Part II, Item 1A. of this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (“SEC"), including our Annual Report on Form 10-K for the fiscal year ended December 25, 2021 as filed on February 23, 2022. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. Such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a global supplier of networking solutions comprised of networking equipment, software and services. Our portfolio of solutions includes optical transport platforms, converged packet-optical transport platforms, compact modular platforms, optical line systems, coherent optical subsystems, a suite of automation software offerings, and support and professional services.

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Our customers include operators of fixed line and mobile networks, including telecommunications service providers, internet content providers ("ICPs"), cable providers, wholesale carriers, research and education institutions, large enterprises, utilities and government entities. Our networking solutions enable our customers to deliver high-bandwidth business and consumer communications services and scale their transport networks as end-user services and applications continue to drive growth in demand for network bandwidth. These end-user services and applications include, but are not limited to, high-speed internet access, business ethernet services, 4G/5G mobile broadband, cloud-based services, high-definition video streaming services, virtual and augmented reality and the Internet of Things.

Our systems are highly scalable, flexible and designed with open networking principles for ease of deployment. We build our systems using a combination of internally manufactured and third-party components. Our portfolio includes systems that leverage our innovative, vertically integrated optical engine technology, comprised of large-scale photonic integrated circuits ("PICs") and digital signal processors ("DSPs"). We optimize the manufacturing process by using indium phosphide to build our PICs, which enables the integration of hundreds of optical functions onto a single, monolithic semiconductor chip. This large-scale integration of our PICs and advanced DSPs allows us to deliver high-performance transport networking platforms with features that customers care about the most, including low cost per bit, capacity per fiber, power consumption and space savings. In addition, we design our optical engines to increase the capacity and reach performance of our products by leveraging coherent optical transmission technology. Coherent optical solutions are becoming increasingly important across the network as our customers transition to 800 gigabits per second ("Gb/s") per wavelength transmission speeds in the core, 400 Gb/s in the metro and 100 Gb/s in the access market segment.

We have grown our solutions portfolio through internal development as well as acquisitions, including the acquisition of Telecom Holding Parent LLC (“Coriant”), a privately held global supplier of open network solutions for the largest global network operators (the “Acquisition”). These developments positioned us to be one of the leading providers of vertically integrated optical networking solutions in the world with the ability to serve a global customer base with accelerated delivery of the innovative solutions our customers demand. In 2021, we announced an expansion of our portfolio with the introduction of a suite of coherent optical pluggables designed to seamlessly address the rapidly growing market for point-to-point solutions as well as create a new category of point-to-multipoint solutions that can enable a dramatically more cost-efficient network architecture. Based on our XR optics technology, this suite of pluggables builds on Infinera’s history of delivering innovative, highly differentiated, and vertically integrated coherent optical engines.

Our high-speed optical transport platforms are differentiated by our Infinite Capacity Engine (ICE) coherent optical engine technology. Our latest generation of coherent optical engine technology delivers multi-terabit opto-electronic subsystems powered by our fifth-generation PIC and latest generation DSP (the combination of which we market as “ICE6”). ICE6 is capable of delivering 1.6 terabits per second (Tb/s; 2x800 Gb/s wavelengths) in a single optical engine. ICE6 will be integrated into various networking platforms in our product portfolio.

Our systems and subsystems products are designed to be managed by a suite of software solutions that enable simplified and automated operations. We also provide software-enabled programmability that offers differentiated capabilities such as Instant Bandwidth. Combined with our differentiated hardware solutions, Instant Bandwidth enables our customers to purchase and activate bandwidth as needed through our unique software licensing feature set. This, in turn, allows our customers to accomplish two key objectives: (1) limit their initial network startup costs and investments; and (2) instantly activate new bandwidth as their customers’ and their own network needs evolve.

We believe our systems and subsystems solutions benefit our customers by providing a unique combination of highly scalable capacity and features that address various applications and ultimately simplify and automate network operations.

Impact of COVID-19 Pandemic

COVID-19 was declared a global pandemic in March 2020. Since that time, we have monitored and adjusted our operations, as appropriate, in response to the evolving COVID-19 pandemic and will continue to do so.

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Employees

We have taken a number of precautionary steps to safeguard our business and our employees from the effects and impact of COVID-19, including at times temporarily closing or substantially limiting the presence of personnel in our offices in several global locations, implementing travel restrictions and modifying our participation in various industry events. Since a large percentage of our workforce is accustomed to online work environments and online collaboration tools, we have been able to remain productive and in contact with one another and our customers and vendors. For those employees who may need to be in offices, laboratory and manufacturing environments, or at business partner sites to perform their roles, we have taken and will continue to take appropriate measures to protect their health and safety and create and maintain a safe working environment. Since the outbreak of the COVID-19 pandemic, however, sustained restrictions on the ability of our engineers to work in our offices as a result of restrictions imposed by governments, or us, has made it more difficult at times for them to collaborate as effectively as desired in the development of new products, which has in the past affected development schedules. Although some of these restrictions have been reduced or eliminated in many jurisdictions where we operate, the uncertainty surrounding the COVID-19 pandemic could continue to make such collaboration difficult in the future if restrictions are reimposed.

Business Operations

In addition, we have implemented certain business continuity plans in response to the COVID-19 pandemic in order to minimize any business disruption and to protect our supply chain, customer fulfillment sites and support operations. Although we believe these actions have mitigated the impact of the COVID-19 pandemic on our business, we have experienced some disruption, increased costs and delays in our supply chain and manufacturing operations, logistics, and customer support operations, including shipping delays, supply decommitments, higher logistics and freight costs, and certain limitations on our ability to access customer fulfillment and service sites. We are dependent on sole source and limited source suppliers for several key components, and we have experienced capacity issues, increasingly longer lead times and increased costs with certain of these component suppliers, impacting our operational processes and results of operations. We have also seen disruptions in customer demand, including due to delays in the customer certification process resulting from customer facility closures or access restrictions. During 2021 and the first three quarters of 2022, some of these disruptions negatively impacted our revenue and our results of operations. The impact of the COVID-19 pandemic on our business and results of operations during the remainder of 2022 remains uncertain and is dependent in part on future infection rates, the emergence of new strains of the virus, the effectiveness and availability of vaccinations and vaccine boosters, new government restrictions and broader global macroeconomic developments, including inflationary pressures.

We continue to monitor the COVID-19 pandemic and actively assess potential implications to our business, supply chain and customer demand. If the COVID-19 pandemic or its adverse effects become more severe or prevalent or are prolonged in the locations where we, our customers, suppliers or contract manufacturers conduct business, or we experience more pronounced disruptions in our operations, or in economic activity and demand generally, our business and results of operations in future periods could be materially adversely affected.

Liquidity and Capital Resources

We have implemented measures to preserve cash and enhance liquidity, including business travel reductions, strategically managing capital expenditures, and delaying or eliminating discretionary spending. We are also focused on managing our working capital needs, maintaining as much flexibility as possible around timing of taking and paying for inventory and manufacturing our products while managing potential changes or delays in customer readiness, including installations. In addition, we issued the 2028 Notes and completed a partial repurchase of the 2024 Notes, which resulted in net proceeds of $81.7 million, net of debt issuance costs.

While we believe we have enough cash, including availability under our Credit Facility, to operate our business for the next 12 months, if the impact of the COVID-19 pandemic and the global macroeconomic environment to our business and financial position is more extensive than expected, we may need additional capital to enhance liquidity and working capital. We have historically been successful in our ability to secure other sources of financing, such as accessing capital markets, and implementing other cost reduction initiatives such as restructuring, delaying or eliminating discretionary spending to satisfy our liquidity needs. However, our access to these sources of capital could be materially and adversely impacted and we may not be able to receive terms as favorable as we have historically received, whether due to inflation or otherwise. Capital markets have been volatile, and recently have been subject to inflationary pressures, and there is no assurance that we would have access to capital markets at a reasonable cost, or at all, at times when capital is needed. In addition, some of our existing debt

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has restrictive covenants that may limit our ability to raise new debt, which would limit our ability to access liquidity by those means without obtaining the consent of our lenders.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which we have prepared in accordance with the U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates, assumptions and judgments that can affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

An accounting policy is deemed to be critical if it requires a significant accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the nine-months ended September 24, 2022 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

Inflation, disruption in the global economy and financial markets, and the ongoing effects of the COVID-19 pandemic, continue to create uncertainty. However, we are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of the date we filed this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ from these estimates under different assumptions or conditions.

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Results of Operations

The following sets forth, for the periods presented, certain unaudited condensed consolidated statements of operations information (in thousands, except percentage data):


	Three Months Ended
	September 24, 2022				September 25, 2021
	Amount		% of total revenue		Amount		% of total revenue		Change		% Change
Revenue:
Product	$	317,439	81	%	$	270,818	76	%	$	46,621	17	%
Services	73,008		19	%	84,996		24	%	(11,988)		(14)	%
Total revenue	$	390,447	100	%	$	355,814	100	%	$	34,633	10	%
Cost of revenue:
Product	$	210,018	54	%	$	187,956	54	%	$	22,062	12	%
Services	39,765		10	%	43,722		12	%	(3,957)		(9)	%
Amortization of intangible assets	6,227		2	%	4,609		1	%	1,618		35	%

Restructuring and other related costs	22		—	%	1,434		—	%	(1,412)		(98)	%
Total cost of revenue	$	256,032	66	%	$	237,721	67	%	$	18,311	8	%
Gross profit	$	134,415	34	%	$	118,093	33	%	$	16,322	14	%

	Nine Months Ended
	September 24, 2022				September 25, 2021
	Amount		% of total revenue		Amount		% of total revenue		Change		% Change
Revenue:
Product	$	869,744	80	%	$	782,420	76	%	$	87,324	11	%
Services	217,562		20	%	$	242,528	24	%	(24,966)		(10)	%
Total revenue	$	1,087,306	100	%	$	1,024,948	100	%	$	62,358	6	%
Cost of revenue:
Product	597,027		54	%	525,494		51	%	$	71,533	14	%
Services	116,145		11	%	128,428		13	%	(12,283)		(10)	%
Amortization of intangible assets	18,687		2	%	13,839		1	%	4,848		35	%

Restructuring and other related costs	185		—	%	1,679		—	%	(1,494)		(89)	%
Total cost of revenue	$	732,044	67	%	$	669,440	65	%	$	62,604	9	%
Gross profit	$	355,262	33	%	$	355,508	35	%	$	(246)	—	%

Revenue

Total product revenue increased by $46.6 million, or 17%, during the three-months ended September 24, 2022 compared to the corresponding period in 2021. This year-over-year increase in revenue was driven by the ramp of new products, particularly ICE6, and growth in the ICP and other service provider verticals, partially offset by decreased revenue from our cable vertical and continued supply constraints. Total product revenue increased by $87.3 million, or 11%, during the nine-months ended September 24, 2022 compared to the corresponding period in 2021. This year-over-year increase in revenue was driven by the ramp of new products, particularly ICE6, and growth in the ICP and other service provider verticals, partially offset by decreased revenue from certain Tier 1 customers and continued supply constraints.

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Total services revenue decreased by $12.0 million, or 14%, for the three-months ended September 24, 2022 compared to the corresponding period in 2021, and decreased by $25.0 million, or 10%, during the nine-months ended September 24, 2022 compared to the corresponding periods in 2021. The decrease in revenue was primarily attributable to a decline in professional services revenue related to network installation completion timing, which was driven by delays in customer readiness and related supply constraints. In addition, maintenance revenue declined due to the transition of new products into the installed base in connection with the decommissioning of older products.

We expect our total revenue will be higher in the fourth quarter of 2022 as compared to the third quarter of 2022, driven by the ramp of new products, particularly ICE6.

The following table summarizes our revenue by geography and sales channel for the periods presented (in thousands, except percentage data):


	Three Months Ended
	September 24, 2022				September 25, 2021
	Amount		% of total revenue		Amount		% of total revenue		Change		% Change
Total revenue by geography:
Domestic	$	222,071	57	%	$	163,583	46	%	$	58,488	36	%
International	168,376		43	%	192,231		54	%	(23,855)		(12)	%
	$	390,447	100	%	$	355,814	100	%	$	34,633	10	%
Total revenue by sales channel:
Direct	$	287,055	74	%	$	259,349	73	%	$	27,706	11	%
Indirect	103,392		26	%	96,465		27	%	6,927		7	%
	$	390,447	100	%	$	355,814	100	%	$	34,633	10	%



	Nine Months Ended
	September 24, 2022				September 25, 2021
	Amount		% of total revenue		Amount		% of total revenue		Change		% Change
Total revenue by geography:
Domestic	$	573,786	53	%	$	496,416	48	%	$	77,370	16	%
International	513,520		47	%	528,532		52	%	(15,012)		(3)	%
	$	1,087,306	100	%	$	1,024,948	100	%	$	62,358	6	%
Total revenue by sales channel:
Direct	$	821,666	76	%	$	795,672	78	%	$	25,994	3	%
Indirect	265,640		24	%	229,276		22	%	36,364		16	%
	$	1,087,306	100	%	$	1,024,948	100	%	$	62,358	6	%

Domestic revenue increased by $58.5 million, or 36%, during the three-months ended September 24, 2022 compared to the corresponding period in 2021, driven primarily by increased revenue from our ICP and other service provider verticals and certain Tier 1 customers. Domestic revenue increased by $77.4 million, or 16%, during the nine-months ended September 24, 2022 compared to the corresponding period in 2021, driven primarily by increased revenue from our ICP and other service provider verticals, which was partially offset by decreased revenue from certain Tier 1 customers and our cable vertical.

International revenue decreased by $23.9 million, or 12%, during the three-months ended September 24, 2022 compared to the corresponding period in 2021, driven primarily by certain Tier 1 customers and our cable and other service provider verticals, including our suspension of operations in Russia. International revenue decreased by $15.0 million, or 3%, during the nine-months ended September 24, 2022 compared to the corresponding period in 2021, driven primarily by decreased revenue from certain Tier 1 customers and our ICP vertical, including our suspension of operations in Russia, which was partially offset by increased revenue from our other service provider vertical.

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Direct revenue increased by $27.7 million, or 11%, and indirect revenue increased by $6.9 million, or 7%, during the three-months ended September 24, 2022 compared to the corresponding period in 2021. The increase in direct revenue was driven by increased revenue from our ICP, cable and other service provider verticals and certain Tier 1 customers. The increase in indirect revenue was driven by ICP customers who purchased through our indirect sales channel. Direct revenue increased by $26.0 million, or 3%, and indirect revenue increased by $36.4 million, or 16%, during the nine-months ended September 24, 2022, compared to the corresponding period in 2021. The increase in direct revenue was driven by increased revenue from our ICP and other service provider verticals and certain Tier 1 customers. The increase in indirect revenue was driven by ICP customers who purchased through our indirect sales channel.

Cost of Revenue and Gross Margin

Gross profit was $134.4 million during the three-months ended September 24, 2022, with gross margin increasing to 34% compared to 33% in the corresponding period in 2021. In the three-months ended September 24, 2022, the increase was driven by the ramp of new vertically-integrated products, particularly ICE6, and ongoing cost improvement and quality initiatives, partially offset by higher costs related to component price increases, higher logistics and freight costs, and supply constrained manufacturing volumes. Gross profit was $355.3 million during the nine-months ended September 24, 2022, with gross margin decreasing to 33% compared to 35% in the corresponding period in 2021. In the nine-months ended September 24, 2022, the decrease was driven by higher costs related to component price increases, higher logistics and freight costs, and supply constrained manufacturing volumes, partially offset by ongoing cost improvement and quality initiatives. In addition, we incurred $0.9 million and $14.7 million of charges as a result of the exit from certain product lines in the three- and nine-months ended September 24, 2022, respectively.

We currently expect gross margin in the fourth quarter of 2022 to be higher than the third quarter of 2022 as we increase the proportion of revenue derived from sales of our vertically integrated products, including ICE6, but we currently expect elevated component prices and elevated logistics and freight costs to continue to impact gross margin.

Amortization of Intangible Assets

Amortization of intangible assets increased by $1.6 million, or 35%, during the three-months ended September 24, 2022, and by $4.8 million, or 35%, during the nine-months ended September 24, 2022, respectively, compared to the corresponding periods in 2021. The increase in both periods was due to the shortened life of certain developed technologies resulting from us having exited certain product lines in the fourth quarter of 2021.

Restructuring and Other Related Costs

Restructuring and other related costs primarily consisting of severance and other related costs primarily reflect the substantial completion of our 2021 Restructuring Plan as well as the completion of our 2020 Restructuring Plan. See Note 9, “Restructuring and Other Related Costs” to the Notes to Condensed Consolidated Financial Statements for more information.

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Operating Expenses

The following tables summarize our operating expenses for the periods presented (in thousands, except percentage data):


	Three Months Ended
	September 24, 2022				September 25, 2021
	Amount		% of total revenue		Amount		% of total revenue		Change		% Change
Operating expenses:
Research and development	$	76,156	20	%	$	76,648	22	%	$	(492)	(1)	%
Sales and marketing	33,919		9	%	33,223		9	%	696		2	%
General and administrative	28,923		7	%	28,301		8	%	622		2	%
Amortization of intangible assets	3,582		1	%	4,351		1	%	(769)		(18)	%

Restructuring and other related costs	1,142		—	%	6,546		2	%	(5,404)		(83)	%
Total operating expenses	$	143,722	37	%	$	149,069	42	%	$	(5,347)	(4)	%

	Nine Months Ended
	September 24, 2022				September 25, 2021
	Amount		% of total revenue		Amount		% of total revenue		Change		% Change
Operating expenses:
Research and development	$	228,202	21	%	$	224,111	22	%	$	4,091	2	%
Sales and marketing	105,072		10	%	99,777		10	%	5,295		5	%
General and administrative	86,963		8	%	87,004		8	%	(41)		0	%
Amortization of intangible assets	10,995		1	%	13,148		1	%	(2,153)		(16)	%
Acquisition and integration costs	—		—	%	614		—	%	(614)		NMF*
Restructuring and other related costs	9,545		1	%	8,191		1	%	1,354		17	%
Total operating expenses	$	440,777	41	%	$	432,845	42	%	$	7,932	2	%

*NMF = Not meaningful

Research and Development Expenses

Research and development expenses decreased by $0.5 million, or 1% during the three-months ended September 24, 2022 and increased by $4.1 million, or 2%, during the nine-months ended September 24, 2022, respectively, compared to the corresponding periods in 2021. The increase during the nine-months ended September 24, 2022 was primarily attributable to higher employee-related expenses, material costs, and equipment costs related to bringing our new technologies to market and investments in future technologies. These costs were offset by lower facility costs due to site optimization and lower depreciation related to legacy technologies. We expect to increase research and development investments in our vertically integrated product portfolio expansion strategy, which we believe will drive higher revenue and profitability.

Sales and Marketing Expenses

Sales and marketing expenses increased by $0.7 million, or 2%, during the three-months ended September 24, 2022 and increased by $5.3 million, or 5%, during the nine-months ended September 24, 2022, respectively, compared to the corresponding periods in 2021. These increases were primarily attributable to higher employee-related expenses, increased travel costs as COVID-related restrictions eased, and higher marketing costs related to the resumption of in-person trade shows partially offset by lower facility costs and spending on trial equipment.

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General and Administrative Expenses

General and administrative expenses increased by $0.6 million, or 2%, during the three-months ended September 24, 2022 compared to the corresponding period in 2021, driven primarily by higher employee-related expenses and outside professional services, partially offset by lower stock-based compensation, litigation settlement costs and tax expenses and higher bad debt recoveries. General and administrative expenses decreased by less than $0.1 million, during the nine-months ended September 24, 2022 compared to the corresponding period in 2021, driven by lower stock-based compensation, legal fees, settlement costs and professional services expenses, partially offset by higher employee-related expenses and the absence of sales tax credits recorded in the nine-months ended September 25, 2021.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $0.8 million, or 18%, during the three-months ended September 24, 2022, and decreased by $2.2 million, or 16%, during the nine-months ended September 24, 2022, respectively, compared to the corresponding periods in 2021. The decreases were largely due to lower amortization of the value of customer relationships and backlog.

Acquisition and Integration Costs

There were no integration costs for the three-months ended September 24, 2022 due to the completion of our integration efforts related to the Acquisition in the first quarter of 2021.

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Restructuring and Other Related Costs

Restructuring and other related costs decreased by $5.4 million, or 83%, during the three-months ended September 24, 2022, compared to the corresponding period in 2021. The decrease was primarily due to lower severance and other related expenses. Restructuring and other related costs increased by $1.4 million, or 17%, during the nine-months ended September 24, 2022, compared to the corresponding period in 2021. The increases were primarily due to lease-related impairment charges incurred for various sites.

See Note 9, “Restructuring and Other Related Costs” to the Notes to Condensed Consolidated Financial Statements for more information.

Other Income (Expense), Net


	Three Months Ended
	September 24, 2022		September 25, 2021		Change		% Change
	(In thousands)
Interest income	$	269	$	22	$	247	1,123	%
Interest expense	(6,516)		(12,622)		6,106		(48)	%
Gain on extinguishment of debt	15,521		—		15,521		NMF*
Other loss	(7,105)		(4,763)		(2,342)		(49)	%
Total other income (expense), net	$	2,169	$	(17,363)	$	19,532	112	%

	Nine Months Ended
	September 24, 2022		September 25, 2021		Change		% Change
	(In thousands)
Interest income	$	426	$	89	$	337	379	%
Interest expense	(18,760)		(36,482)		17,722		(49)	%
Gain on extinguishment of debt	15,521		—		15,521		NMF*
Other loss	(4,605)		(14,439)		9,834		(68)	%
Total other income (expense), net	$	(7,418)	$	(50,832)	$	43,414	(85)	%

*NMF = Not meaningful

Interest income during the three- and nine-month periods ended September 24, 2022 and September 25, 2021, respectively, was immaterial.

Interest expense decreased $6.1 million, or 48%, and $17.7 million, or 49%, during the three- and nine-months ended September 24, 2022, respectively, compared to the corresponding period in 2021, primarily due to the adoption of ASU 2020-06, which resulted in the elimination of the debt discounts for our convertible senior notes that were amortized to interest expense over their contractual terms prior to its adoption, offset by the write off of unamortized deferred debt issuance costs related to the asset-based revolving credit facility under the Prior Credit Agreement. See Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements for more information.

Gain on extinguishment of debt was $15.5 million during the three- and nine-months ended September 24, 2022 due to the partial repurchase of our 2024 Notes at a price that was below their par value. The gain includes and was reduced by the write-off of related deferred issuance costs of $3.5 million.

Other loss, decreased by $2.3 million, or 49%, during the three-months ended September 24, 2022 compared to the corresponding periods in 2021, primarily due to realized foreign exchange losses driven by foreign currency exchange rate changes. Other loss increased $9.8 million, or 68%, during the nine-months ended September 24, 2022 compared to the corresponding periods in 2021, primarily due to unrealized foreign exchange gains driven by foreign currency exchange rate changes.

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Income Tax Provision

Income taxes for the three- and nine-months ended September 24, 2022 represented a tax expense of $4.8 million and $16.6 million on pre-tax losses of $7.1 million and $92.9 million, respectively. This compared to a tax expense of $5.5 million and $9.5 million, on pre-tax losses of $48.3 million and $128.2 million, for the three- and nine-months ended September 25, 2021, respectively. Provision for income taxes decreased by approximately $0.7 million and increased by approximately $7.0 million during the three- and nine-months ended September 24, 2022, respectively, compared to the corresponding period in 2021. The increase during the nine-months ended September 24, 2022 is a result of an increase in income taxes and withholding taxes in foreign jurisdictions, primarily driven by an increase in Germany's withholding tax rate to 18.8% as compared to 5.3% in the nine-months ended September 25, 2021.

Our effective tax rate was lower for the three-months ended September 24, 2022, due to an internal restructuring of our supply chain and customer-facing entities. The structure aligned and consolidated our intellectual property and the associated commercial risk and reward with the customer-facing entities that manage our supply chain.

Liquidity and Capital Resources


	Nine Months Ended
	September 24, 2022		September 25, 2021

	(In thousands)
Net cash flow provided by (used in):
Operating activities	$	(36,996)	$	26,759
Investing activities	$	(37,750)	$	(32,314)
Financing activities	$	86,672	$	(96,729)


	September 24, 2022		December 25, 2021

	(In thousands)
Cash and cash equivalents	$	198,044	$	190,611
Restricted cash	11,973		11,910
	$	210,017	$	202,521

Our restricted cash balance amounts are primarily pledged as collateral for certain standby letters of credit related to customer performance guarantees, value added tax licenses and property leases.

Operating Activities

Net cash used in operating activities during the nine-months ended September 24, 2022 was $37.0 million compared to $26.8 million net cash provided by operating activities for the corresponding period in 2021.

Net loss during the nine-months ended September 24, 2022 was $109.5 million, which included non-cash charges of $112.4 million such as depreciation, amortization of intangibles, restructuring charges and other related costs, amortization of debt issuance costs, operating lease expense, and stock-based compensation, compared to a net loss during the nine-months ended September 25, 2021 of $137.7 million, which included non-cash charges of $139.0 million.

Net cash used in working capital was $39.9 million during the nine-months ended September 24, 2022. Accounts receivable decreased by $64.8 million due to timing of customer billings and collections. Inventory levels increased by $45.5 million primarily due to our efforts to purchase more inventory to manage lead time challenges resulting from the industry-wide supply chain environment. Prepaid and other current assets increased by $37.0 million primarily due to an increase in customer contract assets as a result of shipment linearity patterns, other receivables and timing of prepaid software and tax payments. Accounts payable increased by $37.3 million primarily due to timing of payments to suppliers. Accrued expenses and other current liabilities decreased by $23.1 million primarily due to payout of management bonuses, timing of other compensation related expenses and tax payments. Deferred revenue decreased by $36.5 million primarily due to amortization of maintenance renewals during the period.

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Net cash provided by working capital was $25.2 million during the nine-months ended September 25, 2021. Accounts receivable decreased by $42.5 million due to timing of customer billings and collections. Inventory levels increased by $24.9 million due to our efforts to purchase more inventory to manage lead time due to the industry semiconductor shortage. Prepaid and other assets decreased by $15.0 million primarily due to timing of tax payments and a lower contract asset balance due to timing of billings and revenue recognition. Accounts payable decreased by $2.1 million primarily due to timing of payments to suppliers. Accrued liabilities and other expenses increased by $19.1 million primarily due to higher accrued compensation and related benefits. Deferred revenue decreased by $24.2 million due primarily to the amortization of annual maintenance renewals during the period.

Investing Activities

Net cash used in investing activities during the nine-months ended September 24, 2022 was $37.8 million entirely for purchase of property and equipment.

Net cash used in investing activities during the nine-months ended September 25, 2021 was $32.3 million entirely for purchase of property and equipment.

Financing Activities

Net cash provided by financing activities during the nine-months ended September 24, 2022 was $86.7 million compared to net cash used in financing activities of $96.7 million in the corresponding period of 2021. Financing activities during the nine-months ended September 24, 2022 primarily included net proceeds of $92.9 million from our issuance of the 2028 Notes and partial repurchase of the 2024 Notes, and $15.2 million from the issuance of shares of our common stock under the ESPP. These proceeds were offset by $5.4 million term license purchases, $11.2 million payment of debt issuance costs incurred in connection with the issuance of the 2028 Notes and entering into the asset-based revolving credit facility under the Loan Agreement, $1.1 million payments on finance lease obligations, and tax withholdings in the amount of $3.3 million paid on behalf of certain employees for net share settlements of RSUs.

Net cash used in financing activities during the nine-months ended September 25, 2021 was $96.7 million. Financing activities during the nine-months ended September 25, 2021 primarily included payments of $77.0 million towards the Prior Credit Agreement, a $24.6 million repayment of third-party manufacturing funding, and a $5.5 million term license purchases. The period also included net proceeds of $16.5 million from the issuance of shares of our common stock under the ESPP. These proceeds were offset by tax withholdings in the amount of $4.7 million paid on behalf of certain employees for net share settlements of RSUs.

Liquidity

We believe that our current cash, along with the Credit Facility, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures, and the interest payments on the Notes and the Credit Facility for at least 12 months. If the impact to our business and financial position of the COVID-19 pandemic, supply chain challenges, and disruptions in the global economy and financial markets is more extensive or prolonged than expected and our existing sources of cash are insufficient to satisfy our liquidity requirements, we may require additional capital from equity or debt financings to fund our operations, to respond to competitive pressures or strategic opportunities, or otherwise. In addition, we are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We may, from time to time engage in a variety of financing transactions for such purposes. We may not be able to secure timely additional financing, or restructure existing debt, on favorable terms or at all. The terms of any additional financings or restructurings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked securities, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.

On August 8, 2022, we issued the 2028 Notes, which will mature on August 1, 2028, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2023. The net proceeds from the 2028 Notes issuance were approximately $362.4 million. We used approximately $283.6 million, which includes accrued and unpaid interest, of the net proceeds from this offering to repurchase approximately $299.8 million in aggregate principal amount of the 2024 Notes in privately negotiated transactions concurrently with the offering. We intend to use the remaining net proceeds from this offering for general corporate purposes, including working capital and to fund growth and potential strategic projects.

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In the event that all of the 2028 Notes are converted, the Company would be required to repay the principal amount in cash and the conversion premium in any combination of cash and shares of its common stock at our election. As of September 24, 2022, long-term debt, net, included $363.0 million outstanding for the 2028 Notes, which represents the principal balance of $373.8 million, net of $10.8 million of unamortized debt issuance costs. The debt issuance costs are currently being amortized over the remaining term until maturity of the 2028 Notes on August 1, 2028. To the extent that the holders of the 2028 Notes request conversion during an early conversion window, we may require funds for repayment of such 2028 Notes prior to their maturity date.

As of September 24, 2022, there are no contractual obligations related to the 2028 Notes due for the remainder of 2022. Interest cash payments begin on February 1, 2023, with payments of $13.7 million due in 2023 and $14.0 million due each year from 2023 through 2028. Principal of $373.8 million will be due upon maturity in 2028. Any future redemption or conversion of the Notes could impact the amount or timing of our cash payments. For more information regarding the 2028 Notes, see Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements.

On June 24, 2022, we entered into a Loan Agreement with the lenders party thereto, and Bank of America, N.A., as agent. The Loan Agreement provides for a senior secured asset-based revolving credit facility of up to $200 million, which we may draw upon from time to time. We may increase the total commitments under the revolving credit facility by up to an additional $100 million, subject to certain conditions. In addition, the Loan Agreement provides for a $50 million letter of credit subfacility and a $20 million swingline loan facility.

Availability under the Credit Facility will be based upon periodic borrowing base certifications valuing certain inventory and accounts receivable, as reduced by certain reserves. The Credit Facility is secured by first-priority security interest (subject to certain exceptions) in inventory, certain related assets, specified deposit accounts, and certain other accounts.

Outstanding borrowings accrue interest at floating rates plus an applicable margin of 1.25% to 1.75% for SOFR rate loans and 0.25% to 0.75% for base rate loans. The unused line fee rate payable on the unused portion of the Credit Facility is equal to 0.25% per annum based on utilization of the Credit Facility.

As of September 24, 2022, we had not drawn upon the Credit Facility and we had availability of $112.7 million under the Credit Facility. For more information regarding the Credit Facility, see Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements.

On March 9, 2020, we issued the 2027 Notes, which will mature on March 1, 2027, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2020. The net proceeds from the 2027 Notes issuance were approximately $194.5 million and we intend to use the net proceeds for general corporate purposes, including working capital to fund growth and potential strategic projects.

For the conversion obligation, we intend to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. As of September 24, 2022, long-term debt, net, included $195.6 million outstanding for the 2027 Notes, which represents the principal balance of $200.0 million, net of $4.4 million of unamortized debt issuance costs. The debt issuance costs are currently being amortized over the remaining term until maturity of the 2027 Notes on March 1, 2027. To the extent that the holders of the 2027 Notes request conversion during an early conversion window, we may require funds for repayment of such 2027 Notes prior to their maturity date.

As of September 24, 2022, there are no remaining contractual obligations related to the 2027 Notes due for the remainder of 2022, $5.0 million due each year from 2023 through 2026 and $202.5 million due in 2027. These amounts represent principal and interest cash payments over the term of the 2027 Notes. Any future redemption or conversion of the Notes could impact the amount or timing of our cash payments. For more information regarding the 2027 Notes, see Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements.

The Prior Credit Agreement entered with Wells Fargo Bank, N.A., in December 2019 provided for a senior secured asset-based revolving credit facility of up to $150.0 million, which we could draw upon from time to time. It also provided for a $50.0 million letter of credit sub-facility and a $10.0 million swing loan sub-facility. In June 2022,

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the Company terminated the Prior Credit Agreement and repaid the entire outstanding principal balance of $40.0 million, in addition to accrued interest and other fees of $0.5 million. See Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements for more information.

In September 2018, we issued the 2024 Notes, which will mature on September 1, 2024, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, which commenced on March 1, 2019. The net proceeds from the 2024 Notes issuance were approximately $391.4 million, of which approximately $48.9 million was used to pay the cost of the Capped Calls. We also used a portion of the remaining net proceeds to fund the cash portion of the purchase price of the Acquisition, including fees and expenses relating thereto, and intend to use the remaining net proceeds for general corporate purposes.

For the conversion obligation, we intend to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. As of September 24, 2022, long-term debt, net, included $101.6 million for 2024 Notes which represents the principal balance of $102.7 million, net of $1.1 million of unamortized debt issuance costs. The debt issuance costs are currently being amortized over the remaining term until maturity of the 2024 Notes on September 1, 2024. To the extent that the holders of the 2024 Notes request conversion during an early conversion window, we may require funds for repayment of such 2024 Notes prior to their maturity date.

As of September 24, 2022, there are no remaining contractual obligations related to the 2024 Notes due for the remainder of 2022, $2.2 million due in 2023 and $104.8 million due in 2024. These amounts represent principal and interest cash payments over the term of the 2024 Notes. Any future redemption or conversion of the 2024 Notes could impact the amount or timing of our cash payments. For more information regarding the 2024 Notes, see Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements.

As of September 24, 2022, we had $210.0 million of cash, cash equivalents and restricted cash including $89.6 million held by our foreign subsidiaries. Our policy with respect to undistributed foreign subsidiaries' earnings is to consider those earnings to be indefinitely reinvested. As a result of the enactment in the United States of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”), if and when funds are actually distributed in the form of dividends or otherwise, we expect minimal tax consequences, except for foreign withholding taxes, which would be applicable in some jurisdictions.

Off-Balance Sheet Arrangements

As of September 24, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We assess these risks on a regular basis and have established policies that are designed to protect against, but that cannot entirely eliminate the adverse effects of these and other potential exposures.

Foreign Currency Exchange Rate Risk

There have been no material changes to the foreign currency exchange rate risk previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

Interest Rate Risk

There have been no material changes to the interest rate risk previously disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

Market Risk and Market Interest Risk

In September 2022, we issued the 2028 Notes. The 2028 Notes have a fixed annual interest rate of 3.75%, and, therefore, we do not have economic interest rate exposure on the 2028 Notes. However, the fair values of the 2028 Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the 2028 Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the 2028 Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The fair value of the 2028 Notes will generally increase as our credit worthiness improves and decrease when our creditworthiness weakens. The interest and market value changes affect the fair value of the 2028 Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we do not carry the 2028 Notes at fair value. We present the fair value of the 2028 Notes for required disclosure purposes only.

For a discussion of our exposure to market risk and market interest risk related to the 2027 Notes and 2024 Notes, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021. There have been no other material changes to our market risk during the nine-months ended September 24, 2022.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was performed by our management, with the participation of our CEO and our CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance that the control system’s objectives will be met. Additionally, management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, 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, have been detected. The design of any system of controls is 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 goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures. Based on this evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our CEO and CFO concluded that, as of September 24, 2022, our disclosure controls and procedures are effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the nine-months ended September 24, 2022 there were no changes in our internal control over financial reporting which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

The information set forth above in Part 1, Item 1, Note 13 under the heading "Commitments and Contingencies – Legal Matters" is incorporated herein by reference.

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ITEM 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. A description of the risks and uncertainties associated with our business is set forth below. These risks, together with many other factors described in this report and in our other public filings, and additional risks and uncertainties not currently known to us or that we currently deem to be immaterial, could adversely affect our operations, performance and financial condition. Our actual results could differ materially from our forward-looking statements.

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results.

Business and Operational Risk Factors

•Our quarterly results may vary significantly from period to period.

•Supply chain and logistics issues, including delays, shortages, components that have been discontinued and increased costs, and our dependency on sole source, limited source or high-cost suppliers could harm our business and operating results.

•Any delays in the development, introduction or acceptance of our new products or in releasing enhancements to our existing products may harm our business.

•Our ability to increase our revenue will depend upon continued demand growth for additional network capacity and on the level and timing of customer capital spending.

•Aggressive business tactics by our competitors and new entrants may harm our business.

•The markets in which we compete are highly competitive and we may not be able to compete effectively.

•The effects of the COVID-19 pandemic could have a material adverse effect on our business, manufacturing operations and results of operations.

•Product performance problems or deployment delays could harm our business, results of operations and reputation.

•If we lose key personnel or fail to attract qualified personnel, our business may be harmed.

•We are dependent on a small number of key customers for a significant portion of our revenue.

•The manufacturing process for our optical engine and the assembly of our products are very complex.

•Increased consolidation among our customers and suppliers in the communications networking industry has had, and could continue to have, an adverse effect on our business and results of operations.

•If our contract manufacturers do not perform as we expect, our business may be harmed.

•We rely on various third-party service partners to help complement our global operations.

•We must respond to rapid technological change for our products to be successful.

•If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs.

•Actions that we are taking to restructure our business may not be as effective as anticipated.

•Our large customers have substantial negotiating leverage, which may harm our results of operations.

•Our sales cycle can be long and unpredictable, which could result in unexpected revenue shortfalls.

•Any strategic transactions that we undertake could disrupt our business and harm our financial condition and operations.

Financial and Macroeconomic Risk Factors

•We may be unable to generate the cash flow necessary to make anticipated capital expenditures, service our debt, or grow our business.

•Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.

•Unfavorable macroeconomic and market conditions may adversely affect our industry, business and financial results.

•If we need additional capital in the future, it may not be available to us on favorable terms, or at all.

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•Our Loan Agreement and any other credit or similar agreements into which we may enter in the future may restrict our operations, particularly our ability to respond to changes or to take certain actions regarding our business.

•Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources.

•Our international sales and operations subject us to additional risks.

•We may be adversely affected by fluctuations in currency exchange rates.

•Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

•We may issue additional shares of our common stock in connection with conversions of the Notes.

•The fundamental change provisions of the 2024 Notes, the 2027 Notes and the 2028 Notes may delay or prevent an otherwise beneficial takeover attempt of us.

•The Capped Calls may affect the value of the 2024 Notes and our common stock.

•We are subject to counterparty risk with respect to the Capped Calls.

Legal and Regulatory Risk Factors

•If we fail to protect our intellectual property rights, our competitive position could be harmed, or we could incur significant expense to enforce our rights.

•Claims by others that we infringe their intellectual property rights could harm our business.

•Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property and proprietary or confidential information and cause significant damage to our business and reputation.

•If we fail to maintain effective internal controls over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

•We are subject to various governmental export control, trade sanctions and import laws and regulations that could impair our ability to compete in international markets or subject us to liability.

•We are subject to environmental regulations that could adversely affect our business.

•Regulations relating to environmental, social and governance matters, as well as customer and investor demands, may add operational complexity for us and may adversely affect our relationships with our customers, suppliers and investors.

•We are subject to global data privacy and data protection laws and regulations that could adversely affect our business or subject us to liability.

•A portion of our revenue is generated by sales to government entities, which are subject to a number of uncertainties, challenges, and risks.

•Our business could be adversely affected if we cannot obtain and maintain required security clearances, or we do not comply with obligations regarding the safeguarding of classified information.

•Failure to comply with anti-bribery and similar laws could subject us to adverse consequences.

General Risk Factors

•The trading price of our common stock has been volatile and is likely to be volatile in the future.

•Future sales of our common stock could cause our stock price to fall.

•Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

•Exclusive forum provisions in our bylaws will restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

•Events that are outside of our control, such as natural disasters, terrorist attacks, wars, such as Russia's war with Ukraine, or other catastrophic events, could harm our operations.

For a more complete discussion of the material risks facing our business, see below.

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Business and Operational Risk Factors

Our quarterly results may vary significantly from period to period, which could make our future results difficult to predict and could cause our operating results to fall below investor, analyst or our expectations.

Our quarterly results and, in particular, our revenue, gross margins, operating expenses, operating margins and net income (loss), have historically varied significantly from period to period and may continue to do so in the future. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our budgeted expense levels are based, in large part, on our expectations of future revenue and the development efforts associated with that future revenue. Consequently, if our revenue does not meet projected levels in the short term, our inventory levels, cost of goods sold and operating expenses would be high relative to revenue, resulting in potential operating losses. If our revenue or operating results do not meet the expectations of investors or securities analysts or fall below any guidance we provide to the market, the price of our common stock may decline substantially.

Factors that may contribute to fluctuations in our quarterly results, many of which are outside our control and may be difficult to predict, include:

•fluctuations in demand, sales cycles and prices for products and services, including discounts given in response to competitive pricing pressures or to secure long-term customer relationships, as well as the timing of purchases by our key customers;

•the price, quality, timing of delivery and availability of key components from suppliers, including any price or shipping cost increases or delays in the supply of components that may result from the effects of the COVID-19 pandemic or other supply disruptions, as well as impacts due to consolidations amongst our suppliers;

•changes in customers’ budgets for optical transport network purchases and changes or variability in their purchasing cycles;

•fluctuations in our customer, product or geographic mix, including the impact of new customer deployments, which typically carry lower gross margins, customer consolidation, which may affect our ability to grow revenue, and products powered by our next-generation technologies, which initially tend to be lower margin due to higher per unit production costs and greater variability in production yields;

•the timing, market acceptance and rate of adoption of our new product releases and our competitors' new product releases;

•our ability to manage manufacturing costs, maintain or improve quality, and increase volumes and yields on products manufactured in our internal manufacturing facilities, each of which has been impacted by the effects of the COVID-19 pandemic;

•our ability to successfully restructure or transform our operations within our anticipated time frame and realize our anticipated savings;

•order cancellations, reductions or delays in delivery schedules by our customers;

•our ability to control costs, including our operating expenses and the costs and availability of components and materials we purchase for our products;

•any significant changes in the competitive dynamics of the markets we serve, including any new entrants, new technologies, or customer or competitor consolidation, as well as aggressive pricing tactics by our competitors;

•our ability to manage inventory while timely meeting customer demand and avoiding charges for excess or obsolete inventory;

•readiness of customers for installation of our products as well as the availability of third-party service partners to provide contract engineering and installation services for us, each of which has been impacted by the effects of the COVID-19 pandemic;

•any delay in collecting or failure to collect accounts receivable;

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•the timing of revenue recognition and revenue deferrals;

•any future changes in U.S. GAAP or new interpretations of existing accounting rules;

•the impact of a significant natural disaster, as well as interruptions or shortages in the supply of utilities such as water and electricity, in a key location such as our Northern California facilities, which are located near major earthquake fault lines, in areas of high fire risk and in a designated flood zone; and

•general economic, market and political conditions in domestic and international markets, including those related to any policy changes by the federal government and/or by the presidential administration in the United States, and other factors beyond our control, including the ongoing effects of continuing inflation, rising interest rates and the COVID-19 pandemic and related response measures.

Supply chain and logistics issues, including delays, shortages, components that have been discontinued and increased costs, and our dependency on sole source, limited source or high-cost suppliers could harm our business and operating results.

We are reliant on our global supply chain for the production of components for our products. The global supply chain has experienced disruptions that began in 2020 as a result of the COVID-19 pandemic, leading to delays, shortages, components that have been discontinued and increased costs. Beginning with the fourth quarter of 2020 and continuing through the third quarter of 2022, these disruptions continued to negatively impact our revenue and our results of operations. For example, shortages of certain key components adversely affected our ability to deliver products to customers in a timely manner. Additionally, price increases within our supply chain have continued to negatively affect our gross margin. The global supply chain for components for our products, especially for semiconductor components, continues to experience shortages, longer lead times and increased costs. These shortages, delays and increased costs are expected to continue throughout 2022 and likely into 2023. We cannot predict with certainty the scope, magnitude or duration of the impact that these supply chain disruptions will have on our business and results of operations. Any efforts that we make to mitigate supply chain issues, such as by making additional or long-term purchase commitments with our suppliers or by holding higher levels of inventory, could negatively impact our financial results if we do not accurately forecast customer demand or if our customers change their purchasing patterns in response to the evolving supply chain environment. Further, the lead times required for these mitigation efforts may not allow us to meet increased customer demand in a timely manner.

We currently purchase several key components for our products from sole or limited sources. In particular, we rely on our own production of certain components of our products, such as PICs, and on third parties, including sole source and limited source suppliers, for certain of the components of our products, including ASICs, field-programmable gate arrays, processors, and other semiconductor and optical components. We have increased our reliance on third parties to develop and manufacture components for certain products, some of which require custom development. We purchase most of these components on a purchase order basis and generally only have long-term contracts with these sole source or limited source suppliers. If any of our sole source or limited source suppliers suffer from capacity constraints, materials shortages, lower than expected yields, deployment delays, work stoppages or any other reduction or disruption in output, they may be unable to meet our delivery schedule, which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. In addition, these same suppliers may decide to no longer manufacture or support specific components necessary for some of our legacy products, which could lead to our inability to fulfill demand without increased engineering and material costs necessary to replace such components or cause us to transition such products to end-of-life status sooner than planned. Further, our suppliers could enter into exclusive arrangements with our competitors, refuse to sell their products or components to us at commercially reasonable prices or at all, go out of business or discontinue their relationships with us. We may be unable to develop alternative sources for these components within a suitable time frame to be able to operate our business, or at all.

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The loss of a source of supply, or lack of sufficient availability of key components, could require us to redesign products that use such components, which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. Due to cross dependencies, any supply chain disruptions could negatively impact the demand for our products in the short term. In addition, if our contract manufacturers do not receive critical components in a timely manner to build our products, then we would not be able to ship certain products in a timely manner and would, therefore, be unable to meet our prospective customers’ product delivery requirements. In the past, we have experienced delivery delays because of lack of availability of components or reliability issues with components that we were purchasing. In addition, some of our suppliers have gone out of business, merged with another supplier, or limited their supply of components to us, which may cause us to experience longer than normal lead times, supply delays and increased prices. We may in the future experience a shortage of certain components as a result of our own manufacturing issues, manufacturing issues at our suppliers or contract manufacturers, capacity problems experienced by our suppliers or contract manufacturers, strong demand in the industry for such components, or other disruptions in our supply chain, including those due to the COVID-19 pandemic. For example, during the first half of 2022, several of our materials suppliers with manufacturing facilities near Shanghai, China have been affected by COVID-19-related quarantines. As a result, shipments from these materials suppliers to certain of our contract manufacturers have been delayed, which constrained the ability of these contract manufacturers to supply certain components to us during the first and second quarters of 2022. In addition, disruptions to global macroeconomic conditions may create pressure on us and our suppliers to accurately project overall component demand and manufacturing capacity. These supplier disruptions may continue to occur in the future, which could limit our ability to produce our products and cause us to fail to meet a customer’s delivery requirements. Any failure to meet our customers’ product delivery requirements could harm our reputation and our customer relationships, either of which would harm our business and operating results.

Any delays in the development, introduction or acceptance of our new products or in releasing enhancements to our existing products may harm our business.

Our products are based on complex technologies, including, in many cases, the development of next-generation PICs, DSPs and specialized ASICs, each of which are key components of our optical engines. In addition, we may also depend on technologies from outside suppliers, all of which may cause us to experience unanticipated delays in developing, improving, manufacturing or deploying our products. The development process for our optical engines is lengthy, and any modifications entail significant development cost and risks.

At any given time, various new product introductions and enhancements to our existing products are in the development phase and are not yet ready for commercial manufacturing or deployment. We rely on third parties, some of which are relatively early-stage companies, to develop, manufacture and deliver components for our next-generation products, which can often require custom development. The development process from laboratory prototype to customer trials, and subsequently to general availability, involves a significant number of simultaneous efforts. These efforts often must be completed in a timely and coordinated manner so that they may be incorporated into the product development cycle for our systems, and include:

•completion of product development, including the development and completion of our next-generation optical engines, and the completion of associated module development;

•the qualification and multiple sourcing of critical components;

•validation of manufacturing methods and processes;

•extensive quality assurance and reliability testing and staffing of testing infrastructure;

•validation of software; and

•establishment of systems integration and systems test validation requirements.

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Each of these steps, in turn, presents risks of failure, rework or delay, any one of which could decrease the speed and scope of product introduction and marketplace acceptance of our products. New generations of our optical engines as well as intensive software testing are important to the timely introduction of new products and enhancements to our existing products, which are subject to these development risks. In addition, unexpected intellectual property disputes, failure of critical design elements, limited or constrained engineering resources, and a host of other development execution risks may delay, or even prevent, the introduction of new products or enhancements to our existing products. For example, sustained restrictions on the ability of our engineers to work in our offices and laboratories as a result of COVID-19-related restrictions imposed by governments, or us, has made and could continue to make it more difficult for our engineers to collaborate as effectively as desired in the development of new products, which could affect development schedules. If we do not develop and successfully introduce or enhance products in a timely manner, including the successful development of our next generation optical engine, our competitive position will suffer.

As we transition customers to new products, we face significant risk that our new products may not be accepted by our current or new customers. To the extent that we fail to introduce new and innovative products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face decreased revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to focus purchases on new product platforms. In addition, the sale of new products may result in the cannibalization of sales for existing products, which may harm our results of operations. We could also incur significant costs in completing the transition, including costs of inventory write-downs of the current product as customers transition to new product platforms. In addition, products or technologies developed by others may render our products noncompetitive or obsolete and result in significant reduction in orders from our customers and the loss of existing and prospective customers.

Our ability to increase our revenue will depend upon continued growth of demand by consumers and businesses for additional network capacity and on the level and timing of capital spending by our customers.

Our future success depends on factors that increase the amount of data transmitted over communications networks and the growth of optical transport networks to meet the increased demand for optical capacity. These factors include the growth of mobile, video and cloud-based services, increased broadband connectivity and the continuing adoption of high-capacity, revenue-generating services. If demand for such bandwidth does not continue, or slows down, the market for optical transport networking equipment may not continue to grow and our product sales would be negatively impacted.

In addition, demand for our products depends on the level and timing of capital spending in optical networks by service providers as they construct, expand and upgrade the capacity of their optical networks. Capital spending is cyclical in our industry and spending by customers can change on short notice. Any future decisions by our customers to reduce capital spending, whether caused by lower customer demand, weakening economic conditions as has been precipitated by the effects of the COVID-19 pandemic, rising borrowing costs, inflation, customer-specific supply chain issues, changes in government regulations relating to telecommunications and data networks, or other reasons, could have a material adverse effect on our business, financial condition and results of operations.

Aggressive business tactics by our competitors and new entrants may harm our business.

The markets that we compete in are extremely competitive, which often results in aggressive business tactics by our competitors and new entrants, including:

•aggressively pricing their optical transport products and other portfolio products, including offering significant one-time discounts and guaranteed future price decreases;

•offering optical products at a substantial discount or for free when bundled together with broader technology purchases, such as router or wireless equipment purchases;

•providing financing, marketing and advertising assistance to customers; and

•influencing customer requirements to emphasize different product capabilities, which better suit their products.

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The level of competition and pricing pressure tend to increase when competing for larger or high-profile opportunities or during periods of economic weakness when there are fewer network build-out projects. If we fail to compete successfully against our current and future competitors, or if our current or future competitors continue or expand their aggressive business tactics, including those described above, demand for our products could decline, we could experience delays or cancellations of customer orders, and/or we could be required to reduce our prices to compete in the market.

The markets in which we compete are highly competitive and we may not be able to compete effectively.

The packet-optical equipment market is competitive. Our main competitors include DWDM system suppliers, such as ADVA Optical Networking, Ciena Corporation, Cisco Systems, Ribbon Communications Inc., Huawei Technologies Co., Ltd., Nokia and ZTE. In addition, there are several other companies that offer one or more products that partially compete with our offerings. Moreover, other companies have developed, or may in the future develop, products that are or could be competitive with our products. We also could encounter competitor consolidation in the markets in which we compete, which could lead to a changing competitive landscape, capabilities and market share, and could impact our results of operations. For example, in March 2021, Cisco completed its acquisition of optical communications supplier Acacia Communications.

Competition in the markets we serve is based on any one or a combination of the following factors:

•price and other commercial terms;

•functionality and optical performance;

•existing business and customer relationships;

•the ability of products and services to meet customers’ immediate and future network requirements;

•the availability of components required to manufacture key products;

•power consumption;

•heat dissipation;

•form factor or density;

•installation and operational simplicity;

•quality and reliability;

•service and support;

•security and encryption requirements;

•scalability and investment protection; and

•product lead times.

Some of our competitors have substantially greater name recognition and technical, financial and marketing resources. Many of our competitors have more resources and more experience in developing or acquiring new products and technologies, and in creating market awareness for those products and technologies. In addition, many of our competitors have the financial resources to offer competitive products at aggressive pricing levels and/or have the ability to provide financing to customers, which could prevent us from competing effectively. Further, many of our competitors have built long-standing relationships with some of our prospective and existing customers and could, therefore, have an inherent advantage in selling products to those customers.

We also compete with low-cost producers that may increase pricing pressure on us and with a number of smaller companies that provide competition for a specific product, customer segment or geographic market. In addition, we may also face increased competition from system and component companies that develop products based on off-the-shelf hardware that offers the latest commercially available technologies. Due to the narrower focus of their efforts, these competitors may achieve commercial availability of their products more quickly than we can and may provide attractive alternatives to our customers.

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The effects of the ongoing COVID-19 pandemic could have a material adverse effect on our business, manufacturing operations and results of operations.

The COVID-19 pandemic has caused disruptions to our business and operations to date and could have a material adverse effect on our business and results of operations in the future. The COVID-19 global pandemic has adversely affected the economies of many countries and has resulted in significant governmental measures to control the spread of COVID-19, including, among others, restrictions on travel, business operations and the movement of people in many regions of the world in which we operate. The imposition of shelter-in-place or similarly restrictive work-from-home orders during the COVID-19 global pandemic has impacted, and could continue to impact, many of our offices and employees, including those located in the United States.

As a result of these governmental measures and pursuant to recommended safety guidelines, during the COVID-19 global pandemic we have at times temporarily closed or substantially limited the presence of personnel in our offices in several impacted locations, implemented travel restrictions and modified our participation in various industry events. Although our flexible approach to work arrangements and related policies continues to evolve in response to the reduced level of restrictiveness of these measures and guidelines in certain jurisdictions where we operate, the COVID-19 global pandemic has at times contributed to delays in certain operational processes, including our routine quarterly financial statement close process in the first quarter of 2020, and it may have an impact on our operational processes in the future. We have experienced disruption and delays in our global supply chain and manufacturing operations, logistics operations and customer support operations, including shipping delays, higher transport costs, and certain limitations on our ability to access customer fulfillment and service sites. We are dependent on sole source and limited source suppliers for several key components, and we have experienced capacity issues, longer lead times, increased costs and shortages with certain component suppliers, including for semiconductors, impacting our operational processes and results of operations. Some of these disruptions negatively impacted our revenue and our results of operations.

The impact of the COVID-19 pandemic on our business and results of operations in the remainder of 2022 and the future remains uncertain and is dependent in part on future vaccination and infection rates, the emergence of new strains of the virus, the continued effectiveness and availability of vaccinations and vaccine boosters, and broader global macroeconomic developments. We may face further disruptions or restrictions on our ability to source, manufacture or distribute our products due to existing or additional governmental restrictions in multiple countries on business operations and movement of people and products. If we experience pronounced disruptions in our operations or in our ability to service our customers, including due to COVID-19 infections or quarantines among our employees and service providers, or if we face continued supply chain disruption or curtailed customer demand, these factors may materially adversely impact our business and results of operations. We could also face negative impacts on our liquidity and capital resources in the future due to the effects of the COVID-19 pandemic and its impacts on our customers, suppliers, third-party service providers and capital markets.

Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business, results of operations and reputation.

The development and production of products with high technology content is complicated and often involves problems with hardware, software, components and manufacturing methods. Complex hardware and software systems that are built with and include increasingly sophisticated technology, such as our products, can often contain undetected errors or bugs when first introduced or as new versions are released. In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve. We have experienced issues in the past in connection with our products, including failures due to the receipt of faulty components from our suppliers that are either faulty or do not meet our product specifications, and performance issues related to software updates. From time to time, we have had to replace certain components or provide software remedies or other remediation in response to errors or bugs, and we may have to do so again in the future. In addition, performance issues can be heightened during periods where we are developing and introducing multiple new products to the market, as any performance issues we encounter in one technology or product could impact the performance or timing of delivery of other products. Our products may also suffer degradation of performance and reliability over time.

If reliability, quality, security or network monitoring problems develop, a number of negative effects on our business could result, including:

•reduced orders from existing customers;

•declining interest from potential customers;

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•delays in our ability to recognize revenue or in collecting accounts receivables;

•costs associated with fixing hardware or software defects or replacing products;

•high service and warranty expenses;

•delays in shipments;

•high inventory excess and obsolescence expense;

•high levels of product returns;

•diversion of our engineering personnel from our product development efforts; and

•payment of liquidated damages, performance guarantees or similar penalties.

Because we outsource the manufacturing of certain components of our products, we may also be subject to product performance problems as a result of the acts or omissions of third parties, and we may not have adequate compensating remedies against such third parties or otherwise implement effective measures to mitigate such problems.

From time to time, we encounter interruptions or delays in the activation of our products at a customer’s site. These interruptions or delays may result from product performance problems or from issues with installation and activation, some of which are outside our control, such as customer dependencies affected by the COVID-19 pandemic or supply chain disruptions affecting our customers or us. For example, in each of the first three quarters of 2022, we experienced project delays due to incomplete customer readiness, and unavailability of certain customer resources and customer-furnished material required for project implementation. If we experience significant interruptions or delays that we cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our products could be undermined, which could cause us to lose customers, fail to add new customers, and consequently harm our financial results.

If we lose key personnel or fail to attract and retain additional qualified personnel when needed, our business may be harmed.

Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, and finance personnel, many of whom will be approaching retirement age in the next decade and many of whom would be difficult to replace. For example, senior members of our engineering team have unique technical experience that would be difficult to replace. Because our products are complex, we must hire and retain highly trained customer service and support personnel to ensure that the deployment of our products does not result in network disruption for our customers. We believe our future success will depend in large part upon our ability to identify, attract and retain highly skilled personnel, and competition for these individuals is intense in our industry, especially in the San Francisco Bay Area where we are headquartered and, increasingly, in certain cities and regions where we have operations outside the United States as well. The loss of the services of any of our key personnel, the inability to identify, attract or retain qualified personnel in the future or delays in hiring qualified personnel, particularly engineers and sales personnel, could make it difficult for us to manage our business and meet key objectives, such as timely product introductions. These risks may be exacerbated due to labor market changes resulting from the ongoing COVID-19 pandemic, including a recent competitive wage environment and higher attrition. For example, in fiscal 2021 and the first three quarters of 2022, we experienced a greater rate of turnover in our workforce than in fiscal 2020 and this rate may continue for the remainder of fiscal 2022. In addition, we do not have long-term employment contracts or key person life insurance covering any of our key personnel. If we are unable to identify, attract and retain qualified personnel, we may be unable to manage our business effectively, and our results of operations could suffer.

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We are dependent on a small number of key customers for a significant portion of our revenue from period to period and the loss of, or a significant reduction in, orders from one or more of our key customers would reduce our revenue and harm our operating results.

A relatively small number of customers accounts for a large percentage of our revenue from period to period. For example, for the quarter ended September 24, 2022, our top ten customers accounted for approximately 49% of our total revenue and one customer accounted for 12% of the Company's total revenue. For 2021, our top ten customers accounted for approximately 42% of our total revenue and no customer accounted for 10% or more of the Company's revenue. For 2020, our top ten customers accounted for approximately 43% of our total revenue and one customer accounted for 11% of the Company's revenue. Our business will likely be harmed if any of our key customers, for whatever reason, substantially reduce, delay or stop their orders from us. In addition, our business will be harmed if we fail to maintain our competitive advantage with our key customers or do not add new large customers over time. We continue to expect a relatively small number of customers to continue to account for a large percentage of revenue from period to period. However, customer consolidation could reduce the number of key customers that generate a significant percentage of our revenue and may increase the risks relating to dependence on a small number of customers.

Our ability to continue to generate revenue from our key customers will depend on our ability to maintain strong relationships with these customers and introduce competitive new products at competitive prices. In most cases, our sales are made to these customers pursuant to standard purchase agreements, which may be canceled or reduced readily, rather than long-term purchase commitments that would require these customers to purchase any minimum or guaranteed volumes orders. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business. Our operating results will continue to depend on our ability to sell our products to our key customers. In addition, we must regularly compete for and win business with existing and new customers across all of our customer segments.

In addition, the negative effects of the COVID-19 pandemic on global economic conditions may affect the network spending, procurement strategies, or business practices of our key customers. If any of our key customers experience a loss in revenue due to the impact of the COVID-19 pandemic on their consumer or enterprise customers, or their corporate borrowing costs are materially impacted by rising interest rates, they may reduce or delay capital spending generally or with respect to our products, which could materially adversely affect our business and results of operations.

The manufacturing process for our optical engine and the assembly of our finished products are very complex. The partial or complete loss of any of our manufacturing facilities, a reduction in yields of our PICs or an inability to scale capacity to meet customer demands could harm our business.

The manufacturing process for our optical engine, including the PICs, DSPs and specialized ASICs, and the assembly of our finished products are very complex. In the event that any of our manufacturing facilities utilized to build these components and assemble our finished products were fully or partially destroyed, or shut down, as a result of a natural disaster, work stoppage or otherwise, it could severely limit our ability to sell our products. Because of the complex nature of our manufacturing facilities, such loss would take a considerable amount of time to repair or replace. The partial or complete loss of any of our manufacturing facilities, or an event causing the interruption in our use of any such facilities, whether as a result of a natural disaster, like the COVID-19 pandemic, work stoppage or otherwise, for any extended period of time would cause our business, financial condition and results of operations to be harmed.

Minor deviations in the PIC manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. In the past, we have had significant variances in our PIC yields, including production interruptions and suspensions and may have continued yield variances, including additional interruptions or suspensions, in the future. Lower than expected yields from our PIC manufacturing process or defects, integration issues or other performance problems in our products could limit our ability to satisfy customer demand requirements and could damage customer relations and cause business reputation problems, harming our business and operating results.

Our inability to obtain sufficient manufacturing capacity to meet demand, either in our own facilities or through foundry or similar arrangements with third parties, could harm our relationships with our customers, our business and our results of operations.

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Increased consolidation among our customers and suppliers in the communications networking industry has had, and could continue to have, an adverse effect on our business and results of operations.

We have seen increased consolidation in the communications networking industry over the past few years, which has adversely affected our business and results of operations. Customer consolidation in the past has led to changes in buying patterns, slowdowns in spending, redeployment of existing equipment and re-architecture of parts of existing networks or future networks, as the combined companies evaluate the needs of the combined business. Moreover, the significant purchasing power of these large companies can increase pricing and competitive pressures for us, including the potential for decreases in our average selling prices. If one of our customers is acquired by another company that does not rely on us to provide it with products or relies on another provider of similar products, we may lose that customer’s business. Such consolidation may further reduce the number of customers that generate a significant percentage of our revenue and may exacerbate the risks relating to dependence on a small number of customers. Any of the foregoing results will adversely affect our business, financial condition and results of operations.

In addition, our suppliers in the communications networking industry have recently continued to consolidate. For example, Lumentum acquired Oclaro in 2018 and II-VI acquired Finisar in 2019. In July 2022, II-VI also closed its acquisition of Coherent. Supplier consolidation may lead to increased prices of components for our products, deployment delays and/or a disruption in output. In addition, such consolidation may exacerbate the risks relating to our dependence on a small number of suppliers for certain components and materials that are required to manufacture our products.

If our contract manufacturers do not perform as we expect, our business may be harmed.

We rely on third-party contract manufacturers to perform a portion of the manufacturing of our products, and our future success will depend on our ability to have sufficient volumes of our products manufactured in a cost-effective and quality-controlled manner. We have engaged third parties to manufacture certain elements of our products at multiple contract manufacturing sites located around the world but do not have long-term agreements in place with some of our manufacturers and suppliers that would guarantee product availability, or the continuation of particular pricing or payment terms. We face a number of risks due to our dependence on contract manufacturers, including:

•reduced control over delivery schedules, particularly for international contract manufacturing sites;

•reliance on the quality assurance procedures of third parties;

•potential uncertainty regarding manufacturing yields and costs;

•potential lack of adequate capacity during periods of high demand or inability to fulfill manufacturing orders due to supply issues;

•potential variability of pricing or payment terms due to agreement length;

•risks and uncertainties associated with the locations or countries where our products are manufactured, including potential manufacturing disruptions caused by geopolitical events, military actions, work stoppages or other social factors, natural disasters or other environmental factors, or international health emergencies, such as the COVID-19 pandemic;

•counterparty risk, particularly if our contract manufacturers are sensitive to inflation and interest-rate risk;

•limited warranties on components; and

•potential misappropriation of our intellectual property.

Any of these risks could impair our ability to fulfill orders. Our products are built with and incorporate increasingly sophisticated technology and any delays by our contract manufacturers or their inability to meet our product specifications or quality standards may cause us to be unable to meet the delivery requirements of our customers, which could decrease customer satisfaction and harm our product sales. In addition, if our contract manufacturers are unable or unwilling to continue manufacturing our products or components of our products in required volumes or our relationship with any of our contract manufacturers is discontinued for any reason, we would be required to identify and qualify alternative manufacturers, which could cause us to be unable to meet our

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supply requirements to our customers and result in the breach of our customer agreements. Qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming. If we are required to change or qualify a new contract manufacturer, we could lose revenue and damage our customer relationships.

We rely on various third-party service partners to help complement our global operations, and failure to adequately manage these relationships could adversely impact our financial results and relationships with customers.

We rely on a number of third-party service partners, both domestic and international, to complement our global operations. We rely upon these partners for certain installation, maintenance, logistics and support functions. In addition, as our customers increasingly seek to rely on vendors to perform additional services relating to the design, construction and operation of their networks, the scope of work performed by our service partners is likely to increase and may include areas where we have less experience providing or managing such services. We must successfully identify, assess, train and certify qualified service partners in order to ensure the proper installation, deployment and maintenance of our products. The vetting and certification of these partners can be costly and time-consuming, and certain partners may not have the same operational history, financial resources and scale as we have. Additionally, certain service partners may provide similar services for other companies, including our competitors. We may not be able to manage our relationships with our service partners effectively, and we cannot be certain that they will be able to deliver services in the manner or time required, that we will be able to maintain the continuity of their services, or that they will adhere to our approach to ethical business practices. Our service partners may also experience challenges in providing services to us as a result of the impact of the COVID-19 pandemic. We may also be exposed to a number of risks or challenges relating to the performance of our service partners, including:

•delays in recognizing revenue;

•liability for injuries to persons, damage to property or other claims relating to the actions or omissions of our service partners;

•our services revenue and gross margin may be adversely affected; and

•our relationships with customers could suffer.

If we do not effectively manage our relationships with third-party service partners, or if they fail to perform these services in the manner or time required, our financial results and relationships with our customers could be adversely affected.

We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.

The optical transport networking equipment market is characterized by rapid technological change, changes in customer requirements and evolving industry standards. We continually invest in research and development to sustain or enhance our existing products, but the introduction of new communications technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and competitors. If the standards or requirements adopted by our prospective customers are different from those on which we have focused our efforts, market acceptance of our products would be reduced or delayed, and our business would be harmed. We are continuing to invest a significant portion of our research and development efforts in the development of our next-generation products. We expect our competitors will continue to improve the performance of their existing products and introduce new products and technologies and to influence customers’ buying criteria so as to emphasize product capabilities that we do not, or may not, possess. To be competitive, we must anticipate future customer requirements and continue to invest significant resources in research and development, sales and marketing, and customer support. If we do not anticipate these future customer requirements and invest in the technologies necessary to enable us to have and to sell the appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect on our business and financial condition. We may not have sufficient resources to make these investments and we may not be able to make the technological advances necessary to be competitive.

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If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, including inventory write-downs or equipment write-offs, which would adversely affect our business and results of operations.

We generate forecasts of future demand for our products several months prior to the scheduled delivery to our prospective customers. This requires us to make significant investments before we know if corresponding revenue will be recognized. Lead times vary significantly for materials and components, including ASICs, that we need to order for the manufacture of our products and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. In the past, we have experienced lengthened lead times for certain components, and we are currently seeing longer lead times with certain components due to industry-wide supply chain challenges, which makes forecasting more challenging. We may be required to purchase increased levels of such components to satisfy our delivery commitments to our customers as a result of longer lead times for components. In addition, we must manage our inventory to ensure we continue to meet our commitments as we introduce new products or make enhancements to our existing products.

If we overestimate market demand for our products and, as a result, increase our inventory in anticipation of customer orders that do not materialize, we will have excess inventory, which could result in increased risk of obsolescence and significant inventory write-downs. Furthermore, this will result in reduced production volumes and our fixed costs will be spread across fewer units, increasing our per unit costs. If we underestimate demand for our products, we will have inadequate inventory, which could slow down or interrupt the manufacturing of our products, cause delays in shipments and our ability to recognize revenue, and result in potential loss of customers to competitors. In addition, we may be unable to meet our supply commitments to customers, which could result in a loss of certain customer opportunities or a breach of our customer agreements.

Actions that we are taking to restructure our business to cut costs in order to align our operating structure with current opportunities may not be as effective as anticipated.

During 2020 and 2021, we undertook certain restructuring initiatives, including the 2020 Restructuring Plan and the 2021 restructuring of certain international research and development functions, in order to reduce expenses, reallocate resources to align more closely with our evolving business model, and improve operating efficiencies. These activities might not produce the full expense reduction, resource realignment and efficiency benefits we expect, which could harm our business. Further, any anticipated benefits from these restructuring initiatives may be realized later than expected or not at all, and the ongoing costs of implementing these measures may be greater than anticipated. In addition, as a result of these restructuring actions, our ability to execute on product development, address key market opportunities and/or meet customer demand could be materially and adversely affected.

Our large customers have substantial negotiating leverage, which may cause us to agree to terms and conditions that result in lower average selling prices and potentially increased cost of sales leading to lower gross margin, each of which would harm our results of operations.

Many of our customers are large service providers and ICPs that have substantial purchasing power and leverage in negotiating contractual arrangements with us. In addition, customer consolidation in the past few years has created combined companies that are even larger and have greater negotiating leverage. Our customers have sought and may continue to seek advantageous pricing, payment and other commercial terms. We have occasionally agreed and may continue to agree to unfavorable commercial terms with these customers, including the potential of reducing the average selling price of our products, increasing cost of sales or agreeing to extended payment terms in response to these commercial requirements or competitive pricing pressures. Continued inflation could decrease the profitability of customer contracts, particularly those with extended payment terms, that are not indexed to inflation. If we are compelled to agree to disadvantageous terms and conditions, unable to comply with such terms and conditions, or adapt our business model and operations to such terms and conditions, then our operating results will be negatively impacted.

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Our sales cycle can be long and unpredictable, which could result in an unexpected revenue shortfall in any given quarter.

Our products can have a lengthy sales cycle, which can extend from six to twelve months and may take even longer for larger prospective customers. Our prospective customers conduct significant evaluation, testing, implementation and acceptance procedures before they purchase our products. We incur substantial sales and marketing expenses and expend significant management effort during this time, regardless of whether we make a sale. We have seen a lengthening of our sales cycle as a result of the COVID-19 pandemic, due to delays in the customer certification process for our products resulting from customer facility closures or access restrictions.

Because our sales cycle is long, we are likely to recognize higher inflation-related costs before recognizing the benefits of any price increases that we implement for our products. Moreover, the costs associated with our sales cycle may increase faster than our ability to increase prices. In addition, changes in regulatory requirements or uncertainty associated with the regulatory environment could delay or impede investment in network infrastructures and adversely affect our business, financial condition and results of operations.

Because the purchase of our equipment involves substantial cost, most of our customers wait to purchase our equipment until they are ready to deploy it in their network. As a result, it is difficult for us to accurately predict the timing of future purchases by our customers. In addition, product purchases are often subject to budget constraints, multiple approvals and unplanned administrative processing and other delays, including the need for the customer to obtain external financing. If sales expected from customers for a particular quarter are not realized in that quarter or at all, our revenue will be negatively impacted.

Any acquisitions or strategic transaction that we undertake could disrupt our business and harm our financial condition and results of operations.

We have made strategic acquisitions of businesses, technologies and other assets in the past, including most recently the Acquisition. We may engage in acquisitions, divestitures or other strategic transactions in the future. In order to undertake certain of these transactions, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. If we are unable to achieve the anticipated efficiencies and strategic benefits of such transactions, it could adversely affect our business, financial condition and results of operations. In addition, the market price of our common stock could be adversely affected if investors and securities analysts react unfavorably to a strategic transaction or if the integration or the anticipated financial and strategic benefits of such transactions are not realized as rapidly as or to the extent anticipated by investors and securities analysts.

Acquisitions, divestitures or other strategic transactions can also result in adverse tax consequences, warranty or product liability exposure related to acquired assets, additional stock-based compensation expense, and write-up of acquired inventory to fair value. Divestitures can also result in contractual, employment or intellectual property liability related to divested assets. In addition, we may record goodwill and other purchased intangible assets in connection with an acquisition and incur impairment charges in the future. If our actual results, or the plans and estimates used in future impairment analyses, are less favorable than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

Acquisitions, divestitures or other strategic transactions also involve numerous risks that could disrupt our ongoing business and distract our management team, including:

•problems integrating the acquired operations, technologies or products with our own;

•challenges in divesting assets and intellectual property without negatively affecting our retained business lines;

•diversion of management’s attention from our core business;

•adverse effects on existing business relationships with suppliers and customers;

•risks associated with entering new markets or exiting existing markets; and

•loss of key employees.

Our failure to adequately manage the risks associated with an acquisition, divestment or strategic transaction could have an adverse effect on our business, financial condition and results of operations.

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Financial and Macroeconomic Risk Factors

We may be unable to generate the cash flow necessary to make anticipated capital expenditures, service our debt or grow our business.

We may not be able to generate sufficient cash flow from operations to make anticipated capital expenditures, to enable us to service our debt or grow our business. For example, in each of fiscal 2018, fiscal 2019 and fiscal 2020, we had a net loss and negative cash flows from operations and we may incur losses and negative cash flows from operations in future fiscal years. Our ability to pay our expenses, service our debt and fund planned capital expenditures will depend on our future performance, which will be affected by general economic, competitive, legislative, political, regulatory, public health issues and other factors beyond our control, and our ability to continue to realize synergies and anticipated cost savings. If we are unable to generate sufficient cash flow from operations to service our debt or to make anticipated capital expenditures, we may be required to sell assets, reduce capital expenditures, borrow additional funds or evaluate alternatives for efficiently funding our capital expenditures and ongoing operations, including the issuance of equity, equity-linked and debt securities.

Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.

Inflation has continued in the U.S. and globally. Inflation can adversely affect us by increasing the costs of labor, supplies and other costs of doing business. In an inflationary environment, our ability to raise prices or add additional cost-recovery surcharges of a magnitude sufficient to match the rate of inflation, on a timely basis, may be constrained by customer resistance and competitive concerns, as well as industry-specific and other economic conditions, which would reduce our profit margins. Moreover, even if we seek to implement price increases in response to current increased inflationary pressures, because of our long sales cycle, we may recognize increased costs as a result of inflation before we are able to recognize the benefits of any such price increases. We have experienced, and continue to experience, increases in the prices of labor, supplies and other costs of doing business. Continued inflationary pressures could adversely impact our profitability.

Unfavorable macroeconomic and market conditions may adversely affect our industry, business and financial results.

In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand for optical communications products and slowdowns in the telecommunications industry in which we operate. Such slowdowns may result in:

•reduced demand for our products as a result of constraints on capital spending by our customers;

•increased price competition for our products, not only from our competitors, but also as a result of the utilization of inventoried or underutilized products by our customers or potential customers, which could put additional downward pressure on our near-term gross profits;

•risk of excess or obsolete inventories;

•our customers facing financial difficulties, including bankruptcy;

•excess manufacturing capacity and higher associated overhead costs as a percentage of revenue; and

•more limited ability to accurately forecast our business and future financial performance.

The effects of the COVID-19 pandemic have negatively affected the economies of many countries and have created significant uncertainty regarding global macroeconomic conditions. The COVID-19 pandemic continues to cause disruption and volatility in capital markets, credit markets, and, in particular, supply chains. Recently, there has been high inflation, along with other signs of economic disruption, that are compounding the uncertainty of global macroeconomic conditions and increasing the risk of unfavorable macroeconomic and market conditions. These conditions may also result in the tightening of credit markets, which could limit or delay our customers’ ability to obtain necessary financing for their purchases of our products.

Our customers may delay or cancel their purchases or increase the time they take to pay or default on their payment obligations due to lack of liquidity in the capital markets, the continued uncertainty in the global economic environment or inflationary concerns, which would negatively affect our business and operating results. Weakness and uncertainty in the global economy could cause some of our customers to become illiquid, delay payments or adversely affect our collection of their accounts, which could result in a higher level of bad debt expense. In

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addition, currency fluctuations could negatively affect our international customers’ ability or desire to purchase our products.

A lack of liquidity and economic uncertainty may adversely affect our suppliers or the terms on which we purchase products from these suppliers. It may also cause some of our suppliers to become illiquid. Any of these impacts could limit our ability to obtain components for our products from these suppliers and could adversely impact our supply chain or the delivery schedule to our customers. This also could require us to purchase more expensive components, or re-design our products, which could cause increases in the cost of our products and delays in the manufacturing and delivery of our products. Such events could harm our gross margin and harm our reputation and our customer relationships, either of which could harm our business and operating results.

If we need additional capital in the future, it may not be available to us on favorable terms, or at all.

Our business requires significant capital. We have historically relied on outside debt or equity financing as well as cash flow from operations to fund our operations, capital expenditures and expansion. For example, in September 2018, we issued convertible senior notes due September 1, 2024 (the “2024 Notes”) to pay the cost of related capped call transactions, as discussed below, to fund the cash portion of the purchase price of the Acquisition, and for general corporate purposes. In August 2019 and as amended thereafter, we entered into the Prior Credit Agreement to provide additional working capital flexibility to manage our business. In addition, in March 2020, we issued convertible senior notes due March 1, 2027 (the “2027 Notes”) to raise additional funds for general corporate purposes, including working capital to fund growth and potential strategic projects. On August 12, 2020, we entered into an Open Market Sales Agreement with Jefferies LLC ("Jefferies") under which we issued and sold through Jefferies, acting as agent and/or principal, shares of our common stock having an aggregate offering price of $96.3 million, to raise funds for general corporate purposes, including working capital and capital expenditures. In June 2022, we terminated the Prior Credit Agreement and entered into the Loan Agreement to repay existing debt (including amounts outstanding under the Prior Credit Agreement) and for working capital and general corporate purposes, including to fund growth. In August 2022, we issued convertible senior notes due August 1, 2028 (the “2028 Notes” and, together with the 2024 Notes and the 2027 Notes, the “convertible senior notes”) to repurchase a portion of the 2024 Notes, for general corporate purposes, including working capital and to fund growth and potential strategic projects. We may require additional capital from equity or equity-linked financing, debt financing or other financings in the future to fund our operations, respond to competitive pressures or strategic opportunities or to refinance our existing debt obligations. In the event that we require additional capital, we may not be able to secure timely additional financing, or restructure existing debt, on favorable terms, or at all, and may be affected by the impacts of the COVID-19 pandemic on capital markets, including inflationary pressures. The terms of any additional financings or restructurings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer dilution in their percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be limited and our business will be harmed.

Our Loan Agreement and any other credit or similar agreements into which we may enter in the future may restrict our operations, particularly our ability to respond to changes or to take certain actions regarding our business.

Our Loan Agreement contains a number of restrictive covenants that may impose operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term interest, including restrictions on our ability to incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in transactions with affiliates, in each case subject to limitations and exceptions set forth in the Loan Agreement. The Loan Agreement also contains a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio.

The Loan Agreement also contains customary events of default, such as the failure to pay obligations when due, a material breach of representations and warranties or covenants, the entry of material judgments against certain of our subsidiaries, the initiation of bankruptcy or insolvency proceedings of certain of our subsidiaries, defaults on certain other indebtedness, a change of control, the failure of the guaranty of certain of our subsidiaries to be in effect or the failure of the security documents to create valid and perfected liens or the loan documents to be valid and enforceable, which could have a material adverse effect on our business, operations, and financial results. Upon an event of default, the lenders may, subject to customary cure rights, require the immediate payment

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of all amounts outstanding and foreclose on collateral, which could force us into bankruptcy or liquidation. In the event that our lenders accelerated the repayment of the borrowings, we may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the Loan Agreement would likely have a material adverse effect on us. As a result of these restrictions, we may be limited in how we conduct business, unable to raise additional debt or equity financing to operate during general economic or business downturns, or unable to compete effectively or to take advantage of new business opportunities.

In addition, we may enter into other credit agreements or other debt arrangements from time to time which contain similar or more extensive restrictive covenants and events of default, in which case we may face similar or additional limitations as a result of the terms of those credit agreements or other debt arrangements.

Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase.

As of September 24, 2022, the outstanding aggregate principal amount of the 2024 Notes, the 2027 Notes and the 2028 Notes was $102.7 million, $200.0 million and $373.8 million, respectively. The degree to which we are leveraged could have important consequences, including, but not limited to, the following:

•our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited; and

•a substantial portion of our future cash balance may be dedicated to the payment of the principal of our indebtedness as we have stated the intention to pay the principal amount of each series Notes in cash upon conversion or when otherwise due, such that we would not have those funds available for use in our business.

Our ability to meet our payment obligations under our debt instruments, including the Notes, depends on our future cash flow performance. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our business will generate positive cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations. As a result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.

Our international sales and operations subject us to additional risks that may harm our operating results.

Sales of our products into international markets continue to be an important part of our business. During 2021, 2020 and 2019, we derived approximately 53%, 54% and 52%, respectively, of our revenue from customers outside of the United States. We expect that significant management attention and financial resources will be required for our international activities over the foreseeable future as we continue to operate in international markets. In some countries, our success in selling our products and growing revenue will depend in part on our ability to form relationships with local partners. Our inability to identify appropriate partners or reach mutually satisfactory arrangements for international sales of our products could impact our ability to maintain or increase international market demand for our products. In addition, many of the companies we compete against internationally have greater name recognition and a more substantial sales and marketing presence.

We have sales and support personnel in the Americas, EMEA (with offices in the Middle East) and APAC (including China). In addition, we have established development centers in Canada, China, Finland, Germany, India, Portugal and Sweden. There is no assurance that our reliance upon development resources in international locations will enable us to achieve meaningful cost reductions or greater resource efficiency. We are also aggressively pursuing opportunities with customers in additional geographies, including EMEA, APAC and Latin America. Our efforts to increase our sales and capture market share in international markets may ultimately be unsuccessful and may limit our growth and adversely impact our business, financial condition and results of operations.

The sudden disruption of the global supply chain and/or the manufacture of our customer’s components caused by events outside of our control could impact our results of operations by impairing our ability to timely and

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efficiently deliver our products or provide installation and maintenance services to our customers. For example, the global COVID-19 pandemic has disrupted and is expected to continue to disrupt the global supply chain for certain components necessary for our products and could continue to threaten the health and safety of our employees.

In addition, our operations in Russia have been impacted by sanctions and other trade controls imposed by the United States and other governments in response to Russia's military operations in Ukraine starting in February 2022. The imposition of these sanctions and controls have prevented us from performing existing contracts. For the year ended December 25, 2021, approximately 1% of our revenue was derived from customers based in Russia. A de minimis percentage of our revenue is derived from Russian customers including channel partners and customers in other countries whose contracts with us may involve Russian entities.

Our international operations are subject to inherent risks, and our future results could be adversely affected by a variety of factors, many of which are outside of our control, including:

•greater difficulty in collecting accounts receivable and longer collection periods;

•difficulties of managing and staffing international offices, and the increased travel, infrastructure and legal compliance costs associated with multiple international locations;

•political, social and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions;

•tariff and trade barriers and other regulatory requirements, contractual limitations, or customer specifications impacting our ability to sell or develop our products in certain foreign markets;

•less effective protection of intellectual property than is afforded to us in the United States or other developed countries;

•potentially adverse tax consequences;

•natural disasters, acts of war or terrorism, and health crises, including the COVID-19 pandemic;

•changes to free trade agreements, trade protection measures, tariffs, export compliance, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements, including changes related to policy and other changes made by the federal government in the United States or other national governments; and

•effects of changes in currency exchange rates, particularly relative increases in the exchange rate of the U.S. dollar compared to other currencies that could negatively affect our financial results and cash flows.

The storage and distribution of our inventory is primarily concentrated in one location in southeastern Asia, which further increases the risks of our global operations. As a result, our operations are susceptible to local and regional factors in that area, such as accidents, system failures and weather conditions, natural disasters (including floods and earthquakes and related fires), and other unforeseen events and circumstances. Any significant interruption in the operations or availability of the storage facilities in which our inventory is held could lead to logistical and fulfillment issues or increased costs, which could have a material adverse effect on our results of operations, financial condition and cash flows.

International customers may also require that we comply with certain testing or customization of our products to conform to local standards. The product development costs to test or customize our products could be extensive and a material expense for us.

Our international operations are also subject to increasingly complex foreign and U.S. laws and regulations, including, but not limited to, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and the United Kingdom Bribery Act 2010, as amended (the “UK Bribery Act”), antitrust or competition laws, anti-money laundering laws, various trade controls, national security related regulations, and data privacy laws, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results. Although we have implemented policies, procedures and training designed to ensure compliance with these laws

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and regulations, there can be no complete assurance that any individual employee, contractor or agent will not violate our policies. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and monitoring) could also adversely affect our current or future business.

As we continue to expand our business globally, our success will depend, in large part, on our ability to effectively anticipate and manage these and other risks and expenses associated with our international operations. For example, political instability and uncertainty in the European Union (the "E.U.") and, in particular, the United Kingdom's exit from the E.U., could slow economic growth in the region, affect foreign exchange rates, and could have a negative impact on near-term economic activity, leading to our customers delaying purchases of our products. Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, adversely affecting our business, financial condition and results of operations.

We may be adversely affected by fluctuations in currency exchange rates.

A portion of our sales and expenses stem from countries outside of the United States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency rates could have a material impact on our financial results in future periods. We have from time to time entered into foreign currency exchange forward contracts to reduce the impact of foreign currency fluctuations on certain non-functional currency account balances. Even if we have forward contracts in place, while they may reduce some of the impact of currency exchange rate movements on certain transactions, they would not cover all foreign-denominated transactions and therefore may not entirely eliminate the impact of fluctuations in exchange rates on our results of operations and financial condition.

Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:

•changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;

•changes in the relative proportions of revenue and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

•changing tax laws, regulations, rates and interpretations in multiple jurisdictions in which we operate;

•changes to the financial accounting rules for income taxes;

•the tax effects of acquisitions; and

•the resolution of issues arising from tax audits.

The United States has recently enacted the Inflation Reduction Act, which, among other changes, implements a 1% excise tax on certain stock buybacks and a 15% alternative minimum tax on adjusted financial statement income of certain companies. We are evaluating the impact of these taxes on our effective tax rate, including the impact of the excise tax on transactions with respect to our capped call. Many countries and organizations such as the Organization for Economic Cooperation and Development are actively considering changes to existing tax laws or have proposed or enacted new laws, including an agreement to implement a 15% global minimum tax, that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. Any changes in federal, state or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations.

We may issue additional shares of our common stock in connection with conversions of the 2024 Notes, the 2027 Notes or the 2028 Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.

In the event that some or all of each series of convertible senior notes are converted and we elect to deliver shares of common stock to the extent permitted, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock. In addition, the anticipated conversion of any series of Notes could depress the market price of our common stock.

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The fundamental change provisions of the 2024 Notes, the 2027 Notes and the 2028 Notes may delay or prevent an otherwise beneficial takeover attempt of us.

If a fundamental change, such as an acquisition of our company, occurs prior to the maturity of the 2024 Notes, the 2027 Notes or the 2028 Notes, holders of the applicable series of convertible senior notes will have the right, at their option, to require us to repurchase all or a portion of their convertible senior notes of such series. In addition, if such fundamental change also constitutes a make-whole fundamental change, the conversion rate for the applicable series of convertible senior notes may be increased upon conversion of the such series of convertible senior notes in connection with such make-whole fundamental change. Any increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Any such increase will be dilutive to our existing stockholders. Our obligation to repurchase any series of convertible senior notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders.

The Capped Calls may affect the value of the 2024 Notes and our common stock.

In connection with the issuance of the 2024 Notes, we entered into capped call transactions (the "Capped Calls") with certain financial institutions who are the option counterparties. The capped call transactions are expected generally to reduce or offset the potential dilution upon conversion of the 2024 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap.

From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2024 Notes. This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

We are subject to counterparty risk with respect to the Capped Calls.

The option counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties.

Legal and Regulatory Risk Factors

If we fail to protect our intellectual property rights, our competitive position could be harmed, or we could incur significant expense to enforce our rights.

We depend on our ability to protect our proprietary technology. We rely on a combination of methods to protect our intellectual property, including limiting access to certain information, and utilizing trade secret, patent, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. The steps we have taken to protect our proprietary rights may be inadequate to preclude misappropriation or unauthorized disclosure of our proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation, unauthorized disclosure or infringement is uncertain, particularly in countries outside of the United States. This is likely to become an increasingly important issue if we expand our operations and product development into countries that provide a lower level of intellectual property protection. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims, and even if patents are issued, they may be contested, circumvented or invalidated. Moreover, the rights granted under any issued patents may not provide us with a competitive advantage, and, as with any technology, competitors may be able to develop similar or superior technologies to our own now or in the future.

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Protecting against the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult, time consuming and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity or scope of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management resources, either of which could harm our business, financial condition and results of operations. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

Claims by others that we infringe on their intellectual property rights could harm our business.

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, many leading companies in the optical transport networking industry, including our competitors, have extensive patent portfolios with respect to optical transport networking technology. In addition, non-practicing patent holding companies seek to monetize patents they have purchased or otherwise obtained. We expect that infringement claims may increase as the number of products and competitors in our market increases and overlaps in technology implementation occur. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are important to our business or seek to invalidate the proprietary rights that we hold. Competitors or other third parties have asserted, and may continue to assert, claims or initiate litigation or other proceedings against us or our manufacturers, suppliers or customers alleging infringement of their proprietary rights, or seeking to invalidate our proprietary rights, with respect to our products and technology. In addition, in the past we have had certain patent licenses with third parties that have not been renewed, and if we cannot successfully renew these licenses, we could face claims of infringement. In the event that we are unsuccessful in defending against any such claims, or any resulting lawsuits or proceedings, we could incur liability for damages and/or have valuable proprietary rights invalidated. For additional information regarding certain of the legal proceedings in which we are involved, see Part I, Item 1, Note 13 under the heading “Legal Matters.”

Any claim of infringement from a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from running our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages or could include an injunction or other court order that could prevent us from offering our products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense and may ultimately not be successful. Any of these events could harm our business, financial condition and results of operations.

Competitors and other third parties have and may continue to assert infringement claims against our customers and sales partners. Any of these claims may require us to initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because we generally indemnify our customers and sales partners from claims of infringement of proprietary rights of third parties. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or sales partners, which could have an adverse effect on our business, financial condition and results of operations.

We incorporate free and open source licensed software into our products. Although we monitor our use of such open source software closely, the terms of many open source licenses have not been interpreted by U.S. 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 commercialize our products. In addition, non-compliance with open source software license terms and conditions could subject us to potential liability, including intellectual property infringement and/or contract claims. In such events, we may be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished in a timely manner, any of which could adversely affect our business, financial condition and results of operations.

Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property and proprietary or confidential information and cause significant damage to our business and reputation.

In the ordinary course of our business, we maintain sensitive data on our networks and systems, including data related to our intellectual property and data related to our business, customers and business partners, which may be considered proprietary or confidential information. This sensitive data includes certain personal information

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and other data relating to our employees and others. We also utilize third-party service providers to host, transmit, or otherwise process data in connection with our business activities, including our supply chain processes, operations, and communications. Companies, especially in the technology industry, have been increasingly subject to a wide variety of security incidents, cyber-attacks, malicious activity, including ransomware, malware and viruses, and other attempts to gain unauthorized access and disrupt systems and the confidentiality, security, and integrity of information, and we and our third-party service providers and suppliers have faced and may continue to face security threats and attacks from a variety of sources. In response to the COVID-19 pandemic, many of our employees are working from home and accessing our corporate network via remote devices, which may be less secure than those used in our offices and thus could increase the potential for such events to occur.

While the secure maintenance of this information and the security of the systems used in our business are critical to our business and reputation, our network and storage applications, and those systems and other business applications maintained by our third-party providers, may be subject to unauthorized access by hackers or breached or otherwise compromised due to operator error, malfeasance or other system disruptions. It may be difficult to anticipate or immediately detect such security incidents or breaches and to prevent or mitigate damage caused as a result. Accordingly, a data breach, security incident, cyber-attack, attack using ransomware or other malware, or any other unauthorized access to systems used in our business or unauthorized acquisition, disclosure, or other processing of our information or other information that we or our third-party vendors maintain or otherwise process could compromise our intellectual property, disrupt our operations, and result in loss of or unauthorized access to or acquisition, disclosure, modification, misuse, corruption, unavailability, or destruction of proprietary or confidential information. While we work to safeguard our internal networks and systems and validate the security of our third-party suppliers and providers to mitigate these potential risks, including through information security policies and employee awareness and training, there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches or incidents, and we cannot guarantee that our systems and networks or our third-party service providers’ systems and networks have not been breached or that they or any components of our supply chain do not contain exploitable defects or bugs, including defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support our operations. We and third-party service providers also may face difficulties or delays in identifying or responding to security breaches and other security-related incidents. We have been subjected in the past to a range of incidents including phishing, emails purporting to come from an executive or vendor seeking payment requests, malware and communications from look-alike corporate domains. For example, in the fourth quarter of 2021, we experienced a phishing attack that resulted in an immaterial loss. While these have not had a material effect on our business or our network security to date, security breaches or incidents involving access to or improper use of our systems, networks or products, or those of third-party service providers, could compromise confidential or otherwise protected information, result in unauthorized acquisition, disclosure, modification, misuse, corruption, unavailability, or destruction of data, cause payments to be diverted to fraudulent accounts, or otherwise disrupt our operations. Security breaches or incidents, or any reports or perceptions that they have occurred, could cause us to incur significant costs and expenses to remediate and otherwise respond to any actual or suspected breach or incident, subject us to regulatory actions and investigations, disrupt key business operations, result in claims, demands, and liability, and divert attention of management and key information technology resources, any of which could cause significant harm to our business and reputation. Even the perception of inadequate security may damage our reputation and negatively impact our business. Further, we could be required to expend significant capital and other resources to address any security incident or breach and to attempt to prevent future security incidents and breaches.

Although we maintain insurance coverage that may cover certain liabilities in connection with some security breaches and other security incidents, we cannot be certain our insurance coverage will be adequate for liabilities actually incurred, including any consequential damages that may arise from such security incidents, that insurance will continue to be available to us on commercially reasonable terms (if at all) or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, or denials of coverage could have a material adverse effect on our business, including our financial condition, results of operations and reputation.

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If we fail to maintain effective internal controls over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the act require, among other things, that we maintain effective internal controls over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future many of our processes will remain manually intensive and thus subject to human error. If we are unable to implement effective key operation controls around financial processes and successfully manage and monitor manual processes, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline. In addition, prior to the Acquisition, we maintained separate internal controls over financial reporting with different financial reporting processes and different ERP systems, and Coriant, as a private company, was not required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Any issues with our integrated ERP system may cause time delays and impact our ability to undertake financial reporting in a timely manner.

We are subject to various governmental export control, trade sanctions, and import laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate these controls.

In some cases, our products are subject to U.S. and foreign export control laws and regulations that may limit where and to whom we are permitted to sell our products, including the Export Administration Regulations administered by the U.S. Department of Commerce, and our activities may be subject to trade and economic sanctions, including those administered by the United States Department of the Treasury’s Office of Foreign Assets Control (collectively, “Trade Controls”). As such, a license may be required to export or re-export our products, or provide related services, to certain countries and end-users, and for certain end-uses. Further, our products incorporating encryption functionality may be subject to special controls applying to encryption items and/or certain reporting requirements.

We have procedures in place designed to ensure our compliance with Trade Controls, with which failure to comply could subject us to both civil and criminal penalties, including substantial fines, possible incarceration of responsible individuals for willful violations, possible loss of our export or import privileges, or reputational harm. Further, the process for obtaining necessary licenses may be time-consuming or unsuccessful, potentially causing delays in sales or losses of sales opportunities. Trade Controls are complex and dynamic regimes, and monitoring and ensuring compliance can be challenging, particularly given that our products are widely distributed throughout the world. Although we have no knowledge that our activities have resulted in violations of Trade Controls, any failure by us or our partners to comply with applicable laws and regulations would have negative consequences for us, including reputational harm, government investigations, and penalties.

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In addition, various countries regulate the import of certain technologies and have enacted laws that could limit our ability to distribute our products and certain product features or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in U.S. and foreign import and export regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the import and export of our products to certain countries altogether. For example, in 2018 and 2019, the United States imposed tariffs on a large variety of products originating from China, including some on components that are supplied to us from China. Depending upon the duration and implementation of these and future tariffs, as well as our ability to mitigate their impact, these tariffs could materially affect our business, including in the form of increased cost of goods sold, increased pricing for customers, and reduced sales. Additionally, the U.S. government recently announced new controls affecting the ability to send certain products and technology related to semiconductors, semiconductor manufacturing and supercomputing to China without an export license and adding additional entities to restricted party lists. At this time, it remains unclear what additional actions, if any, will be taken by the governments of the United States or China with respect to such trade and tariff matters. Any change in import and export regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies impacted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Failure to comply with these and similar laws on a timely basis, or at all, or any limitation on our ability to develop, export or sell our products would adversely affect our business, financial condition and results of operations.

We are subject to environmental regulations that could adversely affect our business.

We are subject to complex U.S. and foreign environmental rules and regulations or other social initiatives that impact how and where we manufacture our products. In particular, our manufacturing operations use substances that are regulated by various federal, state, local, foreign and international laws and regulations governing health, safety and the environment, including U.S. Environmental Protection Agency regulations and WEEE, RoHS and REACH regulations adopted by the E.U. From time to time, the E.U. restricts or considers restricting certain substances under these directives. For example, indium phosphide is currently being considered for restriction under RoHS. Any restriction of indium phosphide or any other substance integral to our systems could materially adversely affect our business, financial condition and operating results. In addition, if we experience a problem complying with these laws and regulations, it could cause an interruption or delay in our manufacturing operations or it could cause us to incur liabilities or costs related to health, safety or environmental remediation or compliance. We could also be subject to liability if we do not handle these substances in compliance with safety standards for handling, storage and transportation and applicable laws and regulations. If we experience a problem or fail to comply with such safety standards or laws and regulations, our business, financial condition and operating results may be harmed.

Regulations relating to environmental, social and governance matters, as well as customer and investor demands, may add operational complexity for us and may adversely affect our relationships with our customers, suppliers and investors.

There has been an increased focus on environmental, social and governance ("ESG") matters that affect companies globally. A number of our customers have adopted, or may adopt, procurement policies that include environmental or social responsibility provisions or requirements that their suppliers should comply with, or they may seek to include such provisions or requirements in their procurement terms and conditions. An increasing number of investors are also requiring companies to disclose corporate ESG policies, practices and metrics. In addition, various jurisdictions are developing climate change-based laws or regulations that could cause us to incur additional direct costs for compliance, as well as indirect costs resulting from our customers, suppliers, or both, incurring additional compliance costs that are passed on to us. These legal and regulatory requirements, as well as investor expectations, on corporate ESG responsibility practices and disclosure, are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the complexity of our supply chain. If we are unable to comply with, or are unable to cause our suppliers or contract manufacturers to comply with such policies or provisions, or meet the requirements of our customers and investors, a customer may stop purchasing products from us or an investor may sell their shares, and may take legal action against us, which could harm our reputation, revenue and results of operations.

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We are subject to global laws and regulations governing privacy, data protection, and cybersecurity that could adversely affect our business or subject us to liability.

Data privacy, data protection, and cybersecurity are areas of increasing focus for our customers, governmental regulators and privacy advocates, and many jurisdictions, including the E.U., the United States, China and other regions, are evaluating or have implemented laws and regulations relating to cybersecurity, privacy and data protection, which can affect the market and requirements for networking and communications equipment. For example, the General Data Protection Regulation (“GDPR”) in effect in the E.U., and similar regulatory standards in effect in the United Kingdom, the Personal Information Protection Law ("PIPL") in China, the California Consumer Privacy Act (“CCPA”) and the California Privacy Rights Act (“CPRA”), other enacted or proposed legislation in the United States, and enacted or proposed legislation in other jurisdictions have created new compliance obligations with respect to data processing, privacy, data protection, and cybersecurity.

The laws, rules, regulations, standards and other actual and asserted obligations relating to privacy, data protection and cybersecurity to which we may be subject, or that otherwise apply to our business, are constantly evolving, and we expect that there will continue to be new proposed laws, regulations and industry standards concerning these matters in the United States, the E.U. and other jurisdictions. We cannot fully predict the impact of the GDPR, the PIPL, the CCPA, the CPRA or other laws or regulations, including those that may be modified or enacted in the future, or new or evolving industry standards or actual or asserted obligations, relating to cybersecurity, privacy, or data protection or processing on our business or operations. These laws, regulations, and standards have required us to modify our practices and policies relating to privacy, data protection, cybersecurity, and data processing, and to incur substantial costs and expenses in an effort to comply, and we expect to continue to incur such costs and expenses in the future and may find it necessary or appropriate to further modify our relevant practices and policies. Any actual or perceived failure to comply with laws, regulations, or other actual or asserted obligations to which we are or are alleged to be subject relating to cybersecurity, privacy or data protection could result in claims, litigation, and regulatory investigations and other proceedings, as well as damage to our reputation. These could result in substantial costs, diversion of resources, fines, penalties, and other damages, and harm to our customer relationships, our market position, and our ability to attract new customers. Any of these could harm our business, financial condition and results of operations.

A portion of our revenue is generated by sales to government entities, which are subject to a number of uncertainties, challenges, and risks.

We currently sell many of our solutions to various government entities, and we may in the future increase sales to government entities. Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time consuming, often requiring significant upfront time and expense without any assurance that we will complete a sale. In the event that we are successful in being awarded a government contract, such award may be subject to appeals, disputes, or litigation, including, but not limited to, bid protests by unsuccessful bidders. Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Government entities may also have statutory, contractual, or other legal rights to terminate contracts for convenience or due to a default. For purchases by the U.S. federal government, the government may require certain products to be made in, and/or products of, the United States or other high-cost manufacturing locations, and all of our products may not be made in or products of jurisdictions that meet government requirements, and as a result, our business and results of operations may suffer. Contracts with governmental entities may also include preferential pricing terms, including, but not limited to, “most favored customer” pricing.

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Additionally, we may be required to obtain special certifications to sell some or all of our solutions to government or quasi-government entities. Such certification requirements for our solutions may change, thereby restricting our ability to sell into the federal government sector until we have attained the revised certification. If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards, we may be disqualified from selling our products to such governmental entities, or be at a competitive disadvantage, which would harm our business, financial condition and results of operations. There are no assurances that we will find the terms for obtaining such certifications to be acceptable or that we will be successful in obtaining or maintaining the certifications.

As a government contractor or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government agencies. As a result of actual or perceived noncompliance with government contracting laws, regulations, or contractual provisions, we may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management time, or limit our ability to continue selling our products and services to our government customers. These laws and regulations may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our channel partners, downward contract price adjustments or refund obligations, civil or criminal penalties, and termination of contracts and suspension or debarment from government contracting for a period of time with government agencies. Any such damages, penalties, disruption, or limitation in our ability to do business with a government would adversely impact, and could have a material adverse effect on, our business, financial condition, results of operations, public perception, and growth prospects.

Our business could be adversely affected if our employees cannot obtain and maintain required security clearances or we cannot maintain a required facility security clearance, or we do not comply with legal and regulatory obligations regarding the safeguarding of classified information.

Our U.S. government contract revenue includes income derived from contracts that require our employees to maintain various levels of security clearances and may require us to maintain a facility security clearance, to comply with Department of Defense (“DoD”) requirements. The DoD has strict security clearance requirements for personnel who perform work in support of classified programs. In general, access to classified information, technology, facilities, or programs are subject to additional contract oversight and potential liability. In the event of a security incident involving classified information, technology, facilities, programs, or personnel holding clearances, we may be subject to legal, financial, operational, and reputational harm. We are limited in our ability to provide specific information about these classified programs, their risks, or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business or our business overall. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit, and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain their clearances or terminate employment with us, then a customer requiring classified work could terminate an existing contract or decide not to renew the contract upon its expiration. To the extent we are not able to obtain or maintain a facility security clearance, we may not be able to bid on or win new classified contracts, and existing contracts requiring a facility security clearance could be terminated.

Failure to comply with anti-bribery, anti-corruption, anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.

We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the UK Bribery Act, and possibly other anti-bribery and anti-money laundering laws in the United States and in countries outside of the United States in which we conduct our activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.

We sometimes leverage third parties to sell our products and conduct our business abroad. We or our employees, agents, representatives, business partners or third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or

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third-party intermediaries even if we do not explicitly authorize such activities. We cannot assure you that all of our employees and agents will not take actions in violation of applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.

These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot assure you that none of our employees, agents, representatives, business partners or third-party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

Any allegations or violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

General Risk Factors

The trading price of our common stock has been volatile and may be volatile in the future.

The trading prices of our common stock and the securities of other technology companies have been and may continue to be highly volatile. Factors affecting the trading price of our common stock include:

•variations in our operating results;

•announcements of technological innovations, new services or service enhancements, strategic alliances or agreements by us or by our competitors;

•the gain or loss of customers;

•recruitment or departure of key personnel;

•changes in the estimates of our future operating results or external guidance on those results or changes in recommendations or business expectations by any securities analysts that elect to follow our common stock;

•mergers and acquisitions by us, by our competitors or by our customers;

•market conditions in our industry, the industries of our customers and the economy as a whole, including global trade tariffs, supply chain disruptions, and fluctuations in currency exchange rates, interest rates or inflation rates;

•social, geopolitical, environmental or health factors, including pandemics or widespread health epidemics such as the COVID-19 pandemic; and

•adoption or modification of regulations, policies, procedures or programs applicable to our business.

A downturn in the economic market, including in response to negative financial news, continued inflation, declines in income or asset values, conditions in the real estate and mortgage markets, changes to fuel and other energy costs, and other economic factors, may lead to market volatility and associated uncertainty. In addition, if the market for technology stocks or the broader stock market continues to experience a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention and resources.

Future sales of our common stock could cause our stock price to fall.

We have sold, and plan in the future to sell, shares of our common stock in underwritten offerings and have established, and may in the future establish, “at-the-market” offering programs pursuant to which we may offer and

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sell shares of our common stock. Sales of securities have resulted and will continue to result in dilution of our existing stockholders, and such sales could cause our stock price to fall.

In addition, if our existing stockholders sell, or indicate an intent to sell, a large number of shares of our common stock in the public market, it could cause our stock price to fall. We may also issue shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments or otherwise. Any such issuance would result in dilution to our existing stockholders and could cause our stock price to fall.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our amended and restated certificate of incorporation and amended and restated bylaws:

•authorize the issuance of “blank check” convertible preferred stock that could be issued by our board of directors to thwart a takeover attempt;

•establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

•require that directors only be removed from office for cause;

•provide that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;

•prevent stockholders from calling special meetings; and

•prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.

Our amended and restated bylaws designate the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which will restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.

These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. Our stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in

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other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find such exclusive-forum provisions to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could harm our business.

Events that are outside our control, such as natural disasters, human violence or other catastrophic events, could harm our operations.

Our headquarters and the majority of our infrastructure, including our PIC fabrication manufacturing facility, are located in Northern California, an area that is susceptible to earthquakes, fires, floods and other natural disasters. Further, attacks and violence aimed at Northern California or at the United States energy or telecommunications infrastructure could hinder or delay the development and sale of our products. In the event that an earthquake, targeted attack or other man-made or natural catastrophe were to destroy any part of our or our contract manufacturers’ or suppliers' facilities, destroy or disrupt vital infrastructure systems, or interrupt our operations or supply chain for any extended period of time, our business, financial condition and results of operations would be harmed. For related risks concerning the operations and availability of the storage facilities in which our inventory is held, see also the Risk Factor titled "Our international sales and operations subject us to additional risks that may harm our operating results."

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Item 6.Exhibits


Exhibit No.						Description

4.1						Indenture, dated August 8, 2022, by and between Infinera C orporation and U.S. Bank Trust Company, National Association, incorporated herein by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486) filed with the SEC on August 8, 2022.

4.2						Form of 3.75% Convertible Senior Note s due 2028 (included in Exhibit 4.1).

10.1						First Amendment to Loan, Guaranty and Security Agreement, dated as of August 2, 2022, among Infinera C orporation, the other obligors party thereto, the lenders party thereto, and Bank of America, N.A., as Administrative Agent, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486) filed with the SEC on August 3, 2022.

10.2						Purchase Agreement, dated August 3, 2022, by and between Infinera C orporation and Jefferies LLC, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486) filed with the SEC on August 8, 2022.

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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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.


Infinera Corporation

By:						/s/ NANCY ERBA
						Nancy Erba Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Date:						November 2, 2022