# CALIX, INC (CALX) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CALIX, INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1406666/000162828022003338/calx-20211231.htm
Accession: 0001628280-22-003338
Filing date: 2022-02-22
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CALX/
All MD&A years: /company/CALX/mda/
Next year: /company/CALX/mda/fy2022/ (FY 2022)

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and the beliefs and assumptions of our management. In some cases, forward-looking statements can be identified by the use of words such as “believe,” “could,” “expect,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “predict,” “will,” “would,” “project,” “potential,” or the negative thereof or other comparable terminology. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and industry and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified in the Risk Factors discussed in Item 1A, in the discussion below, as well as in other sections of this Annual Report on Form 10-K. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Overview

We are the leading global provider of cloud and software platforms, systems and services that focus on the access network, the portion of the network that governs available bandwidth and determines the range and quality of services that can be offered to subscribers. These cloud and software platforms enable BSPs of all types and sizes to innovate and transform their businesses. Our BSP customers are empowered to utilize real-time data and insights from Calix platforms to simplify their businesses and deliver experiences that excite their subscribers. These insights enable BSPs to grow their brand through increased subscriber acquisition, loyalty and revenue and to reduce their operating costs, thereby increasing the value of their businesses and contributions to their communities.

We market our cloud and software platforms, systems and services to BSPs globally through our direct sales force as well as select resellers. Our customers range from smaller, regional BSPs to some of the world’s largest BSPs. We have enabled approximately 1,700 BSP customers purchasing directly and through partners to deploy passive optical, Active Ethernet and point-to-point Ethernet fiber access networks.

Our revenue increased to $679.4 million in 2021 from $541.2 million in 2020 and $424.3 million in 2019. Our revenue and potential revenue growth will depend on our ability to sell and license our cloud and software platforms, systems and services to strategically aligned customers of all types such as wireless internet service providers, fiber overbuilders, cable MSOs, municipalities and electric cooperatives in the United States and internationally. Our growth is also highly dependent on the speed and willingness of customers to adopt these platforms.

Revenue fluctuations result from many factors, including, but not limited to: increases or decreases in customer orders for our products and services, market, financial or other factors that may delay or materially impact customer purchasing decisions, non-availability of products due to supply chain challenges, including component and labor shortages and increasing lead times as well as disruptions as a result of the COVID-19 pandemic, contractual terms with customers that result in delayed revenue recognition and varying budget cycles and seasonal buying patterns of our customers. More specifically, our customers tend to spend less in the first quarter as they are finalizing their annual budgets, and in certain regions, customers are challenged by winter weather conditions that inhibit fiber deployment in outside infrastructure. Our revenue is also dependent upon our customers’ timing of purchases, capital expenditure plans and decisions to upgrade their network or adopt new technologies, including adoption of our software and cloud platform solutions, as well as our ability to grow our customer base.

Cost of revenue is strongly correlated to revenue and tends to fluctuate due to all of the above factors that may cause revenue fluctuations. Factors that have impacted our cost of revenue, and that we expect will impact cost of revenue in future periods, also include: changes in the mix of products delivered, customer location and regional mix, changes in the cost of our inventory, including higher costs due to materials shortages including components, supply constraints or unfavorable changes in trade policies, investments to support expansion of cloud and customer support offerings as well as our customer success organization, changes in product warranty and incurrence of retrofit costs, amortization of intangibles, asset write-offs, support fees for silicon-related development work for our products, allowances for obligations to our suppliers and inventory write-downs. Given the ongoing supply chain disruptions related to component shortages, longer lead times as a result of increased

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global demand for certain components and disruptions related to the COVID-19 pandemic, we have experienced and are continuing to experience product supply delays and related challenges, and we expect these delays and related challenges to persist in the foreseeable future. Similarly, challenges in supply chain logistics have persisted due to greater global demand for transport services as well as labor shortages and resulted in increases in our global freight charges. In addition, we periodically elect to ship by air in order to meet delivery commitments to our customers, and air freight rates have increased from prior year levels. Cost of revenue also includes fixed expenses related to our internal operations, which could increase our cost of revenue as a percentage of revenue if our revenue declines.

Our gross profit and gross margin fluctuate based on timing of factors such as changes in customer mix and changes in the mix of products demanded and sold (and any related write-downs of existing inventory) and have in the past been negatively impacted by increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix, shipment volumes and any related volume discounts, changes in our product and services costs, pricing decreases or discounts, new product introductions or upgrades to existing products, customer rebates and incentive programs due to competitive pressure or materials shortages, supply constraints, investments to support expansion of cloud and customer support offerings, tariffs or unfavorable changes in trade policies.

Our operating expenses fluctuate based on the following factors among others: changes in headcount and personnel costs, which comprise a significant portion of our operating expenses; variable compensation due to fluctuations in shipment volumes or level of achievement against performance targets; timing of research and development expenses, including investments in innovative solutions and new customer segments, prototype builds and outsourced development resources; investments in marketing programs; asset write-offs; investments in our business and information technology infrastructure; and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting.

During the third quarter of 2021, we recognized a discrete tax benefit of $162.0 million based on our reassessment of the amount of our U.S. federal and state deferred tax assets that are more likely than not to be realized, primarily as a result of actual and projected increases in U.S. profitability in the current and future periods.

We had net income of $238.4 million in 2021 and $33.5 million in 2020 and a net loss of $17.7 million in 2019. As of December 31, 2021, we had an accumulated deficit of $430.7 million as a result of losses in previous years. Further, as a result of factors contributing to the fluctuations described above among other factors, many of which are outside our control, our quarterly operating results fluctuate from period to period. Comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.

COVID-19 Pandemic

We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, particularly as variants of the coronavirus continue to spread around the world. In March 2020, we instituted office closures, travel restrictions and a work-from-anywhere policy for substantially all our employees due to shelter-in-place mandates. In July 2021, we reopened our U.S. offices to fully-vaccinated employees, who choose to work in the office, and we lifted certain travel restrictions. The COVID-19 pandemic has had a prolonged impact on our supply chain operations due to restrictions, reduced capacity and limited availability from suppliers on whom we rely for sourcing components and materials and from third-party partners on whom we rely for manufacturing, warehousing and logistics services. Although demand for our products has been strong in the short-term as subscribers seek more bandwidth and better Wi-Fi, customers’ purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact our revenue and results of operations. Furthermore, our supply chain continues to face constraints primarily due to challenges in sourcing components and materials and managing global logistics and transport services for our products due to shortages and delays. The prolonged impact of COVID-19 could exacerbate these constraints or cause further supply chain disruptions.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. We base our estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. To the extent there are material differences between these estimates and actual results, our financial statements may be affected. We evaluate our estimates, assumptions and judgments on an ongoing basis.

We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our financial statements.

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Revenue Recognition

We derive revenue from contracts with customers primarily from the following and categorize our revenue as follows:

•Systems include revenue from the sale of access and premises systems, software platform licenses and cloud-based software subscriptions.

•Services include revenue from professional services, customer support, software- and cloud-based maintenance, extended warranty subscriptions, training and managed services.

Revenue is recognized when a performance obligation is satisfied, which occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue from sales of access and premises systems is recognized when control is transferred to the customer, which is generally when the products are shipped. Revenue from software platform licenses, which provides the customer with a right to use the software as it exists, is generally recognized upfront when product is made available to the customer. Revenue from cloud-based software subscriptions, customer support, maintenance, extended warranty subscriptions and managed services is generally recognized ratably over the contract term. Revenue from professional services and training is recognized as the services are delivered.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our hardware products contain both software and non-software components that function together to deliver the products’ essential functionality and therefore constitutes a single performance obligation as the promise to transfer the individual software and non-software components is not separately identifiable and, therefore, not distinct. Our contracts may include multiple performance obligations. For such arrangements, we allocate the contract’s transaction price to each performance obligation using the relative stand-alone selling price of each distinct good or service in the contract. We generally determine stand-alone selling prices based on the prices charged to customers or our best estimate of stand-alone selling price. Our estimate of stand-alone selling price is established considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, characteristics of targeted customers and pricing practices. The determination of estimated stand-alone selling price is made through consultation with and formal approval by management, taking into consideration the go-to-market strategy.

Inventory Valuation and Supplier Purchase Commitments

Inventory, which primarily consists of finished goods purchased from CMs or ODMs, is stated at the lower of cost (determined by the first-in, first-out method) and net realizable value. Inbound shipping costs and tariffs are included in the cost of inventory. In addition, we, from time to time, procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers. We regularly monitor inventory quantities on-hand and record write-downs for excess and obsolete inventory based on our estimate of demand for our products, potential obsolescence of technology, product life cycles and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds our estimated selling price. We also evaluate our supplier purchase commitments, which have increased significantly due to extended lead-times in the current supply chain environment, and record a liability for excess and obsolete components based on our estimated demand of our products, potential obsolescence of technology and product life cycles. These factors are impacted by market and economic conditions, technology changes and new product introductions and require estimates that may include elements that are uncertain. Actual demand may differ from forecasted demand and may have a material effect on gross profit. If inventory is written down, a new cost basis is established that cannot be increased in future periods. The sale of previously reserved inventory has not had a material impact on our gross margin.

Income Taxes

We evaluate our tax positions and estimate our current tax exposure along with assessing temporary differences that result from different book to tax treatment of items not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities on our Consolidated Balance Sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our Consolidated Statements of Comprehensive Income (Loss) become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, realization of our deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Prior to the third quarter of 2021, we maintained a full valuation allowance against all deferred tax assets, because there was insufficient positive evidence to overcome the existing negative evidence, primarily consisting of

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several years of consecutive reported pre-tax losses, such that it was not more likely than not that the deferred tax assets were realizable. In the third quarter of 2021, we reported positive operating performance for five consecutive quarters and continued to maintain a cumulative three-year pre-tax profit. In addition, we expect continued positive operating performance into the foreseeable future to allow for utilization of all operating losses and substantially all tax credit carryforwards prior to their expiration. After considering these factors, we determined that the positive evidence overcame the negative evidence and concluded that it was more likely than not that a substantial portion of our U.S. federal and certain other state deferred tax assets were realizable. We currently maintain a valuation allowance of $29.2 million for certain U.S. federal and California state deferred tax assets.

Recent Accounting Pronouncements Not Yet Adopted

There have been no additional accounting pronouncements or changes in accounting pronouncements that are significant or potentially significant to us.

Results of Operations for Years Ended December 31, 2021 and 2020

Revenue

The following table sets forth our revenue (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["Revenue:"],["Systems","$","642,577","","","$","508,552","","","","","$","134,025","","","26","%"],["Services","36,817","","","32,687","","","","","4,130","","","13","%"],["","$","679,394","","","$","541,239","","","","","$","138,155","","","26","%"],["Percent of total revenue:"],["Systems","95","%","","94","%"],["Services","5","%","","6","%"],["","100","%","","100","%"]]
[[/GREPCENT_TABLE]]

Our revenue is principally derived in the United States. Revenue generated in the United States represented approximately 83% of our total revenue in 2021 and 88% in 2020.

Our revenue increased by $138.2 million, or 26%, during 2021 compared with 2020 mostly due to higher systems revenue of $134.0 million. Services revenue increased $4.1 million in 2021 compared with 2020. The increase in systems revenue was primarily due to higher revenue from our small, regional customers and, to a lesser extent, our medium-sized customers, as service providers adopted our All Platform offerings and sought to provide a better Wi-Fi experience, partially offset by a decrease in revenue to large customers. The increase in services revenue was due to the continued ramp in our service offerings aligned with cloud and software products for our customers.

No customer accounted for more than 10% of our total revenue for 2021. Lumen accounted for more than 10% of our total revenue in 2020. See Note 12 “Revenue from Contracts with Customers” to the Consolidated Financial Statements set forth in this report for more details on concentration of revenue for the years presented.

Gross Profit and Gross Margin

The following table sets forth our gross profit and gross margin (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["Gross profit:"],["Systems","$","345,474","","","$","256,914","","","","","$","88,560","","","34","%"],["Services","11,113","","","10,105","","","","","1,008","","","10","%"],["","$","356,587","","","$","267,019","","","","","$","89,568","","","34","%"],["Gross margin:"],["Systems","53.8","","%","50.5","","","","%"],["Services","30.2","","%","30.9","","","","%"],["","52.5","","%","49.3","","","","%"]]
[[/GREPCENT_TABLE]]

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Gross profit increased by $89.6 million to $356.6 million during 2021 from $267.0 million during 2020. Gross margin increased to 52.5% during 2021 from 49.3% during 2020. The increase in systems gross margin in 2021 compared to the 2020 was mainly due to continued growth in our All Platform offerings along with favorable product and customer mix as well as a credit for previously paid tariffs due to product re-export of $4.3 million, or 70 basis points. This was partially offset by increased costs due to higher component costs and global freight charges due to the global supply-chain disruption and shortages.

Services gross margin decreased in 2021 due to continued investments in our customer success organization. This was partially offset by better service revenue mix as we shifted away from low gross margin deployment services to higher gross margin services aligned with our platform offerings.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses consist of personnel costs, employee sales commissions, marketing programs and events, software tools and travel-related expenses. The following table sets forth our sales and marketing expenses (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["Sales and marketing","$","125,909","","","$","94,185","","","","","$","31,724","","","34","%"],["Percent of total revenue","19","%","","17","%"]]
[[/GREPCENT_TABLE]]

Sales and marketing expenses increased by $31.7 million during 2021 compared with 2020 primarily due to increases in personnel expenses of $19.7 million, mainly related to investments in sales headcount and higher sales incentive compensation, marketing expenses of $4.9 million, stock-based compensation of $2.5 million, software costs of $1.8 million, travel expenses of $1.1 million and outside services expenses of $0.9 million.

We expect our investments in sales and marketing will increase in absolute dollars, but be relatively consistent as a percentage of revenue, as we extend our market reach and grow our business in support of our key strategic initiatives.

Research and Development Expenses

Research and development expenses include personnel costs, outside contractor and consulting services, depreciation on lab equipment, costs of prototypes and overhead allocations. The following table sets forth our research and development expenses (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["Research and development","$","101,747","","","$","85,258","","","","","$","16,489","","","19","%"],["Percent of total revenue","15","%","","16","%"]]
[[/GREPCENT_TABLE]]

The increase in research and development expenses of $16.5 million during 2021 compared with 2020 was mainly due to increases in outside services expenses of $7.7 million, personnel expenses of $6.7 million, stock-based compensation of $2.0 million and depreciation and amortization of $1.2 million. These increases were partially offset by lower facilities expenses of $1.2 million.

We expect our investments in research and development to increase in absolute dollars, but remain relatively consistent as a percentage of systems gross profit, as we expand the functionality and capabilities of our platforms.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs related to our executive, finance, human resources, information technology and legal organizations, outside consulting services, insurance, facilities and fees for professional services. Professional services consist of outside audit, legal, accounting and tax services. The following table sets forth our general and administrative expenses (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["General and administrative","$","55,779","","","$","44,444","","","","","$","11,335","","","26","%"],["Percent of total revenue","8","%","","8","%"]]
[[/GREPCENT_TABLE]]

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The increase in general and administrative expenses of $11.3 million during 2021 compared with 2020 was mainly due to increases in stock-based compensation of $5.3 million, personnel expenses of $3.1 million, outside services expenses of $1.6 million and unallocated-facilities expenses of $1.4 million. Beginning in the third quarter of 2020, we changed our facility allocation to align with our work-from-anywhere initiative, and consequently, most of our facilities expenses are retained in general and administrative expenses. These increases were partially offset by a decrease in our bad debt expense of $1.0 million.

We expect our general and administrative investments to increase in absolute dollars but decline slightly as a percentage of revenue over time as revenue continues to grow.

Restructuring Charges (Benefit)

Responding to changes caused by the COVID-19 pandemic, we initiated a restructuring plan in June 2020 to accelerate our all-platform future and to align with a work-from-anywhere culture. We incurred restructuring charges of $6.3 million in 2020, consisting of facilities-related charges and severance and other termination related benefits. In 2021, we reversed $0.8 million in facilities-related charges as a result of subleasing the abandoned portion of our San Jose headquarters. See Note 4 “Balance Sheet Details” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Interest and Other Expense, Net

The following table sets forth our interest and other expense, net (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["Interest and other expense, net","$","(1,284)","","","$","(2,562)","","","","","$","1,278","","","(50)","%"]]
[[/GREPCENT_TABLE]]

Interest and other expense, net increased by $1.3 million in 2021 compared with 2020 mainly due to lower interest expenses and lower foreign currency losses.

Income Taxes

The following table sets forth our income taxes (dollars in thousands):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","","","2021 vs 2020 Change"],["","2021","","2020","","","","$","","%"],["Income taxes","$","(165,724)","","","$","800","","","","","$","(166,524)","","","(20,816)","%"],["Effective tax rate","(228)","%","","2","%"]]
[[/GREPCENT_TABLE]]

During 2021, we recognized an income tax benefit of $162.0 million offset by current income taxes, based on our reassessment of the amount of our U.S. federal and other state deferred tax assets that are more likely than not to be realized, primarily as a result of actual and projected increases in U.S. profitability in the current and future periods. In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the ability to utilize our deferred tax assets. We continue to maintain a valuation allowance of $29.2 million on certain U.S. federal and California state deferred tax assets that we believe are not more likely than not to be realized in future periods.

As of December 31, 2020, the total expense was primarily related to foreign activity. In 2020, based on a review of the positive and negative evidence, we concluded that the deferred tax assets were not more likely than not to be realized, which resulted in an immaterial domestic provision as the deferred tax assets were fully offset with the valuation allowance.

Our income taxes may be subject to fluctuation during the year and in future years as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as actual results differing from our estimates of pre-tax earnings in the various jurisdictions in which we operate, which could impact the recognition of our deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions and changes in or the interpretation of tax laws in jurisdictions where we conduct business.

2020 Compared to 2019

For a comparison of our results of operations for the years ended December 31, 2020 and 2019, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 22, 2021.

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Liquidity and Capital Resources

We have funded our operations and investing activities primarily through cash flow generated from operations, sales of our common stock, including an underwritten public offering in August 2020, and various borrowing arrangements. As of December 31, 2021, we had cash, cash equivalents and marketable securities of $204.3 million, which consisted of deposits held at banks and major financial institutions and highly liquid marketable securities such as U.S. government agency securities and commercial paper. This includes $3.6 million of cash primarily held by our foreign subsidiaries. As of December 31, 2021, our liability for taxes that would be payable as a result of repatriation of undistributed earnings of our foreign subsidiaries to the United States was not significant and limited to withholding taxes considering our existing net operating loss carryovers.

The following table presents the cash inflows and outflows by activity during 2021 and 2020 (in thousands):

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","2020"],["Net cash provided by operating activities","","$","56,793","","","$","51,409"],["Net cash used in investing activities","","(110,661)","","","(60,801)"],["Net cash provided by financing activities","","24,383","","","42,147"]]
[[/GREPCENT_TABLE]]

Operating Activities

Our operating activities provided cash of $56.8 million in 2021 and $51.4 million in 2020. The increase in net cash provided by operating activities during 2021 as compared to 2020 was due primarily to a favorable change in our net operating results of $44.1 million after adjustment of non-cash charges partially offset by a $38.7 million net cash outflow resulting from changes in operating assets and liabilities. We had a non-cash benefit from deferred income taxes of $168.4 million offset by non-cash charges of stock-based compensation of $24.2 million and depreciation and amortization of $15.0 million.

In 2021, cash outflows from changes in operating assets and liabilities primarily consisted of increases in inventory of $36.6 million to support revenue growth and to mitigate supply chain shortages and disruptions; in prepaid expenses and other assets of $27.1 million mainly due to advance payments to our supply chain partners and capitalized sales commissions; and in accounts receivable of $15.8 million due to increased revenue. These changes were partially offset by increases in accounts payable of $16.0 million due to increased inventory purchases; in deferred revenue of $10.4 million due to Calix Cloud subscriptions, support contracts and extended warranties; and in total accrued liabilities of $0.7 million, mainly related to component inventory held at suppliers and accrued freight.

Investing Activities

In 2021, cash used in investing activities of $110.7 million consisted of net purchases of marketable securities of $100.2 million and capital expenditures of $10.5 million, primarily related to purchases of test equipment and computer equipment.

Financing Activities

In 2021, net cash provided by financing activities of $24.4 million primarily consisted of proceeds from the issuance of common stock related to our equity plans of $25.6 million. This was partially offset by payments related to a financing arrangement of $1.2 million.

2020 Compared to 2019

For a discussion of our liquidity and capital resources and our cash flow activities for the years ended December 31, 2020 and 2019, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 22, 2021.

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Working Capital and Capital Expenditure Needs

We generated positive operating cash flow for three consecutive years and ended fiscal 2021 with $204.3 million in cash, cash equivalents and marketable securities. In January 2022, we terminated our loan and security agreement with Bank of America, N.A. The BofA Loan Agreement provided for a revolving facility up to a principal amount of up to $35.0 million and would have expired in January 2023. As of December 31, 2021 and 2020, we had no outstanding borrowings.

In the third quarter of fiscal 2020, we completed an underwritten public offering of 3,220,000 shares of our common stock at $20.00 per share, including a full exercise by the Underwriters of their option to purchase an additional 420,000 shares of Common Stock, for net proceeds of $60.1 million after deducting the underwriting discount and expenses paid by us. We used the net proceeds to repay the line of credit and increase our capital available to invest in our future growth, especially during uncertain times.

Our material cash commitments include non-cancelable firm purchase commitments, normal recurring trade payables, compensation-related and expense accruals, operating leases and revenue-share obligations. We believe that our outsourced approach to manufacturing provides us significant flexibility in both managing inventory levels and financing our inventory. In the event that our revenue plan does not meet our expectations, we may be required to curtail or eliminate expenditures to mitigate the impact on our working capital.

We believe, based on our current operating plan and expected operating cash flows, that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months. If we are unable to execute on our current operating plan or continue to generate operating income and positive cash flows, our liquidity, results of operations and financial condition will be adversely affected, and we may need to seek other sources of liquidity, including the sale of additional equity or borrowing, to support our working capital needs. In addition, we may choose to seek other sources of liquidity even if we believe we have generated sufficient cash flows to support our operational needs. There is no assurance that any other sources of liquidity may be available to us on acceptable terms or at all. If we are unable to generate sufficient cash flows or obtain other sources of liquidity, we will be forced to limit our development activities, reduce our investment in growth initiatives and institute cost-cutting measures, all of which may adversely impact our business and potential growth.

Contractual Obligations and Commitments

Our principal commitments as of December 31, 2021 consisted of our contractual obligations under non-cancelable outstanding purchase obligations, operating lease obligations for office space and a revenue share obligation. The following table summarizes our contractual obligations as of December 31, 2021 (in thousands):

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["","","Total","","Less Than 1 Year","","1-3 Years","","3-5 Years"],["Non-cancelable purchase commitments (1)","","$","281,831","","","$","241,557","","","$","33,056","","","$","7,218"],["Operating lease obligations (2)","","18,034","","","4,473","","","9,031","","","4,530"],["Revenue share obligation (3)","","14,010","","","4,731","","","9,279","","","\u2014"],["","","$","313,875","","","$","250,761","","","$","51,366","","","$","11,748"]]
[[/GREPCENT_TABLE]]

(1) Represents outstanding purchase commitments to be delivered by our third-party manufacturers or other vendors. See Note 6 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our outstanding purchase commitments related to our third-party manufacturers.

(2) Future minimum operating lease obligations in the table above primarily include payments for our office locations, which expire at various dates through 2026. See Note 6 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our operating leases.

(3) Represents remaining payments related to a revenue-share obligation, including imputed interest associated with developed software product and related enhancements by an engineering service provider. The schedule reflects our expected revenue-share and true-up payments based on our revenue projections for the developed products over a sales period through March 2024. If the minimum revenue-share payments are not achieved by the end of that period, a true-up payment will be due. See Note 4 “Balance Sheet Details” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our outstanding liability.

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