DZS INC. As used in this Quarterly Report on Form 10-Q, unless the context suggests
otherwise, the terms "DZS," the "Company" "we," "our" and "us" refer to
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including "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"). These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate, and reflect the beliefs and assumptions of our management as of the date hereof. We use words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may," "plan," "project," "seek," "should," "target," "will," "would," variations of such words, the negative of such words, and similar expressions to identify forward-looking statements. In addition, statements that refer to projections of earnings, revenue, costs or other financial items in future periods; our ability to satisfy our short- and long-term cash requirements; anticipated growth and trends in our business, industry or key markets; future growth and revenues from our products; our plans and our ability to refinance or repay our existing indebtedness prior to the applicable maturity dates; our ability to access other capital to fund our future operations; future economic conditions and performance; the impact of the global outbreak of COVID-19; the impact of interest rate and foreign currency fluctuations; anticipated performance of products or services; competition; plans, objectives and strategies for future operations, including our pursuit or strategic acquisitions and our continued investment in research and development; other characterizations of future events or circumstances; and all other statements that are not statements of historical fact, are forward-looking statements within the meaning of the Securities Act and the Exchange Act. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:
• the impact of the global COVID-19 pandemic on the Company's business and
operations, including as a result of travel bans related thereto, the health
and wellbeing of our employees in affected areas and disruption of our
supply chain;
• our ability to realize the anticipated cost savings, synergies and other
benefits of the Company's acquisitions and any integration risks relating to
the Company's acquisitions;
• our ability to generate sufficient revenue to achieve or sustain
profitability;
• our ability to raise additional capital to fund existing and future
operations or to refinance or repay our future indebtedness;
• our ability to hire and retain key management and other personnel;
• defects or other performance problems in our products;
• any economic slowdown in the telecommunications industry that restricts or
delays the purchase of our products by our customers, or delays in payments
of accounts receivable by our customers;
• commercial acceptance of our products;
• intense competition in the communications equipment market from large
equipment companies as well as private companies with products that address
the same network needs as our products;
• higher than anticipated expenses that we may incur;
• any failure to comply with the periodic report filing and other requirements
of The Nasdaq Stock Market for continued listing;
• our ability to meet future customer demands, by utilizing outsourced
manufacturers and based on the availability of raw material component parts;
and
• additional factors discussed in our Annual Report on Form 10-K for the year
ended
with the SEC .
You are urged to consider these factors carefully in evaluating the
forward-looking statements herein and are cautioned not to place undue reliance
on such forward-looking statements, which are qualified in their entirety by
this cautionary statement.
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OVERVIEW
We are a global provider of packet-based mobile transport, broadband access, network orchestration and cloud-native automation solutions deployed by advanced Tier I, national and regional service providers and enterprise customers. Our solutions are deployed worldwide. Our intelligent-edge solutions are focused on creating significant value for our customers by delivering innovative solutions that empower global communication advancement by shaping the internet connection experience. We research, develop, test, sell, manufacture and support platforms in the areas of mobile transport and fixed broadband access, as discussed below. We have extensive regional development and support centers around the world to support our customer needs. Our network access solutions and communications platforms include products inMobile Transport and Fixed Broadband Access, which includes broadband access and connected premises.
•
and scalable solution for mobile operators that enable them to upgrade their
mobile fronthaul/midhaul/backhaul ("xHaul") systems and migrate to fifth
generation wireless technologies ("5G") and beyond. DZS Chronos provides a
full range of 5G-ready xHaul solutions that are open, software-defined, and
field proven. Our mobile xHaul products may be collocated at the radio
access node base station and can aggregate multiple radio access node base
stations into a single backhaul for delivery of mobile traffic to the radio
access node network controller. Our products support pure Ethernet switching
as well as layer 3 IP and Multiprotocol Label Switching ("MPLS"), and we
interoperate with other vendors in these networks.
• Fixed Broadband Access. Our DZS Velocity portfolio offers a variety of
solutions for carriers and service providers to connect residential and
business customers, either using high-speed fiber or leveraging theirexisting deployed copper networks to offer broadband services to customer
premises. Once our broadband access products are deployed, the service
provider can offer voice, high-definition and ultra-high-definition video,
highspeed internet access and business class services to their customers. In
addition, the switching and routing products we provide in this space offer
a high-performance and manageable solution that bridges the gap from carrier
access technologies to the core network. XCelerate by DZS increases the
velocity with which service providers can leap to multi-gigabit services at
scale by enabling rapid transition from GPON to XGS-PON and gigabit Ethernet
to 10 gigabit Ethernet via any service port across a range of existing DZS
Velocity chassis and 10 gig optimized stackable.
• Network Orchestration. Our DZS Cloud solution accelerates our software
capabilities specifically in the areas of network orchestration, application
slicing, automation, analytics, and service assurance. We offer a
commercial, carrier-grade network-slicing enabled orchestration platform
complementing our position with physical network devices supporting O-RAN
and 5G networks. Communications service providers are implementing software
defined networking ("SDN") and network functions virtualization ("NFV")
architectures to reduce reliance on proprietary systems and hardware, which
increase service agility, flexibility, and deployment of new network
services while lowering costs.
• Connected Premises. Our DZS Helix connected premises product portfolio offer
a large collection of smart gateway platforms for any FTTx deployment. DZS
Smart
deployed to the home or business. Our connected premises portfolio consists
of indoor/outdoor optical network terminal ("ONT") gateways delivering
best-in-class data throughout to support the most demanding fiber to the "x"
("FTTx") applications. The product feature set gives service providers an
elegant migration path from legacy to softswitch architectures without
replacing ONTs.
Going forward, our key financial objectives include the following:
• Increasing revenue while continuing to carefully control costs;
• Continuing investments in strategic research and product development
activities that will provide the maximum potential return on investment; and
• Minimizing consumption of our cash and cash equivalents.
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RESULTS OF OPERATIONS
We list in the table below the unaudited condensed consolidated statement of (loss) income as a percentage of total net revenue for the periods indicated.
Three months ended September 30 ,
Nine months ended
2021 2020 2021 2020
Net revenue 100 % 100 % 100 % 100 %
Cost of revenue 64 % 70 % 65 % 68 %
Gross profit 36 % 30 % 35 % 32 %
Operating expenses:
Research and product development 13 % 10 % 14 % 13 %
Selling, marketing, general and
administrative 22 % 18 % 28 % 21 %
Restructuring and other charges 8 % - 5 % -
Impairment of long-lived assets - - 1 % -
Amortization of intangible assets - - - -
Total operating expenses 43 % 28 % 48 % 34 %
Operating income (loss) (7 )% 2 % (13 )% (2 )%
Interest income - - - -
Interest expense - - - (1 )%
Loss on extinguishment of debt - - - -
Other income (expense), net 1 % - 1 % -
Income (loss) before income taxes (6 )% 2 % (12 )% (3 )%
Income tax provision (benefit) 1 % 2 % 1 % 1 %
Net income (loss) (7 )% - (13 )% (4 )%
Net Revenue
The following table presents our revenues by source (in millions):
Three months ended September 30, Nine months ended September 30,
Increase/ Increase/
2021 2020 (Decrease) % change 2021 2020 (Decrease) % change
Products $ 82.9 $ 88.9 $ (6.0 ) (6.7 )% $ 237.1 $ 197.8 $ 39.3 19.9 %
Services and other $ 5.5 $ 5.0 0.5 10.0 % $ 15.1 $ 14.1 1.0 7.1 %
Total $ 88.4 $ 93.9 $ (5.5 ) (5.9 )% $ 252.2 $ 211.9 $ 40.3 19.0 %
For the three months ended
For the nine months endedSeptember 30, 2021 , product revenue increased by 19.9% or$39.3 million to$237.1 million from$197.8 million in the same period last year. The increase in product revenue during the period was primarily attributable to increased sales of our mobile transport and fixed broadband connectivity products and partly as a result of recovering from the impacts of the COVID-19 pandemic in the first half of 2020. For the nine months endedSeptember 30, 2021 , service and other revenue of$15.1 million increased by 7.1% partly due to increased product sales. The following table presents our revenues by geographical concentration (in millions): Three months ended September 30, Nine months ended September 30, Increase/ Increase/ 2021 2020 (Decrease) % change 2021 2020 (decrease) % change Revenue by geography: Americas$ 27.3 $ 16.9 $ 10.4 61.5 %$ 74.0 $ 43.7 $ 30.3 69.3 % Europe, Middle East, Africa$ 20.4 $ 20.0 0.4 2.0 %$ 55.0 $ 47.7 7.3 15.3 % Asia$ 40.7 $ 57.0 (16.3 ) (28.6 )%$ 123.2 $ 120.5 2.7 2.2 % Total$ 88.4 $ 93.9 $ (5.5 ) (5.9 )%$ 252.2 $ 211.9 $ 40.3 19.0 % From a geographical perspective, the decrease in net revenue for the three months endedSeptember 30, 2021 was attributable to decreased revenue inAsia primarily attributable to the very strong prior year results. The increase in net revenue for the nine 24
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months ended
For the three months endedSeptember 30, 2021 , two customers accounted for 15% and 11% of net revenue, respectively. For the nine months endedSeptember 30, 2021 , two customers accounted for 18% and 12% of net revenue, respectively. For the three months endedSeptember 30, 2020 , two customers accounted for 23% and 12% of net revenue, respectively. For the nine months endedSeptember 30, 2020 , one customer accounted for 16% of net revenue. We anticipate that our results of operations in any given period may depend to a large extent on sales to a small number of large customers. As a result, our revenue for any quarter may be subject to significant volatility based upon changes in orders from one or a small number of key customers.
Cost of Revenue and Gross Profit
Total cost of revenue decreased 14.5% to$56.2 million for the three months endedSeptember 30, 2021 , compared to$65.8 million for the three months endedSeptember 30, 2020 . Total cost of revenue was 63.6% of net revenue for the three months endedSeptember 30, 2021 , compared to 70.0% of net revenue for the three months endedSeptember 30, 2020 , which resulted in an increase in gross profit percentage to 36.4% for the three months endedSeptember 30, 2021 from 30.0% for the three months endedSeptember 30, 2020 . The decrease in total cost of revenue was primarily due to the change in number and mix of products sold, including the geographic mix of those sales. Total cost of revenue increased 14.4% to$164.8 million for the nine months endedSeptember 30, 2021 , compared to$144.0 million for the nine months endedSeptember 30, 2020 . Total cost of revenue was 65.3% of net revenue for the nine months endedSeptember 30, 2021 , compared to 67.9% of net revenue for the nine months endedSeptember 30, 2020 , which resulted in an increase in gross profit percentage to 34.7% for the nine months endedSeptember 30, 2021 from 32.1% for the nine months endedSeptember 30, 2020 . The increase in total cost of revenue was primarily due to the increase in number and mix of products sold, including the geographic mix of those sales. We expect that in the future our cost of revenue as a percentage of net revenue will vary depending on the geographic and product mix and average selling prices of products sold. In addition, continued competitive and economic pressures could cause us to reduce our prices, adjust the carrying values of our inventory, or recognize inventory expenses relating to discontinued products and excess or obsolete inventory.
Research and Product Development Expenses
Research and product development expenses include personnel costs, outside contractor and consulting services, depreciation on lab equipment, costs of prototypes and overhead allocations.
Research and product development expenses increased by 29.6% to$11.7 million for the three months endedSeptember 30, 2021 compared to$9.0 million for the three months endedSeptember 30, 2020 . Research and product development expenses increased by 27.7% to$34.8 million for the nine months endedSeptember 30, 2021 compared to$27.2 million for the nine months endedSeptember 30, 2020 . The increase in research and product development expenses was primarily due to strategic hiring decisions in research, development, and product line management in the second half of 2020 and into the first half of 2021 with the intent to accelerate growth and capture market share.
We intend to continue to invest in research and product development to attain our strategic product development objectives, while seeking to manage the associated costs through expense controls.
Selling, Marketing, General and Administrative Expenses
Selling, marketing, general and administrative expenses include personnel costs for sales, marketing, administration, finance, information technology, human resources and general management as well as legal and accounting expenses, rent, utilities, trade show expenses and related travel costs. Selling, marketing, general and administrative expenses increased by 16.3% to$19.5 million for the three months endedSeptember 30, 2021 compared to$16.8 million for the three months endedSeptember 30, 2020 . The increase was due to strategic hiring decisions across sales and administration in the second half of 2020 and into the first half of 2021 with the intent to accelerate growth and capture market share, along with the full quarter impact of the Optelian and Rift acquisitions. Selling, marketing, general and administrative expenses increased by 60.1% to$69.6 million for the nine months endedSeptember 30, 2021 compared to$43.5 million for the nine months endedSeptember 30, 2020 . The increase in selling, marketing, general and administrative expenses was primarily due to the increase in allowance for doubtful accounts for one customer inIndia by$14.2 million in the first quarter of 2021. Refer to Note 1 in the Notes to Unaudited Condensed Consolidated Financial Statements, for further information on the bad debt expense. The increase was also partially due to strategic hiring decisions across sales and administration in the second half of 2020 and into the first half of 2021 with the intent to accelerate growth and capture market share, along with the impact of the Optelian and Rift acquisitions. 25 --------------------------------------------------------------------------------
Restructuring and Other Charges
Restructuring and other charges for the nine months endedSeptember 30, 2021 were$12.1 million and relate primarily to the strategic decision to transitionDZS GmbH to a sales and research and development center by the end of 2021. DuringJuly 2021 , the Company and works council agreed to the terms of and entered into a social plan that included employee termination benefits in conjunction with the restructuring inGermany . The Company accounted for the one-time employee termination benefits when the final terms of the benefit arrangement were communicated to the affected employees in the third quarter of 2021, as reflected in the increase to restructuring and other charges in the statement of operations during the three months endedSeptember 30, 2021 of$6.7 million . See Note 9 Restructuring and Other Charges of the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information.
Impairment of Long-lived Assets
Impairment of long-lived assets for the nine months endedSeptember 30, 2021 was$1.7 million , and related to the headquarters relocation toPlano, Texas . No impairment was recorded during the three months endedSeptember 30, 2021 . See Note 13 Leases of the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information.
Income Tax Provision
Income tax expense for the three and nine months endedSeptember 30, 2021 was$0.7 million and$2.0 million , respectively, on pre-tax loss of$5.2 million and$30.4 million , respectively. Income tax expense for the three and nine months endedSeptember 30, 2020 was$1.6 million and$2.5 million , respectively, on pre-tax income of$1.5 million and pre-tax loss of$6.6 million , respectively. For the three and nine months endedSeptember 30, 2021 , the effective income tax rate varied fromthe United States statutory income tax rate primarily due to valuation allowances inNorth America and EMEA and the mix of earnings generated by our wholly owned foreign subsidiaries inAsia .
OTHER PERFORMANCE MEASURES
In managing our business and assessing our financial performance, we supplement the information provided by ourU.S. GAAP results with adjusted earnings before stock-based compensation, interest, taxes, and depreciation, or Adjusted EBITDA, a non-U.S. GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus (i) interest expense, net, (ii) provision (benefit) for taxes, (iii) depreciation and amortization, (iv) stock-based compensation, and (v) the impact of material transactions or events that we believe are not indicative of our core operating performance, such as acquisition costs, goodwill impairment, impairment of long-lived assets, loss on debt extinguishment, restructuring and other charges, headquarters relocation, executive transition, and bad debt expense related to a large customer inIndia , any of which may or may not be recurring in nature. We believe that the presentation of Adjusted EBITDA enhances the usefulness of our financial information by presenting a measure that management uses internally to monitor and evaluate our operating performance and to evaluate the effectiveness of our business strategies. We believe Adjusted EBITDA also assists investors and analysts in comparing our performance across reporting periods on a consistent basis because it excludes the impact of items that we do not believe reflect our core operating performance.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
• Adjusted EBITDA does not reflect our cash expenditures, or future
requirements, for capital expenditures or contractual requirements;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
• Adjusted EBITDA does not reflect the interest expense, or the cash
requirements necessary to service interest or principal payments, on our
debts;
• Although depreciation and amortization are non-cash expenses, the assets
being depreciated and amortized will often have to be replaced in the
future, and Adjusted EBITDA does not reflect any cash requirements for such
replacements;
• Non-cash compensation is and will remain a key element of our overall
long-term incentive compensation package, although we exclude it as an
expense when evaluating our ongoing operating performance for a particular
period; and
• Other companies in our industry may calculate Adjusted EBITDA and similar
measures differently than we do, limiting its usefulness as a comparative
measure.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) or any other performance measures calculated in accordance withU.S. GAAP or as a measure of liquidity. Management understands these limitations and compensates for these limitations by relying primarily on ourU.S. GAAP results and using Adjusted EBITDA only as a supplemental measure. 26
-------------------------------------------------------------------------------- Set forth below is a reconciliation of net income (loss) to Adjusted EBITDA, which we consider to be the most directly comparableU.S. GAAP financial measure to Adjusted EBITDA (in thousands): Three months endedSeptember 30 ,
Nine months ended
2021 2020 2021 2020
Net income (loss) $ (5,896 ) $ (115 ) $ (32,400 ) $ (9,042 )
Add (deduct):
Interest expense, net 29 432 245 1,405
Income tax provision (benefit) 676 1,619 2,032 2,452
Depreciation and amortization 1,112 1,386 3,555 3,935
Stock-based compensation 3,104 1,660 6,450 3,310
Headquarters and facilities relocation (908 ) 35 1,012 35
Restructuring and other charges 6,754 - 12,098 -
Acquisition costs 9 - 689 -
Executive transition 200 1,383 372 1,383
Bad debt expense* - - 14,206 -
Loss on debt extinguishment - - - 1,369
Adjusted EBITDA $ 5,080 $ 6,400 $ 8,259 $ 4,847 * See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a complete description of what we believe to be the critical accounting policies and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to Note 1 Organization and Summary of Significant Accounting Policies in the notes to our audited consolidated financial statements in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as supplemented by Note 1 Organization and Summary of Significant Accounting Policies in the notes to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Our operations are financed through a combination of our existing cash, cash equivalents, available credit facilities, and sales of equity and debt instruments, based on our operating requirements and market conditions.
The following table summarizes the information regarding our cash and cash equivalents and working capital (in thousands):
September 30, 2021 December 31, 2020
Cash and cash equivalents $ 45,505 $ 45,219
Working capital 121,780 123,285
The Company had a net loss of $5.9 million and $32.4 million for the three
months and nine months ended September 30, 2021 , respectively. The Company had a
net loss of $0.1 million and $9.0 million for the three months and nine months
ended September 30, 2020 , respectively.
As of
OnJanuary 29, 2021 , we closed an equity offering which resulted in gross proceeds of approximately$64.4 million and net proceeds, after deducting underwriting discounts and commissions and offering expenses, of approximately$59.5 million . We used a portion of the net proceeds from the equity offering to pay off the outstanding balance of debt with financial institutions and related parties. We continue to focus on cost management, operating efficiency and efficient discretionary spending. In addition, if necessary, we may sell assets, issue debt or equity securities or purchase credit insurance. We may also rationalize the number of products we sell, adjust our manufacturing footprint, and reduce our operations in low margin regions, including reductions in headcount. Based on our current plans and current business conditions, we believe that these measures along with our existing cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. InDecember 2019 , a strain of coronavirus, now known to cause COVID-19, was reported to have surfaced inWuhan, China . Since that time, the widespread and sustained transmission of the virus has reached global pandemic status. In response to the pandemic, many national and international health agencies have recommended, and many countries and state, provincial and local governments have implemented, various measures, including travel bans and restrictions, limitations on public and private 27 -------------------------------------------------------------------------------- gatherings, business closures or operating restrictions, social distancing, and shelter-in-place orders. The health effects of the pandemic and the above measures taken in response thereto have had an effect on the global economy in general and have materially impacted and may continue to impact on our financial condition, results of operations and cash flows. Given the ongoing and dynamic nature of the virus and the worldwide response related thereto, it is difficult to predict the full impact of the COVID-19 pandemic on our business. Due to the uncertainty around the future economic impact of the pandemic, the fair value measurements used in our impairment assessments could be negatively impacted and could result in future impairments of goodwill, intangibles and other long-lived assets. During the nine months endedSeptember 30, 2021 , our revenues increased by 19.0%, compared to the nine months endedSeptember 30, 2020 , however the impact of a continued COVID-19 pandemic or sustained measures taken to limit or contain the outbreak could have a material and adverse effect on our business, financial condition, results of operations, and cash flows.
Operating Activities
Net cash used in operating activities increased by$4.1 million to$15.1 million for the nine months endedSeptember 30, 2021 from net cash used in operating activities of$11.0 million for the nine months endedSeptember 30, 2020 . The increase in cash used in operating activities was primarily due to restructuring activities related to ourHanover location, an increase in research and development expenses, along with an increase in selling, general and administrative expenses, partially offset by an increase in gross margin. The increase in research and product development expenses was primarily due to strategic hiring decisions in research, development, and product line management in the second half of 2020 and into the first half of 2021 with the intent to accelerate growth and capture market share. The increase in selling, general and administrative expenses was due to strategic hiring decisions across sales and administration in the second half of 2020 and into the first half of 2021 with the intent to accelerate growth and capture market share, along with the impact of the Optelian and Rift acquisitions.
Investing Activities
Net cash used in investing activities increased by$6.7 million to$8.6 million for the nine months endedSeptember 30, 2021 from$1.9 million for the nine months endedSeptember 30, 2020 . This increase was primarily due to cash used in the Optelian and RIFT acquisitions.
Financing Activities
Net cash provided by financing activities totaled$21.6 million for the nine months endedSeptember 30, 2021 and consisted primarily of proceeds from the equity offering of$59.5 million , partially offset by repayments of our short-term borrowings and related party term loan. This is in comparison to cash provided by financing activities of$19.8 million for the nine months endedSeptember 30, 2020 and consisted primarily of proceeds from a related party loan, factored accounts receivable accounted for as a secured borrowing, and proceeds from short-term borrowings, partially offset by a net outflow associated with the repayment of the PNC Credit Facilities and other short-term borrowings. Cash Management Our primary source of liquidity comes from our cash, cash equivalents and restricted cash, which totaled$52.4 million atSeptember 30, 2021 . Our cash, cash equivalents and restricted cash as ofSeptember 30, 2021 included$22.3 million held by our international subsidiaries.
Debt Facilities
Bank and Trade Facilities - Foreign Operations
As ofSeptember 30, 2021 , we had no outstanding balances with banks and other lending institutions. As ofDecember 31, 2020 , we had an aggregate outstanding balance of$13.8 million under financing arrangements with foreign banks and other lending institutions. During the first half of 2021, we paid off the outstanding balance of debt under such financing arrangements.
Related Party Debt
As ofSeptember 30, 2021 , we had no related party debt outstanding. As ofDecember 31, 2020 , we had an aggregate outstanding balance of$29.8 million of related party debt with DNI. In January andFebruary 2021 , we paid off the outstanding balance of debt with related parties with proceeds from the issuance of shares of our common stock duringJanuary 2021 .
Future Cash Requirements and Funding Sources
Our fixed commitments for cash expenditures consist primarily of payments under operating leases, and inventory purchase commitments.
From time to time, we may provide or commit to extend credit or credit support
to our customers. This financing may include extending the terms for product
payments to customers. Any extension of financing to our customers will limit
the capital that we have available for other uses.
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Our accounts receivable, while not considered a primary source of liquidity,
represent a concentration of credit risk because a significant portion of the
accounts receivable balance at any point in time typically consists of a
relatively small number of customer account balances. As of September 30, 2021 ,
two customers represented 18% and 15% of net accounts receivable, respectively,
and net receivables from customers in countries other than the United States
represented 80%. We do not currently have any material commitments for capital
expenditures, or any other material commitments aside from operating leases for
our facilities, and inventory purchase commitments.
Operating Leases
Future minimum operating lease obligations include primarily payments for our office locations and manufacturing, research and development locations, which expire at various dates through 2028. See Note 13 Leases of the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding our operating leases.
Purchase Commitments
We may have short term purchase commitments related to the purchase orders for
products and services, within the normal course of business. These arrangements
typically have cancellation provisions that allow us to cancel with little to no
penalty.
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