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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 March 27, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-33486
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)
140 Caspian Court
Sunnyvale, CA 94089
(Former name or former address and former fiscal year, if changed since last report)
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 April 30, 2021, 204,996,590 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.


INFINERA CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 27, 2021
INDEX
 
    Page
Item 1.
3
4
5
6
7
8
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Risk Factors
Item 6.


PART I. FINANCIAL INFORMATION
 

Item 1.Condensed Consolidated Financial Statements (Unaudited)
3

INFINERA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
(Unaudited)
March 27,
2021
December 26,
2020
ASSETS
Current assets:
Cash $ 234,029  $ 298,014 
Short-term restricted cash
3,288  3,293 
Accounts receivable, net of allowance for doubtful accounts of $3,102 in 2021 and $2,912 in 2020
276,855  319,428 
Inventory 262,827  269,307 
Prepaid expenses and other current assets 139,245  171,831 
Total current assets 916,244  1,061,873 
Property, plant and equipment, net 153,118  153,133 
Operating lease right-of-use assets 64,942  68,851 
Intangible assets 115,164  124,882 
Goodwill 265,216  273,426 
Long-term restricted cash 12,228  14,076 
Other non-current assets 40,043  36,256 
Total assets $ 1,566,955  $ 1,732,497 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 151,984  $ 175,762 
Accrued expenses and other current liabilities 129,598  150,550 
Accrued compensation and related benefits 56,050  52,976 
Short-term debt, net 25,068  101,983 
Accrued warranty 18,943  19,369 
Deferred revenue 124,285  133,246 
Total current liabilities 505,928  633,886 
Long-term debt, net 453,427  445,996 
Long-term financing lease obligations 1,964  1,383 
Long-term accrued warranty 19,944  21,339 
Long-term deferred revenue 28,960  29,810 
Long-term deferred tax liability 3,681  4,164 
Long-term operating lease liabilities 72,912  76,126 
Other long-term liabilities 86,791  93,509 
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 March 27, 2021
      and December 26, 2020
      Issued and outstanding shares – 204,812 as of March 27, 2021 and
      201,397 as of December 26, 2020
205  201 
Additional paid-in capital 1,983,599  1,965,245 
Accumulated other comprehensive loss (14,870) (11,898)
Accumulated deficit (1,575,586) (1,527,264)
Total stockholders' equity 393,348  426,284 
Total liabilities and stockholders’ equity $ 1,566,955  $ 1,732,497 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

INFINERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
  Three Months Ended
  March 27,
2021
March 28,
2020
Revenue:
Product $ 254,161  $ 255,192 
Services 76,746  75,081 
Total revenue 330,907  330,273 
Cost of revenue:
Cost of product 165,485  201,792 
Cost of services 43,260  40,695 
Amortization of intangible assets 4,616  8,628 
Acquisition and integration costs —  1,035 
Restructuring and related 514  1,157 
Total cost of revenue 213,875  253,307 
Gross profit 117,032  76,966 
Operating expenses:
Research and development 73,529  68,180 
Sales and marketing 32,772  36,689 
General and administrative 26,506  29,620 
Amortization of intangible assets 4,405  4,555 
Acquisition and integration costs 614  9,222 
Restructuring and related 2,319  5,580 
Total operating expenses 140,145  153,846 
Loss from operations (23,113) (76,880)
Other income (expense), net:
Interest income 40  24 
Interest expense (11,843) (8,794)
Other gain (loss), net (12,395) (12,682)
Total other income (expense), net (24,198) (21,452)
Loss before income taxes (47,311) (98,332)
Provision for income taxes 1,011  936 
Net loss $ (48,322) $ (99,268)
Net loss per common share:
Basic $ (0.24) $ (0.55)
Diluted $ (0.24) $ (0.55)
Weighted average shares used in computing net loss per common share:
Basic 202,638  182,024 
Diluted 202,638  182,024 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

INFINERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
  Three Months Ended
  March 27,
2021
March 28,
2020
Net loss $ (48,322) $ (99,268)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (3,833) (11,106)
Actuarial gain (loss) on pension liabilities 861  (394)
Net change in accumulated other comprehensive income (loss) (2,972) (11,500)
Comprehensive loss $ (51,294) $ (110,768)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

INFINERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Three Months Ended March 27, 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 1,294  9,011 —  —  9,013 
Restricted stock units released 2,269  (2) —  —  — 
Shares withheld for tax obligations (194) —  (1,938) —  —  (1,938)
Stock-based compensation —  —  10,951  —  —  10,951 
Other comprehensive loss —  —  —  (2,972) —  (2,972)
Net loss —  —  —  —  (48,322) (48,322)
Balance at March 27, 2021 204,812  $ 205  $ 1,983,599  $ (14,870) $ (1,575,586) $ 393,348 





Three Months Ended March 28, 2020
  Common Stock Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total Stockholders' Equity
  Shares Amount
Balance at December 28, 2019 181,134  $ 181  $ 1,740,884  $ (34,639) $ (1,319,891) $ 386,535 
ESPP shared issued 1,839  7,392  —  —  7,394 
Restricted stock units released 225  —  —  —  —  — 
Stock-based compensation —  —  11,411  —  —  11,411 
Cumulative effect adjustment from adoption of Topic 326 —  —  —  —  (650) (650)
Conversion option related to convertible senior notes, net of allocated costs —  —  67,797  —  —  67,797 
Other comprehensive loss —  —  —  (11,500) —  (11,500)
Net loss —  —  —  —  (99,268) (99,268)
Balance at March 28, 2020 183,198  $ 183  $ 1,827,484  $ (46,139) $ (1,419,809) $ 361,719 





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

7

INFINERA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
  Three Months Ended
  March 27,
2021
March 28,
2020
Cash Flows from Operating Activities:
Net loss $ (48,322) $ (99,268)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 20,546  25,445 
Non-cash restructuring charges and related costs 1,410  1,760 
Amortization of debt discount and issuance costs 7,822  5,731 
Operating lease expense 5,228  5,204 
Stock-based compensation expense 10,974  11,703 
Other, net 2,065  1,153 
Changes in assets and liabilities:
Accounts receivable 38,671  70,238 
Inventory 4,059  17,737 
Prepaid expenses and other assets 20,669  (18,744)
Accounts payable (23,584) (72,355)
Accrued liabilities and other expenses (11,964) (32,083)
Deferred revenue (8,944) (8,038)
Net cash provided by (used in) operating activities 18,630  (91,517)
Cash Flows from Investing Activities:
Purchase of property and equipment, net (11,721) (8,464)
Net cash used in investing activities (11,721) (8,464)
Cash Flows from Financing Activities:
Proceeds from issuance of 2027 Notes —  194,500 
Proceeds from revolving line of credit —  55,000 
Repayment of revolving line of credit (77,000) — 
Payment of debt issuance cost —  (1,775)
Repayment of mortgage payable (22) (99)
Payment of term license obligation (2,544) — 
Principal payments on financing lease obligations (309) — 
Proceeds from issuance of common stock 9,344  7,395 
Minimum tax withholding paid on behalf of employees for net share settlement (1,938) — 
Net cash (used in) provided by financing activities (72,469) 255,021 
Effect of exchange rate changes on cash and restricted cash (278) (4,369)
Net change in cash and restricted cash (65,838) 150,671 
Cash and restricted cash at beginning of period 315,383  132,797 
Cash and restricted cash at end of period(1)
$ 249,545  $ 283,468 
8

Supplemental disclosures of cash flow information:
Cash paid for income taxes, net $ 4,355  $ 1,072 
Cash paid for interest $ 7,654  $ 5,131 
Supplemental schedule of non-cash investing and financing activities:
Unpaid debt issuance cost $ —  $ 1,793 
Property and equipment included in accounts payable and accrued liabilities $ 255  $ 3,370 
Transfer of inventory to fixed assets $ 1,041  $ 118 
Unpaid term licenses (included in accounts payable, accrued liabilities and other long-term liabilities) $ 10,533  $ — 


(1)     Reconciliation of cash and restricted cash to the condensed consolidated balance sheets:
March 27,
2021
March 28,
2020
  (In thousands)
Cash $ 234,029  $ 261,534 
Short-term restricted cash 3,288  4,126 
Long-term restricted cash 12,228  17,808 
Total cash and restricted cash $ 249,545  $ 283,468 

The accompanying notes are an integral part of these condensed consolidated financial statements.
9

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 26, 2020.
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 financing lease liabilities, and accounting for income taxes. Other less significant estimates, assumptions and judgments made by management include allowances for sales returns, allowances for doubtful accounts, 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 the recent outbreak of a novel strain of the coronavirus (“COVID-19”). 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 26, 2020.
    To date, a few of the Company’s customers have accounted for a significant portion of its revenue. For the three months ended March 27, 2021, one customer accounted for 10% of the Company's total revenue. The same customer accounted for 11% of the Company's total revenue for the three months ended March 28, 2020.
    There have been no material changes in the Company’s significant accounting policies for the three months ended March 27, 2021 compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
2.Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
    In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Simplifying the Accounting for Income Taxes" (“ASU 2019-12”), as part of its simplification initiative. ASU 2019-12 removes certain exceptions from Accounting Standards Codification ("ASC") 740, "Income Taxes" ("ASC 740"), including (i) the exception to the incremental approach for intra period tax allocation when there is a loss from continuing operations and income or a gain from other items such as discontinued operations or other comprehensive income; (ii) the exception to accounting for outside basis differences of equity method investments and foreign subsidiaries; and (iii) the exception to limit tax benefit recognized in interim period in cases when the year-to-date losses exceeds anticipated losses. ASU 2019-12 also simplifies U.S. GAAP in several other areas of ASC 740 such as (i) franchise taxes and other taxes partially based on income; (ii) step-up in tax basis goodwill considered part of a business combination in which the book goodwill was originally recognized or should be considered a separate transaction; (iii) separate financial statements of entities not subject to tax; and (iv) interim recognition of enactment of tax laws or rate changes. ASU 2019-12 is effective for the Company for fiscal years (and interim periods within those fiscal
10


years) beginning after December 15, 2020. The Company adopted ASU 2019-12 in the first quarter of 2021 and the impact of the adoption was not material to the Company's consolidated financial statements.
Accounting Pronouncements Not Yet Effective
In August 2020, the FASB issued ASU 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)" ("ASU 2020-06"). The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. This update removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. This update also simplifies the diluted net income per share calculation in certain areas. The update is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company elected not to early adopt ASU 2020-06. The Company is currently evaluating the impact of the adoption of ASU 2020-06 would have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04 (Topic 848), "Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides temporary optional expedients and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. The standard was effective upon issuance and may generally be applied through December 31, 2022 to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. The Company will apply the amendments when its relevant contracts are modified upon transition to alternative reference rates.
3.    Leases
    The Company has operating leases for real estate and automobiles. The operating lease expense for the three months ended March 27, 2021 was $7.3 million (including $2.0 million of rent expense due to restructuring resulting in abandonment of certain lease facilities). The operating lease expense for the three months ended March 28, 2020 was $8.6 million (including $1.4 million of accelerated rent expense due to restructuring resulting in abandonment of certain lease facilities). Variable lease cost, short-term lease cost and sublease income were immaterial during the three months ended March 27, 2021 and March 28, 2020.
As of March 27, 2021, $16.1 million was included in accrued expenses and other current liabilities and $72.9 million as long-term operating lease liabilities. As of December 26, 2020, $14.9 million was included in accrued expenses and other current liabilities and $76.1 million as long-term operating lease liabilities.
The following table presents maturity of lease liabilities under the Company's non-cancelable operating leases as of March 27, 2021 (in thousands):
Remainder of 2021 $ 17,361 
2022 22,249 
2023 17,284 
2024 15,180 
2025 14,178 
Thereafter 30,866 
Total lease payments 117,118 
Less: interest(1)
28,068 
Present value of lease liabilities $ 89,050 
(1) Calculated using the interest rate for each lease.
11


The following table presents supplemental information for the Company's non-cancelable operating leases for the three months ended March 27, 2021 (in thousands, except for weighted average and percentage data):
Weighted average remaining lease term 6.39 years
Weighted average discount rate 9.18  %
Cash paid for amounts included in the measurement of lease liabilities $ 6,113 
Leased assets obtained in exchange for new operating lease liabilities $ 2,591 
Financing Lease Obligations
During the three months ended March 27, 2021, there was one new finance lease arrangement. The lease term for existing arrangements range from three to five years with options to purchase at the end of the term. Finance lease expense for the three months ended March 27, 2021 was approximately $0.3 million. Finance lease expense for the three months ended March 28, 2020 was $0.2 million.
As of March 27, 2021, $1.4 million was included in accrued expenses and other current liabilities and $2.0 million as long-term finance lease obligation related to these equipment finance lease arrangements. As of December 26, 2020, $1.1 million was included in accrued expenses and other current liabilities and $1.4 million as a long-term finance lease obligation related to these equipment finance lease arrangements.
The following table presents maturity of lease liability under the Company's finance leases as of March 27, 2021 (in thousands):
Remainder of 2021 $ 1,326 
2022 1,366 
2023 831 
2024 177 
Thereafter — 
Total lease payments 3,700 
Less: interest 274 
Present value of lease liabilities $ 3,426 
The following table presents supplemental information for the Company's finance leases for the three months ended March 27, 2021 (in thousands, except for weighted average and percentage data):
Weighted average remaining lease term 2.31 years
Weighted average discount rate 7.12  %
Cash paid for amounts included in the measurement of lease liabilities $ 309 
Leased assets obtained in exchange for new finance lease liabilities $ 1,208 
12


4. Revenue Recognition
Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by revenue source (in thousands):
Three Months Ended
March 27,
2021
March 28,
2020
Product $ 254,161  $ 255,192 
Services 76,746  75,081 
Total revenue $ 330,907  $ 330,273 
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 geography, based on the shipping address of the customer (in thousands):
Three Months Ended
March 27,
2021
March 28,
2020
United States $ 157,649  $ 170,526 
Other Americas 19,531  19,688 
Europe, Middle East and Africa 114,908  88,578 
Asia Pacific 38,819  51,481 
Total revenue $ 330,907  $ 330,273 
    The following table presents the Company's revenue disaggregated by sales channel (in thousands):
Three Months Ended
March 27,
2021
March 28,
2020
Direct $ 271,301  $ 244,351 
Indirect 59,606  85,922 
Total revenue $ 330,907  $ 330,273 
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
March 27,
2021
December 26,
2020
Accounts receivable, net $ 276,855  $ 319,428 
Contract assets $ 33,899  $ 51,583 
Deferred revenue $ 153,245  $ 163,056 
Revenue recognized for the three months ended March 27, 2021 that was included in the deferred revenue balance at the beginning of the reporting period was $31.3 million. Revenue recognized for the three months ended March 28, 2020 that was included in the deferred revenue balance at the beginning of the reporting period was $38.7 million. Changes in the contract asset and liability balances during the three months ended March 27, 2021 and March 28, 2020 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.
13


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 2021 2022 2023 2024 2025 Thereafter Total
Revenue expected to be recognized in the future as of March 27, 2021 $ 454,393  $ 60,539  $ 39,260  $ 11,552  $ 2,708  $ 2,119  $ 570,571 

5.    Fair Value Measurements
The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands): 
  As of March 27, 2021 As of December 26, 2020
  Fair Value Measured Using Fair Value Measured Using
  Level 1       Level 2       Total         Level 1 Level 2       Total        
Assets (Liabilities)
Foreign currency exchange forward contracts $ —  $ (151) $ (151) $ —  $ (72) $ (72)
During the three months ended March 27, 2021, there were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy. As of each of March 27, 2021 and December 26, 2020, none of the Company’s existing assets or liabilities were classified as Level 3.
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. The fair values are classified as Level 3 measurements due to the significance of unobservable inputs. This analysis requires management to make assumptions and estimates regarding industry and economic factors, future operating results and discount rates.
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. In light of the COVID-19 pandemic, the Company performed an analysis of impairment indicators of these assets and noted no adverse impact to their fair values as of March 27, 2021.    
Facilities-related Charges
In connection with the 2018 Restructuring Plan (as defined in Note 9, “Restructuring and Related Costs” to the Notes to Condensed Consolidated Financial Statements), for the three months ended March 27, 2021, the Company calculated the fair value of $2.0 million, in facilities-related charges based on estimated future discounted cash flows and classified the fair value as a Level 3 measurement due to the significance of unobservable inputs. These inputs included the amount and timing of estimated sublease rental receipts that the Company could reasonably obtain over the remaining lease term at the discount rate.
Cash
As of March 27, 2021, the Company had $234.0 million of cash, including $98.7 million of cash held by its foreign subsidiaries.  
As of December 26, 2020, the Company had $298.0 million of cash, including $87.4 million of cash held by its foreign subsidiaries. The Company's cash held by its foreign subsidiaries is used for operational 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.
14


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. The Company utilizes foreign currency forward contracts, which are primarily short term in nature.
Historically, the Company enters 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 are intended to offset the impact of foreign exchange rate fluctuations on the underlying foreign currency denominated account balances, and therefore do not subject the Company to material balance sheet risk.
As of March 27, 2021 and December 26, 2020, the Company posted collateral of $0.9 million and $0.9 million, respectively, on its derivative instruments to cover potential credit risk exposure. This amount is classified as other long-term restricted cash on the accompanying condensed consolidated balance sheets.
For the three months ended March 27, 2021 and March 28, 2020, the before-tax effect of the foreign currency exchange forward contracts was a net gain of $0.3 million and $0.1 million, respectively, included in other gain (loss), net 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.
As of March 27, 2021, the Company did not designate foreign currency exchange forward contracts as hedges for accounting purposes. Accordingly, changes in the fair value are recorded in the accompanying condensed consolidated statements of operations. These contracts were entered into with one institution with high credit quality and the Company consistently monitors the creditworthiness of the counterparties.
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 March 27, 2021 As of December 26, 2020
 
Gross Notional(1)  
Prepaid expenses and other current assets Other
Accrued
Liabilities
Gross
Notional
(1)
Other
Accrued
Liabilities
Foreign currency exchange forward contracts
Related to Euro denominated monetary balances $ 11,341  $ $ —  $ 23,605  $ (59)
Related to British Pound denominated monetary balances $ 19,159  $ —  (157) 4,868  (13)
$ 30,500  $ $ (157) $ 28,473  $ (72)
(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 flow. 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 both the three months ended March 27, 2021 and March 28, 2020, the Company's recognized factoring related interest expense was approximately $0.1 million, respectively. For the three months ended March 27, 2021 and March 28, 2020, the Company's gross amount of trade accounts receivables sold was approximately $31.0 million and $26.5 million, respectively.
15


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 three months ended March 27, 2021 (in thousands):
Balance as of December 26, 2020
$ 273,426 
Foreign currency translation adjustments (8,210)
Balance as of March 27, 2021
$ 265,216 
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 March 27, 2021 and December 26, 2020 (in thousands, except for weighted average data):
  March 27, 2021
  Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Trade names $ 1,000  $ (1,000) $ —  — 
Customer relationships and backlog 159,955  (93,590) 66,365  4.7
Developed technology 187,891  (139,092) 48,799  2.8
Total intangible assets with finite lives $ 348,846  $ (233,682) $ 115,164 
*NMF = Not meaningful
  December 26, 2020
  Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Trade names $ 1,000  $ (1,000) $ —  — 
Customer relationships and backlog 162,098  (90,667) 71,431  4.9
Developed technology 192,285  (138,834) 53,451  3.0
Total intangible assets with finite lives $ 355,383  $ (230,501) $ 124,882 
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 $9.0 million and $13.1 million for the three months ended March 27, 2021 and March 28, 2020, 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 March 27, 2021 (in thousands):
  Fiscal Years
  Total Remainder of 2021 2022 2023 2024 2025 Thereafter
Total future amortization expense $ 115,164  $ 26,888  $ 33,284  $ 27,215  $ 11,983  $ 9,025  $ 6,769 
16

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 doubtful accounts for accounts receivable for the three months ended March 27, 2021 (in thousands):
Balance as of December 26, 2020
$ 2,912 
Additions(1)
461 
Write offs(2)
(225)
Other(3)
(46)
Balance as of March 27, 2021
$ 3,102 
(1)     The new additions during the three months ended March 27, 2021 are primarily due to specific reserves.
(2)    The write offs during the three months ended March 27, 2021 are primarily amounts fully reserved previously.
(3)     Primarily represents foreign currency translation adjustments.    
17

Selected Balance Sheet Items
The following table provides details of selected balance sheet items (in thousands):
March 27,
2021
December 26,
2020
Inventory
Raw materials $ 31,808  $ 34,693 
Work in process 55,482  55,835 
Finished goods
175,537  178,779 
Total inventory $ 262,827  $ 269,307 
Property, plant and equipment, net
Computer hardware(1)
$ 31,046  $ 34,502 
Computer software(2)
39,995  44,397 
Laboratory and manufacturing equipment(3)
241,367  333,955 
Land and building 12,349  12,349 
Furniture and fixtures 3,065  3,445 
Leasehold and building improvements(4)
52,027  66,014 
Construction in progress 44,612  39,727 
Subtotal 424,461  534,389 
Less accumulated depreciation and amortization(5)
(271,343) (381,256)
Total property, plant and equipment, net $ 153,118  $ 153,133 
Accrued expenses and other current liabilities
Loss contingency related to non-cancelable purchase commitments $ 17,270  $ 18,848 
Taxes payable 36,042  45,884 
Short-term operating and financing lease liability 17,600  16,023 
Restructuring accrual 5,340  9,292 
Other accrued expenses and other current liabilities 53,346  60,503 
Total accrued expenses $ 129,598  $ 150,550 
(1)Included in computer hardware at March 27, 2021 was $1.2 million related to an equipment finance lease entered into by the Company for a term of three years with an option to purchase at the end of the three-year term. The finance lease was recorded at $1.2 million using a discount rate of 8.4% and was included in property, plant and equipment, net.
(2)Included in computer software at March 27, 2021 and December 26, 2020 were $25.6 million and $25.4 million, respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented. The unamortized ERP costs at March 27, 2021 and December 26, 2020 were $10.4 million and $10.8 million, respectively. Also included in computer software at March 27, 2021 and December 26, 2020 was $17.6 million and $17.0 million, respectively, related to term licenses. The unamortized term license costs at March 27, 2021 and December 26, 2020 was $10.9 million and $12.0 million, respectively.
(3)Included in laboratory and manufacturing equipment at March 27, 2021 was $2.0 million related to an equipment finance lease entered into by the Company for a term of three years with an option to purchase at the end of the three-year term. The finance lease was recorded at $2.0 million using a discount rate of 8.2% and was included in property, plant and equipment, net.
(4)Included in leasehold improvements at March 27, 2021 was an equipment finance lease entered into by the Company for a term of five years with an option to purchase at the end of the five-year term. The finance lease was recorded at $2.3 million using a discount rate of 5% and was included in property, plant and equipment, net.
(5)Depreciation expense was $11.5 million and $12.3 million (which includes depreciation of capitalized ERP cost of $0.6 million and $0.7 million, respectively) for the three months ended March 27, 2021 and March 28, 2020, respectively.

9.    Restructuring and Related Costs
18

In December 2018, the Company implemented a restructuring initiative (the “2018 Restructuring Plan”) as part of 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 of Telecom Holding Parent LLC (“Coriant”), a privately held global supplier of open network solutions for many of the largest global network operators (the “Acquisition”). As part of the 2018 Restructuring Plan, the Company made several changes to improve its research and development efficiency by consolidating its manufacturing and development sites, including closure of its Berlin, Germany site, reducing headcount at its Munich, Germany site, and processing changes to leverage the Company's engineering and product line development resources across regions and prioritizing research and development initiatives. The Berlin and Munich initiatives were substantially completed in fiscal year 2020.
During 2020, the Company implemented a new restructuring initiative (the "2020 Restructuring Plan") that was primarily intended to reduce costs and consolidate its operations.
During the three months ended March 27, 2021 and March 28, 2020, the Company recorded $0.8 million and $3.7 million, respectively, in severance and related costs in its condensed consolidated statements of operations. As of December 26, 2020, the identified cost reduction initiatives under the 2020 Restructuring Plan were substantially completed, with the majority of associated payments made in fiscal year 2020 and the remaining amounts expected to be paid by the first half of fiscal year 2021. Additional restructuring activities may occur in the future in connection with the Company’s ongoing transformation initiatives.
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.
The following table presents restructuring and other related costs included in cost of revenue and operating expenses in the accompanying consolidated statements of operations under the 2020 Restructuring Plan, the 2018 Restructuring Plan and Coriant's previous restructuring and reorganization plans (in thousands):
  Three Months Ended
  March 27, 2021 March 28, 2020
Cost of
Revenue
Operating Expenses Cost of
Revenue
Operating Expenses
Severance and related expenses $ 514  $ 272  $ 1,101  $ 2,630 
Lease related impairment charges —  1,950  44  2,945 
Asset impairment —  51  12 
Others —  46  —  — 
Total $ 514  $ 2,319  $ 1,157  $ 5,580 

Restructuring liabilities are reported within accrued expenses, operating lease liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets (in thousands):
Severance and related expenses Lease related impairment charges Asset impairment Others Total
Balance at December 26, 2020 $ 10,241  $ —  $ —  $ 230  $ 10,471 
Charges 786  1,950  51  46  2,833 
Cash Payments (4,422) (1,050) —  (173) (5,645)
Non-Cash Settlements and Other (445) (900) (51) (14) (1,410)
Balance at March 27, 2021 $ 6,160  $ —  $ —  $ 89  $ 6,249 
As of March 27, 2021, the Company's restructuring liability was comprised of $6.2 million of severance and related expenses, of which $2.8 million is related to assumed restructuring liabilities associated with Coriant's previous restructuring and reorganization plans and is expected to be paid by end of 2023. Out of the remaining liability, $3.0 million is related to the 2020 Restructuring Plan and is expected to be substantially paid by the first half of 2021, and an immaterial amount is related to the 2018 Restructuring Plan which was substantially completed in previous years.
19

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 three months ended March 27, 2021 (in thousands): 
Foreign Currency Translation  Actuarial Gain (Loss) on Pension Accumulated Tax Effect Total
Balance at December 26, 2020 $ 732  $ (11,666) $ (964) $ (11,898)
Other comprehensive loss before reclassifications (3,833) —  —  (3,833)
Amounts reclassified from accumulated other comprehensive loss —  861  —  861 
Net current-period other comprehensive income (loss) (3,833) 861  —  (2,972)
Balance at March 27, 2021 $ (3,101) $ (10,805) $ (964) $ (14,870)

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 exercise of outstanding in-the-money stock options, assumed release of outstanding restricted stock units (“RSUs”) and performance shares (referred to herein as the “PSUs”), and assumed issuance of common stock under the Company’s 2007 Employee Stock Purchase Plan (the “ESPP”) using the treasury stock method. Potentially dilutive common shares also include the assumed conversion of $402.5 million in aggregate principal amount of the Company's 2.125% convertible senior notes due September 1, 2024 (the “2024 Notes”) from the conversion spread (as further discussed in Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements) and $200 million in aggregate principal amount of the Company's 2.50% convertible senior notes due March 1, 2027 (the “2027 Notes”) from the conversion spread (as further discussed in Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements). The Company would include the dilutive effects of the 2024 Notes and 2027 Notes in the calculation of diluted net income per common share if the average market price is above the conversion price. Upon conversion of the 2024 Notes and 2027 Notes, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2024 Notes and 2027 Notes being converted; therefore, only the conversion spread relating to the 2024 Notes and 2027 Notes would be included in the Company’s diluted earnings per share calculation unless their effect is anti-dilutive. The Company includes the common shares underlying PSUs in the calculation of diluted net income per common share only when they become contingently issuable.
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
  March 27,
2021
March 28,
2020
Net loss $ (48,322) $ (99,268)
Weighted average common shares outstanding - basic and diluted 202,638  182,024 
Net loss per common share - basic and diluted $ (0.24) $ (0.55)
The Company incurred net losses during the three months ended March 27, 2021 and March 28, 2020, and as a result, potential common shares from stock options, RSUs, PSUs and the assumed release of outstanding shares under the ESPP were not included in the diluted shares used to calculate net loss per share, as their inclusion would have been anti-dilutive. Additionally, due to the net loss position during these periods, the Company excluded the potential shares issuable upon conversion of the 2024 Notes and the 2027 Notes in the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.
20

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
  March 27,
2021
March 28,
2020
Stock options outstanding —  605 
Restricted stock units 15,851  17,214 
Performance stock units 3,065  4,057 
Employee stock purchase plan shares 930  1,994 
Total 19,846  23,870 
12.    Debt
2.50% Convertible Senior Notes due March 1, 2027
In March 2020, the Company issued the 2027 Notes due on March 1, 2027, unless earlier repurchased, redeemed or converted. The 2027 Notes are governed by an indenture dated as of March 9, 2020 (the “2027 Indenture”), between the Company and U.S. Bank National Association, as trustee. The 2027 Notes are unsecured, and the 2027 Indenture 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.
Interest is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2020. The net proceeds to the Company were approximately $193.3 million after deducting initial purchasers' fee and other debt issuance costs. The Company intends to use the net proceeds for general corporate purposes, including working capital to fund growth and potential strategic projects.
Upon conversion, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2027 Notes. For any remaining conversion obligation, the Company intends to pay or deliver, as the case may be, either cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 130.5995 shares of common stock per $1,000 principal amount of 2027 Notes, subject to anti-dilution adjustments, which is equivalent to a conversion price of approximately $7.66 per share of common stock.
Throughout the term of the 2027 Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the 2027 Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a 2027 Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Prior to December 1, 2026, holders may convert their 2027 Notes under the following circumstances:
during any fiscal quarter commencing after the fiscal quarter ended on June 27, 2020 (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 2027 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 2027 Notes for redemption, such 2027 Notes called 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 2027 Indenture, such as a consolidation, merger or binding share exchange; or
21

at any time on or after December 1, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2027 Notes at any time, regardless of the foregoing circumstances.
If the Company undergoes a fundamental change as defined in the 2027 Indenture, holders may require the Company to repurchase for cash all or any portion of their 2027 Notes at a repurchase price equal to 100% of the principal amount of the 2027 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 2027 Indenture), 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 2027 Notes in connection with such make-whole fundamental change.
The net carrying amounts of the debt obligation were as follows (in thousands):
March 27,
2021
December 26,
2020
Principal $ 200,000  $ 200,000 
Unamortized discount (1)
(62,308) (64,223)
Unamortized issuance cost (1)
(3,845) (3,963)
Net carrying amount $ 133,847  $ 131,814 

(1)Unamortized debt conversion discount and issuance costs will be amortized over the remaining life of the 2027 Notes, which is approximately 71 months.
As of March 27, 2021, the carrying amount of the equity component of the 2027 Notes was $67.8 million.
In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2027 Notes.
The Company allocated the total issuance costs incurred to the liability and equity components of the 2027 Notes based on their relative values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2027 Notes and will be amortized as interest expense over the term of the 2027 Notes. The issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.
The Company recorded a deferred tax liability of $16.2 million in connection with the issuance of the 2027 Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders' equity.
The Company determined that the embedded conversion option in the 2027 Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholders’ equity if freestanding.
The following table sets forth total interest expense recognized related to the 2027 Notes (in thousands): 
  Three Months Ended
March 27, 2021 March 28, 2020
Contractual interest expense $ 1,250  $ 274 
Amortization of debt issuance costs 118  27 
Amortization of debt discount 1,915  440 
Total interest expense $ 3,283  $ 741 
22

For the three months ended March 27, 2021, the debt discount and debt issuance costs for the 2027 Notes were amortized, using an annual effective interest rate of 9.92%, to interest expense over the term of the 2027 Notes.
As of March 27, 2021, the fair value of the 2027 Notes was $302.1 million. The fair value was determined based on the quoted bid price of the 2027 Notes in an over-the-counter market on March 26, 2021 (the last trading day of the fiscal quarter). The 2027 Notes are classified as Level 2 of the fair value hierarchy.
Based on the closing price of the Company’s common stock of $10.13 per share as reported on the Nasdaq Stock Market on March 26, 2021 (the last trading day of the fiscal quarter), the if-converted value of the 2027 Notes exceeded the principal amount by $64.6 million.
Asset-based revolving credit facility
On August 1, 2019, the Company entered into a Credit Agreement (the "Credit Agreement") with Wells Fargo Bank. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $100 million (the "Credit Facility"), which the Company may draw upon from time to time. The Company may increase the total commitments under the Credit Facility by up to an additional $50 million, subject to certain conditions. The Credit Agreement provides for a $50 million letter of credit sub-facility and a $10 million swing loan sub-facility.
On December 23, 2019, the Company exercised its option to increase the total commitments under the Credit Facility and entered into an Increase Joinder and Amendment Number One to Credit Agreement (the “Amendment”), with BMO Harris Bank N.A. and Wells Fargo Bank, National Association, as administrative agent. The Amendment increased the total commitments under the Credit Facility to $150 million.
The proceeds of the loans under the Credit Agreement, as amended by the Amendment (the “Amended Credit Agreement”) may be used to pay the fees, costs and expenses incurred in connection with the Amended Credit Agreement and for working capital and general corporate purposes. The Credit Facility matures, and all outstanding loans become due and payable, on March 5, 2024. Availability under the Credit Facility is 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 in certain domestic subsidiaries.
Loans under the Amended Credit Agreement bear interest, at the Company's option, at either a rate based on LIBOR for the applicable interest period or a base rate, in each case plus a margin. The margin ranges 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 ranges from 0.375% to 0.625% per annum, also based on the current utilization of the Credit Facility. The letter of credit will accrue a fee at a per annum rate equal to the applicable LIBOR rate margin multiplied 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.
The Amended Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. The Amended Credit Agreement also contains customary covenants that limit 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. The Amended Credit Agreement also contains a financial covenant that requires the Company to maintain a minimum amount of liquidity and customary events of default.
In connection with the Credit Facility, the Company incurred lender and other third-party costs of approximately $4.9 million for the period ended December 28, 2019, which are recorded as a deferred asset and are amortized to interest expense using a straight-line method over the term of the Credit Facility. For the three months ended March 27, 2021, the Company recorded $0.3 million as amortization of deferred debt issuance cost and $0.2 million as contractual interest expense and related charges.
In January 2021, the Company repaid in full the then outstanding principal balance of $77.0 million. As of March 27, 2021, the Company had availability of $138.9 million under the Credit Facility and had letters of credit outstanding of approximately $11.1 million.
23

Finance Assistance Agreement
During March 2019, the Company signed an agreement with a third-party contract manufacturer that governs the transfer of the activities from the legacy Coriant manufacturing facility in Berlin, Germany to the contract manufacturer. Subsequently in May 2019, the Company entered into a financing assistance agreement with the contract manufacturer whereby the contract manufacturer agreed to provide funding of up to $40.0 million to cover severance, retention and other costs associated with the transfer. The funding is secured against certain foreign assets, carries a fixed interest rate of 6% and is repayable in 12 months from the date of each draw down. In October 2020, the Company and the contract manufacturer amended the payment terms to extend the due date by six months, set the fixed interest rate at 3% during such period, and allow for the phased transfer of inventory to offset the amount due. As of March 27, 2021, $24.6 million was outstanding, which was included in short-term debt. The outstanding balance and interest was repaid in full in April 2021.
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 approximately $0.1 million each with the remaining unpaid principal balance plus accrued unpaid interest due five years from the date of the loan. As of March 27, 2021, $8.1 million remained outstanding, of which $0.4 million was included in short-term debt and $7.7 million was included in long-term debt.
2.125% Convertible Senior Notes due September 1, 2024
In September 2018, the Company issued the 2024 Notes due on September 1, 2024, unless earlier repurchased, redeemed or converted. The 2024 Notes are governed by a base indenture dated as of September 11, 2018 and a first supplemental indenture dated as of September 11, 2018 (together, the “2024 Indenture”), between the Company and U.S. Bank National Association, as trustee. The 2024 Notes are unsecured, and the 2024 Indenture 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.
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 to the Company 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 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.
Upon conversion, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the 2024 Notes. For any remaining conversion obligation, the Company intends to pay or deliver, as the case may be, either cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 101.2812 shares of common stock per $1,000 principal amount of 2024 Notes, subject to anti-dilution adjustments, which is equivalent to a conversion price of approximately $9.87 per share of common stock.
Throughout the term of the 2024 Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the 2024 Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a 2024 Note. 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, holders may convert their 2024 Notes under the following circumstances:
24

during any fiscal quarter commencing after the fiscal quarter ended on December 29, 2018 (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 2024 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 the 2024 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 2024 Indenture, such as a consolidation, merger or binding share exchange; or
at any time on or after June 1, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances.
If the Company undergoes a fundamental change as defined in the 2024 Indenture, holders may require the Company to repurchase for cash all or any portion of their 2024 Notes at a repurchase price equal to 100% of the principal amount of the 2024 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 2024 Indenture), 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 2024 Notes in connection with such make-whole fundamental change.
The net carrying amounts of the debt obligation were as follows (in thousands):
March 27,
2021
December 26, 2020
Principal $ 402,500  $ 402,500 
Unamortized discount (1)
(85,046) (90,213)
Unamortized issuance cost (1)
(5,551) (5,889)
Net carrying amount $ 311,903  $ 306,398 

(1)Unamortized debt conversion discount and issuance costs will be amortized over the remaining life of the 2024 Notes, which is approximately 41 months.
As of March 27, 2021, the carrying amount of the equity component of the 2024 Notes was $128.7 million.
In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2024 Notes.
The Company allocated the total issuance costs incurred to the liability and equity components of the 2024 Notes based on their relative values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2024 Notes and will be amortized as interest expense over the term of the 2024 Notes. The issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.
The Company recorded a deferred tax liability of $30.9 million in connection with the issuance of the 2024 Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders' equity.
25

The Company determined that the embedded conversion option in the 2024 Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholders’ equity if freestanding.
The following table sets forth total interest expense recognized related to the 2024 Notes for the three months ended March 27, 2021 and March 28, 2020 (in thousands): 
  Three Months Ended
March 27, 2021 March 28, 2020
Contractual interest expense $ 2,138  $ 2,138 
Amortization of debt issuance costs 337  306 
Amortization of debt discount 5,167  4,680 
Total interest expense $ 7,642  $ 7,124 
For the three months ended March 27, 2021, the debt discount and debt issuance costs were amortized, using an annual effective interest rate of 9.92%, to interest expense over the term of the 2024 Notes.
As of March 27, 2021, the fair value of the 2024 Notes was $485.8 million. The fair value was determined based on the quoted bid price of the 2024 Notes in an over-the-counter market on March 26, 2021 (the last trading day of the fiscal quarter). The 2024 Notes are classified as Level 2 of the fair value hierarchy.
Based on the closing price of the Company’s common stock of $10.13 per share as reported on the Nasdaq Stock Market on March 26, 2021 (the last trading day of the fiscal quarter), the if-converted value of the 2024 Notes exceed their principal amount by $10.5 million.
13.    Commitments and Contingencies
The following table sets forth commitments and contingencies related to our various obligations (in thousands):
    Payments Due by Period (In thousands)
  Total Remainder of 2021 2022 2023 2024 2025 Thereafter
Operating leases(1)(2)
$ 117,118  $ 17,361  $ 22,249  $ 17,284  $ 15,180  $ 14,178  $ 30,866 
Financing lease obligations(3)
3,700  1,326  1,366  831  177  —  — 
2027 Notes, including interest(4)
230,000  2,500  5,000  5,000  5,000  5,000  207,500 
2024 Notes, including interest(4)
432,436  4,277  8,553  8,553  411,053  —  — 
Financing assistance agreement, including interest(4)
26,446  26,446  —  —  —  —  — 
Mortgage Payable, including interest(4)
9,360  631  912  841  6,976  —  — 
Total contractual obligations
$ 819,060  $ 52,541  $ 38,080  $ 32,509  $ 438,386  $ 19,178  $ 238,366 
(1)     The Company leases facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 11 years. 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 $5.1 million and $5.0 million as of March 27, 2021 and December 26, 2020, respectively. Of the $5.1 million as of March 27, 2021, $0.3 million is included in accrued expenses and other current liabilities and the remainder is classified as other long-term liabilities on the accompanying condensed consolidated balance sheets.
(3)     The Company has finance leases for manufacturing and other equipment. 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.
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Legal Matters
Oyster Optics LLC I
On November 23, 2016, Oyster Optics, LLP (“Oyster Optics”) filed a complaint against the Company in the United States District Court for the Eastern District of Texas. The complaint asserts infringement of U.S. Patent Nos. 6,469,816, 6,476,952, 6,594,055, 7,099,592, 7,620,327 (the “’327 patent”), 8,374,511 (the “’511 patent”) and 8,913,898 (the “’898 patent”). Collectively, the asserted patents are referred to herein as the “Oyster Optics patents in suit.” The complaint seeks unspecified damages and a permanent injunction. The Company filed its answer to Oyster Optics’ complaint on February 3, 2017. The Company filed two petitions for Inter Partes Review (“IPR”) of the ‘898 patent with the U.S. Patent and Trademark Office (“USPTO”). Other defendants have filed IPR petitions in connection with the remaining Oyster Optics patents in suit. The USPTO instituted two IPRs of the ‘511 patent and two IPRs of the ‘898 patent but denied IPR petitions in connection with the ‘327 patent.
A first Markman decision issued on December 5, 2017 and fact discovery closed on December 22, 2017. Oyster Optics dropped the ‘511 and ‘898 patents, leaving only a few claims in the ‘327 patent at issue in the case.
Oyster Optics LLC II
On May 15, 2018, Oyster Optics filed a second patent infringement complaint in the United States District Court for the Eastern District of Texas, naming the Company as a defendant. In its new complaint, Oyster Optics alleges infringement of the ‘327 patent, ‘898 patent and U.S. Patent No. 9,749,040. On June 8, 2018, the court granted the parties’ joint motion to sever and consolidate the first-filed lawsuit with the later filed case. The Company filed its answer to the new complaint on July 16, 2018. On October 26, 2018, the Company filed an amended answer to include a license defense based on a license agreement dated June 28, 2018 by and between Oyster Optics and several subsidiaries of Coriant (now one of the Company’s affiliated subsidiaries). The Company also filed a motion for summary judgment based on the license defense on November 29, 2018. On June 25, 2019, the court granted the Company’s motion for summary judgment and on June 28, 2019, the court entered a final judgment for the Company. On July 22, 2019, Oyster Optics filed an appeal of the court’s decision with the Court of Appeals for the Federal Circuit. On February 11, 2021, the Court of Appeals for the Federal Circuit affirmed the district court’s decision. The Company believes that it does not infringe any valid and enforceable claim of the Oyster Optics patents in suit and intends to defend this action vigorously. The Company is currently unable to predict the outcome of this litigation and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
Oyster Optics LLC III
On July 29, 2019, Oyster Optics filed a third complaint against the Company, Coriant (USA) Inc., Coriant North America, LLC and Coriant Operations, Inc. in the United States District Court for the Eastern District of Texas. The complaint asserts infringement of U.S. Patent No. 6,665,500 (the “Oyster III patent in suit”). The complaint seeks unspecified damages and a permanent injunction. On October 7, 2019, the Company filed its answer to the complaint asserting among other things, counterclaims and defenses based on non-infringement, invalidity, and a license to the Oyster III patent in suit. On October 28, 2019, Oyster Optics filed an amended complaint. On December 3, 2019, the Company filed a motion to dismiss certain claims based on certain allegations made by Oyster Optics in their amended complaint, and Oyster Optics filed its opposition to the Company's motion on January 3, 2020. The Company filed its reply brief on January 13, 2020, and Oyster Optics filed its sur-reply on January 21, 2020. On December 27, 2019, the Company filed IPR petitions with the USPTO, in which the Company requested the USPTO to invalidate the asserted claims of the Oyster III patent in suit. On January 17, 2020, the Company filed a motion to stay to the case pending a decision of the validity of the Oyster III patent in suit by the USPTO. Oyster Optics submitted its response to the Company’s IPR petitions on April 13, 2020. The Company filed its answer to Oyster Optics' amended complaint on April 14, 2020. In connection with the Company’s IPR petitions, the USPTO issued an order on June 8, 2020, requesting additional briefing on the issue of why the Company filed two IPR petitions instead of one. The Company filed its reply to the USPTO order on June 16, 2020, and Oyster Optics submitted its sur-reply on June 18, 2020. On June 26, 2020, the USPTO instituted some of the Company’s IPR claims and rejected others. In light of the USPTO's favorable institution decision, the Company filed a renewed motion to stay the Oyster III case on June 30, 2020. On July 17, 2020, the Court denied the Company's motion to stay the proceedings, and on July 24, 2020 the Company received the Court's claim construction decision. On September 28, 2020, the Company filed motions for summary judgement based on the Company's license, non-infringement and marking defenses. The Company also filed motions to exclude certain testimony by Oyster Optics' expert witnesses. On September 29, 2020, the Court dismissed Oyster Optics' fraud claims without prejudice in
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response to the motion the Company filed on December 3, 2019. The Company and Oyster Optics participated in a mediation on October 16, 2020, which failed to result in any settlement between the parties. On February 11, 2021, the Court held a hearing with respect to the motions based on the Company’s license defenses. On March 23, 2021, the Court granted, in part, the Company's motion for summary judgment as it relates to a release for the Company's past sales of products including Acacia DSPs. The Court, however, denied the Company's motion as it relates to an implied license for future sales of such products. The Company's motion for summary judgement based on the Coriant-Oyster license was also denied. On March 26, 2021, the Court denied the Company's motion for summary judgment based on the marking defense. On March 30, 2021, a hearing was held before the Patent Trial and Appeal Board in connection with the Company's IPR petition, with a decision due by the end of June 2021. The prior trial date of April 5, 2021 has now been indefinitely delayed. The Company believes that it does not infringe any valid and enforceable claim of the Oyster III patent in suit and intends to defend this action vigorously. The Company is 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.
Capella Photonics, Inc.
On March 17, 2020, Capella Photonics, Inc. ("Capella") filed a complaint in the U.S. District Court for the Eastern District of Texas against the Company, Tellabs, Inc., Coriant Operations, Inc., Coriant America Inc., and Coriant (USA) Inc., alleging infringement of Capella U.S. Reissue Patent Nos. RE47,905 and RE47,906 (the "Capella Patents," which are reissued versions of the patents Capella previously asserted in a prior lawsuit). The complaint alleges infringement of the Capella Patents against certain legacy Coriant platforms. The complaint seeks unspecified damages and a permanent injunction. The Company filed answers to the complaint on May 29, 2020. On July 6, 2020, the Company filed a motion seeking to transfer the case to the Northern District of California, which motion remains pending at this time. The Parties continue to engage in fact discovery. A trial is currently scheduled for August 2021. The case is currently in the expert discovery phase. In March 2021, the assigned magistrate judge issued a report and recommendation in favor of Infinera's pending motion on intervening rights to preclude Capella's recovery of any pre-suit damages. The Company believes that it does not infringe any valid and enforceable claim of the Capella Patents, and intends to defend this action vigorously. The Company is 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.
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 March 27, 2021 and December 26, 2020, 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.
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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
Open Market Sale Agreement
On August 12, 2020, the Company entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”), as sales agent and/or principal, pursuant to which the Company issued and sold through Jefferies, from time to time, shares of the Company’s common stock, par value $0.001 per share (the “Shares”), having an aggregate offering price of $96.3 million. Subject to the terms and conditions of the Sales Agreement, Jefferies will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions. The Company has provided Jefferies with customary indemnification rights, and Jefferies will be entitled to a compensation of 3% of the gross proceeds per Share sold. Sales of the Shares, if any, under the Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended. The Company has no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement.
During the year ended December 26, 2020, we sold 12 million shares of common stock under the Sales Agreement, for net proceeds of approximately $93.4 million, after paying Jefferies a sales commission of approximately $2.9 million related to services provided as the sales agent with respect to the sales of those shares.
2007 Equity Incentive Plan, 2016 Equity Incentive Plan, 2019 Inducement Equity Incentive Plan and Employee Stock Purchase Plan
In February 2007, the Company’s board of directors adopted the 2007 Equity Incentive Plan (the “2007 Plan”) and the Company’s stockholders approved the 2007 Plan in May 2007. The Company reserved a total of 46.8 million shares of common stock for issuance under the 2007 Plan. Upon stockholder approval of the 2016 Equity Incentive Plan (the “2016 Plan”), the Company has ceased granting equity awards under the 2007 Plan; however, the 2007 Plan will continue to govern the terms and conditions of the outstanding options and awards previously granted under the 2007 Plan. As of March 27, 2021, there were no remaining options or RSUs to purchase shares of the Company's common stock under the 2007 Plan.
In February 2016, the Company's board of directors adopted the 2016 Plan and the Company's stockholders approved the 2016 Plan in May 2016. In May 2018, May 2019 and May 2020, the Company's stockholders approved amendments to the 2016 Plan to increase the number of shares authorized for issuance under the 2016 Plan by 1.5 million shares, 7.3 million shares and 8.1 million shares, respectively. As of March 27, 2021, the Company reserved a total of 30.8 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 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
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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; however, it continues to govern outstanding grants under the 2007 Plan.
In July 2019, the Company's board of directors approved a new 2019 Inducement Equity Incentive Plan and set the maximum number of shares to be issued at 750,000.
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.
Stock-based Compensation Plans
As described above, the Company has stock-based compensation plans pursuant to which the Company has granted stock options, RSUs and PSUs, as well as an ESPP for all eligible employees.
The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data): 
Number of Stock
Options
Weighted Average
Exercise
Price
  Per Share  
  Aggregate  
Intrinsic
Value
Outstanding at December 26, 2020
51  $ 7.57  $ 174 
Options granted —  $ — 
Options exercised (51) $ 7.57  $ 108 
Options canceled —  $ — 
Outstanding at March 27, 2021
—  $ —  $ — 
 
Number of
Restricted
Stock Units
Weighted
Average
 Grant Date 
Fair Value
Per Share
  Aggregate  
Intrinsic
Value
Outstanding at December 26, 2020 12,468  $ 5.99  $ 136,781 
RSUs granted 5,725  $ 8.62 
RSUs released (2,189) $ 6.15  $ 19,185 
RSUs canceled (153) $ 6.14 
Outstanding at March 27, 2021 15,851  $ 6.91  $ 160,570 
 
Number of
Performance
Stock Units
Weighted
Average
 Grant Date 
Fair Value
Per Share
  Aggregate  
Intrinsic
Value
Outstanding at December 26, 2020 3,466  $ 5.36  $ 38,022 
PSUs granted 659  $ 8.61 
PSUs released (80) $ 5.80  $ 826 
PSUs canceled (980) $ 4.84 
Outstanding at March 27, 2021 3,065  $ 6.21  $ 31,045 
Expected to vest at March 27, 2021
2,998  $ 30,365 
The aggregate intrinsic value of the stock options that have been exercised is calculated as the difference between the fair market value of the common stock at the date of exercise and the exercise price of the underlying stock options.
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The aggregate intrinsic value of unreleased RSUs and unreleased PSUs is calculated using the closing price of the Company's common stock of $10.13 at March 26, 2021 (the last trading day of the fiscal 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 March 27, 2021. 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 $ 87,744  2.47
PSUs $ 12,021  2.50
Employee Stock Options
The Company did not have any outstanding stock options as of March 27, 2021. The Company did not grant any stock options during the three months ended March 27, 2021 and March 28, 2020. Unamortized expense at the beginning of both periods was zero.
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
March 27, 2021 March 28, 2020
Volatility 50% 42%
Risk-free interest rate 0.06% 1.56%
Expected life 0.5 years 0.5 years
Estimated fair value $3.11 $2.17
Total stock-based compensation expense $1,749 $1,513
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 months ended March 27, 2021 and March 28, 2020 was approximately $9.8 million and $8.3 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.
PSUs granted to the Company’s executive officers and senior management under the 2016 Plan during the first half of 2018 are based on the total stockholder return ("TSR") of the Company's common stock price relative to the TSR of the individual companies listed in the S&P North American Technology Multimedia Networking Index (“SPGIIPTR”) over the span of one year, two years and three years. The number of shares to be issued upon vesting of these PSUs range from zero to two times the target number of PSUs granted depending on the Company’s performance against the individual companies listed in the SPGIIPTR.
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PSUs granted to the Company's executive officers and senior management under the 2016 Plan during 2019, 2020 and the first quarter of 2021 are based on performance criteria related to a specific financial target over the span of a three-year performance period. These PSUs may become eligible for vesting to begin before the end of the three-year performance period, if the applicable financial target is met. The number of shares to be issued upon vesting of these PSUs are capped at the target number of PSUs granted. Certain other employees were awarded PSUs that will only vest upon the achievement of specific financial and operational performance criteria.
The following table summarizes by grant year, the Company’s PSU activity for the three months ended March 27, 2021 (in thousands):
Total Number of Performance Stock Units 2018 2019 2020 2021
Outstanding at December 26, 2020 3,466  109  1,757  1,600  — 
PSUs granted 659  —  —  —  659 
PSUs released (80) —  (80) —  — 
PSUs canceled (980) —  (650) (330) — 
Outstanding at March 27, 2021 3,065  109  1,027  1,270  659 
Amortization of stock-based compensation expense related to PSUs for the three months ended March 27, 2021 was a credit of $0.6 million due to PSU cancellation during the quarter. Amortization of stock-based compensation expense related to PSUs for the three months ended March 28, 2020 was approximately $1.6 million.
Stock-Based Compensation
The following tables summarize the effects of stock-based compensation on the Company’s consolidated balance sheets and statements of operations for the periods presented (in thousands):
  Three Months Ended
  March 27,
2021
March 28,
2020
Stock-based compensation effects in inventory $ 3,956  $ 4,506 
Income tax benefit associated with stock-based compensation $ 1,717  $ 2,002 
Stock-based compensation effects in net loss before income taxes
Cost of revenue $ 1,796  $ 2,102 
Research and development 4,297  3,774 
Sales and marketing 3,199  2,644 
General and administration 1,682  3,183 
       Total stock-based compensation expense $ 10,974  $ 11,703 
15.    Income Taxes
Income taxes for the three months ended March 27, 2021 represented a tax expense of $1.0 million, on pre-tax losses of $47.3 million. This compared to a tax expense of $0.9 million on pre-tax losses of $98.3 million for the three months ended March 28, 2020. Provision for income taxes decreased by approximately $0.1 million during the three months ended March 27, 2021, compared to the corresponding period in 2020 as a result of return to provision and other adjustments.
The Company must assess the likelihood that some portion of or all 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
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net U.S. deferred tax assets. At March 27, 2021, 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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act includes several provisions for corporations including increasing the amount of deductible interest, allowing companies to carryback certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income. The aforementioned relief available under the CARES Act did not have a material impact on the Company's provision for income taxes for the three months ended March 27, 2021.
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 services. Accordingly, the Company is considered a single reporting segment and operating unit structure.
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 long-lived assets by geographic region (in thousands):
March 27,
2021
December 26, 2020
United States $ 130,033  $ 127,691 
Other Americas 2,534  2,668 
Europe, Middle East and Africa 16,853  18,605 
Asia Pacific and Japan 3,698  4,169 
Total property, plant and equipment, net $ 153,118  $ 153,133 


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17.    Guarantees
Product Warranties
Activity related to product warranty was as follows (in thousands):
Three Months Ended
March 27, 2021 March 28, 2020
Beginning balance $ 40,708  $ 43,348 
Charges to operations 5,317  6,312 
Utilization (6,543) (8,335)
Change in estimate(1)
(595) (1,863)
Balance at the end of the period $ 38,887  $ 39,462 
(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 versus 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 $26.7 million of standby letters of credit and bank guarantees outstanding as of March 27, 2021, which consisted of $18.8 million related to customer performance guarantees, $0.3 million related to value added tax and customs licenses, $4.7 million related to property leases, $2.3 million related to restructuring plans, $0.4 million related to credit cards and $0.1 million related to suppliers. Of the $18.8 million related to customer performance guarantees, approximately $2.8 million was used to secure Surety Bonds in the aggregate of $5.5 million.
The Company had $28.9 million of standby letters of credit and bank guarantees outstanding as of December 26, 2020, which consisted of $19.5 million related to customer performance guarantees, $0.3 million related to a value added tax license, $4.0 million related to property leases, $4.4 million related to Coriant's pre-acquisition restructuring plans, $0.6 million related to credit cards and $0.1 million for other liabilities. Of the $19.5 million related to customer performance guarantees, approximately $2.8 million was used to secure Surety Bonds in the aggregate of $5.5 million.
As of each of March 27, 2021 and December 26, 2020, the Company had a Credit Facility, which included a $50.0 million letter of credit sub-facility, pursuant to which letters of credit in the amount of $11.1 million and $11.5 million had been issued and outstanding. Approximately $147.4 million and $169.5 million of assets of certain Company subsidiaries have been pledged to secure this Credit Facility and other obligations as of March 27, 2021 and December 26, 2020, respectively.
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.
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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
March 27, 2021 March 28, 2020
Service cost $ 114  $ 352 
Interest cost 322  365 
Expected return on plan assets (737) (669)
Amortization of actuarial loss 861  413 
Total net periodic benefit cost $ 560  $ 461 
The components of net periodic benefit costs other than the service cost component are included in interest and other, net, 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. All components of net periodic benefit cost are recorded in operating expense of the Company's condensed consolidated statements of operations.


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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, estimates 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; the severity, magnitude, duration and effects of the COVID-19 pandemic; the extent to which the COVID-19 pandemic and related impacts will materially and adversely affect our business operations, financial performance, results of operations, financial position, stock price and personnel; achievement of strategic objectives, including in the second quarter of 2021; any statements of the plans, strategies and objectives of management for future operations and personnel; statements regarding the Acquisition; remaining payments under the 2020 Restructuring Plan; the impact of new customer network footprint on our gross margin; statements regarding our ERP systems; impacts of the recent presidential administration change in the United States; 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; statements related to capital expenditures; statements related to working capital and liquidity; statements related to future economic conditions, performance, market growth or our sales cycle; our ability to identify, attract and retain highly skilled personnel; statements related to our convertible senior notes and credit facility; statements related to the impact of tax regulations; 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 of 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 26, 2020 as filed on March 3, 2021. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. 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, compact modular platforms, converged packet-optical transport platforms, optical line systems, disaggregated router platforms, and a suite of networking and automation software offerings, and support and professional services.
Our customers include telecommunications service providers, internet content providers (“ICPs”), cable providers, wholesale carriers, research and education institutions, large enterprises and government entities. Our networking solutions enable our customers to deliver high-bandwidth business and consumer communications services. Our comprehensive portfolio of networking solutions also enables our customers to 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
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optical functions onto a set of semiconductor chips. 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, low 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. We believe our vertical integration strategy becomes increasingly more valuable as our customers transition to 800 gigabits per second (“Gb/s”) per wavelength transmission speeds and beyond, as the combination of our optical integration, DSP, and tightly integrated packaging enables a leading optical performance at higher optical speeds.
Over the past several years, we expanded our portfolio of solutions, evolving from our initial focus on the long-haul and subsea optical transport markets to offer an expanded suite of networking solutions that address multiple markets within the end-to-end transport infrastructure. These markets include metro access, metro aggregation and switching, data center interconnect (“DCI”) transport, and long-haul and subsea transport.
We have grown our solutions portfolio through internal development as well as acquisitions. In 2014, we introduced the Infinera Cloud Xpress to address the emerging DCI market opportunity. In 2015, we entered the metro market with the acquisition of Transmode AB. In October 2018, we expanded our product portfolio and customer base by acquiring Coriant, a privately held global supplier of open network solutions for the largest global network operators (the “Acquisition”). The Acquisition has helped position us as one of the largest providers of vertically integrated transport networking solutions in the world, and enhanced our ability to serve a global customer base and accelerate the delivery of the innovative solutions that our customers demand. The Acquisition has also enabled us to expand the breadth of customer applications we can address, including 600 Gb/s optical transport, metro aggregation and switching, disaggregated routing, and software-enabled multi-layer network management and control.
Our high-speed optical transport platforms are differentiated by our Infinite Capacity Engine (“ICE”) coherent optical engine technology. ICE enables different subsystems that can be customized for a variety of network applications in different transport markets, including metro, DCI, long-haul and subsea. 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 800 Gb/s over a single wavelength. ICE6 will be integrated into various networking platforms in our product portfolio.
Our products are designed to be managed by a suite of software solutions that enable simplified network management, multi-layer service orchestration, 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 portfolio of solutions benefits our customers by providing a unique combination of highly scalable capacity and features that address various transport applications and ultimately simplify and automate network operations. Our high-performance optical transport solutions leverage the industry shift to open optical network architectures and enable our customers to efficiently and cost-effectively meet bandwidth demand, which continues to grow 30%-35% year over year.
To date, a few of the Company’s customers have accounted for a significant portion of its revenue. For the three months ended March 27, 2021, one customer accounted for 10% of the Company's total revenue. The same customer accounted for 11% of the Company's total revenue for the three months ended March 28, 2020.
We are headquartered in San Jose, California, with employees located throughout (i) the United States; (ii) Canada, Latin America and South America ("Other Americas"); (iii) Europe, Middle East and Africa (“EMEA”); and (iv) Asia Pacific and Japan (“APAC”). We sell our products both through our direct sales force and indirectly through channel partners.
Impact of COVID-19 Pandemic
COVID-19 was declared a global pandemic in March 2020. The impact of the COVID-19 pandemic on our employees, business and financial position remains uncertain, and we have been and will continue monitoring and adjusting our operations, as appropriate, in response to the COVID-19 pandemic.
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Employees
We have taken a number of precautionary steps to safeguard our business and our employees from the effects of the outbreak of COVID-19, including temporarily closing or substantially limiting the presence of personnel in our offices in several impacted locations, implementing travel restrictions and withdrawing from various industry events. Since a large percentage of our workforce is accustomed to online work environments and online collaboration tools, to date we have been able to remain productive and in contact with one another and our customers and vendors. To the extent that pandemic conditions continue to worsen in certain countries in the future and lead to higher rates of infections among the general population and our own workforce, it may be more difficult for us to maintain these levels of productivity. For those employees who may need to be in offices, laboratory and manufacturing environments, or at business partner sites to perform their roles, we are taking appropriate measures to protect their health and safety and create and maintain a safe working environment. 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 and could continue to make it more difficult for them to collaborate as effectively as desired in the development of new products, which can affect development schedules.
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 and delays in our supply chain and manufacturing operations, logistics, 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 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 fiscal 2020 and the first quarter of fiscal 2021, 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 fiscal 2021 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 broader global macroeconomic developments.
We continue to monitor the COVID-19 pandemic, including recent lifting of government restrictions in various jurisdictions, 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 remain unpredictable, 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
In fiscal 2020, we implemented measures to preserve cash and enhance liquidity, including suspending salary increases and bonuses, reducing salaries paid to a portion of our workforce, instituting a broad-based hiring freeze, significantly reducing business travel, reducing 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 installations. As we have gained greater visibility into the impact of the COVID-19 pandemic on Infinera to date and as projected in the future, we have been able to roll back some of the measures taken during fiscal 2020 to preserve cash and enhance liquidity.
While we believe we have enough cash in combination with our Credit Facility (as defined below) to operate our business for the next 12 months, if the impact of the COVID-19 pandemic 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. Capital markets have been volatile 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 has restrictive covenants that
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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. 
In May 2019, we entered into a financing assistance agreement with a third-party contract manufacturer whereby the contract manufacturer agreed to provide funding of up to $40.0 million to cover severance, retention and other costs associated with the transfer. The funding was secured against certain foreign assets, carry a fixed interest rate of 6% and repayable in 12 months from the date of each draw down. In October 2020, the payment terms were amended to extend the due date by six months, set the fixed interest rate at 3% during such period, and allow for the phased transfer of inventory to offset the amount due. As of March 27, 2021, $24.6 million was outstanding, which was included in short-term debt. The outstanding balance and interest was repaid in full in April 2021.
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 three months ended March 27, 2021 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 26, 2020.
Due to the COVID-19 pandemic, there has been and continues to be uncertainty and disruption in the global economy and financial markets. 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.

Results of Operations
The following sets forth, for the periods presented, certain unaudited condensed consolidated statements of operations information (in thousands, except percentage data):
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  Three Months Ended    
  March 27, 2021 March 28, 2020    
  Amount       % of total  
revenue
Amount       % of total  
revenue
Change     % Change 
Revenue:
Product $ 254,161  77  % $ 255,192  77  % $ (1,031) —  %
Services 76,746  23  % 75,081  23  % 1,665  %
Total revenue $ 330,907  100  % $ 330,273  100  % $ 634  —  %
Cost of revenue:
Product $ 165,485  50  % $ 201,792  61  % $ (36,307) (18) %
Services 43,260  13  % 40,695  12  % 2,565  %
Amortization of intangible assets 4,616  % 8,628  % (4,012) (46) %
Acquisition and integration costs —  —  % 1,035  —  % (1,035) NMF*
Restructuring and related 514  —  % 1,157  —  % (643) (56) %
Total cost of revenue $ 213,875  64  % $ 253,307  76  % $ (39,432) (16) %
Gross profit $ 117,032  35.4  % $ 76,966  23.3  % $ 40,066  52  %
*NMF = Not meaningful
Revenue
Total product revenue decreased by $1.0 million, or less than 1%, during the three months ended March 27, 2021 compared to the corresponding period in 2020. During the three months ended March 27, 2021, lower revenue from a customer who had spent heavily on a large network deployment in the corresponding period in 2020 was partially offset by revenue increases from certain cable and service provider customers.
Total services revenue increased by $1.7 million, or 2% for the three months ended March 27, 2021 compared to the corresponding period in 2020. This increase was attributable to growth in professional services from higher network installations, somewhat offset by lower maintenance revenue.
We expect our total revenue will be higher in the second quarter of 2021 as compared to the first quarter of 2021, driven primarily by demand growth from certain cable and service provider customers.
The following table summarizes our revenue by geography and sales channel for the periods presented (in thousands, except percentage data): 
  Three Months Ended
  March 27, 2021 March 28, 2020
Amount % of total revenue Amount % of total revenue Change % Change
Total revenue by geography:
Domestic $ 157,649  48  % $ 170,526  52  % $ (12,877) (8) %
International 173,258  52  % 159,747  48  % 13,511  %
$ 330,907  100  % $ 330,273  100  % $ 634  —  %
Total revenue by sales channel:
Direct $ 271,301  82  % $ 244,351  74  % $ 26,950  11  %
Indirect 59,606  18  % 85,922  26  % (26,316) (31) %
$ 330,907  100  % $ 330,273  100  % $ 634  —  %
Domestic revenue decreased by $12.9 million, or 8%, during the three months ended March 27, 2021 compared to the corresponding period in 2020, driven primarily by declines from certain ICP and Tier 1 customers, and somewhat offset by an improvement in our cable vertical.
International revenue increased by $13.5 million, or 8%, during the three months ended March 27, 2021 compared to the corresponding period in 2020. In this period, we had strong growth from certain Tier 1 and cable customers in APAC and EMEA.
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Direct revenue increased by $27.0 million and Indirect revenue decreased by $26.3 million, during the three months ended March 27, 2021 compared to the corresponding respective period in 2020. In the first quarter of 2020, certain customers spent heavily on large network deployments through our indirect sales channel.
Cost of Revenue and Gross Margin
Gross profit was $117.0 million during the three months ended March 27, 2021, with gross margin increasing to 35.4% versus 23.3% in the corresponding period in 2020. In the three months ended March 27, 2021, we realized an improvement in our product margins stemming from a combination of more favorable product mix, ongoing internal cost improvement initiatives, and lower intangible amortization expenses. In the first quarter of 2020, a higher than typical portion of our revenue represented initially lower margin line systems deployments.
We currently expect that gross margin in the second quarter of 2021 will be lower that of the first quarter of 2021, largely due to product mix. In the second quarter of 2021 we anticipate a higher percentage of revenue coming from initially lower margin line systems deployments, partially offset by continuing benefits from ongoing cost reduction initiatives. Over time, we believe our margins will continue to improve as we increase the proportion of revenue derived from sales of our vertically integrated products.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $4.0 million during the three months ended March 27, 2021, compared to the corresponding period in 2020, due to certain technologies being fully amortized in the third quarter of 2020.
Acquisition and Integration Costs
Integration costs, within cost of revenue, decreased by $1.0 million during the three months ended March 27, 2021, compared to the corresponding period in 2020 as we have largely completed our integration efforts related to Acquisition.
Restructuring and Related
Restructuring and related costs primarily consisting of severance and related costs decreased by $0.6 million during the three months ended March 27, 2021, compared to the corresponding period in 2020. During the three months ended March 28, 2020, we incurred $1.2 million in restructuring and related costs, including $1.1 million of severance and related costs. These charges were primarily associated with the reduction of headcount at our Munich, Germany site, as part of our 2018 Restructuring Plan, which was substantially completed in fiscal year 2020. See Note 9, “Restructuring and Related Costs” to the Notes to Condensed Consolidated Financial Statements for more information.
Operating Expenses
The following tables summarize our operating expenses for the periods presented (in thousands, except percentage data):
  Three Months Ended    
  March 27, 2021 March 28, 2020    
  Amount       % of total  
revenue
Amount       % of total  
revenue
Change     % Change  
Operating expenses:
Research and development $ 73,529  22  % $ 68,180  21  % $ 5,349  %
Sales and marketing 32,772  10  % 36,689  11  % (3,917) (11)  %
General and administrative 26,506  % 29,620  % (3,114) (11)  %
Amortization of intangible assets 4,405  %