What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-02 · 134 added, 104 removed, 435 unchanged (35% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except par value)

March 31, 2023 December 31, 2022

(In thousands, except par value)

June 30, 2023 December 31, 2022

CURRENT ASSETS:

27 unchanged sentences

STOCKHOLDERS’ EQUITY:

Preferred stock, $ 0.0001 par value— 100,000 shares authorized and no shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.0001 par value— 1,000,000 shares authorized as of March 31, 2023 and December 31, 2022;

308,098 and 306,890 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Preferred stock, $ 0.0001 par value— 100,000 shares authorized and no shares issued and outstanding as of June 30, 2023 and December 31, 2022

Common stock, $ 0.0001 par value— 1,000,000 shares authorized as of June 30, 2023 and December 31, 2022;

309,355 and 306,890 shares issued and outstanding as of June 30, 2023 and December 31, 2022

Additional paid-in capital 1,927,697 1,780,714

7 unchanged sentences

(Unaudited, in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Product $ 1,261,537 $ 885,806 $ 2,433,631 $ 1,610,524

26 unchanged sentences

(Unaudited, in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net income $ 491,885 $ 299,099 $ 928,358 $ 571,358

10 unchanged sentences

(Unaudited, in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

Common Stock Additional

2 unchanged sentences

Comprehensive

Stockholders’ Equity Common Stock Additional

Paid-In Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Stockholders’ Equity

Shares Amount

Stockholders’

Shares Amount Shares Amount

Balance at beginning of period 308,098 $ 31 $ 1,857,467 $ 3,493,181 $ ( 21,505 ) $ 5,329,174 306,890 $ 31 $ 1,780,714 $ 3,138,983 $ ( 33,908 ) $ 4,885,820

Net income — — — 491,885 — 491,885 — — — 928,358 — 928,358

Other comprehensive income, net of tax — — — — 12,403 12,403

Other comprehensive income (loss), net of tax — — — — ( 3,703 ) ( 3,703 ) — — — — 8,700 8,700

Stock-based compensation — — 67,127 — — 67,127 — — 130,008 — — 130,008

2 unchanged sentences

Tax withholding paid for net share settlement of equity awards ( 44 ) — ( 6,542 ) — — ( 6,542 ) ( 113 ) — ( 15,766 ) — — ( 15,766 )

Common stock issued for business acquisition 32 — 2,331 — — 2,331 32 — 2,331 — — 2,331

Balance at end of period 309,355 $ 31 $ 1,927,697 $ 3,955,062 $ ( 25,208 ) $ 5,857,582 309,355 $ 31 $ 1,927,697 $ 3,955,062 $ ( 25,208 ) $ 5,857,582

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Common Stock Additional

3 unchanged sentences

Stockholders’

Shares Amount

Equity Common Stock Additional

Paid-In Capital Retained

Earnings Accumulated

Comprehensive

Stockholders’

Shares Amount Shares Amount

Balance at beginning of period 308,165 $ 31 $ 1,590,793 $ 2,592,854 $ ( 30,501 ) $ 4,153,177 307,681 $ 31 $ 1,530,046 $ 2,456,823 $ ( 8,300 ) $ 3,978,600

11 unchanged sentences

(Unaudited, in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Deferred income taxes ( 130,287 ) ( 105,937 )

Unrealized loss (gain) on equity investments 5,571 ( 28,497 )

Unrealized gain on equity investments ( 19,172 ) ( 23,413 )

Amortization (accretion) of investment premiums (discounts) ( 11,998 ) 11,457

2 unchanged sentences

Inventories ( 574,628 ) ( 202,052 )

Prepaid expenses and other current assets ( 82,278 ) ( 107,999 )

Other assets ( 120,864 ) ( 163,692 )

10 unchanged sentences

Purchases of property and equipment ( 17,212 ) ( 23,744 )

Business acquisitions, net of cash acquired — ( 37,610 )

Investments and notes receivable in privately-held companies ( 250 ) ( 11,691 )

Net cash used in investing activities ( 21,747 ) ( 72,615 )

Cash paid for business combinations, net of cash acquired 1,799 ( 145,087 )

Investment in notes and privately-held companies ( 4,250 ) ( 11,691 )

Net cash provided by (used in) investing activities ( 124,653 ) 172,959

CASH FLOWS FROM FINANCING ACTIVITIES:

4 unchanged sentences

Effect of exchange rate changes 429 ( 3,041 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

284,647 14,233

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 586,714 ( 127,546 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH —Beginning of period 675,978 625,050

10 unchanged sentences

(together with our subsidiaries, “we,” “our,” "Arista," "Company" or “us”) is a supplier of cloud networking solutions that use software innovations to address the needs of next generation data center and campus workspace environments.

Our cloud networking solutions consist of our Extensible Operating System ("EOS"), a set of network applications and our Gigabit Ethernet switching and routing platforms.

Our cloud networking solutions consist of our Extensible Operating System ("EOS"), a set of network applications and our Ethernet switching and routing platforms.

We are incorporated in the state of Delaware.

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In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial information.

The results for the three months ended March 31, 2023, are not necessarily indicative of the results expected for the full fiscal year.

The results for the three and six months ended June 30, 2023, are not necessarily indicative of the results expected for the full fiscal year.

The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements.

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Risks and Uncertainties

Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, the recent banking crisis, recessio n risks, an d potential supply chain and other disruptions from the Russia-Ukraine conflict and the U.S.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, the recent banking crisis, recession risks, and potential supply chain and other disruptions from the Russia-Ukraine conflict and the U.S.

trade war with China.

1 unchanged sentence

We have worked diligently to drive improvements in these areas, including funding additional working capital and incremental purchase commitments, and have begun to see some reduction in customer lead times on certain products.

As customer lead times improve more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to a somewhat shorter demand-planning horizon.

While inventory and working capital levels may continue to increase and remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times begin to shorten.

Although these elevated inventory positions largely relate to early life cycle products, we cannot be certain that we will be able to sell this inventory which may result in excess and obsolete inventory charges in the future.

In addition, inflation pressure in our supply chain, scarcity of some materials needed to build our products and disruptions to our manufacturing process have increased our cost of revenue and have impacted, and may continue to negatively

impact our gross margin.

Over time, the recovery of capacity should allow us to ship products against previously committed deployment plans and accelerate some deployments where needed, while trying to limit building customer inventory.

On this basis, we now expect some shipments against these deployment schedules to extend into 2024.

As customer lead times reduce more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to somewhat shorter demand-planning horizons which has resulted in lower demand levels.

Given the shipment and order patterns described above, near term revenue trends may not be reflective of current demand levels, but will benefit from deployment plans that had been previously committed.

While inventory and working capital levels may continue to increase and remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten.

Although these elevated inventory positions are largely related to early

life cycle products, we cannot be certain that we will be able to sell all of this inventory, which may in the future result in excess and obsolete inventory charges.

Our operating cash-flows have also been and may continue to be negatively impacted by significant component inventories on hand or at our contract manufacturers.

While we have seen some improvements in our supply chain and manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact our business in future periods.

While we have seen improvements in our supply chain and manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact our business in future periods.

In addition, although our business has experienced limited disruption as a result of the Russia-Ukraine conflict, continued escalation of the conflict may negatively impact the global economy and our future operating results and financial condition.

Management continues to actively monitor the impact of these macroeconomic factors on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.

Management continues to actively monitor the impact of macroeconomic factors on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.

The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, the impact on our customers, partners, employees, contract manufacturers and supply chain, all of which continue to evolve and are unpredictable;

however, any continued or renewed disruption in manufacturing and supply resulting from these factors could negatively impact our business.

We also believe that our customers continue to grapple with the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders.

We also believe that our customers, following a year of elevated purchase, must now consider changing technology roadmaps and priorities, including the need for the rapid deployment of artificial intelligence ("AI") and related technologies, resulting in some uncertainty as to future investment plans and a more constrained approach to some forecasts and orders in the near term.

In addition, any prolonged economic disruptions or further deterioration in the global economy could have a negative impact on demand from our customers in future periods.

6 unchanged sentences

The following tables summarize the fair value of these financial assets by significant investment category and their levels within the fair value hierarchy (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Level I Level II Level III Total Level I Level II Level III Total

8 unchanged sentences

Commercial paper — 88,960 — 88,960 — — — —

Certificate of deposits (1)

Certificates of deposits (1)

— 6,998 — 6,998 — 10,492 — 10,492

9 unchanged sentences

______________________________________

(1) As of March 31, 2023 and December 31, 2022, all of our certificates of deposits were domestic deposits.

(2) The $ 13.5 million represents the fair value of marketable equity securities as of March 31, 2023.

This publicly-traded equity investment generated an unrealized loss of $ 5.6 million for the three months ended March 31, 2023, and an unrealized gain of $ 13.5 million for the three months ended March 31, 2022.

(1) As of June 30, 2023 and December 31, 2022, all of our certificates of deposits were domestic deposits.

(2) The $ 24.8 million represents the fair value of marketable equity securities as of June 30, 2023.

This publicly-traded equity investment generated an unrealized gain of $ 5.8 million for the six months ended June 30, 2023, and an unrealized gain of $ 11.3 million for the three months ended June 30, 2023.

Total initial cost for this investment was $ 3.0 million with no changes since our initial investment.

2 unchanged sentences

Financial Statements Details.

During the three months ended on March 31, 2023, the Company did not make any transfers between the levels of the fair value hierarchy.

During the three and six months ended June 30, 2023, the Company did not make any transfers between the levels of the fair value hierarchy.

Marketable debt securities

The following table summarizes the amortized cost, unrealized gains and losses, and fair value of our debt securities measured at fair value on a recurring basis (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value

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The longer the duration of these marketable securities, the more susceptible they are to changes in market interest rates and bond yields.

Given the short-term and conservative nature of our portfolio, the unrealized losses are not related to credit risk;

therefore, we did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable debt securities for the three months ended March 31, 2023.

Given the short-term and conservative nature of our portfolio, our debt securities are generally not subject to credit risk;

therefore, we did not recognize any credit losses or non-credit-related impairments related to such securities for the three and six months ended June 30, 2023.

All unrealized losses were recognized in other comprehensive income (loss).

Realized losses were immaterial for the three months ended March 31, 2023.

Realized losses were immaterial for the three and six months ended June 30, 2023.

The following table is an analysis of our marketable debt securities in unrealized loss positions (in thousands):

March 31, 2023

June 30, 2023

Unrealized Losses within 12 months Unrealized Losses 12 months or greater Total

4 unchanged sentences

Total $ 1,632,547 $ ( 11,123 ) $ 610,052 $ ( 9,182 ) $ 2,242,599 $ ( 20,305 )

As of March 31, 2023, we had no marketable debt securities with contractual maturities that exceed 24 months.

As of June 30, 2023, we had no marketable debt securities with contractual maturities that exceed 24 months.

The fair values of marketable debt securities, by remaining contractual maturities, are as follows (in thousands):

March 31, 2023

June 30, 2023

Due in 1 year or less $ 1,494,804

1 unchanged sentence

Total debt securities $ 2,447,459

The weighted-average remaining duration of our marketable debt securities is approximately 0.8 years as of March 31, 2023.

The weighted-average remaining duration of our marketable debt securities is approximately 0.9 years as of June 30, 2023.

As we view these marketable debt securities as available to support current operations, we classify marketable debt securities with maturities beyond 12 months as current assets under the caption "Marketable securities" on the condensed consolidated balance sheets.

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In addition, the valuation requires management judgment due to the absence of market price and lack of liquidity.

We did not record any realized gains or losses for our non-marketable equity securities measured at fair value on a non-recurring basis during the three months ended March 31, 2023 and March 31, 2022.

We recorded unrealized gains of nil and $ 15.0 million on non-marketable equity securities based on observable price changes from orderly transactions of identical or similar securities in the three months ended March 31, 2023 and March 31, 2022, respectively.

We recorded immaterial unrealized losses in the three months ended March 31, 2023.

We evaluate our non-marketable equity securities for impairment at each reporting period via a qualitative assessment with various potential impairment indicators, including, but not limited to, an assessment of a significant adverse change in the economic environment, significant adverse changes in the general market condition of the geographies and industries in which our investees operate, and other publicly-available information that affected the value of the its non-marketable equity securities.

The following table summarizes the activity related to our non-marketable equity securities as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

We did not record any realized gains for our non-marketable equity securities during the three and six months ended June 30, 2023 and June 30, 2022, and w e recorded an immaterial amount of realized and unrealized losses for the three and six months ended June 30, 2023 and June 30, 2022.

Unrealized gains f or our non-marketable equity securities are summarized below (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Unrealized gains on non-marketable equity securities (1)

$ 13,401 $ — $ 13,401 $ 15,000

(1) These unrealized gains were recorded on investments that were re-measured to fair value as of the date observable transactions occurred.

The following table summarizes the activity related to our non-marketable equity securities as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Cost of investments (1)

$ 31,656 $ 23,625

Cumulative impairment and downward adjustment — ( 888 )

1 unchanged sentence

Carrying amount of investments $ 61,788 $ 39,468

(1) During the three months ended June 30, 2023, we had an $ 8.0 million convertible note previously included in other assets, plus accrued interest of $ 0.6 million, that was converted to an equity investment and included in cost of investments.

Financial Statements Details

1 unchanged sentence

The reconciliation of cash, cash equivalents and restricted cash reported on the unaudited condensed consolidated balance sheets to the total of the same such amounts in the unaudited condensed consolidated statements of cash flows is as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 1,261,836 $ 671,707

3 unchanged sentences

Accounts receivable, net consists of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accounts receivable $ 793,306 $ 928,490

3 unchanged sentences

Inventories consist of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Raw materials $ 1,050,253 $ 759,519

3 unchanged sentences

Prepaid expenses and other current assets consist of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Inventory deposits $ 298,827 $ 162,047

Other current assets 167,544 152,170

Other prepaid expenses and deposits 24,549 27,813

Total prepaid expenses and other current assets $ 466,371 $ 314,217

1 unchanged sentence

Property and equipment, net consists of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Land $ 42,567 $ 41,500

8 unchanged sentences

Property and equipment, net $ 101,705 $ 95,009

Depreciation expense was $ 7.1 million and $ 5.6 million for the three months ended March 31, 2023 and 2022, respectively.

Depreciation expense was $ 7.8 million and $ 6.2 million for the three months ended June 30, 2023 and 2022, respectively, and $ 14.9 million and $ 11.8 million for the six months ended June 30, 2023 and 2022, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accrued compensation-related costs $ 88,984 $ 117,053

8 unchanged sentences

The following table summarizes the activity related to our contract liabilities (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Contract liabilities, beginning balance $ 105,047 $ 98,422 $ 103,448 $ 93,382

3 unchanged sentences

Contract liabilities, ending balance $ 110,097 $ 101,600 $ 110,097 $ 101,600

As of March 31, 2023 and December 31, 2022, $ 46.9 million and $ 45.2 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances included in "Other long-term liabilities" on the condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, $ 48.8 million and $ 45.2 million of our contract liabilities, respectively, were included in "Other current liabilities" with the remaining balances included in "Other long-term liabilities" on the condensed consolidated balance sheets.

Deferred Revenue

1 unchanged sentence

The following table summarizes the activity related to our deferred revenue (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Deferred revenue, beginning balance

4 unchanged sentences

Other Performance Obligations

Other performance obligations totaling $ 1.0 billion as of March 31, 2023 include unbilled multi-year PCS and service contract amounts of $ 120.1 million and $ 908.6 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Other performance obligations totaling $ 812.8 million as of June 30, 2023 include unbilled multi-year PCS and service contract amounts of $ 95.8 million and $ 717.0 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Revenue from Total Remaining Performance Obligations

T otal revenue from our contract liabilities, deferred revenue and other performance obligations that will be recognized in future periods amounts to $ 2.0 billion.

Included in this amount is the $ 908.6 million of binding contractual agreements related primarily to future product shipments.

As of March 31, 2023, it is expected that the majority of the amounts allocated to these specific performance obligations will be recognized as revenue upon product shipment over the next two years .

In addition, as of March 31, 2023, approximately 82 % of the remaining $ 1.3 billion of this future revenue is expected to be recognized over the next two years and approximately 18 % is expected to be recognized during the third to the fifth year.

Included in this amount is the $ 717.0 million of binding contractual agreements related primarily to future product shipments that will be recognized as revenue over the next two years .

In addition, approximately 82 % of the remaining $ 1.3 billion of this future revenue is expected to be recognized over the next two years and approximately 18 % is expected to be recognized during the third to the fifth year.

Other Income (Expense), net

Other income (expense), net consists of the following (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Interest income $ 32,206 $ 4,427 $ 54,715 $ 6,855

3 unchanged sentences

Acquisition, Goodwill and Acquisition-Related Intangible Assets

We had no material business acquisitions during the six months ended June 30, 2023.

During the year ended December 31, 2022, we completed two acquisitions of private companies for total consideration of $ 158.9 million including $ 4.0 million in common stock and the remainder in cash.

1 unchanged sentence

We also incurred certain acquisition-related expenses of $ 4.7 million, which primarily consisted of retention bonuses to continuing employees as well as professional and consulting fees.

The purchase price allocation for one of the acquisitions has been finalized, while for the other acquisition it is still subject to continuing management analysis.

No changes were made to the purchase price allocation for the three months ended March 31, 2023.

No changes were made to the carrying values of goodwill for the three months ended March 31, 2023.

The purchase price allocation for the two acquisitions have been finalized.

No changes were made to the purchase price allocation for the three and six months ended June 30, 2023.

No material changes were made to the carrying values of goodwill for the three and six months ended June 30, 2023.

Acquisition-Related Intangible Assets

Acquisition-related intangible assets were as follows (in thousands, except years):

Acquisition-related intangible assets, excluding those that are fully amortized, were as follows (in thousands, except years):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (in years)

December 31, 2022

Additions March 31, 2023 December 31, 2022

Amortization March 31, 2023 December 31, 2022

March 31, 2023

Additions June 30, 2023 December 31, 2022

Amortization June 30, 2023 December 31, 2022

June 30, 2023

Developed technology $ 154,930 $ — $ 154,930 $ ( 79,036 ) $ ( 13,640 ) $ ( 92,676 ) $ 75,894 $ 62,254 4.3

1 unchanged sentence

Trade name 12,390 — 12,390 ( 6,602 ) ( 1,140 ) ( 7,742 ) 5,788 4,648 2.1

Others 5,720 — 5,720 ( 5,720 ) — ( 5,720 ) — — 0.0

Total $ 221,940 $ — $ 221,940 $ ( 99,735 ) $ ( 18,630 ) $ ( 118,365 ) $ 122,205 $ 103,575 4.5

Amortization expense related to acquisition-related intangible assets was $ 9.3 million, and $ 7.3 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, future estimated amortization expense related to the acquisition-related intangible assets is as follows (in thousands):

Amortization expense related to acquisition-related intangible assets was $ 9.3 million, and $ 7.7 million for the three months ended June 30, 2023 and 2022, respectively, and $ 18.6 million and $ 15.0 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, future estimated amortization expense related to the acquisition-related intangible assets is as follows (in thousands):

Future Amortization Expense

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In addition, we purchase strategic component inventory from certain suppliers under non-cancellable purchase commitments, including integrated circuits, which are consigned to our contract manufacturers.

As of March 31, 2023, we had non-cancellable purchase commitments of $ 2.9 billion, of which $ 2.4 billion have confirmed receipt dates within 12 months, and $ 0.5 billion have confirmed receipt dates greater than 12 months.

As of June 30, 2023, we had non-cancellable purchase commitments of $ 2.2 billion, of which $ 1.9 billion have confirmed receipt dates within 12 months, and $ 0.3 billion have confirmed receipt dates greater than 12 months.

These open purchase orders are considered enforceable and legally binding, and while we may have some limited ability to reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services, this can only occur with the agreement of the related supplier.

We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $ 246.7 million and $ 192.5 million as of March 31, 2023 and December 31, 2022, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the condensed consolidated balance sheets.

We also had deposits to our contract manufacturers to secure our purchase commitments in the amount of $ 301.6 million and $ 192.5 million as of June 30, 2023 and December 31, 2022, respectively, which were recorded within prepaid expenses and other current assets, as well as other assets in the condensed consolidated balance sheets.

We have entered into agreements with some of our direct customers and channel partners that contain indemnification provisions relating to potential situations where claims could be alleged that our products infringe the intellectual property rights of a third party.

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On July 1, 2022, the court stayed the case pending the resolution of an inter partes review of one of the patents-in-suit.

On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all challenged claims in the inter partes review unpatentable.

The district court case remains stayed pending appeal and/or final resolution of the PTAB ruling.

We intend to vigorously defend against the claims brought against us by WSOU;

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We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

As of March 31, 2023, provisions recorded for contingent losses related to other claims and matters have not been significant.

As of June 30, 2023, provisions recorded for contingent losses related to other claims and matters have not been significant.

Based on currently-available information, management does not believe that any additional liabilities relating to other unresolved matters are probable or that the amount of any resulting loss is estimable, and believes these other matters are not likely, individually and in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows;

however, litigation is subject to inherent uncertainties and our view of these matters may change in the future.

Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

Were an unfavorable outcome to occur, there exists the possibility of a material adverse

impact on our financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

Stockholders’ Equity and Stock-Based Compensation

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The Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or discontinued by the company at any time without prior notice.

As of March 31, 2023, the remaining authorized amount for stock repurchases under the Repurchase Program was approximately $ 174.5 million.

A summary of the stock repurchase activity under the New Repurchase Program for the three months ended March 31, 2023 is as follows (in thousands, except per share amounts):

Three Months Ended

March 31, 2023

As of June 30, 2023, the remaining authorized amount for stock repurchases under the Repurchase Program was approximately $ 144.5 million.

A summary of the stock repurchase activity under the Repurchase Program for the three and six months ended June 30, 2023 is as follows (in thousands, except per share amounts):

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2023

Aggregate purchase price $ 30,004 $ 112,279

8 unchanged sentences

Awards granted under the 2014 Plan could be in the form of Incentive Stock Options (“ISOs”), Nonstatutory Stock Options (“NSOs”), Restricted Stock Units (“RSUs”), Restricted Stock Awards (“RSAs”) or Stock Appreciation Rights (“SARs”).

The number of shares available for grant and issuance under the 2014 Plan increases automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3 % of the outstanding shares of our common stock on the immediately preceding December 31, but not to exceed 50,000,000 shares (the “2014 Plan Evergreen Increase”), unless our board of directors, in its discretion, determines to make a smaller increase.

The number of shares available for grant and issuance under the 2014 Plan increases automatically on January 1 of each year commencing with 2016 by the number of shares equal to 3 % of the outstanding shares of our common stock on the immediately preceding December 31, but not to exceed 50 million shares (the “2014 Plan Evergreen Increase”), unless our board of directors, in its discretion, determines to make a smaller increase.

Effective January 1, 2023, our board of directors authorized an increase of 9.2 million shares to the shares available for issuance under the 2014 Plan.

As of March 31, 2023, there remained approximately 99.4 million shares available for issuance under the 2014 Plan.

As of June 30, 2023, there remained approximately 98.0 million shares available for issuance under the 2014 Plan.

2014 Employee Stock Purchase Plan

1 unchanged sentence

The ESPP became effective on the first day that our common stock was publicly traded.

The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1 % of our shares outstanding on the immediately preceding December 31, but not to exceed 10,000,000 shares, unless our board of directors, in its discretion, determines to make a smaller increase.

The number of shares reserved for issuance under the ESPP increases automatically on January 1 of each year by the number of shares equal to 1 % of our shares outstanding on the immediately preceding December 31, but not to exceed 10 million shares, unless our board of directors, in its discretion, determines to make a smaller increase.

Effective January 1, 2023, our board of directors authorized an increase of 3.1 million shares to the shares available for issuance under the ESPP.

During the three months ended March 31, 2023, we issued 139,758 shares at a weighted-average purchase price of $ 102.66 per share under the ESPP.

As of March 31, 2023, there remained approximately 23.5 million shares available for issuance under the ESPP.

During the six months ended June 30, 2023, we issued 139,758 shares at a weighted-average purchase price of $ 102.66 per share under the ESPP.

As of June 30, 2023, there remained approximately 23.5 million shares available for issuance under the ESPP.

Stock Option Activities

7 unchanged sentences

Options canceled ( 1 ) 9.26

Balance—March 31, 2023 4,636 $ 15.65 1.9 $ 705,637

Vested and exercisable—March 31, 2023 4,225 $ 13.43 1.6 $ 652,547

Balance—June 30, 2023 3,838 $ 17.00 1.8 $ 556,820

Vested and exercisable—June 30, 2023 3,497 $ 14.89 1.5 $ 514,659

Restricted Stock Unit (RSU) Activities

8 unchanged sentences

RSUs forfeited/canceled ( 180 ) 95.49

Unvested balance—March 31, 2023 8,118 $ 89.89 1.7 $ 1,362,671

Unvested balance—June 30, 2023 9,262 $ 106.28 1.9 $ 1,500,987

Stock-Based Compensation Expense

The following table summarizes the stock-based compensation expense related to our equity awards (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Cost of revenue $ 2,824 $ 2,312 $ 5,799 $ 3,621

4 unchanged sentences

Total stock-based compensation $ 67,127 $ 50,224 $ 130,008 $ 100,503

As of March 31, 2023, there were $ 602.9 million of unamortized compensation costs related to all unvested awards.

As of June 30, 2023, there were $ 868.7 million of unamortized compensation costs related to all unvested awards.

The unamortized compensation costs are expected to be recognized over a weighted-average period of approximately 3.7 years.

1 unchanged sentence

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net income $ 491,885 $ 299,099 $ 928,358 $ 571,358

7 unchanged sentences

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive for the periods presented (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Stock options and RSUs 548 781 285 423

Employee stock purchase plan 77 — 213 8

Total 625 781 498 431

Income Taxes (in thousands, except percentages)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Income before income taxes $ 586,401 $ 362,320 $ 1,083,125 $ 671,787

1 unchanged sentence

Effective tax rate 16.1 % 17.4 % 14.3 % 14.9 %

Our provision for income taxes increased in the three months ended March 31, 2023, as compared to the same period in 2022, due to a corresponding increase in income before taxes, while our effective tax rate remained relatively stable over those same periods.

The decrease in the effective tax rates in the three and six months ended June 30, 2023, as compared to the same periods in 2022, was primarily due to an increase in tax benefits attributable to stock-based compensation.

Geographical Information

1 unchanged sentence

The following table represents revenue based on customers’ shipping addresses (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

$ 1,154,509 $ 845,055 $ 2,269,520 $ 1,509,432

Europe, Middle East and Africa 167,623 104,538 295,939 239,343

1 unchanged sentence

Total revenue $ 1,458,924 $ 1,051,891 $ 2,810,275 $ 1,928,957

(1) Includes $ 1.1 billion and $ 648.9 million revenue generated from the U.S.

for the three months ended March 31, 2023 and March 31, 2022, respectively.

(1) Includes $ 1,121.7 million and $ 838.7 million revenue generated from the U.S.

for the three months ended June 30, 2023 and June 30, 2022, respectively, and $ 2,216.3 million and $ 1,487.6 million for the six months ended June 30, 2023 and June 30, 2022, respectively.

Long-lived assets, net, excluding intercompany receivables, investments in subsidiaries, privately-held equity investments and deferred tax assets, by location are summarized as follows (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

United States $ 81,667 $ 71,540

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements