What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-13 compared with 2023-02-14 · 137 added, 192 removed, 869 unchanged (27% of the section changed)

31 unchanged sentences

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory Valuation & Contract Manufacturer/Supplier Liabilities

Inventory Valuation and Contract Manufacturer/Supplier Liabilities

Description of the Matter

10 unchanged sentences

We have served as the Company's auditor since 2008.

San Jose, California

San Mateo, California

February 12, 2024

7 unchanged sentences

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

13 unchanged sentences

/s/ Ernst & Young LLP

San Jose, California

San Mateo, California

February 12, 2024

12 unchanged sentences

Goodwill 268,531 265,924

Investments 39,468 20,247

Operating lease right-of-use assets 53,390 65,182

Deferred tax assets 945,792 574,912

9 unchanged sentences

Income taxes payable 95,751 89,839

Operating lease liabilities, non-current 43,964 56,527

Deferred revenue, non-current 591,000 403,814

Deferred tax liabilities, non-current 42 129,074

Other long-term liabilities 131,390 102,406

65 unchanged sentences

Net income — — — 840,854 — 840,854

Other comprehensive income, net of tax — — — — 95 95

Other comprehensive loss, net of tax — — — — ( 8,538 ) ( 8,538 )

Stock-based compensation — — 186,875 — — 186,875

2 unchanged sentences

Tax withholding paid for net share settlement of equity awards ( 171 ) — ( 16,482 ) — — ( 16,482 )

Vesting of early-exercised stock options — — 164 — — 164

Balance — December 31, 2021 307,681 31 1,530,046 2,456,823 ( 8,300 ) 3,978,600

5 unchanged sentences

Tax withholding paid for net share settlement of equity awards ( 271 ) — ( 32,725 ) — — ( 32,725 )

Common stock issued for business acquisition 33 — 4,049 — — 4,049

Balance — December 31, 2022 306,890 31 1,780,714 3,138,983 ( 33,908 ) 4,885,820

Net income — — — 2,087,321 — 2,087,321

Other comprehensive loss, net of tax — — — — ( 25,608 ) ( 25,608 )

Other comprehensive income, net of tax — — — — 30,580 30,580

Stock-based compensation — — 296,756 — — 296,756

17 unchanged sentences

Deferred income taxes ( 370,796 ) ( 244,382 ) ( 99,290 )

Unrealized gain on equity investments ( 27,479 ) — ( 4,164 )

Gain on strategic investments ( 18,699 ) ( 27,479 ) —

Amortization (accretion) of investment premiums (discount) ( 33,518 ) 12,767 26,847

2 unchanged sentences

Inventories ( 655,474 ) ( 638,948 ) ( 170,449 )

Prepaid expenses and other current assets ( 85,166 ) ( 126,002 ) ( 5,966 )

Other assets ( 66,401 ) ( 117,465 ) ( 130,222 )

Accounts payable 198,612 31,436 66,681

Accrued liabilities 66,586 83,524 2,728

Other liabilities 123,694 70,704 78,187

Deferred revenue 464,958 98,957 278,485

Income taxes, net 20,168 44,026 ( 2,589 )

Other liabilities 4,118 ( 5,337 ) 17,102

Net cash provided by operating activities 2,034,014 492,813 1,015,856

1 unchanged sentence

Proceeds from maturities of marketable securities 1,887,939 1,643,824 1,455,465

Proceeds from sale of marketable securities 67,284 193,782 19,607

Purchases of marketable securities ( 2,606,878 ) ( 1,418,857 ) ( 2,317,264 )

Business acquisition, net of cash acquired ( 145,087 ) — ( 227,420 )

Purchases of property, equipment and intangible assets ( 34,434 ) ( 44,644 ) ( 64,736 )

Escrow receipts from past business acquisitions — 1,299 —

Investments and notes receivable in privately-held companies ( 12,691 ) ( 19,933 ) 3,399

Proceeds from sale of marketable securities 193,782 19,607 772,978

Cash paid for business combination, net of cash acquired 1,799 ( 145,087 ) 1,299

Investment in notes and privately-held companies ( 3,164 ) ( 12,691 ) ( 19,933 )

Net cash provided by (used in) investing activities ( 687,454 ) 216,327 ( 925,562 )

13 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities $ 20,567 $ 7,300 $ 5,005

Property and equipment included in accounts payable and accrued liabilities 1,411 3,497 1,565

Vesting of early exercised stock options and restricted stock awards — — 164

Common stock issued for business acquisition 2,331 4,049 —

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

ARISTA NETWORKS, INC.

10 unchanged sentences

All significant intercompany accounts and transactions have been eliminated.

On November 1, 2021, we announced a four -for-one split of the Company’s common stock effected in the form of a stock dividend (the “Stock Split”).

Each stockholder of record on November 11, 2021 received three additional shares of common stock for each then-held share, and such shares were distributed after close of trading on November 17, 2021.

All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

Certain reclassifications of prior period amounts were made in the current year to conform to the current period presentation.

Risk and Uncertainties

Global economic and business activities continue to face widespread macroeconomic uncertainties, including supply chain constraints, inflation and monetary policy shifts, recession risks, the global coronavirus ("COVID-19") pandemic, and potential disruptions from the Russia-Ukraine conflict and U.S.

Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, recession risks, and potential supply chain and other disruptions such as the Russia-Ukraine and Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea and the U.S.

trade war with China.

Although we saw some improvement in our manufacturing and supply chain operations in the latter part of 2022, we continue to experience constraints, with some lingering component shortages, extended lead times, and elevated component and supply chain cost s.

We continue to work closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed component sourcing and workforce disruptions.

Although we have worked diligently to drive improvements in these areas, including funding additional working capital and incremental purchase commitments, these delays have negatively impacted our ability to supply products to our customers on a timely basis.

Our demand planning horizon remains extended with high levels of purchase commitments and increased investments in working capital to address delays in component sourcing and the risk of future supply chain disruptions, but we cannot be certain that such delays or disruptions will not occur, or that our extended demand planning horizon will adequately address these disruptions should they occur.

As we exit 2023, the business is emerging from a period of unprecedented global supply chain disruptions.

Throughout this period, we made significant supply chain investments, including funding additional working capital and incremental purchase commitments in response to extended visibility to deployment plans from our customers.

We have worked closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed component sourcing and workforce disruptions.

This increased capacity has allowed us to ship products against previously committed demand/deployment plans and accelerate some deployments where needed, while trying to limit building customer inventory and to some extent balancing customer lead times with those currently experienced from our key suppliers.

As a result, some shipments against these previously committed demand/deployment plans have extended into 2024.

As the global supply chain has experienced some improvements and as customer lead times have been reduced from their peak, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons resulting in lower demand levels.

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

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

The larger magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting customer product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted, and may in the future result, in additional excess and obsolete inventory and supplier liability charges.

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.

Our operating cash-flows have also been and may continue to be negatively impacted by increased component inventories on hand or at our contract manufacturers, awaiting supply of a limited number of scarce components necessary to build and ship the completed product.

While overall demand remains stable, supply chain and manufacturing related constraints could impact our ability to fulfill this demand, and as a result 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.

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 any extended or renewed economic disruptions or deterioration in the global economy could have a negative impact on demand from our customers in future periods.

Accordingly, current results and financial condition discussed herein may not be indicative of future operating

results and trends, and as of the date of issuance of these consolidated financial statements, the extent to which these factors may materially impact the Company's financial condition, liquidity, or results of operations in the future is uncertain.

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 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 this conflict as well as the Israeli-Hamas conflict and Houthi movement in the Red Sea may negatively impact the global economy and our future operating results and financial condition.

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.

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

We also believe that some of our customers, following a year of elevated purchases, must now consider changing technology roadmaps and priorities, including the need for the rapid deployment of 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, particularly in the enterprise market where we are continuing to expand our penetration.

Accordingly, current results and financial conditions discussed herein may not be indicative of future operating results and trends.

Use of Estimates

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Any of these events could result in lost sales and damage to our end-customer relationships, which would adversely impact our business, financial condition and results of operations.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, restricted cash, and accounts receivable.

Our cash equivalents, restricted cash and marketable securities are invested in high quality financial instruments with banks and financial institutions.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable.

Our cash equivalents and marketable securities are invested in high quality financial instruments with banks and financial institutions.

Such deposits may be in excess of insured limits provided on such deposits.

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As of December 31, 2023, we had two customers who represented 28 % and 11 % of total accounts receivable.

As of December 31, 2021, we had three customers who represented 37 %, 13 % and 12 % of total accounts receivable.

For the year ended December 31, 2022, there were two customers who represented 26 % and 16 % of our total revenue.

For the years ended December 31, 2021 and 2020, there was one customer who represented 15 % and 22 % of our total revenue, respectively.

As of December 31, 2022, we had two customers who represented 28 % and 16 % of total accounts receivable.

For the year ended December 31, 2023, there were two end customers who represented 21 % and 18 % of total revenue.

For the year ended December 31, 2022, there were two end customers who represented 26 % and 16 % of total revenue.

For the year ended December 31, 2021, there was one end customer who represented 15 % of our total revenue.

Cash and Cash Equivalents

2 unchanged sentences

Interest is accrued as earned.

As of December 31, 2022 and 2021, we had restricted cash of $ 4.3 million and $ 4.2 million respectively, and that primarily included $ 4.0 million pledged as collateral representing a security deposit required for a facility lease.

Our restricted cash is classified as other assets in the accompanying consolidated balance sheets.

Marketable Securities

10 unchanged sentences

We determine any realized gains or losses on the sale of marketable securities using the specific identification method, and record such gains and losses in other income, net in the accompanying consolidated statements of operations.

For our debt securities in an unrealized loss position, we determine whether a credit loss exists by considering information about the collectability of the instrument and current market conditions.

For our debt securities in an unrealized loss position, we determine whether a credit loss exists by considering, among other factors, current market conditions, credit quality of debt issuers, any changes to the rating of the security by a rating agency, and the extent to which fair value is less than cost.

We recognize an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and write down the amortized cost basis of the investment if it is more likely than not we will be required to sell or we intend to sell the investment before recovery of its amortized cost basis.

13 unchanged sentences

These assets and liabilities include cash and cash equivalents, marketable securities, accounts receivable, accounts payable, and accrued liabilities.

Cash equivalents, accounts receivable, accounts payable and accrued liabilities are stated at carrying values in our consolidated financial statements, which approximate their fair value due to the short-term nature of these instruments.

Cash equivalents,

accounts receivable, accounts payable and accrued liabilities are stated at carrying values in our consolidated financial statements, which approximate their fair value due to the short-term nature of these instruments.

Assets and liabilities recorded at fair value on a recurring basis in the accompanying consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

We use a fair value

hierarchy to measure fair value, maximizing the use of observable inputs and minimizing the use of unobservable inputs.

We use a fair value hierarchy to measure fair value, maximizing the use of observable inputs and minimizing the use of unobservable inputs.

The three-tiers of the fair value hierarchy are as follows:

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These estimates depend on our assessment of current and expected orders from our customers, product development plans and current sales levels.

In addition, industry-wide supply chain shortages have resulted in extended lead times for components and have required us to extend the time horizon of our demand forecasts and increase our purchase commitments for long lead time components.

In addition, when industry-wide supply chain shortages resulted in extended lead times for components, we were required to extend the time horizon of our demand forecasts and increase our purchase commitments for long lead time components.

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 shorter demand-planning horizons resulting in lower demand levels.

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

There is however no guarantee that all suppliers will meet their

commitments in the time frame committed or that actual customer demand will directly match our demand forecasts.

If actual market conditions are less favorable than those projected by management, which may be caused by factors within and/or outside of our control, we may be required to increase our inventory write-downs and liabilities to our contract manufacturers and suppliers, which could have an adverse impact on our gross margins and profitability.

3 unchanged sentences

We capitalize any additions and improvements and expense maintenance and repairs as incurred.

Depreciation is calculated using

the straight-line method over the estimated useful lives of the related assets, generally three years .

Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally three years .

Our leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the remaining lease term.

1 unchanged sentence

We determine if an arrangement contains a lease at inception.

Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities, non-current in our consolidated balance sheets.

Operating leases are recorded as right-of-use (“ROU”) assets and lease liabilities, and are included in other assets and other current and non-current liabilities in our consolidated balance sheets.

We do not have any finance leases in any of the periods presented.

1 unchanged sentence

The interest rate implicit in our operating leases is not readily available, and therefore, an incremental borrowing rate is estimated based on a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments.

Operating lease right-of-use assets also include any prepaid lease payments and lease incentives.

ROU assets also include any prepaid lease payments and lease incentives.

Our operating lease agreements may contain rent concession, rent escalation, and option to renew provisions.

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We would recognize an impairment loss for the amount by which the carrying amount exceeds the fair value.

There were no impairment charges in any of the periods presented in the consolidated financial statements.

were no impairment charges in any of the periods presented in the consolidated financial statements.

Acquisition, Goodwill and Acquisition-Related Intangible Assets for additional information.

Acquired intangible assets are carried at cost less accumulated amortization.

All acquired intangible assets have been determined to have definite lives and are amortized on a straight-line basis over their estimated useful lives, ranging from one to eight years .

All acquired intangible assets have been determined to have definite lives and are amortized on a straight-line basis over their estimated useful lives, ranging from three to eight years .

Acquired intangible assets are reviewed for impairment under the long-lived asset model described below.

1 unchanged sentence

Acquisition, Goodwill and Acquisition-Related Intangible Assets for additional information.

Investments in Privately-Held Companies

Equity Investments in Privately-Held Companies

Our equity investments in privately-held companies without readily determinable fair values are measured using the measurement alternative, defined by ASC 321 - Investments-Equity Securities as cost, less impairments, and remeasured based on observable price changes from orderly transactions of identical or similar securities of the same issuer.

6 unchanged sentences

If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

No impairment of any other long-lived assets was identified for any of the periods presented in the consolidated financial statements.

No impairment of any long-lived assets was identified for any of the periods presented in the consolidated financial statements.

Loss Contingencies

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We use a range of amounts to estimate SSP for products and PCS sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the various products and PCS.

If we do not have an observable SSP, such as when we do not sell a product or service separately, then SSP is estimated using judgment and considering all reasonably available information such as market conditions and information about the size and/or purchase volume of the customer.

We generally use a range of amounts to estimate SSP for individual products and services based on multiple factors including, but not limited to, the sales channel (reseller, distributor or end customer), the geographies in which our products and services are sold, and the size of the end customer.

If we do not have an observable SSP, such as when we do not sell a product or service separately, then SSP is estimated using judgment and considering all reasonably available information such as gross margin, market conditions and information about the size and/or purchase volume of the customer.

We generally use a range of amounts to estimate SSP for individual products and services based on multiple factors including, but not limited to product category, actual and expected volume, discounting policies, and end customer vertical and size.

We limit the amount of revenue recognition for contracts containing forms of variable consideration, such as future performance obligations, customer-specific returns, and acceptance or refund obligations.

We include some or all of an estimate of the related at-risk consideration in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recorded under each contract will not occur when the uncertainties surrounding the variable consideration are resolved.

Most of our contracts with customers have payment terms of 30 days with some large high-volume customers having terms of up to 90 days.

Most of our contracts with customers have standard payment terms of 30 days and the remainder generally between 30 to 90 days.

We have determined our contracts generally do not include a significant financing component because the Company and the customer have specific business reasons other than financing for entering into such contracts.

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Contract liabilities are included in other current liabilities and other long-term liabilities in the accompanying consolidated balance sheets.

Assets Recognized from Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year.

We have determined that certain sales commissions earned by our sales force meet the requirements for capitalization.

These costs are deferred and then amortized over a period of benefit that we have determined to be five years .

Total capitalized costs to obtain a contract are included in other current and long-term assets on our consolidated balance sheets.

As of December 31, 2022 and 2021, total capitalized costs to obtain contracts were $ 13.1 million and $ 11.5 million, respectively.

Research and Development Expenses

3 unchanged sentences

As a result, costs incurred subsequent to achieving technological feasibility have not been significant and accordingly, all software development costs have been expensed as incurred.

We generally offer a one-year warranty on all of our hardware products and a 90 -day warranty against defects in the software embedded in the products.

We use judgment and estimates when determining warranty costs based on historical costs to replace product returns within the warranty period at the time we recognize revenue.

We accrue for potential warranty claims at the time of shipment as a component of cost of revenues based on historical experience and other relevant information.

We reserve for specifically identified products if and when we determine we have a systemic product failure.

Although we engage in extensive product quality programs, if actual product failure rates or use of materials differ from estimates, additional warranty costs may be incurred, which could reduce our gross margin.

The accrued warranty liability is recorded in accrued liabilities in the accompanying consolidated balance sheets.

Segment Reporting

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We selected the deferred method of accounting and recorded the associated basis differences anticipated to influence prospective GILTI calculations.

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

ASU 2021-08 requires companies to recognize and measure contract assets and contract liabilities relating to contracts with customers that are acquired in a business combination in accordance with ASC 606.

Under previous GAAP, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date.

2021-08 results in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606.

The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company adopted this ASU as of January 1, 2022 on a prospective basis and the adoption impact was immaterial to the consolidated financial statements.

Recent Accounting Pronouncements Not Yet Effective

We believe that all recently issued accounting pronouncements from the FASB will not have a material impact on its Consolidated Financial Statements or do not apply to its operations.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax Disclosures.

The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold.

Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid.

The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued.

The amendments should be applied on a prospective basis although retrospective application is permitted.

we have not early adopted ASU 2023-09 for December 31, 2023.

We are currently evaluating the impact of future adoption on our financial disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures.

The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker.

The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption.

The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We have not early adopted ASU 2023-07 for the year ended December 31, 2023.

We are currently evaluating the impact of future adoption on our financial disclosures.

Fair Value Measurements

12 unchanged sentences

Marketable Securities:

Commercial paper — — — — — 141,274 — 141,274

Certificates of deposits (1)

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

(2) The $ 19.1 million represents the fair value of marketable equity securities as of December 31, 2022.

This amount includes $ 8.3 million that was reclassified from Investments on our consolidated balance sheet following the commencement of public market trading of the issuer in January 2022.

This publicly-traded equity investment generated an unrealized gain of $ 10.7 million for the year ended December 31, 2022.

The unrealized gains and losses are included in Other income (expense), net on the Consolidated Statements of Operations.

(2) During the year ended December 31, 2023, the Company sold all its shares of its marketable equity security for $ 23.9 million.

This publicly-traded equity investment generated an unrealized gain of $ 4.8 million and $ 10.7 million for the year ended December 31, 2023 and 2022, respectively.

The initial cost of this investment was $ 3.0 million with no changes since our initial investment.

The cumulative gain from the initial purchase was $ 20.9 million, the majority of which has been reflected in prior periods as net unrealized gains.

The realized and unrealized gains/losses are included in Other income (expense), net on the unaudited Condensed Consolidated Statements of Operations.

Refer to Note 3.

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

Commercial paper $ — $ — $ — $ — $ 141,274 $ — $ — $ 141,274

government 1,043,445 2,874 ( 1,460 ) 1,044,859 1,007,175 3 ( 13,223 ) 993,955

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Total $ 1,267,999 $ ( 3,271 ) $ 271,491 $ ( 889 ) $ 1,539,490 $ ( 4,160 )

As of December 31, 2022, 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):

As of December 31, 2023, we h ad 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 (i n thousands):

December 31, 2023

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We have non-marketable equity securities in privately-held companies that do not have readily-determinable fair values.

These equity securities are included in Investments on the consolidated balance sheets.

Their initial cost is adjusted to fair value on a non-recurring basis based on observable price changes from orderly transactions of identical or similar securities of the same issuer, or for impairment.

1 unchanged sentence

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 during the years ended December 31, 2022 and December 31, 2021.

We recorded unrealized gains of $ 16.7 million on non-marketable equity securities based on observable price changes from orderly transactions of identical or similar securities in the year ended December 31, 2022.

We recorded immaterial unrealized losses in the year ended December 31, 2022.

We did not record any unrealized gains or losses on non-marketable equity securities in the year ended December 31, 2021.

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 non-marketable equity securities.

We did not record any realized gains for our non-marketable equity securities during the three years ended December 31, 2023, 2022 and 2021.

W e recorded immaterial amounts of realized and unrealized losses during the three years ended December 31, 2023, 2022 and 2021.

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

Year Ended December 31,

2023 2022 2021

Unrealized gains on non-marketable equity securities (1)

$ 13,901 $ 16,731 $ —

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

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 may affect the value of the non-marketable equity securities.

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

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Cumulative upward adjustments

Carrying amount of investments $ 39,468 $ 20,247

(1) During the year ended December 31, 2022, $ 3.0 million previously included in the Cost of investments and $ 5.3 million previously included in the Cumulative upward adjustment, or $ 8.3 million in aggregate, were reclassified from Investments to Marketable secu rities on our consolidated balance sheet following the commencement of public market trading of the issuer.

There was no such activity in the year ended December 31, 2021.

30,632 16,731

Carrying amount of investments (included in other assets) $ 62,288 $ 39,468

(1) During the year ended December 31, 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 investment

Financial Statements Details

7 unchanged sentences

Accounts receivable $ 1,034,480 $ 928,490

Allowance for doubtful accounts ( 19 ) ( 132 )

Product sales rebate and returns reserve ( 5,375 ) ( 4,956 )

Product sales rebate, returns reserve and others ( 9,911 ) ( 5,394 )

Accounts receivable, net $ 1,024,569 $ 923,096

Product Sales Rebate and Returns Reserve

Activities in the product sales rebate and returns reserve consist of the following (in thousands):

Year Ended December 31,

2022 2021 2020

Balance at the beginning of year $ 4,956 $ 3,838 $ 5,522

Additions charged against revenue 4,060 7,104 9,454

Consumption ( 3,641 ) ( 5,986 ) ( 11,138 )

Balance at the end of year $ 5,375 $ 4,956 $ 3,838

Inventories consist of the following (in thousands):

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Inventory deposits $ 130,509 $ 162,047

Other current assets 124,357 172,893

Other prepaid expenses and deposits 282,009 152,170

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Accrued product development costs 1,041 27,380

Accrued warranty costs 15,510 10,414

Other 42,667 31,194

Total accrued liabilities $ 407,302 $ 292,487

Warranty Accrual

The following table summarizes the activity related to our accrued liability for estimated future warranty costs (in thousands):

Year Ended December 31,

Warranty accrual, beginning of year $ 10,414 $ 9,314

Liabilities accrued for warranties issued during the year 19,437 12,659

Warranty costs incurred during the year ( 14,341 ) ( 11,559 )

Warranty accrual, end of year $ 15,510 $ 10,414

Contract Assets

The following table summarizes the beginning and ending balances of our contract assets (in thousands):

Year Ended December 31,

Contract assets, beginning balance $ 24,388 $ 16,380

Contract assets, ending balance 11,055 24,388

Contract Liabilities, Deferred Revenue and Other Performance Obligations

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Deferred Revenue

Deferred revenue is comprised mainly of unearned revenue related to multi-year PCS contracts, services and product deferrals related to acceptance clauses.

Deferred revenue is comprised mainly of unearned service revenue related to multi-year PCS contracts, and product deferrals related to contracts with acceptance clauses.

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

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Other Performance Obligations

Other performance obligations totaling $ 1.1 billion include unbilled contract revenue for services and products that will be recognized in future periods.

As of December 31, 2022, other performance obligations included $ 117.6 million of unbilled multi-year PCS contract amounts that will be recognized as revenue in future periods.

In addition, as of December 31, 2022 the company had entered into $ 961.0 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Revenue from Remaining Performance Obligations

Revenue from remaining performance obligations of $ 2.2 billion represents contract liabilities, deferred revenue and other performance obligations that will be recognized in future periods.

As of December 31, 2022, approximately $ 1.3 billion of revenue is expected to be recognized from remaining performance obligations, of which approximately 81 % is expected to be recognized over the next two years and approximately 19 % is expected to be recognized during the third to the fifth year.

These amounts do not include the $ 961.0 million of binding contractual agreements related primarily to future product shipments outlined above.

As of December 31, 2022, 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 ;

however, given the current uncertain supply chain environment, we may experience manufacturing and shipment delays or cancellations related to these performance obligations, which could impact revenue recognition.

Other performance obligations totaling $ 704.1 million as of December 31, 2023 include unbilled multi-year PCS and service contract amounts of $ 336.4 million and $ 367.7 million of binding contractual agreements with certain customers that are primarily related to future product shipments.

Revenue from Total Remaining Performance Obligations

Total revenue from our contract liabilities, deferred revenue and other performance obligations that will be recognized in future periods amounts to $ 2.3 billion.

Included in this amount is the $ 367.7 million of binding contractual agreements related primarily to future product shipments that are expected to be recognized as revenue over the next eighteen months .

In addition, approximately 79 % of the remaining $ 2.0 billion of this future revenue is expected to be recognized over the next two years and approximately 21 % is expected to be recognized during the third to the fifth year.

Other Income, Net

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Interest income $ 152,421 $ 27,556 $ 7,215

Unrealized gain on equity investments 27,479 — 4,164

Gain (loss) on strategic investments 18,699 27,479 —

Other income (expense) ( 6,343 ) ( 345 ) ( 1,075 )

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Acquisition, Goodwill and Acquisition-Related Intangible Assets

We had no material business acquisitions during the year ended December 31, 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.

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Total intangible assets acquired $ 62,300

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

No changes were made to the purchase price allocation for the year ended December 31, 2023.

The changes in the carrying values of goodwill for the years ended December 31, 2023 and 2022 are as follows (in thousands):

Balance at December 31, 2021 $ 188,397

Escrow receipts from past acquisitions ( 1,299 )

Balance at December 31, 2021 188,397

Additions related to current year acquisitions 85,048

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Balance at December 31, 2022 265,924

The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2022 and 2021 and determined that goodwill was not impaired.

Additions related to current year acquisition 2,607

Balance at December 31, 2023 $ 268,531

The Company performed an annual qualitative test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2023 and 2022 and determined that goodwill was not impaired.

Acquisition-Related Intangible Assets

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

December 31, 2021

Additions December 31, 2022

December 31, 2021

Amortization December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2022 Additions December 31, 2023

December 31, 2022 Amortization December 31, 2023

December 31, 2022 December 31, 2023

Developed technology $ 154,930 $ — $ 154,930 $ ( 79,036 ) $ ( 23,457 ) $ ( 102,493 ) $ 75,894 $ 52,437 4.0

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Trade name 12,390 — 12,390 ( 6,602 ) ( 2,280 ) ( 8,882 ) 5,788 3,508 1.6

Others 5,720 — 5,720 ( 5,550 ) ( 170 ) ( 5,720 ) 170 — 0.0

Total $ 221,940 $ — $ 221,940 $ ( 99,735 ) $ ( 33,437 ) $ ( 133,172 ) $ 122,205 $ 88,768 4.2

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Right-of-use assets:

Operating lease right-of-use assets $ 53,390 $ 65,182

Operating lease right-of-use assets (included in other assets) $ 55,890 $ 53,390

Lease liabilities:

Operating lease liabilities, current (included in other current liabilities) 21,106 19,878

Operating lease liabilities, non-current 43,964 56,527

Operating lease liabilities, non-current (included in other long-term liabilities) 44,413 43,964

Total operating lease liabilities $ 65,519 $ 63,842

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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 December 31, 2022, we had non-cancellable purchase commitments of $ 3.7 billion, of which $ 2.9 billion have confirmed receipt dates within 12 months, and $ 0.8 billion have confirmed receipt dates greater than 12 months .

As of December 31, 2023, we had non-cancellable purchase commitments not recorded on our balance sheet of $ 1,586.7 million, of wh ich $ 1,547.2 million have confirmed receipt dates within 12 months, and $ 39.5 million 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.

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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 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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Stockholders' Equity and Stock-Based Compensation

Stock Repurchase Programs

In April 2019, our board of directors authorized a $ 1.0 billion stock repurchase program (the "Repurchase Program").

This authorization allowed us to repurchase shares of our common stock over three years , and we completed our repurchases under the Repurchase Program during the fourth quarter of 2021.

In the fourth quarter of 2021, our board of directors authorized an additional $ 1.0 billion stock repurchase program (the “New Repurchase Program”).

This authorization allows us to repurchase shares of our common stock and will be funded from working capital.

Stock Repurchase Program

In October 2021, our board of directors authorized a $ 1.0 billion stock repurchase program (the “Repurchase Program”).

This authorization allows us to repurchase shares of our common stock funded from working capital.

The Repurchase Program expires in the fourth quarter of 2024.

Repurchases may be made at management’s discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchases, 10b5-1 trading plans, or a combination of the foregoing.

The New Repurchase Program commenced in fourth quarter of 2021, and expires on the three-year anniversary thereof.

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

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

As of December 31, 2023, the remaining authorized amount for stock repurchases under this program was approximately $ 144.5 million.

A summary of the stock repurchase activities for the years ended December 31, 2022 and 2021 is as follows as adjusted to give effect to the Stock Split (in thousands, except per share amounts):

A summary of the stock repurchase activities for the years ended December 31, 2023 and 2022 is as follows (in thousands, except per share amounts):

Year Ended December 31,

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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 the 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 the 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 for future issuance under the 2014 Plan.

As of December 31, 2023, there remained approximately 95.3 million shares available for issuance under the 2014 Plan.

Furthermore, i n February, 2023, our board of directors authorized an increase o f 9.2 million share s for future issuance under the 2014 Plan effective January 1, 2023.

2014 Employee Stock Purchase Plan

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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 immediately preceding December 31, but not to exceed 10,000,000 shares, unless the 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 immediately preceding December 31, but not to exceed 10 million shares, unless the 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 for future issuance under the ESPP.

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Participants may purchase shares of common stock through payroll deductions up to 10 % of their eligible compensation, subject to Internal Revenue Service mandated purchase limits.

During the year ended December 31, 2022, we issued 485,303 shares at an average purchase price of $ 50.37 under our ESPP.

During the year ended December 31, 2023, we issued 279,498 shares at an average purchase price of $ 105.69 per share under our ESPP.

Stock Option Activities

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We did not grant any stock options during the years ended December 31, 2023, 2022 and 2021.

The weighted-average grant-date fair value of options granted during the year ended December 31, 2020 was $ 46.24 per share.

The aggregate intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $ 525.3 million, $ 311.7 million and $ 410.9 million, respectively.

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We recognize such costs as compensation expense generally on a straight-line basis over the requisite service period of the award.

Stock Options

We did not grant any stock options in the year ended December 31, 2022 and 2021.

For the year ended December 31, 2020, the fair value of each stock option granted under our plans was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Year Ended December 31,

Expected term (in years) 5.0

Risk-free interest rate 0.4 %

Expected volatility 43.5 %

Dividend rate — %

The following table summarizes the assumptions relating to our ESPP:

Year Ended December 31,

2022 2021 2020

Expected term (in years) 1.3 1.2 1.6

Risk-free interest rate 3.0 % 0.1 % 0.4 %

Expected volatility 43.5 % 40.2 % 45.1 %

Dividend rate — % — % — %

As of December 31, 2023, there were $ 733.7 million of unrecognized compensation costs related to all unvested awards.

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Potential common shares whose effect would have been antidilutive are excluded from the computation of diluted net income per share.

The following table sets forth the computation of our basic and diluted net income per share attributable to common stockholders, as adjusted to give effect to the Stock Split (in thousands, except per share amounts):

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

Year Ended December 31,

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Diluted $ 6.58 $ 4.27 $ 2.63

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share attributable to common stockholders because their effects would have been anti-dilutive for the periods presented, as adjusted to give effect to the Stock Split (in thousands):

Year Ended December 31,

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Effective tax rate 13.81 % 14.50 % 9.67 %

The change in our effective tax rate was largely attributable to a decrease in the proportion of tax benefits attributable to stock-based compensation versus total pre-tax income.

The change in our effective tax rate was due to a change in tax benefits attributable to stock-based compensation and the reduction of unrecognized tax benefits as a result of lapse of the applicable statute of limitation in 2023.

Excess tax benefits resulting from stock awards were $ 151.2 million, $ 93.5 million and $ 105.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The reduction of unrecognized tax benefits due to expiration of statute of limitations were immaterial for the three years ended December 31, 2023, 2022 and 2021, respectively.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows (in thousands):

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Total net deferred tax assets $ 945,792 $ 574,870

Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not.

We believe, more likely than not, that we will have sufficient taxable income after deductions related to share-based awards to utilize our remaining deferred tax assets, with the exception of California, Canada, and U.K.

deferred tax assets.

In 2022, we increased our R&D tax credit carryforwards and capitalization in California and Canada, and increased our NOL carryforward in the U.K., which resulted in an increase of our valuation allowance on our deferred tax assets by $ 22.7 million.

Therefore, we recorded a valuation allowance of $ 132.7 million and $ 110.0 million as of December 31, 2022 and 2021, respectively, against California, Canada, and U.K.

deferred tax assets, since it is more likely than not that these assets will not be recognized.

As of December 31, 2022, we had $ 264.5 million and $ 134.7 million of net operating loss carryforwards for federal and state income tax purposes, respectively, from acquisitions, includ ing Untangle Holdings, and Pluribus Networks, which were acquired in 2022.

As of December 31, 2023, we had $ 246.5 million and $ 137.6 million of net operating loss carryforwards for federal and state income tax purposes, respectively, from acquisitions.

These federal and state losses will begin to expire in 2028 and 2029, respectively.

For foreign jurisdictions, we had combined foreign net operating loss carryforwards of $ 14.8 million, which do not expire.

We had a federal credit of $ 2.8 million from acquisitions, which will begin to expire in 2037, and a California state credit of $ 180.7 million, which can be carried over indefinitely.

For foreign jurisdictions, we had $ 0.6 million of Canadian scientific research and experimental development tax credit carry-forwards, which will begin to expire in 2034.

We do not have any material foreign net operating losses.

As of December 31, 2023, our federal, state and foreign tax credit carryforwards for income tax purposes before valuation allowances were approximately $ 2.8 million, $ 217.3 million and $ 1.2 million, respectively.

Our federal tax credit will begin to expire in 2038, and our foreign tax credit will begin to expire in 2034, while our state tax credits can be carried over indefinitely.

We have provided a valuation allowance of $ 146.3 million for deferred tax assets, primarily related to state and foreign tax credit carryforwards that we do not believe are more likely than not to be realized.

Utilization of the net operating losses and tax credit carryforwards may be subject to limitations due to ownership change limitations provided in the Internal Revenue code and similar state or foreign provisions.

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For the years ended December 31, 2023 and 2022, the net expense for interest and penalties and the recognized liability for interest and penalties were not material.

As of December 31, 2022 and 2021, we recognized a liability for interest and penalties of $ 6.4 million and $ 3.6 million, respectively.

The statute of limitations for Federal and most states remains open for 2017, 2020 and forward.

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The majority of our foreign tax returns are open to audit under the statute of limitations of the respective foreign countries where the subsidiaries are located.

It is possible that the amount of existing gross unrecognized tax benefits may decrease within the next 12 months by up to $ 17.9 million as a result of statute of limitation lapses or payments to tax authorities in certain jurisdictions .

It is possible that the amount of existing gross unrecognized tax benefits may decrease within the next 12 months as a result of statute of limitation lapses or payments to tax authorities in certain jurisdictions.

However, any such changes are not anticipated to be material.

Geographical Information

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2023 2022 2021

Americas $ 3,462,621 $ 2,156,183 $ 1,771,992

$ 4,651,193 $ 3,462,621 $ 2,156,183

Europe, Middle East and Africa 670,960 529,800 486,836

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Total revenue $ 5,860,168 $ 4,381,310 $ 2,948,037

(1) Includes $ 4,541.5 million, $ 3,424.8 million and $ 2,125.9 million revenue generated from the U.S.

for the three years ended December 31, 2023, 2022 and 2021, respectively

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

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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-K

Item 8. Financial Statements and Supplementary Data