What changed in this filing

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Item 1A. Risk Factors

2025-05-07 compared with 2024-11-08 · 312 added, 218 removed, 746 unchanged (42% of the section changed)

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Risks Related to Our Business and Industry

• escalated or escalating U.S.

tariffs as well as countermeasures taken by affected countries, may have a negative effect on global economic conditions, financial markets and our business;

• large purchases by a limited number of customers represent a substantial portion of our revenue;

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• managing the supply of our products and product components is complex;

• primarily reliant upon a predominant merchant silicon vendor;

• we depend on third-party manufacturers to build our products;

• future sales forecasts may be materially inaccurate which could result in incorrect levels of inventory and purchase commitments;

• future sales forecasts may materially change, which could result in incorrect levels of inventory and purchase commitments;

• shipment interruptions or delays could cause our revenue to fall.

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• defects, errors or vulnerabilities in our products, failure of our products to detect security breaches or incidents, misuse of our products or risks of product liability could harm our business;

• breaches of our cybersecurity systems or other security breaches could degrade our ability to conduct our business operations and deliver products and services to our customers, cause vulnerabilities in our products and services or subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners.

subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners.

Risks Related to Accounting, Compliance, Regulation and Tax

• foreign investment laws and regulations, and other trade or regulatory barriers, may have a negative effect on global economic conditions, financial markets and our business;

• enhanced import/export restrictions, such as enhanced export controls the United States has adopted targeting trade with China, as well as countermeasures taken by affected countries may negatively affect our business;

• failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of our financial reporting;

• if our critical accounting policies are based on incorrect assumptions, our results of operations could fall below analyst and investor expectations and result in a decline in the market price of our common stock;

• enhanced U.S.

tax, tariff, import/export restrictions, Chinese regulations or other trade barriers may negatively affect our business;

• changes in our income taxes, effective tax rate or new tax laws could adversely affect our results;

• changes in our income taxes, effective tax rate or tax laws could adversely affect our results;

• failure to comply with government laws and regulations could harm our business;

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• the trading price of our common stock has been and may continue to be volatile and the value of your investment could decline;

• any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase program could cause the market price of our common stock to decline;

• any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase programs could cause the market price of our common stock to decline;

• sales of substantial amounts of our common stock could reduce the market price of our common stock;

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Risks Related to Our Business and Industry

Escalated or escalating U.S.

tariffs, as well as countermeasures taken by affected countries, may have a negative effect on global economic conditions, financial markets and our business.

Our products are primarily manufactured in Malaysia, Vietnam, and Mexico, and we also procure a limited number of products directly from China.

In addition, our contract manufacturing partners procure some components from China for use in the manufacturing of our products.

Because our products are primarily manufactured internationally, the import of our products into the United States may be affected by changes in applicable tariff policies.

In 2018, the Office of the U.S.

Trade Representative ("USTR") enacted various Section 301 tariffs of 7.5%, 10%, 15% and 25% on certain imports into the U.S.

from China, including communications equipment products and components manufactured and imported from China.

USTR has continued to expand these Section 301 tariffs, which now rise up to 100% on certain products.

In addition, since March 2025, the United States has imposed an additional 20% tariff on most products of China pursuant to an executive order.

In February 2025, the U.S.

government also scheduled 25% tariffs to be imposed on products of Canada and Mexico pursuant to a separate executive order, with lower tariffs applicable to energy, energy resources, and potash (the “Canada-Mexico Tariffs”), which took effect in March 2025.

These 25% tariffs currently do not apply to -United States-Mexico-Canada Agreement (“USMCA”) qualifying goods.

As of May 2025, our products manufactured in Mexico are primarily USMCA qualifying and are not impacted by the Canada-Mexico Tariffs.

Since April 2025, pursuant to additional executive orders, the U.S.

government imposed an additional 125% tariff on products of China (in addition to Section 310 tariffs and 20% tariffs listed above) and an additional 10% baseline tariff on products of U.S.

trading partners other than China, Canada, Mexico, or countries with which the U.S.

does not have normal trade relations (collectively, the “Reciprocal Tariffs”).

government scheduled Reciprocal Tariffs for these other U.S.

trading partners currently subject to the baseline tariffs based upon the trade imbalance between the U.S.

and such other U.S.

trading partners that, in many cases, are higher than the baseline 10%;

however, the U.S.

government paused these additional, higher Reciprocal Tariffs until July 2025 (except with respect to China).

Additionally, the Reciprocal Tariffs exempt some products, including certain semiconductors, computers, consumer electronics, and items covered under a Section 232 tariff order or which become covered under a Section 232 tariff order.

As of May 2025, most of our products manufactured in Malaysia and Vietnam are items currently excluded from the scope of the Reciprocal Tariffs and therefore not impacted by the tariffs levied in that order.

Other products may be impacted by the Reciprocal Tariffs.

Some of our products may also be within the scope of one or more pending Section 232 investigations by the U.S.

Department of Commerce, including an investigation into semiconductors and an investigation into processed critical minerals and derivative products, including various electronics items;

once these investigations are complete, the U.S.

government may place additional tariffs on these items.

In response to these and other U.S.

measures, China, Canada, or other countries have taken a range of retaliatory measures.

These include the imposition of retaliatory tariffs on certain U.S.-origin goods;

the implementation of new export controls by China on various critical minerals, including rare earths metals;

the scheduling of further retaliatory tariff measures;

and other actions.

There is currently significant uncertainty about the future relationship between the United States, and various other countries, most significantly China, with respect to tariffs and trade policies.

The situation regarding these tariffs and trade policies has been fluid and tariffs are subject to further changes.

This risk may be particularly acute should the trade tensions between the U.S.

and other countries worsen.

The recent U.S.

government executive orders imposing these tariffs also include provisions allowing for further escalation of U.S.

tariffs in the event affected countries retaliate, and these provisions have already been invoked in response to retaliation taken by China.

Continued escalations could result in the imposition of extreme tariff or non-tariff measures, which may lead to a breakdown in international supply chains due to increased tariff costs and disruptions in the availability of goods.

An increase in trade-related costs associated with these tariff actions may impair the profitability of such international production, may strain our suppliers’ ability to provide inputs necessary for the production of these items, and may otherwise affect our manufacturing partners’ ability to provide our products at previously contracted prices.

We also may not be able to pass on the full burden of the increase in trade-related costs to our partners and/or customers which could impact our profitability and/or our competitiveness.

We believe we can adjust our supply chain and manufacturing practices to partially mitigate the impact of the tariffs and any impact on the supply chain of components sourced from affected countries, but our efforts may not be successful, there can be no assurance that we will not experience a disruption in our business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time-consuming, and costly.

These trade measures may directly impair our business by increasing trade-related costs or disrupting established supply chains and may indirectly impair our business by causing a negative effect on global economic conditions and financial markets.

The ultimate impact of these trade measures is uncertain, and may be affected by various factors, including whether and when such trade measures are implemented, the timing when such measures may become effective, and the amount, scope, or nature of such trade measures.

Tariffs may also cause customers to delay or to request an expedition for their orders as they evaluate where to take delivery of our products in connection with their efforts to mitigate their own tariff exposure.

Such delays or expeditions create forecasting difficulties for us and increase the risk that orders might be canceled or might never be placed.

Current or future tariffs may also negatively impact our customers' sales, thereby causing an indirect negative impact on our own sales.

Even in the absence of further tariffs, the related uncertainty and the market's fear of an escalating trade tensions and related macroeconomic effects might cause our distributors and customers to place fewer orders for our products, which could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

We expect large purchases by a limited number of customers to continue to represent a substantial p ortion of our revenue, and any loss, delay, decline or other change in expected purchases could result in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations.

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We have experienced unpredictability in t he timing of orders from these large customers primarily due to the time it takes these customers to evaluate, test, qualify and accept our products, the overall complexity of these large orders and changes in demand patterns specific to these customers, including reductions in or changes in mix of capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.

For example, sales to our end customers Microsoft and Meta Platforms in fiscal 2023 and 2022 collectively represented 39% and 42% of our total revenue, respectively, whereas sales to Microsoft in fiscal 2021 amounted to 15% of our revenue and sales to Meta Platforms in fiscal 2021 represented less than 10% of our revenue.

For example, sales to our end customer Microsoft represented 20%, 18% and 16% of our total revenue for the years ended 2024, 2023 and 2022 respectively.

And sales to our end customer Meta Platforms represented 15%, 21% and 26% of our total revenue, respectively for the years

ended 2024, 2023 and 2022.

This variability in customer concentration has been linked to the timing of new product deployments, and spending cycles with these customers, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.

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This prioritization of AI related infrastructure investment has at times come in conjunction with the announcement of various cost reduction measures by such customers, including optimization and increased efficiency in non-AI related capital expenditures.

In addition, although the focus on deployment of AI enabled solutions has driven increased demand for networking, the long-term trajectory is unknown.

As such, demand estimates for our new products are difficult to forecast and can create volatility in our revenue.

In some instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand and may result in a reduction or uncertainty in the timing of orders from these large customers, which may negatively impact our revenue and increase the risk of excess and obsolescence charges on our products.

In addition, fiscal 2024 continues to be a year of new product introductions and expanded use cases, particularly in the AI Ethernet market, resulting in increased customer trials and contracts with acceptance periods, and an increase in the volatility and magnitude of our product deferred revenue balances, which in turn may create variability in our revenue results on a quarterly and annual basis.

In addition, if we are not able to satisfy the requirements under customer trials and contracts with acceptance periods, we may be required to accept product returns from our customers, which would reduce our deferred revenue balances and prevent us from recognizing revenue on such transactions and may result in the write-down of inventory.

In addition, we remain in a period of new product introductions and expanded use cases, particularly in the AI Ethernet market.

This has resulted in increased customer trials and contracts with acceptance periods, and an increase in the volatility and magnitude of our product deferred revenue balances, which in turn may create variability in our revenue results on a quarterly and annual basis.

Furthermore, if we are not able to satisfy the requirements under customer trials or contracts with acceptance periods, we may be required to accept product returns from our customers, which would prevent us from recognizing revenue on such transactions and may result in the write-down of inventory.

Moreover, because our sales are based prim arily on purchase orders, some of our customers have previously and could continue to cancel, delay, reduce or otherwise modify their purchase commitments with little or no notice to us.

For example, due to manufacturing and supply chain disruptions resulting in increased lead times, customers had placed orders based on longer planning horizons.

For example, due to manufacturing and supply chain disruptions resulting in increased lead times, customers have, and may continue to place orders based on longer planning horizons.

These customers may decide to delay or cancel such orders for any reason, including changes in their IT investment priorities, if economic conditions worsen or their financial performance, condition or prospects deteriorate.

This limited visibility regarding our customers’ product needs or changes in those needs, the timing and quantity of which could vary significantly, requires us to rely on estimated demand forecasts to determine how much material to purchase and product to manufacture.

Our failure to accurately forecast demand combined with extended supplier lead times on some newer technologies, can lead to excess inventory or product shortages which could lead to delays in fulfilling current and future purchase orders that can impede production by our customers and harm our customer relationships.

Extended supplier lead times on some newer technologies can create greater pressure on our ability to forecast future demand, which can lead to excess inventory or product shortages and to delays in fulfilling current and future purchase orders that can impede production by our customers and harm our customer relationships.

Further, if we are unable to reduce our lead times, customers may also cancel existing orders or reduce future orders.

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These customers could reduce their spending levels or otherwise could choose to divert all or a portion of their business with us to one of our competitors, re-assign spending allocations, increase their adoption of "white box" solutions and open-source network operating systems, demand pricing concessions for our services, or require us to provide enhanced services that increase our costs.

Moreover, the AI market is new and customers continue to evaluate their opportunity in this market, and the potential demand for our AI Ethernet switches may not develop as anticipated or at all.

If these factors drive some of our large customers to cancel all or a portion of their business relationships

with us, the growth in our business and the ability to meet our current and long-term financial forecasts may be materially impacted.

Moreover, the AI market is new and customers continue to evaluate their opportunity in this market, recent advances in network architecture may result in increased efficiencies and lowering of infrastructure spending and the potential demand for our AI Ethernet switches may not develop as anticipated or at all.

If these factors drive some of our large customers to cancel all or a portion of their business relationships with us, the growth in our business and the ability to meet our current and long-term financial forecasts may be materially impacted.

We expect that such concentrated purchases will continue to contribute materially to our revenue for the foreseeable future and that our results of operations may fluctuate materially as a result of such larger customers’ buying patterns.

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Our business depends on the overall demand for information technology, network connectivity and access to data and applications.

Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, geopolitical pressures, including international trade disputes, global pandemics such as the COVID-19 pandemic, or a reduction in information technology and network infrastructure spending or a deterioration of the financial performance, condition or prospects of our customers even if economic conditions improve, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, reduced demand or lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and lower or no growth.

Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, geopolitical pressures, including international trade disputes, tariff policies and changes in tariff policies, global pandemics, or a reduction in information technology and network infrastructure spending or a deterioration of the financial performance, condition or prospects of our customers, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, reduced demand or lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and lower or no growth.

In addition, the global macroeconomic environment has been negatively affected by, among other things, the uncertainty in the global banking and financial services markets, epidemics, instability in global economic markets, changes in government administration and policy positions, increased uncertainty associated with recent scheduled, and/or anticipated increases in trade tariffs in the context of escalated and unresolved trade disputes and tensions between the U.S., the European Union, China, Mexico, Canada and other countries where we manufacture our products including Malaysia and Vietnam, inflationary pressures, higher interest rates, instability in the global credit markets, the impact and uncertainty regarding global central bank monetary policy, instability in the geopolitical environment, the Russia-Ukraine and Israel-Hamas conflicts, political tensions between Taiwan and China, political demonstrations, and foreign governmental debt concerns which have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets.

While some of our customers may be adversely affected by negative macroeconomic conditions, the impact may be particularly significant in our enterprise market where we are seeking to increase our penetration into this market.

presidential administration, increased U.S.

trade tariffs and trade disputes between the U.S., China and other countries, inflationary pressures, higher interest rates, instability in the global credit markets, the impact and uncertainty regarding global central bank monetary policy, instability in the geopolitical environment, the Russia-Ukraine and Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea, political tensions between Taiwan and China, political demonstrations, and foreign governmental debt concerns which have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets.

A government shutdown or a default by the U.S.

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Circumstances may arise in which we need, or desire, to raise additional capital, and such capital may not be available on commercially reasonable terms, or at all.

Because some of the key components in our products come from sole or limited sour ces of supply, we have entered into significant purchase commitments and are susceptible to supply shortages, extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our customers and may result in the loss of sales and customers.

Our products rely on components, including merchant silicon chips, integrated circu it components, printed circuit boards, connectors, custom-tooled sheet metal and power supplies that we purchase, or our contract manufacturers purchase on

our behalf from a limited number of suppliers, including certain sole source providers.

Generally, we do not have guaranteed supply contracts with our component suppliers, and our suppliers have, or in the future could continue to, suffer shortages, require longer lead times, delay shipments, prioritize shipments to other vendors, reject orders, decommit orders, increase prices, impose expedite fees or cease manufacturing such products or selling them to us at any time.

Supply of these components worldwide was and could continue to be adversely affected by supply constraints, as well as industry consolidation and geopolitical conditions such as international trade wars and increased political tensions.

Such shortages, increased component lead times, reduced allocations of components and rejections or decommitments of orders have resulted in and may continue to result in increased component prices, fewer sourcing options, unpredictability of supply, prolonged manufacturing disruptions and increased product lead times, which has impacted and may in the future adversely impact our revenue and gross margins.

Although we have entered into significant purchase commitments to support long-term customer demand, if we are unable to obtain sufficient quantities of any of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, shipments of our products could be delayed or halted entirely, or we may be required to redesign our products.

Any of these events could result in the cancellation of orders, lost sales, reduced gross margins or damage to our customer relationships, which would adversely impact our business, financial condition, results of operations and prospects.

Additionally, if our suppliers do not meet their commitments, customers cancel orders or actual demand is less than our demand forecasts, it could result in excess or obsolete inventory, which we would be required to write down to its estimated realizable value, which in turn could result in lower gross margins and operating income.

Our operating cash flows have also been and may in the future be negatively impacted by an increase of component inventories on hand or at our contract manufacturers.

Some of the key components in our products come from sole or limited sour ces of supply.

Our products rely on components, including merchant silicon chips, integrated circu it components, printed circuit boards, connectors, optics, cables, custom-tooled sheet metal and power supplies that we purchase, or our contract manufacturers purchase on our behalf from a limited number of suppliers, including certain sole source providers.

In particular, we are primarily reliant upon our predominant merchant silicon vendor, Broadcom, for our switching chips.

Our reliance on component suppliers also yields the potential for the infringement, misappropriation or other violation of third-party intellectual property rights due to the incorporation of such components into our products.

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Any litigation for which we do not receive indemnification could require us to incur significant legal expenses in defending against such claims or require us to pay substantial royalty payments or settlement amounts that would not be reimbursed by our component suppliers.

Our product development efforts are also dependent upon the success of our continued collaboration with our key merchant silicon vendors such as Broadcom and Intel.

Our product development efforts are also dependent upon the success of our continued collaboration with our key merchant silicon vendors such as Broadcom.

As we develop our product roadmap, we select specific merchant silicon from these vendors for each new product.

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If our key merchant silicon vendors do not continue to innovate, develop products that outperform their competitors or fail to meet the requirements of our customers, if there are delays in the release of their products or supply shortages, if they no longer collaborate in such fashion or if such merchant silicon is not offered to us on commercially reasonable terms, our products may become less competitive, our own product launches could be delayed or we may be required to redesign our products to incorporate alternative merchant silicon, which could result in lost sales, reduce gross margins, damage to our customer relationships or otherwise have a material effect on revenue and business, financial condition, results of operations and prospects.

We have entered into significant purchase commitments and are susceptible to supply shortages, extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our customers and may result in the loss of sales and customers.

Our operating cash flows have also been and may in the future be negatively impacted by an increase of component inventories on hand or at our contract manufacturers.

In the event of a shortage or supply interruption from our component suppliers, we may not be able to develop alternate or second sources in a timely manner.

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We have experienced annual revenue growth rates of 19.5%, 33.8%, 48.6%, and 27.2% in 2024, 2023, 2022 and 2021, respectively.

In the future, our revenue growth rates will continue to be volatile due to cyclical trends in our business, and as we become more penetrated in

our existing customer base and product markets and look to enter and expand into new markets.

In the future, our revenue growth rates will continue to be volatile due to cyclical trends in our business, and as we become more penetrated in our existing customer base and product markets and look to enter and expand into new markets.

In addition, we have experienced supply constraints that have resulted in manufacturing and shipment delays, which have negatively affected the timing of revenue recognition.

If these manufacturing and supply chain disruptions recur and/or if we are unable to reduce our lead times it could also result in the cancellation of orders by customers, reduce demand from existing customers in future periods, and increase difficulty in adding new customers.

Other factors may also contribute to declines in our growth rates, including changes in demand for our products and services, particularly from our large customers, the deterioration of the financial performance, condition or prospects of our large customers, changes in capital spending by our large customers, increased competition, price sensitivities from our customers to increases in our pricing, our ability to successfully manage our expansion or continue to capitalize on growth opportunities, the maturation of our business, geopolitical pressures, recession risks and monetary policy shifts, and our ability to be successful in the AI market and adjacent markets, such as campus switching, WiFi networking markets and network security markets.

Recent technologies, such as generative AI models, have emerged, and while they have driven increased demand for networking, the long-term trajectory is unknown.

As such, demand estimates for our new products may be inaccurate and create volatility in our revenue.

Furthermore, 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.

periods, and increase difficulty in adding new customers.

Other factors may also contribute to declines in our growth rates, including changes in demand for our products and services, particularly from our large customers, the deterioration of the financial performance, condition or prospects of our large customers, changes in capital spending by our large customers, increased competition, price sensitivities from our customers to increases in our pricing, our ability to successfully manage our expansion or continue to capitalize on growth opportunities, the maturation of our business, geopolitical pressures, recession risks and monetary policy shifts, and our ability to be successful in the AI market and adjacent markets, such as campus switching, Wi-Fi networking markets and network security markets.

Recent technologies, such as generative AI models, have emerged, and while they have driven increased demand for networking, the long-term trajectory is unknown and it is difficult for us to predict the demand for such new technologies.

Customers may overestimate demand for their AI build outs and cancel, delay, reduce or otherwise modify their purchase commitments with little or no notice to us.

In addition, customer may implement changes to their network architecture to improve efficiencies and reduce demand for our products.

As such, demand estimates for our new products are difficult to forecast and create volatility in our revenue.

In addition, given the timing and prioritization of customer orders and shipment patterns, near term revenue trends may not be reflective of current demand levels.

Furthermore, any prolonged economic disruptions or 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.

which may result in reductions in overall demand from these customers in future periods and negatively impact our revenue, financial condition, business or prospects.

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Our results of operations in any given period have been and could continue to be influenced by a number of factors, many of which are outside of our control and may be difficult to predict, including:

• general economic conditions, both domestically and in foreign markets, and disruptions in our business and the markets due to, among other things, recessionary risks and a global economic downturn, higher interest rates, monetary policy shifts, inflationary pressures, supply chain and labor shortages, changes in the U.S.

presidential administration, the recent banking crisis, and geopolitical pressures;

• general economic conditions, both domestically and in foreign markets, and disruptions in our business and the markets due to, among other things, recessionary risks and a global economic downturn, international trade tensions and tariff policies, higher interest rates, monetary policy shifts, inflationary pressures, supply chain and labor shortages, changes in government administration, the recent banking crisis, and geopolitical pressures;

• our inability to fulfill our customers’ orders, the deferral, reduction or cancellation of orders or the delay in shipment of our products;

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• changes in the growth rate of existing or new customers or the deterioration of the financial performance, condition or prospects of existing or new customers, including large customers and service providers, changes in end-customer, distributor or reseller requirements or market needs, and changes in growth rates of the networking market;

• the inclusion of any acceptance provisions in our customer contracts and increased customer trials, and any delays in acceptance, or rejection, of those products;

• the inclusion of any acceptance provisions in our customer contracts and increased customer trials, and any delays in acceptance, or rejection, or any return, of those products;

• the cost and potential outcomes of existing and future litigation;

• increased expenses resulting from increases in component, production and logistics costs resulting from factors such as global inflationary pressures, shortages in supply for semiconductors, and China's controls on the use of certain products and on the export of metals used in semiconductor manufacturing, or the tariffs imposed by the U.S.

on goods from other countries and tariffs imposed by other countries on U.S.

goods, including the tariffs implemented by the U.S.

government on various imports from China;

• shortages in supply for semiconductors and other components, and China's controls on the use of certain products and on the export of rare earth and other critical minerals used in the manufacturing of semiconductors and other components

• increased expenses resulting from increases in component, production and logistics costs resulting from factors such as global inflationary pressures, or the tariffs imposed by the U.S.

on goods from other countries and tariffs imposed by

other countries on U.S.

goods, including the recent tariffs implemented by the U.S.

government on various imports from China, Canada, Mexico, and most other U.S.

trading partners;

• changes in our pricing policies, whether initiated by us or as a result of competition;

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• decisions by potential customers to purchase our networking solutions from larger, more established vendors, white box vendors with open-source network operating systems or their primary network equipment vendors;

• disruptions caused by pandemics, such as the COVID-19 pandemic, and the government restrictions in response to pandemics;

• disruptions caused by pandemics, and the government restrictions in response to pandemics;

• insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our products and services, or confronting our key suppliers, including our sole source suppliers, which could disrupt our supply chain;

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The continued growth of this market will be dependent upon many factors including but not limited to the adoption of and demand for our customers’ products and services, the expansion, evolution and build out of our customers’ networks, the capacity utilization of existing network infrastructures, changes in the technological requirements for the products and services to be deployed in these networks, the amount and mix of capital spending by our customers, including any changing technology priorities such as the deployment of AI and related technologies, the development of network switches and cloud service solutions by our large customers for internal use, the financial performance and prospects of our customers, the availability of capital resources to our customers, changes in government regulation that could impact networking business models including those regulations related to AI, cybersecurity, privacy, data protection and net neutrality, our ability to provide networking solutions that address the needs of our customers more effectively and economically than those of other competitors or existing technologies and general economic conditions.

In particular, recent technologies, such as generative AI models, have emerged, and while they have driven increased demand for networking, the long-term trajectory is unknown.

As such, demand estimates for our new products may be inaccurate and create volatility in our revenue and inventory levels.

In particular, recent technologies, such as generative AI models, have emerged, and while they have driven increased demand for networking, the long-term trajectory is unknown and it is difficult for us to predict the demand for such new technologies.

Customers may overestimate demand for their AI build outs and cancel, delay, reduce or otherwise modify their

purchase commitments with little or no notice to us.

In addition, customers may implement changes to their network architectures to improve efficiencies and reduce demand for our products.

As such, demand estimates for our new products are difficult to forecast and create volatility in our revenue and inventory levels.

If the AI market does not develop as anticipated or at all, then the potential demand for AI Ethernet switches may not be realized.

Moreover, even if the market for AI applications does

develop, the successful adoption of AI Ethernet products will be dependent upon their ability to compete against more established InfiniBand products or against the AI Ethernet products of other competitors to address AI networking clusters.

Moreover, even if the market for AI applications does develop, the successful adoption of AI Ethernet products will be dependent upon their ability to compete against more established InfiniBand products or against the AI Ethernet products of other competitors to address AI networking clusters.

If the networking solutions market including the AI Ethernet market does not develop in the way we anticipate or otherwise experiences a slow-down, if our solutions do not offer benefits compared to competing networking products or if customers do not recognize the benefits that our solutions provide, then our business, financial condition, results of operations and prospects could be materially adversely affected.

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In addition, the evaluation, testing and qualification of our new products by our customers may be lengthy and may require increased customer trials and contracts with acceptance clauses, which delay revenue recognition may negatively impact our revenue.

Fiscal 2024 continues to be a year of new product introductions and expanded use cases, particularly in the AI Ethernet market, resulting in increased customer trials and contracts with acceptance periods, and an increase in the volatility and magnitude of our product deferred revenue balances, which in turn may create variability in our revenue results on a quarterly and annual basis.

Additionally, from time to time, we invest in expansion into adjacent markets, including campus and WiFi networking, AI networking, cloud and enterprise routing markets, network security markets and SD-WAN markets.

We remain in a period of new product introductions and expanded use cases, particularly in the AI Ethernet market.

In addition, if we are not able to satisfy the requirements under customer trials or contracts with acceptance periods, we may be required to accept product returns from our customers, which would prevent us from recognizing revenue on such transactions and may result in the write-down of inventory.

Additionally, from time to time, we invest in expansion into adjacent markets, including campus and Wi-Fi networking, AI networking, cloud and enterprise routing markets, network security markets and SD-WAN markets.

Although we believe these solutions are complementary to our current offerings, we have less experience and a more limited operating history in these markets, and our efforts in this area may not be successful.

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Developing our products is expensive, and the investment in product development typically involves a long payback cycle.

We expect to continue to invest heavily in software development in order to expand the capabilities of our cloud networking platform and introduce new products and features.

We expect to continue to make substantial investments to introduce new products and services and enhance the functionality of our existing cloud networking platform through investments in our research and development organization, and investments in or acquisitions of complementary companies, products and technologies to expand our product offerings and build upon our technology leadership.

We expect that our results of operations will be impacted by the timing and size of these investments.

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We expect our gross margins to vary over time and may be adversely affected by numerous factors.

We expect our gross margins to vary over time and the gross margins we have achieved in recent years may not be sustainable and may be ad versely affected in the future by numerous factors, including but not limited to pricing pressure on our products and services due to competition, the ability of more fully integrated competitors to bundle their networking products with other products, or utilize proprietary silicon in their products, the mix of sales to large customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated sourcing key components from sole or limited suppliers, merchant silicon costs, and excess/obsolete inventory charges, including charges for excess/obsolete component inventory held by our contract manufacturers.

In addition, other factors that may impact our gross margins over time include the introduction of new products and new business models including the sale and delivery of more

software and subscription solutions, entry into new markets or growth in lower margin markets, entry in markets with different pricing and cost structures, pricing discounts given to customers, costs associated with defending intellectual property rights infringement, misappropriation or other violation claims and the potential outcomes of such disputes, increased costs arising from epidemics, changes in distribution channels, increased warranty costs, and our ability to execute our operating plans.

our products and services due to competition, the ability of more fully integrated competitors to bundle their networking products with other products, or utilize proprietary silicon in their products, the mix of sales to large customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with sourcing key components from sole or limited suppliers and potential changes to our manufacturing and supply chain to respond to international trade tensions, supply chain sourcing activities, merchant silicon costs, excess/obsolete inventory and supplier liability charges, and fees to expedite supplier components and costs related to tariffs from our products that are manufactured internationally.

In addition, other factors that may impact our gross margins over time include the introduction of new products and new business models including the sale and delivery of more software and subscription solutions, entry into new markets or growth in lower margin markets, entry in markets with different pricing and cost structures, pricing discounts given to customers, costs associated with defending intellectual property rights infringement, misappropriation or other violation claims and the potential outcomes of such disputes, increased costs arising from epidemics, changes in distribution channels, increased warranty costs, and our ability to execute our operating plans.

In addition, inflationary pressures and shortages have increased and may continue to increase costs for certain materials, components, supplies and services.

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This competition has resulted in increased pricing pressure, which could result in reduced profit margins, increased sales and marketing expenses and the loss of market share, any of which would likely harm our business, financial condition, results of operations and prospects.

The data center and campus networking markets have been historically dominated by Cisco, with competition also coming from other large network equipment and system vendors, including Extreme Networks, Dell/EMC, Hewlett Packard Enterprise, Nvidia, Juniper Networks, Huawei and white box networking vendors utilizing open-source operating systems.

The data center and campus networking markets have been historically dominated by Cisco, with competition also coming from other large network equipment and system vendors, including Dell/EMC, Extreme Networks, Hewlett Packard Enterprise, Huawei, Juniper Networks, Nvidia and white box networking vendors utilizing open-source operating systems.

Most of our competitors and some strategic alliance partners have made acquisitions and/or have entered into or extended partnerships or other strategic relationships to offer more comprehensive product lines, including cloud networking solutions and network security.

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We also face competition from other companies and new market entrants, including current technology partners, suppliers and customers or other cloud service providers who may acquire or develop network switches and cloud service solutions for internal use and/or to broaden their portfolio of products to market and sell to customers.

Some of these competitors are developing networking products based on off-the-shelf or commoditized hardware technology, or “white box” hardware, particularly where a customer’s network strategy seeks to emphasize deployment of such product offerings or adopt a disaggregated approach to the procurement of hardware and software.

Some of these competitors are developing "white box" networking products based on open-source network operating systems that may be provided for free and off-the-shelf or commoditized hardware technology, or “white box” hardware, while other competitors may adopt a disaggregated approach to the procurement of hardware and their proprietary software.

Customers may also increase their adoption of networking solutions based upon open-source network operating systems that may be provided for free and used either on “white box” or proprietary hardware.

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If strategic alliance partners acquire or develop competitive products or services, our relationship with those partners may be adversely impacted, which could lead to more variability to our results of operations and impact the pricing of our solutions.

their own silicon chips, the ability to set more aggressive pricing policies, lower labor and development costs, greater resources to make acquisitions, larger intellectual property rights portfolio, and substantially greater financial, technical, research and development or other resources.

Many of our existing and potential competitors enjoy substantial competitive advantages, such as greater name recognition and longer operating histories, larger sales and marketing budgets and resources, broader distribution and established relationships with channel partners and end customers, the ability to leverage their sales efforts across a broader portfolio of products, the ability to bundle competitive offerings with other products and services or to reduce the price of products and services that compete with ours in order to promote the sale of other products or services, the ability to develop their own silicon chips, the ability to set more aggressive pricing policies, lower labor and development costs, greater resources to make acquisitions, larger intellectual property rights portfolio, and substantially greater financial, technical, research and development or other resources.

In addition, large competitors may have more extensive relationships with and within existing and potential customers that provide them with an advantage in competing for business with those customers or may have a dominant market position in certain markets that they can utilize to leverage sales of their Ethernet switching products.

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• increased management complexity involved in, and expenses incurred in establishing and maintaining our international operations;

• deterioration of political relations between the U.S.

and China, Canada, Mexico, Russia and the EU including increased trade and tariff related disputes between the U.S.

and these and other countries or regions, which could have a material adverse effect on our sales as well as our manufacturing operations and supply chain in these countries;

• fluctuations in exchange rates between the U.S.

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• risks associated with U.S.

and foreign legal requirements, including those relating to anti-corruption, anti-bribery, privacy, data protection and the importation, certification and localization of our products in foreign countries;

and foreign legal requirements, including those relating to anti-corruption, anti-bribery, foreign investment, telecommunications, cybersecurity, supply chain integrity, privacy, data protection and the importation, certification and localization of our products in foreign countries;

• risks associated with government trade restrictions, including those which may impose restrictions, including prohibitions on the exportation, re-exportation, sale, shipment or other transfer of programming, technology, components, and/or services to foreign persons;

• changes in trade controls, economic sanctions, or other international trade regulations, which have in general recently trended toward increasing breadth and complexity of controls, and which may affect our ability to import or export our products to and from various countries;

• changes in trade controls, economic sanctions, foreign investment laws and regulations, or other international trade regulations, which have in general recently trended toward increasing breadth and complexity of controls, and which may affect our ability to import or export our products to and from various countries;

• risks of unexpected changes in regulatory practices, tariffs and tax laws and treaties;

• greater risk of unexpected changes in tariffs imposed by the U.S.

and other countries;

• deterioration of political relations between the U.S.

and China, Russia, the United Kingdom and the EU as well as the Israel-Hamas conflict and Houthi attacks on marine vessels in the Red Sea, which could have a material adverse effect on our sales and operations as well as our supply chain in these countries;

• possible deterioration in relations between Taiwan and China, and other factors affecting military, political, or economic conditions in Taiwan or elsewhere in Asia;

• issues related to cloud-specific regulatory requirements in certain countries, including the UK, EU and Asia-Pacific countries;

• issues related to cloud-specific and/or AI regulatory requirements in certain countries, including the US, UK, EU and Asia-Pacific countries;

• the uncertainty of protection and enforcement for intellectual property rights in some countries;

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These and other factors could harm our ability to gain future international revenue and, consequently, materially affect our business, financial condition, results of operations and prospects.

Expanding our existing international operations and

entering into additional international markets will require significant management attention and financial commitments.

Expanding our existing international operations and entering into additional international markets will require significant management attention and financial commitments.

Our failure to successfully manage our international operations and the associated risks effectively could limit our future growth or materially adversely affect our business, financial condition, results of operations and prospects.

New and changing laws, regulations, executive orders, directives, and enforcement priorities can adversely affect the Company’s business by increasing the Company’s costs, limiting the Company’s ability to continuously navigate global supply chain options in lieu of optimizing tariff outcomes, offer a product or service to customers in a timely manner, impacting customer demand for the Company’s products and services, and requiring changes to the Company’s business or supply chain.

New and changing laws, regulations, executive orders, directives, and enforcement priorities can also create uncertainty about how such laws and regulations will be interpreted and applied.

We have invested and may continue to invest in or acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our business, financial condition, results of operations and prospects.

As part of our business strategy, we have made and could continue to make investments in complementary companies, products or technologies which could involve licenses, additional channels of distribution, discount pricing or investments in or acquisitions of other companies.

For example, we completed the acquisition of Untangle Holdings and Pluribus Networks in 2022, which required management to focus efforts on integrating these acquisitions with the company.

In addition, the privately-held companies in which we invested are in the startup or development stages.

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Seasonality and industry cyclicality may cause fluctuations in our revenue and results of operations.

We operate on a December 31st year end and typically have lower sequential quarter over quarter revenue growth in the first quarter of each fiscal year, often followed by stronger sequential revenue growth in subsequent quarters.

We believe that this seasonality results from a number of factors, including the procurement, budgeting and deployment cycles of many of our customers.

We operate on December 31st year end and typically have lower sequential quarter over quarter revenue growth in the first quarter of each fiscal year, often followed by stronger sequential revenue growth in the ensuing quarters.

We believe that

this seasonality results from a number of factors, including the procurement, budgeting and deployment cycles of many of our customers.

The effects of recent supply chain disruptions and our rapid growth may have reduced the impact of seasonal or cyclical factors that might otherwise have influenced our business and broader industry performance.

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dollars, and therefore, substantially all of our revenue is not subject to foreign currency risk;

however, as a result of the strengthening U.S.

dollar, there has been an increase in the cost of our products to our customers outside of the U.S., which could adversely affect our business, financial condition, results of operations and prospects.

however, an increase in the U.S.

dollar could result in an increase in the cost of our products to our customers outside of the U.S., which could adversely affect our business, financial condition, results of operations and prospects.

In addition, a decrease in the value of the U.S.

dollar relative to foreign currencies could increase our

product and operating costs in foreign locations.

dollar relative to foreign currencies could increase our product and operating costs in foreign locations.

Further, a portion of our operating expenses is incurred outside the U.S., is denominated in foreign currencies and is subject to fluctuations due to changes in foreign currency exchange rates.

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Risks Related to Customers and Sales

If we are unable to attract new large customers or to sell additional products and services to our existing customers, our revenue growth will be adversely affected and our revenue could decrease.

If we are unable to attract new large customers or to sell additional products and services in the AI Ethernet, Campus Workspace and Network Security Markets, to our existing customers, our revenue growth will be adversely affected and our revenue could decrease.

To increase our revenue, we must add new customers, especially large customers, and sell additional products and services to existing customers.

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Our large customers have significant purchasing power and, as a result, generally receive more favorable terms and conditions than we typically provide to other customers, including lower prices, bundled upgrades, extended warranties, acceptance terms, indemnification terms and extended return policies and other contractual rights.

As we seek to sell more

products to these large customers, an increased mix of our shipments may be subject to such terms and conditions, which may reduce our margins or affect the timing and amount of revenue, and thus may have an adverse effect on our business, financial condition, results of operations and prospects.

As we seek to sell more products to these large customers, an increased mix of our shipments may be subject to such terms and conditions, which may reduce our margins or affect the timing and amount of revenue, and thus may have an adverse effect on our business, financial condition, results of operations and prospects.

If we are unable to increase market awareness or acceptance of our new products and services, our revenue may not continue to grow or may decline.

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Market awareness of our value proposition and products and services will be essential to our continued growth and our success, particularly for the service provider and broader enterprise markets.

Additionally, because we are introducing new products in markets such as the AI Ethernet market, they may still be subject to trials, testing, qualification and acceptance periods.

Additionally, because we are introducing new products in markets such as the AI Ethernet market, some products are subject to trials, testing, qualification and acceptance periods.

If our marketing efforts are unsuccessful in creating market awareness of our company and our products and services or in gaining access to new customer markets, or if these new products and services are not accepted by customers, then our business, financial condition, results of operations a nd prospects will be adversely affected, and we will not be able to achieve sustained growth.

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Customers, especially our large customers, often view the purchase of our products as a significant and strategic decision and require considerable time to evaluate, test and qualify our products prior to making a purchase decision and placing an order.

The length of time that customers devote to their evaluation, contract negotiation and budgeting processes varies significantly.

The length of time that customers devote to their evaluation, contract

negotiation and budgeting processes varies significantly.

In addition, customers may delay upgrades to their network infrastructure which extends the upgrade and sales cycle.

Our products’ sales cycles can be lengthy in certain cases, especially with respect to our prospective large customers and certain markets including the enterprise, campus and AI markets.

Our products’ sales cycles are lengthy in certain cases, especially with respect to our prospective large customers and certain markets including the enterprise, campus and AI markets.

During the sales cycle, we expend significant time and money on sales and marketing activities and make investments in evaluation equipment, all of which lower our operating margins, particularly if no sale occurs.

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Even after a customer makes a purchase, there may be circumstances or terms relating to the purchase that delay our ability to recognize revenue from that purchase including acceptance terms contained in such agreements.

In addition, the significance and timing of our product enhancements, and the introduction of new products by our competitors, may also affect

customers’ purchases.

In addition, the significance and timing of our product enhancements, and the introduction of new products by our competitors, may also affect customers’ purchases.

For all of these reasons, it is difficult to predict whether a sale will be completed, the particular period in which a sale will be completed or the period in which revenue from a sale will be recognized, if at all.

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Declines in maintenance renewals by customers could harm our future business, financial condition, results of operations and prospects.

We typically sell our products with maintenance and support as part of the initial purchase, and a portion of our annual revenue comes from renewals of maintenance and support contracts.

We typically sell our products with maintenance and support as part of the initial purchase, and a portion of our revenue comes from renewals of maintenance and support contracts.

Our customers have no obligation to renew their maintenance and support contracts after the expiration of the initial period, and they may elect not to renew their maintenance and support contracts, to renew their maintenance and support contracts at lower prices through alternative channel partners or to reduce the product quantity under their maintenance and support contracts, thereby reducing our future revenue from maintenance and support contracts.

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Our exposure under these indemnification provisions is frequently limited to the total amount paid by our customer under the agreement.

However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement.

However, certain agreements include indemnification provisions that could potentially expose us to losses

in excess of the amount received under the agreement.

Any of these events, including claims for indemnification, could seriously harm our business, financial condition, results of operations and prospects.

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Our agreements with our channel partners may generally be terminated for any reason by either party with advance notice.

We may be unable to retain these channel partners or secure

additional or replacement channel partners.

We may be unable to retain these channel partners or secure additional or replacement channel partners.

The loss of one or more of our significant channel partners requires extensive training, and any new or expanded relationship with a channel partner may take several months or more to achieve productivity.

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In the past several years, we have announced a number of new products and enhancements to our products and services, including new products in the AI Ethernet, campus workspace and network security markets.

The success of our new products depends on several factors including, but not limited to, appropriate new product definition, the development of product features that sufficiently meet end-user requirements, our ability to manage the risks associated with new product production ramp-up issues, component costs, availability of components, timely completion and introduction of these products, prompt solution of any defects or bugs in these products, our ability to support these products, differentiation of new products from those of our competitors and market acceptance of these products.

The success of our new products depends on several factors including, but not limited to, appropriate new product definition, the development of

product features that sufficiently meet end-user requirements, our ability to manage the risks associated with new product production ramp-up issues, component costs, availability of components, timely completion and introduction of these products, prompt solution of any defects or bugs in these products, our ability to support these products, differentiation of new products from those of our competitors and market acceptance of these products.

For example, our new product releases will require strong execution from our third-party merchant silicon chip suppliers to develop and release new merchant silicon chips that satisfy end-customer requirements, to meet expected release schedules and to provide sufficient quantities of these components.

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We may not be able to successfully anticipate or adapt to changing technology or end-customer requirements on a timely basis, or at all.

If we fail to keep up with technology changes or to convince our customers and potential customers of the

value of our solutions even in light of new technologies, we may lose customers, decrease or delay market acceptance and sales of our present and future products and services and materially and adversely affect our business, financial condition, results of operations and prospects.

If we fail to keep up with technology changes or to convince our customers and potential customers of the value of our solutions even in light of new technologies, we may lose customers, decrease or delay market acceptance and sales of our present and future products and services and materially and adversely affect our business, financial condition, results of operations and prospects.

Our products must interoperate with operating systems, software applications and hardware that is developed by others, and if we are unable to devote the necessary resources to ensure that our products interoperate with such software and hardware, we may lose or fail to increase market share and experience a weakening demand for our products.

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Managing the supply of our products and product components is complex.

Insufficient component supply and inventory may result in los t sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

Managing our manufacturing capacity and extended supply chain is complex, and our inventory management systems and related supply-chain visibility tools may not enable us to forecast accurately and effectively manage the supply of our products and product components.

Our ability to manage our supply chain has also and could continue to be adversely affected by other factors including geopolitical conditions such as the Russia-Ukraine conflict and related economic sanctions against Russia, the Israel-Hamas conflict, the Houthi attacks on marine vessels in the Red Sea, the U.S.

trade war with China and political tensions between China and Taiwan.

Global geopolitical and macroeconomic uncertainties have resulted in prolonged manufacturing and supply chain disruptions, including temporary closures of certain contract manufacturer and supplier facilities particularly within China and controls on certain supplies including China's restrictions in the use of Micron products and its controls on metals used in semiconductor manufacturing such as gallium and germanium which, in turn, have caused and may continue to cause shortages of, and extended lead times for, components used to manufacture our products, increases in the prices for such components, a reduction, unpredictability or interruption of supply, prioritization of component shipments to other vendors and decommitments of orders.

Insufficient component supply and inventory and the time to manufacture our products may result in los t sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

Managing our manufacturing capacity and extended supply chain is complex, and our inventory management systems and related supply-chain visibility tools may not enable us to effectively manage the supply of our products and product components.

Our ability to manage our supply chain has also and could continue to be adversely affected by other factors including geopolitical conditions such as international trade tensions between the U.S.

and China, Canada, Mexico, the European Union and other countries where we manufacturing our products including Malaysia and Vietnam, the Russia-Ukraine conflict and related economic sanctions against Russia, the Israel-Hamas conflict, and political tensions between China and Taiwan.

Global geopolitical and macroeconomic uncertainties have resulted in prolonged manufacturing and supply chain disruptions, including temporary closures of certain manufacturing and supplier facilities particularly within China and controls on certain supplies including China's restrictions in the use of Micron products and its controls on metals used in semiconductor manufacturing such as gallium and germanium which, in turn, have caused and may continue to cause shortages of, and extended lead times for, components used to manufacture our products, increases in the prices for such components, a reduction, unpredictability or interruption of supply, prioritization of component shipments to other vendors and

decommitments of orders.

In addition, China imposed additional export controls on critical metals including tungsten, tellurium, bismuth, molybdenum, and indium (and related compounds) in February 2025 and further increased the scope of its export controls in April 2025 as part of its response to the United States’s imposition of additional tariffs on products from China.

Insufficient component supply, and increases in the time required to manufacture our products may lead to prolonged inventory shortages, manufacturing disruptions and increased customer lead times for our products that could result in increased cancellation of orders or loss of future sales opportunities altogether as potential customers turn to competitors’ products that are readily available.

In addition, in order to meet customer lead times, we have, and may continue to expedite the supply of components and make incremental investments in our supply chain to increase our capacity for manufacturing products, which increases our product costs and negatively affects our gross margin.

In order to reduce manufacturing lead times and plan for adequate component supply, we have issued and expect to continue to issue purchase orders for components and products that are non-cancellable and non-returnable, including purchase commitments for semiconductors as disclosed in Note 5.

Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Industry wide supply chain shortages resulted in extended lead time for components, which required us to extend the lead time horizon of our demand forecast for such components and increased our purchase commitments for long lead time components.

Although the global supply chain has shown improvement, we expect that our inventory and purchase commitments will remain volatile as we ramp new product introductions.

We expect that our inventory and purchase commitments will remain volatile as we ramp new product introductions.

In particular, we have increased our purchase commitments to respond to the rapid deployment of AI networks and reduce overall lead times which will increase our working capital requirements.

There is no guarantee that suppliers will meet their commit ments or that actual customer demand will not be lower than our demand forecasts.

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We establish a liability for non-cancellable, non-returnable purchase commitments with our component inventory suppliers for quantities in excess of our demand forecasts, or for products that are considered obsolete.

In addition, we establish a liability and reimburse our contract manufacturer for component inventory purchased on our behalf that

has been rendered excess or obsolete due to manufacturing and engineering change orders, or in cases where inventory levels greatly exceed our demand forecasts.

In addition, we establish a liability and reimburse our contract manufacturer for component inventory purchased on our behalf that has been rendered excess or obsolete due to manufacturing and engineering change orders, or in cases where inventory levels greatly exceed our demand forecasts.

The magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting 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-related charges.

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To the extent that our products are manufactured at facilities in foreign countries, we may be subject to additional risks associated with complying with local rules and regulations in those jurisdictions.

For example, due to the COVID-19 pandemic, some of our contract manufacturers experienced temporary closures and labor shortages.

Shelter in place orders, factory closures or reductions in staffing at our manufacturing sites would result in material disruptions, increased lead times and supply shortages of our products.

Due to their existence in foreign locations, our contract manufacturers may also be subject to or become subject to new or increased tariffs which, if sufficiently high, may affect the profitability of these operations and may require relocation to new locations, moves which may require bearing associated costs.

There is no guarantee that any contract manufacturing location may not be targeted by tariffs or other trade measures imposed by the United States or another country.

Our contract manufacturers typically fulfill our supply requirements on the basis of individual orders.

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We base our inventory requirements on our forecasts of future sales.

If these forecasts are materially inaccurate or change, we may procure inventory that we may be unable to use in a timely manner or at all.

If these demand forecasts materially change from our initial projections, we may procure inventory that we may be unable to use in a timely manner or at all.

We and our contract manufacturers procure components and build our products based on our forecasts.

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There is no guarantee that suppliers will meet their commitments or that actual customer demand will directly match our demand forecasts.

If our forecasts are materially inaccurate or change, customers' orders are cancelled or if we otherwise do not need such inventory, we may under- or over-procure inventory, which could materially adversely affect our business, financial condition and results of operations.

If our forecasts materially change from our initial projections, customers' orders are cancelled or if we otherwise do not need such inventory, we may under- or over-procure inventory, which could materially adversely affect our business, financial condition and results of operations.

Interruptions or delays in shipments could cause our revenue for the applicable period to fall below expected levels.

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Patent and other intellectual property rights disputes are common in the network infrastructure, network security and Wi-Fi industries and have resulted in protracted and expensive litigation for many companies.

Many companies in the network infrastructure, network security and Wi-Fi industries, including our competitors and other third parties, as well as non-practicing entities, own large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property rights, which they may use to assert claims of infringement, misappropriation, or other violations of intellectual property rights against us.

Many companies in the network

infrastructure, network security and Wi-Fi industries, including our competitors and other third parties, as well as non-practicing entities, own large numbers of patents, copyrights, trademarks, trade secrets and other intellectual property rights, which they may use to assert claims of infringement, misappropriation, or other violations of intellectual property rights against us.

From time to time, they have or may in the future also assert such claims against us, our customers or channel partners whom we typically indemnify against claims that our products infringe, misappropriate or otherwise violate the intellectual property rights of third parties.

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For example, in two prior investigations brought by Cisco in the International Trade Commission (“ITC”), we were subjected to remedial orders that prohibited us from importing and selling after importation any products the ITC found to infringe Cisco’s patents.

As a result, we were required to redesign certain aspects of our products and obtain U.S.

As a result, we were required to redesign certain aspects of our products and

Customs and Border Protection’s approval of those redesigns before we could continue to import those products into the United States.

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We seek to protect the source code, design code, documentation and other information relating to our software, under trade secret, patent and copyright laws.

However, we have chosen to provide access to selected source code of our software to several of our partners for co-development, as well as for open application APIs,

formats and protocols.

However, we have chosen to provide access to selected source code of our software to several of our partners for co-development, as well as for open application APIs, formats and protocols.

Though we generally control access to our source code and other intellectual property and enter into confidentiality or license agreements with such partners as well as with our employees and consultants, this combination of procedural and contractual safeguards may be insufficient to protect our trade secrets and other rights to our technology.

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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.

On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all challenged claims in the inter partes review unpatentable, and this ruling was upheld by the Federal Circuit on March 10, 2025.

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

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

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These false positives may impair the perceived reliability of our security platform and may therefore adversely impact market acceptance of our security platform.

Any such false identification of important files or applications could result in damage to our reputation,

negative publicity, loss of channel partners, end-customers and sales, increased costs to remedy any problem, and costly litigation.

Breaches of our cybersecurity systems, or other security breaches or incidents with respect to our products, services, networks, systems, or data, could degrade our ability to conduct our business operations and deliver products and services to our customers, cause vulnerabilities in our products and services, and subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners, delay our ability to recognize revenue, compromise the integrity of our software products and our networks, systems, and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.

Any such false identification of important files or applications could result in damage to our reputation, negative publicity, loss of channel partners, end-customers and sales, increased costs to remedy any problem, and costly litigation.

Breaches of our cybersecurity systems, or other security or privacy breaches or incidents with respect to our products, services, networks, systems, or data, could degrade our ability to conduct our business operations and deliver products and services to our customers, cause vulnerabilities in our products and services, and subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners, delay our ability to recognize revenue, compromise the integrity of our software products and our networks, systems, and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.

We increasingly depend upon our IT systems to conduct virtually all of our business operations, ranging from our internal operations and product development activities to our marketing and sales efforts and communications with our customers and business partners.

Computer programmers or other persons or organizations may attempt to penetrate our network security, or that of our website or systems, and access, use, or obtain confidential, personal, or otherwise sensitive or proprietary information about us or our customers, or via these or other methods, including denial of service attacks and other cyberattacks, disrupt or cause interruptions of our systems, products, services and networks.

In addition, geopolitical tensions, such as the Russia-Ukraine conflict, the Israel-Hamas hostilities and deteriorating relations with China, may create a greater risk of cyberattacks against our company and our manufacturers, suppliers, logistics providers, banks and other business partners.

In addition, geopolitical tensions and conflicts, such as the Russia-Ukraine conflict, the Israel-Hamas hostilities and deteriorating relations with China, may create a greater risk of cyberattacks against our company and our manufacturers, suppliers, logistics providers, banks and other business partners.

Because the techniques used to access, disrupt, or sabotage networks and systems change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques.

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We also face risks of others gaining unauthorized access to our products and services and introducing malicious software, and such malicious software, defects, bugs or vulnerabilities, or other defects, bugs, or vulnerabilities in our products or services may result in failures or interruptions of our products or services or expose our end-customers' networks, leaving their networks unprotected against the latest security threats.

We have also outsourced a number of our business functions to third parties, including our manufacturers, logistics providers, and cloud service providers, and our business operations also depend, in part, on the success of these third parties’ own cybersecurity measures.

Similarly, we rely upon distributors, resellers and system integrators to sell our products and our sales operations depend, in part, on the reliability of their cybersecurity measures.

We have also outsourced some business functions to third parties, including our manufacturers, logistics providers, and cloud service providers, and our business operations also depend, in part, on the success of these third parties’ own cybersecurity measures.

Similarly, we rely upon distributors, resellers and system integrators to sell our products and our sales

operations depend, in part, on the reliability of their cybersecurity measures.

Additionally, we depend upon our employees to appropriately handle confidential, sensitive, and proprietary data and comply wit h the security measures we have instituted to prevent exposure of our networks and systems to security breaches and incidents, the unauthorized access to our products and the loss of data.

We and all of the aforementioned third parties also face the risk of ransomware and other malicious software, phishing schemes and oth er social engineering methods, fraud and other malfeasance, cybersecurity threats from state sponsors and other actors, and intentional or negligent acts or omissions of employees and contractors.

We and the aforementioned third parties also face the risk of ransomware and other malicious software, phishing schemes and oth er social engineering methods, fraud and other malfeasance, cybersecurity threats from state sponsors and other actors, and intentional or negligent acts or omissions of employees and contractors.

Furthermore, our acquisition of Awake Security and our provision of its NDR platform may result in us being a more attractive target for such attacks.

Accordingly, if our cybersecurity systems and measures or those of any of the aforementioned third parties fail to protect against sophisticated cyber-attacks, other means of effectuating security breaches or incidents, interruptions or other disruptions of our or our third-party service providers’ systems, networks, products, or services, the mishandling of data by employees and contractors, the corruption, loss, or mishandling or other unauthorized processing of data by unauthorized persons, or any other means of unauthorized access to, or use of, our manufacturing process, products, services, networks, systems, or data that we or such third parties maintain, operate, or process, our ability to conduct our business effectively could be damaged in a number of ways, including:

• sensitive data regarding our business or our customers, including intellectual property and other proprietary data, could be stolen or lost, modified, rendered unavailable, or otherwise used or processed;

• our electronic communications systems, including email and other methods, or other systems, and access to or availability of data, could be disrupted or harmed, and our ability to conduct our business operations could be seriously damaged until such systems or data access and availability can be restored, which we may be unable to achieve in a prompt manner or at all;

• our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;

• defects and security vulnerabilities could be introduced into our software, thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to further data loss and cyber incidents;

• our manufacturing process, products, services, supply chain, network systems and data could be corrupted;

• our manufacturing process, products, services, supply chain, network systems and data could be corrupted or otherwise disrupted;

• personal data of our customers, employees, contractors, and business partners could be lost, accessed, obtained, modified, disclosed or used without authorization, corrupted or made unavailable, or otherwise compromised.

Should any of the above events occur, or be perceived to occur, we could be subject to significant claims for liability from our customers and others and regulatory investigations and actions from governmental agencies, and we could be required to expend significant capital and other resources to remediate and otherwise address any data security incident or breach, including to notify individuals, entities, or regulatory bodies and to implement measures in an effort to prevent further breaches or incidents.

Should any of the above events occur, or be perceived to occur, we could be subject to significant claims for liability from our customers and others and regulatory investigations and actions from governmental agencies, and we could be required to expend significant capital and other resources to remediate and otherwise address any security breach or incident, including to notify individuals, entities, or regulatory bodies and to implement measures in an effort to prevent further breaches or incidents.

In addition, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed.

Also, the regulatory and contractual actions, proceedings, litigation, investigations, fines, penalties and liabilities relating to any actual or perceived data breaches or security incidents that result in losses of, damage or destruction of, or unauthorized access to or acquisition of, credit card information or other personal or sensitive data of users of our services can be significant in terms of fines and reputational impact and necessitate changes to our business operations that may be disruptive to us.

Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and other measures in an effort to prevent network and system disruptions and other security breaches and other incidents.

Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and measures in an effort to prevent network and system disruptions and other security breaches and other incidents.

Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers.

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Risks Related to Accounting, Compliance, Regulation and Tax

Foreign investment laws and regulations, and other trade or regulatory barriers, may have a negative effect on global economic conditions, financial markets and our business.

In addition to laws aimed directly at trade, failure of our products to comply with a broader set of evolving industry standards and government regulations may adversely impact our business and in particular our ability to market in particular countries.

Our products must comply with various U.S.

federal government regulations and standards defined by agencies such as the Federal Communications Commission, standards established by governmental authorities in various foreign countries and recommendations of the International Telecommunication Union.

In some circumstances, we must obtain regulatory approvals or certificates of compliance before we can offer or distribute our products in certain jurisdictions or to certain customers.

In recent years, certain jurisdictions have tied these approvals to concerns about international relationships, including, e.g., concerns about entities with components sourced from China.

Complying with new regulations or obtaining certifications, especially as standards evolve, may be costly and disruptive to our business and also may affect our ability to sell our products where these standards or regulations apply, which in turn may prevent us from sustaining our net revenues or achieving profitability.

Enhanced U.S.

trade restrictions affecting China and other countries, including export controls, import regulations, and foreign investment regulations, as well as countermeasures taken by affected countries may have a negative effect on global economic conditions, financial markets and our business.

Over the past several years, the U.S.

government has enacted a series of international trade restrictions affecting China and other countries which have included export controls, import regulations and foreign investment regulations.

For example, the U.S.

has added additional entities, from China and elsewhere, to restricted party lists impacting the ability of U.S.

companies to provide products, and in certain cases services, to these entities and, in some cases, receive products or services from these entities.

has also enacted controls restricting the ability to send certain products and technology related to semiconductors, semiconductor manufacturing, and supercomputing to China without an export license.

In 2023 and 2024, the U.S.

government expanded the list of advanced integrated circuits ("ICs") subject to heightened export controls, including certain hardware containing these specified ICs, expanded the list of countries that require export authorization for such items, and added new restrictions based on the headquarters location of the parties involved.

Proposed Regulations further expanding the controls to impose a worldwide licensing requirement on certain ICs and computing resources that are used for training of AI models are currently in effect and have a scheduled compliance date of May 15, 2025, after which time companies may be subject to further enforcement;

as of May 2025, it is unclear whether or how the U.S.

government may amend these regulations.

government also continues to expand the scope of restrictions on the development or production of advanced ICs and certain semiconductor manufacturing equipment, and the restrictions on supercomputing, in China and other countries.

Due to concerns with products and services from certain semiconductor, telecommunications and video providers based in China, U.S.

Congress has also enacted bans on the use of certain Chinese-origin components or systems either in items sold to the U.S.

government or, in some cases, in the internal networks of government contractors and subcontractors (even if those networks are not used for government-related projects).

Further, the U.S.

government has imposed trade restrictions to address international human rights abuses.

For example, in June 2022, the import restrictions contained in the Uyghur Forced Labor Prevention Act ("UFLPA") became effective.

The UFLPA creates a rebuttable presumption that any goods mined, produced or manufactured, wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or produced by a UFLPA-listed entity, were made with forced labor and would therefore not be entitled to entry at any U.S.

Importers may be required to present clear and convincing evidence that such goods are not made with forced labor.

While we do not source items from the XUAR or from UFLPA-listed parties, and we have increased our supply chain diligence, there is risk that our ability to import components and products may be adversely affected by the UFLPA.

government also recently introduced regulations that require notification of or prohibit certain transactions by the Company with entities in China or with linkages to China.

These regulations could apply to certain intracompany activities with our China and Hong Kong subsidiaries or other activities with entities in China or with linkages to China.

These regulations could also limit the ability of others to transact certain business with the Company if those transactions involve or benefit, directly or indirectly our operations in China.

Where these new rules apply to a given transaction, it might limit our ability to carry out our long-term business strategy.

These controls or any additional restrictions may impact our ability to export certain products to China or other countries, prohibit us from selling our products to certain of our customers, restrict our ability to use certain ICs in our products, impact our suppliers who may utilize facilities or equipment described in these controls, or impact the cost of components or inputs used to produce our products.

These measures may also increase in response to certain geopolitical events, such as the recent international trade tensions or if the relationship between the U.S.

and China or between China and Taiwan otherwise deteriorates.

The Chinese government has retaliated to, and may continue to retaliate to, these or other U.S.

trade restrictions in ways that could impact our business.

For example, China has announced controls on both the use of Micron products and export license requirements on certain materials used, among other things, in the production of semiconductors, optical components,

and other electronic devices including germanium and gallium.

China also has announced a new export control regime.

Further, the Chinese government has responded to these U.S.

actions by adding U.S.

entities to an unreliable entity list, which limits the ability of companies on the list to engage in business with Chinese customers.

These restrictions could disrupt the ability of China to produce semiconductors and other electronics, impact our ability to source components from China, or impact the cost of components or inputs used to produce our products.

Given the relatively fluid regulatory environment in China and the United States, there is uncertainty with how the U.S.

government or foreign governments will act in response to changes in tariffs, trade policies, and foreign investment laws and regulations, which could directly and adversely impact our financial results and results of operations.

We cannot predict what actions may ultimately be taken with respect to trade relations between the United States and China or other countries, what products may be subject to such actions or what actions may be taken by the other countries in retaliation.

If these trade restrictions, including foreign investment restrictions, or trade barriers remain in place or if new trade restrictions or trade barriers are placed on products such as ours by U.S.

or foreign governments, especially China, our costs may increase.

If we are unable to obtain or use components for inclusion in our products, if component prices increase significantly or if we are unable to export or sell our products to any of our customers, our business, liquidity, financial condition, and/or results of operations would be materially and adversely affected.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

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If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect or if there is a change in accounting principles, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

A change in these principles or interpretations could harm our revenue and financial results, and could affect the reporting of transactions completed before the announcement of a change.

In addition, we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as de scribed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations", in Part I, Item 2, of this Quarterly Report on Form 10-Q, t he results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses.

In addition, we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in "Management’s Discussion and Analysis of Financial Condition and Results of Operations", in Part I, Item 2, of this Quarterly Report on Form 10-Q, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses.

Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventory valuation and contract manufacturer/supplier liabilities, income taxes and loss contingencies.

If our assumptions change or if actual circumstances differ from those in our assumptions, our results of operations may be adversely affected and may fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

Enhanced United States tax, tariff, import/export restrictions, Chinese regulations or other trade or regulatory barriers may have a negative effect on global economic conditions, financial markets and our business.

There is currently significant uncertainty about the future relationship between the United States, and various other countries, most significantly China, with respect to trade policies, treaties, tariffs and taxes.

government has and

continues to make significant additional changes in U.S.

trade policy and has taken certain actions that could negatively impact U.S.

In addition, there may be further changes in U.S.

trade policy if there is a change in administration as a result of the U.S.

presidential election.

For example, in 2018, the Office of the U.S.

Trade Representative ("USTR") enacted various tariffs of 7.5%, 10%, 15% and 25% on imports into the U.S.

from China, including communications equipment products and components manufactured and imported from China.

USTR has continued to expand these tariffs recently announcing new tariffs of up to 100% on certain products.

Since then, China has retaliated through various trade related measures including imposing tariffs on imports into China from the United States.

government continues to add additional entities, in China and elsewhere, to restricted party lists impacting the ability of U.S.

companies to provide products, and in certain cases services, to these entities and, in some cases, receive products or services from these entities.

Additionally, the U.S.

government continues to expand controls enacted in October 2022 restricting the ability to send certain products and technology related to semiconductors, semiconductor manufacturing, and supercomputing to China without an export license.

In 2023, the U.S.

government expanded the list of advanced integrated circuits subject to heightened export controls, including certain hardware containing these specified integrated circuits, expanded the list of destinations requiring export authorization for such items, and added new restrictions based on the headquarters location of the parties involved.

government also has expanded the scope of restrictions on the development or production of advanced integrated circuits and certain semiconductor manufacturing equipment, and the restrictions on supercomputing, in China and other countries.

Other foreign governments may in turn impose similar or more restrictive controls.

These controls or any additional restrictions may impact our ability to export certain products to China or other countries, prohibit us from selling our products to certain of our customers, restrict our ability to use certain Integrated Circuits (“ICs”) in our products, or impact our suppliers who may utilize facilities or equipment described in these controls.

It also is possible that the Chinese government will retaliate in ways that could impact our business.

Additionally, these restrictions could disrupt the ability of China to produce semiconductors and other electronics and impact our ability to source components from China.

These restrictions could impact the cost of components or inputs used to produce our products.

Should the relationship between China and Taiwan deteriorate, it is possible that the U.S.

government could impose new controls on China, specific parties, or specific kinds of transactions in the region that could impact our business including our ability to source components from China and sell to certain of our customers.

These restrictions could impact the cost of components or inputs used to produce our products.

Additionally, these controls or any additional restrictions may impact our ability to export certain products to China and/or prohibit us from selling our products to certain of our customers.

As well, due to concerns with products and services from certain semiconductor, telecommunications and video providers based in China, U.S.

Congress has enacted bans on the use of certain Chinese-origin components or systems either in items sold to the U.S.

government or, in some cases, in the internal networks of government contractors and subcontractors (even if those networks are not used for government-related projects).

Further, the Chinese government has responded to these U.S.

actions by indicating its intention to develop an unreliable entity list, which may limit the ability of companies on the list to engage in business with Chinese customers.

If tariffs, trade restrictions, or trade barriers remain in place or if new tariffs, trade restrictions, or trade barriers are placed on products such as ours by U.S.

or foreign governments, especially China, our costs may increase.

We believe we can adjust our supply chain and manufacturing practices to minimize the impact of the tariffs and any impact on the supply chain of components sourced in China, but our efforts may not be successful, there can be no assurance that we will not experience a disruption in our business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time-consuming, and costly.

tariffs may also cause customers to delay orders as they evaluate where to take delivery of our products in connection with their efforts to mitigate their own tariff exposure.

Such delays create forecasting difficulties for us and increase the risk that orders might be canceled or might never be placed.

Current or future tariffs imposed by the U.S.

may also negatively impact our customers' sales, thereby causing an indirect negative impact on our own sales.

Even in the absence of further tariffs, the related uncertainty and the market's fear of an escalating trade war might cause our distributors and customers

to place fewer orders for our products, which could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

In June 2022, the import restrictions contained in the Uyghur Forced Labor Prevention Act ("UFLPA") became effective.

The UFLPA creates a rebuttable presumption that any goods mined, produced or manufactured, wholly or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China, or produced by a listed entity, were made with forced labor and would therefore not be entitled to entry at any U.S.

Importers are required to present clear and convincing evidence that such goods are not made with forced labor.

While we do not source items from the XUAR or from listed parties, and we have increased our supply chain diligence, there is risk that our ability to import components and products may be adversely affected by the UFLPA.

Given the relatively fluid regulatory environment in China and the United States and uncertainty how the U.S.

government or foreign governments will act with respect to tariffs, international trade agreements and policies, a trade war, further governmental action related to tariffs or international trade policies, or additional tax or other regulatory changes in the future could directly and adversely impact our financial results and results of operations.

Our products must comply with various U.S.

In some circumstances, we must obtain regulatory approvals or certificates of compliance before we can offer or distribute our products in certain jurisdictions or to certain customers.

In recent years, certain jurisdictions have tied these approvals to concerns about international relationships, including, e.g., concerns about entities with components sourced from China.

Changes in our income taxes or our effective tax rate, enactment of new tax laws or changes in the application of existing tax laws of various jurisdictions or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

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Changes in tax laws and regulations and interpretations of such laws and regulations, including taxation of earnings outside of the U.S.

may have adverse effects on our operating results and could impact the tax treatment of our earnings and cash and cash equivalent balances we currently maintain.

may have adverse effects on our operating results and could

impact the tax treatment of our earnings and cash and cash equivalent balances we currently maintain.

Furthermore, due to shifting economic and political conditions, tax policies and rates in various jurisdictions, may be subject to significant change.

Proposals to reform U.S.

and International tax laws could increase the U.S.

corporate tax rate.

The Organization for Economic Cooperation and Development (“OECD”), comprising 38 international member countries including the United States, have reached agreement on a global minimum tax initiative (“Pillar Two”), which has been adopted by members of the European Union, among other jurisdictions.

Other OECD countries are also actively considering changes to existing tax laws or have proposed new laws to align with the recommendations and guidelines proposed by the OECD, including Pillar Two.

The government administration may pass tax reform, which may include laws to address certain provisions of the 2017 Tax Cuts and Jobs Act expiring at the end of 2025.

It is uncertain what proposals to reform U.S.

tax laws might pass and whether such laws could increase or decrease the U.S.

corporate tax rate or otherwise U.S.

taxation of non-U.S.

The Organization for Economic Cooperation and Development (“OECD”), comprising 38 international member countries, has introduced a global minimum tax initiative (“Pillar Two”), which has been adopted by members of the European Union ("EU"), among other jurisdictions.

While the U.S.

has not yet adopted Pillar Two, other OECD countries outside or the EU are actively considering changes to existing tax laws or have proposed new laws to align with the recommendations and guidelines proposed by the OECD, including Pillar Two.

Enactment of such tax laws could increase our tax obligations in countries where we do business or cause us to change the way we operate our business.

We have assessed the impacts of these new laws in countries that we operate in and do not currently anticipate any material impacts to our effective tax rate.

However, we cannot provide any assurance that there will not be a material impact to our effective tax rate in the future as a result of these developments or proposed changes.

We have assessed the impacts of these new laws on countries that we operate in and do not currently anticipate any material impacts on our effective tax rate.

However, we cannot provide any assurance that there will not be a material impact to our effective tax rate in the future because of these developments or other proposed tax law changes.

Finally, we are subject to examination of our income tax returns by the Internal Revenue Service ("IRS") and other tax authorities.

Audits by the IRS or other tax authorities are subject to inherent uncertainties and could result in unfavorable outcomes, including potential fines or penalties.

As we operate in numerous taxing jurisdictions, the application of tax laws can

be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions.

As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions.

The expense of defending and resolving such audits may be significant.

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Failure to comply with governmental laws and regulations could harm our business, financial condition, results of operations and prospects.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws (including new laws related to climate change), consumer protection laws, privacy, data protection, anti-bribery laws such as the U.S.

Foreign Corrupt Practices Act, import/export controls and sanctions, conflict minerals, federal securities laws and tax laws and regulations.

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EU courts later invalidated the E.U.-U.S.

Privacy Shield and imposing additional obligations in connection with the use of the SCCs.

The European Commission subsequently issued new SCCs which have been implemented.

Privacy Shield and imposed additional obligations in connection with use of the SCCs.

The European Commission subsequently issued new SCCs.

The continued validity of these new SCCs for cross-border data transfer is uncertain and difficult to predict.

Among other effects, we may experience additional costs associated with increased compliance burdens and new contract negotiations with third parties that aid in processing data on our behalf.

We may experience reluctance or refusal by current or prospective European customers to use our products, and we may find it necessary or desirable to make further changes to our handling of personal data of residents of the European Economic Area (“EEA”).

The regulatory environment applicable to the handling of EEA residents’ personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs and could result in our business, operating results and financial condition being harmed.

Additionally, we and our customers may face a risk of enforcement actions by data protection authorities in the EEA relating to personal data transfers to us and by us from the EEA.

Any such enforcement actions could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results, and financial condition.

Further, the UK has implemented legislation that substantially mirrors the GDPR, and which provides for fines of up to the greater of 17.5 million British Pounds or four percent of the previous year’s annual revenue, whichever is higher.

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The UK has issued new standard contractual clauses that, like the SCCs, are required to be implemented.

We may experience reluctance or refusal by current or prospective customers in the European Economic Area (the "EEA"), the UK, or other regions to use our products, and we may find it necessary or desirable to make further changes to our handling of personal data of residents of the EEA, UK, or other regions.

The regulatory environment applicable to the handling of personal data of EEA and UK residents, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs and could result in our business, operating results and financial condition being harmed.

Additionally, we and our customers may face a risk of enforcement actions by data protection authorities relating to personal data transfers to us and by us from the EEA, UK, or other regions.

Any such enforcement actions could result in substantial costs and diversion of

resources, distract management and technical personnel and negatively affect our business, operating results, and financial condition.

Several jurisdictions have passed new laws and regulations relating to privacy, data protection, and other matters, and other jurisdictions are considering imposing additional restrictions.

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For example, the California Consumer Privacy Act (“CCPA”) became operative on January 1, 2020 and was amended by the California Privacy Rights Act (“CPRA”) going into effect over time through July 1, 2023.

Certain aspects of the CCPA/CPRA and its interpretation remain uncertain and are likely to remain uncertain for an extended period and may require us to incur additional costs and expenses in an effort to comply.

Aspects of the CCPA/CPRA and its interpretation remain uncertain and are likely to remain uncertain for an extended period and may require us to incur additional costs and expenses in an effort to comply.

In addition to the CCPA/CPRA, numerous other states have enacted or are considering similar laws that will require ongoing compliance efforts and investment.

For example, Connecticut, Virginia, Colorado and Utah have enacted legislation similar to the CCPA and CPRA that took effect in 2023;

Florida, Montana, Oregon, and Texas have enacted similar legislation effective, or taking effect, in 2024;

Delaware, Tennessee, Iowa, Maryland, Minnesota, New Hampshire, Nebraska, New Jersey and Tennessee have enacted similar legislation that will take effect in 2025;

and Indiana and Kentucky have enacted similar legislation that will become effective in 2026.

Among other emerging laws relating to privacy and data protection globally, India has released its Digital Personal Data Protection Act 2023, although the full scope of the implementation remains uncertain.

Florida, Montana, Oregon, and Texas have enacted similar legislation that took effect in 2024;

Delaware, Tennessee, Iowa, Maryland, Minnesota, New Hampshire, Nebraska, New Jersey and Tennessee have enacted similar legislation effective, or taking effect in 2025;

and Indiana, Rhode Island and Kentucky have enacted similar legislation that will become effective in 2026.

Among other emerging laws relating to privacy and data protection globally, India has released its Digital Personal Data Protection Act 2023, India’s Ministry of Electronics and Information Technology has published Draft Digital Personal Data Protection Rules for public comment on January 3, 2025, addressing various matters under this law, but the full scope of the implementation remains uncertain.

We maintain an employee and operational presence in India, and this act may require us to modify our policies and practices and incur increased costs in our efforts to comply.

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Laws and regulations applicable to AI continue to develop and may be inconsistent from jurisdiction to jurisdiction.

For example, the European Union has adopted on an Artificial Intelligence Act that, when effective, prohibits certain AI applications and systems and imposes additional requirements on the use of certain applications or systems.

For example, the European Union has adopted on an Artificial Intelligence Act that, when effective, prohibits certain AI applications and systems and imposes additional requirements on the

use of certain applications or systems.

Additionally, some U.S.

states have proposed, and in certain cases enacted, legislation addressing aspects of the use and deployment of AI.

The use of AI technologies in new or existing products may result in new or enhanced governmental or regulatory scrutiny, new or modified laws or regulations, claims, demands, and litigation, confidentiality, privacy, data protection, or security risks, ethical concerns, or other complications that could adversely affect our business, financial condition, results of operations and prospects.

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If we were to fail to comply with the applicable export control laws, customs regulations, economic sanctions or other applicable laws, we could be subject to monetary damages or the imposition of restrictions which could be material to our business, operating results and prospects and could also harm our reputation.

Further, there could be criminal

penalties for knowing or willful violations, including incarceration for culpable employees and managers.

Further, there could be criminal penalties for knowing or willful violations, including incarceration for culpable employees and managers.

Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.

Furthermore, certain export control and economic sanctions laws prohibit the shipment of certain products, technology, software and services to embargoed countries and sanctioned governments, entities, and persons.

For example, in addition to the controls imposed on China, following Russia’s invasion of Ukraine, the United States and other countries imposed restrictions on the import to the US of raw materials and goods from Russia and certain economic sanctions and severe export control restrictions against Russia, Belarus and regions of Ukraine as well as certain Russian nationals and entities which required us, in many cases, to terminate business relationships in those countries.

These sanctions and restrictions have continued to increase as the conflict has further escalated, and the United States and other countries could impose wider sanctions and export restrictions as well as prohibitions on the import into the United States of additional raw materials from Russia and take other actions in the future that could further impact our business.

For example, following Russia’s invasion of Ukraine, the United States imposed restrictions on the import to the US of raw materials and goods from Russia and certain economic sanctions and export control restrictions against Russia, Belarus, regions of Ukraine, and certain Russian nationals and entities which required us, in many cases, to terminate business relationships in those countries.

These sanctions and restrictions have continued to increase as the conflict has further escalated, and the United States and other countries could impose wider sanctions, export restrictions, and import prohibitions or take other actions in the future that could further impact our business.

government also continues to add additional entities, from China and elsewhere, to restricted party lists impacting the ability of U.S.

companies to provide products, and in certain cases services, to these entities and, in some cases, receive products or services from these entities.

Additionally, the U.S.

In 2023 and 2024, the U.S.

Proposed Regulations further expanding the controls to impose a worldwide licensing requirement on certain integrated circuits and computing resources that are used for training of AI models are currently in effect and have a scheduled compliance date of May 15, 2025, after which time companies may be subject to further enforcement;

as of May 2025, it is unclear whether or how the U.S.

government may amend these regulations.

government also continues to expand the scope of restrictions on the development or production of advanced integrated circuits and certain semiconductor manufacturing equipment, and the restrictions on supercomputing, in China and other countries.

Other foreign governments may in turn impose similar or more restrictive controls.

These controls or any additional restrictions may impact our ability to export certain products to China or other countries, prohibit us from selling our products to certain of our customers, restrict our ability to use certain ICs in our products, or impact our suppliers who may utilize facilities or equipment described in these controls.

It also is possible that the Chinese government will retaliate to these export controls in ways that could impact our business.

China also has announced a new export control regime.

Further, the Chinese government has responded to U.S.

actions by adding U.S.

entities to an unreliable entity list, which limits the ability of companies on the list to engage in business with Chinese customers.

These restrictions could disrupt the ability of China to produce semiconductors and other electronics and impact our ability to source components from China and could impact the cost of components or inputs used to produce our products.

Any deterioration in relations between Taiwan and China could lead to additional sanctions or export controls on China, on specific individuals or entities, or otherwise in the region which could impact our ability to sell to certain of our customers, source components from China, or otherwise negatively impact our business.

The United States may also continue to leverage the use of “secondary tariffs” and/or “secondary sanctions” to achieve certain foreign policy goals, or increase its enforcement of such tools, which may directly or indirectly affect our business (see also the “Escalating U.S.

tax, tariff, import/export restrictions, and other trade or regulatory barriers, as well as countermeasures taken by affected countries, may have a negative effect on global economic conditions, financial markets and our business” risk factor above).

Even though we take precautions to ensure that we and our channel partners comply with all relevant regulations, any failure by us or our channel partners to comply with such regulations could have negative consequences, including reputational harm, government investigations and penalties.

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The trading price of our common stock has historically been and is likely to continue to be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

These fluctuations could cause you to lose all or part of your investment in our common stock.

Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, forward-looking statements related to future revenue, gross margins and earnings per share, changes or decreases in our growth rate, manufacturing, supply or distribution shortages or constraints, ratings changes by securities analysts, actual or anticipated announcements of new products by our company or our competitors, litigation, actual or anticipated changes or fluctuations in our results of operations, regulatory developments, repurchases of our common stock, departures of key executives, the financial results or financial projections of our large customers, major catastrophic events, macroeconomic factors including changes in the U.S.

presidential administration, inflation and interest rate fluctuations and other broad market and industry fluctuations.

These fluctuations could

cause you to lose all or part of your investment in our common stock.

In addition, although the trading price of our common stock has increased significantly in recent years, it is uncertain to continue to increase at the same rate and it may decrease in the future.

Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, forward-looking statements related to future revenue, gross margins and earnings per share, changes or decreases in our growth rate, manufacturing, supply or distribution shortages or constraints, the decline in purchases from any of our large customers or the degradation in our relationships with any of our material vendors or partners, ratings changes by securities analysts, actual or anticipated announcements of new products by our company or our competitors, developments in the markets in which we operate, both in the U.S.

and globally, litigation, actual or anticipated changes or fluctuations in our results of operations, regulatory developments, repurchases of our common stock, departures of key executives, the financial results or financial projections of our large customers, major catastrophic events, macroeconomic factors including changes in government administration, international trade tensions, inflation and interest rate fluctuations and other broad market and industry fluctuations.

In addition, technology stocks have historically experienced high levels of volatility and, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the market price of our common stock could decline for reasons unrelated to our business, financial condition, results of operations and prospects.

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This could have a material adverse effect on our business, financial condition, results of operations and prospects.

We have adopted a stock repurchase program to repurchase shares of our common stock;

however, any future decisions to reduce or discontinue repurchasing our common stock pursuant to such stock repurchase program could cause the market price of our common stock to decline.

Although our board of directors has authorized a stock repurchase program, any determination to execute stock repurchases will be subject to, among other things, our financial position and results of operations, available cash and cash flow, capital requirements, market and business conditions, stock price, acquisition opportunities and other factors, as well as our board of director’s continuing determination that the repurchase program is in the best interests of our shareholders and is in compliance with all laws and agreements applicable to the repurchase program.

Our stock repurchase program does not obligate us to acquire any common stock.

We have adopted stock repurchase programs to repurchase shares of our common stock;

however, any future decisions to reduce or discontinue repurchasing our common stock pursuant to such stock repurchase programs could cause the market price of our common stock to decline.

Although our board of directors has authorized stock repurchase programs, any determination to execute stock repurchases will be subject to, among other things, our financial position and results of operations, available cash and cash flow, capital requirements, market and business conditions, stock price, acquisition opportunities and other factors, as well as our board of director’s continuing determination that the repurchase programs are in the best interests of our shareholders and is in compliance with all laws and agreements applicable to the repurchase programs.

Our stock repurchase programs do not obligate us to acquire any common stock.

If we fail to meet any expectations related to stock repurchases, the market price of our common stock could decline, and could have a material adverse impact on investor confidence.

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We may further increase or decrease the amount of repurchases of our common stock in the future.

Any reduction or discontinuance by us of repurchases of our common stock pursuant to our current stock repurchase program could cause the market price of our common stock to decline.

As part of the Inflation Reduction Act of 2022 signed into law in August 2022, the United States implemented a 1% excise tax on the value of certain stock repurchases by publicly traded companies.

This tax could increase the costs to us of any share repurchases, which could reduce the number of shares we repurchase.

Any reduction or discontinuance by us of repurchases of our common stock pursuant to our current stock repurchase programs could cause the market price of our common stock to decline.

Moreover, in the event repurchases of our common stock are reduced or discontinued, our failure or inability to resume repurchasing common stock at historical levels could result in a lower market valuation of our common stock.

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Our directors, executive officers and each of our stockholders who own greater than 10% of our outstanding common stock together with their affiliates, in the aggregate, beneficially own approximately 17.9% of the outstanding shares of our

common stock, based on shares outstanding as of September 30, 2024.

common stock, based on shares outstanding as of March 31, 2025.

As a result, these stockholders, if acting together, could exercise a significant level of influence over matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions.

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Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel, particularly software engineering and sales personnel.

In addition, we are expanding internationally and into adjacent markets including the enterprise market, which requires a significant investment of time, effort and financial resources into hiring and training our sales force to address these markets.

In addition, we are expanding internationally and into adjacent markets including the enterprise and AI market, which requires a significant investment of time, effort and financial resources into hiring and training our sales force to address these markets.

If we do not effectively train our direct sales force, we may be unable to add new customers, increase sales to our existing customers, or successfully expand into new markets.

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In addition, climate change may result in greater frequency and severity of natural disasters.

A significant natural disaster, such as an earthquake, tsunami, fire or a flood, or other catastrophic event such as the COVID-19 pandemic or other disease outbreak, could have a material adverse effect on our or their business, which could in turn materially affect our financial condition, results of operations and prospects.

A significant natural disaster, such as an earthquake, tsunami, fire or a flood, or other catastrophic event or disease outbreak, could have a material adverse effect on our or their business, which could in turn materially affect our financial condition, results of operations and prospects.

These events could result in manufacturing and supply chain disruptions, shipment delays, order cancellations, and sales delays which could result in missed financial targets.

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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-Q

Item 1A. Risk Factors