What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-08 compared with 2020-03-10 · 385 added, 351 removed, 663 unchanged (53% of the section changed)

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Consolidated Statements of Operations for the years ended December 31, 20 20 , 201 9 and 20 18

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income ( Loss ) for the years ended December 31, 20 20 , 201 9 and 20 18

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 20 20 , 201 9 and 20 18

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of A10 Networks, Inc.

To the Board of Directors and Stockholders of A10 Networks, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of A10 Networks, Inc.

and subsidiaries (the Company) as of December 31, 2019 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2020 and 2019 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the two years ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the two years ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

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2016-02, Leases (Topic 842).

Basis for Opinion

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved especially challenging, subjective, or complex judgments.

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

Revenue Recognition — Refer to Note 1 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

• Determination of multiple performance obligations and the transaction price allocated to each distinct performance obligation based on the relative standalone selling price

• Determination whether the identified performance obligations are distinct

• Estimation and utilization of a variety of complex assumptions in estimating standalone selling prices, including market conditions, estimates on the size and/or volume of the customer, and geographical factors

Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the following:

• We tested the design and operating effectiveness of controls relating to the revenue recognition process, including controls related to the process of identifying distinct performance obligations, in determining standalone selling prices and in allocating the transaction price to the distinct performance obligations

• We selected a sample of customer agreements and performed the following procedures:

◦ Obtained and read contract source documents for each selection, including master agreements, and other documents that were part of the agreement

◦ Tested management’s identification of all distinct performance obligations, including management’s allocation of the transaction price to each distinct performance obligation

◦ Tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized

◦ Assessed the accuracy and completeness of the underlying data used in management's determination of the relative standalone selling prices

◦ Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition

/s/ Armanino LLP

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of A10 Networks, Inc.

and subsidiaries (the “Company”) as of December 31, 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows of A10 Networks, Inc.

and subsidiaries (the “Company”) for the year ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

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These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/S/ DELOITTE & TOUCHE LLP

San Jose, California

March 15, 2019

March 15, 2019 (date of initial issuance)

We have served as the Company’s auditor since 2011.

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(in thousands, except par value)

2020 December 31,

Current assets:

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Accounts receivable, net of allowances of $41 and $52, respectively 51,051 53,566

Inventory 20,730 22,384

Prepaid expenses and other current assets 12,390 15,067

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Property and equipment, net 7,888 7,656

Goodwill 1,307 1,307

Intangible assets 862 2,305

Other non-current assets 38,451 41,846

Total assets $ 290,811 $ 274,053

LIABILITIES AND STOCKHOLDERS’ EQUITY

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76,346 and 77,580 shares issued and outstanding, respectively 1 1

Treasury stock, at cost:

5,578 and 678 shares, respectively ( 37,410 ) ( 4,870 )

Additional paid-in-capital 425,534 403,470

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income 98 251

Accumulated deficit ( 272,249 ) ( 290,065 )

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Years Ended December 31,

2020 2019 2018

Products $ 129,876 $ 121,920 $ 144,682

Services 95,651 90,708 87,541

Total revenue 225,527 212,628 232,223

Cost of revenue:

Products 29,109 29,816 34,066

Services 21,039 19,065 17,830

Total cost of revenue 50,148 48,881 51,896

Gross profit 175,379 163,747 180,327

Operating expenses:

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Total operating expenses 157,646 180,841 208,006

Loss from operations

Income (loss) from operations 17,733 ( 17,094 ) ( 27,679 )

Non-operating income (expense):

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Interest and other income, net 1,407 919 1,273

Total non-operating income (expense), net

Loss before income taxes

Total non-operating income, net 1,406 682 1,144

Income (loss) before income taxes 19,139 ( 16,412 ) ( 26,535 )

Provision for income taxes 1,323 1,407 1,082

Net loss per share:

Basic and diluted

Weighted-average shares used in computing net loss per share:

Basic and diluted

Net income (loss) $ 17,816 $ ( 17,819 ) $ ( 27,617 )

Net income (loss) per share:

Basic $ 0.23 $ ( 0.23 ) $ ( 0.38 )

Diluted $ 0.22 $ ( 0.23 ) $ ( 0.38 )

Weighted-average shares used in computing net income (loss) per share:

Basic 77,776 76,080 72,882

Diluted 80,019 76,080 72,882

See accompanying notes to consolidated financial statements.

A10 NETWORKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Years Ended December 31,

Other comprehensive loss, net of tax:

2020 2019 2018

Net income (loss) $ 17,816 $ ( 17,819 ) $ ( 27,617 )

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on marketable securities ( 153 ) 395 ( 21 )

Comprehensive loss

Comprehensive income (loss) $ 17,663 $ ( 17,424 ) $ ( 27,638 )

See accompanying notes to consolidated financial statements.

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(in thousands)

Additional Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

Common Stock Treasury stock, at cost Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

Shares Amount

Balance at December 31, 2017 71,692 $ 1 $ ( 4,870 ) $ 360,403 $ ( 123 ) $ ( 257,025 ) $ 98,386

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Common stock issued under employee equity incentive plans 2,609 — — 3,701 — — 3,701

Vesting of early exercise stock options

Repurchase and retirement of common stock

Unrealized loss on marketable securities, net of tax — — — — ( 21 ) — ( 21 )

Net loss — — — — — ( 27,617 ) ( 27,617 )

Balance at December 31, 2018 74,301 1 ( 4,870 ) 381,142 ( 144 ) ( 272,246 ) 103,883

Cumulative effect adjustment from adoption of ASU 2014-09

Stock-based compensation expense — — — 16,529 — — 16,529

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Unrealized loss on marketable securities, net of tax — — — — 395 — 395

Net loss — — — — — ( 17,819 ) ( 17,819 )

Balance at December 31, 2019 77,580 1 ( 4,870 ) 403,470 251 ( 290,065 ) 108,787

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Common stock issued under employee equity incentive plans 3,666 — — 9,591 — — 9,591

Unrealized loss on marketable securities, net of tax

Repurchase of common stock ( 4,900 ) — ( 32,540 ) — — — ( 32,540 )

Unrealized gain on marketable securities, net of tax — — — — ( 153 ) — ( 153 )

Net Income — — — — — 17,816 17,816

Balance at December 31, 2020 76,346 $ 1 $ ( 37,410 ) $ 425,534 $ 98 $ ( 272,249 ) $ 115,974

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Years Ended December 31,

2020 2019 2018

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Net income (loss) $ 17,816 $ ( 17,819 ) $ ( 27,617 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 11,303 10,028 7,880

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Accounts receivable 2,346 599 ( 6,119 )

Inventory 543 ( 5,648 ) ( 1,529 )

Prepaid expenses and other assets 1,141 ( 452 ) ( 2,434 )

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Deferred revenue 7,535 3,198 7,331

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities 55,286 ( 426 ) ( 2,694 )

Cash flows from investing activities:

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Purchases of property and equipment ( 3,564 ) ( 4,340 ) ( 2,797 )

Net cash used in investing activities

Net cash provided by (used in) investing activities 5,202 ( 251 ) ( 6,876 )

Cash flows from financing activities:

Proceeds from issuance of common stock under employee equity incentive plans 9,591 5,799 3,701

Repurchases and retirement of common stock

Payment of contingent consideration

Net cash provided by financing activities

Repurchases of common stock ( 32,540 ) — —

Other — ( 1 ) ( 77 )

Net cash provided by (used in) financing activities ( 22,949 ) 5,798 3,624

Net increase (decrease) in cash and cash equivalents 37,539 5,121 ( 5,946 )

Cash and cash equivalents - beginning of period

Cash and cash equivalents - end of period

Cash and cash equivalents - beginning of year 45,742 40,621 46,567

Cash and cash equivalents - end of year $ 83,281 $ 45,742 $ 40,621

Supplemental Disclosures:

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Purchases of property and equipment included in accounts payable $ 58 $ 10 $ 58

Vesting of early exercised stock options

See accompanying notes to consolidated financial statements.

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We are a leading provider of secure application solutions and services that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures.

Our product portfolio seeks to address many of the aforementioned challenges and solution requirements.

Our product portfolio seeks to address many of the cyber protection challenges and solution requirements.

The portfolio consists of six secure application solutions;

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Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation in the consolidated revenues by geographic region in Note 12 .

Certain prior year amounts have been reclassified to conform to current year presentation in the consolidated revenues by geographic region in Note 12 Geographic Information, in the notes to consolidated financial statements.

We have combined in the “Americas” region, revenues from the United States with revenues from Latin America.

A portion of the prior period balance for Additional paid-in capital on the Company’s consolidated balance sheet as of December 31, 2019 has been reclassified to Treasury stock, at cost, to conform to the current period presentation.

This reclassification did not have a material impact on the previously reported financial statements.

Use of Estimates

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We may sell these investments at any time before their maturities.

Accordingly, we classified our securities, including those with maturities exceeding twelve months, as current assets and included in marketable securities on the consolidated balance sheets.

Unrealized gains and losses are reported in accumulated other comprehensive loss, net of taxes, in stockholders’ equity.

Accordingly, we classified our securities, including those with maturities exceeding twelve months, as current assets and included in marketable securities in the consolidated balance sheets.

Unrealized gains and losses are reported in accumulated other comprehensive income (loss), net of taxes, in the consolidated statements of stockholders’ equity.

Realized gains and losses are determined based on the specific identification method.

Realized gains and losses and other-than-

temporary impairment charges, if any, on marketable securities are reported in interest and other income (expense), net as incurred in the consolidated statements of operations.

Realized gains and losses and other-than-temporary impairment charges, if any, on marketable securities are reported in interest and other income, net as incurred in the consolidated statements of operations.

We regularly review our investment portfolio to identify and evaluate investments that have indicators of possible impairment.

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Depreciation is computed using the straight-line method over the estimated useful lives of the related assets.

Depreciation on property and equipment, excluding leasehold improvements, ranges from 1 to 3 years.

Depreciation on property and equipment, excluding leasehold improvements, ranges from one to three years .

Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term.

Amortization on leasehold improvements ranges from 2 to 8 years.

Amortization on leasehold improvements ranges from one to seven years .

The Company determines if an arrangement is a lease at inception.

For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and are included within other non-current assets on the consolidated balance sheets, and the lease liabilities represent an obligation to make lease payments arising from the lease and are recorded within accrued liabilities and other non-current liabilities on the consolidated balance sheets.

For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and are included within other non-current assets in the consolidated balance sheets, and the lease liabilities represent an obligation to make lease payments arising from the lease and are recorded within accrued liabilities and other non-current liabilities in the consolidated balance sheets.

Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term.

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If, after assessing the qualitative factors, we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying value, an impairment analysis will be performed.

We compare the fair value of our reporting unit with its carrying amount and if the carrying value of the reporting unit exceeds its fair value, an impairment loss will be recognized.

We compare the fair value of our reporting unit with its carrying amount and if the carrying value of the reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill.

We did not identify impairment of goodwill for any periods presented.

See the Recently Adopted Accounting Pronouncements section below for a discussion on the adoption of ASU 2017-04 in January 2020, which simplifies the goodwill impairment review process.

Intangible Assets

Intangible assets are recorded at fair value and amortized on a straight-line basis over their estimated useful lives, which range from 5 to 11 years.

We did not have impairment of intangible assets during the years ended December 31, 2019 , 2018 and 2017 .

We evaluate our intangible assets for impairment at least annually and when indicators of impairment may exist.

There were no impairment charges to our intangible assets during the years ended December 31, 2020, 2019 and 2018.

Impairment of Long-Lived Assets

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Revenue Recognition

We recognize revenue when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services.

We recognize revenue, net of applicable taxes, when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services.

We derive revenue from two sources:

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A substantial portion of our revenue is from sales of our products and services through distribution channel partners, such as resellers and distributors.

Revenue is recognized, net of applicable taxes, upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products or services.

We apply the following five-step revenue recognition model:

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PCS is offered under renewable, fee-based contracts, which include technical support, hardware repair and replacement parts, bug fixes, patches, and unspecified upgrades on a when-and-if available basis.

Revenue for PCS services is recognized on a straight-line basis over the service contract term, which is typically one year, but can be up to five years as there is no discernable pattern of transfer related to these promises.

Revenue for PCS services is recognized on a straight-line basis over the service contract term, which is typically one year, but can be up to five years as there is no discernible pattern of transfer related to these promises.

Billed but unearned PCS revenue is included in deferred revenue.

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Deferred commissions that will be recognized during the succeeding 12-month period are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other non-current assets.

Amortization of deferred commissions is included in sales and marketing expense.

Amortization of deferred commissions is included in sales and marketing expense in the consolidated statements of operations.

Research and Development Costs

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We expense research and development costs as incurred.

Capitalization of Internally Developed Software to be Marketed and Sold

In the first quarter of 2020, we began capitalizing software engineering labor costs related to certain long-term projects that are expected to take more than a year to complete.

We account for the capitalization of labor costs under ASC Topic 985-20, Software to be Sold, Leased or Marketed .

During the year ended December 31, 2020, capitalized labor costs totaled $ 1.6 million and is included in property and equipment in the consolidated balance sheets.

Stock-Based Compensation

Stock-based compensation expense is measured on the grant date based on the fair value of the award and recognized on a straight-line basis over the requisite service period, reduced for actual forfeitures.

The fair values of restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) are estimated using our stock price on the grant date.

The fair values of restricted stock units (“RSUs”) are estimated using our stock price on the grant date.

The fair value of options and employee stock purchase rights is estimated using the Black-Scholes model on the grant date.

The Black-Scholes model determines the fair value of share-based payment awards based on assumptions including expected term, stock price volatility, and risk-free interest rate.

The fair value of market-performance based restricted stock units (“MSUs”) is valued using the Monte Carlo simulation model, which uses the stock price, expected volatility and risk-free interest rate to determine the fair value.

The fair value of market performance-based restricted stock units (“PSUs”) is valued using the Monte Carlo simulation model, which uses the stock price, expected volatility and risk-free interest rate to determine the fair value.

Warranty Costs

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Non-functional currency monetary assets and liabilities are remeasured to the functional currency using the exchange rate in effect at the balance sheet date, and non-monetary assets and liabilities are remeasured at historical exchange rates.

Gains and losses related to remeasurement are recorded in interest and other income (expense), net in the consolidated statements of operations.

Gains and losses related to remeasurement are recorded in interest and other income, net in the consolidated statements of operations.

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or in our tax returns.

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An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained upon examination by taxing authorities.

The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

The provision for income taxes excludes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Advertising Costs

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Segment Information

An operating segment is a component of an enterprise for which its discrete financial information is available and its operating results are regularly reviewed by chief operating decision maker for resource allocation decisions and performance assessment.

An operating segment is a component of an enterprise for which its discrete financial information is available and its operating results are regularly reviewed by our chief operating decision maker for resource allocation decisions and performance assessment.

Our chief operating decision maker is our Chief Executive Officer.

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We rely on third parties to manufacture our hardware appliances and we purchase raw materials from third-party vendors.

We outsourced substantially all of our manufacturing services to three independent manufacturers.

We outsource substantially all of our manufacturing services to three independent manufacturers.

In addition, we purchase certain strategic component inventory which is consigned to our third-party manufacturers.

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We generally do not require our customers to provide collateral to support accounts receivable.

Significant customers, including distribution channel partners and direct customers, are those which represent 10% or more of our total revenue for each period presented or our gross accounts receivable balance as of each respective balance sheet date.

Significant customers, including distribution channel partners and direct customers (“end-customers”), are those which represent 10% or more of our total revenue for each period presented or our gross accounts receivable balance as of each respective balance sheet date.

Revenues from our significant customers as a percentage of our total revenue are as follows:

Years Ended December 31,

2020 2019 2018

Customer A (a distribution channel partner) * * 14 %

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Customer C (a distribution channel partner) * 14 % *

Customer D (a distribution channel partner) 10 % * *

* represents less than 10% of total revenue

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As of December 31, 2019, two customers accounted for 17 % and 12 % of our total gross accounts receivable.

Recently Adopted Accounting Guidance

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2017-09, Compensation-Stock Compensation (Topic 718):

Scope of Modification Accounting , to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.

This standard is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period.

The amendments will be applied prospectively to an award modified on or after the adoption date.

The adoption of ASU 2017-09 on January 1, 2018 did not impact our consolidated financial statements or disclosures.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606), as subsequently amended, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition .

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This ASU also includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the capitalization of incremental customer acquisition costs and amortization of these costs over the contract period or estimated customer life which resulted in the recognition of a deferred commission asset on our consolidated balance sheet.

We adopted ASU 2014-09 and its related amendments (collectively “ASC 606”) on January 1, 2018 using the modified retrospective method.

See Note 2 for disclosure on the impact of adopting this standard.

In March 2018, the FASB issued ASU No.

2018-05, Income Taxes (Topic 740) :

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No.

These amendments add SEC guidance to the FASB Accounting Standards Codification regarding the Tax Cuts and Jobs Act pursuant to the issuance of SAB 118.

The amendments are effective upon addition to the FASB Codification.

See Note 11 of this report for disclosures related to the effect of the Tax Cuts and Jobs Act and our utilization of SAB 118.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and subsequent amendments to the initial guidance, in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior generally accepted accounting principles.

ASU 2016-02, as amended, requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset (“ROU”) representing its right to use the underlying asset for the lease term on the balance sheet.

The Company adopted ASU No.

2014-09 and its related amendments (collectively “ASC 606”) on January 1, 2018 using the modified retrospective method.

See Note 2 Revenue, for disclosure on the impact of adopting this standard.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842), and subsequent amendments to the initial guidance, in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior generally accepted accounting principles.

2016-02, as amended, requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset (“ROU”) representing its right to use the underlying asset for the lease term on the balance sheet.

The Company adopted the standard effective January 1, 2019, using the modified retrospective method, which resulted in the recognition of right-of-use assets of approximately $ 6.0 million and lease liabilities for operating leases of approximately $ 6.8 million on the Company’s consolidated balance sheets, with no material impact to its consolidated statements of operations.

See Note 5 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's consolidated financial statements.

Recent Accounting Pronouncements Not Yet Effective

Effective January 1, 2020, the Company will adopt ASU No.

See Note 5 Leases, for further information regarding the impact of the adoption of ASU No.

2016-02 on the Company's consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No.

2016-13, Financial Instruments-Credit Losses :

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This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than by reducing the carrying amount under the current, other-than-temporary-impairment model.

The Company does not expect the adoption of ASU 2016-13 to have a significant impact on its consolidated financial statements.

Effective January 1, 2020, the Company will adopt ASU No.

2018-13, Fair Value Measurement (Topic 820 - Changes to the Disclosure Requirements for the Fair Value Measurement) .

Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The guidance is effective for all entities for fiscal years beginning after December 15 December 2019 and for interim periods within those fiscal years.

The Company does not expect the new guidance to have a significant impact on its consolidated financial statements.

The adoption of ASU 2016-13 did not have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).

ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”).

As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

In January 2020, the Company adopted ASU 2017-04, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In March 2018, the FASB issued ASU No.

2018-05, Income Taxes (Topic 740) :

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (“SAB”) No.

These amendments add SEC guidance to the FASB Accounting Standards Codification regarding the Tax Cuts and Jobs Act pursuant to the issuance of SAB 118.

The amendments are effective upon addition to the FASB Codification and did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No.

2018-13, Fair Value Measurement (Topic 820 - Changes to the Disclosure Requirements for the Fair Value Measurement) (“ASU 2018-13”).

Under ASU 2018-13, entities will no longer

be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.

The adoption of ASU 2018-13 did not have a significant impact on the Company’s consolidated financial statements.

In November 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The amendments in this update improve consistent application of and simplify U.S.

GAAP for Topic 740 by clarifying and amending existing guidance for, among other items, intra-period allocation, reporting tax law changes and losses in interim periods, state and local taxes not fully based on income and recognition of deferred tax liability related to certain transactions.

There is also new guidance related to consolidated group reporting and tax impacts resulting from business combinations.

The guidance is effective for public entities for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years.

The Company adopted this guidance effective January 1, 2021 and does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In October 2020, the FASB issued ASU No.

2020-10, Codification Improvements .

The amendments in this ASU improve the consistency of the codification and reorganize the guidance into appropriate sections providing less opportunities for disclosures to be missed.

The amendments in this update do not change GAAP and are not expected to result in a significant change in practice.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The Company adopted this guidance on January 1, 2021 and does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

ASC 606 Adoption Impact

On January 1, 2018, we adopted ASC 606 applying the modified retrospective method.

We recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of accumulated deficit as of the adoption date.

We applied ASC 606 to all contracts that were not completed at the date of initial application.

On January 1, 2018, the Company adopted ASC 606 applying the modified retrospective method.

The Company recognized the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of accumulated deficit as of the adoption date.

The Company applied ASC 606 to all contracts that were not completed at the date of initial application.

Comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods.

In connection with the adoption of ASC 606, we also adopted ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer.

Collectively, we refer to ASC 606 and ASC 340-40 as the “new standard.”

Adoption of the new standard resulted in changes to our accounting policies for revenue recognition, commissions expense and deferred commissions as discussed below.

We recorded a reduction to opening accumulated deficit of $12.4 million as of January 1, 2018 due to the cumulative impact of adopting the new standard as follows:

In connection with the adoption of ASC 606, the Company also adopted ASC No.

340-40, Other Assets and Deferred Costs - Contracts with Customers , which requires the deferral of incremental costs of obtaining a contract with a customer.

Collectively, ASC No.

606 and ASC No.

340-40 are referred to as the “new standard.”

Adoption of the new standard resulted in changes to the Company’s accounting policies for revenue recognition, commissions expense and deferred commissions as discussed below.

The Company recorded a reduction to opening accumulated deficit of $ 12.4 million as of January 1, 2018 due to the cumulative impact of adopting the new standard as follows:

• A decrease in total deferred revenue of $ 4.0 million primarily due to the removal of the limitation on contingent revenue that would have accelerated revenue recognition for certain of our historical revenue contracts;

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Impact on the Consolidated Financial Statements

The following tables summarize the impact of the new standard on our consolidated balance sheet and consolidated statement of operations for the period presented:

Selected Consolidated Balance Sheet Line Items

December 31, 2018

(in thousands)

Increase (Decrease)

Balance Without Adopting the New Standard

Prepaid expenses and other current assets

Other non-current assets

Deferred revenue, current

Deferred revenue, non-current

Stockholders' Equity

Accumulated deficit

The following table summarize the impact of ASC 606 on the Company’s Consolidated Statement of Operations for the year ended December 31, 2018:

Selected Consolidated Statement of Operations Line Items

Year Ended December 31, 2018

(in thousands, except per share amounts)

(in thousands, except per share amounts) As Reported Adjustments

Increase (Decrease)

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Total revenue 232,223 ( 2,594 ) 229,629

Gross profit 180,327 ( 2,594 ) 177,733

Sales and marketing 103,214 1,345 104,559

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Loss from operations ( 27,679 ) ( 3,939 ) ( 31,618 )

Net loss ( 27,617 ) ( 3,939 ) ( 31,556 )

Basic and diluted net loss per share $ ( 0.38 ) $ ( 0.43 )

Changes in Accounting Policies

Revenue Recognition

We derive revenue from two sources:

(i) products revenue, which includes hardware, perpetual software license and subscription revenue;

and (ii) services revenue, which includes post contract support (“PCS”), professional services, and training.

A substantial portion of our revenue is from sales of our products and services through distribution channel partners, such as resellers and distributors.

We apply the following five-step revenue recognition model:

Identification of the contract, or contracts, with a customer

Identification of the performance obligations in the contract

Determination of the transaction price

Allocation of the transaction price to the performance obligations in the contract

Recognition of revenue when, or as, performance obligations are satisfied.

PCS revenue includes arrangements for software support and technical support for our products.

Billed but unearned PCS revenue is included in deferred revenue.

Professional service revenue primarily consists of the fees we earn related to installation and consulting services.

We recognize revenue from professional services upon delivery or completion of performance.

Professional service arrangements are typically short term in nature and are largely completed within 30 to 90 days from the start of service.

Revenue is recognized for training when the training course is delivered.

Contracts with Multiple Performance Obligations

Most of our contracts with customers, other than renewals of PCS, contain multiple performance obligations with a combination of products and PCS.

Products and PCS generally qualify as distinct performance obligations.

Our hardware includes embedded ACOS software, which together deliver the essential functionality of our products.

For contracts which contain multiple performance obligations, we allocate revenue to each distinct performance obligation based on the standalone selling price (“SSP”).

Judgment is required to determine the SSP for each distinct performance obligation.

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

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

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

We account for multiple contracts with a single partner as one arrangement if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single contract.

We may occasionally accept returns to address customer satisfaction issues even though there is generally no contractual provision for such returns.

We estimate returns for sales to customers based on historical returns rates applied against current-period shipments.

Specific customer returns and allowances are considered when determining our sales return reserve estimate.

Our policy applies to the accounting for individual contracts.

However, we have elected a practical expedient to apply the guidance to a portfolio of contracts or performance obligations with similar characteristics so long as such application would not differ materially from applying the guidance to the individual contracts (or performance obligations) within that portfolio.

Consequently, we have chosen to apply the portfolio approach when possible, which we do not believe will happen frequently.

Additionally, we will evaluate a portfolio of data, when possible, in various situations, including accounting for commissions, rights of return and transactions with variable consideration.

We report revenue net of sales taxes.

We include shipping charges billed to customers in revenue and the related shipping costs are included in cost of product revenue.

Contract Balances

The following table reflects contract balances with customers (in thousands):

Balance Sheet Line Reference

December 31, 2019

December 31, 2018

Balance Sheet Line Reference December 31, 2020 December 31, 2019

Accounts receivables, net $ 51,051 $ 53,566

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Deferred revenue, non-current 42,700 38,931

We receive payments from customers based upon billing cycles.

Invoice payment terms are usually ranging from 30 to 90 days.

The Company receives payment from customers based upon billing cycles.

Invoice payment terms typically range from 30 to 90 days.

Accounts receivable are recorded when the right to consideration becomes unconditional.

Contract assets include amounts related to our contractual right to consideration for performance obligations not yet billed and are included in prepaid and other current assets in the consolidated balance sheets.

The contract assets amount is immaterial as of December 31, 2019 and 2018.

Deferred revenue primarily consists of amounts that have been invoiced but not yet been recognized as revenue and consists of performance obligations pertaining to support and subscription services.

During the years ended December 31, 2019 and 2018, we recognized revenue of $ 63.2 million and $60.2 million , related to deferred revenue at the beginning of the period.

Contract assets include amounts related to the Company’s contractual right to consideration for performance obligations not yet billed, and are included in prepaid and other current assets in the Company’s Consolidated Balance Sheets.

The contract assets amount was immaterial as of December 31, 2020 and 2019.

Deferred revenue primarily consists of amounts that have been invoiced but not yet recognized as revenue and consists of performance obligations pertaining to support and subscription services.

During the years ended December 31, 2020 and 2019, the Company recognized revenue of $ 61.8 million and $ 63.2 million, respectively, related to deferred revenue at the beginning of the period.

Deferred revenue consisted of the following (in thousands):

2020 December 31,

Deferred revenue:

Products $ 7,358 $ 6,593

Services 101,341 94,571

Total deferred revenue 108,699 101,164

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Deferred Contract Acquisition Costs

As of December 31, 2019 , current and non-current portions of deferred contract acquisition costs were $6.2 million and $3.3 million, respectively, and related amortization was $7.4 million for the year ended December 31, 2019.

As of December 31, 2018, current and non-current portions of deferred contract acquisition costs were $6.6 million and $3.2 million , respectively, and the related amortization amount was $4.9 million for the year ended December 31, 2018.

For the years ended December 31, 2019 and 2018, we had no impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets.

As of December 31, 2020, the current and non-current portions of deferred contract acquisition costs totaled $ 5.3 million and $ 3.7 million, respectively, and the related amortization was $ 6.5 million for the year ended December 31, 2020.

As of December 31, 2019, the current and non-current portions of deferred contract acquisition costs totaled $ 6.2 million and $ 3.3 million, respectively, and the related amortization was $ 7.4 million for the year ended December 31, 2019.

For the years ended December 31, 2020, 2019 and 2018, the Company had no impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations, which includes deferred revenues and amounts that will be invoiced and recognized as revenues in future periods.

We expect to recognize revenue on the remaining performance obligations as follows (in thousands):

Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations, which include deferred revenues and amounts that will be invoiced and recognized as revenues in future periods.

The Company expects to recognize revenue on the remaining performance obligations as follows (in thousands):

December 31, 2020

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Next 2 to 3 years 32,824

Thereafter 9,876

Total $ 108,699

Restructuring

In October 2019, the Company began implementing a restructuring plan in its ongoing efforts to reduce operating costs and focus on advanced technologies.

The restructuring plan, when complete, is expected to result in a workforce reduction of approximately 5% of the Company’s workforce and the closure and consolidation of certain U.S.

In October 2019, the Company implemented a restructuring plan (the “2019 restructuring plan”) in its ongoing efforts to reduce operating costs and focus on advanced technologies.

Expense related to the 2019 restructuring plan was accrued for in 2019, which resulted in a reduction of approximately 5 % of the Company’s workforce and the closure and consolidation of certain U.S.

and international office facilities.

The Company expects to complete the restructuring by the end of the second fiscal quarter of 2020.

The Company recorded restructuring expenses of $ 2.5 million in the fourth quarter of 2019, which included the following (in thousands):

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total restructuring expense

Cost of revenue Sales and marketing Research and development General and administrative Total restructuring expense

Employee severance and related payroll taxes $ 28 $ 1,355 $ 340 $ 194 $ 1,917

Facilities closure expenses 435 89 524

As of December 31, 2019, the Company had the following accrued and unpaid restructuring charges, included in accrued liabilities on the Consolidated Balance Sheets (in thousands):

Employee severance and related payroll taxes

Facilities closure expense

Legal fees 89 89

$ 28 $ 1,790 $ 429 $ 283 $ 2,530

The 2019 restructuring plan was completed prior to June 30, 2020 and as of December 31, 2020, the Company’s restructuring accrual was fully paid.

Marketable Securities and Fair Value Measurements

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Marketable securities, classified as available-for-sale, consisted of the following (in thousands):

December 31, 2019

December 31, 2018

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

December 31, 2020 December 31, 2019

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

Certificates of deposit $ 2,150 $ — $ — $ 2,150 $ 10,548 $ 10 $ — $ 10,558

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Asset-backed securities 5,904 11 — 5,915 11,914 32 — 11,946

During the years ended December 31, 2019 and 2018 , we did not reclassify any amount to earnings from accumulated other comprehensive loss related to unrealized gains or losses.

Total $ 74,753 $ 106 $ ( 8 ) $ 74,851 $ 83,929 $ 252 $ ( 1 ) $ 84,180

During the years ended December 31, 2020 and 2019, the Company did not reclassify any amount to earnings from accumulated other comprehensive income (loss) related to unrealized gains or losses.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of December 31, 2020 (in thousands):

Amortized Cost

Amortized Cost Fair Value

Less than 1 year $ 58,717 $ 58,754

Mature in 1 - 3 years 16,036 16,097

All available-for-sale securities have been classified as current because they are available for use in current operations.

Total $ 74,753 $ 74,851

All available-for-sale securities are classified as current because they are available for use in current operations.

Marketable securities in an unrealized loss position consisted of the following (in thousands):

Less Than 12 Months

12 Months or More

As of December 31, 2019

Gross Unrealized Losses

Less Than 12 Months 12 Months or More Total

As of December 31, 2020 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

Certificates of deposit $ — $ — $ — $ — $ — $ —

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Asset-backed securities — — — — — —

Less Than 12 Months

12 Months or More

As of December 31, 2018

Gross Unrealized Losses

Total $ 20,355 $ ( 8 ) $ — $ — $ 20,355 $ ( 8 )

Less Than 12 Months 12 Months or More Total

As of December 31, 2019 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

Certificates of deposit $ — $ — $ — $ — $ — $ —

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Asset-backed securities — — — — — —

Based on evaluation of securities that have been in a continuous loss position, we determined the gross unrealized losses on our marketable securities as of December 31, 2019 were temporary in nature and related primarily to interest rate shifts rather than changes in the underlying credit quality of the securities we hold.

As we have the ability to hold these investments until maturity, or for the foreseeable future, no decline was deemed to be other-than-temporary.

Total $ 2,996 $ ( 1 ) $ — $ — $ 2,996 $ ( 1 )

Based on evaluation of securities that have been in a continuous loss position, the Company determined all gross unrealized losses on its marketable securities as of December 31, 2020 were temporary in nature and related primarily to interest rate shifts rather than changes in the underlying credit quality of the securities in a loss position.

The Company has the ability to hold these investments until maturity, or for at least the foreseeable future.

As such, no decline has been deemed to be other-than-temporary by the Company.

Fair Value Measurements

The following is a summary of our cash, cash equivalents and marketable securities measured at fair value on a recurring basis (in thousands):

December 31, 2019

December 31, 2018

The following is a summary of the Company’s cash, cash equivalents and marketable securities measured at fair value on a recurring basis (in thousands):

December 31, 2020 December 31, 2019

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Cash $ 62,388 $ — $ — $ 62,388 $ 35,546 $ — $ — $ 35,546

Cash equivalents 20,893 — — 20,893 10,196 — — 10,196

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Asset-backed securities — 5,915 — 5,915 — 11,946 — 11,946

There were no transfers between Level 1 and Level 2 fair value measurement categories during the years ended

December 31, 2019 and 2018 .

We lease various operating spaces in the United States, Asia and Europe under non-cancellable operating lease arrangements that expire on various dates through July 2027.

These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses.

Total $ 83,281 $ 74,851 $ — $ 158,132 $ 45,742 $ 84,180 $ — $ 129,922

There were no transfers between Level 1 and Level 2 fair value measurement categories during the years ended December 31, 2020 and 2019.

The Company leases various facilities in the United States, Asia and Europe under non-cancellable operating lease arrangements that expire on various dates through July 2027.

These arrangements require the Company to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses.

The table below presents the Company’s right-of-use assets and lease liabilities as of December 31, 2020 (in thousands):

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Total operating lease liabilities $ 28,758

The aggregate future lease payments for operating leases as of December 31, 2019 were as follows (in thousands):

The aggregate future lease payments for the Company’s operating leases as of December 31, 2020 were as follows (in thousands):

Thereafter 7,148

Total lease payments 31,609

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Weighted-average discount rate 3.14 %

Supplemental cash flow information for the Company’s operating leases (in thousands):

Supplemental cash flow information for the Company’s operating leases were as follows (in thousands):

December 31, 2020

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Right-of-use assets obtained in exchange for new lease liabilities $ 868

New Corporate Office Lease

On May 2, 2019 (the “Effective Date”), the Company entered into a sublease agreement (the “Sublease”) with Marvell Semiconductor, Inc.

(“Sublandlord”) for its corporate office and research and development space located at 2300 Orchard Parkway, San Jose, California, 95131 (the “Premises”).

The term of the Sublease is seven years and eight months and began on December 1, 2019, the date the Company commenced business operations at the Premises.

Corporate Headquarters Lease

On May 2, 2019, the Company entered into a sublease agreement (the “Sublease”) with Marvell Semiconductor, Inc.

(“Sublandlord”) for its corporate headquarters and research and development space located at 2300 Orchard Parkway, San Jose, California, 95131 (the “Premises”).

The term of the Sublease is approximately eight years and began on December 1, 2019, the date the Company commenced business operations at the Premises.

The Sublease provides for monthly base rent of approximately $ 262,000 per month for the first year with annual increases thereafter.

The total base rent through the end of the term of the Sublease is approximately $33.8 million .

In addition to base rent, the Company will also be responsible for operating and other expenses.

The Company has accounted for the lease under ASC 842 and recorded a right of use asset of $30.0 million included in other non-current assets and recorded lease liabilities of $3.3 million and $26.7 million , included in accrued liabilities and other non-current liabilities, respectively, on the Consolidated Balance Sheets.

The total base rent through the end of the term of the Sublease will total approximately $ 33.8 million.

In addition to base rent, the Company will also be responsible for operating and other facility expenses.

The Company has accounted for the lease under ASC 842 and recorded a right-of-use asset of $ 30.0 million included in other non-current assets and recorded lease liabilities of $ 3.3 million and $ 26.7 million, included in accrued liabilities and other non-current liabilities, respectively, in the consolidated balance sheets as of December 31, 2019.

Other Balance Sheet Accounts Details

Allowance for Doubtful Accounts

The following table presents the changes in the allowance for doubtful accounts (in thousands):

The following table presents the changes in the Company’s allowance for doubtful accounts (in thousands):

2020 December 31,

Allowance for doubtful accounts, beginning balance $ 52 $ 319

Increase (decrease) of provision 78 ( 72 )

Write-offs ( 89 ) ( 195 )

Allowance for doubtful accounts, ending balance $ 41 $ 52

Inventory consisted of the following (in thousands):

2020 December 31,

Raw materials $ 8,395 $ 9,495

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

2020 December 31,

Prepaid expenses $ 3,818 $ 6,163

Deferred contract acquisition costs 5,345 6,231

Other 3,227 2,673

Prepaid expenses and other current assets $ 12,390 $ 15,067

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

Useful Life December 31,

2020 December 31,

Equipment 1-3 $ 25,286 $ 22,702

Software 1-3 765 726

Furniture and fixtures 1-3 652 459

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Purchased intangible assets, net, consisted of the following (in thousands):

December 31, 2019

December 31, 2018

Accumulated Amortization

December 31, 2020 December 31, 2019

Cost Accumulated Amortization Net Cost Accumulated Amortization Net

Developed technology $ 5,050 $ ( 4,545 ) $ 505 $ 5,050 $ ( 3,535 ) $ 1,515

Patents 2,936 ( 2,579 ) 357 2,936 ( 2,146 ) 790

Total $ 7,986 $ ( 7,124 ) $ 862 $ 7,986 $ ( 5,681 ) $ 2,305

Amortization expense related to purchased intangible assets was $ 1.4 million for each of the years ended December 31, 2020, 2019 and 2018.

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Other non-current assets consisted of the following (in thousands):

2020 December 31,

Right-of-use assets $ 28,240 $ 33,014

Deferred contract acquisition costs 3,714 3,297

Deposits 2,746 2,338

Net deferred tax assets 944 1,171

Other 2,807 2,026

Total other non-current assets $ 38,451 $ 41,846

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Accrued liabilities consisted of the following (in thousands):

2020 December 31,

Accrued compensation and benefits $ 19,725 $ 12,227

1 unchanged sentence

Lease liabilities 5,260 5,109

Other 8,197 6,066

Total accrued liabilities $ 36,930 $ 27,756

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Other non-current liabilities consisted of the following (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Lease liabilities $ 23,498 $ 28,046

Other 859 708

Total other non-current liabilities $ 24,357 $ 28,754

Credit Facility

In November 2016, we entered into a loan and security agreement (the “2016 Credit Facility”) with Silicon Valley Bank (“SVB”) as the lender.

The 2016 Credit Facility provided a three -year, $25.0 million revolving credit facility, which included a maximum of $25.0 million letter of credit subfacility.

Loan advances under the revolving facility were available of up to the full $25.0 million when the balance of our cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit equaled or exceeded $50.0 million .

If our net cash fell below $50.0 million , loan advances were determined based on a borrowing base equal to a specified percentage of the value of our eligible accounts receivable.

Loans bore interest, at our option, at (i) the prime rate reported in The Wall Street Journal, minus 0.50% or (ii) a LIBOR rate determined in accordance with the 2016 Credit Facility, plus 2.50% .

Over the term of the 2016 Credit Facility, we paid customary closing fees, commitment fees and letter of credit fees for a facility of this size and type.

In September 2018, we entered into an amendment with SVB to reduce the unused revolving credit facility fee on the 2016 Credit Facility from 0.4% to 0.3% .

Our obligations under the 2016 Credit Facility were secured by substantially all of our assets, excluding our intellectual property.

The 2016 Credit Facility required us to maintain compliance with customary affirmative and negative covenants, including compliance with an adjusted quick ratio of not less than 1.50 :1.00, as determined in accordance with the 2016 Credit Facility and restricted our ability to pay cash dividends or make other distributions on our capital stock.

On November 1, 2019, the maturity date, we elected to allow the 2016 Credit Facility to expire without renewal.

In November 2016, the Company entered into a loan and security agreement (the “2016 Credit Facility”) with Silicon Valley Bank (“SVB”) as the lender.

The 2016 Credit Facility provided a three -year, $ 25.0 million revolving credit facility, which included a maximum of $ 25.0 million letter of credit sub-facility.

Loan advances under the revolving facility were available up to the full $ 25.0 million when the balance of the Company’s cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit equaled or exceeded $ 50.0 million.

If this “net cash” fell below $ 50.0 million, loan advances were determined based on a borrowing base equal to a specified percentage of the value of the Company’s eligible accounts receivable.

Loans bore interest, at the Company’s option, at (i) the prime rate reported in The Wall Street Journal, minus 0.50 % or (ii) a LIBOR rate determined in accordance with the 2016 Credit Facility, plus 2.50 %.

Over the term of the 2016 Credit Facility, the Company paid customary closing fees, commitment fees and letter of credit fees related to the facility.

In September 2018, the Company entered into an amendment with SVB to reduce the unused revolving credit facility fee on the 2016 Credit Facility from 0.4 % to 0.3 %.

The Company’s obligations under the 2016 Credit Facility were secured by substantially all of the Company’s assets, excluding intellectual property.

The 2016 Credit Facility required the Company to maintain compliance with customary affirmative and negative covenants, including compliance with an adjusted quick ratio of not less than 1.50 :1.00, and restricted the Company’s ability to pay cash dividends or make other distributions on our common stock.

The Company elected to allow the 2016 Credit Facility to expire without renewal on the maturity date of November 1, 2019.

There were no outstanding loans or advances as of the maturity date.

We currently have no plans for entering into a new borrowing facility.

The Company currently has no plans to enter into any new borrowing facilities.

Commitments and Contingencies

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On October 5, 2018, the lead plaintiff filed an amended complaint.

The amended complaint named the same defendants as the initial complaint, in addition to one of the Company’s former executive vice presidents.

The amended complaint named the same

defendants as the initial complaint, in addition to one of the Company’s former executive vice presidents.

The amended complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

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Investigations

(“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13a-15, and 13b2-1 thereunder.

Securities and Exchange Commission (“SEC”) conducted a private investigation into possible violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), and 13(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13a-15, and 13b2-1 thereunder.

The Company cooperated with the SEC regarding this investigation.

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Lease Commitments

We lease various operating spaces in the United States, Asia and Europe under non-cancelable operating lease arrangements that expire on various dates through July 2027.

The Company leases various operating spaces in the United States, Asia and Europe under non-cancelable operating lease arrangements that expire on various dates through July 2027.

These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses.

We recognize rent expense under these arrangements on a straight-line basis over the term of the lease.

We have open purchase commitments with third-party contract manufacturers with facilities in Taiwan to supply nearly all of our finished goods inventories, spare parts, and accessories.

The Company recognizes rent expense under these arrangements on a straight-line basis over the term of the lease.

The Company has open purchase commitments with third-party contract manufacturers with facilities in Taiwan to supply nearly all of our finished goods inventories, spare parts, and accessories.

These purchase orders are expected to be paid within one year of the issuance date.

The following table summarizes our non-cancelable operating leases as of December 31, 2020 (in thousands):

Years Ending December 31,

Operating Leases and Other Contractual Obligation

Years Ending December 31, Operating Leases and Other Contractual Obligation

Thereafter 7,148

Total $ 31,609

Rent expense was $ 6.7 million, $ 4.8 million and $ 4.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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We have not recorded a liability related to these indemnifications and guarantee provisions and our guarantees and indemnification arrangements have not had any significant impact on our consolidated financial statements to date.

Equity Incentive Plans and Stock-Based Compensation

Equity Incentive Plans, Stock-Based Compensation and Stock Repurchase Program

Equity Incentive Plans

2014 Equity Incentive Plan

The 2014 Equity Incentive Plan (the “2014 Plan”) provides for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our board of directors.

The 2014 Equity Incentive Plan (the “2014 Plan”) provides for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), market performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our board of directors.

In June 2015, our board of directors adopted and our stockholders approved an amendment and restatement of the 2014 Plan, which increased the number of shares available for issuance under the 2014 Plan by the number of shares granted under the 2008 Stock Plan (the “2008 Plan”) that were or may in the future be canceled or otherwise forfeited or repurchased after March 20, 2014.

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The shares authorized for the 2014 Plan increase annually by the least of (i) 8,000,000 shares, (ii) 5 % of the outstanding shares of common stock on the last day of our immediately preceding fiscal year, or (iii) such other amount as determined by our Board of Directors.

Accordingly, on January 1, 2020 , the number of shares in the 2014 Plan increased by 3,879,002 shares, representing 5% of the common stock outstanding as of December 31, 2019.

To date, we have granted stock options, RSUs and PSUs under the 2014 Plan.

In November 2020, our Board of Directors determined the current shares authorized under the 2014 Plan were sufficient for the time being and decided not to increase the number of shares authorized in 2021.

To date, the Company has granted stock options, RSUs and PSUs under the 2014 Plan.

Stock options expire no more than 10 years from the grant date and generally vest over four years .

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The Amended 2014 Purchased Plan also reflects revised offering periods, which were changed from 24 months to six months in duration and that begin on or about December 1 and June 1 each year, starting in December 2018.

The Amended 2014 Purchase Plan permits eligible employees to purchase shares of our common stock through payroll deductions with up to 10% of their pre-tax eligible earnings subject to certain Internal Revenue Code limitations.

The purchase price of the shares is 85 % of the lower of the fair market value of our common stock on the first day of a six-month offering period or the relevant purchase date.

In addition, no participant may purchase more than 1,500 shares of common stock in each purchase period.

Employees purchased 662,362 shares at an average price of $5.14 and intrinsic value of $0.8 million during the year ended December 31, 2019.

The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

Employees purchased 581,634 shares at an average price of $ 5.67 and with an aggregate intrinsic value of $ 1.0 million during the year ended December 31, 2020, and purchased 662,362 shares at an average price of $ 5.14 and with an intrinsic value of $ 0.8 million during the year ended December 31, 2019.

During 2018, there were no stock purchases by employees under the Amended 2014 Purchase Plan or the 2014 Purchase Plan.

The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

As of December 31, 2020, we had 1,821,186 shares available for future issuance under the Amended 2014 Purchase Plan.

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Years Ended December 31,

2020 2019 2018

Stock-based compensation by type of award:

Stock options $ 209 $ 648 $ 1,353

Stock awards 10,938 14,882 10,445

Employee stock purchase rights (1) 1,163 999 5,240

Total $ 12,310 $ 16,529 $ 17,038

Stock-based compensation by category of expense:

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General and administrative 3,694 3,225 3,138

Total $ 12,310 $ 16,529 $ 17,038

(1) Amount for the year ended December 31, 2018 includes $ 4.1 million of accelerated stock-based compensation expense.

In March 2018, as a result of a suspension of the 2014 Purchase Plan due to our non-timely filing status, all unrecognized stock-based

compensation expense related to ESPP under the 2014 Purchase Plan was accelerated and recognized within the consolidated statement of operations.

As of December 31, 2019 , we had $29.5 million of unrecognized stock-based compensation expense related to unvested stock-based awards, including ESPP under our Amended 2014 Purchase Plan, which will be recognized over a weighted-average period of 2.6 years.

In March 2018, as a result of a suspension of the 2014 Purchase Plan due to our non-timely filing status, all unrecognized stock-based compensation expense related to ESPP under the 2014 Purchase Plan was accelerated and recognized within the consolidated statement of operations.

As of December 31, 2020, the Company had $ 24.4 million of unrecognized stock-based compensation expense related to unvested stock-based awards, including ESPP under our Amended 2014 Purchase Plan, which will be recognized over a weighted-average period of 2.7 years.

Fair Value Determination:

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Employee Stock Purchase Rights

Years Ended December 31,

Year Ended December 31, Years Ended December 31,

2018 2020 2019 2018

Expected term (in years) 4.8 0.5 0.5 0.5

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Dividend rate — % — % — % — %

(1) The Company did not grant stock options in the years ended December 31, 2020 and 2019.

• Expected Term .

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Number of Shares

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value (1)

(thousands) Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term

(years) Aggregate Intrinsic Value (1)

Outstanding as of December 31, 2019 3,702 $ 5.57

Exercised ( 1,298 ) 4.85

Canceled ( 731 ) 7.15

Outstanding as of December 31, 2020 1,673 $ 5.44 2.67 $ 7,520

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Years Ended December 31,

2020 2019 2018

Weighted-average grant date fair value of options granted (per share) $ — $ — $ 2.19

Intrinsic value of options exercised (1)

$ 2,778 $ 1,930 $ 2,629

(1) Intrinsic value of options exercised is the difference between the closing price of our common stock at the time of exercise and the exercise price paid.

We have granted RSUs to our employees, consultants and members of our Board of Directors, and PSUs to certain executives.

In February 2016, we granted 547,000 PSUs with certain financial and operational targets.

Actual performance, as measured at the time and prior to the restatement of the 2016 financial statements, resulted in participants achieving 80% of target.

Given the PSUs did not contain explicit or implicit claw back rights, there was no change to stock-based compensation expense for the impact of the previously disclosed restatement of the 2016 consolidated financial statements.

As of December 31, 2019 , 253,203 shares had vested, 200,297 shares had been forfeited, and the remaining 93,500 shares will vest (as to 80% ) in annual tranches through February 2020 subject to continued service vesting requirements.

In October 2018, we granted 464,888 PSUs with certain financial targets.

These PSUs will become eligible to vest at 75% upon the achievement of the performance targets by December 31, 2020, and are subject to service condition vesting requirements.

The remaining 25% of these PSUs will become eligible to vest on the first anniversary of the initial vesting date.

None of these PSUs were vested as of December 31, 2019.

In April 2019, we granted 346,453 PSUs with certain financial targets.

These PSUs will become eligible to vest at 75% on the second month following achievement of certain performance targets by December 31, 2021, with the remaining 25% of the PSUs to vest on the first anniversary of the initial vesting date, subject to continued service vesting requirements.

None of these PSUs were vested as of December 31, 2019.

In December 2019, we granted 375,000 PSUs with certain market performance-based targets to be achieved between December 2019 and December 2023.

One-third of each tranche of these PSUs will become eligible to vest on each of the three anniversaries of the date the performance-based target is achieved, subject to continued service vesting requirements.

The grant date fair values of each tranche of these PSUs were estimated to be $4.59 , $4.06 and $3.59 and determined using the Monte Carlo simulation model with the following assumptions:

expected term of 4.0 years , expected volatility of 38.45% , risk-free interest rate of 1.7% and expected dividend yield of 0.0% .

None of these PSUs were vested as of December 31, 2019.

The Company has granted RSUs to its employees, consultants and members of its Board of Directors, and PSUs to certain executives and employees.

The Company’s PSUs have market performance-based vesting conditions as well as service-based vesting conditions.

As of December 31, 2020, there were 3,753,620 RSUs and 1,134,103 PSUs outstanding.

The following table summarizes our stock award activities and related information:

Number of Shares

Weighted-Average Grant Date Fair Value

Weighted-Average Remaining Vesting Term

(thousands) Weighted-Average Grant Date Fair Value Per Share Weighted-Average Remaining Vesting Term

Nonvested as of December 31, 2019 6,148 $ 6.59

Granted 2,018 6.74

Released ( 1,786 ) 6.79

Canceled ( 1,492 ) 6.56

Nonvested as of December 31, 2020 4,888 $ 6.59 2.13

Following is additional information pertaining to our RSU activities (in thousands, except per share data):

Following is additional information pertaining to our stock award activities (in thousands, except per share data):

Years Ended December 31,

2020 2019 2018

Weighted-average grant date fair value of stock awards granted (per share) $ 6.74 $ 6.74 $ 5.95

Total fair value of stock awards released (vested) during the period $ 12,129 $ 12,183 $ 9,714

Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding for the period.

Diluted net loss per share is computed using the weighted average number of common shares outstanding for the period plus potential dilutive common shares, including stock options, RSUs and employee stock purchase rights, unless the potential common shares are anti-dilutive.

Repurchase Agreement

On May 17, 2020, the Company entered into a Common Stock Repurchase and Option Exchange Agreement (the “Repurchase Agreement”) with Lee Chen, the Company’s founder and its former Chairman, President and Chief Executive Officer.

Pursuant to the Repurchase Agreement, the Company repurchased 2.2 million shares of common stock from Mr.

Chen for approximately $ 13.3 million.

The common shares repurchased are held in treasury and accounted for under the cost method.

Stock Repurchase Program

On September 17, 2020, the Company’s Board of Directors approved a stock repurchase program of up to $ 50 million of its common stock over a period of twelve months.

During the year ended December 31, 2020, the Company repurchased a total of 2.7 million shares for a total cost of $ 19.2 million and as of December 31, 2020, the Company had $ 30.8 million available to repurchase shares under this program.

Under the program, repurchased shares are held in treasury at cost.

The Company’s stock repurchase program does not obligate us to acquire any specific number of shares.

Shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

To date, all repurchases under this program have occurred in the open market.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding for the period.

Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding for the period plus potential dilutive common shares, including stock options, RSUs, PSUs and employee stock purchase rights, unless the potential common shares are anti-dilutive.

Since we had net losses in the years ended December 31, 2019 and 2018, none of the potential dilutive common shares were included in the computation of diluted shares for these periods, as inclusion of such shares would have been anti-dilutive.

The following table presents common shares related to potentially dilutive shares excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive (in thousands):

The following table presents common shares related to potentially dilutive shares excluded from the calculation of diluted net income (loss) per share as their effect would have been anti-dilutive (in thousands):

Years Ended December 31,

Stock options, RSUs and employee stock purchase rights

The geographical breakdown of loss before income taxes is as follows (in thousands):

2020 2019 2018

Stock options, RSUs, PSUs and employee stock purchase rights 822 9,199 9,621

The geographical breakdown of income (loss) before income taxes is as follows (in thousands):

Years Ended December 31,

Domestic loss

2020 2019 2018

Domestic income (loss) $ 15,455 $ ( 20,345 ) $ ( 29,658 )

Foreign income 3,684 3,933 3,123

Loss before income taxes

Income (loss) before income taxes $ 19,139 $ ( 16,412 ) $ ( 26,535 )

The provision for income taxes consisted of the following (in thousands):

Years Ended December 31,

2020 2019 2018

Current provision for income taxes:

State $ 40 $ 49 $ 44

Foreign 1,057 1,716 953

Total current 1,097 1,765 997

Deferred tax expense (benefit):

Federal 2 3 ( 13 )

Foreign 224 ( 361 ) 98

Total deferred 226 ( 358 ) 85

Provision for income taxes $ 1,323 $ 1,407 $ 1,082

The reconciliation of the statutory federal income tax and the provision for income tax is as follows (in thousands, except percentages).

The reconciliation of the statutory federal income taxes and the provision for income tax is as follows (in thousands, except percentages):

Years Ended December 31,

2020 2019 2018

Amount Percentage Amount Percentage Amount Percentage

Tax at statutory rate $ 4,019 21.0 % $ ( 3,447 ) 21.0 % $ ( 5,572 ) 21.0 %

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Other permanent items 364 1.9 257 ( 1.6 ) 351 ( 1.3 )

Federal tax credits - net of uncertain tax position

Federal tax credits - net of uncertain tax positions ( 1,035 ) ( 5.4 ) ( 1,809 ) 11.0 ( 2,634 ) 9.9

Expenses for uncertain tax positions — — 166 ( 1.0 ) 137 ( 0.5 )

Provision for income taxes

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

Other ( 282 ) ( 1.5 ) 275 ( 1.6 ) ( 219 ) 0.7

$ 1,323 7.0 % $ 1,407 ( 8.6 ) % $ 1,082 ( 4.1 ) %

Deferred tax balances are comprised of the following (in thousands):

2020 December 31,

Deferred tax assets:

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Operating lease right-of-use asset ( 5,996 ) ( 7,088 )

Other ( 22 ) ( 19 )

Total deferred tax liabilities ( 8,086 ) ( 9,352 )

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net deferred tax assets as of December 31, 2020 and 2019, respectively.

For the years ended December 31, 2019 and 2018 , the valuation allowance increased by $7.1 million and $6.2 million , respectively.

For the years ended December 31, 2020 and 2019, the valuation allowance decreased by $ 2.8 million and increased by $ 7.1 million, respectively.

As of December 31, 2020 and 2019, we had U.S.

federal net operating loss carryforwards of $193.8 million and $185.0 million , respectively, and state net operating loss carryforwards of $84.6 million and $75.3 million , respectively.

federal net operating loss carryforwards will expire at various dates beginning in the year ending December 31, 2025 , if not utilized.

The state net operating losses expire in various years ending between 2023 and 2039 , if not utilized.

federal net operating loss (“NOL”) carryforwards of $ 177.0 million and $ 193.8 million, respectively, and state NOL carryforwards of $ 78.0 million and $ 84.6 million, respectively.

The federal NOL carryforwards will expire at various dates beginning in the year ending December 31, 2033, if not utilized.

The state NOL carryforwards expire in various years ending between 2023 and 2039, if not utilized.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, among other things, includes changes to the rules governing NOLs.

NOLs arising in tax years beginning after December 31, 2017 are subject to an 80% of taxable income limitation (as calculated before taking the NOLs into account) for tax years beginning after December 31, 2020.

In addition, NOLs arising in tax years 2018, 2019, and 2020 are subject to a five year carryback and indefinite carryforward, while NOLs arising in tax years beginning after December 31, 2020 also are subject to indefinite carryforward but cannot be carried back.

Additionally, as of December 31, 2020 and 2019, we had U.S.

federal research and development credit carryforwards of $15.3 million and $13.3 million , and state research and development credit carryforwards of $16.4 million and $14.2 million , respectively.

federal research and development credit carryforwards of $ 16.4 million and $ 15.3 million, respectively, and state research and development credit carryforwards of $ 18.2 million and $ 16.4 million, respectively.

The federal credit carryforwards will begin to expire at various dates beginning in 2025 while the state credit carryforwards can be carried over indefinitely.

Utilization of the net operating losses and credit carryforwards may be subject to an annual limitation provided for in the Internal Revenue Code Section 382 and similar state codes.

Any annual limitation could result in the expiration of net operating loss and credit carryforwards before utilization.

Utilization of the NOL and credit carryforwards may be subject to an annual limitation provided for in the IRC Section 382 and similar state codes.

Any annual limitation could result in the expiration of NOL and credit carryforwards before utilization.

With respect to our undistributed foreign subsidiaries’ earnings we consider those earnings to be indefinitely reinvested and, accordingly, no related provision for U.S.

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As of December 31, 2020, 2019 and 2018, we had gross unrecognized tax benefits of $ 4.6 million, $ 4.4 million and $ 4.2 million, respectively.

Accrued interest expense related to unrecognized tax benefits is recognized as part of our income tax provision in our consolidated statements of operations and is immaterial for the years ended December 31, 2019 and 2018.

Our policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items in income tax expense.

Accrued interest expense related to unrecognized tax benefits is not recognized as part of our income tax provision in our consolidated statements of operations and is immaterial for the years ended December 31, 2020 and 2019.

Our policy for classifying interest and penalties associated with unrecognized income tax benefits is to exclude such items in income tax expense.

The activity related to the unrecognized tax benefits is as follows (in thousands):

Years Ended December 31,

2020 2019 2018

Gross unrecognized tax benefits—beginning balance $ 4,441 $ 4,191 $ 3,782

Increases (decrease) related to tax positions from prior years

Increases (decreases) related to tax positions from prior years ( 268 ) ( 280 ) ( 266 )

Increases related to tax positions taken during current year 412 530 675

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Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

We are subject to taxation in the United States, various states, and several foreign jurisdictions.

Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine our tax returns for all years from 2005 through the current period.

We are not currently under examination by any taxing authorities.

The Tax Cuts and Jobs Act

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).

The Tax Act makes broad and complex changes to the U.S.

tax code including, but not limited to:

(1) reducing the U.S.

federal corporate tax rate from 35 percent to 21 percent;

(2) generally eliminating U.S.

federal income taxes on dividends from foreign subsidiaries;

(3) requiring a current inclusion in U.S.

federal taxable income of certain earnings of controlled foreign corporations;

(4) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized;

(5) creating the base erosion anti-abuse tax, a new minimum tax;

(6) creating a new

limitation on deductible interest expense;

and (7) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

On December 22, 2017, the SEC issued SAB 118, which provides guidance on accounting for the income tax effects of the Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting relating to the Tax Act under Accounting Standards Codification Topic 740, “ Income Taxes ” (“ASC 740”).

In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for Tax Act-related income tax effects is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements.

If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

We have completed our analysis of the Tax Act’s income tax effects.

In accordance with SAB 118, the Tax Act-related income tax effects that we initially reported as provisional estimates were refined as additional analysis was performed.

We have elected to account for Global Intangible Low-Taxed Income under the Tax Act as period costs when incurred.

There was no material impact to our consolidated financial statements when our analysis was completed in the fourth quarter of 2018.

The Company is subject to taxation in the United States, various states, and several foreign jurisdictions.

Because the Company has NOL and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine our tax returns for all years from 2005 through the current period.

The Company is not currently under examination by any taxing authorities.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law.

The CARES Act includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property.

The CARES Act has an immaterial impact on the Company’s income taxes.

Geographic Information

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Years Ended December 31,

2020 2019 2018

Americas $ 98,150 $ 89,944 $ 112,506

Japan 67,050 59,454 55,205

Asia Pacific, excluding Japan 29,760 35,689 36,897

EMEA 30,567 27,541 27,615

Total $ 225,527 $ 212,628 $ 232,223

The following table is a summary of our long-lived assets which include property and equipment, net and right-of-use assets based on the physical location of the assets (in thousands):

United States

2020 December 31,

Americas $ 32,558 $ 35,964

Japan 1,566 2,689

Other 2,004 2,017

Total $ 36,128 $ 40,670

Employee Benefit Plan

We adopted a profit sharing plan qualified under Section 401(k) of the Internal Revenue Code which is offered to all of our United States employees.

The Company has a profit sharing plan that qualifies under Section 401(k) of the IRC which is offered to all of its United States employees.

Participants in the plan may elect to contribute up to $ 19,500 of their annual compensation to the plan for the 2020 calendar year.

Individuals who are 50 or older may contribute an additional $ 6,500 of their annual income.

In 2019 , we matched 50% of the first 6% of the employee’s eligible compensation for a maximum employer contribution of $2,500 per participant.

We contributed $0.7 million , $1.0 million and $1.0 million during the years ended December 31, 2019 , 2018 and 2017 , respectively.

The Company typically matches 50 % of the first 6 % of the employee’s eligible compensation for a maximum employer contribution of $ 2,500 per participant per year.

The Company temporarily suspended its employer matching contribution in June 2020 due to cost savings measures, although the Company re-instated its employer matching contributions effective March 1, 2021.

The Company’s matching contributions totaled $ 0.4 million, $ 0.7 million and $ 1.0 million during the years ended December 31, 2020, 2019 and 2018, respectively.

Selected Quarterly Financial Data (Unaudited)

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Quarter Ended

March 31, 2019

June 30, 2019

September 30, 2019

December 31, 2019

March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020

Revenue $ 53,764 $ 52,500 $ 56,608 $ 62,655

Gross profit $ 41,622 $ 41,078 $ 43,485 $ 49,194

Net income (loss) $ ( 297 ) $ 3,808 $ 6,464 $ 7,841

Net loss per share - basic

Net loss per share - diluted

Net income (loss) per share - basic $ — $ 0.05 $ 0.08 $ 0.10

Net income (loss) per share - diluted $ — $ 0.05 $ 0.08 $ 0.10

Quarter Ended

March 31, 2018

June 30, 2018

September 30, 2018

December 31, 2018

Net loss per share - basic

Net loss per share - diluted

March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019

Revenue $ 50,290 $ 49,189 $ 52,833 $ 60,316

Gross profit $ 38,040 $ 37,918 $ 40,913 $ 46,876

Net income (loss) $ ( 12,272 ) $ ( 5,771 ) $ 173 $ 51

Net income (loss) per share - basic $ ( 0.16 ) $ ( 0.08 ) $ — $ —

Net income (loss) per share - diluted $ ( 0.16 ) $ ( 0.08 ) $ — $ —

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data