What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-08 compared with 2021-03-08 · 83 added, 99 removed, 315 unchanged (37% of the section changed)

20 unchanged sentences

We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently.

In 2019, we changed the way we present revenue by customer vertical.

We now report two customer verticals:

service providers and enterprises, compared to service providers, enterprises and web giants in prior years.

Our previously reported revenue from web giants is primarily accounted for now in enterprise revenue.

Additionally, we changed the way we present customer revenue by geographic region.

We now report customer revenues in four geographic regions:

the Americas, Japan, Asia Pacific (excluding Japan) and EMEA.

Our previously reported customer revenues of our United States and Latin America regions are now included in the Americas geographic region.

We believe this new geographic and vertical view aligns with how we manage the business and maps our product portfolio to customer verticals.

The revenue by vertical percentages from prior years included in this report have been revised to conform with current year presentation.

Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government.

Since inception, our customer base has grown rapidly.

As of December 31, 2020, we had sold products to more than 7,290 end-customers worldwide.

As of December 31, 2021, we had sold products to more than 7,700 customers worldwide.

We sell substantially all of our solutions through our high-touch sales organization as well as distribution channel partners, including distributors, value-added resellers and system integrators, and fulfill nearly all orders globally through such partners.

3 unchanged sentences

During 2021, 48% of our total revenue was generated from the Americas, 25% from Japan and 27% from other geographical regions.

During 2019, 42% of our total revenue was generated from the Americas, 28% from Japan and 30% from

other geographical regions.

During 2020, 43% of our total revenue was generated from the Americas, 30% from Japan and 27% from other geographical regions.

During 2019, 42% of our total revenue was generated from the Americas, 28% from Japan and 30% from other geographical regions.

Our enterprise customers accounted for 37%, 39% and 42% of our total revenue during 2021, 2020 and 2019, respectively.

2 unchanged sentences

Purchases from our ten largest end-customers accounted for 39%, 41% and 36% of our total revenue for 2021, 2020 and 2019, respectively.

Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles.

Sales to these

large end-customers have typically been characterized by large but irregular purchases with long sales cycles.

The timing of these purchases and the delivery of the purchased products are difficult to predict.

2 unchanged sentences

As of December 31, 2021, we had $78.9 million of cash and cash equivalents and $106.1 million of marketable securities.

Cash provided by operating activities was $55.3 million in 2020 compared to $0.4 million of cash used in operating activities in 2019.

Cash provided by operating activities was $50.1 million in the year ended December 31, 2021 compared to $55.3 million of cash provided by operating activities in the year ended December 31, 2020.

We intend to continue to invest for long-term growth.

19 unchanged sentences

General and administrative 23,421 9.4 21,851 9.7 1,570 7.2 %

Restructuring expense — — 2,530 1.2 2,530 *

Total operating expenses 163,149 65.3 157,646 69.8 5,503 3.5 %

Income (loss) from operations 17,733 7.9 (17,094) (8.0) (34,827) 203.7 %

Income from operations 33,388 13.3 17,733 7.9 15,655 88.3 %

Non-operating income (expense):

2 unchanged sentences

Total non-operating income (expense), net (1,746) (0.7) 1,406 0.6 (3,152) (224.2) %

Income (loss) before income taxes 19,139 8.5 (16,412) (7.7) 35,551 216.6 %

Provision for income taxes 1,323 0.6 1,407 0.7 (84) (6.0) %

Net income (loss) $ 17,816 7.9 % $ (17,819) (8.4) % $ 35,635 200.0 %

* not meaningful

Income before income taxes 31,642 12.6 19,139 8.5 12,503 65.3 %

Provision for (benefit from) income taxes (63,245) (25.3) 1,323 0.6 (64,568) (4,880.4) %

Net income $ 94,887 37.9 % $ 17,816 7.9 % $ 77,071 432.6 %

Years Ended December 31,

15 unchanged sentences

Total operating expenses 157,646 69.8 180,841 85.0 (23,195) (12.8) %

Loss from operations (17,094) (8.0) (27,679) (11.9) 10,585 (38.2) %

Income (loss) from operations 17,733 7.9 (17,094) (8.0) 34,827 (203.7) %

Non-operating income (expense):

2 unchanged sentences

Total non-operating income (expense), net 1,406 0.6 682 0.3 724 106.2 %

Loss before income taxes (16,412) (7.7) (26,535) (11.4) 10,123 (38.1) %

Income (loss) before income taxes 19,139 8.5 (16,412) (7.7) 35,551 (216.6) %

Provision for income taxes 1,323 0.6 1,407 0.7 (84) (6.0) %

Net loss $ (17,819) (8.4) % $ (27,617) (11.9) % $ 9,798 (35.5) %

Net income (loss) $ 17,816 7.9 % $ (17,819) (8.4) % $ 35,635 (200.0) %

* not meaningful

7 unchanged sentences

We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to seven years.

Our adoption of ASC 606, Revenue from Contracts with Customers, in January 2018 resulted in a $2.6 million increase in products revenue in 2018.

See Note 2 Revenue, of the notes to consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

A summary of our total revenue is as follows (dollars in thousands):

26 unchanged sentences

This increase was due to a $18.5 million increase in products revenue and a $6.0 million increase in services revenue.

Products revenue increased $18.5 million, or 14%, in 2021 compared to 2020 primarily driven by higher demand from our service provider and enterprise customers in the Americas, and from higher demand from service provider customers in EMEA, partially offset by lower demand from service provider customers in Japan.

Services revenue increased $6.0 million, or 6%, in 2021 compared to 2020.

The increase was primarily attributable to the increase in PCS sales in connection with our increased installed customer base across all regions.

During 2021, $121.2 million, or 48% of total revenue, was generated from the Americas, which represents a 23% increase compared to 2020.

The increase was primarily due to higher products revenue driven by an increase in demand from our service provider customers.

During 2021, $61.7 million, or 25% of total revenue, was generated from Japan, which represents a 8% decrease compared to 2020.

The decrease was mainly due to decreased revenue from our service provider customers.

During 2021, $28.7 million, or 12% of total revenue, was generated from the Asia Pacific region excluding Japan, which represents a 4% decrease compared to 2020.

The decrease was primarily driven by lower revenues from our service provider customers.

During 2021, $38.5 million, or 15% of total revenue, was generated from EMEA, which represented an 26% increase compared to 2020.

The increase was primarily due to higher products revenue driven by an increase in demand from our service provider customers.

2020 Revenue Compared to 2019 Revenue

Total revenue increased by $12.9 million, or 6%, in 2020 compared to 2019.

This increase was due to a $8.0 million increase in products revenue and a $4.9 million increase in services revenue.

Products revenue increased $8.0 million, or 7%, in 2020 compared to 2019 primarily driven by higher demand from our service provider and enterprise customers in the Americas, and from higher demand from service provider customers in Japan.

9 unchanged sentences

The increase was primarily due to higher products revenue driven by an increase in demand from our enterprise customers.

2019 Revenue Compared to 2018 Revenue

Total revenue decreased by $19.6 million, or 8%, in 2019 compared to 2018.

This decrease was due to a $22.8 million decrease in products revenue, partially offset by a $3.2 million increase in services revenue.

The decrease in products revenue was primarily driven by lower demand from our service provider and enterprise customers in the Americas, partially offset by an increase in product revenues in Japan.

Products revenue decreased $22.8 million, or 16%, in 2019 compared to 2018 primarily driven by lower demand from our service provider and enterprise customers in the Americas, partially offset by increased revenues in Japan.

Services revenue increased $3.2 million, or 4%, in 2019 compared to 2018.

The increases were primarily attributable to the increase in PCS sales in connection with our increased installed customer base.

During 2019, $89.9 million, or 42% of total revenue, was generated from the Americas, which represents a 20% decrease compared to 2018.

The decrease was primarily due to lower product revenue driven by lower demand from our service provider and enterprise customers in the Americas.

During 2019, $59.5 million, or 28% of total revenue, was generated from Japan, which represents a 8% increase compared to 2018.

The increase was mainly due to increased revenue from our enterprise customers in Japan.

During 2019, $35.7 million, or 17% of total revenue, was generated from the Asia Pacific region excluding Japan, which represents a 3% decrease compared to 2018.

The decrease was driven primarily by lower revenues from our enterprise customers in Asia Pacific.

During 2019, $27.5 million, or 13% of total revenue, was generated from EMEA, which remained relatively constant compared to 2018.

Cost of Revenue, Gross Profit and Gross Margin

39 unchanged sentences

Products gross margin increased by 0.4% in 2021 compared to 2020 primarily driven by changes in product and geographic mix.

Services gross margin decreased by 1.0% in 2020 compared to 2019 primarily due to higher personnel related support costs.

Services gross margin increased by 1.5% in 2021 compared to 2020 primarily due to a decrease in personnel related support costs.

2020 Gross Margin Compared to 2019 Gross Margin

Products gross margin decreased by 1.0% in 2019 compared to 2018 primarily driven by changes in product and geographic mix.

Services gross margin decreased by 0.6% in 2019 compared to 2018 primarily due to higher personnel related support costs.

Products gross margin increased by 2.1% in 2020 compared to 2019 primarily driven by changes in product and geographic mix.

Services gross margin decreased by 1.0% in 2020 compared to 2019 primarily due to an increase in personnel related support costs.

Operating Expenses

9 unchanged sentences

General and administrative 23,421 21,851 1,570 7 %

Restructuring expense — 2,530 (2,530) *

Total operating expenses $ 163,149 $ 157,646 $ 5,503 3 %

* not meaningful

Years Ended December 31, Increase (Decrease)

10 unchanged sentences

Sales and marketing expenses also include the cost of marketing programs, trade shows, consulting services, promotional materials, demonstration equipment, depreciation and certain allocated facilities and information technology infrastructure costs.

Prior to the adoption of ASC 606, we expensed sales commissions associated with the acquisition of customer contracts as incurred in the period the contract was acquired.

Upon the adoption of ASC 606 in January 2018, $8.4 million of our sales commission expenses from prior periods has been deferred and will be recognized over an expected benefit

period as required by ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers .

See Note 2 Revenue, of the notes to consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

The $7.9 million increase in sales and marketing expenses in 2021 compared to 2020 was primarily due to an increase of $8.4 million of salary and benefit expenses, partially offset by a $0.3 million decrease in marketing expenses and a $0.2 million decrease in software subscription costs.

The $15.1 million decrease in sales and marketing expenses in 2020 compared to 2019 was primarily due to a 12% decrease in headcount, resulting in a $9.6 million decrease in salary and benefit expenses, a $4.1 million decrease in travel and entertainment and a $1.1 million decrease in marketing expenses.

The $10.4 million decrease in sales and marketing expenses in 2019 compared to 2018 was primarily due to a 14% decrease in headcount, resulting in a $7.0 million decrease in salary and benefit expenses, a $0.9 million decrease in travel and entertainment and $0.8 million decrease in depreciation.

In 2021, we expect sales and marketing expenses to remain at 2020 levels as we continue to actively control costs.

In 2022, we expect sales and marketing expenses to remain at 2021 levels as we apply a disciplined approach to focus our investments on areas that offer the greatest opportunities.

Research and Development

2 unchanged sentences

We expense research and development costs as incurred.

The $4.0 million decrease in research and development expenses in 2021 compared to 2020 was primarily due to a $6.7 million decrease in salary and benefit expenses as a result of a decrease in headcount, a $1.1 million decrease in depreciation expense and a $0.5 million decrease in rent expense due to the closure of two offices in India and China.

Partially offsetting these decreases was an increase of $4.5 million in consultant expense as the Company transitions to using non-employee consultants for certain research and developments activities.

The $3.8 million decrease in research and development expenses in 2020 compared to 2019 was primarily due to a decrease in salary and benefit expenses, partially offset by an increase in facility expense.

The $3.3 million decrease in research and development expenses in 2019 compared to 2018 was primarily due to a decrease in salary and benefit expenses.

In 2021, we expect research and development expenses to remain at 2020 levels as we continue to actively control costs.

In 2022, we expect research and development expenses to remain at 2021 levels as we apply a disciplined approach to focus our investments on areas that offer the greatest opportunities.

General and Administrative

2 unchanged sentences

Professional services primarily consist of fees for outside accounting, tax, legal, recruiting and other administrative services.

The $1.6 million increase in general and administrative expenses in 2021 compared to 2020 was primarily due to a $1.1 million increase in salary and benefits expense, primarily stock-based compensation, and a $0.6 million increase in consulting expense.

The $1.9 million decrease in general and administrative expenses in 2020 compared to 2019 was primarily due to a decrease in consulting and contractor fees, partially offset by an increase in business operations and facility expenses.

The $15.9 million decrease in general and administrative expenses in 2019 compared to 2018 was primarily due to $10.1 million lower legal fees, $1.4 million lower audit-related costs, $1.7 million lower contractor and consultant expense (all related to the 2018 litigation settlement, investigation and restatement efforts), $1.0 million lower commission and bonus, $2.3 million reduction in general IT expenses and $0.4 million lower recruiting costs.

In 2021, we expect general and administrative expenses to remain at 2020 levels as we continue to actively control costs.

In 2022, we expect general and administrative expenses to remain stable as we apply a disciplined approach to focus our investments on areas that offer the greatest opportunities.

Restructuring Expense

11 unchanged sentences

In the past, interest expense has primarily consisted of interest expense and amortization of debt issuance costs.

We elected to allow our credit facility to expire in November 2019 without renewal.

Should we seek additional sources of funding we may incur increased interest expense and amortization of debt issuance costs.

Interest expense was immaterial in 2020, 2019 and 2018.

Interest expense was not material in 2021, 2020 and 2019.

Interest and Other Income, Net

1 unchanged sentence

Other income (expense), net consists primarily of foreign currency exchange gains and losses.

Interest and other income, net, had an unfavorable change of $3.2 million, or 224%, in 2021 compared to 2020 primarily driven by a $2.0 million increase in foreign exchange losses and a $1.1 million decrease in interest income.

Interest and other income, net, had a favorable change of $0.5 million, or 53%, in 2020 compared to 2019 primarily driven by a $1.4 million increase in foreign exchange gain, partially offset by a $0.9 million decrease in interest income.

Interest and other income, net, had an unfavorable change of $0.4 million, or 28%, in 2019 compared to 2018 primarily driven by a $0.7 million increase in foreign exchange loss, partially offset by a $0.4 million increase in interest income.

Provision for Income Taxes

We recorded an income tax provision of $1.3 million, $1.4 million and $1.1 million for the years ended December 31, 2020, 2019 and 2018, respectively, which primarily consisted of foreign income taxes.

We currently maintain a valuation allowance on federal and state deferred tax assets, and we will continue to maintain a valuation allowance against all of our U.S.

and certain foreign deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.

See Note 11 Income Taxes, of the note to consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding the Company’s taxes.

Provision for (Benefit from) Income Taxes

We recorded an income tax benefit of $63.2 million for the year ended December 31, 2021 and an income tax provision of $1.3 million and $1.4 million for the years ended December 31, 2020 and 2019, respectively.

The main component of our income tax benefit in the year ended December 31, 2021 is related to the valuation allowance release in the three months ended September 30, 2021.

Prior to 2021 and since inception, the Company had maintained a full valuation allowance on its U.S.

deferred tax assets.

Certain state deferred tax assets continue to be subject to a valuation allowance.

Our deferred tax assets primarily consist of U.S.

net operating loss (“NOL”) and tax credit carryforwards.

A valuation allowance of $82.9 million was recorded against our gross deferred tax asset balance as of December 31, 2020.

For the three months ended September 30, 2021, we recorded a net valuation allowance release of $62.9 million as a discrete tax benefit.

This is based on management’s assessment of the amount of its deferred tax assets that are more likely than not to be realized.

Aside from the discrete tax benefit discussed above, the Company’s income tax provision for the year ended December 31, 2021 primarily consisted of foreign income taxes and utilization of tax attributes.

Our income tax provision for the years ended December 31, 2020 and 2019 primarily consisted of foreign income taxes.

See Note 11 Income Taxes, of the notes to consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further details regarding the Company’s taxes.

Liquidity and Capital Resources

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We plan to continue to invest for long-term growth, and our investment may increase.

We believe that our existing cash and cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Our future capital requirements will depend on many factors, including our growth rate, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced

product and service offerings and the continuing market acceptance of our products.

We currently believe that our existing cash and cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months and beyond.

In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all.

1 unchanged sentence

On May 17, 2020, we 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, we repurchased 2.2 million shares of common stock from Mr.

to the Repurchase Agreement, we 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.

On September 17, 2020, we issued a press release announcing that our Board of Directors had 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, we repurchased a total of 2.7 million shares for a total cost of $19.2 million under this program and as of December 31, 2020 we had $30.8 million available to repurchase shares.

Our stock repurchase program does not obligate us to acquire any specific number of shares.

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

This repurchase program was active for twelve months and expired in the second half of 2021.

On October 28, 2021, the Company announced its Board of Directors authorized a new stock repurchase program of up to $100 million of its common stock over a period of twelve months.

As of December 31, 2021, the Company had $92.9 million available to repurchase shares under the new program.

Under both programs, repurchased shares are held in treasury at cost.

The Company’s stock repurchase programs do 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.

To date, all repurchases under these programs have occurred in the open market.

During the year ended December 31, 2021, the Company repurchased 1.7 million shares for a total cost of $18.3 million.

During the year ended December 31, 2020, the Company repurchased 2.7 million shares for a total cost of $19.2 million.

In October 2021, our Board approved the initiation of a regular quarterly cash dividend on our common stock.

The first dividend, in the amount of $0.05 per share of common stock outstanding, was paid in December 2021, and the second dividend, in the amount of $0.05 per share of common stock outstanding, was paid on March 1, 2022 as a return of capital.

We currently anticipate that we will continue to pay comparable quarterly cash dividends in the future.

However, the payment, amount and timing of future dividends remain within the discretion of our Board and will depend upon our results of operations, financial condition, cash requirements, and other factors.

In addition, as described in Note 8 Commitments and Contingencies, in the notes to consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K, we may be currently, or may be from time to time, involved in ongoing litigation.

13 unchanged sentences

Our cash flows from operating activities will continue to be affected principally by the extent to which we increase spending on our business and our working capital requirements.

During the year ended December 31, 2021, cash provided by operating activities was $50.1 million, consisting of net income of $94.9 million, partially offset by a non-cash benefit of $39.8 million and an unfavorable net change in operating assets and liabilities of $5.0 million.

Our non-cash benefit consisted primarily of a benefit of $64.2 million related to the release our of deferred tax asset valuation allowance plus other adjustments, and non-cash charges of $14.4 million for stock-based compensation and $8.9 million of depreciation and amortization expense.

The net change in our operating assets and liabilities primarily reflects cash outflows from changes in accounts receivable of $10.4 million, accrued and other liabilities of $5.6 million, prepaid expenses and other assets of $2.1 million and inventory of $1.8 million, partially offset by cash inflows from changes in deferred revenue of $12.9 million and changes in accounts payable of $2.0 million.

The unfavorable change in accounts receivable was due to the timing of collections from our customers.

The favorable change in deferred revenues was primarily driven by increased bookings.

During the year ended December 31, 2020, cash provided by operating activities was $55.3 million, consisting of net income of $17.8 million, non-cash charges of $24.7 million and a favorable net change in operating assets and liabilities of $12.8 million.

3 unchanged sentences

During the year ended December 31, 2019, cash used in operating activities was $0.4 million, consisting of net loss of $17.8 million, non-cash charges of $26.2 million and an unfavorable net change in operating assets and liabilities of $8.8 million.

Our non-cash charges consisted primarily of stock-based compensation expense of $16.5 million and depreciation and

amortization expenses of $10.0 million.

Our non-cash charges consisted primarily of stock-based compensation expense of $16.5 million and depreciation and amortization expenses of $10.0 million.

The net change in our operating assets and liabilities primarily reflects an outflow from the changes in accrued liabilities and other of $5.9 million and inventory of $5.6 million, partially offset by an inflow from changes in deferred revenue of $3.2 million.

1 unchanged sentence

The unfavorable change in inventory was due to build up of inventory and timing of shipments, partially offset by increased reserves.

The favorable change in deferred revenues was primarily driven by increased bookings.

During the year ended December 31, 2018, cash used in operating activities was $2.7 million, consisting of net loss of $27.6 million which includes payments for our internal investigation costs of $8.6 million, non-cash charges of $25.0 million and an unfavorable net change in operating assets and liabilities of $0.1 million.

Our non-cash charges consisted primarily of stock-based compensation expense of $17.0 million and depreciation and amortization expenses of $7.9 million.

The net change in our operating assets and liabilities primarily reflects an inflow from the changes in deferred revenue of $7.3 million and accrued and other liabilities of $3.1 million, offset primarily by an outflow from the changes in accounts receivable of $6.1 million, prepaid expenses and other assets of $2.4 million and inventory of $1.5 million.

The favorable change in deferred revenue was primarily driven by the increase in the sale of subscription and support.

The favorable change in accrued and other liabilities was primarily due to higher accrued bonuses and commissions, increased value added tax accrual due to timing of payments, and an increase in legal fees accrual.

The unfavorable change in accounts receivable was attributed to timing of billing and cash collections.

The unfavorable change in prepaid and other assets was mainly driven by the increase in deferred sales commissions due to higher deferred revenue and higher average commission rate.

The unfavorable change in inventory was due to the timing of shipments.

The favorable change in deferred revenue was primarily driven by increased bookings.

Cash Flows from Investing Activities

During the year ended December 31, 2021, cash used in investing activities was $38.1 million, consisting of purchases of marketable securities of $128.6 million and property and equipment of $5.2 million, partially offset by proceeds from sales and maturities of marketable securities of $95.7 million.

During the year ended December 31, 2020, cash provided by investing activities was $5.2 million, consisting of proceeds from sales and maturities of marketable securities of $66.8 million, partially offset by purchases of marketable securities of $58.0 million and property and equipment of $3.6 million.

During the year ended December 31, 2019, cash used in investing activities was $0.3 million, consisting of purchases of property and equipment of $4.3 million, marketable securities of $71.6 million, partially offset by proceeds from sales and maturities of marketable securities of $75.7 million.

During the year ended December 31, 2018, cash used in investing activities was $6.9 million, consisting of purchases of property and equipment of $2.8 million, marketable securities of $86.8 million and investment of $1.0 million, partially offset by proceeds from sales and maturities of marketable securities of $83.7 million.

Cash Flows from Financing Activities

During the year ended December 31, 2021, cash used in financing activities was $16.4 million consisting primarily of $18.3 million of cash used to repurchase our common stock and $3.9 million used for the payments of cash dividends, partially offset by $5.8 million of cash proceeds from common stock issuances under our equity incentive plans.

During the year ended December 31, 2020, cash used in financing activities was $22.9 million consisting primarily of $32.5 million of cash used to repurchase our common stock, partially offset by $9.6 million of cash proceeds from common stock issuances under our equity incentive plans.

During the year ended December 31, 2019, cash provided by financing activities was $5.8 million consisting primarily of proceeds from common stock issuances under our equity incentive plans.

During the year ended December 31, 2018, cash used in financing activities was $3.6 million consisting primarily of proceeds from common stock issuances under our equity incentive plans.

Contractual Obligations

Our contractual obligations consist of operating leases.

The following table summarizes our contractual obligations as of December 31, 2020 (in thousands):

Total Less Than

1 Year 1 to 3 Years 3 to 5 Years More than

Operating leases $ 31,609 $ 6,064 $ 13,772 $ 9,359 $ 2,414

The contractual obligations table above excludes $4.6 million of tax liabilities related to uncertain tax positions because we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of these future payments.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that

affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

We evaluate our estimates and assumptions on an ongoing basis.

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PCS is offered under renewable, fee-based contracts, which includes 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 discernible 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.

11 unchanged sentences

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 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.

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

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

8 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis