What changed in this filing

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Item 1A. Risk Factors

2023-02-27 compared with 2022-03-08 · 121 added, 109 removed, 694 unchanged (25% of the section changed)

13 unchanged sentences

Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures, disruptions to the businesses of our channel partners, and others.

Additionally, we face additional risks and challenges related to having a portion of our workforce working from home, including added pressure on our IT systems and the security of our network, and new challenges as our team adjusts to online collaboration.

Additionally, we face additional risks and challenges related to having a portion of our workforce working from home, including added pressure on our IT systems and the security of our network, and challenges as our team is limited in its ability to provide in-person support to our customers.

Our team’s general efficiency, moreover, was challenged by virtue of COVID-19 restrictions which restricted their ability to collaborate by electronic means rather than in-person meetings.

The global economic downturn caused by COVID-19 could materially and adversely affect our customers, and thus could negatively impact demand for our products and our operating results.

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For example, the postponement of the Japan 2020 Olympics negatively impacted demand in Japan for our products in 2020.

Conversely, it is possible that certain of our service provider customers could experience increased demand for their solutions due to shelter in place practices globally, which could, in turn, increase demand for our solutions, but there can be no assurance as to when, if, or to what extent this may occur, if at all, given the present degree of uncertainty.

Conversely, certain of our service provider customers have experienced, in the past, increased demand for their solutions due to shelter in place practices globally, which in turn, increased demand for our solutions, but there can be no assurance whether this will continue to occur, or to what extent, if at all, given the present degree of uncertainty.

COVID-19 may result in supply shortages of our products or our ability to import, export or sell product to customers in both the U.S.

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Any decrease, limitations or delays on our ability to import, export, or sell our products would harm our business.

For example, we have experienced mild challenges providing support to our customers due to limitations on our ability to interact with them in person.

The supply chains of our contract manufacturers’ and many of our vendors may source products, parts or components from vendors experiencing business interruptions.

Our support team’s ability to identify, rectify and consistently apply solutions to customer inquiries and support calls have likewise been negatively impacted by COVID-19 prohibitions on in-person meetings.

There are many uncertainties around COVID-19, including scientific and health issues, the unknown duration and extent of economic disruption on the global economy.

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However, even if we are able to anticipate, develop and commercially introduce new products and enhancements that address the market’s needs and opportunities, there can be no assurance that new products or enhancements will achieve widespread market acceptance.

example, organizations that use other conventional or first-generation application delivery solutions for their needs may believe that these solutions are sufficient.

For example, organizations that use other conventional or first-generation application delivery solutions for their needs may believe that these solutions are sufficient.

In addition, as we launch new product offerings, organizations may not believe that such new product offerings offer any additional benefits as compared to the existing application delivery solutions that they currently use.

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We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position.

We continuously seek to enhance and improve our solutions we make available to our customers.

We continuously seek to enhance and improve our solutions.

However, if we are unable to develop new products and features to address technological changes and new customer requirements in the application networking or security markets, or if our investments in research and development do not yield the expected benefits in a timely manner, our business and operating results could be adversely affected.

For example, the 5G standards were recently published and we may not be able to produce a satisfactory return on investment if our strategic vision and the resources that we are spending on developing our presence in the 5G technology industry turn out to be misaligned with such standards.

We have experienced net losses in recent periods and may not achieve or maintain profitability in the future.

If we cannot achieve or maintain profitability, our financial performance will be harmed and our business may suffer.

We have experienced net losses in the past and may not maintain profitability in future periods.

If we cannot maintain profitability, our financial performance will be harmed and our business may suffer.

We experienced net losses for the years ended December 31, 2019 and 2018.

We also experienced declines in total revenue, as well as declines in revenue in the Americas, during the years ended December 31, 2019 and 2018, as compared to each of the prior years.

Although one of our priorities is to strengthen our sales efforts in the Americas, there can be no assurance that such efforts will be successful.

Although one of our priorities is to strengthen our marketing efforts and channel relationships in the Americas, there can be no assurance that such efforts will be successful.

During the years ended December 31, 2019 and 2018, we invested in our sales, marketing and research and development teams in order to develop, market and sell our products.

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As a result of these expenditures, we may have to generate and sustain increased revenue, manage our cost structure and avoid significant liabilities to achieve future profitability.

We may not be able to increase our quarterly revenue or achieve or maintain profitability in the future or on a consistent basis, and we may incur significant losses in the future for a number of possible reasons, including our inability to develop products that achieve market acceptance, general economic conditions, increasing competition, decreased growth in the markets in which we operate, or our failure for any reason to capitalize on growth opportunities.

We may not be able to increase our quarterly revenue or maintain profitability in the future or on a consistent basis, and we may incur significant losses in the future for a number of possible reasons, including our inability to develop products that achieve market acceptance, general economic conditions, increasing competition, decreased growth in the markets in which we operate, regulatory or other governmental actions over which we have no control, or our failure for any reason to capitalize on growth opportunities.

Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods.

If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed and our stock price could be volatile or decline.

If these losses exceed our expectations or our revenue growth

expectations are not met in future periods, our financial performance will be harmed and our stock price could be volatile or decline.

Our operating results have varied and are likely to continue to vary significantly from period to period and may be unpredictable, which could cause the trading price of our common stock to decline.

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• our ability to attract and retain new end-customers;

• our ability to provide and enhance efficient operations;

• changes in demand for our products and services, including seasonal variations in customer spending patterns or cyclical fluctuations in our markets;

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• the timing and success of new product and service introductions by us or our competitors;

• our ability to increase the size of our distribution channel and to maintain relationships with important distribution channel partners;

• our ability to increase the size of our distribution channel and to maintain relationships with important distribution channels;

• our ability to improve our overall sales productivity and successfully execute our marketing strategies;

• the effect of currency exchange rates on our revenue and expenses;

• changes in legal requirements, our compliance obligations and/or relevant tax schemas;

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

• expenses related to our facilities;

• expenses related to our facilities, networks, and network operations;

• the effect of discounts negotiated by our largest end-customers for sales or pricing pressure from our competitors;

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(“Fortinet”);

• Companies that sell traditional DDoS protection products, such as Arbor Networks, Inc., a subsidiary of NetScout Systems, (“Arbor Networks”) and Radware, Ltd.

• Companies that sell traditional DDoS protection products, such as Arbor Networks, Inc., a subsidiary of NetScout Systems, Inc.

(“Arbor Networks”) and Radware, Ltd.

• Companies that sell SSL decryption and inspection products, such as Symantec Corporation (through its acquisition of Blue Coat Systems Inc.

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Many companies in our industry, including some of our competitors, are developing and deploying cloud-based solutions for their customers.

In addition, the

emergence of new cloud infrastructures may enable new companies to compete with our business.

In addition, the emergence of new cloud infrastructures may enable new companies to compete with our business.

These new competitors may include large cloud providers who can provide their own ADC functionality as well as smaller companies targeting applications that are developed exclusively for delivery in the cloud.

We are dedicating significant resources to develop and offer our customers new cloud-based solutions.

We are dedicating significant resources to develop and offer our customers new cloud-based solutions and are training our sales teams as necessary to adapt to market trends.

Also, some of our largest customers are cloud providers that utilize our existing solutions, and we believe that as cloud infrastructures continue to grow our existing solutions may provide benefits to other cloud providers.

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Whether we are able to successfully compete depends on our execution in a number of areas, including maintaining the utility, compatibility and performance of our software on the growing assortment of cloud computing platforms and the enhanced interoperability requirements associated with orchestration of cloud computing environments.

We will also need to enhance and develop the infrastructure necessary to support the delivery of these services as well as the skills of our personnel who sell, provide and maintain them.

Any failure to adapt to these evolving trends may reduce our revenue or operating margins and could have a material adverse effect on our business, results of operations and financial condition.

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In addition, extension of our brand to products and uses different from our traditional products and services may dilute our brand, particularly if we fail to maintain the quality of products and services in these new areas.

We have in the past, and may in the future, become involved in litigation that could negatively affect our brand.

If we do not successfully maintain and enhance our brand and reputation, our growth rate may

decline, we may have reduced pricing power relative to competitors with stronger brands or reputations, and we could lose end-customers or technology partners, all of which would harm our business, operating results and financial condition.

We have in the past, and may in the future, become involved in litigation and/or operational difficulties that could negatively affect our brand.

If we do not successfully maintain and enhance our brand and reputation, our growth rate may decline, we may have reduced pricing power relative to competitors with stronger brands or reputations, and we could lose end-customers or technology partners, all of which would harm our business, operating results and financial condition.

A limited number of our end-customers, including service providers, make large and concentrated purchases that comprise a significant portion of our revenue.

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The timing of these purchases and of the requested delivery of the purchased product is difficult to predict.

As a consequence, any acceleration or delay in anticipated product purchases by or requested deliveries to our largest end-customers could materially affect our revenue and operating results in any quarter and cause our revenue and operating results to fluctuate from quarter to quarter.

As a consequence, any acceleration or delay in anticipated product purchases by or requested deliveries to our largest end-customers could materially

affect our revenue and operating results in any quarter and cause our revenue and operating results to fluctuate from quarter to quarter.

We cannot provide any assurance that we will be able to sustain or increase our revenue from our largest end-customers nor that we will be able to offset any absence of significant purchases by our largest end-customers in any particular period with purchases by new or existing end-customers in that or a subsequent period.

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We also may offer pricing discounts from time to time as part of a targeted sales campaign or as a result of pricing pressure from our competitors.

In addition, our larger end-customers may negotiate pricing discounts in connection with

large orders they place with us.

In addition, our larger end-customers may negotiate pricing discounts in connection with large orders they place with us.

The sale of our products at discounted prices could have a negative impact on our gross margin.

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Changes in the exchange rate between the U.S.

dollar and the Japanese yen may therefore affect our actual revenue and gross margin.

Dollar and the Japanese Yen has, in the past, and may in the future affect our actual revenue and gross margin.

Changes in foreign exchange rates, especially between the U.S.

Dollar and the Japanese Yen, could impact the purchasing decisions of our customers.

We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks that could adversely affect these international sources of our revenue.

A significant portion of our revenue is generated in international markets, including Japan, Western Europe, China, Taiwan and South Korea.

During the years ended December 31, 2021, 2020, and 2019, approximately 60%, 63% and 64% of our total revenue, respectively, was generated from customers located outside of the United States.

During the years ended December 31, 2022, 2021, and 2020, approximately 54%, 60% and 63% of

our total revenue, respectively, was generated from customers located outside of the United States.

If we are unable to maintain or continue to grow our revenue in these markets, our financial results may suffer.

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We have a significant presence in international markets and plan to continue to expand our international operations, which exposes us to a number of risks that could negatively affect our future business.

We have personnel in dozens of countries including in the following countries and regions:

the United States, Western Europe, India, the Middle East, Japan, China, Taiwan, South Korea, Southeast Asia and Latin America.

We have personnel in numerous countries including in the following countries and regions:

the United States, Western Europe, India, the Middle East, Japan, Taiwan, South Korea, Southeast Asia and Latin America.

As we maintain our international operations, we are subject to a number of risks, including the following:

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• general economic and political conditions in these foreign markets;

• economic uncertainty around the world, including continued economic uncertainty as a result of the COVID-19 pandemic, sovereign debt issues in Europe, the United Kingdom’s exit from the European Union (commonly referred to as “Brexit”), and tensions between Russia and Ukraine, and China and Taiwan;

• economic uncertainty around the world, including continued economic uncertainty as a result of the COVID-19 pandemic, sovereign debt issues in Europe, the United Kingdom’s exit from the European Union (commonly referred to as “Brexit”), and the war between Russia and Ukraine, and tensions between China and Taiwan;

• management communication and integration problems resulting from cultural and geographic dispersion;

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One such applicable anticorruption law is the FCPA, which generally prohibits U.S.

companies and their employees and intermediaries from making payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage, or directing business to another, and requires public companies to maintain accurate books and records and a system of internal accounting controls.

and a system of internal accounting controls.

Under the FCPA, U.S.

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Our success depends to a significant degree upon the continued contributions of our key management, product development, sales, marketing and finance personnel, many of whom may be difficult to replace.

The complexity of our products, their integration into existing networks and ongoing support of our products requires us to retain highly trained professional services, customer support and sales personnel with specific expertise related to our business.

Competition for qualified professional services, customer support, engineering and sales personnel in our industry is intense, because of the limited number of people available with the necessary technical skills and understanding of our products.

The complexity of our products, their integration into existing networks and ongoing support of our products requires us to retain highly trained technical services, customer support and sales personnel with specific expertise related to our business.

Competition for qualified technical services, customer support, engineering and sales personnel in our industry is intense, because of the limited number of people available with the necessary technical skills and understanding of our products.

Our ability to recruit and hire these personnel is harmed by tightening labor markets, particularly in the engineering field, in several of our key geographic hiring areas.

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Volatility in the global economic market or other effects of global or regional economic weakness, including the impacts of COVID-19, limited availability of credit, a reduction in business confidence and activity, deficit-driven austerity measures that continue to affect governments and educational institutions, and other difficulties may affect one or more of the industries to which we sell our products and services.

If economic conditions in the United States, Europe and other key markets for our products continue to be volatile in response to COVID-19 or otherwise do not improve or those markets experience a prolonged downturn, many end-customers may delay or reduce their IT spending.

This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price

If economic conditions in the United States, Europe and other key markets for our products continue to be volatile in response to COVID-19, geopolitical developments, macroeconomic trends, or otherwise, and do not improve, or those markets experience a prolonged downturn, many end-customers may delay or reduce their IT spending.

This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition.

Any of these events would likely harm our business, operating results and financial condition.

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Any manufacturing disruption at these manufacturers, including but not limited to disruptions due to COVID-19 or tensions with China, could severely impair our ability to fulfill orders.

In addition, the ongoing global supply chain issues are expected to continue and may adversely impact our suppliers to a degree that could materially impacts us.

In addition, the ongoing global supply chain issues are expected to continue and may adversely impact our suppliers to a degree that could materially impact us.

Our reliance on outsourced manufacturers also may create the potential for infringement or misappropriation of our intellectual property rights or confidential information.

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In addition, the lead times associated with these and other components of our products can be lengthy and preclude rapid changes in quantities and delivery schedules.

Moreover, long-term supply and maintenance obligations to our end-customers increase the duration for which specific components are required, which may further increase the risk we may incur component shortages or the cost of carrying inventory.

Moreover, long-term supply and maintenance obligations to our end-customers increase the

duration for which specific components are required, which may further increase the risk we may incur component shortages or the cost of carrying inventory.

If we are unable to obtain a sufficient quantity of these components in a timely manner for any reason, sales and/or shipments of our products could be delayed or halted, which would seriously affect present and future sales and cause damage to end-customer relationships, which would, in turn, adversely affect our business, financial condition and results of operations.

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If we are unable to pass component price increases along to our end-customers or maintain stable pricing, our gross margin and operating results could be negatively impacted.

Furthermore, poor quality in sole-sourced components or certain other components in our products could also result in lost sales or lost sales

opportunities.

Furthermore, poor quality in sole-sourced components or certain other components in our products could also result in lost sales or lost sales opportunities.

If the quality of such components does not meet our standards or our end-customers’ requirements, if we are unable to obtain components from our existing suppliers on commercially reasonable terms, or if any of our sole source providers cease to continue to manufacture such components or to remain in business, we could be forced to redesign our products and qualify new components from alternate suppliers.

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Additionally, as a well-known provider of enterprise security solutions, our networks, products, and services could be targeted by attacks specifically designed to disrupt our business and harm our reputation.

For example, in January 2023, we identified a cyber-security incident in our corporate IT infrastructure (not related to any of our products or solutions used by customers) (the “Cyber Incident”).

Upon detecting the incident, we launched an investigation and engaged the services of cyber-security experts and advisors, incident response professionals and external counsel to support the investigation.

While, to date, this incident has not had a material impact on our operations, it did result in additional expense incurred in connection with the investigation.

As our products are adopted by an increasing number of enterprises and governments, it is possible that the individuals and organizations behind advanced attacks will focus on finding ways to defeat our products.

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If we fail to identify and respond to new and increasingly complex methods of attack and to update our products to detect or prevent such threats in time to protect our end-customers’ critical business data, our business, operating results and reputation could suffer.

If any companies or governments that are publicly known to use our platform are the subject of a cyberattack that becomes publicized, our other current or potential channel partners or end-customers may look to our competitors for alternatives to our products.

If any companies or governments that are publicly known to use our platform are the subject of a cyber-attack that becomes publicized, our other current or potential channel partners or end-customers may look to our competitors for alternatives to our products.

Real or perceived security breaches of our end-customers’ networks could cause disruption or damage to their networks or other negative consequences and could result in negative publicity to us, damage to our reputation, declining sales, increased expenses and end-customer relations issues.

To the extent potential end-customers or industry analysts believe that the occurrence of any actual or perceived failure of our products to detect or prevent malware, viruses, worms or similar threats is a flaw or indicates that our products do not provide significant value, our reputation and business could be harmed.

To the extent potential end-customers or industry

analysts believe that the occurrence of any actual or perceived failure of our products to detect or prevent malware, viruses, worms or similar threats is a flaw or indicates that our products do not provide significant value, our reputation and business could be harmed.

Any real or perceived defects, errors, or vulnerabilities in our products, or any failure of our products to detect a threat, could result in:

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• litigation, regulatory inquiries, or investigations that may be costly and further harm our reputation.

Although we maintain cybersecurity liability coverage that may cover certain liabilities in connection with a security breach, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to use on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Although we maintain cybersecurity liability coverage that may cover certain liabilities in connection with a security breach such as the Cyber Incident, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to use on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operation and reputation.

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We may also be subject to liability claims for damages related to product errors or defects.

While we carry insurance policies covering this type of liability, these policies may not provide sufficient protection should a claim be asserted.

While we carry insurance policies

covering this type of liability, these policies may not provide sufficient protection should a claim be asserted.

A material product liability claim may harm our business and results of operations.

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End-customers often view the purchase of our products as a significant and strategic decision that can have important implications on their existing networks and data centers and, as a result, require considerable time to evaluate, test and qualify our products prior to making a purchase decision and placing an order to ensure that our products will successfully interoperate with our end-customers’ complex network and data centers.

Additionally, the budgetary decisions at these entities can be lengthy and require multiple organization reviews.

Additionally, the budgetary

decisions at these entities can be lengthy and require multiple organization reviews.

The length of time that end-customers devote to their evaluation of our products and decision-making process varies significantly.

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We believe that our ability to provide consistent, high quality customer service and technical support is a key factor in attracting and retaining end-customers of all sizes and is critical to the deployment of our products.

When support is purchased

our end-customers depend on our support organization to provide a broad range of support services, including on-site technical support, 24-hour support and shipment of replacement parts on an expedited basis.

When support is purchased our end-customers depend on our support organization to provide a broad range of support services, including on-site technical support, 24-hour support and shipment of replacement parts on an expedited basis.

If our support organization or our distribution channel partners do not assist our end-customers in deploying our products effectively, succeed in helping our end-customers resolve post-deployment issues quickly, or provide ongoing support, it could adversely affect our ability to sell our products to existing end-customers and could harm our reputation with potential end-customers.

We currently have technical support centers in the United States, Japan, China, India and the Netherlands.

We currently have technical support centers in the United States, Japan, India and the Netherlands.

As we continue to expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English.

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Accordingly, the effect of downturns in sales of our subscription-based solutions will not be fully reflected in our operating results until future periods.

A subscription revenue model also makes it difficult for us to rapidly increase our revenue through additional subscription sales in any one period, as revenue is generally recognized over a longer period.

Our business and operations have experienced growth in certain prior periods and may experience rapid growth at certain times in the future, and if we do not effectively manage any future growth or are unable to improve our controls, systems and processes, our operating results will be adversely affected.

A subscription revenue model also makes it difficult for us to rapidly

increase our revenue through additional subscription sales in any one period, as revenue is generally recognized over a longer period.

Our business and operations have experienced growth in certain prior periods and may experience rapid growth at certain times in the future, and if we do not effectively manage any future growth or are unable to sustain and improve our controls, systems and processes, our operating results will be adversely affected.

In certain prior periods, we have significantly increased the number of our employees and independent contractors.

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In addition, our systems and processes may not prevent or detect all errors, omissions or fraud.

For example, as described in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018, we identified material weaknesses in our internal control over financial

reporting and concluded that our internal control over financial reporting was not effective as of December 31, 2018 and December 31, 2017, and that our disclosure controls and procedures were not effective as of December 31, 2018 and December 31, 2017.

We may experience difficulties in managing improvements to our systems, processes, and controls or in connection with third-party software, which could impair our ability to provide products or services to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our products, increase our technical support costs, or damage our reputation and brand.

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We may also have difficulty in integrating acquired technologies or products with our existing product lines.

Any integration process may require significant time and resources, and we may not be able to

manage the process successfully.

Any integration process may require significant time and resources, and we may not be able to manage the process successfully.

Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically and culturally diverse locations.

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In the event our or our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in missed financial targets, such as revenue and shipment targets, and our operations could be disrupted, for the affected quarter or quarters.

In addition, cybersecurity attacks, acts of war or terrorism, or other geo-political unrest could cause disruptions in our business or the business of our supply chain, manufacturers, logistics providers, partners, or end-customers or the economy as a whole.

Any disruption in the business of our supply chain, manufacturers, logistics providers, partners or end-customers that impacts sales at the end of a quarter could have a significant adverse impact on our quarterly results.

In addition, large-scale cybersecurity attacks, acts of war or terrorism, or other geo-political unrest could cause disruptions in our business or the business of our supply chain, manufacturers, logistics providers, partners, or end-customers or the economy as a whole.

Any disruption in the business of our supply chain, manufacturers, logistics providers, partners or end-customers that impacts sales at the end of a quarter could have a significant

adverse impact on our quarterly results.

All of the aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate.

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Our industry is characterized by the existence of a large number of patents and by increasingly frequent claims and related litigation based on allegations of infringement or other violations of patent and other intellectual property rights.

ordinary course of our business, we have been and may presently be in disputes and licensing discussions with others regarding their patents and other claimed intellectual property and proprietary rights.

In the ordinary course of our business, we have been and may presently be in disputes and licensing discussions with others regarding their patents and other claimed intellectual property and proprietary rights.

Intellectual property infringement and misappropriation lawsuits and other claims are subject to inherent uncertainties due to the complexity of the technical and legal issues involved, and we cannot be certain that we will be successful in defending ourselves against such claims or in concluding licenses on reasonable terms or at all.

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There may be instances where we are not able to protect intellectual property or other proprietary rights in a manner that maximizes competitive advantage.

If we are unable to protect our intellectual property and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our business.

If we are unable to protect our

intellectual property and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our business.

We also rely in part on confidentiality and/or assignment agreements with our technology partners, employees, consultants, advisors and others.

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In addition, even if we protect our intellectual property, we may need to license it to competitors, which could also be harmful.

For example, as a result of the settlement of an intellectual property matter, we have already licensed all of our issued patents, pending applications, and future patents and patent applications that we may acquire, obtain, apply for or have a right to license to Brocade Communications Systems, Inc.

until May 2025, for the life of each such patent.

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Any litigation, whether or not resolved in our favor, could result in significant expense to us and divert the efforts of our management and technical personnel, as well as cause other claims to be made against us, which might adversely affect our business, operating results and financial condition.

Exposure to UK political developments, including the effects of Brexit, could have a material adverse effect on us.

Exposure to UK and other political developments, including the effects of Brexit, could have a material adverse effect on us.

On January 31, 2020, the United Kingdom (“UK”) withdrew from the European Union (“EU”), which began a transition period until the end of 2020 during which the UK and the EU negotiated additional arrangements.

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An increase in tariffs will cause our costs to increase, which could narrow the profits we earn from sales of products requiring such materials.

Furthermore, if tariffs, trade restrictions, or trade barriers are placed on products such as ours by foreign governments, especially China, the prices for our products may increase, which may result in the loss of customers and harm to our business, financial condition and results of operations.

Furthermore, if tariffs, trade restrictions, or trade barriers are placed on products such as ours by foreign governments, especially China, the

prices for our products may increase, which may result in the loss of customers and harm to our business, financial condition and results of operations.

There can be no assurance that we will not experience a disruption in business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time consuming and costly.

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New developments in these areas, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the United States.

Any of these factors could depress economic activity and restrict our access

to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations and affect our strategy in China and elsewhere around the world.

Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations and affect our strategy in China and elsewhere around the world.

Given the uncertainty of further developments related to tariffs, international trade agreements and policies we can give no assurance that our business, financial condition and operating results would not be adversely affected.

Failure to protect and ensure the confidentiality and security of data could lead to legal liability, adversely affect our reputation and have a material adverse effect on our operating results, business and reputation.

Failure to protect and ensure the confidentiality and security of data, trade secrets and personally identifiable information (“PII”) could lead to legal liability, adversely affect our reputation and have a material adverse effect on our operating results, business and reputation.

We may collect, store and use certain confidential information in the course of providing our services, and we have invested in preserving the security of this data.

We may also outsource operations to third-party service providers to whom we transmit certain confidential data.

While the Cyber Incident we experienced in January 2023 did not result in material degradation of our systems, it did expose a vulnerability in our security measures.

There are no assurances that any security measures we have in place, or any additional security measures that our subcontractors may have in place, will be sufficient to protect this confidential information from unauthorized security breaches.

We cannot assure you that, despite the implementation of these security measures, we will not be subject to a security incident or other data breach or that this data will not be compromised.

We may be required to expend significant capital and other resources to protect against security breaches or to alleviate problems caused by security breaches, or to pay penalties as a result of such breaches.

Despite our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems change frequently and may not be recognized until launched against a target.

We cannot assure you that, despite the implementation of these security measures, including enhanced security measures as a result of the Cyber Incident, we will not be subject to additional security incidents or other data breaches or that this data will not be compromised.

We have and may be required to expend significant capital and other resources to protect against security and remedy breaches or to alleviate problems caused by security breaches, or to pay penalties as a result of such breaches.

Despite our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems change frequently and may not be recognized until launched against a target, as was the case in the Cyber Incident.

As a result, we may be unable to anticipate these techniques or implement adequate preventative measures to protect this data.

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Any compromise or perceived compromise of our security could damage our reputation with our end-customers, and could subject us to significant liability, as well as regulatory action, including financial penalties, which would materially adversely affect our brand, results of operations, financial condition, business and prospects.

We have incurred, and expect to continue to incur, significant costs to protect against security breaches.

We have incurred, and expect to continue to incur, significant costs to protect against or remedy security breaches.

We may incur significant additional costs in the future to address problems caused by any actual or perceived security breaches .

Breaches of our security measures or those of our third-party service providers, or other security incidents, could result in:

Breaches of our security measures or those of our third-party service providers, or other security incidents, has and could result in:

unauthorized access to our sites, networks and systems;

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and other potential liabilities.

If any of these events occur, or is believed to occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such actual or perceived breaches, we could be exposed to a risk of loss, litigation or regulatory action and possible liability, and our ability to operate our business, including our ability to provide maintenance and support services to our channel partners and end-customers, may be impaired.

In response to the January 2023 Cyber Incident, we launched an investigation and engaged the services of cyber-security experts and advisors,

incident response professionals and external counsel to support the investigation.

While, to date, this incident has not had a material impact on our operations, it did result in additional expense incurred in connection with the investigation.

Security incidents that occur or are believed to have occurred could damage our reputation and brand, could cause our business to suffer, could require us to expend significant capital and other resources to alleviate problems caused by such actual or perceived breaches, could expose us to a risk of loss, litigation or regulatory action and possible liability, and could impair our ability to operate our business, including our ability to provide maintenance and support services to our channel partners and end-customers.

If current or prospective channel partners and end-customers believe that our systems and solutions do not provide adequate security for their businesses’ needs, our business and our financial results could be harmed.

Additionally, actual, potential or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.

In response to the COVID-19 pandemic many of our employees are currently working from home.

Additionally, future actual, potential or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.

A significant number of our employees are currently working from home.

There are additional risks and challenges associated with having a large portion of our workforce working remotely, and our IT systems may experience additional stress as a result.

There is also increased risk of breaches to our network.

While the Company has implemented a variety of security measures to address these heightened risks, there can be no assurance that such measures will prevent breaches.

Any such breaches could negatively impact our reputation and business.

While the Company has implemented a variety of security measures to address these heightened risks, including, but not limited to, advanced firewalls and firewall policy improvements, enhanced access controls, improved monitoring, network management and incident management and response process, and prioritization of our cybersecurity committee to continuously evaluate and strengthen our security posture, there can be no assurance that such measures will prevent breaches.

Any such breaches could negatively impact our reputation and business as set forth above.

Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

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The United Kingdom also recently enacted legislation that substantially implements the GDPR.

Similarly, California recently enacted the California Consumer Privacy Act, or CCPA, which, among other things, requires covered companies to provide new disclosures to California consumers and affords such consumers new rights to opt-out of certain sales of personal information.

Aspects of the CCPA and its interpretation remain unclear.

In addition, other states have enacted or proposed legislation that regulates the collection, use, and sale of personal information, and such regimes might not be compatible with either the GDPR or the CCPA or may require us to undertake additional practices.

We cannot yet predict the impact of the CCPA or impending legislation on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

Similarly, California recently enacted the California Consumer Privacy Act as well as the California Privacy Rights Act (collectively referred to as “CCPA/CPRA”), which, among other things, requires covered companies to provide new disclosures to California consumers and affords such consumers new rights including not sharing personal information upon the consumer’s request and opt-out provisions for the sales of consumer’s personal information.

Aspects of the CCPACPRA and its interpretation remain unclear.

In addition, other states have enacted or proposed legislation that regulates the collection, use, and sale of personal information, and such regimes might not be compatible with either the GDPR or the CCPA/CPRA or may require us to undertake additional practices.

We cannot yet predict the impact of the CCPA/CPRA or impending legislation on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action against us, including significant fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected persons and entities, damage to our reputation and loss of goodwill (both in relation to existing and prospective channel partners and end-customers), and other forms of injunctive or operations-limiting relief, any of which could have a material adverse effect on our operations, financial performance, and business.

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These developments could harm our business, financial condition and results of operations.

Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our products by current and prospective end-customers.

Even if not subject to

legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our products by current and prospective end-customers.

Our sales to governmental organizations are subject to a number of challenges and risks.

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Changes in our products or changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our end-customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain countries altogether.

Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations.

Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, lapse in our ability to respond to them or obtain necessary approvals and import certifications, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations.

Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, operating results and financial condition.

If we fall out of compliance with, or are deemed to be in violation of, any applicable export or import regulations, we may incur penalties and face other consequences that could harm our sales process and financial results.

We recently identified that, in certain instances, we shipped encryption products prior to obtaining the required export authorizations from the Bureau of Industry and Security (“BIS”), and prior to submitting the required classification request.

We implemented corrective actions and filed a Voluntary Self Disclosure with the BIS.

BIS issued a Warning Letter in lieu of fines and penalties, and the matter is now resolved.

We are subject to various environmental laws and regulations that could impose substantial costs upon us.

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We are also subject to the European Union Directive, known as the Waste Electrical and Electronic Equipment Directive (“WEEE Directive”), which requires producers of certain electrical and electronic equipment to properly label products, register as a WEEE producer, and provide for the collection, disposal and recycling of waste electronic products.

Failure to comply with these environmental directives and other environmental laws could result in the imposition of fines and penalties, inability to sell covered products in certain countries, the loss of revenue, or subject us to third-party property damage or personal injury claims, or require us to incur investigation, remediation or engineering costs.

or subject us to third-party property damage or personal injury claims, or require us to incur investigation, remediation or engineering costs.

Our operations and products will be affected by future environmental laws and regulations, but we cannot predict the ultimate impact of any such future laws and regulations at this time.

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• future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have higher statutory tax rates;

• examinations by US federal, state, local or foreign jurisdictions that disagree with interpretations of tax rules and regulations and the resulting positions we have taken in tax filings.

• examinations by U.S.

federal, state, local or foreign jurisdictions that disagree with interpretations of tax rules and regulations and the resulting positions we have taken in tax filings.

As our business grows, we are required to comply with increasingly complex taxation rules and practices.

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Furthermore, we provide for certain tax liabilities that involve significant judgment.

We are subject to the examination of our tax returns by federal, state.

local and foreign tax authorities, which could focus on our intercompany transfer pricing methodology as well as other matters.

We are subject to the examination of our tax returns by federal, state, local and foreign tax authorities, which could focus on our intercompany transfer pricing methodology as well as other matters.

If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results and cash flows could be adversely affected.

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A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.

For example, in May 2014, the FASB issued Accounting Standards Update No.

2014-09 (Topic 606), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S.

We adopted Topic 606 effective January 1, 2018, applying the modified retrospective method to all contracts that were not completed as of January 1, 2018.

This or other changes in accounting principles could adversely affect our financial results, including the comparability of our results.

See Note 1 Description of Business and Summary of Significant Accounting Policies of the notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for the effect of new accounting pronouncements on our financial statements.

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If we are unable to maintain effective internal controls over financial reporting, investor confidence may be adversely affected, which in turn would negatively affect the value of our common stock.

We concluded that our internal control over financial reporting was not effective as of December 31, 2018 due to material weaknesses that were remediated as of December 31, 2019.

Previous significant deficiencies and material weaknesses also resulted in a restatement of certain of our financial reports, as disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018.

We have, in the past, and may, in the future, conclude that our internal control over financial reporting is not effective.

We have identified significant deficiencies and material weakness in the past that has resulted in a restatement of certain of our financial reports.

If any new internal control procedures which may be adopted or our existing internal control procedures are deemed inadequate, or if we identify additional material weaknesses in our disclosure controls or internal controls over financial reporting in the future, we will be unable to assert that our internal controls are effective.

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• a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

• the requirement that a special meeting of stockholders may be called only by the chairman of our Board of Directors, our Chief Executive Officer, our secretary, or a majority vote of our Board of Directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

• the requirement that a special meeting of stockholders may be called only by the chairman of our Board of Directors, our Chief Executive Officer, our president (in the absence of a chief executive officer), or a majority vote of our Board of Directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

• the ability of our Board of Directors, by majority vote, to amend the bylaws, which may allow our Board of Directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt;

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Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

incorporation or our bylaws, or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter jurisdiction.

Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, any action arising pursuant to any provision of the Delaware General Corporate Law (“DGCL”), our certificate of incorporation or our bylaws, or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter jurisdiction.

This exclusive forum provision does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934.

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The currency exchange impact of the foreign exchange rates on our net income was $0.5 million unfavorable during the year ended December 31, 2022.

The currency exchange impact of the foreign exchange rates on our net income was $13 thousand favorable during the year ended December 31, 2020.

The currency exchange impact of the foreign exchange rates on our net loss was $1.4 million unfavorable during the year ended December 31, 2019.

The currency exchange impact of the foreign exchange rates on our net income was $1.9 million unfavorable during the year ended December 31, 2021.

As exchange rates vary, our operating income may differ from expectations.

We deploy normal and customary

hedging practices that are designed to proactively mitigate such exposure.

We deploy normal and customary hedging practices that are designed to proactively mitigate such exposure.

The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in currency exchange rates over the limited time the hedges are in place and would not protect us from long term shifts in currency exchange rates.

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• general economic conditions and trends;

• major catastrophic events, including COVID-19, acts of war or other events affecting the global economy, and the responses thereto;

• major catastrophic events, including COVID-19, acts of terrorism or war, or other events affecting the global economy, and the responses thereto;

• cyberattacks and other information or security breaches;

• sales of large blocks of our common stock;

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Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

As of December 31, 2021, there were approximately 0.9 million vested and exercisable options to purchase our common stock, in addition to the 77.4 million common shares outstanding as of such date.

As of December 31, 2022, there were approximately 279 thousand vested and exercisable options to purchase our common stock, in addition to the 73.7 million common shares outstanding as of such date.

All outstanding shares and all shares issuable upon exercise of outstanding and vested options are freely tradable, subject in some cases to volume and other restrictions of Rules 144 and 701 under the Securities Act, as well as our insider trading policy.

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On October 28, 2021, we announced that our Board of Directors approved a capital allocation strategy to return capital to our stockholders.

As part of this, the Board declared a quarterly dividend.

The declaration, amount and timing of any dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the declaration and

payment of cash dividends.

As part of this strategy, the Board began declaring quarterly cash dividends.

The declaration, amount and timing of any cash dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the declaration and payment of cash dividends.

Our ability to pay dividends will depend upon, among other factors, our cash flows from operations, our available capital and potential future capital requirements as well as our results of operations, financial condition and other factors beyond our control that our Board of Directors may deem relevant.

A reduction in or suspension or elimination of our dividend payments could have a negative effect on our stock price.

There is no assurance that the existence of a share repurchase program will result in repurchases of our common stock or enhance long term stockholder value, and repurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves.

There is no assurance that the existence of a stock repurchase program will result in repurchases of our common stock or enhance long term stockholder value, and repurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves.

On October 28, 2021, we announced that our Board of Directors approved a capital allocation strategy to return capital to our stockholders.

As part of this, the Board authorized a $100 million share repurchase program under which we may repurchase up to $100 million of our outstanding common stock over the following 12 months.

Under the share repurchase program, we may repurchase shares in the open market, privately negotiated transactions, in block trades or a combination of the foregoing.

We are not obligated under the share repurchase program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the share repurchase program at any time.

As part of this strategy, the Company announced on November 1, 2022 that its Board authorized a $50 million stock repurchase program under which we may repurchase up to $50 million of our outstanding common stock over the following 12 months.

Under the stock repurchase program, we may repurchase shares in the open market, privately negotiated transactions, in block trades or a combination of the foregoing.

We are not obligated under the stock repurchase program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the stock repurchase program at any time.

Our management and Board will determine the timing and amount of any repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements.

Repurchases pursuant to the share repurchase program or any other share repurchase program we adopt in the future could affect our stock price and increase its volatility and will reduce the market liquidity for our stock.

The existence of a share repurchase program could also cause our stock price to be higher than it would be in the absence of such a program.

The Company plans to fund repurchases from its existing cash balance and cash provided by operating activities.

Repurchases pursuant to our current stock repurchase program or any other stock repurchase program we adopt in the future could affect our stock price and increase its volatility and will reduce the market liquidity for our stock.

The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program.

Additionally, these repurchases will diminish our cash reserves, which could impact our ability to pursue possible future strategic opportunities and acquisitions and would result in lower overall returns on our cash balances.

There can be no assurance that any share repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value.

Although the share repurchase programs is intended to enhance long term stockholder value, short-term stock price fluctuations could reduce the effectiveness.

For example, on September 8, 2022, we entered into a Common Stock Repurchase Agreement with entities affiliated with Summit Partners whereby the Company purchased 3.5 million shares of common stock for $12.75 per share, or an aggregate purchase price of $44.6 million.

There can be no assurance that any additional stock repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value.

Although the stock repurchase programs is intended to enhance long term stockholder value, short-term stock price fluctuations could reduce the effectiveness.

Unresolved Staff Comments

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 1A. Risk Factors