What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-03-08 · 89 added, 167 removed, 231 unchanged (53% of the section changed)

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Risk Factors of this Form 10-K and elsewhere in this document.

This section of the Form 10-K generally discusses fiscal 2022 and 2021 items and year-to-year comparisons between fiscal 2022 and 2021.

Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and 2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 8, 2022.

We are a leading provider of networking solutions that enable next-generation networks focused on reliability, availability, scalability and cybersecurity.

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Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

We derive revenue from sales of products and related support services.

Products revenue is generated primarily by sales of hardware appliances with perpetual licenses to our embedded software solutions.

We also derive revenue from licenses to, or subscription services for, software-only versions of our solutions.

We generate services revenue primarily from sales of maintenance and support contracts.

Our customers predominantly purchase maintenance and support in conjunction with purchases of our products.

In addition, we also derive revenue from the sale of professional services.

We derive revenue from two sources:

(i) products revenue, which includes hardware, perpetual software license and subscription offerings, which include term-based license agreements and software-as-a-service;

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

Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and the subscription term has commenced.

For our software-as-a-service offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement.

Revenue in these arrangements is recognized ratably as the services are provided.

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

Our customers predominantly purchase PCS services in conjunction with purchases of our products.

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.

We report two customer verticals:

service providers and enterprises and we report customer revenues in three broad geographic regions:

the Americas, APJ and EMEA regions.

In the three months ended March 31, 2022, we changed the way we present revenue by geographic region.

The Americas region comprises the United States and all other countries in America (excluding the United States).

The APJ region comprises Japan and all other countries in APAC (excluding Japan).

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

This change in the way we report revenue had no impact to our key metrics including operations, comprehensive income and accumulated deficit.

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, 2021, we had sold products to more than 7,700 customers worldwide.

As of December 31, 2022, we had sold products to over 8,000 customers worldwide since our inception.

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.

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We perform quality assurance and testing at our San Jose, Taiwan and Japan distribution centers, as well as at our manufacturers’ locations.

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

During 2022, (i) 53% of our total revenue was generated from the Americas region, of which 46% was generated from the United States, (ii) 32% was generated from the APJ region, of which 20% was generated from Japan, and (iii) 15% was generated from the EMEA region.

During 2021, (i) 48% of our total revenue was generated from the Americas region, of which 40% was generated from the United States, (ii) 37% was generated from the APJ region, of which 25% was generated from Japan, and (iii) 15% was generated from the EMEA region.

During 2020, (i) 43% of our total revenue was generated from the Americas region, of which 37% was generated from the United States, (ii) 43% was generated from the APJ region, of which 30% was generated from Japan, and (iii) 14% was generated from the EMEA region.

Our enterprise customers accounted for 34%, 37% and 39% of our total revenue during 2022, 2021 and 2020, respectively.

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Purchases from our ten largest end-customers accounted for 41%, 39% and 41% of our total revenue for 2022, 2021 and 2020, 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.

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Results of Operations

A summary of our consolidated statements of operations for the year ended December 31, 2021, 2020 and 2019 are as follows (dollars in thousands):

A summary of our consolidated statements of operations for the years ended December 31, 2022 and 2021 are as follows (dollars in thousands):

Years Ended December 31,

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Non-operating income (expense):

Interest expense — — (1) — 1 (100.0) %

Interest and other income, net (1,746) (0.7) 1,407 0.6 (3,153) (224.1) %

Interest income 1,304 0.5 409 0.2 895 218.8 %

Interest and other income (expense), net (1,667) (0.6) (2,155) (0.9) 488 (22.6) %

Total non-operating income (expense), net (363) (0.1) (1,746) (0.7) 1,383 (79.2) %

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Net income $ 46,908 16.7 % $ 94,887 37.9 % $ (47,979) (50.6) %

Years Ended December 31,

2020 2019 Increase (Decrease)

Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent

Products $ 129,876 57.6 % $ 121,920 57.3 % $ 7,956 6.5 %

Services 95,651 42.4 90,708 42.7 4,943 5.4 %

Total revenue 225,527 100.0 212,628 100.0 12,899 6.1 %

Cost of revenue:

Products 29,109 12.9 29,816 14.0 (707) (2.4) %

Services 21,039 9.3 19,065 9.0 1,974 10.4 %

Total cost of revenue 50,148 22.2 48,881 23.0 1,267 2.6 %

Gross profit 175,379 77.8 163,747 77.0 11,632 7.1 %

Operating expenses:

Sales and marketing 77,732 34.5 92,783 43.6 (15,051) (16.2) %

Research and development 58,063 25.7 61,824 29.1 (3,761) (6.1) %

General and administrative 21,851 9.7 23,704 11.1 (1,853) (7.8) %

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

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

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

Non-operating income (expense):

Interest expense (1) — (237) (0.1) 236 (99.6) %

Interest and other income, net 1,407 0.6 919 0.4 488 53.1 %

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

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

We derive revenue from two sources:

(i) products revenue, which includes hardware, perpetual software license and subscription offerings, which include term-based license agreements and software-as-a-service;

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

Our products revenue primarily consists of revenue from sales of our hardware appliances upon which our software is installed.

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Purchase of a hardware appliance includes a perpetual license to the included software.

We recognize products revenue upon transfer of control, generally at the time of shipment, provided that all other revenue recognition criteria have been met.

Additionally, currently a small portion of our products revenue comes from subscription revenue for our Cloud service offerings.

We offer several products by subscription, primarily through either term-based license agreements or as a service through our cloud-based platform.

With respect to sales of our hardware appliances, we recognize products revenue upon transfer of control, generally at the time of shipment, provided that all other revenue recognition criteria have been met.

Revenue for term-based license agreements is recognized at a point in time when we deliver the software license to the customer and the subscription term has commenced.

For our software-as-a-service offerings, our customers do not take possession of our software but rather we provide access to the service via a hosting arrangement.

Revenue in these arrangements is recognized ratably as the services are

As a percentage of revenue, our products revenue may vary from quarter to quarter based on, among other things, the timing of orders and delivery of products, cyclicality and seasonality, changes in currency exchange rates and the impact of significant transactions with unique terms and conditions.

We generate services revenue from sales of post contract support (“PCS”), which is bundled with sales of products and professional services.

We generate services revenue from sales of post contract support (“PCS”), which is bundled with sales of products and technical services.

We offer tiered PCS services under renewable, fee-based PCS contracts, primarily including technical support, hardware repair and replacement parts, and software upgrades on a when-and-if-available basis.

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Americas $ 148,673 53 % $ 121,169 48 % $ 27,504 23 %

Japan 61,700 25 67,050 30 (5,350) (8) %

Asia Pacific, excluding Japan 28,674 12 29,760 13 (1,086) (4) %

EMEA 38,499 15 30,567 14 7,932 26 %

Total revenue $ 250,042 100 % $ 225,527 100 % $ 24,515 11 %

Years Ended December 31,

2020 2019 Increase (Decrease)

Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent

Products $ 129,876 58 % $ 121,920 57 % $ 7,956 7 %

Services 95,651 42 90,708 43 4,943 5 %

Total revenue $ 225,527 100 % $ 212,628 100 % $ 12,899 6 %

Revenue by geographic region:

Americas $ 98,150 43 % $ 89,944 42 % $ 8,206 9 %

United States 129,397 46 % 99,484 40 % 29,913 30 %

Americas-other 19,276 7 % 21,685 8 % (2,409) (11) %

APJ 89,702 32 % 90,374 37 % (672) (1) %

APAC 32,986 12 % 28,674 12 % 4,312 15 %

Japan 56,716 20 % 61,700 25 % (4,984) (8) %

Asia Pacific, excluding Japan 29,760 13 35,689 17 (5,929) (17) %

EMEA 41,963 15 % 38,499 15 % 3,464 9 %

Total revenue $ 280,338 100 % $ 250,042 100 % $ 30,296 12 %

2021 Revenue Compared to 2020 Revenue

Total revenue increased by $30.3 million, or 12%, in 2022 compared to 2021.

This increase was due to a $24.8 million increase in products revenue and a $5.5 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.

Products revenue increased $24.8 million, or 17%, in 2022 compared to 2021 primarily driven by higher demand from our service provider customers in the Americas, APAC and EMEA regions, partially offset by lower demand from service provider customers in Japan.

Services revenue increased $5.5 million, or 5%, in 2022 compared to 2021.

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

The increase was primarily attributable to the increase in PCS sales in connection with our increased installed customer base in the Americas and EMEA regions.

During 2022, $148.7 million, or 53% of total revenue, was generated from the Americas, which represents a 23% increase compared to 2021.

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.

During 2022, $89.7 million, or 32% of total revenue, was generated from APJ, which represents a 1% decrease compared to 2021.

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 2022, $42.0 million, or 15% of total revenue, was generated from EMEA, which represented an 9% increase compared to 2021.

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.

Services revenue increased $4.9 million, or 5%, in 2020 compared to 2019.

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

During 2020, $98.2 million, or 43% of total revenue, was generated from the Americas, which represents a 9% increase compared to 2019.

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

During 2020, $67.1 million, or 30% of total revenue, was generated from Japan, which represents a 13% increase compared to 2019.

The increase was mainly due to increased revenue from our service provider customers.

During 2020, $29.8 million, or 13% of total revenue, was generated from the Asia Pacific region excluding Japan, which represents a 17% decrease compared to 2019.

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

During 2020, $30.6 million, or 14% of total revenue, was generated from EMEA, which represented an 11% increase compared to 2019.

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

Cost of Revenue, Gross Profit and Gross Margin

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Total cost of revenue $ 56,832 $ 53,505 $ 3,327 6 %

Years Ended December 31, Increase (Decrease)

2020 2019 Amount Percent

Cost of revenue:

Products $ 29,109 $ 29,816 $ (707) (2) %

Services 21,039 19,065 1,974 10 %

Total cost of revenue $ 50,148 $ 48,881 $ 1,267 3 %

Gross margin may vary and be unpredictable from period to period due to a variety of factors.

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Total gross profit $ 223,506 79.7 % $ 196,537 78.6 % $ 26,969 1.1 %

Years Ended December 31,

2020 2019 Increase (Decrease)

Amount Gross Margin Amount Gross Margin Amount Gross Margin

Gross profit:

Products $ 100,767 77.6 % $ 92,104 75.5 % $ 8,663 2.1 %

Services 74,612 78.0 % 71,643 79.0 % 2,969 (1.0) %

Total gross profit $ 175,379 77.8 % $ 163,747 77.0 % $ 11,632 0.8 %

2021 Gross Margin Compared to 2020 Gross Margin

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

Products gross margin decreased by 1.2% in 2022 compared to 2021 primarily driven by changes in product and geographic mix.

Services gross margin increased by 4.9% in 2022 compared to 2021 primarily due to a decrease in personnel related support costs.

2020 Gross Margin Compared to 2019 Gross Margin

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

Our operating expenses consist of sales and marketing, research and development, general and administrative, and restructuring expenses.

The largest component of our operating expenses is personnel costs which consist of wages, benefits, bonuses, and, with respect to sales and marketing expenses, sales commissions.

The largest component of our operating expenses is personnel costs which consist of wages, benefits,

bonuses, and, with respect to sales and marketing expenses, sales commissions.

Personnel costs also include stock-based compensation.

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Total operating expenses $ 170,427 $ 163,149 $ 7,278 4 %

Years Ended December 31, Increase (Decrease)

2020 2019 Amount Percent

Operating expenses:

Sales and Marketing

Research and development 58,063 61,824 (3,761) (6) %

General and administrative 21,851 23,704 (1,853) (8) %

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

Total operating expenses $ 157,646 $ 180,841 $ (23,195) (13) %

* not meaningful

Sales and Marketing

Sales and marketing expenses are our largest functional category of operating expenses and primarily consist of personnel costs.

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.

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.

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.

The $2.9 million increase in sales and marketing expenses in 2022 compared to 2021 was primarily due to increases of $1.6 million in travel and related expenses, $1.0 million in marketing activities and events and $0.3 million in consulting expense.

In 2023, we expect sales and marketing expenses to increase from 2022 levels in line with overall revenue growth as we apply a disciplined approach to focus our investments in areas that offer the greatest opportunities.

Research and Development

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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.

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.

The $4.3 million increase in research and development expenses in 2022 compared to 2021 was primarily due to a $5.0 million increase in consulting expense as the Company transitions to using non-employee consultants for certain research and developments activities and a $0.8 million increase in software expenses.

This increase was partially offset by a $1.4 million decrease in salary and benefit expenses as a result of a decrease in headcount.

In 2023, we expect research and development expenses to increase from 2022 levels reflecting strategic investments in our growth priorities, including cybersecurity technology.

General and Administrative

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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.

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

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

The restructuring plan resulted in a reduction of approximately 5% of our workforce and the closure and consolidation of certain U.S.

and international office facilities.

The restructuring was completed by the end of the second fiscal quarter of 2020.

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

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

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

Facilities closure expenses — 435 89 — 524

Legal fees — — — 89 89

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

Interest Expense

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

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

Interest and Other Income, Net

The $0.1 million increase in general and administrative expenses in 2022 compared to 2021 was primarily due to a $2.8 million increase in consulting expense as the Company transitions to using non-employee consultants for certain general and administrative activities.

Additionally, business expenses increased $1.7 million primarily related to an increase in property tax expense.

These increases were partially offset by a decrease of $4.4 million in salary and benefit expenses as a result of a decrease in headcount.

In 2023, we expect general and administrative expenses to remain stable as we apply a disciplined approach to focus our investments in areas that offer the greatest opportunities.

Non-Operating Income (Expense) - Interest Income

Interest income consists primarily of interest income earned on our cash and cash equivalents and marketable securities.

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 income was $1.3 million and $0.4 million in the years ended December 31, 2022 and 2021, respectively.

Non-Operating Income (Expense) - Interest and Other Income (Expense), Net

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

Interest and other income (expense), net, had a favorable change of $0.5 million, or 23%, in 2022 compared to 2021 primarily driven by a $1.5 million favorable change in foreign currency exchange gains and losses, partially offset by a $1.0 million impairment of an equity investment held by the Company.

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.

We recorded an income tax provision of $5.8 million for the year ended December 31, 2022 and recorded an income tax benefit of $(63.2) million for the year ended December 31, 2021.

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.

Prior to 2021 and since inception, the Company had maintained a full valuation.

Since 2021, federal deferred tax assets are no longer subject to a valuation allowance.

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

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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.

The Company’s income tax provision for the year ended December 31, 2022 primarily consisted of federal income taxes.

Our income tax provision for the years ended December 31, 2021 primarily consisted of foreign income taxes.

See Note 9 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.

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If we are unable to raise additional capital when desired, our business, operating results and financial condition could be adversely affected.

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.

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

Chen for approximately $13.3 million.

On September 8, 2022, we entered into a Common Stock Repurchase Agreement (the “Repurchase Agreement”) with Summit Partners Growth Equity Fund VIII-A, L.P., Summit Partners Growth Equity Fund VIII-B L.P., Summit Investors I, LLC and Summit Investors I (UK), L.P.

(collectively, “Summit”).

Pursuant to the Repurchase Agreement, we repurchased 3.5 million shares of common stock from Summit for approximately $44.6 million.

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

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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.

This repurchase program was also active for twelve months and expired in the second half of 2022.

On November 1, 2022, the Company announced its Board of Directors authorized a new stock repurchase program of up to $50 million of its common stock over a period of twelve months (the “2022 Program”).

As of December 31, 2022, the Company had $50.0 million available to repurchase shares under the 2022 Program.

Under all 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 these programs have occurred in the open market.

To date, all repurchases under these programs, other than the repurchase from Summit, have occurred in the open market.

During the year ended December 31, 2022, the Company repurchased 6.1 million shares for a total cost of $79.3 million.

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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.

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

In October 2022, our Board approved an increase in the amount of the quarterly cash dividend to $0.06 per share.

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

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Years Ended December 31,

2021 2020 2019

Cash provided by (used in):

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Financing activities (88,141) (16,383)

Net increase (decrease) in cash and cash equivalents $ (4,356) $ 37,539 $ 5,121

Net decrease in cash and cash equivalents $ (10,954) $ (4,356)

Cash Flows from Operating Activities

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During the year ended December 31, 2022, cash provided by operating activities was $66.1 million, consisting of net income of $46.9 million, partially offset by a non-cash benefit of $21.5 million and an unfavorable net change in operating assets and liabilities of $2.3 million.

Our non-cash benefit consisted primarily of non-cash charges of $13.3 million for stock-based compensation and $7.4 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 $10.1 million and accrued and other liabilities of $1.3 million, partially offset by cash inflows from changes in deferred revenue of $5.4 million, inventory of $2.0 million and prepaid expenses and other assets of $1.6 million.

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

The favorable change in deferred revenues was attributable to the timing of service contract bookings.

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.

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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.

Our non-cash charges consisted primarily of stock-based compensation expense of $12.3 million and depreciation and amortization expenses of $11.3 million.

The net change in our operating assets and liabilities primarily reflects cash inflows from the changes in deferred revenue of $7.5 million, accrued liabilities and other of $3.9 million, accounts receivable of $2.3 million and prepaid expenses and other assets of $1.1 million, partially offset by cash outflows from changes in accounts payable of $2.7 million.

The unfavorable change in accounts payable was due to the timing of payments to our vendors.

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.

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.

The unfavorable change in accrued liabilities and other was driven by an increase in lease liabilities associated with the lease of the San Jose corporate office.

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 revenue was primarily driven by increased bookings.

Cash Flows from Investing Activities

During the year ended December 31, 2022, cash used in investing activities was $11.1 million, consisting of purchases of marketable securities of $55.4 million and property and equipment of $10.8 million, partially offset by proceeds from maturities of marketable securities of $71.0 million and sales of marketable securities of $6.3 million.

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.

Cash Flows from Financing Activities

During the year ended December 31, 2022, cash used in financing activities was $88.1 million consisting primarily of $79.3 million of cash used to repurchase our common stock and $15.9 million used for the payments of cash dividends, partially offset by $7.0 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, 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.

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

Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and the subscription term has commenced.

For our software-as-a-service offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement.

Revenue in these arrangements is recognized ratably as the services are provided.

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

Our customers predominantly purchase PCS services in conjunction with purchases of our products.

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

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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.

11 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