What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-02-27 · 248 added, 223 removed, 729 unchanged (39% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report s of Independent Registered Public Accounting Firm - Grant Thornton LLP (PCAOB ID:

Report of Independent Registered Public Accounting Firm - Armanino LLP (PCAOB ID:

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Consolidated Statements of Operations for the years ended December 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 2 , 202 1 and 2020

Consolidated Statements of Comprehensive Income for the years ended December 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 3 , 202 2 and 2021

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and subsidiaries (the Company) as of December 31, 2022 and 2021 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the three years ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the three years ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

Basis for Opinions

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

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.

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

Board of Directors and Stockholders

A10 Networks, Inc.

Opinion on the financial statements

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

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 29, 2024 expressed an unqualified opinion.

Basis for opinion

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

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

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Revenue Recognition - Determination of standalone selling price for performance obligations not sold separately

As described further in Note 1 to the consolidated financial statements, most of the Company’s revenue contracts, other than renewals of post contract support, contain multiple performance obligations with a combination of products and post contract support.

Products and post contract support generally qualify as distinct performance obligations.

For contracts that contain multiple performance obligations, the Company allocates revenue to each distinct performance obligation based on the standalone selling price.

Judgment is required to determine the standalone selling price for each distinct performance obligation.

The Company uses a range of amounts to estimate standalone selling price for products and post contract support sold together in a contract to determine whether there is a discount to be allocated based on the relative standalone selling price of the various products and post contract support.

We identified estimates of standalone selling price as a critical audit matter.

The principal consideration for our determination that estimates of standalone selling price is a critical audit matter is that auditing the estimates involved subjective auditor judgment due to the absence of directly observable data which requires the Company to make subjective assumptions used to estimate the standalone selling price for each performance obligation.

If the Company does not have an observable standalone selling price, such as when they do not sell a product or service separately, then standalone selling price 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.

The Company generally uses a range of amounts to estimate standalone selling price 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 products and services are sold, and the size of the end-customer.

Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer contracts was extensive and required subjective auditor judgment.

We obtained an understanding, evaluated design and tested the operating effectiveness of internal controls related to the determination of the standalone selling price for performance obligations not sold separately.

To test management’s estimates of standalone selling price, we performed procedures to evaluate the methodology applied, including evaluating whether management maximized the use of observable inputs.

We also inspected the sources of historical data used, evaluated pricing practices, and other observable inputs such as customer grouping, tested the mathematical accuracy of the underlying data and evaluated the accounting policies and practices related to the estimated standalone selling prices by management.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2023.

San Jose, California

February 29, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

A10 Networks, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of A10 Networks, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023, and our report dated February 29, 2024 expressed an unqualified opinion on those financial statements.

Basis for opinion

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

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

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

Definition and limitations of internal control over financial reporting

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

Critical Audit Matter

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

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

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

Critical Audit Matter Description

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

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

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

• Determination whether the identified performance obligations are distinct

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

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

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

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

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

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

Income Taxes — Refer to Note 1 and Note 9 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company is subject to income taxes in the United States and multiple international tax jurisdictions.

The Company recorded a provision for income taxes of $5.8 million for the year ended December 31, 2022 and net deferred tax assets of $63.2 million and unrecognized tax benefits of $7.1 million as of December 31, 2022.

Significant judgment is exercised by the Company in determining the provision for income taxes and other tax positions, which includes the following:

• Application of complex tax laws and regulations, which are subject to legal and factual interpretation

• Projections and assumptions used to estimate the future utilization of tax credits

Given these factors, the related audit effort in evaluating management’s judgments in determining the provision for income taxes and other tax positions was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company’s income taxes included the following:

• We tested the design and operating effectiveness of controls relating to the income tax process

• We involved income tax professionals with specialized skills and knowledge, who assisted in:

◦ evaluating the Company’s interpretation of tax laws and assessing the technical merits of the Company’s tax positions

◦ analyzing the Company’s tax positions, including the assumptions and methodology of tax credits and unrecognized tax benefits

◦ testing the mathematical accuracy of the underlying data and calculations, including the effective tax rates and permanent and temporary differences

◦ evaluating the appropriateness of the related disclosures included in Note 9 to the consolidated financial statements related to these matters

/s/ GRANT THORNTON LLP

San Jose, California

February 29, 2024

Report of Independent Registered Public Accounting Firm

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

Opinion on the Consolidated Financial Statements

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

and subsidiaries (the Company) as of December 31, 2022 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the two years ended December 31, 2022, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the two years ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements.

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

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

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

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

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

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

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

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

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

/s/ Armanino LLP

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February 27, 2023

We have served as the Company’s auditor since 2019.

We served as the Company’s auditor since 2019.

In 2023, we became the predecessor auditor.

A10 NETWORKS, INC.

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(in thousands, except par value)

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Current assets:

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Goodwill 1,307 1,307

Intangible assets — —

Deferred tax assets, net 62,725 63,183

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General and administrative 23,885 23,518 23,421

Restructuring expense — — —

Total operating expenses 165,090 170,427 163,149

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A10 NETWORKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

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Net income $ 39,970 $ 46,908 $ 94,887

Other comprehensive loss, net of tax:

Unrealized loss on marketable securities ( 497 ) ( 327 ) ( 153 )

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on marketable securities, net of tax 911 ( 497 ) ( 327 )

Foreign currency translation adjustment ( 256 ) — —

Comprehensive income $ 40,625 $ 46,411 $ 94,560

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Repurchase of common stock ( 1,717 ) — ( 18,267 ) — — — — ( 18,267 )

Payments for dividends — — — — ( 3,880 ) — — ( 3,880 )

Unrealized loss on marketable securities, net of tax — — — — — ( 327 ) — ( 327 )

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Payments for dividends — — — — ( 17,817 ) — — ( 17,817 )

Unrealized loss on marketable securities, net of tax — — — — — ( 497 ) — ( 497 )

Unrealized gain on marketable securities, net of tax — — — — — 911 — 911

Other comprehensive loss — — — — — ( 256 ) — ( 256 )

Net Income — — — — — — 39,970 39,970

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Net income $ 39,970 $ 46,908 $ 94,887

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

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 9,346 7,381 8,907

Stock-based compensation 14,081 13,331 14,422

Provision for doubtful accounts and sales returns ( 36 ) ( 616 ) ( 78 )

Provision for credit losses and sales returns ( 699 ) ( 36 ) ( 616 )

Release of deferred tax asset valuation allowance and other adjustments — — ( 64,186 )

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Purchases of marketable securities ( 85,420 ) ( 55,411 ) ( 128,554 )

Purchases of property and equipment ( 10,799 ) ( 5,171 ) ( 3,564 )

Capital expenditures ( 10,896 ) ( 10,799 ) ( 5,171 )

Net cash provided by (used in) investing activities 13,608 11,087 ( 38,070 )

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GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Those estimates and assumptions affect revenue recognition and deferred revenue, the allowance for doubtful accounts, the sales return reserve, the valuation of inventory, the fair value of marketable securities, contingencies and litigation, accrued liabilities, deferred commissions and the determination of fair value of stock-based compensation.

Those estimates and assumptions affect revenue recognition and deferred revenue, the allowance for credit losses for potential uncollectible amounts, the sales return reserve, the valuation of inventory, the fair value of marketable securities, contingencies and litigation, accrued liabilities, deferred commissions and the determination of fair value of stock-based compensation.

These estimates are based on information available as of the date of the consolidated financial statements;

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We classify our investments in debt securities as available-for-sale and record these investments at fair value.

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

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

We may sell these investments at any time before their maturity dates.

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

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

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

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

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

Investments are considered impaired when a decline in fair value is judged to be other-than-temporary.

If the cost of an individual investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment.

Once a decline in fair value is determined to be other-than-temporary, we will record an impairment charge and establish a new cost basis in the investment.

Realized gains and losses and credit allowances and impairments due to credit losses, if any, on marketable securities are reported in interest and other income, net as incurred in the consolidated statements of operations.

We regularly review our investment portfolio for impairment.

If the estimated fair value of available-for-sale debt securities is less than its amortized cost basis, we determine if the difference, if any, is caused by expected credit losses and write-down the amortized cost basis of the securities if it is more likely than not we will be required or we intend to sell the securities before recovery of its amortized cost basis.

Allowances for credit losses and write-downs are recognized in the non-operating income (expense) section of our consolidated statements of operations.

The Company also invests in equity securities with readily determinable fair values which consist of investments in publicly traded companies.

These investments are measured at fair value with changes in fair value recognized in our consolidated statements of operations.

Fair Value Measurement

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Marketable securities are typically comprised of certificates of deposit, corporate securities, U.S.

Treasury and agency securities, commercial paper and asset-backed securities and are measured at fair value on a recurring basis.

Accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment.

Treasury and agency securities, commercial paper, asset-backed securities and publicly trader equity securities and are measured at fair value on a recurring basis.

The Company determines whether a credit loss exists for available-for-sale debt securities in an unrealized loss position.

When the fair value of a security is below its amortized cost, the amortized cost will be reduced to its fair value and the resulting loss will be recorded in our consolidated statements of operations, if it is more likely than not that we are required to sell the impaired security before recovery of its amortized cost basis, or we have the intention to sell the security.

If neither of these conditions are met, the Company considers the extent to which the fair value is less than the amortized cost, any changes to the rating of the security by a rating agency, and review of the issuer's financial statements.

If factors indicate a credit loss exists, an allowance for credit loss is recorded through other expense, net, limited by the amount that the fair value is less than the amortized cost basis.

For all available-for-sale debt securities, unrealized gains and the amount of unrealized loss relating to factors other than credit loss are reported as a separate component of accumulated other comprehensive loss in our consolidated balance sheets.

Realized gains and losses are determined based on the specific identification method and are reported in our consolidated statements of operations.

Financial instruments recorded at fair value are measured and classified using the three-level valuation hierarchy as described below:

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Level 3 — unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions when pricing the financial instruments.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at invoice amounts, net of allowances for doubtful accounts.

Accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are unsecured and are recorded at invoice amounts, net of allowances for credit losses for any potential uncollectible amounts.

We evaluate the collectability of our accounts receivable based on known collection risks and historical experience.

In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (for examples, bankruptcy filings or substantial downgrading of credit ratings), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected.

For all other customers, we record reserves for bad debts based on the length of time the receivables are past due and our historical experience of collections and write-offs.

We mitigate credit risk in respect to accounts receivable by performing periodic credit evaluations based on a number of factors, including past transaction experience, evaluation of credit history and review of the invoicing terms of the contract.

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

In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (for examples, bankruptcy filings or substantial downgrading of credit ratings), we record a specific allowance for credit losses against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected.

For all other customers, we record allowances for credit losses based on the length of time the receivables are past due and our historical experience of collections and write-offs.

Inventory is stated at the lower of cost or net realizable value.

Inventory cost is determined using first-in, first-out method.

We evaluate inventory for excess and obsolete products, based on management’s assessment of future demand and market conditions.

We regularly evaluate inventory for excess and obsolete products.

Most of our inventory provisions relate to excess quantities of certain products, based on our inventory levels and future product purchase commitments compared to assumptions based on management’s assessment of future demand and market conditions.

Inventory write-downs, once established, are not reversed as they establish a new cost basis for the inventory.

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

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

Intangible Assets

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

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

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

There were no impairment charges to our intangible assets during the years ended December 31, 2023, 2022 and 2021.

Our purchased intangible assets were fully amortized as of December 31, 2021.

Impairment of Long-Lived Assets

We evaluate our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of our long-lived assets may not be recoverable.

Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate.

Recoverability of an asset group is measured by comparison

of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate.

If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value.

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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.

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

Revenue in these arrangements is recognized over time 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.

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

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

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

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

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

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

Billed but unearned PCS revenue is included in deferred revenue.

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

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

We estimate returns for sales to customers based on historical return rates applied against

current-period shipments.

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

Our policy applies to the accounting for individual contracts.

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

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

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

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

We report revenue net of sales taxes.

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Deferred commissions related to services revenue are recognized as the related performance obligations are met.

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

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

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

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We expense research and development costs as incurred.

Capitalization of Internal Use Software

The company capitalizes costs incurred during the application development stage associated with the development of internal-use software systems.

We account for the capitalization of internal-use software under ASC Topic 350-40, Internal-Use Software .

Capitalized costs are included in property and equipment, net on the Company’s consolidated balance sheet.

Once a project is available for general release to customers, the accumulated capitalized costs associated with that project will begin to be amortized over the estimated useful life of the software.

Capitalization of Internally Developed Software to be Marketed and Sold

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We account for the capitalization of labor costs under Accounting Standards Codification (“ASC”) Topic 985-20, Software to be Sold, Leased or Marketed .

Once a long-term project is available for general release to customers, the accumulated capitalized labor costs associated with that project will begin to be amortized over the expected revenue-generating life of that project.

In December 2022, we released the software portion of our first capitalized project and impaired the remaining uncompleted hardware portion that we determined would not generate sufficient revenue to justify the cost of completing it.

When internal-use software that was previously capitalized is abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense within operating expenses.

During the years ended December 31, 2022, 2021 and 2020, capitalized labor costs, net of the software release and the one-time hardware impairment that occurred in December 2022, totaled $ 3.5 million, $ 3.1 million and $ 1.6 million, respectively, and are included in property and equipment in the consolidated balance sheets.

In December 2022, we released the software portion of our first capitalized project and impaired the uncompleted hardware portion that we determined would not generate sufficient revenue to justify the cost of completing it.

When internal-use software that was previously capitalized is abandoned, the cost less the accumulated amortization, if any, is recorded as an operating expense.

In September 2023, we released our second capitalized project after we impaired a portion of it after we determined the full carrying value was not recoverable.

Stock-Based Compensation

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

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

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

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

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

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

Stock-based compensation expense related to shares not purchased due to terminations, or forfeitures, is reversed on the date of forfeiture.

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

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

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

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

Years Ended December 31,

2023 2022 2021

Customer A (a distribution channel partner) 15 % 12 % *

Customer B (a distribution channel partner) 13 % * *

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

Customer D (an end-customer) 11 % 11 % 12 %

Customer A 14 % 11 % 11 %

Customer B * 13 % *

* represents less than 10% of total revenue

As of December 31, 2022, two customers accounted for 21 % each of our total gross accounts receivable.

As of December 31, 2023, one customer accounted for 19 % of our total gross accounts receivable.

As of December 31, 2022, two customers accounted for 21 % and 21 % of our total gross accounts receivable.

Recently Adopted Accounting Pronouncements

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

2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended, using a modified retrospective approach, with certain exceptions allowed.

The standard amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model.

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

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

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

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

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

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

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

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

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

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

Under ASU 2018-13, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

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

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

Simplifying the Accounting for Income Taxes .

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

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

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

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

In October 2020, the FASB issued ASU No.

2020-10, Codification Improvements .

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

The amendments in this update do not change U.S.

GAAP and are not expected to result in a

significant change in practice.

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

Recent Accounting Standards Not Yet Adopted

In November 2023, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07 , as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of adopting ASU 2023-07 .

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of adopting ASU 2023-09 .

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the year ended December 31, 2023 that are of significance or potential significance to us.

Contract Balances

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

Balance Sheet Line Reference December 31,

2022 December 31,

Balance Sheet Line Reference As of December 31, 2023 As of December 31, 2022

Accounts receivables, net $ 74,307 $ 72,928

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Deferred revenue consisted of the following (in thousands):

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Deferred revenue:

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

As of December 31, 2023

Within 1 year $ 82,657

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

December 31, 2022 December 31, 2021

As of December 31, 2023 As of December 31, 2022

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

3 unchanged sentences

Asset-backed securities — — — — 8,331 — ( 94 ) 8,237

Total $ 83,954 $ — $ ( 936 ) $ 83,018 $ 106,347 $ 1 $ ( 231 ) $ 106,117

Debt securities $ 56,354 $ 8 $ ( 34 ) 56,328 $ 83,954 $ — $ ( 936 ) 83,018

Publicly held equity securities 5,728 —

Total marketable securities $ 62,056 $ 83,018

During the years ended December 31, 2023 and 2022, the Company did not reclassify any amount to earnings from accumulated other comprehensive income (loss) related to unrealized gains or losses.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of December 31, 2022 (in thousands):

During the year ended December 31, 2023, the Company sold certain debt securities at a loss and realized a $ 0.3 million loss.

The Company anticipates that it will recover the entire amortized cost basis of its available-for-sale marketable securities and has determined that no allowance for credit losses was required to be recognized during the years ended December 31, 2023 and 2022.

The following table summarizes the cost and estimated fair value of debt securities based on stated effective maturities as of December 31, 2023 (in thousands):

Amortized Cost Fair Value

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

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

As such, the Company determined that as of December 31, 2023, there were no credit losses on any securities within its portfolio of marketable securities.

Fair Value Measurements

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

December 31, 2022 December 31, 2021

As of December 31, 2023 As of December 31, 2022

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

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Asset-backed securities — — — — — 8,237 — 8,237

$ 109,945 $ 43,627 $ — 153,572 $ 67,971 $ 83,018 $ — 150,989

Publicly held equity securities - Level 1 5,728 —

Total $ 159,300 $ 150,989

There were no transfers between Level 1 and Level 2 fair value measurement categories during the years ended December 31, 2023 and 2022.

Foreign Exchange Forward Contracts

The Company uses derivative financial instruments to manage exposures to foreign currency that may or may not be designated as hedging instruments.

The Company’s objective for holding derivatives is to use the most effective methods to minimize the impact of these exposures.

The Company does not enter into derivatives for speculative or trading purposes.

The Company enters into foreign exchange forward contracts primarily to mitigate the effect of gains and losses generated by foreign currency transactions related to certain operating expenses and remeasurement of certain assets and liabilities denominated in foreign currencies.

For foreign exchange forward contracts not designated as hedging instruments, the fair value of the derivatives in a net gain or not loss position are recorded in prepaid expenses and other current assets in the consolidated balance sheets.

Changes in the fair value of derivatives are recorded in other income, net in the consolidated statements of operations.

As of December 31, 2023 and 2022, foreign exchange forward currency contracts not designated as hedging instruments had the total notional amount of $ 34.5 million and $ 27.0 million, respectively.

These contracts have maturities of less than 30 days.

For the years ended December 31, 2023 and 2022, the Company recorded a net loss of $ 0.1 million and a net gain of $ 0.4 million, respectively, in its consolidated statements of operations related to these contracts.

For foreign exchange forward contracts designated as hedging instruments, unrealized gains and losses arising from these contracts are recorded as a component of accumulated other comprehensive loss on the consolidated balance sheets.

The hedging gains and losses in accumulated other comprehensive loss in the consolidated balance sheet are subsequently reclassified to expenses, as applicable, in the consolidated statements of operations in the same period in which the underlying transactions affect the Company’s earnings.

As of December 31, 2023, foreign exchange forward currency contracts designated as hedging instruments had a notional amount of $ 10.8 million.

These contracts have 30 days maturities.

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

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The table below presents the Company’s right-of-use assets and lease liabilities as of December 31, 2023 (in thousands):

December 31, 2022

As of December 31, 2023

Operating leases

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Average lease terms and discount rates for the Company’s operating leases were as follows (in thousands):

December 31, 2022

As of December 31, 2023

Weighted-average remaining term (in years) 3.4

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

The Company has accounted for the lease under ASC 842 and has a right-of-use asset of $ 21.2 million recorded in other non-current assets and has lease liabilities of $ 4.8 million and $ 16.8 million, recorded in accrued liabilities and other non-current liabilities, respectively, in the consolidated balance sheets as of December 31, 2022.

The Company has accounted for the lease under ASC 842 and has a right-of-use asset of $ 16.4 million recorded in other non-current assets and has lease liabilities of $ 5.0 million and $ 11.8 million, recorded in accrued liabilities and other non-current liabilities, respectively, in the consolidated balance sheet as of December 31, 2023.

The Company had a right-of-use asset of $ 21.2 million recorded in other non-current assets and has lease liabilities of $ 4.8 million and $ 16.8 million, recorded in accrued liabilities and other non-current liabilities, respectively, in the consolidated balance sheets as of December 31, 2022.

Other Balance Sheet Accounts Details

Allowance for Doubtful Accounts

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

2022 December 31,

Allowance for doubtful accounts, beginning balance $ 543 $ 41

Increase (decrease) in provision ( 202 ) 616

Accounts Receivable Allowance for Credit Losses

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

As of December 31, 2023 As of December 31, 2022

Allowance for credit losses, beginning balance $ 32 $ 543

Increase (decrease) in allowance 1,181 ( 202 )

Write-offs ( 808 ) ( 309 )

Allowance for doubtful accounts, ending balance $ 32 $ 543

Allowance for credit losses, ending balance $ 405 $ 32

Inventory consisted of the following (in thousands):

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Raw materials $ 15,473 $ 12,771

3 unchanged sentences

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

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Prepaid expenses $ 6,143 $ 5,310

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

Useful Life December 31,

2022 December 31,

Equipment 1 - 5 $ 27,028 $ 25,407

Software 1 - 3 2,537 807

Furniture and fixtures 1 - 7 503 545

Useful Life As of December 31, 2023 As of December 31, 2022

Equipment 1 to 5 $ 31,174 $ 27,028

Software 1 to 6 5,339 2,537

Furniture and fixtures 1 to 7 520 503

Leasehold improvements Lease term 3,207 3,267

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Depreciation and amortization expense on property and equipment was $ 4.6 million, $ 2.7 million and $ 2.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Internally Developed Software to be Marketed and Sold

During the years ended December 31, 2023, 2022 and 2021, capitalized costs associated with internally developed software to be marketed and sold totaled $ 0.5 million, $ 2.1 million and $ 2.6 million, respectively.

During the year ended December 31, 2023, amortization cost totaled $ 0.3 million.

During the years ended December 31, 2023 and 2022, impairment cost totaled $ 3.0 million and $ 0.6 million, respectively.

As of December 31, 2023, 2022 and 2021, the unamortized capitalized balance was $ 3.0 million, $ 5.8 million and $ 4.2 million, respectively.

Intangible Assets

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

December 31, 2022 December 31, 2021

As of December 31, 2023 As of December 31, 2022

Cost Accumulated Amortization Net Cost Accumulated Amortization Net

2 unchanged sentences

Total $ 7,986 $ ( 7,986 ) $ — $ 7,986 $ ( 7,986 ) $ —

Amortization expense related to purchased intangible assets was $ 0.9 million for the year ended December 31, 2021 and was $ 1.4 million for the year ended December 31, 2020.

Amortization expense related to purchased intangible assets was $ 0.9 million for the year ended December 31, 2021.

Purchased intangible assets were fully amortized as of December 31, 2021.

1 unchanged sentence

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

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Right-of-use assets $ 16,376 $ 21,197

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Accrued liabilities consisted of the following (in thousands):

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Accrued compensation and benefits $ 7,633 $ 19,832

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

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Lease liabilities $ 11,822 $ 16,846

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In January 2023, the Company identified a cyber-security incident in its corporate IT infrastructure (not related to any of the Company’s products or solutions used by its customers) (the “Cyber Incident”).

Upon detecting the incident, the

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

Upon detecting the incident, the Company 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.

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The following table summarizes our non-cancelable operating leases as of December 31, 2023 (in thousands):

Years Ending December 31, Operating Leases and Other Contractual Obligation

Years Ending December 31, Operating Leases

Total $ 17,755

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Equity Incentive Plans

2014 Equity Incentive Plan

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

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

2014 Equity Incentive Plan and 2023 Stock Incentive Plan

The 2014 Equity Incentive Plan (the “2014 Plan”) was in effect until it was replaced by the 2023 Stock Incentive Plan (the “2023 Plan”) on April 1, 2023.

Both the 2014 Plan and 2023 Plan provide for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), market performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our Board of Directors.

As of December 31, 2023, we had 4,938,541 shares available for future grant under the 2023 Plan.

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

In November 2020, our Board of Directors determined the current shares authorized under the 2014 Plan were sufficient for the time being and decided not to increase the number of shares authorized in 2021 and 2022.

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

Like the 2014 Plan, the shares authorized for the 2023 Plan increase annually on January 1 by the least of (i) 8,000,000 shares, (ii) 5 % of the outstanding shares of common stock on the last day of our immediately preceding fiscal year, or (iii) such other amount as determined by our Board of Directors.

Our Board of Directors determined the current shares authorized under the 2023 Plan were sufficient for the time being and decided not to increase the number of shares authorized on January 1, 2024.

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

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

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For the years ended December 31, 2023, 2022 and 2021, the expected dividend rate assumes cash dividends will total $ 0.24 , $ 0.24 and $ 0.20 per common share outstanding annually, respectively.

Stock-based compensation expense related to shares not purchased due to terminations, or forfeitures, is reversed on the date of forfeiture.

Stock Options

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Repurchase Agreement

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

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

Chen for approximately $ 13.3 million.

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

On September 8, 2022, the Company 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.

1 unchanged sentence

Stock Repurchase Programs

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

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

These repurchase programs expired after twelve months.

On November 1, 2022, the Company announced its Board of Directors had authorized a new $ 50 million stock repurchase program of its common stock over a period of twelve months.

As of December 31, 2022, the Company had $ 50 million available to repurchase shares under the new program.

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

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

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

These repurchase programs expired after being active for twelve months.

On November 7, 2023, the Company announced its Board of Directors had authorized a stock repurchase program of up to $ 50 million of its common stock over a period of twelve months.

As of December 31, 2023, the Company had $ 49.7 million available to repurchase shares under the latest 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.

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Current provision for income taxes:

Federal $ 329 $ — $ —

State 2,016 1,107 18

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Amended return true-up ( 8 ) — ( 4,176 ) ( 7.9 ) — —

Foreign-derived intangible income deduction ( 3,585 ) ( 8.2 ) — — — —

162(m) limitation on officers compensation 1,221 2.8 998 1.9 268 0.8

Other ( 188 ) ( 0.4 ) 159 0.3 ( 387 ) ( 1.2 )

1 unchanged sentence

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

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Deferred tax assets:

5 unchanged sentences

Operating lease liability 3,669 4,459

Capitalized R&D expenses 12,075 —

Capitalized research and development expenses 23,497 12,075

Gross deferred tax assets 86,413 85,507

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deferred tax assets except for state credits in 2021.

For the years ended December 31, 2022 and 2021, the valuation allowance decreased by $ 1.8 million and decreased by $ 69.2 million, respectively.

For the years ended December 31, 2023 and 2022, the valuation allowance increased by $ 2.0 million and $ 1.8 million, respectively.

Companies subject to the Global Intangible Low-Taxed Income provision (“GILTI”) have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for outside basis temporary differences expected to reverse as GILTI.

We have elected to account for GILTI as a period cost.

As of December 31, 2022 and 2021, we had U.S.

federal NOL carryforwards of $ 39.0 million and $ 146.6 million, respectively, and state NOL carryforwards of $ 62.0 million and $ 70.4 million, respectively.

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

As of December 31, 2023 we had no U.S.

federal NOL carryforward balance.

As of December 31, 2022, we had U.S.

federal NOL carryforwards of $ 39.0 million.

As of December 31, 2023 and 2022, we had state NOL carryforwards of $ 54.9 million and $ 62.0 million, respectively.

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

5 unchanged sentences

The Company believes NOL’s will not expire unused as a result of any Section 382 annual limitations.

Additionally, as of December 31, 2023 and 2022, we had U.S.

foreign tax credit carryforwards of $ 0.4 million and $ 6.2 million, respectively.

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

3 unchanged sentences

income taxes subject to an adjustment for foreign tax credits and withholding taxes in the various countries.

As of December 31, 2022 and 2021, the undistributed earnings approximated $ 16.6 million and $ 15.8 million, respectively.

As of December 31, 2023 and 2022, the

undistributed earnings approximated $ 18.5 million and $ 16.6 million, respectively.

Our undistributed earnings through December 31, 2017, have been taxed under the one-time transition tax under the Tax Act.

On December 22, 2017 the Tax Act was signed into law.

The Tax Act significantly revised the U.S.

tax code generally effective January 1, 2018.

Beginning in 2022 the Tax Act requires capitalization of research and development costs, which has been accounted for in the current year provision.

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

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

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

Uncertain Tax Positions

8 unchanged sentences

Increases related to tax positions taken during current year 580 462 463

Decreases related to tax positions taken during the current year — — —

Releases / statute lapses ( 109 ) — —

Gross unrecognized tax benefits—ending balance $ 7,575 $ 7,077 $ 6,841

6 unchanged sentences

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

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

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

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

The Tax Cuts and Jobs Act of 2017 (“TCJA”) amended Section 174 to require research and experimental (“R&E”) expenses incurred in tax years beginning on or after January 1, 2022, to be capitalized and amortized over five years (fifteen years for expenditures attributable to R&E activity performed outside the United States) using a half-year convention.

2 unchanged sentences

Since the Section 174 impact is a temporary difference, no material impact to tax expense is expected.

Geographic Information

Segment Information

The following table depicts the disaggregation of revenue by geographic region based on the ship to location of our customers and is consistent with how we evaluate our financial performance (in thousands):

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

2022 December 31,

As of December 31, 2023 As of December 31, 2022

Americas $ 43,782 $ 37,420

5 unchanged sentences

Participants in the plan may elect to contribute up to $ 22,500 of their annual compensation to the plan for the 2023 calendar year and $ 23,000 for the 2024 calendar year.

Individuals who are 50 or older may contribute an additional $ 6,500 of their annual income in 2022 and an additional $ 7,500 of their income in 2023.

Individuals who are 50 or older may contribute an additional $ 7,500 of their annual income in both 2023 and 2024.

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

The Company’s matching contributions totaled $ 1.2 million, $ 1.1 million and $ 0.5 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for 2022 and 2021 is as follows (in thousands, except per share amounts):

Quarter Ended

March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022

Revenue $ 62,672 $ 67,973 $ 72,059 $ 77,634

Gross profit 49,833 54,488 57,294 61,891

Net income 6,349 10,416 12,113 18,030

Net income per share - basic $ 0.08 $ 0.14 $ 0.16 $ 0.25

Net income per share - diluted $ 0.08 $ 0.13 $ 0.16 $ 0.24

Quarter Ended

March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021

Revenue $ 54,843 $ 59,168 $ 65,360 $ 70,671

Gross profit 42,344 45,538 52,166 56,489

Net income 2,657 6,616 74,886 10,728

Net income per share - basic $ 0.03 $ 0.09 $ 0.97 $ 0.14

Net income per share - diluted $ 0.03 $ 0.08 $ 0.94 $ 0.13

Subsequent Event

On February 6, 2024 , the Company announced its Board of Directors declared a quarterly dividend.

The dividend, in the amount of $ 0.06 per share of common stock outstanding, was paid on March 1, 2023 , to shareholders of record on February 17, 2023 as a return of capital.

The dividend, in the amount of $ 0.06 per share of common stock outstanding, will be paid on March 1, 2024 , to shareholders of record on February 16, 2024 as a return of capital.

Future dividends will be subject to further review and approval by the Board in accordance with applicable law.

The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the Company’s capital allocation strategy from time to time.

The Board of Directors reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the Company’s capital allocation strategy from time to time.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data