A10 Networks, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report s of Independent Registered Public Accounting Firm - Grant Thornton LLP (PCAOB ID: 248 ) 62 Report of Independent Registered Public Accounting Firm - Armanino LLP (PCAOB ID: 32 ) 65 Consolidated Balance Sheets as of December 31, 202 3 and 2022 66 Consolidated Statements of Operations for the years ended December 31, 202 3 , 202 2 and 20 21 67 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 3 , 202 2 and 20 21 68 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 202 3 , 202 2 and 2021 69 Consolidated Statements of Cash Flows for the years ended December 31, 202 3 , 202 2 and 20 21 70 Notes to Consolidated Financial Statements 71 61 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 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 62 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 63 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 A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 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 company; 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. /s/ GRANT THORNTON LLP San Jose, California February 29, 2024 64 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. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our 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 San Jose, California February 27, 2023 We served as the Company’s auditor since 2019. In 2023, we became the predecessor auditor. 65 A10 NETWORKS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) As of December 31, 2023 As of December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 97,244 $ 67,971 Marketable securities 62,056 83,018 Accounts receivable, net of allowances of $405 and $32, respectively 74,307 72,928 Inventory 23,522 19,693 Prepaid expenses and other current assets 14,695 13,381 Total current assets 271,824 256,991 Property and equipment, net 29,876 19,743 Goodwill 1,307 1,307 Deferred tax assets, net 62,725 63,183 Other non-current assets 24,077 27,881 Total assets $ 389,809 $ 369,105 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 7,024 $ 6,725 Accrued and other liabilities 21,388 37,183 Deferred revenue, current 82,657 74,340 Total current liabilities 111,069 118,248 Deferred revenue, non-current 58,677 52,652 Other non-current liabilities 12,187 17,193 Total liabilities 181,933 188,093 Commitments and contingencies (Note 6) Stockholders' equity: Common stock, $0.00001 par value: 500,000 shares authorized; 89,003 and 87,123 shares issued and 74,359 and 73,738 shares outstanding, respectively 1 1 Treasury stock, at cost: 14,644 and 13,384 shares, respectively ( 150,909 ) ( 134,934 ) Additional paid-in-capital 486,958 466,927 Dividends paid ( 37,619 ) ( 19,802 ) Accumulated other comprehensive loss ( 71 ) ( 726 ) Accumulated deficit ( 90,484 ) ( 130,454 ) Total stockholders' equity 207,876 181,012 Total liabilities and stockholders' equity $ 389,809 $ 369,105 See accompanying notes to consolidated financial statements. 66 A10 NETWORKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Years Ended December 31, 2023 2022 2021 Revenue: Products $ 141,082 $ 173,201 $ 148,398 Services 110,618 107,137 101,644 Total revenue 251,700 280,338 250,042 Cost of revenue: Products 31,468 40,135 32,620 Services 16,494 16,697 20,885 Total cost of revenue 47,962 56,832 53,505 Gross profit 203,738 223,506 196,537 Operating expenses: Sales and marketing 85,976 88,511 85,651 Research and development 55,229 58,398 54,077 General and administrative 23,885 23,518 23,421 Total operating expenses 165,090 170,427 163,149 Income from operations 38,648 53,079 33,388 Non-operating income (expense): Interest income 5,078 1,304 409 Interest and other income (expense), net 69 ( 1,667 ) ( 2,155 ) Total non-operating income (expense), net 5,147 ( 363 ) ( 1,746 ) Income before income taxes 43,795 52,716 31,642 Provision for (benefit from) income taxes 3,825 5,808 ( 63,245 ) Net income $ 39,970 $ 46,908 $ 94,887 Net income per share: Basic $ 0.54 $ 0.62 $ 1.23 Diluted $ 0.53 $ 0.60 $ 1.19 Weighted-average shares used in computing net income per share: Basic 74,210 75,528 77,046 Diluted 75,550 77,751 80,037 See accompanying notes to consolidated financial statements. 67 A10 NETWORKS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years Ended December 31, 2023 2022 2021 Net income $ 39,970 $ 46,908 $ 94,887 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 See accompanying notes to consolidated financial statements. 68 A10 NETWORKS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Common Stock Treasury stock, at cost Additional Paid-in Capital Dividends paid Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount Balance at December 31, 2020 76,346 $ 1 $ ( 37,410 ) $ 425,534 $ — $ 98 $ ( 272,249 ) $ 115,974 Stock-based compensation expense — — — 14,737 — — — 14,737 Common stock issued under employee equity incentive plans 2,794 — — 5,764 — — — 5,764 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 ) Net Income — — — — — — 94,887 94,887 Balance at December 31, 2021 77,423 $ 1 $ ( 55,677 ) $ 446,035 $ ( 3,880 ) $ ( 229 ) $ ( 177,362 ) $ 208,888 Stock-based compensation expense — — — 13,852 — — — 13,852 Common stock issued under employee equity incentive plans 2,405 — — 7,040 — — — 7,040 Repurchase of common stock ( 6,090 ) — ( 79,257 ) — — — — ( 79,257 ) Payments for dividends — — — — ( 15,922 ) — — ( 15,922 ) Unrealized loss on marketable securities, net of tax — — — — — ( 497 ) — ( 497 ) Net Income — — — — — — 46,908 46,908 Balance at December 31, 2022 73,738 $ 1 $ ( 134,934 ) $ 466,927 $ ( 19,802 ) $ ( 726 ) $ ( 130,454 ) $ 181,012 Stock-based compensation expense — — — 15,088 — — — 15,088 Common stock issued under employee equity incentive plans 1,881 — — 4,943 — — — 4,943 Repurchase of common stock ( 1,260 ) — ( 15,975 ) — — — — ( 15,975 ) Payments for dividends — — — — ( 17,817 ) — — ( 17,817 ) Unrealized gain on marketable securities, net of tax — — — — — 911 — 911 Other comprehensive loss — — — — — ( 256 ) — ( 256 ) Net Income — — — — — — 39,970 39,970 Balance at December 31, 2023 74,359 $ 1 $ ( 150,909 ) $ 486,958 $ ( 37,619 ) $ ( 71 ) $ ( 90,484 ) $ 207,876 See accompanying notes to consolidated financial statements. 69 A10 NETWORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 39,970 $ 46,908 $ 94,887 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 credit losses and sales returns ( 699 ) ( 36 ) ( 616 ) Release of deferred tax asset valuation allowance and other adjustments — — ( 64,186 ) Other non-cash items 117 793 1,688 Changes in operating assets and liabilities: Accounts receivable ( 679 ) ( 10,065 ) ( 10,399 ) Inventory ( 6,302 ) 2,035 ( 1,826 ) Prepaid expenses and other assets ( 1,862 ) 1,627 ( 2,134 ) Accounts payable ( 2,999 ) 103 1,995 Accrued and other liabilities ( 20,801 ) ( 1,338 ) ( 5,573 ) Deferred revenue 14,342 5,361 12,932 Net cash provided by operating activities 44,514 66,100 50,097 Cash flows from investing activities: Proceeds from sales of marketable securities 45,420 6,252 6,865 Proceeds from maturities of marketable securities 64,504 71,045 88,790 Purchases of marketable securities ( 85,420 ) ( 55,411 ) ( 128,554 ) Capital expenditures ( 10,896 ) ( 10,799 ) ( 5,171 ) Net cash provided by (used in) investing activities 13,608 11,087 ( 38,070 ) Cash flows from financing activities: Proceeds from issuance of common stock under employee equity incentive plans 4,943 7,038 5,764 Repurchases of common stock ( 15,975 ) ( 79,257 ) ( 18,267 ) Payments for dividends ( 17,817 ) ( 15,922 ) ( 3,880 ) Net cash used in financing activities ( 28,849 ) ( 88,141 ) ( 16,383 ) Net increase (decrease) in cash and cash equivalents 29,273 ( 10,954 ) ( 4,356 ) Cash and cash equivalents - beginning of year 67,971 78,925 83,281 Cash and cash equivalents - end of year $ 97,244 $ 67,971 $ 78,925 Supplemental Disclosures: Cash paid for income taxes, net of refunds $ 2,409 $ 1,747 $ 199 Cash paid for interest $ — $ — $ 4 Non-cash investing and financing activities: Transfers between inventory and property and equipment $ 2,473 $ 733 $ 94 Purchases of property and equipment included in accounts payable $ 3,298 $ 230 $ 6 See accompanying notes to consolidated financial statements. 70 Notes to Consolidated Financial Statements 1. Description of Business and Summary of Significant Accounting Policies Description of Business A10 Networks, Inc. (together with our subsidiaries, the “Company”, “we”, “our” or “us”) was incorporated in California in 2004 and reincorporated in Delaware in March 2014. We are headquartered in San Jose, California and have wholly-owned subsidiaries throughout the world including Asia and Europe. We are a leading provider of secure application solutions and services that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures. Our product portfolio seeks to address many of the cyber protection challenges and solution requirements. The portfolio consists of six secure application solutions; Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”), and two intelligent management and automation tools; Harmony Controller and aGalaxy TPS. Our solutions are available in a variety of form factors, such as optimized hardware appliances, bare metal software, containerized software, virtual appliances and cloud-native software. Basis of Presentation The accompanying consolidated financial statements include those of A10 Networks, Inc. and its subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. 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 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; therefore, actual results could differ from management’s estimates. Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents include bank deposits and short-term, highly liquid investments purchased with an original maturity of 90 days or less. Our cash equivalents consist of money market funds. Marketable Securities 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 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 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. 71 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 Our financial instruments consist of cash, cash equivalents, marketable securities, accounts receivable and accounts payable. Our cash equivalents are measured and recorded at fair value on a recurring basis. Marketable securities are typically comprised of certificates of deposit, corporate securities, U.S. 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: Level 1 — observable inputs for identical assets or liabilities, such as quoted prices in active markets. Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly. 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 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. 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 Inventory is stated at the lower of cost or net realizable value. Inventory cost is determined using first-in, first-out method. 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. Inventory write downs are included as a component of cost of products revenue in the consolidated statements of operations. 72 Property and Equipment, Net Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets. Depreciation and amortization on property and equipment, excluding leasehold improvements, ranges from one to seven years . Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease term. Remaining amortization terms on leasehold improvements as of December 31, 2023 ranged from approximately one to six years . Leases The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and are included within other non-current assets in the consolidated balance sheets, and the lease liabilities represent an obligation to make lease payments arising from the lease and are recorded within accrued liabilities and other non-current liabilities in the consolidated balance sheets. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants. The Company elected the package of practical expedients permitted under the transition guidance, which allowed for the carry-forward of the Company’s historical lease classification and assessment on whether a contract is or contains a lease. The Company elected to not apply the new standard’s recognition requirements to leases with an initial term of 12 months or less and instead elected to recognize lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. The Company accounts for lease components and non-lease components as a single lease component. Goodwill Goodwill represents the excess of purchase consideration over the fair values of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for possible impairment annually in the fourth quarter or more frequently if impairment indicators arise. We have identified a single reporting unit for the purpose of our goodwill impairment tests, and the fair value of our reporting unit has been determined by our enterprise value. We may elect to utilize a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying value. If, after assessing the qualitative factors, we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying value, an impairment analysis will be performed. We compare the fair value of our reporting unit with its carrying amount and if the carrying value of the reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill. We did not identify impairment of goodwill for any periods presented. Intangible Assets 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 73 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. Revenue Recognition We recognize revenue, net of applicable taxes, when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. We derive revenue from two sources: (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 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 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. We apply the following five-step revenue recognition model: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, performance obligations are satisfied. 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. 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. Professional service revenue primarily consists of the fees we earn related to installation and consulting services. We recognize revenue from professional services upon delivery or completion of performance. Professional service arrangements are typically short term in nature and are largely completed within 30 to 90 days from the start of service. Revenue is recognized for training when the training course is delivered. Contracts with Multiple Performance Obligations Most of our contracts with customers, other than renewals of PCS, contain multiple performance obligations with a combination of products and PCS. Products and PCS generally qualify as distinct performance obligations. Our hardware includes embedded ACOS software, which together deliver the essential functionality of our products. For contracts which contain multiple performance obligations, we allocate revenue to each distinct performance obligation based on the standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP for products and PCS sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the various products and PCS. If we do not have an observable SSP, such as when we do not sell a product or service separately, then SSP is estimated using judgment and considering all reasonably available information such as market conditions and information about the size and/or purchase volume of the customer. We generally use a range of amounts to estimate SSP for individual products and services based on multiple factors including, but not limited to the sales channel (reseller, distributor or end-customer), the geographies in which our products and services are sold, and the size of the end-customer. We account for multiple contracts with a single partner as one arrangement if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single contract. We may occasionally accept returns to address customer satisfaction issues even though there is generally no contractual provision for such returns. We estimate returns for sales to customers based on historical return rates applied against 74 current-period shipments. Specific customer returns and allowances are considered when determining our sales return reserve estimate. 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, rights of return and transactions with variable consideration. We report revenue net of sales taxes. We include shipping charges billed to customers in revenue and the related shipping costs are included in cost of product revenue. Deferred Contract Acquisition Costs We capitalize certain contract acquisition costs consisting of incremental sales commissions incurred to obtain customer contracts. Deferred commissions related to product revenues are recognized upon transfer of control to customers. 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 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. Research and Development Costs Research and development efforts are focused on new product development and on developing additional functionality for our existing products. These expenses consist of personnel costs, and to a lesser extent, prototype materials, depreciation and certain allocated facilities and information technology costs. 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 In the first quarter of 2020, we began capitalizing software engineering labor costs related to certain long-term projects that are expected to take more than a year to complete. We account for the capitalization of labor costs under 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 and are recorded in cost of sales. 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 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. Warranty Costs 75 Our appliance hardware and software generally carry a warranty period of 90 days. Estimates of future warranty costs are based on historical returns and the application of the historical return rates to our in-warranty installed base. Warranty costs to repair or replace items sold to customers have been insignificant for the years ended December 31, 2023, 2022 and 2021. Foreign Currency The functional currency of our foreign subsidiaries is the U.S. Dollar. Transactions denominated in non-functional currencies are remeasured to the functional currency at the average exchange rate for the period. Non-functional currency monetary assets and liabilities are remeasured to the functional currency using the exchange rate in effect at the balance sheet date, and non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses related to remeasurement are recorded in interest and other income, net in the consolidated statements of operations. Income Taxes We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or in our tax returns. Estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred income tax assets, which arise from temporary differences and carryforwards. Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through an adjustment to income tax expense. The factors used to assess the likelihood of realization of our deferred tax assets include our historical operating performance, our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Assumptions represent our best estimates and involve inherent uncertainties and the application of our judgment. We account for uncertainty in income taxes recognized in our consolidated financial statements by regularly reviewing our tax positions and benefits to be realized. We recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained upon examination by taxing authorities. The provision for (benefit from) income taxes excludes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Advertising Costs Advertising costs are expensed when incurred. Advertising costs were $ 0.1 million, $ 0.2 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Segment Information An operating segment is a component of an enterprise for which its discrete financial information is available and its operating results are regularly reviewed by our chief operating decision maker for resource allocation decisions and performance assessment. Our chief operating decision maker is our Chief Executive Officer. Our Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and assessing performance of the Company. Accordingly, we have one reportable segment and one operating segment. Vendor Business Concentration We rely on third parties to manufacture our hardware appliances and we purchase raw materials from third-party vendors. We outsource substantially all of our manufacturing services to three independent manufacturers. In addition, we purchase certain strategic component inventory which is consigned to our third-party manufacturers. Other hardware components included in our products are sourced from various suppliers by our manufacturers and are principally industry standard parts and components that are available from multiple vendors. 76 Concentration of Credit Risk and Significant Customers Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash, cash equivalents and marketable securities are held and invested in high-credit quality financial instruments by recognized financial institutions and are subject to minimum credit risk. Our accounts receivable are unsecured and represent amounts due to us based on contractual obligations of our customers. 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. 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 end-customers as a percentage of our total revenue are as follows: Years Ended December 31, 2023 2022 2021 Customer A 14 % 11 % 11 % Customer B * 13 % * * represents less than 10% of total revenue 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. 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. 77 2. Revenue Contract Balances The following table reflects contract balances with customers (in thousands): Balance Sheet Line Reference As of December 31, 2023 As of December 31, 2022 Accounts receivables, net $ 74,307 $ 72,928 Deferred revenue, current 82,657 74,340 Deferred revenue, non-current 58,677 52,652 The Company receives payment from customers based upon billing cycles. Invoice payment terms typically range from 30 to 90 days. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for performance obligations not yet billed, and are included in prepaid and other current assets in the Company’s consolidated balance sheets. The contract assets amount was immaterial as of December 31, 2023 and 2022. Deferred revenue primarily consists of amounts that have been invoiced but not yet recognized as revenue and consists of performance obligations pertaining to support and subscription services. During the years ended December 31, 2023 and 2022, the Company recognized revenue of $ 72.3 million and $ 74.5 million, respectively, related to deferred revenue at the beginning of the period. Deferred revenue consisted of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Deferred revenue: Products $ 14,917 $ 7,782 Services 126,417 119,210 Total deferred revenue 141,334 126,992 Less: current portion ( 82,657 ) ( 74,340 ) Non-current portion $ 58,677 $ 52,652 Deferred Contract Acquisition Costs As of December 31, 2023 , the current and non-current portions of deferred contract acquisition costs totaled $ 6.2 million and $ 4.4 million, respectively, and the related amortization was $ 5.5 million for the year ended December 31, 2023. As of December 31, 2022, the current and non-current portions of deferred contract acquisition costs totaled $ 6.1 million and $ 4.3 million, respectively, and the related amortization was $ 7.6 million for the year ended December 31, 2022. For the years ended December 31, 2023, 2022 and 2021, the Company had no impairment loss in relation to capitalized deferred contract acquisition costs and no asset impairment charges related to contract assets. Remaining Performance Obligations Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations, which include deferred revenues and amounts that will be invoiced and recognized as revenues in future periods. 78 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 Next 2 to 3 years 55,405 Thereafter 3,272 Total $ 141,334 3. Marketable Securities and Fair Value Measurements Marketable Securities Marketable securities, classified as available-for-sale, consisted of the following (in thousands): 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 Corporate securities $ 15,393 $ 2 $ ( 2 ) $ 15,393 $ 35,137 $ — $ ( 550 ) $ 34,587 U.S. Treasury and agency securities 39,963 6 ( 32 ) 39,937 28,627 — ( 292 ) 28,335 Commercial paper 998 — — 998 11,859 — — 11,859 Asset-backed securities — — — — 8,331 — ( 94 ) 8,237 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. 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 Less than 1 year $ 56,354 $ 56,328 Mature in 1 - 3 years — — Total $ 56,354 $ 56,328 All available-for-sale securities are classified as current because they are available for use in current operations. 79 Marketable securities in an unrealized loss position consisted of the following (in thousands): Less Than 12 Months 12 Months or More Total As of December 31, 2023 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate securities $ 9,418 $ ( 2 ) $ — $ — $ 9,418 $ ( 2 ) U.S. Treasury and agency securities 24,304 ( 32 ) — — 24,304 ( 32 ) Asset-backed securities — — — — — — Total $ 33,722 $ ( 34 ) $ — $ — $ 33,722 $ ( 34 ) Less Than 12 Months 12 Months or More Total As of December 31, 2022 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate securities $ 7,610 $ ( 162 ) $ 26,977 $ ( 388 ) $ 34,587 $ ( 550 ) U.S. Treasury and agency securities 14,868 ( 45 ) 11,567 ( 247 ) 26,435 ( 292 ) Asset-backed securities 8,237 ( 94 ) — — 8,237 ( 94 ) Total $ 30,715 $ ( 301 ) $ 38,544 $ ( 635 ) $ 69,259 $ ( 936 ) Based on evaluation of securities that have been in a continuous loss position, the Company determined all gross unrealized losses on its marketable securities as of December 31, 2023 were temporary in nature and related primarily to interest rate shifts rather than changes in the underlying credit quality of the securities in a loss position. The Company has the ability to hold these investments until maturity, or for at least the foreseeable future. As such, 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): As of December 31, 2023 As of December 31, 2022 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash $ 52,451 $ — $ — $ 52,451 $ 54,336 $ — $ — $ 54,336 Cash equivalents 44,793 — — 44,793 13,635 — — 13,635 Corporate securities — 15,393 — 15,393 — 34,587 — 34,587 U.S. Treasury and agency securities 12,701 27,236 — 39,937 — 28,335 — 28,335 Commercial paper — 998 — 998 — 11,859 — 11,859 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. 80 4. Derivatives 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. 5. Leases The Company leases various facilities in the United States, Asia and Europe under non-cancellable operating lease arrangements that expire on various dates through July 2027. These arrangements require the Company to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses. The table below presents the Company’s right-of-use assets and lease liabilities as of December 31, 2023 (in thousands): As of December 31, 2023 Operating leases Right-of-use assets: Other non-current assets $ 16,376 Total right-of-use assets $ 16,376 Lease liabilities: Accrued liabilities $ 4,998 Other non-current liabilities 11,822 Total operating lease liabilities $ 16,820 The aggregate future lease payments for the Company’s operating leases as of December 31, 2023 were as follows (in thousands): 81 2024 $ 5,464 2025 4,958 2026 4,892 2027 2,441 2027 — Total lease payments 17,755 Less: imputed interest ( 935 ) Present value of lease liabilities $ 16,820 The components of lease costs were as follows (in thousands): Year Ended December 31, 2023 Operating lease costs $ 4,389 Short-term lease costs 495 Total lease costs $ 4,884 Average lease terms and discount rates for the Company’s operating leases were as follows (in thousands): As of December 31, 2023 Weighted-average remaining term (in years) 3.4 Weighted-average discount rate 3.19 % Supplemental cash flow information for the Company’s operating leases were as follows (in thousands): Year Ended December 31, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,342 Right-of-use assets obtained in exchange for new lease liabilities $ — Corporate Headquarters Lease On May 2, 2019, the Company entered into a sublease agreement (the “Sublease”) with Marvell Semiconductor, Inc. (“Sublandlord”) for its corporate headquarters and research and development space located at 2300 Orchard Parkway, San Jose, California, 95131 (the “Premises”). The term of the Sublease is approximately eight years and began on December 1, 2019, the date the Company commenced business operations at the Premises. The Sublease provides for monthly base rent of approximately $ 262,000 per month for the first year with annual increases thereafter. The total base rent through the end of the term of the Sublease will total approximately $ 33.8 million. In addition to base rent, the Company will also be responsible for operating and other facility expenses. The Company has accounted for the lease under ASC 842 and 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. 6. Other Balance Sheet Accounts Details 82 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 credit losses, ending balance $ 405 $ 32 Inventory Inventory consisted of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Raw materials $ 15,473 $ 12,771 Finished goods 8,049 6,922 Total inventory $ 23,522 $ 19,693 Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Prepaid expenses $ 6,143 $ 5,310 Deferred contract acquisition costs 6,177 6,144 Other 2,375 1,927 Prepaid expenses and other current assets $ 14,695 $ 13,381 Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands): Useful Life As of December 31, 2023 As of December 31, 2022 (in years) 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 Construction in progress 13,731 9,152 Property and equipment, gross 53,971 42,487 Less: accumulated depreciation ( 24,095 ) ( 22,744 ) Property and equipment, net $ 29,876 $ 19,743 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 83 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): As of December 31, 2023 As of December 31, 2022 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Developed technology $ 5,050 $ ( 5,050 ) $ — $ 5,050 $ ( 5,050 ) $ — Patents 2,936 ( 2,936 ) — 2,936 ( 2,936 ) — 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. Purchased intangible assets were fully amortized as of December 31, 2021. Other Non-Current Assets Other non-current assets consisted of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Right-of-use assets $ 16,376 $ 21,197 Deferred contract acquisition costs 4,371 4,290 Deposits 1,704 1,739 Other 1,626 655 Total other non-current assets $ 24,077 $ 27,881 Accrued Liabilities Accrued liabilities consisted of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Accrued compensation and benefits $ 7,633 $ 19,832 Accrued tax liabilities 1,429 1,635 Lease liabilities 4,998 4,792 Other 7,328 10,924 Total accrued liabilities $ 21,388 $ 37,183 Other Non-Current Liabilities 84 Other non-current liabilities consisted of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Lease liabilities $ 11,822 $ 16,846 Other 365 347 Total other non-current liabilities $ 12,187 $ 17,193 7. Commitments and Contingencies Legal Proceedings Litigation From time to time, we may be party or subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings involve claims that are subject to substantial uncertainties and unascertainable damages. We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Unless otherwise specifically disclosed in this note, we have determined that no provision for liability nor disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. Investigations 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. 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. Lease Commitments The Company leases various operating spaces in the United States, Asia and Europe under non-cancelable operating lease arrangements that expire on various dates through July 2027. These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses. The Company recognizes rent expense under these arrangements on a straight-line basis over the term of the lease. The Company has open purchase commitments with third-party contract manufacturers with facilities in Taiwan to supply nearly all of our finished goods inventories, spare parts, and accessories. These purchase orders are expected to be paid within one year of the issuance date. The Company had open purchase commitments with manufactures in Taiwan totaling $ 14.4 million as of December 31, 2023. The following table summarizes our non-cancelable operating leases as of December 31, 2023 (in thousands): Years Ending December 31, Operating Leases 2024 $ 5,464 2025 4,958 2026 4,892 2027 2,441 Thereafter — Total $ 17,755 85 Rent expense was $ 4.9 million, $ 4.9 million and $ 5.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. Guarantees and Indemnifications In the normal course of business, we provide indemnifications to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Other guarantees or indemnification arrangements include guarantees of product and service performance, and standby letters of credit for lease facilities and corporate credit cards. We have not recorded a liability related to these indemnifications and guarantee provisions and our guarantees and indemnification arrangements have not had any significant impact on our consolidated financial statements to date. 86 8. Equity Incentive Plans, Stock-Based Compensation and Stock Repurchase Program Equity Incentive Plans 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. 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 . In the case of an incentive stock option granted to an employee, who at the time of grant, owns stock representing more than 10 % of the total combined voting power of all classes of stock, the per share exercise price will be no less than 110 % of the fair market value per share on the date of grant, and the incentive stock option will expire no later than five years from the date of grant. For incentive stock options granted to any other employees and nonstatutory stock options granted to employees, consultants, or members of our Board of Directors, the per share exercise price will be no less than 100 % of the fair market value per share on the date of grant. RSUs and PSUs generally vest from one to four years . 2014 Employee Stock Purchase Plan In October 2018, the Board of Directors approved amending the 2014 Employee Stock Purchase Plan (the “Amended 2014 Purchase Plan”) in order to, among other things, reduce the maximum contribution participants can make under the plan from 15 % to 10 % of eligible compensation. The Amended 2014 Purchased Plan also reflects revised offering periods, which were changed from 24 months to six months in duration and that begin on or about December 1 and June 1 each year, starting in December 2018. The Amended 2014 Purchase Plan permits eligible employees to purchase shares of our common stock through payroll deductions with up to 10% of their pre-tax eligible earnings subject to certain Internal Revenue Code (“IRC”) limitations. The purchase price of the shares is 85 % of the lower of the fair market value of our common stock on the first day of a six-month offering period or the relevant purchase date. In addition, no participant may purchase more than 1,500 shares of common stock in each purchase period. Employees purchased 299,425 shares at an average price of $ 11.59 per share and with an aggregate intrinsic value of $ 0.6 million during the year ended December 31, 2023. Employees purchased 274,937 shares at an average price of $ 12.88 per share and with an aggregate intrinsic value of $ 1.2 million during the year ended December 31, 2022. Employees purchased 434,547 shares at an average price of $ 7.46 per share and with an aggregate intrinsic value of $ 2.1 million during the year ended December 31, 2021. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares. As of December 31, 2023, we had 812,277 shares available for future issuance under the Amended 2014 Purchase Plan. 87 Stock-Based Compensation A summary of our stock-based compensation expense is as follows (in thousands): Years Ended December 31, 2023 2022 2021 Stock-based compensation by type of award: Stock options $ — $ — $ — Stock awards 12,999 11,995 13,302 Employee stock purchase rights 1,082 1,336 1,120 Total $ 14,081 $ 13,331 $ 14,422 Stock-based compensation by category of expense: Cost of revenue $ 1,702 $ 1,556 $ 1,580 Sales and marketing 3,722 4,556 4,306 Research and development 3,232 3,346 3,906 General and administrative 5,425 3,873 4,630 Total $ 14,081 $ 13,331 $ 14,422 As of December 31, 2023, the Company had $ 31.0 million of unrecognized stock-based compensation expense related to unvested stock-based awards, including ESPP under our Amended 2014 Purchase Plan, which will be recognized over a weighted-average period of 2.5 years. Fair Value Determination The fair values of employee stock purchase rights were estimated as of the grant date using the Black-Scholes option-pricing model with the following assumptions: Years Ended December 31, 2023 2022 2021 Expected term (in years) 0.5 0.5 0.5 Risk-free interest rate 5.3 % 0.9 % 0.1 % Expected volatility 42 % 58 % 58 % Dividend rate 1.80 % 1.25 % 0.60 % • Expected Term . We estimate the expected life of options based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option. The expected term for the employee stock purchase rights is based on the term of the purchase period. • Risk-Free Interest Rate . The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected terms of stock options and the employee stock purchase rights. • Expected Volatility . For stock options, due to the limited trading history of our own common stock, we determined the share price volatility factor based on a combination of the historical volatility of our own common stock and the historical volatility of our peer group for the stock options. For employee stock purchase rights, we used the historical volatility of our own common stock. • Dividend Rate . In December 2021, the Company paid its first quarterly cash dividend in the amount of $ 0.05 per share of common stock outstanding and increased the amount to $ 0.06 per share in the three months ended December 31, 2022. 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. 88 Stock-based compensation expense related to shares not purchased due to terminations, or forfeitures, is reversed on the date of forfeiture. Stock Options The following tables summarize our stock option activities and related information: Number of Shares (thousands) Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic Value (1) (thousands) Outstanding as of December 31, 2022 279 $ 6.59 Granted — — Exercised ( 199 ) 7.37 Canceled — — Outstanding as of December 31, 2023 80 $ 4.63 0.83 $ 679 Vested and exercisable as of December 31, 2023 80 $ 4.63 0.83 $ 679 (1) The aggregate intrinsic value represents the excess of the closing price of our common stock of $ 13.17 as of December 31, 2023 over the exercise price of the outstanding in-the-money options. No stock options were granted in years ended December 31, 2022, 2021 and 2020. The intrinsic value of options exercised is as follows (in thousands): Years Ended December 31, 2023 2022 2021 Intrinsic value of options exercised (1) $ 1,440 $ 5,744 $ 5,911 (1) Intrinsic value of options exercised is the difference between the closing price of our common stock at the time of exercise and the exercise price paid. Stock Awards The Company has granted RSUs to its employees, consultants and members of its Board of Directors, and PSUs to certain executives and employees. The Company’s PSUs have market performance-based vesting conditions as well as service-based vesting conditions. As of December 31, 2023, there were 2,386,043 RSUs outstanding that were unvested and 630,479 PSUs outstanding that had not yet achieved their market-performance vesting conditions. 89 The following table summarizes our stock award activities and related information: Number of Shares (thousands) Weighted-Average Grant Date Fair Value Per Share Weighted-Average Remaining Vesting Term (years) Nonvested as of December 31, 2022 3,218 $ 11.14 Granted 1,642 14.04 Released ( 1,381 ) 9.80 Canceled ( 462 ) 12.32 Nonvested as of December 31, 2023 3,017 $ 13.15 1.78 Following is additional information pertaining to our stock award activities (in thousands, except per share data): Years Ended December 31, 2023 2022 2021 Weighted-average grant date fair value of stock awards granted (per share) $ 14.04 $ 13.76 $ 11.75 Total fair value of stock awards released (vested) during the period $ 13,535 $ 12,226 $ 11,536 Repurchase Agreement 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. The common shares repurchased are held in treasury and accounted for under the cost method. Stock Repurchase Programs 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. 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. During the year ended December 31, 2023, the Company repurchased 1.3 million shares for a total cost of $ 16.0 million. During the year ended December 31, 2022, the Company repurchased 6.1 million shares for a total cost of $ 79.3 million. During the year ended December 31, 2021, the Company repurchased 1.7 million shares for a total cost of $ 18.3 million. 90 9. Net Income Per Share Basic net income per share is computed using the weighted average number of common shares outstanding for the period. Diluted net income per share is computed using the weighted average number of common shares outstanding for the period plus potential dilutive common shares, including stock options, RSUs, PSUs and employee stock purchase rights, unless the potential common shares are anti-dilutive. The following table presents common shares related to potentially dilutive shares excluded from the calculation of diluted net income per share as their effect would have been anti-dilutive (in thousands): Years Ended December 31, 2023 2022 2021 Stock options, RSUs, PSUs and employee stock purchase rights 93 94 428 91 10. Income Taxes The geographical breakdown of income (loss) before income taxes is as follows (in thousands): Years Ended December 31, 2023 2022 2021 Domestic income $ 41,105 $ 52,231 $ 29,088 Foreign income 2,690 485 2,554 Income before income taxes $ 43,795 $ 52,716 $ 31,642 The provision for (benefit from) income taxes consisted of the following (in thousands): Years Ended December 31, 2023 2022 2021 Current provision for income taxes: Federal $ 329 $ — $ — State 2,016 1,107 18 Foreign 1,228 1,917 1,565 Total current 3,573 3,024 1,583 Deferred tax expense (benefit): Federal $ 1,374 $ 2,206 $ ( 58,103 ) State ( 1,265 ) 656 ( 6,880 ) Foreign 143 ( 78 ) 155 Total deferred 252 2,784 ( 64,828 ) Provision for (benefit from) income taxes $ 3,825 $ 5,808 $ ( 63,245 ) The reconciliation of the statutory federal income taxes and the provision for (benefit from) income taxes is as follows (in thousands, except percentages): Years Ended December 31, 2023 2022 2021 Amount Percentage Amount Percentage Amount Percentage Tax at statutory rate $ 9,197 21.0 % $ 11,070 21.0 % $ 6,645 21.0 % State tax - net of federal benefits 751 1.7 1,531 2.9 ( 6,866 ) ( 21.7 ) Foreign rate differential 954 2.2 1,737 3.3 1,184 3.7 Changes in federal valuation allowance 210 0.5 — — ( 63,153 ) ( 199.6 ) Stock-based compensation ( 1,083 ) ( 2.5 ) ( 1,992 ) ( 3.8 ) ( 908 ) ( 2.9 ) Non-deductible meals and entertainment expenses 398 0.9 252 0.5 67 0.2 Other permanent items 5 — 73 0.1 385 1.3 Federal tax credits - net of uncertain tax positions ( 4,047 ) ( 9.2 ) ( 3,844 ) ( 7.3 ) ( 480 ) ( 1.5 ) 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 ) $ 3,825 8.7 % $ 5,808 11.0 % $ ( 63,245 ) ( 199.9 ) % 92 Deferred tax balances are comprised of the following (in thousands): As of December 31, 2023 As of December 31, 2022 Deferred tax assets: Net operating loss carryforwards $ 3,799 $ 11,954 Research and development credits, net of uncertain tax positions 36,592 32,837 Accruals, reserves and other 18,433 22,041 Stock-based compensation 1,475 1,912 Depreciation and amortization ( 1,052 ) 229 Operating lease liability 3,669 4,459 Capitalized research and development expenses 23,497 12,075 Gross deferred tax assets 86,413 85,507 Valuation allowance ( 17,588 ) ( 15,581 ) Total deferred tax assets 68,825 69,926 Deferred tax liabilities: Deferred contract acquisition costs ( 2,429 ) ( 2,341 ) Operating lease right-of-use asset ( 3,533 ) ( 4,336 ) Other ( 138 ) ( 66 ) Total deferred tax liabilities ( 6,100 ) ( 6,743 ) Net deferred tax assets $ 62,725 $ 63,183 Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not. Primarily based upon a strong earnings history, expectation of future taxable income, with the exception of certain state tax attributes, we believe that a significant amount of the deferred tax assets would be realized on a more likely than not basis. Therefore we released the valuation allowance on our U.S. deferred tax assets except for state credits in 2021. 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, 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. Additionally, as of December 31, 2023 and 2022, we had U.S. federal research and development credit carryforwards of $ 22.8 million and $ 20.4 million, respectively, and state research and development credit carryforwards of $ 25.3 million and $ 22.8 million, respectively. The federal credit carryforwards will begin to expire at various dates beginning in 2031 while the state credit carryforwards can be carried over indefinitely. Utilization of the NOL and credit carryforwards may be subject to an annual limitation provided for in IRC Sections 382 and 383 and similar state codes. Any annual limitation could result in the expiration of NOL and credit carryforwards before utilization. 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. federal and state income taxes has been provided. Our intention has not changed subsequent to the one-time transition tax under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Upon distribution of those earnings in the form of dividends or otherwise, we may be subject to both U.S. income taxes subject to an adjustment for foreign tax credits and withholding taxes in the various countries. As of December 31, 2023 and 2022, the 93 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. Uncertain Tax Positions As of December 31, 2023, 2022 and 2021, we had gross unrecognized tax benefits of $ 7.6 million, $ 7.1 million and $ 6.8 million, respectively. Accrued interest expense related to unrecognized tax benefits is recognized as part of our income tax provision in our consolidated statements of operations and was immaterial for the years ended December 31, 2022, 2021 and 2020. Our policy for classifying interest and penalties associated with unrecognized income tax benefits is to exclude such items in income tax expense. The activity related to the unrecognized tax benefits is as follows (in thousands): Years Ended December 31, 2023 2022 2021 Gross unrecognized tax benefits—beginning balance $ 7,077 $ 6,841 $ 4,585 Increases (decreases) related to tax positions from prior years 27 ( 226 ) 1,793 Increases related to tax positions taken during current year 580 462 463 Releases / statute lapses ( 109 ) — — Gross unrecognized tax benefits—ending balance $ 7,575 $ 7,077 $ 6,841 These amounts are related to certain deferred tax assets with a corresponding valuation allowance. As of December 31, 2023, the total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate is $ 3.7 million. We do not anticipate a material change to our unrecognized tax benefits over the next twelve months. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company is subject to taxation in the United States, various states, and several foreign jurisdictions. Because the Company has NOL and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine our tax returns for all years from 2005 through the current period. The Company is not currently under examination by any taxing authorities. 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. Prior to the amendment, Section 174 expenses were allowed to be expensed in the year incurred. In 2023, the Company is capitalizing $44.8 million of US R&E expenses (amortizable over 5 years) and $18.1 million of R&E expenses performed outside the US (amortizable over 15 years) which results in unfavorable book/tax differences as a temporary adjustment. Since the Section 174 impact is a temporary difference, no material impact to tax expense is expected. 94 11. 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): Years Ended December 31, 2023 2022 2021 Americas $ 132,745 $ 148,673 $ 121,169 United States 113,766 129,397 99,484 Americas-other 18,979 19,276 21,685 APJ 77,606 89,702 90,374 APAC 29,748 32,986 28,674 Japan 47,858 56,716 61,700 EMEA 41,349 41,963 38,499 Total $ 251,700 $ 280,338 $ 250,042 The APJ region comprises Japan and all other countries in APAC (excluding Japan). 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): As of December 31, 2023 As of December 31, 2022 Americas $ 43,782 $ 37,420 Japan 1,096 1,852 Other 1,374 1,668 Total $ 46,252 $ 40,940 12. Employee Benefit Plan The Company has a profit sharing plan that qualifies under IRC Section 401(k), which is offered to all of its United States employees. 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 $ 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. 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, 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 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. 95 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 96