10-Q 1 aten-20220331.htm 10-Q aten-20220331
false2022Q10001580808December 317085430.000010.00001500,000500,00085,11784,17775,70177,4239,4167,2941513176.512449,28200015808082022-01-012022-03-3100015808082022-04-29xbrli:shares00015808082022-03-31iso4217:USD00015808082021-12-31iso4217:USDxbrli:shares0001580808us-gaap:ProductMember2022-01-012022-03-310001580808us-gaap:ProductMember2021-01-012021-03-310001580808us-gaap:ServiceMember2022-01-012022-03-310001580808us-gaap:ServiceMember2021-01-012021-03-3100015808082021-01-012021-03-310001580808us-gaap:CommonStockMember2021-12-310001580808us-gaap:CommonStockMember2020-12-310001580808us-gaap:CommonStockMember2022-01-012022-03-310001580808us-gaap:CommonStockMember2021-01-012021-03-310001580808us-gaap:TreasuryStockMember2022-01-012022-03-310001580808us-gaap:TreasuryStockMember2021-01-012021-03-310001580808us-gaap:CommonStockMember2022-03-310001580808us-gaap:CommonStockMember2021-03-3100015808082020-12-310001580808us-gaap:TreasuryStockMember2021-12-310001580808us-gaap:TreasuryStockMember2020-12-310001580808us-gaap:TreasuryStockMember2022-03-310001580808us-gaap:TreasuryStockMember2021-03-310001580808aten:DividendsDeclaredMember2021-12-310001580808aten:DividendsDeclaredMember2020-12-310001580808aten:DividendsDeclaredMember2022-01-012022-03-310001580808aten:DividendsDeclaredMember2021-01-012021-03-310001580808aten:DividendsDeclaredMember2022-03-310001580808aten:DividendsDeclaredMember2021-03-310001580808us-gaap:AdditionalPaidInCapitalMember2021-12-310001580808us-gaap:AdditionalPaidInCapitalMember2020-12-310001580808us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001580808us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001580808us-gaap:AdditionalPaidInCapitalMember2022-03-310001580808us-gaap:AdditionalPaidInCapitalMember2021-03-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001580808us-gaap:RetainedEarningsMember2021-12-310001580808us-gaap:RetainedEarningsMember2020-12-310001580808us-gaap:RetainedEarningsMember2022-01-012022-03-310001580808us-gaap:RetainedEarningsMember2021-01-012021-03-310001580808us-gaap:RetainedEarningsMember2022-03-310001580808us-gaap:RetainedEarningsMember2021-03-3100015808082021-03-310001580808us-gaap:SalesMemberaten:CustomerAMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-03-31xbrli:pure0001580808us-gaap:SalesMemberaten:CustomerBMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-03-310001580808us-gaap:SalesMemberaten:CustomerBMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-03-310001580808us-gaap:SalesMemberaten:CustomerCMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-03-310001580808us-gaap:AccountsReceivableMemberaten:CustomerAMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-03-310001580808us-gaap:AccountsReceivableMemberaten:CustomerBMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-03-310001580808us-gaap:AccountsReceivableMemberaten:CustomerCMemberus-gaap:CustomerConcentrationRiskMember2022-01-012022-03-310001580808us-gaap:AccountsReceivableMemberaten:CustomerAMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-310001580808us-gaap:AccountsReceivableMemberaten:CustomerBMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-310001580808us-gaap:CorporateDebtSecuritiesMember2022-03-310001580808us-gaap:CorporateDebtSecuritiesMember2021-12-310001580808us-gaap:USTreasurySecuritiesMember2022-03-310001580808us-gaap:USTreasurySecuritiesMember2021-12-310001580808us-gaap:CommercialPaperMember2022-03-310001580808us-gaap:CommercialPaperMember2021-12-310001580808us-gaap:AssetBackedSecuritiesMember2022-03-310001580808us-gaap:AssetBackedSecuritiesMember2021-12-310001580808us-gaap:FairValueInputsLevel1Memberus-gaap:CashMember2022-03-310001580808us-gaap:CashMember2022-03-310001580808us-gaap:FairValueInputsLevel1Memberus-gaap:CashMember2021-12-310001580808us-gaap:CashMember2021-12-310001580808us-gaap:FairValueInputsLevel1Memberus-gaap:CashEquivalentsMember2022-03-310001580808us-gaap:CashEquivalentsMember2022-03-310001580808us-gaap:FairValueInputsLevel1Memberus-gaap:CashEquivalentsMember2021-12-310001580808us-gaap:CashEquivalentsMember2021-12-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2022-03-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2021-12-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2022-03-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2021-12-310001580808us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Member2022-03-310001580808us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Member2021-12-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMember2022-03-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:AssetBackedSecuritiesMember2021-12-310001580808us-gaap:FairValueInputsLevel1Member2022-03-310001580808us-gaap:FairValueInputsLevel2Member2022-03-310001580808us-gaap:FairValueInputsLevel12And3Member2022-03-310001580808us-gaap:FairValueInputsLevel1Member2021-12-310001580808us-gaap:FairValueInputsLevel2Member2021-12-310001580808us-gaap:FairValueInputsLevel12And3Member2021-12-310001580808us-gaap:EquipmentMember2022-03-310001580808us-gaap:EquipmentMember2021-12-310001580808us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-03-310001580808us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-12-310001580808us-gaap:FurnitureAndFixturesMember2022-03-310001580808us-gaap:FurnitureAndFixturesMember2021-12-310001580808us-gaap:LeaseholdImprovementsMember2022-03-310001580808us-gaap:LeaseholdImprovementsMember2021-12-310001580808us-gaap:ConstructionInProgressMember2022-03-310001580808us-gaap:ConstructionInProgressMember2021-12-310001580808us-gaap:ProductMember2022-03-310001580808us-gaap:ProductMember2021-12-310001580808us-gaap:ServiceMember2022-03-310001580808us-gaap:ServiceMember2021-12-310001580808us-gaap:EquipmentMembersrt:MinimumMember2022-01-012022-03-310001580808us-gaap:EquipmentMembersrt:MaximumMember2022-01-012022-03-310001580808us-gaap:SoftwareAndSoftwareDevelopmentCostsMembersrt:MinimumMember2022-01-012022-03-310001580808srt:MaximumMemberus-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-01-012022-03-310001580808us-gaap:FurnitureAndFixturesMembersrt:MinimumMember2022-01-012022-03-310001580808us-gaap:FurnitureAndFixturesMembersrt:MaximumMember2022-01-012022-03-310001580808srt:MaximumMemberaten:TwoThousandFourteenStockIncentivePlanMember2015-06-102015-06-100001580808aten:TwoThousandFourteenStockIncentivePlanMember2022-03-310001580808us-gaap:EmployeeStockMemberaten:TwoThousandFourteenEmployeeStockPurchasePlanMember2018-09-302018-09-300001580808us-gaap:EmployeeStockMemberaten:Amended2014EmployeeStockPurchasePlanMember2018-10-012018-10-310001580808aten:Amended2014EmployeeStockPurchasePlanMember2022-03-310001580808us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001580808us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-03-310001580808us-gaap:EmployeeStockMember2022-01-012022-03-310001580808us-gaap:EmployeeStockMember2021-01-012021-03-310001580808us-gaap:CostOfSalesMember2022-01-012022-03-310001580808us-gaap:CostOfSalesMember2021-01-012021-03-310001580808us-gaap:SellingAndMarketingExpenseMember2022-01-012022-03-310001580808us-gaap:SellingAndMarketingExpenseMember2021-01-012021-03-310001580808us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310001580808us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001580808us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-03-310001580808us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-03-310001580808us-gaap:RestrictedStockUnitsRSUMember2022-03-310001580808aten:PerformanceStockUnitsPSUsMember2022-03-310001580808us-gaap:RestrictedStockUnitsRSUMember2021-12-3100015808082020-09-1700015808082021-10-2800015808082020-09-172021-03-310001580808aten:EmployeeStockOptionsRestrictedStockUnitsAndEmployeeStockPurchasePriceRightsMember2022-01-012022-03-310001580808aten:EmployeeStockOptionsRestrictedStockUnitsAndEmployeeStockPurchasePriceRightsMember2021-01-012021-03-310001580808srt:AmericasMember2022-01-012022-03-310001580808srt:AmericasMember2021-01-012021-03-310001580808srt:AsiaPacificMember2022-01-012022-03-310001580808srt:AsiaPacificMember2021-01-012021-03-310001580808us-gaap:EMEAMember2022-01-012022-03-310001580808us-gaap:EMEAMember2021-01-012021-03-310001580808country:US2022-03-310001580808country:US2021-12-310001580808country:JP2022-03-310001580808country:JP2021-12-310001580808country:IN2022-03-310001580808country:IN2021-12-310001580808aten:OtherCountriesMember2022-03-310001580808aten:OtherCountriesMember2021-12-310001580808aten:DeferredSalesCommissionsMember2022-03-310001580808aten:DeferredSalesCommissionsMember2021-12-310001580808aten:DeferredSalesCommissionsMember2022-01-012022-03-310001580808aten:DeferredSalesCommissionsMember2021-01-012021-03-3100015808082021-04-012022-03-3100015808082022-04-012022-03-3100015808082024-04-012022-03-310001580808us-gaap:SubsequentEventMember2022-05-032022-05-030001580808us-gaap:SubsequentEventMember2022-06-012022-06-010001580808us-gaap:SubsequentEventMember2022-05-162022-05-16

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-36343
aten-20220331_g1.jpg
A10 NETWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware 20-1446869
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
2300 Orchard Parkway, San Jose, California 95131
(Address of Principal Executive Offices and Zip Code)
(408) 325-8668
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valueATENNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerx
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No   x




As of April 29, 2022, the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was 75,824,501.




A10 NETWORKS, INC.
FORM 10-Q

TABLE OF CONTENTS
 Page No.
 
1


NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to, statements concerning the following:
• the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and liquidity;
• the ongoing global semiconductor shortage;
• our ability to provide customers with improved benefits relating to their applications;
• our ability to maintain an adequate rate of revenue growth and other factors contributing to such growth;
• our ability to successfully anticipate market needs and opportunities;
• our business plan and our ability to effectively manage our growth;
• our plans to strengthen our sales efforts;
• our expectations with respect to recognizing revenue related to remaining performance obligations;
• our plans to introduce new products;
• loss or delay of expected purchases by our largest end-customers;
• our ability to further penetrate our existing customer base;
• our ability to displace existing products in established markets;
• continued growth in markets relating to network security;
• our ability to timely and effectively scale and adapt our existing technology;
• our ability to innovate new products and bring them to market in a timely manner;
• our ability to conduct business internationally and any related impact on profitability;
• the effects of increased competition in our market and our ability to compete effectively;
• the effects of seasonal trends on our results of operations;
• our expectations concerning relationships with third parties;
• our expectations with respect to the realization of our tax assets and our unrecognized tax benefits;
• our plans with respect to the repatriation of our earnings from our foreign operations;
• the attraction, retention and growth of qualified employees and key personnel;
• our ability to maintain profitability while continuing to invest in our sales, marketing, product development, distribution channel partner programs and research and development teams;
• our expectations regarding our future costs and expenses;
• our expectations with respect to liquidity position and future capital requirements;
• our exploration of strategic alternatives;
• variations in product mix or geographic locations of our sales;
• our stock repurchase program and our quarterly dividend;
• our expectations regarding our properties and related costs;
• fluctuations in currency exchange rates;
• tariffs affecting us;
• increased cost requirements of being a public company, including related to environmental, social and governance matters, and future sales of substantial amounts of our common stock in the public markets;
• the cost and potential outcomes of litigation;
• our ability to maintain, protect, and enhance our brand and intellectual property;
• future acquisitions of or investments in complementary companies, products, services or technologies; and
• our ability to effectively integrate operations of entities we have acquired or may acquire.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time such as the current COVID-19 pandemic. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the effects of the COVID-19 global pandemic on the Company and its business, and on the business of its business partners and customers;
unanticipated changes in the markets in which the Company operates; the effects of the current macroeconomic climate (especially in light of the ongoing adverse effects of the COVID-19 global pandemic); execution risks related to closing key
2


deals and improving our execution, the continued market adoption of our products, our ability to successfully anticipate market needs and opportunities, our timely development of new products and features, our ability to maintain profitability, any loss or delay of expected purchases by our largest end-customers, our ability to maintain or improve our competitive position, competitive and execution risks related to cloud-based computing trends, our ability to attract and retain new end-customers and our largest end-consumers, our ability to maintain and enhance our brand and reputation, changes demanded by our customers in the deployment and payment model for our products, continued growth in markets relating to network security, the success of any future acquisitions or investments in complementary companies, products, services or technologies, the ability of our sales team to execute well, our ability to shorten our close cycles, the ability of our channel partners to sell our products, variations in product mix or geographic locations of our sales, risks associated with our presence in international markets, weaknesses or deficiencies in our internal control over financial reporting, and our ability to timely file periodic reports required to be filed under the Securities Exchange Act of 1934, as well as other risks identified in the “Risk Factors” section of this Report.

In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Any forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to update these forward-looking statements after the filing of this report, except as required by law.

Our investor relations website is located at https://investors.A10networks.com. We use our investor relations website, our company blog (https://www.a10networks.com/blog) and our corporate Twitter account (https://twitter.com/A10Networks) to post important information for investors, including news releases, analyst presentations, and supplemental financial information, and as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our investor relations website, our company blog and our corporate Twitter account, in addition to following press releases, SEC filings and public conference calls and webcasts. We also make available, free of charge, on our investor relations website under “SEC Filings,” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after electronically filing or furnishing those reports to the SEC.


NOTE REGARDING COVID-19

    In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to exist in areas where we operate and sell our products and services. As a result of the pandemic, public health organizations recommended, and many local governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances, which resulted in a significant deterioration of economic conditions in many of the countries in which we operate. The spread of the COVID-19 virus has also caused us to continue implementing modifications on our business practices (including work-from-home policies and restrictions on travel by our employees). These same developments may affect the operations of our contract manufacturers and many of our vendors, as their own workforce and operations are disrupted by efforts to curtail the spread of this virus. COVID-19 may result in supply shortages of our products or our ability to import, export or sell product to customers in both the U.S. and international markets. While we expect the impacts of COVID-19 to be temporary, the disruptions caused by the virus may negatively affect our revenue, results of operations, financial condition, liquidity, and capital investments in 2022.

In response to the outbreak of COVID-19, we have taken the following measures:
Implemented work-from-home and social distancing policies for our organization;
Taken steps to ensure employee’s ability to remotely work-from-home when feasible;
Continue to maintain our focus on improving profitability; and
Continue to monitor our supply chain closely.

The impact of the pandemic on our business, as well as the business of our business partners, and the additional measures that may be needed in the future in response to it, will depend on many factors beyond our control and knowledge. We will continually monitor the situation to determine what actions may be necessary or appropriate to address the impact of the pandemic, which may include actions mandated or recommended by federal, state or local authorities.

3


RISK FACTOR SUMMARY

Risks Related to Our Business, Operations and Industry
the effects of the COVID-19 pandemic;
anticipating market needs and opportunities, and market adoption of our products;
timely development of new products and features;
maintaining profitability;
variability in our operating results;
our reliance on shipments at the end of the quarter;
intense competition and maintaining or improving our competitive position;
cloud-based computing trends;
maintaining and enhancing our brand and reputation;
a limited number of end-customers comprise a significant portion of revenue;
changes demanded by customers in our deployment and payment models;
large end-customers demanding favorable terms and conditions;
fluctuations in our gross margin;
significant revenue from international sources;
continued expansion of our international operations;
hiring, retaining and motivating qualified personnel;
exploration of strategic alternatives;
adverse economic conditions resulting in reduced technology spending;
our dependence on third-party manufacturers;
limited supply sources, supply shortages and changes;
real or perceived defects, errors or vulnerabilities in our products and services;
• warranty claims, returns, liability and defects;
undetected software and hardware errors;
use of open source software;
interoperability with systems developed by others;
• prevention of inventory excesses or shortages;
our ability to sell products dependent on quality support and services;
maintaining high-quality support and services;
product conformity with industry standards;
our dependence on information technology systems;
potential future acquisitions;
credit risk of distribution partners and customers; and
earthquakes, fires, power outages, floods, acts of war and terrorism.

Risks Related to Intellectual Property, Litigation, Laws and Regulations
litigation and claims regarding our intellectual property rights;
protecting our intellectual property rights;
U.K. political developments including Brexit;
enhanced U.S. tariffs, import/export restrictions, Chinese regulations, trade barriers;
protecting and securing confidentiality of data;
costs of protecting against security breaches;
our protection of personal data;
sales to governmental organizations;
compliance with governmental laws and regulations;
governmental export and import controls;
environmental laws and regulations;
limitations on use of net operating loss carryforwards;
changes in tax laws or regulations or, adverse outcomes to tax return examinations;
changes in generally accepted accounting principles;
our ability to maintain effective internal controls;
our charter and Delaware law could discourage takeover attempts leading to management entrenchment;
certain stockholder actions governed by the Court of Chancery of the State of Delaware; and
• increasing attention on environmental, social and governance matters.

Risks Related to Capitalization and Financial Markets
fluctuations in foreign currency exchange rates;
4


ownership concentration of our common stock;
our ability to raise additional funds and stockholder dilution;
volatility of the price of our common stock;
potential substantial sales of common stock in the public markets;
reports by security and industry analysts,
• changes to our dividend program; and
• our repurchase program.


5




PART I. FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)
March 31, 2022December 31, 2021
ASSETS
Current assets:  
Cash and cash equivalents$67,758 $78,925 
Marketable securities96,945 106,117 
Accounts receivable, net of allowances of $708 and $543, respectively49,282 61,795 
Inventory20,832 22,462 
Prepaid expenses and other current assets17,416 14,720 
Total current assets252,233 284,019 
Property and equipment, net13,460 10,692 
Goodwill 1,307 1,307 
Deferred tax assets, net65,555 65,773 
Other non-current assets29,192 31,294 
Total assets$361,747 $393,085 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Accounts payable$4,994 $6,852 
Accrued liabilities30,213 36,101 
Deferred revenue74,125 73,132 
Total current liabilities109,332 116,085 
Deferred revenue, non-current47,224 48,499 
Other non-current liabilities19,214 19,613 
Total liabilities175,770 184,197 
Commitments and contingencies (Note 2 and Note 5)
Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 85,117 and 84,717 shares issued and 75,701 and 77,423 shares outstanding, respectively1 1 
Treasury stock, at cost: 9,416 and 7,294 shares, respectively(83,999)(55,677)
Additional paid-in-capital449,742 446,035 
Dividends paid(7,749)(3,880)
Accumulated other comprehensive income(1,005)(229)
Accumulated deficit(171,013)(177,362)
Total stockholders' equity185,977 208,888 
Total liabilities and stockholders' equity$361,747 $393,085 
See accompanying notes to the condensed consolidated financial statements.

6


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 Three Months Ended March 31,
 20222021
Revenue:
Products$37,045 $30,540 
Services25,627 24,303 
Total revenue62,672 54,843 
Cost of revenue:
Products8,633 7,086 
Services4,206 5,413 
Total cost of revenue12,839 12,499 
Gross profit49,833 42,344 
Operating expenses:
Sales and marketing22,782 19,092 
Research and development12,887 13,981 
General and administrative6,162 5,247 
Total operating expenses41,831 38,320 
Income from operations8,002 4,024 
Non-operating expense, net:
Interest and other expense, net(513)(1,183)
Total non-operating expense, net(513)(1,183)
Income before provision for income taxes7,489 2,841 
Provision for income taxes1,140 184 
Net income $6,349 $2,657 
Net income per share:
Basic$0.08 $0.03 
Diluted$0.08 $0.03 
Weighted-average shares used in computing net income per share:
Basic76,795 76,704 
Diluted79,285 79,636 


 See accompanying notes to the condensed consolidated financial statements.


7


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 Three Months Ended March 31,
 20222021
Net income $6,349 $2,657 
Other comprehensive income, net of tax:
Unrealized loss on marketable securities(776)(88)
Comprehensive income$5,573 $2,569 


See accompanying notes to the condensed consolidated financial statements.

8


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)

Three Months Ended March 31,
20222021
Shares of common stock issued and outstanding
Beginning balance77,423 76,346 
Common stock issued under employee equity incentive plans400 765 
Repurchase of common stock(2,122)(9)
    Ending balance75,701 77,102 
Stockholders' equity
Beginning balance$208,888 $115,974 
Common stock:
Beginning balance$1 $1 
Common stock issued under employee equity incentive plans  
    Ending balance$1 $1 
Treasury stock, at cost:
Beginning balance$(55,677)$(37,410)
Repurchase of common stock(28,322)(88)
Ending balance$(83,999)$(37,498)
Dividends declared:
Beginning balance$(3,880)$ 
Payments for dividends(3,869) 
Ending balance$(7,749)$ 
Additional paid-in capital:
Beginning balance$446,035 $425,534 
Common stock issued under employee equity incentive plans165 1,756 
Stock-based compensation3,542 4,448 
    Ending balance$449,742 $431,738 
Accumulated other comprehensive income:
Beginning balance$(229)$98 
Unrealized loss on marketable securities, net of tax(776)(88)
    Ending balance$(1,005)$10 
Accumulated deficit:
Beginning balance$(177,362)$(272,249)
Net income6,349 2,657 
    Ending balance$(171,013)$(269,592)
Total stockholders' equity$185,977 $124,659 

See accompanying notes to the condensed consolidated financial statements.
9


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended March 31,
 20222021
Cash flows from operating activities:
Net income$6,349 $2,657 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,844 2,413 
Stock-based compensation3,452 4,399 
Other non-cash items287 181 
Changes in operating assets and liabilities:
Accounts receivable12,535 (315)
Inventory1,433 1,086 
Prepaid expenses and other assets(1,568)(60)
Accounts payable(1,857)(501)
Accrued liabilities(6,287)(12,106)
Deferred revenue(280)4,519 
Net cash provided by operating activities15,908 2,273 
Cash flows from investing activities:
Proceeds from sales of marketable securities4,550 1,300 
Proceeds from maturities of marketable securities17,173 24,140 
Purchases of marketable securities(13,635)(36,197)
Purchases of property and equipment(3,137)(769)
Net cash provided by (used in) investing activities4,951 (11,526)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans165 1,756 
Repurchase of common stock(28,322)(88)
Payments for dividends(3,869) 
Net cash provided by (used in) financing activities(32,026)1,668 
Net decrease in cash and cash equivalents(11,167)(7,585)
Cash and cash equivalents—beginning of period$78,925 $83,281 
Cash and cash equivalents—end of period$67,758 $75,696 
Non-cash investing and financing activities:
Transfers between inventory and property and equipment$196 $97 
Purchases of property and equipment included in accounts payable$1 $172 

See accompanying notes to the condensed consolidated financial statements.
10


A10 Networks, Inc.

Notes to Condensed Consolidated Financial Statements
(unaudited)


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 networking solutions that enable next-generation networks focused on reliability, availability, scalability and cybersecurity. Our portfolio supports customers operating in the cloud, on-premise or in hybrid environments providing rapid return on their investment as well as investment protection with best-in-class technical performance. As cyber-attacks increase in volume and complexity, we integrate security as a key attribute in our solutions that further enable our customers to continue to adapt to market trends in cloud, internet of things and the ever increasing need for more data, building upon our strong global footprint and leadership in application and network infrastructure. Our customers include leading service providers (cloud, telecommunications, multiple system operators, cable), government organizations, and enterprises.

Our product portfolio provides cybersecurity and infrastructure solutions. The portfolio consists of the following major categories; Standalone Thunder Application Delivery Controller (ADC), Carrier-Grade Network Access Translation (CGNAT)/Convergent Firewall (CFW) and Thunder Threat Protection System (TPS) for DDOS protection/Secure Socket Layer Insight (SSLi). In addition, we deliver management, automation and analytics tools including Harmony Controller and aGalaxy. Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

We derive revenue from sales of products and related support services. Products revenue is generated primarily by sales of hardware appliances with perpetual licenses to our embedded software solutions. We also derive revenue from licenses to, or subscription services for, software-only versions of our solutions. We generate services revenue primarily from sales of maintenance and support contracts. Our customers predominantly purchase maintenance and support in conjunction with purchases of our products.

We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. We report two customer verticals: service providers and enterprises and we report customer revenues in three geographic regions: the Americas, Asia Pacific and EMEA. In the three months ended March 31, 2022, we changed the way we present revenue by geographic region. Our previously reported customer revenues in the Japan and the Asia Pacific (excluding Japan) regions are now combined in the Asia Pacific region. We believe our two customer verticals and our revised geographic view aligns with how we manage the business and maps our product portfolio to customer verticals.

Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly. As of March 31, 2022, we have sold our products to more than 7,800 end-customers worldwide since our inception.

We sell substantially all of our solutions through our high-touch sales organization as well as distribution channel partners, including distributors, value-added resellers and system integrators, and fulfill nearly all orders globally through such partners. We believe this sales approach allows us to obtain the benefits of channel distribution, such as expanding our market coverage, while still maintaining face-to-face relationships with our end-customers. We outsource the manufacturing of our hardware products to original design manufacturers. We perform quality assurance and testing at our San Jose, Taiwan and Japan distribution centers, as well as at our manufacturers’ locations.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include those of A10 Networks, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions.

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC” or the “Commission”). As permitted under these rules and regulations, we have condensed or omitted certain financial information and footnote disclosures we normally
11


include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated balance sheet as of December 31, 2021 has been derived from our audited financial statements, which are included in our 2021 Annual Report on Form 10-K for the year ended December 31, 2021 on file with the SEC (the “2021 Annual Report”).

These financial statements have been prepared on the same basis as our annual financial statements and, in management’s opinion, reflect all adjustments consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial information. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. 

These financial statements and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto in the 2021 Annual Report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Those estimates and assumptions affect revenue recognition and deferred revenue, the allowance for doubtful accounts, the sales return reserve, the valuation of inventory, the fair value of marketable securities, contingencies and litigation, accrued liabilities, deferred commissions and the determination of fair value of stock-based compensation. These estimates are based on information available as of the date of the condensed consolidated financial statements.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Part IIItem 8, “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 8, 2022. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022.

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, are those which represent 10% or more of our total revenue for each period presented or our gross accounts receivable balance as of each respective balance sheet date.

    Revenues from our significant customers as a percentage of our total revenue are as follows:
Three Months Ended March 31,
Customers20222021
Customer A (an end-customer)17%*
Customer B (a distribution channel partner)11%12%
Customer C (a distribution channel partner)*10%
* represents less than 10% of total revenue
12



As of March 31, 2022, three customers accounted for 21%, 12% and 10%, respectively, of our total gross accounts receivable. As of December 31, 2021, two customers accounted for 14% and 11%, respectively, of our total gross accounts receivable.

Recently Adopted Accounting Pronouncements

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), as amended, using a modified retrospective approach, with certain exceptions allowed. The standard amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than by reducing the carrying amount under the current, other-than-temporary-impairment model. The adoption of ASU 2016-13 did not have a significant impact on the Company’s condensed consolidated financial statements.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in ASC 350, Intangibles Goodwill and Other. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In January 2020, the Company adopted ASU 2017-04, and the adoption did not have a significant impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820 Changes to the Disclosure Requirements for the Fair Value Measurement) (“ASU 2018-13”). Under ASU 2018-13, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of ASU 2018-13 did not have a significant impact on the Company’s condensed consolidated financial statements.

In November 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update improve consistent application of and simplify U.S. GAAP for Topic 740 by clarifying and amending existing guidance for, among other items, intra-period allocation, reporting tax law changes and losses in interim periods, state and local taxes not fully based on income and recognition of deferred tax liability related to certain transactions. There is also new guidance related to consolidated group reporting and tax impacts resulting from business combinations. The Company adopted this guidance effective January 1, 2021 and the adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The amendments in this ASU improve the consistency of the codification and reorganize the guidance into appropriate sections providing less opportunities for disclosures to be missed. The amendments in this update do not change U.S. GAAP and are not expected to result in a significant change in practice. The Company adopted this guidance on January 1, 2021 and the adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.

2. Leases

The Company leases various operating spaces in the United States, Asia and Europe under non-cancellable 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 table below presents the Company’s right-of-use assets and lease liabilities as of March 31, 2022 (in thousands):
13


March 31, 2022
Operating leases
Right-of-use assets:
Other non-current assets$22,347 
Total right-of-use assets$22,347 
Lease liabilities:
Accrued liabilities$3,906 
Other non-current liabilities18,898 
Total operating lease liabilities$22,804 

The aggregate future lease payments for non-cancelable operating leases as of March 31, 2022 were as follows (in thousands):

Remainder of 2022$3,416 
20234,559 
20244,667 
20254,778 
20264,892 
Thereafter2,414 
Total lease payments24,726 
Less: imputed interest(1,922)
Present value of lease liabilities$22,804 

The components of lease costs were as follows (in thousands):
Three Months Ended March 31,
20222021
Operating lease costs$1,071 $1,373 
Short-term lease costs130 147 
Total lease costs$1,201 $1,520 
Average lease terms and discount rates for the Company’s operating leases were as follows:
March 31, 2022
Weighted-average remaining term (years)5.30
Weighted-average discount rate3.17%

Supplemental cash flow information for the Company’s operating leases were as follows (in thousands):

Three Months Ended March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,290 
Right-of-use assets obtained in exchange for new lease liabilities$672 

14


3. Marketable Securities and Fair Value Measurements

Marketable Securities

Marketable securities, classified as available-for-sale, consisted of the following (in thousands):
March 31, 2022December 31, 2021
 Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Corporate securities$50,263 $ $(699)$49,564 $62,588 $1 $(168)$62,421 
U.S. Treasury and agency securities19,906  (278)19,628 13,904  (59)13,845 
Commercial paper22,083   22,083 23,570   23,570 
Asset-backed securities5,698  (28)5,670 6,285  (4)6,281 
Total$97,950 $ $(1,005)$96,945 $106,347 $1 $(231)$106,117 

During the three months ended March 31, 2022 and 2021, we did not reclassify any amount to earnings from accumulated other comprehensive income related to unrealized gains or losses.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of March 31, 2022 (in thousands):
 Amortized CostFair Value
Less than 1 year$62,717 $62,429 
Mature in 1 - 3 years35,233 34,516 
Total$97,950 $96,945 
All available-for-sale securities have been classified as current because they are available for use in current operations.

Marketable securities in an unrealized loss position as of March 31, 2022 consisted of the following (in thousands):
Less Than 12 Months12 Months or MoreTotal
As of March 31, 2022Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate securities$47,549 $(699)$ $ $47,549 $(699)
U.S. Treasury and agency securities19,628 (278)  19,628 (278)
Asset-backed securities5,670 (28)  5,670 (28)
$72,847 $(1,005)$ $ $72,847 $(1,005)

Marketable securities in an unrealized loss position as of December 31, 2021 consisted of the following (in thousands):
Less Than 12 Months12 Months or MoreTotal
As of December 31, 2021Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate securities$62,012 $(168)$ $ $62,012 $(168)
U.S. Treasury and agency securities13,845 (59)  13,845 (59)
Asset-backed securities6,281 (4)  6,281 (4)
$82,138 $(231)$ $ $82,138 $(231)

15


Based on evaluation of securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during the three months ended March 31, 2022 and 2021.

Fair Value Measurements

The following is a summary of our cash, cash equivalents and marketable securities measured at fair value on a recurring basis (in thousands):
 March 31, 2022December 31, 2021
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash$42,238 $— $— $42,238 $62,021 $— $— $62,021 
Cash equivalents25,520 — — 25,520 16,904 — — 16,904 
Corporate securities— 49,564 — 49,564 — 62,421 — 62,421 
U.S. Treasury and agency securities— 19,628 — 19,628 — 13,845 — 13,845 
Commercial paper— 22,083 — 22,083 — 23,570 — 23,570 
Asset-backed securities— 5,670 — 5,670 — 6,281 — 6,281 
Total$67,758 $96,945 $— $164,703 $78,925 $106,117 $— $185,042 
There were no transfers between Level 1 and Level 2 fair value measurement categories during the three months ended March 31, 2022 and 2021.

4. Condensed Consolidated Financial Statement Details

Inventory

Inventory consisted of the following (in thousands):
March 31,
2022
December 31,
2021
Raw materials$9,876 $10,774 
Finished goods10,956 11,688 
Total inventory$20,832 $22,462 

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):
March 31,
2022
December 31,
2021
Prepaid expenses$4,735 $4,326 
Deferred contract acquisition costs8,589 7,399 
Other4,092 2,995 
       Total prepaid expenses and other current assets$17,416 $14,720 
16



Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):
Useful LifeMarch 31,
2022
December 31,
2021
(in years)
Equipment1 - 5$27,087 $25,407 
Software1 - 3840 807 
Furniture and fixtures1 - 7545 545 
Leasehold improvementsLease term3,236 3,231 
Construction in process6,169 4,823 
Property and equipment, gross37,877 34,813 
Less: accumulated depreciation(24,417)(24,121)
Property and equipment, net$13,460 $10,692 

Construction in process primarily consists of deferred software development costs related to several projects that are expected to take longer than one year to complete. We expect the largest of these projects to be available for release to customers in the fourth quarter of 2022.

Depreciation expense on property and equipment was $0.7 million for each of the three-month periods ended March 31, 2022 and 2021.

Intangible Assets

Purchased intangible assets, which included developed technology and patents, were fully amortized as of December 31, 2021. Amortization expense related to these purchased intangible assets was $0.4 million for the three months ended March 31, 2021.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
March 31,
2022
December 31,
2021
Accrued compensation and benefits$15,635 $24,003 
Accrued tax liabilities3,118 1,020 
Lease liability3,906 3,983 
Other7,554 7,095 
Total accrued liabilities$30,213 $36,101 
17



Deferred Revenue

Deferred revenue consisted of the following (in thousands):
March 31,
2022
December 31,
2021
Deferred revenue:
Products$6,259 $6,164 
Services115,090 115,467 
Total deferred revenue121,349 121,631 
Less: current portion(74,125)(73,132)
Non-current portion$47,224 $48,499 

5. Commitments and Contingencies

Lease Commitments

We lease 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. We recognize rent expense under these arrangements on a straight-line basis over the term of the lease. See Note 2 – Leases for the Company’s aggregate future lease payments for the Company’s non-cancelable operating leases as of March 31, 2022.

Rent expense was $1.2 million and $1.4 million for three months ended March 31, 2022 and 2021, respectively.

Purchase Commitments

We have 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. We had open purchase commitments with manufacturers in Taiwan totaling $34.9 million as of March 31, 2022.

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 indemnification and guarantee provisions and our guarantees and indemnification arrangements have not had any significant impact on our condensed consolidated financial statements to date.

6. Equity Incentive Plans, Stock-Based Compensation and Stock Repurchase Program

Equity Incentive Plans

2014 Equity Incentive Plan

The 2014 Equity Incentive Plan (the “2014 Plan”) provides for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our Board of Directors.
The shares authorized for the 2014 Plan increase annually by the lesser 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 lesser amount as determined by our Board of Directors. In November 2020, our Board of Directors determined the current shares authorized under the 2014 Plan were sufficient for the time being and decided not to increase the number of shares authorized in 2021. As of March 31, 2022, we had 9,870,741 shares available for future grant under the 2014 Plan.
18



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 Purchase 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. As of March 31, 2022, the Company had 1,386,639 shares available for future issuance under the Amended 2014 Purchase Plan.

Stock-Based Compensation

A summary of our stock-based compensation expense is as follows (in thousands):
Three Months Ended March 31,
20222021
Stock-based compensation by type of award:
Stock awards$3,100 $4,123 
Employee stock purchase rights352 276 
$3,452 $4,399 
Stock-based compensation by category of expense:
Cost of revenue$399 $572 
Sales and marketing1,099 1,264 
Research and development788 1,431 
General and administrative1,166 1,132 
$3,452 $4,399 
As of March 31, 2022, the Company had $25.5 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 2.02 years.

Stock Options

The following table summarizes our stock option activities and related information:
 Number of Shares (thousands)Weighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Term
(years)
Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2021871 $6.13 
Granted  
Exercised(35)5.68 
Canceled  
Outstanding as of March 31, 2022836 6.15 2.14$6,523 
Vested and exercisable as of March 31, 2022836 $6.15 2.14$6,523 

As of March 31, 2022, the aggregate intrinsic value represents the excess of the closing price of our common stock of $13.95 over the exercise price of the outstanding in-the-money options.

The intrinsic value of options exercised was $0.3 million and $1.5 million during the three months ended March 31, 2022 and 2021, respectively.

19


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 March 31, 2022, there were 2,709,481 RSUs and 1,021,009 PSUs outstanding.

The following table summarizes our stock award activities and related information:
Number of Shares (thousands)Weighted-Average Grant Date Fair Value Per ShareWeighted-Average Remaining Vesting Term
(years)
Aggregate Fair Value (thousands)
Nonvested as of December 31, 20213,717 $8.56 
Granted496 12.44 
Released(365)6.47 
Canceled(117)8.44 
Nonvested as of March 31, 20223,731 $9.28 1.48$52,040 

The aggregate fair value of stock awards released was $2.4 million and $4.0 million for the three months ended March 31, 2022 and 2021, respectively.

Stock Repurchase Program

On September 17, 2020, the Company’s Board of Directors approved a stock repurchase program of up to $50 million of its common stock over a period of twelve months. This repurchase program was active for twelve months and expired in the second half of 2021. On October 28, 2021, the Company announced its Board of Directors authorized a new stock repurchase program of up to $100 million of its common stock over a period of twelve months (the “2021 Program”). During the three months ended March 31, 2022, the Company repurchased 2.1 million shares for a total cost of $28.3 million under the 2021 Program. Under both programs, repurchased shares are held in treasury at cost. The Company’s stock repurchase programs do not obligate it 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 both programs have occurred in the open market. Since approving the 2021 Program, the Company has repurchased 2.6 million shares for a total cost of $35.4 million through March 31, 2022 and the Company had $64.6 million available to repurchase shares under the 2021 Program as of March 31, 2022.

7. 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 applying the treasury stock method is computed using the weighted average number of common shares outstanding for the period plus potential dilutive common shares, including stock options, RSUs and employee stock purchase rights, unless the potential common shares are anti-dilutive.

Basic and diluted net income per share are calculated as follows (in thousands, except per share amounts):
20


Three Months Ended March 31,
20222021
Basic and diluted net income per share
Numerator:
Net income$6,349 $2,657 
Denominator:
Weighted-average shares outstanding - basic76,795 76,704 
Effect of dilutive potential common shares from stock options, stock awards and employee stock purchase plan2,490 2,932 
Weighted-average shares outstanding - diluted79,285 79,636 
Net income per share:
Basic$0.08 $0.03 
Diluted$0.08 $0.03 

The following table presents common shares related to potentially dilutive shares excluded from the calculation of diluted net income (loss) per share as their effect would have been anti-dilutive (in thousands):

Three Months Ended March 31,
20222021
Stock options, restricted stock units and employee stock purchase rights233 67 

8. Income Taxes

We recorded income tax expense of $1.1 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively, which primarily consisted of U.S. taxes for the three months ended March 31, 2022. For the three months ended March 31, 2021, income tax expense primarily consisted of foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases using tax rates expected to be in effect during the years in which the basis differences reverse.

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 as of September 30, 2021. Therefore we released the valuation allowance on our U.S. deferred tax assets except for state credits in 2021. For the three months ended March 31, 2022, we recorded no change in our net valuation allowance.

We had $6.5 million of unrecognized tax benefits as of March 31, 2022. 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.

Accrued interest and penalties related to unrecognized tax benefits are recognized as part of our provision for income taxes in our condensed consolidated statements of operations.

We are subject to taxation in the United States, various states, and several foreign jurisdictions. Because we have net operating loss 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. We are not currently under examination by any taxing authorities.

On December 22, 2017, the Tax Act was signed into law. The Tax Act significantly revised the U.S. tax code generally effective January 1, 2018. Beginning in 2022 the Tax Act requires capitalization of research and development costs. While we
21


continue to evaluate the impact of the delayed effective date, we currently believe that this provision will not materially impact our income tax provision.

On June 29, 2020, the California Governor signed Assembly Bill 85 (“A.B. 85”), which includes several tax measures, provides for a three-year suspension of the use of NOLs for medium and large businesses and a three-year limit on the use of business incentive tax credits to offset no more than $5 million of tax per year. The three-year term was subsequently revised to a two-year term and has been accounted for in our income tax provision.

9. Geographic Information

In the three months ended March 31, 2022, we changed the way we present revenue by geographic region. We now report customer revenues in three geographic regions: the Americas, Asia Pacific and EMEA. Our previously reported customer revenues in the Japan and the Asia Pacific (excluding Japan) regions are now combined in the Asia Pacific region. This change in the way we report revenue had no impact to our key metrics including operations, comprehensive income and accumulated deficit. 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):
Three Months Ended March 31,
20222021
Americas$32,958 $26,270 
Asia Pacific17,789 19,954 
EMEA11,925 8,619 
Total revenue$62,672 $54,843 

The following table is a summary of our long-lived assets which include property and equipment, net and operating lease right-of-use assets based on the physical location of the assets (in thousands):
March 31,
2022
December 31,
2021
United States$34,671 $32,255 
Japan161 422 
India599 513 
Other376 368 
Total$35,807 $33,558 

10. Revenue

Contract Balances
The following table reflects contract balances with customers (in thousands):
 March 31,
2022
December 31, 2021
Accounts receivable, net$49,282 $61,795 
Deferred revenue, current74,125 73,132 
Deferred revenue, non-current47,224 48,499 

We receive payments from customers based upon billing cycles. Invoice payment terms usually range from 30 to 90 days.

Accounts receivable are recorded when the right to consideration becomes unconditional.

Contract assets include amounts related to our contractual right to consideration for performance obligations not yet billed and are included in prepaid and other current assets in the condensed consolidated balance sheets. The amounts were immaterial as of March 31, 2022 and December 31, 2021.
22



    Deferred revenue primarily consists of amounts that have been invoiced but not yet been recognized as revenue and consists of performance obligations pertaining to support and subscription services. We recognized revenue of $24.6 million and $23.1 million during the three months ended March 31, 2022 and 2021, respectively, related to deferred revenues at the beginning of the respective periods.

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, and the remaining portion is recorded as other non-current assets. Amortization of deferred commissions is included in sales and marketing expense.
As of March 31, 2022, the current and non-current portions of deferred contract acquisition costs were $8.6 million and $4.1 million, respectively. As of December 31, 2021, the current and non-current portions of deferred contract acquisition costs were $7.4 million and $4.5 million, respectively. Related amortization expense was $2.0 million and $1.7 million for the three months ended March 31, 2022 and 2021, respectively.

We had no impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets during the three months ended March 31, 2022 and 2021.

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.
We expect to recognize revenue on the remaining performance obligations as follows (in thousands):
March 31, 2022
Within 1 year$74,125 
Next 2 to 3 years37,615 
Thereafter9,609 
Total$121,349 

11. Subsequent Events

On May 3, 2022, the Company announced its Board of Directors declared a quarterly dividend. The dividend, in the amount of $0.05 per share outstanding, will be paid on June 1, 2022 to shareholders of record on May 16, 2022 as a return of capital. Future dividends will be subject to further review and approval by the Board in accordance with applicable law. The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the Company’s capital allocation strategy from time-to-time.
23



ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors,” and “Note Regarding Forward-Looking Statements.”

Overview

    We are a leading provider of networking solutions that enable next-generation networks focused on reliability, availability, scalability and cybersecurity. Our portfolio supports customers operating in the cloud, on-premise or in hybrid environments providing rapid return on their investment as well as investment protection with best-in-class technical performance. As cyber-attacks increase in volume and complexity, we integrate security as a key attribute in our solutions that further enable our customers to continue to adapt to market trends in cloud, internet of things and the ever increasing need for more data, building upon our strong global footprint and leadership in application and network infrastructure. Our customers include leading service providers (cloud, telecommunications, multiple system operators, cable), government organizations, and enterprises.

    Our product portfolio provides cybersecurity and infrastructure solutions. The portfolio consists of the following major categories; Standalone Thunder Application Delivery Controller (ADC), Carrier-Grade Network Access Translation (CGNAT)/Convergent Firewall (CFW) and Thunder Threat Protection System (TPS) for DDOS protection/Secure Socket Layer Insight (SSLi). In addition, we deliver management, automation and analytics tools including Harmony Controller and aGalaxy. Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

    We derive revenue from sales of products and related support services. Products revenue is generated primarily by sales of hardware appliances with perpetual licenses to our embedded software solutions. We also derive revenue from licenses