aten-20240630false2024Q20001580808December 316764050.000010.00001500,000500,00089,58089,00373,86074,35915,72014,644151617124xbrli:sharesiso4217:USDiso4217:USDxbrli:sharesaten:solutionaten:toolxbrli:pure00015808082024-01-012024-06-3000015808082024-07-2600015808082024-06-3000015808082023-12-310001580808us-gaap:ProductMember2024-04-012024-06-300001580808us-gaap:ProductMember2023-04-012023-06-300001580808us-gaap:ProductMember2024-01-012024-06-300001580808us-gaap:ProductMember2023-01-012023-06-300001580808us-gaap:ServiceMember2024-04-012024-06-300001580808us-gaap:ServiceMember2023-04-012023-06-300001580808us-gaap:ServiceMember2024-01-012024-06-300001580808us-gaap:ServiceMember2023-01-012023-06-3000015808082024-04-012024-06-3000015808082023-04-012023-06-3000015808082023-01-012023-06-300001580808us-gaap:CommonStockMember2023-03-310001580808us-gaap:TreasuryStockCommonMember2023-03-310001580808us-gaap:AdditionalPaidInCapitalMember2023-03-310001580808aten:DividendsDeclaredMember2023-03-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001580808us-gaap:RetainedEarningsMember2023-03-3100015808082023-03-310001580808us-gaap:CommonStockMember2023-04-012023-06-300001580808us-gaap:AdditionalPaidInCapitalMember2023-04-012023-06-300001580808us-gaap:TreasuryStockCommonMember2023-04-012023-06-300001580808aten:DividendsDeclaredMember2023-04-012023-06-300001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-012023-06-300001580808us-gaap:RetainedEarningsMember2023-04-012023-06-300001580808us-gaap:CommonStockMember2023-06-300001580808us-gaap:TreasuryStockCommonMember2023-06-300001580808us-gaap:AdditionalPaidInCapitalMember2023-06-300001580808aten:DividendsDeclaredMember2023-06-300001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-300001580808us-gaap:RetainedEarningsMember2023-06-3000015808082023-06-300001580808us-gaap:CommonStockMember2024-03-310001580808us-gaap:TreasuryStockCommonMember2024-03-310001580808us-gaap:AdditionalPaidInCapitalMember2024-03-310001580808aten:DividendsDeclaredMember2024-03-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001580808us-gaap:RetainedEarningsMember2024-03-3100015808082024-03-310001580808us-gaap:CommonStockMember2024-04-012024-06-300001580808us-gaap:AdditionalPaidInCapitalMember2024-04-012024-06-300001580808us-gaap:TreasuryStockCommonMember2024-04-012024-06-300001580808aten:DividendsDeclaredMember2024-04-012024-06-300001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-04-012024-06-300001580808us-gaap:RetainedEarningsMember2024-04-012024-06-300001580808us-gaap:CommonStockMember2024-06-300001580808us-gaap:TreasuryStockCommonMember2024-06-300001580808us-gaap:AdditionalPaidInCapitalMember2024-06-300001580808aten:DividendsDeclaredMember2024-06-300001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-06-300001580808us-gaap:RetainedEarningsMember2024-06-300001580808us-gaap:CommonStockMember2022-12-310001580808us-gaap:TreasuryStockCommonMember2022-12-310001580808us-gaap:AdditionalPaidInCapitalMember2022-12-310001580808aten:DividendsDeclaredMember2022-12-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001580808us-gaap:RetainedEarningsMember2022-12-3100015808082022-12-310001580808us-gaap:CommonStockMember2023-01-012023-06-300001580808us-gaap:AdditionalPaidInCapitalMember2023-01-012023-06-300001580808us-gaap:TreasuryStockCommonMember2023-01-012023-06-300001580808aten:DividendsDeclaredMember2023-01-012023-06-300001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-06-300001580808us-gaap:RetainedEarningsMember2023-01-012023-06-300001580808us-gaap:CommonStockMember2023-12-310001580808us-gaap:TreasuryStockCommonMember2023-12-310001580808us-gaap:AdditionalPaidInCapitalMember2023-12-310001580808aten:DividendsDeclaredMember2023-12-310001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001580808us-gaap:RetainedEarningsMember2023-12-310001580808us-gaap:CommonStockMember2024-01-012024-06-300001580808us-gaap:AdditionalPaidInCapitalMember2024-01-012024-06-300001580808us-gaap:TreasuryStockCommonMember2024-01-012024-06-300001580808aten:DividendsDeclaredMember2024-01-012024-06-300001580808us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-06-300001580808us-gaap:RetainedEarningsMember2024-01-012024-06-300001580808aten:CustomerAMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2024-04-012024-06-300001580808aten:CustomerAMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2023-04-012023-06-300001580808aten:CustomerAMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-06-300001580808aten:CustomerAMemberus-gaap:SalesMemberus-gaap:CustomerConcentrationRiskMember2023-01-012023-06-300001580808aten:CustomerAMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2024-04-012024-06-300001580808aten:CustomerAMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2024-01-012024-03-310001580808us-gaap:CorporateDebtSecuritiesMember2024-06-300001580808us-gaap:CorporateDebtSecuritiesMember2023-12-310001580808us-gaap:USTreasurySecuritiesMember2024-06-300001580808us-gaap:USTreasurySecuritiesMember2023-12-310001580808us-gaap:CommercialPaperMember2024-06-300001580808us-gaap:CommercialPaperMember2023-12-310001580808us-gaap:CashMemberus-gaap:FairValueInputsLevel1Member2024-06-300001580808us-gaap:CashMember2024-06-300001580808us-gaap:CashMemberus-gaap:FairValueInputsLevel1Member2023-12-310001580808us-gaap:CashMember2023-12-310001580808us-gaap:CashEquivalentsMemberus-gaap:FairValueInputsLevel1Member2024-06-300001580808us-gaap:CashEquivalentsMember2024-06-300001580808us-gaap:CashEquivalentsMemberus-gaap:FairValueInputsLevel1Member2023-12-310001580808us-gaap:CashEquivalentsMember2023-12-310001580808us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2024-06-300001580808us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2023-12-310001580808us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2024-06-300001580808us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Member2024-06-300001580808us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2023-12-310001580808us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Member2023-12-310001580808us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2024-06-300001580808us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2023-12-310001580808us-gaap:FairValueInputsLevel1Member2024-06-300001580808us-gaap:FairValueInputsLevel2Member2024-06-300001580808us-gaap:FairValueInputsLevel12And3Member2024-06-300001580808us-gaap:FairValueInputsLevel1Member2023-12-310001580808us-gaap:FairValueInputsLevel2Member2023-12-310001580808us-gaap:FairValueInputsLevel12And3Member2023-12-310001580808us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2024-06-300001580808us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2023-12-310001580808us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2024-04-012024-06-300001580808us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2023-04-012023-06-300001580808us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2024-01-012024-06-300001580808us-gaap:ForeignExchangeForwardMemberus-gaap:NondesignatedMember2023-01-012023-06-300001580808us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:ForeignExchangeForwardMember2024-06-300001580808us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:ForeignExchangeForwardMember2023-12-310001580808us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:ForeignExchangeForwardMember2024-04-012024-06-3000015808082024-01-012024-03-310001580808us-gaap:EquipmentMember2024-06-300001580808us-gaap:EquipmentMember2023-12-310001580808us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2024-06-300001580808us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2023-12-310001580808us-gaap:FurnitureAndFixturesMember2024-06-300001580808us-gaap:FurnitureAndFixturesMember2023-12-310001580808us-gaap:LeaseholdImprovementsMember2024-06-300001580808us-gaap:LeaseholdImprovementsMember2023-12-310001580808us-gaap:ConstructionInProgressMember2024-06-300001580808us-gaap:ConstructionInProgressMember2023-12-310001580808us-gaap:ProductMember2024-06-300001580808us-gaap:ProductMember2023-12-310001580808us-gaap:ServiceMember2024-06-300001580808us-gaap:ServiceMember2023-12-310001580808srt:MinimumMemberus-gaap:EquipmentMember2024-06-300001580808us-gaap:EquipmentMembersrt:MaximumMember2024-06-300001580808srt:MinimumMemberus-gaap:SoftwareAndSoftwareDevelopmentCostsMember2024-06-300001580808us-gaap:SoftwareAndSoftwareDevelopmentCostsMembersrt:MaximumMember2024-06-300001580808srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2024-06-300001580808us-gaap:FurnitureAndFixturesMembersrt:MaximumMember2024-06-300001580808aten:TwoThousandFourteenStockIncentivePlanMember2024-06-300001580808aten:Amended2014EmployeeStockPurchasePlanMemberus-gaap:EmployeeStockMember2018-10-012018-10-310001580808aten:Amended2014EmployeeStockPurchasePlanMember2024-06-300001580808us-gaap:RestrictedStockUnitsRSUMember2024-04-012024-06-300001580808us-gaap:RestrictedStockUnitsRSUMember2023-04-012023-06-300001580808us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-06-300001580808us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-06-300001580808us-gaap:EmployeeStockMember2024-04-012024-06-300001580808us-gaap:EmployeeStockMember2023-04-012023-06-300001580808us-gaap:EmployeeStockMember2024-01-012024-06-300001580808us-gaap:EmployeeStockMember2023-01-012023-06-300001580808us-gaap:CostOfSalesMember2024-04-012024-06-300001580808us-gaap:CostOfSalesMember2023-04-012023-06-300001580808us-gaap:CostOfSalesMember2024-01-012024-06-300001580808us-gaap:CostOfSalesMember2023-01-012023-06-300001580808us-gaap:SellingAndMarketingExpenseMember2024-04-012024-06-300001580808us-gaap:SellingAndMarketingExpenseMember2023-04-012023-06-300001580808us-gaap:SellingAndMarketingExpenseMember2024-01-012024-06-300001580808us-gaap:SellingAndMarketingExpenseMember2023-01-012023-06-300001580808us-gaap:ResearchAndDevelopmentExpenseMember2024-04-012024-06-300001580808us-gaap:ResearchAndDevelopmentExpenseMember2023-04-012023-06-300001580808us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-06-300001580808us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-06-300001580808us-gaap:GeneralAndAdministrativeExpenseMember2024-04-012024-06-300001580808us-gaap:GeneralAndAdministrativeExpenseMember2023-04-012023-06-300001580808us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-06-300001580808us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-06-300001580808us-gaap:RestrictedStockUnitsRSUMember2024-06-300001580808aten:PerformanceStockUnitsPSUsMember2024-06-300001580808us-gaap:RestrictedStockUnitsRSUMember2023-12-3100015808082021-10-2800015808082022-11-010001580808aten:EmployeeStockOptionsRestrictedStockUnitsAndEmployeeStockPurchasePriceRightsMember2024-04-012024-06-300001580808aten:EmployeeStockOptionsRestrictedStockUnitsAndEmployeeStockPurchasePriceRightsMember2023-04-012023-06-300001580808aten:EmployeeStockOptionsRestrictedStockUnitsAndEmployeeStockPurchasePriceRightsMember2024-01-012024-06-300001580808aten:EmployeeStockOptionsRestrictedStockUnitsAndEmployeeStockPurchasePriceRightsMember2023-01-012023-06-300001580808srt:AmericasMember2024-04-012024-06-300001580808srt:AmericasMember2023-04-012023-06-300001580808srt:AmericasMember2024-01-012024-06-300001580808srt:AmericasMember2023-01-012023-06-300001580808country:US2024-04-012024-06-300001580808country:US2023-04-012023-06-300001580808country:US2024-01-012024-06-300001580808country:US2023-01-012023-06-300001580808aten:AmericasExcludingUnitedStatesMember2024-04-012024-06-300001580808aten:AmericasExcludingUnitedStatesMember2023-04-012023-06-300001580808aten:AmericasExcludingUnitedStatesMember2024-01-012024-06-300001580808aten:AmericasExcludingUnitedStatesMember2023-01-012023-06-300001580808aten:APJMember2024-04-012024-06-300001580808aten:APJMember2023-04-012023-06-300001580808aten:APJMember2024-01-012024-06-300001580808aten:APJMember2023-01-012023-06-300001580808us-gaap:EMEAMember2024-04-012024-06-300001580808us-gaap:EMEAMember2023-04-012023-06-300001580808us-gaap:EMEAMember2024-01-012024-06-300001580808us-gaap:EMEAMember2023-01-012023-06-300001580808country:US2024-06-300001580808country:US2023-12-310001580808srt:AsiaPacificMember2024-06-300001580808srt:AsiaPacificMember2023-12-310001580808country:JP2024-06-300001580808country:JP2023-12-310001580808us-gaap:EMEAMember2024-06-300001580808us-gaap:EMEAMember2023-12-310001580808aten:ServiceProvidersMember2024-04-012024-06-300001580808aten:ServiceProvidersMember2023-04-012023-06-300001580808aten:ServiceProvidersMember2024-01-012024-06-300001580808aten:ServiceProvidersMember2023-01-012023-06-300001580808aten:EnterprisesMember2024-04-012024-06-300001580808aten:EnterprisesMember2023-04-012023-06-300001580808aten:EnterprisesMember2024-01-012024-06-300001580808aten:EnterprisesMember2023-01-012023-06-300001580808aten:DeferredSalesCommissionsMember2024-06-300001580808aten:DeferredSalesCommissionsMember2023-12-310001580808aten:DeferredSalesCommissionsMember2024-04-012024-06-300001580808aten:DeferredSalesCommissionsMember2023-04-012023-06-300001580808aten:DeferredSalesCommissionsMember2024-01-012024-06-300001580808aten:DeferredSalesCommissionsMember2023-01-012023-06-3000015808082023-07-012024-06-3000015808082024-07-012024-06-3000015808082026-07-012024-06-300001580808us-gaap:SubsequentEventMember2024-07-302024-07-30
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 June 30, 2024
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
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 class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.00001 par value | | ATEN | | New 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 filer | x | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller 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 July 26, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was 73,866,109.
A10 NETWORKS, INC.
FORM 10-Q
TABLE OF CONTENTS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The 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:
• our strategy, business plan and our ability to effectively manage our growth and business operations;
• 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 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;
• 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;
• variability of our gross margin and the factors affecting it;
• our expectations with respect to liquidity position and future capital requirements;
• our stock repurchase program and our quarterly cash dividends;
• our accounting policies and estimates;
• fluctuations in currency exchange rates;
• the cost and potential outcomes of litigation; and
• future acquisitions of or investments in complementary companies, products, services or technologies.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” and elsewhere in our Annual Report on Form 10-K filed with the SEC on February 29, 2024. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. 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: execution risks related to closing key 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 networking and network security; the success of any future acquisitions or investments in complementary companies, products, services or technologies; the ability of our sales and other teams 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; any unforeseen need for capital which may require us to divert funds we may have otherwise used for the dividend program or stock repurchase program; a significant decline in global macroeconomic or political conditions that have an adverse impact on our business and financial results; business interruptions related to our supply chain; our ability to manage our business and expenses if customers cancel or delay orders; 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 contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
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 X (formerly Twitter) account (https://x.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 X 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.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 77,457 | | | $ | 97,244 | |
Marketable securities | 99,682 | | | 62,056 | |
Accounts receivable, net of allowances of $676 and $405, respectively | 57,395 | | | 74,307 | |
Inventory | 25,212 | | | 23,522 | |
Prepaid expenses and other current assets | 15,301 | | | 14,695 | |
Total current assets | 275,047 | | | 271,824 | |
Property and equipment, net | 34,012 | | | 29,876 | |
Goodwill | 1,307 | | | 1,307 | |
| | | |
Deferred tax assets, net | 62,327 | | | 62,725 | |
Other non-current assets | 24,477 | | | 24,077 | |
Total assets | $ | 397,170 | | | $ | 389,809 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | |
Accounts payable | $ | 5,642 | | | $ | 7,024 | |
Accrued liabilities | 27,398 | | | 21,388 | |
Deferred revenue | 81,993 | | | 82,657 | |
Total current liabilities | 115,033 | | | 111,069 | |
Deferred revenue, non-current | 57,963 | | | 58,677 | |
Other non-current liabilities | 9,817 | | | 12,187 | |
Total liabilities | 182,813 | | | 181,933 | |
Commitments and contingencies (Note 2 and Note 6) | | | |
Stockholders' equity: |
Common stock, $0.00001 par value: 500,000 shares authorized; 89,580 and 89,003 shares issued and 73,860 and 74,359 shares outstanding, respectively | 1 | | | 1 | |
Treasury stock, at cost: 15,720 and 14,644 shares, respectively | (165,785) | | | (150,909) | |
Additional paid-in-capital | 497,520 | | | 486,958 | |
Dividends paid | (46,562) | | | (37,619) | |
Accumulated other comprehensive income (loss) | 465 | | | (71) | |
Accumulated deficit | (71,282) | | | (90,484) | |
Total stockholders' equity | 214,357 | | | 207,876 | |
Total liabilities and stockholders' equity | $ | 397,170 | | | $ | 389,809 | |
See accompanying notes to the condensed consolidated financial statements.
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net revenue: | | | | | | | |
Products | $ | 29,533 | | | $ | 39,090 | | | $ | 59,602 | | | $ | 70,272 | |
Services | 30,563 | | | 26,727 | | | 61,169 | | | 53,236 | |
Total net revenue | 60,096 | | | 65,817 | | | 120,771 | | | 123,508 | |
Cost of net revenue: | | | | | | | |
Products | 6,813 | | | 9,436 | | | 13,612 | | | 15,519 | |
Services | 5,225 | | | 4,027 | | | 9,870 | | | 8,160 | |
Total cost of net revenue | 12,038 | | | 13,463 | | | 23,482 | | | 23,679 | |
Gross profit | 48,058 | | | 52,354 | | | 97,289 | | | 99,829 | |
Operating expenses: | | | | | | | |
Sales and marketing | 19,453 | | | 20,868 | | | 40,667 | | | 43,202 | |
Research and development | 14,737 | | | 13,965 | | | 28,800 | | | 25,630 | |
General and administrative | 5,952 | | | 5,255 | | | 12,693 | | | 12,564 | |
Total operating expenses | 40,142 | | | 40,088 | | | 82,160 | | | 81,396 | |
Income from operations | 7,916 | | | 12,266 | | | 15,129 | | | 18,433 | |
Non-operating income, net: | | | | | | | |
Interest income | 1,761 | | | 662 | | | 3,442 | | | 1,635 | |
Other income (expense), net | 1,306 | | | 1,884 | | | 3,632 | | | (334) | |
Non-operating income, net | 3,067 | | | 2,546 | | | 7,074 | | | 1,301 | |
Income before provision for income taxes | 10,983 | | | 14,812 | | | 22,203 | | | 19,734 | |
Provision for income taxes | 1,507 | | | 3,186 | | | 3,001 | | | 4,150 | |
Net income | $ | 9,476 | | | $ | 11,626 | | | $ | 19,202 | | | $ | 15,584 | |
Net income per share: | | | | | | | |
Basic | $ | 0.13 | | | $ | 0.16 | | | $ | 0.26 | | | $ | 0.21 | |
Diluted | $ | 0.13 | | | $ | 0.15 | | | $ | 0.25 | | | $ | 0.21 | |
Weighted-average shares used in computing net income per share: | | | | | | | |
Basic | 74,366 | | | 74,017 | | | 74,401 | | | 74,009 | |
Diluted | 75,497 | | | 75,428 | | | 75,432 | | | 75,512 | |
See accompanying notes to the condensed consolidated financial statements.
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income | $ | 9,476 | | | $ | 11,626 | | | $ | 19,202 | | | $ | 15,584 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized gain (loss) on marketable securities, net of tax | 38 | | | 593 | | | (1) | | | 1,121 | |
Unrealized gain on cash flow hedge, net of tax | 486 | | | 112 | | | 537 | | | 147 | |
Comprehensive income | $ | 10,000 | | | $ | 12,331 | | | $ | 19,738 | | | $ | 16,852 | |
See accompanying notes to the condensed consolidated financial statements.
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2023 | | 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 March 31, 2023 | | 74,197 | | | $ | 1 | | | $ | (134,934) | | | $ | 471,341 | | | $ | (24,248) | | | $ | (163) | | | $ | (126,496) | | | $ | 185,501 | |
Common stock issued under employee equity incentive plans | | 322 | | | — | | | — | | | 2,086 | | | — | | | — | | | — | | | 2,086 | |
Repurchase of common stock | | (436) | | | — | | | (6,230) | | | — | | | — | | | — | | | — | | | (6,230) | |
Stock-based compensation expense | | — | | | — | | | — | | | 3,684 | | | — | | | — | | | — | | | 3,684 | |
Payments for dividends | | — | | | — | | | — | | | — | | | (4,434) | | | — | | | — | | | (4,434) | |
Unrealized gain on marketable securities, net of tax | | — | | | — | | | — | | | — | | | — | | | 593 | | | — | | | 593 | |
Unrealized gain on cash flow hedge, net of tax | | — | | | — | | | — | | | — | | | — | | | 112 | | | — | | | 112 | |
| | | | | | | | | | | | | | | | |
Net Income | | — | | | — | | | — | | | — | | | — | | | — | | | 11,626 | | | 11,626 | |
Balance at June 30, 2023 | | 74,083 | | | $ | 1 | | | $ | (141,164) | | | $ | 477,111 | | | $ | (28,682) | | | $ | 542 | | | $ | (114,870) | | | $ | 192,938 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2024 | | 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 March 31, 2024 | | 74,434 | | | $ | 1 | | | $ | (153,948) | | | $ | 491,164 | | | $ | (42,091) | | | $ | (59) | | | $ | (80,758) | | | $ | 214,309 | |
Common stock issued under employee equity incentive plans | | 271 | | | — | | | — | | | 1,764 | | | — | | | — | | | — | | | 1,764 | |
Repurchase of common stock | | (845) | | | — | | | (11,837) | | | — | | | — | | | — | | | — | | | (11,837) | |
Stock-based compensation expense | | — | | | — | | | — | | | 4,592 | | | — | | | — | | | — | | | 4,592 | |
Payments for dividends | | — | | | — | | | — | | | — | | | (4,471) | | | — | | | — | | | (4,471) | |
Unrealized gain on marketable securities, net of tax | | — | | | — | | | — | | | — | | | — | | | 38 | | | — | | | 38 | |
Unrealized gain on cash flow hedge, net of tax | | — | | | — | | | — | | | — | | | — | | | 486 | | | — | | | 486 | |
| | | | | | | | | | | | | | | | |
Net Income | | — | | | — | | | — | | | — | | | — | | | — | | | 9,476 | | | 9,476 | |
Balance at June 30, 2024 | | 73,860 | | | $ | 1 | | | $ | (165,785) | | | $ | 497,520 | | | $ | (46,562) | | | $ | 465 | | | $ | (71,282) | | | $ | 214,357 | |
See accompanying notes to the condensed consolidated financial statements.
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2023 | | 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, 2022 | | 73,738 | | | $ | 1 | | | $ | (134,934) | | | $ | 466,927 | | | $ | (19,802) | | | $ | (726) | | | $ | (130,454) | | | $ | 181,012 | |
Common stock issued under employee equity incentive plans | | 781 | | | — | | | — | | | 2,559 | | | — | | | — | | | — | | | 2,559 | |
Repurchase of common stock | | (436) | | | — | | | (6,230) | | | — | | | — | | | — | | | — | | | (6,230) | |
Stock-based compensation expense | | — | | | — | | | — | | | 7,625 | | | — | | | — | | | — | | | 7,625 | |
Payments for dividends | | — | | | — | | | — | | | — | | | (8,880) | | | — | | | — | | | (8,880) | |
Unrealized gain on marketable securities, net of tax | | — | | | — | | | — | | | — | | | — | | | 1,121 | | | — | | | 1,121 | |
Unrealized gain on cash flow hedge, net of tax | | — | | | — | | | — | | | — | | | — | | | 147 | | | — | | | 147 | |
| | | | | | | | | | | | | | | | |
Net Income | | — | | | — | | | — | | | — | | | — | | | — | | | 15,584 | | | 15,584 | |
Balance at June 30, 2023 | | 74,083 | | | 1 | | | $ | (141,164) | | | $ | 477,111 | | | $ | (28,682) | | | $ | 542 | | | $ | (114,870) | | | $ | 192,938 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2024 | | 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, 2023 | | 74,359 | | | $ | 1 | | | $ | (150,909) | | | $ | 486,958 | | | $ | (37,619) | | | $ | (71) | | | $ | (90,484) | | | $ | 207,876 | |
Common stock issued under employee equity incentive plans | | 555 | | | — | | | — | | | 1,854 | | | — | | | — | | | — | | | 1,854 | |
Repurchase of common stock | | (1,054) | | | — | | | (14,876) | | | — | | | — | | | — | | | — | | | (14,876) | |
Stock-based compensation expense | | — | | | — | | | — | | | 8,708 | | | — | | | — | | | — | | | 8,708 | |
Payments for dividends | | — | | | — | | | — | | | — | | | (8,943) | | | — | | | — | | | (8,943) | |
Unrealized loss on marketable securities, net of tax | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Unrealized gain on cash flow hedge, net of tax | | — | | | — | | | — | | | — | | | — | | | 537 | | | — | | | 537 | |
| | | | | | | | | | | | | | | | |
Net Income | | — | | | — | | | — | | | — | | | — | | | — | | | 19,202 | | | 19,202 | |
Balance at June 30, 2024 | | 73,860 | | | $ | 1 | | | $ | (165,785) | | | $ | 497,520 | | | $ | (46,562) | | | $ | 465 | | | $ | (71,282) | | | $ | 214,357 | |
See accompanying notes to the condensed consolidated financial statements.
A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 19,202 | | | $ | 15,584 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 5,507 | | | 4,307 | |
Stock-based compensation | 8,105 | | | 7,214 | |
| | | |
Other non-cash items | (403) | | | (270) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 16,695 | | | 3,698 | |
Inventory | (3,318) | | | (1,705) | |
Prepaid expenses and other assets | (541) | | | 3,827 | |
Accounts payable | (2,859) | | | (1,460) | |
Accrued liabilities | 3,640 | | | (17,094) | |
Deferred revenue | (1,378) | | | 4,621 | |
| | | |
Net cash provided by operating activities | 44,650 | | | 18,722 | |
Cash flows from investing activities: | | | |
Proceeds from sales of marketable securities | 22,536 | | | 42,252 | |
Proceeds from maturities of marketable securities | 47,699 | | | 44,532 | |
Purchases of marketable securities | (106,293) | | | (44,680) | |
Capital expenditures | (6,414) | | | (5,065) | |
Net cash provided by (used in) investing activities | (42,472) | | | 37,039 | |
Cash flows from financing activities: | | | |
Proceeds from issuance of common stock under employee equity incentive plans | 1,854 | | | 2,559 | |
| | | |
| | | |
Repurchase of common stock | (14,876) | | | (6,230) | |
Payments for dividends | (8,943) | | | (8,880) | |
| | | |
Net cash used in financing activities | (21,965) | | | (12,551) | |
Net increase (decrease) in cash and cash equivalents | (19,787) | | | 43,210 | |
Cash and cash equivalents—beginning of period | 97,244 | | | 67,971 | |
Cash and cash equivalents—end of period | $ | 77,457 | | | $ | 111,181 | |
| | | |
Non-cash investing and financing activities: | | | |
Transfers between inventory and property and equipment | $ | 1,628 | | | $ | 959 | |
Purchases of property and equipment included in accounts payable | $ | 1,477 | | | $ | 1,134 | |
| | | |
| | | |
See accompanying notes to the condensed consolidated financial statements.
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 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. Our customers include leading service providers (cloud, telecommunications, multiple system operators, cable), government organizations, and enterprises.
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 (ii) services revenue, which includes post contract support (“PCS”), professional services, training and software-as-a-service offerings. 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. Our customers predominantly purchase PCS services in conjunction with purchases of our products. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to seven years.
We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. We report two customer verticals: service providers and enterprises, and we report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the United States and other countries in the Americas (excluding the United States). The APJ region comprises Japan and other countries in Asia Pacific. The EMEA region comprises Europe, Middle East and Africa. We believe this geographic revenue view is consistent with how we evaluate our financial performance.
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.
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 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, 2023 has been derived from our audited financial statements, which are included in our 2023 Annual Report on Form 10-K for the year ended December 31, 2023 on file with the SEC (the “2023 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 2023 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 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 condensed consolidated financial statements, therefore, actual results could differ from management’s estimates.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Part II – Item 8, “Financial Statements and Supplementary Data” of the 2023 Annual Report filed with the SEC on February 29, 2024. There have been no material changes to the Company’s significant accounting policies during the three and six months ended June 30, 2024.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Customers | | 2024 | | 2023 | | 2024 | | 2023 |
Customer A | | 14% | | 25% | | 13% | | 20% |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As of June 30, 2024, one customer accounted for 43% of our total gross accounts receivable. As of December 31, 2023, one customer accounted for 19% 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 do not expect the adoption of this accounting standard to have an impact on our consolidated financial statements, but will require certain additional disclosures.
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 three and six months ended June 30, 2024 that are of significance or potential significance to us.
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 June 30, 2024 (in thousands):
| | | | | | | | | | | | | | |
| | As of June 30, 2024 | | As of December 31, 2023 |
Operating leases | | | |
Right-of-use assets: | | | |
| Other non-current assets | $ | 13,928 | | | $ | 16,376 | |
Total right-of-use assets | $ | 13,928 | | | $ | 16,376 | |
| | | | |
Lease liabilities: | | | |
| Accrued liabilities | $ | 4,874 | | | $ | 4,998 | |
| Other non-current liabilities | 9,445 | | | 11,822 | |
Total operating lease liabilities | $ | 14,319 | | | $ | 16,820 | |
| | | |
| | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | |
| | | | |
| | | | |
| | | |
| | | | |
The aggregate future lease payments for non-cancelable operating leases as of June 30, 2024 were as follows (in thousands):
| | | | | |
Remainder of 2024 | $ | 2,685 | |
2025 | 4,935 | |
2026 | 4,893 | |
2027 | 2,441 | |
| |
| |
Total lease payments | 14,954 | |
Less: imputed interest | (635) | |
Present value of lease liabilities | $ | 14,319 | |
The components of lease costs were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Operating lease costs | $ | 1,075 | | | $ | 1,094 | | | $ | 2,160 | | | $ | 2,203 | |
Short-term lease costs | 131 | | | 123 | | | 247 | | | 250 | |
Total lease costs | $ | 1,206 | | | $ | 1,217 | | | $ | 2,407 | | | $ | 2,453 | |
| | | | | | | |
Average lease terms and discount rates for the Company’s operating leases were as follows: | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | 2024 | | 2023 |
Weighted-average remaining term (years) | 2.92 | | 3.84 |
Weighted-average discount rate | 3.2% | | 3.2% |
Supplemental cash flow information for the Company’s operating leases were as follows (in thousands): | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2024 | | 2023 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 2,688 | | | $ | 2,661 | |
| | | | |
3. Marketable Securities and Fair Value Measurements
Marketable Securities
Marketable securities, classified as available-for-sale, consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2024 | | As of December 31, 2023 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | | | | | | | | | | | | | | |
Corporate securities | | $ | 38,348 | | | $ | 5 | | | $ | (26) | | | $ | 38,327 | | | $ | 15,393 | | | $ | 2 | | | $ | (2) | | | $ | 15,393 | |
U.S. Treasury and agency securities | | 57,856 | | | 42 | | | (47) | | | 57,851 | | | 39,963 | | | 6 | | | (32) | | | 39,937 | |
Commercial paper | | — | | | — | | | — | | | — | | | 998 | | | — | | | — | | | 998 | |
| | | | | | | | | | | | | | | | |
Debt securities | | $ | 96,204 | | | $ | 47 | | | $ | (73) | | | $ | 96,178 | | | $ | 56,354 | | | $ | 8 | | | $ | (34) | | | $ | 56,328 | |
Publicly held equity securities - Level 1 | | | | | | | | 3,504 | | | | | | | | | 5,728 | |
Total marketable securities | | | | | | | | $ | 99,682 | | | | | | | | | $ | 62,056 | |
During the three and six months ended June 30, 2024 and 2023, we did not reclassify any amount to earnings from accumulated other comprehensive income (loss) related to unrealized gains or losses.
The following table summarizes the cost and estimated fair value of our marketable securities based on stated effective maturities as of June 30, 2024 (excluding publicly held equity securities, in thousands):
| | | | | | | | | | | | | | |
As of June 30, 2024 | | Amortized Cost | | Fair Value |
Less than 1 year | | $ | 62,997 | | | $ | 62,940 | |
Mature in 1 - 3 years | | 33,207 | | | 33,238 | |
Debt securities | | $ | 96,204 | | | $ | 96,178 | |
| | | | |
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 June 30, 2024 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than 12 Months | | 12 Months or More | | Total |
As of June 30, 2024 | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
Corporate securities | | $ | 26,968 | | | $ | (26) | | | $ | — | | | $ | — | | | $ | 26,968 | | | $ | (26) | |
U.S. Treasury and agency securities | | 32,410 | | | (45) | | | 1,898 | | | (2) | | | 34,308 | | | (47) | |
| | | | | | | | | | | | |
Total | | $ | 59,378 | | | $ | (71) | | | $ | 1,898 | | | $ | (2) | | | $ | 61,276 | | | $ | (73) | |
Marketable securities in an unrealized loss position as of December 31, 2023 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) | |
| | | | | | | | | | | | |
Total | | $ | 33,722 | | | $ | (34) | | | $ | — | | | $ | — | | | $ | 33,722 | | | $ | (34) | |
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 and six months ended June 30, 2024 and 2023.
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash | $ | 70,115 | | | $ | — | | | $ | — | | | $ | 70,115 | | | $ | 52,451 | | | $ | — | | | $ | — | | | $ | 52,451 | |
Cash equivalents | 7,342 | | | — | | | — | | | 7,342 | | | 44,793 | | | — | | | — | | | 44,793 | |
| | | | | | | | | | | | | | | |
Corporate securities | — | | | 38,327 | | | — | | | 38,327 | | | — | | | 15,393 | | | — | | | 15,393 | |
U.S. Treasury and agency securities | 37,860 | | | 19,991 | | | — | | | 57,851 | | | 12,701 | | | 27,236 | | | — | | | 39,937 | |
Commercial paper | — | | | — | | | — | | | — | | | — | | | 998 | | | — | | | 998 | |
| | | | | | | | | | | | | | | |
| $ | 115,317 | | | $ | 58,318 | | | $ | — | | | $ | 173,635 | | | $ | 109,945 | | | $ | 43,627 | | | $ | — | | | $ | 153,572 | |
Publicly held equity securities - Level 1 | | | | | | | 3,504 | | | | | | | | | 5,728 | |
Total | | | | | | | $ | 177,139 | | | | | | | | | $ | 159,300 | |
| | | | | | | | | | | | | | | |
There were no transfers between Level 1 and Level 2 fair value measurement categories during the three and six
months ended June 30, 2024 and 2023.
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 as gains or losses in other income (expense), net, in the consolidated statements of operations. As of June 30, 2024 and December 31, 2023, foreign exchange forward currency contracts not designated as hedging instruments had total notional amounts of $9.6 million and $34.5 million, respectively. These contracts have maturities of less than 30 days. For the three months ended June 30, 2024 and 2023, the Company recorded foreign exchange related net losses of $0.1 million and net gains of $0.2 million, respectively, and for the six months ended June 30, 2024 and 2023, the Company recorded net losses of $0.3 million and $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 income (loss) on the consolidated balance sheets. The hedging gains and losses in accumulated other comprehensive income (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 June 30, 2024, no foreign exchange forward currency contracts designated as hedging instruments were outstanding and 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. Condensed Consolidated Financial Statement Components
Accounts Receivable Allowance for Credit Losses
The following table presents the change in the Company’s accounts receivable allowance for credit losses (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| | | |
Allowance for credit losses, beginning balance | $ | 405 | | | $ | 32 | |
Increase (decrease) in allowance | 954 | | | 1,181 | |
Write-offs | (683) | | | (808) | |
Allowance for credit losses, ending balance | $ | 676 | | | $ | 405 | |
Inventory
Inventory consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| | | |
Raw materials | $ | 16,413 | | | $ | 15,473 | |
Finished goods | 8,799 | | | 8,049 | |
Total inventory | $ | 25,212 | | | $ | 23,522 | |
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| | | |
Prepaid expenses | $ | 6,523 | | | $ | 6,143 | |
Deferred contract acquisition costs | 6,347 | | | 6,177 | |
Other | 2,431 | | | 2,375 | |
Total prepaid expenses and other current assets | $ | 15,301 | | | $ | 14,695 | |
Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Useful Life | | As of June 30, 2024 | | As of December 31, 2023 |
| (in years) | | | | |
Equipment | 1 - 5 | | $ | 34,679 | | | $ | 31,174 | |
Software | 1 - 3 | | 4,016 | | | 5,339 | |
Furniture and fixtures | 1 - 7 | | 531 | | | 520 | |
Leasehold improvements | Lease term | | 3,425 | | | 3,207 | |
Construction in process | | | 18,505 | | | 13,731 | |
Property and equipment, gross | | | 61,156 | | | 53,971 | |
Less: accumulated depreciation | | | (27,144) | | | (24,095) | |
Property and equipment, net | | | $ | 34,012 | | | $ | 29,876 | |
Construction in process primarily consists of deferred software development costs related to several software-as-a-service projects that will take longer than one year to complete.
Depreciation expense on property and equipment was $1.6 million and $1.0 million for the three months ended June 30, 2024 and 2023, respectively, and was $3.1 million and $2.0 million for the six months ended June 30, 2024 and 2023, respectively.
Internally Developed Software to be Marketed and Sold
During the three and six months ended June 30, 2024, no costs were capitalized associated with internally developed software to be marketed and sold. During the three and six months ended June 30, 2023, capitalized costs associated with internally developed software to be marketed and sold totaled $0.1 million and $0.2 million, respectfully. During the three months ended June 30, 2024 and 2023, amortization cost totaled $0.1 million in each period, respectfully. During the six months ended June 30, 2024 and 2023, amortization cost totaled $0.2 million and $0.1 million, respectively. As of June 30, 2024, the unamortized capitalized internally developed software balance was $2.8 million and is included in other non-current assets. Internally developed software typically has a useful life of 6 years once it’s released and is generally available to customers.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| | | |
Accrued compensation and benefits | $ | 12,243 | | | $ | 7,633 | |
Accrued tax liabilities | 2,153 | | | 1,429 | |
Lease liability | 4,874 | | | 4,998 | |
Other | 8,128 | | | 7,328 | |
Total accrued liabilities | $ | 27,398 | | | $ | 21,388 | |
Deferred Revenue
Deferred revenue consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| | | |
Deferred revenue: | | | |
Products | $ | 1,833 | | | $ | 14,917 | |
Services | 138,123 | | | 126,417 | |
Total deferred revenue | 139,956 | | | 141,334 | |
Less: current portion | (81,993) | | | (82,657) | |
Non-current portion | $ | 57,963 | | | $ | 58,677 | |
6. 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 June 30, 2024.
Rent expense was $1.2 million for both the three months ended June 30, 2024 and 2023 and was $2.4 million and $2.5 million for the six months ended June 30, 2024 and 2023, 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 $12.2 million as of June 30, 2024.
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.
7. 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. No further grants will be made under the 2014 Plan. 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 June 30, 2024, we had 3,537,527 shares available for future grant under the 2023 Plan.
2014 Employee Stock Purchase Plan
The 2014 Employee Stock Purchase Plan, as amended (the “Amended 2014 Purchase Plan”) provides employees with an opportunity to purchase our common stock through accumulated contributions, up to a maximum of 10% of eligible compensation, with offering periods of six months in duration, beginning on or about December 1 and June 1 each year. As of June 30, 2024, the Company had 653,839 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 June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Stock-based compensation by type of award: | | | | | | | |
Stock awards | $ | 3,978 | | | $ | 3,204 | | | $ | 7,510 | | | $ | 6,648 | |
Employee stock purchase rights | 288 | | | 268 | | | 595 | | | 566 | |
| $ | 4,266 | | | $ | 3,472 | | | $ | 8,105 | | | $ | 7,214 | |
| | | | | | | |
Stock-based compensation by category of expense: | | | | | | | |
Cost of net revenue | $ | 561 | | | $ | 404 | | | $ | 1,017 | | | $ | 815 | |
Sales and marketing | 1,102 | | | 891 | | | 2,136 | | | 2,057 | |
Research and development | 1,017 | | | 807 | | | 1,887 | | | 1,637 | |
General and administrative | 1,586 | | | 1,370 | | | 3,065 | | | 2,705 | |
| $ | 4,266 | | | $ | 3,472 | | | $ | 8,105 | | | $ | 7,214 | |
As of June 30, 2024, the Company had $41.2 million of unrecognized stock-based compensation expense related to unvested stock-based awards, including common stock acquired under our Amended 2014 Purchase Plan, which will be recognized over a weighted-average period of 2.81 years.
Stock Options
The following table summarizes 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 (thousands) |
Outstanding as of December 31, 2023 | | 80 | | | $ | 4.63 | | | | | |
| | | | | | | | |
Exercised | | (33) | | | 4.40 | | | | | |
Canceled | | (3) | | | 12.19 | | | | | |
Outstanding as of June 30, 2024 | | 44 | | | 4.38 | | | 0.47 | | $ | 413 | |
Vested and exercisable as of June 30, 2024 | | 44 | | | $ | 4.38 | | | 0.47 | | $ | 413 | |
As of June 30, 2024, the aggregate intrinsic value represents the excess of the closing price of our common stock of $13.85 over the exercise price of the outstanding in-the-money options.
The intrinsic value of options exercised was $0.1 million and $0.3 million during the three months ended June 30, 2024 and 2023, respectively, and was $0.3 million and $1.0 million during the six months ended June 30, 2024 and 2023, respectively.
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 June 30, 2024, there were 3,132,471 RSUs and 900,590 PSUs outstanding.
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) | | Aggregate Fair Value (thousands) |
Nonvested as of December 31, 2023 | | 3,017 | | | $ | 13.15 | | | | | |
Granted | | 1,551 | | | 13.24 | | | | | |
Released | | (385) | | | 11.05 | | | | | |
Canceled | | (150) | | | 14.06 | | | | | |
Nonvested as of June 30, 2024 | | 4,033 | | | $ | 13.35 | | | 1.93 | | $ | 45,042 | |
The aggregate fair value of stock awards released was $1.3 million and $1.4 million for the three months ended June 30, 2024 and 2023, respectively, and was $4.2 million and $4.4 million for the six months ended June 30, 2024 and 2023, respectively.
Stock Repurchase Programs
On November 1, 2022, the Company announced its Board of Directors authorized a stock repurchase program of up to $50 million of its common stock over a period of twelve months (the “2022 Program”). During the six months ended June 30, 2023, the Company repurchased 0.4 million shares for a total cost of $6.2 million under the 2022 Program. This repurchase program was active for twelve months and expired in the second half of 2023.
On November 7, 2023, the Company announced its Board of Directors authorized a new stock repurchase program of up to $50 million of its common stock over a period of twelve months (the “2023 Program”). During the six months ended June 30, 2024, the Company repurchased 1.1 million shares for a total cost of $14.9 million under the 2023 Program.
Under the Company’s stock repurchase 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.
8. 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, PSUs 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Basic and diluted net income per share | | | | | | | |
Numerator: | | | | | | | |
Net income | $ | 9,476 | | | $ | 11,626 | | | $ | 19,202 | | | $ | 15,584 | |
Denominator: | | | | | | | |
Weighted-average shares outstanding - basic | 74,366 | | | 74,017 | | | 74,401 | | | 74,009 | |
Effect of dilutive potential common shares from stock options, stock awards and employee stock purchase plan | 1,131 | | | 1,411 | | | 1,031 | | | 1,503 | |
Weighted-average shares outstanding - diluted | 75,497 | | | 75,428 | | | 75,432 | | | 75,512 | |
Net income per share: | | | | | | | |
Basic | $ | 0.13 | | | $ | 0.16 | | | $ | 0.26 | | | $ | 0.21 | |
Diluted | $ | 0.13 | | | $ | 0.15 | | | $ | 0.25 | | | $ | 0.21 | |
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):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Stock options, restricted stock units and employee stock purchase rights | 89 | | | 89 | | | 67 | | | 63 | |
9. Income Taxes
We recorded a provision for income tax $1.5 million and $3.2 million for the three months ended June 30, 2024 and 2023, respectively, and we recorded a provision for income tax expense of $3.0 million and $4.2 million for the six months ended June 30, 2024 and 2023, respectively. The Company’s income tax provision for the three and six months ended June 30, 2024 and 2023 primarily consisted of U.S. federal and state taxes.
We had $8.1 million of unrecognized tax benefits as of June 30, 2024. 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.
10. Geographic Information
We report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the United States and other countries in the Americas (excluding the United States). The APJ region comprises Japan and other countries in Asia Pacific. The EMEA region comprises Europe, Middle East and Africa. We believe this geographic revenue view is consistent with how we evaluate our financial performance.
The following table depicts the disaggregation of revenue by geographic region based on the ship to location of our customers (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Americas | $ | 30,869 | | | $ | 36,921 | | | $ | 58,311 | | | $ | 66,877 | |
United States | 26,709 | | | 31,840 | | | 49,853 | | | 55,961 | |
Americas-other | 4,160 | | | 5,081 | | | 8,458 | | | 10,916 | |
APJ | 19,287 | | | 21,982 | | | 44,330 | | | 37,742 | |
| | | | | | | |
| | | | | | | |
EMEA | 9,940 | | | 6,914 | | | 18,130 | | | 18,889 | |
Total net revenue | $ | 60,096 | | | $ | 65,817 | | | $ | 120,771 | | | $ | 123,508 | |
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):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
United States | $ | 45,487 | | | $ | 43,782 | |
APAC | 1,462 | | | 1,094 | |
Japan | 735 | | | 1,096 | |
EMEA | 256 | | | 280 | |
Total | $ | 47,940 | | | $ | 46,252 | |
11. Revenue
We report two customer verticals: service providers and enterprises. Revenue generated from service providers and enterprises was as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Service providers | $ | 33,377 | | | $ | 44,391 | | | $ | 71,038 | | | $ | 76,957 | |
Enterprises | 26,719 | | | 21,426 | | | 49,733 | | | 46,551 | |
Total | $ | 60,096 | | | $ | 65,817 | | | $ | 120,771 | | | $ | 123,508 | |
Contract Balances
The following table reflects contract balances with customers (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
Accounts receivable, net | $ | 57,395 | | | $ | 74,307 | |
| | | |
| | | |
Deferred revenue, current | 81,993 | | | 82,657 | |
Deferred revenue, non-current | 57,963 | | | 58,677 | |
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 June 30, 2024 and December 31, 2023.
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 $27.9 million and $26.1 million during the three months ended June 30, 2024 and 2023, respectively, related to deferred revenues at the beginning of the respective periods. We recognized revenue of $49.7 million and $51.3 million during the six months ended June 30, 2024 and 2023, 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 June 30, 2024, the current and non-current portions of deferred contract acquisition costs were $6.4 million and $4.1 million, respectively. As of December 31, 2023, the current and non-current portions of deferred contract acquisition costs were $6.2 million and $4.4 million, respectively. Related amortization expense was $2.0 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively, and was $3.6 million and $3.4 million, for the six months ended June 30, 2024 and 2023, respectively.
We had no impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets during the three and six months ended June 30, 2024 and 2023.
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):
| | | | | | | | |
| | As of June 30, 2024 |
| | |
Within 1 year | $ | 82,022 | |
Next 2 to 3 years | 47,065 | |
Thereafter | 10,869 | |
| Total | $ | 139,956 | |
12. Subsequent Events
On July 30, 2024, the Company announced its Board of Directors approved a quarterly cash dividend. The dividend, in the amount of $0.06 per share outstanding, will be paid on September 3, 2024 to stockholders of record on August 15, 2024 as a return of capital. Future dividends will be subject to further review and approval by the Board of Directors 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.
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 “Note Regarding Forward-Looking Statements” and other risk factors contained in Part I, Item 1A “Risk Factors” in our 2023 Annual Report.
Overview
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. Our customers include leading service providers (cloud, telecommunications, multiple system operators, cable), government organizations, and enterprises.
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 (ii) services revenue, which includes post contract support (“PCS”), professional services, training and software-as-a-service offerings. 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. Our customers predominantly purchase PCS services in conjunction with purchases of our products. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to seven years.
We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. We report two customer verticals: service providers and enterprises, and we report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the United States and other countries in the Americas (excluding the United States). The APJ region comprises Japan and other countries in Asia Pacific. The EMEA region comprises Europe, Middle East and Africa. We believe this geographic revenue view is consistent with how we evaluate our financial performance.
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.
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.
During the three months ended June 30, 2024, (i) 51% of our total revenue was generated from the Americas region, of which 44% was generated from the United States and 7% was generated from the Americas-other, (ii) 32% from the APJ region and (iii) 17% from the EMEA region. During the three months ended June 30, 2023, (i) 56% of our total revenue was generated from the Americas region, of which 48% was generated from the United States and 8% was generated from the Americas-other, (ii) 33% from the APJ region and (iii) 11% from the EMEA region. One of our priorities is to strengthen our sales efforts in North America. Our enterprise customers accounted for 44% and 33% of our total revenue during the three months ended June 30, 2024 and 2023, respectively, and our service provider customers accounted for 56% and 67% of our total revenue during the three months ended June 30, 2024 and 2023, respectively.
As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of large customers, including service providers and enterprise customers, in any period. Purchases by our ten largest end-customers accounted for 44% and 33% of our total revenue for the three months ended June 30, 2024 and 2023, respectively. Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles. The timing of these purchases and the delivery of the purchased products are difficult to predict. Consequently, any acceleration or delay in anticipated product purchases by or deliveries to our largest customers could materially impact our revenue and operating results in any quarterly period. This may cause our quarterly revenue and operating results to fluctuate from quarter to quarter and make them difficult to predict.
As of June 30, 2024, we had $77.5 million of cash and cash equivalents and $99.7 million of marketable securities. Cash provided by operating activities was $44.7 million during the six months ended June 30, 2024, compared to $18.7 million in the same period of 2023.
We intend to continue to invest for long-term growth. We have invested and expect to continue to invest in our product development efforts to deliver new products and additional features in our current products to address customer needs. In addition, we may expand our global sales and marketing organizations, expand our distribution channel partner programs and increase awareness of our solutions on a global basis. Our investments in growth in these areas may affect our short-term profitability.
Results of Operations
A summary of our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023 is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
| 2024 | | 2023 | | Increase (Decrease) |
| Amount | | Percent of Total Revenue | | Amount | | Percent of Total Revenue | | Amount | | Percent |
Net revenue: | | | | | | | | | | | |
Products | $ | 29,533 | | | 49.1 | % | | $ | 39,090 | | | 59.4 | % | | $ | (9,557) | | | (24.4) | % |
Services | 30,563 | | | 50.9 | | | 26,727 | | | 40.6 | | | 3,836 | | | 14.4 | |
Total net revenue | 60,096 | | | 100.0 | | | 65,817 | | | 100.0 | | | (5,721) | | | (8.7) | |