Form 10-Q

(Mark One)



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2023



¨ ☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number: 001-36343

A10 NETWORKS, INC.

(Exact Name of Registrant as Specified in its Charter)



~~Delaware~~

	~~20-1446869~~
Delaware		20-1446869
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
~~3 West Plumeria Drive,~~2300 Orchard Parkway, San Jose, California ~~95134~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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	x☐
Non-accelerated filer	¨☐	Smaller reporting company	¨ ☐
~~(Do not check if a smaller reporting company)~~		Emerging growth company	x☐

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 ~~October 25, 2017,~~November 2, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was ~~70,751,450.~~

74,138,224.

A10 NETWORKS, INC.

FORM 10-Q

TABLE OF CONTENTS

~~A10 NETWORKS, INC.~~ ~~FORM 10-Q~~ ~~TABLE OF CONTENTS~~

		Page No.
Note Regarding Forward-Looking Statements		2
PART I. FINANCIAL INFORMATION		24
Item 1. Condensed Consolidated Financial Statements (unaudited):		24
Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022		24
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~September~~S e ptember 30, ~~2017~~2023 and ~~2016~~2022		35
Condensed Consolidated Statements of Comprehensive ~~Loss~~Income for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022		46
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022		7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022		59
Notes to Condensed Consolidated Financial Statements		610
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1723
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2935
Item 4. Controls and Procedures		2935
PART II. OTHER INFORMATION		3137
Item 1. Legal Proceedings		3137
Item 1A. Risk Factors		3137
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5437
~~Item 3. Defaults Upon Senior Securities~~		55
~~Item 4. Mine Safety Disclosures~~	55
Item 5. Other Information	5538
Item 6. Exhibits		5538
Signatures		5639
~~Exhibit Index~~	57

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 herein and elsewhere in our Annual Report on Form 10-K filed with the SEC on February 27, 2023. 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: unanticipated changes in the markets in which the Company operates; 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; 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, weaknesses or deficiencies in our internal control over financial reporting, the impact of any cybersecurity incidents 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, 2022 and 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.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except par value)

September 30,
2017 December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 39,919
$ 28,975
Marketable securities 83,973
85,372
Accounts receivable, net of allowances of $2,240 and $3,619, respectively 49,856
66,755
Inventory 15,944
15,070
Prepaid expenses and other current assets 7,045
5,137
Total current assets 196,737
201,309
Property and equipment, net 9,531
8,219
Goodwill and intangible assets 6,858
7,940
Other non-current assets 4,837
3,870
Total assets $ 217,963
$ 221,338
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 8,509
$ 9,851
Accrued liabilities 27,604
31,525
Deferred revenue 59,294
61,334
Total current liabilities 95,407
102,710
Deferred revenue, non-current 31,710
31,574
Other non-current liabilities 1,073
988
Total liabilities 128,190
135,272
Commitments and contingencies (Note 5)

Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 70,628 and 67,873 shares issued and outstanding, respectively 1
1
Additional paid-in-capital 347,573
328,869
Accumulated other comprehensive loss (17 ) (45 )
Accumulated deficit (257,784 ) (242,759 )
Total stockholders' equity 89,773
86,066
Total liabilities and stockholders' equity $ 217,963
$ 221,338


	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	104,152	$	67,971
Marketable securities	64,889		83,018
Accounts receivable, net of allowances of $197 and $32, respectively	59,070		72,928
Inventory	23,561		19,693
Prepaid expenses and other current assets	12,959		13,381
Total current assets	264,631		256,991
Property and equipment, net	26,054		19,743
Goodwill	1,307		1,307

Deferred tax assets, net	61,088		63,183
Other non-current assets	24,762		27,881
Total assets	$	377,842	$	369,105
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,214	$	6,725
Accrued liabilities	23,577		37,183
Deferred revenue	79,540		74,340
Total current liabilities	111,331		118,248
Deferred revenue, non-current	56,174		52,652
Other non-current liabilities	13,415		17,193
Total liabilities	180,920		188,093
Commitments and contingencies (Note 2 and Note 5)
Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 88,739 and 87,123 shares issued and 74,750 and 73,738 shares outstanding, respectively	1		1
Treasury stock, at cost: 13,989 and 13,384 shares, respectively	(143,606)		(134,934)
Additional paid-in-capital	481,765		466,927
Dividends paid	(33,171)		(19,802)
Accumulated other comprehensive income (loss)	334		(726)
Accumulated deficit	(108,401)		(130,454)
Total stockholders' equity	196,922		181,012
Total liabilities and stockholders' equity	$	377,842	$	369,105

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Products	$	30,260	$	45,104	$	100,532	$	123,624
Services	27,515		26,955		80,751		79,080
Total revenue	57,775		72,059		181,283		202,704
Cost of revenue:
Products	6,815		10,191		22,334		28,342
Services	4,194		4,574		12,354		12,747
Total cost of revenue	11,009		14,765		34,688		41,089
Gross profit	46,766		57,294		146,595		161,615
Operating expenses:
Sales and marketing	21,324		21,605		64,526		66,159
Research and development	17,620		14,360		43,250		41,483
General and administrative	5,613		5,661		18,177		17,160
Total operating expenses	44,557		41,626		125,953		124,802
Income from operations	2,209		15,668		20,642		36,813
Non-operating income (expense), net:
Interest income	1,766		432		3,401		736
Other income (expense), net	987		(871)		653		(1,204)
Non-operating income (expense), net	2,753		(439)		4,054		(468)
Income before provision for income taxes	4,962		15,229		24,696		36,345
Income tax provision (benefit)	(1,507)		3,116		2,643		7,467
Net income	$	6,469	$	12,113	$	22,053	$	28,878
Net income per share:
Basic	$	0.09	$	0.16	$	0.30	$	0.38
Diluted	$	0.09	$	0.16	$	0.29	$	0.37
Weighted-average shares used in computing net income per share:
Basic	74,526		75,881		74,184		76,191
Diluted	75,807		77,679		75,639		78,454

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue:

Products $ 39,389
$ 35,275
$ 111,195
$ 110,446
Services 22,030
19,793
64,199
55,556
Total revenue 61,419
55,068
175,394
166,002
Cost of revenue:

Products 9,119
8,795
26,973
27,297
Services 4,640
4,153
13,623
13,087
Total cost of revenue 13,759
12,948
40,596
40,384
Gross profit 47,660
42,120
134,798
125,618
Operating expenses:

Sales and marketing 26,930
24,331
78,754
77,872
Research and development 15,997
15,968
49,529
45,231
General and administrative 6,878
6,305
21,028
20,196
Litigation and settlement expense —
66
—
2,059
Total operating expenses 49,805
46,670
149,311
145,358
Loss from operations (2,145 ) (4,550 ) (14,513 ) (19,740 )
Non-operating income (expense):

Interest expense (20 ) (145 ) (128 ) (397 )
Interest and other income (expense), net (37 ) 309
779
1,544
Total non-operating income (expense), net (57 ) 164
651
1,147
Loss before income taxes (2,202 ) (4,386 ) (13,862 ) (18,593 )
Provision for income taxes 454
298
963
561
Net loss $ (2,656 ) $ (4,684 ) $ (14,825 ) $ (19,154 )
Net loss per share:

Basic and diluted $ (0.04 ) $ (0.07 ) $ (0.21 ) $ (0.29 )
Weighted-average shares used in computing net loss per share:

Basic and diluted 70,705
66,260
69,688
65,146

See accompanying notes to the condensed consolidated financial statements.

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME

(unaudited, in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	6,469	$	12,113	$	22,053	$	28,878
Other comprehensive income (expense), net of tax:
Realized loss reclassified to earnings	—		—		(265)		—
Unrealized gain (loss) on marketable securities	(177)		(135)		1,208		(1,112)
Unrealized gain (loss) on cash flow hedge	(31)		—		117		—
Comprehensive income	$	6,261	$	11,978	$	23,113	$	27,766

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net loss $ (2,656 ) $ (4,684 ) $ (14,825 ) $ (19,154 )
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities 29
(52 ) 28
36
Comprehensive loss $ (2,627 ) $ (4,736 ) $ (14,797 ) $ (19,118 )

See accompanying notes to the condensed consolidated financial statements.

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)


			Three Months Ended September 30,				Nine Months Ended September 30,
			2023		2022		2023		2022
Shares of common stock issued and outstanding
	Beginning balance		74,083		75,962		73,738		77,423
	Common stock issued under employee equity incentive plans		835		1,164		1,616		2,073
	Repurchase of common stock		(168)		(3,720)		(604)		(6,090)
		Ending balance	74,750		73,406		74,750		73,406

Stockholders' equity
	Beginning balance		$	192,939	$	194,759	$	181,012	$	208,888
	Common stock:
		Beginning balance	$	1	$	1	$	1	$	1
		Common stock issued under employee equity incentive plans	—		—		—		—
		Ending balance	$	1	$	1	$	1	$	1

	Treasury stock, at cost:
		Beginning balance	$	(141,164)	$	(87,435)	$	(134,934)	$	(55,677)
		Repurchase of common stock	(2,442)		(47,499)		(8,672)		(79,257)
		Ending balance	$	(143,606)	$	(134,934)	$	(143,606)	$	(134,934)

	Dividends paid:
		Beginning balance	$	(28,682)	$	(11,543)	$	(19,802)	$	(3,880)
		Payments for dividends	(4,489)		(3,849)		(13,369)		(11,512)
		Ending balance	$	(33,171)	$	(15,392)	$	(33,171)	$	(15,392)

	Additional paid-in capital:
		Beginning balance	$	477,111	$	455,539	$	466,927	$	446,035
		Common stock issued under employee equity incentive plans	437		1,691		2,996		4,662
		Stock-based compensation	4,217		3,654		11,842		10,187
		Ending balance	$	481,765	$	460,884	$	481,765	$	460,884

	Accumulated other comprehensive income (loss):
		Beginning balance	$	542	$	(1,206)	$	(726)	$	(229)
		Realized loss reclassified to earnings	—		—		(265)		—
		Unrealized gain (loss) on marketable securities, net of tax	(177)		(135)		1,208		(1,112)
		Unrealized gain (loss) on cash flow hedge, net of tax	(31)		—		117		—
		Ending balance	$	334	$	(1,341)	$	334	$	(1,341)

	Accumulated deficit:
		Beginning balance	$	(114,870)	$	(160,597)	$	(130,454)	$	(177,362)
		Net income	6,469		12,113		22,053		28,878
		Ending balance	$	(108,401)	$	(148,484)	$	(108,401)	$	(148,484)

Total stockholders' equity			$	196,922	$	160,734	$	196,922	$	160,734

See accompanying notes to the condensed consolidated financial statements.

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	22,053	$	28,878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,845		5,539
Stock-based compensation	11,180		9,818

Other non-cash items	774		49
Changes in operating assets and liabilities:
Accounts receivable	14,056		(11,090)
Inventory	(5,313)		530
Prepaid expenses and other assets	2,033		(2,574)
Accounts payable	(1,183)		(914)
Accrued liabilities	(17,384)		4,001
Deferred revenue	8,722		4,536

Net cash provided by operating activities	41,783		38,773
Cash flows from investing activities:
Proceeds from sales of marketable securities	42,252		6,252
Proceeds from maturities of marketable securities	54,007		48,248
Purchases of marketable securities	(75,064)		(45,699)
Purchases of property and equipment	(7,752)		(8,261)
Net cash provided by investing activities	13,443		540
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans	2,996		4,662


Repurchase of common stock	(8,672)		(79,257)
Payments for dividends	(13,369)		(11,512)

Net cash used in financing activities	(19,045)		(86,107)
Net increase (decrease) in cash and cash equivalents	36,181		(46,794)
Cash and cash equivalents—beginning of period	67,971		78,925
Cash and cash equivalents—end of period	$	104,152	$	32,131

Non-cash investing and financing activities:
Transfers between inventory and property and equipment	$	1,445	$	642
Purchases of property and equipment included in accounts payable	$	2,672	$	108

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:

Net loss $ (14,825 ) $ (19,154 )
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 6,222
5,919
Stock-based compensation 13,824
13,069
Other non-cash items 930
1,798
Changes in operating assets and liabilities:

Accounts receivable, net 16,049
7,311
Inventory (3,242 ) 2,303
Prepaid expenses and other assets (2,870 ) 349
Accounts payable (1,243 ) (878 )
Accrued liabilities (3,023 ) 906
Deferred revenue (1,904 ) 10,440
Other 102
(224 )
Net cash provided by operating activities 10,020
21,839
Cash flows from investing activities:

Purchases of marketable securities (69,580 ) (109,268 )
Proceeds from sales and maturities of marketable securities 70,866
23,787
Payment for acquisition —
(4,380 )
Purchases of property and equipment (4,223 ) (4,256 )
Purchase of intangible asset —
(1,500 )
Net cash used in investing activities (2,937 ) (95,617 )
Cash flows from financing activities:

Proceeds from issuance of common stock under employee equity incentive plans 7,665
7,116
Repurchases and retirement of common stock (3,071 ) —
Payment of contingent consideration (650 ) —
Other (83 ) (75 )
Net cash provided by financing activities 3,861
7,041
Net increase (decrease) in cash and cash equivalents 10,944
(66,737 )
Cash and cash equivalents - beginning of period 28,975
98,117
Cash and cash equivalents - end of period $ 39,919
$ 31,380
Non-cash investing and financing activities:

Common stock issued under asset purchase agreement $ —
$ 1,313
Inventory transfers to property and equipment $ 2,368
$ 1,451
Purchases of property and equipment included in accounts payable $ 65
$ 275

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. ~~Our~~

We are a leading provider of secure application solutions and services that enable ~~our customers~~a new generation of intelligently connected companies with the ability to ~~secure~~continuously improve cyber protection and ~~optimize the performance of their data center and cloud applications and secure their users, applications and infrastructure from internet, web~~digital responsiveness across dynamic Information Technology (“IT”) and network ~~threats at scale.~~infrastructures. Our product portfolio seeks to address many of the cyber protection challenges and solution requirements. The portfolio consists of six ~~advanced~~secure application ~~delivery and security products:~~solutions; Thunder Application Delivery ~~Controllers~~Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade ~~Network Address Translation~~Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”)~~. They~~, 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 software-as-a-service; and (ii) services revenue, which includes post contract support (“PCS”), professional services, and training. Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and over time once the subscription term has commenced. For our software-as-a-service offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized over time as the services are provided. A substantial portion of our revenue is from sales of our products and services through distribution channel partners, such as resellers and distributors. 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 all other countries in the Americas (excluding the United States). The APJ region comprises Japan and all other countries in APAC (excluding Japan). The EMEA region comprises Europe, Middle East and Africa. We believe this vertical and 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 September 30, 2023, we have sold our products to more than 8,290 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 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,

2022 has been derived from our audited financial statements, which are included in our 2022 Annual Report on Form 10-K for the year ended December 31, 2022 on file with the SEC (the “2022 Annual Report”).

These financial statements have been prepared on the same basis as our annual financial statements and, in ~~management's~~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 ~~our~~the 2022 Annual ~~Report on Form 10-K for the year ended December 31, 2016 on file with the SEC (our “Annual Report”).~~Report.

Use of Estimates

The preparation of ~~the~~ 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, ~~acquisition related purchase price allocations,~~ 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.~~statements.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Part II – Item 8, “Financial Statements and Supplementary Data” of the 2022 Annual Report filed with the SEC on February 27, 2023. There have been no material changes to ~~our~~the Company’s significant accounting policies ~~as compared to~~during the ~~significant accounting policies described in our Annual Report.~~three and nine months ended September 30, 2023.

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~~high credit quality financial instruments by recognized financial institutions and ~~therefore~~are subject to minimum credit risk.

Our accounts ~~receivable~~receivables 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 ~~than 10%~~ 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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Customer A (a distribution channel partner) 12% 19% 10% 13%
Customer B (a direct customer) 14% * 10% *


	Three Months Ended September 30,		Nine Months Ended September 30,
Customers	2023	2022	2023	2022
Customer A (an end-customer)	*	10%	15%	10%
Customer B (an end-customer)	*	*	*	13%

* represents less than 10% of total revenue

As of September 30, ~~2017,~~2023, two customers accounted for ~~16%~~11% and ~~13%~~10%, respectively, of our total gross accounts receivable. As of December 31, ~~2016, three~~2022, two customers accounted for ~~15%, 13% and 11%~~21% each of our total gross accounts receivable.

~~Recent~~Recently Adopted Accounting Pronouncements ~~Not Yet Effective~~

~~In May 2014, the Financial~~The Company’s recently adopted accounting pronouncements are disclosed in Note 1 Description of Business and Summary of Significant Accounting ~~Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede most~~Policies of the ~~existing revenue recognition guidance under U.S. GAAP. This ASU requires an entity~~notes to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and requires the capitalization of incremental customer acquisition costs and amortization of these costs over the contract period or estimated customer life which will result in the recognition of a contract asset on our condensed consolidated balance sheet. This standard is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period. The ASU allows for either full retrospective or modified retrospective adoption. We intend to adopt the standard in the first quarter of 2018 applying the modified retrospective method. While we are continuing to assess all potential impacts of the new standard, we currently do not believe this standard will have a material impact on revenue recognized in our condensed consolidated financial statements. However, the cumulative adjustment to recognize a contract asset relating to the capitalization of incremental customer acquisition costs is expected to be material. Also on the adoption of this ASU, the incremental customer acquisition costs will be recognized in our condensed statement of operations as the related performance obligations are met as compared to the current recognition to expense as incurred. We are in the process of evaluating the impact of the disclosure requirements relating to this standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This new accounting standard primarily requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This standard is effective for annual periods beginning after December 15, 2018 with early adoption permitted. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge 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. This standard is effective prospectively for annual periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We are currently evaluating the impact of this guidance on our condensed consolidated financial statements ~~and related disclosures.~~

~~In May 2017,~~included in Part II – Item 8 of the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This standard is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period. Early adoption is permitted, including adoption in2022 Annual Report. The Company has not adopted any interim period. The amendments will be applied prospectively to an award modified on or after the adoption date. We do not believe this standard will have a material impact on our condensed consolidated financial statements.

~~There have been no other recent~~ accounting pronouncements ~~or changes~~during the three and nine months ended September 30, 2023.

2. Leases

The Company leases various operating spaces in ~~accounting pronouncements~~the United States, Asia and Europe under non-cancellable operating lease arrangements that ~~are~~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 ~~significance or potential significance to us.~~September 30, 2023 (in thousands):


		As of September 30, 2023
Operating leases
Right-of-use assets:
	Other non-current assets	$	17,589
Total right-of-use assets		$	17,589

Lease liabilities:
	Accrued liabilities	$	4,898
	Other non-current liabilities	13,063
Total operating lease liabilities		$	17,961

The aggregate future lease payments for non-cancelable operating leases as of September 30, 2023 were as follows (in thousands):


Remainder of 2023	$	1,347
2024	5,421
2025	4,948
2026	4,892
2027	2,441
Thereafter	—
Total lease payments	19,049
Less: imputed interest	(1,088)
Present value of lease liabilities	$	17,961

The components of lease costs were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease costs	$	1,087	$	1,085	$	3,291	$	3,248
Short-term lease costs	129		126		378		417
Total lease costs	$	1,216	$	1,211	$	3,669	$	3,665

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


						Three Months Ended September 30, 2023
Weighted-average remaining term (years)						3.61
Weighted-average discount rate						3.19%

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


		Three Months Ended September 30, 2023
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	3,972
	Right-of-use assets obtained in exchange for new lease liabilities	$	—

3. Marketable Securities and Fair Value Measurements

Marketable Securities

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


	As of September 30, 2023								As of December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Corporate debt securities	$	36,782	$	9	$	(74)	$	36,717	$	35,137	$	—	$	(550)	$	34,587
U.S. Treasury and agency securities	27,257		1		(70)		27,188		28,627		—		(292)		28,335
Commercial paper	950		34		—		984		11,859		—		—		11,859
Asset-backed securities	—		—		—		—		8,331		—		(94)		8,237
Total	$	64,989	$	44	$	(144)	$	64,889	$	83,954	$	—	$	(936)	$	83,018

September 30, 2017 December 31, 2016
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Certificates of deposit $ 15,990
$ 4
$ (1 ) $ 15,993
$ 12,499
$ 9
$ —
$ 12,508
Corporate securities 40,941
12
(13 ) 40,940
42,765
9
(42 ) 42,732
U.S. Treasury and agency securities 3,494
—
(12 ) 3,482
5,190
—
(14 ) 5,176
Commercial paper 9,214
2
—
9,216
11,470
1
(2 ) 11,469
Asset-backed securities 14,352
—
(10 ) 14,342
13,493
—
(6 ) 13,487

$ 83,991
$ 18
$ (36 ) $ 83,973
$ 85,417
$ 19
$ (64 ) $ 85,372

During the nine months ended September 30, ~~2017~~2023, we reclassified $0.3 million of expense to earnings from accumulated other comprehensive income (loss) related to unrealized losses. During the three months ended September 30, 2023 and ~~2016,~~2022, and the nine months ended September 30, 2022, we did not reclassify any amount to earnings from accumulated other comprehensive ~~loss~~income (loss) related to unrealized gains or losses.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of September 30, ~~2017~~2023 (in thousands):


As of September 30, 2023					As of September 30, 2023	Amortized Cost		Fair Value
Mature in less than 1 year					Mature in less than 1 year	$	63,089	$	63,003
Mature in 1 - 3 years					Mature in 1 - 3 years	1,900		1,886
Total					Total	$	64,989	$	64,889

	Amortized Cost		Fair Value
Less than 1 year	$	59,490	$	59,480
Mature in 1 - 3 years	24,501		24,493
	$	83,991	$	83,973

All available-for-sale securities have been classified as current ~~based on management's ability to~~because they are available for use ~~the funds~~ in current operations.

Marketable securities in an unrealized loss position as of September 30, 2023 consisted of the following (in thousands):

Less Than 12 Months 12 Months or More Total
As of September 30, 2017 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
Certificates of deposit $ 5,500
$ (1 ) $ —
$ —
$ 5,500
$ (1 )
Corporate securities 27,254
(10 ) 1,500
(3 ) 28,754
(13 )
U.S. Treasury and agency securities 3,482
(12 ) —
—
3,482
(12 )
Asset-backed securities 14,342
(10 ) —
—
14,342
(10 )
$ 50,578
$ (33 ) $ 1,500
$ (3 ) $ 52,078
$ (36 )


	Less Than 12 Months				12 Months or More				Total
As of September 30, 2023	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt securities	$	33,829	$	(74)	$	—	$	—	$	33,829	$	(74)
U.S. Treasury and agency securities	14,662		(70)		—		—		14,662		(70)

	$	48,491	$	(144)	$	—	$	—	$	48,491	$	(144)

Marketable securities in an unrealized loss position as of December 31, 2022 consisted of the following (in thousands):

Less Than 12 Months 12 Months or More Total
As of December 31, 2016 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
Corporate securities $ 28,537
$ (42 ) $ —
$ —
$ 28,537
$ (42 )
U.S. Treasury and agency securities 5,176
(14 ) —
—
5,176
(14 )
Commercial paper 8,974
(2 ) —
—
8,974
(2 )
Asset-backed securities 10,664
(6 ) —
—
10,664
(6 )
$ 53,351
$ (64 ) $ —
$ —
$ 53,351
$ (64 )


	Less Than 12 Months				12 Months or More				Total
As of December 31, 2022	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt securities	$	7,610	$	(162)	$	26,977	$	(388)	$	34,587	$	(550)
U.S. Treasury and agency securities	14,868		(45)		11,567		(247)		26,435		(292)
Asset-backed securities	8,237		(94)		—		—		8,237		(94)
	$	30,715	$	(301)	$	38,544	$	(635)	$	69,259	$	(936)

Based on evaluation of marketable securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during the three and nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022.

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):


	September 30, 2017								December 31, 2016									As of September 30, 2023								As of December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	27,346	$	—	$	—	$	27,346	$	18,672	$	—	$	—	$	18,672	Cash	$	61,782	$	—	$	—	$	61,782	$	54,336	$	—	$	—	$	54,336
Cash equivalents	12,573		—		—		12,573		10,303		—		—		10,303		Cash equivalents	42,370		—		—		42,370		13,635		—		—		13,635
Certificates of deposit	—		15,993		—		15,993		—		12,508		—		12,508
Corporate securities	—		40,940		—		40,940		—		42,732		—		42,732

Corporate debt securities																	Corporate debt securities	—		36,717		—		36,717		—		34,587		—		34,587
U.S. Treasury and agency securities	—		3,482		—		3,482		—		5,176		—		5,176		U.S. Treasury and agency securities	—		27,188		—		27,188		—		28,335		—		28,335
Commercial paper	—		9,216		—		9,216		—		11,469		—		11,469		Commercial paper	—		984		—		984		—		11,859		—		11,859
Asset-backed securities	—		14,342		—		14,342		—		13,487		—		13,487		Asset-backed securities	—		—		—		—		—		8,237		—		8,237
Total																	Total	$	104,152	$	64,889	$	—	$	169,041	$	67,971	$	83,018	$	—	$	150,989
	$	39,919	$	83,973	$	—	$	123,892	$	28,975	$	85,372	$	—	$	114,347

There were no transfers between Level 1 and Level 2 fair value measurement categories during the three and nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022.

3.4. Condensed Consolidated Financial Statement Details

Inventory

Inventory consisted of the following (in thousands):


	September 30, 2017		December 31, 2016			As of September 30, 2023		As of December 31, 2022
	(in thousands)
Raw materials	$	6,985	$	6,669	Raw materials	$	14,401	$	12,771
Finished goods	8,959		8,401		Finished goods	9,160		6,922
Total inventory	$	15,944	$	15,070	Total inventory	$	23,561	$	19,693

Prepaid Expenses and Other Current Assets

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


	As of September 30, 2023		As of December 31, 2022

Prepaid expenses	$	5,176	$	5,310
Deferred contract acquisition costs	6,198		6,144
Other	1,585		1,927
Total prepaid expenses and other current assets	$	12,959	$	13,381

Property and Equipment, Net

Useful Life September 30,
2017 December 31,
2016
(in years) (in thousands)
Equipment 1-3 $ 46,161
$ 41,815
Software 1-3 3,859
3,801
Furniture and fixtures 1-3 820
865
Leasehold improvements 2-8 3,772
2,724
Construction in progress 74
258
Property and equipment, gross 54,686
49,463
Less: accumulated depreciation (45,155 ) (41,244 )
Property and equipment, net $ 9,531
$ 8,219
Property and equipment, net, consisted of the following (in thousands):


	Useful Life	As of September 30, 2023		As of December 31, 2022
	(in years)
Equipment	1 - 5	$	30,739	$	27,028
Software(1)	1 - 6	2,981		2,537
Furniture and fixtures	1 - 7	500		503
Leasehold improvements	Lease term	3,233		3,267
Construction in process		13,110		9,152
Property and equipment, gross		50,563		42,487
Less: accumulated depreciation		(24,509)		(22,744)
Property and equipment, net		$	26,054	$	19,743

(1) Acquired software has a useful life of 1 to 3 years, while internally developed software to be sold, leased or marketed has a useful life of 6 years. Acquired software totaled $1.8 million and internally developed software totaled $1.2 million as of September 30, 2023. Acquired software totaled $1.1 million and internally developed software totaled $1.4 million as of December 31, 2022.

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. The first of these projects was available for release to customers in the fourth quarter of 2022. In the three months ended September 30, 2023, the Company recorded impairment expense of $3.0 million related to a long-term project that incurred delays and cost overruns. Fair value was determined using the present value of future revenue projections. Impairment expense was recorded to operating expense in the research and development function on the Company’s condensed consolidated statement of operations.

Depreciation expense on property and equipment was ~~$1.5~~$1.4 million and ~~$1.9~~$0.7 million for the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$5.1~~was $3.3 million and ~~$5.6~~$2.0 million for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~Goodwill and Intangible Assets~~

Accrued Liabilities

~~Goodwill as of September 30, 2017 and December 31, 2016 was $1.3 million.~~

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


	As of September 30, 2023		As of December 31, 2022

Accrued compensation and benefits	$	8,138	$	19,832
Accrued tax liabilities	918		1,635
Lease liabilities	4,898		4,792
Other	9,623		10,924
Total accrued liabilities	$	23,577	$	37,183

September 30, 2017 December 31, 2016
Cost Accumulated Amortization Net Cost Accumulated Amortization Net
Developed technology $ 5,050
$ (1,262 ) $ 3,788
$ 5,050
$ (505 ) $ 4,545
Patents 2,936
(1,173 ) 1,763
2,936
(848 ) 2,088
Total $ 7,986
$ (2,435 ) $ 5,551
$ 7,986
$ (1,353 ) $ 6,633

Amortization expense related to purchased intangible assets was $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively, and $1.1 million and $0.4 million for the nine months ended September 30, 2017 and 2016, respectively. Purchased intangible assets will be amortized over a remaining weighted average useful life of 3.9 years.

~~Future amortization expense for purchased intangible assets as of September 30, 2017 is as follows (in thousands):~~

Fiscal Year
Remainder of 2017 $ 361
2018 1,442
2019 1,442
2020 1,442
2021 864
$ 5,551

~~Accrued Liabilities~~

September 30,
2017 December 31,
2016
(in thousands)
Accrued compensation and benefits $ 19,828
$ 22,326
Accrued tax liabilities 3,040
3,340
Other 4,736
5,859
Total accrued liabilities $ 27,604
$ 31,525

Deferred Revenue

September 30,
2017 December 31,
2016
(in thousands)
Deferred revenue:
Products $ 3,076
$ 4,182
Services 87,928
88,726
Total deferred revenue 91,004
92,908
Less: current portion (59,294 ) (61,334 )
Non-current portion $ 31,710
$ 31,574

~~4. Credit Facility~~

In November 2016, we entered into a loan and security agreement (the “2016 Credit Facility”) with Silicon Valley Bank ("SVB") as the lender. The 2016 Credit Facility provides a three-year, $25.0 million revolving credit facility, which includes a maximum of $25.0 million letter of credit subfacility. When the balance of our cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit equals or exceeds $50.0 million, loans may be advanced under the 2016 Credit Facility up to the full $25.0 million. When the balance of our cash, cash equivalents and marketable securities minus outstanding revolving loans and letters of credit falls below $50.0 million, loans may be advanced under the 2016 Credit Facility based on a borrowing base equal to a specified percentageDeferred revenue consisted of the value of our eligible accounts receivable. The loans bear interest, at our option, at (i) the prime rate reported in The Wall Street Journal, minus 0.50% or (ii) a LIBOR rate determined in accordance with the 2016 Credit Facility, plus 2.50%. We are required to pay customary closing fees, commitment fees and letter of credit fees for a facility of this size and type.following (in thousands):


	As of September 30, 2023		As of December 31, 2022

Deferred revenue:
Products	$	12,999	$	7,782
Services	122,715		119,210
Total deferred revenue	135,714		126,992
Less: current portion	(79,540)		(74,340)
Non-current portion	$	56,174	$	52,652

Our obligations under the 2016 Credit Facility are secured by substantially all of our assets, excluding our intellectual property. The 2016 Credit Facility contains customary affirmative and negative covenants. In addition, the 2016 Credit Facility requires us to maintain compliance with an adjusted quick ratio of not less than 1.50:1.00, as determined in accordance with the 2016 Credit Facility. As of September 30, 2017, we had no outstanding balance under the 2016 Credit Facility and were in compliance with all facility covenants.

5. Commitments and Contingencies

~~Legal Proceedings~~

From time to time, we may be party or subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including proceedings and claims that relate to intellectual property matters. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.

Lease Commitments

We lease various operating spaces ~~principally~~ in the United States, Asia and Europe under non-cancelable operating lease arrangements that expire on various dates through ~~April 2022.~~July 2027. These arrangements require us to pay certain ~~operat~~

~~ing~~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 September 30, 2023.

Rent expense was $1.2 million for both of the three months ended September 30, 2023 and 2022, and was $3.7 million for both of the nine months ended September 30, 2023 and 2022.

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 $18.2 million as of September 30, 2023.

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, ~~and~~ 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”) provided 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.

On April 26, 2023, the Company’s stockholders approved the A10 Networks, Inc. 2023 Stock Incentive Plan (the “2023 Plan”), which was approved by the Company’s Board of Directors on March 10, 2023. The 2023 Plan replaced the 2014 Plan and no further grants were made under the 2014 Plan after March 29, 2023. The 2023 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~~Board of ~~directors. In June 2015, our board of directors adopted and our stockholders approved an amendment and restatement of the 2014 Plan, which increased the number of~~Directors.

The shares ~~available~~authorized for issuance under the ~~2014~~2023 Plan byis (x) 5,600,000 shares of common stock (the “Initial Reserve”), plus (y) the ~~number~~sum of ~~shares granted under the 2008 Stock Plan (the “2008 Plan”) that were or may in the future be canceled or otherwise forfeited or repurchased after March 20, 2014. A maximum of 8,310,566~~ ~~shares may become available from such~~any outstanding stock awards granted under the ~~2008 Plan for issuance under the 2014 Plan.~~

~~As of December 31, 2016, we had 4,241,980 shares available for future grant. Annually, the shares authorized for the~~ 2014 Plan ~~increase by the least of~~that following March 29, 2023 which are either (i) ~~8,000,000 shares,~~not issued because such award or portion thereof is forfeited or terminated for any reason before being exercised or settled or (ii) 5% of the outstanding shares of common stock on the last day of our immediately preceding fiscal year, or (iii) such other amount as determined by our Board of Directors. On January 1, 2017, the number of shares in the 2014 Plan increased by 3,394,376 shares, representing 5% of the prior year end’s common stock outstanding. In addition, 266,799 shares that had been subject to ~~awards granted under the 2008 Plan that had been canceled,~~vesting restrictions and are subsequently forfeited, ~~or repurchased during the year ended December 31, 2016 became available for issuance under the 2014 Plan.~~

up to a maximum of 3,475,099 shares (the “2014 Returning Shares”). As of September 30, ~~2017,~~2023, we had ~~6,071,997~~4,724,521 shares available for future grant ~~plus an additional 112,431 shares granted~~ under the ~~2008 Plan that have been canceled, forfeited or repurchased during the nine months ended September 30, 2017.~~2023 Plan.

2014 Employee Stock Purchase Plan

The 2014 Employee Stock Purchase Plan, as amended (the ~~"2014~~“Amended 2014 Purchase ~~Plan"~~Plan”) provides ~~for twenty-four month offering periods~~employees with ~~four six-month~~an opportunity to purchase ~~periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of~~ our common stock at the beginning of the offering period or the end of the purchase period, whichever is lower. If the market value of our common stock at the end of the purchase period is less than the market value at the beginning of the offering period, participants will be withdrawn from the then current offering period following their purchase of shares, and automatically will be enrolled in the immediately following offering period. Participants may contributethrough accumulated contributions, up to ~~15%~~a maximum of ~~their~~10% of eligible compensation, ~~subject to certain limits.~~

~~Employees purchased 524,101 shares at an average price~~with offering periods of ~~$6.49~~six months in duration, beginning on or about December 1 and 552,554 shares at an average price of $3.88 for the nine months ended September 30, 2017 and 2016, respectively. The intrinsic value of shares purchased during the nine months ended September 30, 2017 and 2016 was $0.9 million and $1.3 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.June 1 each year. As of September 30, ~~2017, we~~2023, the Company had ~~3,579,959~~968,943 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Stock-based compensation by type of award:
Stock awards	$	3,701	$	3,168	$	10,349	$	8,803
Employee stock purchase rights	265		337		831		1,015
	$	3,966	$	3,505	$	11,180	$	9,818

Stock-based compensation by category of expense:
Cost of revenue	$	446	$	434	$	1,262	$	1,155
Sales and marketing	1,248		1,193		3,305		3,335
Research and development	896		826		2,533		2,455
General and administrative	1,376		1,052		4,080		2,873
	$	3,966	$	3,505	$	11,180	$	9,818

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock-based compensation by type of award:
Stock options $ 589
$ 1,028
$ 2,199
$ 3,209
Stock awards 2,969
3,231
9,269
9,614
Employee stock purchase rights 987
329
2,356
246
$ 4,545
$ 4,588
$ 13,824
$ 13,069

Stock-based compensation by category of expense:
Cost of revenue $ 403
$ 332
$ 1,068
$ 921
Sales and marketing 1,696
1,760
5,120
5,577
Research and development 1,537
1,730
5,024
4,251
General and administrative 909
766
2,612
2,320
$ 4,545
$ 4,588
$ 13,824
$ 13,069

As of September 30, ~~2017, we~~2023, the Company had ~~$40.4~~$36.2 million of unrecognized stock-based compensation expense related to unvested stock-based awards, including under our Amended 2014 Purchase Plan, which will be recognized over a weighted-average period of ~~2.4~~2.72 years.

~~The fair value of the options was estimated as of the grant date using the Black-Scholes option-pricing model with the following assumptions:~~

Nine Months Ended September 30,
2017 2016
Expected term (in years) 4.7 4.9
Risk-free interest rate 1.74% 1.42%
Volatility 42% 49%
Dividend rate —% —%

~~The fair value of the employee stock purchase rights was estimated as of the grant date using the Black-Scholes option-pricing model with the following assumptions:~~

Nine Months Ended September 30,
2017 2016
Expected term (in years) 1.3 1.3
Risk-free interest rate 1.12% 0.65%
Volatility 38% 43%
Dividend rate —% —%

~~We did not grant stock options and employee stock purchase rights during the three months ended September 30, 2017 and 2016.~~

Stock Options

The following ~~tables summarize~~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, 2022	279	$	6.59

Exercised	(162)	7.31

Outstanding as of September 30, 2023	117	5.59		1.09	$	1,103
Vested and exercisable as of September 30, 2023	117	$	5.59	1.09	$	1,103

Number of Shares (thousands) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term
(years) Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2016 7,868
$ 4.82

Granted 135
$ 8.42

Exercised (1,272 ) $ 3.35

Canceled (1) (421 ) $ 6.40

Outstanding as of September 30, 2017 6,310
$ 5.09
5.5 $ 17,668
Vested and exercisable as of September 30, 2017 5,152
$ 5.01
4.9 $ 15,004



~~(1)~~	~~Includes 112,431 shares of canceled stock options from the 2008 Plan that became available for issuance under the 2014 Plan.~~

As of September 30, ~~2017,~~2023, the aggregate intrinsic value represents the excess of the closing price of our common stock of ~~$7.56~~$15.03 over the exercise price of the outstanding in-the-money options.

The ~~following table provides information pertaining to our stock~~intrinsic value of options ~~(in thousands, except weighted-average fair value):~~exercised was $0.3 million and $2.8 million during the three months ended September 30, 2023 and 2022, respectively and was $1.2 million and was $4.5 million during the nine months ended September 30, 2023 and 2022, respectively.

Nine Months Ended September 30,
2017 2016
Fair value of options granted $ 426
$ 1,603
Weighted-average fair value of options granted $ 3.15
$ 2.38
Intrinsic value of options exercised $ 7,014
$ 5,003

Stock Awards

~~We have~~The Company has granted RSUs to ~~our~~its employees, consultants and members of ~~our board~~its Board of ~~directors,~~Directors, and PSUs to certain executives and employees. The Company’s PSUs have market performance-based ~~restricted stock units (“MSUs”) to certain executives.~~

In 2014 and 2015, we granted 540,000 MSUs and 40,000 MSUs, respectively, to certain executives. These MSUs will vest if the closing price of our common stock remains above certain predetermined target prices for 20 consecutive trading days within a 4-year period following the grant date, subject to continued service by the award holder. None of these MSUs were vestedvesting conditions as ~~of September 30, 2017~~.

~~In February 2016, we granted 547,000 PSUs with certain financial and operational targets. Actual performance resulted in participants achieving 80% of target.~~well as service-based vesting conditions. As of September 30, ~~2017, 103,601 shares had vested, 111,150 shares~~2023, there were ~~forfeited,~~2,546,588 RSUs and ~~the remaining shares will vest in annual tranches through February 2020 subject to continued service vesting requirements.~~754,442 PSUs outstanding.

In October 2016, we granted 60,641 PSUs with certain financial and operational targets. To the extent they become eligible to vest upon achievement of the performance targets, these PSUs additionally are subject to service condition vesting requirements with scheduled vesting dates of March 2017 through June 2018. As of September 30, 2017, 12,128 shares had vested, 12,128 ~~shares were forfeited, and the remaining shares were unvested and are eligible to vest based on achievement of performance targets.~~

In March 2017, we granted 395,383 PSUs with certain financial targets. These PSUs will vest between ranges of 0% and 150% based on the actual performance, and are subject to service condition vesting requirements with 25% of the PSUs that become eligible to vest upon achievement of the performance targets scheduled to vest on each of the first, second, third and fourth year anniversaries following February 2017. None of these PSUs were vested as of September 30, 2017.

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, 2022	3,218	$	11.14
Granted	1,568	14.09
Released	(1,311)	9.80
Canceled	(174)	12.43
Nonvested as of September 30, 2023	3,301	$	13.00	1.97	$	49,614

Number of Shares (thousands) Weighted-Average Grant Date Fair Value Weighted-Average Remaining Vesting Term
(years) Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2016 5,959
$ 5.81

Granted 2,870
$ 8.65

Released (1,397 ) $ 6.33

Canceled (865 ) $ 5.99

Outstanding as of September 30, 2017 6,567
$ 6.92
1.6 $ 49,650

~~The aggregate intrinsic value of outstanding awards is calculated based on the closing price of our common stock of $7.56~~ ~~on September 29, 2017.~~

The aggregate fair value of stock awards released ~~as of the respective vesting dates~~ was ~~approximately $12.2~~$8.4 million and ~~$7.8~~$7.6 million for the three months ended September 30, 2023 and 2022, respectively, and was $12.8 million and $11.5 million for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

Stock Repurchase ~~Program~~Programs

On October ~~24, 2016, our board~~28, 2021, the Company announced its Board of ~~directors~~Directors authorized a ~~share~~stock repurchase program ~~for~~of up to ~~$20.0~~$100 million of ~~our~~its common stock over 12 months. Under the repurchase authorization, shares may be purchased from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions or other means.a period of twelve months (the “2021 Program”). During the nine months ended September 30, ~~2017, we~~2022, the Company repurchased ~~451,259~~6.1 million shares ~~at an average price~~for a total cost of ~~$6.81 as part~~$79.3 million under the 2021 Program. This repurchase program was active for twelve months and expired in the second half of this publicly announced program. The repurchased shares were retired upon delivery to us. As of September 30, 2017, we had $15.1 million remaining authorized to repurchase shares which expired on October 23, 2017.2022.

On ~~October 23, 2017, our board~~November 1, 2022, the Company announced its Board of ~~directors~~Directors authorized ~~another share~~a new stock repurchase program ~~for~~of up to ~~$20.0~~$50 million of ~~our~~its common stock over ~~12 months.~~ a period of twelve months (the “2022 Program”). Through September 30, 2023, 605 thousand shares had been repurchased under the 2022 Program for a total cost of $8.7 million. 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”).

Under the Company’s stock repurchase ~~authorization,~~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 ~~purchased from time to time, subject to general business and market conditions and other investment opportunities, through~~repurchased in privately negotiated and/or open market ~~purchases, privately negotiated~~ transactions, ~~or other means. The repurchase authorization may be commenced, suspended or discontinued at any time at our discretion.~~including under plans complying with Rule 10b5-1 under the Exchange Act.

7. Net ~~Loss~~Income Per Share

Basic net ~~loss~~income per share is computed using the weighted average number of common shares outstanding for the period. Diluted net ~~loss~~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. ~~Since we had~~

Basic and diluted net ~~losses in the three and nine months ended September 30, 2017 and 2016, none of the potential dilutive common shares were included in the computation of diluted shares for these periods,~~income per share are calculated as ~~inclusion of such shares would have been anti-dilutive.~~

follows (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic and diluted net income per share
Numerator:
Net income	$	6,469	$	12,113	$	22,053	$	28,878
Denominator:
Weighted-average shares outstanding - basic	74,526		75,881		74,184		76,191
Effect of dilutive potential common shares from stock options, stock awards and employee stock purchase plan	1,281		1,798		1,455		2,263
Weighted-average shares outstanding - diluted	75,807		77,679		75,639		78,454
Net income per share:
Basic	$	0.09	$	0.16	$	0.30	$	0.38
Diluted	$	0.09	$	0.16	$	0.29	$	0.37

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


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Stock options, restricted stock units and employee stock purchase rights	1	4	33	84

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock options, RSUs and employee stock purchase rights 10,071
14,163
12,587
12,878
Common stock subject to repurchase —
21
—
21
10,071
14,184
12,587
12,899

8. Income Taxes

We recorded an income tax ~~expense~~benefit of ~~$0.5~~$1.5 million and ~~$0.3~~an income tax provision of $3.1 million for the three months ended September 30, ~~2017~~2023 and ~~2016, respectively, and $1.0~~2022, respectively. The Company’s income tax benefit in the three months ended September 30, 2023 was primarily related to a foreign-derived intangible income deduction. We recorded income tax provisions of $2.6 million and ~~$0.6~~$7.5 million for the nine months ended September 30, ~~2017~~2023 and ~~2016, respectively, which~~2022, respectively. The Company’s income tax expense for the three months ended September 30, 2022 and nine months ended September 30, 2023 and 2022 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.

~~We believe it is more likely than not that our~~U.S. federal and state net deferred tax assets will not be fully realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of our deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized. Accordingly, we continue to maintain a valuation allowance against all of our U.S. and certain foreign net deferred tax assets as of September 30, 2017. We will continue to maintain a full valuation allowance against our net federal, state and certain foreign deferred tax assets until there is sufficient evidence to support recoverability of our deferred tax assets.taxes.

We had ~~$3.6 million and $3.3~~$7.3 million of unrecognized tax benefits as of September 30, ~~2017 and December 31, 2016, respectively.~~2023. 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 ~~tax provision~~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 ~~2004~~2005 through the current period. We are not currently under examination by ~~the Internal Revenue Service for our 2015 and 2014 tax returns.~~any taxing authorities.

9. Geographic Information

We report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. In the three months ended March 31, 2022, we changed the way we present revenue by geographic region. The Americas region comprises the United States and all other countries in the Americas (excluding the United States). The APJ region comprises Japan and all other countries in APAC (excluding Japan). We believe this vertical and revised geographic view aligns with how we manage the business and maps our product portfolio to customer verticals. This change in the way we report revenue had no impact to our key metrics including operations, comprehensive income and accumulated deficit.

The following table ~~is a summary~~depicts the disaggregation of revenue by geographic ~~regions~~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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Americas	$	25,818	$	35,995	$	92,695	$	107,506
United States	23,777		29,219		79,738		92,149
Americas-other	2,041		6,776		12,957		15,357
APJ	21,196		24,860		58,938		64,263
APAC	6,964		9,487		22,001		23,700
Japan	14,232		15,373		36,937		40,563
EMEA	10,761		11,204		29,650		30,935
Total revenue	$	57,775	$	72,059	$	181,283	$	202,704

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
United States $ 28,808
$ 24,297
$ 88,100
$ 85,242
Japan 16,634
16,008
38,119
37,846
Asia Pacific, excluding Japan 6,714
7,434
25,616
21,911
EMEA 6,116
6,046
18,110
16,973
Other 3,147
1,283
5,449
4,030
Total revenue $ 61,419
$ 55,068
$ 175,394
$ 166,002

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


	As of September 30, 2023		As of December 31, 2022
Americas	$	40,997	$	37,420
Japan	1,300		1,852

Other	1,346		1,668
Total	$	43,643	$	40,940

10. Revenue

Contract Balances

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


	As of September 30, 2023		As of December 31, 2022
Accounts receivable, net	$	59,070	$	72,928


Deferred revenue, current	79,540		74,340
Deferred revenue, non-current	56,174		52,652

September 30,
2017 December 31,
2016
United States $ 14,076
$ 15,130
Japan 1,614
34
Other 699
995
Total $ 16,389
$ 16,159
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 September 30, 2023 and December 31, 2022.

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 $25.8 million and $20.3 million during the three months ended September 30, 2023 and 2022, respectively, related to deferred revenues at the beginning of the respective periods. We recognized revenue of $60.0 million and $59.5 million during the nine months ended September 30, 2023 and 2022, 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 September 30, 2023, the current and non-current portions of deferred contract acquisition costs were $6.2 million and $4.3 million, respectively. As of December 31, 2022, the current and non-current portions of deferred contract acquisition costs were $6.1 million and $4.3 million, respectively. Related amortization expense was $2.0 million and $2.7 million for the three months ended September 30, 2023 and 2022, respectively, and was $4.6 million and $6.8 million for the nine months ended September 30, 2023 and 2022, 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 nine months ended September 30, 2023 and 2022.

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):


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	As of September 30, 2023

Within 1 year		$	79,540
Next 2 to 3 years		46,488
Thereafter		9,686
	Total	$	135,714

11. Subsequent Events

On November 7, 2023, the Company announced its Board of Directors declared a quarterly cash dividend. The dividend, in the amount of $0.06 per share outstanding, will be paid on December 1, 2023 to stockholders of record on November 17, 2023 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.

Also on November 7, 2023, the Company announced its Board of Directors authorized a new $50 million share repurchase program under which the Company may repurchase up to $50 million of its outstanding common stock during the next 12 months. Under the share repurchase program, the Company is authorized to repurchase shares of common stock in the

open market, privately negotiated transactions, in block trades or a combination of the foregoing. The Board will review the share repurchase program periodically and may authorize adjustment of its term and size. The Company plans to fund repurchases from its existing cash balance and cash provided by operating activities.

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. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan” “expect,”statements that reflect our plans, estimates, and ~~similar expressions~~beliefs that ~~convey uncertainty of future events or outcomes are intended to identify~~involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements.

~~These forward-looking statements~~ Factors that could cause or contribute to those differences include ~~but are not limited to, statements concerning the following:~~

~~our ability to maintain an adequate rate of revenue growth;~~

~~our ability to successfully anticipate market needs and opportunities;~~

~~our business plan and our ability to effectively manage our growth;~~

~~costs associated with defending intellectual property infringement and other claims, if any;~~

~~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;~~

~~our ability to expand our leadership position in next-generation application delivery and server load balancing solutions;~~

~~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 expand internationally;~~

~~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;~~

~~the attraction and retention of qualified employees and key personnel;~~

~~our ability to achieve or maintain profitability while continuing to invest in our sales, marketing and research and development teams;~~

~~variations in product mix or geographic locations of our sales;~~

~~fluctuations in currency exchange rates;~~

~~increased cost requirements of being a public company and future sales of substantial amounts of our common stock in the public markets;~~

~~the cost and potential outcomes of litigation, if any;~~

~~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”~~discussed below and elsewhere in this Quarterly Report on Form ~~10-Q. Moreover, we operate~~10-Q, particularly in ~~a very competitive~~“Note Regarding Forward-Looking Statements” and ~~rapidly changing environment, and new risks emerge from time to time. It is not possible forour management to predict all risks, nor can we assess the impact of all~~other risk 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. 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.

statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changesPart I, Item 1A “Risk Factors” in our ~~expectations, except as required by law.~~2022 Annual Report.

Overview

We are a leading provider of ~~software and hardware solutions designed to address our customers’ needs for~~ secure application ~~services. Our~~ solutions and services that enable ~~our customers~~a new generation of intelligently connected companies with the ability to ~~secure~~continuously improve cyber protection and ~~optimize the performance of their data center and cloud applications and secure their users, applications and infrastructure from internet, web~~digital responsiveness across dynamic Information Technology (“IT”) and network threats at scale. We deliver a broad portfolio of hardware, software and cloud offerings to our customers. These solutions are designed to give customers the visibility, performance and security their applications need across both on-premise and cloud environments to produce greater agility for their businesses. Our customers include cloud providers, web-scale companies, service providers, government organizations and enterprises.

infrastructures. Our product portfolio seeks to address many of the ~~aforementioned~~cyber protection challenges and solution requirements. The portfolio consists of six ~~advanced~~secure application ~~delivery and security products:~~solutions; Thunder Application Delivery ~~Controllers~~Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade ~~Network Address Translation~~Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”)~~. They~~, 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 ~~sales~~two sources: (i) products revenue, which includes hardware, perpetual software license and subscription offerings, which include term-based license agreements and software-as-a-service; and (ii) services revenue, which includes post contract support (“PCS”), professional services, and training. Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and over time once the subscription term has commenced. For our software-as-a-service offerings, our customers do not take possession of ~~products and related support services. Products revenue~~the Company’s software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements 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~~recognized over time as the services ~~for, software-only versions~~are provided. A substantial portion of our ~~solutions. We generate services~~ revenue ~~primarily~~is from sales of ~~maintenance~~our products and ~~support contracts.~~services through distribution channel partners, such as resellers and distributors. Our customers predominantly purchase ~~maintenance and support~~PCS services in conjunction with purchases of our products. ~~In addition, we also derive revenue from the sale of professional services.~~

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 September 30, ~~2017,~~2023, we ~~had~~have sold our products to ~~approximately 5,900~~more than 8,290 customers ~~across 82~~ ~~countries.~~

worldwide since our inception.

During the ~~first nine~~three months ended September 30, 2023, (i) 45% of ~~2017,~~our total revenue was generated from the Americas region, of which 41% was generated from the United States, (ii) 37% from the APJ region, of which 25% was generated from Japan, and (iii) 19% from the EMEA region. During the three months ended September 30, 2022, (i) 50% of our total revenue was generated from the ~~United States, 22% from Japan and 28% from other geographical regions. During the first nine months~~Americas region, of ~~2016, 51% of our total revenue~~which 41% was generated from the United States, ~~23%~~(ii) 34% from the APJ region, of which 21% was generated from Japan, and ~~26%~~(iii) 16% from ~~other geographical regions.~~the EMEA region. One of our priorities is to strengthen our sales efforts in North America. Our enterprise customers accounted for ~~53%~~50% and ~~57%~~38% of our total revenue during the ~~first nine~~three months ~~of 2017~~ended September 30, 2023 and ~~2016, respectively. Our~~2022, respectively, and our service provider customers accounted for ~~47%~~50% and ~~43%~~62% of our total revenue during the ~~first nine~~three months ~~of 2017~~ended September 30, 2023 and ~~2016,~~2022, 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 ~~from~~by our ten largest end-customers accounted for ~~38%~~29% and 36% of our total revenue ~~during~~for the ~~first nine~~three months ~~of 2017~~ended September 30, 2023 and ~~2016.~~2022, 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. ~~As a consequence,~~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 September 30, ~~2017,~~2023, we had ~~$39.9~~$104.2 million of cash and cash equivalents and ~~$84.0~~$64.9 million of marketable securities. Cash ~~generated~~provided by operating activities was ~~$10.0~~$41.8 million during the ~~first~~ nine months ~~of 2017 as~~ended September 30, 2023, compared to ~~$21.8~~$38.8 million ~~during~~in the same period of ~~2016.~~2022.

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. ~~Additionally, we will be investing in general and administrative resources to meet the requirements to operate as a public company.~~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 nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 is as follows (dollars in thousands):

Three Months Ended September 30,
2017 2016 Change
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:

Products $ 39,389
64.1 % $ 35,275
64.1 % $ 4,114
12 %
Services 22,030
35.9
19,793
35.9
2,237
11 %
Total revenue 61,419
100.0
55,068
100.0
6,351
12 %
Cost of revenue:

Products 9,119
14.8
8,795
16.0
324
4 %
Services 4,640
7.6
4,153
7.5
487
12 %
Total cost of revenue 13,759
22.4
12,948
23.5
811
6 %
Gross profit 47,660
77.6
42,120
76.5
5,540
13 %
Operating expenses:

Sales and marketing 26,930
43.9
24,331
44.2
2,599
11 %
Research and development 15,997
26.0
15,968
29.0
29
— %
General and administrative 6,878
11.2
6,305
11.5
573
9 %
Litigation and settlement expense —
—
66
0.1
(66 ) (100 )%
Total operating expenses 49,805
81.1
46,670
84.8
3,135
7 %
Loss from operations (2,145 ) (3.5 ) (4,550 ) (8.3 ) 2,405
(53 )%
Non-operating income (expense):

Interest expense (20 ) —
(145 ) (0.3 ) 125
(86 )%
Interest and other income (expense), net (37 ) (0.1 ) 309
0.6
(346 ) (112 )%
Total non-operating income (expense), net (57 ) (0.1 ) 164
0.3
(221 ) (135 )%
Loss before income taxes (2,202 ) (3.6 ) (4,386 ) (8.0 ) 2,184
(50 )%
Provision for income taxes 454
0.7
298
0.5
156
52 %
Net loss $ (2,656 ) (4.3 )% $ (4,684 ) (8.5 )% $ 2,028
(43 )%


	Three Months Ended September 30,
	2023				2022				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	30,260	52.4	%	$	45,104	62.6	%	$	(14,844)	(32.9)	%
Services	27,515		47.6		26,955		37.4		560		2.1
Total revenue	57,775		100.0		72,059		100.0		(14,284)		(19.8)
Cost of revenue:
Products	6,815		11.8		10,191		14.1		(3,376)		(33.1)
Services	4,194		7.3		4,574		6.3		(380)		(8.3)
Total cost of revenue	11,009		19.1		14,765		20.5		(3,756)		(25.4)
Gross profit	46,766		80.9		57,294		79.5		(10,528)		(18.4)
Operating expenses:
Sales and marketing	21,324		36.9		21,605		30.0		(281)		(1.3)
Research and development	17,620		30.5		14,360		19.9		3,260		22.7
General and administrative	5,613		9.7		5,661		7.9		(48)		(0.8)
Total operating expenses	44,557		77.1		41,626		57.8		2,931		7.0
Income from operations	2,209		3.8		15,668		21.7		(13,459)		(85.9)
Non-operating income (expense), net:
Interest income	1,766		3.1		432		0.6		1,334		308.8
Other income (expense), net	987		1.7		(871)		(1.2)		1,858		(213.3)
Non-operating income (expense), net	2,753		4.8		(439)		(0.6)		3,192		(727.1)
Income before provision for (benefit from) income taxes	4,962		8.6		15,229		21.1		(10,267)		(67.4)
Income tax provision (benefit)	(1,507)		(2.6)		3,116		4.3		(4,623)		(148.4)
Net income	$	6,469	11.2	%	$	12,113	16.8	%	$	(5,644)	(46.6)	%

Nine Months Ended September 30,
2017 2016 Change
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:

Products $ 111,195
63.4 % $ 110,446
66.5 % $ 749
1 %
Services 64,199
36.6
55,556
33.5
8,643
16 %
Total revenue 175,394
100.0
166,002
100.0
9,392
6 %
Cost of revenue:

Products 26,973
15.4
27,297
16.4
(324 ) (1 )%
Services 13,623
7.7
13,087
7.9
536
4 %
Total cost of revenue 40,596
23.1
40,384
24.3
212
1 %
Gross profit 134,798
76.9
125,618
75.7
9,180
7 %
Operating expenses:

Sales and marketing 78,754
44.9
77,872
47.0
882
1 %
Research and development 49,529
28.3
45,231
27.2
4,298
10 %
General and administrative 21,028
12.0
20,196
12.2
832
4 %
Litigation and settlement expense —
—
2,059
1.2
(2,059 ) (100 )%
Total operating expenses 149,311
85.2
145,358
87.6
3,953
3 %
Loss from operations (14,513 ) (8.3 ) (19,740 ) (11.9 ) 5,227
(26 )%
Non-operating income (expense):

Interest expense (128 ) (0.1 ) (397 ) (0.2 ) 269
(68 )%
Interest and other income (expense), net 779
0.5
1,544
0.9
(765 ) (50 )%
Total non-operating income (expense), net 651
0.4
1,147
0.7
(496 ) (43 )%
Loss before income taxes (13,862 ) (7.9 ) (18,593 ) (11.2 ) 4,731
(25 )%
Provision for income taxes 963
0.6
561
0.3
402
72 %
Net loss $ (14,825 ) (8.5 )% $ (19,154 ) (11.5 )% $ 4,329
(23 )%


	Nine Months Ended September 30,
	2023				2022				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	100,532	55.5	%	$	123,624	61.0	%	$	(23,092)	(18.7)	%
Services	80,751		44.5		79,080		39.0		1,671		2.1
Total revenue	181,283		100.0		202,704		100.0		(21,421)		(10.6)
Cost of revenue:
Products	22,334		12.3		28,342		14.0		(6,008)		(21.2)
Services	12,354		6.8		12,747		6.3		(393)		(3.1)
Total cost of revenue	34,688		19.1		41,089		20.3		(6,401)		(15.6)
Gross profit	146,595		80.9		161,615		79.7		(15,020)		(9.3)
Operating expenses:
Sales and marketing	64,526		35.6		66,159		32.6		(1,633)		(2.5)
Research and development	43,250		23.9		41,483		20.5		1,767		4.3
General and administrative	18,177		10.0		17,160		8.5		1,017		5.9
Total operating expenses	125,953		69.5		124,802		61.6		1,151		0.9
Income from operations	20,642		11.4		36,813		18.2		(16,171)		(43.9)
Non-operating income (expense), net:
Interest income	3,401		1.9		736		0.4		2,665		362.1
Other income (expense), net	653		0.4		(1,204)		(0.6)		1,857		(154.2)
Non-operating income (expense), net	4,054		2.2		(468)		(0.2)		4,522		(966.2)
Income before provision for (benefit from) income taxes	24,696		13.6		36,345		17.9		(11,649)		(32.1)
Provision for (benefit from) income taxes	2,643		1.5		7,467		3.7		(4,824)		(64.6)
Net income	$	22,053	12.2	%	$	28,878	14.2	%	$	(6,825)	(23.6)	%

Revenue

Our products revenue primarily consists of revenue from sales of our hardware appliances upon which our software is installed. Such software includes our ACOS software platform plus one or more of our ADC, CGN, TPS, SSLi or CFW solutions. Purchase of a hardware appliance includes a perpetual license to the included software. Additionally, an immaterial portion of our products revenue comes from subscription revenue. We offer several products by subscription, primarily through either term-based license agreements or as a service through our cloud-based platform. With respect to sales of our hardware appliances, we recognize products revenue upon transfer of control, generally at the time of shipment, provided that all other revenue recognition criteria have been met. Revenue for term-based license agreements is recognized at a point in time when we deliver the software license to the customer and the subscription term has commenced. For our software-as-a-service offerings, our customers do not take possession of our software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized ratably as the services are provided. As a percentage of revenue, our products revenue may vary from quarter to quarter based on, among other things, the timing of orders and delivery of products, cyclicality and seasonality, changes in currency exchange rates and the impact of significant transactions with unique terms and conditions.

We generate services revenue from sales of ~~post-contract~~post contract support (“PCS”), which is bundled with sales of products and ~~professional~~technical services. We offer tiered PCS services under renewable, fee-based PCS contracts, primarily including technical

support, hardware repair and replacement parts, and software upgrades on a ~~when-and-if-released~~when-and-if-available basis. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to ~~five~~seven years.

A summary of our total revenue is as follows (dollars in thousands):


	Three Months Ended September 30,
	2023				2022				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	30,260	52	%	$	45,104	63	%	$	(14,844)	(33)	%
Services	27,515		48		26,955		37		560		2	%
Total revenue	$	57,775	100	%	$	72,059	100	%	$	(14,284)	(20)	%
Revenue by geographic region:
Americas	$	25,818	45	%	$	35,995	50	%	$	(10,177)	(28)	%
United States	23,777		41	%	29,219		41	%	(5,442)		(19)	%
Americas-other	2,041		4	%	6,776		9	%	(4,735)		(70)	%
APJ	21,196		37	%	24,860		34	%	(3,664)		(15)	%
APAC	6,964		12	%	9,487		13	%	(2,523)		(27)	%
Japan	14,232		25	%	15,373		21	%	(1,141)		(7)	%
EMEA	10,761		18	%	11,204		16	%	(443)		(4)	%
Total revenue	$	57,775	100	%	$	72,059	100	%	$	(14,284)	(20)	%

Three Months Ended September 30,
2017 2016 Change
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:
Products $ 39,389
64 % $ 35,275
64 % $ 4,114
12 %
Services 22,030
36
19,793
36
2,237
11 %
Total revenue $ 61,419
100 % $ 55,068
100 % $ 6,351
12 %
Revenue by geographic region:

United States $ 28,808
47 % $ 24,297
44 % $ 4,511
19 %
Japan 16,634
27
16,008
29
626
4 %
Asia Pacific, excluding Japan 6,714
11
7,434
14
(720 ) (10 )%
EMEA 6,116
10
6,046
11
70
1 %
Other 3,147
5
1,283
2
1,864
145 %
Total revenue $ 61,419
100 % $ 55,068
100 % $ 6,351
12 %


	Nine Months Ended September 30,
	2023				2022				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	100,532	55	%	$	123,624	61	%	$	(23,092)	(19)	%
Services	80,751		45		79,080		39		1,671		2	%
Total revenue	$	181,283	100	%	$	202,704	100	%	$	(21,421)	(11)	%
Revenue by geographic region:
Americas	$	92,695	51	%	$	107,506	53	%	$	(14,811)	(14)	%
United States	79,738		44	%	92,149		45	%	(12,411)		(13)	%
Americas-other	12,957		7	%	15,357		8	%	(2,400)		(16)	%
APJ	58,938		33	%	64,263		32	%	(5,325)		(8)	%
APAC	22,001		12	%	23,700		12	%	(1,699)		(7)	%
Japan	36,937		20	%	40,563		20	%	(3,626)		(9)	%
EMEA	29,650		16	%	30,935		15	%	(1,285)		(4)	%
Total revenue	$	181,283	100	%	$	202,704	100	%	$	(21,421)	(11)	%

Three Months Ended September 30, 2023 and 2022

Nine Months Ended September 30,
2017 2016 Change
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:
Products $ 111,195
63 % $ 110,446
67 % $ 749
1 %
Services 64,199
37
55,556
33
8,643
16 %
Total revenue $ 175,394
100 % $ 166,002
100 % $ 9,392
6 %
Revenue by geographic region:

United States $ 88,100
50 % $ 85,242
52 % $ 2,858
3 %
Japan 38,119
22
37,846
23
273
1 %
Asia Pacific, excluding Japan 25,616
15
21,911
13
3,705
17 %
EMEA 18,110
10
16,973
10
1,137
7 %
Other 5,449
3
4,030
2
1,419
35 %
Total revenue $ 175,394
100 % $ 166,002
100 % $ 9,392
6 %

Total revenue ~~increased by $6.4~~decreased $14.3 million, or ~~12%~~20%, during the ~~third quarter of 2017 as~~three months ended September 30, 2023, compared to the same period of ~~2016. This increase~~2022. Changes in revenue were due primarily to (i) a $10.2 million decrease in the Americas region, comprised of a decrease in the United States of $5.4 million and a decrease in Americas-other of $4.7 million, (ii) a $3.7 million decrease in the APJ region, comprised of a decrease in APAC of $2.5 million and a decrease in Japan of $1.1 million and (iii) a $0.4

million decrease in the EMEA region. The overall decrease in revenue was ~~due~~attributable to a ~~$4.1~~$16.2 million decrease in revenue from service provider customers, partially offset by a $1.9 million increase in ~~products~~ revenue ~~and a $2.2 million increase in services revenue. Revenue~~ from ~~service provider and~~ enterprise customers ~~increased 36% and decreased 7%, respectively,~~ during the ~~third quarter of 2017 as~~three months ended September 30, 2023 compared to the same period of ~~2016.~~2022.

~~Total~~Products revenue ~~increased $9.4~~decreased $14.8 million, or 6%33%, during the ~~first nine~~three months ~~of 2017 as~~ended September 30, 2023 compared to the same period of ~~2016. This increase was due to an $8.6 million increase~~2022, as a result of a decrease in ~~services revenue and a $0.7 million increase in products revenue. Revenue~~demand from our service provider ~~and enterprise~~ customers ~~increased 18% and decreased 3%, respectively, during~~worldwide, but primarily in the ~~first nine months of 2017 as compared to the same period of 2016.~~Americas regions.

Products revenue increased $4.1 million, or 12%, during the third quarter of 2017 as compared to the same period of 2016 primarily due to increase from the United States, partially offset by decrease from Asia Pacific regions excluding Japan. Products revenue remained relatively unchanged during the first nine months of 2017 as compared to the same period of 2016 primarily due to increase from Asia Pacific regions excluding Japan, partially offset by decrease from Japan.

Services revenue increased ~~$2.2~~$0.6 million, or ~~11%, and $8.6 million, or 16%~~2%, during the ~~third quarter and the first nine~~three months ~~of 2017, respectively, as~~ended September 30, 2023, compared to the same periods of ~~2016. The increase was~~2022, primarily attributable to ~~the~~an increase in PCS sales ~~in connection with~~as a result of our ~~increased installed customer base. During the first nine months of 2017, services revenue recognized from our~~growing installed customer base, ~~with contracts existing at the beginning of the year grew by 20% as compared to the same measure during the first nine months of 2016.~~especially in our Americas region.

During the ~~third quarter of 2017, $28.8~~three months ended September 30, 2023, $25.8 million, or ~~47%~~45% of total revenue, was generated from the ~~United States,~~Americas region, which represents a ~~19% increase as~~28% decrease in revenue compared to the same period of ~~2016.~~2022. The ~~increase is~~decrease was primarily due to ~~higher~~lower products ~~revenue.~~ revenue due to a decrease in demand from our service provider customers.

During the ~~first nine~~three months ~~of 2017, $88.1~~ended September 30, 2023, $21.2 million, or ~~50%~~37% of total revenue, was generated from the ~~United States,~~APJ region, which represents a ~~3% increase as~~2% decrease compared to the same period of ~~2016.~~2022. The increase iswas primarily due to ~~higher services~~lower products revenue ~~attributable~~due to ~~the increase~~a decrease in ~~PCS sales in connection with~~demand from our ~~increased installed customer base.~~service provider customers.

During the ~~third quarter of 2017, $16.6~~three months ended September 30, 2023, $10.8 million, or ~~27%~~18% of total revenue, was generated from ~~Japan,~~the EMEA region, which represents a 4% ~~increase as~~decrease compared to the same period of ~~2016.~~2022. The ~~increase is~~decrease was primarily due to ~~higher services~~lower products revenue due to a decrease in demand from our service provider customers.

Nine Months Ended September 30, 2023 and 2022

Total revenue decreased $21.4 million, or 11%, during the nine months ended September 30, 2023, compared to the same period of 2022. Changes in revenue were due primarily to (i) a $14.8 million decrease in the Americas region, comprised of a decrease in the United States of $12.4 million and a decrease in Americas-other of $2.4 million, (ii) a $5.3 million decrease in the APJ region, comprised of a decrease in APAC of $1.7 million and a decrease in Japan of $3.6 million and (iii) a $1.3 million decrease in the EMEA region. The overall decrease in revenue was attributable to a $24.3 million decrease in revenue from service provider customers, partially offset by a $2.9 million increase in revenue from enterprise customers during the nine months ended September 30, 2023 compared to the same period of 2022.

Products revenue decreased $23.1 million, or 19%, during the nine months ended September 30, 2023 compared to the same period of 2022, primarily attributable to a decrease in demand from our service provider customers in the Americas regions.

Services revenue increased $1.7 million, or 2%, during the nine months ended September 30, 2023, compared to the same periods of 2022, primarily attributable to an increase in PCS sales ~~in connection with~~as a result of our ~~increased~~growing installed customer ~~base.~~ base, especially in our Americas region.

During the ~~first~~ nine months ~~of 2017, $38.1~~ended September 30, 2023, $92.7 million, or ~~22%~~51% of total revenue, was generated from ~~Japan,~~the Americas region, which represents a ~~1% increase as~~14% decrease in revenue compared to the same period of ~~2016.~~2022. The ~~increase is~~decrease was primarily due to ~~higher services revenue from PCS sales in connection with our increased installed customer base, partially offset by~~ lower products ~~revenue.~~revenue due to a decrease in demand from our service provider customers.

During the ~~third quarter of 2017, $6.7~~nine months ended September 30, 2023, $58.9 million, or ~~11%~~33% of total revenue, was generated from ~~Asia Pacific regions excluding Japan,~~the APJ region, which represents ~~a 10%~~an 8% decrease as compared to the same period of ~~2016.~~2022. The decrease iswas primarily due to lower products revenue ~~partially offset by higher services revenue~~due to a decrease in demand from ~~PCS sales in connection with~~ our ~~increased installed customer base.~~ service provider customers.

During the ~~first~~ nine months ~~of 2017, $25.6~~ended September 30, 2023, $29.7 million, or ~~15%~~16% of total revenue, was generated from ~~Asia Pacific regions excluding Japan,~~the EMEA region, which represents a ~~17% increase as~~4% decrease compared to the same period of ~~2016.~~2022. The ~~increase~~decrease was primarily due to ~~higher~~lower products revenue ~~and~~due to a ~~lesser degree higher services revenue~~decrease in demand from ~~PCS sales in connection with~~ our ~~increased installed customer base.~~service provider customers.

During the third quarter of 2017, $6.1 million, or 10% of total revenue, was generated from EMEA, which represents a 1% increase as compared to the same period of 2016. The increase is primarily due to higher services revenue from PCS sales in connection with our increased installed customer base, partially offset by lower products revenue. During the first nine months of 2017, $18.1 million, or 10% of total revenue, was generated from EMEA, which represents a 7% increase as compared to the same period of 2016.~~The increase was primarily due to higher services revenue from PCS sales in connection with our increased installed customer base.~~

Cost of Revenue, Gross Profit and Gross Margin

Cost of ~~revenue~~Revenue

Cost of products revenue is primarily comprised of cost of third-party manufacturing services and cost of inventory for the hardware component of our products. Cost of products revenue also includes warehouse personnel costs, shipping costs, inventory write-downs, certain allocated facilities and information technology infrastructure costs, and expenses associated with logistics and quality control.

Cost of services revenue is primarily comprised of personnel costs for our technical support ~~training~~ and ~~professional service~~training teams. Cost of services revenue also includes the costs of inventory used to provide hardware replacements to end- customers under PCS contracts and certain allocated facilities and information technology infrastructure costs.

A summary of our cost of revenue is as follows (dollars in thousands):


	Three Months Ended September 30,				Change					Three Months Ended September 30,				Increase (Decrease)
	2017		2016		Amount		Percent			2023		2022		Amount		Percent
Cost of revenue:									Cost of revenue:
Products	$	9,119	$	8,795	$	324	4	%	Products	$	6,815	$	10,191	$	(3,376)	(33.1)	%
Services	4,640		4,153		487		12	%	Services	4,194		4,574		(380)		(8.3)
Total cost of revenue	$	13,759	$	12,948	$	811	6	%	Total cost of revenue	$	11,009	$	14,765	$	(3,756)	(25.4)	%


	Nine Months Ended September 30,				Increase (Decrease)
	2023		2022		Amount		Percent
Cost of revenue:
Products	$	22,334	$	28,342	$	(6,008)	(21.2)	%
Services	12,354		12,747		(393)		(3.1)
Total cost of revenue	$	34,688	$	41,089	$	(6,401)	(15.6)	%

Nine Months Ended September 30, Change
2017 2016 Amount Percent
Cost of revenue:
Products $ 26,973
$ 27,297
$ (324 ) (1 )%
Services 13,623
13,087
536
4 %
Total cost of revenue $ 40,596
$ 40,384
$ 212
1 %
Products cost of revenue decreased 33.1% and 21.2% during the three and nine months ended September 30, 2023, respectively, compared to the same periods of 2022, primarily driven by geographic mix and product mix.

Services cost of revenue decreased 8.3% and 3.1% during the three and nine months ended September 30, 2023, respectively, compared to the same periods of 2022, primarily driven by the mix of services delivered, which include technical support, training and service costs.

Gross Margin

Gross margin may vary and be unpredictable from period to period due to a variety of factors. These may include the mix of revenue from each of our regions, the mix of our products sold within a period, discounts provided to customers, inventory write-downs and foreign currency exchange rates.

Our sales are generally denominated in U.S. ~~dollars,~~Dollars; however, in Japan, ~~they~~our sales are denominated in Japanese ~~yen. Changes in the exchange rates between the U.S. dollar and Japanese yen will therefore affect our revenue and gross margin.~~

Yen.

Any of the factors noted above can generate either a favorable or unfavorable impact on gross margin.

A summary of our gross profit and gross margin is as follows (dollars in thousands):


	Three Months Ended September 30,													Three Months Ended September 30,
	2017				2016				Change					2023				2022				Increase (Decrease)
	Amount		Gross Margin		Amount		Gross Margin		Amount		Gross Margin			Amount		Gross Margin		Amount		Gross Margin		Amount		Gross Margin
Gross profit:													Gross profit:
Products	$	30,270	76.8	%	$	26,480	75.1	%	$	3,790	1.7	%	Products	$	23,445	77.5	%	$	34,913	77.4	%	$	(11,468)	0.1	%
Services	17,390		78.9	%	15,640		79.0	%	1,750		(0.1	)%	Services	23,321		84.8		22,381		83.0		940		1.8
Total gross profit	$	47,660	77.6	%	$	42,120	76.5	%	$	5,540	1.1	%	Total gross profit	$	46,766	80.9	%	$	57,294	79.5	%	$	(10,528)	1.4	%



	September 30, 2017							December 31, 2016
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Developed technology	$	5,050	$	(1,262	)	$	3,788	$	5,050	$	(505	)	$	4,545
Patents	2,936		(1,173		)	1,763		2,936		(848		)	2,088
Total	$	7,986	$	(2,435	)	$	5,551	$	7,986	$	(1,353	)	$	6,633



Fiscal Year
Remainder of 2017	$	361
2018	1,442
2019	1,442
2020	1,442
2021	864
	$	5,551



	Number of Shares (thousands)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2016	7,868		$	4.82
Granted	135		$	8.42
Exercised	(1,272	)	$	3.35
Canceled (1)	(421	)	$	6.40
Outstanding as of September 30, 2017	6,310		$	5.09	5.5	$	17,668
Vested and exercisable as of September 30, 2017	5,152		$	5.01	4.9	$	15,004



	Number of Shares (thousands)		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Vesting Term (years)	Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2016	5,959		$	5.81
Granted	2,870		$	8.65
Released	(1,397	)	$	6.33
Canceled	(865	)	$	5.99
Outstanding as of September 30, 2017	6,567		$	6.92	1.6	$	49,650


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~


							Fair Value as of
	(150 BPS)		(100 BPS)		(50 BPS)		9/30/2023		50 BPS		100 BPS		150 BPS
Marketable securities	$	65,446	$	65,260	$	65,075	$	64,889	$	64,703	$	64,516	$	64,330


Periods	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
July 1 - 31, 2023		—	$	—	—	$	43,771

August 1 - 31, 2023		97	$	14.42	97	$	42,370

September 1 - 30, 2023		71	$	14.66	71	$	41,328

Total		168				$	41,328



Period	Shares Repurchased	Average Price Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Beginning repurchase authority					$	17,390
Shares repurchased:
July 1, 2017 - July 31, 2017	—	—		—	$	17,390
August 1, 2017 - August 31, 2017	252,228	$	6.35	252,228	$	15,788
September 1, 2017 - September 30, 2017	99,296	$	6.58	99,296	$	15,135
Total	351,524			351,524


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 6, 2019)
3.2						Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on December 6, 2019)
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1**						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
32.2**						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101*						Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I– Item 1, “Condensed Consolidated Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q
104*						Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set


			By: /s/ Dhrupad Trivedi
			~~By: /s/ Lee Chen~~Dhrupad Trivedi
			~~Lee Chen~~
	President and Chief Executive Officer ~~and President~~ (Principal Executive Officer)


			By: /s/ Brian Becker
			~~By: /s/ Tom Constantino~~Brian Becker
			~~Tom Constantino~~
	~~Executive Vice President and~~ Chief Financial Officer (Principal Accounting and Financial Officer)



~~Exhibit~~ ~~Number~~		~~Description~~
~~31.1~~		~~Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act~~
~~31.2~~		~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act~~
32.1*		~~Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act~~
32.2*		~~Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act~~
~~101.INS~~		~~XBRL Instant Document~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~		~~XBRL Extension Calculation Linkbase Document~~
~~101.DEF~~		~~XBRL Extension Definition Linkbase Document~~
~~101.LAB~~		~~XBRL Extension Labels Linkbase Document~~
~~101.PRE~~		~~XBRL Extension Presentation Linkbase Document~~