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, ~~2019~~2020



¨ ☐			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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨☐	Accelerated filer	x
Non-accelerated filer	¨☐	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. x¨

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 ~~28, 2019,~~26, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was ~~76,818,472.~~

76,708,465.

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
Note Regarding COVID-19			3
PART I. FINANCIAL INFORMATION			24
Item 1. Condensed Consolidated Financial Statements (unaudited):			24
Condensed Consolidated Balance Sheets as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019			24
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019			35
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019			46
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019			57
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019			68
Notes to Condensed Consolidated Financial Statements			79
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2322
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3534
Item 4. Controls and Procedures			3634
PART II. OTHER INFORMATION			3936
Item 1. Legal Proceedings			3936
Item 1A. Risk Factors			3936
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6562
Item 3. Defaults Upon Senior Securities			6562
Item 4. Mine Safety Disclosures			6662
Item 5. Other Information			6662
Item 6. Exhibits			6662
Signatures			6764

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

These forward-looking statements include, but are not limited to, statements concerning the following:

• the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and liquidity;

• our ability to provide customers with improved benefits relating to their applications;

• our ability to maintain an adequate rate of revenue growth and other factors contributing to such growth;

• our ability to successfully anticipate market needs and opportunities;

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

• our plans to expand and strengthen our sales efforts;

• our expectations with respect to recognizing revenue related to remaining performance obligations;

• our plans to introduce new products;

• loss or delay of expected purchases by our largest end-customers;

• our ability to further penetrate our existing customer base;

• our ability to displace existing products in established markets;

• continued growth in markets relating to network security;

• our ability to timely and effectively scale and adapt our existing technology;

• our ability to innovate new products and bring them to market in a timely manner;

• our ability to expand internationally and any related impact on profitability;

• the effects of increased competition in our market and our ability to compete effectively;

• the effects of seasonal trends on our results of operations;

• our expectations concerning relationships with third parties;

• our expectations with respect to the realization of our tax assets and our unrecognized tax benefits;

• our plans with respect to the repatriation of our earnings from our foreign operations;

• the attraction, retention and growth of qualified employees and key personnel;

• our ability to achieve or 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 expenses;

• our expectations with respect to restructuring actions and expenses;

• our expectations with respect to liquidity position and future capital requirements;

• our exploration of strategic alternatives;

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

• our stock repurchase program;

• fluctuations in currency exchange rates;

• tariffs affecting us;

• 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;

• our ability to maintain, protect, and enhance our brand and intellectual property;

• future acquisitions of or investments in complementary companies, products, services or technologies; and

• our ability to effectively integrate operations of entities we have acquired or may acquire.

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

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

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

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

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

NOTE REGARDING COVID-19

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

In response to the outbreak of COVID-19, we have taken the following measures:

•Implemented work-from-home and social distancing policies for our organization;

•Taken steps to ensure employee’s ability to remotely work-from-home when feasible;

•Continue to maintain our focus on improving profitability; and

•Continue to monitor our supply chain closely.

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

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, 2019			December 31, 2018				September 30, 2020		December 31, 2019
ASSETS	ASSETS						ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	36,067		$	40,621		Cash and cash equivalents	$	83,069	$	45,742
Marketable securities	86,525			87,754			Marketable securities	76,041		84,180
Accounts receivable, net of allowances of $52 and $319, respectively	45,397			53,972
Accounts receivable, net of allowances of $7 and $52, respectively							Accounts receivable, net of allowances of $7 and $52, respectively	42,803		53,566
Inventory	21,081			17,930			Inventory	22,600		22,384
Prepaid expenses and other current assets	14,509			14,662			Prepaid expenses and other current assets	10,809		15,067
Total current assets	203,579			214,939			Total current assets	235,322		220,939
Property and equipment, net	8,846			7,262			Property and equipment, net	7,297		7,656
Goodwill	1,307			1,307			Goodwill	1,307		1,307
Intangible assets	2,666			3,748
Intangible assets, net							Intangible assets, net	1,223		2,305
Other non-current assets	12,549			8,620			Other non-current assets	38,948		41,846
Total assets	$	228,947		$	235,876		Total assets	$	284,097	$	274,053
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY						LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	5,488		$	8,202		Accounts payable	$	7,289	$	7,592
Accrued liabilities	20,735			25,291			Accrued liabilities	27,602		27,756
Deferred revenue	59,603			63,874			Deferred revenue	61,886		62,233
Total current liabilities	85,826			97,367			Total current liabilities	96,777		97,581
Deferred revenue, non-current	38,470			34,092			Deferred revenue, non-current	40,140		38,931
Other non-current liabilities	2,483			534			Other non-current liabilities	25,479		28,754
Total liabilities	126,779			131,993			Total liabilities	162,396		165,266
Commitments and contingencies (Note 2 and Note 6)
Commitments and contingencies (Note 2 and Note 5)							Commitments and contingencies (Note 2 and Note 5)
Stockholders' equity:	Stockholders' equity:						Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 76,744 and 74,301 shares issued and outstanding, respectively	1			1
Common stock, $0.00001 par value: 500,000 shares authorized; 78,487 and 77,580 shares issued and outstanding, respectively							Common stock, $0.00001 par value: 500,000 shares authorized; 78,487 and 77,580 shares issued and outstanding, respectively	1		1
Treasury stock, at cost: 2,878 and 678 shares, respectively							Treasury stock, at cost: 2,878 and 678 shares, respectively	(18,226)		(4,890)
Additional paid-in-capital	391,998			376,272			Additional paid-in-capital	419,758		403,490
Accumulated other comprehensive income (loss)	285			(144		)
Accumulated other comprehensive income							Accumulated other comprehensive income	258		251
Accumulated deficit	(290,116		)	(272,246		)	Accumulated deficit	(280,090)		(290,065)
Total stockholders' equity	102,168			103,883			Total stockholders' equity	121,701		108,787
Total liabilities and stockholders' equity	$	228,947		$	235,876		Total liabilities and stockholders' equity	$	284,097	$	274,053

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,
	2020		2019		2020		2019
Revenue:
Products	$	32,188	$	30,052	$	92,138	$	85,067
Services	24,420		22,781		70,734		67,245
Total revenue	56,608		52,833		162,872		152,312
Cost of revenue:
Products	7,610		7,108		21,095		21,515
Services	5,513		4,812		15,592		13,926
Total cost of revenue	13,123		11,920		36,687		35,441
Gross profit	43,485		40,913		126,185		116,871
Operating expenses:
Sales and marketing	18,556		22,056		57,653		70,165
Research and development	13,694		15,784		42,459		46,567
General and administrative	4,994		2,854		16,126		17,311
Total operating expenses	37,244		40,694		116,238		134,043
Income (loss) from operations	6,241		219		9,947		(17,172)
Non-operating income (expense):
Interest expense	0		(30)		(1)		(222)
Interest and other income, net	479		254		938		397
Total non-operating income, net	479		224		937		175
Income (loss) before provision for income taxes	6,720		443		10,884		(16,997)
Provision for income taxes	256		270		909		873
Net income (loss)	$	6,464	$	173	$	9,975	$	(17,870)
Net income (loss) per share:
Basic	$	0.08	$	0	$	0.13	$	(0.24)
Diluted	$	0.08	$	0	$	0.12	$	(0.24)
Weighted-average shares used in computing net income (loss) per share:
Basic	78,235		76,618		78,158		75,611
Diluted	80,424		79,093		80,232		75,611

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Revenue:

Products $ 30,052
$ 38,265
$ 85,067
$ 105,638
Services 22,781
22,237
67,245
64,760
Total revenue 52,833
60,502
152,312
170,398
Cost of revenue:
Products 7,108
8,790
21,515
24,979
Services 4,812
4,224
13,926
13,106
Total cost of revenue 11,920
13,014
35,441
38,085
Gross profit 40,913
47,488
116,871
132,313
Operating expenses:
Sales and marketing 22,056
24,539
70,165
77,231
Research and development 15,784
15,505
46,567
49,874
General and administrative 2,854
9,012
17,311
30,464
Total operating expenses 40,694
49,056
134,043
157,569
Income (loss) from operations 219
(1,568 ) (17,172 ) (25,256 )
Non-operating income (expense):
Interest expense (30 ) (34 ) (222 ) (99 )
Interest and other income (expense), net 254
(131 ) 397
6
Total non-operating income (expense), net 224
(165 ) 175
(93 )
Income (loss) before provision for income taxes 443
(1,733 ) (16,997 ) (25,349 )
Provision for income taxes 270
74
873
660
Net income (loss) $ 173
$ (1,807 ) $ (17,870 ) $ (26,009 )
Net income (loss) per share:
Basic $ 0.00
$ (0.02 ) $ (0.24 ) $ (0.36 )
Diluted $ 0.00
$ (0.02 ) $ (0.24 ) $ (0.36 )
Weighted-average shares used in computing net income (loss) per share:
Basic 76,618
72,707
75,611
72,550
Diluted 79,093
72,707
75,611
72,550

See accompanying notes to the condensed consolidated financial statements.

A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	6,464	$	173	$	9,975	$	(17,870)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities	(215)		27		7		429
Comprehensive income (loss)	$	6,249	$	200	$	9,982	$	(17,441)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) $ 173
$ (1,807 ) $ (17,870 ) $ (26,009 )
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities 27
64
429
(34 )
Comprehensive income (loss) $ 200
$ (1,743 ) $ (17,441 ) $ (26,043 )

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,
			2020		2019		2020		2019
Shares of common stock issued and outstanding
	Beginning balance		77,519		76,082		77,580		74,301
	Common stock issued under employee equity incentive plans		968		662		3,107		2,443
	Repurchase of common stock		0		0		(2,200)		0
		Ending balance	78,487		76,744		78,487		76,744

Stockholders' equity
	Beginning balance		$	110,860	$	98,326	$	108,787	$	103,883
	Common stock:
		Beginning balance	$	1	$	1	$	1	$	1
		Common stock issued under employee equity incentive plans	0		0		0		0
		Ending balance	$	1	$	1	$	1	$	1

	Treasury stock, at cost:
		Beginning balance	$	(18,226)	$	(4,890)	$	(4,890)	$	(4,890)
		Repurchase of common stock	0		0		(13,336)		0
		Ending balance	$	(18,226)	$	(4,890)	$	(18,226)	$	(4,890)

	Additional paid-in capital:
		Beginning balance	$	415,166	$	393,246	$	403,490	$	381,162
		Common stock issued under employee equity incentive plans	1,168		245		6,776		3,505
		Stock-based compensation	3,424		3,397		9,492		12,221
		Ending balance	$	419,758	$	396,888	$	419,758	$	396,888

	Accumulated other comprehensive income (loss):
		Beginning balance	$	473	$	258	$	251	$	(144)
		Unrealized gain (loss) on marketable securities, net of tax	(215)		27		7		429
		Ending balance	$	258	$	285	$	258	$	285

	Accumulated deficit:
		Beginning balance	$	(286,554)	$	(290,289)	$	(290,065)	$	(272,246)
		Net income (loss)	6,464		173		9,975		(17,870)
		Ending balance	$	(280,090)	$	(290,116)	$	(280,090)	$	(290,116)

Total stockholders' equity			$	121,701	$	102,168	$	121,701	$	102,168

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Shares of common stock issued and outstanding
Beginning balance at June 30, 2019 and 2018 and December 31, 2018 and December 31, 2107, respectively 76,082
72,707
74,301
71,692
Common stock issued under employee equity incentive plans 662
—
2,443
1,015
    Ending balance 76,744
72,707
76,744
72,707

Stockholders' equity
Beginning balance at June 30, 2019 and 2018 and December 31, 2018 and December 31, 2107, respectively $ 98,326
$ 98,473
$ 103,883
$ 98,386
Common stock:
Beginning balance $ 1
$ 1
$ 1
$ 1
Common stock issued under employee equity incentive plans —
—
—
—
    Ending balance $ 1
$ 1
$ 1
$ 1

Additional paid-in capital:
Beginning balance $ 388,356
$ 367,524
$ 376,272
$ 355,533
Common stock issued under employee equity incentive plans 245
—
3,505
1,269
Stock-based compensation 3,397
2,333
12,221
13,055
    Ending balance $ 391,998
$ 369,857
$ 391,998
$ 369,857

Accumulated other comprehensive income (loss):
Beginning balance $ 258
$ (221 ) $ (144 ) $ (123 )
Unrealized gain (loss) on marketable securities, net of tax 27
64
429
(34 )
    Ending balance $ 285
$ (157 ) $ 285
$ (157 )

Accumulated deficit:
Beginning balance $ (290,289 ) $ (268,831 ) $ (272,246 ) $ (257,025 )
Cumulative effect adjustment from adoption of ASU 2014-09 —
—
—
12,396
Net income (loss) 173
(1,807 ) (17,870 ) (26,009 )
    Ending balance $ (290,116 ) $ (270,638 ) $ (290,116 ) $ (270,638 )

Total stockholders' equity $ 102,168
$ 99,063
$ 102,168
$ 99,063

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,
	2019			2018				Nine Months Ended September 30,
								2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net loss	$	(17,870	)	$	(26,009	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							Net income (loss)	$	9,975	$	(17,870)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:							Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	7,433			6,020			Depreciation and amortization	8,773		7,433
Stock-based compensation	12,221			13,055			Stock-based compensation	9,382		12,221

Other non-cash items	(422		)	152			Other non-cash items	466		(422)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	8,735			(3,144		)	Accounts receivable	10,777		8,735
Inventory	(4,222		)	1,550			Inventory	(810)		(4,222)
Prepaid expenses and other assets	468			(868		)	Prepaid expenses and other assets	3,716		468
Accounts payable	(3,172		)	806			Accounts payable	(322)		(3,172)
Accrued and other liabilities	(9,183		)	(1,482		)	Accrued and other liabilities	(4,297)		(9,183)
Deferred revenue	107			4,219			Deferred revenue	861		107
Other	—			183
Net cash used in operating activities	(5,905		)	(5,518		)

Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	38,521		(5,905)
Cash flows from investing activities:							Cash flows from investing activities:
Proceeds from sales of marketable securities	22,189			23,194			Proceeds from sales of marketable securities	8,330		22,189
Proceeds from maturities of marketable securities	33,449			41,732			Proceeds from maturities of marketable securities	39,280		33,449
Purchases of marketable securities	(53,852		)	(67,754		)	Purchases of marketable securities	(39,695)		(53,852)
Purchase of investment	—			(1,000		)
Purchases of property and equipment	(3,939		)	(2,252		)	Purchases of property and equipment	(2,549)		(3,939)
Net cash used in investing activities	(2,153		)	(6,080		)
Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	5,366		(2,153)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans	3,505			1,269			Proceeds from issuance of common stock under employee equity incentive plans	6,776		3,505

Repurchase of common stock							Repurchase of common stock	(13,336)		0
Other	(1		)	(76		)	Other	0		(1)
Net cash provided by financing activities	3,504			1,193
Net decrease in cash and cash equivalents	(4,554		)	(10,405		)
Cash and cash equivalents - beginning of period	40,621			46,567
Cash and cash equivalents - end of period	$	36,067		$	36,162
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	(6,560)		3,504
Net increase (decrease) in cash and cash equivalents							Net increase (decrease) in cash and cash equivalents	37,327		(4,554)
Cash and cash equivalents—beginning of period							Cash and cash equivalents—beginning of period	45,742		40,621
Cash and cash equivalents—end of period							Cash and cash equivalents—end of period	$	83,069	$	36,067

Non-cash investing and financing activities:							Non-cash investing and financing activities:
Inventory transfers to property and equipment	$	1,070		$	925		Inventory transfers to property and equipment	$	594	$	1,070
Purchases of property and equipment included in accounts payable	$	459		$	78		Purchases of property and equipment included in accounts payable	$	21	$	459

See accompanying notes to the condensed consolidated financial statements.

A10 Networks, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

A10 Networks, Inc. (together with our subsidiaries, the “Company”, “we”, “our” or “us”) was incorporated in California in 2004 and reincorporated in Delaware in March 2014. We are headquartered in San Jose, California and have wholly-owned subsidiaries throughout the world including Asia and Europe.

We are a leading provider of secure application solutions and services that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures. Our portfolio of software and hardware solutions combines industry-leading performance and scale with advanced intelligent automation, machine learning, data driven analytics, and threat intelligence to ensure security and availability of customer applications across their multi-cloud and mobile infrastructure networks, including on-premise, private and public clouds. As the cyber threat landscape intensifies and network architectures evolve, we are committed to providing customers with greater connected intelligence to improve the security, visibility, automation, availability, flexibility, management and performance of their applications. Our customers include leading cloud providers, web-scale businesses, service providers, government organizations and enterprises.

Our product portfolio seeks to address many of the aforementioned challenges and solution requirements. The portfolio consists of ~~six~~6 secure application ~~solutions:~~solutions; Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”); and ~~two~~ intelligent management, and automation ~~tools:~~tools; Harmony Controller and aGalaxy TPS. Our ~~solutions~~products are ~~available~~offered in a variety of form factors ~~such as optimized hardware appliances, bare metal software, containerized software, virtual~~and payment models, including physical appliances and ~~cloud-native software.~~perpetual and subscription based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

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, ~~2018~~2019 has been derived from our audited financial statements, which are included in our ~~2018~~2019 Annual Report on Form 10-K ~~as amended by Form 10-K/A,~~ for the year ended December 31, ~~2018~~2019 on file with the SEC (the ~~“2018~~“2019 Annual Report”).

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

These financial statements and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto in the ~~2018~~2019 Annual Report.

Management performed an evaluation of the Company’s activities through the date of filing of this Quarterly Report on Form 10-Q, except for those items disclosed in Note 6 and Note 12 of these Condensed Consolidated Financial Statements, and has concluded that there were no other subsequent events or transactions that occurred subsequent to the balance sheet date prior to filing this Quarterly Report on Form 10-Q that would require recognition or disclosure in the Condensed Consolidated Financial Statements.

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, ~~the incremental borrowing rate used in determining operating lease liabilities,~~ contingencies and litigation, accrued liabilities, deferred commissions and the determination of fair value of stock-based compensation. These estimates are based on information available as of the date of the condensed consolidated financial ~~statements; therefore, actual~~statements.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of October 30, 2020, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from ~~management’s estimates.~~these estimates under different assumptions or conditions.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Part II-Item 8, “Financial Statements and Supplementary Data,” of the ~~2018~~Company’s Annual ~~Report. Other than~~Report on Form 10-K for the ~~accounting policies related to~~year ended December 31, 2019 filed with the ~~adoption~~SEC on March 10, 2020, except for the Company’s capitalization of ~~Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases (Topic 842)~~ ~~discussed below, there~~internally developed software expenses which is described below. There have been no other material changes to the Company’s significant accounting policies during the nine months ended September 30, ~~2019.~~2020.

~~Leases~~Capitalization of Internally Developed Software to be Marketed and Sold

In ~~February 2016,~~ the ~~Financial Accounting Standards Board ("FASB") issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior generally accepted accounting principles. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet.

~~The adoption~~first quarter of ASU 2016-02 on January 1, 2019, using the modified retrospective method, resulted in the recognition of right-of-use assets of approximately $6.0 million and lease liabilities for operating leases of approximately $6.8 million on the Company’s condensed consolidated balance sheets, with no material impact to its condensed consolidated statements of operations. See Note 2 for further information regarding the impact of the adoption of ASU 2016-02 on the Company's financial statements.

~~The Company determines if an arrangement is a lease at inception. For leases where~~2020, the Company ~~is the lessee, right-of-use (“ROU”) assets represent the Company’s right~~began capitalizing software engineering labor costs related to ~~use the underlying asset for the term of the lease and~~certain long-term projects that are ~~included within other non-current assets on the condensed consolidated balance sheets, and the lease liabilities represent an obligation~~expected to make lease payments arising from the lease and are recorded within accrued liabilities and other non-current liabilities on the condensed consolidated balance sheets. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangementtake more than a year to determine the present value of lease payments. The ROU asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants.

The Company elected the package of practical expedients permitted under the transition guidance, which allowed for the carry-forward of the Company’s historical lease classification and assessment on whether a contract is or contains a lease. The Company elected to not apply the new standard’s recognition requirements to leases with an initial term of 12 months or less and instead elected to recognize lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition.complete. The Company accounts for ~~lease components~~the capitalization of labor costs under ASC Topic 985-20 - Software to be Sold, Leased or Marketed. During the three and ~~non-lease components as a single lease component.~~ nine months ended September 30, 2020, the Company’s capitalized labor costs were not material.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash, cash equivalents and marketable securities are held and invested in high-credit quality financial instruments by recognized financial institutions and are subject to minimum credit risk.

Our accounts receivable are unsecured and represent amounts due to us based on contractual obligations of our customers. We mitigate credit risk in respect to accounts receivable by performing periodic credit evaluations based on a number of factors, including past transaction experience, evaluation of credit history and review of the invoicing terms of the contract. We generally do not require our customers to provide collateral to support accounts receivable.

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

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


	Three Months Ended September 30,		Nine Months Ended September 30,
Customers	2020	2019	2020	2019
Customer A (a distribution channel partner)	*	16%	*	11%
Customer B (a distribution channel partner)	*	*	11%	*
Customer C (a distribution channel partner)	12%	11%	10%	13%
Customer D (a distribution channel partner)	*	*	10%	*

Three Months Ended
September 30, Nine Months Ended
September 30,
Customers 2019 2018 2019 2018
Customer A (a distribution channel partner) 16% * 11% *
Customer B (a distribution channel partner) * 16% * 14%
Customer C (a distribution channel partner) 11% * 13% *

* represents less than 10% of total revenue

As of September 30, ~~2019,~~2020, two customers accounted for ~~16%~~15% and ~~11%~~14%, respectively, of our total gross accounts receivable. As of December 31, ~~2018,~~2019, two customers accounted for ~~16%~~17% and 12%, respectively, of our total gross accounts receivable.

~~Recent~~Repurchase of Common Stock

On May 17, 2020, the Company entered into a Common Stock Repurchase and Option Exchange Agreement (the “Repurchase Agreement”) with Lee Chen, the Company’s founder and its former Chairman, President and Chief Executive Officer. Pursuant to the Repurchase Agreement, the Company purchased 2,200,000 shares of the Company’s common stock

from Mr. Chen at $6.00 per share, or an aggregate purchase price of $13.2 million. The shares are held in treasury and accounted for under the cost method. In addition, the Company also cancelled 282,500 vested, unexercised in-the-money options held by Mr. Chen pursuant to the Repurchase Agreement in exchange for $0.1 million, which was recorded to treasury stock. As of September 30, 2020 and December 31, 2019 there were 2,877,935 shares and 677,935 shares, respectively, of stock held in treasury.

A portion of the prior period balance for Additional paid-in capital on the Company’s balance sheet as of December 31, 2019 has been reclassified to Treasury stock, at cost, to conform to the current period presentation. This reclassification did not have a material impact on the previously reported financial statements.

On September 17, 2020, the Company announced that its Board of Directors had approved a stock repurchase program of up to $50 million of its common stock over a period of twelve months. Any stock repurchases may be made from time to time in the open market and through privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. The shares repurchased will be held in treasury and accounted for under the cost method. As of September 30, 2020, no stock repurchases had been made under this program.

Recently Adopted Accounting Pronouncements ~~Not Yet Effective~~

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

Effective January 1, 2020, the Company ~~will adopt~~adopted ASU No. 2018-13, Fair Value Measurement (Topic 820 - Changes to the Disclosure Requirements for the Fair Value ~~Measurement.~~Measurement). Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The new guidance did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. In January 2020, the Company adopted ASU 2017-04, and the adoption had no impact on the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies income tax accounting in various areas including, but not limited to, the accounting for hybrid tax regimes, tax implications related to business combinations, and interim period accounting for enacted changes in tax law, along with some codification improvements. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Certain changes in the standard require retrospective or modified retrospective adoption, while other changes must be adopted prospectively. The Company does not expect the ~~new guidance~~adoption of ASU 2019-12 to have a significant impact on ~~its~~the Company’s Condensed Consolidated Financial Statements.

2. Leases

We lease various operating spaces in the United States, Asia and Europe under non-cancellable operating lease arrangements that expire on various dates through July 2027. These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses.

The table below presents the Company’s right-of-use assets and lease liabilities as of September 30, ~~2019~~2020 (in thousands):


		September 30, 2020
Operating leases
Right-of-use assets:
	Other non-current assets	$	29,547
Total right-of-use assets		$	29,547

Lease liabilities:
	Accrued liabilities	$	5,184
	Other non-current liabilities	24,797
Total operating lease liabilities		$	29,981

September 30, 2019
Operating leases
Right-of-use assets:
Other non-current assets $ 4,076
Total right-of-use assets $ 4,076

Lease liabilities:
Accrued liabilities $ 2,392
Other non-current liabilities 1,997
Total operating lease liabilities $ 4,389

The aggregate future lease payments for non-cancelable operating leases as of September 30, ~~2019~~2020 were as follows (in thousands):


Remainder of 2020	$	1,511
2021	6,019
2022	4,824
2023	4,414
2024	4,518
Thereafter	11,773
Total lease payments	33,059
Less: imputed interest	(3,078)
Present value of lease liabilities	$	29,981

Remainder of 2019 $ 930
2020 1,924
2021 1,314
2022 344
Total lease payments 4,512
Less: imputed interest (123 )
Present value of lease liabilities $ 4,389

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


		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019			Three Months Ended September 30,				Nine Months Ended September 30,
							2020		2019		2020		2019
Operating lease costs	Operating lease costs	$	821	$	2,566	Operating lease costs	$	3,305	$	821	$	8,442	$	2,566
Short-term lease costs	Short-term lease costs	138		413		Short-term lease costs	192		138		460		413
Total lease costs	Total lease costs	$	959	$	2,979	Total lease costs	$	3,497	$	959	$	8,902	$	2,979

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

follows:



			September 30, ~~2019~~2020

Weighted-average remaining term (years)	~~2.02~~	6.35
Weighted-average discount rate			~~3.13~~	%3.14%

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

Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 2,934

Right-of-use assets obtained in exchange for new lease liabilities $ 549

~~New Corporate Office Lease~~

On May 2, 2019 (the “Effective Date”), the Company entered into a sublease agreement (the “Sublease”) with Marvell Semiconductor, Inc. (“Sublandlord”) for corporate office space located at 2300 Orchard Parkway, San Jose, California, 95131 (the “Premises”). The Company intends to use the Premises as a corporate office space and for research and development purposes. The term of the Sublease is seven years and eight months from the earlier of (i) December 1, 2019 or (ii) the date the Company commences business operations at the Premises. The Sublease provides for monthly base rent of approximately $262,000 per month for the first year with annual increases thereafter. The total base rent through the end of the term of the Sublease is approximately $26.4 million. In addition to base rent, the Company will also be responsible for operating and other expenses.

~~The Company anticipates gaining access and the right of use of the lease facility in the fourth quarter of 2019 and will account for the sublease arrangement under ASC 842.~~

~~Lease Commitments as of December 31, 2018~~

~~As previously disclosed in the Company’s 2018 Annual Report and under the previous lease accounting standard, ASC 840,~~ ~~Leases, the aggregate future minimum lease payments for operating leases as of December 31, 2018 were~~was as follows (in thousands):


		Nine Months Ended September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	4,335

No new operating leases were entered into during the nine months ended September 30, 2020.

~~11. Revenue~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606), as subsequently amended, which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605,~~ ~~Revenue Recognition.~~ This ASU requires an entity 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. This ASU also includes Subtopic 340-40, ~~Other Assets and Deferred Costs - Contracts with Customers,~~ which requires the capitalization of incremental customer acquisition costs and amortization of these costs over the contract period or estimated customer life which resulted in the recognition of a deferred commission asset on our consolidated balance sheet.

The Company adopted ASU 2014-09 and its related amendments (collectively “ASC 606”) on January 1, 2018 using the modified retrospective method. The adoption of the new standard resulted in changes to the Company’s accounting policies for revenue recognition, commissions and deferred commissions. As a result of the adoption, the Company recorded a reduction to opening accumulated deficit of $12.4 million as of January 1, 2018 due to the cumulative impact of adopting the new standard as follows:

A decrease in total deferred revenue of $4.0 million primarily due to the removal of the current limitation on contingent revenue that would have accelerated revenue recognition for certain of our historical revenue contracts; and

Recognition of a deferred commissions asset of $8.4 million due to the requirement under the new standard to recognize incremental customer acquisition costs in our condensed consolidated statement of operations as the related performance obligations are met as compared to the previous recognition to expense as incurred.

For additional information and disclosure of the impact of adopting the new standard, see Note 2 to the Company’s Consolidated Financial Statements included in Part II, Item 8 of the 2018 Annual Report.

Contract Balances

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


	September 30, 2019		December 31, 2018			September 30, 2020		December 31, 2019
Accounts receivable, net	$	45,397	$	53,972	Accounts receivable, net	$	42,803	$	53,566

Deferred revenue, current	59,603		63,874		Deferred revenue, current	61,886		62,233
Deferred revenue, non-current	38,470		34,092		Deferred revenue, non-current	40,140		38,931

We receive payments from customers based upon billing cycles. Invoice payment terms ~~are~~ usually ~~ranging~~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 ~~amount is~~amounts were immaterial as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

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. ~~During~~We recognized revenue of $22.8 million and $21.1 million during the three months ended September 30, 2020 and 2019, respectively, and ~~2018, we recognized revenue of $21.1~~$51.1 million and ~~$13.2~~$52.3 million ~~respectively, and~~ during the nine months ended September 30, ~~2019~~2020 and ~~2018, we recognized revenue of $52.3 million and $49.9 million,~~2019, respectively, related to deferred revenues at the beginning of the respective periods.

Deferred Contract Acquisition Costs

In connection with the adoption of ASC 340-40, 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.

Deferred contract acquisition costs were ~~$8.7~~$7.4 million and $9.5 million as of September 30, 2020 and December 31, 2019, ~~and the~~respectively. The related amortization amount was $1.6 million and ~~$1.1~~$1.6 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$5.5~~was $4.9 million and ~~$4.1~~$5.5 million for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

We had no0 impairment loss in relation to the costs capitalized and no0 asset impairment charges related to contract ~~assets.~~assets during the three and nine months ended September 30, 2020 and 2019.

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):


		September 30, 2020

Within 1 year		$	61,886
Next 2 to 3 years		31,107
Thereafter		9,033
	Total	$	102,026

September 30, 2019

Within 1 year $ 59,603
Next 2 to 3 years 30,417
Thereafter 8,053
Total $ 98,073

~~12. Subsequent Events~~

On October 28, 2019, the Company began implementing a workforce reduction of approximately 5% of the Company’s workforce, which the Company expects to complete by the end of the second fiscal quarter of 2020. The Company estimates that it will incur restructuring charges of approximately $2 million, all of which will be expensed in the fourth fiscal quarter of 2019, primarily related to cash severance payments.


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

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 provide customers with improved benefits relating to their applications;~~

~~our ability to maintain an adequate rate of revenue growth and other factors contributing to such growth;~~

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

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

~~our plans to expand our sales efforts;~~

~~our plans to introduce new products;~~

~~our ability to timely file financial, periodic and current reports required by the Exchange Act;~~

~~loss or delay of expected purchases by our largest end-customers;~~

~~our ability to further penetrate our existing customer base;~~

~~our ability to displace existing products in established markets;~~

~~continued growth in markets relating to network security;~~

~~our ability to timely and effectively scale and adapt our existing technology;~~

~~our ability to innovate new products and bring them to market in a timely manner;~~

~~our ability to expand internationally and any related impact on profitability;~~

~~the effects of increased competition in our market and our ability to compete effectively;~~

~~the effects of seasonal trends on our results of operations;~~

~~our expectations concerning relationships with third parties;~~

~~the attraction, retention and growth 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;~~

~~our expectations regarding our future expenses;~~

~~our exploration of strategic alternatives;~~

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

~~fluctuations in currency exchange rates;~~

~~tariffs affecting us;~~

~~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;~~

~~our ability to maintain, protect, and enhance our brand and intellectual property;~~

~~future acquisitions of or investments in complementary companies, products, services or technologies;~~

~~our ability to effectively integrate operations of entities we have acquired or may acquire; and~~

~~actions relating to the remediation of identified material weaknesses.~~

~~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,~~10-Q, particularly in “Risk Factors,” and “Note Regarding Forward-Looking Statements.”

COVID-19

The impact of COVID-19 and ~~rapidly changing environment,~~the related disruptions caused to the global economy and ~~new risks emerge from time~~our business did not have a material adverse impact on our business during the quarter ended September 30, 2020. However, the spread of the COVID-19 virus caused us to ~~time. It is not possible for~~continue implementing modifications to our ~~management~~business practices, including work-from-home policies and restrictions on travel by our employees. We also took certain actions in response to ~~predict all risks, nor can we assess~~the pandemic, which are set forth above in “Note Regarding COVID-19.”

Looking forward, the impact of ~~all factors~~the pandemic on the global economy and on our business, oras well as on the ~~extent to which any factor, or combination~~business of ~~factors,~~our partners and customers, and the additional measures that 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 impliedbe needed in the ~~forward-looking statements.~~

~~You should not rely upon forward-looking statements as predictions of~~ future ~~events. Although we believe that~~in response to it, will depend on many factors beyond our control and knowledge. We will continually monitor the ~~expectations reflected in~~situation to determine what actions may be necessary or appropriate to address 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. Moreover, neither we nor any other person assumes responsibility for the accuracy and completenessimpact of the ~~forward-looking statements. We undertake no obligation~~pandemic, which may include actions mandated or recommended by federal, state or local authorities. While we expect the impacts of COVID-19 to ~~update publicly any forward-looking statements for any reason after~~be temporary, the ~~date~~disruptions caused by the virus may negatively affect our revenue, results of ~~this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes~~operations, financial condition, liquidity, and capital investments in ~~our expectations, except as required by law.~~2020.

Overview

Our product portfolio seeks to address many of the aforementioned challenges and solution requirements. The portfolio consists of six secure application ~~solutions:~~solutions; Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”); and ~~two~~ intelligent management, and automation ~~tools:~~tools; Harmony Controller and aGalaxy TPS. Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

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

We sell our products globally to service providers ~~enterprises~~ and ~~web giants~~enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. In 2019, we changed the way we present revenue by customer vertical. We now report two customer verticals: service providers and enterprises, compared to service providers, enterprises and web giants in prior years. Our previously reported revenue from web giants is primarily accounted for now in enterprise revenue. Additionally, we changed the way we present customer revenue by geographic region. We now report customer revenues in four geographic regions: the Americas, Japan, Asia Pacific (excluding Japan) and EMEA. Our previously reported customer revenues of our United States and Latin America regions are now included in the Americas geographic region. We believe this new geographic and vertical view aligns with how we manage the business and maps our product portfolio to customer verticals. The revenue by vertical percentages from prior years included in this report have been revised to conform with current year presentation.

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, ~~2019,~~2020, we had sold products to approximately ~~6,700 end~~7,154 customers worldwide.

~~across 118 countries.~~

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

During the ~~nine~~three months ended September 30, ~~2019, 35%~~2020, 39% of our total revenue was generated from ~~North America, 28%~~the Americas region, 32% from Japan and ~~37%~~29% from other geographical regions. During the ~~nine~~three months ended September 30, ~~2018, 46%~~2019, 43% of our total revenue was generated from ~~North America, 23%~~the Americas region, 29% from Japan and ~~31%~~28% from other geographical regions. One of our priorities is to strengthen our sales efforts in North America. Our enterprise customers accounted for ~~43%~~40% and 41% of our total revenue during the three months ended September 30, 2020 and 2019, respectively, and our service provider customers accounted for 60% and 59% of our total revenue during the three months ended September 30, 2020 and 2019, respectively.

During the nine months ended September 30, 2020, 44% of our total revenue was generated from the Americas region, 30% from Japan and 26% from other geographical regions. During the nine months ended September 30, 2019, 41% of our total revenue was generated from the Americas region, 28% from Japan and 31% from other geographical regions. Our enterprise customers accounted for 39% and 44% of our total revenue during the nine months ended September 30, 2020 and 2019, respectively, and ~~2018, respectively. Our~~our service provider customers accounted for ~~45%~~61% and ~~42%~~56% of our total revenue during the nine months ended September 30, ~~2019~~2020 and ~~2018, respectively. Our web giant customers accounted for 12% and 19% of our total revenue during the nine months ended September 30,~~ 2019, ~~and 2018,~~ 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 ~~web giants,~~enterprise customers, in any period. Purchases by our ten largest end-customers accounted for ~~35%~~41% and ~~37%~~41% of our total revenue for the ~~first~~three months ended September 30, 2020 and 2019, respectively, and accounted for 44% and 36% of our total revenue for the nine months ofended September 30, 2020 and 2019, ~~and 2018,~~ respectively. Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles. The timing of these purchases and the delivery of the purchased products are difficult to predict. Consequently, any acceleration or delay in anticipated product purchases by or deliveries to our largest customers could materially impact our revenue and operating results in any quarterly period. This may cause our quarterly revenue and operating results to fluctuate from quarter to quarter and make them difficult to predict.

As of September 30, ~~2019,~~2020, we had ~~$36.1~~$83.1 million of cash and cash equivalents and ~~$86.5~~$76.0 million of marketable securities. Cash ~~used in~~provided by operating activities was $38.5 million during the nine months ended September 30, 2020, compared to $5.9 million ~~in the first nine months~~ of ~~2019 compared to $5.5 million~~ cash used in operating activities in the same period of last year.

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. 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, ~~2019~~2020 and ~~2018~~2019 is as follows (dollars in thousands):



	Three Months Ended September 30,
	2020				2019				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	32,188	56.9	%	$	30,052	56.9	%	$	2,136	7.1	%
Services	24,420		43.1		22,781		43.1		1,639		7.2
Total revenue	56,608		100.0		52,833		100.0		3,775		7.1
Cost of revenue:
Products	7,610		13.5		7,108		13.5		502		7.1
Services	5,513		9.7		4,812		9.1		701		14.6
Total cost of revenue	13,123		23.2		11,920		22.6		1,203		10.1
Gross profit	43,485		76.8		40,913		77.4		2,572		6.3
Operating expenses:
Sales and marketing	18,556		32.8		22,056		41.7		(3,500)		(15.9)
Research and development	13,694		24.2		15,784		29.9		(2,090)		(13.2)
General and administrative	4,994		8.8		2,854		5.4		2,140		75.0
Total operating expenses	37,244		65.8		40,694		77.0		(3,450)		(8.5)
Income from operations	6,241		11.0		219		0.4		6,022		2,749.8
Non-operating income (expense):
Interest expense	—		—		(30)		(0.1)		30		(100.0)
Interest and other income, net	479		0.9		254		0.5		225		88.6
Total non-operating income, net	479		0.9		224		0.4		255		113.8
Income before provision for income taxes	6,720		11.9		443		0.8		6,277		1,416.9
Provision for income taxes	256		0.5		270		0.5		(14)		(5.2)
Net income	$	6,464	11.4	%	$	173	0.3	%	$	6,291	3,636.4	%

Three Months Ended September 30,
2019 2018 Increase (Decrease)
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:
Products $ 30,052
56.9 % $ 38,265
63.2 % $ (8,213 ) (21.5 )%
Services 22,781
43.1
22,237
36.8
544
2.4
Total revenue 52,833
100.0
60,502
100.0
(7,669 ) (12.7 )
Cost of revenue:
Products 7,108
13.5
8,790
14.5
(1,682 ) (19.1 )
Services 4,812
9.1
4,224
7.0
588
13.9
Total cost of revenue 11,920
22.6
13,014
21.5
(1,094 ) (8.4 )
Gross profit 40,913
77.4
47,488
78.5
(6,575 ) (13.8 )
Operating expenses:
Sales and marketing 22,056
41.7
24,539
40.6
(2,483 ) (10.1 )
Research and development 15,784
29.9
15,505
25.6
279
1.8
General and administrative 2,854
5.4
9,012
14.9
(6,158 ) (68.3 )
Total operating expenses 40,694
77.0
49,056
81.1
(8,362 ) (17.0 )
Income (loss) from operations 219
0.4
(1,568 ) (2.6 ) 1,787
(114.0 )
Non-operating income (expense):
Interest expense (30 ) (0.1 ) (34 ) (0.1 ) 4
(11.8 )
Interest and other income (expense), net 254
0.5
(131 ) (0.2 ) 385
293.9
Total non-operating income (expense), net 224
0.4
(165 ) (0.3 ) 389
235.8
Income (loss) before provision for income taxes 443
0.8
(1,733 ) (2.9 ) 2,176
(125.6 )
Provision for income taxes 270
0.5
74
0.1
196
264.9
Net income (loss) $ 173
0.3 % $ (1,807 ) (3.0 )% $ 1,980
(109.6 )%

Nine Months Ended September 30,
2019 2018 Increase (Decrease)
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:
Products $ 85,067
55.9 % $ 105,638
62.0 % $ (20,571 ) (19.5 )%
Services 67,245
44.1
64,760
38.0
2,485
3.8

Total revenue 152,312
100.0
170,398
100.0
(18,086 ) (10.6 )
Cost of revenue:
Products 21,515
14.2
24,979
14.7
(3,464 ) (13.9 )
Services 13,926
9.1
13,106
7.7
820
6.3

Total cost of revenue 35,441
23.3
38,085
22.4
(2,644 ) (6.9 )
Gross profit 116,871
76.7
132,313
77.6
(15,442 ) (11.7 )
Operating expenses:
Sales and marketing 70,165
46.1
77,231
45.4
(7,066 ) (9.1 )
Research and development 46,567
30.6
49,874
29.3
(3,307 ) (6.6 )
General and administrative 17,311
11.3
30,464
17.9
(13,153 ) (43.2 )
Total operating expenses 134,043
88.0
157,569
92.6
(23,526 ) (14.9 )
Loss from operations (17,172 ) (11.3 ) (25,256 ) (14.8 ) 8,084
(32.0 )
Non-operating income (expense):
Interest expense (222 ) (0.2 ) (99 ) (0.1 ) (123 ) 124.2

Interest and other income (expense), net 397
0.3
6
0.1
391
6,516.7

Total non-operating income (expense), net 175
0.1
(93 ) (0.1 ) 268
(288.2 )
Loss before income taxes (16,997 ) (11.2 ) (25,349 ) (14.9 ) 8,352
(32.9 )
Provision for income taxes 873
0.5
660
0.4
213
32.3

Net loss $ (17,870 ) (11.7 )% $ (26,009 ) (15.3)% $ 8,139
(31.3 )%


	Nine Months Ended September 30,
	2020				2019				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	92,138	56.6	%	$	85,067	55.9	%	$	7,071	8.3	%
Services	70,734		43.4		67,245		44.1		3,489		5.2
Total revenue	162,872		100.0		152,312		100.0		10,560		6.9
Cost of revenue:
Products	21,095		13.0		21,515		14.1		(420)		(2.0)
Services	15,592		9.5		13,926		9.1		1,666		12.0
Total cost of revenue	36,687		22.5		35,441		23.3		1,246		3.5
Gross profit	126,185		77.5		116,871		76.7		9,314		8.0
Operating expenses:
Sales and marketing	57,653		35.4		70,165		46.1		(12,512)		(17.8)
Research and development	42,459		26.1		46,567		30.6		(4,108)		(8.8)
General and administrative	16,126		9.9		17,311		11.4		(1,185)		(6.8)
Total operating expenses	116,238		71.4		134,043		88.0		(17,805)		(13.3)
Income (loss) from operations	9,947		6.1		(17,172)		(11.3)		27,119		(157.9)
Non-operating income (expense):
Interest expense	(1)		—		(222)		(0.1)		221		(99.5)
Interest and other income, net	938		0.6		397		0.3		541		136.3
Total non-operating income, net	937		0.6		175		0.1		762		435.4
Income (loss) before income taxes	10,884		6.7		(16,997)		(11.2)		27,881		(164.0)
Provision for income taxes	909		0.6		873		0.6		36		4.1
Net income (loss)	$	9,975	6.1	%	$	(17,870)	(11.7)	%	$	27,845	(155.8)	%

Revenue

Our products revenue primarily consists of revenue from sales of our hardware appliances upon which our software is installed. Such software includes our Advanced Core Operating System (“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. We recognize products revenue upon transfer of control, generally at the time of shipment, provided that all other revenue recognition criteria have been met. 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 support (“PCS”), which is bundled with sales of products and professional 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-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,
2019 2018 Increase (Decrease)
Amount Percent of Total Revenue Amount Percent of Total Revenue Amount Percent
Revenue:
Products $ 30,052
57 % $ 38,265
63 % $ (8,213 ) (21 )%
Services 22,781
43
22,237
37
544
2
Total revenue $ 52,833
100 % $ 60,502
100 % $ (7,669 ) (13 )%
Revenue by geographic region:

   North America $ 19,584
37 % $ 27,003
45 % $ (7,419 ) (27 )%
   Japan 15,157
29
14,023
23
1,134
8
   Asia Pacific, excluding Japan 8,379
16
9,331
16
(952 ) (10 )
   EMEA 6,546
12
8,119
13
(1,573 ) (19 )
   Other 3,167
6
2,026
3
1,141
56
   Total revenue $ 52,833
100 % $ 60,502
100 % $ (7,669 ) (13 )%


	Nine Months Ended September 30,														Three Months Ended September 30,
	2019				2018				Increase (Decrease)						2020				2019				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount			Percent			Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:														Revenue:
Products	$	85,067	56	%	$	105,638	62	%	$	(20,571	)	(19	)%	Products	$	32,188	57	%	$	30,052	57	%	$	2,136	7	%
Services	67,245		44		64,760		38		2,485			4		Services	24,420		43		22,781		43		1,639		7
Total revenue	$	152,312	100	%	$	170,398	100	%	$	(18,086	)	(11	)%	Total revenue	$	56,608	100	%	$	52,833	100	%	$	3,775	7	%
Revenue by geographic region:														Revenue by geographic region:
North America	$	52,962	35	%	$	78,124	46	%	$	(25,162	)	(32	)%
Americas														Americas	$	21,985	39	%	$	22,751	43	%	$	(766)	(3)	%
Japan	43,203		28		38,971		23		4,232			11		Japan	18,015		32		15,157		29		2,858		19
Asia Pacific, excluding Japan	26,368		17		27,436		16		(1,068		)	(4	)	Asia Pacific, excluding Japan	8,701		15		8,379		16		322		4
EMEA	20,345		13		20,038		12		307			2		EMEA	7,907		14		6,546		12		1,361		21
Other	9,434		7		5,829		3		3,605			62
Total revenue	$	152,312	100	%	$	170,398	100	%	$	(18,086	)	(11	)%	Total revenue	$	56,608	100	%	$	52,833	100	%	$	3,775	7	%


	Nine Months Ended September 30,
	2020				2019				Increase (Decrease)
	Amount		Percent of Total Revenue		Amount		Percent of Total Revenue		Amount		Percent
Revenue:
Products	$	92,138	57	%	$	85,067	56	%	$	7,071	8	%
Services	70,734		43		67,245		44		3,489		5
Total revenue	$	162,872	100	%	$	152,312	100	%	$	10,560	7	%
Revenue by geographic region:
Americas	$	71,386	44	%	$	62,396	41	%	$	8,990	14	%
Japan	48,509		30		43,203		28		5,306		12
Asia Pacific, excluding Japan	21,588		13		26,368		17		(4,780)		(18)
EMEA	21,389		13		20,345		13		1,044		5
Total revenue	$	162,872	100	%	$	152,312	99	%	$	10,560	7	%

Total revenue ~~decreased~~increased by ~~$7.7~~$3.8 million, or ~~13%~~7%, during the ~~third quarter of 2019~~three months ended September 30, 2020 compared to the same period of ~~2018.~~2019. This ~~decrease~~increase was due primarily to a ~~$7.4~~$2.9 million ~~decrease~~increase in ~~revenue~~Japan, a $1.4 million increase in ~~North America, which was primarily driven by lower demand from our web giant~~the EMEA region and ~~enterprise customers. This decrease was~~a $0.3 million increase in Asia Pacific, excluding Japan, partially offset by a ~~$1.1~~$0.8 million decrease in the Americas region. The overall increase in revenue was attributable to a $2.3 million increase in revenue from service provider customers, especially in Japan, ~~due to higher demand~~where service provider revenue increased $2.9 million. Revenue from ~~our web giant customers.~~

~~Total revenue decreased by $18.1~~enterprise customers increased $1.4 million ~~or 11%,~~ during the ~~first nine~~three months ~~of 2019~~ended September 30, 2020 compared to the same period of ~~2018. This decrease was due to a $25.2 million decrease in~~2019.

Total revenue ~~in North America, partially offset~~increased by ~~a $4.2 million increase in revenue in Japan, and $3.6 million increase in other revenue primarily from Latin America.~~

~~Products revenue decreased by $8.2~~$10.6 million, or ~~21%~~7%, during the ~~third quarter of 2019~~nine months ended September 30, 2020 compared to the same period of ~~2018,~~2019. This increase was due primarily ~~driven by lower demand from our web giant~~to a $9.0 million increase in the Americas region, a $5.3 million increase in Japan and ~~enterprise customers in North America,~~a $1.0 million increase EMEA, partially offset by ~~higher demand~~a $4.8 million decrease in Asia Pacific, excluding Japan. The overall increase in revenue was attributable to a $13.6 million increase in revenue from ~~our web giant~~service provider customers, ~~in Japan. Product revenue decreased by $20.6 million, or 19%,~~especially in the ~~first~~Americas region and Japan, where service provider revenue increased $9.8 million and $6.9 million, respectively. Revenue from enterprise customers decreased $3.0 million during the nine months ~~of 2019~~ended September 30, 2020 compared to the same period of ~~2018,~~2019, primarily ~~driven by lower demand from customers~~due to a decrease of $2.7 million in ~~North America, partially offset by the increase in demand from our customers in~~Asia Pacific, excluding Japan.

~~Services~~Products revenue increased by ~~$0.5~~$2.1 million, or 2%7%, during the ~~third quarter of 2019~~three months ended September 30, 2020 compared to the same period of ~~2018. Services~~2019, primarily driven by increased demand from our service provider customers in Japan and EMEA, partially offset by lower demand from our service provider customers in the Americas region and Asia Pacific, excluding Japan.

Products revenue increased by ~~$2.5~~$7.1 million, or 4%8%, induring the ~~first~~ nine months ~~of 2019~~ended September 30, 2020 compared to the same period of ~~2018.~~2019, primarily driven by increased demand from our service provider customers in the Americas region and Japan, partially offset by lower demand from our service provider customers in other regions and lower demand from enterprise customers in EMEA and Asia Pacific, excluding Japan.

Services revenue increased by $1.6 million, or 7%, during the three months ended September 30, 2020 and increased $3.5 million, or 5%, during the nine months ended September 30, 2020 compared to the respective periods of 2019. The increases were primarily attributable to ~~the~~an increase in PCS sales ~~from~~as a result of our ~~increased~~growing installed customer ~~base.~~base, especially in Japan.

During the ~~third quarter of 2019, $19.6~~three months ended September 30, 2020, $22.0 million, or ~~37%~~39% of total revenue, was generated from ~~North America,~~the Americas region, which represents a ~~27%~~3% decrease compared to the same period of ~~2018. During the first nine months of 2019, $53.0 million, or 35% of total revenue was generated from North America, which represents a 32% decrease compared to the same period of 2018.~~2019. The decrease ~~in both periods~~ was primarily due to lower ~~products~~services revenue driven by lower demand from our ~~web giant customers and enterprise~~service provider customers in ~~North America.~~the Americas region.

During the ~~third quarter of 2019, $15.2~~nine months ended September 30, 2020, $71.4 million, or ~~29%~~44% of total revenue, was generated from the Americas region, which represents a 14% increase compared to the same period of 2019. The increase was primarily due to higher products revenue driven by higher demand from our service provider customers in the Americas region.

During the three months ended September 30, 2020, $18.0 million, or 32% of total revenue, was generated from Japan, which represents ~~an 8%~~a 19% increase compared to the same period of ~~2018.~~2019. The increase ~~in the third quarter of 2019~~ was primarily due to higher services revenue driven ~~primarily~~ by ~~increased product revenue~~higher demand from our ~~web giant customers in Japan.~~ service provider customers.

During the ~~first~~ nine months ~~of 2019, $43.2~~ended September 30, 2020, $48.5 million, or ~~28%~~30% of total revenue, was generated from Japan, which represents ~~an 11%~~a 12% increase compared to the same period of ~~2018.~~2019. The increase was primarily due to higher products and services revenue driven ~~primarily~~ by ~~increased revenue~~higher demand from our ~~web giant and enterprise customers in Japan.~~service provider customers.

During the ~~third quarter of 2019, $8.4~~three months ended September 30, 2020, $8.7 million, or ~~16%~~15% of total revenue, was generated from Asia Pacific, ~~regions~~ excluding Japan, which represents a ~~10% decrease~~4% increase compared to the same period of ~~2018.~~2019. The ~~decrease~~increase was primarily due to higher services revenue driven by an increase in ~~the third quarter of 2019 was driven primarily by lower enterprise revenue, partially offset by higher products revenue and higher revenue~~demand from our service provider ~~customers.~~ customers in Asia Pacific, excluding Japan.

During the ~~first~~ nine months ~~of 2019, $26.4~~ended September 30, 2020, $21.6 million, or ~~17%~~13% of total revenue, was generated from Asia Pacific, ~~regions~~ excluding Japan, which represents a 4%18% decrease compared to the same period of ~~2018.~~2019. The decrease was primarily due to lower services revenue driven ~~primarily~~ by ~~lower revenues~~a decrease in demand from our enterprise and service provider customers in Asia ~~Pacific.~~Pacific, excluding Japan.

During the ~~third quarter of 2019, $6.5~~three months ended September 30, 2020, $7.9 million, or ~~12%~~14% of total revenue, was generated from EMEA, which represents a ~~19% decrease~~21% increase compared to the same period of ~~2018.~~2019. The ~~decrease in the third quarter of 2019~~increase was ~~driven~~ primarily ~~by lower~~due to higher products revenue ~~and lower services revenue~~driven by an increase in demand from our service ~~providers.~~ provider customers in EMEA.

During the ~~first~~ nine months ~~of 2019, $20.3~~ended September 30, 2020, $21.4 million, or 13% of total revenue, was generated from EMEA, which represents a 2%5% increase compared to the same period of ~~2018.~~2019. The increase was primarily due to higher services revenue driven by ~~increased revenue~~an increase in demand from our ~~web giant~~service provider customers in EMEA.

During the third quarter of 2019, $3.2 million, or 6% of total revenue, was generated from other regions, primarily Latin America, which represents a 56% increase compared to the same period of 2018. The increase in the third quarter of 2019 was driven by higher services revenue from service provider and enterprise customers, partially offset by lower products revenue. During the first nine months of 2019, $9.4 million, or 7% of total revenue, was generated from other regions, primarily Latin America, which represents a 62% increase compared to the same period of 2018. The increase was primarily driven by increased revenue from our enterprise and service provider customers in Latin America.

Cost of Revenue, Gross Profit and Gross Margin

Cost of 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 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,				Increase (Decrease)						Three Months Ended September 30,				Increase (Decrease)
	2019		2018		Amount			Percent			2020		2019		Amount		Percent
Cost of revenue:										Cost of revenue:
Products	$	7,108	$	8,790	$	(1,682	)	(19.1	)%	Products	$	7,610	$	7,108	$	502	7.1	%
Services	4,812		4,224		588			13.9		Services	5,513		4,812		701		14.6
Total cost of revenue	$	11,920	$	13,014	$	(1,094	)	(8.4	)%	Total cost of revenue	$	13,123	$	11,920	$	1,203	10.1	%


	September 30, 2020								December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Certificates of deposit	$	4,200	$	1	$	0	$	4,201	$	10,548	$	10	$	0	$	10,558
Corporate securities	51,222		216		(5)		51,433		51,745		207		(1)		51,951
U.S. Treasury and agency securities	5,503		21		0		5,524		9,222		3		0		9,225
Commercial paper	9,733		0		0		9,733		500		0		0		500
Asset-backed securities	5,125		25		0		5,150		11,914		32		0		11,946
Total	$	75,783	$	263	$	(5)	$	76,041	$	83,929	$	252	$	(1)	$	84,180



	September 30, 2019									December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Certificates of deposit	$	11,098	$	16	$	—		$	11,114	$	11,000	$	7	$	(3	)	$	11,004
Corporate securities	51,289		226		(5		)	51,510		46,442		11		(116		)	46,337
U.S. Treasury and agency securities	5,735		1		(1		)	5,735		1,748		—		(12		)	1,736
Commercial paper	4,482		3		(1		)	4,484		12,327		1		(5		)	12,323
Asset-backed securities	13,636		46		—			13,682		16,381		5		(32		)	16,354
Total	$	86,240	$	292	$	(7	)	$	86,525	$	87,898	$	24	$	(168	)	$	87,754


	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Less than 1 year	$	44,550	$	44,708	Less than 1 year	$	71,851	$	72,100
Mature in 1 - 3 years	41,690		41,817		Mature in 1 - 3 years	3,932		3,941
Total	$	86,240	$	86,525	Total	$	75,783	$	76,041


	Less Than 12 Months				12 Months or More				Total
As of September 30, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate securities	$	9,918	$	(5)	$	0	$	0	$	9,918	$	(5)



	Less Than 12 Months					12 Months or More					Total
December 31, 2018	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Certificates of deposit	$	2,997	$	(3	)	$	—	$	—		$	2,997	$	(3	)
Corporate securities	29,435		(68		)	7,601		(48		)	37,036		(116		)
U.S. Treasury and agency securities	992		(7		)	744		(5		)	1,736		(12		)
Commercial paper	9,888		(5		)	—		—			9,888		(5		)
Asset-backed securities	8,499		(15		)	4,758		(17		)	13,257		(32		)
Total	$	51,811	$	(98	)	$	13,103	$	(70	)	$	64,914	$	(168	)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue:
Products	$	30,052		$	38,265		$	85,067		$	105,638
Services	22,781			22,237			67,245			64,760
Total revenue	52,833			60,502			152,312			170,398
Cost of revenue:
Products	7,108			8,790			21,515			24,979
Services	4,812			4,224			13,926			13,106
Total cost of revenue	11,920			13,014			35,441			38,085
Gross profit	40,913			47,488			116,871			132,313
Operating expenses:
Sales and marketing	22,056			24,539			70,165			77,231
Research and development	15,784			15,505			46,567			49,874
General and administrative	2,854			9,012			17,311			30,464
Total operating expenses	40,694			49,056			134,043			157,569
Income (loss) from operations	219			(1,568		)	(17,172		)	(25,256		)
Non-operating income (expense):
Interest expense	(30		)	(34		)	(222		)	(99		)
Interest and other income (expense), net	254			(131		)	397			6
Total non-operating income (expense), net	224			(165		)	175			(93		)
Income (loss) before provision for income taxes	443			(1,733		)	(16,997		)	(25,349		)
Provision for income taxes	270			74			873			660
Net income (loss)	$	173		$	(1,807	)	$	(17,870	)	$	(26,009	)
Net income (loss) per share:
Basic	$	0.00		$	(0.02	)	$	(0.24	)	$	(0.36	)
Diluted	$	0.00		$	(0.02	)	$	(0.24	)	$	(0.36	)
Weighted-average shares used in computing net income (loss) per share:
Basic	76,618			72,707			75,611			72,550
Diluted	79,093			72,707			75,611			72,550



Remainder of 2019	$	930
2020	1,924
2021	1,314
2022	344
Total lease payments	4,512
Less: imputed interest	(123		)
Present value of lease liabilities	$	4,389


	September 30, 2020		December 31, 2019

Raw materials	$	8,522	$	9,495
Finished goods	14,078		12,889
Total inventory	$	22,600	$	22,384


	September 30, 2020		December 31, 2019

Prepaid expenses	$	3,891	$	6,163
Deferred contract acquisition costs	4,161		6,231
Other	2,757		2,673
Total prepaid expenses and other current assets	$	10,809	$	15,067


	Useful Life	September 30, 2019			December 31, 2018				Useful Life	September 30, 2020		December 31, 2019
	(in years)								(in years)
Equipment	1 - 3	$	50,490		$	49,804		Equipment	1 - 5	$	24,318	$	22,702
Software	1 - 3	4,459			4,088			Software	1 - 3	765		726
Furniture and fixtures	1 - 3	967			967			Furniture and fixtures	1 - 7	652		459
Leasehold improvements	2 - 8	3,869			3,832			Leasehold improvements	Lease term	3,616		5,440
Construction in progress		2,450			160
Construction in process								Construction in process		1,256		0
Property and equipment, gross		62,235			58,851			Property and equipment, gross		30,607		29,327
Less: accumulated depreciation		(53,389		)	(51,589		)	Less: accumulated depreciation		(23,310)		(21,671)
Property and equipment, net		$	8,846		$	7,262		Property and equipment, net		$	7,297	$	7,656


Fiscal Year			Fiscal Year
Remainder of 2019	$	361
2020	1,442

Remainder of 2020			Remainder of 2020	$	361
2021	863		2021	862
Total	$	2,666	Total	$	1,223


	September 30, 2020		December 31, 2019

Accrued compensation and benefits	$	15,323	$	12,227
Accrued tax liabilities	2,410		4,354
Lease liability	5,184		5,109
Other	4,685		6,066
Total accrued liabilities	$	27,602	$	27,756


	September 30, 2020		December 31, 2019

Deferred revenue:
Products	$	6,125	$	6,593
Services	95,901		94,571
Total deferred revenue	102,026		101,164
Less: current portion	(61,886)		(62,233)
Non-current portion	$	40,140	$	38,931


									Number of Shares (thousands)	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (thousands)
	Number of Shares (thousands)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2018	4,674		$	5.19
Outstanding as of December 31, 2019								Outstanding as of December 31, 2019	3,702	$	5.57
Granted	—		$	—				Granted	0	0
Exercised	(624	)	$	2.94				Exercised	(1,143)	4.49
Canceled	(106	)	$	9.15				Canceled	(712)	7.13
Outstanding as of September 30, 2019	3,944		$	5.44	4.67	$	7,559
Vested and exercisable as of September 30, 2019	3,608		$	5.33	4.33	$	7,301

Outstanding as of September 30, 2020								Outstanding as of September 30, 2020	1,847	5.64		3.07	$	2,439
Vested and exercisable as of September 30, 2020								Vested and exercisable as of September 30, 2020	1,847	$	5.64	3.07	$	2,439


							Number of Shares (thousands)	Weighted-Average Grant Date Fair Value Per Share		Weighted-Average Remaining Vesting Term (years)	Aggregate Fair Value (thousands)
	Number of Shares (thousands)		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Vesting Term (years)
Nonvested as of December 31, 2018	5,974		$	6.51
Nonvested as of December 31, 2019						Nonvested as of December 31, 2019	6,148	$	6.59
Granted	2,623		$	7.15		Granted	1,905	6.64
Released	(1,496	)	$	6.61		Released	(1,669)	6.79
Canceled	(900	)	$	6.52		Canceled	(1,126)	6.59
Nonvested as of September 30, 2019	6,201		$	6.76	1.7

Nonvested as of September 30, 2020						Nonvested as of September 30, 2020	5,258	$	6.55	2.29	$	33,493



2019	$	3,907
2020	1,921
2021	1,194
2022	313
Total	$	7,335


	September 30, 2020		December 31, 2019
United States	$	32,811	$	35,964
Japan	1,812		2,689
Other	2,221		2,017
Total	$	36,844	$	40,670


	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
Operating leases	$	33,059	$	1,511	$	15,257	$	9,143	$	7,148


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


							Fair Value as of
	(150 BPS)		(100 BPS)		(50 BPS)		9/30/2020		50 BPS		100 BPS		150 BPS
Marketable securities	$	76,138	$	76,138	$	76,136	$	76,041	$	75,876	$	75,712	$	75,547



Exhibit Number			Description
~~10.1~~3.1			~~Letter Agreement, dated as~~Amended and Restated Certificate of July 26, 2019, among A10 Networks, Inc., VIEX Opportunities Fund, LP - Series One, VIEX Opportunities Fund, LP - Series Two, VIEX GP, LLC, VIEX Special Opportunities Fund II, LP, VIEX Special Opportunities GP II, LLC, VIEX Special Opportunities Fund III, LP, VIEX Special Opportunities GP III, LLC, VIEX Capital Advisors, LLC and Eric SingerIncorporation 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)
~~31.1~~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~~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~~101*		~~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~~


*	~~The certifications attached as Exhibit 32.1~~Inline XBRL Document Set for the condensed consolidated financial statements and 32.2 that accompany this Quarterly Report on Form 10‑Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of A10 Networks, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the dateaccompanying notes in Part I, Item 1, “Condensed Consolidated Financial Statements (Unaudited)” of this Quarterly Report on Form ~~10‑Q, irrespective~~10-Q
104*		Inline XBRL for the cover page of ~~any general incorporation language contained~~this Quarterly Report on Form 10-Q, included in ~~such filing.~~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~~Interim Chief Financial Officer (Principal Accounting and Financial Officer)