A10 Networks(ATEN) - 2025 Q2 - Quarterly Report

Note Regarding Forward-Looking Statements - The report contains forward-looking statements identified by expressions like "believe," "may," "will," "potentially," "estimate," etc., which convey uncertainty of future events or outcomes[9] - Key areas of forward-looking statements include strategy, business plans, revenue expectations, new product introductions, investment plans (sales, marketing, R&D), and stock repurchase programs[12] - These statements are subject to risks, uncertainties, and assumptions, including those detailed in the "Risk Factors" section of the Annual Report on Form 10-K, and actual results may differ materially[10] PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent acquisitions, debt, equity, and other financial components for the periods ended June 30, 2025, and December 31, 2024 (for balance sheet) or June 30, 2024 (for income/cash flow statements) Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | As of June 30, 2025 | As of December 31, 2024 | Change | % Change | | :-------------------------- | :------------------- | :---------------------- | :----- | :------- | | Total Assets | $607,915 | $432,815 | $175,100 | 40.5% | | Cash and cash equivalents | $252,924 | $95,129 | $157,795 | 165.9% | | Marketable securities | $114,459 | $100,429 | $14,030 | 14.0% | | Accounts receivable, net | $52,364 | $76,687 | $(24,323) | -31.7% | | Total current assets | $457,062 | $307,288 | $149,774 | 48.7% | | Long-term debt | $218,086 | $— | $218,086 | N/A | | Total liabilities | $403,927 | $200,986 | $202,941 | 101.0% | | Total stockholders' equity | $203,988 | $231,829 | $(27,841) | -12.0% | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended June 30, in thousands, except per share) | Metric | 2025 | 2024 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Net revenue | $69,383 | $60,096 | $9,287 | 15.5% | | Products revenue | $39,173 | $29,533 | $9,640 | 32.6% | | Services revenue | $30,210 | $30,563 | $(353) | -1.2% | | Gross profit | $54,711 | $48,058 | $6,653 | 13.8% | | Income from operations | $10,311 | $7,916 | $2,395 | 30.3% | | Net income | $10,538 | $9,476 | $1,062 | 11.2% | | Diluted EPS | $0.14 | $0.13 | $0.01 | 7.7% | Condensed Consolidated Statements of Operations (Six Months Ended June 30, in thousands, except per share) | Metric | 2025 | 2024 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Net revenue | $135,520 | $120,771 | $14,749 | 12.2% | | Products revenue | $75,152 | $59,602 | $15,550 | 26.1% | | Services revenue | $60,368 | $61,169 | $(801) | -1.3% | | Gross profit | $107,406 | $97,289 | $10,117 | 10.4% | | Income from operations | $19,089 | $15,129 | $3,960 | 26.2% | | Net income | $20,081 | $19,202 | $879 | 4.6% | | Diluted EPS | $0.27 | $0.25 | $0.02 | 8.0% | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $10,538 | $9,476 | $20,081 | $19,202 | | Unrealized gain (loss) on marketable securities | $(48) | $38 | $(25) | $(1) | | Unrealized gain (loss) on cash flow hedge | $(241) | $486 | $(306) | $537 | | Comprehensive income | $10,249 | $10,000 | $19,750 | $19,738 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' Equity Changes (Six Months Ended June 30, 2025, in thousands) | Item | Amount | | :------------------------------------------ | :------- | | Balance at December 31, 2024 | $231,829 | | Common stock issued under employee equity incentive plans | $1,710 | | Repurchase of common stock | $(50,973) | | Stock-based compensation expense | $10,427 | | Payments for dividends | $(8,755) | | Net Income | $20,081 | | Balance at June 30, 2025 | $203,988 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | Change | | :----------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $39,384 | $44,650 | $(5,266) | | Net cash used in investing activities | $(41,241) | $(42,472) | $1,231 | | Net cash provided by (used in) financing activities | $159,652 | $(21,965) | $181,617 | | Net increase (decrease) in cash and cash equivalents | $157,795 | $(19,787) | $177,582 | | Cash and cash equivalents—end of period | $252,924 | $77,457 | $175,467 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and breakdowns of the figures presented in the condensed consolidated financial statements. They cover the company's business, significant accounting policies, recent acquisition of ThreatX Protect, details on leases, marketable securities, derivatives, long-term debt (2030 Convertible Senior Notes), commitments, equity incentive plans, stock-based compensation, stock repurchase programs, net income per share, income taxes, segment and geographic information, and revenue recognition 1. Description of Business and Summary of Significant Accounting Policies - A10 Networks, Inc. is a leading provider of secure application solutions and services, offering network infrastructure products (e.g., Thunder ADC, CGN, SSLi, CFW) and security products (A10 Defend suite, A10 Control) to improve cyber protection and digital responsiveness[30][31] - Revenue is derived from two sources: products (hardware, perpetual/term software licenses) and services (post contract support, professional services, training, SaaS offerings)[32] Revenue by Customer Vertical (Three Months Ended June 30) | Customer Vertical | 2025 | 2024 | | :---------------- | :--- | :--- | | Service providers | 60% | 56% | | Enterprise | 40% | 44% | - Purchases from the ten largest end-customers accounted for 46% of total revenue for the three months ended June 30, 2025, up from 35% in the same period of 2024[36] - In February 2025, the company acquired ThreatX Protect, expanding its cybersecurity portfolio with web application and API protection (WAAP)[39] 2. Leases Operating Lease Liabilities (in thousands) | Metric | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------- | :------------------ | :---------------------- | | Total right-of-use assets | $11,388 | $11,539 | | Total operating lease liabilities | $11,747 | $11,938 | Aggregate Future Lease Payments (as of June 30, 2025, in thousands) | Period | Amount | | :--------------- | :------- | | Remainder of 2025 | $2,840 | | 2026 | $5,756 | | 2027 | $3,288 | | 2028 | $237 | | Total lease payments | $12,121 | Total Lease Costs (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :------------- | :----- | :----- | | Total lease costs | $2,481 | $2,407 | 3. Marketable Securities and Fair Value Measurements Marketable Securities (as of June 30, 2025, in thousands) | Type | Amortized Cost | Fair Value | | :------------------------ | :------------- | :--------- | | Corporate securities | $47,432 | $47,529 | | U.S. Treasury and agency securities | $66,806 | $66,930 | | Total Debt securities | $114,238 | $114,459 | Fair Value Measurements (as of June 30, 2025, in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :------------------------ | :------ | :------ | :------ | :------ | | Cash | $77,239 | $— | $— | $77,239 | | Cash equivalents | $175,685 | $— | $— | $175,685 | | Corporate securities | $— | $47,529 | $— | $47,529 | | U.S. Treasury and agency securities | $43,407 | $23,523 | $— | $66,930 | | Total | $296,331 | $71,052 | $— | $367,383 | - The fair value of the 2030 Convertible Senior Notes was $241.1 million as of June 30, 2025, categorized as Level 2[66] 4. Derivatives - The Company uses foreign exchange forward contracts to manage foreign currency exposures, not for speculative or trading purposes[67] Foreign Exchange Forward Contracts Notional Amounts (in millions) | Contract Type | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------ | :---------------------- | | Not designated as hedging instruments | $3.5 | $7.6 | | Designated as hedging instruments | $10.1 | $— | - For the six months ended June 30, 2025, the Company recorded a realized net loss of $0.5 million from non-hedging contracts, compared to a realized net gain of $5.0 million in the same period of 2024[68] 5. Acquisition - In February 2025, the Company acquired the ThreatX Protect business for $19.6 million in cash, accounted for as a business combination[70] - The preliminary purchase price allocation included $7.6 million to identified intangible assets and $13.8 million to goodwill, primarily attributable to assembled workforce and future synergies[70] Acquired Intangible Assets (as of June 30, 2025, in thousands) | Asset Type | Gross | Accumulated Amortization | Net | Weighted Average Remaining Useful Life (years) | | :-------------------- | :---- | :----------------------- | :---- | :------------------------------------------- | | Developed technology | $5,700 | $(431) | $5,269 | 4.6 | | Customer relationships | $1,500 | $(113) | $1,387 | 4.6 | | Trademark / trade name | $400 | $(38) | $362 | 3.6 | | Total | $7,600 | $(582) | $7,018 | | - Amortization expense from acquired intangible assets was $0.6 million for the six months ended June 30, 2025[74] 6. Condensed Consolidated Financial Statement Components Key Financial Statement Components (in thousands) | Metric | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------ | :---------------------- | | Allowance for credit losses, ending balance | $357 | $465 | | Total inventory | $20,082 | $22,005 | | Total prepaid expenses and other current assets | $17,233 | $13,038 | | Property and equipment, net | $44,458 | $39,142 | | Total accrued liabilities | $27,815 | $32,696 | | Total deferred revenue | $144,366 | $148,259 | - Depreciation expense on property and equipment was $4.6 million for the six months ended June 30, 2025, up from $3.1 million in 2024[81] 7. Long-Term Debt - In March 2025, the Company issued $225.0 million aggregate principal amount of 2.75% Convertible Senior Notes due 2030 (the "2030 Notes"), receiving net proceeds of approximately $217.7 million[85] - The 2030 Notes are convertible at an initial rate of 42.6257 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of $23.46003 per share[86] - The carrying value of the 2030 Notes, net of unamortized debt issuance costs, was $218.1 million as of June 30, 2025, with an effective interest rate of 3.43%[94] 8. Commitments and Contingencies - The Company has non-cancellable operating lease arrangements expiring through April 2028, with aggregate future lease payments totaling $12.1 million as of June 30, 2025[95] - Open purchase commitments with manufacturers in Taiwan totaled $13.2 million as of June 30, 2025[98] - The Company provides indemnifications to customers against intellectual property infringement claims and other performance guarantees, with no significant impact on financial statements to date[99] 9. Equity Incentive Plans, Stock-Based Compensation and Stock Repurchase Programs - As of June 30, 2025, 3,018,417 shares were available for future grant under the 2023 Stock Incentive Plan, and 2,914,643 shares were available under the Amended 2014 Employee Stock Purchase Plan[100][101] Stock-Based Compensation Expense (Six Months Ended June 30, in thousands) | Category | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Cost of net revenue | $1,103 | $1,017 | | Sales and marketing | $1,834 | $2,136 | | Research and development | $2,567 | $1,887 | | General and administrative | $4,923 | $3,065 | | Total | $10,427 | $8,105 | - The Board authorized a new $75 million stock repurchase program (the "2025 Program") on May 1, 2025. During Q2 2025, 228,878 shares were repurchased for $3.9 million, with $71.1 million remaining available[108] 10. Net Income Per Share Net Income Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Basic Net Income Per Share | $0.28 | $0.26 | | Diluted Net Income Per Share | $0.27 | $0.25 | - As of June 30, 2025, 9,735 thousand potentially dilutive shares were excluded from diluted EPS calculation as their effect would have been anti-dilutive, including 9,591 thousand from the 2030 Notes[112] 11. Income Taxes Provision for Income Taxes (in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $1,391 | $1,507 | | Six Months Ended June 30 | $2,326 | $3,001 | - The Company had $8.3 million of unrecognized tax benefits as of June 30, 2025, with no material change anticipated over the next twelve months[114] - The Company is evaluating the impact of the One Big Beautiful Bill Act ("OBBBA"), enacted July 4, 2025, which introduces significant tax provisions effective from 2025 through 2027[116][117] 12. Segment and Geographic Information - The Company manages its business as a single reportable operating segment, with performance assessed based on consolidated net income[118][119] Revenue by Geographic Region (Six Months Ended June 30, in thousands) | Region | 2025 | 2024 | % of Total Revenue (2025) | | :------------- | :----- | :----- | :------------------------ | | Americas | $74,688 | $58,311 | 55% | | APJ | $36,558 | $44,330 | 27% | | EMEA | $24,274 | $18,130 | 18% | | Total | $135,520 | $120,771 | 100% | Long-Lived Assets by Physical Location (as of June 30, 2025, in thousands) | Region | Amount | | :------- | :------- | | Americas | $51,235 | | Japan | $2,115 | | Other | $2,496 | | Total | $55,846 | 13. Revenue Revenue by Customer Vertical (Six Months Ended June 30, in thousands) | Customer Vertical | 2025 | 2024 | % of Total Revenue (2025) | | :---------------- | :----- | :----- | :------------------------ | | Service providers | $80,604 | $71,038 | 59% | | Enterprises | $54,916 | $49,733 | 41% | | Total | $135,520 | $120,771 | 100% | Contract Balances (as of June 30, 2025, in thousands) | Metric | Amount | | :-------------------------- | :------- | | Accounts receivable, net | $52,364 | | Deferred revenue, current | $73,345 | | Deferred revenue, non-current | $71,021 | | Total deferred revenue | $144,366 | Expected Revenue Recognition from Remaining Performance Obligations (as of June 30, 2025, in thousands) | Period | Amount | | :-------------------- | :------- | | Within 1 year | $73,345 | | Next 2 to 3 years | $57,006 | | Thereafter | $14,015 | | Total | $144,366 | 14. Subsequent Event - On August 5, 2025, the Board approved a quarterly cash dividend of $0.06 per share, payable on September 2, 2025, to stockholders of record on August 15, 2025[130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2025, compared to the same periods in 2024. It covers an overview of the business, detailed analysis of revenue, cost of revenue, gross margin, operating expenses, non-operating income/expense, income taxes, liquidity, capital resources, and critical accounting policies Overview - A10 Networks is a leading provider of secure application solutions, offering network infrastructure and security products (A10 Defend, A10 Control) to enhance cyber protection and digital responsiveness[133][134] - The company acquired ThreatX Protect in February 2025, expanding its cybersecurity portfolio with WAAP protection, and issued $225.0 million in 2030 Convertible Senior Notes in March 2025[135] Key Financial Position and Cash Flow (as of/for Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Cash and cash equivalents | $252.9 | $77.5 | | Marketable securities | $114.5 | $100.4 | | Cash provided by operating activities | $39.4 | $44.7 | - The company plans to continue investing in product development, global sales and marketing, and distribution channels for long-term growth, which may impact short-term profitability[142] - Macroeconomic volatility, including enhanced U.S. tariffs and import/export restrictions, is impacting demand and cost inputs, leading to uneven spending patterns[143] Results of Operations Condensed Consolidated Statements of Operations (Three Months Ended June 30, in thousands) | Metric | 2025 | % of Total Revenue (2025) | 2024 | % of Total Revenue (2024) | Increase (Decrease) | % Change | | :-------------------------- | :----- | :------------------------ | :----- | :------------------------ | :------------------ | :------- | | Net revenue | $69,383 | 100.0% | $60,096 | 100.0% | $9,287 | 15.5% | | Cost of net revenue | $14,672 | 21.1% | $12,038 | 20.0% | $2,634 | 21.9% | | Gross profit | $54,711 | 78.9% | $48,058 | 80.0% | $6,653 | 13.8% | | Total operating expenses | $44,400 | 64.0% | $40,142 | 66.8% | $4,258 | 10.6% | | Income from operations | $10,311 | 14.9% | $7,916 | 13.2% | $2,395 | 30.3% | | Non-operating income, net | $1,618 | 2.3% | $3,067 | 5.1% | $(1,449) | -47.2% | | Income before income taxes | $11,929 | 17.2% | $10,983 | 18.3% | $946 | 8.6% | | Provision for income taxes | $1,391 | 2.0% | $1,507 | 2.5% | $(116) | -7.7% | | Net income | $10,538 | 15.2% | $9,476 | 15.8% | $1,062 | 11.2% | Condensed Consolidated Statements of Operations (Six Months Ended June 30, in thousands) | Metric | 2025 | % of Total Revenue (2025) | 2024 | % of Total Revenue (2024) | Increase (Decrease) | % Change | | :-------------------------- | :----- | :------------------------ | :----- | :------------------------ | :------------------ | :------- | | Total revenue | $135,520 | 100.0% | $120,771 | 100.0% | $14,749 | 12.2% | | Total cost of revenue | $28,114 | 20.7% | $23,482 | 19.4% | $4,632 | 19.7% | | Gross profit | $107,406 | 79.3% | $97,289 | 80.6% | $10,117 | 10.4% | | Total operating expenses | $88,317 | 65.2% | $82,160 | 68.0% | $6,157 | 7.5% | | Income from operations | $19,089 | 14.1% | $15,129 | 12.5% | $3,960 | 26.2% | | Total non-operating income, net | $3,318 | 2.4% | $7,074 | 5.9% | $(3,756) | -53.1% | | Income before income taxes | $22,407 | 16.5% | $22,203 | 18.4% | $204 | 0.9% | | Provision for income taxes | $2,326 | 1.7% | $3,001 | 2.5% | $(675) | -22.5% | | Net income | $20,081 | 14.8% | $19,202 | 15.9% | $879 | 4.6% | Net Revenue Net Revenue by Source and Geographic Region (Three Months Ended June 30, in thousands) | Category | 2025 Amount | 2025 % of Total | 2024 Amount | 2024 % of Total | Change | % Change | | :---------------- | :---------- | :-------------- | :---------- | :-------------- | :----- | :------- | | Products | $39,173 | 56% | $29,533 | 49% | $9,640 | 33% | | Services | $30,210 | 44% | $30,563 | 51% | $(353) | (1)% | | Total Net Revenue | $69,383 | 100% | $60,096 | 100% | $9,287 | 15% | | Americas | $41,192 | 59% | $30,869 | 51% | $10,323 | 33% | | APJ | $17,939 | 26% | $19,287 | 32% | $(1,348) | (7)% | | EMEA | $10,252 | 15% | $9,940 | 17% | $312 | 3% | Net Revenue by Source and Geographic Region (Six Months Ended June 30, in thousands) | Category | 2025 Amount | 2025 % of Total | 2024 Amount | 2024 % of Total | Change | % Change | | :---------------- | :---------- | :-------------- | :---------- | :-------------- | :----- | :------- | | Products | $75,152 | 55% | $59,602 | 49% | $15,550 | 26% | | Services | $60,368 | 45% | $61,169 | 51% | $(801) | (1)% | | Total Net Revenue | $135,520 | 100% | $120,771 | 100% | $14,749 | 12% | | Americas | $74,688 | 55% | $58,311 | 48% | $16,377 | 28% | | APJ | $36,558 | 27% | $44,330 | 37% | $(7,772) | (18)% | | EMEA | $24,274 | 18% | $18,130 | 15% | $6,144 | 34% | - Products revenue increased by 33% (Q2) and 26% (YTD) primarily due to increased demand from service provider and enterprise customers in the Americas and EMEA regions[153][159] - Services revenue decreased by 1% (Q2 and YTD) mainly due to lower demand from service provider customers in the APJ region[154][159] Cost of Net Revenue, Gross Margin and Gross Profit Cost of Net Revenue (Six Months Ended June 30, in thousands) | Category | 2025 | 2024 | Change | % Change | | :--------------- | :----- | :----- | :----- | :------- | | Products | $15,460 | $13,612 | $1,848 | 13.6% | | Services | $12,654 | $9,870 | $2,784 | 28.2% | | Total | $28,114 | $23,482 | $4,632 | 19.7% | - Products cost of revenue increased by 13.6% (YTD) primarily due to product and regional mix[165] - Services cost of revenue increased by 28.2% (YTD) driven by higher personnel-related support costs and changes in the mix of services delivered[166] Gross Profit and Gross Margin (Six Months Ended June 30, in thousands) | Category | 2025 Amount | 2025 Gross Margin | 2024 Amount | 2024 Gross Margin | Change in Amount | Change in Gross Margin | | :--------------- | :---------- | :---------------- | :---------- | :---------------- | :--------------- | :--------------------- | | Products | $59,692 | 79.4% | $45,990 | 77.2% | $13,702 | 2.2% | | Services | $47,714 | 79.0% | $51,299 | 83.9% | $(3,585) | (4.9)% | | Total | $107,406 | 79.3% | $97,289 | 80.6% | $10,117 | (1.3)% | Operating Expenses Operating Expenses (Six Months Ended June 30, in thousands) | Category | 2025 | 2024 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Sales and marketing | $40,509 | $40,667 | $(158) | (0.4)% | | Research and development | $32,156 | $28,800 | $3,356 | 11.7% | | General and administrative | $15,652 | $12,693 | $2,959 | 23.3% | | Total operating expenses | $88,317 | $82,160 | $6,157 | 7.5% | Sales and Marketing - Sales and marketing expenses decreased by 0.4% for the six months ended June 30, 2025, primarily due to a decrease in personnel costs[177] - For the full year 2025, sales and marketing expenses are expected to increase modestly as the company focuses investments on high-opportunity areas[178] Research and Development - Research and development expenses increased by 11.7% for the six months ended June 30, 2025, primarily due to an increase in personnel costs[180] - R&D expenses are expected to increase in 2025, reflecting strategic investments in cybersecurity and artificial intelligence technologies[181] General and Administrative - General and administrative expenses increased by 23.3% for the six months ended June 30, 2025, mainly due to higher professional services and personnel costs[183] - G&A expenses are projected to increase modestly in 2025, maintaining a disciplined investment approach[184] Non-Operating Income (Expense) Non-Operating Income (Expense) (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | % Change | | :-------------------------------- | :----- | :----- | :----- | :------- | | Interest income | $4,784 | $3,442 | $1,342 | 39.0% | | Interest expense | $2,200 | $— | $2,200 | N/A | | Interest and other income (expense), net | $(1,466) | $3,632 | $(5,098) | -140.4% | - The net loss in 'Interest and other income (expense), net' for 2025 was primarily due to foreign currency exchange fluctuations and the absence of investments in publicly held equity securities, compared to net gains in 2024[188] Provision for Income Taxes Provision for Income Taxes (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | % Change | | :-------------------------- | :----- | :----- | :----- | :------- | | Provision for income taxes | $2,326 | $3,001 | $(675) | -22.5% | Liquidity and Capital Resources Liquidity Position (as of June 30, 2025, in millions) | Metric | Amount | | :-------------------------- | :----- | | Cash and cash equivalents | $252.9 | | Marketable securities | $114.5 | | Working capital | $348.9 | | Total stockholders' equity | $204.0 | - The company believes its existing cash, cash equivalents, and marketable securities are sufficient to meet anticipated cash needs for at least the next 12 months and beyond[191] - In March 2025, the company issued 2030 Notes, generating approximately $217.7 million in net proceeds, significantly boosting liquidity[192] - A new $75 million stock repurchase program (2025 Program) was authorized on May 1, 2025. Through June 30, 2025, $47.5 million was spent on repurchases under the 2024 and 2025 Programs[193] - The company paid cash dividends of $0.06 per share, totaling $8.8 million, for the six months ended June 30, 2025, and anticipates continuing comparable quarterly cash dividends[194] Statements of Cash Flows Summary of Cash Flow Activities (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Operating activities | $39,384 | $44,650 | | Investing activities | $(41,241) | $(42,472) | | Financing activities | $159,652 | $(21,965) | | Net increase (decrease) in cash and cash equivalents | $157,795 | $(19,787) | - Cash provided by operating activities decreased in 2025 primarily due to unfavorable changes in accounts payable, deferred revenue, accrued liabilities, and prepaid expenses, partially offset by favorable changes in accounts receivable and inventory[198][199] - Cash used in investing activities in 2025 included $19.1 million for the acquisition of ThreatX Protect[202] - Cash provided by financing activities significantly increased in 2025 due to $217.7 million in proceeds from the issuance of convertible notes, partially offset by stock repurchases and dividend payments[204] Contractual Obligations - As of June 30, 2025, contractual obligations primarily consisted of $11.7 million in non-cancellable operating lease arrangements, expiring through April 2028[206] Critical Accounting Policies and Estimates - The Company applied fair value measurement requirements for the ThreatX Protect acquisition in February 2025, using estimates and assumptions for allocating purchase consideration to tangible and intangible assets[208] - There have been no other material changes to the Company's critical accounting policies and estimates during the six months ended June 30, 2025[209] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically foreign currency risk and interest rate sensitivity, and how these risks are managed Foreign Currency Risk - The company's financial results are subject to fluctuations from changes in foreign currency exchange rates, particularly the Japanese Yen, British Pound, and Euro against the U.S. Dollar[210][211] - Net foreign exchange gains were $0.7 million for the six months ended June 30, 2025, compared to $2.8 million in the same period of 2024[212] - A hypothetical 10% change in exchange rates would not have a significant impact on the condensed consolidated results of operations[212] Interest Rate Sensitivity - Exposure to market risk for changes in interest rates primarily relates to the company's marketable securities portfolio, which includes corporate, U.S. Treasury, and agency securities[213] - As of June 30, 2025, the marketable securities portfolio had a fair value of $114.5 million[213] Hypothetical Fair Values of Marketable Securities (as of June 30, 2025, in thousands) | Interest Rate Shift | Fair Value | | :------------------ | :--------- | | -150 BPS | $115,565 | | -100 BPS | $115,197 | | -50 BPS | $114,828 | | Actual (6/30/2025) | $114,459 | | +50 BPS | $114,090 | | +100 BPS | $113,720 | | +150 BPS | $113,350 | Item 4. Controls and Procedures This section details management's evaluation of the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting Management's Evaluation of Disclosure Controls and Procedures - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[218] - The condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, and in conformity with U.S. GAAP[218] Changes in Internal Control over Financial Reporting - There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2025[219] Inherent Limitations on Effectiveness of Controls - Management acknowledges that control systems provide only reasonable, not absolute, assurance and are subject to inherent limitations, including resource constraints and the need for judgment[220] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings and assesses the probability and amount of potential losses. Significant judgment is required, and actual outcomes may differ materially from estimates - The Company is involved in various legal proceedings with outcomes that are not entirely within its control and may not be known for prolonged periods[221] - A liability for claims is recorded when a loss is deemed probable and reasonably estimable, but judgments are subjective and actual outcomes could materially differ[221] Item 1A. Risk Factors This section updates the risk factors from the 2024 Annual Report, highlighting new or materially changed risks related to intellectual property, litigation, laws, regulations, and the company's convertible indebtedness Risks Related to Intellectual Property, Litigation, Laws and Regulations - Significant uncertainty exists regarding U.S. trade policies, tariffs, and import/export restrictions, particularly with China, which could negatively affect global economic conditions and the company's business[223] - Increased tariffs could lead to higher costs, reduced profits, price increases, and customer delays or cancellations, potentially placing the company at a disadvantage compared to competitors[223][224] - Trade disruptions could depress economic activity, restrict access to suppliers or customers, and materially adversely affect the company's business, financial condition, and operating results[225] Risks Related to Our Convertible Indebtedness - The potential issuance of common stock upon conversion of the 2030 Notes could depress the trading price of the common stock and dilute existing stockholders' economic and voting rights[226] - The company may be unable to raise sufficient funds to repurchase the 2030 Notes following a fundamental change or to pay cash amounts due upon maturity or conversion, which could lead to a default[227] - Provisions within the 2030 Notes Indenture could make a third-party attempt to acquire the company more difficult or expensive, potentially discouraging beneficial takeovers[228] - The requirement to settle at least a portion of conversion obligations for the 2030 Notes in cash could materially and adversely affect the company's financial position and liquidity[229] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities under the newly authorized 2025 Program - On May 1, 2025, the Board authorized a new stock repurchase program (the "2025 Program") for up to $75 million of common stock, with no specified term or termination date[230] Share Repurchase Activity (Three Months Ended June 30, 2025, in thousands, except per share) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :--------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :-------------------------------------------------------------------------- | | April 1 - 30, 2025 | — | $— | — | $— | | May 1 - 31, 2025 | 229 | $17.22 | 229 | $71,058 | | June 1 - 30, 2025 | — | $— | — | $— | | Total | 229 | | | $71,058 | Item 5. Other Information This section states that there were no adoptions or terminations of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during the quarter - No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended June 30, 2025[232] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q Exhibit Index Highlights | Exhibit Number | Description | | :------------- | :---------- | | 3.1 | Amended and Restated Certificate of Incorporation | | 3.2 | Amended and Restated Bylaws | | 10.1+* | Form of Performance-Based Restricted Stock Unit Agreement | | 10.2+ | 2014 Employee Stock Purchase Plan, as amended | | 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act | | 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act | | 32.1** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act | | 32.2** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act | | 101* | Inline XBRL Document Set for condensed consolidated financial statements | | 104* | Inline XBRL for the cover page | Signatures - The report was signed on August 5, 2025, by Dhrupad Trivedi, President and Chief Executive Officer, and Brian Becker, Chief Financial Officer[240]