A10 Networks(ATEN) - 2022 Q4 - Annual Report

Note Regarding Forward-Looking Statements This section clarifies that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ - The report contains forward-looking statements regarding various aspects of the business, including the impact of COVID-19, semiconductor shortages, revenue growth, market needs, product introductions, competition, and financial performance[7][8] - These statements are subject to risks, uncertainties, and assumptions detailed in the 'Risk Factors' section, and actual results may differ materially from those anticipated[9][10][11] Note Regarding COVID-19 The COVID-19 pandemic has impacted business practices and may continue to negatively affect the company's financial performance and operations - The COVID-19 pandemic has led to modified business practices (e.g., work-from-home, travel restrictions) and may continue to negatively affect revenue, operations, financial condition, liquidity, and capital investments in 2023 and beyond[14] - The company implemented work-from-home policies, focused on profitability, and closely monitored its supply chain in response to the pandemic[15] Risk Factor Summary This section provides an overview of the company's key risks across business operations, intellectual property, litigation, regulations, and financial markets Risks Related to Our Business, Operations and Industry This section outlines key risks related to the company's business, operations, and industry, including the impact of COVID-19, market adoption of products, intense competition, cloud computing trends, reliance on key customers, and supply chain vulnerabilities - Key risks include the effects of the COVID-19 pandemic, challenges in anticipating market needs and product adoption, maintaining profitability, variability in operating costs, reliance on end-of-quarter shipments, intense competition, and cloud-based computing trends[17] - Other operational risks involve maintaining brand reputation, dependence on a limited number of large end-customers, potential changes in deployment and payment models, fluctuations in gross margin, and risks associated with international operations and third-party manufacturers[17] Risks Related to Intellectual Property, Litigation, Laws and Regulations This section details risks concerning intellectual property, legal proceedings, and compliance with various laws and regulations, including potential litigation, data security, and international trade policies - Risks include litigation and claims regarding intellectual property rights, challenges in protecting IP, political developments like Brexit, enhanced U.S. tariffs and trade barriers, and the costs of protecting against security breaches and ensuring data confidentiality[18] - Compliance risks extend to governmental laws and regulations, export and import controls, environmental laws, tax laws, and the ability to maintain effective internal controls[18] Risks Related to Capitalization and Financial Markets This section covers financial market risks such as currency fluctuations, ownership concentration, the need for additional funding, stock price volatility, and changes to dividend and stock repurchase programs - Financial risks include fluctuations in foreign currency exchange rates, ownership concentration of common stock, the ability to raise additional funds (and potential dilution), volatility of the stock price, and changes to the dividend and stock repurchase programs[19] PART I This part covers the company's business overview, risk factors, unresolved staff comments, properties, legal proceedings, and mine safety disclosures Item 1. Business A10 Networks, Inc. is a leading provider of networking solutions focused on reliability, availability, scalability, and cybersecurity for next-generation networks. The company serves service providers, government organizations, and enterprises globally, offering a portfolio of secure application solutions and intelligent management tools across various form factors Overview A10 Networks provides secure application solutions for next-generation networks, supporting cloud, on-premise, and hybrid environments globally - A10 Networks provides networking solutions for next-generation networks, emphasizing reliability, availability, scalability, and cybersecurity, supporting cloud, on-premise, and hybrid environments[21] - The company integrates security into its solutions to help customers adapt to market trends in cloud, IoT, and increasing data needs, serving service providers, government, and enterprises globally[21] Industry Trends & Market Drivers Demand for A10's solutions is driven by cloud adoption, network complexity, automation, DDoS attacks, TLS/SSL growth, and 5G networks - Key industry trends driving demand for A10's solutions include increased adoption of cloud applications, growing network complexity, the importance of automation and orchestration, the rise of DDoS attacks, rapid growth of TLS/SSL encrypted applications, and the advent of 5G networks[22][23][24][25][26][27] - There is a need for advanced multi-cloud secure application service solutions that offer central management across environments, clear visibility and analytics, scalability, and sophisticated security functionality[28][29][30] Product Portfolio A10 Networks offers six secure application solutions and two management tools in various form factors, shifting towards software-only and subscription models - A10 Networks' product portfolio includes six secure application solutions (Thunder ADC, Lightning ADC, Thunder CGN, Thunder TPS, Thunder SSLi, Thunder CFW) and two intelligent management and automation tools (Harmony Controller, aGalaxy TPS)[31][32][33] - Solutions are available in various form factors: hardware appliances, bare metal software, containerized software, virtual appliances, and cloud-native software, with a shift towards term licenses, subscriptions, and software-only models[31][43][44][45] - The Harmony Controller provides central management, orchestration, and real-time/predictive analytics for secure application services across hybrid environments[31][41] Underlying Technology Most products are built on the proprietary Advanced Core Operating System (ACOS) platform, known for high performance, scalability, and advanced networking features - Most products are built on the proprietary Advanced Core Operating System (ACOS) platform, known for high performance and scalability, leveraging 64-bit multi-core CPUs and a shared memory architecture[46][47] - ACOS features include high-performance intelligent network I/O processing (Flexible Traffic Accelerator), scalable and efficient memory usage, optimized application networking and security, aFleX scripting, ADP for multi-tenancy, aVCS for managing multiple appliances, and aXAPI for automated management[48][49][50][51][52] Support & Services The company provides global customer support through maintenance options and professional services, including specialized DDoS security incident response - The company offers global customer support, including standard warranty, four maintenance options (Basic, Basic Plus, Gold, Platinum), and professional services like network assessment, capacity planning, and implementation[53][54][55] - Thunder TPS includes enhanced support with access to the A10 DDoS Security Incident Response Team (SIRT) and a subscription to the A10 Threat Intelligence Service[55] Customers A10 Networks serves over 8,000 global customers across diverse industries, with significant revenue concentration from its largest end-customers and distribution partners - As of December 31, 2022, A10 Networks had sold products to over 8,000 customers worldwide across various industries, including telecommunications, technology, government, and finance[56] Revenue Concentration by Largest End-Customers | Year | % of Total Revenue from 10 Largest End-Customers | | :--- | :----------------------------------------------- | | 2022 | 41% | | 2021 | 39% | | 2020 | 41% | Revenue Concentration by Distribution Channel Partners | Year | Distribution Partner 1 | Distribution Partner 2 | | :--- | :--------------------- | :--------------------- | | 2022 | 15% | 13% | | 2021 | 12% | N/A | | 2020 | 10% | N/A | Competition A10 Networks competes in evolving cybersecurity, 5G, and hybrid networking markets against various network security and application delivery providers - A10 Networks competes in evolving markets like cybersecurity (DDoS protection), 5G/5G-readiness, and hybrid networking, facing competition from network security solution providers (e.g., Arbor Networks, F5 Networks), network security product vendors, Gi/SGi firewall and CGN product providers (e.g., Cisco, Juniper, Fortinet), and traditional application delivery market players (e.g., F5 Networks, Citrix, Avi Networks)[58] - Key competitive factors include innovation, ability to mitigate cyber threats, scalability with high-speed traffic, support for on-premise and cloud environments, accommodation of various IT delivery models, customer intimacy, total cost of ownership, brand reputation, and talent attraction/retention[59] Sales and Marketing The company utilizes a high-touch sales force and distribution channels globally, with marketing focused on demand generation and brand awareness - The company uses a high-touch sales force directly and through distribution channels, with sales presence in 28 countries as of December 31, 2022[60][61] - Revenue fulfilled through distribution channel partners accounted for 83%, 89%, and 91% of total revenue for 2022, 2021, and 2020, respectively[62] - Marketing efforts focus on global demand generation, joint campaigns with partners, and building awareness through industry analysts, media, blogs, social media, and events[63] Manufacturing Hardware product manufacturing is outsourced to original design manufacturers, with quality assurance performed at company and manufacturer locations - Hardware product manufacturing is outsourced to original design manufacturers (Lanner, AEWIN, iBase) to leverage scale, reduce costs, and adjust to demand[64] - Quality assurance and testing are performed at San Jose, Taiwan, and Japan distribution centers, as well as at manufacturers' locations[65] Backlog The company's product backlog represents confirmed orders, but it is subject to cancellation and rescheduling, making it an unreliable indicator of future revenues Product Backlog | As of December 31, | Backlog (in millions USD) | | :----------------- | :-------------------- | | 2022 | $8.1 | | 2021 | $10.9 | - Backlog represents confirmed orders for products to be shipped generally within 90 days, but orders are subject to cancellation and rescheduling, making it an unreliable indicator of future revenues[66] Intellectual Property The company protects its intellectual property through patents, copyrights, trademarks, and trade secrets, with a portfolio of U.S. and overseas patents - The company relies on patents, copyrights, trademarks, trade secrets, and disclosure restrictions to protect its intellectual property[68] Intellectual Property Portfolio (as of Dec 31, 2022) | Category | Issued | Pending | | :------- | :----- | :------ | | U.S. Patents | 212 | 4 | | Overseas Patents | 77 | 12 | - Future success depends on protecting proprietary rights, but unauthorized parties may copy products or use trade secrets, especially in foreign countries with weaker IP laws[69] Human Capital As of December 31, 2022, the company had 575 full-time employees across R&D, customer support, sales, marketing, and G&A, with good employee relations - As of December 31, 2022, the company had 575 full-time employees, with 252 in R&D and customer support, 269 in sales and marketing, and 54 in G&A[71] - No employees are represented by a labor union, and relations with employees are considered good[71] Corporate Responsibility The company is committed to environmental preservation, social responsibility (diversity, employee well-being), and strong corporate governance practices Environmental The company is committed to environmental preservation, legal compliance, and minimizing product impact, aligning with the Paris Agreement - The company is committed to environmental preservation, meeting legal compliance, and minimizing product impact, aligning with the Paris Agreement's 1.5°C ambition[74] - Efforts include working with manufacturers for compliance with RoHS, REACH, and WEEE, adhering to a Conflict Minerals Supply Chain Policy, and maintaining energy-efficient corporate headquarters with EV charging stations and recycling[75][76] Social A10 Networks promotes diversity, inclusion, equal opportunity, and employee well-being through comprehensive rewards and health and safety policies - A10 Networks is committed to diversity, inclusion, and equal opportunity, making employment decisions based on qualifications and business needs, and fostering a cooperative work environment free of discrimination[77][78][79] - Employees are offered a comprehensive total rewards package including medical, dental, vision, retirement plans, and stock ownership opportunities (over 75% participation in stock programs)[80] - The company prioritizes employee health and safety, implementing work-from-home and social distancing policies during COVID-19, and maintaining a zero-tolerance policy against aggressive behavior[81][82][83] Governance The Board of Directors emphasizes diversity and continuously reviews corporate governance guidelines, ensuring independent oversight and ethical conduct - The Board of Directors emphasizes diversity (60% self-identify as diverse) and continuously reviews corporate governance guidelines, with four out of five board members being independent[84] - The company engages an independent audit firm for Sarbanes-Oxley Act compliance and outlines governance policies in its Code of Business Conduct and Ethics, Corporate Governance Guidelines, and Whistleblower Policy[85] Corporate Information A10 Networks, Inc. was incorporated in Delaware in 2014, using its investor relations website and social media to disseminate public information - A10 Networks, Inc. was incorporated in California in 2004 and reincorporated in Delaware in 2014, with its website at www.A10networks.com and investor relations at https://investors.A10networks.com[86](index=86&type=chunk) - The company uses its investor relations website, press releases, SEC filings, public conference calls, and social media (Twitter, Facebook) to disseminate material information to the public[88] Item 1A. Risk Factors This section details significant risks that could materially harm A10 Networks' business, financial condition, operating results, and stock price. These risks span business operations, intellectual property, litigation, regulatory compliance, and financial markets Risks Related to Our Business, Operations and Industry The company faces risks from the COVID-19 pandemic, semiconductor shortages, market demand unpredictability, intense competition, reliance on key customers, and supply chain vulnerabilities - The COVID-19 pandemic and global semiconductor shortages continue to pose material adverse effects on operations, supply chains, and customer demand[91][92][94] - Failure to anticipate market needs, timely develop new products, or maintain profitability could significantly harm the business, as operating results are highly variable and unpredictable due to factors like large customer purchases and end-of-quarter shipments[95][98][101][104][108] - The company faces intense competition from larger, well-established companies, and cloud-based computing trends present competitive and execution risks, requiring significant investment in new solutions[109][111][116] - Reliance on a limited number of large end-customers (service providers accounted for 66% of 2022 revenue) makes the company vulnerable to delays or loss of purchases, and changes in customer deployment/payment models (e.g., SaaS subscriptions) could adversely affect operating results[118][119][120][123] - Dependence on third-party manufacturers (primarily in Taiwan) and limited component supply sources expose the company to disruptions, delays, and increased costs, which could impair product delivery[138][139][141][142][144] - Real or perceived defects, errors, or vulnerabilities in products, including failure to block security threats, could harm reputation, lead to lost sales, increased expenses, and potential litigation[145][146][147][148] Risks Related to Intellectual Property, Litigation, Laws and Regulations Risks include intellectual property litigation, political and economic uncertainties (e.g., tariffs), data security breaches, compliance with privacy laws, and changes in tax regulations - The company is exposed to intellectual property litigation and claims, with potential for significant expenses, damages, or injunctions, and may not be able to adequately protect its IP rights, especially in foreign countries[181][182][184][186][188] - Brexit, enhanced U.S. tariffs, import/export restrictions, and Chinese regulations create political and economic uncertainty, potentially increasing costs, delaying orders, and negatively impacting global economic conditions and the company's business[190][191][192][193][194][196] - Failure to protect the confidentiality and security of data, trade secrets, and personally identifiable information (PII) could lead to legal liability, reputational damage, and significant costs, as evidenced by a January 2023 cyber-security incident[197][198][199][200][201][202][203] - Compliance with evolving data protection and privacy laws (e.g., GDPR, CCPA/CPRA) is critical, and non-compliance could result in significant fines, enforcement actions, and reputational harm[204][205] - Sales to governmental organizations are subject to challenges like high competition, lengthy sales cycles, and budgetary constraints, while compliance with various governmental laws and regulations (e.g., anti-bribery, export controls, environmental) is essential to avoid penalties[206][207][208][209][210] - Changes in tax laws or accounting principles, or adverse outcomes from tax examinations, could negatively affect operating results and financial condition, and the ability to use net operating loss carryforwards may be limited[211][212][213][214][215][216] Risks Related to Capitalization and Financial Markets Financial market risks include currency fluctuations, concentrated stock ownership, potential dilution from future funding, and stock price volatility - Fluctuations in foreign currency exchange rates, particularly between the U.S. Dollar and Japanese Yen, can negatively affect operating income, despite hedging practices[226] - Concentrated ownership by executive officers, directors, and affiliates (5.6% as of Dec 31, 2022, or 34.1% including other 5%+ holders) may limit new investors' influence and could delay liquidity events[227][228] - The company may need to raise additional funds, which could dilute existing stockholders, and the stock price has been and may continue to be volatile due to various market and company-specific factors[229][230][231][232][233] - Sales of substantial amounts of common stock in public markets could reduce the stock price and dilute voting power, while changes to dividend payments or stock repurchase programs could also negatively affect the stock price[234][235][236][238][239][241] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments were reported[243] Item 2. Properties A10 Networks' corporate headquarters is in San Jose, California, leased until July 2027, with additional leased offices globally. The company believes current facilities are adequate but anticipates expanding and incurring additional expenses for new or expanded facilities - The corporate headquarters is a 116,381 square foot leased space in San Jose, California, with the lease expiring on July 31, 2027[243] - The company also leases international and domestic sales offices in locations including Japan, UK, Netherlands, Taiwan, South Korea, Singapore, and India[243] - Current facilities are deemed adequate, but future expansion is expected, which will incur additional expenses[243] Item 3. Legal Proceedings A10 Networks is involved in various legal proceedings and claims in the ordinary course of business, with outcomes subject to uncertainty. The company assesses the probability and estimability of losses to record liabilities, and judgments may differ from actual outcomes - The company is subject to various legal proceedings and claims, which are inherently uncertain and may involve unascertainable damages[244] - Liabilities for claims are recorded when a loss is probable and reasonably estimable, requiring significant judgment that may differ from actual outcomes[244] Item 4. Mine Safety Disclosures This item is not applicable to A10 Networks - This item is not applicable[245] PART II This part covers market information for common equity, management's discussion and analysis, market risk disclosures, and financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section provides information on the market for A10 Networks' common stock, including its NYSE listing, dividend policy, and stock repurchase programs. It also includes a comparison of cumulative total return against relevant indices Market for Registrant's Common Equity A10 Networks' common stock is listed on the NYSE, with quarterly cash dividends initiated and increased, and approximately 74 stockholders of record - A10 Networks' common stock is quoted on the NYSE under the symbol 'ATEN'[248] - The Board of Directors approved quarterly cash dividends, starting at $0.05 per share in December 2021 and increasing to $0.06 per share in November 2022, treated as a return of capital[248] - As of February 17, 2023, there were approximately 74 stockholders of record[249] Company Stock Performance The report includes a graph comparing A10 Networks' stock performance against major indices, assuming a $100 investment from December 31, 2017 - The report includes a graph comparing the cumulative total return of A10 Networks' common stock against the NASDAQ Composite Index, Russell 1000 Index, and NYSE Technology Index, assuming a $100 investment on December 31, 2017[251] Issuer Purchases of Equity Securities The Board authorized a new $50 million stock repurchase program in November 2022, funded by existing cash and operating activities - On November 1, 2022, the Board authorized a new $50 million stock repurchase program for the next 12 months, with no shares repurchased during Q4 2022 under this program[254] - Repurchases are funded from existing cash and operating activities, and the program does not obligate the company to acquire a specific number of shares[254] Unregistered Sales of Equity Securities There were no unregistered sales of equity securities reported - There were no unregistered sales of equity securities[255] Item 6. [Reserved] This item is reserved and contains no information - This item is reserved[255] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on A10 Networks' financial condition and results of operations for 2022 and 2021, including an overview of the business, detailed analysis of revenue, costs, operating expenses, non-operating items, liquidity, cash flows, and critical accounting policies Overview A10 Networks provides secure application solutions, deriving revenue from products and services, with significant contributions from service providers and specific geographic regions - A10 Networks is a leading provider of secure application solutions for next-generation networks, offering products like Thunder ADC, Lightning ADC, Thunder CGN, Thunder TPS, Thunder SSLi, Thunder CFW, Harmony Controller, and aGalaxy TPS[258][259] - Revenue is derived from products (hardware, perpetual software, subscriptions) and services (PCS, professional services, training), with a substantial portion from distribution channel partners[260] - The company reports customer verticals (service providers, enterprises) and geographic regions (Americas, APJ, EMEA), with service providers accounting for 66% of total revenue in 2022[261][264] Revenue by Geographic Region (2022) | Region | % of Total Revenue | | :------- | :----------------- | | Americas | 53% | | APJ | 32% | | EMEA | 15% | - Cash and cash equivalents were $68.0 million and marketable securities were $83.0 million as of December 31, 2022, with cash provided by operating activities at $66.1 million in 2022[266] Results of Operations This section analyzes the company's financial performance, detailing changes in revenue, cost of revenue, gross profit, gross margin, and operating expenses for the reporting periods Revenue Total revenue increased by 12.1% in 2022, driven by product and service growth, particularly in the Americas and EMEA, despite a slight decline in APJ Total Revenue (2022 vs 2021) | Metric | 2022 (in thousands USD) | 2021 (in thousands USD) | Change (Amount in thousands USD) | Change (%) | | :------- | :------------------ | :------------------ | :-------------- | :--------- | | Products | $173,201 | $148,398 | $24,803 | 16.7% | | Services | $107,137 | $101,644 | $5,493 | 5.4% | | Total | $280,338 | $250,042 | $30,296 | 12.1% | - Products revenue increased by 17% in 2022, driven by higher demand from service provider customers in the Americas, APAC, and EMEA, partially offset by lower demand in Japan[274] - Services revenue increased by 5% in 2022, mainly due to increased PCS sales from a growing customer base in the Americas and EMEA[274] Revenue by Geographic Region (2022 vs 2021) | Region | 2022 (in thousands USD) | 2021 (in thousands USD) | Change (Amount in thousands USD) | Change (%) | | :------- | :------------------ | :------------------ | :-------------- | :--------- | | Americas | $148,673 | $121,169 | $27,504 | 23% | | APJ | $89,702 | $90,374 | $(672) | (1)% | | EMEA | $41,963 | $38,499 | $3,464 | 9% | Cost of Revenue, Gross Profit and Gross Margin Total cost of revenue increased by 6% in 2022, resulting in a 1.1% increase in total gross margin, influenced by product mix and decreased service personnel costs Cost of Revenue (2022 vs 2021) | Metric | 2022 (in thousands USD) | 2021 (in thousands USD) | Change (Amount in thousands USD) | Change (%) | | :------- | :------------------ | :------------------ | :-------------- | :--------- | | Products | $40,135 | $32,620 | $7,515 | 23% | | Services | $16,697 | $20,885 | $(4,188) | (20)% | | Total | $56,832 | $53,505 | $3,327 | 6% | Gross Profit and Gross Margin (2022 vs 2021) | Metric | 2022 Gross Profit (in thousands USD) | 2022 Gross Margin | 2021 Gross Profit (in thousands USD) | 2021 Gross Margin | Change in Gross Margin | | :------- | :------------------------------- | :---------------- | :------------------------------- | :---------------- | :--------------------- | | Products | $133,066 | 76.8% | $115,778 | 78.0% | (1.2)% | | Services | $90,440 | 84.4% | $80,759 | 79.5% | 4.9% | | Total | $223,506 | 79.7% | $196,537 | 78.6% | 1.1% | - Products gross margin decreased by 1.2% due to changes in product and geographic mix, while services gross margin increased by 4.9% primarily due to decreased personnel-related support costs[279][280] Operating Expenses Total operating expenses increased by 4% in 2022, primarily due to higher sales and marketing, and research and development consulting expenses Operating Expenses (2022 vs 2021) | Expense Category | 2022 (in thousands USD) | 2021 (in thousands USD) | Change (Amount in thousands USD) | Change (%) | | :----------------- | :------------------ | :------------------ | :-------------- | :--------- | | Sales and marketing | $88,511 | $85,651 | $2,860 | 3% | | Research and development | $58,398 | $54,077 | $4,321 | 8% | | General and administrative | $23,518 | $23,421 | $97 | 0% | | Total Operating Expenses | $170,427 | $163,149 | $7,278 | 4% | - Sales and marketing expenses increased by $2.9 million due to higher travel, marketing activities, and consulting expenses[284] - Research and development expenses increased by $4.3 million, mainly from a $5.0 million rise in consulting expenses as the company shifts to non-employee consultants, partially offset by a decrease in salary and benefits[285] - General and administrative expenses remained stable, with a $2.8 million increase in consulting expenses and $1.7 million in property tax, offset by a $4.4 million decrease in salary and benefits due to reduced headcount[287] Non-Operating Income (Expense) - Interest Income Interest income significantly increased in 2022, primarily from cash, cash equivalents, and marketable securities Interest Income (2022 vs 2021) | Year | Interest Income (in thousands USD) | | :--- | :----------------------------- | | 2022 | $1,304 | | 2021 | $409 | - Interest income primarily from cash, cash equivalents, and marketable securities, increased significantly in 2022[289] Non-Operating Income (Expense) - Interest and Other Income (Expense), Net Net interest and other income showed a favorable change in 2022, driven by foreign currency gains, partially offset by an equity investment impairment - Interest and other income (expense), net, showed a favorable change of $0.5 million (23%) in 2022 compared to 2021, driven by a $1.5 million favorable change in foreign currency exchange gains and losses, partially offset by a $1.0 million impairment of an equity investment[290] Provision for (Benefit from) Income Taxes The company recorded an income tax provision in 2022, contrasting with a significant benefit in 2021 primarily due to a deferred tax asset valuation allowance release Income Tax Provision (Benefit) (2022 vs 2021) | Year | Income Tax Provision (Benefit) (in thousands USD) | | :--- | :-------------------------------------------- | | 2022 | $5,808 | | 2021 | $(63,245) | - The 2021 income tax benefit was mainly due to the release of a deferred tax asset valuation allowance, while the 2022 provision primarily consisted of federal income taxes[291] Liquidity and Capital Resources The company maintains a strong liquidity position with sufficient cash and marketable securities to meet anticipated needs, alongside ongoing stock repurchase and dividend programs Liquidity Position (as of Dec 31, 2022) | Metric | Amount (in millions USD) | | :-------------------- | :------------------- | | Cash and cash equivalents | $68.0 | | Marketable securities | $83.0 | | Working capital | $138.7 | | Total stockholders' equity | $181.0 | - The company believes existing cash, cash equivalents, and marketable securities are sufficient for anticipated needs for at least the next 12 months and beyond, despite plans for continued investment in long-term growth[294] - In September 2022, the company repurchased 3.5 million shares of common stock from Summit Partners for $44.6 million[295] - The Board authorized a new $50 million stock repurchase program in November 2022, with $50.0 million available as of December 31, 2022. Total repurchases in 2022 were 6.1 million shares for $79.3 million[296] - Quarterly cash dividends were initiated in October 2021 and increased to $0.06 per share in October 2022, with future payments subject to Board discretion[297] Statements of Cash Flows Cash provided by operating activities increased in 2022, while cash used in investing and financing activities reflected marketable securities transactions, stock repurchases, and dividend payments Cash Flows Summary (2022 vs 2021) | Activity | 2022 (in thousands USD) | 2021 (in thousands USD) | | :--------- | :------------------ | :------------------ | | Operating | $66,100 | $50,097 | | Investing | $11,087 | $(38,070) | | Financing | $(88,141) | $(16,383) | | Net Change | $(10,954) | $(4,356) | - Cash provided by operating activities increased to $66.1 million in 2022, driven by net income and non-cash adjustments, partially offset by changes in operating assets and liabilities[300][301] - Cash used in investing activities was $11.1 million in 2022, primarily due to purchases of marketable securities and property/equipment, offset by proceeds from maturities and sales of marketable securities[304] - Cash used in financing activities was $88.1 million in 2022, mainly for common stock repurchases ($79.3 million) and dividend payments ($15.9 million), partially offset by proceeds from equity incentive plans[305] Critical Accounting Policies and Estimates Financial statement preparation involves significant judgments and estimates, particularly for revenue recognition, inventory valuation, and various allowances and accruals - The preparation of financial statements requires significant judgments and estimates, particularly for revenue recognition, allowance for doubtful accounts, inventory valuation, marketable securities, contingencies, accrued liabilities, deferred commissions, and stock-based compensation[306] - Inventory is valued at the lower of cost or net realizable value, with write-downs for excess and obsolete products impacting cost of products revenue[307] - Revenue recognition follows a five-step model, allocating transaction price to distinct performance obligations (products and PCS) based on standalone selling price (SSP) estimates, which require significant judgment[308][309][312][313] Recent Accounting Pronouncements The company adopted several ASUs, none of which had a significant impact on its consolidated financial statements - The company adopted ASU 2016-13 (Credit Losses), ASU 2017-04 (Goodwill Impairment), ASU 2018-13 (Fair Value Measurement), ASU 2019-12 (Income Taxes), and ASU 2020-10 (Codification Improvements), none of which had a significant impact on consolidated financial statements[316][391][392][393][394][395][396] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This section discusses A10 Networks' exposure to market risks, specifically foreign currency risk and interest rate sensitivity, and the strategies employed to manage them Foreign Currency Risk The company is exposed to foreign currency fluctuations, primarily affecting Japanese Yen-denominated revenue and local currency costs, with a limited overall impact - The company is exposed to foreign currency exchange rate fluctuations, primarily impacting revenue denominated in Japanese Yen and costs in local currencies (Americas, EMEA, APAC)[318] - Net foreign exchange losses were $0.5 million in 2022 and $1.9 million in 2021. A hypothetical 10% change in exchange rates would not significantly impact consolidated results[320] Interest Rate Sensitivity Exposure to interest rate changes primarily relates to marketable securities, including various fixed-income instruments, with hypothetical fair values provided for sensitivity analysis - Exposure to interest rate changes relates primarily to marketable securities, which include certificates of deposit, corporate securities, U.S. Treasury and agency securities, commercial paper, and asset-backed securities[321] Hypothetical Fair Values of Marketable Securities (Dec 31, 2022) | Interest Rate Shift | Fair Value (in thousands USD) | | :------------------ | :------------------------ | | -150 BPS | $83,529 | | -100 BPS | $83,359 | | -50 BPS | $83,188 | | 0 BPS (Actual) | $83,018 | | +50 BPS | $82,847 | | +100 BPS | $82,676 | | +150 BPS | $82,506 | Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements of A10 Networks, Inc. for the years ended December 31, 2022, 2021, and 2020, along with accompanying notes detailing accounting policies, revenue, marketable securities, leases, other balance sheet accounts, commitments, equity incentive plans, net income per share, income taxes, geographic information, and quarterly financial data Report of Independent Registered Public Accounting Firm Armanino LLP issued an unqualified opinion on the consolidated financial statements and internal control effectiveness, highlighting revenue recognition and income taxes as critical audit matters - Armanino LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[326][327] - Critical audit matters included revenue recognition (identifying distinct performance obligations, determining standalone selling prices) and income taxes (applying complex tax laws, estimating future tax credit utilization)[334][336] Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of December 31, 2022, and 2021 Consolidated Balance Sheets (as of Dec 31, 2022 and 2021) | ASSETS (in thousands USD) | Dec 31, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $67,971 | $78,925 | | Marketable securities | $83,018 | $106,117 | | Accounts receivable, net | $72,928 | $61,795 | | Inventory | $19,693 | $22,462 | | Prepaid expenses and other current assets | $13,381 | $14,720 | | Total current assets | $256,991 | $284,019 | | Property and equipment, net | $19,743 | $10,692 | | Goodwill | $1,307 | $1,307 | | Deferred tax assets, net | $63,183 | $65,773 | | Other non-current assets | $27,881 | $31,294 | | Total assets | $369,105 | $393,085 | | LIABILITIES (in thousands USD) | | | | Accounts payable | $6,725 | $6,852 | | Accrued and other liabilities | $37,183 | $36,101 | | Deferred revenue, current | $74,340 | $73,132 | | Total current liabilities | $118,248 | $116,085 | | Deferred revenue, non-current | $52,652 | $48,499 | | Other non-current liabilities | $17,193 | $19,613 | | Total liabilities | $188,093 | $184,197 | | STOCKHOLDERS' EQUITY (in thousands USD) | | | | Common stock | $1 | $1 | | Treasury stock, at cost | $(134,934) | $(55,677) | | Additional paid-in-capital | $466,927 | $446,035 | | Dividends paid | $(19,802) | $(3,880) | | Accumulated other comprehensive loss | $(726) | $(229) | | Accumulated deficit | $(130,454) | $(177,362) | | Total stockholders' equity | $181,012 | $208,888 | | Total liabilities and stockholders' equity | $369,105 | $393,085 | Consolidated Statements of Operations This section provides the company's financial performance, including revenue, cost of revenue, gross profit, operating expenses, and net income for 2022, 2021, and 2020 Consolidated Statements of Operations (Years Ended Dec 31, 2022, 2021, 2020) | (in thousands USD) | 2022 | 2021 | 2020 | | :--------------- | :--- | :--- | :--- | | Products Revenue | $173,201 | $148,398 | $129,876 | | Services Revenue | $107,137 | $101,644 | $95,651 | | Total Revenue | $280,338 | $250,042 | $225,527 | | Cost of Products Revenue | $40,135 | $32,620 | $29,109 | | Cost of Services Revenue | $16,697 | $20,885 | $21,039 | | Total Cost of Revenue | $56,832 | $53,505 | $50,148 | | Gross Profit | $223,506 | $196,537 | $175,379 | | Sales and marketing | $88,511 | $85,651 | $77,732 | | Research and development | $58,398 | $54,077 | $58,063 | | General and administrative | $23,518 | $23,421 | $21,851 | | Total Operating Expenses | $170,427 | $163,149 | $157,646 | | Income from Operations | $53,079 | $33,388 | $17,733 | | Interest income | $1,304 | $409 | $1,513 | | Interest and other income (expense), net | $(1,667) | $(2,155) | $(107) | | Total Non-Operating Income (Expense), Net | $(363) | $(1,746) | $1,406 | | Income before Income Taxes | $52,716 | $31,642 | $19,139 | | Provision for (benefit from) income taxes | $5,808 | $(63,245) | $1,323 | | Net Income | $46,908 | $94,887 | $17,816 | | Net income per share: Basic | $0.62 | $1.23 | $0.23 | | Net income per share: Diluted | $0.60 | $1.19 | $0.22 | Consolidated Statements of Comprehensive Income (Loss) This section presents the company's comprehensive income (loss), including net income and other comprehensive income items, for 2022, 2021, and 2020 Consolidated Statements of Comprehensive Income (Loss) (Years Ended Dec 31, 2022, 2021, 2020) | (in thousands USD) | 2022 | 2021 | 2020 | | :--------------- | :--- | :--- | :--- | | Net income | $46,908 | $94,887 | $17,816 | | Unrealized loss on marketable securities | $(497) | $(327) | $(153) | | Comprehensive income | $46,411 | $94,560 | $17,663 | Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including common shares, treasury stock, additional paid-in capital, dividends, and accumulated deficit, for 2022, 2021, and 2020 Consolidated Statements of Stockholders' Equity (Years Ended Dec 31, 2022, 2021, 2020) | (in thousands USD) | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | | :--------------- | :----------- | :----------- | :----------- | | Common Shares | 73,738 | 77,423 | 76,346 | | Common Stock | $1 | $1 | $1 | | Treasury stock, at cost | $(134,934) | $(55,677) | $(37,410) | | Additional Paid-in Capital | $466,927 | $446,035 | $425,534 | | Dividends paid | $(19,802) | $(3,880) | $0 | | Accumulated Other Comprehensive (Loss) | $(726) | $(229) | $98 | | Accumulated Deficit | $(130,454) | $(177,362) | $(272,249) | | Total Stockholders' Equity | $181,012 | $208,888 | $115,974 | Consolidated Statements of Cash Flows This section outlines the company's cash flows from operating, investing, and financing activities for 2022, 2021, and 2020 Consolidated Statements of Cash Flows (Years Ended Dec 31, 2022, 2021, 2020) | (in thousands USD) | 2022 | 2021 | 2020 | | :--------------- | :--- | :--- | :--- | | Net cash provided by operating activities | $66,100 | $50,097 | $55,286 | | Net cash provided by (used in) investing activities | $11,087 | $(38,070) | $5,202 | | Net cash used in financing activities | $(88,141) | $(16,383) | $(22,949) | | Net increase (decrease) in cash and cash equivalents | $(10,954) | $(4,356) | $37,539 | | Cash and cash equivalents - end of year | $67,971 | $78,925 | $83,281 | Notes to Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, financial statement line items, and other relevant financial information 1. Description of Business and Summary of Significant Accounting Policies This note describes A10 Networks' business and outlines its significant accounting policies, including revenue recognition, inventory, and stock-based compensation - A10 Networks, Inc. provides secure application solutions and services, including Thunder ADC, Lightning ADC, Thunder CGN, Thunder TPS, Thunder SSLi, Thunder CFW, Harmony Controller, and aGalaxy TPS, available in various form factors[351] - The financial statements are prepared in accordance with U.S. GAAP, requiring estimates and assumptions for revenue recognition, allowances, inventory valuation, marketable securities, and stock-based compensation[352][353] - Key accounting policies cover cash and cash equivalents, available-for-sale marketable securities (fair value measurement), accounts receivable (net of allowances), inventory (lower of cost or net realizable value), property and equipment (straight-line depreciation), leases (ROU assets and lease liabilities), goodwill (annual impairment review), and intangible assets (straight-line amortization)[354][355][356][357][358][359][360][361][363][364][365][366][367] - Revenue is recognized upon transfer of control, with products revenue from hardware and software licenses, and services revenue from PCS, professional services, and training. SSP is used for contracts with multiple performance obligations[368][369][370][371][372][373] - Deferred contract acquisition costs (sales commissions) are capitalized and amortized. Research and development costs are expensed as incurred, except for certain internally developed software costs capitalized from Q1 2020[376][377][378] - Stock-based compensation is measured at fair value on the grant date and recognized over the service period. Warranty costs are estimated based on historical returns. Foreign currency transactions are remeasured, with gains/losses in interest and other income, net[379][380][381] - Income taxes are accounted for using the asset and liability method, with deferred tax assets and liabilities recognized for temporary differences and carryforwards, and a valuation allowance established if realization is not more likely than not[382][383][384] - The company operates as a single reportable segment, relies on three third-party manufacturers, and manages credit risk for accounts receivable through evaluations[386][387][388] Significant Customer Revenue Concentration | Customer | 2022 | 2021 | 2020 | | :--------- | :--- | :--- | :--- | | Customer A (distributor) | 15% | 12% | * | | Customer B (distributor) | 13% | * | * | | Customer C (distributor) | * | * | 10% | | Customer D (end-customer) | 11% | 11% | 12% | * represents less than 10% of total revenue 2. Revenue This note details the company's revenue recognition, contract balances, deferred revenue, and remaining performance obligations Contract Balances (in thousands USD) | Balance Sheet Line Reference | Dec 31, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | Accounts receivables, net | $72,928 | $61,795 | | Deferred revenue, current | $74,340 | $73,132 | | Deferred revenue, non-current | $52,652 | $48,499 | - The company recognized $74.5 million and $65.0 million in revenue during 2022 and 2021, respectively, related to deferred revenue at the beginning of those periods[400] Deferred Revenue Breakdown (in thousands USD) | Deferred Revenue | Dec 31, 2022 | Dec 31, 2021 | | :----------------- | :----------- | :----------- | | Products | $7,782 | $6,164 | | Services | $119,210 | $115,467 | | Total deferred revenue | $126,992 | $121,631 | | Less: current portion | $(74,340) | $(73,132) | | Non-current portion | $52,652 | $48,499 | - Deferred contract acquisition costs totaled $6.1 million (current) and $4.3 million (non-current) as of December 31, 2022, with related amortization of $7.6 million for the year[402] Remaining Performance Obligations (as of Dec 31, 2022) | Period | Amount (in thousands USD) | | :----- | :-------------------- | | 2023 | $74,340 | | 2024 | $42,314 | | 2025 | $10,338 | | Total | $126,992 | 3. Marketable Securities and Fair Value Measurements This note provides details on the company's marketable securities portfolio, fair value measurements, and unrealized gains or losses Marketable Securities (as of Dec 31, 2022) | Category | Amortized Cost (in thousands USD) | Gross Unrealized Losses (in thousands USD) | Fair Value (in thousands USD) | | :--------- | :---------------------------- | :------------------------------------- | :------------------------ | | Corporate securities | $35,137 | $(550) | $34,587 | | U.S. Treasury and agency securities | $28,627 | $(292) | $28,335 | | Commercial paper | $11,859 | $0 | $11,859 | | Asset-backed securities | $8,331 | $(94) | $8,237 | | Total | $83,954 | $(936) | $83,018 | - All marketable securities are classified as current assets and are available-for-sale. Unrealized losses are considered temporary, primarily due to interest rate shifts, and no impairment charges were recorded[406][408] Fair Value Measurements (as of Dec 31, 2022) | (in thousands USD) | Level 1 | Level 2 | Level 3 | Total | | :--------------- | :------ | :------ | :------ | :---- | | Cash | $54,336 | $0 | $0 | $54,336 | | Cash equivalents | $13,635 | $0 | $0 | $13,635 | | Corporate securities | $0 | $34,587 | $0 | $34,587 | | U.S. Treasury and agency securities | $0 | $28,335 | $0 | $28,335 | | Commercial paper | $0 | $11,859 | $0 | $11,859 | | Asset-backed securities | $0 | $8,237 | $0 | $8,237 | | Total | $67,971 | $83,018 | $0 | $150,989 | 4. Leases This note describes the company's operating lease arrangements, including right-of-use assets, lease liabilities, and future lease payment obligations - The company leases various facilities under non-cancellable operating lease arrangements expiring through July 2027, requiring payment of operating expenses and containing renewal/escalation clauses[410] Operating Lease Assets and Liabilities (as of Dec 31, 2022) | Metric | Amount (in thousands USD) | | :-------------------- | :-------------------- | | Right-of-use assets | $21,197 | | Current lease liabilities | $4,792 | | Non-current lease liabilities | $16,846 | | Total operating lease liabilities | $21,638 | Future Lease Payments (as of Dec 31, 2022) | Year | Total Lease Payments (in thousands USD) | | :--- | :---------------------------------- | | 2023 | $5,392 | | 2024 | $5,513 | | 2025 | $4,970 | | 2026 | $4,892 | | 2027 | $2,441 | | Total | $23,208 | - Operating lease costs were $4.358 million for the year ended December 31, 2022, with a weighted-average remaining term of 4.4 years and a weighted-average discount rate of 3.20%[413][414] 5. Other Balance Sheet Accounts Details This note provides detailed breakdowns of various balance sheet accounts, including allowance for doubtful accounts, inventory, property and equipment, and accrued liabilities Allowance for Doubtful Accounts (in thousands USD) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Beginning balance | $543 | $41 | | Increase (decrease) in provision | $(202) | $616 | | Write-offs | $(309) | $(114) | | Ending balance | $32 | $543 | Inventory Breakdown (in thousands USD) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--------- | :----------- | :----------- | | Raw materials | $12,771 | $10,774 | | Finished goods | $6,922 | $11,688 | | Total inventory | $19,693 | $22,462 | Property and Equipment, Net (in thousands USD) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--------- | :----------- | :----------- | | Equipment | $27,028 | $25,407 | | Software | $2,537 | $807 | | Furniture and fixtures | $503 | $545 | | Leasehold improvements | $3,267 | $3,231 | | Construction in progress | $9,152 | $4,823 | | Property and equipment, gross | $42,487 | $34,813 | | Less: accumulated depreciation | $(22,744) | $(24,121) | | Property and equipment, net | $19,743 | $10,692 | - Purchased intangible assets (developed technology and patents) were fully amortized as of December 31, 2021[422] Accrued Liabilities (in thousands USD) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--------- | :----------- | :----------- | | Accrued compensation and benefits | $19,832 | $24,003 | | Accrued tax liabilities | $1,635 | $1,020 | | Lease liabilities | $4,792 | $3,983 | | Other | $10,924 | $7,095 | | Total accrued liabilities | $37,183 | $36,101 | 6. Commitments and Contingencies Thi