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美國

證券和交易委員會

華盛頓特區 20549

 

表格 10-Q

 

（標記一）

☒			根據1934年證券交易法第13或15(d)節的季度報告

截至季度結束日期的財務報告2024年9月30日

或者

☐			根據1934年證券交易法第13或15(d)節的轉型報告書

過渡期從              至             

委託文件號碼：001-36343

A10 NETWORKS, INC.

（依據其憲章指定的註冊名稱）

 

特拉華州						20-1446869
（註冊或組織的）提起訴訟的州或其他司法管轄區（如適用） 組建國的駐地						（IRS僱主 唯一識別號碼）
2300果園公園way。, San Jose, 加利福尼亞 95131
(總部地址及郵政編碼)

(408) 325-8668

(註冊人電話號碼，包括區號)

在法案第12(b)條的規定下注冊的證券：

每個類別的標題

交易標的

在其上註冊的交易所的名稱

普通股，面值$0.00001

ATEN

紐約證券交易所

請勾選表示登記者是否：(1) 在過去12個月(或登記者需要提交這些報告的較短期間)內已提交《1934年證券交易所法》第13或第15(d)條所要求提交的所有報告，和(2)在過去90天內一直遵守這些申報要求。是  x    不  ¨

用勾號標識: 在過去的12個月內(或對於註冊人要求提交這些文件的更短期間)，是否已按照規則405 of Regulation S-t(本章節的§232.405)的規定提交了每個交互式數據文件。  是  x無¨

請在「交易所法」規則120億.2中了解「大型加速申報人」，「加速申報人」，「較小的報告公司」和「新興增長公司」的定義，標記是否註冊者爲大型加速提交者、加速提交者、非加速提交者、較小的報告公司或新興增長公司。

大型加速報告人			x			加速文件提交人			☐
非加速文件提交人			☐			更小的報告公司			☐
						新興成長公司			☐

如果是新興增長型企業，請勾選複選框，表示註冊人已決定不使用延長過渡期來遵守根據《證券交易法》第13(a)條規定提供的任何新的或修訂後的財務會計準則。 ¨

請用對勾標記表示公司是否爲殼公司（如《交易所法》規則120億.2所定義）。是☐否 x

---

截至2024年10月31日，註冊人普通股的流通股數量爲每股面值$0.00001。 73,798,899.

---

A10 NETWORKS, INC.

10-Q表格

目錄

			頁碼
關於前瞻性聲明的說明			2
第一部分：財務信息			4
項目1. 未經審計的簡明綜合財務報表：			4
截至**年**月**日的壓縮合並資產負債表 九月 2024年12月31日和2023年12月31日			4
三個月和 九 結束的月份 九月 2024年和2023年9月30日			5
爲期三個月和六個月的簡明綜合收益表 九 結束的月份 九月 2024年和2023年9月30日			6
三個月和一年的壓縮合並股東權益報表 九 結束的月份 九月 2024年和2023年9月30日			7
的現金流簡明彙總表 九 結束的月份 九月 2024年和2023年9月30日			9
附註至簡明合併財務報表			10
項目2.財務狀況與經營結果的管理討論與分析			24
項目 3. 關於市場風險的定量和定性披露			36
項目4. 控制與程序			36
第二部分.其他信息			38
項目1. 法律訴訟			38
項目1A ：風險因素			38
項目 2. 未註冊的股權銷售及資金用途			38
項目5.其他信息			38
項目 6. 陳列品和契約款項(第6頁)			39
簽名			40

1

---

有關向前看聲明的說明

    10-Q表格的季度報告包含了根據《1933年證券法》第27A條和《1934年證券交易法》第21E條的修訂版定義的前瞻性聲明。諸如「相信」、「可能」、「將」、「潛在」、「估計」、「繼續」、「預期」、「打算」、「可以」、「會」、「項目」、「計劃」、「期望」和傳達未來事件或結果不確定性的類似表達，旨在識別前瞻性聲明。

這些前瞻性陳述包括但不限於關於以下內容的陳述：

• 我們的策略、業務計劃以及有效管理我們的增長和業務運營的能力；

• 我們對確認與未履行義務相關的營業收入的預期；

• 我們計劃推出新產品;

• 我們最大終端客戶預期購買的損失或延遲；

• 我們對與第三方關係的期望；

• 我們對實現稅務資產和未確認稅務優惠的期望;

• 我們有關從海外業務中滙回收益的計劃;

• 我們在繼續投資銷售、市場營銷、產品開發、分銷渠道計劃和研發團隊的同時，保持盈利能力的能力;

• 我們對未來成本和費用的預期;

• 我們毛利率的變化性以及影響因素；

• 關於流動性狀況和未來資本需求的預期；

• 我們的股票回購計劃和我們的季度現金分紅派息；

• 我們的會計政策和估計;

• 貨幣兌換匯率波動;

• 訴訟成本和潛在結果；和

• 未來對互補公司、產品、服務或技術的收購或投資。

這些前瞻性聲明面臨着一系列風險、不確定性和假設，包括在我們於2024年2月29日向美國證券交易委員會提交的10-k表格”風險因素“以及其他地方描述的那些。此外，我們處於一個競爭激烈且迅速變化的環境中，新的風險不時湧現。我們的管理層無法預測所有風險，也無法評估所有因素對我們業務的影響以及任何因素或多個因素可能導致我們實際結果與我們可能提出的任何前瞻性聲明中所含結果存在實質性差異的程度。可能導致我們實際結果和財務狀況與前瞻性聲明中指示的不符的重要因素包括：與關閉重要交易和改善我們執行相關的執行風險；我們產品持續市場採納情況；我們成功預見市場需求和機遇的能力；我們及時開發新產品和功能的能力；我們維持盈利能力的能力；最大端客戶的預期採購損失或延遲的能力；我們維持或改善我們的競爭地位的能力；與基於雲計算的趨勢相關的競爭和執行風險；我們吸引和保留新端客戶和最大端消費者的能力；我們維護和增強品牌和聲譽的能力；客戶對於產品部署和支付模式的變化；與網絡和網絡安全相關市場的持續增長；未來收購或投資相關公司、產品、服務或技術的成功；我們銷售團隊和其他團隊執行良好的能力；我們縮短結算週期的能力；我們渠道出售產品的能力；銷售產品的產品組合變化或地理位置的風險；與我國際市場的存在相關的風險；任何可能需要資金的意外之需，這可能要求我們轉移本來用於股息計劃或股票回購計劃的資金；全球宏觀經濟或政治狀況顯著下降，對我們業務和財務結果產生不利影響；與我們供應鏈有關的業務中斷；我們管理業務和支出的能力，如果客戶取消或延遲訂單；我們內部財務報告控制的弱點或缺陷；我們及時提交根據1934年證券交易法規定需要提交的定期報告的能力，以及在「風險因素」一章中識別的其他風險，包含在2023年12月31日結束的我們10-k年報的第I部分，項目1A的第1章中。

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

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forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to update these forward-looking statements after the filing of this report, except as required by law.

Our investor relations website is located at https://investors.A10networks.com. We use our investor relations website, our company blog (https://www.a10networks.com/blog) and our corporate X (formerly Twitter) account (https://x.com/A10Networks) to post important information for investors, including news releases, analyst presentations, and supplemental financial information, and as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our investor relations website, our company blog and our corporate X account, in addition to following press releases, SEC filings and public conference calls and webcasts. We also make available, free of charge, on our investor relations website under “SEC Filings,” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after electronically filing or furnishing those reports to the SEC.

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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, 2024						December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents			$	78,063					$	97,244
Marketable securities			104,043						62,056
Accounts receivable, net of allowances of $1,171 and $405, respectively			64,949						74,307
Inventory			23,417						23,522
Prepaid expenses and other current assets			13,365						14,695
Total current assets			283,837						271,824
Property and equipment, net			37,313						29,876
Goodwill			1,307						1,307
Deferred tax assets, net			62,632						62,725
Other non-current assets			22,658						24,077
Total assets			$	407,747					$	389,809
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	7,544					$	7,024
Accrued liabilities			29,985						21,388
Deferred revenue			89,509						82,657
Total current liabilities			127,038						111,069
Deferred revenue, non-current			54,710						58,677
Other non-current liabilities			8,729						12,187
Total liabilities			190,477						181,933
Commitments and contingencies (Note 2 and Note 6)
Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 90,249 and 89,003 shares issued and 73,783 and 74,359 shares outstanding, respectively			1						1
Treasury stock, at cost: 16,467 and 14,644 shares, respectively			(175,230)						(150,909)
Additional paid-in-capital			501,918						486,958
Dividends paid			(50,988)						(37,619)
Accumulated other comprehensive income (loss)			214						(71)
Accumulated deficit			(58,645)						(90,484)
Total stockholders' equity			217,270						207,876
Total liabilities and stockholders' equity			$	407,747					$	389,809

See accompanying notes to the condensed consolidated financial statements.

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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,
			2024						2023						2024						2023
Net revenue:
Products			$	36,862					$	30,260					$	96,464					$	100,532
Services			29,859						27,515						91,028						80,751
Total net revenue			66,721						57,775						187,492						181,283
Cost of net revenue:
Products			7,531						6,815						21,143						22,334
Services			5,508						4,194						15,378						12,354
Total cost of net revenue			13,039						11,009						36,521						34,688
Gross profit			53,682						46,766						150,971						146,595
Operating expenses:
Sales and marketing			21,011						21,324						61,678						64,526
Research and development			15,734						17,620						44,533						43,250
General and administrative			6,494						5,613						19,188						18,177
Total operating expenses			43,239						44,557						125,399						125,953
Income from operations			10,443						2,209						25,572						20,642
Non-operating income, net:
Interest income			1,634						1,766						5,077						3,401
Other income, net			2,312						987						5,943						653
Non-operating income, net			3,946						2,753						11,020						4,054
Income before provision for (benefit from) income taxes			14,389						4,962						36,592						24,696
Provision for (benefit from) income taxes			1,752						(1,507)						4,753						2,643
Net income			$	12,637					$	6,469					$	31,839					$	22,053
Net income per share:
Basic			$	0.17					$	0.09					$	0.43					$	0.30
Diluted			$	0.17					$	0.09					$	0.42					$	0.29
Weighted-average shares used in computing net income per share:
Basic			73,823						74,526						74,200						74,184
Diluted			74,780						75,807						75,236						75,639

 See accompanying notes to the condensed consolidated financial statements.

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A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Net income			$	12,637					$	6,469					$	31,839					$	22,053
Other comprehensive income (loss), net of tax:
Realized loss reclassified to earnings			—						—						—						(265)
Unrealized gain (loss) on marketable securities			450						(177)						449						1,208
Unrealized gain (loss) on cash flow hedge			(701)						(31)						(164)						117
Comprehensive income			$	12,386					$	6,261					$	32,124					$	23,113

See accompanying notes to the condensed consolidated financial statements.

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A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

Three Months Ended September 30, 2023						Common Stock												Treasury stock, at cost						Additional Paid-in Capital						Dividends Paid						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders' Equity
						Shares						Amount
Balance at June 30, 2023						74,083						$	1					$	(141,164)					$	477,111					$	(28,682)					$	542					$	(114,870)					$	192,938
Common stock issued under employee equity incentive plans						835						—						—						437						—						—						—						437
Repurchase of common stock						(168)						—						(2,442)						—						—						—						—						(2,442)
Stock-based compensation expense						—						—						—						4,217						—						—						—						4,217
Payments for dividends						—						—						—						—						(4,489)						—						—						(4,489)
Unrealized loss on marketable securities, net of tax						—						—						—						—						—						(177)						—						(177)
Unrealized loss on cash flow hedge, net of tax						—						—						—						—						—						(31)						—						(31)
Net Income						—						—						—						—						—						—						6,469						6,469
Balance at September 30, 2023						74,750						$	1					$	(143,606)					$	481,765					$	(33,171)					$	334					$	(108,401)					$	196,922

Three Months Ended September 30, 2024						Common Stock												Treasury stock, at cost						Additional Paid-in Capital						Dividends Paid						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders' Equity
						Shares						Amount
Balance at June 30, 2024						73,860						$	1					$	(165,785)					$	497,520					$	(46,562)					$	465					$	(71,282)					$	214,357
Common stock issued under employee equity incentive plans						670						—						—						66						—						—						—						66
Repurchase of common stock						(747)						—						(9,445)						—						—						—						—						(9,445)
Stock-based compensation expense						—						—						—						4,332						—						—						—						4,332
Payments for dividends						—						—						—						—						(4,426)						—						—						(4,426)
Unrealized gain on marketable securities, net of tax						—						—						—						—						—						450						—						450
Unrealized loss on cash flow hedge, net of tax						—						—						—						—						—						(701)						—						(701)
Net Income						—						—						—						—						—						—						12,637						12,637
Balance at September 30, 2024						73,783						$	1					$	(175,230)					$	501,918					$	(50,988)					$	214					$	(58,645)					$	217,270

See accompanying notes to the condensed consolidated financial statements.

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A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(unaudited, in thousands)

Nine Months Ended September 30, 2023						Common Stock												Treasury stock, at cost						Additional Paid-in Capital						Dividends Paid						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders' Equity
						Shares						Amount
Balance at December 31, 2022						73,738						$	1					$	(134,934)					$	466,927					$	(19,802)					$	(726)					$	(130,454)					$	181,012
Common stock issued under employee equity incentive plans						1,616						—						—						2,996						—						—						—						2,996
Repurchase of common stock						(604)						—						(8,672)						—						—						—						—						(8,672)
Stock-based compensation expense						—						—						—						11,842						—						—						—						11,842
Payments for dividends						—						—						—						—						(13,369)						—						—						(13,369)
Realized loss reclassified to earnings						—						—						—						—						—						(265)						—						(265)
Unrealized gain on marketable securities, net of tax						—						—						—						—						—						1,208						—						1,208
Unrealized gain on cash flow hedge, net of tax						—						—						—						—						—						117						—						117
Net Income						—						—						—						—						—						—						22,053						22,053
Balance at September 30, 2023						74,750						1						$	(143,606)					$	481,765					$	(33,171)					$	334					$	(108,401)					$	196,922

Nine Months Ended September 30, 2024						Common Stock												Treasury stock, at cost						Additional Paid-in Capital						Dividends Paid						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders' Equity
						Shares						Amount
Balance at December 31, 2023						74,359						$	1					$	(150,909)					$	486,958					$	(37,619)					$	(71)					$	(90,484)					$	207,876
Common stock issued under employee equity incentive plans						1,225						—						—						1,920						—						—						—						1,920
Repurchase of common stock						(1,801)						—						(24,321)						—						—						—						—						(24,321)
Stock-based compensation expense						—						—						—						13,040						—						—						—						13,040
Payments for dividends						—						—						—						—						(13,369)						—						—						(13,369)
Unrealized gain on marketable securities, net of tax						—						—						—						—						—						449						—						449
Unrealized loss on cash flow hedge, net of tax						—						—						—						—						—						(164)						—						(164)
Net Income						—						—						—						—						—						—						31,839						31,839
Balance at September 30, 2024						73,783						$	1					$	(175,230)					$	501,918					$	(50,988)					$	214					$	(58,645)					$	217,270

See accompanying notes to the condensed consolidated financial statements.

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A10 NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

			Nine Months Ended September 30,
			2024						2023
Cash flows from operating activities:
Net income			$	31,839					$	22,053
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			8,248						6,845
Stock-based compensation			12,284						11,180
Other non-cash items			(1,013)						774
Changes in operating assets and liabilities:
Accounts receivable			8,378						14,056
Inventory			(1,911)						(5,313)
Prepaid expenses and other assets			753						2,033
Accounts payable			(1,820)						(1,183)
Accrued liabilities			5,139						(17,384)
Deferred revenue			2,885						8,722
Net cash provided by operating activities			64,782						41,783
Cash flows from investing activities:
Proceeds from sales of marketable securities			22,536						42,252
Proceeds from maturities of marketable securities			66,446						54,007
Purchases of marketable securities			(127,288)						(75,064)
Capital expenditures			(9,886)						(7,752)
Net cash provided by (used in) investing activities			(48,192)						13,443
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans			1,919						2,996
Repurchase of common stock			(24,321)						(8,672)
Payments for dividends			(13,369)						(13,369)
Net cash used in financing activities			(35,771)						(19,045)
Net increase (decrease) in cash and cash equivalents			(19,181)						36,181
Cash and cash equivalents—beginning of period			97,244						67,971
Cash and cash equivalents—end of period			$	78,063					$	104,152
Non-cash investing and financing activities:
Transfers between inventory and property and equipment			$	2,015					$	1,445
Purchases of property and equipment included in accounts payable			$	2,340					$	2,672

See accompanying notes to the condensed consolidated financial statements.

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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 security and infrastructure solutions and services for on-premises, hybrid cloud and edge-cloud environments that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures. Our product portfolio seeks to address many of the cyber protection challenges and solution requirements. The portfolio consists of six secure application solutions; Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”), and two intelligent management and automation tools; Harmony Controller and aGalaxy TPS. Our solutions are available in a variety of form factors, such as optimized hardware appliances, bare metal software, containerized software, virtual appliances and cloud-native software. Our 7000+ customers span global large enterprises and communications, cloud and web service providers, and government organizations.

We derive revenue from two sources: (i) products revenue, which includes hardware, perpetual software license and subscription offerings, which include term-based license agreements; and (ii) services revenue, which includes post contract support (“PCS”), professional services, training and software-as-a-service offerings. Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and over time once the subscription term has commenced. For our software-as-a-service offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized over time as the services are provided. A substantial portion of our revenue is from sales of our products and services through distribution channels, such as resellers and distributors. Our customers predominantly purchase PCS services in conjunction with purchases of our products. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to seven years.

We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. We report two customer verticals: service providers and enterprises, and we report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the United States and other countries in the Americas (excluding the United States). The APJ region comprises Japan and other countries in Asia Pacific. The EMEA region comprises Europe, Middle East and Africa. We believe this geographic revenue view is consistent with how we evaluate our financial performance.

Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly.

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include those of A10 Networks, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions.

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC” or the “Commission”). As permitted under these rules and regulations, we have condensed or omitted certain financial information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The unaudited condensed consolidated balance sheet as of December 31, 2023 has been derived from our audited financial statements, which are included in our 2023 Annual Report on Form 10-K for the year ended December 31, 2023 on file with the SEC (the “2023 Annual Report”).

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

These financial statements and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto in the 2023 Annual Report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Those estimates and assumptions affect revenue recognition and deferred revenue, the allowance for credit losses for potential uncollectible amounts, the sales return reserve, the valuation of inventory, the fair value of marketable securities, contingencies and litigation, accrued liabilities, deferred commissions and the determination of fair value of stock-based compensation. These estimates are based on information available as of the date of the condensed consolidated financial statements, therefore, actual results could differ from management’s estimates.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Part II – Item 8, “Financial Statements and Supplementary Data” of the 2023 Annual Report filed with the SEC on February 29, 2024. There have been no material changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2024.

Concentration of Credit Risk and Significant Customers

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

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

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

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

						Three Months Ended September 30,												Nine Months Ended September 30,
Customers						2024						2023						2024						2023
Customer A						17%						*						14%						15%

* represents less than 10% of total revenue

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As of September 30, 2024, one customer accounted for 41% of our total gross accounts receivable. As of December 31, 2023, one customer accounted for 19% of our total gross accounts receivable.

Recent Accounting Standards Not Yet Adopted

In November 2023, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We do not expect the adoption of this accounting standard to have an impact on our consolidated financial statements, but will require certain additional disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09.

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the three and nine months ended September 30, 2024 that are of significance or potential significance to us.

2. Leases

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

The table below presents the Company’s right-of-use assets and lease liabilities as of September 30, 2024 (in thousands):

						As of September 30, 2024						As of December 31, 2023
Operating leases
Right-of-use assets:
			Other non-current assets			$	12,776					$	16,376
Total right-of-use assets						$	12,776					$	16,376
Lease liabilities:
			Accrued liabilities			$	4,871					$	4,998
			Other non-current liabilities			8,356						11,822
Total operating lease liabilities						$	13,227					$	16,820

The aggregate future lease payments for non-cancelable operating leases as of September 30, 2024 were as follows (in thousands):

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Remainder of 2024			$	1,383
2025			5,000
2026			4,915
2027			2,441
Total lease payments			13,739
Less: imputed interest			(512)
Present value of lease liabilities			$	13,227

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Operating lease costs			$	1,086					$	1,087					$	3,246					$	3,291
Short-term lease costs			150						129						397						378
Total lease costs			$	1,236					$	1,216					$	3,643					$	3,669

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

						Three Months Ended September 30,
						2024						2023
Weighted-average remaining term (years)						2.68						3.61
Weighted-average discount rate						3.19%						3.19%

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

						Three Months Ended September 30,
						2024						2023
Cash paid for amounts included in the measurement of lease liabilities:
			Operating cash flows from operating leases			$	4,097					$	3,972

3. Marketable Securities and Fair Value Measurements

Marketable Securities

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

						As of September 30, 2024																								As of December 31, 2023
						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Corporate securities						$	44,123					$	239					$	(7)					$	44,355					$	15,393					$	2					$	(2)					$	15,393
U.S. Treasury and agency securities						54,803						327						—						55,130						39,963						6						(32)						39,937
Commercial paper						—						—						—						—						998						—						—						998
Debt securities						$	98,926					$	566					$	(7)					$	99,485					$	56,354					$	8					$	(34)					$	56,328
Publicly held equity securities - Level 1																								4,558																								5,728
Total marketable securities																								$	104,043																							$	62,056

During the three and nine months ended September 30, 2024 and 2023, we did not reclassify any amount to earnings from accumulated other comprehensive income (loss) related to unrealized gains or losses.

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The following table summarizes the cost and estimated fair value of our marketable securities based on stated effective maturities as of September 30, 2024 (excluding publicly held equity securities, in thousands):

As of September 30, 2024						Amortized Cost						Fair Value
Less than 1 year						$	68,761					$	68,927
Mature in 1 - 3 years						30,165						30,558
Debt securities						$	98,926					$	99,485

All available-for-sale securities have been classified as current because they are available for use in current operations.

Marketable securities in an unrealized loss position as of September 30, 2024 consisted of the following (in thousands):

						Less Than 12 Months												12 Months or More												Total
As of September 30, 2024						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Corporate securities						$	4,993					$	(7)					$	—					$	—					$	4,993					$	(7)
U.S. Treasury and agency securities						2,998						—						—						—						2,998						—
Total						$	7,991					$	(7)					$	—					$	—					$	7,991					$	(7)

Marketable securities in an unrealized loss position as of December 31, 2023 consisted of the following (in thousands):

						Less Than 12 Months												12 Months or More												Total
As of December 31, 2023						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Corporate securities						$	9,418					$	(2)					$	—					$	—					$	9,418					$	(2)
U.S. Treasury and agency securities						24,304						(32)						—						—						24,304						(32)
Total						$	33,722					$	(34)					$	—					$	—					$	33,722					$	(34)

Based on evaluation of securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during the three and nine months ended September 30, 2024 and 2023.

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Fair Value Measurements

The following is a summary of our cash, cash equivalents and marketable securities measured at fair value on a recurring basis (in thousands):

			As of September 30, 2024																								As of December 31, 2023
			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Cash			$	72,105					$	—					$	—					$	72,105					$	52,451					$	—					$	—					$	52,451
Cash equivalents			5,958						—						—						5,958						44,793						—						—						44,793
Corporate securities			—						44,355						—						44,355						—						15,393						—						15,393
U.S. Treasury and agency securities			39,419						15,711						—						55,130						12,701						27,236						—						39,937
Commercial paper			—						—						—						—						—						998						—						998
			$	117,482					$	60,066					$	—					$	177,548					$	109,945					$	43,627					$	—					$	153,572
Publicly held equity securities - Level 1																					4,558																								5,728
Total																					$	182,106																							$	159,300

There were no transfers between Level 1 and Level 2 fair value measurement categories during the three and nine months ended September 30, 2024 and 2023.

4. Derivatives

Foreign Exchange Forward Contracts

The Company uses derivative financial instruments to manage exposures to foreign currency that may or may not be designated as hedging instruments. The Company’s objective for holding derivatives is to use the most effective methods to minimize the impact of these exposures. The Company does not enter into derivatives for speculative or trading purposes. The Company enters into foreign exchange forward contracts primarily to mitigate the effect of gains and losses generated by foreign currency transactions related to certain operating expenses and remeasurement of certain assets and liabilities denominated in foreign currencies.

For foreign exchange forward contracts not designated as hedging instruments, the fair value of the derivatives in a net gain or not loss position are recorded in prepaid expenses and other current assets in the consolidated balance sheets. Changes in the fair value of derivatives are recorded as gains or losses in other income (expense), net, in the consolidated statements of operations. As of September 30, 2024 and December 31, 2023, foreign exchange forward currency contracts not designated as hedging instruments had total notional amounts of $5.4 million and $34.5 million, respectively. These contracts have maturities of less than 30 days. For the three months ended September 30, 2024 and 2023, the Company recorded foreign exchange related net losses of $32 thousand and net gains of $0.3 million, respectively, and for the nine months ended September 30, 2024 and 2023, the Company recorded net losses of $0.3 million and $0.4 million, respectively, in its consolidated statements of operations related to these contracts.

For foreign exchange forward contracts designated as hedging instruments, unrealized gains and losses arising from these contracts are recorded as a component of accumulated other comprehensive income (loss) on the consolidated balance sheets. The hedging gains and losses in accumulated other comprehensive income (loss) in the consolidated balance sheet are subsequently reclassified to expenses, as applicable, in the consolidated statements of operations in the same period in which the underlying transactions affect the Company’s earnings. As of September 30, 2024 and December 31, 2023, foreign exchange forward currency contracts designated as hedging instruments had notional amounts of $3.6 million and $10.8 million, respectively. These contracts have 30 day maturities.

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5. Condensed Consolidated Financial Statement Components

Accounts Receivable Allowance for Credit Losses

The following table presents the change in the Company’s accounts receivable allowance for credit losses (in thousands):

			As of September 30, 2024						As of December 31, 2023
Allowance for credit losses, beginning balance			$	405					$	32
Increase (decrease) in allowance			1,948						1,181
Write-offs			(1,182)						(808)
Allowance for credit losses, ending balance			$	1,171					$	405

Inventory

Inventory consisted of the following (in thousands):

			As of September 30, 2024						As of December 31, 2023
Raw materials			$	15,236					$	15,473
Finished goods			8,181						8,049
Total inventory			$	23,417					$	23,522

Prepaid Expenses and Other Current Assets

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

			As of September 30, 2024						As of December 31, 2023
Prepaid expenses			$	5,682					$	6,143
Deferred contract acquisition costs			5,704						6,177
Other			1,979						2,375
Total prepaid expenses and other current assets			$	13,365					$	14,695

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

			Useful Life						As of September 30, 2024						As of December 31, 2023
			(in years)
Equipment			1 - 5						$	35,859					$	31,174
Software			1 - 3						4,250						5,339
Furniture and fixtures			1 - 7						531						520
Leasehold improvements			Lease term						3,439						3,207
Construction in process									21,243						13,731
Property and equipment, gross									65,322						53,971
Less: accumulated depreciation									(28,009)						(24,095)
Property and equipment, net									$	37,313					$	29,876

Construction in process primarily consists of deferred software development costs related to several software-as-a-service projects that will take longer than one year to complete.

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Depreciation expense on property and equipment was $1.6 million and $1.4 million for the three months ended September 30, 2024 and 2023, respectively, and was $4.6 million and $3.3 million for the nine months ended September 30, 2024 and 2023, respectively.

Internally Developed Software to be Marketed and Sold

During the three and nine months ended September 30, 2024, no costs were capitalized associated with internally developed software to be marketed and sold. During the three and nine months ended September 30, 2023, capitalized costs associated with internally developed software to be marketed and sold totaled $34 thousand and $0.5 million, respectfully. During the three months ended September 30, 2024 and 2023, amortization cost totaled $0.1 million in each period, respectfully. During the nine months ended September 30, 2024 and 2023, amortization cost totaled $0.3 million and $0.2 million, respectively. As of September 30, 2024, the unamortized capitalized internally developed software balance was $1.8 million and is included in other non-current assets.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

			As of September 30, 2024						As of December 31, 2023
Accrued compensation and benefits			$	16,466					$	7,633
Accrued tax liabilities			2,745						1,429
Lease liability			4,871						4,998
Other			5,903						7,328
Total accrued liabilities			$	29,985					$	21,388

Deferred Revenue

Deferred revenue consisted of the following (in thousands):

			As of September 30, 2024						As of December 31, 2023
Deferred revenue:
Products			$	1,604					$	14,917
Services			142,615						126,417
Total deferred revenue			144,219						141,334
Less: current portion			(89,509)						(82,657)
Non-current portion			$	54,710					$	58,677

6. Commitments and Contingencies

Lease Commitments

We lease various operating spaces in the United States, Asia and Europe under non-cancelable operating lease arrangements that expire on various dates through July 2027. These arrangements require us to pay certain operating expenses, such as taxes, repairs and insurance, and contain renewal and escalation clauses. We recognize rent expense under these arrangements on a straight-line basis over the term of the lease. See Note 2 – Leases for the Company’s aggregate future lease payments for the Company’s non-cancelable operating leases as of September 30, 2024.

Rent expense was $1.2 million for both the three months ended September 30, 2024 and 2023 and was $3.6 million and $3.7 million for the nine months ended September 30, 2024 and 2023, respectively

Purchase Commitments

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We have open purchase commitments with third-party contract manufacturers with facilities in Taiwan to supply nearly all of our finished goods inventories, spare parts, and accessories. These purchase orders are expected to be paid within one year of the issuance date. We had open purchase commitments with manufacturers in Taiwan totaling $12.8 million as of September 30, 2024.

Guarantees and Indemnifications

In the normal course of business, we provide indemnifications to customers against claims of intellectual property infringement made by third parties arising from the use of our products. Other guarantees or indemnification arrangements include guarantees of product and service performance, and standby letters of credit for lease facilities and corporate credit cards. We have not recorded a liability related to these indemnification and guarantee provisions and our guarantees and indemnification arrangements have not had any significant impact on our condensed consolidated financial statements to date.

7. Equity Incentive Plans, Stock-Based Compensation and Stock Repurchase Program

Equity Incentive Plans

2014 Equity Incentive Plan and 2023 Stock Incentive Plan

The 2014 Equity Incentive Plan (the “2014 Plan”) was in effect until it was replaced by the 2023 Stock Incentive Plan (the “2023 Plan”) on April 1, 2023. No further grants will be made under the 2014 Plan. Both the 2014 Plan and 2023 Plan provide for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), market performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our Board of Directors. As of September 30, 2024, we had 3,584,850 shares available for future grant under the 2023 Plan.

2014 Employee Stock Purchase Plan

The 2014 Employee Stock Purchase Plan, as amended (the “Amended 2014 Purchase Plan”) provides employees with an opportunity to purchase our common stock through accumulated contributions, up to a maximum of 10% of eligible compensation, with offering periods of six months in duration, beginning on or about December 1 and June 1 each year. As of September 30, 2024, the Company had 653,839 shares available for future issuance under the Amended 2014 Purchase Plan.

Stock-Based Compensation

A summary of our stock-based compensation expense is as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Stock-based compensation by type of award:
Stock awards			$	3,918					$	3,701					$	11,428					$	10,349
Employee stock purchase rights			262						265						856						831
			$	4,180					$	3,966					$	12,284					$	11,180
Stock-based compensation by category of expense:
Cost of net revenue			$	484					$	446					$	1,501					$	1,262
Sales and marketing			1,039						1,248						3,175						3,305
Research and development			1,054						896						2,940						2,533
General and administrative			1,603						1,376						4,668						4,080
			$	4,180					$	3,966					$	12,284					$	11,180

As of September 30, 2024, the Company had $36.1 million of unrecognized stock-based compensation expense related to unvested stock-based awards, including common stock acquired under our Amended 2014 Purchase Plan, which will be recognized over a weighted-average period of 2.82 years.

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Stock Options

The following table summarizes our stock option activities and related information:

						Number of Shares (thousands)						Weighted-Average Exercise Price Per Share						Weighted-Average Remaining Contractual Term (years)						Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 2023						80						$	4.63
Exercised						(48)						4.40
Canceled						(3)						12.19
Outstanding as of September 30, 2024						29						4.37						0.22						$	290
Vested and exercisable as of September 30, 2024						29						$	4.37					0.22						$	290

As of September 30, 2024, the aggregate intrinsic value represents the excess of the closing price of our common stock of $14.44 over the exercise price of the outstanding in-the-money options.

The intrinsic value of options exercised was $0.1 million and $0.3 million during the three months ended September 30, 2024 and 2023, respectively, and was $0.5 million and $1.2 million during the nine months ended September 30, 2024 and 2023, respectively.

Stock Awards

The Company has granted RSUs to its employees, consultants and members of its Board of Directors, and PSUs to certain executives and employees. The Company’s PSUs have market performance-based vesting conditions as well as service-based vesting conditions. As of September 30, 2024, there were 2,462,149 RSUs and 868,923 PSUs outstanding.

The following table summarizes our stock award activities and related information:

						Number of Shares (thousands)						Weighted-Average Grant Date Fair Value Per Share						Weighted-Average Remaining Vesting Term (years)						Aggregate Fair Value (thousands)
Nonvested as of December 31, 2023						3,017						$	13.15
Granted						1,614						13.23
Released						(1,039)						12.09
Canceled						(261)						14.14
Nonvested as of September 30, 2024						3,331						$	13.44					2.07						$	48,101

The aggregate fair value of stock awards released was $8.3 million and $8.4 million for the three months ended September 30, 2024 and 2023, respectively, and was $12.6 million and $12.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Stock Repurchase Programs

On November 1, 2022, the Company announced its Board of Directors authorized a stock repurchase program of up to $50 million of its common stock over a period of twelve months (the “2022 Program”). During the nine months ended September 30, 2023, the Company repurchased 0.6 million shares for a total cost of $8.7 million under the 2022 Program. This repurchase program was active for twelve months and expired in the second half of 2023.

On November 7, 2023, the Company announced its Board of Directors authorized a stock repurchase program of up to $50 million of its common stock over a period of twelve months (the “2023 Program”). During the nine months ended September 30, 2024, the Company repurchased 1.8 million shares for a total cost of $24.6 million under the 2023 Program.

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On November 7, 2024, the Company announced its Board of Directors authorized a new stock repurchase program of up to $50 million of its common stock (the “2024 Program”). The 2024 Program does not have a specified term or termination date.

Under the Company’s stock repurchase programs, repurchased shares are held in treasury at cost. The Company’s stock repurchase programs do not obligate it to acquire any specific number of shares. Shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

8. Net Income Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding for the period. Diluted net income per share applying the treasury stock method is computed using the weighted average number of common shares outstanding for the period plus potential dilutive common shares, including stock options, RSUs, PSUs and employee stock purchase rights, unless the potential common shares are anti-dilutive.

Basic and diluted net income per share are calculated as follows (in thousands, except per share amounts):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Basic and diluted net income per share
Numerator:
Net income			$	12,637					$	6,469					$	31,839					$	22,053
Denominator:
Weighted-average shares outstanding - basic			73,823						74,526						74,200						74,184
Effect of dilutive potential common shares from stock options, stock awards and employee stock purchase plan			957						1,281						1,036						1,455
Weighted-average shares outstanding - diluted			74,780						75,807						75,236						75,639
Net income per share:
Basic			$	0.17					$	0.09					$	0.43					$	0.30
Diluted			$	0.17					$	0.09					$	0.42					$	0.29

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Stock options, restricted stock units and employee stock purchase rights			171						1						86						33

9. Income Taxes

We recorded a provision for income tax of $1.8 million and a benefit for income tax of $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and we recorded a provision for income tax expense of $4.8 million and $2.6 million for the nine months ended September 30, 2024 and 2023, respectively. The Company’s income tax provision and benefit for the three and nine months ended September 30, 2024 and 2023 primarily consisted of U.S. federal and state taxes.

We had $8.1 million of unrecognized tax benefits as of September 30, 2024. We do not anticipate a material change to our unrecognized tax benefits over the next twelve months. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

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Accrued interest and penalties related to unrecognized tax benefits are recognized as part of our provision for income taxes in our condensed consolidated statements of operations.

We are subject to taxation in the United States, various states, and several foreign jurisdictions. Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine our tax returns for all years from 2005 through the current period. We are not currently under examination by any taxing authorities.

10. Geographic Information

We report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the United States and other countries in the Americas (excluding the United States). The APJ region comprises Japan and other countries in Asia Pacific. The EMEA region comprises Europe, Middle East and Africa. We believe this geographic revenue view is consistent with how we evaluate our financial performance.

The following table depicts the disaggregation of revenue by geographic region based on the ship to location of our customers (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Americas			$	34,253					$	25,818					$	92,564					$	92,695
United States			30,323						23,777						80,176						79,738
Americas-other			3,930						2,041						12,388						12,957
APJ			22,989						21,196						67,319						58,938
EMEA			9,479						10,761						27,609						29,650
Total net revenue			$	66,721					$	57,775					$	187,492					$	181,283

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

			As of September 30, 2024						As of December 31, 2023
United States			$	47,484					$	43,782
APAC			1,788						1,094
Japan			561						1,096
EMEA			256						280
Total			$	50,089					$	46,252

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11. Revenue

We report two customer verticals: service providers and enterprises. Revenue generated from service providers and enterprises was as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Service providers			$	36,726					$	28,729					$	107,764					$	105,686
Enterprises			29,995						29,046						79,728						75,597
Total			$	66,721					$	57,775					$	187,492					$	181,283

Contract Balances

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

			As of September 30, 2024						As of December 31, 2023
Accounts receivable, net			$	64,949					$	74,307
Deferred revenue, current			89,509						82,657
Deferred revenue, non-current			54,710						58,677

We receive payments from customers based upon billing cycles. Invoice payment terms usually range from 30 to 90 days.

Accounts receivable are recorded when the right to consideration becomes unconditional.

Contract assets include amounts related to our contractual right to consideration for performance obligations not yet billed and are included in prepaid and other current assets in the condensed consolidated balance sheets. The amounts were immaterial as of September 30, 2024 and December 31, 2023.

Deferred revenue primarily consists of amounts that have been invoiced but not yet been recognized as revenue and consists of performance obligations pertaining to support and subscription services. We recognized revenue of $28.2 million and $25.8 million during the three months ended September 30, 2024 and 2023, respectively, related to deferred revenues at the beginning of the respective periods. We recognized revenue of $67.2 million and $60.0 million during the nine months ended September 30, 2024 and 2023, respectively, related to deferred revenues at the beginning of the respective periods.

Deferred Contract Acquisition Costs

We capitalize certain contract acquisition costs consisting of incremental sales commissions incurred to obtain customer contracts. Deferred commissions related to product revenues are recognized upon transfer of control to customers. Deferred commissions related to services revenue are recognized as the related performance obligations are met. Deferred commissions that will be recognized during the succeeding 12-month period are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other non-current assets. Amortization of deferred commissions is included in sales and marketing expense.

As of September 30, 2024, the current and non-current portions of deferred contract acquisition costs were $5.7 million and $4.4 million, respectively. As of December 31, 2023, the current and non-current portions of deferred contract acquisition costs were $6.2 million and $4.4 million, respectively. Related amortization expense was $2.0 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively, and was $4.9 million and $4.6 million, for the nine months ended September 30, 2024 and 2023, respectively.

We had no impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets during the three and nine months ended September 30, 2024 and 2023.

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Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations, which include deferred revenues and amounts that will be invoiced and recognized as revenues in future periods.

We expect to recognize revenue on the remaining performance obligations as follows (in thousands):

						As of September 30, 2024
Within 1 year						$	89,509
Next 2 to 3 years						44,392
Thereafter						10,318
			Total			$	144,219

12. Subsequent Events

On November 7, 2024, the Company announced its Board of Directors approved a quarterly cash dividend. The dividend, in the amount of $0.06 per share outstanding, will be paid on December 2, 2024 to stockholders of record on November 18, 2024 as a return of capital. Future dividends will be subject to further review and approval by the Board of Directors in accordance with applicable law. The Board of Directors reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews the Company’s capital allocation strategy from time-to-time.

Also on November 7, 2024, the Company announced its Board of Directors authorized a new repurchase program (the “2024 Program”) under which the Company may repurchase up to $50 million of its outstanding common stock. The 2024 Program does not have a specified term or termination date. Under the 2024 Program, the Company is authorized to repurchase shares of common stock in privately negotiated transactions, and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, and in block trades, or a combination of the foregoing. The Board will review the share repurchase program periodically and may authorize adjustment of its term and size. The Company plans to fund repurchases from its existing cash balance and cash provided by operating activities.

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

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this document. In addition to historical information, the MD&A contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Note Regarding Forward-Looking Statements” and other risk factors contained in Part I, Item 1A “Risk Factors” in our 2023 Annual Report.

Overview

We are a leading provider of security and infrastructure solutions and services for on-premises, hybrid cloud and edge-cloud environments that enable a new generation of intelligently connected companies with the ability to continuously improve cyber protection and digital responsiveness across dynamic Information Technology (“IT”) and network infrastructures. Our product portfolio seeks to address many of the cyber protection challenges and solution requirements. The portfolio consists of six secure application solutions; Thunder Application Delivery Controller (“ADC”), Lightning Application Delivery Controller (“Lightning ADC”), Thunder Carrier Grade Networking (“CGN”), Thunder Threat Protection System (“TPS”), Thunder SSL Insight (“SSLi”) and Thunder Convergent Firewall (“CFW”), and two intelligent management and automation tools; Harmony Controller and aGalaxy TPS. Our solutions are available in a variety of form factors, such as optimized hardware appliances, bare metal software, containerized software, virtual appliances and cloud-native software. Our 7000+ customers span global large enterprises and communications, cloud and web service providers, and government organizations.

We derive revenue from two sources: (i) products revenue, which includes hardware, perpetual software license and subscription offerings, which include term-based license agreements; and (ii) services revenue, which includes post contract support (“PCS”), professional services, training and software-as-a-service offerings. Revenue for term-based license agreements is recognized at a point in time when the Company delivers the software license to the customer and over time once the subscription term has commenced. For our software-as-a-service offerings, our customers do not take possession of the Company’s software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized over time as the services are provided. A substantial portion of our revenue is from sales of our products and services through distribution channels, such as resellers and distributors. Our customers predominantly purchase PCS services in conjunction with purchases of our products. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to seven years.

We sell our products globally to service providers and enterprises that depend on data center applications and networks to generate revenue and manage operations efficiently. We report two customer verticals: service providers and enterprises, and we report customer revenues in three broad geographic regions: the Americas, APJ and EMEA regions. The Americas region comprises the United States and other countries in the Americas (excluding the United States). The APJ region comprises Japan and other countries in Asia Pacific. The EMEA region comprises Europe, Middle East and Africa. We believe this geographic revenue view is consistent with how we evaluate our financial performance.

Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly.

We sell substantially all of our solutions through our high-touch sales organization as well as distribution channels, including distributors, value-added resellers and system integrators, and fulfill nearly all orders globally through such channels. 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.

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During the three months ended September 30, 2024, (i) 51% of our total revenue was generated from the Americas region, of which 45% was generated from the United States and 6% was generated from the Americas-other, (ii) 34% from the APJ region and (iii) 14% from the EMEA region. During the three months ended September 30, 2023, (i) 45% of our total revenue was generated from the Americas region, of which 41% was generated from the United States and 4% was generated from the Americas-other, (ii) 37% from the APJ region and (iii) 19% from the EMEA region. One of our priorities is to strengthen our sales efforts in North America. Our enterprise customers accounted for 45% and 50% of our total revenue during the three months ended September 30, 2024 and 2023, respectively, and our service provider customers accounted for 55% and 50% of our total revenue during the three months ended September 30, 2024 and 2023, respectively.

As a result of the nature of our target market and the current stage of our development, a substantial portion of our revenue comes from a limited number of large customers, including service providers and enterprise customers, in any period. Purchases by our ten largest end-customers accounted for 44% and 29% of our total revenue for the three months ended September 30, 2024 and 2023, respectively. Sales to these large end-customers have typically been characterized by large but irregular purchases with long sales cycles. The timing of these purchases and the delivery of the purchased products are difficult to predict. Consequently, any acceleration or delay in anticipated product purchases by or deliveries to our largest customers could materially impact our revenue and operating results in any quarterly period. This may cause our quarterly revenue and operating results to fluctuate from quarter to quarter and make them difficult to predict.

As of September 30, 2024, we had $78.1 million of cash and cash equivalents and $104.0 million of marketable securities. Cash provided by operating activities was $64.8 million during the nine months ended September 30, 2024, compared to $41.8 million in the same period of 2023.

We intend to continue to invest for long-term growth. We have invested and expect to continue to invest in our product development efforts to deliver new products and additional features in our current products to address customer needs. In addition, we may expand our global sales and marketing organizations, expand our distribution channel programs and increase awareness of our solutions on a global basis. Our investments in growth in these areas may affect our short-term profitability.

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Results of Operations

A summary of our condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 is as follows (dollars in thousands):

			Three Months Ended September 30,
			2024												2023												Increase (Decrease)
			Amount						Percent of Total Revenue						Amount						Percent of Total Revenue						Amount						Percent
Net revenue:
Products			$	36,862					55.2		%				$	30,260					52.4		%				$	6,602					21.8		%
Services			29,859						44.8						27,515						47.6						2,344						8.5
Total net revenue			66,721						100.0						57,775						100.0						8,946						15.5
Cost of net revenue:
Products			7,531						11.3						6,815						11.8						716						10.5
Services			5,508						8.3						4,194						7.3						1,314						31.3
Total cost of net revenue			13,039						19.5						11,009						19.1						2,030						18.4
Gross profit			53,682						80.5						46,766						80.9						6,916						14.8
Operating expenses:
Sales and marketing			21,011						31.5						21,324						36.9						(313)						(1.5)
Research and development			15,734						23.6						17,620						30.5						(1,886)						(10.7)
General and administrative			6,494						9.7						5,613						9.7						881						15.7
Total operating expenses			43,239						64.8						44,557						77.1						(1,318)						(3.0)
Income from operations			10,443						15.7						2,209						3.8						8,234						372.7
Non-operating income, net:
Interest income			1,634						2.4						1,766						3.1						(132)						(7.5)
Other income, net			2,312						3.5						987						1.7						1,325						134.2
Non-operating income, net			3,946						5.9						2,753						4.8						1,193						43.3
Income before provision for (benefit from) income taxes			14,389						21.6						4,962						8.6						9,427						190.0
Provision for (benefit from) income taxes			1,752						2.6						(1,507)						(2.6)						3,259						(216.3)
Net income			$	12,637					18.9		%				$	6,469					11.2		%				$	6,168					95.3		%

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			Nine Months Ended September 30,
			2024												2023												Increase (Decrease)
			Amount						Percent of Total Revenue						Amount						Percent of Total Revenue						Amount						Percent
Revenue:
Products			$	96,464					51.4		%				$	100,532					55.5		%				$	(4,068)					(4.0)		%
Services			91,028						48.6						80,751						44.5						10,277						12.7
Total revenue			187,492						100.0						181,283						100.0						6,209						3.4
Cost of revenue:
Products			21,143						11.3						22,334						12.3						(1,191)						(5.3)
Services			15,378						8.2						12,354						6.8						3,024						24.5
Total cost of revenue			36,521						19.5						34,688						19.1						1,833						5.3
Gross profit			150,971						80.5						146,595						80.9						4,376						3.0
Operating expenses:
Sales and marketing			61,678						32.9						64,526						35.6						(2,848)						(4.4)
Research and development			44,533						23.8						43,250						23.9						1,283						3.0
General and administrative			19,188						10.2						18,177						9.9						1,011						5.6
Total operating expenses			125,399						66.9						125,953						69.5						(554)						(0.4)
Income from operations			25,572						13.6						20,642						11.4						4,930						23.9
Non-operating income, net:
Interest income			5,077						2.7						3,401						1.9						1,676						49.3
Other income, net			5,943						3.2						653						0.4						5,290						810.1
Non-operating income, net			11,020						5.9						4,054						2.2						6,966						171.8
Income before provision for income taxes			36,592						19.5						24,696						13.6						11,896						48.2
Provision for income taxes			4,753						2.5						2,643						1.5						2,110						79.8
Net income			$	31,839					17.0		%				$	22,053					12.2		%				$	9,786					44.4		%

Net Revenue

We derive revenue from two sources: (i) products revenue, which includes hardware, perpetual software license and subscription offerings, which include term-based license agreements; and (ii) services revenue, which includes post contract support (“PCS”), professional services, training and software-as-a-service offerings.

Our products revenue primarily consists of revenue from sales of our hardware appliances upon which our software is installed. Such software includes our ACOS software platform plus one or more of our ADC, CGN, TPS, SSLi or CFW solutions. Purchase of a hardware appliance includes a perpetual license to the included software. With respect to sales of our hardware appliances, we recognize products revenue upon transfer of control, generally at the time of shipment, provided that all other revenue recognition criteria have been met. Revenue for term-based license agreements is recognized at a point in time when we deliver the software license to the customer and the subscription term has commenced. 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 PCS, which is bundled with sales of products and technical services. We offer tiered PCS services under renewable, fee-based PCS contracts, primarily including technical support, hardware repair and replacement parts, and software upgrades on a when-and-if-available basis. We recognize services revenue ratably over the term of the PCS contract, which is typically one year, but can be up to seven years. For our software-as-a-service offerings, our customers do not take possession of our software but rather we provide access to the service via a hosting arrangement. Revenue in these arrangements is recognized over time as the services are provided. Additionally, an immaterial portion of our services revenue comes from subscription revenue. We offer several services by subscription, primarily through either term-based license agreements or as a service through our cloud-based platform.

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

			Three Months Ended September 30,
			2024												2023												Increase (Decrease)
			Amount						Percent of Total Revenue						Amount						Percent of Total Revenue						Amount						Percent
Net revenue:
Products			$	36,862					55		%				$	30,260					52		%				$	6,602					22		%
Services			29,859						45						27,515						48						2,344						9
Total net revenue			$	66,721					100		%				$	57,775					100		%				$	8,946					15		%
Net revenue by geographic region:
Americas			$	34,253					51		%				$	25,818					45		%				$	8,435					33		%
United States			30,323						45		%				23,777						41		%				6,546						28		%
Americas-other			3,930						6		%				2,041						4		%				1,889						93		%
APJ			22,989						35		%				21,196						37		%				1,793						8		%
EMEA			9,479						14		%				10,761						19		%				(1,282)						(12)		%
Total net revenue			$	66,721					100		%				$	57,775					100		%				$	8,946					15		%

			Nine Months Ended September 30,
			2024												2023												Increase (Decrease)
			Amount						Percent of Total Revenue						Amount						Percent of Total Revenue						Amount						Percent
Net revenue:
Products			$	96,464					51		%				$	100,532					55		%				$	(4,068)					(4)		%
Services			91,028						49						80,751						45						10,277						13
Total net revenue			$	187,492					100		%				$	181,283					100		%				$	6,209					3		%
Net revenue by geographic region:
Americas			$	92,564					49		%				$	92,695					51		%				$	(131)					—		%
United States			80,176						43		%				79,738						44		%				438						1		%
Americas-other			12,388						7		%				12,957						7		%				(569)						(4)		%
APJ			67,319						36		%				58,938						33		%				8,381						14		%
EMEA			27,609						15		%				29,650						16		%				(2,041)						(7)		%
Total revenue			$	187,492					100		%				$	181,283					100		%				$	6,209					3		%

Three Months Ended September 30, 2024 and 2023

Total net revenue increased $8.9 million, or 15%, during the three months ended September 30, 2024, compared to the same period of 2023. Changes in revenue were due primarily to (i) an increase of $8.4 million in the Americas region, comprised of increases of $6.5 million in the United States and $1.9 million in Americas-other, (ii) an increase of $1.8 million in the APJ region, and (iii) a decrease of $1.3 million in the EMEA region. The overall increase in revenue was attributable to a $8.0 million increase in revenue from service provider customers and a $0.9 million increase in revenue from enterprise customers during the three months ended September 30, 2024 compared to the same period of 2023. Products revenue increased $6.6 million, of which the Americas region increased $6.9 million and the APJ region increased $1.3 million, partially offset by a decrease of $1.6 million in the EMEA region for the three months ended September 30, 2024, compared to the same period of 2023. Services revenue increased $2.3 million, comprised of increases of $1.6 million, $0.5 million and $0.3 million in the Americas, APJ and EMEA regions, respectively, for the three months ended September 30, 2024, compared to the same period of 2023.

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Products revenue increased $6.6 million, or 22%, during the three months ended September 30, 2024 compared to the same period of 2023, as a result of an increase in demand from our service provider customers in the Americas and APJ regions.

Services revenue increased $2.3 million, or 9%, during the three months ended September 30, 2024, compared to the same periods of 2023, primarily attributable to an increase in PCS sales as a result of our growing installed customer base across all regions.

During the three months ended September 30, 2024, $34.3 million, or 51% of total revenue, was generated from the Americas region, which represents a 33% increase in revenue compared to the same period of 2023. The increase was primarily due to higher products revenue due to an increase in demand from our service provider customers in the Americas region.

During the three months ended September 30, 2024, $23.0 million, or 35% of total revenue, was generated from the APJ region, which represents an 8% increase compared to the same period of 2023. The increase was primarily due to higher services revenue due to an increase in demand from both our enterprise and service provider customers in the APJ region.

During the three months ended September 30, 2024, $9.5 million, or 14% of total revenue, was generated from the EMEA region, which represents a 12% decrease compared to the same period of 2023. The decrease was primarily due to lower products revenue due to a decrease in demand from our service provider customers in the EMEA region.

Nine Months Ended September 30, 2024 and 2023

Total net revenue increased $6.2 million, or 3%, during the nine months ended September 30, 2024, compared to the same period of 2023. Changes in revenue were due primarily to (i) a decrease of $0.1 million in the Americas region, comprised of a decrease of $0.6 million in Americas-other, partially offset by an increase of $0.4 million in the United States, (ii) an increase of $8.4 million in the APJ region, and (iii) a decrease of $2.0 million in the EMEA region. The overall increase in revenue was attributable to a $10.3 million increase in revenue from service provider customers, partially offset by a $4.1 million decrease in revenue from enterprise customers during the nine months ended September 30, 2024 compared to the same period of 2023. Products revenue decreased $4.1 million, of which the EMEA region decreased $4.3 million and the Americas region decreased $4.1 million, partially offset by an increase of $4.4 million in the APJ region for the nine months ended September 30, 2024, compared to the same period of 2023. Services revenue increased $10.3 million, comprised of increases of $4.0 million, $4.0 million and $2.3 million in the Americas, APJ and EMEA regions, respectively, for the nine months ended September 30, 2024, compared to the same period of 2023.

Products revenue decreased $4.1 million, or 4%, during the nine months ended September 30, 2024 compared to the same period of 2023, as a result of a decrease in demand from our service provider customers in the Americas regions.

Services revenue increased $10.3 million, or 13%, during the nine months ended September 30, 2024, compared to the same periods of 2023, primarily attributable to an increase in PCS sales as a result of our growing installed customer base across all regions.

During the nine months ended September 30, 2024, $92.6 million, or 49% of total revenue, was generated from the Americas region, which represents an immaterial decrease in revenue compared to the same period of 2023. The decrease was primarily due to lower products revenue due to a decrease in demand from our service provider customers in the Americas region.

During the nine months ended September 30, 2024, $67.3 million, or 36% of total revenue, was generated from the APJ region, which represents a 14% increase compared to the same period of 2023. The increase was primarily due to higher products and services revenue due to an increase in demand from our service provider customers in the APJ region.

During the nine months ended September 30, 2024, $27.6 million, or 15% of total revenue, was generated from the EMEA region, which represents a 7% decrease compared to the same period of 2023. The decrease was primarily due to lower products revenue due to a decrease in demand from our service provider customers in the EMEA region.

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Cost of Net Revenue, Gross Margin and Gross Profit

Cost of Net 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 and training teams. Cost of services revenue also includes the costs of inventory used to provide hardware replacements to end- customers under PCS contracts and certain allocated facilities and information technology infrastructure costs.

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

			Three Months Ended September 30,												Increase (Decrease)
			2024						2023						Amount						Percent
Cost of net revenue:
Products			$	7,531					$	6,815					$	716					10.5		%
Services			5,508						4,194						1,314						31.3
Total cost of net revenue			$	13,039					$	11,009					$	2,030					18.4		%

			Nine Months Ended September 30,												Increase (Decrease)
			2024						2023						Amount						Percent
Cost of net revenue:
Products			$	21,143					$	22,334					$	(1,191)					(5.3)		%
Services			15,378						12,354						3,024						24.5
Total cost of net revenue			$	36,521					$	34,688					$	1,833					5.3		%

Products cost of revenue increased 10.5% and decreased 5.3% during the three and nine months ended September 30, 2024, respectively, compared to the same periods of 2023, primarily due product and regional mix.

Services cost of revenue increased 31.3% and 24.5% during the three and nine months ended September 30, 2024, respectively, compared to the same periods of 2023, primarily driven by the mix of services delivered, which include technical support, training and service costs.

Gross Margin

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

Our sales are generally denominated in U.S. Dollars; however, in Japan, our sales are denominated in Japanese Yen.

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

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

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			Three Months Ended September 30,
			2024												2023												Increase (Decrease)
			Amount						Gross Margin						Amount						Gross Margin						Amount						Gross Margin
Gross profit:
Products			$	29,331					79.6		%				$	23,445					77.5		%				$	5,886					2.1		%
Services			24,351						81.6						23,321						84.8						1,030						(3.2)
Total gross profit			$	53,682					80.5		%				$	46,766					80.9		%				$	6,916					(0.4)		%

			Nine Months Ended September 30,
			2024												2023												Increase (Decrease)
			Amount						Gross Margin						Amount						Gross Margin						Amount						Gross Margin
Gross profit:
Products			$	75,321					78.1		%				$	78,198					77.8		%				$	(2,877)					0.3		%
Services			75,650						83.1						68,397						84.7						7,253						(1.6)
Total gross profit			$	150,971					80.5		%				$	146,595					80.9		%				$	4,376					(0.4)		%

Products gross margin increased 2.1% and 0.3% during the three and nine months ended September 30, 2024, respectively, compared to the same periods of 2023, primarily due to product and regional mix.

Services gross margin decreased 3.2% and 1.6% during the three and nine months ended September 30, 2024, respectively, compared to the same periods of 2023, primarily driven by the mix of services delivered, which include technical support, training and service costs.

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Operating Expenses

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. The largest component of our operating expenses is personnel costs which consist of wages, benefits, bonuses, and, with respect to sales and marketing expenses, sales commissions. Personnel costs also include stock-based compensation.

A summary of our operating expenses is as follows (dollars in thousands):

			Three Months Ended September 30,												Increase (Decrease)
			2024						2023						Amount						Percent
Operating expenses:
Sales and marketing			$	21,011					$	21,324					$	(313)					(1.5)		%
Research and development			15,734						17,620						(1,886)						(10.7)
General and administrative			6,494						5,613						881						15.7
Total operating expenses			$	43,239					$	44,557					$	(1,318)					(3.0)		%

			Nine Months Ended September 30,												Increase (Decrease)
			2024						2023						Amount						Percent
Operating expenses:
Sales and marketing			$	61,678					$	64,526					$	(2,848)					(4.4)		%
Research and development			44,533						43,250						1,283						3.0
General and administrative			19,188						18,177						1,011						5.6
Total operating expenses			$	125,399					$	125,953					$	(554)					(0.4)		%

Sales and Marketing

Sales and marketing expenses are our largest functional category of operating expenses and primarily consist of personnel costs. Sales and marketing expenses also include the cost of marketing programs, trade shows, consulting services, promotional materials, demonstration equipment, depreciation and certain allocated facilities and information technology infrastructure costs.

Sales and marketing operating expenses decreased $0.3 million, or 1.5%, in the three months ended September 30, 2024, compared to the same period in 2023, and decreased $2.8 million, or 4.4%, in the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to a decrease in personnel costs.    

For the full year 2024, we expect sales and marketing expenses to decrease from 2023 levels as we apply a disciplined approach to focus our investments in areas that offer the greatest opportunities.

Research and Development

Research and development efforts are focused on new product development and on developing additional functionality for our existing products. These expenses primarily consist of personnel costs, and, to a lesser extent, prototype materials,

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depreciation and certain allocated facilities and information technology infrastructure costs. We expense research and development costs as incurred.

Research and development operating expenses decreased $1.9 million, or 10.5%, in the three months ended September 30, 2024, compared to the same period in 2023, and increased $1.3 million, or 3.0%, in the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to fluctuations in personnel costs.

For the full year 2024, we expect research and development expenses to increase from 2023 levels reflecting strategic investments in our growth priorities, including cybersecurity technology.

General and Administrative

General and administrative expenses primarily consist of personnel costs, professional services and office expenses. General and administrative personnel costs include executive, finance, human resources, information technology, facility and legal related expenses. Professional services primarily consist of fees for outside accounting, tax, external legal counsel (including litigation), recruiting and other administrative services.

General and administrative operating expenses increased $0.9 million, or 15.7%, in the three months ended September 30, 2024, compared to the same period in 2023, and increased $1.1 million, or 5.6%, in the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to an increase in personnel costs.

For the full year 2024, we expect general and administrative expenses to increase modestly from 2023 levels as we apply a disciplined approach to focus our investments in areas that offer the greatest opportunities.

Non-Operating Income, Net

Non-Operating income, net, consists primarily of interest income earned on our cash and cash equivalents and marketable securities, foreign currency exchange gains and losses and fair value adjustments on investments in publicly held equity securities. Foreign currency exchange gains and losses are primarily a result of fluctuations in the Japanese Yen versus the U.S. Dollar.

Non-operating income, net, had a favorable change of $1.2 million for the three months ended September 30, 2024, compared to the same period of 2023. The favorable change was primarily driven by fair value adjustment gains of $0.9 million and foreign exchange gains of $0.5 million, partially offset by a decrease in interest income of $0.1 million for the three months ended September 30, 2024, compared to the same period of 2023.

Non-operating income, net, had a favorable change of $7.0 million for the nine months ended September 30, 2024, compared to the same period of 2023. The favorable change was primarily driven by a favorable change in foreign exchange gains and losses of $3.0 million, fair value adjustment gains of $2.0 million and an increase in interest income of $1.7 million for the nine months ended September 30, 2024, compared to the same period of 2023.

Provision for Income Taxes

We recorded a provision for income tax of $1.8 million and a benefit for income tax of $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and we recorded a provision for income tax expense of $4.8 million and $2.6 million for the nine months ended September 30, 2024 and 2023, respectively. The Company’s income tax provision and benefit for the three and nine months ended September 30, 2024 and 2023 primarily consisted of U.S. federal and state taxes.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $78.1 million, including $2.9 million held outside the United States in our foreign subsidiaries, and $104.0 million of marketable securities. We currently do not have any plans to repatriate our earnings from our foreign operations. As of September 30, 2024, we had working capital of $156.8 million, accumulated deficit of $58.6 million and total stockholders’ equity of $217.3 million. Our marketable securities are highly liquid and are classified as available for sale should the Company decide to quickly raise cash at any time in the future.

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We plan to continue to invest for long-term growth, and our investment may increase. We believe that our existing cash and cash equivalents and marketable securities will be sufficient to meet our anticipated cash needs for at least the next 12 months and beyond. Our future capital requirements will depend on many factors, including our growth rate, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced product and service offerings and the continuing market acceptance of our products. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition could be adversely affected.

The Company’s Board of Directors (the “Board”) has authorized various stock repurchase programs from time to time, including a twelve-month $50 million program approved on November 1, 2022 (the “2022 Program”), a twelve-month $50 million program approved November 7, 2023 (the “2023 Program”) and a $50 million program approved November 7, 2024 (the “2024 Program”). Under all programs, repurchased shares are held in treasury at cost. The Company’s stock repurchase programs do not obligate us to acquire any specific number of shares. Shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. Through December 31, 2023, the Company had repurchased 1.2 million shares for a total cost of $15.7 million under the 2022 Program. Through September 30, 2024, the Company had repurchased 1.8 million shares for a total cost of $24.6 million under the 2023 Program.

In October 2021, our Board approved the initiation of a regular quarterly cash dividend on our common stock. In the three and nine months ended September 30, 2024, the Company paid cash dividends of $0.06 per share outstanding, for a total of $4.5 million and $13.4 million, respectively, as a return of capital. In the three and nine months ended September 30, 2023, the Company paid cash dividends of $0.06 per share outstanding, for a total of $4.4 million $13.4 million, respectively, as a return of capital. The next dividend, in the amount of $0.06 per share, will be paid on December 2, 2024 to stockholders of record on November 18, 2024 as a return of capital. We currently anticipate that we will continue to pay comparable quarterly cash dividends in the future. However, the payment, amount and timing of future dividends remain within the discretion of our Board and will depend upon our results of operations, financial condition, cash requirements, and other factors.

As described in Part II – Item 1, “Legal Proceedings” of this Quarterly Report on Form 10-Q, from time to time we are involved in ongoing litigation. Any adverse settlements or judgments in any litigation could have a material adverse impact on our results of operations, cash balances and cash flows in the period in which such events occur.    

Statements of Cash Flows

The following table summarizes our cash flow related activities (in thousands):

			Nine Months Ended September 30,
			2024						2023
Cash provided by (used in):
Operating activities			$	64,782					$	41,783
Investing activities			(48,192)						13,443
Financing activities			(35,771)						(19,045)
Net increase (decrease) in cash and cash equivalents			$	(19,181)					$	36,181

Cash Flows from Operating Activities

Our cash provided by operating activities is driven primarily by sales of our products and management of working capital investments. Our primary uses of cash from operating activities have been for personnel-related expenditures, manufacturing costs, marketing and promotional expenses and costs related to our facilities. Our cash flows from operating activities will continue to be affected principally by the extent to which we increase spending on our business and our working capital requirements.

During the nine months ended September 30, 2024 cash provided by operating activities was $64.8 million, consisting of net income of $31.8 million, non-cash charges of $19.5 million and an increase in cash resulting from the net change in operating assets and liabilities of $13.4 million. Our non-cash charges consisted primarily of depreciation and amortization expenses of $8.2 million and stock-based compensation expense of $12.3 million. The net change in our operating assets and liabilities primarily reflects cash inflows from the changes in accounts receivable of $8.4 million, accrued liabilities of $5.1 million, deferred revenue of $2.9 million and prepaid expenses and other assets of $0.8 million, partially offset by cash outflows from inventory of $1.9 million and accounts payable of $1.8 million.

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The favorable change in accounts receivable was attributed to timing of billing and cash collections. The favorable change in accrued expenses was primarily due to an increase in accrued variable compensation. The unfavorable change in inventory was attributable to the timing of product shipments. The unfavorable change in accounts payable was attributable to the timing of payments to vendors. The unfavorable change in prepaid expenses and other assets was attributable to an increase in prepaid state and federal taxes. The unfavorable change in deferred revenue was attributable to the timing of service contract bookings.

During the nine months ended September 30, 2023, cash provided by operating activities was $41.8 million, consisting of net income of $22.1 million and non-cash charges of $18.8 million and an increase in cash resulting from the net change in operating assets and liabilities of $0.9 million. Our non-cash charges consisted primarily of depreciation and amortization expenses of $6.8 million and stock-based compensation expense of $11.2 million. The net change in our operating assets and liabilities primarily reflects cash inflows from the changes in accrued receivable of $14.1 million, deferred revenue of $8.7 million and prepaid expenses and other assets of $2.0 million, partially offset by cash outflows from changes in accrued liabilities of $17.4 million, inventory of $5.3 million and accounts payable of $1.2 million.

The unfavorable change in accrued liabilities was attributed to variable cash compensation accruals. The unfavorable change in inventory was attributable to the timing of product shipments. The unfavorable change in accounts payable was attributable to the timing of payments to vendors. The favorable change in deferred revenue was attributable to the timing of service contract bookings. The favorable change in prepaid expenses and other assets was primarily due to the release and return of a security deposit. The favorable change in accounts receivable was attributed to timing of billing and cash collections.

Cash Flows from Investing Activities

During the nine months ended September 30, 2024, cash used in investing activities was $48.2 million, consisting of purchases of marketable securities of $127.3 million and capital expenditures of $9.9 million, partially offset by maturities and sales of marketable securities of $89.0 million.

During the nine months ended September 30, 2023, cash provided by investing activities was $13.4 million, consisting of maturities and sales of marketable securities of $96.3 million, partially offset by purchases of marketable securities of $75.1 million and capital expenditures of $7.8 million.

Cash Flows from Financing Activities

During the nine months ended September 30, 2024, cash used in financing activities was $35.8 million and primarily consisting of $24.3 million used for repurchases of common stock and $13.4 million used for cash dividend payments, partially offset by $1.9 million of proceeds from common stock issued under the Company’s equity plans.

During the nine months ended September 30, 2023, cash used in financing activities was $19.0 million and primarily consisting of $13.4 million used for cash dividend payments and $8.7 million used for repurchases of common stock, partially offset by $3.0 million of proceeds from common stock issued under the Company’s equity plans.

Contractual Obligations

Our contractual obligations consist of non-cancellable operating lease arrangements and totaled $13.2 million as of September 30, 2024. Our operating lease arrangements 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.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

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The Company’s critical accounting policies and estimates are disclosed in Part II – Item 7, “Critical Accounting Estimates” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. There have been no material changes to the Company’s critical accounting policies and estimates during the nine months ended September 30, 2024.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

Our condensed consolidated results of operations, financial position and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Historically, the majority of our revenue contracts are denominated in U.S. Dollars, with the most significant exception being Japan where we invoice primarily in Japanese Yen. Our costs and expenses are generally denominated in the currencies where our operations are located, which is primarily in the Americas, EMEA and, to a lesser extent, Japan and the Asia Pacific region. We have a hedging program with respect to foreign currency risk. Revenue resulting from selling in local currencies and costs and expenses incurred in local currencies are exposed to foreign currency exchange rate fluctuations, which can affect our revenue and operating income. As exchange rates vary, operating income may differ from expectations.

The functional currency of our foreign subsidiaries is the U.S. Dollar. At the end of each reporting period, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses related to remeasurement are recorded in interest and other income, net in the condensed consolidated statements of operations. A significant fluctuation in the exchange rates between our subsidiaries’ local currencies, especially the Japanese Yen, British Pound and Euro, and the U.S. Dollar could have an adverse impact on our condensed consolidated financial position and results of operations.

We recorded $1.3 million and $3.8 million of net foreign exchange gains during the three and nine months ended September 30, 2024, respectively. We recorded $0.9 million and $0.8 million of net foreign exchange gains during the three and nine months ended September 30, 2023. The effect of a hypothetical 10% change in our exchange rate would not have a significant impact on our condensed consolidated results of operations.

Interest Rate Sensitivity

Our exposure to market risk for changes in interest rates relates primarily to our marketable securities. Our marketable securities are typically comprised of corporate securities, U.S. Treasury and agency securities, commercial paper, asset-backed securities and equity securities of publicly traded companies. We do not enter into investments for trading or speculative purposes. As of September 30, 2024, our investment portfolio included marketable securities with an aggregate amortized cost basis of $98.9 million and a fair value of $104.0 million. Fair value includes $4.6 million for our investment in publicly held equity securities. The effect of a hypothetical 10% change in interest rates would not have a material impact on our interest expense.

The following table presents the hypothetical fair values of our marketable securities assuming immediate parallel shifts in the yield curve of 50 basis points (“BPS”), 100 BPS and 150 BPS as of September 30, 2024 (in thousands):

																					Fair Value as of
			(150 BPS)						(100 BPS)						(50 BPS)						9/30/2024						50 BPS						100 BPS						150 BPS
Marketable securities			$	105,035					$	104,704					$	104,374					$	104,043					$	103,713					$	103,382					$	103,051

ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934, or the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means

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controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits to the SEC, under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and financial officers, as appropriate to enable timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that our management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our Chief Executive Officer and Chief Financial Officer, as our principal executive officer and principal financial officer, respectively, concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024, and that the condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, and in conformity with U.S. GAAP, our financial position, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2024, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have been and may currently be involved in various legal proceedings, the outcomes of which are not within our complete control or may not be known for prolonged periods of time. Management is required to assess the probability of loss and amount of such loss, if any, in preparing our condensed consolidated financial statements. We evaluate the likelihood of a potential loss from legal proceedings to which we are a party. We record a liability for such claims when a loss is deemed probable and the amount can be reasonably estimated. Significant judgment may be required in the determination of both probability and whether an exposure is reasonably estimable. Our judgments are subjective based on the status of the legal proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information becomes available, we reassess the potential liability related to pending claims and may revise our estimates. Due to the inherent uncertainties of the legal processes in the multiple jurisdictions in which we operate, our judgments may be materially different than the actual outcomes, which could have material adverse effects on our business, financial conditions and results of operations.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to the risk factors disclosed in our 2023 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On November 7, 2023, we announced that our Board authorized a new $50 million share repurchase program, the 2023 Program, under which we may repurchase up to $50 million of our outstanding common stock during the next 12 months. Under the 2023 Program, we may repurchase shares of common stock in the open market, privately negotiated transactions, in block trades or a combination of the foregoing. We are not obligated under the 2023 Program to repurchase any specific number or dollar amount of shares of common stock, and we may modify, suspend or discontinue the 2023 Program at any time. Our management and Board will determine the timing and amount of any repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. The Company plans to fund repurchases from its existing cash balance and cash provided by operating activities.

Share repurchase activity during the three months ended September 30, 2024 was as follows (in thousands, except per share amounts):

Periods						Total Number of Shares Purchased									Average Price Paid Per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs						Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
July 1 - 31, 2024									2						$	13.72					2						$	34,800
August 1 - 31, 2024									743						$	12.64					743						$	25,405
September 1 - 30, 2024									2						$	13.45					2						$	25,381
Total									747																		$	25,381

(1) The $25,381 thousand in the table above represents the amount available to repurchase shares under the 2023 Program as of September 30, 2024.

ITEM 5. OTHER INFORMATION

Insider Adoption or Termination of Trading Arrangements

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During the fiscal quarter ended September 30, 2024, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

ITEM 6. EXHIBITS

Incorporated herein by reference is a list of the exhibits contained in the Exhibit Index below.

EXHIBIT INDEX

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

*    Filed herewith.

**    The certifications attached as Exhibit 32.1 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 date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

     

			A10 NETWORKS, INC.

Date: November 7, 2024

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

Date: November 7, 2024

			By: /s/ Brian Becker
			Brian Becker
			Chief Financial Officer (Principal Accounting and Financial Officer)

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