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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-36343
A10 NETWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware 20-1446869
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
2300 Orchard Parkway, San Jose, California 95131
(Address of Principal Executive Offices and Zip Code)
(408) 325-8668
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valueATENNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerx
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No   x




As of April 28, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was 77,335,510.




A10 NETWORKS, INC.
FORM 10-Q

TABLE OF CONTENTS
 Page No.
 
1


NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements include, but are not limited to, statements concerning the following:
• the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and liquidity;
• our ability to provide customers with improved benefits relating to their applications;
• our ability to maintain an adequate rate of revenue growth and other factors contributing to such growth;
• our ability to successfully anticipate market needs and opportunities;
• our business plan and our ability to effectively manage our growth;
• our plans to strengthen our sales efforts;
• our expectations with respect to recognizing revenue related to remaining performance obligations;
• our plans to introduce new products;
• loss or delay of expected purchases by our largest end-customers;
• our ability to further penetrate our existing customer base;
• our ability to displace existing products in established markets;
• continued growth in markets relating to network security;
• our ability to timely and effectively scale and adapt our existing technology;
• our ability to innovate new products and bring them to market in a timely manner;
• our ability to conduct business internationally and any related impact on profitability;
• the effects of increased competition in our market and our ability to compete effectively;
• the effects of seasonal trends on our results of operations;
• our expectations concerning relationships with third parties;
• our expectations with respect to the realization of our tax assets and our unrecognized tax benefits;
• our plans with respect to the repatriation of our earnings from our foreign operations;
• the attraction, retention and growth of qualified employees and key personnel;
• our ability to achieve or maintain profitability while continuing to invest in our sales, marketing, product development, distribution channel partner programs and research and development teams;
• our expectations regarding our future expenses;
• our expectations with respect to restructuring actions and expenses;
• our expectations with respect to liquidity position and future capital requirements;
• our exploration of strategic alternatives;
• variations in product mix or geographic locations of our sales;
• our stock repurchase program;
• fluctuations in currency exchange rates;
• tariffs affecting us;
• increased cost requirements of being a public company and future sales of substantial amounts of our common stock in the public markets;
• the cost and potential outcomes of litigation;
• our ability to maintain, protect, and enhance our brand and intellectual property;
• future acquisitions of or investments in complementary companies, products, services or technologies; and
• our ability to effectively integrate operations of entities we have acquired or may acquire.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time such as the current COVID-19 pandemic. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the effects of the COVID-19 global pandemic on the Company and its business, and on the business of its business partners and customers;
unanticipated changes in the markets in which the Company operates; the effects of the current macroeconomic climate (especially in light of the ongoing adverse effects of the COVID-19 global pandemic); execution risks related to closing key deals and improving our execution, the continued market adoption of our products, our ability to successfully anticipate market
2


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

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

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

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


NOTE REGARDING COVID-19

    In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services. As a result of the pandemic, public health organizations recommended, and many local governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances, which resulted in a significant deterioration of economic conditions in many of the countries in which we operate. The spread of the COVID-19 virus has also caused us to continue implementing modifications on our business practices (including work-from-home policies and restrictions on travel by our employees). These same developments may affect the operations of our contract manufacturers and many of our vendors, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus. COVID-19 may result in supply shortages of our products or our ability to import, export or sell product to customers in both the U.S. and international markets. While we expect the impacts of COVID-19 to be temporary, the disruptions caused by the virus may negatively affect our revenue, results of operations, financial condition, liquidity, and capital investments in 2021.

In response to the outbreak of COVID-19, we have taken the following measures:
Implemented work-from-home and social distancing policies for our organization;
Taken steps to ensure employee’s ability to remotely work-from-home when feasible;
Continue to maintain our focus on improving profitability; and
Continue to monitor our supply chain closely.

The impact of the pandemic on our business, as well as the business of our business partners, and the additional measures that may be needed in the future in response to it, will depend on many factors beyond our control and knowledge. We will continually monitor the situation to determine what actions may be necessary or appropriate to address the impact of the pandemic, which may include actions mandated or recommended by federal, state or local authorities.
3




PART I. FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A10 NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value)
March 31, 2021December 31, 2020
ASSETS
Current assets:  
Cash and cash equivalents$75,696 $83,281 
Marketable securities85,261 74,851 
Accounts receivable, net of allowances of $4 and $41, respectively51,449 51,051 
Inventory19,547 20,730 
Prepaid expenses and other current assets13,022 12,390 
Total current assets244,975 242,303 
Property and equipment, net8,223 7,888 
Goodwill 1,307 1,307 
Intangible assets, net502 862 
Other non-current assets36,573 38,451 
Total assets$291,580 $290,811 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Accounts payable$4,521 $4,851 
Accrued liabilities26,198 36,930 
Deferred revenue68,299 65,999 
Total current liabilities99,018 107,780 
Deferred revenue, non-current44,920 42,700 
Other non-current liabilities22,983 24,357 
Total liabilities166,921 174,837 
Commitments and contingencies (Note 2 and Note 5)
Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 77,102 and 76,346 shares issued and outstanding, respectively1 1 
Treasury stock, at cost: 5,587 and 5,578 shares, respectively(37,498)(37,410)
Additional paid-in-capital431,738 425,534 
Accumulated other comprehensive income10 98 
Accumulated deficit(269,592)(272,249)
Total stockholders' equity124,659 115,974 
Total liabilities and stockholders' equity$291,580 $290,811 
See accompanying notes to the condensed consolidated financial statements.

4


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 Three Months Ended March 31,
 20212020
Revenue:
Products$30,540 $30,736 
Services24,303 23,028 
Total revenue54,843 53,764 
Cost of revenue:
Products7,086 6,941 
Services5,413 5,201 
Total cost of revenue12,499 12,142 
Gross profit42,344 41,622 
Operating expenses:
Sales and marketing19,092 20,621 
Research and development13,981 15,315 
General and administrative5,247 5,895 
Total operating expenses38,320 41,831 
Income (loss) from operations4,024 (209)
Non-operating income (expense):
Interest and other income (expense), net(1,183)231 
Total non-operating income (expense), net(1,183)231 
Income before provision for income taxes2,841 22 
Provision for income taxes184 319 
Net income (loss)$2,657 $(297)
Net income (loss) per share:
Basic$0.03 $ 
Diluted$0.03 $ 
Weighted-average shares used in computing net income (loss) per share:
Basic76,704 78,061 
Diluted79,636 78,061 


 See accompanying notes to the condensed consolidated financial statements.


5


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 Three Months Ended March 31,
 20212020
Net income (loss)$2,657 $(297)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities(88)(288)
Comprehensive income (loss)$2,569 $(585)


See accompanying notes to the condensed consolidated financial statements.

6


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)

Three Months Ended March 31,
20212020
Shares of common stock issued and outstanding
Beginning balance76,346 77,580 
Common stock issued under employee equity incentive plans756 1,130 
Repurchase of common stock  
    Ending balance77,102 78,710 
Stockholders' equity
Beginning balance$115,974 $108,787 
Common stock:
Beginning balance$1 $1 
Common stock issued under employee equity incentive plans  
    Ending balance$1 $1 
Treasury stock, at cost:
Beginning balance$(37,410)$(4,870)
Repurchase of common stock(88) 
Ending balance$(37,498)$(4,870)
Additional paid-in capital:
Beginning balance$425,534 $403,470 
Common stock issued under employee equity incentive plans1,756 2,005 
Stock-based compensation4,448 3,045 
    Ending balance$431,738 $408,520 
Accumulated other comprehensive income (loss):
Beginning balance$98 $251 
Unrealized loss on marketable securities, net of tax(88)(288)
    Ending balance$10 $(37)
Accumulated deficit:
Beginning balance$(272,249)$(290,065)
Net income (loss)2,657 (297)
    Ending balance$(269,592)$(290,362)
Total stockholders' equity$124,659 $113,252 




See accompanying notes to the condensed consolidated financial statements.

7


A10 NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended March 31,
 20212020
Cash flows from operating activities:
Net income (loss)$2,657 $(297)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization2,413 3,311 
Stock-based compensation4,399 3,040 
Other non-cash items181 (13)
Changes in operating assets and liabilities:
Accounts receivable(315)10,767 
Inventory1,086 1,472 
Prepaid expenses and other assets(60)2,426 
Accounts payable(501)(3,718)
Accrued and other liabilities(12,106)(4,919)
Deferred revenue4,519 114 
Net cash provided by operating activities2,273 12,183 
Cash flows from investing activities:
Proceeds from sales of marketable securities1,300 1,914 
Proceeds from maturities of marketable securities24,140 10,175 
Purchases of marketable securities(36,197)(5,518)
Purchases of property and equipment(769)(868)
Net cash provided by (used in) investing activities(11,526)5,703 
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans1,756 2,005 
Repurchase of common stock(88) 
Net cash provided by financing activities1,668 2,005 
Net increase (decrease) in cash and cash equivalents(7,585)19,891 
Cash and cash equivalents—beginning of period83,281 45,742 
Cash and cash equivalents—end of period$75,696 $65,633 
Non-cash investing and financing activities:
Inventory transfers to property and equipment$97 $149 
Purchases of property and equipment included in accounts payable$172 $63 

See accompanying notes to the condensed consolidated financial statements.
8


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 networking solutions that enable next-generation networks focused on reliability, availability, scalability and cybersecurity. Our portfolio supports customers operating in the cloud, on-premise or in hybrid environments providing rapid return on their investment as well as investment protection with best-in-class technical performance. As cyber-attacks increase in volume and complexity, we integrate security as a key attribute in our solutions that further enable our customers to continue to adapt to market trends in cloud, internet of things and the ever increasing need for more data, building upon our strong global footprint and leadership in application and network infrastructure. Our customers include leading service providers (cloud, telecommunications, multiple system operators, cable), government organizations, and enterprises.

    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 intelligent management, and automation tools; Harmony Controller and aGalaxy TPS. Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

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

We sell our products globally to service providers 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 four geographic regions: the Americas, Japan, Asia Pacific (excluding Japan) and EMEA. We believe this vertical and geographic view aligns with how we manage the business and maps our product portfolio to customer verticals.

Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly. As of March 31, 2021, we had sold products to more than 7,400 end-customers worldwide.

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

Basis of Presentation

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

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC” or the “Commission”). As permitted under these rules and regulations, we have condensed or omitted certain financial information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with accounting principles generally accepted in
9


the United States of America (“U.S. GAAP”). The unaudited condensed consolidated balance sheet as of December 31, 2020 has been derived from our audited financial statements, which are included in our 2020 Annual Report on Form 10-K for the year ended December 31, 2020 on file with the SEC (the “2020 Annual Report”).

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

The beginning and ending balances for treasury stock, at cost, have been reclassified from additional paid-in capital in the condensed consolidated statement of stockholders’ equity for the three months ended March 31, 2020 to conform with the current year presentation for treasury stock, at cost and additional paid-in capital. This reclassification did not have a material impact on the previously reported financial statements.

These financial statements and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto in the 2020 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 doubtful accounts, 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.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of April 30, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Part II-Item 8, “Financial Statements and Supplementary Data,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 8, 2021. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2021.

Concentration of Credit Risk and Significant Customers

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

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

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

    Revenues from our significant customers as a percentage of our total revenue are as follows:
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 Three Months Ended March 31,
Customers20212020
Customer A (a distribution channel partner)12%*
Customer B (a distribution channel partner)10%*
Customer C (a distribution channel partner)*17%
Customer D (a distribution channel partner)*16%
* represents less than 10% of total revenue

As of March 31, 2021, two customers accounted for 14% and 12%, respectively, of our total gross accounts receivable. As of December 31, 2020, two customers accounted for 17% and 10%, respectively, of our total gross accounts receivable.

Recently Adopted Accounting Pronouncements

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

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In January 2020, the Company adopted ASU 2017-04, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

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

In November 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update improve consistent application of and simplify U.S. GAAP for Topic 740 by clarifying and amending existing guidance for, among other items, intra-period allocation, reporting tax law changes and losses in interim periods, state and local taxes not fully based on income and recognition of deferred tax liability related to certain transactions. There is also new guidance related to consolidated group reporting and tax impacts resulting from business combinations. The guidance is effective for public entities for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2021 and the adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The amendments in this ASU improve the consistency of the codification and reorganize the guidance into appropriate sections providing less opportunities for disclosures to be missed. The amendments in this update do not change GAAP and are not expected to result in a significant change in practice. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. Early
11


adoption is permitted. The Company adopted this guidance on January 1, 2021 and the adoption of this guidance did not have a significant impact on the Company’s condensed consolidated financial statements.

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 March 31, 2021 (in thousands):
March 31, 2021
Operating leases
Right-of-use assets:
Other non-current assets$26,936 
Total right-of-use assets$26,936 
Lease liabilities:
Accrued liabilities$5,181 
Other non-current liabilities22,197 
Total operating lease liabilities$27,378 

The aggregate future lease payments for non-cancelable operating leases as of March 31, 2021 were as follows (in thousands):

Remainder of 2021$4,494 
20224,817 
20234,414 
20244,518 
20254,625 
Thereafter7,148 
Total lease payments30,016 
Less: imputed interest(2,638)
Present value of lease liabilities$27,378 

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

Three Months Ended March 31,
20212020
Operating lease costs$1,373 $1,777 
Short-term lease costs147 158 
Total lease costs$1,520 $1,935 
Average lease terms and discount rates for the Company’s operating leases were as follows:
March 31, 2021
Weighted-average remaining term (years)5.98
Weighted-average discount rate3.15%

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

Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,500 
    
No new operating leases were entered into during the three months ended March 31, 2021.

3. Marketable Securities and Fair Value Measurements

Marketable Securities

Marketable securities, classified as available-for-sale, consisted of the following (in thousands):
March 31, 2021December 31, 2020
 Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Certificates of deposit$ $ $ $ $2,150 $ $ $2,150 
Corporate securities50,477 22 (24)50,475 45,070 83 (8)45,145 
U.S. Treasury and agency securities9,496 9  9,505 9,493 12  9,505 
Commercial paper17,383   17,383 12,136   12,136 
Asset-backed securities7,895 3  7,898 5,904 11  5,915 
Total$85,251 $34 $(24)$85,261 $74,753 $106 $(8)$74,851 

During the three months ended March 31, 2021 and 2020, we did not reclassify any amount to earnings from accumulated other comprehensive income (loss) related to unrealized gains or losses.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of March 31, 2021 (in thousands):
 Amortized CostFair Value
Less than 1 year$76,871 $76,887 
Mature in 1 - 3 years8,380 8,374 
Total$85,251 $85,261 
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 March 31, 2021 consisted of the following (in thousands):
Less Than 12 Months12 Months or MoreTotal
As of March 31, 2021Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate securities$31,863 $(18)$8,096 $(6)$39,959 $(24)
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Marketable securities in an unrealized loss position as of December 31, 2020 consisted of the following (in thousands):
Less Than 12 Months12 Months or MoreTotal
As of December 31, 2020Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
Corporate securities$20,355 $(8)$ $ $20,355 $(8)
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 months ended March 31, 2021 and 2020.

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):
 March 31, 2021December 31, 2020
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Cash$60,138 $— $— $60,138 $62,388 $— $— $62,388 
Cash equivalents15,558 — — 15,558 20,893 — — 20,893 
Certificates of deposit—  —  — 2,150 — 2,150 
Corporate securities— 50,475 — 50,475 — 45,145 — 45,145 
U.S. Treasury and agency securities— 9,505 — 9,505 — 9,505 — 9,505 
Commercial paper— 17,383 — 17,383 — 12,136 — 12,136 
Asset-backed securities— 7,898 — 7,898 — 5,915 — 5,915 
Total$75,696 $85,261 $— $160,957 $83,281 $74,851 $— $158,132 
There were no transfers between Level 1 and Level 2 fair value measurement categories during the three months ended March 31, 2021 and 2020.

4. Condensed Consolidated Financial Statement Details

Inventory

Inventory consisted of the following (in thousands):
March 31,
2021
December 31,
2020
Raw materials$8,943 $8,395 
Finished goods10,604 12,335 
Total inventory$19,547 $20,730 

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):
March 31,
2021
December 31,
2020
Prepaid expenses$4,283 $3,818 
Deferred contract acquisition costs5,848 5,345 
Other2,891 3,227 
       Total prepaid expenses and other current assets$13,022 $12,390 
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Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):
Useful LifeMarch 31,
2021
December 31,
2020
(in years)
Equipment1 - 5$25,875 $25,286 
Software1 - 3765 765 
Furniture and fixtures1 - 7652 652 
Leasehold improvementsLease term3,616 3,616 
Construction in process2,174 1,677 
Property and equipment, gross33,082 31,996 
Less: accumulated depreciation(24,859)(24,108)
Property and equipment, net$8,223 $7,888 
Depreciation expense on property and equipment was $0.7 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively.

Intangible Assets

Purchased intangible assets, net, consisted of the following (in thousands):
March 31, 2021December 31, 2020
CostAccumulated AmortizationNetCostAccumulated AmortizationNet
Developed technology$5,050 $(4,797)$253 $5,050 $(4,545)$505 
Patents2,936 (2,687)249 2,936 (2,579)357 
Total intangible assets$7,986 $(7,484)$502 $7,986 $(7,124)$862 
Amortization expense related to purchased intangible assets was $0.4 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively.

Future amortization expense for purchased intangible assets as of March 31, 2021 is as follows (in thousands):
Fiscal Year
Remainder of 2021$502 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
March 31,
2021
December 31,
2020
Accrued compensation and benefits$11,458 $19,725 
Accrued tax liabilities2,030 3,748 
Lease liability5,181 5,260 
Other7,529 8,197 
Total accrued liabilities$26,198 $36,930 
15



Deferred Revenue

Deferred revenue consisted of the following (in thousands):
March 31,
2021
December 31,
2020
Deferred revenue:
Products$6,248 $7,358 
Services106,971 101,341 
Total deferred revenue113,219 108,699 
Less: current portion(68,299)(65,999)
Non-current portion$44,920 $42,700 

5. 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 March 31, 2021.

Rent expense was $1.4 million and $1.6 million for three months ended March 31, 2021 and 2020, respectively.

Purchase Commitments

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

Guarantees and Indemnifications

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

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

Equity Incentive Plans

2014 Equity Incentive Plan

The 2014 Equity Incentive Plan (the “2014 Plan”) provides for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), performance-based RSUs (“PSUs”), stock appreciation rights, performance units and performance shares to our employees, consultants and members of our Board of Directors.
The shares authorized for the 2014 Plan increase annually by the lesser of (i) 8,000,000 shares, (ii) 5% of the outstanding shares of common stock on the last day of our immediately preceding fiscal year, or (iii) such other lesser amount as determined by our Board of Directors. In November 2020, our Board of Directors determined the current shares authorized under the 2014 Plan were sufficient for the time being and decided not to increase the number of shares authorized in 2021. As of March 31, 2021, we had 10,537,636 shares available for future grant under the 2014 Plan.

16


2014 Employee Stock Purchase Plan

In October 2018, the Board of Directors approved amending the 2014 Employee Stock Purchase Plan (the “Amended 2014 Purchase Plan”) in order to, among other things, reduce the maximum contribution participants can make under the plan from 15% to 10% of eligible compensation. The Amended 2014 Purchase Plan also reflects revised offering periods, which were changed from 24 months to six months in duration and that begin on or about December 1 and June 1 each year, starting in December 2018. As of March 31, 2021, the Company had 1,821,186 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 March 31,
20212020
Stock-based compensation by type of award:
Stock options$ $110 
Stock awards4,123 2,682 
Employee stock purchase rights276 248 
$4,399 $3,040 
Stock-based compensation by category of expense:
Cost of revenue$572 $325 
Sales and marketing1,264 764 
Research and development1,431 1,006 
General and administrative1,132 945 
$4,399 $3,040 
As of March 31, 2021, the Company had $23.7 million of unrecognized stock-based compensation expense related to unvested stock-based awards which will be recognized over a weighted-average period of 2.39 years.

Stock Options

The following table summarizes our stock option activities and related information:
 Number of Shares (thousands)Weighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Term
(years)
Aggregate Intrinsic Value (thousands)
Outstanding as of December 31, 20201,673 $5.44 
Granted  
Exercised(338)5.19 
Canceled  
Outstanding as of March 31, 20211,335 5.51 2.70$5,617 
Vested and exercisable as of March 31, 20211,335 $5.51 2.70$5,617 
As of March 31, 2021, the aggregate intrinsic value represents the excess of the closing price of our common stock of $9.61 over the exercise price of the outstanding in-the-money options.

The intrinsic value of options exercised was $1.5 million and $1.2 million during the three months ended March 31, 2021 and 2020, respectively.

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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 March 31, 2021, there were 3,444,533 RSUs and 1,203,286 PSUs outstanding.

The following table summarizes our stock award activities and related information:
Number of Shares (thousands)Weighted-Average Grant Date Fair Value Per ShareWeighted-Average Remaining Vesting Term
(years)
Aggregate Fair Value (thousands)
Nonvested as of December 31, 20204,888 $6.59 
Granted564 9.27 
Released(428)6.67 
Canceled(376)6.57 
Nonvested as of March 31, 20214,648 $6.91 1.74$44,666 
The aggregate fair value of stock awards released was $4.0 million and $3.4 million for the three months ended March 31, 2021 and 2020, respectively.

Stock Repurchase Program

On September 17, 2020, the Company’s Board of Directors approved a stock repurchase program of up to $50 million of its common stock over a period of twelve months. During the three months ended March 31, 2021, the Company repurchased 10 thousand shares for a total cost of $88 thousand. Since approving the program, the Company has repurchased 2.7 million shares for a total cost of $19.3 million through March 31, 2021 and the Company had $30.7 million available to repurchase shares under this program as of March 31, 2021. Under the program, repurchased shares are held in treasury at cost. The Company’s stock repurchase program does not obligate us to acquire any specific number of shares. Shares may be repurchased in privately negotiated and/or open market transactions. To date, all repurchases under this program have occurred in the open market.

7. Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding for the period. Diluted net income (loss) 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 and employee stock purchase rights, unless the potential common shares are anti-dilutive. Since we had a net loss during the three months ended March 31, 2020, none of the potential dilutive common shares were included in the computation of diluted shares for this period, as inclusion of such shares would have been anti-dilutive.

Basic and diluted net income (loss) per share are calculated as follows (in thousands, except per share amounts):
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Three Months Ended March 31,
20212020
Basic and diluted net income (loss) per share
Numerator:
Net income (loss)$2,657 $(297)
Denominator:
Weighted-average shares outstanding - basic76,704 78,061 
Effect of dilutive potential common shares from stock options, stock awards and employee stock purchase plan2,932  
Weighted-average shares outstanding - diluted79,636 78,061 
Net income (loss) per share:
Basic$0.03 $ 
Diluted$0.03 $ 

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

Three Months Ended March 31,
20212020
Stock options, restricted stock units and employee stock purchase rights67 8,182 

8. Income Taxes

We recorded income tax expense of $0.2 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively, which primarily consisted of foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases using tax rates expected to be in effect during the years in which the basis differences reverse.

We believe it is more likely than not that our federal and state net deferred tax assets will not be fully realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of our deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized. Accordingly, we continue to maintain a valuation allowance against all of our U.S. and certain foreign net deferred tax assets as of March 31, 2021. We will continue to maintain a full valuation allowance against our net federal, state, and certain foreign deferred tax assets until there is sufficient evidence to support the recoverability of our deferred tax assets.

We had $4.5 million of unrecognized tax benefits as of March 31, 2021. We do not anticipate a material change to our unrecognized tax benefits over the next twelve months. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business.

Accrued interest and penalties related to unrecognized tax benefits are recognized as part of our provision for income 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.

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9. Geographic Information

The following table depicts the disaggregation of revenue by geographic region based on the ship to location of our customers and is consistent with how we evaluate our financial performance (in thousands):
Three Months Ended March 31,
20212020
Americas$26,270 $25,438 
Japan13,619 17,641 
Asia Pacific, excluding Japan6,335 4,882 
EMEA8,619 5,803 
Total revenue$54,843 $53,764 
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):
March 31,
2021
December 31,
2020
United States$32,211 $32,558 
Japan1,274 1,566 
Other1,674 2,004 
Total$35,159 $36,128 

10. Revenue

Contract Balances
The following table reflects contract balances with customers (in thousands):
 March 31,
2021
December 31, 2020
Accounts receivable, net$51,449 $51,051 
Deferred revenue, current68,299 65,999 
Deferred revenue, non-current44,920 42,700 
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 March 31, 2021 and December 31, 2020.

    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 $23.1 million and $21.3 million during the three months ended March 31, 2021 and 2020, respectively, related to deferred revenues at the beginning of the respective periods.

Deferred Contract Acquisition Costs
In connection with the adoption of ASC 340-40, we capitalize certain contract acquisition costs consisting of incremental sales commissions incurred to obtain customer contracts. Deferred commissions related to product revenues are recognized upon transfer of control to customers. Deferred commissions related to services revenue are recognized as the related performance obligations are met. Deferred commissions that will be recognized during the succeeding 12-month period are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other non-current assets. Amortization of deferred commissions is included in sales and marketing expense.
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Deferred contract acquisition costs were $9.6 million and $9.0 million as of March 31, 2021 and December 31, 2020, respectively. The related amortization amount was $1.7 million and $1.7 million for the three months ended March 31, 2021 and 2020, respectively.

We had no impairment loss in relation to the costs capitalized and no asset impairment charges related to contract assets during the three months ended March 31, 2021 and 2020.

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):
March 31, 2021
Within 1 year$68,299 
Next 2 to 3 years35,022 
Thereafter9,898 
Total$113,219 
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 “Risk Factors,” and “Note Regarding Forward-Looking Statements.”

Overview

    We are a leading provider of networking solutions that enable next-generation networks focused on reliability, availability, scalability and cybersecurity. Our portfolio supports customers operating in the cloud, on-premise or in hybrid environments providing rapid return on their investment as well as investment protection with best-in-class technical performance. As cyber-attacks increase in volume and complexity, we integrate security as a key attribute in our solutions that further enable our customers to continue to adapt to market trends in cloud, internet of things and the ever increasing need for more data, building upon our strong global footprint and leadership in application and network infrastructure. Our customers include leading service providers (cloud, telecommunications, multiple system operators, cable), government organizations, and enterprises.

    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 intelligent management, and automation tools; Harmony Controller and aGalaxy TPS. Our products are offered in a variety of form factors and payment models, including physical appliances and perpetual and subscription-based software licenses, as well as pay-as-you-go licensing models and FlexPool, a flexible consumption-based software model.

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

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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 four geographic regions: the Americas, Japan, Asia Pacific (excluding Japan) and EMEA. We believe this vertical and geographic view aligns with how we manage the business and maps our product portfolio to customer verticals.

    Our end-customers operate in a variety of industries, including telecommunications, technology, industrial, retail, financial, gaming, education and government. Since inception, our customer base has grown rapidly. As of March 31, 2021, we had sold products to more than 7,400 customers worldwide.

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

During the three months ended March 31, 2021, 48% of our total revenue was generated from the Americas region, 25% from Japan and 27% from other geographical regions. During the three months ended March 31, 2020, 47% of our total revenue was generated from the Americas region, 33% from Japan and 20% from other geographical regions. One of our priorities is to strengthen our sales efforts in North America. Our enterprise customers accounted for 38% and 35% of our total revenue during the three months ended March 31, 2021 and 2020, respectively, and our service provider customers accounted for 62% and 65% of our total revenue during the three months ended March 31, 2021 and 2020, 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 36% and 52% of our total revenue for the three months ended March 31, 2021 and 2020, 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 March 31, 2021, we had $75.7 million of cash and cash equivalents and $85.3 million of marketable securities. Cash provided by operating activities was $2.3 million during the three months ended March 31, 2021, compared to $12.2 million of cash provided by operating activities in the same period last year.

We intend to continue to invest for long-term growth. We have invested and expect to continue to invest in our product development efforts to deliver new products and additional features in our current products to address customer needs. Our investments in growth in these areas may affect our short-term profitability.

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Results of Operations

A summary of our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 is as follows (dollars in thousands):
Three Months Ended March 31,
20212020Increase (Decrease)
AmountPercent of Total RevenueAmountPercent of Total RevenueAmountPercent
Revenue:
Products$30,540 55.7 %$30,736 57.2 %$(196)(0.6)%
Services24,303 44.3 23,028 42.8 1,275 5.5 
Total revenue54,843 100.0 53,764 100.0 1,079 2.0 
Cost of revenue:
Products7,086 13.0 6,941 12.9 145 2.1 
Services5,413 9.9 5,201 9.7 212 4.1 
Total cost of revenue12,499 22.8 12,142 22.6 357 2.9 
Gross profit42,344 77.2 41,622 77.4 722 1.7 
Operating expenses:
Sales and marketing19,092 34.8 20,621 38.4 (1,529)(7.4)
Research and development13,981 25.5 15,315 28.5 (1,334)(8.7)
General and administrative5,247