A10 Networks Reports In-line Financial Results for the First Quarter of 2024

Rhea-AI Summary

A10 Networks, Inc. (NYSE: ATEN) reported financial results for Q1 2024, with revenue of $60.7 million, up 5.2% YoY, and GAAP net income of $9.7 million. The company's focus on operational execution led to a strong gross margin of 81.1%. Non-GAAP net income was $12.7 million, showing growth in profitability. A10 returned $7.5 million to investors through share repurchases and dividends. The company's diversification strategy and investments in R&D position it well for future growth.

Positive

• Revenue of $60.7 million, up 5.2% YoY, demonstrated consistent growth.

• GAAP net income of $9.7 million, with a solid gross margin of 81.1%.

• Non-GAAP net income increased to $12.7 million, reflecting improved profitability.

• A10 returned $7.5 million to investors through share repurchases and dividends.

• Focus on diversification and investments in R&D set the company up for future growth.

Negative

• None.

Financial Analyst

A10 Networks reported a solid year-over-year revenue increase of 5.2%, reflecting the company's resilience in managing market fluctuations. Their strategic focus on operational execution has improved gross margins, with a commendable GAAP gross margin of 81.1% and a higher non-GAAP gross margin of 81.9%. This margin expansion can be attributed to effective cost controls and a value-oriented product mix, which is encouraging from an investor standpoint. The growth in deferred revenue, outpacing overall revenue growth, suggests strong future earnings potential as it indicates a healthy pipeline of recognized revenue to come. The increase in non-GAAP net income to $12.7 million from $9.9 million year-over-year, paired with a non-GAAP EPS increase from $0.13 to $0.17, signals increased profitability and operational efficiency. This is further supported by their capital return strategy, which included share repurchases and a steady quarterly cash dividend. However, it is essential for investors to monitor the company's R&D investments to ensure they align with revenue growth and do not overly dilute future earnings.

Market Research Analyst

A10 Networks' diversification approach in terms of customer base and geographical regions is a critical element in its ability to withstand market volatility. The company's structure allows for stability and continued profitability as evidenced by the latest earnings report. A particular point of interest is A10's deepening engagement with its service provider customers, who are increasingly investing in network throughput and security. This focus on security can be seen in security solutions comprising 61% of the company's consolidated revenue, indicating alignment with their long-term strategic goals. Yet, in a rapidly evolving cybersecurity landscape, investors should be vigilant about how A10 adapts its offerings in AI solutions and enterprise market targeting. These areas offer significant growth opportunities, so tracking the company's ability to convert its pipeline and customer engagements into realized revenue will be important for assessing A10's future market position.

Technology Sector Analyst

From a technological standpoint, A10 Networks' continued investment in R&D, particularly in AI solutions, is a proactive strategy to maintain competitiveness. The integration of AI into cybersecurity and infrastructure solutions can significantly enhance product offerings, potentially leading to increased market share and customer retention. The company's report of increased R&D spending is an indication of commitment to innovation, which is vital in the tech industry known for rapid changes. However, it is important for investors to consider the balance between R&D expenditure and the tangible outcomes it produces. Thus, tracking the development and market reception of these AI-infused products will be imperative for evaluating the long-term return on these investments.

Company Delivers Revenue Growth YoY and Expands Earnings Per Share

SAN JOSE, Calif.--(BUSINESS WIRE)-- A10 Networks, Inc. (NYSE: ATEN), a leading provider of cybersecurity and infrastructure solutions, today announced financial results for its first quarter ended March 31, 2024.

First Quarter 2024 Financial Summary

• Revenue of $60.7 million, in-line with expectations and up 5.2% year-over-year.
• GAAP gross margin of 81.1%; non-GAAP gross margin of 81.9% as a result of continued focus on operational execution of business model goals in spite of near-term volatility in the market.
• GAAP net income of $9.7 million (16.0% of revenue), or $0.13 per diluted share, compared to net income of $4.0 million (6.9% of revenue) or $0.05 per diluted share in the first quarter of 2023.
• Non-GAAP net income of $12.7 million (21.0% of revenue), or $0.17 per diluted share (non-GAAP EPS) compared to non-GAAP net income of $9.9 million (17.2% of revenue) or $0.13 per diluted share in the first quarter of 2023.
• The Company returned $7.5 million to investors, having repurchased 230,500 shares at an average price of $13.19 for a total of $3.0 million and having paid $4.5 million in cash dividends in the quarter.
• The Board of Directors approved a quarterly cash dividend of $0.06 per share, payable June 3, 2024 to stockholders of record at the close of business on May 15, 2024.

A reconciliation between GAAP and non-GAAP information is contained in the financial statements below.

“A10 continued to successfully navigate market volatility, as our diversification enabled us to address near-term Service Provider fluctuations, delivering solid first quarter results in-line with expectations,” said Dhrupad Trivedi, President and Chief Executive Officer of A10 Networks. “Our service provider customers are committed to improving network throughput and security, and A10’s solutions are designed into long-term initiatives that help them achieve their mission critical goals. When investments are made, we benefit, as we did in this quarter. The economic environment remains somewhat unpredictable and the first quarter represents an encouraging data point.”

“Recent and ongoing investments to better position A10 to target the evolving needs of the enterprise market are beginning to show results,” continued Trivedi. “Deferred revenue grew faster in Q1 than overall revenue, representative of the buying behavior of the enterprise customer base. We believe enterprise revenue will continue to grow throughout the year based on active pipeline and customer engagements. Security solutions continue to be in demand, and security solutions were 61% of A10’s consolidated revenue, in line with our long-term strategic goal. Simultaneously, we have continued to invest in R&D to address the evolving needs of our customers including AI solutions.”

“A10’s focus on diversification, both in terms of customer type and region, continues to provide a durable foundation as we navigate this period of volatility,” concluded Trivedi. “Our business model enables us to maintain solid profitability, even while we increase R&D investments to drive future growth, allowing us to continue to return capital to shareholders.”

Conference Call

Management will host a call at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, April 30, 2024, to discuss these results. Interested parties may access the conference call by dialing (833) 470-1428 (toll-free) or (404) 975-4839 and referencing access code: 948155.

A live audio webcast of the conference call will be accessible from the “Investor Relations” section of A10 Network’s website at investors.a10networks.com. The webcast will be archived for at least 90 days. A telephonic replay of the conference call will be available two hours after the conclusion of the live call and will run for 14 days and may be accessed by dialing (866) 813-9403 (toll-free) or (929) 458-6194 and entering the passcode 824974.

Forward-Looking Statements

This press release contains “forward-looking statements,” including statements regarding our quarterly dividend payments and stock repurchase program, strategy, growth, customer opportunities, profitability, revenue and expectations for 2024, market trends, investments and return of capital. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on assumptions that may prove to be incorrect, which could cause actual results to differ materially from those expected or implied by the forward-looking statements. Factors that may cause actual results to differ include any unforeseen need for capital which may require us to divert funds we may have otherwise used for the dividend program or stock repurchase program, which may in turn negatively impact our ability to administer the quarterly dividends or the repurchase of our common stock; a significant decline in global macroeconomic or political conditions that have an adverse impact on our business and financial results; business interruptions related to our supply chain; our ability to manage our business and expenses if customers cancel or delay orders; execution risks related to closing key deals and improving our execution; the continued market adoption of our products; our ability to successfully anticipate market needs and opportunities; our timely development of new products and features; our ability to achieve or maintain profitability; any loss or delay of expected purchases by our largest end-customers; our ability to maintain or improve our competitive position; competitive and execution risks related to cloud-based computing trends; our ability to attract and retain new end-customers and our largest end-consumers; our ability to maintain and enhance our brand and reputation; changes demanded by our customers in the deployment and payment model for our products; continued growth in markets relating to network security; the success of any future acquisitions or investments in complementary companies, products, services or technologies; the ability of our sales team to execute well; our ability to shorten our close cycles; the ability of our channel partners to sell our products; variations in product mix or geographic locations of our sales; risks associated with our presence in international markets; weaknesses or deficiencies in our internal control over financial reporting; our ability to timely file periodic reports required to be filed under the Securities Exchange Act of 1934; and other risks that are described in “Risk Factors” in our periodic filings with the Securities and Exchange Commission, including our Form 10-K filed with the Securities and Exchange Commission on February 29, 2024. We do not intend to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), we refer to certain non-GAAP financial measures, including non-GAAP net income, non-GAAP net income per basic and diluted share (or non-GAAP EPS), non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP operating expenses, Adjusted EBITDA and Adjusted EBITDA margin. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies.

A10 Networks considers these non-GAAP financial measures to be important because they provide useful measures of the operating performance of the company, exclusive of unusual events or factors that do not directly affect what we consider to be our core operating performance and are used by the company's management for that purpose.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

We define non-GAAP net income as our GAAP net income excluding: (i) stock-based compensation and related payroll tax, (ii) restructuring expense, (iii) cyber incident remediation expense and (iv) income tax effect of non-GAAP items (i) to (iii) listed above. We define non-GAAP net income per basic and diluted share as our non-GAAP net income divided by our basic and diluted weighted-average shares outstanding. We define non-GAAP gross profit as our GAAP gross profit excluding (i) stock-based compensation and related payroll tax, (ii) restructuring expense and (iii) cyber incident remediation expense. We define non-GAAP gross margin as our non-GAAP gross profit divided by our GAAP revenue. We define non-GAAP operating income as our GAAP income from operations excluding (i) stock-based compensation and related payroll tax, (ii) restructuring expense and (iii) cyber incident remediation expense. We define non-GAAP operating margin as our non-GAAP operating income divided by our GAAP revenue. We define non-GAAP operating expenses as our GAAP operating expenses excluding (i) stock-based compensation and related payroll tax, (ii) restructuring expense and (iii) cyber incident remediation expense. We define Adjusted EBITDA as our GAAP net income excluding (i) interest and other (income) expense, net, (ii) depreciation and amortization expense, (iii) provision for income taxes, (iv) stock-based compensation and related payroll tax, (v) restructuring expense and (vi) cyber incident remediation expense. We define Adjusted EBITDA margin as our Adjusted EBITDA divided by our GAAP revenue.

Non-GAAP financial measures are presented for supplemental informational purposes only for understanding the company's operating results.

About A10 Networks

A10 Networks (NYSE: ATEN) provides security and infrastructure solutions for on-premises, hybrid cloud, and edge-cloud environments. Our 7000+ customers span global large enterprises and communications, cloud and web service providers who must ensure business-critical applications and networks are secure, available, and efficient. Founded in 2004, A10 Networks is based in San Jose, Calif. and serves customers globally. For more information, visit A10networks.com and follow us at A10Networks.

The A10 logo and A10 Networks are trademarks or registered trademarks of A10 Networks, Inc. in the United States and other countries. All other trademarks are the property of their respective owners.

Source: A10 Networks, Inc.

A10 NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts, on a GAAP Basis)
	Three Months Ended March 31,
	2024			2023
Net revenue:
Products	$	30,069		$	31,182
Services		30,606			26,509
Total net revenue		60,675			57,691
Cost of net revenue:
Products		6,799			6,083
Services		4,645			4,133
Total cost of net revenue		11,444			10,216
Gross profit		49,231			47,475
Operating expenses:
Sales and marketing		21,214			22,334
Research and development		14,063			11,665
General and administrative		6,741			7,309
Total operating expenses		42,018			41,308
Income from operations		7,213			6,167
Non-operating income (expense), net:
Interest income		1,681			973
Other income (expense), net		2,326			(2,218	)
Non-operating income (expense), net		4,007			(1,245	)
Income before provision for income taxes		11,220			4,922
Provision for income taxes		1,494			964
Net income	$	9,726		$	3,958
Net income per share:
Basic	$	0.13		$	0.05
Diluted	$	0.13		$	0.05
Weighted-average shares used in computing net income per share:
Basic		74,451			74,001
Diluted		75,318			75,541

A10 NETWORKS, INC. RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME (unaudited, in thousands, except per share amounts)
	Three Months Ended March 31,
	2024				2023
GAAP net income	$	9,726			$	3,958
Non-GAAP items:
Stock-based compensation and related payroll tax		3,989				3,970
Restructuring expense		—				1,861
Cyber incident remediation expense		—				1,353
Income tax-effect of non-GAAP items		(970	)			(1,215	)
Total non-GAAP items		3,019				5,969
Non-GAAP net income	$	12,745			$	9,927
GAAP net income per share:
Basic	$	0.13			$	0.05
Diluted	$	0.13			$	0.05
Non-GAAP items:
Stock-based compensation and related payroll tax		0.05				0.05
Restructuring expense		—				0.03
Cyber incident remediation expense		—				0.02
Income tax-effect of non-GAAP items		(0.01	)			(0.02	)
Total non-GAAP items		0.04				0.08
Non-GAAP net income per share:
Basic	$	0.17			$	0.13
Diluted	$	0.17			$	0.13
Weighted average shares used in computing net income per share:
Basic		74,451				74,001
Diluted		75,318				75,541

Net income and earnings per share excluding adjustments are non-GAAP financial measures presented as supplemental financial measures to enable a user of the financial information to understand the impact of these adjustments on reported results. These financial measures should not be considered an alternative to net income, operating income, cash flows provided by operating activities, or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our adjusted net income and earnings per share may not be comparable to similarly titled measures of another company because companies may not all calculate adjusted net income and earnings per share in the same manner.

A10 NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except par value, on a GAAP Basis)
	March 31, 2024				December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	122,909			$	97,244
Marketable securities		59,163				62,056
Accounts receivable, net of allowances of $1,181 and $405, respectively		55,906				74,307
Inventory		24,895				23,522
Prepaid expenses and other current assets		13,225				14,695
Total current assets		276,098				271,824
Property and equipment, net		30,254				29,876
Goodwill		1,307				1,307
Deferred tax assets, net		62,323				62,725
Other non-current assets		25,676				24,077
Total assets	$	395,658			$	389,809
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,049			$	7,024
Accrued liabilities		24,466				21,388
Deferred revenue		83,345				82,657
Total current liabilities		112,860				111,069
Deferred revenue, non-current		57,561				58,677
Other non-current liabilities		10,928				12,187
Total liabilities		181,349				181,933
Stockholders' equity:
Common stock, $0.00001 par value: 500,000 shares authorized; 89,309 and 89,003 shares issued and 74,434 and 74,359 shares outstanding, respectively		1				1
Treasury stock, at cost: 14,875 and 14,644 shares, respectively		(153,948	)			(150,909	)
Additional paid-in-capital		491,164				486,958
Dividends paid		(42,091	)			(37,619	)
Accumulated other comprehensive income (loss)		(59	)			(71	)
Accumulated deficit		(80,758	)			(90,484	)
Total stockholders' equity		214,309				207,876
Total liabilities and stockholders' equity	$	395,658			$	389,809

A10 NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands, on a GAAP Basis)
	Three Months Ended March 31,
		2024				2023
Cash flows from operating activities:
Net income	$	9,726			$	3,958
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,692				2,106
Stock-based compensation		3,839				3,742
Other non-cash items		456				(169	)
Changes in operating assets and liabilities:
Accounts receivable		17,684				5,687
Inventory		(2,187	)			(1,522	)
Prepaid expenses and other assets		1,549				1,519
Accounts payable		(2,707	)			(676	)
Accrued liabilities		1,820				(16,997	)
Deferred revenue		(428	)			1,506
Net cash provided by (used in) operating activities		32,444				(846	)
Cash flows from investing activities:
Proceeds from sales of marketable securities		4,391				—
Proceeds from maturities of marketable securities		39,899				29,263
Purchases of marketable securities		(40,722	)			(21,221	)
Capital expenditures		(2,925	)			(2,675	)
Net cash provided by investing activities		643				5,367
Cash flows from financing activities:
Proceeds from issuance of common stock under employee equity incentive plans		89				473
Repurchase of common stock		(3,039	)			—
Payments for dividends		(4,472	)			(4,446	)
Net cash used in financing activities		(7,422	)			(3,973	)
Net increase in cash and cash equivalents		25,665				548
Cash and cash equivalents—beginning of period		97,244				67,971
Cash and cash equivalents—end of period	$	122,909			$	68,519
Non-cash investing and financing activities:
Transfers between inventory and property and equipment	$	813			$	824
Purchases of property and equipment included in accounts payable	$	732			$	142

A10 NETWORKS, INC. RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT (unaudited, in thousands, except percentages)
	Three Months Ended March 31,
	2024				2023
GAAP gross profit	$	49,231			$	47,475
GAAP gross margin		81.1	%			82.3	%
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		471				444
Restructuring expense		—				42
Cyber incident remediation expense		—				3
Non-GAAP gross profit	$	49,702			$	47,964
Non-GAAP gross margin		81.9	%			83.1	%

A10 NETWORKS, INC. RECONCILIATION OF GAAP TOTAL OPERATING EXPENSES TO NON-GAAP TOTAL OPERATING EXPENSES (unaudited, in thousands)
	Three Months Ended March 31,
	2024				2023
GAAP total operating expenses	$	42,018			$	41,308
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		(3,518	)			(3,526	)
Restructuring expense		—				(1,819	)
Cyber incident remediation expense		—				(1,350	)
Non-GAAP total operating expenses	$	38,500			$	34,613

A10 NETWORKS, INC. RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO NON-GAAP OPERATING INCOME (unaudited, in thousands, except percentages)
	Three Months Ended March 31,
	2024				2023
GAAP income from operations	$	7,213			$	6,167
GAAP operating margin		11.9	%			10.7	%
Non-GAAP adjustments:
Stock-based compensation and related payroll tax		3,989				3,970
Restructuring expense		—				1,861
Cyber incident remediation expense		—				1,353
Non-GAAP operating income	$	11,202			$	13,351
Non-GAAP operating margin		18.5	%			23.1	%

A10 NETWORKS, INC. RECONCILIATION OF GAAP NET INCOME TO EBITDA AND ADJUSTED EBITDA (NON-GAAP) (unaudited, in thousands)
	Three Months Ended March 31,
	2024				2023
GAAP net income	$	9,726			$	3,958
GAAP net income margin		16.0	%			6.9	%
Exclude: Interest and other (income) expense, net		(4,007	)			1,245
Exclude: Depreciation and amortization		2,692				2,106
Exclude: Provision for income taxes		1,494				964
EBITDA		9,905				8,273
Exclude: Stock-based compensation and related payroll tax		3,989				3,970
Exclude: Restructuring expense		—				1,861
Exclude: Cyber incident remediation expense		—				1,353
Adjusted EBITDA	$	13,894			$	15,457
Adjusted EBITDA margin		22.9	%			26.8	%

 

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Investor Contact:

Rob Fink / Tom Baumann

FNK IR

646.809.4048 / 646.349.6641

aten@fnkir.com

Brian Becker

Chief Financial Officer

investors@a10networks.com

Source: A10 Networks